STAFF REPORT: INITIAL STATEMENT OF REASONS FOR PRO POSED

RULEMAKING

PROPOSED AMENDMENTS TO THE REGULATION FOR IN-USE OF F-ROAD
DIESEL-FUELED FLEETS AND THE OFF-ROAD LARGE SPARK-I GNITION FLEET
REQUIREMENTS

Mobile Source Control Division

Emissions Reductions Incentives Branch

October 2010State of California
AIR RESOURCES BOARD

STAFF REPORT: INITIAL STATEMENT OF REASONS

Public Hearing to Consider

PROPOSED AMENDMENTS TO THE REGULATION FOR IN-USE OF F-ROAD
DIESEL-FUELED FLEETS AND THE OFF-ROAD LARGE SPARK-I GNITION FLEET
REQUIREMENTS

To be considered by the Air Resources Board at a me eting of the Board that will commence on December 16, 2010, may continue to Dece mber 17, 2010, at

California Environmental Protection Agency

Air Resources Board Byron Sher Auditorium
1001 I Street Sacramento, California 95814State of California
AIR RESOURCES BOARD

PROPOSED AMENDMENTS TO THE REGULATION FOR IN-USE OF F-ROAD
DIESEL-FUELED FLEETS AND THE OFF-ROAD LARGE SPARK-I GNITION FLEET
REQUIREMENTS

This report has been prepared by the Mobile Source Control Division staff of the Air Resources Board with the assistance and support fro m the following divisions: Planning and Technical Support and Research. In addition, w e would like to acknowledge the assistance and cooperation that we have received fr om many individuals and organizations.

Publication does not signify that the contents refl ect the views and policies of the Air Resources Board, nor does mention of trade names or commercial products constitute

endorsement or recommendation for use.i TABLE OF CONTENTS

I. EXECUTIVE SUMMARY..................................

................................................... ..... 1

II. INTRODUCTION .......................................

................................................... ............ 7

A. Background .........................................

................................................... .............. 7

B. Regulatory Authority...............................

................................................... ........... 8

C. Rationale for the Proposed Amendments.............. ............................................... 9

D. Stakeholder Participation..........................

................................................... ....... 11

III. NEED FOR EMISSION REDUCTIONS ....................... ........................................... 13

A. Emissions from Off-Road Vehicles................... .................................................. 1 3

B. National Ambient Air Quality Standards ............. ................................................ 17

C. PM Emissions and Mortality .........................

................................................... ... 20

D. Localized Risk .....................................

................................................... ............ 21

IV. PROPOSED AMENDMENTS TO THE OFF-ROAD REGULATION ..... ................. 22

A. Existing Regulation................................

................................................... .......... 22

B. Proposed Amendments to the Off-Road Regulation..... ...................................... 23

C. Impact of Proposed Changes on Funding Opportunities .................................... 30

D. New and Existing Incentives for Early Actions...... .............................................. 31

V. PROPOSED AMENDMENTS TO THE LSI FLEET REGULATION .... ................... 34

A. Existing Regulation................................

................................................... .......... 34

B. Proposed Amendments to the LSI Fleet Regulation.... ....................................... 34

VI. ENVIRONMENTAL IMPACTS .............................. ................................................. 37

A. Legal Requirements .................................

................................................... ....... 37

B. Air Quality Impacts of Proposed Off-Road Regulation Amendments.................. 37

C. Air Quality Impacts of Proposed LSI Fleet Regulatio n Amendments.................. 42

D. Impact on SIP Target...............................

................................................... ........ 43

E. Impact on PM Mortality.............................

................................................... ....... 44

F. Impact on Localized Risk...........................

................................................... ...... 44

G. Impact on Climate Change ...........................

................................................... ... 44

H. Environmental Justice and Neighborhood Impacts..... ........................................ 45

I. Other Environmental Impacts ........................

................................................... .. 45

J. Conclusion.........................................

................................................... .............. 45

VII. ECONOMIC IMPACTS...................................

................................................... ..... 46

A. Legal Requirements .................................

................................................... ....... 46

B. Off-Road Regulation Amendments..................... ................................................ 46

C. LSI Fleet Regulation Amendments.................... ................................................. 51ii

D. Impacts on California Economy......................

................................................... . 53

E. Potential Impacts on Small Businesses.............. ................................................ 54

F. Potential Impacts on Public Agencies............... .................................................. 5 4

VIII. ALTERNATIVES CONSIDERED ............................ ............................................... 55

A. Major Off-Road Regulation Amendments............... ............................................ 55

B. LSI Fleet Regulation Amendments.................... ................................................. 61

IX. REFERENCES .........................................

................................................... ........... 64iii APPENDICES

APPENDIX A: OFF-ROAD PROPOSED REGULATORY ORDER

APPENDIX B: LSI FLEET REQUIREMENTS REGULATION

APPENDIX C: SUMMARY OF SURVEY RESULTS

APPENDIX D: OSM AND SUMMARY OF OFF-ROAD EMISSIONS INVENTORY

UPDATES

APPENDIX E: PROPOSED MINOR AMENDMENTS TO THE OFF-ROAD AND LSI

FLEET REGULATIONS

APPENDIX F: COST METHODOLOGY

APPENDIX G: HEALTH BENEFITS AND METHODOLOGY

APPENDIX H: LIST OF ACRONYMSivv LIST OF TABLES

Table 1: Emission Margin for Truck and Bus and Off -Road Regulations: 2014 ..... 4

Table 2: Ten Guiding Principles...................

................................................... .......... 10

Table 3: Public Workshops .........................

................................................... ........... 11

Table 4: Annual NOx and PM Emissions from Off-Road Diesel Vehicles in

California without the Regulation (tpd) ............ ......................................... 14

Table 5: Comparison of 2007 Off-Road Regulation an d Current Emissions

Estimates ..........................................

................................................... ........ 17

Table 6: 2009 Estimated Fuel Use (Million Gallons of Diesel Fuel): ARB vs.

Industry...........................................

................................................... .......... 17

Table 7: Emissions are Less Than the 2014 SIP Targ et – Existing Truck and Bus

and Off-Road Regulations, Including Recession ...... ............................... 20

Table 8: Existing and Proposed VDECS Double Credit Deadlines ........................ 25

Table 9: Compliance Option for Fleets Under 500 Ho rsepower............................. 26

Table 10: Current and Proposed: Final Fleet Avera ge Targets by Horsepower

(Hp) Bin ...........................................

................................................... .......... 26

Table 11: Early Credit and Incentive Period Deadli nes for Receiving Credit by

Fleet Size.........................................

................................................... .......... 32

Table 12: Baseline Emissions and Regulation Impact on Statewide NOx and PM

Emissions ..........................................

................................................... ....... 38

Table 13: Benefits of the Current Regulation Compa red to the Proposed

Amendments (tpd) ...................................

................................................... 40

Table 14: Cost Effectiveness Comparison of the Reg ulation................................. 42

Table 15: Annual HC+NOx Emissions from Off-Road LS I Equipment in California

(tpd) ..............................................

................................................... ............. 42

Table 16: Emissions and Costs of Various Off-road Major Amendment

Alternatives Considered............................ ................................................. 58vivii LIST OF FIGURES

Figure 1: Off-Road Contribution to 2010 Statewide Mobile Source Emissions

(Particulate Matter and NOx without Regulations)... .................................. 3

Figure 2: Off-Road Contribution to 2020 Statewide Mobile Source Emissions

(Particulate Matter and NOx without Regulations)... .................................. 3

Figure 3 : Cost of Proposed Off-Road Regulation Do wn Substantially................... 6

Figure 4: Off-Road Contribution to 2010 Statewide Mobile Source Emissions

(Particulate Matter and NOx without Regulations)... ................................ 13

Figure 5: Off-Road Contribution to 2020 Statewide Mobile Source Emissions

(Particulate Matter and NOx without Regulations)... ................................ 14

Figure 6: California Nonattainment Areas for PM2.5 ............................................... 18

Figure 7: California Nonattainment Areas for Ozone .............................................. 19

Figure 8: Annual Retrofit Requirements under the C urrent Regulation and

Proposed Amendments................................ .............................................. 29

Figure 9: Annual Turnover Requirements under the C urrent Regulation and

Proposed Amendments................................ .............................................. 30

Figure 10: Statewide NOx Emissions from Off-road D iesel Vehicles .................... 39

Figure 11: Statewide PM Emissions from Off-road Die sel Vehicles ....................... 39

Figure 12: Year-by-Year Comparison of Truck and Bu s and Off-Road PM

Emissions after Regulation is Applied: Current Rul e without Recession

vs. Amended Rule with Recession .................... ........................................ 41

Figure 13: Year-by-Year Comparison of Truck and Bu s and Off-Road NOx

Emissions after Regulation is Applied: Current Rul e without Recession

vs. Amended Rule with Recession .................... ........................................ 41

Figure 14: Cost of Proposed Off-Road Regulation Do wn Substantially................ 47

Figure 15: Current vs. Proposed Off-road Regulatio n Yearly Compliance Costs 48

Figure 16: Sample Fleet Costs for Current vs. Prop osed Regulation.................... 49

Figure 17: Comparison of Fleet Average Targets.... ................................................ 61viii1

I. EXECUTIVE SUMMARY

Emissions associated with off-road vehicles (such a s those used in construction, manufacturing, the rental industry, road maintenanc e, airport ground support and landscaping) are a significant contributor to many of the air quality challenges facing California, whether they be meeting federal air qua lity standards, reducing premature mortality, addressing localized risk, or reducing g reenhouse gas emissions. To meet its air quality goals, the Air Resources Board (ARB or Board) has put into place a series of comprehensive regulations and programs to meet thes e challenges.

Important among these is the in-use off-road diesel vehicle regulation (off-road regulation), approved in 2007, which is intended to significantly reduce emissions of diesel particulate matter (PM) and oxides of nitrog en (NOx) from the over 150,000 inuse off-road diesel vehicles that operate in Califo rnia by requiring their owners to

modernize their fleets and install exhaust retrofit s. The regulations are especially rigorous in the near-term, in part to meet federall y-mandated clean air standards by

2014.

Complementing this regulation is the large spark ig nition (LSI) fleet regulation, approved in 2006. The LSI fleet regulation is intended to r educe hydrocarbon and oxides of nitrogen (HC+NOx) emissions from the nearly 90,000 LSI vehicles operating in California by accelerating the introduction of new clean vehicles and the retrofit or

retirement of uncontrolled in-use vehicles.

Since the adoption of the off-road and LSI fleet re gulations, a number of events have occurred which have presented an opportunity for AR B to reevaluate these regulations. First, a global recession has substantially reduced the activity (and emissions) of many off-road fleets. At the same time, the recession h as substantially reduced the near-term ability of fleets to invest in the clean vehicles a nd equipment needed to comply with the regulations. These first two factors are especiall y true for California’s construction industry. Lastly, ARB staff has undertaken a thoro ugh review and update to our

estimates of the emissions from off-road diesel veh icles, and staff has determined that emissions are substantially lower than previously e stimated.

Despite a significant reduction in emissions, the o ff-road and LSI fleet regulations are still critically important to ensuring that Califor nia meets both its short-term and longterm air quality obligations and health based goals . This includes achieving sufficient PM emissions reductions to meet federal air quality standards for fine particulate (PM2.5) by 2014, and to make continued progress to maximize reductions of ozone forming emissions by 2023. The overall reduction i n emissions from off-road vehicles resulting from the current economic climate present s an opportunity, especially in the near-term, to reduce the economic impact on impacte d fleets while still achieving

needed emission reductions.

Considering this, in April 2010, the Board directed staff to update the emissions inventories from heavy-duty on-road trucks and buse s and off-road vehicles to reflect2

the impact of the recession. The Board further dir ected staff to develop amendments to the In-use On-Road Diesel Vehicle (Truck and Bus) a nd off-road regulations together

that would reduce the cost to fleets while continui ng to meet the Board’s air quality goals and obligations. The Board’s direction inclu ded the following principles for staff to consider in proposing amendments:

• Continue progress toward cleaner air

• Maintain public health benefits

• Meet California’s State Implementation Plan (SIP) commitments

• Provide incentives to achieve greenhouse gas reduc tions

• Improve cost effectiveness

• Lower peak year costs

• Consider cumulative impact of both regulations

• Provide most economic relief to fleets hardest hit by recession

• Ensure emission reductions as economy recovers

• Support clean technologies

To support development of the proposed amendments, staff conducted a comprehensive review of the off-road emissions inve ntory that focused on two areas. First, staff undertook a thorough review of its inv entory methodology, and updated many key factors used in estimating emissions from off-r oad vehicles. This included new population and activity data reported to ARB, as we ll as new published studies and

other data that evaluated emissions from off-road v ehicles. Staff also evaluated new data that showed that the previous inventory overes timated how much and how hard
off-road vehicles work. Staff also took into accou nt the severe impact the recession has had on the construction industry in California, whe re construction activity has decreased by more than 50 percent since 2005, and new vehicle sales have declined more than 90 percent (CA DOF, 2010; EDA, 2010). The net result of the recession and methodology changes was an almost 80 percent reduction in emiss ions from what had previously been estimated, with about half of this reduction t he result of the recession, and about half to changes in inventory methods.

Despite the changes and reduced emissions from off- road vehicles without the off-road regulation, the categories of vehicles that it cove rs remain an important contributor to emissions in California, both in 2010 and 2020, as shown in Figure 1 and Figure 2. In addition, reducing emissions is necessary to reduce premature deaths associated with exposure to fine PM (PM2.5) and near-source exposur e to diesel PM.3

Figure 1: Off-Road Contribution to 2010 Statewide Mobile Source Emissions

(Particulate Matter and NOx without Regulations)

Off-Road Ag and

Recreation

21% Off-Road Rule
Scope

7% Cars and Other

On-Road

2%

Truck Rules

Scope

40% Locomotive

6%

Marine

24%

PM Emissions Cars and Other

On-Road

29% Truck Rules
Scope

32%

Marine

11% Locomotive

5% Aircraft

3%

Off-Road Rule
Scope

4%

Off-Road Ag

and Recreation

16% NOx Emissions

Figure 2: Off-Road Contribution to 2020 Statewide Mobile Source Emissions

(Particulate Matter and NOx without Regulations)

Off-Road Ag

and Recreation

15% Off-Road Rule
Scope

12% Cars and Other

On-Road

3%

Truck Rules
Scope

40% Locomotive

14%

Marine

16%

PM Emissions Cars and Other

On-Road

23% Truck Rules
Scope

22%

Off-Road Rule

Scope

5%

Off-Road Ag

and Recreation

15%

Marine

19% Locomotive

10% Aircraft

6%

NOx Emissions

In directing staff to propose changes to the Truck and Bus and off-road regulations together, the Board further instructed staff to als o consider the impact of the recession and inventory changes on affected fleets. This was intended to ensure emissions reductions could be targeted most cost effectively, and the combined emissions benefits achieved by the two rules would continue to meet St ate Implementation Plan (SIP) requirements. The SIP is California’s roadmap towa rds achieving federal clean air standards by the applicable deadlines. To assess p rogress towards meeting the emission reduction obligations in the SIP, staff ev aluated whether the lower emissions from the revised inventory and the recession provid ed greater emission reductions than were expected. Any excess emission reductions achi eved are referred to as an emission margin. The margin defines how much relie f can be provided under the regulations while still meeting the legal emission reduction requirements of the SIP. To allow for a comparison of different pollutants (PM and NOx), the margin is calculated, by4

air basin, in NOx equivalent emissions. Table 1 sh ows the emission margin for the South Coast and San Joaquin Valley air basin for 20 14, which is the attainment date for

these two air basins to meet federal PM2.5 standard s. Based on this analysis, staff believes it is feasible to significantly reduce the economic impact on affected fleets while meeting all SIP obligations.

Table 1: Emission Margin for Truck and Bus and Off -Road Regulations: 2014

Air Basin Equivalent NOx Tons per Day

Below Combined SIP Target

South Coast 62

San Joaquin Valley 40

The U.S. EPA has recently concluded, based on the p ublished and peer reviewed scientific literature, that long-term exposure to P M2.5 is causally associated with premature mortality. A causal relationship means it has the highest scientific level of certainty. The U.S. EPA also found that premature deaths caused by PM2.5 occur at levels well below the Federal air quality standard for PM2.5. The U.S. EPA estimates that about 63,000 to 80,000 premature deaths each y ear in the U.S. are related to PM2.5. ARB staff used the EPA methodology to estim ate that long-term exposure to PM2.5 from all sources in California results in 9,2 00 premature deaths annually and that reducing emissions to meet the Federal standard wou ld reduce premature deaths by 2,700 annually. Reducing PM emissions below the Fed eral standard would reduce the number of premature deaths even further.

After holding 19 workshops in 2010 throughout the s tate and considering the principles laid out by the Board, staff has developed a compre hensive set of amendments to the

Truck and Bus 1 and off-road regulations that will:

• Substantially reduce compliance costs;

• Achieve the emissions reductions needed to meet Ca lifornia’s SIP commitments to attain federal air quality standards;

• Continue to reduce localized risk; and

• Continue to reduce the premature mortality impacts of diesel emissions.

Included in these proposed amendments to the off-ro ad regulation are recommendations developed in conjunction with repre sentatives from the Associated General Contractors of America (AGC) (ARB, 2010a), including:

• Delay start of requirements until January 1, 2014

• Increase the number of “low-use” equipment exempte d

• Provide simpler compliance options for the smalles t fleets

• Extend benefits for businesses that comply before their deadline

• Lower annual requirements to clean up engines

1 A summary of amendments to the Truck and Bus regul ation is set forth in the Truck and Bus Staff Report: Initial Statement of Reasons.5

The current performance requirements of the off-roa d regulation require large fleets (those with over 5,000 horsepower (hp)) to begin tu rning over 8 percent and retrofitting 20 percent of their hp per year, beginning in 2010. Medium fleets (those between 2,501, and 5,000 horsepower) are required to begin meeting the same requirements in 2013. Small fleets, those with 2,500 hp or less, a re required to install retrofits on 20 percent of their horsepower beginning in 2015, but are not required to turn over any vehicles. Large and medium fleets may complete the ir turnover requirements by replacing, retiring, or repowering them with a newe r engine, operating the vehicle less than 100 hours per year, or moving to electric or a lternative fuel engines. For fleets of all sizes, the fleet may avoid the need to take any compliance action under the off-road regulation if the fleet is relatively new and clean and meets a ‘fleet average target,’ meaning the average emissions per vehicle are low ( which is the case with newer vehicles). The regulation also requires fleets to r eport their off-road diesel vehicles to ARB and label the vehicles with an ARB assigned ide ntifier in 2009, and currently requires fleets to limit idling to no more than fiv e minutes and provide a disclosure notice whenever they sell an off-road vehicle in Ca lifornia.

The proposed amendments to the off-road regulation delay the initial compliance date for all fleets by four years, provide a path to com pliance without any required retrofits, simplify the regulation, and lower the costs of the regulation significantly while still maintaining progress toward clean air. More specif ically, these amendments would:

• Delay first compliance date until no earlier than January 1, 2014, for all fleets. The initial compliance dates for medium and small f leets would be delayed until January 1, 2017, and January 1, 2019, respectively;

• Combine PM and NOx requirements to dramatically si mplify the regulation and reduce the number of annual requirements;

• Allow turnover in lieu of retrofitting;

• Lower annual requirements to clean up engines to n o more than 5 to 10 percent of a fleet’s horsepower (down from 28 to 30 percent );

• Provide significant credit for early retrofits to incentivize early actions;

• Increase low use threshold from 100 to 200 hours a nnually, allowing more vehicles to be defined as low-use (and therefore ex empt from control requirements);

• Provide simpler compliance option for the smallest fleets, those with less than 500 horsepower; and

• Achieve more NOx reductions in later years by requ iring more turnover to the newest, cleanest engines starting in 2017.

The reporting, labeling, and idling restrictions wo uld remain in place. In addition to these amendments above, staff is also proposing add itional minor modifications to clarify or simplify regulatory provisions.

For the LSI fleet regulation, staff is proposing to broaden the definition of low-use vehicles to match that in the off-road regulation, broaden compliance extension flexibility, and make other minor clarifications.6

The proposed amendments to the off-road regulation will provide substantial economic relief to all affected fleets, especially in the sh ort term. Estimated costs of the off-road regulation over the next 5 years would be reduced b y 97 percent, from $1 billion to $33

million. Total costs over the life of the off-road regulation would be reduced by over 72 percent, and peak year costs would be reduced by 73 percent. This would represent a cost savings of $1.5 billion and $396 million, resp ectively. These cost savings are shown in Figure 3. The proposed LSI fleet regulati on changes are expected to provide $8.4 to $59.5 million in savings to affected fleets by increasing flexibility options.

Figure 3 : Cost of Proposed Off-Road Regulation Do wn Substantially

$0 $500 $1,000 $1,500 $2,000 $2,500

Initial 5 Year Cost Peak Year Total CostRegulation Cost (Millions, 2010 Dollars)

Current Regulation

Proposed Regulation

Overall, the regulations will continue to provide s ignificant emissions reductions that are necessary to meet California’s air quality obligati ons and goals. The proposed amendments will reduce the emissions margin to zero in the San Joaquin Valley and to 5 tons/day in the South Coast. Because the combine d margin for trucks/buses and offroad equipment is minimized, maximum relief is prov ided while still meeting SIP legal obligations.

In addition, the off-road regulation will continue to provide significant health benefits by reducing premature mortality from PM2.5 exposure an d localized risk from diesel PM. Staff estimates that 470 premature deaths (360 to 5 70, 95% confidence interval) would be avoided by implementation of the amended off-roa d regulation from 2010 to 2029.
This estimate is based on United States Environment al Protection Agency’s (U.S. EPA) new risk assessment methodology (U.S. EPA, 2010), a nd includes the most recent air quality data available (2006 to 2008) and the lates t emissions inventory estimates. Staff also expects localized risk to be reduced commensur ate with the expected diesel PM

emission reductions.7

II. INTRODUCTION

The purpose of this report is to describe proposed amendments to the following regulations:

• Regulation for In-Use Off-Road Diesel-Fueled Vehic le Fleets (the off-road regulation), California Code of Regulations (CCR), Title 13, sections 2449 through 2449.3, and

• The Large Spark Ignition Engine Fleet Requirements (LSI fleet regulation), CCR, title 13, sections 2775 through 2775.2.

Staff of the Air Resources Board (ARB or Board) is proposing amendments to provide economic relief to fleets affected by the recent re cession and to address the finding that off-road diesel emissions are lower than previously expected. At the same time, staff is proposing minor amendments, simplifications, and cl arifications to both regulations.

A. Background

1. History of off-road regulation and previous amen dments

The off-road regulation was originally approved by the Board on July 26, 2007, and became effective on June 15, 2008. The Board appro ved additional amendments on December 11, 2008, which aligned requirements with the newly adopted Truck and Bus regulation, and January 26, 2009, which extended cr edits for exhaust retrofits. These became effective on January 8, 2010, and January 1, 2010, respectively. On February 20, 2009, the Governor signed Assembly Bil l 8 2X (AB 8 2X) in which the Legislature added Section 43018.2 to the Health and Safety Code, directing ARB to amend the off-road regulation. The Board approved the AB 8 2X amendments, and additional minor amendments to the off-road regulat ion on July 23, 2009. The AB 8 2X Amendments became effective on December 3, 2009, an d the additional amendments approved by the Board in July 2009, became effectiv e on August 15, 2010.

The off-road regulation is intended to significantl y reduce emissions of diesel particulate matter (PM) and oxides of nitrogen (NOx) from over 150,000 in-use off-road diesel vehicles that operate in California. The off-road regulation is structured to achieve these reductions by requiring fleet owners of off-r oad in-use diesel vehicles to modernize their fleets by accelerating the use of c leaner engines and applying exhaust retrofits to their vehicles (ARB, 2007a). The off- road regulation was designed to support

the Diesel Risk Reduction Plan to Reduce Particulat e Matter Emissions from DieselFueled Engines and Vehicles, which was adopted by t he Board on September 30, 2000, as well as the 2007 State Implementation Plans (SIP s) for the South Coast and San Joaquin Valley air basins (ARB, 2000; ARB, 2007c).

2. History of LSI fleet regulation and previous ame ndments

The Off-Road LSI Engine Regulation (LSI regulation) , which established new engine standards and test procedures for manufacturers of LSI engines, was approved by the Board on October 22, 1998, and became effective on November 8, 1999. On May 12, 2006, the ARB amended the existing LSI Regu lation and additionally adopted8

fleet requirements for operators of in-use LSI flee ts (the LSI fleet regulation) and verification procedures for manufacturers of LSI re trofit emission control systems (retrofit kits). The amendments became effective o n May 12, 2007.

The 2006 rulemaking requires operators of in-use fl eets to achieve specific hydrocarbon and oxides of nitrogen (HC+NOx) fleet average emiss ion level (FAEL) standards that become more stringent with fleet size and time. Th e standards are also more stringent for forklifts than they are for non-forklift LSI eq uipment. The stringency of the standards reflects the differences in availability of retrofi t devices for the four categories of in-use LSI equipment as well as the greater ability of lar ge fleets to incorporate zero- and near zero-emission equipment into their operations.

The intent of the LSI new engine standards and flee t requirements was to reduce HC+NOx emissions from the approximately 90,000 piec es of LSI equipment operating in the State of California by accelerating the intr oduction of new zero- and near zero-emissions equipment and the retrofit or retire ment of in-use uncontrolled equipment. The LSI fleet regulation was designed t o support the 2003 SIP (ARB, 2003a).

The LSI fleet regulation applies to operators of fo rklifts, sweepers/scrubbers, tugs, and ground support equipment (GSE), the four largest ca tegories of LSI engine equipment.

These vehicles are found in thousands of fleets in California, in industries as diverse as manufacturing, wholesale, transportation and utilit ies, retail, services, and construction, as well as public agencies. The LSI fleet regulati on affects approximately 2,000 LSI
fleets in California.

B. Regulatory Authority

ARB has authority under California law to adopt the proposed amendments to the offroad and LSI fleet regulations. California Health a nd Safety Code (Health & Saf. Code) sections 43000, 43000.5, 43013(b) and 43018 provide broad authority for ARB to adopt emission standards and other regulations to reduce emissions from new and in-use

vehicular and other mobile sources. Under Health & Saf. Code sections 43013(b) and 43018, ARB is directly authorized to adopt emission standards for off-road vehicular sources, as expeditiously as possible, to meet stat e ambient air quality standards.

ARB is further mandated by California law under Hea lth & Saf. Code section 39667 to adopt Airborne Toxic Control Measures (ATCMs) for n ew and in-use vehicular sources, including off-road diesel vehicles, for identified toxic air contaminants (TACs), such as

diesel PM.

Under federal and California law, ARB is the primar y agency in California responsible for ensuring that all regions of the State attain a nd maintain the National Ambient Air Quality Standards (NAAQS). To achieve this, Califo rnia must adopt all feasible measures to obtain the necessary emission reduction s, including measures from mobile sources. The Federal Clean Air Act (CAA) preempts states, including California, from adopting requirements for new off-road engines less than 175 hp used in farm or9

construction equipment. California may adopt emiss ion standards for in-use off-road engines pursuant to CAA section 209(e)(2), but must receive authorization from U.S. EPA before it may enforce the adopted standards.

C. Rationale for the Proposed Amendments

Both the off-road and LSI fleet regulations are nee ded to protect public health and to achieve the emission reductions necessary to attain federal clean air standards. However, staff is proposing major amendments to bot h regulations, especially to the near-term requirements, for several reasons.

First, the global recession has caused a loss in em ployment and revenue in the

construction sector and other industries that are a ffected by the regulations (U.S. BLS, 2010; U.S. BEA, 2009). This has resulted in a redu ction in business activity and has strained the financial ability of industry to compl y with the regulations. At the same time,

the recession has also resulted in reduced vehicle activity and emissions there from.

In February 2009, ARB was directed to grant short t erm economic relief from the offroad regulation for fleets adversely affected by th e economy through AB 8 2X (ARB, 2009b; AB 8 2X, 2009), including providing credits towards the PM and NOx requirements of the regulation if a fleet could sho w: 1) A reduction in total fleet horsepower from March 1, 2006, to March 1, 2010, or 2) A reduction in fleet activity between July 1, 20 07, and March 1, 2010.

As of April 2010 (the annual reporting deadline for large fleets), approximately 55 percent of large fleets have received reduced activ ity and/or reduced horsepower credit under the off-road regulation. On average, these f leets have accrued enough credits to delay initial compliance with the existing regulati on for two to four years (ARB, 2010b). Although these credits will help many fleets comply with the first several years of regulatory requirements, there are still many fleet s in California that have not been able to obtain credits, and therefore would be subject t o full regulatory compliance.

In addition, since the beginning of 2010, ARB staff has undertaken a comprehensive review and update of the methodology and data input s used in staff’s initial estimates of off-road diesel vehicle emissions. As part of that work, staff considered the current economic recession and corresponding decrease in of f-road vehicle activity. Based on the new data available, staff now believes that pas t and future emissions from off-road vehicles are significantly lower than previously es timated. Staff has determined that it is feasible to utilize the lower than expected emissio ns to provide economic relief to fleets, while still achieving the emission reductions neces sary to attain federal clean air standards (Further detail on the emission inventory changes is provided in Chapter III.A.1.)

In April 2010, the Board directed staff to update t he emissions inventories from trucks and buses and off-road equipment to reflect the imp act of the recession on emissions. The Board further directed staff to develop amendme nts to the In-Use On-Road Diesel Vehicle Regulation (Truck and Bus) and off-road reg ulations together that would provide10

economic relief to fleets while continuing to meet the Board’s air quality goals and obligations. The Board’s direction included the fo llowing ten guiding principles for staff to consider in proposing amendments (shown below).

Table 2: Ten Guiding Principles

1. Continue progress toward cleaner air 2. Maintain public health benefits
3. Meet SIP commitments 4. Incentivize greenhouse gas reductions 5. Improve cost effectiveness 6. Lower peak year costs 7. Consider cumulative impact of both regulations 8. Provide most relief to fleets hardest hit by rec ession 9. Ensure emission reductions as economy recovers 10. Support clean technologies

While the substantially lower off-road diesel vehic le emissions and the severe recession have created an opportunity for the ARB to go back and modify the off-road regulation to reduce its economic impacts, off-road diesel veh icles remain a significant source of pollution. Therefore, the proposed amendments to t he regulation are structured to reduce the economic impact from this regulation whi le maintaining the emissions and public health benefits expected from the original r egulation.

Along with providing economic relief to fleets, sta ff believes that the off-road regulation should be amended to provide fleets greater flexibi lity in how they choose to lower their emissions. When the Board approved the off-road re gulation in July 2007, staff

believed off-road exhaust retrofits would be a wide ly available and cost effective solution for compliance for nearly all fleets. Hen ce, the current off-road regulation includes mandatory requirements for installing retr ofits for all fleets that do not meet the PM fleet average targets; such fleets are required to install retrofits on a fifth of their horsepower annually. However, as implementation of the off-road regulation began, it became clear that for many fleets and applications, retrofits presented a significant challenge, and accelerated turnover to newer vehicl es was a more attractive compliance option. For example, actively regenerat ed retrofits may not a viable option for large equipment rental fleets that would have t o train their customers on how to operate, regenerate, and maintain them. Although e xhaust retrofits remain a viable option for many fleets, staff believes it is necess ary to restructure the off-road regulation to remove mandatory retrofitting and instead allow fleets to choose between turnover and retrofitting as a compliance strategy.

Staff is also proposing several minor amendments to the off-road and LSI fleet regulations, which are not expected to significantl y alter the emissions reductions or total costs expected from the regulations. These m inor amendments are modifications or clarifications that are designed to make each re gulation more clear, easier to11

implement, or fix inconsistencies discovered during the beginning stages or regulatory implementation.

D. Stakeholder Participation

Since January 2010, staff held 19 public workshops statewide to discuss proposed amendments to the regulations and changes to the em ission inventories. For the workshops held in Central Valley, live video feed w as also provided to locations in Modesto and Bakersfield. The August 31 to Septembe r 8 workshop series also provided stakeholders an opportunity to discuss the revised report, “Estimate of premature deaths associated with fine particle poll ution (PM2.5) in California using a U.S. Environmental Protection Agency Methodology,” which was released by ARB on August 31, 2010 (ARB, 2010c). Table 3 shows the da tes, locations, and the primary discussion topics of the workshops.

Table 3: Public Workshops

Workshop Dates LocationsTruck andBusDrayageTruckOff-RoadEmissionsInventoryTractorTrailer GHG

January 20, 2010 El Monte X January 25, 2010 Sacramento (webcast) X January 26, 2010 Central Valley X May 6, 2010 Sacramento (webcast) X X X May 12, 2010 El Monte X X X May 18, 2010 Central Valley X X X June 23, 2010 Central Valley X X X June 28, 2010 Sacramento (webcast) X X X July 1, 2010 El Monte X X X July 6, 2010 San Diego X X X August 31, 2010* El Monte X* September 1, 2010* San Diego X* September 3, 2010* Central Valley X* September 7, 2010* Sacramento (webcast) X* September 8, 2010* Oakland X* September 30, 2010 Sacramento (webcast) X X X** X October 4, 2010 El Monte X X X** X October 5, 2010 San Diego X X X** X October 12, 2010 Central Valley X X X** X * PM2.5 Mortality Report was discussed ** LSI Fleet Regulation was also discussed

During the May workshops, staff distributed a surve y regarding potential changes to the off-road regulation, with responses requested back to staff by June 1, 2010. The survey12

sought feedback on different approaches, such as op tions in delaying the regulation, various levels of increasing the number of hours fo r the definition of low use, rolling back turnover/retrofit requirements and any other c omments fleets may have on amending the regulation. The questions asked as we ll as a summary of responses to each question can be found in Appendix C.

In addition to the workshops, staff held numerous m eetings with individual fleets, industry associations, and environmental groups. A lso, on March 29, 2010, staff solicited input on the proposed off-road amendments from the Off-road Implementation Advisory Group (ORIAG). ORIAG is an informal commi ttee whose goal is to help ARB staff fine tune outreach, training, and implementat ion materials and help make ARB staff more aware of the needs and opinions of affected st akeholders.

Staff considered all comments and recommendations r eceived from various stakeholders and crafted the final proposed amendme nts to address the concerns that were expressed.13

III. NEED FOR EMISSION REDUCTIONS

The emission reductions anticipated from the regula tions are needed from a public health standpoint and to allow the state to meet it s near and mid-term SIP commitments required by the CAA. They reduce public exposure t o directly-emitted toxic PM and reduce atmospheric PM2.5 and ozone.

A. Emissions from Off-Road Vehicles

As shown in the Figures 4 and 5 below, the vehicles covered by the off-road regulation are a significant source of diesel PM and NOx emiss ions that lead to ozone and ambient PM; off-road vehicles covered by the LSI fl eet regulation are also a significant source of NOx emissions. Despite the major economi c recession and revisions to the off-road regulation inventory, the in-use off-road diesel vehicle category remains an important source of emissions. In 2010, staff esti mates the off-road vehicles subject to the off-road regulation are the 4 th largest source of diesel PM in California (7 perce nt of total) and the 6 th largest source of NOx from all sources (4 percent of total).

Figure 4: Off-Road Contribution to 2010 Statewide Mobile Source Emissions

(Particulate Matter and NOx without Regulations)

Off-Road Ag and

Recreation

21% Off-Road Rule
Scope

7% Cars and Other

On-Road

2%

Truck Rules

Scope

40% Locomotive

6%

Marine

24%

PM Emissions Cars and Other

On-Road

29% Truck Rules
Scope

32%

Marine

11% Locomotive

5% Aircraft

3%

Off-Road Rule
Scope

4%

Off-Road Ag

and Recreation

16% NOx Emissions

As shown in Figure 5 below without the off-road and LSI fleet regulations, in 2020 the emission impact of off-road vehicles within the sco pe of the off-road and LSI fleet regulations would remain significant.14

Figure 5: Off-Road Contribution to 2020 Statewide Mobile Source Emissions

(Particulate Matter and NOx without Regulations)

Off-Road Ag

and Recreation

15% Off-Road Rule
Scope

12% Cars and Other

On-Road

3%

Truck Rules
Scope

40% Locomotive

14%

Marine

16%

PM Emissions Cars and Other

On-Road

23% Truck Rules
Scope

22%

Off-Road Rule

Scope

5%

Off-Road Ag

and Recreation

15%

Marine

19% Locomotive

10% Aircraft

6%

NOx Emissions

Diesel PM also contributes to ambient concentration s of fine particulate matter (PM2.5), which is associated with premature mortality, aggra vation of respiratory and cardiovascular disease, asthma exacerbation, chroni c and acute bronchitis and reductions in lung function.

NOx leads to formation in the atmosphere of ozone a nd PM2.5. Ozone is a powerful oxidant, and exposure to ozone can result in reduce d lung function, increased respiratory symptoms, increased airway hyper-reacti vity, and increased airway inflammation. Exposure to ozone is also associated with premature death, hospitalization for cardiopulmonary causes, and eme rgency room visits for asthma.

To put the air quality impacts discussed later in c ontext, the uncontrolled annual statewide emissions from vehicles subject to the of f-road regulation are shown below in

Table 4. Note that these emission estimates are si gnificantly lower than those presented in the Technical Support Document (TSD) f or the original off-road rulemaking in 2007 or previous staff reports, due to the reces sion and updated emissions inventory data, as summarized in Chapter II and discussed in Appendix D (ARB, 2007b).

Table 4: Annual NOx and PM Emissions from Off-Road Diesel Vehicles in

California without the Regulation (tpd)

Baseline Emissions 2 2011 2014 2017 2023

NOx Emissions 73 76 77 52

PM Emissions 3.7 3.9 3.9 2.4

2 Baseline emissions are the emissions that would oc cur without a regulation in place.15 1. Updates to off-road emissions inventory

During the development of the off-road regulation i n 2005-2007, staff used a wide range of industry reports and studies as well as ARB surv eys to update the emissions inventory. The original emissions inventory used t o support the off-road regulation relied on the standard technique used by both the U .S. EPA and ARB, which calculates emissions as the product of the number of equipment (population), the size of the equipment (horsepower), the age of the equipment (m odel year distribution), how often the equipment works (annual hours of use), how hard the equipment works (load factor), and emission rates per unit power (emissio n factors). Staff used ARB’s off-road emissions inventory model, called OFFROAD, to estim ate emissions.

Estimating emissions from off-road equipment is cha llenging. Historically there has been no registration program for off-road equipment and so population must be

estimated. Data on annual hours of use and load fa ctor by equipment type are sparse and based upon industry funded studies that were no t designed for emissions inventory purposes. In updating the inventory for the off-ro ad regulation, staff focused on developing refined data representing population, ho urs of use, and other factors for input to the model. Data sources included:

• MacKay and Company Construction Equipment Universe Study (2003)

• ARB Off-Road Equipment Surveys (2005 and 2006)

• TIAX Public Fleet Survey (2003)

• Power Systems Research (2000 and 1996)

• Other data sources provided by industry stakeholde rs

Through the regulatory development process inventor y updates were presented in workshops to solicit industry input. Stakeholders provided their input and in some cases provided additional information. When the workshop process was completed, staff finalized the original emissions inventory. In Jul y 2007, the Board approved the off-road regulation for adoption.

Since the original emissions inventory was complete d in 2007, conditions in the construction industry have changed dramatically. T he subsequent economic recession was the most severe since the Great Depression, and had a devastating impact on the construction industry in California. Staff estimat es that between 2005 and 2010 construction emissions dropped by more than 50 perc ent because of reduced demand for construction services caused by the recession. The recession has also caused significant declines in emission from other emissio ns categories, such as industrial offroad equipment and aircraft ground support equipmen t over the same time period.

In 2009 industry stakeholders pointed out a study b y Millstein and Harley (2009) that used a fuel-based method to assess construction equ ipment emissions and found that ARB’s inventory was significantly overestimated. I ndustry also pointed out that a similar study, which focused on all off-road equipment nati onally, was published in 2000 by Kean, Sawyer and Harley and found similar results. Both of these studies used a fuelbased approach to estimate emissions. The fuel-bas ed approach estimates emissions based on fuel usage in a broad array of equipment, using fuel-based emission factors.16

The approach is simpler and often favored by academ ic researchers but is not used to support regulatory development because the method c annot relate emissions or reductions to specific equipment types or to a popu lation of equipment directly. Such information is necessary for the rulemaking process

.

In the past staff has been concerned about the accu racy of the fuel-based approach. While total off-road (red-dye) diesel fuel sales in formation in California is known, the breakdown of fuels among the different sources such as locomotives, construction equipment, industrial equipment, stationary and por table equipment, marine vessels, commercial harbor craft, cargo handling equipment, and other categories is not measured. The federal Energy Information Administr ation publishes estimates of fuel usage in broad categories of off-road equipment thr ough their Annual Energy Outlook; these estimates are based on confidential surveys. Staff believes fuel use estimates should inform, but not be the basis for category-sp ecific emissions estimates.

The Board’s request coupled with the Millstein and Harley study caused ARB staff to go back and conduct a comprehensive review of the inve ntory. Staff evaluated new

sources of information that were not available when the off-road regulation was developed, and updated the emissions inventory to r eflect these new data as well as the impact of the recession. Staff made several update s:

• Population: The regulation, as initially adopted, required re porting to ARB of all off-road equipment subject to the regulation. This allowed staff to use the actual population of equipment, rather than estimates in t he inventory. The total population estimate in 2009 was 26 percent lower th an anticipated in 2007, largely due to fleet downsizing during the recessio n.

• Hours of Use: AB 8 2X regulatory amendments allowed fleets to r eport 2007 and 2009 activity to obtain credits towards meeting reg ulatory obligations. About 10 percent of regulated vehicles reported this informa tion. Staff originally thought 2007 was a relatively average year for construction , so staff expected data to be consistent with estimates from MacKay (2003) that w ere used in the 2007 inventory. Instead, new data by equipment type wer e in most cases at least 30 percent lower than staff expected, and in some case s more than 50 percent lower. For example, staff assumed backhoes worked on average 942 hours per year; new data suggested the average was 512 hours per year. Staff evaluated the new information against a recent, albeit limite d study conducted by a consultant and the results were generally consisten t, so staff used the AB 8 2X data. The 2009 activity was lower than 2007 due to the recession.

• Load Factor: Load factor is a measure of how hard an engine wo rks, and is expressed as a percent of total horsepower of an en gine. Previous estimates from Power Systems Research (1996; 2000) were in th e 60 percent range for many equipment types. In 2008 and 2009 several aca demic studies focused on testing construction equipment in real-world applic ations were completed. Additionally in 2010 staff received some data from engine manufacturers. While data varied across equipment types, overall staff’s analysis suggested load factors should be reduced by 33 percent; however, s taff is continuing to pursue

additional information in this area.17

• Growth Forecasts: Staff’s previous growth forecasts used historical employment as a surrogate, and forecasted growth from historic al trends. In 2007 staff did not anticipate the recession. After looking at man y different indicators, from construction Gross Domestic Product (GDP) and emplo yment to estimated construction fuel use, staff determined that in 200 9 construction activity had decreased by 50 percent relative to 2005. Staff th en reviewed economic forecasts by the University of California at Los An geles (UCLA), University of the Pacific (UOP), the Department of Finance (DOF), the United States Congressional Budget Office, and others. Because f uture emissions will be a function of the shape of the economic recovery and that shape is not known, staff developed a bounding-scenario of a fast recovery (r eturn to trend in 2017) and a slow recovery (historically average growth from the recession trough) and averaged the two. Because of the recession, staff’ s future growth forecasts were substantially revised.

As a result of this work, the revised emissions are substantially lower than previously

estimated. About half of this reduction can be att ributed to the recession, and about half to updated assumptions independent of the recession . Table 5 compares the 2007 and current inventories. Table 6 compares estimated fu el use in the 2007 inventory to the current inventory and industry estimates.

Table 5: Comparison of 2007 Off-Road Regulation
and Current Emissions Estimates

2007 Inventory (tons/day) Current Inventory

(tons/day) Calendar

Year PM2.5 NOx PM2.5 NOx

2009 18.5 358 3.7 79

2014 13.1 272 3.6 76

2023 5.1 136 2.2 52

Table 6: 2009 Estimated Fuel Use (Million Gallons of Diesel Fuel): ARB vs. Industry

2007 Inventory Current Inventory Industry Estimates

990 219 160 to 186

Staff has more confidence in the inventory estimate s today than in 2007 because staff has access to new input data provided directly by C alifornia fleets that wasn’t available at the time of the original rulemaking. Fuel consu mption now agrees more closely to

other fuel based estimates.

B. National Ambient Air Quality Standards

1. SIP commitments

The U.S. EPA has established health protective NAAQ S for a number of criteria pollutants, including PM2.5 and ozone. States with areas that do not meet these18

standards must develop SIPs and adopt regulations t o meet the standards by certain deadlines. Figure 6 and Figure 7 below show the no nattainment areas in California for PM and Ozone, respectively. Two air basins in Cali fornia in particular – the South Coast Air Basin and the San Joaquin Valley Air Basi n – are in nonattainment for both

PM2.5 and the 8-hour ozone standard.

Figure 6: California Nonattainment Areas for PM2.5

Attainment

Unclassified

Nonattainment19 Figure 7: California Nonattainment Areas for Ozone

Overall, to meet the PM2.5 standard in the South Co ast and the San Joaquin Valley Air Basins, NOx emissions must be reduced by approximat ely 50 percent. Even greater reductions of NOx, on the order of 75 to 88 percent , will be needed to achieve the 8-hour ozone standard in the by 2023. Despite the fact that emissions in future years are expected to be lower than originally anticipate d when the regulations were adopted,

substantial emissions reductions from trucks and bu ses are still needed by 2014 to meet the PM2.5 attainment deadline and by 2023 to m eet the 8-hour ozone attainment

deadline.

California’s 2003 South Coast SIP contained two mea sures for off-road LSI equipment that represented a commitment of 2.8-6.0 tons per d ay in 2010 and 1.5-5.1 tons per day in 2020. The 2006 LSI rulemaking commits to reduce HC+NOx emissions from LSI equipment by 2.6 and 2.9 tons per day in the South Coast in 2010 and 2020, respectively (ARB, 2006a).

California’s 2007 SIP included the off-road regulat ion as a control measure. ARB’s legal commitment to achieve the emission reductions laid out in the SIP relies upon the emission reductions from the regulation by 2014 in the South Coast and the San Joaquin Valley (ARB, 2007c). If the off-road regul ation falls short of achieving these reductions, the shortfall would need to be achieved by other control measures.

2. Meeting SIP Target

In directing staff to propose changes to the Truck and Bus and off-road regulations together, the Board directed staff to also consider the impact of the recession and Nonattainment Unclassified / Attainment20

inventory changes on fleets affected by these regul ations in deciding how to provide appropriate regulatory relief. This was intended t o ensure emissions reductions could be targeted most cost effectively, and the combined emissions benefits achieved by the two rules would continue to meet SIP requirements.

To assess progress towards meeting the emission red uction obligations in the SIP, staff

evaluated whether the lower emissions from the revi sed inventories for both trucks and off-road vehicles, combined with the effects of the recession, provided greater emission reductions than were expected. Any excess emission reductions achieved are referred to as an emission margin. The margin defines how m uch relief can be provided under the regulations while still meeting the legal emiss ion reduction requirements of the SIP.

To allow for a comparison of different pollutants ( PM and NOx), the margin is calculated, by air basin, in NOx equivalent emissio ns, since both pollutants contribute to ambient levels of PM2.5 levels in the atmosphere. Table 7 below shows the emission margin for the South Coast and San Joaquin Valley A ir Basins for 2014, which is the

attainment date for these two air basins to meet fe deral PM2.5 standards. As can be seen, based on this analysis, it is feasible to pro vide regulatory relief to affected fleets while still meeting all SIP obligations, so long as these emission margins are not

exceeded.

Table 7: Emissions are Less Than the 2014 SIP Targ et – Existing Truck and Bus and Off-Road Regulations, Including R ecession

Air Basin Equivalent Tons of NOx

Below Combined SIP Target

South Coast 62 San Joaquin Valley 40

C. PM Emissions and Mortality

The U.S. EPA recently published a review of the PM- related health science literature in the Integrated Science Assessment, which is the fir st part of the ongoing review of the national ambient air quality standards for PM (U.S. EPA, 2009). Based on the overall evidence from the more than one thousand peer-revie wed publications of PM2.5 exposure in humans, animals, and cells, the U.S. EP A concluded that long-term exposure to PM2.5 exposure is causally associated w ith premature mortality, and that premature deaths caused by PM2.5 occur at levels as low as 5.8 micrograms per cubic meter, which is considerably lower than the current national standard of 15 micrograms per cubic meter. A causal relationship means it ha s the highest scientific level of certainty in its ability to contribute to premature death. This report was peer reviewed through a public process by the Clean Air Scientifi c Advisory Committee Particulate Matter Review Panel, an independent body of 24 nati onal scientists.

The U.S. EPA risk assessment methodology, the basis for ARB’s calculation, was developed to estimate premature deaths associated w ith PM2.5 exposure across the nation. This report was also peer reviewed through a public process by the Clean Air21

Scientific Advisory Committee Particulate Matter Re view Panel. The relationship between premature death and PM2.5 relies on a new c omprehensive study of about 500,000 participants in 116 U.S. cities (Krewski et al., 2009). Besides the large representative study population, the U.S. EPA concl uded this study has significant advantages over other epidemiological studies of th e relationship between PM2.5 and premature death. These include the use of more rec ent measured PM2.5 air quality data, more individual lifestyle information to allo w for consideration of potential confounding (compared to other cohort studies), and rigorous statistical methods. Using this relationship, the U.S. EPA conducted a n ational-scale analysis and a more limited risk assessment, which was focused on 15 ur ban study areas, including Fresno and Los Angeles (U.S. EPA, 2010).

Based on this work, the U.S. EPA estimates that abo ut 63,000 to 80,000 premature deaths each year in the United States are related t o PM2.5. Using the same methodology, ARB staff estimated that 9,200 (7,300- 11,000, 95 percent confidence interval) of these deaths occur annually in Califor nia, and that reducing emissions to meet the Federal standard would result in 2,700 few er premature deaths annually. Reducing PM emissions further would provide an addi tional reduction in the number of premature deaths.

D. Localized Risk

Diesel PM as a component of ambient PM2.5 is a sign ificant public health concern throughout the state. Additionally, in August 1998 , the ARB identified PM emissions from diesel-fueled engines as toxic air contaminant s. It is, by far, the largest contributor
of known ambient air toxics cancer risk in Californ ia (ARB, 2009b).

Following the identification process, the ARB devel oped the Risk Reduction Plan to

Reduce Particulate Matter Emissions from Diesel-Fue led Engines and Vehicles (Diesel Risk Reduction Plan) in September 2000, paving the way for the development of control measures designed to reduce toxic diesel PM emissio ns. Through this plan staff identified strategies, including air toxics control measures and other regulations, to reduce diesel emissions by 75 percent by 2010, and by 85 percent by 2020. The goal of each regulation is to make diesel engines as cle an as possible to reduce emissions and their associated cancer risk. The off-road reg ulation is a critical piece of the Diesel Risk Reduction Plan, as is evidenced by the signifi cant emissions of diesel PM from the vehicles subject to this regulation. Failure to ob tain substantial reductions in diesel PM from off-road diesel vehicles will likely mean the overall goals of the Diesel Risk

Reduction Plan will not be met.22

IV. PROPOSED AMENDMENTS TO THE OFF-ROAD REGULATION

This chapter describes the proposed changes to the off-road regulation. As described further in the sections below, amendments to the re gulation are necessary and appropriate for the following reasons: (1) under cu rrent economic conditions, fleets subject to the regulation need economic relief from the cost of compliance, (2) emissions from off-road diesel vehicles are signifi cantly lower than previously estimated due to the recession and new data and inventory met hodology changes, and (3) based on feedback from affected fleets and ARB implementa tion staff, a number of other regulation provisions require clarification or stre amlining.

A. Existing Regulation

1. Overview

The scope of the off-road regulation is far reachin g; affecting vehicles of dozens of types used in thousands of fleets, in industries as diverse as construction, air travel, manufacturing, landscaping, and ski resorts, as wel l as public agencies. The off-road regulation affects, among others, the warehouse wit h one diesel forklift, the landscaper with a fleet of a dozen diesel mowers, the county t hat maintains rural roads, the landfill with a fleet of dozers, as well as the large constr uction firm or government fleet with hundreds of diesel loaders, graders, scrapers, and rollers. To punctuate the scope of the regulation, as of September 20, 2010, over 8,80 0 fleets had reported over 150,000 off-road vehicles to the Diesel Off-Road Online Rep orting System (DOORS), the electronic reporting system for the regulation (DOO RS, 2010).

The off-road regulation’s requirements vary dependi ng on the size of the fleet and on the vintage of its vehicles. Fleets are defined in the off-road regulation as small, medium, or large based on their total statewide hor sepower (hp). The off-road regulation requires that the largest fleets, which have the most significant emissions, meet the most stringent requirements. The smallest fleets, and local municipal fleets located in low-population counties, are required to meet less stringent provisions.

2. Enforcement delay of off-road regulation

California may adopt and enforce emission standards and other requirements for offroad engines and equipment not expressly subject to federal preemption so long as California applies for and receives authorization f rom the Administrator of U.S. EPA. California’s request for authorization was submitte d on August 12, 2008. On October 27, 2008, and April 14, 2010, the U.S. EPA conducted hearings regarding California’s request for authorization for the off- road regulation. However, the request for authorization is still pending.

In response to the continuing effects of the econom y and because the U.S. EPA had not granted California’s request for authorization, the ARB Executive Officer issued a regulatory advisory on February 11, 2010. The advi sory notified stakeholders that ARB will not be enforcing the NOx and PM requirements o f the regulation, pending further23

notice (ARB 2009c). The reporting, labeling, idlin g and disclosure requirements remain in effect, however, because they do not require fed eral authorization.

B. Proposed Amendments to the Off-Road Regulation

As described in Chapter II, the recession and an up dated inventory assessment provided both cause and means to lower the requirem ents and costs of the regulation. In selecting the provisions of the off-road regulat ion to modify, staff considered direction from the Board (see Chapter I), input from stakehol ders and the ORIAG, and the results of emissions and cost modeling. Staff also worked with representatives from the Associated General Contractors of America (AGC), to develop several proposed amendments (ARB, 2010a), including:

• Delay start of requirements until January 1, 2014;

• Increase the number of “low-use” equipment exempte d;

• Provide simpler compliance options for the smalles t fleets;

• Extend benefits for businesses that comply before their deadline; and

• Lower annual requirements to clean up engines.

Staff developed the following package of proposed a mendments to balance a number of considerations, including the wide range of industr y, public health, and the legal requirements of the state to meet air quality stand ards. In developing the proposed amendments, staff considered numerous alternatives to this proposal, as discussed further in Chapter VIII.

A summary of the proposed amendments includes:

• The regulation would place annual requirements on fleets over the following

timeline:

o Large fleets: 2014 to 2024

o Medium fleets: 2017 to 2027

o Small fleets: 2019 to 2029

• In each compliance year, fleets (of all sizes) wou ld be required to meet an adjusted fleet average target, or complete a single set of Best Available Control Technology (BACT) requirements;

• Annual BACT requirements would consist of turning over or retrofitting 8 to 10 percent of the fleet’s horsepower (4.8 percent for large fleets in 2014);

• Extend double credit period for fleets choosing to retrofit;

• Vehicles under 200 hours of use annually would be defined as low-use and therefore largely be exempt from the regulation’s r equirements;

• Provide credit for reduced fleet horsepower from 2 010 to 2011;

• Simplify compliance path for fleets under 500 hors epower; and

• Increase turn-over requirements in the later years of the regulation.

Background on each amendment is provided below, and each is described in further

detail.24 1. Major Amendments

Below is a summary of the proposed major amendments

.

a) Delay Implementation for Four Years

Proposed Change: 2449.1(a)(1)(A)(1) and 2449.1(a)(2)(A)(1): Staff proposes to move the start date of the regulation back four years fo r all fleets.

• The first requirements for large fleets would be m oved from 2010 to 2014, medium fleets from 2013 to 2017, and small fleets f rom 2015 to 2019.

• All requirements would be required by January 1 of the calendar (i.e. large fleets 2014 requirements would be required by January 1, 2 014), instead of March 1.

• Credits that expire (i.e. reduced activity credits ) would not be extended

• Reduced horsepower credits would be reduced by hal f, and fleets could not use such credits to meet the 2014 requirements.

• Fleets would maintain credit for repowers and retr ofits until that credit is used to meet the BACT requirements.

b) Combined PM and NOx Fleet Averages and BACT Requirements

Proposed Change: 2449.1 and 2449.2: Staff proposes to combine the P M and NOx fleet averages and BACT requirements as described b elow:

• The combined BACT requirements would require actio ns on 8 to 10 percent of a fleet’s horsepower in each year that a fleet does not meet the fleet average target (or 4.8 percent in 2014).

• A fleet would receive credit toward the BACT requi rements for both retrofits and

turnover.

• To determine whether it is required to comply with the BACT requirements, a fleet would compare its fleet average index to its fleet average target rate. The index would be based on a fleet’s NOx fleet average , adjusted to reflect verified diesel emission control strategies (VDECS), includi ng those that only reduce

PM.

All fleets would have the following compliance opti ons for meeting the proposed combined BACT requirements:

• Replace older vehicles with new or used vehicles;

• Replace diesel vehicles with electric or alternati ve fuel vehicles;

• Repower older engines with Tier 2 or higher engine s;

• Retire vehicles from the fleet;

• Designate vehicles as permanent low-use; or

• Install VDECS.

c) Extend Double Retrofit Credit Period

Proposed Change: 2449.1(a)(2)(A)2.iii: Staff proposes to extend t he period during which a fleet may receive double credit for the ins tallation of a VDECS until 12 months25

prior to the initial compliance deadline for all fl eet sizes. Table 8 below lists the proposed deadlines for double credit for all fleet sizes, and for comparison the current

deadlines for all fleet sizes.

Table 8: Existing and Proposed VDECS Double Credit Deadlines

Fleet Size Current Double Credit

Deadline Proposed Double
Credit Deadline Large January 1, 2010 January 1, 2013 Medium March 1, 2012 January 1, 2016 Small March 1, 2012 January 1, 2018

d) Increase Low-Use Threshold

Proposed Change: 2449.1(a)(2)(A)7: Staff proposes to increase the low-use threshold for both permanent low-use vehicles and y ear-to-year vehicles from 100 hours annually to 200 hours annually. This proposed chan ge would impact both year-by-year low use vehicles and those designated as permanentl y low use (further discussion of low-use vehicles can be found in Appendix E)

e) Provide Credit for Reduced Fleet Horsepower from 20 10 to

2011

Proposed Change: 2449.1(a)(2)(A)2.iv: Staff proposes to award cre dit toward the BACT requirements for fleets that reduce horsepower from March 1, 2010, to March 1, 2011, for retirements that comply with the order of turnover requirements. Fleets would receive credit toward the new combined BACT require ments in an amount equal to the total reduction of fleet horsepower from March 1, 2 010, to March 1, 2011, or for the reduction in horsepower from Tier 0 and Tier 1 vehi cles during that period, whichever is

lower.

f) Delay Requirements for Fleets That Complied in 2010

Proposed Change: Staff proposes to remove the 2014 requirements fo r large fleets that came into compliance with the regulation’s per formance requirements by March 1, 2010. This provision would recognize the effort of fleets that met the 2010 fleet averages or accumulated enough credits to meet the March 1, 2010, BACT requirements. Such fleets would not be required to meet the 2014 fleet average or use their credits to comply with the BACT requirements in 2014 (therefore preserving their credits to be used in later years).

g) Delay of Turnover for Tier 2 Vehicles

Proposed Change: Staff proposes to exempt all Tier 2 vehicle or ne wer vehicles from the January 1, 2014 and January 1, 2015 compliance requirements for large fleets. That is, no fleet would be required to replace or r etire a Tier 2 vehicle until the compliance year beginning January 1, 2015, and endi ng December 31, 2015, if it was necessary to meet the January 1, 2016 requirements. This provision would extend the similar principle the regulation current provides i n delaying Tier 1 turnover until March 1,26

2013, but would apply to Tier 2 or higher vehicles. By January 1, 2016, Tier 2 vehicles will be up to 15 years old (depending on horsepower category).

h) Simpler Compliance Path for Fleets Under 500 Horsep ower

Proposed Change: 2449(e)(17): Staff proposes to allow fleets with under 500 horsepower to choose to comply with the regulation by phasing out their Tier 0 and Tier 1 vehicles. This phase-out would not be required, and these fleets could instead opt to meet the fleet average requirements or the BACT req uirements. The phase-out schedule proposed is shown in Table 9.

Table 9: Compliance Option for Fleets Under 500 Ho rsepower

Compliance Date January 1 of Year Percent of Fleet (by horsepower) Which Must Have a Tier 2 or Higher Engine

2019 25

2022 50

2026 75

2029 100

i) More Stringent Fleet Average Targets Through 2023

Proposed Change: 2449.1(a)(1)(A)(1): Staff proposes to increase the stringency of the fleet average targets, such that fleets are require d to turn over to additional Tier 4i
and/or Tier 4 vehicles from in 2022 and 2023. For vehicles over 175 horsepower and below 750 horsepower, the NOx fleet average current ly end (in 2020) at levels slightly less stringent that the Tier 4i standard for off-ro ad vehicles. These targets would be lowered to match the Tier 4i emissions standard by 2023. For vehicles between 75 and 175 horsepower, where vehicle life is generally low er and turnover is less costly, the final fleet average targets will be placed between Tier 4i and Tier 4 final emission

standards.

Overall, this change would increase the amount of T ier 4i and Tier 4 vehicles required to comply with the regulation by 2023. The current an d proposed final fleet averages are

shown below in Table 10.

Table 10: Current and Proposed: Final Fleet Avera ge Targets by Horsepower (Hp) Bin

Fleet Average Targets 25-49

Hp 50-74

Hp 75-99

Hp 100-174

Hp 175-299

Hp 300-599

Hp 600-750

Hp Over 750 Hp

Current 2020 NOx Targets 3.5 3.2 2.4 2.2 1.9 1.9 1.9 3.4

Proposed 2023 Final Targets 3.3 3.0 1.4 1.3 1.5 1.5 1.5 3.4

Staff will continue to evaluate the fleet average t argets for the middle years of the offroad regulation, and may make adjustments to furthe r smooth out the compliance requirements.27 2. Minor amendments

Staff is also proposing several minor modifications or clarifications to the regulations, which are not expected to significantly alter the e missions reductions or total costs expected from the regulation when initially adopted . These minor amendments are designed to make the off-road requirements clearer or to fix inconsistencies discovered during the beginning stages of regulatory implement ation. The changes include the following:

Remove the Word “Should” - Remove all instances of the word “should” throug hout the regulation, and replace the word with “shall”.

Captive Attainment Area Fleet Definition - Modify the definition to designate these fleets as small fleets, regardless of their total horsepow er.

Clarify Low Use Definition - Explicitly identify the two types of low-use wit hin the regulation (year-by-year low use, and permanent low -use).

Modify Post-2007 Flexibility Engine Provisions - Modify the reporting requirements for Post-2007 flexibility engines. Although these engi nes will now be treated as if they were not “flexed”, reporting is still required.

Alternative Fuel and Hybrid Provisions - Remove electric vehicle horsepower from the fleet’s total horsepower calculation and from all B ACT calculations; this change would incentivize the use of hybrid off-road vehicles by allowing fleets to use a lower emission factor(s) for hybrid equipment used in a fleet.

Remove Hours in Fleet Average Provision – Delete this provision since no fleets have taken advantage of it.

New Fleet Requirements - Clarify that upon a new fleet purchasing vehicles o r bringing vehicles into the state for the first time, a fleet must meet the following requirements:

• Large or Medium fleets: Require a large or medium fleet to meet the fleet average target for the closest future large fleet compliance date upon initial formation or upon entrance into the state after the effective date of the proposed

amendments.

• Small fleet:

Require a new small fleet to meet the fleet avera ge target for the closest future small fleet compliance date upon ini tial formation or upon entrance into the state after the effective date of the prop osed amendments.

For any size fleet, the new fleet would have the ch oice of meeting either the fleet average target or the BACT requirements for subsequ ent compliance dates.

Adding Vehicle Requirements - Amend this provision to require that:

• A ban on adding vehicles with Tier 0 engines to an y fleet would begin only after:28

o The proposed amendments to the off-road regulation are certified by the Secretary of State; and

o The Administrator of the U.S. EPA grants authoriza tion to enforce the off-road regulation.

• Beginning March 1, 2011, large and medium fleets w ould be allowed to add only vehicles with Tier 2 or higher engines, except as f ollows. A vehicle with a Tier 1 engine could still be added during this time, as lo ng as all the following conditions

are met:

o The added vehicle with the Tier 1 engine must have been registered in DOORS before March 1, 2011;

o The fleet adding the vehicle with the Tier 1 engin e must be registered in DOORS; and

o The fleet removing the vehicle with the Tier 1 eng ine must be registered in
DOORS.

• Without exception, beginning January 1, 2013, larg e and medium fleets would be allowed to add only vehicles with Tier 2 or higher engines; beginning January 1, 2016, the restrictions would apply to small fleets; and

• Beginning January 1, 2018, large and medium fleets would be allowed to add only vehicles with Tier 3 or higher engines; beginn ing January 1, 2023, the restrictions would apply to small fleets.

These revised requirements would apply to all fleet s (regardless of compliance path) and to all horsepower categories, providing additio nal clarity and simplification to the regulation.

Compliance after the Final Target Date - Clarify that the turnover and retrofit exemptions do not expire after the final compliance date.

Reporting Dates - Change the reporting dates to make them more consis tent with the changes and delays to the compliance dates.

Labeling - Require equipment identification numbers (EINs) on both sides of a vehicle, instead of just on the right (starboard) side. Add itionally, staff is proposing to require captive attainment area fleets to label their vehic les with EINs that are green with white letters (instead of red with white letters) if they choose to take advantage of the captive attainment area fleet provision. Staff is proposin g to provide fleets with two years (until January 1, 2013) to make these labeling changes.

Compliance Certification Process – Clarify this provision by re-naming process “Responsible Official Affirmation of Reporting”.

Order of Turnover

- Simplify the order of turnover provisions by requir ing fleets to turn over all Tier 0 and Tier 1 vehicles before counting other higher tiered vehicles in meeting the fleet’s BACT requirements.29

15 Percent Turnover Exemption – Extend this provision from March 1, 2011 to January 1, 2013, and clarify that if a fleet has more than 15 percent of its vehicles retrofitted before then, the fleet may choose any of those vehi cles to be counted under this exemption, as long as the 15 percent cap is not exc eeded; and clarify that a fleet must keep the VDECS on the vehicles with this exemption in order to maintain the exemption.

SOON targets - Adjust the SOON targets to reflect the delay in implementation and fleet average tightening in later years.

3. Impacts of Amendments on an Actual Fleet

Staff evaluated the impact of the proposed amendmen ts on a variety of fleets of different sizes and ages. An example is shown belo w. This actual fleet has 490 vehicles with a combined 29,000 horsepower and an a verage vehicle age of 12 years.

The annual retrofit and turnover requirements under the existing regulation and the proposed amendments are shown below in Figure 8 and Figure 9, respectively.

Figure 8: Annual Retrofit Requirements under the C urrent

Regulation and Proposed Amendments

0% 2% 4% 6% 8% 10% 12% 14%20102011201220132014201520162017201820192020202120222023Horsepower Current Retrofit

Proposed Retrofit30 Figure 9: Annual Turnover Requirements under the C urrent

Regulation and Proposed Amendments

0% 2% 4% 6% 8% 10% 12% 14% 16%20102011201220132014201520162017201820192020202120222023Horsepower Current Turnover

Proposed Turnover

The current regulation would require this actual fl eet to turn over approximately 80 percent of its overall fleet horsepower from 2010 t o 2020, and retrofit 30 percent of its horsepower, primarily between 2010 and 2013. After the proposed amendments, this fleet could comply by turning over 70 percent of it s horsepower between 2014 to 2024, and not retrofitting any vehicles. As shown above, the proposed amendments allow for both a delay and reduction in compliance requiremen ts, which will provide significant economic relief for those fleets subject to the reg ulation.

C. Impact of Proposed Changes on Funding Opportunit ies

Incentive funding programs play a complementary rol e to the state’s regulatory emission reduction programs to help meet the state’s SIP req uirements and achieve California’s air quality goals by funding projects that achieve early and extra (surplus) emission reductions. ARB oversees two incentive funding pro grams that allow off-road fleets to obtain funding to help meet future compliance requi rements: the Carl Moyer Program and the off-road loan assistance program funded thr ough the federal American Recovery and Reinvestment Act of 2009.

1. Program overview

Funding through the Carl Moyer Program is currently available for the replacement, retrofit, or repower of off-road vehicles to provid e early and extra reductions to the regulatory requirements. These reductions are refe rred to as surplus. Eligibility depends on several factors, including fleet size, h ours of usage, and the type of reduced emission technology. The regulation compliance dea dlines affect eligibility by defining the end of the surplus emission reduction period. In general, the proposed regulatory changes will enable greater funding opportunities b y allowing more time for applicants to apply for funding before compliance dates.31

Staff is continuing to evaluate how the proposed am endments will affect available incentive funding opportunities, and will present a summary of potential incentive impacts when the Board considers the proposed regul atory changes in December, 2010. Staff will incorporate public comments and B oard direction into planned revisions to the Carl Moyer Program that are currently schedu led to be considered by the Board in the spring of 2011. One change to the current M oyer program that staff has already identified would reduce the minimum project life fo r small fleets. The Carl Moyer Program currently requires a minimum three year pro ject life which means that incentive funds cannot be used to pay for equipment that is l ess than three years from its compliance deadline. Staff intends to propose decr easing this requirement to two years for small off-road fleets, as has already been done for small on-road fleets.

The off-road loan assistance program, implemented i n partnership with the California Air Pollution Control Financing Authority (CPCFA), is a component of the ARB’s comprehensive Providing Loan Assistance to Californ ia Equipment (PLACE) program. The PLACE program is designed to assist small busin esses in obtaining competitiverate financing to purchase eligible vehicles and eq uipment to achieve early regulatory compliance. Through a one-time $5 million award fr om the U.S. EPA, the off-road loan assistance program utilizes the structure of CPCFA’ s highly successful loan guarantee California Capital Access Program to enable partici pating commercial lenders to provide affordable loans to borrowers that otherwise may no t qualify for conventional financing. Borrowers then use the loan proceeds to upgrade the ir off-road equipment any time in advance of compliance deadlines. Unlike the Carl M oyer Program, eligible purchases need not occur two to three years prior to a compli ance deadline.

2. Access to funding for equipment owners

Interested equipment owners can obtain more informa tion on funding and compliance by using any of ARB’s outreach tools including, the phone hotline at 866-6DIESEL (866- 634-3735), or the email address at 8666diesel@arb.ca.gov

Other federal and state financial and incentive pro grams are administered by local agencies, so equipment owners should check with the ir local air quality management district for funding opportunities. Some equipment may have their own specially funded programs based on type and use.

D. New and Existing Incentives for Early Actions

Although the proposed amendments would delay the fi rst large fleet compliance deadline until January 1, 2014, the proposal would introduce new incentives and maintain existing incentives for early actions incl uding early retrofits, engine repowers, rebuilds, and vehicle replacement. Staff believes these incentives will help ensure continued progress toward cleaner off-road vehicles even in the years before the first compliance deadline. The new and existing incentiv es for early action are outlined in

Table 11 and summarized below.32

Table 11: Early Credit and Incentive Period Deadli nes for Receiving Credit by
Fleet Size

Early Credit or

Incentive Large Fleets Medium Fleets Small Fleets

Retrofit Double
Credit (Period Ends On) January 1, 2013 January 1, 2016 January 1, 2018

Exempt from

Turnover if Retrofit Up to January 1, 2013

Early Credit for Repowers and Rebuilds to Higher
Standard (Period Ends On) January 1, 2013 January 1, 2016 January 1, 2018

Replacement or

Retirement Over 8

Percent in a Year January 1, 2013 January 1, 2016 January 1, 2018

Reduced Horsepower Full
Credit Between March 1, 2010 and March 1, 2011

Reduced Horsepower Half
Credit Between March 1, 2006 and March 1, 2010

1. Double Credit for Retrofits (Proposed Extension)

Staff’s proposal would extend double credit for all retrofits installed up to 12 months prior to a fleet’s first compliance deadline. Flee ts would receive double BACT credit for all retrofits completed prior to the following date s:

• Large fleets: January 1, 2013;

• Medium fleets: January 1, 2016; and

• Small fleets: January 1, 2018.

Fleets can utilize credits in lieu of taking future compliance actions.

2. Turnover Exemption for Retrofit Vehicles (Propos ed Extension)

Under this provision, fleets that retrofit their ve hicles prior to March 1, 2011, receive a permanent exemption from turnover requirements for that vehicle, for the life of the regulation, for up to 15 percent of their horsepowe r. Staff is proposing to extend this date until January 1, 2013.

3. Repowers and Rebuilds (Proposed Extension)

Staff also proposes to credit fleets that repower o r rebuild their engines to a Tier 2 or higher emissions standard before their initial requ irements. All fleets will maintain credit33

for previous repowers (including those to Tier 1 or higher completed before March 1, 2009) and rebuilds to a higher emission standard. The proposal would provide several years to accumulate additional credits for early re powers and rebuilds completed prior to the following dates:

• Large fleets will receive an additional 2 years (J anuary 1, 2013);

• Medium fleets will receive 5 years (January 1, 201 6); and

• Small fleets will receive 7 years (January 1, 2018 ).

4. Early Turnover (Proposed)

Fleets that choose to retire or replace their vehic les may also begin accumulating credit. To ensure that credit is only granted for turnover that exceeds normal replacement of vehicles, staff propose to credit any fleet retirin g or replacing vehicles at a rate over 8 percent of a fleet’s total horsepower, in any year up to the fleets initial compliance year. For 2011, this period will extend from March 1, 201 1, to December 31, 2011, to avoid overlapping with the credit for fleet reductions di scussed below. For all other years, the annual period will extend from January 1 to Decembe r 31. This credit is available in the following years.

• Large fleets: 2011 and 2012 (i.e., for turnover pr ior to January 1, 2013);

• Medium fleets: 2011 through 2016 (i.e., for turnov er prior to January 1, 2016);

• Small fleets: 2011 through 2018 (i.e., for turnove r prior to January 1, 2018).

For example, if a medium fleet (first requirements would due between January 1, 2016 and December 31, 2016 for the compliance deadline o f January 1, 2017) replaced 16 percent of their horsepower in 2012 and then replac ed 18 percent of their horsepower in 2015, the fleet would accumulate 8 percent credit f rom 2012 and 10 percent credit from

2015. This would allow the fleet to start with 18 percent credit, or enough to comply with their first two year of requirements.

5. Reduced Horsepower from 2010 to 2011 (Proposed)

The impact of the economic recession caused many fl eets to reduce their total horsepower by selling off or scrapping equipment. To recognize this impact, and provide relief from the regulation for those fleets most impacted by the recession, staff is proposing to credit all fleets if they reduced hors epower between March 1, 2010 and March 1, 2011.

6. Reduced Horsepower from 2006 to 2010 (Proposed

Modification)

The regulation currently credits fleets for the tot al reduction in horsepower from March 1, 2006 to March 1, 2010. This credit was adopted to provide a delayed implementation for those fleets hardest hit by the recession. How ever, under staff’s current proposal, all fleets would have delayed requirements for 4 years. Staff still believes there is value in retaining the credit, but that it is appropriate to discount the amount of credit accumulated by fleets under this credit by 50 perce nt.34

V. PROPOSED AMENDMENTS TO THE LSI FLEET REGULATION

This chapter summarized the proposed changes to the LSI fleet regulation.

A. Existing Regulation

The original (1998) LSI rulemaking required LSI eng ine manufacturers to certify their new engines to a 3.0 gram per brake horsepower-hour (g/bhp-hr) combined HC+NOx standard. The emission control requirements were p hased in, in increments of 25 percent per year, beginning with the 2001 model year. Thus, by the 2004 model year, 100 percent of the new engines were emission- controlled. To achieve this standard, manufacturers relied upon the same emissi on control technologies used in automotive engines – three way catalytic converters , electronic fuel/air controllers, and oxygen sensors. The 3.0 g/bhp-hr standard represen ted a 75 percent reduction in emissions versus LSI engines with no emission contr ols.

The subsequent (2006) rulemaking required manufactu rers to certify their new LSI engines to a 2.0 g/bhp-hr HC+NOx standard effective January 1, 2007, and a 0.6 g/bhphr standard effective January 1, 2010. The latter standard represents a 95 percent emission reduction versus uncontrolled LSI engines.

The 2006 rulemaking also required operators of in-u se fleets to achieve specific HC+NOx fleet average emission level (FAEL) standard s that become more stringent

with fleet size and time. The standards are also m ore stringent for forklifts than they are for non-forklift LSI equipment. The stringency of the standards reflects the differences in availability of retrofit devices for the four ca tegories of in-use LSI equipment as well as the greater ability of large fleets to incorpora te zero- and near zero-emission equipment into their operations.

The new engine emission standards and test procedur es apply to LSI engines used in airport ground support equipment (GSE), forklifts, generator sets, mining equipment not otherwise primarily used in the construction indust ry, off-highway recreational vehicles, refrigeration units less than 50 horsepower, indust rial (non-road) sweeper/scrubbers, industrial tow tractors (tugs), turf care equipment , and other industrial equipment. The standards affect approximately 30 engine and equipm ent manufacturers.

The LSI fleet regulation applies to operators of fo rklifts, sweepers/scrubbers, tugs, and GSE. These vehicles are found in approximately 2,0 00 LSI fleets in California in industries as diverse as manufacturing, wholesale, transportation and utilities, retail, services, and construction, as well as public agenc ies.

B. Proposed Amendments to the LSI Fleet Regulation

As with the off-road regulation, the recession and its impact on the emissions inventory provide an opportunity to reduce the compliance req uirements and costs of the regulation while retaining its overall emission ben efits. In considering the provisions of the regulation to modify, staff primarily considere d the extent to which large operators35

have already taken measures to comply with the 2011 and 2013 FAEL standards, and

identified those emission reduction measures that w ere the least cost effective.

Staff compiled the following amendments to address the wide range of obligations towards industry, public health, and the legal requ irements of the state of California to meet air quality standards. Staff also considered alternatives to this proposal, as discussed further in Chapter VIII.

Based on its assessment, staff is proposing the fol lowing major modifications to the LSI fleet regulation:

• Modify the limited hours of use provisions; and

• Broaden compliance extension flexibility.

A summary of the regulatory requirements if the pro posed amendments are approved is

as follows:

• The LSI fleet regulation would continue to require medium and large fleet operators to comply with the existing 2011 and 2013 FAEL standards requirements;

• Agricultural crop preparation services fleets woul d continue to comply with the retrofit or lesser FAEL standard requirements;

• Operators would achieve the FAEL standards require ments through either replacement with new or used zero- or near zero-emi ssion equipment or retrofit of late model uncontrolled equipment; and

• Small fleets would continue to be exempt.

1. Major Amendments

Below is a summary of the proposed major amendments

.

a) Modify the Limited Hours of Use Provisions

Proposed Change : 2775.1(d)(1)(D): Staff proposes to modify the c urrent limited hours of use (LHU) provisions to allow equipment operated no more than 200 hours per year subsequent to January 1, 2011, to be excluded from FAEL standard calculations. To ensure that the LHU provision is enforceable, the A RB intends to clarify that operators desiring to exclude equipment need to use non-reset table hour meters.

b) Broaden Compliance Extension Flexibility

Proposed Change: 2775.2(e)(1)(A): Staff proposes to modify the curr ent extension provision language to allow a two-year compliance e xtension with provisions for an additional two years in the event of continued non- availability of retrofit kits. Administratively, section 2775.2(e)(1)(A) provides an incomplete reference to “subsections (a), (c), and (d) without stating the section. Staff proposes to clarify that the subsections are part of section 2775.1.36 2. Minor amendments

Staff is also proposing other minor modifications t o the LSI fleet regulation, which are intended to clarify or simplify the provisions of t he LSI fleet regulation. Below is a description of these minor amendments.

Agricultural Operations Definition – Add an Agricultural Operations definition.

Airport Ground Support Equipment Definition – clarify this definition to remove the “other” category of equipment and allow operators t o include electric equipment in their FAEL standards calculations only as long as the equ ipment performs the work equivalent of an LSI engine-powered piece of equipm ent.

Baseline Inventory Definition – Clarify this definition to reflect that the base line inventory should reflect all operated equipment subject to the FAEL standards.

Boneyard Definition - Add a “boneyard” definition and modify the FAEL definition to exclude boneyard fleets.

Fleet Average Emission Level Definition –Modify the definition to:

• exclude in-field, boneyard, experimental, and reti red equipment from the FAEL standards calculations,

• allow electric equipment of less than 19 kW to be included in FAEL standards calculations as long as the equipment performs, wit h similar efficiency, the same function as an LSI engine-powered piece of equipmen t subject to the standards,

and

• clarify that the default emission rate for uncontr olled LSI equipment is 12.0 g/bhphr HC+NOx.

In-Field Equipment Definition – Add a definition for in-field equipment.

Operator Definition – Modify this definition to allow dealers some de minimis level of use of their rental and used equipment fleet vehicles w ithout triggering the FAEL standard requirements.

Retired Equipment Definition – Add a definition for retired equipment.

Record Keeping Requirements – Modify to remove the fuel quality record-keeping requirement, and clarify the ARB’s intent that the record-keeping requirement apply to each piece of LSI equipment.37

VI. ENVIRONMENTAL IMPACTS

This chapter describes how the proposed amendments continue to achieve the needed emission reductions, reduce localized risk from exp osure to diesel PM, reduce impacts of diesel engine emissions on mortality and other h ealth effects and meet SIP commitments to meet federal air quality standards.

A. Legal Requirements

The California Environmental Quality Act (CEQA) and ARB policy require an analysis to determine the potential environmental impacts of pr oposed regulations. The legal requirements applicable to the environmental impact analysis are the same as those presented in the original off-road TSD (ARB, 2007b) . Please see Chapter IX of the offroad TSD for a description of these requirements.

The results of the environmental impact analysis fo r the proposed regulation

amendments are discussed in the sections below. Al ternatives to the proposed amendments, including a comparison of emissions ben efits, are discussed in Chapter

VIII.

B. Air Quality Impacts of Proposed Off-Road Regulat ion Amendments

Because of the recession and revisions to the emiss ions inventory, revised emissions estimates are significantly lower than estimated in 2007. However, despite these reduced emissions, further emission reductions are necessary to meet the federal clean air standards as well as provide important reductio ns in premature mortality and localized risk from diesel PM. The proposed amendm ents to the off-road regulation would continue to provide significant air quality b enefits to meet these objectives. Staff anticipates, even with proposed amendments, that th e regulation will achieve a 17 percent reduction in NOx emissions and a 21 percent reduction in PM2.5 emissions in

2023.

All emissions estimates were completed using the Of f-Road Simulation Model (OSM), and the Off-Road Emissions Inventory Model, discuss ed further discussed further in Appendix D.

1. Methodology to Model Emissions Impacts

Staff modeled the proposed amendments using OSM to determine the actions all fleets in the state would be required to take to meet the regulatory requirements. Staff used OSM to analyze the benefits of various proposed ame ndments. This information was

then used to estimate the emissions benefits of the amendments proposed by staff herein. Staff then compared these results with the expected benefits of the current regulation to determine the change in benefits due to staff’s proposal. The difference in

emissions benefits can be considered to be the chan ge in emissions benefits due to the proposed amendments. Staff then considered the imp act of the recession on emissions and compared the expected benefits of the proposed amendments against the expected benefits of the current regulation that considered emissions expected before the38

recession began. Through this analysis, staff was able to determine if the amended regulation would provide the emission reductions ne cessary (when combined with the estimated benefits from the Truck and Bus regulatio n) to meet applicable SIP targets.

Provisions Modeled - The portions of the proposed amendments staff mo deled using
OSM were:

• the delay of implementation,

• the combined NOx and PM BACT fleet average and sch edule,

• the adjustment to credits for all fleets,

• and delayed requirements for fleets that complied early, and

• the increase in turnover requirements from 2022 to 2023.

Staff did not model other provisions of the propose d amendments, as they are not expected to have a significant impact on the overal l benefits of the regulation. However, staff will monitor the implementation of the minor amendments to determine if any change in the expected benefits of the regulation i s occurring.

2. Emissions Benefits of the Proposed Amendments

The revised baseline off-road emissions inventory ( assuming no off-road regulation) and the impact of the proposed amended regulation on em issions in years relevant to
attainment of NAAQS are shown below in Table 12.

Table 12: Baseline Emissions and Regulation Impact on Statewide NOx and PM

Emissions 3

Year NOx

Emissions

Baseline With

Proposed Regulation NOx

Emissions

Benefits PM

Emissions

Baseline With

Proposed Regulation PM

Emissions

Benefits

2014 76.2 74.9 1.3 3.9 3.8 0.1

2017 76.8 71.2 5.6 3.9 3.6 0.3

2020 65.0 56.8 8.2 3.1 2.6 0.5

2023 52.3 43.6 8.8 2.4 1.9 0.5

Figure 10 and Figure 11 below show the baseline NOx and PM emissions, respectively, from off-road diesel vehicles and the impact of the regulation on emissions if the proposed amendments are adopted.

3 Using the revised off-road emissions inventory.39

Figure 10: Statewide NOx Emissions from Off-road D iesel Vehicles

Figure 11: Statewide PM Emissions from Off-road Die sel Vehicles

3. Comparison of Emissions Benefits

The proposed amendments would delay the date for fl eets to take initial action and generally require fleets to take fewer compliance a ctions in each year. Table 13 compares the benefits of the current regulation and the regulation as proposed to be

amended.40

Table 13: Benefits of the Current Regulation Compa red to the Proposed Amendments (tpd) 4

NOx Benefits PM Benefits

Year Current

Regulation With

Proposed

Amendments Current

Regulation With

Proposed

Amendments

2014 8.7 1.3 1.3 0.1

2017 17.4 5.6 2.1 0.3

2020 18.5 8.2 2.0 0.5

2023 10.7 8.8 1.4 0.5

As can be seen, the NOx benefits of the proposed am endments would be less than if the current regulation were implemented, through 20 20. By 2023, the requirement for

fleets to increase turnover to Tier 4i and Tier 4 w ould increase the NOx benefits to approximately 80 percent of the benefits of the cur rent regulation.

Due to the removal of the aggressive retrofit sched ule, PM emission reductions from offroad diesel vehicles would be substantially less co mpared to implementation of the current regulation.

4. PM and NOx Emission Benefits are Preserved

The proposed regulatory amendments across both the Truck and Bus and off-road regulations are designed to provide the maximum amo unt of economic relief possible while still preserving as much of the originally en visioned benefits as possible. Staff’s estimates suggest that statewide the combined impac t of the recession with the proposed amendments to the Truck and Bus and off-ro ad regulations will provide essentially the same cumulative remaining emissions levels between 2011 and 2023 as was expected with the existing regulations before t he recession. These estimates are shown in Figure 12 and Figure 13 for PM2.5 and NOx respectively.

As can be seen in Figure 12, while the emissions th at would occur in each year are not equivalent between the current regulation and the p roposed amendments, cumulatively the amended regulation will result in essentially t he same NOx and PM2.5 emissions levels compared to what was expected when the regul ation was approved by the Board

before the recession.

4 Using the revised off-road emission inventory.41

Figure 12: Year-by-Year Comparison of Truck and Bu s and Off-Road PM Emissions after Regulation is Applied: Current Rul e without Recession vs.

Amended Rule with Recession

0 5 10 15 20 25 30

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 202 3Statewide PM2.5Emissions (tons/day)

Figure 13: Year-by-Year Comparison of Truck and Bu s and Off-Road NOx Emissions after Regulation is Applied: Current Rul e without Recession vs.

Amended Rule with Recession

0 100 200 300 400 500 600 700 800

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 202 3Statewide NOxEmissions (tons/day) Adopted Without Recession

With Proposed Amendments

Adopted Without Recession

With Proposed Amendments42 5. Cost Effectiveness of the Emissions Reductions from the Offroad Amendments

The proposed amendments would improve the overall c ost effectiveness of the regulation’s PM reduction, but would not improve th e cost effectiveness of NOx reductions, as shown below in Table 14. This is du e to staff’s efforts to provide the maximum economic relief (while maintaining SIP targ ets) and is discussed in Chapter VIII (alternatives chapter).

Table 14: Cost Effectiveness Comparison of the Reg ulation 5

Emission

Reductions Proposed

Amendments Current

Regulation NOx ($/lb) $4.31 $3.31 PM ($/lb) $76.20 $93.80

The methodology used to calculate cost effectivenes s is the same as described in the TSD for the original off-road rulemaking (ARB, 2007 b).

C. Air Quality Impacts of Proposed LSI Fleet Regula tion Amendments

1. Baseline HC+NOx Emissions from LSI Equipment and Current Regulatory Emissions Benefits

The ARB’s OFFROAD emission inventory model was used in the development of the 1998 and 2006 LSI rulemakings. The projected annua l average statewide emissions from off-road LSI engines are shown in Table 15 bel ow. Based on the implementation of new engine standards that commenced in 2001, and the fleet requirements that commenced in 2009, HC+NOx emissions from off-road L SI equipment were expected to be about 30 tons per day in 2010 and 17 tons per da y in 2020.

Table 15: Annual HC+NOx Emissions from Off-Road LS I Equipment in California (tpd)

Emissions 2004 2010 2020

HC+NOx Emissions 70.2 30.2 17.2

2. Air Quality Impact from Major Amendments

The proposed amendments are intended to provide eco nomic relief for fleets, and would generally require fewer actions, particularly in th e next year, and delay the requirement for fleets to take action on specialty equipment. As a result, the emissions benefits of the LSI fleet regulation will decrease, and statewi de emissions may increase because of the proposed amendments. However, staff believes t hat reduced activity from LSI engines will offset this impact.

5 Using the revised off-road emissions inventory, an d the updated cost methodology (as described in Appendix F.43

Most LSI equipment operators are expected to take a dvantage of the extended LHU provisions, but some are expected to retrofit, repl ace or retire the equipment anyway because of their commitment to cleaning up their fl eet. However, it is uncertain how many fleets would take advantage of the broadened e xtension provisions for specialty equipment. Staff estimates that 20 percent and 5 p ercent of uncontrolled forklifts are LHU or specialty equipment, respectively. This rep resents about 2,400 pieces of equipment and a decreased HC+NOx emission benefit o f about 1.1 ton per day.

Staff does not anticipate an appreciable impact on emissions from any of the minor amendments being proposed because they implement th e original intent of the regulation. To the extent that some operators retr ofit or replace pieces of equipment

that could be excluded from the FAEL standards calc ulations because of the amendments, there may be air quality benefits.

D. Impact on SIP Target

Per the direction of the Board, staff considered th e maximum economic relief that could be provided while ensuring that all applicable SIP targets were met. To do this, staff considered the impact of the recession and inventor y changes on both truck and buses and off-road vehicles together in deciding how to p rovide appropriate economic relief. This approach allowed staff to better target emissi ons reductions across the two categories of vehicles while continuing to ensure t hat the combined emissions targets in
the SIP were met.

As previously discussed, to determine how much econ omic relief could be provided and still meet applicable SIP remaining emissions targe ts, staff compared what emissions were expected to be remaining with the existing reg ulations and the pre-recession inventories to what emissions are expected to be un der the proposed amendments and the updated inventories. The difference between th ese two is the emission margin. Since there are SIP targets for both NOx and PM2.5, staff expressed the margin as a weighted total of the two in NOx equivalent terms. The margin is 62 TPD of NOx equivalent emissions in the South Coast in 2014, an d 40 TPD in the San Joaquin Valley.

Next, to evaluate whether the proposed amendments s till met all applicable SIP targets, staff compared the remaining emissions from these v ehicles, after applying the benefits of the proposed amendments and the revised emission inventories, to the 2014 SIP margins in the South Coast and San Joaquin Valley. In the San Joaquin Valley the proposed amendments reduce the margin to zero, mean ing that the emission levels (after considering the amendments and the recession ) will be at the same level that was expected with the existing regulation before the re cession. In the South Coast, the margin will be reduced to about five tons per day N Ox equivalent. Overall, this demonstrates that the proposed amendments continue to provide maximum economic relief while meeting all applicable SIP targets for trucks and buses and off-road vehicles.44

E. Impact on PM Mortality

Even with the major amendments and economic relief proposed, the off-road regulation when implemented will provide significant health be nefits by reducing premature mortality from PM2.5 exposure and localized risk fr om diesel PM. Staff estimates that 470 premature deaths (360 to 570, 95% confidence in terval) would be avoided by implementation of the amended off-road regulation f rom 2010 to 2029. This estimate is based on U.S. EPA’s new risk assessment methodology (U.S. EPA, 2010), and includes the most recent air quality data available (2006 to 2008) and the latest emissions inventory estimates.

F. Impact on Localized Risk

As discussed above, even with the proposed amendmen ts, the off-road regulation is expected to reduce emissions signficantly. The reg ulation, coupled with normal turnover to newer, cleaner vehicles, will bring off -road vehicle emissions of toxic diesel PM down dramatically over time. As shown above in Figure 11, by 2020, staff expects

that diesel PM emissions from off-road diesel vehic les will have dropped over 40 percent from 2010 levels, and by 2030, they will ha ve dropped over 75 percent from 2010 levels. As off-road diesel vehicles on averag e become lower-emitting, staff expects a corresponding reduction in localized risk from sites where large numbers of off-road diesel vehicles are utilized, such as larg e construction projects.

G. Impact on Climate Change

Recent studies by scientists cited in the Intergove rnmental Panel on Climate Change’s (IPCC) report estimate that emissions of black carb on (BC) are the second largest contributor to global warming, after carbon dioxide emissions (Ramanathan, V. and Carmichael, G., 2008). Studies in the peer-reviewed literature also indica te that BC emissions cause warming primarily in the region whe re they are emitted. Therefore, it is important to understand that BC’s warming impact re quires close attention to the geography of emissions. A study published this yea r shows that the darkening of snow and ice by black carbon deposition is a major facto r for the rapid disappearance of snow packs. The observed trend toward earlier melting o f the snow packs in the Sierras is an important factor in water supply problems in Califo rnia (Hadley, O. L. et al. 2010).

Reviewing all source categories of PM2.5 emissions, the BC content is greatest for diesel exhaust. Fifty percent of PM2.5 emissions f rom on-road diesel exhaust consists of BC, while 40 percent of PM2.5 emissions from off -road diesel exhaust consists of BC (Chow JC, Watson JG, Lowenthal DH, Chen LW, Motalle bi N., 2010). By estimating the BC fraction of diesel PM and the global warming pot ential (GWP) of BC (using 500
GWP 100-yr

and 2000 GWP 20-yr )( Hansen, J.; Sato, M.; Kharecha, P.; Russell, G.; Lea, D. W.; Siddall, M., 2007), the approximate climate war ming effect of the proposed off-road regulation for 2029 is about 1 and 4 million metric tons (MMT) carbon dioxide equivalents (CO 2 -eq) for 100-year and 20-year time horizons, respec tively. These estimates represent considerable reductions in glob al warming impacts from current BC emissions based on the baseline regulation. Finall y, although use of a GWP may be a helpful tool to assess the importance of BC climate warming impact, the GWPs of45

atmospheric short-lived compounds (e.g. non Kyoto c ompounds such as BC) are more uncertain and their climate forcing will strongly d epend on the location and timing of the

emission.

Additionally, staff is proposing to add a provision to incentivize hybrid electric off-road vehicles, which may lead to some additional green h ouse gas (GHG) reductions. However, it is expected that overall impacts on GHG emissions from this provision will be negligible.

H. Environmental Justice and Neighborhood Impacts

The objectives of ARB’s statewide regulatory progra ms are better air quality and reduced health risk for all residents throughout Ca lifornia. The Board has a policy that community health and environmental justice (EJ) con cerns be addressed in all of ARB’s regulatory programs

The proposed amendments to the off-road and LSI fle et regulations are consistent with the goals of the current regulations to reduce PM, NOx, and greenhouse gas emissions,

as well as reduce the associated cancer risks and o ther health impacts over time statewide. This is consistent with the ARB’s EJ po licy of reducing exposure to air pollutants and reducing the adverse impacts from to xic air contaminants in all communities, including low-income and minority comm unities.

I. Other Environmental Impacts

Staff does not believe there will be any additional environmental impacts from the proposed amendments to both regulations.

The proposed amendments to the off-road regulation will reduce the number of exhaust

retrofits installed. The diminished use of exhaust retrofits will lower the impacts on fuel economy and reduce hazardous waste generation. Hen ce, any negative environmental impacts due to hazardous waste generation are expec ted to be less than described in the TSD for the original off-road rulemaking (ARB, 2007b).

J. Conclusion

The proposed amendments would result in foregone em ission reductions compared to the current regulation. However, ARB staff believe s there are overriding economic and social considerations driving these proposed change s. The recession has significantly impacted the economic health of the regulated indus try and, consequently, has greatly affected its ability to comply with the current reg ulation. Additionally, the recession has had significant social implications, causing a numb er of businesses to reduce their activities or go out of business, which has resulte d in significant unemployment throughout the State. The recession has also cause d emissions to be lower than anticipated when the regulations were initially app roved. Hence, in addressing concerns with respect to the California Environment al Quality Act, staff is proposing that the Board find that overriding considerations exist

.46

VII. ECONOMIC IMPACTS

This chapter describes the potential economic impac ts of staff’s proposal.

A. Legal Requirements

Sections 11346.3 and 11346.5 of the Government Code require state agencies to assess the potential for adverse economic impacts o n California business enterprises and individuals when proposing to adopt or amend an y administrative regulation. The assessment shall include a consideration of the imp act of the proposed regulation or amendments on California jobs, business expansion, elimination, or creation, and the ability of California businesses to compete.

State agencies are also required to estimate the co st or savings to any state or local agency and school districts in accordance with inst ruction adopted by the Department of Finance. This estimate is to include any nondiscre tionary costs or savings to local agencies and the costs or savings in federal fundin g to the state.

B. Off-Road Regulation Amendments

1. Cost Methodology

To estimate the economic impacts of these amendment s, staff’s overall methodology is similar to the one used when originally estimating the costs for the off-road regulation. The original economic impacts of the off-road regul ation were based on the anticipated compliance paths of approximately 200 affected flee ts. Using this data, the costs to the statewide fleet were calculated by predicting and e valuating the compliance paths for real individual fleets; these estimates were then s caled to statewide costs using the estimated horsepower in the statewide fleet (ARB, 2 007a).

However, this economic analysis differs in that the impacts of the proposed amendments are based on the anticipated compliance paths of the approximately 8,800 real fleets that had been reported to DOORS as of S eptember 20, 2010 (DOORS, 2010). This compliance plan modeling was done usin g OSM. 6

For each fleet in DOORS, OSM calculated the costs t he fleet would normally spend without the regulation in place. These costs are r eferred to as a fleet’s baseline costs, and depended upon a fleet’s average age and natural turnover rate. Once the baseline cost for a fleet was determined, a compliance cost was then calculated, based on a fleet’s anticipated compliance path. The differenc e between a fleet’s baseline cost, and a fleet’s compliance cost is the cost attributed to the off-road regulation.

For more information on the vehicle and retrofit co sts used to calculate a fleet’s baseline cost and compliance costs, please see Appendix F.

6 For more information on OSM and its compliance pla nning process, please refer to Appendix

D.47 2. Statewide Fleet Costs

The proposed amendments to the off-road regulation will provide substantial economic relief to all affected fleets, especially in the sh ort term. As illustrated in Figure 14 below, estimated costs of the off-road regulation over the next five years would be reduced by about 97 percent, from over $1 billion 7 to approximately $33 million (2010 dollars). Total costs over the life of the off-road regulatio n would be reduced by 72 percent, which represents a cost savings of over $1.5 billio n (2010 dollars). Peak year costs would be reduced by almost 73 percent (from $542 mi llion to $146 million, 2010 dollars) and the peak year cost delayed from 2013 to 2019.

Figure 14: Cost of Proposed Off-Road Regulation Do wn Substantially

$0 $500 $1,000 $1,500 $2,000 $2,500

Initial 5 Year Cost Peak Year Total CostRegulation Cost (Millions, 2010 Dollars)

Current Regulation

Proposed Regulation

As shown in Figure 15 below, the costs of the propo sed amended regulation would no longer be as front loaded as the current off-road r egulation and are significantly less than the statewide year-by-year costs of the regula tion. In the beginning years, the compliance costs for a fleet would be on average 97 percent less than originally

estimated.

7 The current regulation costs presented in this ana lysis have been updated and therefore differ from the costs presented in the original staff repo rt for the off-road regulation. Please see Appendix F for additional information.48

Figure 15: Current vs. Proposed Off-road Regulatio n Yearly 8 Compliance
Costs

$0 $100 $200 $300 $400 $500 $60020102012201420162018202020222024202620282030Regulation Costs (Millions, 2010 Dollars)

Proposed Regulation

Current Regulation

For a discussion on cost effectiveness, please see Chapter VI.

3. Cost Analysis for an Actual Fleet

To further analyze the savings expected from the pr oposed amendments, staff evaluated a real fleet of 30,000 horsepower (490 ve hicles) reported to DOORS. Under the current regulation, this large fleet’s complian ce costs 9 would have totaled $7.9 million (2010 dollars) over the life of the regulat ion. However, it is now expected that the total compliance cost for this fleet would be r educed by over 84 percent, which represents a compliance cost savings of over $6.7 m illion (2010 dollars). Figure 16 below compares the sample fleet’s yearly costs for the current regulation and the proposed amended regulation.

8 Costs are shown for the compliance year the actions were taken to meet (i.e. if a fleet took actions to meet the Jan. 1, 2019 requirements, the costs are shown for 2019).

9 Costs above normal operating costs.49

Figure 16: Sample Fleet Costs for Current vs. Prop osed Regulation

$0.0 $0.5 $1.0 $1.5 $2.0 $2.5 $3.0201020112012201320142015201620172018201920202021202220232024Regulation Costs (Millions, 2010 Dollars)

Proposed Regulation

Current Regulation

For this fleet, the proposed regulation would reduc e peak year costs by 61 percent, reduce the compliance costs over the next five year s by 98 percent, and reduce overall costs by 84 percent.

4. Impacts of the Major Amendments

Below is a description of the potential cost impact s of each of the proposed major amendments to the off-road regulation.

a) Delay of implementation

Delaying the initial implementation date by four ye ars would provide fleets with more time to plan for compliance and allow them to benef it from more normal turnover to cleaner vehicles before the initial fleet average t argets take effect. Also, this extra time to begin implementing the off-road regulation will give fleets more opportunity to recover from the current economic downturn before having to begin to incur compliance costs. This should result in an overall cost savings for a ffected fleets.

b) Combine PM and NOx requirements and reduce BACT requirements

The largest cost savings for fleets would be from c ombining the PM and NOx requirements, which would reduce BACT compliance re quirements. In certain cases, fleets would have their compliance requirements red uced by more than 50 percent, resulting in large cost savings for affected fleets

.

Additionally, for large fleets the 2013 increase in fleet requirements (also referred to as the “balloon payment”) was removed altogether, and not simply pushed back to a later compliance year. The removal of the increased 2013 requirements would result in a substantial cost savings for large fleets.50 c) Extend double retrofit credit

The proposed amendment to extend double credit for all fleets that install highest level VDECS on their vehicles may also result in cost sav ings to fleets. The proposed amendment would give all fleets additional time to receive double credit for the installation of retrofits, thereby allowing such fl eets to spread out their costs in later years. This should result in a cost savings to fle ets that opt to take advantage of this

credit.

d) Increase low use threshold

Staff’s proposal to increase the low-use threshold from 100 hours per year to 200 hours per year would provide cost savings to fleets that have vehicles near this threshold. This would allow fleets to categorize additional ve hicles as low use, and therefore avoid retrofitting or turning over those vehicles, reduci ng overall compliance costs for the fleet.

e) Simpler compliance path for fleets under 500 horsep ower

This proposed amendment would provide a simpler com pliance option for those smallest fleets in the state and may result cost sa vings for some of these fleets. For example, if an owner operator only has one Tier 2 v ehicle in his fleet, under the current regulation, he would be required to install a VDECS on that vehicle at some point before 2025. However, if this same fleet owner chose to c omply with this new simpler path, he would have no performance requirements (i.e., no tu rnover or retrofit requirements) at all, since this new path would only require the fle et’s vehicles to have Tier 2 or higher engines.

f) Increased turnover requirements

Of all the major amendments, the increase in turnov er requirements for 2022 and later is the only one that would not result in a cost sav ings. Because staff is proposing to increase the stringency of the fleet average target s in the later years of the regulation, fleets will need to incorporate slightly more Tier 4i and Tier 4 vehicles than were originally required. However, as shown earlier, wh en considering all of staff’s proposed amendments together, fleets will experience a signi ficant overall cost savings when compared to the current off-road regulation.

5. Impacts of the Minor Amendments

As described further below, staff expects the propo sed captive attainment area fleet definition and alternative fuel provision changes t o provide a cost savings for affected fleets, while the proposed changes to the adding ve hicle and labeling requirements

would result in a small additional cost for some fl eets. All of the other proposed minor amendments are not expected to result in any additi onal costs or cost savings, and therefore are not mentioned below. However, as sho wn earlier, when considering all of staff’s proposed amendments together, fleets would overall experience significant cost savings when compared to the existing off-road regu lation.51 a) Captive attainment area fleet definition

Currently in the off-road regulation, captive attai nment area fleets are exempt from the NOx requirements of the regulation. However, they must still comply with the PM requirements per a timeline dictated by their fleet size. For example, under the current regulation, if a large fleet is a captive attainmen t area fleet, the fleet was not required to comply with the NOx turnover requirements. However , it would have been required to meet the PM requirements beginning in 2010, the fir st compliance date for large fleets. Under staff’s proposal to reclassify all captive at tainment area fleets as small fleets, medium and large captive attainment area fleets wou ld be able to delay initial compliance requirements until the first small fleet compliance deadline in 2019, which will result in a cost savings for such fleets.

b) Electric vehicle provisions

Staff is proposing to remove electric vehicle horse power from the total horsepower calculation, which will also result in removing thi s horsepower from all BACT calculations. For fleets with many electric vehicl es (such as airport GSE fleets), this reduction in horsepower would potentially allow fle ets to be reclassified to a smaller fleet size category. Additionally, if the BACT requireme nts are reduced (based on the decrease of the fleet’s total horsepower), the cost of compliance for the fleet would further be reduced. Therefore, this amendment will result in some cost savings for

fleets with electric vehicles.

c) Labeling

Staff is proposing a change to the labeling provisi on that would require a fleet to label both sides, rather than just the right hand side, o f each vehicle with an EIN. Based on the 150,000 vehicles currently registered in DOORS, and assuming a cost of $10 per EIN label (Aaron, 2010; Glen, 2010; Snyder, 2010), this would equate to an additional $1.5 million (2010 dollars) in statewide costs.

Additionally, staff is proposing to require captive attainment area fleets to label their vehicles with EINs that are green with white letter s, instead of red with white letters. There are currently approximately 5,000 vehicles re gistered as captive attainment area vehicles in DOORS; therefore, these fleets would in cur an additional total cost of approximately $50,000 (2010 dollars) statewide if t hey choose to retain their captive

attainment area status.

C. LSI Fleet Regulation Amendments

1. Methodology

Staff took information reported to them through the DOORS inventory reporting program and input it into the Off Road Model to estimate th e economic impacts of the proposed changes to the off-road regulation. LSI staff had to use a different methodology to estimate the economic impacts of the LSI fleet regu lation amendments for two reasons. First, only uncontrolled LHU and specialty equipmen t for which retrofit kits are not available are affected; the remainder of the LSI fl eet must comply with the FAEL52

standards and generally, already does. Second, the LSI fleet regulation does not require reporting so there is no readily available data on the operating hours of affected

vehicles.

Staff estimates that there are approximately 46,000 pieces of LSI equipment subject to the LSI fleet requirements (ARB, 2006c). Based on routine turnover assumptions from the 2006 regulation, approximately 12,000 pieces wo uld have to be retrofitted or replaced to achieve the FAEL standards. Twenty per cent of these or about 2,400 pieces of LSI equipment are in small fleets and are exempt from the FAEL standards.

Of the remaining 9,600 units, manufacturer sales da ta indicates that approximately 5 percent of the units are specialty equipment. The broadening of the extension request provisions would be made available primarily to fle et operators with specialty equipment

for which retrofit kits are not available. The two largest categories of equipment that fall into the specialty equipment category are pieces of equipment with an Underwriters Laboratories safety designation and equipment with engine displacements exceeding

six liters. If retrofit kits were available for th ese units, they would cost around $3,500. To the extent that retrofit kits are not available, replacement cost for this equipment starts at about $50,000 per unit and can be signifi cantly more.

Based on off-road regulation limited usage data rep orted through DOORS, staff estimates that an additional 20 percent of the 9,60 0 units are LHU. The extension of the LHU provisions would be available to any of the approximately 2,000 LSI fleets in California if they have LHU equipment. As LHU equi pment may comply through either retrofit or replacement, and as LHU equipment typic ally is not specialty equipment, the compliance cost ranges from $3,500 for a retrofit k it to $30,000 for replacement.

2. Statewide Fleet Costs

The proposed amendments are expected to provide sub stantial near-term economic relief to most affected fleets. Overall, staff est imated that the proposed amendments will result in a cost savings of between $8.4 to $5 9.5 million (2010 dollars) over the life of the regulation.

For a more detailed breakdown of the proposed major and minor amendments, and a description of the cost methodology, please see the sections below.

3. Cost Analysis for an Actual Fleet

To further analyze the savings expected from the pr oposed amendments, staff looked at a real fleet of industrial sweeper/scrubbers. This fleet, depending upon whether it would retrofit or replace its LHU equipment to comply wit h the FAEL standards, would have incurred costs of $700,000 to $4.3 million (2010 do llars) over the next year to be in compliance with the regulation (LAUSD, 2010). The proposed amendments reduce the expected cost to this fleet by $500,000 to $3.1 mil lion (2010 dollars).53

In another example, a fleet has six high capacity U nderwriters Laboratories (UL) safety

certified forklifts for which retrofit kits are not available. Thus, the operator would have to replace these pieces of equipment to achieve com pliance with the FAEL standards. The total cost to replace the six specialty forklif ts would be about $1.0 – 1.5 million. The proposed amendments either reduce that cost by more than 90 percent if UL certified retrofit kits become available during the next four years, or give the fleet operator that additional time to plan for repower or replacement.

4. Impacts of the Major Amendments

Below is a description of the potential cost impact s of each of the proposed major amendments to the LSI fleet regulation.

a) Extend limited hours of use provisions

Staff’s proposal to increase the LHU threshold from 0 hours per year to 200 hours per year beginning January 1, 2011, will provide some c ost savings to fleets that have

vehicles at or below this threshold. These fleets would be allowed to exclude LHU equipment from their FAEL standards calculations, t hereby avoiding the costs of retrofitting or replacing those vehicles. As descr ibed above, this represents an average savings of about $16,750 (with a range of $3,500 to $30,000) per piece of equipment.

b) Allow additional compliance extensions for specialt y equipment

Staff’s proposal to allow additional compliance tim e for specialty equipment may provide significant cost savings to fleets that are able to retrofit in future years as lower emitting retrofit kits become available. Cost savings in th is case are the difference between the typical retrofit cost of $3,500 and a replacement c ost that can exceed $100,000. To the extent that some pieces of equipment are not retrof ittable in the future, the amendments provide four additional years for compliance planni ng.

5. Impacts of the Minor Amendments

None of the proposed minor amendments are expected to result in any additional costs or savings, because they implement the original int ent of the regulation.

D. Impacts on California Economy

The proposed amendments to both the off-road and LS I fleet regulations will not impose additional impacts on the economy, nor are they exp ected to adversely impact employment. The amendments are intended to provide economic relief from regulatory requirements over the next several years, and to re duce costs for all affected fleets.
Staff believes this would lead to fewer fleets redu cing employment as a result of either regulation, thereby benefiting overall California e mployment.

Although these proposed amendments are not expected to adversely impact the economy overall, these modifications could have a n egative economic impact on retrofit manufacturers and installers and firms that provide repowers or equipment. Staff54

anticipates that these businesses could receive few er orders in the next few years. However, the proposed amendments to the off-road re gulation provide extended and enhanced incentives that are intended to encourage early retrofitting, repowering, and replacement. Staff believes that these actions cou ld help mitigate potential impacts on retrofit and repower jobs and businesses.

E. Potential Impacts on Small Businesses

The proposed amendments to the off-road regulation should provide an overall cost savings to small businesses by allowing fleets to d elay the start of compliance and significantly lowering their compliance costs over the life of the off-road regulation. Also, the addition of the ultra small fleet provisi on, which requires only a phase out of a fleet’s Tier 0 and 1 vehicles, would provide some v ery small fleets additional cost savings.

While staff believes most small businesses are smal l or medium fleets (under the offroad regulation), a few small businesses do meet th e off-road regulation’s definition of large fleet. However, because staff is proposing t o delay and reduce the off-road regulation’s requirements for all fleet sizes, smal l businesses should benefit significantly from the proposed changes, regardless of their flee t size designation.

The LSI fleet regulation does not affect small busi nesses, and therefore, the proposed amendments to the LSI fleet regulation are not expe cted to affect small businesses.

These proposed amendments could have negative impac ts on retrofit manufacturers and installers and firms that provide repowers or e quipment; many of these firms are small businesses. However, as stated above, staff believes that the extension and enhancement of early action incentives will help mi tigate potential impacts on retrofit and repower businesses.

F. Potential Impacts on Public Agencies

The proposed amendments for both regulations would not impose any additional costs on public agencies. Because the amendments to both regulations are designed to provide economic relief from regulatory requirement s, especially in the next few years, it is expected that public fleets will realize overall lower compliance costs.55

VIII. ALTERNATIVES CONSIDERED

This chapter discusses the alternatives to the prop osed amendments to both regulations that staff considered and why they were rejected in favor of the proposals.

A. Major Off-Road Regulation Amendments

Given the depth of the recession in the constructio n industry, staff considered a wide variety of options for amendment proposals. These alternatives ranged from a repeal of the regulation to proposing minimal changes. Staff also considered options such as rewriting the regulation without basing the require ments on the current regulatory language – starting ‘from scratch’, in effect, as w ell as other changes that are lesser variations of staff’s proposal.

1. Repeal the Regulation

During the initial development of the off-road regu lation, reducing emissions from offroad vehicles towards meeting the 2014 SIP, particu larly for the South Coast Air Basin, was a driving factor for the structure of the regul ation in the initial years. As the recession and inventory analysis demonstrated that meeting the 2014 SIP commitment no longer required the same level of retrofitting a nd early turnover currently required in the off-road regulation, industry stakeholders ques tioned whether the off-road regulation could be repealed, or alternatively, could be delay ed for five or more years and

reconsidered in the future.

While this alternative would provide the most econo mic relief to the construction industry and other industries using off-road diesel vehicles, staff rejected this alternative for many reasons, including:

• Based on the most current inventory information, r educing emissions from offroad vehicles is still needed to achieve PM2.5 SIP goals in the South Coast and San Joaquin Valley Air Basins in 2014, and will als o be necessary to reduce ozone in both these regions in 2023. While the agg ressive retrofit schedule and requirements for significant vehicle turnover from 2010 to 2014 are not as great as once needed, the 2014 SIP goals still require a (smaller) reduction in emissions from off-road vehicles by 2014.

• Repealing or delaying the regulation indefinitely would not achieve incremental progress towards cleaner air.

• Continued exposure to PM2.5 has been continually s hown to have negative health impacts, and remains a mortality risk for th ose with long-term exposure.

• Reducing emissions from off-road vehicles is still cost effective.

Given these factors, pursuing emissions reductions from off-road vehicles, while considering the severe impact of the recession on c onstruction and related industries, remains an important part of meeting state goals an d protecting public health.56 2. Make Minimal Changes

For this alternative staff considered minimal modif ications to the off-road regulation that would still allow ARB to effectively enforce the re gulation with consideration of the current enforcement delay. As previously discussed , ARB delayed enforcement of the regulation’s first compliance date for large fleets (March 1, 2010) in part because ARB
had not received authorization from U.S. EPA to ful ly enforce the regulation. Under this alternative, the proposed regulatory amendments wou ld provide for some delay in the provisions of the off-road regulation and for a new compliance schedule for large fleets.

This alternative included:

• Two year delay for large fleets only.

• Removing the heightened “balloon” requirements in 2013.

No other significant changes to the off-road regula tion would have been proposed.

Staff rejected this alternative for the following r easons:

• The depth of the recession in the construction ind ustry in particular demonstrates a need for greater consideration and economic relie f than the minimal changes possible would provide, and would reduce emissions beyond what’s needed to
meet SIP commitments.

• This alternative would not improve the regulation’ s cost efficiency or respond to stakeholders suggestions to provide fleets with mor e compliance flexibility.

• This alternative would not simplify the regulation

.

• Not as many off-road vehicles are candidates for s uccessful retrofits as originally

believed.

Given these factors, staff is proposing more than j ust the minimal changes to the regulation.

3. Make No Changes

For this alternative, staff considered making no ch anges to the regulation. Staff rejected this alternative for the following reasons:

• As stated above, ARB has delayed enforcement of th e off-road regulation in part
because of the lack of authorization from U.S. EPA to fully enforce the regulation.

• The depth of the recession, particularly as it has affected the construction industry, has reduced emissions beyond what’s neede d to meet state SIP commitments in the near-term and would not provide adequate economic relief to

affected industries.

• This alternative would not improve the regulation’ s cost efficiency or respond to stakeholders suggestions to provide greater flexibi lity for fleets.

• This alternative would not simplify the complexity of the regulation.

• Not as many off-road vehicles are candidates for s uccessful retrofits as originally

believed.57 4. Restructuring the Regulation (‘from scratch’)

Under this alternative, staff considered removing t he current regulatory structure altogether and using the experience gained since th e regulation took effect in 2008 to improve the regulation’s structure and framework, a iming to improve simplicity and flexibility. Concepts considered included removing the current requirements and implementing a regulatory structure based primarily on vehicle age, or implementing a fee based on the age of vehicles, or different requ irements that varied by region. Staff ultimately rejected this alternative for the follow ing reasons:

• Any proposal staff considered would still have to account for the wide variety of vehicles and industries being regulated (as the cur rent regulation does) and would require most or all of the same exemptions an d provisions. For this reason, staff did not believe it was possible to fu rther simplify the regulation beyond staff’s final proposal.

• Regional requirements would cause confusion and re sult in inability of fleets to comply with the regulation, and would also be diffi cult to enforce because of the vehicle’s ability to easily move throughout the sta te. Additionally, because diesel PM is a toxic air contaminant, staff did not believ e it was appropriate to have a regulation limited to certain areas of the state.

5. Other Regulatory Alternatives Considered

Staff used the simulation model OSM, to evaluate ot her alternatives that would provide adequate economic relief to fleets given the recess ion. OSM allowed staff to review the impact of various proposals and different iteration s of each proposal. Using this approach the following alternatives were considered

.

Alternative A: The proposal staff presented at the June and July 2010 workshops (ARB, 2010d), in which staff proposed to:

• Delay the regulation two years for all fleet sizes

.

• Remove the inflated 2013 requirements.

• Count turnover toward a fleet’s PM BACT (or retrof it) requirements.

• Increase low use threshold.

This would have effectively lowered a fleet’s retro fit requirements to 10 to 12 percent per year, down from 20 percent. This proposal woul d still have required a substantial

number of retrofits to be installed.

• Actions would be required on up 20 percent of a fl eet’s horsepower annually, beginning 2012.

Alternative B: Staff also considered amending the regulation as f ollows:

• Delay the regulation two years for all fleet sizes

.

• Remove the inflated 2013 requirements.

• Count turnover toward a fleet’s PM BACT (or retrof it) requirements;

• Increase low use threshold.

• Lower PM BACT to 12 percent a year (a 40 percent r eduction).

• Provide a new credit for fleets reducing horsepowe r from 2010 to 2011.58

• Tighten the NOx requirements from 2017 to 2023 to achieve additional NOx

benefits

This alternative would have effectively lowered the retrofit requirements for most fleets between two to four percent each year the fleet was required to do turnover.

• Actions would be required on, at maximum, 12 perce nt of a fleet’s horsepower annually, beginning 2012.

Alternative C: This alternative would have reduced required retr ofitting as follows:

• Delay the regulation two years for all fleet sizes

.

• Remove NOx and PM requirements into a single fleet average and single BACT requirement.

• Lower combined BACT from 28 to 30 percent per year to 8 to 10 percent.

This proposal would have provided more flexibility to fleets while lowering the number of vehicles addressed in any one year to about a third of previous levels.

• Actions would be required on up to 10 percent of a fleet’s horsepower annually, beginning 2012, with no separate PM requirements.

Comparison to proposed amendments: The principle difference between the final proposed amendments and Alternatives A and B was th e removal of the separate PM fleet average and BACT requirements for all fleets. The major difference between the proposal and Alternative C was the four year delay for all fleets, instead of the two year delay proposed previously. Table 16 below shows th e cost, cost effectiveness, and

emission reductions achieved from the alternatives.

Table 16: Emissions and Costs of Various Off-road Major Amendment
Alternatives Considered

Scenario Cost Peak Year
Cost/

Peak Year 10 Initial 5

Year Cost NOx

Benefit (tons) PM

Benefit (tons) $/lb

NOx $/lb

PM

Current Reg. $2.15B $542M 2013 $1.02B 68,740 9,020 $3.31 $93.80

Alternative A $1.77B $316M 2016 $450M 49,430 7,050 $5.52 $87.10

Alternative B $1.19B $237M 2016 $291M 53,010 6,250 $3.02 $69.70

Alternative C $1.21B $241M 2017 $255M 74,080 5,830 $3.03 $65.10

Proposal $607M $146M 2019 $33M 33,870 2,070 $4.31 $76.20

10 The peak year shown means the year of compliance d ate for which costs were incurred (i.e., if fleets would have maximum cost between January 1 and December 31, 2018, to meet the January 1, 2019, requirements, the peak year is sho wn as 2019)59

As shown in the table, Alternatives A, B and C sign ificantly reduced overall costs, peak costs, and initial five-year costs to fleets. Alte rnative A reduced costs primarily by delaying the start of compliance, and reducing the 2013 ‘balloon payment’. Alternative B further decreased costs by reducing the annual re trofit requirements by up to 90 percent for fleets that turnover vehicles in that y ear, and Alternative C reduced costs by completely removing mandatory retrofitting and limi ting fleet turnover to no more than 10 percent of their horsepower in any one year.

Ultimately, staff selected the proposed amendments over the alternatives considered

because it:

• Had the lowest overall cost from 2010 to 2030 whil e still allowing the state to meet its 2014 SIP commitments, and providing additi onal reductions towards meeting the 2023 SIP ozone targets in the South Coa st air basin.

• Had the lowest cost in the initial five years (fro m March 1, 2009, to March 1, 2014), while achieving incremental progress beginni ng in 2014.

• Had the lowest peak year cost.

In addition, the proposed amendments improved the r egulatory structure over the

alternatives due to a number of additional factors:

• The proposed amendments would greatly simplify the regulation as fleets would no longer be required to learn and analyze separate NOx and PM structures.

• Fleets never have to retrofit, but retain the opti on to do so where it would be
more effective than turnover.

• Because the proposed amendments no longer contain separate NOx and PM targets, all fleets would have the choice of comply ing via turnover, retrofitting, or

a combination of the two. This means that while fl eets can choose to avoid retrofitting if they so desire, it remains a compli ance option which ensures a continued market for retrofits to all fleets subjec t to the regulation.

6. Other Off-Road Amendment Provisions

The following section discusses the proposed change s to the delays for medium and small fleets, and credit or double credit for retro fits, and alternatives to those changes that were considered and rejected in favor of the f inal proposal.

a) Lesser Delay for Medium and Small Fleets

Staff had considered a proposal that would provide a lesser delay for medium and small fleets, which was rejected for the following reason s:

• Providing a four-year delay for medium and small f leets would allow additional time for smaller businesses or agencies to recover from the recession.

• Large and medium fleets’ compliance dates were off set to provide additional time for medium fleets to plan compliance, but also to p revent multiple fleet categories from having to meet their first compliance deadline on the same date. To prevent the initial deadline for medium fleets coinciding w ith the large fleet deadline, staff proposed a four year delay for medium fleets, from 2013 to 2017. For similar60

reasons, it will benefit small fleets to also delay the initial small fleet requirements

from 2015 to 2019.

b) Provide No Credit for Retrofits

Staff had also considered a proposal that would mai ntain the NOx requirements of the regulation (section 2449.1) without providing credi t toward either BACT or the fleet averages for PM retrofits, effectively removing PM VDECS as a means of complying with the regulation entirely. Staff rejected this proposal for the following reasons:

• Where PM VDECS can be applied safely and effective ly, they remain a cost effective method of reducing the health risk from d iesel engines and extending the life of a vehicle under the regulation. Partic ularly for relatively high horsepower applications (for example, high horsepow er loaders), retrofitting with the highest level PM VDECS may cost approximately $ 50,000, while a vehicle replacement with a new model could cost upward of $ 1,000,000 in some cases. For such applications, retrofitting to extend the v ehicle life under the regulation

can be an economical and efficient solution.

• Numerous fleets, manufacturers, and installation f acilities have invested in PM VDECS in anticipation of the current regulation and failing to credit or incentivize PM VDECS would negatively impact the retrofit indus try and fleets that have
installed VDECS.

• Fleets would never be required to install retrofit s, hence VDECS would remain an option only when they are (compared to turnover) co st effective, consistent with the fleet’s use and maintenance of vehicles, and pr eferred by the fleet to vehicle

turnover.

c) Not Extending Double Credit for Retrofits

As another alternative, staff considered leaving th e double credits periods unchanged (expired on January 1, 2010 for large fleets, and M arch 1, 2012 for medium and small fleets). Staff rejected this alternative for the f ollowing reasons:

• Without double credit periods, fleets would have n o incentive to invest early in retrofit technology or make incremental progress to wards clean air.

• Without an extension of double credit, the fleets that invest in retrofits in the next two to three years would receive no reward or benef it over those that wait until

the deadline.

• It is consistent with ARB’s previous approach with initial deadlines to include double credit periods up to 12 months prior to the requirements, and in principle is the same as the approach fleets across the state were trained on and have

become familiar with.

d) Off-Road Regulation Fleet Average Target Stringency

Staff considered alternatives that would have provi ded more NOx and PM benefits by 2023 through more stringent fleet average targets. Figure 17 shows the fleet average targets for the current regulation, those proposed by staff, and those considered as an61

alternative to the proposed amendments (Alternative s B and C above included more stringent 2023 fleet average targets).

Figure 17: Comparison of Fleet Average Targets



### Fleet Average Targets: 175 - 299 Hp

0 1 2 3 4 5 6 720102011201220132014201520162017201820192020202120222023NOx Targets Current Targets

Proposed Targets

Alternatives B and C Targets

As can be seen in Figure 17 staff evaluated lower f inal fleet average targets which are more aligned with attaining a fleet average that re presents Final Tier 4, as opposed to staff’s proposal which attains an Interim Tier 4 Le vel. Note that while only the fleet average targets for engines between 175 and 299 hor sepower are shown, and that other horsepower groups would have targets that var y, this figure is representative of the trend for the various horsepower groups. As e xpected, staff found that more stringent final fleet averages achieved greater ben efits, as expected and shown in Table 16. However, more stringent final fleet average ta rgets resulted in higher overall regulatory costs, and did not provide the same leve l of cost savings to fleets as staff’s proposed amendments. Because of this, staff ultima tely rejected this proposal.

B. LSI Fleet Regulation Amendments

Staff considered several alternatives to the propos ed amendments for the LSI fleet regulation. These alternatives included extending the compliance deadline for all LSI fleet operators, a lower limited hours of use provi sion, broadening the compliance extension provisions, and no change to the current regulation. These alternatives are

detailed below.

1. Extend the Compliance Deadline for All Operators

Under this alternative, all LSI fleet operators wou ld receive a two-year extension to their compliance dates. However, there were two concerns with this. First, the LSI fleet regulation has three progressively more stringent F AEL standards, with effective dates set two years apart. As of January 1, 2011, two of the three dates will have already62

passed. As a result, operators have already had mo re than four years since adoption of the LSI fleet regulation to come into compliance wi th the standards. Many operators chose to procure equipment that brought their fleet s not only into compliance with the near-term FAEL standard effective dates, but also t he most stringent January 1, 2013 FAEL standard effective date. These operators are fully in compliance with the FAEL standards for the duration of the regulation. This brings about the second concern – that the compliance date extension would create an uneven playing field between those fleets that had not yet complied with the FAEL stan dards and others that already had.

Given the extent to which the LSI regulation has al ready been implemented, and the desire to avoid providing incentives to operators t hat were not yet in compliance with the LSI fleet regulation when their competitors have al ready made the economic commitment to comply, staff rejected this alternati ve.

2. Set the Limited Hours of Use Provision at 100 ho urs

The proposed 200-hr limited hours of use amendment would provide significant early and continued economic relief to LSI equipment oper ators in recognition of the recession while still achieving most of the emissio ns reductions necessary to protect public health.

As an alternative, staff considered proposing a 100 -hour LHU provision. This is the threshold used by some ARB regulations for fully ex cluding equipment. This level would also result in a smaller impact on emissions benefits. However, the LSI fleet regulation and the off-road regulation have many op erators in common and the off-road regulation, in consideration of the global recessio n and its impact on fleet operators, is proposing to establish a 200-hour LHU threshold. S taff believes consistency between the two regulations is important and improves the r egulation’s cost efficiency. Therefore, staff rejected the 100-hr LHU alternativ e and is recommending the 200-hour

LHU threshold.

3. Allow Multiple One-Year Compliance Extension Per iods

The LSI fleet regulation currently allows fleet ope rators to request to exclude equipment from the FAEL standards calculations for a period o f one year if retrofit kits are not available. Staff considered proposing multiple one -year extensions in the event that

retrofit kits continued to be unavailable. However , over the course of four years this proposal would double the administrative burden on both operators and ARB staff. Additionally, the one-year extension period does no t accurately reflect the retrofit kit product development cycle, the longest component of which is accumulation of hours on a retrofitted device for verification purposes. Th erefore, staff rejected this alternative and is proposing that operators be allowed to apply for a two-year extension, followed,

in the event that a retrofit kit is still not avail able, by a subsequent two-year extension.

4. Make No Change

For this alternative, staff considered making no ch anges to the LSI fleet regulation. Staff rejected this alternative for the following r easons:63

• Retrofit kits have not been available to the exten t envisioned during the development of the 2006 LSI fleet regulation. For example, kit manufacturers are capable of producing kits with a UL component c ertification, but the market for these kits was not large enough to make develop ment economically feasible. LSI equipment operators therefore would be required in some cases to spend as
much as 10 to 50 times more than the cost of a retr ofit kit to replace their equipment.

• Many pieces of low use equipment are operated too infrequently to make emission reductions cost effective, even when using retrofit kits.

• The severe recession currently hitting the industr ies subject to the LSI fleet regulation make compliance difficult, and some form of economic relief is needed. Staff believes taking no action would be d etrimental to an already hard hit sector of the state’s economy.64 IX. REFERENCES

Aaron 2010. Aaron’s Signs, October 21, 2010. http://www.eindecals.com/

AB 8 2X, 2009. Assembly Bill 8 2X, Chapter 6. An act to amend Section 11011 of the Government Code, to add Section 43018.2 to the Heal th and Safety Code, which
directs ARB to amend Sections 2449.1 and 2449.2 of Title 13 of the California Code of Regulations. Approved by the Governor on February 20, 2009.

ARB, 2000. California Air Resources Board. Risk Reduction Plan to Reduce Particulate Matter Emissions from Diesel-Fueled Eng ines and Vehicles. California Air Resources Board, October 2000. http://www.arb.ca.gov/diesel/documents/rrpFinal.pdf

ARB, 2003a. California Air Resources Board. Proposed 2003 State and Federal Strategy for California State Implementation Plan, Section II Mobile Sources, Introduction and Chapter D. California Air Resources Board, August 25, 2003. http://www.arb.ca.gov/planning/sip/stfed03/stfed03. htm

ARB, 2005. The 2005 California Air Resources Board Off-Road Diesel Equipment Survey.

ARB, 2006a. California Air Resources Board. Staff Report: New Emission Standards, Fleet Requirements, and Test Procedures for Forklif ts and Other Industrial Equipment. California Air Resources Board, March 2006. http://www.arb.ca.gov/regact/lore2006/isor.pdf

ARB, 2006b. The 2006 California Air Resources Boar d Off-Road Diesel Equipment Mini-Survey.

ARB, 2006c, Form 399 Attachment, California Air Res ources Board, March 25, 2006.

ARB, 2007a. California Air Resources Board. Staff Report: Initial Statement of Reasons for Proposed Rulemaking; Regulation for In-Use Off- Road Diesel Vehicles . California Air Resources Board, April 2007. http://www.arb.ca.gov/regact/2007/ordiesl07/isor.pd f

ARB, 2007b. California Air Resources Board. Technical Support Document: Regulation
for In-Use Off-Road Diesel Vehicles . California Air Resources Board, April 2007. http://www.arb.ca.gov/regact/2007/ordiesl07/TSD.pdf

ARB, 2007c. California Air Resources Board. Air Resource’s Board Proposed State Strategy for California’s 2007 State Implementation Plan: Revised Draft

. California Air Resources Board, April 26, 2007. http://arb.ca.gov/planning/sip/2007sip/apr07draft/c ovtoc.pdf http://www.arb.ca.gov/planning/sip/2007sip/2007sip. htm#April2665

ARB, 2009a. California Air Resources Board. In-Use Off-Road Diesel Vehicle Regulation Frequently Asked Questions: Low-Use Prov isions. California Air Resources Board, April, 2009. http://www.arb.ca.gov/msprog/ordiesel/faq/faqlowuse .pdf

ARB. 2009b. The California Almanac of Emissions an d Air Quality - 2009 Edition. http://www.arb.ca.gov/aqd/almanac/almanac09/almanac 09.htm

ARB 2009c Advisory 10-414: Enforcement of the In-U se Off-road Diesel Vehicle Regulation, February 2010, http://www.arb.ca.gov/enf/advs/advs414.pdf

ARB 2010a, News Release #10-54: ARB, Contractors Ag ree On Proposed Changes to Rule Requiring Clean Up of Construction Equipment, October 7, 2010. http://www.arb.ca.gov/newsrel/newsrelease.php?id=15 9

ARB 2010b. California Air Resources Board. Workshop Presentation: Workshops Regarding the Off-Road and the Truck and Bus Invent ories and Regulatory Amendments. Presented by California Air Resources Board Staff on May 6, May 12, and May 18, 2010: http://www.arb.ca.gov/msprog/ordiesel/documents/die sel2010mayfull.pdf

ARB, 2010c, Estimate of Premature Deaths Associated with Fine Particle Pollution (PM2.5) in California Using a U.S. Environmental Pr otection Agency Methodology, August 31, 2010 http://www.arb.ca.gov/research/health/pm-mort/pm-re port_2010.pdf

ARB 2010d. Workshop on Amendments to the Off-Road D iesel Regulation. Presented by California Air Resources Board Staff on June and July 2010: http://www.arb.ca.gov/msprog/ordiesel/documents/off roadsummer2010full.pdf

California Department of Finance (CA DOF), 2010. R esidential Unit and Valuation, 1975-2009 (annual), 1995-current (monthly). Last a ssessed February 2010. Available

at: http://www.dof.ca.gov/html/fs_data/latestecondata/f s_construction.htm

Chow JC, Watson JG, Lowenthal DH, Chen LW, Motalleb i N., (2010). Black and organic carbon emission inventories: review and application to California. J. Air Waite Manag Assoc. Apr;60(4):497-507.

DOORS, 2010. Diesel Off-road On-line Reporting Sys tem. https://secure.arb.ca.gov/ssldoors/doors_reporting/ reporting.php

Equipment Data Associates (EDA), 2010. California Equipment Financed, 2005-

current. Available at: www.EDAData.com

Glen 2010. Glen Sample Signs & Graphics, October 21 , 2010. http://www.domestickers.com/calsticker.htm66

Hadley, O.L. et al. 2010, Hadley, O. L., Corrigan, C. E., Kirchstetter, T. W., Cliff, S. S., and Ramanathan, V. (2010). Measured black carbon de position on the Sierra Nevada snow pack and implication for snow pack retreat, At mos. Chem. Phys., 10, 7505-7513, doi:10.5194/acp-10-7505.

Hansen, J.; Sato, M.; Kharecha, P.; Russell, G.; Le a, D. W.; Siddall, M. 2007. Climate change and trace gases. Philos. Trans. R. Soc. London, Ser. A.

, 365 (1856), 1925–

1954. Note: Hansen GWP estimates should be consider ed a conservative (i.e., lower bound) estimate for fossil fuel BC forcing, because he assumes a high OC/BC ratio for

fossil fuel emissions.

Kean, A.J., Sawyer, R.F., Harley, R.A., 2000. A Fu el Based Assessment of Off-Road

Diesel Emissions. Journal of the Air and Waste Man agement Association (50) 1929-

1939.

Krewski et al., 2009, Krewski D, Jerrett M, Burnett RT, Ma R, Hughes E, Shi Y, Turner MC, Pope CA III, Thurston G, Calle EE, Thun MJ. 20 09. Extended Follow-Up and Spatial Analysis of the American Cancer Society Stu dy Linking Particulate Air Pollution and Mortality. HEI Research Report 140. Health Ef fects Institute, Boston, MA.

LAUSD, 2010. Letter from David Legg of the Los Ang eles County Unified School District to Mark Williams, ARB. LAUSD compliance e xtension request for 237 forklifts and sweepers affected by the expiring limited hours of use provision. June 7, 2010.

MacKay, 2003. 2003 Construction Equipment Universe of Construction Equipment and Machinery. Prepared by MacKay and company for Cons truction Equipment Magazine, 2003. (See CARB Mailout#: MSC 99-32)

Millstein, D.E., Harley, R.A. 2009, Revised Estimat es of Construction Activity and
Emissions: Effects on Ozone and Elemental Carbon C oncentrations in Southern California. Atmospheric Environment (43) 40: 6328 -6335.

Power Systems Research, 1996; 2000. Partslink Data base. (See CARB Mailout#: MSC 99-32). http://www.powersys.com

Ramanathan, V. and Carmichael, G. (2008). Global an d regional climate changes due to black carbon. Nature Geoscience 156, 221-227

Snyder, 2010. Snyder Graphics, October 21, 2010. http://www.snydergraphics.com/

TIAX, 2003. California Public Fleet Heavy-Duty Veh icle and Equipment Inventory, Final Report. Report to the California Air Resources Boa rd, march 17, 2003.

U.S. Bureau of Economic Analysis (BEA), 2009. Indu stry and State Level GDP, 1997- 2008. Last updated: Tuesday, June 02, 2009.

Available at: http://bea.gov/regional/gsp/67

U. S. Bureau of Labor Statistics (BLS), 2010. U.S. 1939-current, CA 1990-current. Statewide and National Employment (Variety Sectors) . Last assessed June 2010.

Available at: http://www.bls.gov/data/#employment

U.S. EIA, 2010, US Energy Information Administratio n, Annual Energy Outlook 2010.

Available at: http://www.eia.doe.gov/oiaf/aeo/

U.S. EPA. 2009. Integrated Science Assessment for PM (Final Report). http://www.epa.gov/ttn/naaqs/standards/pm/s_pm_2007 _isa.html

U.S. EPA. 2010. Quantitative Health Risk Assessme nt for Particulate Matter - Final Report. http://www.epa.gov/ttnnaaqs/standards/pm/s_pm_2007_ risk.html