Economists warn of serious economic consequences if EPA allows new locomotive regulations in California

Economists say California new climate standards that will require railways to switch to zero-emission locomotives could lead to a decrease in market competitiveness and an increase in food costs, which will have a serious impact on the Midwest region.

The regulations governing locomotives used in California, which still require approval from the Environmental Protection Agency, were analyzed by economists from North Dakota State University and the USDA’s Office of the Chief Economist in a report published in the journal farmdoc, managed by the University of Illinois.

The regulations, approved last year by the California Air Resources Board, ban diesel-powered locomotives over 23 years of age, starting in 2030while requiring some new models to adopt zero-emission engines. The goal is to transition all locomotives to zero-emission engines by 2047.

For the two largest railroads operating in California — Union Pacific and BNSF — new switch locomotives, smaller locomotives that pull freight in rail yards or for short distances outside rail yards, will be required to achieve zero emissions by 2030.

The authors of the regulatory analysis include USDA Chief Economist Seth Meyer and two of his bureau colleagues. The report includes a note that “The findings and conclusions in this article are those of the authors and do not represent those of the U.S. Department of Agriculture.”

The report notes that the impact of regulation on agricultural products could include increased transportation costs, changes in logistics strategies, lower prices for agricultural producers and higher costs for their customers around the world.

That regulatory impact will extend beyond California to affect other states, the report said. It noted that soybeans, which are shipped by rail from coast to coast before export, account for 30% of the value of Midwest agricultural and food exports, while corn accounts for 17%.

U.S. export growth “depends on efficient and economical rail transportation to transport agricultural products to West Coast ports,” the report added.

Before the regulations can go into effect, the Environmental Protection Agency (EPA) must grant California a waiver because they differ from existing federal emissions standards set by the Clean Air Act.

CARB has estimated the regulation will cost $13.8 billion from 2023 to 2050 for new equipment and labor. Compliance is expected to increase operating costs, leading to higher freight rates.

The EPA accepted comments on the rule change in April, and while the agency has not yet made a decision on the waiver, three questions are expected to guide the decision: Is California’s decision arbitrary and unfair? Does the state need standards to address unique air quality and public health conditions? Do California’s standards conflict with federal law?

Environmental and public health groups support the legislation, while transportation, trade and agriculture groups, including the Agricultural Transportation Working Group, oppose it.

Of the 2,400 comments submitted, many raised concerns about the potential impact of regulation on agricultural markets across the country. Economists cite Propositions 2 and 12, on free-range eggs and farrowing crates, as similar cases where compliance costs and different regulatory regimes have created supply chain confusion.

A report by NDSU and USDA economists finds that alternative transportation methods, such as trucking, do not provide sufficient capacity to efficiently transport agricultural products.

Economists say the rail and export data show “high dependence of Midwest agriculture on rail lines to West Coast states.” They warn that California’s rail regulations could significantly hamper the competitiveness of U.S. farm products.

They also argue that the locomotive regulations would have broader nationwide reach than California’s regulations on egg and pork production.

Under Propositions 12 and 2, “costs would fall primarily on California consumers…California is now proposing a change to locomotives operating in the state, with uncertainties surrounding changes to rail operations and the scope of potential impacts,” the report said.