State of California

AIR RESOURCES BOARD

Final Statement of Reasons for Rulemaking, Including Summary of Comments and Agency Response

PUBLIC HEARING TO CONSIDER TH E AMENDMENTS TO THE CURRENT

SMALL OFF-ROAD ENGINES REGULATIONS.

Public Hearing Date: November 21, 2008 Agenda Item No.: 08-10-03

I. GENERAL

The Air Resources Board (ARB or Boar d) regulates the emissions from new small off-road engines (SORE) sold in Ca lifornia. Within the regulations, ARB provides emission compliance flexibility to the manufacturers of these engines by allowing the earning and expending of emission credits. However, staff

found some manufacturers were excess ively banking the credits before more stringent emission standards were impl emented, and then expending their accumulated credits over a long period of time afterwards to avoid or delay using more advanced emission controls on their engines. Accordingly, staff proposed modifications to t he regulations to remedy this situation.

The Staff Report: Initial Statement of Reasons for Proposed Rulemaking, Public Hearing to Consider Amendments to the Current Regu lations for Small Off-Road Engines ("Staff Report"), released on October 3, 2008, is incorporated by reference herein. Th is Final Statement of Reasons (FSOR) updates the Staff Report, summarizes the public comments received, and presents the Board’s responses to those comments.

On November 21, 2008, the Board conduc ted a public hearing to consider staff’s proposed amendment s to the regulations and test procedures. After

consideration of the written comm ents received during the 45-day public comment period prior to the hearing, and the testimony received at the public hearing, the Board adopted Resolution 08- 41 to amend the regulations. The amendments affect the regul ations in title 13, Calif ornia Code of Regulations (CCR), sections 2403, 2405, 2406, 2408, and 2409, which incorporate by reference the, “California Exhaust Emission Standards and Test Procedures for 2005 and Later Small Off-Road Engines.” These documents were posted on ARB’s website for the rulemaking at: http://www.arb.ca.gov/r egact/2008/sore2008/sore2008.htm

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After the regulatory action is finalized, the amended test procedures will be available on ARB’s website, as well as in printed form upon request from Small Off-Road Engine program staff.In developing the regulatory proposal, ARB staff evalua ted the potential economic impacts on repres entative private persons or businesses. The Executive Officer is not aware of any costs that repr esentative private persons or businesses would necessar ily incur in reasonable compliance with the proposed action. Althoug h not quantifiable, any costs that manufacturers may incur would have been incurred by the manufacturers if they had complied with the emission standards at the time of t he emission standard change.

Pursuant to Government Code secti ons 11346.5(a)(5) and 11346.5(a)(6), the

Executive Officer has determined that this regulatory action will not create costs or savings, as defined in Govern ment Code section 11346.5(a)(6), to any state agency or in federal funding to the state, costs or mandate to any local agency or school district the co sts of which are reimbursable by the state pursuant to Part 7 (commencing with section 17500), Division 4, Title 2

of the Government Code.

The Executive Officer has determined that this regulatory action will not have a significant statewide adverse economic impact directly affecting businesses, including the ability of California businesses to compete with businesses in other states, or on represent ative private persons.

In accordance with Government Code se ction 11346.3, the Executive Officer

has determined that this amendment will not affect the creati on or elimination of jobs within the State of California, the creation of new businesses and the elimination of existing bus inesses within the State of California, and the expansion of businesses currently doing business withi n the State of

California.

The Executive Officer has also determined, pursuant to title 1, CCR, section 4, that this regulatory ac tion will not affect small bus inesses. The regulatory action only affects manufacturers of small off-road engines with emission credit balances. None of these engine manufacturers are considered to be

small businesses. Manufacturers of small off-road equipment, who may be considered to be small businesses, w ould not be affected by this regulatory action change because they can use engi nes from engine manufacturers that

either have or don’t have emission credit balances.

At the hearing the staff pres ented and the Board adopted the amended regulations as proposed in the Staff Repor t. No substantive modifications to the proposed amendments were directed by the Board. Pursuant to Board Resolution 08-41, the Board has determined that no alternative considered by the agency would be more effective in carrying out the purpose for which the regulatory action was proposed or would be as effective as and less burdensome to affected private persons than the action taken by the Board.

2II. SUMMARY OF COMMENTS AND AGENCY RESPONSE

Provided below is a list of commenters that provided written and/or oral testimony.

Organization and Person Providing Comments Written Testimony Oral Testimony Barry Wallerstein, South Coast Air Quality Management District (SCAQMD) 11/14/08 (SCAQMD1) _

Henry Hogo, SCAQMD

_ 11/21/08 (SCAQMD2) James McNew, Outdoor Power Equipment Institute (OPEI) 11/18/08 11/21/08

Roger Gault, Engine Manufacturers Association (EMA) 11/21/08 11/21/08 Neil Maguire, Lion Cells - 11/21/08 Joe Kubsh, Manufacturers of Emission Controls Association (MECA) 11/20/08 (MECA1) _

Rasto Brezny, MECA

_ 11/21/08 (MECA2)

Set forth below is a summary of each objection or recommendation made regarding the specific adoption, amendment, or repeal proposed, together wit h an explanation of how the proposed action has been changed to accommodate each objection or recommendation, or the reasons for ma king no change. The responses below pertain only to the comments related to objections or recommendations directed at the agency’s proposed action or to the procedures followed by the agency in proposing or adopting the action. R epetitive comments hav e been aggregated and

summarized while irrelevant comments hav e been dismissed. For the purposes of this paragraph, a comment is “irrelevant” if it is not specifical ly directed at the agency’s proposed action or to the procedur es followed by the agency in proposing or adopting the action.

A. General

1. Comment : The catalyst technologies av ailable today benefit the entire range of small spark-ignit ed engines to achieve t he current standards without emission credits. The technology is bas ed on years of ex perience with sparkignited engines. And in fact for small engines, these catal ysts fit right inside the exhaust muffler. We support t he proposed changes, and we thank the staff for their work in bringing forth this proposal. (MECA 2)

Agency Response : The Board agrees that the technology to meet emission standards is readily available without any major design changes to manufacturers’ existing designs. The changes to the emission credit program

as laid out in the amendments should not affect industry’s ability to comply

with the current emission standards. In fact, many manufacturers already build engines which contain catalysts.

3B. Production Emission Credits

2. Comment : AQMD staff supports CARB staff’s proposal to eliminate production credits, as we strongly believe that the production credits are not necessary. The credits were never us ed as designed to offset compliance problems and, in addition, their use has resulted in higher emissions by allowing manufacturers to delay compli ance with the current standards, while cost-effective technology is availabl e to meet the standards. (SCAQMD1, SCAQMD2)

Comment : We support the proposed changes to the current tier 3 regulation that will further enhance alignment with t he recently released U.S. EPA Phase 3 standards. We support the 2009 s unset date for production emission credits and requiring the conversion of any banked production credits by

2010. The fact that there has been no in stance to date where a manufacturer has required the use of production cr edits to comply with the emission

standards attests to the robustness of existing manufacturing processes for small engines. (MECA1)

Comment : OPEI recommends that ARB fully align their Averaging, Banking, and Trading (AB&T) credit program with EPA by eliminating their Production Line Testing (PLT) cred it program. (OPEI)

Agency Response : The Board agrees that eliminating the production emission credit program will better align ARB’s small off-road engine emissions program with U.S. EPA’s non-road small spark-ignition engine program. In addition, setting a limit ed life of one year on the existing production emission credits is a balanc ed approach for e liminating these credits while providing time for either their use or conversion to certification

credits.

C. Certification Credit Life

3. Comment : AQMD staff believes it is essent ial that the life of certification credits be limited to five years (the us eful life of SORE equipment) to ensure that the necessary reduction needed to meet the 2015 PM2.5 and 2024 8-

hour ozone attainment deadlines are rea lized. AQMD staff strongly supports

CARB staff’s recommendation to limit the certification credits to a five-year lifetime. (SCAQMD1)

Comment : MECA also supports the propos ed 5 year limit on the use of

certification emission credits as this is consistent with the new full useful life timelines for equipment under this regulati on. Limiting credit life will motivate manufacturers to apply well-established exhaust control technology to small off-road engines to ultimately ex ceed the current emission standards and achieve further reductions in HC+NOx. (MECA1)

4Comment : OPEI recommends that ARB fully align their AB&T credit program with EPA by imposing a 5 year credi t life on manufacturer AB&T credits generated prior to the current standard levels. (OPEI)

Agency Response : The Board agrees that the 5- year credit life limit provides industry with compliance flexibility options without sacrificing projected gains in air quality. The credit life limit wil l also prevent excessive emission credit

balances in the future.

It should be noted that the OPEI comment refers to the emission credits

earned under the tier 2 emission standards . Although OPEI would like to

have unlimited lifetime fo r credits generated under t he tier 3 standards (See comment 4 below.), they are in favor of limiting the life of emission credits earned under the previ ous emission standards.

4. Comment : OPEI recommends allowing unlim ited life of credits generated by engines that emit at lower levels than required by t he current standard levels. (OPEI)

Comment : By putting a credit life on produc ts that overachieve, you’re creating a disincentive that is unintended. (EMA)

Agency Response : Staff found that while the ce rtification emission credit did provide flexibility, it had mixed resu lts with regard to driving the use of advanced technology. At the time t hat the existing credit program was implemented, staff expected that manuf acturers would continue their normal production practices until their emission credit balances were exhausted. However, manufacturers instead c hanged their production practices to produce engines that “overachieved” in t he short term in order to earn credits. Thus, as an alternative to using catalyst s, which are a techni cally feasible and cost-effective means to comply with the tier 3 standards (as mentioned in Comment 1 above), manufacturers have used their banked credits. Since

these credits had an unlimited lifetime , manufacturers were allowed to continue certifying “dirtier” engines.

In addition, certification credit lifetime is limited to five years because the limit

coincides with the useful lifetime of SORE equipmen t. Staff believes that limiting the credit life to five y ears does not intr oduce an unintended disincentive, but instead strikes a reasonable balance between not allowing credits at all and keeping credits from accumulating indefinitely.

D. Zero Emission Equipment – Regulations

5. Comment : In regard to the zero emissi on product proposal, this was really not invented very well in the workshop proc ess. I think it has a long way to go before it’s really ready to be adopted as a rule making. (EMA)

5Comment : The Board should direct staff to add more specificity in the final regulations that address the following potential ambiguities and loopholes. First, section 2408(f)(7)(A) does not specif y the information that is required to verify the power of zero emission produc ts compared to that of gas units. Second, ARB needs to define what it meant in (A)(1) – by battery-powered product “performing at a level equivalent to that of professional equipment (i.e., power, cutting width, et c).” Third, ARB needs to clarify what is meant by the Section (A)(3) – in terms of the ba ttery (without recharging) allowing the equipment to perform at a continuous “p rofessional performance level for at least 4 hours.” (OPEI)

Comment : You need a fully vetted zero em ission product standard including a test procedure to figure out what the equivalence is in order to properly assign the emission benefits that you’re going to give credits for. (EMA)

Comment : The Board should direct ARB st aff to either come back to the Board with a more refined proposal, or work through a “15 day” regulatory comment process with the affected stakeholders, including OPEI, to develop the needed technical amendments and procedures. Credits should only be generated for electric products that achieve a comparable level of operation/performance as professi onal gas equipment. ARB should ultimately define, and require (as one mi nimum criteria) the quantification of the equivalent, required “energy content” of batteries – that would be used to achieve “professional performance levels ” for different products to benchmark the required performance. These standards should require the equivalent, sustained power (produced throughout the engine-powered products) be

demonstrated as a condition of certification. (OPEI)

Agency Response : Based on these comments, staff realized that some further development work was necessary on the Zero Emission Equipment (ZEE) regulations. Staff had expected t hat the necessary modifications could be adopted under a 15-day comment Notice. However, this course of action was not possible once the Board officia lly closed the Hearing Record on the day of the Hearing. T herefore, any additional m odifications to the ZEE regulations, such as those expressed in the comments, will be proposed for adoption at a future Hearing. In this effort, staff will work to develop comprehensive modifications in collaboration with engine and equipment manufacturers, and other stakeholders. In the interim, staff does not expect that manufacturers will submit any ce rtification applicat ions requesting ZEE credits until these modifications have been adopted.

E. Zero Emission Equipment – Emission Credits

6. Comment : Relative to the proposed ZEE credit, AQMD staff strongly supports the overall concept of in centivizing, through emission credit generation, the use of pr ofessional and commercial level ZEE to encourage earlier adoption of future technologies and to further reduce emissions from the SORE category. The commercial and professional sector is responsible

6for the majority of the SORE emissions and early introduction of ZEE would yield substantial emission reductions. (SCAQMD1, SCAQMD2)

Comment : In recognition that this cr iterion may pose challenges in accelerating the introduction of future ZEE technologies into the market, we

recommend that some intermediate form of credit generation be allowed for an interim period of time for equipment that may not entirely meet the proposed performance standards (similar to the partial zero-emission vehicle category in the CARB LEV program). Th is would allow manufacturers to gain critical real-world experience and ens ure successful introduction of ZEE technology with its associat ed emission reductions. We would stress that this partial zero-emission crediting be allowed for a brief period of time to allow the ZEE technologies to matu re. (SCAQMD1, SCAQMD2)

Agency Response : Staff will include a review of the potential benefits and feasibility of both a general, and a par tial, ZEE emission credit incentive approach as part of the regulatory dev elopment work to modify the ZEE provisions (see Response to Comment No. 5.).

F. Zero Emission Equipment – Battery-Based Credits

7. Comment : AQMD staff recommends that CARB include an additional requirement to the proposed ZEE per formance standard (that they must perform at the same level as commercial gasoline-powered equipment before receiving credits). (SCAQMD1, SCAQMD2)

Comment : OPEI is concerned that new, high-risk manufacturers could bank battery-based credits and then use them to import low-cos t, higher-emitting gas product using these credits. (OPEI)

Comment : Battery-based credits should be limited to prior “carry-over” engine families. This would assure the gas-powered products were CARB certified prior to credit use and the user of credits has legitimately entered the market. CARB would have greater compliance assurances and greater enforcement authority ov er these established manufacturers. (OPEI)

Agency Response : Staff will take these suggestions into consideration when developing the ZEE credit provisi ons of the future proposal.

G. Zero Emission Equipment – Battery Characteristics

8. Comment : The one requirement I do th ink we should update is the requirement that it runs fo r the duration of a gas can. When we go to our lab, it takes about two seconds to replace, pull one battery out and replace

another one. It would be cost prohibitive to require that the battery need to be so big it needs to run for four hours durat ion or the day. In terms of recharge, these batteries recharge in about 30 mi nutes to about 85 percent of their capacity. So the typical process is you have two batteries, one recharging and one ready to go. (Lion Cells)

7Comment : The language concerning credits for zero-emission products in section 2408(f)(7) should specifically address the following issues: 1) Horsepower ratings of electric and gas motors run on opposite curves. 2) ARB should clarify if a “backpack battery” source is included in paragraph (2). 3) In paragraph (3), ARB indicated the product must perform for 4 hours on each refueling or recharge. We gener ally agree the product should operate for a substantial period (producing the same performance level during all this time) before battery replacement or recharge is required. (OPEI)

Agency Response : As explained in the Response to Comment No. 5, the ZEE regulations require some additional dev elopment work. Accordingly, it is not possible to respond to the technical specifics of these comments at this time. However, staff will review and c onsider the merits of this information during the development of these ZEE regulatory modifications.

H. Provision for Executive Office r Discretion for Technical Changes

9. Comment : It is our understanding that if the Board adopts this provision, the following process woul d still apply. ARB staff would informally provide

advance notice to OPEI and other stakeholders and would work with these stakeholders to help draft MAC’s (M anufacturers Advisory Correspondence) or similar technical amendments or guidance. As long as this process is implemented in this matter so that t here is an informal stakeholder input process, OPEI generally suppor ts this amendment. (OPEI)

Agency Response : The Executive Officer-initiated change would proceed as

described in the comment. The intent is that advanced notice would be provided to all manufacturers and stak eholders in order to allow a full and complete discussion about the possible change. Also, it should be

remembered that the main consideration in any possible decision to make a change to the test procedures, for whatev er reason, is that the change can not compromise the stringency of the California emission standards.

I. U.S. EPA Alignment

10. Comment : Here are several examples of needed amendments that ARB should adopt to harmonize with the new EPA Phase 3 regulations: 1) EPA’s new engine test procedure (Part 1065) needs to be an option for certification ASAP (by 2013 at the latest when EPA mandates it for new families). 2) New 40 CFR §1054.670. ARB should add this language as an option to their current test procedure. 3) ARB should add language for the time to stabilize and the measurement period (for emissions) t hat is indicated in new section 1054.505(a)(1). EPA requires a 5-minute warm up at each mode (minimum) and a 1-minute measurement period.

84) EPA describes (in detail) the measurement speed of rated WOT (wide open throttle) and Idle. ARB should accept these test points as an alternate to the current specified te st speeds in the AR B regulation. 5) Pursuant to (and with the sa me effective dates as) new 40 CFR §1054.135(c), ARB should revise its label language in section 2759(c)(4)(A) and 2404(C)(4)(A) to read “EMISSION CONTROL INFORMATION” (instead

of the current “IMPORTANT EMISS ION INFORMATION”) in order to harmonize with EPA. ARB should avoid pulling ahead any labeling changes before it is required by EPA – typica lly in the 2011 and 2012 Model Year. (OPEI)

Agency Response : Some of these examples of “needed amendments” can probably be changed using the adopted pr ovision for Executive Officer discretion. However, a determination of that applicabilit y would require a more complete discussion with all manufacturers and stakeholders (see Response to Comment No. 9.). Guidanc e for such minor changes could also

be distributed via MAC’s or other documents.

The Board agrees with OPEI that allowing for Execut ive Officer discretion in making minor changes to the amendments would be a more efficient way of handling such issues. This is some thing that both st aff and stakeholders

desire. Staff was not able to inclu de the changes suggested because these comments were not presented during the workshop process, but were submitted just prior to the Board H earing. With an allowance for the Executive Officer discretion, this ma tter could be handled without the need to go through the full Board Hearing process.

11. Comment : ARB could further limit credit exchanges between groundsupported and handheld classes similar to the restrictions EPA has adopted in its final Phase 3 regulations. (OPEI)

Agency Response : The Board chose not to include this restriction in the credit program at this time because st aff has found that m anufacturers do not exchange emission credits between handheld and non-handheld equipment.

J. Ethanol Fuels

12. Comment : OPEI supports the addition of the EPA Phase 3 approach allowing exhaust certification with f uels up to 10 percent ethanol. We

understand ARB staff’s intent is to link the selected certification fuel with any confirmatory testing. OPEI requests ARB to add language that clarifies that any confirmation or auditing tests that ARB conducts or requires be conducted will use the same, select ed certification fuel. (OPEI)

910 Agency Response : The Board appreciates OPEI’s support of this portion of

the amendments. The Boar d approved an allowance for the optional use of this fuel for certification testing. However, staff was not able to include a

similar fuel allowance for confirmato ry testing because the suggestion was received after the notice period had ended. This is another example of a minor technical change that ARB could possibly make to the test procedures, without returning to the Board, by using the Executive Officer discretion provision, as described in the Response to Comment Number 9.

K. Emission Control Warranty Statement

13. Comment : ARB staff has appropriately proposed to harmonize with the new EPA Phase 3 warranty provisions t hat require a live, English-speaking contact to promptly respond to warranty- service questions. However, the new ARB requirements need to specify when these new warranty-service obligations start to apply. OPEI suggests the 2010 Model Year. (OPEI)

Agency Response : Since the 2009 Model-Year production has already begun, applying this requirement retroacti vely may not be appropriate or fair to manufacturers. Accordingly, staff agr ees that this requirement would best be enforced beginning with the 2010 Model-Year production.

L. Revisit Emission Standards

14. Comment : MECA asks ARB to consider reviewing their tier 3 SORE

exhaust emission standards in the near future and determine if further

exhaust emission reductions ca n be gained by combining recent improvements in small engine designs with the application of catalyst technology on all SORE engine classe s. A further tightening of SORE emission standards could provide ARB with much needed, additional reductions in hydrocarbon and NOx emissions that are critical for California to comply with EPA’s recently revised ambient ozone standards. (MECA1)

Agency Response : ARB staff will continue to review technical improvements

that could be made to small off-r oad engines and will propos e new emission standards when they become feasible and appropriate.