California's proposed in-use locomotive rule would put some small railroads out of business, short-line leaders say
2/17/2023
By Julie Sneider, Senior Associate Editor
A proposed regulation from the California Air Resources Board (CARB) would have a devastating financial impact on short lines operating in the state, rail industry representatives say.
CARB is developing regulatory concepts to reduce criteria pollutants, toxic air contaminants and greenhouse gas emissions for locomotives in-use. The goal is to "accelerate immediate adoption of advanced cleaner technologies for all locomotive operations," CARB states on its website. The goal also is in keeping with California Gov. Gavin Newsom's executive order calling for all off-road vehicles and equipment operations to be zero-emission by 2035.
For the past 20 years, CARB has been entering enforceable agreements with Class Is operating in California to reduce emissions from locomotives. Although progress through that route has been made, "additional emission reductions from the rail sector are critical to meet the criteria pollutant standards across the state," the agency says on its website.
In November 2022, CARB sought public input on a proposed regulation for in-use locomotives, which would require fees to be collected from railroads for every hour of operation of a locomotive that's not a zero-emissions unit. The payments would be segregated into spending accounts for the purchase of zero-emissions locomotives to replace the older units, according to the American Short Line and Regional Railroad Association (ASLRRA).
California Air Resources Board Fact Sheet If approved, the regulation would apply to operators of line-haul and switch locomotives operated by Class Is, regionals and short lines; and operators of industrial, passenger and historic locomotives.
Although short lines are active in efforts to reduce emissions produced by locomotives, the cost of acquiring brand-new units are out of reach for most short lines, which are small businesses operating on relatively small profit margins, said ASLRRA President Chuck Baker.
"Occasionally a state will come up with some sort of regulation that is problematic — and California has come up with a doozy," Baker said in an interview with RailPrime. "Even the owner of a Tier 4 — a very clean locomotive — would have to pay" the emissions fees.
ASLRRA presented written testimony at CARB's hearing on the proposed regulation last year. Baker testified at the Sacramento, California, hearing.
"In my 18 years of representing short lines, this is the first time I have ever felt compelled to fly to a State Capitol to testify on a proposed regulation," he testified. "But this rule is a huge deal to short lines in California. We believe if it is enacted without an exemption for short lines, the rule would threaten the very viability of short lines in California."
In their written testimony, ASLRRA officials cited CARB data showing the average age of short-line locomotives in California was 43 years old as of 2020.
CARB also estimates the average short line has three pre-Tier 0 locomotives and has annual revenue of $1.3 million. The annual cost to comply with the proposed regulation from 2023 to 2050 would range from $26,045 to over $500,000. Those costs, combined with the cost of buying new locomotives, would be staggering for short lines, ASLRRA officials testified.
“Occasionally a state will come up with some sort of regulation that is problematic — and California has come up with a doozy.” — Chuck Baker, ASLRRA American Short Line and Regional Railroad Association "With a Tier 4 locomotive costing up to $5 million and new zero-emission 'Tier-5' battery-hydrogen prototype locomotives costing at least $7 million, these new regulations would significantly impact the financial health and sustainability of California’s short-line railroads," according to their testimony.
CARB acknowledges in its proposal that some short lines might go out of business if they can’t pass on the regulation’s cost to their customers. But it’s wrong to believe that short lines can recover those regulatory costs by charging their customers higher rates, according to ASLRRA. Short lines compete aggressively with the trucking industry for those customers. Adding to railroads’ cost of doing business would put them at a competitive disadvantage and lead to more freight moving by truck on California’s highways, ASLRRA officials testified.
"The short lines in California are trying to talk to CARB staff and officials to see if they can get some reasonable middle ground on this proposal," said Baker.
CARB has proposed options as part of the regulation, including an "alternative compliance plan," a temporary locomotive operating waiver, a “small business hardship extension” and an exemption for historic railroads, according to its fact sheet on the proposed regulation. But the assistance offered likely would not be enough for smaller railroads to afford to meet the regulation’s requirements, according to Baker.
Moreover, the short-line industry is working on reducing its carbon footprint. "In the short-line world, we are all for and stand by environmental sustainability," said Baker. "Many short lines are doing all sorts of creative stuff to get cleaner and greener, whether it’s start-stop technology, idle technology and fuel purifiers, track lubrication, LED lighting and solar power in yards."
In addition, some short lines are buying higher-Tier locomotives when they can afford it; and some are exploring hydrogen- and battery-electric powered locomotives as part of government-funded pilot projects.
But to expect California short lines to jump into buying brand new zero-emission locomotive technology — still in a prototype stage — is unrealistic, Baker believes.
In the meantime, California Short Line Railroad Association officials expect a second CARB vote in April on the proposed regulation.
"And if the reg is approved, it would be effective this coming fall," said Don Norton, the association’s executive director, in an email.
According to ASLRRA, 25 short lines own or lease and operate locomotives in California as part of the national freight-rail network. But there are as many as 31 short lines in California, according to Norton. In addition, 18 non-railroad industrial/agricultural car switching operators would be affected by the regulation, he said.
"Since company financials are private, we can’t say definitively how many short line and non-railroad switch operators would go out of business because of this reg, but we believe that it is a substantial number," Norton said. “Calculations using notional numbers show that many small railroads simply don’t make enough money to be able to comply with the proposed CARB reg.”
There’s also a lot of "technological risk in the timeline" that CARB has proposed for the switchover to zero-emissions locomotives, Norton said. Depending on the type of operator, the timeline would require the change to occur by 2030 or 2035.
Said ASLRRA’s Baker: "The proposed rule says some short lines might go out of business. So, we are perplexed as to why this regulation is being considered."