Looking Ahead To 2018
By John McLaurin, President, Pacific Merchant Shipping Association
The supply chain in California and the state of Washington will face many regulatory and legislative challenges in 2018 in addition to increased competition as highlighted by West Coast ports declining market share compared to trade gateways throughout North America.
Climate Change, Emission Reductions and Container Fees
In California, all aspects of the supply chain are already regulated either by the California Air Resources Board (CARB), local air districts, or subject to tariff or lease requirements by public port authorities – or all three. Regulatory measures, coupled with voluntary initiatives by marine terminals, ocean carriers and others in the supply chain have dramatically reduced port related emissions. Overall diesel pollution for marine terminal and cargo handling equipment has been reduced by 96% from 2006 levels. Cargo handling equipment for California’s three container ports amounts to 0.0747% of the state’s Green House Gas emissions inventory. Despite the past success in dramatically reducing emissions, CARB is moving ahead with statewide rules for expansion of its at-berth regulations for ALL vessels at a 100% compliance level; will be working on creating a 100% zero-emission equipment regulation for marine terminals; and, along with the South Coast Air Quality Management District, is actively considering an Indirect Source Rule for the supply chain. Container fees have already re-surfaced as potential funding mechanisms to generate revenue for various emission reduction programs. Washington’s Governor is signaling he wants to follow California’s path to promote electrification of yard equipment, and possibly vessels. Despite repeated requests by legislators and interest groups, including PMSA, the Governor’s Office is unwilling to release any details of his plan. However, legislators report the Governor’s staff has suggested the plans could be implemented without legislative involvement. Unfortunately for marine terminals, the cost of these programs is not counterbalanced by any state or local efforts allowing terminals flexibility in reducing their emissions while improving efficiency, velocity or density of their operations.
Terminal Operations
With the recent adoption of the Port of Los Angeles and Long Beach Clean Air Action Plan (CAAP), the ports are expected to move forward with their desire for a port-wide appointment system and the adoption of mandatory turn times, which may contain penalties for truckers and marine terminals. The ports will also focus on removing chassis from the terminals and consider creating a neutral pool manager for San Pedro Bay. In the Pacific Northwest, there will be pressure to amend leases to ban drayage trucks that don’t meet clean air goals. A major issue for these programs will be whether the ports policy directives maintain the operational silos that exist today or whether they take a holistic approach and seek (or demand) changes from each supply chain partner for greater efficiency.
Vessel Restrictions
Along the West Coast, whale strike avoidance, the impact of vessel noise on marine mammals and efforts by native tribes to protect fishing grounds and assert treaty rights will result in ongoing efforts to pursue vessel speed reductions, operational restrictions or tug escort expansion for various port access points and coastal transits.
Ballast Water Treatment
The states of California and Washington continue to move in directions separate from the rest of the country regarding ballast water regulations. In California, a shore-side study of ballast water treatment to meet the state’s discharge standard will be completed soon and will go to the State Lands Commission for consideration. The Commission will also have to complete another review of ballast water treatment efficacy to meet the currently unachievable discharge standard, for delivery to the Legislature in 2018. The shore-side treatment study will play into its recommendations, but whichever path California chooses, the Commission must ask the Legislature to either amend its standard or delay implementation for the fourth time, since regardless of the path chosen, the California discharge standard will not be met by best available technology before January 1, 2020. In Washington State, the Department of Fish and Wildlife is expected to undertake another effort to implement a vessel arrival fee to pay for a state ballast water management and oversight system. The wild card is the effort in Congress to impose uniform federal standards and place state programs under the U.S. Coast Guard’s purview. Passage of federal legislation is far from assured.
Taxes and Fees
Ocean carriers and marine terminal operators should anticipate new fees and taxes imposed by state and local authorities. We anticipate an effort to impose container fees and vessel arrival fees. In the state of Washington, a recent State Supreme Court decision in a school funding case will drive a search for an additional $1.1 billion in revenue in 2018. This need will spur legislative consideration of tax increases. It is anticipated that there will be at least one, and possibly multiple, ballot initiatives to institute a statewide carbon tax. The Department of Ecology continues to push a vessel arrival fee to augment the barrel tax to pay for an expanding oil spill response program.
Political Landscape
The states of California and Washington will continue to counter what they view as a hostile federal government and undertake their own efforts to save the world from the impacts of climate change. From a legislative perspective, Democrats control both legislative houses in both states. Democrats’ control in both chambers in Washington state is limited to a single vote majority. In California, the Democrats recently lost their two-thirds supermajority with the resignation of a State Senator. This loss of a supermajority is likely short-lived as the seat is a reliable Democrat seat. The supermajority represents the threshold necessary to pass tax increases or other revenue measures without any Republican votes. Washington State has been more moderate regarding the enactment of climate change legislation due to a Republican-controlled Senate; however, now that Democrats will have a Senate majority in 2018, more aggressive legislative proposals are anticipated. Local port authorities will continue to pursue “transformative” environmental changes. Some interest groups will pressure elected officials and regulators to impose ever higher standards, tougher restrictions and accelerated implementation on sources of air pollution regardless of existing progress on emissions reductions. Many of these activities will (and are) occurring without credible cost benefit analysis or any counterbalancing program to minimize costs or analyze competitiveness and rely on aspirational technological breakthroughs to achieve zero emission equipment goals. In California, ports and regulators acknowledge the tens-of-billions of dollars costs to meet these goals, but offer no credible revenue stream to industry. In Washington State, recent administrative regulatory rulings have made waterfront projects responsible for all emissions related to the transport of energy products, from “cradle to grave” – something that may be expanded to ports and marine terminals handling all types of cargo. The New Year poses many challenges for California and Washington State’s supply chain with the industry facing additional costs, fees and operating restrictions.