Regulators are pursuing steep fines in response to widespread alleged noncompliance with an emissions rule still subject to potential reversal by the courts.
Key Points:
- The enforcement action alleges 1,400 warehouses are noncompliant.
- Noncompliance can result in fines of up to $11,710 per day.
- Litigation challenging this program remains pending, with no quick end in sight.
On September 20, 2023, the South Coast Air Quality Management District (SCAQMD or the District) announced an enforcement initiative for Rule 2305, also known as the Warehouse Indirect Source Rule (ISR), which is part of the Warehouse Actions and Investments to Reduce Emissions (WAIRE) Program. As described in this June 2021 blog post, the WAIRE Program applies to warehouses in the South Coast Air Basin over 100,000 square feet, with a phased implementation based on warehouse size. The ISR imposes a compliance obligation based on the number of truck visits to that warehouse per year, which warehouse operators can meet through emissions-reducing actions, either from the “WAIRE Menu” or through a custom plan approved by the District.
The ISR also requires owners and operators of covered warehouses to submit several types of reports, including the Initial Site Information Report (ISIR) and an Annual WAIRE Report. The deadlines to submit an ISIR have passed for Phase 1 Warehouses with over 250,000 square feet (July 5, 2022) and Phase 2 Warehouses with over 150,000 square feet (July 5, 2023).[1] Phase 1 Warehouses have also passed the first deadline for submitting an Annual WAIRE Report (March 2, 2023). Nevertheless, most covered warehouses have yet to submit documentation. The District announced that of the 2,000 warehouses currently subject to the rule, the District deemed 1,400 out of compliance. Penalties can be steep: Violators face strict liability for noncompliance, which can result in civil penalties of up to $11,710 per day.
At the same time, litigation challenging the ISR remains ongoing. As described in this November 2021 Client Alert, the primary lawsuit challenging the ISR was initially brought by the California Trucking Association, but Airlines for America intervened on the plaintiff side and the State of California and environmental groups intervened for the defense. The California Trucking Association and Airlines for America subsequently moved for summary judgment, as described in this April 2023 Client Alert. An order on those motions was expected in mid-August but remains pending, so a ruling would seem to be imminent. However, that forthcoming order may not resolve this legal action, as summary judgment could be denied or appealed even if granted.
In the meantime, on September 19, 2023, the environmental defendant-intervenors notified the court that a community group had filed a separate lawsuit concerning California’s request for the US Environmental Protection Agency to approve a State Implementation Plan (SIP) including the ISR. Including the ISR in the SIP would render the rule federally enforceable. For now, the ISR’s legality remains unclear. Nevertheless, the potential fees for noncompliance continue to grow day by day.
Latham & Watkins will continue to monitor the District’s enforcement activities, the ongoing litigation, and SCAQMD rulemaking efforts to impose the ISR on new sectors beyond warehousing.
Endnotes
[1] Phase 3 Warehouses — those over 100,000 square feet — must submit an ISIR in July 2024.
