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Can targeted economic incentives clean up an industry? Or does real change require a fundamental, government-backed restructuring? That’s the question raised by two different clean-up approaches being pursued by U.S. ports.

Ports are a vital link in international trade. But they are dirty. Diesel ships, locomotives and trucks, many of them old, poorly maintained and inefficient, spew vast amounts of pollutants into the air. According to the Natural Resources Defense Council, large ports generate pollution emissions many times greater than average power plants.

A Focus on Cleaning up Ports

A key source of pollution in port operations is drayage–the transportation of containerized cargo by specialized trucking companies the ports shipping docks. Many drayage trucks in use are old, ill maintained and highly polluting. Upgrading the truck fleet to cleaner vehicles is complicated by the fact that some 85% of the drivers are small, independent operators who own their own trucks. These independent owner operators (IOOs) tend to earn very little money–just $12 per hour after all costs are figured, according to one analysis. So they generally struggle to maintain their vehicles or to finance cleaner replacements.

Ports on both coasts of the United States have devised plans to clean up their air by focusing on the polluting drayage trucks. The West Coast plan looks very different from the East Coast one.

An East Coast Plan Uses a Light Touch

On the East Coast, the Port Authority of New York and New Jersey has developed a plan that offers subsidies and low-interest loans to encourage the owners of older, dirty trucks to replace them with newer, cleaner models. Details of this plan will be were released by the Port Authority this week on March 10, 2010.

The plan is a textbook case of using economic incentives to bring about a desired outcome, in this case, a reduction of approximately 120 tons of NOx, 14 tons of fine particulate matter, and 1,700 tons of greenhouse gases per year, according to the Port Authority.

A West Coast Plan Seeks to Reshape the Industry

The Port of Los Angeles, by contrast, has launched a program that seeks fundamentally to reorganize the drayage industry. To help devise its plan to reduce drayage pollution, the port hired the Boston Consulting Group (BCG) to do an analysis and make recommendations. The BCG analysis found that a penalty/subsidy/financing plan would likely meet its pollution-reduction goals a few years’ time. BCG reasoned, however, that such a plan would not leave the industry on a sustainable footing and concluded that the very structure of the drayage industry should be changed.

The Port of Los Angeles Clean Truck Program follows the broad outlines recommended by BCG, including setting rules that would remake drayage into an asset-based and employee-based industry. By 2012, drayage trucking firms operating in the Port of Los Angeles need to own their own trucks and use drivers who are employees, not independent contractors. Such a structure, the BCG study concluded, would not only meet environmental goals but also broader industrial and social goals, including ensuring the stability of the drayage market and the availability of drayage capacity, while raising incomes for drivers.

Accounting for the Costs

The Port of Los Angeles/BCG plan is expected to raise drayage costs to shippers by more than 100% and cost some $500 million more annually than a non-asset and employee-based drayage model. The impact on total shipping costs should be modest, though. According to BCG, drayage costs generally account for only 10% of total shipping costs.

The Port of Los Angeles maintains that these costs are more than offset by avoiding externalized costs–borne by the public–of the current model, which include under-utilized trucks, traffic congestion, environmental damage and the degradation of public health. The Port puts these costs at $500 million to $1.7 billion annually.

Effectiveness of the Plans

In December 2009 the Port of Los Angeles announced that its program had already reduced truck emissions by 70% compared to 2007 levels and has eliminated some 30 tons of diesel particulate matter so far. Even tighter truck emissions restristrictions were phased in on January 1, 2010 and will be followed by ban in 2012 on any trucks with pre-2007 engines.

It’s too early to assess the effectiveness of the Port Authority of New York and New Jersey plan, which will be launched officially on March 10. But its clear that its scope is far more modest. It aims to reduce diesel particulate emissions by 14 tons per year, less than half the reduction that Los Angeles is already trumpeting.

Vibrant Political Dynamics

As the New York Times recently reported, the case of Los Angeles illustrates a vibrant political dynamic at work, with Teamsters joining forces with environmentalists against the trucking industry to support sweeping change. As the Times reported last year, though, unions’ use of environmental regulations and support of environmental causes can seem opportunistic.

Questions Raised

The sweep of the West Coast plan, which will completely restructure the drayage business in the region, assuming legal challenes to it by the trucking industry are unsuccessful, is impressive. The Port of Los Angeles was presented with a simple plan option that would have achieved environmental goals at modest cost in a few years’ time but opted instead to introduce a costlier and more ambitious program in pursuit of broader social goals as well (such as raising the standard of living of drivers.) This raises several questions:

1. Environmental goals are invariably interwined with economic and social ones. How can we make policy that weighs each strand appropriately?
2. How much prominence should be given to the analysis of long-term versus short-term consequences in the development of policy?
3. In light of the uncertainty inherent in long-term models, how ambititous should plans be? It’s worth noting that shipping is an industry of strategic importance. A glitch that impairs the functioning of the Port of Los Angeles can be felt across the United States.

If you have some thoughts on these questions, or other reactions to this piece, please consider leaving a comment  below.