By Pacific Coast Business Times Staff Friday, January 2nd, 2009

State officials took the first step Dec. 11 toward implementing AB 32 and SB 375 – a sweeping set of greenhouse gas emissions rules that legal experts say will be the most significant environmental regulations in California since the Coastal Commission Act.

So far, the state has approved a scoping plan for AB 32 that outlines what areas will be regulated, industries that include manufacturing, goods transport at ports and even land use and development. Under SB 375, regulators have until 2011 to write up most rules and put them into place, including a cap-and-trade auction system for emissions.

“It’s this chockablock of issues on how it’s going to work,” Craig Beam, a shareholder in the Westlake Village office of Jackson DeMarco Tidus Peckenpaugh said of SB 375. “That’s a lot of planning and organization to be done. It remains to be seen who will be responsible for that.”

The only thing that seems certain about AB 32 is that it will raise the cost of energy. It mandates that 33 percent of California’s energy come from renewable sources and that greenhouse gas emissions be reduced to 1990 levels – all by 2020.

Though the regulations promise to be significant and, according to some economists, costly, they aren’t yet set down.

One of the best things businesses can do to prepare for AB 32 and SB 375 is “to be aware of the [rulemaking] process and try to get involved in the implementation,” Beam said. “The [AB 32] scoping plan is all painted with a very broad brush.”

“This will work its way down to smaller businesses over time, but right now we don’t have a clear picture of what that’s going to look like,” said Sharon Rubalcava, a partner in the Los Angeles office of Alston & Bird. “Right now the plans are very vague.”

In an analysis of AB 32’s impacts, state regulators predicted electricity prices alone will rise 14 percent as a result of the bill.

“If I were a business owner, I would be looking at all possible ways to reduce my energy usage, anticipating that costs will increase in the future – you want to get ahead of the game,” Rubalcava said. “It’s also important to make sure you’re tracking them so you can show your reductions in the future if your particular business comes under a mandate.”

Water prices will likely rise as well – about 30 percent of California’s energy goes toward treating and moving water, Rubalcava said.
But some of the most immediate impacts stand to come from SB 375, which will drastically change the way development is done in California.

“The overall concept of SB 375 is bringing together transport plans with housing plans,” Beam said. “The attitude is, if you’re going to plan for housing, plan it in a way that takes in to account transportation.”

“There are going to be thresholds of significance for greenhouse gas emissions [in developments],” Rubalcava said. “That applies when you do an environmental impact review. So for certain projects, they’re going to be looking what the greenhouse gas emissions are and how to reduce them.”

Changes to development will include “what you’d see in smart land use development – services clustered so you don’t have to drive to get to them,” Rubalcava added.

On the commercial development side, AB 32 calls for drastic improvements in buildings’ energy efficiency and even “zero net energy” buildings that offset their energy use with solar and other forms of power. “You’ll see a real push for LEED-certified buildings,” Rubalcava said.

Transportation at the Port of Hueneme stands to be affected as well, adding costs to goods that come through the port.

“Vessels, when they’re in port, continue to run their auxiliary engines [for electricity], and those burn the heaviest, ugliest fuel,” Rubalcava said. “There’s a real push now to provide facilities onshore where the vessels and can turn off their engines and use electricity that’s generated by compressed natural gas.”

The same day state regulators approved the AB 32 scoping plan, they also gave the green light to a set of regulations that will force California to retrofit or replace more than half a million heavy-duty diesel trucks by 2023 – a measure that could cost $5.5 billion. Vehicles registered in another state that drive in California also will be affected, making the rules a prime target for a challenge in federal court, Rubalcava said.

The gist of the regulation is that all trucks must meet 2010 emissions standards by 2023. But diesel engines commonly stay in service for up to 30 years. Trucking companies worry that their investments – sometimes the sole asset of small owner-operators – will become worth pennies on the dollar.

“I have a 2007 [diesel truck] that I’m still making payments on that won’t meet the requirements,” said Steve Nuttall of Santa Barbara-based Steve Nuttall Trucking. “No one brought that to my attention when I bought the thing.”

Nuttall said he’s also hesitant to rebuild another truck’s motor – an expensive overhaul – until he knows whether it can meet the new requirements. Though Nuttall thinks his fleet of four gravel- and sand-hauling trucks will survive the new regulations, he said he thinks smaller operators won’t be as fortunate.

“It will definitely put some people out of business, there’s no doubt in my mind,” Nuttall said. “We’ll update trucks and retrofit as needed. We’re not going anywhere, but it’s definitely going to be a financial hardship. They couldn’t have picked a worse time.”

MarBorg Industries, which provides waste and recyclables removal for the Santa Barbara area, has already spent about $800,000 upgrading three quarters of its fleet. “They climbed on us before they did the general trucking industry,” said Mario Borgatello, the company’s president.

But the next quarter of Borgatello’s fleet will prove more costly to upgrade, he said. That’s because there’s no clean-up technology available for some of California’s rigs, such as MarBorg’s five 2006 Peterbilt trucks with ISM Cummings EGR-valve-style engines – a relatively common model.

Borgatello said that though he’s for cleaning up the environment, state regulators could have done less harm to commerce by holding off a year on the new regulations and better enforcing truck standards already on the books.

“The state has a lot of arrows in its quiver to use right now,” Borgatello said. “From what I can see, they’re sure letting a lot of puffers out there on the road.”

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