STAFF REPORT: INITIAL STATEMENT OF REASONS FOR PRO POSED

RULEMAKING

PROPOSED AMENDMENTS TO THE REGULATION FOR IN-USE OF F-ROAD

DIESEL-FUELED FLEETS

Mobile Source Control Division Heavy Duty Diesel In-Use Strategies Branch

June 2009State 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

To be considered by the Air Resources Board at a me eting of the Board that will commence on July 23, 2009, at

San Diego, California

Mobile Source Control Division: Robert Cross, Chief

Heavy-Duty Diesel In-Use Strategies Branch:

Erik White, Chief

Off-Road Implementation Section: Kim Heroy-Rogalski, Manager

This report has been prepared by the staff of the A ir Resources Board. Publication does not signify that the contents reflect the view s and policies of the Air Resources Board, nor does mention of trade names or commercia l products constitute

endorsement or recommendation for use.State of California

AIR RESOURCES BOARD

PROPOSED AMENDMENTS TO THE REGULATION FOR IN-USE OF F-ROAD

DIESEL-FUELED FLEETS

Contributing Authors

Elizabeth White Cory Parmer

Elizabeth Yura

Michael Baker

Jeff Wilson

Legal Counsel

Michael Terris, Office of Legal Affairs

Supporting Division

Planning and Technical Support Division

Acknowledgements

This report was prepared with the assistance and su pport from the other divisions and offices of the Air Resources Board. In addition, w e would like to acknowledge the assistance and cooperation that we have received fr om many individuals and organizations.vii TABLE OF CONTENTS

EXECUTIVE SUMMARY ..................................

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

I. INTRODUCTION .......................................

................................................... ............ 9

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

................................................... .............. 9

B. Need for Emission Reductions .......................

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

C. Report Overview....................................

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

D. Staff Recommendation ...............................

................................................... ..... 12

II. PROPOSED AMENDMENTS TO THE REGULATION FOR IN-USE OF F-ROAD

DIESEL-FUELED FLEETS...............................

................................................... ... 13

A. Regulatory Authority...............................

................................................... ......... 13

B. Rationale for Amendments ...........................

................................................... ... 13

C. Public Process.....................................

................................................... ............ 14

D. Proposed Amendments ................................

................................................... ... 15

III. ECONOMIC IMPACTS...................................

................................................... ..... 29

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

................................................... ....... 29

B. Legislatively Directed Amendments.................. .................................................. 2 9

C. Additional Incentives for Early Actions............

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

D. Other Proposed Amendments .......................... .................................................. 3 4

E. Impacts on California Economy......................

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

F. Potential Impacts on Small Businesses.............. ................................................ 35

G. Potential Impacts on Public Agencies............... .................................................. 3 5

IV. ENVIRONMENTAL IMPACTS .............................. ................................................. 37

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

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

B. Air Quality Impacts of Proposed Amendments ......... .......................................... 37

C. Future Evaluation of Current Economic Conditions on Emissions...................... 44

D. Other Environmental Impacts ........................

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

V. ALTERNATIVES CONSIDERED ............................ ............................................... 47

A. Legislatively Directed Amendments.................. .................................................. 4 7

B. Additional Incentives for Early Action .............

................................................... . 51

C. Other Amendments ...................................

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

VI. REFERENCES .........................................

................................................... ........... 55viii APPENDICES

APPENDIX A: AB 8 2X LANGUAGE

APPENDIX B: PROPOSED REGULATION ORDER FOR IN-USE OFF-ROAD

DIESEL-FUELED FLEETS

APPENDIX C: CREDIT EXAMPLES

APPENDIX D: LIST OF ACRONYMSix LIST OF TABLES

Table 1: Proposed Revised BACT Schedule...........

................................................... 2

Table 2: Proposed Revised BACT Schedule for Large Fleets meeting the Fleet

Averages...........................................

................................................... .......... 2

Table 3: Estimated Emissions Benefits of Proposed Incentives for Early Action.. 6

Table 4: Proposed Revised BACT Requirements....... ............................................. 17

Table 5: Costs for a Fleet with Reduced Activity..

................................................... 30

Table 6: Costs for a Fleet with Reduced Hp........

................................................... .. 31

Table 7: Statewide NOx and PM Emission Reductions from the Current

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

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

Table 8: Statewide Increase in Emissions in 2011 a nd 2012 from BACT Schedule

Amendments .........................................

................................................... ... 39

Table 9: New Credits Awarded to Fleet .............

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

Table 10: Possible 2010 Emissions Benefits from Pr oposed Double Credit for

Early NOx Retrofits ................................

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

Table 11: Possible 2010 Emissions Benefits from th e Proposed Turnover

Exemption for Retrofit Vehicles and Extended Double Credit................ 43

Table 12: Possible 2010 Emissions Benefits from Pr oposed Repower Incentive 43

Table 13: Emissions Benefit Comparison for Triple Retrofit Credit ...................... 52xxi LIST OF FIGURES

Figure 1: Proposed NOx BACT Turnover Requirements for Large Fleets ............ 18

Figure 2: Proposed PM BACT Retrofit Requirements f or Large Fleets................. 18

Figure 3: Costs for a Fleet with Reduced Activity. .................................................. 3 1

Figure 4: Costs for a Fleet with Reduced Hp .......

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

Figure 5: Effect of Proposed BACT Schedule Amendme nts on Emissions

Benefits...........................................

................................................... .......... 39

Figure 6: NOx BACT Requirements for an Example Fle et...................................... 40

Figure 7: PM BACT Requirements for an Example Flee t........................................ 41xii1

EXECUTIVE SUMMARY

What is the purpose of this report?

As part of the recently signed California budget, t he California Legislature adopted Assembly Bill 8 2X (Assembly Bill 8 2X or AB 8 2X), which added section 43018.2 to the Health and Safety Code. In AB 8 2X, the Legislatur e directed ARB to make several amendments to the California Code of Regulations, T itle 13, sections 2449 through 2449.3, the regulation for in-use off-road diesel f ueled-fleets (the regulation). This report describes staff’s proposal to implement the legislatively directed amendments, as well as proposed new incentives to spur early actio ns by fleets to reduce emissions, and

several additional minor modifications and clarific ations to the regulation.

What did the legislature direct ARB to do and why?

The intent of AB 8 2X, is to provide economic relie f and to preserve jobs in the construction industry, which is currently facing di fficult economic times due to the current global recession (Assembly, 2008; Senate, 2 008). Once implemented, it would provide credits to fleets that have experienced dro ps in operational activity of their

vehicles and/or that have reduced their fleet size by selling or retiring vehicles without acquiring replacements in the past three years. Un der the legislatively-directed amendments, fleets would receive credits that could be used for compliance with the regulation’s in-use performance requirements, and e ffectively allow such fleets to delay the need to retrofit and turnover vehicles, especia lly in 2010 and 2011. The amendments would also allow large fleets the option of delaying a portion of their compliance obligations that are currently required for 2011 and 2012 until 2013.

Specifically, AB 8 2X directs ARB to amend the regu lation as follows:

1. For the total cumulative turnover and retrofit r equirements for the years 2011 through 2013, to allow fleets to complete 20 percen t of those requirements by March 1, 2011, an additional 20 percent by March 1, 2012, and the balance by March 1, 2013.

2. To allow fleets to receive compliance credit for both particulate matter (PM) and oxides of nitrogen (NOx) for any vehicle retire ments made between March 1, 2006, and March 1, 2010, provided that tot al fleet horsepower has

decreased.

3. To allow fleets that experience reduced activity of their off-road vehicles between July 1, 2007 and March 1, 2010 (i.e., opera te their vehicle less), to receive credit for this reduced fleet activity to s atisfy the turnover and retrofitting requirements of the regulation in 2010 and 2011.

The full language of AB 8 2X is included as Appendi x A to this report.2

What amendments to the regulation is staff proposin g in response to the legislature’s direction?

Staff’s proposal for implementing AB 8 2X is summar ized below.

First, staff proposes to allow fleets complying via the Best Available Control Technology (BACT) provisions to take fewer actions to meet the regulation’s 2011 and 2012 compliance dates, but such fleets would need to mak e up for the difference by the 2013 compliance date. The BACT provisions allow fleets that do not meet the regulation’s annual fleet average targets to alternatively compl y by meeting specified turnover and retrofit requirements. Staff proposes to revise th e BACT schedule to lessen the number of required vehicle turnovers and retrofits require d in 2011 and 2012, as shown in Table 1 below. The turnover and retrofit requirements i n 2011 and 2012 would be cut nearly in half, but if fleets take advantage of the new de creased requirements, they would need to make up for the delayed actions in 2013.

Table 1: Proposed Revised BACT Schedule (Percent turnover required / Percent retrofit requi red)

Regulation 2010 2011 2012 2013 2014

Current 8 / 20 8 / 20 8 / 20 8 / 20 8 / 2 0 Proposed 8 / 20 4.8 / 12 4.8 / 12 14.4 / 36 8 / 20

Staff also proposes to adjust the required BACT per centages for all medium fleets and large fleets that are able to meet the fleet averag e targets in 2011 or 2012 to ensure

that the revised schedule never increases the BACT requirements beyond what the current regulation requires for any fleet. The rev ised BACT percentages for such fleets

are shown in Table 2 below.

Table 2: Proposed Revised BACT Schedule for Large Fleets meeting the Fleet Averages (Percent turnover required / Percent retrofit requi red)

Regulation 2010 2011 2012 2013 2014 Meeting the Fleet Average in 2011 - - 4.8 / 12 11.2 / 28 8 / 20

Meeting the Fleet Average in 2012

& Medium Fleets - - - 8 / 20 8 / 20

Second, staff proposes to add provisions to allow f leets to claim credit for any vehicle retirements that reduce total fleet horsepower (hp) between March 1, 2006, and March3

1, 2010. The new provisions would provide that the new retirement credit could be used by fleets to satisfy their NOx and PM BACT requirem ents and that the new credit would not expire.

Third, staff proposes to allow fleets to claim cred it for reduced operational activity between July 1, 2007, and March 1, 2010. The reduc ed activity credit could be used by fleets to satisfy their NOx and PM BACT requirement s in the years 2010 and 2011 only. Staff proposes to determine reduced activity by com paring activity during the period January 1, 2007, through December 31, 2007 (centere d on July 1, 2007, the date specified in AB 8 2X) to the activity during the pe riod March 1, 2009, to February 28, 2010. Staff proposes to use horsepower-hours (work done by one horsepower in one hour) to determine activity, which is more reflecti ve of emissions than simply using hours. Additionally, staff proposes that fleets re port their reduced activity and that there be more stringent records required for fleets that claim more than a 20 percent reduction in activity as follows:

• To receive credit up to 20 percent, a fleet would be required to produce verifiable records that show reduced fleet operational activit y between the required time periods. Acceptable records include, but are not l imited to, employment records (including man-hours worked), revenue records, taxe s, operation records, and fuel use;

• To receive credit greater than 20 percent, a fleet would be required to submit hour-meter or operator logs for each vehicle.

Under the proposal, fleets that have retired vehicl es and also have reduced activity from the remaining vehicles in the fleet could claim cre dit for both. However, staff is proposing provisions to prevent double counting of the same action (i.e., receiving credit both for retiring and reducing activity for the sam e vehicle).

Why are the emission reductions from the regulation important for the State Implementation Plan (SIP) and for public health in California?

As explained below, the emission reductions anticip ated from the regulation are important from a public health standpoint and neede d for the state to meet its federal SIP commitments. Because of this importance, when crafting the proposed amendments, staff included proposals to minimize th e loss of emission benefits.

The off-road vehicles covered by the regulation are a significant source of diesel PM

and NOx emissions that lead to ozone and ambient PM . Staff estimates that approximately 1,100 premature deaths were associate d with the baseline uncontrolled emissions from in-use off-road diesel vehicles in y ear 2005.

The regulation was adopted in order to achieve sign ificant emission reductions and protect public health. At the time the Board initi ally approved the regulation, staff estimated that approximately 4,000 premature deaths statewide would be avoided by the year 2030 by implementing the adopted regulatio n, in addition to preventing thousands of hospital admissions and asthma and bro nchitis cases (ARB, 2007b).4

Under the federal Clean Air Act (CAA), the U.S. Env ironmental Protection Agency (U.S. EPA) has established National Ambient Air Quality S tandards (NAAQS) for pollutants considered harmful to public health, including PM2. 5. Set to protect public health, the NAAQS are adopted based on a review of health studi es by experts and a public process. Areas in the state that exceed the NAAQS are required by federal law to develop SIPs demonstrating how they would attain an d maintain the standards by

certain deadlines. If the state fails to make this demonstration, it can be subject to sanctions, including the loss of federal highway fu nds.

In order to meet the PM2.5 standard in the South Co ast and the San Joaquin Valley Air Basins, by 2015, reductions of NOx on the order of 50 percent are needed. Reductions of NOx of 80-90 percent by 2023 will be needed to a chieve the 8-hour ozone standard in the South Coast and San Joaquin Valley. Clearly , with this magnitude of reductions needed, the maximum level of potential emission red uctions from all sources, including in-use off-road diesel vehicles are critically need ed.

California’s 2007 SIP included the regulation as a control measure. ARB’s legal

commitment to achieve the emission reductions laid out in the SIP relies upon the following emission reductions from the regulation b y 2014 - 10.5 tpd NOx reductions and 2.6 tpd PM2.5 reductions in the South Coast, an d 3.7 tpd NOx and 0.8 tpd PM2.5 reductions in the San Joaquin Valley (ARB, 2007c). If the regulation falls short of achieving these reductions, the loss would need to be made up for by other control

measures.

What will the emissions impacts of the legislativel y directed amendments be?

The legislatively directed amendments will allow ma ny fleets to comply with the off-road regulation by utilizing credits received under the new provisions, rather than taking actions to reduce emissions. Hence, the amendments will allow fleets to perform fewer actions to reduce emissions than they otherwise wou ld have, with the likely consequence that there will be less retirement of h igh-emitting vehicles, fewer repowers of vehicles with cleaner engines, and fewer install ations of exhaust retrofits. This will likely result in fleets having older and higher emi tting vehicles. Overall, staff anticipates that the legislatively directed amendments will inc rease the emissions compared to the emissions that would otherwise result from the regu lation.

Because the legislatively directed amendments could lessen the requirements for many large fleets in the early years of the regulation, without mitigation, the changes could

result in:

• A loss in emission reductions achieved in 2014 (a key milestone year for the SIP);

• A reduction in forecasted health benefits; and

• An adverse economic impact on retrofit manufacture rs and installers that have geared up for off-road implementation, which could result in reduced ability of5

that industry to have product available for complia nce in future years, as well as the potential loss of “green” jobs associated with these industries.

However, staff recognizes that the recession has al so impacted the emissions from many affected fleets. Many fleets have retired ve hicles and reduced their vehicle activity and thereby reduced their emissions. Howe ver, staff does not have adequate

data on how the current economic recession has affe cted the thousands of fleets in

California to determine whether the emission reduct ions due to activity reductions and retirement are currently large enough to offset the emission benefit losses due to the legislatively directed amendments. A further analy sis of which of these effects will have a larger impact on emissions is necessary. Staff i s currently collecting and preparing to analyze relevant data from off-road fleets, includi ng the reporting data required by the regulation, to address this question, and will prov ide an assessment of the of the impact of the regulatory changes to the emission reduction obligations contained in the SIP as part of staff’s October, 2009 update to the Board

What does staff propose to do to mitigate the poten tial loss in emission benefits from the legislatively directed amendments?

Staff is proposing four amendments to mitigate the potential loss in emission benefits from the legislatively directed changes by spurring early actions by fleets to reduce

emissions. These amendments are intended to encour age fleets to install retrofits and repower vehicles with cleaner engines earlier than they otherwise would. This could result in reduced emissions from large fleets that otherwise would take no actions until 2012 as a result of the legislatively directed amen dments to the regulation. In turn, staff expects that these early actions will benefit compa nies that provide and install retrofits and repower solutions and help spur continued growt h in green jobs. Because opting to take advantage of these incentives would be volunta ry, they would not impose any requirements or costs on fleets.

The amendments to provide additional incentives for early action to reduce emissions

are:

• Allow fleets to claim an exemption for up to 15 pe rcent of their total horsepower from future turnover if they install a retrofit pri or to March 1, 2011;

• Allow fleets to claim double credit for NOx retrof its installed by March 1, 2011;

• Allow medium and small fleets to claim double cred it for PM retrofits installed by March 1, 2012; and

• Allow fleets to accumulate NOx carryover turnover credit for early repowers installed, regardless of the total amount of fleet hp that is repowered.

What will the emissions impacts of the additional i ncentives for early action be?

The emissions impact of staff’s proposed amendments to encourage early retrofits and repowers would depend on their appeal to fleet owne rs. Staff estimated emissions benefits assuming that the new incentives for retro fits would spur approximately 400 retrofits that reduce PM only and 400 additional re trofits that reduce both PM and NOx,6

and that the new incentive for repowers would spur 500 repowers. Table 3 below

summarizes the estimated emissions benefits from th ese incentives. In total, for the amount of early actions described above, PM benefit s of 0.1 tons per day (tpd) and NOx benefits of 1.9 tpd could be expected.

Table 3: Estimated Emissions Benefits of Proposed Incentives for Early Action

Incentive Actions

Incentivized PM Benefits

(tons per day) NOx Benefits

(tons per day)

Double Credit Towards NOx

for Retrofits that Reduce NOx 400 Retrofits

with 40% NOx

reduction 0.05 0.5

Turnover Exemption for Retrofit Vehicles, and

Extended Double Retrofit

Credit for Small/Medium

Fleets 400 Retrofits 0.05 0.1

Credit Issued for Repowers 500 Repowers 0.1 1.3

Total Benefits 0.2 1.9

What other amendments to the regulation are staff p roposing and why?

Since January 2009, based on feedback and comments from affected fleets and other stakeholders, as well as an analysis by staff, staf f is proposing that several other provisions of the regulation be clarified. Specifi cally, staff is proposing that the regulation clarify and provide that:

• The manufacturer delay provisions apply to install er delays as well;

• Community college programs that train students in the use of off-road vehicles

are included in the definition of Non-Profit Traini ng Center;

• Retrofit installation may be determined unsafe if it would make compliance with any federal or state safety requirements impossible ;

• Public agency fire prevention activities are class ified as forest operations; and

• Fleets must report to ARB within 30 days of sellin g a vehicle.

Staff believes these clarifications and modificatio ns are necessary for successful implementation of the regulation. Staff does not b elieve the clarifications and modifications will have any quantifiable impact on emission reductions.

What will be the economic impact of the proposed am endments?

Overall, the proposed legislatively directed amendm ents will provide both a short-term and long-term cost savings to fleets subject to the regulation. However, at this time, staff does not have adequate data to determine how the current economic recession

has affected each of the thousands of fleets in Cal ifornia, and thus staff cannot estimate a total dollar savings due to the legislatively dir ected amendments. In the interim, staff evaluated the impact of the proposed amendments on an example fleet to evaluate the7

potential economic impacts of the proposed legislat ively directed amendments. Staff found that if the example fleet had reduced its act ivity by half or retired half its vehicles, the proposed legislatively directed amendments woul d reduce its compliance costs by 76 to 100 percent during the first three years of t he regulation. The amendments would also reduce the fleet’s total compliance costs over the course of the regulation by up to

one third.

The additional incentives for early action are expe cted to result in some additional longterm cost savings as well to fleets that take advan tage of them. Similarly, the amendments to expand the definitions of Non-Profit Training Center and forest operations would result in overall cost savings for affected fleets.

Although the proposed amendments are not expected t o adversely impact the economy overall, the legislatively directed changes could r esult in a negative economic impact on retrofit manufacturers and installers, and firms th at provide repowers because they would receive fewer orders over the next few years. However, the proposed incentives for early action by fleets are intended to encourag e early retrofitting and repowering and would help protect businesses that provide “green” jobs in California.

What objectives did staff have when interpreting th e legislatively directed

amendments?

When crafting staff’s proposal, staff strove toward the following goals:

• Consistency – Develop a proposal consistent with the Legislatur e’s direction ;

• Simplicity

– Implement the Legislature’s direction in as clea r and simple a manner as possible.

• Never increase the stringency of the regulation – Ensure that in no case would any fleet receive less credit (i.e., face greater c ompliance responsibilities) under the proposal than under the current regulation. Th is was critical because many fleets have already laid out their compliance plans for the regulation. Giving a fleet less credit than they were previously expecti ng under the current regulation would disrupt those plans.

What alternatives did staff consider and why were t hey rejected in favor of staff’s proposal?

When considering how to implement the legislatively directed changes, staff did not

consider alternatives intended to be inconsistent w ith AB 8 2X, but did consider different ways to interpret the AB 8 2X language. First, sta ff considered limiting the credit for vehicle retirements to Tier 0 vehicles only. Ultim ately, based on stakeholder feedback,

staff concluded it was more consistent with the int ent of AB 8 2X to allow retirement credit for retirement of any vehicle, no matter it’ s emissions standard tier. Second, staff considered limiting reduced activity credit only to fleets with complete records of the hours of use for each and every vehicle. Again, b ased on feedback from fleets regarding the records that they were most likely to have available, staff modified this requirement to allow credit for fleets that could p roduce other types of documentation.8

Third, staff considered a number of ways to determi ne the time period for reduced activity, but in the end concluded the period most consistent with the language in AB 8 2X was to center the time period on the dates laid out by the Legislature, where possible. Finally, staff explored various ways to handle credit for fleets that had both retired vehicles and reduced activity, eventually s ettling on a method that awards such fleets both types of credits but prevents inappropr iate double counting.

When considering amendments to mitigate the loss in emission benefits from the legislatively directed changes, staff analyzed a nu mber of options. Staff rejected alternatives that would have required a minimum amo unt of turnover and retrofit for fleets using the new credits, as well as increased BACT requirements for later years to make up for lost emission reductions. Staff determ ined that these options would have reduced the relief provided by AB 8 2X and hence wo uld not be consistent with the intent of the legislation. Instead, staff chose to provide additional voluntary incentives for fleets to repower and retrofit, which would spur ea rly emission reductions without imposing additional requirements on affected fleets

.9

I. INTRODUCTION

The purpose of this report is to describe amendment s to the Regulation for In-Use OffRoad Diesel-Fueled Vehicle Fleets (the regulation), California Code of Regulations, Title 13, sections 2449 through 2449.3. Staff of the Air Resources Board (ARB or Board) is proposing amendments for three reasons - first, to implement the legislative directives set forth in the recently adopted California budget (Assembly Bill 8 2X or AB 8 2X); second, to mitigate potential losses in emission be nefits due to the legislatively directed amendments; and third, to make minor amendments and clarifications to the regulation. Section A below provides background regarding the r egulation, Section B discusses the need for emission reductions, and Section C outline s the organization and content of this report.

A. Background

The regulation was originally approved by the Board on July 26, 2007, formally adopted on April 4, 2008, and approved by the Office of Adm inistrative Law (OAL) and filed with the Secretary of State on May 16, 2008. The regulat ion became effective on June 15, 2008. Additional amendments were approved by the B oard on December 11, 2008 and January 26, 2009, though these amendments have not as yet been formally adopted by the Board or submitted to OAL for approval.

At the time of the Board’s approval of the regulati on in July 2007, staff estimated that the regulation would significantly reduce emissions of diesel PM and NOx from the nearly 200,000 in-use off-road diesel vehicles that operate in California and consequently significantly reduce the public’s expo sure to these pollutants. The regulation would achieve these environmental benefi ts by requiring fleet owners of offroad in-use diesel vehicles to modernize their flee ts by accelerating the use of cleaner engines and exhaust retrofits in their vehicles (AR B, 2007a). The regulation supports

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).

The scope of the regulation is far reaching; affect ing vehicles of dozens of types used in thousands of fleets, in industries as diverse as co nstruction, air travel, manufacturing, landscaping, and ski resorts, as well as public age ncies. Once implemented, the regulation will affect, among others, the warehouse with one diesel forklift, the landscaper with a fleet of a dozen diesel mowers, t he county that maintains rural roads, the landfill with a fleet of dozers, as well as the large construction firm or government fleet with hundreds of diesel loaders, graders, scr apers, and rollers.

The regulation’s requirements vary depending on the size of the fleet and on the vintage of its vehicles. Fleets are defined in the regulat ion as small, medium, or large based on their total statewide horsepower (hp). The regulat ion requires that the largest fleets, which have the most significant emissions, meet the most stringent requirements. The10

smallest fleets, and local municipal fleets located in low-population counties, are required to meet less stringent provisions.

B. Need for Emission Reductions

The emission reductions anticipated from the regula tion are important from a public health standpoint and sorely needed to allow the st ate to meet its SIP commitments required by the Federal Clean Air Act (CAA). Becau se of this importance, which is described further below, when crafting the proposed amendments described in this report, staff included proposals to minimize any po tential loss of emission benefits.

1. Significant source of emissions and adverse heal th impacts

The off-road vehicles covered by the regulation are a significant source of diesel PM, as

well as NOx emissions that lead to ozone and ambien t PM. Statewide, they are responsible for nearly a quarter of the total diese l PM emissions from mobile sources and nearly a fifth of the total NOx emissions from mobile diesel sources. The vehicles subject to this regulation were estimated to emit s tatewide about 386 tons per day (tpd) of NOx emissions and 23 tpd of PM emissions in 2005 , which is 19 and 24 percent, respectively, of statewide diesel mobile source emi ssions (ARB, 2007b). Staff estimates that approximately 1,100 premature deaths were associated with the baseline

uncontrolled emissions from in-use off-road diesel vehicles in 2005. The health impacts

include direct effects from diesel PM as well as ef fects from secondary pollutants such as nitrate particles (ARB, 2007a).

In 1998, the Board identified diesel PM as a toxic air contaminant (TAC). Of all known air pollutants, diesel PM is the largest known cont ributor to ambient cancer risk. Diesel

PM also contributes to ambient concentrations of fi ne particulate matter (PM2.5), which is associated with premature mortality, aggravation of respiratory and cardiovascular disease, asthma exacerbation, chronic and acute bro nchitis 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.

2. Public health benefit

The regulation was adopted in order to achieve sign ificant emission reductions and protect public health. NOx emitted statewide from affected vehicles was expected to be about 13 percent lower in 2015 as a result of the r egulation, and by 2020, NOx emissions were expected to be 32 percent lower than would occur in the absence of the regulation. The PM benefits were expected to be ev en greater. PM emissions from affected vehicles were expected to be 60 percent lo wer in 2015, and nearly 70 percent lower in 2020 than they would have been in the abse nce of the regulation (ARB, 2007b). Also, staff estimated that the regulation would prevent approximately 4,00011

premature deaths statewide by 2030, as well as thou sands of hospital admissions and asthma and bronchitis cases (ARB, 2007b).

3. SIP commitments

Under the CAA, the U.S. Environmental Protection Ag ency (U.S. EPA) has established national ambient air quality standards (NAAQS) for pollutants considered harmful to public health, including PM2.5 and ozone, to which NOx is a precursor. Set to protect public health, the NAAQS are adopted based on a rev iew of health studies by experts and a public process. Areas in the state that exce ed the NAAQS are required by federal law to develop SIPs demonstrating how they would attain and maintain the standards by certain deadlines. If the state fails to make this demonstration, it can be subject to sanctions, including the loss of federal highway funds.

Because of unique geographical and climatic conditi ons, combined with high numbers and concentration of people and mobile sources, Cal ifornia continues to have the worst air quality of any of the 50 states. Two air basin s in California in particular – the South Coast Air Basin and the San Joaquin Valley Air Basi n – are in nonattainment for both PM2.5 and the eight-hour ozone standard. The South Coast and San Joaquin Valley air basins are both required to attain the PM2.5 standa rd by 2015. California’s SIP shows

that to meet the PM2.5 standard in the South Coast and the San Joaquin Valley Air Basins, reductions of NOx on the order of 50 percen t are needed. Reductions of NOx of 80-90 percent will be needed to achieve the 8-ho ur ozone standard in the South Coast and San Joaquin Valley. Clearly, with this m agnitude of reductions needed, the emission reductions from the regulation are sorely needed.

California’s 2007 SIP included the regulation as a control measure. ARB’s legal

commitment to achieve the emission reductions laid out in the SIP relies upon the following emission reductions from the regulation b y 2014 - 10.5 tpd NOx reductions and 2.6 tpd PM2.5 reductions in the South Coast, an d 3.7 tpd NOx and 0.8 tpd PM2.5 reductions in the San Joaquin Valley (ARB, 2007c). If the regulation falls short of achieving these reductions, the loss would need to be made up for by other control

measures.

C. Report Overview

Chapter II of this report describes the regulatory authority ARB has to adopt the proposed amendments to the regulation, the need for the amendments, the public process used to develop the amendments, and the ame ndments in detail.

Chapter III describes the anticipated economic impa cts of the amendments.

Chapter IV describes the anticipated environmental impacts of the amendments, including their impact on air quality and other env ironmental impacts.

Chapter V describes other alternatives staff consid ered when implementing the legislatively directed amendments.12

Chapter VI lists the references used to develop thi s report.

The appendices contain the AB 8 2X legislation, pro posed regulatory language for the amendments, detailed examples of how the proposed a mendments would affect the credit accumulated by fleets as they comply with th e regulation, and other supplementary information.

D. Staff Recommendation

Staff recommends that the Board adopt the proposed amendments to California Code of Regulations, title 13, sections 2449 through 244 9.3, as described in Chapter II and set forth in Appendix B.13

II. PROPOSED AMENDMENTS TO THE REGULATION FOR IN-US E OFF-ROAD

DIESEL-FUELED FLEETS

This chapter discusses the regulatory authority and rationale for staff’s proposal, as well as the public process used to develop the proposed amendments to the regulation,

which are also discussed in detail.

A. Regulatory Authority

ARB has authority under California law to adopt the proposed regulation amendments. California Health and Safety Code (Health & Saf. Co de) 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 state ambient air quality stan dards. ARB is further mandated by

California law under Health & Saf. Code section 396 67 to adopt Air Toxic Control Measures (ATCMs) for new and in-use vehicular sourc es, including off-road diesel vehicles, for identified TACs, such as diesel PM.

Under federal and California law, ARB is the primar y agency in California responsible for making certain that all regions of the State at tain and maintain NAAQS. To achieve this, California must adopt all feasible measures t o obtain the necessary emission reductions, including measures from mobile sources. The CAA preempts states, including California, from adopting requirements fo r new off-road engines less than 175 hp used in farm or construction equipment. Califor nia may adopt emission standards for in-use off-road engines (per CAA section 209(e) (2)), but must receive authorization from U.S. EPA before it may enforce the adopted sta ndards. The regulation addresses in-use rather than new off-road engines, and is the refore not prempted. For example, turnover of a vehicle is not required until a vehic le is older than 10 years. ARB requested that the U.S. EPA grant authorization for the regulation on August 12, 2008, and a decision is pending.

B. Rationale for Amendments

As part of the recently signed California budget, t he Legislature passed and the Governor signed AB 8 2X, directing ARB to make seve ral amendments to the regulation. The pertinent provisions of AB 8 2X ar e codified at section 43018.2 of the Health & Safety Code and included herewith as Appen dix A. The amendments include the following:

• For the total cumulative turnover and retrofit req uirements for the years 2011 through 2013, fleets may complete 20 percent of tho se requirements by March 1, 2011, an additional 20 percent by March 1, 2012, an d the balance by March 1,
2013;

• Fleets will be given credit (for both PM and NOx) for any vehicle retirements made between March 1, 2006, and March 1, 2010, prov ided that total fleet hp decreased from the previous year; and14

• Fleets who are now using their off-road vehicles l ess than they did as of July 1, 2007, may take credit for this reduced fleet activi ty to satisfy the turnover and retrofitting requirements of the regulation in 2010 and 2011.

Because the legislatively directed amendments could lessen the requirements for many large fleets in the early years of the regulation, without mitigation, the amendments

could result in:

• A loss in emission reductions achieved in 2014 (a key milestone year for the SIP);

• A reduction in health benefits; and

• An adverse economic impact on retrofit manufacture rs and installers that have geared up for off-road implementation, which could result in reduced ability of that industry to have product available for complia nce in future years, as well as a potentially significant loss of “green” jobs.

Therefore, in addition to amending the regulation t o meet the directives of AB 8 2X, staff is also proposing amendments to provide incentives to mitigate some of these potential impacts by incentivizing early actions to reduce em issions. These proposed incentives are intended to encourage fleets to voluntarily ins tall retrofits and repower vehicles with cleaner engines earlier than otherwise required. S taff believes that they would spur some fleets that receive new credit from the legisl atively directed amendments, and that as a consequence might not need to take any complia nce action until 2012 or later, to

act sooner to reduce their emissions than otherwise required. In turn, staff believes that these early actions would potentially benefit compa nies that provide retrofits and repower solutions and help avoid losing green Calif ornia jobs that might be adversely affected by the compliance delays resulting from th e implementation of the provisions of

AB 8 2X.

Finally, based on feedback and comments from affect ed fleets and other stakeholders, as well as analysis by staff, a number of other pro visions of the regulation that require

clarification or modification have been identified. Staff believes these clarifications and modifications are necessary for the successful impl ementation of the regulation.

C. Public Process

Staff held two public workshops to solicit public i nput on the proposed amendments to the regulation. The first one was held on April 7, 2009, in Sacramento, California. At that workshop staff presented an initial proposal t o implement the legislatively directed changes. Staff held a second workshop on April 29, 2009 in Diamond Bar, California. At this second workshop staff presented a modified proposal based on comments received at the first workshop. As part of the rev ised proposal, staff developed two documents - one describing staff’s revised proposal for the April 29, 2009, workshop and another that provides detailed examples of how the legislatively directed amendments would apply to fleets in various situati ons (ARB, 2009b; ARB, 2009c). Staff sent both documents to an electronic mailing list that included approximately 3,000 names, and also distributed them at the April 29, 2 009, workshop.15

In addition to the workshops, staff held meetings w ith individual fleets and, at the May 7, 2009, Off-road Implementation Advisory Group (ORIAG ) meeting, solicited input from ORIAG members on the proposed amendments. 1

Staff also met with Air and Land Managers Group (co nsisting of several federal and state agencies ) on May 21, 2009, to discuss clarif ying that public agency fire prevention activities would be classified as forest operations as part of the proposed amendments. The discussion included a review of vehicles the pr oposed exemption would apply to, and what portion of the vehicles’ operations involv es forest fire prevention (e.g., installing fuel breaks, firebreaks, and fire hazard abatement, etc.).

Staff considered all comments and recommendations r eceived from various stakeholders, and crafted the final proposed amendm ents to address the concerns that were expressed.

D. Proposed Amendments

Staff is proposing the following amendments to the regulation to implement the

directives of AB 8 2X:

• Allow fleets that comply by using the Best Availab le Control Technology (BACT) provisions to take fewer actions than are currently required to meet the regulation’s 2011 and 2012 compliance dates, but ma ke up for the difference by the 2013 compliance date;

• Allow fleets that retire vehicles between March 1, 2006, and March 1, 2010, thereby reducing their total fleet hp, to receive c redit for the retirements, which

can then be used to meet the BACT turnover and retr ofitting requirements of the regulation; and

• Allow fleets that have experienced reduced fleet o perational activity since 2007 to receive credit for this reduced fleet activity t hat can then be used to meet the BACT turnover and retrofitting requirements of the regulation in 2010 and 2011.

In addition, staff is also proposing the following amendments to encourage voluntary early actions to reduce emissions:

• Allow fleets to claim an exemption from future tur nover, up to a specified percentage of their total hp, if they install a ret rofit prior to March 1, 2011;

• Allow fleets to claim double credit for NOx retrof its installed by March 1, 2011;

• Allow medium and small fleets to claim double cred it for PM retrofits installed by March 1, 2012; and

• Allow fleets to accumulate NOx carryover turnover credit for repowers with new engines certified to Tier 2 or cleaner standards.

Finally, staff is proposing a number of amendments to clarify and provide that:

1 The mission of ORIAG - a committee made up of aff ected fleets, retrofit providers, vehicle manufacturers and other stakeholders - is to help A RB staff improve outreach and implementation materials and help make staff more a ware of the needs and opinions of

affected stakeholders.16

• The manufacturer delay provisions apply to install er delays as well;

• Community college programs that train students in the use of off-road vehicles

are included in the definition of Non-Profit Traini ng Center;

• A retrofit installation may be determined unsafe i f it would conflict with any federal or state safety agency requirements;

• Public agency fire prevention activities are class ified as forest operations; and

• Fleets must report to ARB within 30 days of sellin g a vehicle.

A more detailed discussion of all the amendments st aff is proposing is provided below. Appendix C details examples of how the proposed new credits would apply to fleets.

1. Legislatively directed amendments

Subsections a through c below describe staff’s prop osal to implement AB 8 2X.

a) Revised BACT schedule

Current Requirements

Currently, the regulation requires fleets to either meet the fleet average requirements or the BACT retrofit and/or turnover requirements. Th e same fleet average emission rate targets for PM apply to all fleets, regardless of f leet size, but the NOx fleet average targets apply only to large and medium fleets. Sma ll fleets are exempted from having to meet any of the NOx performance requirements. Comp liance dates are staggered

based on fleet size. Each individual fleet’s emiss ion targets vary depending on the distribution of horsepower of the fleet. The fleet average targets drive fleets to

modernize their vehicles faster than natural turnov er otherwise would.

Fleets that cannot or choose not to meet the fleet average targets (for PM or NOx) may comply with the requirements of the regulation by m eeting the BACT requirements. The current NOx BACT requirements require fleets to tur n over 8 percent of the fleet’s maximum hp each year until 2015, after which time t he requirement increases to 10 percent. To meet the turnover requirements, a flee t must turn over Tier 0 and Tier 1 vehicles (those with engines that were not subject to a new engine PM standard) before turning over any higher tiered vehicles. Complianc e options for meeting the NOx turnover requirements include the following:

• 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 fleet;

• Designate vehicles as permanent low-use (i.e., use d less than 100 hours per year); or

• Install NOx verified diesel emission control strat egies (VDECS).

The PM BACT requirements consist of installing VDEC S on 20 percent of the fleet’s maximum hp in each compliance year.17

Fleets must meet the in-use performance requirement s by March 1 of each year, according to the following schedule:

• Large fleets: 2010-2020 (PM and NOx);

• Medium fleets: 2013-2020 (PM and NOx); and

• Small fleets: 2015-2025 (PM only, exempt from NOx requirements).

Proposed Amendments

Staff proposes to amend sections 2449.1(a)(2)(A) an d 2449.2(a)(2)(A) to allow a fleet to achieve its BACT turnover and retrofit requirements for the years 2011 to 2013, inclusive, by completing 20 percent of its cumulati ve turnover and retrofit obligations in 2011, an additional 20 percent in 2012, and the bal ance in 2013. This change would allow large fleets the option to defer a portion of the turnover and retrofits otherwise required in 2011 and 2012 to 2013, and result in a reduction of compliance costs in 2011 and 2012. Table 4 shows the current regulator y provisions and the proposed

revised BACT schedule.

Table 4: Proposed Revised BACT Requirements (Percent turnover required / Percent retrofit requi red)

Regulation 2010 2011 2012 2013 2014

Current 8 / 20 8 / 20 8 / 20 8 / 20 8 / 2 0 Proposed 8 / 20 4.8 / 12 4.8 / 12 14.4 / 36 2 8 / 20

The proposed revised BACT schedule, for fleets fail ing to meet the fleet averages in 2011 and 2012, changes the requirements for the yea rs 2011 through 2013. In 2011 and 2012, fleets must turn over 4.8 percent of thei r total fleet hp and retrofit 12 percent of their total fleet hp. In 2013, fleets must turn over 14.4 percent of their total fleet hp and retrofit 36 percent of their total fleet hp. T he proposed amendments contain special provisions for fleets that meet the fleet averages during 2011 and/or 2012, to ensure that such fleets are not required to take more acti ons than the current regulation would required them to. These provisions specifically pr ovide:

• Large fleets that meet the fleet average targets i n 2011, but do not meet them in 2012, must turn over 11.2 percent and retrofit 28 p ercent of their total hp in 2013 (explanation in next paragraph);

• Large fleets that meet the fleet average targets i n 2012, but not in 2013, must turn over eight percent and retrofit 20 percent of their total hp in 2013; and

• All medium fleets must turn over eight percent and retrofit 20 percent of their total hp by the 2013 compliance date.

Under the current regulation, fleets that meet the NOx fleet average target in 2011, but not in 2012, have to turn over 8 percent of their t otal hp in 2012, and again in 2013. So as not to make the regulation more stringent than i t currently is, if a fleet meets the fleet

2 In 2013, turnover/retrofit requirements for large fleets that meet the fleet average targets in 2011, but not in 2012, are 11.2/28 percent, and tho se for large fleets that meet the fleet average targets in 2012 are 8/20 percent.18

average target in 2011, and then turns over 4.8 per cent in 2012, it need only turn over 11.2 percent in 2013 (for a total of 16 percent for 2012-2013). Similarly, under the current regulation, fleets that meet the PM fleet a verage target in 2011, but not in 2012, have to retrofit 20 percent of their total hp in 20 12, and again in 2013. So as not to make the regulation more stringent than it currentl y is, if a fleet meets the fleet average target in 2011 and then has to meet the BACT retrof it requirements in 2012, it would have to retrofit 12 percent in 2012; in 2013, in or der to ensure that it does not have to perform additional retrofitting of vehicles relativ e to the current requirements, it would need to retrofit 28 percent (for a total of 40 perc ent in 2012-2013).

Figure 1 and Figure 2 below illustrate the proposed changes to the NOx and PM BACT requirements, respectively.

Figure 1: Proposed NOx BACT Turnover Requirements for Large Fleets (Annual percent of hp)

0 5 10 15

2010 2011 2012 2013 2014Percent Met the NOx Fleet Average Target in 2012

Met the NOx Fleet Average Target in 2011 Only

Did Not Meet the NOx Fleet Average Target in 2011 or

2012 Existing Annual Turnover
Requirement: 8% Legend is for 2013 only

Figure 2: Proposed PM BACT Retrofit Requirements f or Large Fleets (Annual percent of hp)

0 5 10 15 20 25 30 35 40

2010 2011 2012 2013 2014Percent Met the PM Fleet Average Target in 2012

Met the PM Fleet Average Target in 2011 Only

Did Not Meet PM Fleet Average Target in 2011 or

2012 Existing Annual Retrofit
Requirement, 20% Legend is for 2013 only19

Staff proposes to include this provision so that th e proposed amendments do not provide a disincentive to meeting the fleet average targets in either 2011 or 2012, and so as not to increase the stringency of the perform ance requirements for medium fleets.

Under the proposed revised BACT schedule, fleets wo uld continue to obtain PM carryover credit whenever they retrofit more than i s required. Likewise, they would obtain NOx carryover credit whenever they turn over more than is required. For example, a fleet utilizing the proposed revised BAC T schedule that turns over six percent of its maximum hp in 2011, would only be re quired to turnover an additional 3.6 percent in 2012 (as a carryover credit of 1.2 perce nt would have been banked from 2011). Similarly, a fleet that retrofits 20 percen t of its maximum hp in 2011 would only be required to retrofit 4 percent in 2012 (as a car ryover credit of 8 percent would have been banked from 2011).

b) Additional credit for vehicle retirement

Current Requirements

Currently, the regulation provides early credit (fo r NOx only) for voluntary retirement or replacement of Tier 0 engines in excess of an avera ge turnover rate of eight percent per year between March 1, 2006, and March 1, 2009. The refore, for example, if a fleet retired or replaced its Tier 0 machines at a rate o f 10 percent per year between 2006 and 2009, the fleet would obtain a six percent earl y credit towards the NOx BACT requirements. Once obtained, these credits do not expire.

Proposed Amendments

Staff is proposing amendments to sections 2449.1(a) (2)(A)2.a. and 2449.2(a)(2)(A)2.a.

that would allow fleets to claim credit for vehicle retirements (regardless of engine tier) that reduce their total fleet hp between March 1, 2 006, and March 1, 2010. The new credit would also not require retirement in excess of an average eight percent per year between March 1, 2006 and March 1, 2009. This new retirement credit could be used by fleets to satisfy their NOx and PM BACT requirem ents, and would not expire. In order to effectively implement the new provisions, staff also proposes to amend section 2449(g) to require fleets that claim the proposed r etirement credit to report specific information in support of their claims, and to amen d section 2449(h) to add recordkeeping requirements associated with claiming and reporting the new retirement

credit.

As with the reduced activity credit, the retirement credit would allow some large fleets to reduce or completely eliminate the need to take com pliance actions in the early years of the regulation and would primarily benefit those fl eets that have significantly downsized since 2006. Because the new credits do not expire, they may be banked and used by fleets for several years and thus could assist some medium and small fleets as well.20 c) Reduced activity credit

Current Requirements

There are currently no provisions in the regulation specifically providing credits for reduced fleet activity. However, the regulation do es provide special consideration for low-use vehicles and takes hours of operation into account in determining whether a vehicle qualifies under that provision.

Proposed Requirements

Staff proposes to add provisions to sections 2449.1 (a)(2)(A)2.a. and 2449.2(a)(2)(A)2.a.

that would allow fleets to claim credit for reduced activity between July 1, 2007, and March 1, 2010. The new provisions specify that the new reduced activity credit may be used by fleets to satisfy their NOx and PM BACT req uirements, but will only be applicable to the March 1, 2010 and March 1, 2011 c ompliance dates.

Staff also proposes to amend section 2449(g) to req uire reporting of information for those fleets claiming the reduced activity credit. Staff also proposes to amend section 2449(h) to add the recordkeeping requirements assoc iated with claiming the new reduced activity credit.

Staff proposes to determine reduced activity by com paring activity during the period January 1, 2007, to December 31, 2007, (centered on July 1, 2007, the date specified in AB8 2X) to the activity during the period March 1, 2009, to February 28, 2010. Staff proposes to use horsepower hours (hp-hours) -- that is work done by one hp in one hour -- to determine activity. Utilizing hp-hours to determine activity is more reflective of emissions relative to simply using hours. It also provides an equitable methodology, such that a fleet that starts using a lower hp vehi cle in lieu of using a higher hp vehicle will receive the appropriate credit. Therefore, th e activity reduction would be the percent reduction in hp-hours activity from the ini tial period (January 1, 2007, to December 31, 2007) to the later period (March 1, 20 09, to February 28, 2010).

Staff solicited feedback at the two public workshop s, held on April 7, 2009, and April 29, 2009, and at the ORIAG meeting held on May 7, 2009, regarding the types of records that fleets have that represent reduced activity an d to what degree those records aptly represent reduced activity. Staff indicated that t hese records would need to be from January 1, 2007, through February 28, 2010. At the se meetings, some fleet owners stated that they had hour-meter logs, vehicle opera tor logs, maintenance records that demonstrate vehicle use, and/or other records that clearly define the hours of use for each vehicle. However, other fleet owners informed ARB staff that although they do not have records for each vehicle, they have records of off-road diesel fuel use, operator logs (that do not identify which vehicles were used ), and/or other indicators that demonstrate fleet activity, but do not define activ ity directly by vehicle. Lastly, some fleet owners stated that they only have records tha t do not directly correlate to fleet activity, such as overall employment, revenue, cost of construction put in place, or other indicators of business or staffing activity.21

To address this, staff is proposing varying levels of reduced activity credit depending on the quality and type of records available, as descr ibed below:

1. For fleets that can demonstrate the individual h ours of use for each vehicle in the fleet from January 1, 2007, through February 28, 20 10, the amendments would:

• Allow fleets to receive full credit for the percen t reduction in fleet activity.

• Identify acceptable records that include hour-mete r logs, operator logs that show which vehicles were used and how often, mainte nance records that demonstrate vehicle use, or other records that clea rly define the hours of

use for each vehicle.

• Allow fleets to combine their reduced activity cre dit with credit for retiring vehicles from 2006 through 2010. That is, they cou ld take credit for vehicles retired, and then also take credit for act ivity reductions from the remaining vehicles.

. 2. For fleets with records that show a reduction in overall fleet activity, but do not have records for each vehicle, the amendments would :

• Allow fleets to receive full credit for the percen t reduction in fleet activity.

• Identify acceptable records, that include off-road diesel fuel use information for the fleet, operator logs that do no t identify which vehicles were used, or other indicators that demonstrate fle et activity, but do not define activity by vehicle.

• Not be allowed to combine their credits with vehic le retirements, as they

would be unable to demonstrate that the reduced act ivity was not due to the reduction of fleet hp without vehicle-specific records. Any retirement

credit for these fleets must be subtracted from red uced activity credit.

3. For fleets with records that show a reduction in business not directly tied to fleet usage, the amendments would:

• Allow fleets to receive up to a 20 percent credit only.

• Identify acceptable records that include overall e mployment, revenue, cost of construction put in place, or other indicators o f business or staffing activity that do not necessarily directly correlate to fleet activity.

• Not allow fleets to combine their credits with veh icle retirements. Any

retirement credit for these fleets must be subtract ed from reduced activity credit, so as to prevent potential doublecounting.

This new reduced activity credit would allow some l arge fleets to reduce or completely eliminate the need for compliance action in 2010 an d 2011, thereby delaying action until later years. The new credit would primarily benefi t those fleets that have experienced the greatest reduction in activity since 2007. Sta ff proposes the credit for fleets with

records that show a reduction in business not direc tly tied to fleet usage, to receive up to 20 percent credit, as this would provide enough credit to meet the highest PM BACT requirement of 20 percent in a given compliance yea r.22

Under staff’s proposal, fleets that have retired ve hicles and also have reduced activity from the remaining vehicles in the fleet could clai m credit for the retired vehicles but only a reduced activity credit for the activity red uction related to the non-retired vehicles in the fleet. That is, a fleet could not double co unt retired vehicles (i.e., receive credit for retiring and reduced activity for the same vehicle)

.

2. New Incentives for Early Action

Staff is proposing a number of specific measures to help offset the loss in emission benefits due to the legislatively directed amendmen ts, as well as to spur early retrofits and repowers of affected vehicles. (Section IV.b. discusses the loss in emission benefits further.) These new incentives are also i ntended to help protect and create green jobs in California through retrofit technolog y engineering and development, system assembly, installation, and maintenance. In addition, the new incentives will

increase the likelihood that sufficient retrofit ma nufacturers and installers will remain viable and be available to assist fleets with compl iance in future years.

a) Exempt vehicles retrofit early from future turnover

Current Requirements

There are currently no requirements to exempt vehic les that are retrofit early from the turnover requirements. However, the regulation cur rently allows specialty vehicles to be considered exempt from the NOx turnover requirement s.

Proposed Requirements

Staff proposes to amend section 2449.1(a)(2)(A)4. t o allow fleets to claim a limited exemption from future NOx turnover requirements if they install a highest level VDECS prior to March 1, 2011. This credit would provide an incentive for fleets to install retrofits

and achieve immediate PM reductions earlier than th ey otherwise would. Using this exemption would be purely voluntary, so it would im pose no additional requirements on fleets. Staff is proposing to limit the exemption by capping the number of vehicles for which a fleet can claim the exemption to no more th an 15 percent of the hp in the fleet as of March 1, 2011; this would effectively mitigat e potential long-term effects on

emission reductions.

b) Double credit for early NOx retrofit

Current Requirements

Currently the regulation provides single credit for early NOx retrofits. The provision

allows fleets that have installed VDECS that have b een verified as achieving NOx reductions on their vehicles before March 1, 2009, to accrue carryover turnover credit (in hp) equal to: [(verified percent NOx reduction divided by 60 percent) multiplied by (maximum hp of the vehicle on which the NOx retrofi t was installed before March 1, 2009).]23

For example, if a fleet installs a NOx retrofit (wi th 30 percent emission reduction) on a 200 hp vehicle, under the current requirements, the credit would be calculated as: (30/60) * (200) = 100 hp

Proposed Amendments

Staff is proposing to amend section 2449.1(a)(2)(A) 2.a. to add a provision to allow fleets

to claim double credit for NOx retrofits installed by March 1, 2011. The double NOx credit could be used by fleets to satisfy their NOx BACT requirements in future years. The regulation currently provides double credit for early PM retrofits, and this proposed amendment would provide a similar incentive for NOx retrofits.

For example, if a fleet installs a NOx retrofit (wi th 30 percent emission reduction) on a 200 hp vehicle, under the proposed amendments, the credit would be calculated as: 2*(30/60) * (200) = 200 hp

Staff recommends this double credit because it coul d help mitigate the potential loss in NOx emission reductions from the legislatively-dire cted amendments by providing an incentive for early NOx reductions. This new provi sion would be voluntary as well, so it would also not impose any additional requirements o n fleets.

c) Repower credit

Current Requirements

Currently, the regulation allows early credit for f leets that have repowered their vehicles with Tier 1 or higher engines before March 1, 2009. Under this provision, fleets begin with a carryover turnover credit (in hp) equal to t he maximum power of Tier 1 or higher repower engines installed in affected vehicles befo re March 1, 2009. However currently, no carryover credit can be awarded to a medium fleet between 2010 and 2013, unless it has turned over more than eight per cent of its hp per year. Also, currently in 2010 and 2011, no carryover credit can be awarded to a large fleet utilizing the new retirement or reduced activity credit unles s it has turned over more than eight percent of its hp per year as well.

Proposed Amendments

Staff proposes to amend section 2449.1(a)(2)(A)2.b. to add a provision to allow medium fleets prior to their initial compliance date in 20 13 and large fleets in 2010 and 2011 to accumulate NOx carryover turnover credit for repowe rs installed, even if such repowers do not exceed eight percent of its total fleet hp. This change is intended to encourage large fleets to pursue repowers in 2010 and 2011 ev en if the new reduced activity and

retirement credits would otherwise allow them to co mply in those years with no additional turnover, as well as to encourage medium fleets to pursue repowering in the years prior to their initial 2013 compliance date.24 d) Extension of double PM retrofit credit for small/me dium fleets

Current Requirements

Currently the regulation provides single credit for medium fleets that install highest level VDECS on their vehicles between March 1, 2009, and February 29, 2012, and for small fleets that install highest level VDECS on their ve hicles between March 1, 2009, and February 28, 2014. 3

Proposed Amendments

Staff proposes to amend section 2449.1(a)(2)(A)2.a. ii. to provide double credit for small and medium fleets that install highest level VDECS on their vehicles prior to March 1, 2012. The double PM credit could be used by fleets to satisfy their PM BACT requirements in future years.

Staff recommends this double credit for small and m edium fleets because it could help mitigate the potential loss in PM emission reductio ns from the legislatively-directed amendments by providing an incentive for early PM r eductions. This new provision would be voluntary as well, so it would also not im pose any additional requirements on

fleets.

3. Other Proposed Amendments

a) Definition of nonprofit training centers (community colleges)

Current Requirements

Currently, the definition in section 2449(c)(38) ap plies only to entities qualifying as a non-profit or not-for-profit organization under tit le 26 Internal Revenue Code section 501(a), (c)(3), (c)(5), or (c)(6). Since adoption of the regulation, staff has learned that community colleges run similar training programs to those included in the current definition of Non-Profit Training Center, but that these programs do not meet the nonprofit or not-for-profit Internal Revenue Code defi nitions above. Per the definition of small fleet in section 2449(c)(25), Non-Profit Trai ning Center fleets are considered small and therefore are provided more time to comply whil e being exempt from the NOx provisions, regardless of their total hp.

Proposed Amendments

Staff is proposing to amend the definition of Non-P rofit Training Center in section 2449(c)(38) to include community college programs t hat train students in the use of offroad vehicles. Staff proposes that only the vehicl es used by a community college for an off-road vehicle training program be considered a n on-profit training center and any

3 Based on amendments approved in January 2009, the regulation will provide double credit for retrofits installed before January 1, 2010, but sin gle credit thereafter.25

vehicles that are not used for an off-road training program would not be considered part of a non-profit training center.

Staff believes that community college training prog rams should be extended this same

consideration for the same reason it was extended t o other non-profit training centers, namely that they have little opportunity to raise t he money needed to pay for compliance, and that their equipment is relatively low-use.

b) Amend manufacturer delay provisions to also apply t o installer delays

Current Requirements

Currently the regulation provides an extension for fleet owners who have purchased an engine or VDECS at least four months prior to the c ompliance date. Therefore, fleet owners are excused from immediate compliance if the engine or VDECS is not available in time due to manufacturer delays.

Proposed Amendments

Staff is proposing to amend section 2449(e)(6) to c larify that the section applies to installer delays as well as manufacturer delays, bo th of which are beyond the fleet owner’s control. Hence, a fleet owner who has purc hased an engine or VDECS in order to comply with this regulation, will be excused fro m immediate compliance if the engine

or VDECS is not installed in time due to installer delays as long as the engine or VDECS was purchased at least four months prior to t he compliance date.

Documentation from the installer confirming that th ere is a delay, such that the retrofit or engine will be received or installed after the comp liance date, is required under the proposed amendment. Any fleet requesting a complia nce extension due to manufacturer or installer delays must be able to pr ovide proof of purchase records and

show that the fleet owner had entered into a contra ctual agreement for the purchase and installation of a VDECS at least four months pr ior to the required compliance date.

c) Clarify safety provisions to include meeting federa l requirements

Current Requirements

Fleet owners may currently request that the Executi ve Officer find that a VDECS should not be considered the highest level VDECS available because its use would make compliance with occupational safety and health requ irements, mining safety and health requirements, or an ongoing local air district perm it condition, impossible.26

Proposed Amendments

Staff is proposing to amend section 2449(e)(8) to c larify that a retrofit installation may be determined unsafe if it would make compliance wi th any federal or state safety requirement impossible. Since the performance requ irements may apply to types of equipment that must meet other requirements (e.g., airport ground support equipment must comply with Federal Aviation Administration re quirements), staff believes it is appropriate to clarify that these requirements are not inconsistent with federal and state safety requirements.

d) Clarify definition of forest operations to include public agency fire prevention activities

Current Requirements

Currently, the definition of agricultural operation s includes forest operations such as installing fuel breaks, firebreaks, and fire hazard abatement, if they are “for commercial purposes.” However, if such activities were undert aken by a public agency, they are not covered by the definition.

Proposed Amendments

Staff is proposing to amend section 2449(c)(26) to clarify that public agency fire prevention activities are classified as forest oper ations. Thus, vehicles used solely for

such activities would be considered to be used for agricultural operations and be exempt from the off-road regulation irrespective of whether they are performed by a public agency or private entity. Staff is proposin g the modification for reasons of equity and to avoid discouraging public agencies from unde rtaking fire prevention activities.

e) Clarify reporting vehicle sales

Current Requirements

Although the regulation requires fleets to report a dded vehicles to ARB within 30 days, there are currently no requirements for fleet owner s to report vehicle sales to ARB within 30 days. Fleet owners are only required to report sold vehicles by their next compliance date.

Proposed Amendments

Staff is proposing to amend section 2449(g) to requ ire that fleets report to ARB within 30 days of selling a vehicle. Section 2449(g)(1) al ready requires that fleets report within 30 days of purchasing a vehicle or bringing it into California. To enable fleets to add vehicles that they have purchased from another flee t and for the vehicles to maintain their Equipment Identification Numbers (EINs), it i s also necessary for fleets to report

sales in the same time frame. If vehicles that are sold are not reported within 30 days, fleets that purchase vehicles that have already bee n reported to ARB would likely have27

to remove EINs from vehicles, get a new EIN, and re label the vehicle. If the original EIN stays with the vehicle, tracking would be more stre amlined and fleet owners would not have to utilize additional resources to change EINs

.2829

III. ECONOMIC IMPACTS

This chapter describes the potential economic impac ts of staff’s proposal, specifically the legislatively directed amendments and other pro posed amendments that will affect the compliance requirements of fleets subject to th e regulation.

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. Legislatively Directed Amendments

The legislatively directed amendments lessen the re quirements for large fleets; in fact many large fleets may not need to take any complian ce actions in 2010 and 2011 as a result of these amendments. This is because, due to the current recession, there will be a large number of reduced activity and retiremen t credits accrued.

Because staff does not have complete data on how th e current economic recession has

affected each of the thousands of off-road fleets i n California subject to the regulation,

staff cannot estimate at this time a total dollar s avings due to the legislatively directed amendments. However, to examine the potential econ omic impacts of the legislatively directed amendments, staff evaluated the impact of these proposed amendments on an illustrative individual fleet. The methodology and results of this analysis are described

in the sections below.

1. Methodology

To estimate comparative compliance costs for fleets under the legislatively directed amendments relative to the current requirements of the regulation, staff reevaluated a previous analysis of an actual large earth moving f leet that shared its fleet information with staff during the development of the original r ulemaking. Staff used average costs for repowers, vehicle replacements, and retrofits a s outlined in the original Staff Report and the Technical Support Document (ARB, 2007a; ARB 2007b) to estimate the total compliance costs for the fleet under four different scenarios: 1) Current regulation with reduced activity: Compliance with the original regulation approved in July 2007 with no legislativ ely directed amendments. The30

fleet has reduced its activity of each vehicle by 5 0 percent, but has retired no vehicles; 2) Proposed amended regulation with reduced activity: Compliance with the regulation, including the legislatively directed am endments. The fleet has reduced the activity of each vehicle by 50 percent, but has retired no vehicles; 3) Current regulation with reduced hp : Compliance with the original regulation. The fleet has reduced its total fleet horsepower by 50 percent, but has not reduced the activity of its remaining vehicles; and 4) Proposed amended regulation with reduced hp: Compliance with the regulation, including the legislatively directed am endments. The fleet has reduced its total fleet horsepower by 50 percent, b ut has not reduced the activity of its remaining vehicles.

The results of these four scenarios are provided in Section 2 below.

2. Individual fleet analysis results

The compliance costs for the example fleet are show n for each scenario in Table 5 and Table 6 below, as well as in Figure 3 and Figure 4. As shown in Table 5 and Table 6, the legislatively directed amendments will allow fl eets to reduce their compliance costs in the initial years of the regulation, as well as their compliance costs over the thirty year phase-in of the program.

Table 5: Costs for a Fleet with Reduced Activity

Scenario Compliance Costs for First

Three Years of Regulation (2009 dollars) 4 Total Compliance Costs Over Entire Regulation (2009 dollars) 4
Current regulation with reduced activity $3,751,000 $9,098,000

Proposed amended regulation with reduced activity $909,000 $9,007,000

4 Assuming an annual 5 percent real interest rate.31 Figure 3: Costs for a Fleet with Reduced Activity

$0.0 $2.0 $4.0 $6.0 $8.0 $10.0

Cost of First 3 Years Total Compliance

CostsCost (millions, 2009 dollars)

Current regulation

Proposed amended regulation

For a fleet that has reduced its activity, but has not performed any early vehicle replacements or retirements, the fleet would not ha ve received early credits under the current regulation and would have experienced compl iance costs over the initial three years of nearly $3.8 million. However, with the le gislatively directed amendments, this same example fleet would now accrue enough early cr edits to eliminate its compliance requirements in 2010 and 2011, reducing compliance costs over the first three years to about $900,000. This reduction in requirements wou ld reduce the fleet’s compliance costs by 76 percent during the first three years of the regulation, while not appreciably reducing the fleet’s overall compliance costs.

Similarly, if the example fleet had not reduced its activity, but instead had retired 50 percent of its hp between March 1, 2006, and March 1, 2009, under the current regulation, that fleet would receive early NOx cred it only for the Tier 0 vehicles retired, and only if the fleet had retired over 24 percent o f its total horsepower over that same period. In other words, only the Tier 0 vehicles r etired above this 24 percent threshold would have generated early credit towards the NOx B ACT requirements (but not the PM BACT requirements). However, under the proposed am endments, this fleet would now

receive both NOx and PM BACT credit for all of the vehicles retired. As shown in Table 6 and Figure 4, for this example fleet, under the p roposed amendments there would be no compliance costs for the first three years of th e regulation compared to over $1.4 million in compliance costs under the current regul ation. Overall, the total compliance costs would be reduced by 35 percent.

Table 6: Costs for a Fleet with Reduced Hp

Scenario Compliance Costs for First

Three Years of Regulation (2009 dollars) 4 Total Compliance Costs Over Entire Regulation (2009 dollars) 4
Current regulation with reduced hp $1,435,000 $4,924,000

Proposed amended regulation with reduced hp $0 $3,202,00032 Figure 4: Costs for a Fleet with Reduced Hp 5

$0.0 $1.0 $2.0 $3.0 $4.0 $5.0 $6.0

Cost of First 3 Years Total Compliance

CostsCost (millions, 2009 dollars)

Current regulation

Proposed amended regulation

As shown in the scenarios above, if fleets have bee n severely affected by the current recession, they may be able to minimize the cost of the regulation in its initial years by taking advantage of the proposed amendments to redu ce their compliance requirements, especially in 2010 and 2011.

The proposed amendments may also reduce a fleet’s o verall compliance costs for several other reasons. First, they may decrease co sts by allowing fleets to defer compliance costs to later years using later year do llars (i.e., the present value of their compliance costs will be lower). Second, if fleets postpone their compliance requirements by utilizing the new credits to comply in the early years of the regulation, they may be required to take fewer or less expensiv e actions on their vehicles than originally estimated. For example, a large fleet m ay have planned to purchase several

Tier 3 vehicles and retrofit them with VDECS for th eir 2010 compliance date. However, if that fleet is not required to take any complianc e actions for several years, they may be able to instead purchase newly available Tier 4 or Tier 4 interim vehicles. By enabling fleets to purchase Tier 4 vehicles instead of Tier 3 vehicles, the proposed amendments may allow fleets to perform fewer actions in future years (such as replacing vehicles) to meet the fleet average target. As such, the propos ed amendments will likely allow many fleets to reduce their total compliance costs.

C. Additional Incentives for Early Actions

The additional incentives for early action are also expected to result in some long-term cost savings to fleets that take advantage of them. However, because staff cannot predict with certainty how many fleets will take ad vantage of the new incentives for early action, it cannot estimate the total dollar savings that will result. However, qualitative assessments of the possible cost savings are descri bed below.

5 Note that the proposed amended regulation cost for the first three years is $0 (2009 dollars).33

1. Vehicles retrofitted early are exempt from futur e turnover

If fleets claim an exemption from future turnover f or the installation of retrofits prior to March 1, 2011, some cost savings may result from no t having to turn over specific vehicles in a fleet. For example, repowering an ol der 300 hp dozer with a new engine would cost approximately $81,000, while retrofittin g that same vehicle would only cost $18,000 6 (ARB, 2007b). Therefore, if a fleet is able to re trofit a vehicle and never replace it, it may result in a saving of approximat ely 78 percent for that vehicle.

However, use of this new provision would not always result in an overall cost savings to

a fleet. This is because the number of vehicles el igible for the turnover exemption is capped at 15 percent of the fleet’s horsepower. Th us, a fleet cannot use the new provision to exempt all its vehicles from future tu rnover. Because the fleet average requirements still take into consideration vehicles exempted from the turnover requirements, the fact that one vehicle is exempt f rom turnover may mean the fleet is required to take additional actions on other vehicl es instead. Hence, although the new provision would allow fleets to reduce compliance c osts for an individual vehicle as described above, in some cases, it may not provide the fleet an overall savings in compliance costs.

2. Double credit for early NOx retrofit

Fleets that install NOx retrofits before March 1, 2 011, will receive double credit for those

installations. This double credit could reduce NOx compliance requirements significantly in the beginning years of the regulat ion, allowing fleets to spread out their NOx compliance costs. However, this proposed amend ment may not decrease overall compliance costs for a fleet.

3. Repower credit

The proposed amendment to allow NOx carryover turno ver credit for repowers may result in some savings to fleets. Similar to the d ouble credit for early NOx retrofits amendment, if additional credit is received for the se repowers, fleets may be able to spread out compliance costs in the early years of t he regulation, but would have little impact on overall compliance costs for a fleet.

4. Extension of credit for other PM retrofits befor e initial compliance

date

The proposed amendment to provide double credit for small and medium fleets that install highest level VDECS on their vehicles prior to March 1, 2012, may also result in some savings to fleets. The proposed amendment wou ld give small and medium fleets

additional time to receive double credit for the in stallation of retrofits, thereby allowing such fleets to spread out their costs in the later years.

6 This example uses the repower and retrofit costs u sed in the TSD (ARB, 2007b).34

D. Other Proposed Amendments

As described further below, the proposed amendments to the definitions of nonprofit training center and forestry operations are expecte d to provide savings to the small number of affected fleets. All of other proposed am endments are not expected to result in any additional costs, or cost savings and theref ore are not mentioned below.

1. Definition of nonprofit training centers (commun ity colleges)

For community college training programs that were n ot already considered small fleets, the proposed amendment would result in a cost savin gs. If a community college program has an off-road vehicle training program, t hat grouping of vehicles would now constitute a small fleet, regardless of the fleet’s total hp. These fleets would be able to delay their first compliance date from 2010 or 2013 to 2015 and would be exempt from all the regulation’s NOx performance requirements, which will reduce overall compliance costs.

2. Definition of forest operations includes public agency fire prevention

activities

The reclassification of vehicles owned by public ag encies that are used for fire prevention activities will also provide cost saving s to affected fleets. Because these vehicles would be reclassified as forest operations vehicles, they would become exempt from all of the performance requirements of the reg ulation. For the public agencies that own these types of vehicles, this exemption would r esult in a cost savings for the fleet, which could be significant for a particular fleet i f it has a large number of these vehicles.

Staff does not have an exact count of the vehicles that will be affected by this reclassification, but based on preliminary inventor y data from affected agencies, estimates that statewide, this change would affect fewer than 500 vehicles.

E. Impacts on California Economy

The proposed amendments will not impose additional impacts on the economy, nor are they expected to adversely impact employment. The amendments are intended to allow fleets to spread out or lower their compliance cost s (especially in 2010 and 2011), which are expected to make the regulation more affordable in its early years. If in turn, that leads fewer fleets to reduce employment as a result of the regulation, the amendments could benefit overall California employment.

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 because they would receive fewer orders in the next few years. Howeve r, the proposed amendments to provide incentives are intended to encourage early retrofitting and repowering, and could help mitigate potential impacts on retrofit a nd repower jobs and businesses.35

F. Potential Impacts on Small Businesses

The proposed amendments would not impose any additi onal costs on small businesses. Instead, they may provide a benefit to them by allo wing fleets to spread out or lower their compliance costs. While staff believes most small businesses are small or medium fleets, which have a first compliance date i n 2015 or 2013, respectively, a few small businesses meet the regulation’s definition o f large fleet, which have their first compliance date in 2010.

Overall, large fleets that are small businesses wou ld benefit most from the proposed amendments because of the credits they may accrue. However, medium and small fleets that have reduced their total horsepower sin ce March 1, 2006, would be able to benefit from the amendments by accumulating credits for PM (small fleets) or PM and NOx (medium fleets) to offset their later complianc e requirements. Medium and small fleets would benefit predominantly from the propose d retirement credit, as well as from the proposed exemption for vehicles that are retrof itted early and the proposed additional credit for early repowers and retrofits. The new reduced activity credit would not benefit medium and small fleets because it expi res in 2011 before the first compliance dates for medium or small fleets.

Small fleets would not benefit from the other propo sed amendments; however, medium and large fleets that are small businesses would be able to benefit from the other proposed modifications because they may help those fleets to spread out or lower their compliance costs.

G. Potential Impacts on Public Agencies

The proposed amendments would not impose any additi onal costs on public agencies; however, some cost savings are expected for public agencies that off-road vehicles that perform fire prevention activities.

Overall, because of the nature of the work performe d by public agencies (road maintenance, etc.), it is not expected that many pu blic fleets have appreciably reduced their total horsepower or activity. Therefore, pub lic fleets may accrue little, if any, credit towards their required compliance actions, and woul d not benefit from most of the proposed amendments. Although the modifications to the BACT provisions may help spread out the compliance requirements for State, F ederal, and larger municipal fleets between 2011 and 2013, it may not result in large c ost savings since the overall BACT compliance actions required during that time period would remain the same as in the original regulation.

The other proposed amendments may benefit public ag encies that are medium or large fleets because they are intended to allow fleets to spread out or lower their compliance costs, which are expected to make the regulation mo re affordable.3637

IV. ENVIRONMENTAL IMPACTS

This chapter describes the potential environmental impacts of the proposed amendments. This includes the legislatively directe d amendments, the mitigation measures intended to help offset the loss in emissi on benefits due to the legislatively directed amendments, the inclusion of community col lege training programs as nonprofit training centers, and the inclusion of publi c agency fire abatement equipment within the forestry operations definition. The oth er proposed amendments are clarifications only, and would not increase or decr ease the estimated emissions benefits of the regulation. Therefore, they have not been i ncluded in staff’s analysis.

A. Legal Requirements

The legal requirements applicable to the environmen tal impact analysis are the same as those presented in the original off-road TSD (ARB, 2007b). Please see Chapter IX.A. of the off-road TSD for a description of these require ments.

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 to the regulation are discussed in Chapt er V of this report.

B. Air Quality Impacts of Proposed Amendments

Section 1 below discusses the air quality impacts o f the legislatively directed amendments. Section 2 discusses the air quality im pacts of the additional incentives for early action. Section 3 discusses the air quality impacts of the other proposed amendments to the regulation. Section 4 provides s taff’s overall assessment of all of the proposed amendments.

To put the air quality impacts discussed later in c ontext, Table 7 below shows the emission reductions anticipated from the regulation , prior to any of the proposed amendments discussed in this report.

Table 7: Statewide NOx and PM Emission Reductions from the Current Regulation (tpd)

Emission Reductions 2010 2015 2020 2025

NOx Benefits of Regulation 13 30 48 20

PM Benefits of Regulation 2.3 6.9 5.2 2.9

1. Legislatively directed amendments

The legislatively directed amendments would allow m any fleets to comply with the regulation by utilizing credit received under the n ew provisions, rather than taking actions to reduce emissions. Hence, the amendments would cause fleets to perform38

fewer actions to reduce emissions than they otherwi se would have. As a result, there will be less retirement of high-emitting vehicles, fewer repowers of vehicles with cleaner engines, and fewer installations of exhaust retrofi ts. Typically, the fewer actions that a fleet takes to reduce emissions, the older and high er emitting its vehicles will be. Therefore, staff anticipates that the legislatively directed amendments would have an overall negative impact on the emission reductions achieved by the regulation.

Staff recognizes that, due to the current economic recession, many fleets have retired vehicles and/or reduced their vehicle activity, the reby reducing their emissions. However, staff does not yet have adequate data on h ow the current economic recession

has affected the thousands of fleets in California to determine whether the emission reductions due to activity reductions and retiremen t are currently large enough to offset the emission benefit losses due to the legislativel y directed amendments. Nor can staff accurately determine how future economic changes wi ll affect emissions relative to what was initially predicted by staff when analyzing the anticipated benefits of the regulation (ARB, 2007a). Due to the uncertainty regarding fle et activity, and credits that fleets may claim, staff cannot currently quantify the overall combined effect of the economy and the legislatively directed amendments on emissions. Ho wever, staff is examining the

effects of the current economic conditions on Calif ornia fleets and will report its findings as part of staff’s October, 2009 update to the Boar d, as discussed further in Section C

below.

The subsections below discuss the anticipated emiss ion impact of each of the legislatively directed changes on emissions.

a) Amendments to the BACT Schedule

The proposed amendments to the BACT schedule from 2 011 to 2013 would allow large fleets to perform fewer actions than are currently required in 2011 and 2012, but would require them to make up for any reduced compliance in those years by the 2013 compliance date. Under the legislatively directed amendments, large fleets could elect to take up to a 40 percent reduction from required compliance under the present regulation in 2011 and 2012, for both NOx and PM re quirements, and, if a fleet elects to take such reductions, an 80 percent increase in act ions required in 2013.

Although by 2013, overall emission reductions would be achieved under either the current regulation or the proposed amendments, unde r the proposed amendments,

there would be a loss in emissions benefits in both 2011 and 2012; a loss which staff expects would correspond to the reduction in the BA CT requirements in these years, or 40 percent.

Applying this change to the emissions reductions st aff estimated in the TSD (ARB, 2007b) 7 , the reduction in benefits can be seen in Figure 5 below. 8

.

7 The TSD emissions estimates, which for consistency are cited in Table 7 and Figure 5 and utilized for the estimates in this report, did not include the effects of changing the small fleet39

Figure 5: Effect of Proposed BACT Schedule Amendme nts on Emissions

Benefits

Table 8: Statewide Increase in Emissions in 2011 a nd 2012 from BACT Schedule

Amendments

Year PM (tpd) NOx (tpd)

2011 0.7 3.5

2012 1.5 5.0

As shown in Figure 5 and Table 8 above, although fl eets meeting the BACT requirements would be required to take fewer action s through 2012, they would be required to fully make up for this by the March 1, 2013, compliance date, and thereby achieve the emissions benefits expected in 2013 and beyond. The loss of emissions benefits shown by the gap in benefits above are sub stantial for 2011 and 2012, and would result in a near term impact on mortality. H owever there should be no long-term

disbenefits in emissions from these BACT amendments , as long as fleets successfully are in full compliance with the 2013 requirements.

b) Credit for reduced activity and retirements that re duce overall fleet hp

Until staff receives more data from fleets on the l evel of activity reduction, the type and quality of records that fleets have maintained, and the distribution of activity reduction

definition from 1,500 hp to 2,500 hp. However, thi s change made only a small change (less than 3 percent) to staff’s overall benefit estimate s.
8 The emission benefit estimates in Figure 5 are onl y for the proposed change to the BACT

schedule and do not include the effects of the new credits for retired hp or reduced activity.40

among California’s off-road fleets, the overall eff ect on emissions cannot be accurately quantified. However, individual, fleets that recei ve additional credit using either of the proposed provisions for reduced activity credit or vehicle retirement credit would be required to take fewer actions to meet the regulati on’s BACT requirements than are currently required. As an example of how a fleet’s requirements could be lowered, the actions required before and after the legislatively directed amendments are shown below for an example fleet.

For the purposes of this example, consider a 10,000 hp fleet that retires 2,000 hp between 2006 and 2009, and experiences an additiona l 25 percent reduction in activity between July 1, 2007, and March 1, 2010, over their remaining 8,000 hp. This reduction in activity provides 25 percent of the remaining hp , or 2,000 hp, in credit. Table 9 summarizes the new credits awarded to the fleet per the proposed amendments.

Table 9: New Credits Awarded to Fleet

Credit NOx and PM Credit (Hp) Reduced Activity Credit 2,000 Retirement Credit 2,000

Total New Credits Awarded 4,000

As shown below in Figure 6 and Figure 7, after the first six years of the regulation, the fleet’s turnover requirements have decreased by 3,2 80 hp and the fleet’s retrofit requirements have decreased by 2,400 hp, when compa red to the requirements prior to the legislatively directed amendments.

Figure 6: NOx BACT Requirements for an Example Fle et

0 1000 2000 3000 4000

2009 2010 2011* 2012 2013 2014 2015Horsepower Previous Cumulative

Turnover Requirements

Cumulative Turnover Requirements Using

New Credits 3280

HP Not

Turned

Over

*Unused credit from reduced activity expires. 2,000 hp turnover credit is carried forward.41 Figure 7: PM BACT Requirements for an Example Flee t

0 1000 2000 3000 4000 5000 6000 7000 8000

2009 2010 2011 2012 2013 2014 2015Horsepower Previous

Cumulative Retrofit
Requirements
Cumulative Retrofit
Requirements Using New Credits 2400

HP Not

Retrofit

Because the example fleet has reduced activity as w ell as retired a significant portion of its hp, its emissions have been reduced from its pr evious 2006 levels 9 . However, the fleet’s emissions are likely to be higher than they would have been in the absence of the proposed amendments. Also, the fleet is likely old er and higher emitting than it would have been in the absence of the amendments. Hence, if the fleet’s activity increases in the future as the economy rebounds, it will have si gnificantly higher emissions than it

would have had in the absence of those amendments. As fleets begin to report reduced activity (anticipated in Spring 2009), staff will h ave more data to analyze this effect.

2. Additional Incentives for Early Action

The effect on emissions from the three proposed ame ndments intended to spur early retrofitting - exempting vehicles retrofit early fr om future turnover, providing double credit for early NOx retrofits, and extending doubl e retrofit credit for medium and small fleets – would provide early emission benefits and serve to offset the emission impacts of the legislatively directed amendments. However, the overall benefit of these proposed amendments will depend entirely on their a ppeal, and on how many additional retrofits and repowers fleets perform. The analysi s described below therefore bounds the potential benefits.

a) NOx retrofit double credit

Based on the approximately 400 VDECS reported to da te in the Diesel Off-road On-line Reporting System (DOORS) (DOORS, 2009), it is reaso nable to assume that double credit for NOx amendments might spur roughly 400 ad ditional retrofits. Additionally,

9 Not all reduction in activity or retirements will reduce emissions. If a fleet retires their cleanes t vehicles, and reduces activity, their overall emiss ions may still increase if they are using their older, dirtier vehicles substantially more.42

after reviewing the applicability of the current VD ECS which are verified to reduce NOx emissions, staff estimate that approximately 28,000 vehicles in the statewide off-road fleet fall into the hp range and model year range t hat could be retrofitted. To determine a reasonable upper bound, staff analyzed the early emissions benefit if large fleets responded to the new incentive by retrofitting 2 pe rcent of their horsepower (about 2,800 vehicles). Staff assumed that these installa tions provided a NOx reduction of 40
percent 10

.

Staff assumed the vehicles retrofitted were 250 hp on average, and were equivalent in age and emission factors to an average sample of th e statewide fleet.

As summarized in Table 10 below, staff estimates th at the double credit for early NOx retrofits could result in emission benefits of appr oximately 0.1 to 0.3 tpd PM and 0.5 to 3.2 tpd NOx.

Table 10: Possible 2010 Emissions Benefits from Pr oposed Double Credit for Early NOx Retrofits

Additional Retrofits

Installed PM Benefits

(tpd) NOx Benefits

(tpd)

Estimated Effect 400 0.05 0.5 Upper bound 2,800 0.34 3.2

When considering the proposed amendment’s effect on emissions, fleets that take advantage of the credit would achieve early short t erm emissions benefits. However, in the long term, staff anticipates little change in o verall emissions benefits due to the proposed NOx double retrofit credit. While fleets that receive the new NOx double credit would be able to delay other turnover in the future, based on the verified applicability of the only currently-verified NOx de vice 10 , fleets with older, dirtier vehicles would not be able to install a NOx VDECS on a high percentage of their older vehicles. As a result, staff does not anticipate that older, dirtier fleets would be able to apply a NOx VDECS to a large enough portion of their fleet to accumulate enough credit to appreciably impact their turnover schedule or signi ficantly increase their NOx emissions.

b) Turnover exemption for vehicles retrofit early

As summarized in Table 11 below, the proposed turno ver exemption for vehicles retrofitted early, and the extension of double retr ofit credit for medium and small fleets could result in benefits between 0.1 and 0.3 tpd PM and 0.1 to 0.4 tpd NOx in 2010.

The extension for medium and small fleets could als o achieve benefits in future years, although this is not quantified in the table below. Staff’s estimate of the early emissions benefits of the proposed amendment ranged from a lo wer bound of an additional 400 retrofits (the same as the analysis above) up to 2, 800 retrofits (assuming all fleets retrofit approximately 1.5 percent of their vehicle inventory). For this analysis, as there

10 Currently the only VDECS which is verified to redu ce NOx emissions, the Cleaire Lonestar, is verified at 40 percent NOx reduction.43

is currently only one retrofit device (of the eight devices verified to date) that is verified to reduce NOx emissions, staff assumed that only on e in eight vehicles was retrofitted

with a NOx reduction device.

Table 11: Possible 2010 Emissions Benefits from th e Proposed Turnover Exemption for Retrofit Vehicles and Extended Double Credit

Additional

Retrofits Installed PM Benefits (tpd) NOx Benefits

(tpd)

Estimated Effect 400 0.05 0.1 Upper bound 2,800 0.34 0.4

Staff assumed the vehicles retrofit were 250 hp on average, and were equivalent in age and emission factors to an average sample of the st atewide fleet.

Although the exemption from turnover in the future would allow older vehicles to remain in the fleet throughout the course of the regulatio n, if the exemption is limited to no more than 15 percent of any fleet’s hp, staff anticipate s that fleets would meet the fleet average targets with increased turnover in the non- exempt portion of their fleet. Hence, the exemption from future turnover should not resul t in long term emissions disbenefits. An analysis of the possible emissions disbenefits o f this proposed amendment, if its provisions are not limited, is discussed in the con sideration of alternatives in Chapter V.

c) Incentivizing Repowers

In addition to incentivizing retrofits, staff is pr oposing to provide credit for repowers to fleets that, either because they are medium fleets or because they receive new credit due to the legislatively directed amendments, would no longer be required to take

emissions reduction actions in 2010 or 2011.

Again, the emissions benefit in early years would d epend on how many fleets take advantage of the new incentive. Table 12 provides an estimate of the emission benefits from the repower incentive if 500 additional vehicl es were repowered.

Table 12: Possible 2010 Emissions Benefits from Pr oposed Repower Incentive

Additional Repowers

Performed PM Benefits (tpd) NOx Benefits

(tpd)

500 0.1 1.3

For the purpose of this analysis, staff assumed the average vehicle repowered was 300 hp, and repowered from a Tier 0 or Tier 1 engine to a Tier 2 engine. Additionally, staff assumed the average load factor was equivalent to t he load factor of the most commonly repowered vehicle reported to ARB to date, scrapers, with a load factor of 0.72 (ARB, 2007b).44

3. Additional amendments to the regulation

Staff analyzed the impacts of two additional amendm ents to the regulation - inclusion of community college training programs as non-profit t raining centers, and the inclusion of public agency fire abatement equipment within the f orestry operations definition.

As described below, staff does not believe sufficie nt vehicles will be covered by these proposed provisions to have any quantifiable impact on emission reductions.

The addition of community colleges to the non-profi t training center definition will mean some community college training programs that other wise would have had to comply with the large or medium fleet requirements in 2010 or 2013, respectively, can now wait until 2015 to comply with the PM requirements of th e regulation and would be completely exempt from the turnover requirements of the regulation. Therefore, the proposed amendment would likely result in less NOx reductions than otherwise expected. However, staff does not expect this impa ct to be significant. Although staff has not received complete inventory information fro m every community college training program in the state 11 , it has determined that there are no more than 10 such programs (ARB, 2009a). Using the inventory data for three t raining programs that staff has been able to obtain, staff estimates there is no more th an 30,000 hp total from the affected vehicles owned by such training programs. Given th at the total hp of affected vehicles covered by the regulation is nearly 29 million, a c hange affecting less than 30,000 hp (approximately 0.1 percent of the total) is unlikel y to have a measurable effect.

The change in the forestry definition would mean th at vehicles owned by public agencies and used primarily for forest fire abateme nt or prevention would now be exempted from the off-road regulation. Such vehicle s would instead be covered by a future control measure for agricultural off-road ve hicles, if such a measure were adopted as planned. Although staff does not have c omplete inventory data regarding how many such vehicles there are, staff estimates t hat there are fewer than 500 such vehicles. Hence, this change is not expected to ha ve a quantifiable impact on

emissions.

C. Future Evaluation of Current Economic Conditions on Emissions

Staff recognizes that the current recession and dow nturn in the construction industry in particular, has reduced vehicle activity and thereb y at least temporarily reduced emissions. Additionally, fleets may also have chos en to downsize in response to a decline in the economy. Some fleets choosing to re duce their fleet size due to economic hardship may have retained the older equip ment and sold newer equipment; others may have sold their oldest equipment. Fleet s may also have slowed or ceased their normal replacement of older vehicles with new in order to conserve capital. Each

of these actions will have a different effect on em issions.

11 Staff has requested fleet data from all such progr ams but as of May 2009 has received data from only three.45

Staff is currently collecting data on California’s off-road diesel vehicle inventory as fleets comply with the reporting requirements in the regul ation, with thousands of vehicles being reported to ARB each week. However, because the reporting deadlines for small fleets will not occur until later this summer, curr ent data is incomplete for a full analysis. Additionally, not all large fleets have yet reporte d their vehicle retirements over the past few years, which will provide additional informatio n on recent changes in the state’s offroad inventory. Nor have fleets yet reported data to ARB on their changes in vehicle activity.

Staff will continue to receive and compile fleet in formation as it is received, and will report its findings, including an assessment of how emissions have changed as a result of the current economic climate, to the Board in Oc tober, 2009.

D. Other Environmental Impacts

Staff does not believe there will be any additional environmental impacts from the proposed amendments to the regulation. Although several of the proposed amendments are intended to increase the early use of exhaust r etrofits, and the use of exhaust retrofits can have impacts on fuel economy and haza rdous waste generation, the overall use of retrofits is expected to be less than initia lly expected due to the legislatively directed amendments. Hence, any negative environme ntal impacts are expected to be less than described in the Technical Support Docume nt for the regulation (ARB, 2007b). The overall benefit of retrofits, including fuel ec onomy concerns and hazardous waste, is discussed in chapter IX of the Technical Support Document for the regulation (ARB, 2007b).4647

V. ALTERNATIVES CONSIDERED

This chapter discusses alternatives to the proposed amendments to the regulation. Section A discusses alternative methods of implemen ting the legislatively directed amendments, as well as alternatives to the proposed mitigation measures. When considering the legislatively directed amendments, staff did not consider alternatives

that were inconsistent with the intent of AB 8 2X.

Section B discusses a number of alternatives to the proposed additional incentives for early actions considered by staff, and why staff re jected those alternatives in favor of those staff are proposing. Section C discusses alt ernatives to the proposed community college training program change considered by staff and why they were rejected. Because the other proposed amendments are clarifica tions or minor changes, staff did not perform an alternatives analysis for them.

A. Legislatively Directed Amendments

1. Revised BACT schedule

Staff considered implementing the BACT requirements as described by AB 8 2X without special provisions for fleets which met the fleet a verage targets in 2011 or 2012. However, without exempting fleets which met the fle et average targets in 2011 and/or 2012 from the increased BACT requirements in 2013, the legislatively directed amendments could potentially increase the stringenc y of the regulation for some fleets. Fleets meeting the fleet average targets in 2011 an d 2012, but not in 2013, would have been required to turn over 8 percent of their hp an d retrofit 20 percent of their hp to meet the 2013 BACT requirements under the current r egulation. However, without including special provisions for these fleets, thes e same fleets would have had their 2013 BACT requirements increased to turning over 14 .4 percent and retrofitting 36 percent of their hp. This would nearly double thei r requirements.

Staff does not believe it was the intent of the leg islature to increase the stringency of the regulation for fleets in the early years of the reg ulation, especially not for the cleanest fleets (those meeting the fleet average targets). Therefore, staff chose to include language to prevent the BACT schedule amendments fr om increasing the requirements

on fleets.

2. Additional credit for vehicle retirement

Although staff initially proposed crediting only th e retirement of Tier 0 vehicles or Tier 0

and 1 vehicles that were not certified to a PM leve l, staff believes that crediting the retirement of all vehicles reducing overall hp, reg ardless of engine tier, is the option

most consistent with the intent of AB 8 2X.

By limiting the credit to only Tier 0 vehicles, thi s provision would have limited credit to only those fleets that had retired their oldest veh icles, thereby decreasing their emissions and fleet average emission rates. This l imitation would have been consistent48

with the current provisions in the regulation for t he early retirement of Tier 0 vehicles in fleets that have reduced hp (section 2449.2(a)(2)(A )1.b.). This interpretation would have been equivalent to extending the current credi t for the retirement of Tier 0 vehicles back by 3 years (from March 1, 2009, back to March 1, 2006).

At the initial workshop on April 7, 2009, to discus s the proposed amendments, staff received feedback that the provision should allow f leets that had retired all of their Tier 0

vehicles to receive credit for the retirement of Ti er 1 vehicles as well, because these

retirements would remove the dirtiest vehicles rema ining in the fleet. To not allow credit for retirement of such Tier 1s would unfairly penal ize cleaner fleets. Staff agreed that crediting the retirement of Tier 1 vehicles, in a f leet that did not have Tier 0 vehicles, was consistent with awarding credit for actions whi ch would decrease the average

emissions from the fleet.

At the second workshop on April 29, 2007, staff pro posed allowing credit for all Tier 0

retirements and Tier 1 retirements in fleets with n o Tier 0s. However, staff received additional feedback from fleets that, because secti on 2449.1(a)(2)(A)2.a.ii. of the regulation only offered credit for early vehicle re tirements if such retirements exceeded eight percent per year on average from 2006 to 2009 , some fleets had delayed the

retirement of their Tier 0 vehicles in order to rec eive credit for the retirements after March 1, 2009, while retiring higher tiered vehicle s first. As such, any limit on the credit by vehicle tier would unfairly prevent any credit b eing awarded to fleets that had retained Tier 0 vehicles due to provisions in the c urrent regulation.

Staff also received a letter from a number of legis lators indicating that the legislative intent of the AB 8 2X retirement credit was to appl y to retirement of all vehicles regardless of tier (Assembly, 2009; Senate, 2009). After reviewing all the feedback, staff concluded that crediting the retirement of al l vehicles reducing overall hp, regardless of vehicle tier, from March 1, 2006 to M arch 1, 2010, is the most appropriate approach consistent with the intent of AB 8 2X.

3. Reduced activity credit

a) Determining average annual use

Although staff considered other length time periods for determining activity, staff concluded that a 12-month period was the most accur ate and representative interpretation of AB 8 2 X. As shown in Appendix A , AB 8 2X states that reduced activity is defined by the “average annual hours” f or vehicles in the fleet, as determined on July 1, 2007, and March 1, 2010. As the average annual hours of use cannot representatively be determined by the use on a sing le day, staff had to determine the most appropriate annual period for determining flee t activity on the above dates. The average annual hours could be defined by a period s horter than a year, but such a shorter period would not accurately depict annual a ctivity. For example, using June through August of 2007 as the baseline period would exaggerate the baseline activity as summer months are historically more active months t han an annual average for the construction industry, the industry most heavily af fected by the regulation. Hence, staff49

concluded a 12-month period was the most appropriat e way to capture the seasonal nature of the construction industry.

b) Dates used to determine baseline activity period

Initially, staff proposed to determine the average annual use for July 1, 2007, as the twelve month period beginning July 1, 2007, and end ing on June 30, 2008, and the average annual use for March 1, 2010 as the twelve month period beginning March 1, 2009, and ending on February 28, 2010. This interp retation would be consistent with the AB 8 2X language which states “reduced activity between July 1, 2007, and March 1, 2010” as both of these periods are included betw een these dates. At the initial workshop, however, fleets expressed concern that be ginning the initial period on July 1, 2007, would not provide them with the credi t intended by the legislature as many in the construction industry had experienced period s of higher activity prior to July,

2007.

Staff therefore amended the initial twelve month pe riod to center on July 1, 2007, instead of beginning on that date. By centering th e twelve month period on July 1, 2007, staff believes the provision more accurately captures the activity average on July 1, 2007, rather than an average of the twelve month s after that date.

Several fleets and construction industry members re quested that the initial period be determined by the twelve month period ending on Jul y 1, 2007. Staff considered this method, but does not agree that the twelve months e nding on July 1, 2007, capture the average annual activity as of that date any more so than the twelve months beginning on July 1, 2007. Defining the initial period as Au gust, 2006, to July, 2007, most accurately captures the fleet average annual hours of January, 2007, and not July, 2007, which would not be consistent with the langua ge in AB 8 2X.

c) Dates used to determine final activity period

In order to be consistent with baseline activity pe riod, staff considered using the twelve month period centered on March 1, 2010, to determin e the average annual activity of

that date. While this would be the most accurate w ay to determine the activity on March 1, 2010, and would be consistent with the recommend ed method for determining the baseline activity, staff recognizes that many fleet s will be using the credits to meet the March 1, 2010, BACT requirements. As such, in orde r to provide certainty to fleets regarding their compliance requirements, the period to determine the credit provided cannot reasonably extend past that initial complian ce date for large fleets. While the regulation could provide credit based on an initial estimate of the activity for this period, and then later provide a correction in the 2011 req uirements if activity did not match the estimate, this would become both extremely complica ted and could unexpectedly increase the stringency of the regulation for fleet s in 2011 if their activity increased in 2010. On reviewing the available options, staff co nsidered the twelve months ending on March 1, 2010, to be the best option to meet the in tent of AB 8 2X and still be workable

for fleets.50 d) Including vehicle hp in activity calculations

As AB 8 2X does not include mention of vehicle hp w hen defining reduced fleet activity, staff briefly considered not including hp when calc ulating vehicle activity. However, not including the hp could provide the same credit to a fleet that reduced their activity on a 2,700 hp mining truck as a fleet that reduced activ ity on a 35 hp riding mower. Alternatively, a fleet could lower their use of the 2,700 hp mining truck, and increase the use of the 35 hp riding mower, and receive no credi ts. Staff does not believe that would be equitable or consistent with the intent behind t he legislatively directed amendments.

e) Demonstrating reduced activity using fleet records

Staff ultimately crafted a proposal that allows fle ets with records allowing a vehicle-byvehicle determination of baseline and final activit y to receive as much reduced activity credit as they can document. Staff’s proposal also attempts to ensure that inappropriate credit is not unfairly awarded to fleets that have not actually reduced activity, but at the

same time allows fleets which cannot substantiate s pecific vehicle reductions to receive some credit. Staff considered a wide range of poss ibilities when considering how fleets could submit a document of reduced activity. After receiving feedback during the workshops, and from advisory group and industry rep resentatives, staff considered several different options:

• Credit Only for Fleets with Hour Meter Logs for Eac h Vehicle: Staff considered requiring fleets to provide logs showing readings from hour meters for every vehicle in the fleet in order to receive redu ced activity credit. However, based on informal polling at the workshops held to discuss the proposed amendments, staff estimated that a quarter or less of the fleets affected by the regulation have hour meters installed on each vehic le, not to mention logs of the readings dating back to 2007. Requiring such logs would prevent many fleets that have legitimately reduced activity from receiv ing credit.

• Full Credit for Fleets with Any Indicator of Reduce d Activity: Staff considered allowing fleets that could demonstrate a ny indicator of reduced activity to receive full credit. For example, a fl eet that had decreased total employment by 40 percent from 2007 to 2010 might re ceive 40 percent of their hp as credit under this rejected alternative. Howe ver, such a provision would not necessarily properly award credit for reduced activ ity, in that, for example, a fleet may have reduced their employment by laying off wor kers that do not operate vehicles. Staff also rejected decreased revenue as an indicator of reduced activity, in that a fleet may have maintained a con stant level of operational activity but experienced decreased revenue as a res ult of operating with decreased profit margins. Ultimately, staff determ ined that allowing uncapped credit to fleets for any indicator of reduced activ ity would provide more credit than was appropriate as fleets could choose which indica tor could provide them with the most credit, even if they had more accurate veh icle data.

4. Combination of credits for reduced activity and early retirement

To avoid double counting vehicle retirements as red uced activity, staff considered requiring fleets to choose between reduced activity credits and retirement credits. The51

example below illustrates why allowing fleets to co unt both reduced activity and vehicle retirement would inappropriately double the amount of credit given for the same action.

Example fleet: Consider a 100,000 hp fleet that retires 30,000 hp of Tier 0 equipment in 2008. These retirements lead to a 30 percent reduction in activ ity. (For the example, we assume the vehicles retired are of average hp for the fleet an d were of average hours used in 2007 compared to the other vehicles.) The emission reduc tions achieved by the fleet are approximately equal to if they had reduced to zero the emissions of 30 percent of their

fleet.

Retired Hp Credit for PM and NOx: 30,000 hp Reduced Activity Credit: 30% x 100,000 hp = 30,000 hp

If allowed to combine their credits, the fleet woul d gain: 60,000 hp total credit for PM and NOx for retiring 30,000 hp

In other words, the fleet would receive credit for the same action twice (60,000 hp credit for an action that reduced emissions from 30,000 hp vehicles). This would be equivalent to 86 percent of the fleet’s final hp (6 0,000 hp/70,000 hp). Staff believes that allowing the fleet to accumulate 60,000 hp credit i n the example above would incorrectly

double count and overstate the emission reductions actually achieved.

At the workshops, staff received comment that some fleets had experienced both reduced activity and retirements, in separate porti ons of their fleet. Staff agreed that crediting reduced activity in the portion of the fl eet which was not retired would prevent double counting while providing appropriate credit to such fleets and hence adjusted staff’s proposal to allow this.

B. Additional Incentives for Early Action

1. Extension or increase of double retrofit credit

To incentivize additional retrofits, staff consider ed triple retrofit credit and proposing an extension to the period for double PM retrofit cred it for large fleets, which currently is scheduled to end on January 1, 2010. While the ide a was appreciated by those fleets that had already planned to retrofit vehicles for d ouble credit, staff received mixed feedback as to the anticipated effectiveness of pro viding more than double retrofit credit or extending double credit.

In the end, staff rejected triple credit or further extension of double PM credit for large fleets for the following reasons. First, it would reduce the retrofit requirements for large fleets that would not receive credit per the legisl atively directed amendments and would have to install retrofits in the early compliance y ears. For example, if a fleet would already be required to install retrofits in 2011, g iving double credit for those retrofits would provide no further incentive to that fleet bu t instead would simply allow that fleet to delay further retrofitting. Second, if the prov isions for double retrofit credits were52

extended for several years, large fleets would lose the incentive to retrofit early to receive double credit, as they would be able to del ay retrofitting several years and still receive double credit. Finally, staff was hesitant to extend double retrofit credit or put in place triple retrofit credit because both could lea d to long-term emission disbenefits as described further below. For these reasons, staff does not recommend triple retrofit

credit or further extension of double retrofit cred it for large fleets.

To demonstrate how triple credit could reduce long term emissions benefits, staff analyzed the effect of a fleet that retrofits 100 v ehicles in 2010 (and receives triple credit (i.e., credit for 300 retrofits), and compared it t o the emissions benefits that would be achieved if that same fleet actually retrofitted 30 0 vehicles in 2012, shown in Table 13. To simplify the example, one retrofit is assumed to remove one “unit” of emissions per year. As Table 13 shows, although there is an init ial emission benefit for this fleet to retrofit early (greater cumulative benefits in 2010 and 2011), by 2012, the cumulative benefits are equal, and for all years after 2012, t he cumulative emission benefits are greater for the later installation of 300 retrofits

.

Table 13: Emissions Benefit Comparison for Triple Retrofit Credit Annual Benefits (units) Cumulative Benefits (units) Number

of

Actual

Retrofits

Installed 2010 2011 2012 2013 2014 Through

2010 Through

2011 Through

2012 Through

2013 Through

2014

100 100 100 100 100 100 100 200 300 400 500

300 0 0 300 300 300 0 0 300 600 900

Staff does not find this same reasoning to apply to medium or small fleets that must comply no sooner than 2013 and 2015, respectively, and is proposing an extension of

double credit for these fleets. In contrast to lar ge fleets, in 2011 and 2012, small and medium fleets are not subject to compliance in thes e years, and the providing of double credit to them would not adversely delay scheduled compliance. Additionally, the

extension of double credit would assist medium and small fleets in complying with the regulation and provide flexibility to these smaller fleets that do not benefit from the credit for reduced activity, which expires in 2011.

2. Minimum BACT requirements for fleets awarded cre dit under new provisions

At the initial workshop, staff received the comment that fleets using the new credit should be required to meet at least a minimal porti on of the BACT requirements. That is, they should be required to do a certain percent retrofitting and a certain percent turnover per year, regardless of what new reduced a ctivity and retirement credits they have. According to the commenter, the new credits should not exempt any fleet completely from taking actions to clean up their fl eets during the initial few years of the regulation.53

Staff performed an analysis of the likely emissions benefits that would result from maintaining minimum BACT requirements for those fle ets using the new credits. For this analysis, staff assumed that fleets using the new credits would be required to complete half of the adopted initial BACT requireme nts (i.e., four percent turnover, and 10 percent retrofits). Staff concluded that such m inimum BACT requirements could indeed mitigate by 50 percent the potential loss in emission benefits from the legislatively directed amendments (as discussed in Chapter IV.B.1 above). Staff, however, did not propose the suggested minim um BACT requirements finding such a requirement to be inconsistent with the inte nt of AB 8 2X to provide needed relief to affected fleets during the current economic down turn.

3. Increase the stringency of the regulation to com pensate for relief provided

Staff received the suggestion to increase the BACT requirements in the regulation in 2013 and 2014 for all fleets that took advantage of the new credits. While this approach could prevent any emission benefits losses from the new credits from 2014 and later, staff is not proposing it as part of the amendments described in this report because it could push annual compliance costs in 2013 and 2014 to levels that would not be affordable to many fleets. Additionally, staff bel ieves that the proposal is inconsistent

with the intent of AB 8 2X.

C. Other Amendments

As discussed in Chapter II, staff proposes to amend the definition of Non-Profit Training Center to include community college off-road vehicl e training programs (community college programs) in order to lower potential compl iance costs for such programs and give such programs more time to comply. When consi dering how to provide relief to the community college programs, staff considered includ ing them in the exemption for job corps training centers in section 2449(e)(13) of th e regulation rather than defining them as Non-Profit Training Centers. Section 2449(e)(13 ) completely exempts job corps training centers from all of the regulation’s requi rements except for reporting and labeling. Hence, if community college programs had been added to section 2449(e)(13), they would have been exempted from all of the turnover and retrofitting requirements of the regulation.

Staff opted to include the community college progra ms in with the Non-Profit Training Centers to (1) better maintain the emission benefit s of the regulation, (2) maintain consistency between community college programs and very similar programs run by labor unions, and (3) encourage community college p rograms to obtain exhaust retrofits and thereby provide training to their students in t he use and maintenance of retrofits. Because exhaust retrofits are expected to become co mmonplace in the future, having some exposure to the use of such retrofits would be useful to community college students who wish to become future equipment operat ors.5455

VI. REFERENCES

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, 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#April26

ARB, 2008. California Air Resources Board

. Conditional Verification Letter 08-661-461 for Cleaire Lonestar® Diesel Retrofit System. Cali fornia Air Resources Board, December 23, 2008. http://www.arb.ca.gov/diesel/verdev/pdf/conditional /08-661-461.pdf

ARB, 2009a. Internet search by ARB staff to compil e a list of community colleges that have off-road equipment training programs. April 2 2, 2009.

ARB, 2009b. Staff’s Proposed Amendments to the Apr il 7, 2009 Proposal for Implementing the Legislatively Directed Changes. A pril 23, 2009.

ARB, 2009c. In-Use Off-road Diesel Vehicle Regulat ion Legislatively Directed Changes: Fleet Examples. April 28, 2009.

DOORS, 2009. Diesel Off-road On-line Reporting Sys tem. https://secure.arb.ca.gov/ssldoors/doors_reporting/ reporting.php , May 18, 2009.

Assembly, 2009. Letter from select members of the Assembly to Mary Nichols, ARB. Legislative intent regarding ABX2 8 with regard to off-road diesel regulation. April 22,

2009.56

Senate, 2009. Letter from select members of the Se nate to Mary Nichols, ARB. Legislative intent of ABX2 8 relating to off-road d iesel regulation. April 22, 2009.57 AB 8 2X LANGUAGE

Assembly Bill No. 8

CHAPTER 6

An act to amend Section 11011 of the Government Cod e, to add Section 43018.2 to the Health and Safety Code, to add and r epeal Sections 21080.41 and 21080.42 of the Public Resources Code, and to add S ection 130240.5 to the Public Utilities Code, relating to state government.

[Approved by Governor February 20, 2009. Filed with Secretary of State February 20, 2009.]

LEGISLATIVE COUNSEL’S DIGEST

SEC. 2. Section 43018.2 is added to the Health and Safety Code, to read: 43018.2. (a) The state board shall amend Sections 2 449.1 and 2449.2 of Title 13 of the California Code of Regulations t o do both of the following: (1) Modify the nitrogen oxides (NOx) and particulat e matter (PM) best available control technology requirements to allow a fleet to achieve its cumulative turnover and retrofit requirements for t he years 2011 to 2013, inclusive, by completing 20 percent of its cumulati ve turnover and retrofit obligations in 2011, an additional 20 percent in 20 12, and the balance in

2013. (2) (A) Modify the nitrogen oxides (NOx) and partic ulate matter (PM) credit provisions to reflect vehicle retirements th at reduce total fleet horsepower between March 1, 2006, and March 1, 2010 , and reduced activity between July 1, 2007, and March 1, 2010. (B) “Reduced activity” for the purposes of this par agraph means the percentage reduction in the average annual hours of operation of the off-road fleet. That percentage shall be carried forward as a credit for nitrogen oxides (NOx) and particulate matter (PM) to offset the ann ual percentage reductions required for 2010 and 2011. The credit shall not be used to meet any obligations beyond 2011. (b) The amendment of regulations required by this s ection is exempt from the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 o f the Government Code).5859

APPENDIX A: PROPOSED REGULATION ORDER FOR IN-USE OF F-ROAD

DIESEL-FUELED FLEETS

Note: Proposed modifications are shown in underline to indicate additions and strikeout to indicate deletions, compared to the preexisting regulatory language. Modifications that were proposed at the January Board hearing are shown in bold underline to

indicate additions and bold strikeout to indicate deletions, compared to the preexisting regulatory language. The symbol “*****” indicates that regulatory language not being

amended is not shown.

Amend sections 2449, 2449.1, and 2449.2, title 13, California Code of Regulation to

read as follows.



### § 2449 General Requirements for In-Use Off-Road Dies el-Fueled Fleets

***** (c) Definitions

***** (26) “Forest operations” means (A) forest fire prevention activities perform ed by public agencies, including but not limited to construction and maintenance of roads, fuel breaks, firebreaks, and fire hazard aba tement or (B) cutting or removal or both of timber, other solid wood product s, including Christmas trees, and biomass from forestlands for commercial purpose s, together with all the work incidental thereto, including but not limited to, c onstruction and maintenance of roads, fuel breaks, firebreaks, stream crossings, l andings, skid trails, beds for falling trees, fire hazard abatement, and site prep aration that involves disturbance of soil or burning of vegetation follow ing forest removal activities. Forest operations include the cutting or removal of trees, tops, limbs and or brush which is processed into lumber and other wood produ cts, and or for landscaping materials, or biomass for electrical power generati on. Forest operations do not

include conversion of forestlands to other land use s such as residential or commercial developments.

(27) “Highest Level Verified Diesel Emission Contro l Strategy” (VDECS ) means the highest level VDECS verified by ARB under its Verification Procedure, Warranty and In-Use Compliance Requirements for In- Use Strategies to Control Emission from Diesel Engines ( Verification Procedure ), title 13, CCR, sections 2700-2710, for a specific engine as of 10 months pr ior to the compliance date, which (1) can be used without impairing the safe op eration of the vehicle as demonstrated per section 2449(e)(8), and (2) the di esel emission-control strategy manufacturer and authorized diesel emissio n-control strategy dealer agree can be used on a specific engine and vehicle combination without jeopardizing the original engine warranty in effect at the time of application.This Page Begins with 2449(c)(27)

60

Plus designations do not matter; that is, a Level 3 Plus is the same diesel PM level as Level 3; and Level 2 Plus is the same dies el PM level as Level 2.

The highest level VDECS is determined solely based on verified diesel PM reductions, not based on verified NOx reductions. All Level 3 diesel PM devices are higher than all Level 2 diesel PM devices. Lev el 1 devices are never considered highest level VDECS for the purpose of t his regulation.

(28) “ Hour Meter Log ” means a log of the hours that a vehicle operated di rectly

taken from the vehicle’s hour meter.

(29 28 ) “Implement of husbandry” is as defined in California Vehicle Code (Veh.Code) division 16.

(30 29 ) “Local Municipality” means a city, county, city and county, special dis trict, or other public agency, or two or more public entit ies acting jointly, or the duly constituted body of an Indian reservation or ranche ria. Agencies of the United States of America or the State of California, and d epartments, divisions, public corporations, or public agencies of this State or o f the United States are not considered local municipalities.

(31 3 0 ) “Low-Population County Local Municipality Fleet” means a fleet owned by a local municipality (as defined above) that is located in a county as defined in title 13, CCR, section 2022(b)(2) and identified in section 2022(c)(2), Table 2, or, using the criteria set forth in title 13, CCR, sect ion 2022.1(c)(4), a local municipality not located in a low-population county that has requested and has received Executive Officer approval to be treated l ike a municipality in a lowpopulation county. Fleets owned by such local muni cipalities shall be treated as small fleets even if their total maximum power exce eds 2,500 horsepower.

(32 31 )“Low-use vehicle” means a vehicle that operated in California less t han 100 hours during the preceding 12-month period running from March 1 to end of February. For example, when reporting in 2009, the hours of use between March 1, 2008 and February 28, 2009 would be used t o determine low-use status. To be considered a low-use vehicle, the fl eet owner must submit engine operation data from a functioning non-resettable ho ur meter. (A) Vehicles used outside California - Vehicles that operate both inside and

outside of California can meet the low-use vehicle definition if they are used less than 100 hours per year in California. (B) Three-year rolling average - A vehicle operated only in California for the previous three years and owned by the same owner du ring that period will be considered low-use if it operated on average less t han 100 hours per year during that previous three-year period. (C) Emergency operation hours - Hours used for emergency operations are not counted when determining low-use status.This Page Begins with 2449(c)(33)

61

(33 32 ) ”Maximum power” (Max Hp) means the engine’s net horsepower or net flywheel power certified to Society of Automotive E ngineers (SAE) Method J1349 or International Organization for Standardization ( ISO) Method 9249. If the engine’s net horsepower or net flywheel power certi fied to SAE Method J1349 or ISO Method 9249 is not readily available, another n et horsepower or net flywheel power from the manufacturer’s sales and service lit erature or horsepower from the engine label may be used.

(34 33 ) “Model year”

has the same meaning as defined in title 13, CCR, section 2421(a)(37).

(35 34 ) “Motor vehicle” has the same meaning as defined in Veh. Code sectio n 415.

(36 35 ) “New fleet” means a fleet that is acquired or that enters Calif ornia after March 1, 2009. Such fleets may include new busines ses or out-of-state businesses that bring vehicles into California for the first time after March 1,

2009.

(37 36 ) “NOx index” means an indicator of a fleet’s overall NOx emissio n rate. The NOx Index for a specific fleet is determined by sum ming the product of the maximum power of each engine times the NOx Emission Factor, and dividing by the fleet’s total maximum power.

(38 37 ) “NOx target rate” means the NOx fleet average that a specific fleet m ust meet in a compliance year in order to show complian ce with the fleet average requirements. The NOx Target Rate varies depending on a fleet’s horsepower distribution. The NOx Target Rate for a specific f leet for each compliance year is determined by summing (adding) the product of the m aximum power (Max Hp) of each engine times the NOx target, and dividing the resulting sum by the fleet’s total maximum power.

( 39 38 ) “Non-Profit Training Center” means an entity that operates a program for training in the use of off-road vehicles and that ( A) is a community college program that trains students in the use of off-road vehicles or (B) qualifies as a non profit or not for profit organization under tit le 26 Internal Revenue Code section 501(a), (c)(3), (c)(5), or (c)(6). Any veh icles that are not used for an offroad training program are not considered part of a non-profit training center and must be considered a separate fleet.

(40 39 ) “Off-highway vehicle” is defined in Veh. Code division 16.5.

(41) “Operator Log” means a log of the hours that a vehicle operated ta ken from records of vehicle operator hours.This Page Begins with 2449(c)(42)

62

(42 40 ) “Oxides of nitrogen” (NOx) means compounds of nitric oxide, nitrogen dioxide, and other oxides of nitrogen. Nitrogen oxi des are typically created during combustion processes and are major contributors to smog formation and acid deposition.

(43 41 ) “Post-2007 Flexibility Engine” means an engine certified on or after January 1, 2007 to the implementation flexibility s tandards in title 13, CCR, section 2423(d). Such flexibility engines are gene rally labeled as follows by the engine manufacturer:

"THIS ENGINE COMPLIES WITH CALIFORNIA EMISSION REQUIREMENTS UNDER 13 CCR 2423(d)...” or

"THIS ENGINE CONFORMS TO CALIFORNIA OFF-ROAD

COMPRESSION-IGNITION ENGINE REGULATIONS UNDER 13 CCR, 2423(d)."

Post-2007 flexibility engines should use the emissi on standard to which the engine is certified. For example, a Tier 4 engine flexed back to Tier 2 emission

levels should use the Tier 2 PM standard in title 1 3, CCR, section 2423(b)(1)(A) as the emission factor (converted from grams per ki lowatt hour (g/kW-hr) to g/bhp-hr by multiplying by 0.746).

(44 42 ) “Queuing” means the intermittent starting and stopping of a v ehicle while the driver, in the normal course of doing business, is waiting to perform work or a service, and when shutting the vehicle engine off w ould impede the progress of the queue and is not practicable. Queuing does not include the time a driver may wait motionless in line in anticipation of the start of a workday or opening of a location where work or a service will be performe d.

(45 43 ) “Registered and driven safely on-road” means a vehicle meets the requirements to be registered for on-road operation in Veh. Code division 3, chap. 1, article 1, sections 4000 et seq. (i.e., re quired to be registered or could be registered), and the requirements to be driven s afely on-road in “Equipment of Vehicles” requirements in Veh. Code division 12, ch ap. 1, sections 24000 et seq. and “Size, Weight, and Load” requirements in Veh. C ode division 15, sections 35000 et seq. Having a California Special Construction Equipment plate as defined in California Veh. Code sections 5 65 and 570 does not constitute registration.

(46) “Replacement” means the addition of off-road diesel vehicles to a fleet that

had retired one or more off-road diesel vehicles of an equivalent horsepower.

(47 44 ) “Repower” means to replace the engine in a vehicle with anoth er engine meeting a subsequent engine emissions standard (e.g ., replacing a Tier 0 engine with a Tier 2 or later engine).This Page Begins with 2449(c)(48)

63

(48 45 ) “Responsible Official” means one of the following: (A) For a corporation: A president, secretary, treasure r, or vice president of the corporation in charge of a principal business funct ion, or any other person who performs similar policy or decision-making func tions for the corporation, (B) For a partnership or sole proprietorship: a general partner or the proprietor, respectively (C) For a municipality, state, federal, or other public agency: either a principal executive officer or ranking elected official. For the purposes of this part, a principal executive officer of a federal agency inc ludes the chief executive officer having responsibility for the overall opera tions of a principal geographic unit of the agency (e.g., a Regional Adm inistrator of the U.S. EPA).

(49 46 ) “Retire”

means to take an engine out of service and not ope rate it again in the State of California. To retire an engine, the vehicle with the engine may be moved outside of California, sold, or scrapped.

(50 47 ) “Snow removal operations” means removing snow from public roads, private roads, or driveways.

(51 48 ) “Specialty vehicle” means a vehicle for which no used vehicle with a cleaner engine that can serve an equivalent functio n and perform equivalent

work is available.

(52 49 ) “Tier 0 Engine”

means an engine not subject to the requirements in title 13, CCR, section 2423; Title 40, Code of Federal Regula tions (CFR), Part 89; or Title 40, CFR, Part 1039.

(53 50 ) “Tier 1 Engine”

means an engine subject to the Tier 1 new engine e mission standards in title 13, CCR, section 2423(b)(1)(A) a nd/or Title 40, CFR, Part 89.112(a). This also includes engines certified un der the averaging, banking, and trading program with respect to the Tier 1 Fami ly Emission Limits (FEL) listed in title 13, CCR, section 2423(b)(2)(A) and/ or Title 40, CFR, Part 89.112(d).

(5451 ) “Tier 2 Engine” means an engine subject to the Tier 2 new engine e mission standards in title 13, CCR, section 2423(b)(1)(A) a nd/or Title 40, CFR, Part 89.112(a). This also includes engines certifi ed under the averaging, banking, and trading program with respect to the Ti er 2 FEL listed in title 13, CCR, section 2423(b)(2)(A) and/or Title 40, CFR, Pa rt 89.112(d).

(55 52 ) “Tier 3 Engine”

means an engine subject to the Tier 3 new engine e mission standards in title 13, CCR, section 2423(b)(1)(A) a nd/or Title 40, CFR, Part 89.112(a). This also includes engines certified un der the averaging, banking, and trading program with respect to the Tier 3 FEL listed in title 13, CCR, section 2423(b)(2)(A) and/or Title 40, CFR, Part 89.112(d).This Page Begins with 2449(c)(56)

64

(56 53 ) “Tier 4 Final Engine” means an engine subject to the final after-treatmen tbased Tier 4 emission standards in title 13, CCR, s ection 2423(b)(1)(B) and/or Title 40, CFR, Part 1039.101. This also includes e ngines certified under the averaging, banking, and trading program with respec t to the Tier 4 FEL listed in title 13, CCR, section 2423(b)(2)(B) and/or Title 4 0, CFR, Part 1039.101.

(57 54 ) “Tier 4 Interim Engine” means an engine subject to the interim Tier 4 emission standards (also known as transitional) in title 13, CCR, section 2423(b)(1)(B) and/or Title 40, CFR, Part 1039.101. This also includes engines certified under the averaging, banking, and trading program with respect to the Tier 4 FEL listed in title 13, CCR, section 2423(b) (2)(B) and/or Title 40, CFR,

Part 1039.101.

(58 55 ) “Total maximum power” means the sum of maximum power for all of a fleet’s engines that are subject to this regulation . Low-use vehicles, dedicated snow-removal vehicles, and vehicles used solely for emergency operations need

not be included in the sum.

(59 56 ) “Verified Diesel Emission Control Strategy” (VDEC S) means an emissions control strategy, designed primarily for the reduction of diesel PM emissions, which has been verified pursuant to the Verification Procedures

. VDECS can be verified to achieve Level 1 diesel PM reductions (25 percent), Level 2 diesel PM reductions (50 percent), or Level 3 diesel PM reductions (85 percent). VDECS may also be verified to achieve NO x reductions. See also definition of Highest Level VDECS.

(60 57 ) “VDECS Failure” means the condition of not achieving the emissions

reductions to which the VDECS is verified. Such co ndition could be due to inappropriate installation, damage, or deterioratio n during use. If a Level 3 VDECS is emitting visible smoke, it should be assum ed to have failed.

(61 58 ) “Workover rig”

means a mobile self-propelled rig used to perform one or more remedial operations, such as deepening, pluggi ng back, pulling and resetting liners, on a producing oil or gas well to try to restore or increase the well’s production.

*****

(e) Special Provisions/Compliance Extensions

***** (6) Compliance Extension for Equipment Manufacturer or Installer Delays - A fleet owner who has purchased new equipment (including VD ECS) or vehicles in order to comply with this regulation, will be excused from i mmediate compliance if the new equipment or vehicles have not been received due to manufacturing or installer delays as long as all the conditions below are met:This Page Begins with 2449(e)(6)(A)

65

(A) The equipment or vehicle was purchased, or the fleet owner and seller had entered into contractual agreement for the purchase , at least four months prior to the required compliance date, or - for a VDECS purc hased to replace a failed or damaged VDECS – the fleet owner and seller had ente red into contractual agreement for the purchase within 60 days of the VD ECS failure. (B)Proof of purchase, such as a purchase order or s igned contract for the sale, including engine specifications for each applicable piece of equipment, must be maintained by the fleet owner and provided to an ag ent or employee of ARB
upon request. (C)The new equipment or vehicles are immediately pl aced into operation upon receipt. (D) Documentation from the manufacturer or the inst aller that there is a delay, such that the equipment or vehicle will be received or installed after the compliance date.

***** (8) VDECS That Impairs Safe Operation of Vehicle - A fleet owner may request that

the Executive Officer find that a VDECS should not be considered the highest level VDECS available because (A) it cannot be safely ins talled or operated in a particular vehicle application, or (B) its use would make comp liance with federal or state requirements for safety or health, occupational safety and health requirements, mining safety and health requirements, or an ongoing local air district permit condition, such as for use of a diesel oxidation catalyst, impossible. If a VDECS manufacturer states that there is no safe or appropriate method of mounting its VDECS on the requesting party’s vehicle, then the VDECS will not be considered safe . The Executive Officer shall accept the official findings of the responsible federal or state agency that compliance with the requirements of this regulation would make complian ce with the federal and state safety or health requirements impossible. In the absence of such a declaration by the VDECS manufacturer or official findings of a responsible federal or state agency , the requesting party shall provide other documentation to support its claims. Documentation must include published reports and other findings of fed eral, state or local government agencies, independent testing laboratories, engine or equipment manufacturers, or other equally reliable sources. The request will on ly be approved if the requesting party has made a thorough effort to find a safe method fo r installing and operating the VDECS, including considering the use of mirrors, va rious locations for VDECS mounting, and use of an actively regenerated VDECS. The Executive Officer shall review the documentation submitted and any other re liable information that he or she

wishes to consider and shall make his or her determ ination based upon the totality of the evidence. Upon finding that a VDECS cannot be i nstalled without violating the safety standards prescribed under federal or state require ments for safety or

health occupational safety and health requirements, mining safety and health requirements , the Executive Officer shall issue a determination that there is no highest
level VDECS available. The Executive Officer shall inform the requesting party, in writing, of his or her determination, within 60 day s of receipt of the request. Parties may appeal the Executive Officer’s determination as des cribed in (A) and (B)This Page Begins with 2449(e)(8)

64

below. During the appeal process described in (A) a nd (B) below, the requesting party may request the administrative law judge to s tay compliance until a final decision is issued. If the stay is granted and the Executive Officer denies the requesting party’s request, the requesting party ha s six months from the date of the Executive Officer’s final written decision to bring his or her fleet back into compliance.

***** (g) Reporting – Reporting is required for each and every fleet. L arge and medium fleets may report separately for different division s or subsidiaries of a given company or

agency.

***** (1) Initial reporting – All fleet owners must submit the information in se ction 2449(g)(1)(A) through (G) to ARB by their initial r eporting date. In the initial reporting, fleet owners must report information reg arding each vehicle subject to this regulation that was in their fleet on March 1, 2009 . Systems or non-diesel fueled vehicles that are used in place of a vehicle that w ould be subject to this regulation must also be reported. The initial reporting date for large fleets is April 1, 2009. The initial reporting date for medium fleets is June 1, 2009. The initial reporting date for small fleets is August 1, 2009. Reports must inclu de the following information:

***** (G) Credit for Early Actions – Fleet owners claiming credit for early action must report information required under sections 2449(g)( 1)(B)1. through 449(g)(1)(B)5. and sections 2449(g)(1)(C)1. through 2449(g)(1)(C)6 . for each vehicle for which credit is claimed. As appropriate, the following in formation must also be reported: 1. For each vehicle within the fleet that was repow ered with a Tier 1 or newer engine prior to March 1, 2009, the date of repower;

2. For each vehicle within the fleet that was retro fit with the highest level VDECS available at the time of retrofit prior to Ma rch 1, 2009, the date of retrofit and whether Carl Moyer Incentive Program f unding was used to pay for the retrofit; 3. Fleet owners claiming early credit for retiremen t or replacement of any Tier

0 vehicles per section 2449.1(a)(2)(A)2.a.ii . or 2449.1(a)(2)(A)(2)a.vi. or 2449.2(a)(2)(A)(2)a.v. must report information on each and every vehicle within the fleet between March 1, 2006 and March 1, 2010 2009 , as required under sections 2449(g)(1)(B)1. through 244 9(g)(1)(B)4. and sections 2449(g)(1)(C)1. through 2449(g)(1)(C)6. as well as the date of any purchase and/or retirement between March 1, 200 6 and March 1,

2010 2009. 4. Fleet owners claiming credit for reduced activit y in the fleet per section 2449.1(a)(2)(A)(2)a.iv. or 2449.2(a)(2)(A)2.a.iii. must report to the
Executive Officer the total hours of use for each v ehicle in the fleet, excepting vehicles claimed for early retirement cre dit, for the twelve month period January 1, 2007, to December 31, 2007 as well as theThis Page Begins with 2449(g)(1)(G)4.

65 twelve month period March 1, 2009, to February 28, 2010. Fleets that do not have hourly reporting records of each vehicle i n the fleet must submit to the Executive Officer copies of information that is verifiable and substantively demonstrates a reduction in fleet act ivity from July 1, 2007, to March 1, 2010.

***** (4) Selling Vehicles – Any person selling a vehicle with an engine subject to this regulation in California must notify ARB within 30 days from the date the vehicle was sold. If the reporting date under section 2449(g)( 2) occurs within 30 days of the vehicle being sold, the annual reporting may serve as the notification to ARB that the

vehicle was sold.

*****

(h) Record keeping - Fleet owners must maintain copies of the informatio n reported under section 2449(g), as well as the records descr ibed in section 2449(h) below, and provide them to an agent or employee of the ARB wit hin five business days upon request. Records must be kept at a location within the State of California.

***** (8) Credit for Reduced Activity – Each fleet owner that claims credit for reduced fleet activity with vehicle specific data per secti ons 2449.1(a)(2)(A)(2)a.iv. or 2449.2(a)(2)(A)2.a.iii. shall maintain the records setting forth the total hours of use of

each vehicle in the fleet for each of the twelve mo nth periods indicated in 2449(g)(1)(G)4. A fleet that submits non-vehicle s pecific data claiming credit for reduced fleet activity, per sections 2449.1(a)(2)(A )(2)a.v. or 2449.2(a)(2)(A)(2)a.iv., must keep a record of all of the information submit ted to ARB to support its claim of reduced fleet activity.

(9) Credit for Early Retirement or Replacement – Each fleet owner that claims credit for the retirement or replacement of vehicle s from March 1, 2006, to March 1, 2010, per sections 2449.1(a)(2)(A)2.a.ii. or 2449.1 (a)(2)(A)(2)a.vi. or 2449.2(a)(2)(A)(2)a.v shall maintain records substa ntiating the fleet’s claim of previous ownership for those vehicles. (8 )(10) Record Retention – Each fleet owner shall maintain the records for each vehicle subject to the regulation until it is retir ed and for the overall fleet as long as the owner has a fleet or March 1, 2030, whicheve r is earlier. If vehicle ownership is transferred, the seller shall convey t he vehicle records including vehicle data per section 2449(g)(1)(B), engine data per section 2449(g)(1)(C), and VDECS data per section 2449(g)(1)(D) to the buy er. If fleet ownership is transferred, the seller shall convey the fleet reco rds including fleet data per sections 2449(g)(1)(A) through (G) to the buyer. Dealers Any person selling a vehicle with an engine subject to this regulation i n California must maintain records of the disclosure of regulation applicabili ty required by Section 2449(j) for three years after the sale.This Page Begins with 2449 Authority and References

66 Note: Authority cited: Sections 39002, 39515, 395 16, 39600, 39601, 39602, 39650, 39656, 39658, 39659, 39665, 39667, 39674, 39675, 40 000, 41511, 42400, 42400.1, 42400.2, 42400.3.5, 42402, 42402.1, 42402.2, 42402. 4, 42403, 43000, 43000.5, 43013, 43016, and 43018, and 43018.2, Health and Safety Code. Reference: Sections 39002

, 39515, 39516, 39600, 39601, 39602, 39650, 39656, 39 657, 39658, 39659, 39665, 39667, 39674, 39675, 40000, 41511, 42400, 42400.1, 42400.2, 42402.2, 43000, 43000.5, 43013, 43016, and 43018, and 43018.2, Health and Safety Code.

***** 

### § 2449.1 NOx Performance Requirements

***** (a) Performance Requirements

***** (2) BACT Requirements – Each year, each fleet must determine if it will be able to meet the fleet average requirements for the next Ma rch 1 compliance date, and if not, the following BACT requirement must be met. I f a fleet does not meet the NOx target rate in section 2449.1(a)(1), it must me et the BACT turnover requirements in section 2449.1(a)(2)(A) below.

***** (A) Turnover Requirements for Fleets Not Meeting NO x Target Rate –

*****

1. Turnover Rate – If a fleet does not meet the NOx Target Rate in s ection 2449.1(a)(1) on a compliance date on or before Marc h 1, 2015 , it must demonstrate on the applicable compliance date that it has turned over 8 the required percent of the total maximum power of the fleet tha t existed on March 1of the previous year since March 1 of the pr evious year. Any carryover turnover credit previously accrued may be applied towards the turnover required in a later year. The required tur nover percents to demonstrate on each compliance date are described b elow in a. through e. a) 2010: 8 percent. b) 2011 and 2012: 4.8 percent. c) 2013: 14.4 percent for large fleets that did not me et the NOx fleet average target in 2011 or 2012, 11. 2 percent for large fle ets that met the NOx fleet average target in 2011 but not 2012, and 8 percent for large fleets that met the NOx fleet average target in 2012 and for all me dium fleets. d) 2014: 8 percent. e) 2015 and later: 10 percent. If a fleet does not meet the NOx Target Rate in sec tion 2449.1(a)(1) on a compliance date after March 1, 2015, it must demons trate on the applicable compliance date that it turned over 10 percent of i ts total maxi mum power that existed on March 1 of the previous year since March 1 of the previous year.This Page Begins with 2449.1(a)(2)(A)2.

67 ***** 2. Carryover turnover credit –

a. Beginning - All fleets other than those meeting the criteria in (i) or (ii) or (iii) below begin with zero carryover turnover credit on March 1, 2009. All fleets may begin accumulating carryover turnove r credit on March
1, 2010 2009. To claim credit, fleets must submit to ARB an d retain records as described in sections 2449(g) and (h). i. Credit for Early Repowers - Fleets that have repowered their vehicles with Tier 1 or higher engines before March 1, 2009 begin

with will accumulate a carryover turnover credit (in horsepower) equal to: the maximum power of Tier 1 or higher rep ower engines installed in affected vehicles before March 1, 2009 . The credit can only be claimed for engines that remain in the flee t in the year that

the credit is taken. To claim credit, fleets must keep adequate records as described in section 2449(h). ii. Credit for Early Replacement Retirement – Fleets that have replaced retired their Tier 0 vehicles at an average rate greater than 8 percent of total maximum power per year betw een March 1, 2006 and March 1, 2009 begin with will accumulate carryover turnover credit (in horsepower) equal to: [(Total m aximum power of Tier 0 vehicles retired between March 1, 2006 and M arch 1, 2009) minus (Total maximum power of Tier 0 vehicles added between March 1, 2006 and March 1, 2009) minus (Total credi t for early retirement claimed under section (vi) below) ] minus [(Total maximum power of fleet on March 1, 2007 times 0.08) plus (Total maximum power of fleet on March 1, 2008 times 0.08) plus (Total maximum power of fleet on March 1, 2009 times 0.08) ]. Tier 0 vehicles repowered with newer engines are counted u nder (i) above and shall not be counted under (ii). To clai m such credit, fleets must keep adequate records as described in s ection 2449(h).

iii. Double Credit for Early NOx Retrofits – Fleets that have installed VDECS that have been verified as achieving NOx redu ctions on their vehicles before March 1, 2011 09 begin with will accumulate a carryover turnover credit (in horsepower) equal to: 2 multiplied by (Verified Percent NOx Reduction divided by 60 perce nt) multiplied by (Maximum power on which VDECS verified to achiev e NOx reductions was installed before March 1, 2011 09 ). iv. Credit for Reduced Fleet Activity – Fleets that demonstrate a reduction in fleet activity will accumulate carryover turnover credit (in horsepower). Fleet activity is defined as the s um of [(Total maximum power of the vehicle) times (Number of hour s the vehicle was operated in the applicable 12 month period)] fo r each vehicle

in the fleet. 1. Carryover turnover credit generated from reduced activity may only be applied toward the March 1, 2010, or March 1, 2011 compliance dates.This Page Begins with 2449.1(a)(2)(A)2.a.iv.2.

68 2. Fleets that receive credit for the retirement of any vehicle prior to March 1, 2010, per section (v) below, can not co unt that vehicle in the calculation of reduced activity cred it.

3. Carryover turnover credit shall be calculated fo r the fleet, not including those vehicles retired for credit under s ection (v) below, as:

[(Fleet activity for January 1, 2007, to December 3 1, 2007) minus (Fleet activity for March 1, 2009, to Februar y 28, 2010, including vehicles added to the fleet) divide d by (fleet activity for January 1, 2007, to December 31, 2007) ] multiplied by (Total maximum power of fleet on July 1, 2007)

4. Fleet owners must use vehicle specific data, inc luding but not limited to hour meter logs or operator logs linking operators to specific vehicles, from July 1, 2007, to March 1, 2 010, as described in section 2449(g)(1)(G)4 to document veh icle activity.

5. Fleets that do not have hour meter logs or vehic le-specific operator logs or equivalent records that are verifi able and substantively demonstrate activity for all vehicles in the fleet: A. May use other verifiable indicators that are di rectly related to reduced vehicle operation to demonstrate an overall reduction in fleet activity from July 1, 2007, to M arch 1, 2010, including but not limited to records of overall off -road diesel fuel use for the fleet, as described in section 244 9(g)(1)(G)4. However, such fleets must subtract the total credit for early retirement claimed under section (v) below from the ir reduced activity credit.

B. May use indicators, including but not limited t o revenue or total vehicle operator employment, that demonstr ate a reduction in business or staffing but that do not d irectly correspond to vehicle or fleet activity. To qualif y for a credit using such indirectly-correlated indicators, the fl eet must be able to provide some evidence of overall reduced fl eet activity. The Executive Officer will grant a fleet using such indicators a maximum 20 percent credit for demonstr ated reduced activity not directly related to vehicular operation. Such fleets must also subtract from the 20 percent reduced activity credit any credits received for early reti rement claimed under section (v) below credit. Fleets must not apply for credit using indicators that would demonstrate reduced business or staffing if the fleet has information o r recordsThis Page Begins with 2449.1(a)(2)(A)2.a.iv.5.B.

69 that demonstrate the fleet has not reduced overall vehicle activity.

v. Credit for Early Retirement – Fleets that reduce overall horsepower from March 1, 2006, to March 1, 2010, accumulate carryover turnover credit (in horsepower) equal to: (Total maximum horsepower of the fleet on March 1, 2006) m inus (Total maximum horsepower of the fleet on March 1, 2010). b. Accumulating carryover turnover credit – i. 2010-2015 - From March 1, 2010 through March 1, 2015 for large fleets and from March 1, 2013 through March 1, 2015 for medium

fleets , a fleet accumulates carryover turnover credit eac h year it turns over more than the required 8 percent of its maximum power specified in section 2449.1(a)(2)(A)1 . The amount accumulated is the maximum power turned over in excess of the requ ired 8 percent in the 12 months prior to March 1 of the ye ar in which the carryover is calculated. From March 1, 2010, throu gh March 1, 2012, a medium fleet accumulates carryover turnover credit each year the total horsepower it turns over exceeds 8 p ercent of its maximum power.

ii. After 2015 - After March 1, 2015, a fleet will accumulates carryover turnover credit each year it turns over more than 1 0 percent of its maximum power. The amount accumulated is the maximu m power turned over in excess of 10 percent in the 12 months prior to March 1 of the year in which the carryover is ca lculated plus the carryover turnover credit used minus the requir ed 10 percent

. iii. Repower Credit– From March 1, 2010 through March 1, 2012, a medium fleet that did not accumulate any credit und er (i) above shall accumulate carryover turnover credit each yea r equal to the total maximum power of Tier 2 or higher repower eng ines installed in affected vehicles in the 12 months pri or to March 1 of the year in which the carryover is calculated. Fro m March 1, 2010 through March 1, 2011, a large fleet that did not a ccumulate any credit under (i) above shall accumulate carryover t urnover credit each year equal to the total maximum power of Tier 2 or higher repower engines installed in affected vehicles in t he 12 months prior to March 1 of the year in which the carryover is calculated. c. Using carryover turnover credit - Accumulated carryover turnover credit may be applied to meeting the turnover requi rements of section 2449.1(a)(2)(A)1 in a later year. The amount of car ryover turnover credit used to meet the turnover requirements in an y one year is subtracted from the carryover turnover credit total available in subsequent years. The amount of actual turnover pl us the amount of carryover turnover credit used must equal the minim um BACT turnover required by section 2449.1(a)(2)(A)1.

*****This Page Begins with 2449.1(a)(2)(A)4.

70

4. Exemptions A vehicle is exempt from the turnover of section 2449.1(a)(2)(A)1. if all vehicles in the fleet that do not qualify for an exemption under this section have been turned over and the vehicle meets one of the following conditions: a. On the compliance date, the vehicle is less than 10 years old from the date of manufacture; b. The vehicle meets all of the following specialty vehicle criteria:

i. The fleet has turned over all other vehicles fir st, ii. No repower is available for the specialty vehic le, as

demonstrated to the Executive Officer, iii. A used vehicle with a cleaner engine is not av ailable to serve a function and perform the work equivalent to that of the specialty vehicle, as demonstrated to the Executive Officer, and iv. The specialty vehicle has been retrofit with hi ghest level VDECS,

c. The vehicle has been retrofitted within the last six years with a Level 2 or 3 VDECS that was highest level VDECS at the time of retrofit, or

d. The vehicle has a Tier 4 interim or Tier 4 final engine. e. The vehicle has the highest level VDECS installe d prior to March 1, 2011, except that this exemption may be applied to no more than 15 percent of a fleet’s total horsepower as of March 1 , 2010.

***** Note: Authority cited: Sections 39002, 39515, 39516 , 39600, 39601, 39602, 43000, 43000.5, 43013, 43016, and 43018, and 43018.2, Health and Safety Code. Reference: Sections 39002, 39515, 39516, 39600, 39601, 39602, 39650, 39656, 39657, 39658, 39659, 39665, 39667, 43000, 43000.5, 43013, 43016, and 43018, and 43018.2, Health and Safety Code.



### § 2449.2 PM Performance Requirements

***** (a) Performance Requirements -

***** (2) BACT Requirements – Each year, each fleet must determine if it will be able to meet the fleet average requirements for the next Ma rch 1 compliance date, and if not, the following BACT requirement must be met. If a fleet does not meet the Diesel PM Target Rate in section 2449.2(a)(1), it m ust meet the BACT Retrofit Requirements in section 2449.2(a)(2)(A). Fleets th at fail to meet both an applicable NOx target rate in section 2449.1(a)(1) and the Diesel PM Target Rates in section 2449.2(a)(1) in a compliance year must first meet the BACT turnover requirements in section 2449.1(a)(2) in th at year and then meet the BACT Retrofit Requirements in section 2449.2(a)(2)( A) in that year.

*****This Page Begins with 2449.2 Authority and Referenc es

71 (A) PM Retrofit Requirements for Fleets Not Meeting Diesel PM Target Rate

*****

1. PM Retrofit Rate - If a fleet does not meet the Diesel PM Target Rate in section 2449.2(a)(1), it must demonstrate that it h as retrofit the 20 required percent of its total maximum power (not including s pecialty vehicles retrofitted and exempted from turnover in section 2449.1(a)(2)( A)4.b.) with highest level VDECS since March 1 of the previous year, as descri bed below. Any carryover retrofit credit previously accrued may be applied t owards the 20 percent retrofits required. If the VDECS is not new (i.e., is being r eused), it must have been taken from a vehicle that is no longer operating in Calif ornia. Fleets may count acquisitiont of vehicles with Tier 4 interim or Tie r 4 final engines or retirement of Tier 0 vehicles toward the retrofit requirement as described below. The required retrofit percents to demonstrate on each compliance date are described below in a. through d. a. 2010: 20 percent. b. 2011 and 2012: 12 percent. c. 2013: 36 percent for large fleets that did not m eet the PM fleet average target in 2011 or 2012, 28 percent for large fleets that met the PM fleet average target in 2011 but not 2012, and 20 percent for large fleets that met the PM fleet average target in 2012 and for all med ium fleets. d. 2014: 20 percent.

***** 2. Carryover PM retrofit credit – a. Beginning - All fleets other than those meeting the criteria in (i) or (ii) below for vehicles remaining in their fleets begin with zero carryover retrofit credit on March 1, 2009. All fl eets may begin accumulating carryover retrofit credit on March 1, 2009. i. Double Credit for Early PM Retrofits – Fleets that have installed the highest level VDECS on their vehicles before January 1, 2010 March 1, 2009 begin with l will accumulate a carryover retrofit credit equal to: 2 multiplied by total maximum powe r of engines on which highest level VDECS was installed before January 1, 2010 March 1, 2009 , unless the contract for funding the VDECS stipulates single credit for installation of the VD ECS. ii. Single Credit for Other PM Retrofits Before Initial Compl iance

Date – Small and M m edium fleets that install highest level VDECS

on their vehicles between January 1, 2010 March 1, 2009 and February 29 before March 1 , 2012 will accumulate carryover retrofit credit equal to: 2 multiplied by total maximum power of engines on which highest level VDECS was installed. Small fleets that install highest level VDECS on their vehicles between March
1, 2012 Jan uary 1, 2010 March 1, 2009 and February 28, 2014 accumulate carryover retrofit credit equal to total maximum power of engines on which highest level VDECS was install ed. iii. Credit for Reduced Fleet Activity – Fleets that demonstrate a reduction in fleet activity will accumulate carryov er retrofit credit (inThis Page Begins with 2449.2 Authority and Referenc es

72 horsepower). Fleet activity is defined as the sum o f [(Total maximum power of the vehicle) times (Number of hour s the vehicle was operated in the applicable 12 month period)] fo r each vehicle

in the fleet. 1. Carryover retrofit credit generated from reduced activity may only be applied toward the March 1, 2010, or March 1, 2011 compliance dates.

2. Fleets that receive credit for the retirement of any vehicle prior to March 1, 2010, per section (iv) below, can not c ount that vehicle in the calculation of reduced activity cred it.

3. Carryover retrofit credit shall be calculated fo r the fleet, not including those vehicles retired for credit under s ection (iv) below, as:

[(Fleet activity for January 1, 2007, to December 3 1, 2007) minus (Fleet activity for March 1, 2009, to Februar y 28, 2010, including vehicles added to the fleet) divide d by (fleet activity for January 1, 2007, to December 31, 2007) ] multiplied by (Total maximum power of fleet on July 1, 2007)

4. Fleet owners may use vehicle specific data, incl uding but not limited to hour meter logs or operator logs linking operators to specific vehicles, from July 1, 2007, to March 1, 2 010, as described in section 2449(g) to document vehicle ac tivity.

a. Fleets that do not have hour meter logs or vehic le-specific operator logs or equivalent records that are verifi able and substantively demonstrate activity for all vehicles in the fleet: A. May use other verifiable indicators that are di rectly related to reduced vehicle operation to demonstrate an overall reduction in fleet activity from July 1, 2007, to M arch 1, 2010, including but not limited to records of overall off -road diesel fuel use for the fleet, as described in section 2449(g)(1)(G)4. However, such fleets must subtract the total credit for early retirement claimed under section ( iv) below from their reduced activity credit.

B. May use indicators, including but not limited t o revenue or total vehicle operator employment, that demonstrate a reduction in business or staffing but that do not d irectly correspond to vehicle or fleet activity. To qualif y for a credit using such indirectly-correlated indicators, the fl eet must be able to provide some evidence of overall reduced fl eet activity. The Executive Officer will grant a fleet using such indicators a maximum 20 percent credit for demonstr atedThis Page Begins with 2449.2 Authority and Referenc es

73 reduced activity not directly related to vehicular operation. Such fleets must also subtract from the 20 percent reduced activity credit any credits received for early reti rement claimed under section (iv) below. Fleets must not a pply for credit using indicators that would demonstrate redu ced business or staffing if the fleet has information o r records

that demonstrate the fleet has not reduced overall vehicle activity.

iv. Credit for Early Retirement – Fleets that reduce overall horsepower from March 1, 2006, to March 1, 2010, be gin with carryover retrofit credit (in horsepower) equal to: (Total maximum horsepower of the fleet on March 1, 2006) minus (To tal maximum horsepower of the fleet on March 1, 2010). b. Accumulating carryover PM retrofit credit - Beginning March 1

, 2010 for large fleets, March 1, 2013 for medium fleets, and March 1, 2015 for small fleets, a fleet will accumulates carryover retrofit credit each year the total horsepower it retrofits plus the carryover retrofit credit it

uses exceeds more than the required 20 percent of its maximum power specified in section 2449.2(a)(2)(A)1 . The amount accumulated is the maximum power retrofit plus the carryover retrofit

credit used minus percent of maximum power retrofit in excess of 20 the required percent in the past 12 months prior to March 1. A large fleet also accumulates carryover retrofit credit on March 1, 2010

if the sum of the double retrofit credit earned fro m March 1, 2009 to January 1, 2010 plus the single retrofit credit earned from January 1, 2010 to March 1, 2010 exceeds 20 percent of its maximum horsepower. The amount accumulated is the s um of double credit retrofit credit earned from March 1, 2009 to January 1, 2010 plus the single credit earned from January 1, 2010 to March 1, 2010 in excess of 20 percent of fleet’s ma ximum horsepower in the past 12 months. c. Using carryover PM retrofit credit - Accumulated carryover retrofit credit may be applied to meeting the retrofit requi rements of section 2449.2(a)(2)(A)1. in a later year. The amount of c arryover retrofit credit used to meet the retrofit requirements in an y one year is subtracted from the carryover retrofit credit total available in subsequent years. The amount of actual retrofit pl us the amount of carryover retrofit credit used must equal the minim um BACT retrofit.

***** Note: Authority cited: Sections 39002, 39515, 39516 , 39600, 39601, 39602, 39650, 39656, 39658, 39659, 39665, 39667, 39674, 39675, 40 000, 41511, 42400, 42400.1, 42400.2, 42400.3.5, 42402, 42402.1, 42402.2, 42402. 4, 42403, 43000, 43000.5, 43013, 43016, and 43018, and 43018.2, Health and Safety Code. Reference: Sections 39002,
39515, 39516, 39600, 39601, 39602, 39650, 39656, 39 657, 39658, 39659, 39665,This Page Begins with 2449.2 Authority and Referenc es

74 39667, 39674, 39675, 40000, 41511, 42400, 42400.1, 42400.2, 42402.2, 43000, 43000.5, 43013, 43016, and 43018, and 43018.2, Health and Safety Code.75

APPENDIX B: CREDIT EXAMPLES

These examples demonstrate how a fleet would receiv e credit using the new provisions in the legislatively directed changes as well as pr ovisions in the current regulation, and

how those credits could be used to meet the fleet’s BACT requirements. Throughout the examples, the colors shown for the different cr edits below are used to help clarify which credit provisions the example is calculating. For each current provision and proposed provision in the regulation, the table bel ow shows the regulatory citation, the pollutant that the credit for emission reductions i s applied to, and what action the credit is given for.

2449.1(a)(2)(A)(2) on pg. 36 of regulation NOx Replacing Tier 0 engines from March 1, 2009, to March 1, 2010.

2449.1(a)(2)(A)(2)(a)(ii) on pg. 37 of regulation NOx Replacing Tier 0 engines above 8 percent of total hp on average, annually, from March 1, 2006, to March 1, 2009.

AB 8 2X 43018.2(a)(2)(B) NOx

PM Retirement of any off-road diesel vehicles that reduce total hp, between March 1, 2006, and March 1, 2010.

2449.1(a)(2)(A) On pg. 36 of regulation

2449.2(a)(2)(A)1.b on pg. 43 of regulation NOx

PM In the rare case that this provision provides more credit than the 2006 to 2010 reduced total hp credit above, fleets could instead choose:

Retirement of Tier 0

off-road diesel vehicles that reduce total hp, between March 1, 2009, and March 1, 2010.

AB 8 2X 43018.2(a)(2)(B) NOx

PM Reduced activity in the off-road diesel fleet, defined as the reduction in average annual hours of use between January 1, 2007, to December 31, 2007, and March 1, 2009, to February 28, 2010

The following actions will also still provide credi t to fleets, but are not included in the examples as there is little or no interaction betwe en these credits and those proposed by staff to implement the legislatively directed ch anges. These credits will be applied to

fleets in addition to the new credits.

2449.2(a)(2)(A)(2) on pg. 43 of regulation PM Installation of PM VDECS.

2449.1(a)(2)(A)(2).iii on pg.37 of regulation NOx Installation of VDECS that are verified to reduce

NOx emissions.

2449.1(a)(2)(A)(2).i on pg.37 of regulation NOx Repowers to Tier 1 or higher, from a lower Tier, prior to March 1, 2009.76

Credit Timeline

Each of the following examples demonstrates how the fleet would receive credits and how the fleet could choose the optimal credit optio n. The examples calculate credit awarded for actions from March 1, 2006, through Mar ch 1, 2010. In some cases the

fleets will have credits that roll over to 2011 or beyond. For the sake of simplicity, and to focus on the early credit, the examples do not s how the requirements for multiple years; however all carryover credits may be kept un til they are used in future years, unless it is specifically noted that they expire in a certain year.

Replacements

Note that where the credits say “Tier 0 Replacement s” it refers to a replacement of the hp, not the specific vehicle. That is, if the flee t’s only actions are retiring a 500 hp Tier 0 scraper, and purchasing a 350 hp off-road crane for an entirely different purpose, the regulation will count this as 350 hp replaced, and 150 hp retired.77



## 1: Fleet with Reduced Activity Only

Fleet on March 1, 2006: 100,000 hp

1. Retirement / Turnover The fleet does not retire or replace any vehicles.

2. Activity The fleet has reduced activity by 10 percent from July 1, 2007 to March 1, 2010.

This fleet had 400 vehicles with 100,000 hp total working 1000 hours per year for their July 1, 2007, annual average.

The fleet has the same 400 vehicles with 100,000 hp total working 900 hours per year for their March 1, 2010, annual average.

This is a 10 percent reduction in total activity.

3. Credit Available

NOx Credit (hp) PM Credit (hp)

2009-2010 Replacements 0 n/a

Early Replacements (2006-2009) 0 n/a

Retirement Credit for Shrinking

Fleets 0 0

New Reduced Activity Credit (expires in 2011) 10,000 10,000

Total Credit 10,000 hp (expires in 2011) 12 10,000 hp (expires in 2011)

12 Unless noted, the credits in these examples do not expire until they are used to meet the BACT requirements for the fleet.78

Determining July 1, 2007 Fleet Activity

Dates Vehicle hp Hours Used Activity (hp*Hrs)

250 900 225,000
291 1100 320,100 Jan 1, 2007

To Dec 31, 2007 173 725 125,425
Activity calculated and summed for all remaining ve hicles here. 

### l
Sum 100,000 1,000 100,000,000

Determining March 1, 2010 Fleet Activity

Dates Vehicle hp Hours Used Activity (hp*Hrs)

250 810 202,500
291 750 218,250 March 1, 2009

To Feb 28, 2010 173 810 140,130
Activity calculated and summed for all remaining ve hicles here. 

### l
Sum 100,000 900 90,000,000

The fleet’s final activity is subtracted from their initial activity, and then divided by the initial activity to determine a percent.

(100,000,000- 90,000,000) / 100,000,000 = 10%

Reduced Activity Credit

The fleet would receive credit for 10% of their Jul y 1, 2007 hp, or 10% x 100,000 hp = 10,000 hp credit to PM and NOx.

Calculating the BACT Requirements

Pursuant to AB 8 2X, the BACT requirements for 2011 , 2012, and 2013, must be changed, but not the 2010 BACT requirements. Fleet s that do not meet the fleet average targets in 2010 are required to meet NOx BA CT requirements for 8 percent of their total fleet hp and meet PM BACT requirements for 20 percent.

NOx PM March 1, 2009 Fleet Size 100,000 hp 100,000 hp 2010 BACT Requirement 8 % 20 % BACT hp Requirements 8,000 hp 20,000 hp

Applying New Credit to the Regulation Requirements

NOx (hp) PM (hp) 2010 BACT Requirements 8,000 20,00079

Credit Applied -10,000 -10,000 Requirements After Credit 0 10,000

Credit Rollover -2,000 (expires in 2011) 0

4. Result: The fleet receives enough credit so that it does not have to turn over any vehicles or engine in 2010 for NOx BACT requirement s, and receives 2,000 hp credit towards their 2011 compliance requirements for NOx BACT.

The fleet’s retrofit requirements for 2010 are cut from 20,000 hp to 10,000 hp by the reduced activity credit.

5. Comparison of credit under current regulation ve rsus proposed amendments

Prior to the proposed amendments, there was no cred it granted for reduced activity.

NOx (hp) PM (hp)

Total Credit Available Before

Changes 0 0

Total Credit Available After Legislatively Directed Changes 10,000 10,00080



## 2: Fleet that has replaced Tier 0s and shrunk

Fleet on March 1, 2006: 100,000 hp

1. Retirement / Turnover The fleet retired 15,000 hp of Tier 1, Tier 2, and Tier 3 vehicles in August, 2007. In July, 2009, the fleet retires another 10,000 hp of Tier 0 vehicles, and adds 1,000 hp back in the form

of Tier 2 vehicles.

2. Activity The fleet does not reduce activity overall, i.e. th e fleet increases activity in their remaining vehicle s so that total overall activity remains constant.

3. Credit Available

NOx Credit (hp) PM Credit (hp)

2009-2010 Tier 0 Replacements 1,000 n/a

Early Tier 0 Replacements (2006-2009) 0 n/a

Retirement Credit for Shrinking

Fleets 24,000 24,000

New Reduced Activity Credit (expires in 2011) 0 0

Total 25,000 hp 24,000 hp

Credit for 2009 to 2010 Replacements

The fleet retires 10,000 hp in Tier 0s and adds bac k 1,000 hp of Tier 2s. The fleet receives 1,000 hp credit to NOx only for Tier 0 replacements.

Credit under new provision for the retirement of an y vehicle which reduces total hp81

From March 1, 2006, to March 1, 2010, the fleet

• Retired 25,000 hp Tier 1s, 2s, and 3s

• Shrunk overall by 24,000 hp

o The fleet receives 24,000 hp, to NOx and PM

Calculating the BACT Requirements

Fleets that do not meet the fleet average targets a re required to meet NOx BACT requirements for 8 percent of their hp and meet PM BACT for 20 percent by March 1,

2010.

NOx PM March 1, 2009 Fleet Size 85,000 hp 85,000 hp 2010 BACT Requirement 8 % 20 % BACT hp Requirements 6,800 hp 17,000 hp

Applying New Credit to the Regulation Requirements

NOx (hp) PM (hp) 2010 BACT Requirements 6,800 17,000 Credit Applied -25,000 -24,000 Requirements After Credit 0 0

Credit Rollover -18,200 -7,000

4. Result: The fleet has no requirements in 2010 for NOx or PM.

The fleet receives 18,200 hp in NOx rollover credit , and 7,000 hp in PM rollover credit that can be applied to the BACT requirements in fut ure years.

5. Comparison of credit under current regulation ve rsus proposed amendments

Currently in the regulation, for a fleet to get cre dit for Tier 0 retirements prior to March 1, 2009, whether replaced or not, the retirements had to exceed 8 percent of the fleet’s hp each year on average, from 2006 to 2009 (i.e., grea ter than 24 percent total in that three-year period). There is no credit for early r etirement of higher tier vehicles. This fleet did not retire any Tier 0s from March 1, 2006 through March 1, 2009 and therefore would have received no early retirement credit.

0 hp early

credit Available prior to legislatively directed c hanges

Total Tier 0 Retirements from March 1, 2009 to Marc h 1, 2010: 10,000 hp Total Reduction in Fleet size from March 1, 2009, t o March 1, 2010: 9,000 hp

NOx (hp) PM (hp)82

Total Credit Available Before Changes 10,000 9,000

Total Credit Available After Legislatively Directed Changes 25,000 24,00083



## 3: Fleet that has retired Tier 0s and reduced activ ity

Fleet on March 1, 2006: 100,000 hp

1. Retirement /Turnover The fleet retires 5,000 hp of Tier 0 vehicles per year from 2006 to 2010.

The fleet also adds another 1,000 hp of Tier 1s in August, 2009.

2. Activity The fleet has reduced activity by 15 percent from July 1, 2007 to March 1, 2010, when comparing

 Total (hp * hours) of the 80,000 hp

which was not retired , from January 1, 2007, to December 31, 2007

Vs

 Total (hp * hours) of the entire fleet from March 1, 2009, to February 28, 2010.

3. Credit Available

NOx Credit (hp) PM Credit (hp)

2009-2010 Replacements 1,000 n/a

Early Replacements (2006-2009) 0 n/a

Retirement Credit for Shrinking Fleets 19,000 19,000

New Reduced Activity Credit (expires in 2011) 12,150 12,150

Total 32,150 hp 31,150 hp84

Credit for 2009 to 2010 Replacements

The fleet retires 5,000 hp in Tier 0s and adds back 1,000 hp of Tier 1s.

The fleet receives 1,000 hp credit towards NOx requirements for Tier 0 replacements

.

Credit for early replacement of Tier 0s

To get credit for early replacement of Tier 0s, the fleet would have had to replace Tier 0s at a rate exceeding 8% of their hp on average fr om March 1, 2006, to March 1, 2009

Year Total hp 8% of hp March 1, 2007 95,000 7.600 March 1, 2008 90,000 7,200 March 1, 2009 85,000 6,800 21,600

Therefore, to receive credit, the replacement of Ti er 0s must exceed: 21,600hp Actual Fleet Replacement from March 1, 2006 to Marc h 1, 2009: 15,000 hp

Credit: 0

Credit under new provision for the retirement of Ti er 0s

From March 1, 2006, to March 1, 2010, the fleet

• Retired 20,000 Tier 0s

• Shrunk overall by 19,000 hp

o The fleet receives 19,000 hp, to NOx and PM

Credit from Reduced Activity

Determining July 1, 2007 Fleet Activity

Dates Vehicle hp Hours Used Activity (hp*Hrs)

250 500 125,000
291 500 145,500 Jan 1, 2007

To Dec 31, 2007 173 500 86,500

Activity calculated and summed for all vehicles which were not

retired by March 1, 2010.

Sum 47,500,000

Determining March 1, 2010 Fleet Activity85

Dates Vehicle hp Hours Used Activity (hp*Hrs)

461 505 232,805
237 505 119,685 March 1, 2009

To Feb 28, 2010 245 505 123,725 Activity calculated and summed for all vehicles in the fleet at any

time from March 1, 2009 to February 28, 2010.

Sum 40,375,000

(47,500,000- 40,375,000) / 47,500,000 = 15%

The fleet would receive credit for 15% of their Mar ch 1, 2007 hp, or 95,000, minus the 14,000 hp that was retired for credit prior to Marc h 1, 2010 - or 81,000 hp.

15% * 81,000 = 12,150

12,150 hp credit to PM and NOx.

Calculating the BACT Requirements

Fleets that do not meet the fleet average targets a re required to meet NOx BACT requirements for 8 percent of their hp and meet PM BACT for 20 percent by March 1,

2010.

NOx PM March 1, 2009 Fleet Size 85,000 hp 85,000 hp 2010 BACT Requirement 8 % 20 % BACT hp Requirements 6,800 hp 17,000 hp

Applying New Credit to the Regulation Requirements

NOx (hp) PM (hp) 2010 BACT Requirements 6,800 17,000 Credit Applied -32,150 -31,150 Requirements After Credit 0 0

Credit Rollover -25,350 -14,150

Note that any remaining credit for reduced activity would expire if not used in 2011.

4. Result: The fleet receives 24,600 hp in NOx rollover cred it, and 13,400 hp in PM rollover credit that can be applied to the BACT req uirements in future years. The fleet receives enough credit so that it does not have to turn over any vehicles or engines in the early years of the regulation. In 2010, the fl eet will need to do minimal retrofits to meet the PM BACT requirements.

5. Comparison of credit under current regulation ve rsus proposed amendments86

To determine how much hp the fleet would have to re tire prior to receiving credit, fleets can perform the following calculation.

Year Total hp 8% of hp March 1, 2007 95,000 7.600 March 1, 2008 90,000 7,200 March 1, 2009 85,000 6,800 21,600

Therefore, to receive credit, the retirement of Tie r 0s must exceed: 21,600hp Actual Fleet Tier 0 retirement from March 1, 2006 t o March 1, 2009: 15,000 hp

0 hp early

credit available under current regulatory provisio ns

Total Tier 0 Retirements from March 1, 2009 to Marc h 1, 2010: 5,000 hp Total Reduction in Fleet size from March 1, 2009, t o March 1, 2010: 4,000 hp

NOx (hp) PM (hp) Total Credit Available Before Changes 5,000 4,000

Total Credit Available After Legislatively Directed Changes 32,150 hp 31,150 hp87

APPENDIX C: LIST OF ACRONYMS

ARB --- Air Resources Board

ATCM --- Air Toxic Control Measures

BACT --- Best Available Control Technology

CAA --- Federal Clean Air Act

CCR --- California Code of Regulations

DOORS --- Diesel Off-Road On-Line Reporting System

EIN --- Equipment Identification Number

HP --- Horsepower

HP-Hours ---Horsepower Hours

HEALTH & SAF. CODE --- California Health and Safety Code

NAAQS --- National Ambient Air Quality Standards

NO X --- Oxides of Nitrogen

OAL --- Office of Administrative Law

ORIAG --- Off-Road Implementation Advisory Group

PM --- Particulate Matter

PM2.5 --- Fine Particulate Matter

SIP --- State Implementation Plan

TAC --- Toxic Air Contaminants

TPD --- Tons Per Day

U.S. EPA --- United States Environmental Protection Agency

VDECS --- Verified Diesel Emission Control System