How much of a burden can a single state place on interstate commerce?

The famous example of a burden that industry found easy to accommodate was Pennsylvania’s Bakery Act, which required all baked goods sold in the state to be registered with the state government and clearly labeled (the only state with such a requirement). National baking chains found it easier to just print “Reg. Penna. Dept. Agr.” on all their products sold nationwide than to print separate labels just for the Keystone State, leaving those of us who grew up in the South to wonder who “Penna” was and why her name was on our Little Debbies.

A House subcommittee hearing this week examined a proposed state burden that, according to industry, cannot be borne without severe disruption of freight flows and massive economic losses.

Background: Last year, the California Air Resources Board (CARB) adopted a new regulation intended to reduce emissions from freight rail locomotives. Among other things, the new locomotive rule requires that:

• All locomotives operated in California starting on January 1, 2030 must have engines no older than 23 years old. (§2478.5(a))
• Starting in 2035, all freight locomotives in use in California with an original engine build date of 2035 or later must be zero-emission. (§2478.5(c))
• A complicated system will be established where railroads have to pay annual fines to the State of California for the estimated emissions of their locomotives (escalating each year), with the funds to be held in escrow by the state, and with the railroads only able to use the funds to buy zero-emission locomotives and related infrastructure. (2478.4)

CARB has since filed paperwork with the EPA asking permission to enforce the rule via a waiver of the EPA’s normal authority in this area under the Clean Air Act. That request is still pending, and it was the subject of the June 13 hearing of the Investigations and Oversight Subcommittee of the House Committee on Science, Space, and Technology.

(For those wondering “why this committee and subcommittee,” the answer is that the subcommittee chairman, Jay Obernolte (R-CA), hails from Barstow, where BNSF is preparing to build a $1.5 billion intermodal facility to retrieve containers from the Alameda Corridor and the Ports of L.A./Long Beach and repackage and reroute them to the rest of the BNSF national rail system. If the zero-emission locomotive mandate takes effect, BNSF will cancel this project and instead build a transfer yard just on the Arizona side of the border near Needles to move containers on and off trucks and/or switch locomotives.)

Witnesses at the hearing were:

• Ian Jefferies, President and CEO, Association of American Railroads
• Chuck Baker, President, American Short Line and Regional Railroad Association
• Tyler Dick, Professor, University of Texas-Austin
• Alan Abbs, Legislative Officer, Bay Area Air Quality Management District

(Click on the witness name to read their prepared testimony.)

Representing the largest (Class I) railroads, Jefferies talked about the chaos that would result in the integrated national rail network if CARB has its way. He said that “if CARB’s regulation were authorized, more than two-thirds of the U.S. Class I locomotive fleet could not enter California (and any state that replicated the CARB rule).”

This means that massive new purchases of zero-emission locomotives would be necessary under the CARB rule – but Jeffries said that the technology is not there yet and won’t be ready in time to comply with the rule. There are three types of potential zero-emission locomotives: battery-powered, hydrogen-powered, and powered by overhead or belowground electric catenary.

As far as the current state of those technologies goes, per Jefferies:

• Battery: “…in early 2022, one Class I railroad ordered several prototype battery electric locomotives to test in railyards. Due to ensuing procurement difficulties, that railroad does not expect those units to be delivered until 2026.”
• Hydrogen: Jefferies cited a 2021 Federal Railroad Administration study that stated that hydrogen-powered locomotives would require an entirely new design from the ground up and that the storage of hydrogen for fuel would require FRA to set entirely new tank standards, none of which is close to happening.
• Catenary: “In California alone, electrification would require building and maintaining a high-voltage transmission and catenary system with poles and wires across some 5,000 route-miles in every kind of geographic location, including congested cities and suburbs, rugged mountains, and across rivers. Bridges would have to be rebuilt to provide clearance and support for catenary wires. Electricity would need to be delivered through scores of rail tunnels (many lacking space for overhead wiring) or an alternative power source would need to be supplied. Transmission substations would have to be built to deliver uninterrupted electricity. Complex and time-consuming permitting and historic preservation processes would have to be followed.”

At the end of his testimony, Jefferies got to the legality of the CARB order (which he probably should have led with). Section 209(a) of the Clean Air Act prohibits states from regulating motor vehicle emissions, but then section 209(b) creates a process for the EPA to waive 209(a), upon request of the state, which is how California got its current authority to regulate auto emissions.

But Jefferies pointed out that section 209(e) of the Clean Air Act has a separate prohibition against states adopting or enforcing “any standard or other requirement relating to the control of emissions from” construction equipment and “New locomotives or new engines used in locomotives” – and then specifically says that the 209(b) waiver process shall not apply to the 209(e) prohibition.

Jeffries also argued that 49 U.S.C. §10501, which states that the federal government (through the Surface Transportation Board) has exclusive authority over “transportation by rail carriers, and the remedies provided in this part with respect to rates, classifications, rules (including car service, interchange, and other operating rules), practices, routes, services, and facilities of such carriers”, prohibits California from enforcing the CARB locomotive rule.

(Which means that, even if the EPA approves the waiver, AAR will tie this up in court for as long as possible, continuing the lawsuit they filed last year. And one needs only to look at their past efforts on PRIIA metrics, tying up that rule for eleven years, including two separate trips to the U.S. Supreme Court, to know that that’s a really long time.)

Jefferies also said that AAR’s estimates indicated that the two Class I’s that operate in California (Union Pacific and BNSF) would each have to pay $700-800 million per year into the state escrow fund to then spend only on zero-emission locomotives and equipment. But UP and BNSF are both very large businesses and could, conceivably, afford it.

But the CARB rule would affect all railroads, not just the Class I’s. The next witness, Chuck Baker from the short lines, opened by citing CARB’s rulemaking itself about the threat to smaller railroads: “Some smaller Class III locomotive operators in California may face significant compliance costs. If these businesses are unable to pass on the costs of the Proposed Regulation to customers or if there is a significant change in demand for services, it is possible some of these businesses would be eliminated.” More specifically, he added “An average Class III railroad in California, as CARB notes, has yearly revenue of approximately $1.3 million, with cost of compliance with their new regulation as high as 42% of annual revenue for a short line.”

Baker said it’s not just about the money, it’s the business model: “The rail industry engages in a practice known as ‘cascading,’ wherein used locomotives from Class I railroads are sold to short lines, as older Class I locomotive models are replaced with newer motive power. A locomotive that has reached its practical end of life in Class I service can have decades of use left in the less punishing short line operating environment. This has been a bedrock principle of railroad operating economics from the advent of interstate railroading. It is an economic win-win that benefits all involved in rail: the Class Is, the short lines, and the shippers that depend upon efficient, cost-effective, and safe rail transportation as an alternative to higher-cost truck transportation. California’s ban on any locomotive older than 23 years old beginning in 2030 is a completely unworkable proposal for short line railroads that regularly rely on these 40- and 50-year-old locomotives, which are fully compliant with federal law, to keep sometimes barely marginal railroads viable.”

In defense of the rule, Alan Abbs cited the localized emissions (particulate matter and nitrogen oxides, emitted by all diesel engines but particularly large ones) as a health hazard, saying that the rule was “estimated to result in $32 billion in health savings to Californians by preventing 3,200 premature deaths and 1,500 emergency room visits and hospitalizations. The regulation also would decrease the cancer risk from exposure to locomotive emissions by up to 90%.”

He did not cite not the greenhouse gas emissions, since, as Jeffries indicated, if railroads offload everything onto trucks at the state line, and only operate trucks, not trains, inside the state, GHG emissions will increase under the CARB rule.

(Abbs did not mention how much of the localized health harms cited by the CARB rule would be fixed solely by the rule’s requirement that diesel trains not sit idling their engines for more than 30 minutes at a sitting, which seems a much lower burden on interstate commerce than the rest of the rule.)