PROPOSED WITH 15-DAY MODIFICATIONS

State of California

AIR RESOURCES BOARD

Resolution 10-47

December 17, 2010

Agenda Item No.: 10-11-3

WHEREAS, the Air Resources Board (ARB or Board) ado pted the Regulation for In-Use Off-Road Diesel-Fueled Fleets (Off-Road regulation) , California Code of Regulations (Cal. Code Regs.), title 13, sections 2449 through 2449.3, and amendments thereto pursuant to the authority set forth in Resolutions 07-19, 08-43, 09-3, and 09-50, all of which are respectively incorporated by reference he rein;

WHEREAS, in-use off-road diesel vehicles operating in the state, as a class, continue to be a significant source of air pollution emissions in California that contribute to continuing violations of the national ambient air q uality standards (NAAQS) for both particulate matter (PM) less than 2.5 microns (PM2. 5) and ozone, and to continuing localized health risk, including premature death, a ssociated with exposure to PM2.5;

WHEREAS, California and the nation continue to be i n the midst of a serious economic recession that was not anticipated when the Board i nitially approved the regulation on July 26, 2007;

WHEREAS, the recession has had a significant impact on companies that operate

in-use off-road diesel vehicles in the normal cours e of business and has reduced overall off-road diesel vehicle and engine activity, with c oncomitant reductions in PM2.5 and oxides of nitrogen (NOx) emissions, in the state;

WHEREAS, ARB staff has undertaken a thorough review and update of its emissions inventory for in-use off-road diesel vehicles and e ngines and determined that emissions from off-road vehicles and engines are substantiall y lower than previously estimated in July 2007;

WHEREAS, ARB staff presented the results of the upd ated emissions inventory to the Board at the November 2010 Board hearing, and the B oard took public comment on the staff presentation and findings;

WHEREAS, the recession has also impacted the activi ty of on-road heavy-duty vehicles covered by the Regulation to Reduce Emissions of Di esel Particulate Matter, Oxides of Nitrogen and Other Criteria Pollutants, from In-Use Heavy-Duty Diesel-Fueled Vehicles, title 13, Cal. Code Regs., section 2025 (Truck and Bus regulation) and that ARB staffResolution 10-47 2

has estimated that emissions from vehicles covered by the Truck and Bus regulation are also lower than initially estimated when that r egulation was adopted in 2008;

WHEREAS, the Board directed staff to develop concur rent amendments to the Off-Road regulation and the Truck and Bus regulatio n that would provide economic

relief to both off-road and on-road diesel fleets w hile continuing to meet the Board’s air quality goals and obligations;

WHEREAS, on April 23, 2009, the Air Resources Board adopted revisions to California’s State Implementation Plan (SIP) reflec ting implementation of the 2007 State Strategy (State Strategy);

WHEREAS, the State Strategy identifies NOx and PM2. 5 emission reduction targets that were expected from each control measure identi fied in the State Strategy at the time the State Strategy was adopted;

WHEREAS, the commitment in the State Strategy is to achieve aggregate emission

reductions from all control measures in the State S trategy; there is no commitment to achieve the emission reduction target for each indi vidual control measure;

WHEREAS, if a particular control measure does not a chieve its expected emission reduction target, the State Strategy specifies that the emission reductions can be achieved through additional reductions from other i dentified measures, or from alternative control measures or incentive programs, as long as the aggregate emission reductions are achieved;

WHEREAS, actual emissions from sources impacted by economic conditions will continue to change over time, and may increase as t he economy recovers;

WHEREAS, it is ARB’s responsibility to track progre ss towards achieving the State’s aggregate emission reduction commitment in the Stat e Strategy, and if there is a shortfall in emissions reductions as the economy re covers, the State remains responsible for achieving the aggregate emission re ductions commitment identified in the State Strategy;

WHEREAS, between January 2010 and October 2010, ARB staff met and worked with affected private and public fleets that operate in- use off-road diesel vehicles and the public, in general, and held 20 public workshops st atewide to discuss potential changes to the Off-Road regulation and updates to the emiss ions inventories;

WHEREAS, with the information and comments received at the aforementioned meetings, ARB staff prepared a report, entitled “St aff Report: Initial Statement of Reasons for Proposed Rulemaking: Proposed Amendment s to the Regulation for

In-Use Off-Road Diesel-Fueled Fleets and the Off-Ro ad Large Spark-Ignition Fleet Requirements,” released October 28, 2010 (ISOR);Resolution 10-47 3

WHEREAS the ISOR along with the report, “Staff Repo rt: Initial Statement of Reasons for Proposed Rulemaking – Proposed Regulation for I n-Use Off-road Diesel Vehicles” (Staff Report 2007) and an associated technical sup port document, “Technical Support Document – Proposed Regulation for In-Use Off-road Diesel Vehicles,” and the report,

“Risk Reduction Plan to Reduce Particulate Matter E missions from Diesel-Fueled Engines and Vehicles,” adopted by the Board on Sept ember 28, 2000, constitute the reports required under Health and Safety Code secti on 39665;

WHEREAS, Staff Report 2007 further discussed the re sults of ARB staff’s evaluations of the non-cancer health effects of exposure to pri mary and secondary PM emissions from the vehicles subject to the initially proposed Off-Road regulation, and these evaluations indicated that exposure to these emissi ons can be associated with premature deaths and other non-cancer health impact s;

WHEREAS, the United State Environmental Protection Agency (U.S. EPA) in a recently published review of the PM-related health science l iterature, which is the first part of an ongoing review of the national ambient air quality standards for PM, concluded that long-term exposure to PM2.5 is causally associated with premature mortality, and that premature deaths caused by PM2.5 occur at levels as low as 5.8 micrograms per cubic meter, which is considerably lower than the current national standard of 15 micrograms per cubic meter;

WHEREAS, the U.S. EPA risk assessment methodology i s the basis for ARB’s estimate that 9,200 (7,300 to 11,000, 95 percent confidence interval) premature deaths occur annually in California and that reducing emissions to meet the Federal standard would result in 2,700 fewer premature deaths annually;

WHEREAS, the ISOR identified and explained the need to amend the Off-Road regulation for the following reasons:

The global recession has caused a loss in employmen t and revenue in the

construction sector and other industries that are a ffected by the Off-Road regulation; this has resulted in a reduction in bus iness activity and has strained the financial ability of industry to comply with th e regulation;

Based on the new data available, staff now believes that past and future emissions from off-road diesel vehicles are signifi cantly lower than previously estimated; staff has determined that it is feasible to provide economic relief to fleets, while still achieving the emission reductio ns necessary to attain the NAAQS;

When the Board approved the Off-Road regulation in July 2007, staff believed off-road exhaust retrofit devices would be a widely available and a cost-effective solution for compliance for nearly all fleets; as i mplementation of the Off-Road regulation began, it became clear that for some fle ets and applications, the installation of retrofit devices presented a signif icant challenge and acceleratedResolution 10-47 4

turnover to newer vehicles was a more appropriate c ompliance option; although exhaust retrofit devices remain a viable option for many fleets, staff believes it is necessary to restructure the Off-Road regulation to remove a mandatory retrofit requirement and instead allow fleets to choose betw een turnover and retrofitting of their vehicles as a compliance strategy; and

Several areas of the Off-Road regulation need to be modified to make the regulation clearer, easier to implement, or correct inconsistencies discovered during the beginning stages of regulatory implement ation.

WHEREAS, the ISOR discussed, to the extent data cou ld reasonably be made available, the factors specified in Health and Safe ty Code sections 39665(b), 43013, and 43018, including, but not limited to estimates of emissions, exposure, potential

cancer risk and non-cancer health effects associate d with the operation of in-use off-road diesel vehicles subject to the proposed am endments, technically feasible control options for compliance, potential environme ntal impacts, cost of compliance for all owners and/or operators of in-use off-road dies el vehicles, and cost impacts for ARB implementation of the proposed amendments;

WHEREAS, for the reasons set forth above, staff has proposed the following amendments to sections 2449 through 2449.3, as set forth in Attachment A, to address

the issues identified above:

Delay the first compliance date for all fleets by a pproximately four years (i.e. compliance for large fleets would be delayed from M arch 1, 2010 to January 1, 2014);

Place annual requirements on fleets over the follow ing timeline:

Large fleets: 2014 to 2023;

Medium fleets: 2017 to 2023 ; Small fleets: 2019 to 2028;

In each compliance year, fleets (of all sizes) woul d be required to meet a single fleet average target, as opposed to separate NOx an d PM targets, or complete a single set of Best Available Control Technology (BA CT) requirements;

Reduce annual BACT requirements from 8 to 10 percen t turnover, and 20 percent retrofitting, to a single requirement re quiring the turnover or retrofitting of 8 to 10 percent of the fleet’s horsepower (4.8 p ercent for large fleets in 2014);

Extend double credit period for fleets choosing to retrofit their vehicles;

Define vehicles used 200 hours or less annually (pr eviously 100 hours or less) as low-use, which would largely exempt such vehicles f rom the Off-Road regulation’s requirements;Resolution 10-47 5

Provide credit for reduced fleet horsepower from 20 10 to 2011;

Provide a simplified compliance option for fleets h aving a total fleet horsepower under 500 horsepower, which would allow the fleets to phase-out the use of Tier 0 and Tier 1 vehicles between 2019 and 2029;

Increase turn-over requirements of the Off-Road reg ulation in 2022 and 2023 so that fleets are required to turn over to additional Tier 4i and/or Tier 4 vehicles;

and

Make other minor amendments to clarify or streamlin e the Off-Road regulation.

WHEREAS, Attachment B hereto contains staff’s sugge sted modifications to the initially proposed amendments set forth in Attachment A, base d on staff’s further evaluation on

the need for additional amendments and on comments received since release of the ISOR;

WHEREAS, the Board has considered the impact of the Off-Road regulation on the economy of the State, and the potential adverse eco nomic impacts on California business enterprises and individuals;

WHEREAS, the Board has considered the community imp acts of the proposed regulation including environmental justice concerns ;

WHEREAS, the California Environmental Quality Act ( CEQA), section 21080.5 of the Public Resources Code and Board regulations at titl e 17, Cal. Code Regs., section 60006 require that no project that may have significant adverse environmental impacts be adopted as originally proposed if feasib le alternatives or mitigation

measures are available to reduce or eliminate such impacts;

WHEREAS, a public hearing and other administrative proceedings have been held in accordance with the provisions of chapter 3.5 (comm encing with section 11340), part 1, division 3, title 2 of the Government Code;

WHEREAS, the Board further finds based on its indep endent judgment and analysis of

the entire record before it that:

In-use off-road diesel vehicles and engines that op erate in the State – whether based in California or not – continue to be signifi cant contributors of diesel PM and NOx emissions, which California must reduce to attain the ozone and PM2.5

NAAQS and to reduce the health risks associated wit h such pollutants;

The proposed amendments are necessary to provide ec onomic relief to affected fleets while assuring that California continues to meet its air quality obligations and health based goals;Resolution 10-47 6

Even with the amendments and economic relief propos ed, the proposed amended regulation would significantly reduce diese l PM and NOx emissions and associated cancer, premature mortality, and oth er adverse health effects statewide, such that emission reductions from the p roposed amended regulation are expected to prevent 470 premature deaths from 2 014 to 2029;

In accordance with Health and Safety Code section 4 3013(a) and (b), the amended in-use emission standards and requirements are necessary, cost-effective, and technologically feasible for in -use on-road diesel fleets within the time provided for compliance;

The proposed amendments would provide substantial e conomic relief for affected fleets, while the benefits of the regulati on to public health and the environment justify the costs of compliance and enf orcement;

The proposed amended regulation would reduce the es timated costs in the first five years of the regulation by about 97 percent, f rom over $1 billion to approximately $33 million and the costs over the li fe of the regulation would be reduced by 72 percent, which represents a savings o f over $1.5 billion;

The overall cost effectiveness associated with prop osed amended regulation with the updated inventory would be $76 per pound of die sel PM reduced and $4.31 per pound of NOx reduced;

The reporting requirements of the proposed amended regulation which apply to businesses are necessary for the health, safety, an d welfare of the people of the

state.

WHEREAS, pursuant to the requirements of the Califo rnia Environmental Quality Act (CEQA) and the Board’s regulations under its certif ied regulatory program, the Board

further finds that:

ARB staff has prepared an environmental analysis fo r the proposed amendments, which is contained in Chapter VI of the Initial Statement of Reasons (ISOR);

Staff’s environmental analysis determined that the proposed amendments would substantially reduce both PM and NOx emissions, as compared to the environmental conditions that currently exist because the in-use emission requirements in the OffRoad regulation have not yet become effective and h ave therefore not yet resulted in actual emission reductions;

Staff’s environmental analysis determined that the proposed amendments would substantially reduce both PM and NOx emissions, as compared to the environmental conditions that currently exist; this is because th e future-effective standards in ARB’s current Off-Road regulation have not yet become eff ective and have therefore not yet resulted in actual emission reductions;Resolution 10-47 7

However, staff’s environmental analysis also determ ined that the emission benefits from the proposed amendments would, in the short term, b e less than what would have occurred under the current regulation with no amend ments; these foregone emission benefits are quantified in the ISOR;

While the proposed amendments would not result in a ny adverse environmental impacts compared to the environmental conditions th at currently exist, the foregone emission reductions in future years could be viewed as a significant adverse environmental impact;

These potential adverse environmental impacts have been significantly lessened because of the recession and its impact on fleet ac tivity, which has resulted in emissions being lower today than originally anticip ated when the current regulation was adopted in 2007; emissions in future years will als o be lower than originally anticipated, as demonstrated by the updated emissions inventory;

The ISOR describes the benefits of the proposed ame ndments, which are designed to address the serious economic recession and its impa ct on industry and residents of the State; and

The Executive Officer is the decision maker for the purposes of title 17, California Code of Regulations, section 60007, and no final decisio n will be made until comments on the environmental analysis are fully considered and add ressed by the decision maker.

WHEREAS, the Board further finds that no alternativ es considered or that have otherwise been identified and brought to the attent ion of the ARB would be more effective carrying out the purpose for which the am endments to the regulation is proposed, or would be as effective and less burdens ome to the affected private businesses and public agencies than the proposed am ended regulation;

WHEREAS, California is not preempted under section 209(e)(1) of the federal Clean Air Act (CAA) from adopting emission standards and othe r requirements related to the

control of emissions from in-use off-road diesel en gines covered by the regulation;

WHEREAS, section 209(e)(2) of the CAA requires that California request authorization from U.S. EPA prior to enforcing emission standards or other requirements relating to

the control of emissions from new and in-use nonroa d engines (of which off-road diesel engines are a subpart) not otherwise preempted by s ection 209(e)(1); and

WHEREAS, on August 12, 2008, and February 11, 2010, ARB submitted to the U.S. EPA requests for authorization pursuant to CAA sect ion 209(e)(2) for the regulation that are currently pending before the U.S. EPA.

NOW, THEREFORE, BE IT RESOLVED that the Board direc ts the Executive Officer to take the following actions:Resolution 10-47 8

Make the modified regulatory language as set forth in Attachment B and as directed below, with such other conforming modifica tions as may be appropriate, available for public comment for a period of 15 day s, provided that the Executive Officer shall consider such written comments as may be submitted during this period, shall make such modifications as may be app ropriate in light of the comments received, and shall present the regulation to the Board for further

consideration if he determines that this is warrant ed;

Evaluate all comments received during the public co mment periods, including comments raising significant environmental issues, and prepare and approve written responses as required by Government Code se ction 11346.9, Public Resource Code section 21080.5(d)(2)(D), and title 1 7, California Code of Regulations section 60007;

Determine whether there are feasible alternatives o r mitigation measures that could be implemented to reduce or eliminate any potential ad verse environmental impacts, while at the same addressing the serious economic recessi on and its impact on industry and residents of the State;

Make findings as required by Public Resources Code section 21081 if the proposed amendments would result in one or more significant adverse environmental effects;

Take final action to adopt the proposed amendments set forth in Attachment A, with the

modifications set forth in Attachment B and as dire cted below, as well as any additional conforming modifications that may be appropriate, a nd any modifications that are necessary to ensure that all feasible mitigation me asures or feasible alternatives that would substantially reduce any significant adverse environmental impacts have been incorporated into the final action, or return the p roposed amendments and findings to the Board for further consideration before taking final action, if he determines that this is

warranted.

BE IT FURTHER RESOLVED that the Board directs the E xecutive Officer to develop and incorporate into the Off-Road regulation and Tr uck and Bus regulation a compliance option that would allow on-road and off- road vehicles that have been retrofitted consistent with the requirements of the two regulations to count towards the compliance requirements of either regulation for a specified period of time, so long as the actions taken under this option do not result i n the loss of emission benefits in any given year, subject to the following conditions:

If the vehicle that is retrofitted is subject to th e Off-Road regulation and is not needed to demonstrate compliance with the BACT or f leet average requirements, the retrofitted vehicle may be used to comply with the Truck and Bus Regulation until such time that it is needed for compliance wi th the Off-Road regulation.Resolution 10-47 9

Similarly, if the vehicle is retrofitted and is not needed to demonstrate compliance with the Truck and Bus regulation, the retrofitted vehicle may be used to comply with the Off-Road regulation until such time that i t is needed for compliance with the Truck and Bus Road regulation.

BE IT FURTHER RESOLVED that the Board directs the E xecutive Officer to return to the Board as soon as practicable with a separate ru lemaking that will amend other ARB regulations affecting two-engine vehicles, as neces sary, to be consistent with the amendments proposed herein.

BE IT FURTHER RESOLVED that the Board directs the E xecutive Officer to provide an update to the Board in 2012 on the impact of econom ic conditions on on-road heavy duty truck and off-road equipment emissions.

BE IT FURTHER RESOLVED that the Board hereby determ ines, in accordance with CAA section 209(e)(2), that the proposed amendments as they affect nonroad vehicles or nonroad engines as defined in CAA section 216(10 ) and (11), do not undermine the Board’s previous determination that the regulation’ s emission standards, other emission related requirements, and associated enforcement pr ocedures are, in the aggregate, at least as protective of public health and welfare as applicable federal standards, are necessary as part of ARB’s off-road emissions progr am to meet compelling and extraordinary conditions existing in the state, and are consistent with CAA section 209.

BE IT FURTHER RESOLVED that the Board, pursuant to CAA section 209(e)(2) and the determinations set forth in the preceding parag raph, directs the Executive Officer to request that if U.S. EPA has granted California aut horization to adopt and enforce the regulation in response to its previously submitted requests that the Administrator confirm that the proposed amendments fall within th e scope of the granted authorization

and that if U.S. EPA has not taken action on Califo rnia’s previously submitted requests by the date that the Executive Officer submits the latest amendments for review that the Administrator grant California a full authorization for the regulation as amended herein.Resolution 10-47

December 17, 2010

Identification of Attachments to the Board Resoluti on

Attachment A: Proposed amendments to the Regulation for I n-use Off-road

Diesel-Fueled Fleets Cal. Code Regs., title 13, sec tion 2449 through 2449.3 as set forth in Appendix A to the In itial Statement of Reasons, released October 21, 2010.

Attachment B: Staff’s Suggested Modifications to the Prop osed Amendments to

the Regulation for In-use Off-road Diesel-Fueled Fl eets.