CLEAN TRUCKS IN CALIFORNIA PORTS: MODELLING EMISSIONS POLICY Christopher B. Clott 1 and Bruce C. Hartman 2 1 University of St Francis, Joliet, IL USA 2 American University, Washington DC USA

Background Containers are moved by heavy diesel trucks. Rigs operated by independent owner-operators, older trucks, pay per load, low pay, low barriers to entry. L.A. Basin- one of most air polluted regions within USA. Growth of trade volume thru POLA and POLB in last two decades increased congestion and concentrated port truck traffic. Civil suits filed against Ports on behalf of nearby residents suffering health problems. Federal efforts to reduce diesel truck exhaust have been ongoing since 1980’s. State of California efforts thru CARB reduce emissions beyond Federal EPA regulations.

Clean Trucks Plan Progressive goals – to ban old trucks from port – and require purchase of new trucks or refitting of trucks – to meet 2007 emission standards. Concession agreement part of POLA plan requires truckers to use employer driver workforce, phase out owner operators. Opposed by a multitude of business interests Violation of trucking deregulation by Congressional action in the 1980’s and 90’s.

Port Trucking Industry Typical port truck driver needs subsidy to purchase newer truck or retrofit. Federal law (FAAAA Act, 1986) prohibits states and localities from imposing rules on motor carriers in interstate commerce. POLA argued need for legal authority to enact policies to protect their financial interests under “market participant” doctrine. Ports of Long Beach, Oakland, Seattle, Tacoma and New York/New Jersey have Clean Truck Programs in operation. Labor Union Involvement Independent owner-operators by law cannot be organized by labor unions. If motor carriers are required to have employee drivers, drivers could be legally organized. Environmental, community and labor groups, including Teamsters Union support POLA position. ATA argues Clean Truck Program primarily a Union backed initiative to rewrite deregulation of trucking.

Lawsuit and Court Proceedings American Trucking Association (ATA) sued POLA arguing that concession violated Commerce Clause of US Constitution. Sept. 2008: US District Court ruled against ATA allowing Port to proceed with plan as scheduled. FOMC first opposed and then supported Clean Truck Program. 2009: ATA appealed, won injunction against concession agreement. Litigation challenged trucking organization requirements; did not challenge vehicle retirements and other efficiencies. Oct 2009: Port of Long Beach agreed with ATA, dropped concession clause.

And more Lawsuit and Court April 2010: ATA lawsuit argued in U.S. District Court. Sept. 10: Upheld the POLA concession agreements. ATA challenged decision Oct. 27: Preliminary injunction blocking implementation. March 2011: Court of Appeals will hear case again. Expected to go to on primacy of federal law in interstate commerce. At present: POLA will not appeal a Court of Appeals ruling that struck down the employer driver mandate in the ports clean truck program. The case may still go to the U.S. Supreme Court.

Modeling Port Emissions Control Stakeholder interests conflict on pollution abatement. Legal challenges prevented full implementation of some plans. Ports must maintain competitive position and service container traffic … and reduce pollution by a target percentage within a particular time frame. Should ports set own standards or wait for decisions on global or federal level, negating their individual agreements? Insight from a simple game theory model of trucking process.

Decision Relations Port sets the goals, capital support for improvement, participant fees, other rules. Each PTO selects motor carriers that are small and large. LMC’s responsible for truck upgrades. SMC’s might or might not upgrade truck. LMC selects OPS as employee operators (higher wage rate) or owner-operators (lower wage rate) SMC selects only OO’s at lower wage, perhaps piecework Subsidies can induce more cooperation to reach pollution goals. Too low a subsidy may create reluctance to upgrade.

Simple Game Model Interaction of MC and OO a simultaneous move strategic game; MC chooses strategy p; OO chooses q Payoff for each player is income less cost: – MC associating with OO: f  – c D (p – q) – OO associating with MC: w  – c K (q – p) f  w  are freight rate and wage/period –  are average TEUs/trip, trips/period c D, c k are cost per period to upgrade net of subsidy Assume reasonable life of upgrade, e.g. 5 years, linear depreciation Some ports may give different subsidies to MC and OO Rational play and common knowledge  Nash Equilibrium Outcome

Model Results Best response in upper or lower triangle. Nash Equilibrium strategies on diagonal p=q. Pareto order smaller to larger – Each player prefers smallest percent strategy it can. Infeasible regions– cost exceeds income.

Players’ Expectations Matter If freight rates f or wages w are too low relative to subsidy, gray infeasible region creeps close to NE line. Subsidies keep infeasible regions away from NE. Different subsidies to OO and MC do not affect NE; simply change feasible regions. If either f or w are expected to be volatile, player of that type might decide that risk it drops too low means she should not join game. Relevant recently as freight rates plummeted. Many truckers felt they could not hold on if rates went lower, and chose not to upgrade. Result: truck shortage in some ports. Volume handled with longer waits.

Summary Harbor Trucking - an interesting place. Pollution Control Policies influenced by legal, lobby, and legislative decisions. Ports have limited tools. Mandatory percentages, subsidies must keep enough MCs and OOs in game to meet throughput volumes.

Final Thought Upgrade of trucks can be implemented by port management when rules are conditioned by understanding of choices made by participants Actions must take into account freight rate fluctuations and wages that would cause parties not to generate a profit. Risk factor means parties need expectation of success to participate. Questions? THANKS!