# Final Statement of Reasons for Rulemaking

Including Summary of Comments and Agency Responses

PUBLIC HEARING TO CONSIDER THE ADOPTION OF REGULATI ONS

TO REDUCE EMISSIONS FROM DIESEL ENGINES ON

COMMERCIAL HARBOR CRAFT OPERATED WITHIN CALIFORNIA

WATERS AND 24 NAUTICAL MILES OF THE CALIFORNIA BASE LINE

Public Hearing Date: October 26, 2007, Continued t o November 15, 2007 Agenda Item No.: 07-10-6i 

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Contents Page

I. General.........................................

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

II. Modifications Made to the Original Proposal and Additional Documents Made Publicly Available............................

................................................... ......... 6

A. Availability of Modified Text ...................

................................................... . 7 B. Nonsubstantial Changes.......................... ................................................ 10

III. Summary of Comments and Agency Responses to th e Original Proposal......... 13

A. Authority.......................................

................................................... ......... 19 B. Applicability...................................

................................................... ........ 24 C. Exemptions......................................

................................................... ..... 27

D. Definitions.....................................

................................................... ........ 29 E. Engine Hour Meters..............................

................................................... 31 F. Best Available Control Technology (BACT) ........ ..................................... 31 G. New and In-use Harbor Craft Requirements........ .................................... 37 H. Compliance Schedule............................. ................................................. 40 I. Compliance Methods .............................. ................................................. 52 J. Compliance Extensions ........................... ................................................ 52

K. Alternative Control of Emissions................ .............................................. 57 L. Economic Burden and Impact on California’s Econo my .......................... 57

M. Incentives......................................

................................................... ........ 65

IV. Summary of Comments and Agency Responses – Noti ce of Modified Text....... 68

A. Engine’s “Model Year + 5” Method of Determining Effective

Model Year ........................................

................................................... ... 69 B. Acceleration of Compliance Schedule for 1996-199 9 Model Year Ferry Engines............................................

................................................... ..... 72 C. Vessel Owners or Operators with Multiple Vessels Requiring In-use Engine Compliance in Either 2009 or 2010........... ................................... 72 D. Reporting Requirements.......................... ................................................ 75 E. Appendix H: Estimated Ticket Price Increase for Ferry/Excursion

Businesses .........................................

................................................... .. 75 F. Appendix G: Assumptions for Estimating Greenhou se Gas Emissions from Commercial Harbor Craft Operating in Californi a ............................ 79

G. Miscellaneous...................................

................................................... .... 79ii 

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Contents Page

List of Tables

Table I: Comments Received During the 45-day Commen t Period That Received a

Response...........................................

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

Table II: Comments Received During the 15-day Comme nt Period That Received a

Response...........................................

................................................... ........ 681

I. GENERAL

In this rulemaking, the Air Resources Board (ARB or Board) is adopting a new regulation and an essentially identical airborne to xic control measure (ATCM) to reduce emissions of diesel particulate matter (PM) and oxi des of nitrogen (NOx) from

commercial harbor craft within 24 nautical miles of the California baseline (referred to as “Regulated California Waters”). The regulation and ATCM are hereinafter collectively referred to in the singular “regulation” unless oth erwise noted.

The regulation will apply to commercial harbor craf t operating within Regulated California Waters beginning January 1, 2009. Regulated Califo rnia Waters include all California internal waters, estuarine waters, ports, and coast al waters within 24 nautical miles of the California coastline. The regulation establishes i n-use emission limits for both auxiliary and propulsion diesel engines on ferries, excursion vessels, tugboats, and towboats

consistent with the United States Environmental Pro tection Agency (U.S. EPA) marine engine emission standards. All engines in new harb or craft and replacement engines purchased for in-use harbor craft must meet emissio n limits equal to, or more stringent than, the U.S. EPA marine engine emission standards in effect at the time the new vessel or engine is purchased.

The regulation supports the “Risk Reduction Plan to Reduce Particulate Matter Emissions from Diesel-Fueled Engines and Vehicles” (Diesel Risk Reduction Plan) adopted by the Board on September 30, 2000, the “Go ods Movement Emission Reduction Plan” adopted by the Board in April 2006, and the State Implementation Plan. The regulation will reduce the public’s exposure to diesel PM and NOx by requiring vessel owners to repower or replace in-use engines with cleaner Tier 2 and Tier 3 engines; in addition, ferry owners are required to install best available control technology (BACT) on propulsion engines on new ferr ies.

This rulemaking was initiated by the September 7, 2 007, publication of a notice for a public hearing on October 25-26, 2007 (“45-day Noti ce”). A “Staff Report: Initial Statement of Reasons” (Staff Report or ISOR) and “T echnical Support Document” were also made available for public review and comment b y September 7, 2007. The Staff Report, which is incorporated by reference herein, described the rationale for the proposal. Appendix A to the Staff Report contained the text of the originally proposed regulation, which adds a new section 2299.5 to titl e 13, California Code of Regulations (CCR) and a new section 93118.5, title 17, CCR. Th e Technical Support Document, which is incorporated by reference herein, describe d the basis of the proposal in more detail. These documents were also posted by Septem ber 7, 2007, on the ARB’s internet site for the rulemaking at: http://www.arb.ca.gov/r egact/2007/chc07/chc07.htm (“ARB’s internet site”).

On September 11, 2007, ARB staff published an errat a to correct an error in the internet address for ARB’s internet site as it appeared in t he 45-day notice. On September 25, 2007, ARB staff published a second er rata to correct the information in2

various tables contained in the Staff Report and Te chnical Support Document. These

errata were to correct errors associated with the i ncorrect use of “Tons/year” (corrected to show “Tons/day”) and errors resulting from the c onversion of the Staff Report and Technical Support Document from Microsoft Word to P ortable Document Format (PDF).

On October 26, 2007, the Board conducted a public h earing to consider adoption of the staff’s proposal, including staff’s suggested chang es to the original proposal. Those modifications were set forth in a two-page document entitled, “Staff’s Suggested Modifications to the Original Proposal – To Be Pres ented at the October 26, 2007 Hearing,” which was distributed at the hearing and included as Attachment B to

Resolution 07-47. Written and oral comments were r eceived at the hearing, and several stakeholders suggested additional changes to the pr oposed regulation. At the conclusion of public testimony, the Board requested staff to review two issues that were raised during the public comment period and to repo rt its findings at the next Board meeting. The Board then closed the rulemaking reco rd on the proposal and continued the hearing to consider the staff’s proposal to the staff’s November 15, 2007 meeting.

At the November meeting, staff provided the informa tion the Board requested on October 26, 2007. At the conclusion of the continu ed hearing, the Board adopted Resolution 07-47, in which it approved the adoption of the originally proposed regulation with suggested modifications discussed on both hear ing dates. Modifications proposed by staff in response to the Board’s questions raise d on October 26, 2007 were set forth in a two-page document entitled, “Staff’s Suggested Modifications to the Original Proposal – To Be Presented at the November 15, 2007 Hearing,” distributed at the hearing and included as Attachment C to Resolution 07-47. In accordance with section 11346.8 of the Government Code, the Board directed the Executive Officer to incorporate the modifications included in Attachmen ts B and C into the proposed regulatory text and to make such modifications avai lable for a supplemental comment period of at least 15 days. The Executive Officer was then directed either to adopt the regulation with such additional modifications as ma y be appropriate in light of the comments received, or to present the regulation to the Board for further consideration if warranted in light of the comments.

The text of the modifications to the originally pro posed regulation, the incorporated documents, and additional supporting documents were made available for a supplemental 15-day comment period by issuance of a “Notice of Public Availability of Modified Text and Availability of Additional Docume nts” (“15-day Notice”). The 15-day Notice with five attachments was mailed on June 18, 2008 to all parties identified in section 44(a), title 1, CCR, and to other persons g enerally interested in ARB’s rulemaking concerning commercial harbor craft. The se five attachments included a copy of Resolution 07-47 with Attachments B and C e ntitled “Staff’s Suggested Modifications to the Original Proposal,” the revise d regulatory language, and three documents that staff added to the rulemaking record . All these documents were also published on June 18, 2008, on ARB’s Internet site. An email message announcing and linking to this posting was transmitted to the more than 1,300 parties that have3

subscribed to ARB’s “harborcraft” listserve for not ification of postings pertaining to

commercial harbor craft.

The 15-day Notice gave the name, telephone, and fax number of the ARB contact person from whom interested parties could obtain th e complete texts of the additional incorporated documents and the modifications to the original proposal, with all of the modifications clearly indicated. The deadline for submittal of comments on the staff’s suggested modifications was July 3, 2008.

Ten written comments were received during the 15-da y comment period. Two of the ten comments did not specifically address the propo sed modifications in the 15-day Notice. Eight comments specifically addressed the proposed modifications, but ARB

decided not to make additional modifications in res ponse to those comments.

After considering the comments received during the supplemental 15-day comment period and making the modifications described below , the Executive Officer issued

Executive Order R-08-007, adopting new section 2299.5 in title 13, CCR, and new section 93118.5, title 17, CCR, and adopting the in corporated documents.

This Final Statement of Reasons (FSOR) updates the Staff Report by identifying and explaining the modifications that were made to the original proposal as a result of public comment and staff analysis after the Staff Report w as issued. The FSOR also

summarizes written and oral comments the Board rece ived on the proposed regulatory text during the formal rulemaking process and ARB’s responses to those comments.

Documents Incorporated by Reference.

The following documents are incorporated by referen ce in the regulation: (1) International Standard ISO 8178-4(E):1996, “Rec iprocating Internal Combustion Engines – Exhaust Emission Measurement – Part 4: Te st Cycles for Different Engine Applications”; (2) International Standard ISO 8178- 2(E):1996, “Reciprocating Internal Combustion Engines – Exhaust Emission Measurement – Part 2: Measurement of Gaseous and Particulate Exhaust Emissions at Site;” (3) U.S. EPA Marine Engine standards, Tier 1 and Tier 2, as set forth in "Cont rol of Emissions of Air Pollution from New Marine Compression Ignition Engines at or Above 37 kW” (64 Federal Register (FR) 73299-73373, December 29, 1999)(40 Code of Fed eral Regulation (CFR) Part 94); (4) U.S. EPA Marine Engine Standards, Tier 3 and Ti er 4, as set forth in “Final Rule:

Control of Emissions of Air Pollution from Locomoti ve Engines and Marine Compression-Ignition Engines Less Than 30 Liters Pe r Cylinder” (73 FR 25245 et seq., May 6, 2008); (5) the following National Oceanic an d Atmospheric Administration (NOAA) Nautical Charts, as authored by the NOAA Off ice of Coast Survey: (A) Chart 18600, Trinidad Head to Cape Blanco (January 2002), (B) Chart 18620, Point Arena to Trinidad Head (June 2002), (C) Chart 18640, San Fra ncisco to Point Arena (August 2005), (D) Chart 18680, Point Sur to San Francisco (June 2005), (E) Chart 18700, Point Conception to Point Sur (July 2003), (F) Chart 1872 0, Point Dume to Purisima Point (January 2005), and (G) Chart 18740, San Diego to S anta Rosa Island (April 2005);4

(6) ASTM D975-81, "Standard Specification for Diese l Fuel Oils" (as modified in May 1982); and (7) “Verification Procedure, Warrant y and In-Use Compliance Requirements for In-Use Strategies to Control Emiss ions from Diesel Engines," 13 CCR §2700-2710.

The seven documents listed above consist of an upda ted international test method for measuring emissions from reciprocating internal com bustion engines, marine engine emission standards promulgated by U.S. EPA, seven u pdated nautical charts defining sections of the California baseline (i.e., the coas tline), and ARB procedures and requirements for diesel engine control strategies. Each instance of incorporation identifies the incorporated document by title and d ate. The documents are readily available from ARB upon request and were made avail able in the context of this rulemaking in the manner specified in Government Co de section 11346.5(b). Also, the referenced ISO documents are published by the Inter national Organization for Standardization, a well-established and prominent o rganization. Similarly, the nautical charts are available from NOAA, another prominent a nd long-established national agency. Further, ARB is a well-known public agency , and its verification procedure is easily obtained from ARB through various channels, including ARB’s general web site. Finally, the U.S. EPA regulations are readily avail able from that agency. Therefore, all the incorporated documents are reasonably available to the affected public from commonly known sources.

The documents are incorporated by reference because it would be cumbersome, unduly expensive, and otherwise impractical to print them in the CCR. Existing ARB administrative practice has been to have specificat ions, test procedures, and similar documents incorporated by reference rather than pri nted in the CCR because these specifications and procedures are highly technical and complex. These include “nuts and bolts” engineering protocols and laboratory pra ctices and have a very limited audience. Because ARB has never printed complete t est procedures and similar documents in the CCR, the directly affected public is accustomed to the incorporation format utilized in the regulation. These test proc edures and similar documents as a whole are extensive, and it would be both cumbersom e and expensive to print these lengthy, technically complex procedures in the CCR for a limited audience. Printing portions of the test procedures and other documents that are incorporated by reference would be unnecessarily confusing to the affected pu blic. For similar reasons, ARB is also incorporating by reference the detailed NOAA n autical charts specified above.

Fiscal Impacts. Pursuant to Government Code sections 11346.5(a)(5 ) and 11346.5(a)(6), the Executive Officer has determined that the regulatory action will create costs to some State and local agencies. Mos t State and local agencies will incur only reporting costs. Staff has estimated these on e-time reporting costs to range from about $100 to $3,000 depending on the number of ves sels operated by the agency. Agencies operating ferries, excursion vessels, tugb oats, or towboats with diesel engines would also incur engine replacement costs ranging f rom a total compliance cost of $100,000 to $10 million. These agencies include th e City of Vallejo, which operates the5

Baylink Ferry; the Golden Gate Bridge and Highway T ransportation District; the Port of Los Angeles; and the California Department of Trans portation. However, the regulatory action will not result in costs or savings, as defi ned in Government Code section 11346.5(a)(5) and 11346.5(a)(6), to any state agenc y, or in federal funding to the state, or create costs or mandates to any local agency or school district, whether or not reimbursable by the state pursuant to part 7 (comme ncing with section 17500), division 4, title 2 of the Government Code, or othe r non-discretionary costs or savings to local agencies.

The Executive Officer has determined that there wil l be costs to the ARB to implement and enforce the regulation. Staff estimates that A RB’s cost to implement the reporting program (initial report) would be approximately $25 to $50 per engine for the entire population of 8,300 engines. These costs would be spread over the first two years of implementation. An additional cost on the order of $10 to $100 per engine (spread out over the 14 years from 2009 to 2022) is estimated f or implementing the in-use engine compliance requirement. This would include providi ng technical assistance to stakeholders in compliance efforts and processing r eport updates at the time of final compliance with the regulation. Approximately 1,90 0 engines would be involved. Both of these implementation costs will be absorbed with in existing budget and resources. Additionally, there will be travel and materials co sts during the initial years of the regulation for outreach and educational efforts to economically disadvantaged or hard-to reach stakeholders, estimated at $25,000 per year f or two years. A budget augmentation request has been made for these funds for the first year. Enforcement costs, including inspection and verifying reporting , are estimated at approximately $80 per engine per year for the 1,900 engines requi red to comply with in-use engine emission limits, or about $160,000 per year startin g in 2009. The Enforcement Division is submitting a request for one additional staff pe rson for the enforcement of this regulation in a Budget Change Proposal that encompa sses their need for additional staff to enforce multiple, newly adopted regulation s.

Consideration of Alternatives. The regulation proposed in this rulemaking was th e subject of discussions involving ARB staff, local a ir districts, affected vessel engine owners, operators, manufacturers, dealers, and othe rs. A discussion of two alternatives to the regulatory proposal is found in Analysis of Alternatives, Section I, Chapter VIII (pp. VIII-27 through 32) of the Technical Support D ocument. Staff recommended against both alternatives.

Both alternatives considered replacing pre-Tier 1 ( unregulated or Tier 0) engines on uniform statewide in-use compliance schedules. One alternative removed the SCAQMD accelerated compliance schedule, such that v essels with homeports in
SCAQMD as well as all other vessels in the State wo uld be subject to a 15-year life compliance schedule. This alternative would accele rate Tier 0 engine replacements, but not as quickly as the SCAQMD compliance schedul e. It was found to reduce the number of engine replacements in the first six year s, unacceptably eliminating the early emission reductions necessary to help meet PM2.5 at tainment goals by 2014. The other alternative placed all vessels in the State o f California on the proposed SCAQMD6

accelerated compliance schedule. This alternative was found to be infeasible because accelerating engine replacements statewide would ex ceed California’s boat yard and maintenance facilities’ capabilities. Staff also f ound that accelerating the compliance schedule for Tier 0 engines was found to provide sh ort-term benefits at the expense of greater long-term reductions. The Board agreed wit h staff’s recommendation against these two alternatives, but the Board suggested tha t ferry Tier 0 engine replacements be accelerated for the health and safety of ferry p assengers.

During the October 26, 2007 hearing, the Board inst ructed staff to analyze a third alternative, namely to accelerate replacement of fe rry Tier 0 engines while maximizing Tier 3 engine replacements. Under the original com pliance schedule, ferry vessel 1996-1999 model year Tier 0 engines would be replac ed in 2015 and 2016. Tier 3 engines become available in 2014, so accelerating t he replacement of those engines 1 to 2 years would accelerate emission reductions w ith no loss in long-term benefits. This change would not adversely affect the repower capacity since fewer than 10 ferries would be affected by this acceleration. However, i t would increase the economic impact of the rule on ferry owners. The 2000 model year T ier 1 engines would still be replaced in 2015 and 2016, maintaining a 15-year life for Ti er 1 engines.

For the reasons set forth in Chapter VIII of the Te chnical Support Document, in staff's comments and responses during the hearing, and in t his FSOR, the Board determined that the alternative of accelerating ferry vessel 1 996-1999 model year Tier 0 engines by 1 to 2 years would be effective in carrying out the purpose for which the regulatory action was proposed. The Board therefore adopted t he proposal to accelerate the ferry vessel compliance schedule for 1996-1999 model year Tier 0 engine replacements.

The Board has determined that no other alternatives considered by the agency or that have otherwise been identified and brought to the a ttention of the agency would be more effective in carrying out the purpose for whic h the regulatory action was proposed

or would be as effective and less burdensome to aff ected private persons than the action taken by the Board.

II. MODIFICATIONS MADE TO THE ORIGINAL PROPOSAL AND ADDITIONAL

DOCUMENTS MADE PUBLICLY AVAILABLE

Various modifications were made to the original pro posal to address comments received during the 45-day public comment period an d to clarify the regulatory language. These modifications are described below and include staff-proposed modifications that were approved by the Board on No vember 15, 2007, changes that the Board directed staff to make, and subsequent mo difications made in response to public comments and to improve the proposed regulat ion’s clarity. The 15-day Notice together with a copy of the proposed regulation wit h changes indicated was posted on June 18, 2008 for period of public review and comme nt through July 3, 2008. Notification was sent to persons who had expressed an interest in the regulation during the course of rule development and review, includin g all individuals described in subsections (a)(1) through (a)(4) of section 44, Ti tle 1, CCR. By these actions, the modified regulations were made available to the pub lic for a supplemental comment7

periods pursuant to Government Code section 11346.8 . ARB decided not to make additional substantial changes in response to publi c comments received June 18-July3, but certain nonsubstantial changes were subsequentl y made and are detailed in

subsection B below.

A. Availability of Modified Text

The following is a description of the substantive m odifications provided for public comment from June 18, 2008 through July 3, 2008, ar ranged by section number. Essentially identical modifications were made to pr oposed section 2299.5, title 13, CCR and to the proposed Airborne Toxic Control Measure in section 93118.5, title 17, CCR.

All references below to section 2299.5 and section 93118.5 are to the indicated sections in title 13 and 17, CCR, respectively, unless other wise noted.

Definitions, Subsections 2299.5(d) and 93118.5(d)

The definitions for “excursion vessel” and “ferry” were changed to help differentiate between the two vessel types.

Also, the definition for “ocean-going vessel” was m odified to delete references to a registry and foreign-flagged vessels because the re maining three definitions for “oceangoing vessels” sufficiently describe such vessels.

The definition for “Regulated California Waters” wa s modified to correct a slight error in

the coordinates for the overwater Mexico-California border.

Definitions for “Tier 3 Standards” and “Tier 4 Stan dards” were corrected for minor changes in the finalized standards and for one erro r, along with appropriate citations to the federal rulemaking, to reflect the recent U.S. EPA adoption of these standards in May 2008. Also, the definitions for “Tier 1 Standa rds,” “Tier 2 Standards,” “Tier 3 Standards,” and “Tier 4 Standards” were modified to make it clear that in the event of a conflict between a particular standard in the summa ries of those standards in this regulation and the actual corresponding U.S. EPA st andard, the U.S. EPA standard will

control.

In-Use Engines and Vessels: Pre-Tier 1 and Tier 1- Certified Engines (Applicability and General Requirements), Subsections 2299.5(e)(6) (A) and 93118.5(e)(6)(A)

This subsection was modified to clarify the applica bility of the in-use engine and vessel requirements and to clarify the applicable complian ce date.

In-Use Engines and Vessels: Compliance Schedules a nd Determination of Engine Model Year, Subsections 2299.5(e)(6)(C) and 93118.5(e)(6)(C)

To improve clarity, this subsection’s heading was c hanged from “Compliance Schedules and Determination of Engine Model Year” in the orig inal proposal to “Compliance8

Dates,” and it was moved to become subsection (e)(6 )(D). (Note: An automated paragraph numbering function resulted in original s ubsection (e)(6)(C) being erroneously renumbered as subsection (e)(6)(D) in t he version of the regulations indicating 15-day modifications, but this error app eared in text that was correctly identified for deletion and was therefore judged by staff to be of no consequence.)

Use of the “Engine Model Year + 5” method to determ ine engine model year was restricted to vessel engines with homeports outside the SCAQMD. This modification ensures the regulation will not delay engine replac ement emission reductions in the
SCAQMD.

Table 7 was modified to accelerate the compliance d ates for specific ferry vessel (1996- 1999 model year) engines with homeports outside the SCAQMD. In the originally proposed compliance schedule, 1996-1999 model year ferry engines were required to comply in 2015 or 2016, depending on the annual eng ine hours of operation. The Board directed staff to accelerate the compliance s chedule for these ferry engines to 2014. These engines will still be replaced with Ti er 3 engines, maintain a 15-year engine life on the original engines, and accelerate the emission reductions by 1 to 2 years.

In-Use Engines and Vessels: Compliance Requirement s, Subsections 2299.5(e)(6)(D) and 93118.5(e)(6)(D)

This subsection’s title was changed from “Complianc e Requirements” in the original proposal to “Compliance Methods,” and was moved to become subsection (e)(6)(C). The compliance option involving demonstration that the in-use engine meets Tier 2 standards was clarified by dividing this option int o two separate options. One option, named Method C2 in the modified regulation, specifi es engines may be brought into compliance by demonstrating that the in-use engine meets Tier 2 engine emission standards as long as the demonstration is made prio r to the effective date of Tier 3 engine emission standards, even if the engine’s com pliance date occurs after the Tier 3 effective date. The other option, Method C3, speci fies that engines may be brought into compliance by demonstrating the engine meets the Ti er 2 or Tier 3 engine emission standards, whichever is in effect at the time of th e engine’s compliance date.

In-Use Engines and Vessels: Compliance Extensions, Subsections 2299.5(e)(6)(E)(4) and 93118.5(e)(6)(E)(4)

The compliance extension for same fleet vessel engi nes that share compliance dates was modified by adding an extension for owners with multiple vessels who will need to comply in the first two compliance years (2009 and 2010). The extension will allow a phased compliance schedule providing an additional three to four years for compliance while ensuring that all engines are in compliance b y the end of 2013. This maintains the early reductions necessary in the SCAQMD and th e rest of California.9

In-Use Engines and Vessels: Special Provisions for DECS, Subsections 2299.5(e)(6)(F) and 93118.5(e)(6)(F)

A repair requirement was added to apply when a dies el emission control strategy (DECS) fails. This requirement gives the option to repair the DECS within 90 days of a failure or, if it cannot be repaired, to either rep lace it with another working DECS or use a different compliance method that meets the requir ements of the section.

Initial and Compliance Plan Reporting Requirements, Subsections 2299.5(h) and 93118.5(h)

The date when ferry, excursion vessel, tugboat, and towboat owners are required to report how they will comply with the in-use emissio n limit requirements was changed from the time of the initial reporting in 2009 to F ebruary 28 of the year compliance is required. This would allow vessel owners to develo p a plan based on technology available at the time compliance is required and th eir current economic status. Vessel owners who choose to comply early can report compli ance at that time.

Violations, Subsections 2299.5(i) and 93118.5(i)

This provision was modified to make it clear that v iolations are also subject to the penalties prescribed in Health and Safety Code §424 02 et seq.

Supporting Documents and Information

In accordance with Government Code section 11347.1, the following documents were added to the rulemaking record with public notifica tion provided in the 15-day Notice:

• “Assumptions for Estimating Greenhouse Gas Emissio ns from Commercial Harbor Craft Operating in California” -- This docum ent was appended to the 15-day Notice as Attachment 3 and serves as new App endix G to the Technical Support Document.

• “Estimated Ticket Price Increase for Ferry/Excursi on Businesses” -- This document is appended to the 15-Day Notice as Attach ment 4 and serves as new Appendix H to the Technical Support Document.

• “Survey of Ferry Vessel Owner/Operators” -- This d ocument is appended to the 15-Day Notice as Attachment 5 and serves as new App endix I to the Technical Support Document.

Other Changes in Modified Text

In addition, certain subsections and paragraphs wer e rearranged and other minor modifications were made throughout the regulatory t ext to improve clarity; to correct spelling, typographical errors, punctuation, and gr ammar; to make numbering10

adjustments; and to correct citations and reference s. For example, staff modified the subsections (b) and (c) in both regulations to make the regulatory text easier to read.

These modifications were included in the strikeout/ underline version of the regulatory text that was provided for public comment with the 15-day Notice.

B. Nonsubstantial Changes

Certain nonsubstantial changes were made in the pro posed regulations subsequent to circulation of the modified text for public comment . These changes are detailed paragraph by paragraph below, except that the follo wing changes are not individually identified by location in the proposed regulations: (1) Correction of spelling errors, including replacing “home port” with “homeport” for consistency, adding hyphens to the terms “ocean-going,” “compression-ignition,” and “l ow-use,” and adding an “s” to the word “emission” in the term “emissions data”; and ( 2) Punctuation and formatting corrections including adding spaces after periods a t the end of sentences and after colons, adding commas between the last two items in a list of items, changing periods to semicolons, changing the form of quotation marks , removing spaces before and after the slash in the term rescue/recovery, adding and r emoving blank lines between paragraphs, adding a return and blank line between a paragraph title and text, and changing paragraph title font to bold and italicize d.

The following grammatical corrections and changes t o improve clarity were made to the final regulation order, shown below in underline to show additions and strikeout to show

deletions:

2299.5(c)(5) 93118.5(c)(5) (5) A recreational vessel is exempt from this section in its entirety ;

2299.5(c)(13) 93118.5(c)(13) (15) Near-Retirement Vessels. A harbor craft is exempt from the requirements of subsection (e)(6)(C) and (e) (6)(D) if all of the following criteria have been m et:

2299.5(d)(13),(14), and (15) 93118.5(d)(13),(14), and (15) (13) “Category 1 engine” means any marine engine w ith a displacement of less

than 5.0 liters per cylinder and with a maximum horsepower (hp) ra ting of 50 hp
or greater

. (14) “Category 2 engine” means any marine engine w ith a displacement of 5.0 to

less than 30 liters per cylinder. (15) “Category 3 engine” means any marine engine w ith a displacement of greater than 30 liters per cylinder.11

2299.5(e)(4) 93118.5(e)(4) (4) All New Harbor Craft (Including All New Ferrie s) – Requirements for Newly Acquired Vessels. Beginning January 1, 2009, a person subject to this section may not sell, purchase, offer for sale, lease, rent, import, or o therwise acquire a new harbor craft for use in any of the Regulated California Wa ters unless each of the diesel engines on the vessel meets the applicable Tier 2, Tier 3, or Tier 4 standards in effect on the date of vessel acquisition. The pers on must also meet the additional requirements set forth in subsection (e)(5) below for diesel propulsion engines in newly acquired new ferries.

2299.5(e)(6)(A)2 93118.5(e)(6)(A)2 2. General Requirements. . . . For purposes of this subsection, “applicable compli ance date” is either the compliance date, as set forth in subsection (e)(6)(D) for the in-use engine , or the compliance date from subsection (e)(6)(D) for the i n-use engine, as extended pursuant to subsection (e)(6)(E), whichever applies and occurs later.

2299.5(e)(6)(C)1 93118.5(e)(6)(C)1 1. Method C1 – Replacement of the in-use engine wi th a U.S. EPA certified Tier 2 engine or one with a higher certification le vel (e.g., Tier 3-certified).

. . . Once the in-use engine has been replaced with an en gine that is U.S. EPAcertified to meet at Tier 2 or Tier 3 standards, as set forth above, the engine is deemed to be in compliance with this subsection (e) (6) and no further replacements of this engine are required under this subsection. Tier 3-certified engines may be used as the replacement engine to co mply with this paragraph, even if Tier 4-certified engines become available b y the applicable compliance date;

2299.5(f)(1)(F)3 93118.5(f)(1)(F)3 3. documentation, calculations, emissions test dat a, or other information that

establishes the diesel PM and NO

x reductions, expressed in pounds, are equal to or greater than the emission reductions that would have been achieved upon compliance with subsection (e), including but not l imited to the requirements specified in subsection (e)(6)(C) and (e) (6)(D); and

2299.5(f)(1)(J) 93118.5(f)(1)(J) (J) A person subject to an approved ACE may not op erate any harbor craft under the ACE unless the person has first been noti fied in writing by the E.O. of the ACE’s approval. Prior to such approval, the ap plicant must comply with the12

provisions of this section, including the requireme nts in subsection (e)(6)(C) and (e) (6)(D).

2299.5(g)(9) 93118.5(g)(9) (9) For each engine for which an owner or operator is claiming an extension pursuant to subsection (e)(6)(E)3, the purchase ord er or signed contract between the owner or operator and seller of the new engine or equipment that has been purchased to comply with subsection (e)(6)(C) and ( e) (6)(D).

2299.5(h)(2) 93118.5(h)(2) 2. Compliance Plan. By February 28 of the year vessel engine complian ce is required, a person subject to the requirements of s ubsection (e)(6)(C) and (e)(6) (D) must submit a Compliance Plan to the E.O. that describes in detail the engine replacements, rebuilds, upgrades, use of DEC S, and any other measures the person plans to use to meet the requirements of subsection (e)(6)(C) and (e) (6)(D) for each of the person’s engines and harbor craft. The person may revise the Compliance Plan, as needed, but the pers on must notify the E.O. within 10 business days of any changes to the Compl iance Plan after the initial Compliance Plan is submitted. The Compliance Plan is for the E.O.’s informational and planning use only, and the substa ntive contents of the plan are not binding on either the E.O. or the person who su bmitted the Compliance Plan. The E.O.’s receipt and acceptance of a submitted Co mpliance Plan shall not constitute or be interpreted as evidence of complia nce with the requirements of subsection (e)(6)(C) or (e) (6)(D).

2299.5(e)(6)(E)4 93118.5(e)(6)(E)4 4. Multiple Engines on Multiple Vessels Within Sam e Fleet and With Same Compliance Dates. This provision applies only to fleets of 2 or more vessels that are owned by the same person. Upon written request, the E.O. may grant to the person an extension to the nominal compliance date(s) for eng ines on vessels within such fleets, as set forth below; Explanation: A verb was missing in the second sentence of paragr aph (e)(6)(E)4. The verb “may” was inserted because it is clear fro m surrounding provisions that the E.O. must determine whether the applicant has met c riteria to qualify for an

extension.

2299.5(i)(2) 93118.5(i)(2) (2) Any failure to meet any provision, standard, c riteria, or requirement in this section, including but not limited to the applicabl e emission limits; recordkeeping requirements; and ACE provision, incl uding the requirements of any approved ACE plans, shall constitute a single, separate violation of this13

section for each hour that a person operates an oc ean

- going vessel within the Regulated California Waters until such provision, s tandard, criteria, or requirement has been met. Explanation: In a typographical error, the term “ocean-going” wa s included in paragraph (i)(2) to describe the word “vessel.” It is clear from the balance of the paragraph, particularly the language at the beginni ng of the paragraph stating it applies to “[a]ny failure to meet any provision, st andard, criteria or requirement in

this section ,” that the described violations will apply to ves sels that are: (1) subject to the regulation, and (2) fail to comply with requ irements in the regulation, and not to a category of vessels that is expressly excluded from the provisions of the regulation. See also the applicability provision at section 2299.5(b)(1), the definition of “harbor craft” in section 2299.5(d)(36), and the definition of “ocean-going vessel” in section 2299.5(d)(50).

III. SUMMARY OF COMMENTS AND AGENCY RESPONSES TO TH E ORIGINAL

PROPOSAL

The Board received numerous written and oral commen ts during the 45-day rulemaking comment period (September 7, 2007 to October 26, 20 07). A list of commenters is set forth in Table I below, identifying the date and fo rm of all comments that were timely

submitted. This list does not include commenters w ho submitted only supportive comments. Following the list is a summary of each objection or recommendation made regarding the proposed action, together with an exp lanation of how the proposed action has been changed to accommodate the objection or re commendation, or the reasons for making no change. The comments have been group ed by topic. Comments not involving objections or recommendations specificall y directed towards the rulemaking or to the procedures followed by ARB in this rulemakin g are not summarized below. Additionally, documents that were referred to in co mments are not separately summarized and responded to because the referenced documents did not contain objections or recommendations specifically directed towards the rulemaking or the procedures followed by ARB.

Comments were received from the following governmen t agencies, vessel operators, industry representatives, and environmental organiz ations supporting and objecting to specific terms of the proposed regulation. Six com menters included in Table I below expressed general support for the regulation. Thes e comments also included suggested modifications to the regulatory text. Sp ecifically, ARB received four supportive comment letters from environmental group s. One of the comments was signed by a coalition of nine environmental groups, of which seven did not submit their own individual comments. In addition, the SCAQMD a nd the California Air Pollution Control Officers Association (CAPCOA) submitted sup porting comments. Suggestions received included weakening and delaying the requir ements, as well as strengthening and accelerating the requirements.14

For purposes of the following comment summaries and responses, any reference to provisions in section 2299.5, title 13, CCR also ap ply to the equivalent provisions in section 93118.5, title 17, CCR, and vice versa, unl ess the statement clearly applies only

to the section that is cited.15 Table I Comments Received during the 45-day Comment Period (Excluding Statements in Support of the Regulation)

Abbreviation Reference

Number Commenter

AWO AWO1 Jason A. Lewis The American Waterways Operators Written testimony: October 24, 2007

AWO AWO2 Jeff Browning Sause Bros. Ocean Towing Co., Inc. The American Waterways Operators Oral testimony: October 26, 2007

BAYLINK BAYLINK1 Martin Robbins Marine Services Manager Baylink Written testimony: October 26, 2007

BAYLINK BAYLINK2 Martin Robbins Marine Services Manager Vallejo Baylink Ferry Service Oral testimony: October 26, 2007

BLUEGOLD BLUEGOLD Carolyn Horgan Vice President – Operations

Blue and Gold Fleet Oral testimony: October 26, 2007

CAPCOA CAPCOA Larry Allen

President

California Air Pollution Control Officers

Association Written testimony: September 14, 2007

CATALINA CATALINA Greg Bombard

President Catalina Channel Express Oral testimony: October 26, 2007

CCA CCA Tim Carmichael

Coalition for Clean Air Oral testimony: October 26, 200716

COALITION COALITION Bonnie Holmes-Gen American Lung Association of California Written testimony: October 24, 2007

David Marshall

Senior Counsel

Clean Air Task Force Written testimony: October 24, 2007

Tom Plenys Research and Policy Manager

Coalition for Clear Air Written testimony: October 24, 2007

Jesse N. Marquez

Executive Director

Coalition for a Safe Environment Written testimony: October 24, 2007

Joel Bush

Executive Director

Communities for Clean Ports Written testimony: October 24, 2007

John Kaltenstein Clean Vessels Program Associate

Friends of the Earth Written testimony: October 24, 2007

Diane Bailey

Scientist

Natural Resources Defense Council Written testimony: October 24, 2007

Bill Magavern Senior Representative

Sierra Club of California Written testimony: October 24, 2007

Don Amir Senior Vehicles Analyst

Union of Concerned Scientists Written testimony: October 24, 200717

FOTE FOTE1 John Kaltenstein

Friends of the Earth Written testimony: October 24, 2007

FOTE FOTE2 John Kaltenstein

Friends of the Earth Oral testimony: October 26, 2007

GGF GGF1 Jim Swindler Deputy General Manager Golden Gate Bridge Highway and Transportation District Written testimony: October 20, 2007

GGF GGF2 Jim Swindler Deputy General Manager Golden Gate Bridge Highway and Transportation District Oral testimony: October 26, 2007

HORNBLOWER HORNBLOWER1 Terry A. MacRae (signed letter) Joe Wyman (submitted online)

President/CEO

Hornblower Cruises and Events Written testimony: October 25, 2007

HORNBLOWER HORNBLOWER2 Joe Wyman Manager, Planning and Development

Hornblower Cruises and Events Oral testimony: October 26, 2007

HORNBLOWER HORNBLOWER3 Richard Allard Bay Area Marine Director of Operations

Hornblower Cruises and Events Oral testimony: October 26, 2007

MECA MECA Joseph Kubsh

Executive Director

Manufacturers of Emission Controls

Association Written testimony: October 25, 2007

NRDC NRDC Diane Bailey

Scientist

Natural Resources Defense Council Oral testimony: October 26, 200718

SAUSE SAUSE Jeff Browning Sause Bros. Ocean Towing Co., Inc. The American Waterways Operators Written testimony: October 24, 2007

SCAQMD SCAQMD Henry Hogo South Coast Air Quality Management

District Oral testimony: October 26, 2007

WESTAR WESTAR1 Richard Smith General Manager

Westar Marine Services Written testimony: October 25, 2007

WESTAR WESTAR2 Richard Smith General Manager

Westar Marine Services Oral testimony: October 26, 200719

A. Authority

1. Comment: AWO believes that the harbor craft regulation is unconstitutional because it requires companies to allow CARB staff t o board their vessels, when this authority is solely under the jurisdiction of the U.S. Coast Guard. AWO believes the state is overstepping its regulatory a uthority by requiring companies

to allow CARB staff to board their vessels to ensur e compliance with the regulation. First, the authority to board the vess el is under the domain of the U.S. Coast Guard. Second, because of the post-Sept ember 11, 2001 atmosphere of heightened security and resultant sec urity requirements, there are many instances in which CARB personnel would not be allowed to board the

vessel. It is critical that the rule be written so that it protects the integrity of existing federal security regulations, requirements and procedures. (AWO1) (SAUSE)

Response: We disagree. The regulation is a valid exercise of the State’s traditional police power to protect the health, welfare, and sa fety of its citizens and environment. It is authorized and mandated under State law. (H&S §4 3013(b), §43018, and §39666.) And the regulation’s emission standards and related requirements are permissible under section 209(e)(2) of the Clean Air Act (CAA), provided ARB obtains authorization to enforce the standards and related requirements f rom the U.S. EPA. As noted in Resolution 07-47, the Board made findings in accord ance with CAA section 209(e)(2), evidencing the Board’s intent to petition U.S. EPA for such authorization.

Because the affected engines are located aboard ves sels, it is necessary for the regulation to require that vessel operators provide inspector access to the engines. Without such access, it effectively would be imposs ible for ARB inspectors to determine if vessel operators have met the emission standards and other regulatory requirements. State law authorizes such on-site inspections. (H&S §41510 and §41511.) While the U.S. Coast Guard conducts most vessel inspections, it does not have exclusive authority to conduct all such inspections. In fact, vessels are currently inspected by other California agencies, including the California State Lands Commission in its

enforcement of ballast water rules. Some of Califo rnia’s local air districts have boarded vessels to enforce visible emission regulations, su ch as the South Coast Air Quality Management District’s Rule 401. ARB enforcement st aff will coordinate inspection activities with other state or federal agencies to the extent feasible. ARB does not believe its inspections will complicate compliance with security regulations, as ARB inspectors will meet all applicable federal require ments such as security checks.

2. Comment: AWO believes that portions of the regulation are unconstitutional. First, California’s proposed regulation of vessels up to 24 miles offshore is unconstitutional. The Submerged Lands Act of 1953 granted coastal states ownership of the lands and resources out to three n autical miles offshore. The

Outer Continental Shelf Lands Act of 1953 establish ed federal jurisdiction over the resources beyond three nautical miles offshore. AWO believes that CARB is violating the Submerged Lands Act and exceeding its authority by regulating20

vessels up to 24 miles off its coast. Therefore, s ubsections (E), (F) and (G) of the definition of “Regulated California Waters” in paragraph (65) of the harbor craft regulation should be deleted. (AWO1) (SAUSE)

3. Comment: It is unreasonable and potentially unconstitutional to impose this onerous regulation on a vessel whose homeport is in another state that is participating in interstate commerce. These vessel s routinely stay outside of the three-mile limit of state authority and are often o utside the 24-mile limit outlined in this regulation. (AWO1) (SAUSE)

4. Comment: We oppose the state regulating vessels beyond its constitutionallymandated limit. (AWO1) (SAUSE)

5. Comment: We believe some sections are unconstitutional bas ed on interstate trade. (AWO2)

Response: We disagree. There are two basic objections cont ained in these comments involving: (a) ARB’s regulatory authority beyond 3 nautical miles, and (b) preemption

under the Constitution’s “dormant” Commerce Clause. With regard to Comments A.2, A.3, and A.4, other than citing these federal statu tes, the commenters have provided no specific legal bases supporting the claim that eith er the Submerged Lands Act of 1953 (SLA) or the Continental Shelf Lands Act of 1953 (O CSLA) preempts the ARB regulation. These statutes were enacted specifical ly to address the partitioning of subsea and mineral rights between the states and fe deral government and to establish the federal government’s rights to explore and expl oit oceanic and subsea resources in

accordance with international law. There is nothin g contained in either the text of those statutes or their legislative history to indicate a Congressional intent to limit the scope of a state’s authority to exercise its traditional pol ice powers in waters adjacent to the

state.

On the contrary, the Board believes that California may exercise its traditional police powers beyond 3 nautical miles under the Clean Air Act (provided authorization is obtained; see Response to Comment 1 above) and unde r case law applying the “effects test” to uphold regulations that reach beyond terri torial waters. Under the “effects test,” the application of a state law beyond the state’s 3 nautical mile boundary has been upheld if the regulated activity has a substantial effect on the state and the regulation is reasonably tailored to regulate such activity. For example, in State of Florida v. Stepansky

(FL 2000) 761 So.2d 1027, the Florida Supreme Cour t held that Florida's sovereign authority includes the ability to exercis e criminal jurisdiction over acts

committed outside the territorial limits of the sta te under the effects doctrine as long as the exercise of jurisdiction does not conflict with federal law and the exercise of jurisdiction is a reasonable application of the eff ects doctrine.

With that said, it appears that the commenters misu nderstand the purpose of subsections (E), (F), and (G) of 2299.5(d)(65). Th e primary aspect of harbor craft operations that is affected beyond 3 nautical miles is the required use of low sulfur21

CARB diesel fuel out to 24 nautical miles. This is a use and operational requirement permitted under section 209(d) of the Clean Air Act and does not require authorization under CAA section 209(e).

In any case, the comments do not appear to be direc tly challenging the use and operational requirements of the regulation as much as they are challenging the imposition of engine standards on the basis of the SLA or OCSLA. The engine standards calling for replacement or retrofitting o f engines and equipment, which do require CAA section 209(e) authorization, apply irr espective of whether the affected vessel is operating outside 3 miles of California; as long as the vessel operates within 3 nautical miles of a California port, it is subject to the engine emission standards. Therefore, even if the SLA or the OCSLA did apply t o limit the regulation’s reach beyond state boundaries, the issue of applying the engine standards to vessels beyond 3 nautical miles is largely irrelevant.

With regard to Comments A.3 and A.5, the commenters provide no specific basis for the objection other than general references to “interst ate commerce” and “interstate trade.”

We assume these comments refer to constitutional co nstraints on state regulations that impermissibly interfere with interstate commerce un der the dormant Commerce Clause and will respond accordingly.

Where, as in this rulemaking, Congress has not expl icitly prohibited state regulations on a particular matter affecting interstate commerce, a state regulation may still be held invalid under well-established case law interpretin g the dormant Commerce Clause if: (1) the regulation is discriminatory (e.g., the reg ulation favors California vessels at the expense of non-California vessels), or (2) the regu lation’s putative benefits are clearly outweighed by the burdens imposed on the regulated industry and interstate commerce.

With regard to discrimination, a regulation that di scriminates against interstate commerce (e.g., targets out-of-state businesses or vessels) is virtually per se invalid

under the dormant Commerce Clause. Dean Milk Co. v. Madison (1951), 340 U.S. 349. However, this regulation on its face is non-discrim inatory since it applies to all harbor craft that operate in California waters and within California ports. That is, it does not

matter whether an affected harbor craft is from Cal ifornia or originally from elsewhere – if it operates in California waters and docks at a California port, or has its homeport in California, that vessel is subject to the regulatio n’s requirements. There are no advantages or disadvantages to being a California-b ased harbor craft under this regulation. Therefore, because it applies equally to all affected harbor craft, the regulation is non-discriminatory on its face.

State regulations that are non-discriminatory can s till be held invalid under the so-called

“ Pike balancing test.” Pike v. Bruce Church, Inc. (1970), 397 U.S. 137. Under this test, a state regulation can be held invalid if the regul ation’s putative benefits are clearly outweighed by the burdens imposed on interstate com merce. ARB has clearly demonstrated that this regulation’s benefits range from $1.3 to $2.0 billion, accounting only for the value of avoiding 310 premature deaths and no other benefits. ISOR at ES-22

2 and ES-3. By contrast, ARB estimated that total out-of-pocket costs to the regulated industry would be about $460 million. Ibid. Thus, even if all the regulation’s costs are viewed as burdening interstate commerce, these burd ens do not clearly outweigh the benefits; in fact, the staff has shown the opposite -- the benefits clearly outweigh the costs and other burdens to be imposed on interstate commerce.

As noted, the Board intends to request and obtain a n authorization from U.S. EPA pursuant to CAA §209(e)(2)(A). Presently, no feder al court has ruled on the question as

to whether California’s authorization to set standa rds for new and in-use off-road, or nonroad, engines under CAA §209(e)(2)(A) exempts AR B emission standards and other emission-related requirements from limitations impo sed on state regulation by the

dormant Commerce Clause. Several California courts have opined that such an exemption exists under CAA §209(b). The exemption is argued in that Congress has made its intent unmistakably clear by establishing a comprehensive legislative scheme in the CAA that provides that California may adopt its own emission standards and other emission-related requirements for in-use nonroad en gines upon obtaining authorization

from U.S. EPA.

In such cases, the authorized California regulation s should not be subject to preemption under the dormant Commerce Clause. In place of a C ommerce Clause review, Congress created in section 209(e)(2)(A) a review p rocedure requiring the Administrator of U.S. EPA to review California’s regulations and authorize it to adopt and enforce emission standards and other related requirements f or the control of emissions from, among other things, all in-use nonroad engines. Ob taining authorization from the U.S. EPA effectively waives federal preemption for California from the prohibition that the states may not regulate such engines. Congress , in fashioning the waiver from preemption, made a determination that interstate co mmerce would not be disrupted by California having exclusive authority among the sta tes to establish separate, more stringent regulations than adopted by U.S. EPA for the rest of the nation.

Indeed, Congress, in section 209(e)(2)(A), granted California and no other state the authority to regulate emissions from non-new nonroa d engines in section 209(e)(2)(A). Section 209(e)(2)(B) requires that other states, if they choose to regulate nonroad engines, must adopt regulations identical to Califo rnia’s. By entrusting California with exclusive authority to formulate state-applied cont rols, Congress assured itself of uniform national regulations and avoided the possib ility of the country facing 50 different sets of regulations. In sum, it is therefore reaso nable to conclude that Congress, by enacting section 209(e)(2)(A), expressly exempted C alifornia’s nonroad regulations that

have received EPA authorization from the limitation s imposed by the Commerce

Clause.

6. Comment: It is the responsibility of CARB to adopt a regulat ion that adheres to the spirit and letter of the Clean Air Act 209(e)(2 ), which states:

No such authorization shall be granted if the Admin istrator finds that - (i) the determination of California is arbitrary an d capricious,23 (ii) California does not need such California stand ards to meet compelling and extraordinary conditions, or (iii) California standards and accompanying enforce ment procedures are

not consistent with this section.

The regulation is not consistent with the Clean Air Act because it exceeds federal standards while severely negatively impacting the t owing industry. The impact to industry is to reach goals far beyond federal stand ards. (AWO1) (SAUSE,)

7. Comment: The department is attempting to impose an excessi ve, unreasonable regulation that exceeds the state’s authority under the U.S. Constitution. (AWO1) (SAUSE)

Response: We disagree. It is Congress that established und er CAA section 209(e)(2)

the framework within which California has the abili ty to go beyond federal standards on nonroad sources, provided the State has received au thorization from U.S. EPA. See Response to Comments A.1 through A.5 above and Comm ent A.8 below. Thus, CAA section 209(e)(2) explicitly provides for and permi ts California, and California only, to impose emission standards that can go far beyond si milar federal standards on in-use nonroad sources, such as the existing harbor craft subject to the regulation. This is in recognition of California’s traditional role as a “ laboratory” for exploring innovative and stringent air pollution controls for vehicular, non road, and other sources.

Under CAA section 209, California has often led the nation on setting emission standards on engines for a variety of equipment and applications and has required additional emission controls on a wide range of ind ustries. The marine harbor craft industry is one of the few remaining industries to face regulations aimed at cleaning up diesel engine emissions. The regulation relies hea vily on the Federal emissions standards and, aside from accelerating the replacem ent of engines to meet current Federal standards, the regulation only goes beyond those standards in the case of ferry propulsion engines built after January 1, 2009.

As noted previously, ARB will apply for an authoriz ation from U.S. EPA to allow enforcement of this regulation.

See Response to Comments A.2 through A.5 above for additional discussions of why

the Board believes the dormant Commerce Clause does not preempt this regulation and why the regulation does not impose excessive and un reasonable requirements on affected industries. See also responses to Comment s L1, L3, H.13, and H.20 for discussions on why the Board believes the regulatio n is both commercially and technologically feasible.

8. Comment: AWO believes that because many of the businesses in California operate in multiple states, it makes more sense to tackle the problem of engine

emissions at the federal level. This alleviates th e burden of a company trying to24

adhere to a patchwork of state regulations to achie ve significant emissions reductions. (AWO1) (SAUSE)

Response: Of course, decisions about the scope and timing o f federal regulation are not within ARB’s control. But we disagree with the suggestion that ARB’s action adopting this regulation will lead to patchwork of state regulations. In adopting this regulation, ARB is taking action that is consistent with federal law and that cannot result in a patchwork of state laws as the comment suggest s. Under CAA section 209(e)(2)(A), California is permitted to im pose emission standards and related requirements on nonroad sources, such as marine ves sels, provided the State obtains the necessary authorization from the U.S. EPA. Sec tion 209(e)(2)(B) further provides that, upon California receiving such authorization, no other state may impose emission standards and related requirements on the same nonr oad sources unless that state imposes the exact same emission standards and relat ed requirements as in the California regulation, with additional lead-time as provided for in section 209(e)(2)(B). As previously noted, ARB intends to seek and obtain authorization from U.S. EPA for this regulation. See Response to Comment A.1 above . Thus, it will be impossible for a patchwork of regulations to develop for harbor craf t engine standards: Once California receives its authorization, there will simply be a California standard and a 49-state federal standard. States wishing to achieve more r eductions in a faster timeframe than the federal standards can opt into the California s tandard but cannot adopt their own standards, so companies will not need to worry abou t complying with varying standards of multiple states.

See Response to Comments A.2 through A.5 above for additional discussion of why ARB believes the dormant Commerce Clause does not p rohibit it from adopting and enforcing this regulation.

B. Applicability

1. Comment: We strongly recommend that oceangoing tug boats b e removed from the harbor craft regulation and placed in oceangoin g regulation. (AWO2) (SAUSE)

Response: We disagree with the comment because while most o cean-going tugboats do not perform harbor tugboat duties, they are func tionally equivalent or otherwise very similar to their harbor tugboat counterparts. Addi tionally, they do not meet the definition for “ocean-going vessel” in ARB’s pending proposed regulations for ocean-going vessels that require the use of low sulfur fuel (e. g., see Title 13 CCR section 2299.2(d)(24)) We note that ocean-going tugboats w ould arguably meet the definition for "ocean-going vessel" in the existing regulation for auxiliary diesel engines on oceangoing vessels (see Title 13 CCR section 2299.1(d)(2 1)). However, that regulation was recently held to be preempted under the federal Cle an Air Act, section 209(e)(2), and is not being enforced by the State. Pacific Merchant Shipping Ass'n v. James Goldstene, No. 07-16695 (9th Cir. Feb. 27, 2008). Further, it was never ARB’s intention during the development of the ocean-going auxiliary engine reg ulation to cover ocean-going25

tugboats. These vessels were not surveyed in the 2 004 Ship Survey for ocean-going vessels, nor were they discussed in the staff repor t prepared for the auxiliary engine ocean-going regulation.

Certain ocean-going tugboats, which pull barges ove r long distances, may have met the definition of an ocean-going vessel in the original ly proposed Commercial Harbor Craft regulation because they have a “registry” (foreign trade) endorsement on their United

States Coast Guard Certificate of Documentation. H owever, this prong of the definition was deleted as part of the June 18, 2008 modificati ons to further clarify ARB’s intent to cover ocean-going tugboats in this regulation and e xclude them from the definition of ocean-going vessels. ARB believes that the remaini ng three descriptors, which are physical in nature, sufficiently describe ocean-goi ng vessels while omitting ocean-going tugboats from the definition.

As noted, staff included ocean-going tugboats in th e harbor craft regulation because of their functional equivalence to harbor tugboats and the frequency of their visits to California ports. Based on available data, we esti mate these ocean-going tugboats made over 500 visits to California ports last year.

2. Comment: Tugs . . . don’t even operate in harbors. They c ome in and do port

calls and leave and should not be included in the r egulation. (AWO2)

Response: We disagree with this comment because, as discuss ed in the response to Comment B.1, these vessels made over 500 visits to California ports last year. This indicates that a significant number of these vessel s spend time in California ports.

3. Comment: The regulation unfairly requires ocean-going tugs t o comply with the low-sulfur fuel regulation. (AWO1)

Response: We interpret this comment as addressing complianc e with the fuel requirement in this Commercial Harbor Craft regulat ion. We disagree with this comment. See response to Comment B.1.

4. Comment: The regulation unfairly requires ocean-going tugs to comply. (SAUSE)

Response: We disagree with this comment. See response to C omment B.1.

5. Comment: Ocean-going tugs should only be required to comply with the fuel requirements contained in the harbor craft regulati on. (AWO1)

Response: We disagree with this comment. See response to C omment B.1.

6. Comment: We recommend that ocean-going tugboats be required to adhere to the low-sulfur fuel guidelines contained within the [auxiliary engine] regulation. Ocean-going tugs operate in similar fashion to ship s, in that they make calls to26

California ports but their home ports are often out side California waters . . . are

involved in interstate commerce and are not utilize d in ship assist work or other duties generally assigned to harbor craft. The gro wing demand on the national transportation system means that ocean-going tugs w ill be a major component of the future of commodity transportation, and includi ng them into the harbor craft regulation will only limit the number of vessels ab le to service California ports. (AWO1) (AWO2) (SAUSE)

Response: We disagree with this comment for reasons provide d in the response to Comment B.1. There is adequate compliance flexibil ity provided in the regulation to allow sufficient numbers of ocean-going tugboats to be available to service California ports. In addition, there are multiple options ava ilable for compliance with the in-use engine requirements besides engine replacement. Th ese include rebuilding and/or retrofitting the engine to meet the required emissi on limits (discussed in more detail in the response to Comment H.13) and using an alternat ive control of emissions (ACE) plan. An ACE plan allows more flexibility in compl ying with the regulation but requires that emission reductions be equivalent or greater.

7. Comment: Delivery times for a set of EMD engines is curren tly one year after order and getting worse. Other manufacturers quote 6 months plus. Installation of engines takes 60 to 90 days and shipyards are ba cked up. Clean kits are behind schedule as many of the parts are sourced fr om these same engine manufacturers. Ocean-going tugs have only recently been added to the Harbor Craft regulation. Previously included in the ocean -going vessels regulation, these tugs could comment and anticipate changes whi le the regulation is being drafted. Being added to this regulation as an afte rthought, the ocean-going tugs

have not been afforded the time to comment or antic ipate changes. In addition, these tugs do not have funding available to assist in coming into compliance. Most funding, such as Carl Moyer limit the area of use for the tugs to a port or requires a large percentage of the operation time t o be in their region, while ocean-going tugs travel interstate and cannot usual ly meet the requirements. (SAUSE)

Response: We disagree that delivery delays will make it dif ficult to comply with the regulation and that ocean-going tugboats were added in this regulation as an afterthought. The regulation includes provisions f or renewable compliance extensions beyond the nominal compliance date specified in the regulation for engine manufacturer delays or due to installation difficulties.

The inclusion of ocean-going tugboats in the regula tion was not an afterthought. Requirements for ocean-going tugboats have been in the draft commercial harbor craft regulatory language and discussed at workshops sinc e early 2007. At a public workshop on April 24, 2007, ARB staff introduced a draft regulation that included oceangoing tugboats in the tugboat definition and specif ied in-use engine requirements for these vessels. A representative of the national tr ade association for the U.S. tugboat, towboat, and barge industry (American Waterways Ope rators or AWO), which includes27

ocean-going tugboat operators in its membership, pa rticipated in this workshop by phone. Contact information for ARB staff was prese nted at that workshop to allow the public an opportunity to ask follow-up questions an d provide comments on this and other harbor craft topics. Also, all workshop mate rials relating to the commercial harbor craft regulation have been posted on the commercial harbor craft website and a notice of its availability emailed to the public listserve for commercial harbor craft activities prior to each workshop. Staff provided the require d 45-day notice prior to the Board hearing, giving the public an opportunity to commen t on the proposed regulation, and the commenter responded to the notice. Additionall y, ARB staff notified James Lewis of the AWO, of which Sause Brothers is a member, in a letter dated March 7, 2007, that ocean-going tugboats would be included in the comme rcial harbor craft regulation. This was 6 months prior to the beginning of the formal 4 5-day public comment period for the rulemaking.

Public funding is generally meant for obtaining emi ssion reductions surplus to regulatory compliance. None of the entities subject to the re gulatory requirements is eligible for public funds to pay for complying with the regulati on. However, there is public funding available for projects that bring engines into comp liance early or achieve emission reductions in excess of those required for regulato ry compliance. While the majority of Carl Moyer Program funding is administered by the l ocal air districts, ARB may reserve up to ten percent of Carl Moyer Program funding for multidistrict projects, which can be used to clean up engines that traverse district bou ndaries. For example, two multidistrict marine engine repower projects, total ing over $800,000, were selected for funding under the 2007-2008 Carl Moyer Program Mult idistrict Program.

8. Comment: ARB should require full regulatory compliance for ocean-going tugboats and towboats. Exemptions should only be e xtended in rare cases and for compelling reasons. (FOTE1) (COALITION) (FOTE2 )

Response: It appears that the commenters were not aware tha t ocean-going tugboats

and towboats are included in the commercial harbor craft regulation and are subject to the in-use engine requirements. This is explicit i n the regulatory language and was discussed in the Staff Report. However, we disagre e that the granting of extensions for ocean-going tugboats should be more stringent than for other vessel types. Extensions will be granted only when all conditions required a re met. All vessel types will be treated equally.

C. Exemptions

1. Comment: According to local district inventory and complia nce data, crew and supply boats that service offshore oil platforms in Ventura and Santa Barbara County waters emitted about 220 tons of NOx, and 17 tons of PM in 2006. The draft harbor craft rule would require “excursion ve ssels” such as dive boats and whale watching boats to repower beginning in 2010. It would not require crew boats, supply boats, or work boats to repower. In the case of Ventura County

these boats are docked next to each other at the ha rbor and travel to the same28

destinations. Crew and supply boats often burn mor e fuel than the dive boats and whale watching boats. We believe that the exem ption of crew and supply vessels from the proposed harbor craft regulation s hould be reevaluated. (CAPCOA)

Response: The commenter is correct in that the regulation d oes not include in-use engine requirements for crew and supply vessels, al though these vessels are not specifically exempted from the regulation.

For this regulation, we focused on the largest emit ters contributing to near-source risk.

In the baseline 2004 statewide harbor craft emissio ns inventory, ferries and excursion vessels were estimated to contribute over 25 percen t of the statewide PM and NOx commercial harbor craft emissions. Tugboats and to wboats were estimated to contribute over 20 percent. In contrast, crew and supply vessels were estimated to contribute only two and three percent of the total statewide commercial harbor craft NOx and PM emissions, respectively, as documented by th e emissions inventory provided in Appendix B of the Technical Support Document (Table III-1, page B-29). The crew and supply vessel category is estimated to have just ov er 60 vessels out of a total harbor craft population of about 4,200 vessels. However, we recognize that while the crew and supply vessel population is smaller than the catego ries covered by the in-use engine requirements of this regulation, these vessels are concentrated in a few air districts and

are a source of concern in those air districts. We will be evaluating other vessel types, including crew and supply, in the future for furthe r controls. Until that time, both Carl Moyer Program funding and Proposition 1B funding ar e available for projects aimed at reducing emissions from crew and supply vessels. S ee the response to Comment M.1

for further discussion of available incentive fundi ng.

2. Comment: ARB should eliminate the exemption for crew boats , supply boats, and work boats in the regulation; or, in the altern ative, ARB should quickly gather and/or reconsider data about these boats’ impact an d subsequently reevaluate their exempt status. Due to issues of equity and c umulative environmental impact, these categories of marine vessels should b e subject to all requirements set forth in the regulation. (FOTE1)

Response: We disagree with the comment for reasons provided in the response to

Comment C.1.

3. Comment: In light of the availability of numerous complian ce extensions (e.g., temporary replacement vessels, near-retirement vess els) included in this regulation, it is imperative that this regulatory l atitude is not abused or unnecessarily broadened. One way of ensuring that this does not occur is for ARB to create a process that evaluates the cumulati ve emissions from compliance extensions so as to assure their contrib utions are not significant and do not forestall expected public health improvement s and the attainment of regulatory goals. Their regulations should be clear that if ARB finds that compliance extensions are hindering regulatory obje ctives, the agency is29

reserving the right to scale back, cap or eliminate those extensions, as needed. ARB should evaluate compliance exemptions and exten sions to ensure that they do not interfere with the regulation’s goals. (FOT E1)

Response: We do not believe provisions need to be added to the regulation to establish a process for evaluating the impacts of c ompliance extensions or to reduce the availability of extensions. Compliance extensi ons, such as for temporary replacement vessels and near-retirement vessels, ar e necessary in order to not severely restrict business in California which, if allowed to happen, could negatively affect the transportation of goods and services in California. However, staff will maintain records of the extensions granted and eval uate the impact of these extensions on the emission reduction goals of the regulation. Currently, the compliance exemptions that could be quantified were included i n the analysis of the emission benefits of the regulation. The regulation will cl early reduce emissions compared to the existing baseline, so the proposed action will not cause or cumulatively contribute to significant adverse environmental effects or to adv erse impacts on public health.

D. Definitions

1. Comment: We request that CARB use the California Historic Register for this State mandated regulation. (BAYLINK1)

Response: Requirements for registration with the California R egister of Historical Resources are very similar to requirements for regi stration with the National Register. However, the California register allows registratio n of some resources that the National Register does not. The primary difference that wou ld relate to commercial harbor craft is the integrity requirements. Integrity is evalua ted with regard to the retention of location, design, setting, materials, workmanship, feeling, and association. To retain historic integrity, the National Register requires that the property possess several, and usually most, of the aspects of integrity. It is p ossible that historical resources may not retain sufficient integrity to meet the National Re gistry’s criteria, but may still be eligible for the listing in the California Register. ARB be lieves that the more stringent requirements of the National Registry are more appr opriate for exemption from the inuse engine limits due to the contribution of these older engines to the public health risk.

Also, while the California Register can include his torically significant harbor craft, there are currently no such harbor craft listed in the Ca lifornia Register to our knowledge. However, ARB staff is aware of at least two vessels that are included in the National Historic Registry: These include a 1925 classic fi reboat that is still a vital part of the Los Angeles Fire Department’s fleet and a 1940 harb or tug that was at one time operating as a fireboat at the Port of Oakland. Th e 1940 vessel was built entirely of welded steel and is diesel-electric powered.

2. Comment: The regs that are in front of you say that if an owner can go get his boat on the National Register, then he could be exe mpted from an engine replacement. We don’t know the viability of that. We don’t know how many30

vessels can actually be placed on the National Regi ster. If you look at the National Register, the types of vessels that you ha ve there are masted ships, historic vessels of limited operations. Our vessel s, you know, run on a weekly basis and are not of the same caliber and quality t hose vessels are. (HORNBLOWER2)

Response: ARB believes that the exemption from the in-use eng ine limits for vessels registered in the National Registry is appropriate, as discussed in response to Comment D.1 above. The creation of a broader excep tion for a relatively large number of older vessels would substantially undermine the regulation’s purpose of emissions reductions and public health benefits.

3. Comment: Exclude either “Classic Vessel” engines or any en gines operating less than 1,000 hours per year or burning less than 8,000 gallons per year (similar to antique/classic motor vehicle policy of the DMV) from the proposed replacement schedule. (HORNBLOWER1) (HORNBLOWER2)

Response: We disagree because engines on “classic vessels” tend to be older, higher polluting engines that contribute a disproportionat e amount of emissions. If the vessel is of historic significance, the vessel owner may a pply to have the vessel included in the National Historic Registry, which would then exempt the vessel from these requirements.

The regulation includes a low-use exemption from th e in-use engine requirements for engines operated for less than 300 hours. ARB does not believe it is appropriate to increase the low-use exemption to include all engin es that operate less than 1,000 hours or consume less than 8,000 gallons of d iesel fuel. ARB chose the 300 hour low-use exemption limit to minimize the emission re ductions lost due to the exemption while still exempting those engines that would be l east cost effective to bring into compliance. The required emission reduction goals would not be met if the exemption were increased to 1,000 hours or the 8,000 gallon f uel limit.

4. Comment: Modify the definitions of vessels covered by poli cy. Change the

definition of a “historic vessel” from a vessel lis ted on the National Register of Historic Places, to a vessel “older than 40 years w ith significant historic or cultural features”. (HORNBLOWER1)

Response: We disagree because, as shown in Appendix D of th e Technical Support Document (Figure 1, page D-6), the average age for the surveyed tugboats and towboats was just over 30 years for tugboats and cl ose to 40 years for towboats. Ferry and excursion vessels were somewhat newer, with an average age of about 27 years. Consequently, changing the definition of “historic vessel” to a vessel older than 40 years with significant historic or cultural features woul d lead to a vast number of harbor craft owners claiming their vessels to be historic vessel s. Additionally, determining if a vessel has “significant historical or cultural feat ures” is not within ARB’s expertise. The31

National Historic Registry, by contrast, already ha s the criteria and process for determining the historical significance of a vessel . See response to Comment D.1.

E. Engine Hour Meters

1. Comment: We recommend that [the section pertaining to Instal lation and Use of Non-Resettable Hour Meters] be clarified so that ex isting engine hour meters are accepted to comply with the regulation. Many other regulations rely on records and reporting from the companies. Records would be the backup in the event the meters failed. (AWO1) (SAUSE)

2. Comment: The regulation does not explicitly accept existin g engine hour meters to comply with the regulation. (AWO1) (AWO2) (SAUS E)

Response: We do not believe the regulatory text is unclear or needs revision. The regulation requires an installed and properly opera ting non-resettable hour meter. The regulation does not require the installation of a n ew hour meter if a previously installed hour meter is fully operational and non-resettable. This is reiterated in the posted fact sheet for the regulation and will be further clarif ied as necessary during the regulation implementation. This regulation uses recordkeeping and reporting in addition to the

non-resettable hour meters as enforcement mechanism s.

F. Best Available Control Technology (BACT)

1. Comment: I would like to request the Board to consider addin g the word “proven” when referencing “best available control t echnology” as the mere offer of a technology does not ensure its reliability or effectiveness. (GGF1)

2. Comment: We would like to see the word “proven” involved wit h best available control technology

, because the technology that we tried in the past t hat one of my colleagues will speak about just did not work. (GGF2)

3. Comment: We request that the phrase “Best Available Control Technology” be changed to read “Best Available Proven Control Technology” throughout the regulation, and that objective thresholds be establ ished to define “Proven” --- for example a Reliability Threshold of >98%, and a Dura bility Threshold of “time to overhaul for the control technology equal to or gre ater than time to overhaul of the engine served .” (BAYLINK1)

4. Comment: We believe until we can include the phrase “proven” along with best available control technology, we risk technology fa ilures. The vessel Solano today produces more pollutants than our sister vess els do simply for the fact she’s carrying a system that no longer works. Reli ability and durability are going to be key objective measures that should somehow be written into this regulation to quantify in some way what’s best in a proven tec hnology for vessels. (BAYLINK2)32

5. Comment: We need to actually add into that equation where it talks about best available control technology, the word “proven” nee ds to go in there. (CATALINA)

Response: We disagree with the request that the word “prove n” should be added to the regulatory language in reference to the best av ailable control technology (BACT).

BACT is the best level of control that has been ach ieved in practice, evaluated on a case-by-case basis where the data is sufficient to ensure that the unique elements of

each situation have been considered. It is also a widely applied standard for emissions control devices. The environmental operating condi tions that the technology is exposed to can vary significantly from one application to a nother. Consequently, ARB believes that making a BACT determination on a case-by-case basis for every new ferry that is to be added to the California fleet will provide for t he most successful applications of these technologies. The maturity of the available techno logies will be considered in this

determination.

Further, the suggestion for reliability and durabil ity thresholds would require a statistically significant number of demonstrations with accompanying testing. We are

not aware that such demonstrations have occurred fo r emission control technologies on small, high-speed ferries. It is expected that the ferry owner will negotiate a warranty with the technology provider that is sufficiently p rotective of the owner’s investment.

6. Comment: We have first hand experience in visiting some of t he ferry lines in the Baltic Sea. And they have been using SCR techn ology as well as other water emulsification and water injection technologi es for many years now. And to me, at least, it’s proven technology. It was just unfortunate that the tests on the one ferry that’s out here was using a particular te chnology and we hadn’t had a chance to look at it very closely. But we have giv en to your staff several reports relative to some of the experiences with the techno logy. So we think when staff evaluates BACT it will be proven technology. (SCAQ MD)

Response: We cannot say at this time that selective catalyt ic reduction (SCR) technology is proven for all marine applications. As was the case with the SCR failure mentioned by the commenter, and as discussed in the response to Comments F.1 through F.5, the environmental operating conditions that a technology is exposed to can vary significantly from one application to another. ARB believes that making a BACT determination on a case-by-case basis for every new ferry that is to be added to the California fleet will provide for the most successf ul applications of these technologies.

7. Comment: Because of the SCR experience with marine engines, MECA believes that DOC + SCR systems should be BACT for the propulsion engines on new ferries built and brought into service in Ca lifornia after January 1, 2009. (MECA)33

Response: We do not believe that we can predetermine what w ill be BACT for new ferries prior to reviewing the vessel description a nd duty cycle. See responses to Comments F.1 through F.6.

8. Comment: ARB should allow for public comments on BACT applic ations before they are decided upon, and, if needed, create an in ter-agency or interstakeholder body to most effectively determine BACT . ARB may consider revising section (e)(5) to enhance BACT decision-ma king and improve the public process surrounding that decision. If ARB goes for ward with the rather ambiguous case-by-case BACT approach, we propose th at section (e)(5) be amended to include an informal inter-agency or inte r-stakeholder consulting process – potentially consisting of state and feder al pollution control officials, scientists, and academics – which would help to ens ure that a diesel emission control strategy achieves the “greatest reduction f easible of NOx or diesel PM when used with the ferry’s propulsion diesel engine .”

In addition, in contrast to section (f) regarding Alternative compliance Plans and section (e)(6)(E) concerning Compliance Extension r equirements, the BACT determination does not include a sufficiently thoro ugh public process. With due consideration given to proprietary and other sensit ive business information, Section (e)(5) should be revised to incorporate suf ficient public process such that interested stakeholders can review and publicly com ment on the BACT application before it being decided upon by the Exe cutive Officer. (FOTE1)

Response: BACT determinations are based on engineering eval uation and

consideration of the best available information. T he regulation specifically identifies the requirements the ARB must follow in making the BACT determination and specific

timeframes within the staff must act in establishin g completeness and approving or denying the request. These requirements specifical ly engage the applicant. In addition, ARB staff is committed to working with technical ex perts within the applicable local

districts to assist with the evaluation. The comme nter suggests that the regulatory language be amended to include an “informal-inter-a gency or inter-stakeholder consulting process.” However, including this requi rement in the regulatory text would formalize the process.

The commenter suggests that BACT determinations fol low a public process similar to that defined for the approval of an ACE plan. Howe ver, the two processes are very different. BACT timelines may be significantly mor e critical than those of an ACE plan and may require swifter action than preparing a doc ument for public review could allow. Additionally, a BACT determination may involve the technical assessments of propriety information. The regulation requires that the BACT determination be made available to the public on ARB’s internet site, however using a public process similar to that used for an ACE plan is not feasible.

9. Comment: The proposed regulation does not go far enough in a chieving specific Action Plan goals due to the regulation’s lengthy compliance timeline,34

modest ferry emissions standard, exemptions, and co mpliance extensions; therefore, we request that ARB revise the regulatio n to increase DPM and NOx emission reductions in the near term, strengthen th e ferry emission standard, shorten the engine compliance timeline and eliminat e extensions and exemptions . . . The lengthy compliance schedule and prolonged rulem aking process have delayed critical environmental and pub lic health benefits. Further postponement will not only detrimentally impact aff ected communities and natural resources, but also inhibit technological developme nt and do little to address future costs. (FOTE1)

Response: The compliance schedule delivers the needed emiss ion reductions in the South Coast Air Basin (South Coast) prior to 2014 t o help meet PM2.5 attainment goals. In addition, compliance with the statewide schedule in the rest of the State achieves the 2015 and 2020 goals for harbor craft in the Goods M ovement Action Plan, as referenced in Chapter IV of the Technical Support D ocument.

The statewide compliance timeline spans 14 years be cause it requires in-use Tier 1 engines just recently purchased and installed to co mply with more stringent standards. All unregulated engines (pre-Tier 1) are brought in to compliance by 2013 in the SCAQMD, and by 2016 in the rest of the State. The useful life of newer Tier 1 engines is shortened by five to seven years due to these re quirements, depending on whether they have a homeport in the SCAQMD or elsewhere in the State. In ARB’s view, it

would be unreasonable to shorten their useful life further by compressing the compliance schedule without a compelling reason.

The vessel exemptions provided in the regulation do not constitute a significant number of vessels. The low-use and minimum power rating e xemptions for the in-use engine requirements are set at levels that minimize the lo ss in emission reductions while exempting those engines that are truly not cost eff ective to bring into compliance. The temporary replacement vessel exemption requires Exe cutive Officer approval and is for a limited term. Other exemptions are for safety re asons, such as temporary emergency rescue/recovery vessels, U.S Coast Guard vessels, a nd military tactical support vessels. The exemption for harbor craft near retir ement is included to provide practical consideration of a business’s equipment replacement plan. The historic vessel exemption covers only a handful of vessels.

The compliance extensions provided in the regulatio n were carefully selected as only those necessary to allow businesses to continue to operate when difficulties occur outside of their control, which prevent them from c ompleting compliance requirements. The rules guiding these extensions are very specifi c and require that all reasonable steps toward compliance have been completed.

Regarding the new ferry emission standards, aftertr eatment technologies for marine applications are not currently mature enough to spe cify levels of compliance. The caseby-case BACT determination is appropriate for marin e applications because marine applications vary significantly in their operationa l requirements.35

We do not believe that the compliance timeline inhi bits technological developments. The timeline allows vessel owners to comply earlier than required using incentive funding. This provides both more incentive for tec hnology development and mitigates

future costs.

10. Comment: ARB should adopt a Tier 4 or, at a minimum, 85 pe rcent below Tier 2 emission standard for ferries built as of January 1 , 2009. We urge that all newly built ferries comply with an additional propulsion engine standard that is, at a minimum, equivalent to the San Francisco Bay Area W ater Transit Authority (Bay Area Authority) standard of 85 percent cleaner than EPA tier 2, or equivalent to proposed US EPA Tier 4 standards. We prefer the mo re stringent Tier 4 standard option. We support strong emission standa rds for ferries because their emissions are predominately near shore and adversel y impact the health and welfare of coastal populations, especially margina lized communities. Furthermore, the 85 percent standards should apply separately to NOx and PM to achieve the most health protective levels, rathe r than allowing averaging. We contend that if the Bay Area Authority can institut e this requirement and has a ferry under construction expected to meet the stand ard, then the State of California should be able to adopt the same standar d. Moreover, while acknowledging potential design challenges for new t echnology, the successful operation of a Staten Island ferry since 2005 with the same technology (Selective Catalytic Reduction and a diesel oxidation catalyst ) as the ferry currently being built by the Bay Area Authority argues in favor of adopting the 85 percent standard. We are extremely disappointed that ARB h as backtracked on the ferry standard. The proposed case-by-case Best Available Control Technology (BACT) option does not have specific standards to d rive industry toward existing or new technology that achieves the highest emissio n reductions. We strongly disagree with this approach. Selective Catalytic R eduction and diesel oxidation catalyst technology are available commercially, so by not requiring that ferries use it, ARB may be eliminating greater market devel opment for this technology in California and out-of-state. (FOTE1)

Response: We agree with the commenter’s support for strong emission standards for

ferries because of their near-shore emissions and t he resulting adverse health impact. It was for this reason that we included unique requ irements for the propulsion engines on new ferries and that we, as part of the 15-day N otice, accelerated the compliance date for newer Tier 0 ferry engines by one to two y ears. However, we disagree with the suggestion to require Tier 4 or, at a minimum, 85 p ercent below Tier 2 for new ferries. See responses to Comments F.1 through F.5 and F.9 r egarding the maturity of aftertreatment technology for small, high-speed fer ries.

Requiring new ferries to meet Tier 4 standards is n ot reasonable. The effective dates for Tier 4 standards were set by the U.S. EPA as 20 14 and beyond because the technology is not sufficiently mature to require th ese standards at this time. However, we believe that the BACT requirement will drive ind ustry towards developing more effective aftertreatment for these engines.36

The San Francisco Bay Area Water Emergency Transpor tation Authority (WETA) is pioneering technology on fast ferry propulsion engi nes that is at least 85 percent cleaner than Tier 2 standards. This technology has not yet been successfully demonstrated and as such is not at the maturity lev el that would justify a specified standard of performance in the regulation. Additio nally, it is not necessary to prescribe this standard since, if this technology is successf ul, it will become the BACT standard for similar new ferry applications. The WETA requi rement for new ferries to be 85 percent cleaner than the Tier 2 standards does n ot deliver separate 85 percent reductions in both NOx and PM, as recommended in th e comment. The WETA requirement is that the combined NOx plus PM emissi on levels are to be 85 percent

cleaner than the combined emissions from the standa rd. The ferry being built is predicted to achieve a combined NOx and PM emission level 85 percent lower than the combined emission levels of the Tier 2 standards (s ee Technical Support Document, Appendix E).

The Staten Island ferry, which has been operating w ith a combination system of SCR and diesel oxidation catalyst (DOC) technology, is a large, slow-speed ferry, with a passenger capacity of over 1,000 persons. Most Cal ifornia ferries are much smaller, with capacities of up to a few hundred passengers. The Staten Island ferry does not represent operating conditions comparable with thos e of the small, high-speed ferries in use in California. Additionally, the control syste m employed on this vessel has not been shown to achieve the 85 percent reduction in both N Ox and PM that the commenter requests as the standard. Emissions testing of the engines on this vessel showed that the overall trip NOx reduction ranged from 69 to 81 percent, and the PM reduction was estimated at about 25 percent overall, both less th an the 85 percent standard being requested (see Technical Support Document, Appendix E and Alice Austin Final Report referenced in Appendix E.).

While the BACT requirement does not prescribe a spe cific standard, we believe that the BACT requirement will drive industry towards develo ping more effective aftertreatment for these engines since it requires the best availa ble. By requiring BACT for new ferries rather than specifying SCR and DOC technology, the requirement pushes the market to develop technologies that provide more significant diesel PM reductions than this technology combination in order to achieve a higher level of control.

11. Comment: We would like to see the Board advance a more progr essive position with regard to ferries beyond the Tier 2 BACT to ei ther 85 percent of Tier 2 or Tier 4 if feasible. (FOTE2)

Response: We disagree with the comment for the reasons prov ided in the response to

Comment F.10.

12. Comment: We propose that feasibility considerations be pre dominately technological as opposed to economic, and that ARB define the term “feasible” in the regulation. (FOTE1)37

Response: Feasibility considerations will be primarily base d on technical considerations. It is not necessary to define the term feasible because the process by which BACT will be determined is clearly defined in the regulation.

G. New and In-Use Harbor Craft Requirements

1. Comment: The proposed rule for ferries uses a non-industry standard threshold of seventy-five (75) passengers . . . this threshol d seems to be arbitrary. We suggest that CARB use the 150 passenger threshold u sed by the United States Coast Guard for vessel construction and safety stan dards. This threshold would conform the CARB regulation to a traditional Coast Guard and maritime industry break point, and it is very likely that any new fer ry built for California service would be at or above the 150 passenger capacity, an d would thus be covered by the new regulation. (BAYLINK1)

Response: The regulation requires that new ferries with a 7 5 or more passenger capacity incorporate the use of Best Available Cont rol Technology (BACT) with their new Tier 2 or Tier 3 propulsion engines because fer ries are often built with capacities under the U.S. Coast Guard 150-passenger determinat ion. For example, as discussed in Appendix E of the Technical Support Document, WE TA is building two 149-passenger ferries to be delivered later this ye ar that incorporate emission control technology resulting in 85 percent lower air emissi ons than federal EPA requirements. The 75-passenger determination is appropriate becau se ferry emissions are significant, and it is important that the regulation include the ferries that are built with capacities between 75 and 150 passengers. We also note that t he 75-passenger threshold has previously been used in proposed legislation in Cal ifornia.

2. Comment: We don’t understand or want an understanding of w here the 300-hour rule of justification comes from. Excursi on vessels are quite different than ferry vessels. Ferry vessels operate a huge nu mber of hours. They burn a lot of fuel. Whereas excursion vessels operate a l imited number of hours in a given week and go at very slow paces. We think tha t to be lumped into larger duty cycle vessels, such as commuter ferries and tu g boats, is an onerous implication for an excursion vessel operator. (HOR NBLOWER2).

Response: ARB chose the 300-hour low-use exemption limit ba sed on minimizing the emission reductions lost due to the exemption while still exempting those engines that would be least cost effective to bring into complia nce.

We believe that categorizing excursion vessel with ferries is appropriate. Ferries and excursion vessels are categorized together by the U .S. Coast Guard as passenger vessels. Similar to ferries, excursion vessels ope rate close to shore a large percentage of the time. This was an important factor in deter mining which vessel types to include in the in-use engine requirements due to the impact on the health risk to nearby

communities.38

The regulation does require that higher use engines comply earlier than lower use engines of the same model year grouping in some cas es. The compliance schedule for vessels with homeports outside of the South Coast r equires engines that operate 1,500 hours annually or more to comply one year ear lier than engines that operate less than 1,500 hours annually. This is the case for al l engines that are not on ferries and required to comply prior to 2017.

3. Comment: Putting our elegant, slow, classic yachts in the same regulatory bucket with Tugs, High Speed Ferries, and other sim ilar vessels is bad public policy. We believe that any policy that puts all v essels in the same class, ends up penalizing numerous vessels that have substantia lly different duty cycles and operational characteristics. (HORNBLOWER1)

Response: We disagree for the reasons provided in the respo nse to Comment G.2

above.

4. Comment: We are confused or actually concerned that a dinn er charter vessel that has a very low duty cycle would be included in other excursion crafts and probably more concerned that we’re included with fe rries and tug boats that produce a much larger quantity and are available to this other subsidy. What we’re concerned about are those boats that go aroun d at three knots for the comfort and enjoyment of our passengers. (HORNBLOW ER3)

Response: See response to Comment G.2 for a discussion on t he reasons that excursion vessels are required to comply with the i n-use engine requirements.

The subsidy mentioned in the comment refers to Carl Moyer Program funding. Carl Moyer Program funding is available to excursio n vessels. See response to Comment M.4 for additional information on the appli cation of Carl Moyer Program funding to excursion vessel projects.

5. Comment: A separation of the proposed harborcraft regulati on into distinct NOx and DPM rules would provide states other than Calif ornia with much needed flexibility to consider adoption of one or the othe r of these rules, depending on their particular air quality situation. We note th at the Board accepted a similar recommendation and adopted this approach recently b y dividing its regulation for In-Use Off-Road Diesel Vehicles into separate rules for NOx and DPM. We urge ARB to divide the proposed harbor craft regulation into separate NOx and DPM rules, thereby facilitating the adoption of in-use marine diesel emission reduction measures by other states around the nation. (COALI TION) (FOTE1) (FOTE2)

Response: We disagree with dividing the regulation into sep arate rules for NOx and diesel PM, since the regulation requires that engin es meet federal certification limits,

which achieve both NOx and diesel PM emission reduc tions at the same time. This should not preclude the states that wish to reduce only diesel PM or only NOx from39

adopting the rule, since they would simply achieve simultaneous reductions of the other pollutant.

6. Comment: I also want to note there’s a significant opportu nity with this rule to get similar emission reductions in other states. I hope that the attorneys can pay close attention to the final regulatory language to ensure that or facilitate the adoption of this rule by other states. I don’t hav e direct suggestions on how to do that, but I hope that the attorneys can give it a c lose look and try to do that. (NRDC)

Response: We are not aware of any specific issues with the regulatory language that would create problems for other states. See respon se to Comment G.5.

7. Comment: ARB should specify marine emission standards inde pendent of EPA rulemakings. This is necessary because the EPA rul emaking is not final, and the ARB regulation must be implemented regardless of wh ether EPA’s rulemaking is ever finalized. (FOTE1)

Response: This is not necessary because the U.S. EPA finali zed their rulemaking in March 2008, with final publication in May 2008, as referenced in the 15-day Notice.

8. Comment: I would urge you to direct staff to include shore side power for harbor craft directly in the greater shore side power regu lation [and] in the harbor craft regulation. (NRDC)

Response: We disagree with the recommendation that shore si de power for harbor craft be included in this regulation as it is out o f the scope of this rulemaking. However, staff is considering including shore power requirem ents for at-berth commercial harbor craft as part of another rulemaking and will evalua te technical feasibility, costs, and emission reductions as part of that effort.

9. Comment: The regulation also does not take into account th e environmental benefits of transporting goods along the waterways as opposed to on land. (AWO1) (SAUSE)

Response: The benefits of transporting goods along the waterw ays as opposed to on land have been debated. However, for the benefit o f public health, the emissions from

both sources must be reduced. The Diesel Risk Redu ction Plan charged ARB with reducing diesel PM from diesel engines throughout C alifornia. For the protection of public health, it is imperative that these emission s be reduced from all sectors throughout California. The Diesel Particulate Matt er Exposure Assessment Study for the Ports of Los Angeles and Long Beach, provided a s Appendix C of the Technical Support Document, concluded that commercial harbor craft are the third largest source of diesel PM emissions in the combined ports of Los Angeles and Long Beach (POLA/LB). As reported in the Staff Report, page 5 , based on a 2002 POLA/LB40

inventory, over 1.5 million people are exposed to a cancer risk of greater than 10 in a

million due to harbor craft diesel PM emissions in the Los Angeles/Long Beach area.

H. Compliance Schedule

1. Comment: We have concerns over the compliance option which is based on the implementation of emission control strategies . . . with a minimum of 25% reduction efficiency in NOx and PM . . . with compl iance dates extended for up to 5 years . . . this compliance option, if selected, will not achieve equivalent emission reductions compared to the requirement for replacement of existing engines with Tier 2 or 3 engines . . . we recommend that this compliance option be revised to require equivalent emission reduction s based on the application of emissions control technologies for existing engines . (CAPCOA)

Response: The “Engine’s Model Year + 5” method is a method fo r determining the “effective model year” on which the in-use engine c ompliance date would be based. It is not a compliance option and so is not meant to a chieve equivalent reductions. A vessel owner that utilizes the “Engine’s Model Year + 5” method is still required to take further action to meet the in-use engine requiremen ts of the regulation. For example, the owner of a 1995 model year engine on a tugboat with a homeport outside of the SCAQMD and which operates in Regulated California W aters for 750 hours in 2013, would normally be required to meet a December 31, 2 014 compliance date. However, if a diesel emission control strategy (DECS) that meet s the requirements of the “Engine’s Model Year + 5” provision of the regulation is impl emented with this engine prior to the 2014 nominal compliance date, the engine’s effectiv e compliance date would be extended to the compliance date for a 2000 model ye ar engine (i.e., the 1995 model year + 5). Accordingly, in that scenario, the engi ne’s effective compliance date would be December 31, 2016, an extension of two years. V essels with a homeport within the SCAQMD are not eligible for this method.

The method, as originally proposed, adds an additio nal two to four years to the compliance date for older unregulated engines that qualify for this method and an additional 5 years for cleaner Tier 1 engines (mode l years 2000 and later) that use this

method.

This optional method for determining compliance dat e was included to encourage the use and consequent development of DECS for marine a pplications. Since there are no DECS verified for marine vessel applications, comme rcial harbor craft owners who employ this method do not have the assurance that a ccompanies a verified strategy. However, this optional method provides an opportuni ty for DECS manufacturers to verify their systems. The minimum 25 percent emiss ion reduction level was chosen to

be consistent with a Level 1 verified emission cont rol device (VDECS). The requirement that there be no more than a 10 percent increase in NOx or PM is also consistent with the Level 1 VDECS requirements. Th ese DECS and VDECS could be used to help reduce emissions from other vessel typ es which are not subject to the in-41

use engine requirements and result in larger overal l emission reductions. ARB believes that use of this method will ultimately provide add itional public health benefits.

2. Comment: With respect to the regulation’s provision for Co mpliance Schedules and Determination of Engine Model year and its “Eng ine’s Model Year + 5” method (e)(6)(C), we have reservations concerning t he limited amount of pollution control that could trigger a compliance e xtension thus potentially vitiating overall emission reductions. For example , an owner can achieve a 25 percent reduction in DPM and a 9 percent increas e in NOx for a net emissions reduction of 14 percent and thus have a legitimate emissions control strategy, entitling him or her to use of the “Engine Model Ye ar + 5” method. In some instances, the election of this method can postpone compliance requirements two years. The overall benefits of this alternativ e compliance strategy seem questionable, and the strategy furthermore offers a nother way in which an owner or operator can extend his or her compliance timeli ne–timelines, which as referenced previously, have already been pushed bac k and prolonged considerably. ARB should reform its “Engine’s Mode l Year +5” method so that emissions reductions are equivalent to those achiev able from engine replacement (repowering). (FOTE1)

Response: We disagree with the recommendation to modify thi s method. See response to Comment H.1 regarding the benefits resu lting from this optional method for determining compliance model year and the selection of the required emission reduction requirements. See response to Comment F.9 regardin g the length of the compliance

timelines.

3. Comment: We recommend that the provision for extending the c ompliance dates under this option be removed to avoid potenti al delay in achieving the needed reductions. (CAPCOA)

Response: We disagree with this recommendation to remove th is method. This comment is referring to the “Engine Model Year + 5” method to determine the engine model year for compliance. See response to Comment H.1 regarding the actual length of the compliance date extension. This method coul d produce emission control devices for future use on older marine vessels not required to meet the regulation compliance timeline. This will provide emission reductions be yond those required by the regulation. Ultimately, owners or operators using the “Engine M odel Year + 5” method will be required to bring these engines into compliance wit h either the U.S. EPA Tier 2 or Tier 3

emission limits.

4. Comment: We recommend that the “Engine’s Model Year +5” mode l be changed so that five years are added to the complia nce date instead of to the engine model year [allowing] engines built before 2 003 to have more time to comply with the regulation. The operators using ol der equipment are often doing so out of necessity because they are small business es or lack the financial resources to upgrade their engines. It is reasonab le to request that these small42

operators be given more time to comply with the reg ulation. After the 2003 model year date, the +5 formula would apply to both engine model year and compliance dates. This would also allow companies to replace the engines during a major overhaul cycle. (AWO1) (SAUSE)

Response: The commenter is suggesting that this method be m odified such that five years are added to the compliance date rather than to the effective model year used for determining the compliance date for all unregulated (pre-Tier 1) and Tier 1 engines built before 2003 that use this method. We disagree with this comment because for many of the pre-Tier 1 engines, the compliance date prior t o applying the “Model Year + 5” method already affords at least a 20-year useful li fe. In the cases where this is not true, applying this method as originally proposed does pr ovide at least a 20-year useful life. In fact, the oldest engines, those that are pre-198 2 model year, are afforded a minimum 30-year useful life with the application of this me thod. Adding five years to the compliance date instead of the model year would fur ther delay compliance for these older engines. This would delay the emission reduc tions and associated health risk reductions achieved through compliance with the reg ulation.

The method, as originally proposed, adds an additio nal two to four years to the compliance date for older unregulated engines that qualify for this method and an additional 5 years for cleaner Tier 1 engines (mode l years 2000 and later) that use this method. This is appropriate considering that these older engines have already been in service for a significant number of years whereas t he newer Tier 1 engines have not.

The impact of the regulation on businesses is addre ssed n the responses to Comments

L.1 and L.3.

5. Comment: If an engine has been retrofit from Tier 0 to Tier 1, we request that the engine be given an additional five years until compliance rather than adding five years to the model year. We currently have a Carl Moyer grant for just such a retrofit, and the compliance date for the engines is only extended from 2009 to 2011, even though the engine would now meet Tier 1 requirements. (WESTAR1)

Response: We believe that the commenter is mistaking the “E ngine Model Year + 5” method of determining effective model year with the “Engine Tier 1 Rebuild” effective model year method. Based on the compliance dates c ited in the comment, we believe that the comments are directed at the “Engine Model Year + 5” method. See response to Comment H.4 regarding the reasons why we have ch osen to add five years to the effective model year rather than extending the comp liance date by five years.

The reason we do not believe this comment is direct ed at the “Rebuild to Tier 1” method is that if the Westar engine were rebuilt to Tier 1 standards, then the effective model year would become the date of the Tier 1 rebuild. A compliance date of 2011 indicates

that the rebuild to Tier 1 standards occurred in 19 98 if the vessel is in the SCAQMD, or 1996 if in another part of the State. Tier 1 stand ards were not promulgated by the U.S. EPA until 1999 so it is unlikely that engines were rebuilt to this standard prior to43

that time. If the rebuild occurred in 2000, the co mpliance date would be much later,
2013 in SCAQMD or 2015 in the rest of the State. O n the other hand, an engine compliance date of 2009 indicates that the engine i s a high-use 1975 or earlier model year engine. A retrofit with an emission control d evice would then only extend the effective model year to that of a 1980 model year o r earlier, which would be required to comply in 2011. This scenario is consistent with t he compliance dates cited in the

comment and indicates that the commenter is referen cing the effective model year method for applying diesel emission control technol ogies. See response to Comment H.4 for reasons why ARB believes this method should not be modified to add an additional five years to the compliance date.

6. Comment: We recommend that CARB increase the compliance sche dule for Tier 0 to Tier 1 engines from January 2008 till Jul y 2009. There will be not enough time to comply with the January 2008 timelin e. (AWO1)

Response: We interpret this comment to refer to the method for determining engine model year for unregulated engines that have been r ebuilt to meet the Tier 1 engine emission standards. The Engine Tier 1 rebuild mode l year method allows a 15-year useful engine life for those engines that have been rebuilt to Tier 1 standards. It is not a compliance extension option to allow extended life for unregulated engines.

7. Comment: We recommend that CARB increase the voluntary compl iance schedule for Tier 0 to Tier 1 engines from January 2008 till July 2009. There will be not enough time to comply with the January 2008 timeline due to the delivery schedule of either parts to upgrade or engines to r e-power and the shipyards inability to accommodate us. (SAUSE)

Response: We disagree for reasons provided in the response to Comment H.6.

8. Comment: We request a year and a half extension . . . to the December 31, 2007, date for voluntary compliance re trofitting engines from Tier 0 to 1 with resulting change in engine model y ear . . . to July 1 st , 2009. (WESTAR2)

Response: We disagree for reasons provided in the response to Comment H.6.

9. Comment: We request that CARB allow twenty (20) full years o f operation for any engine in any vessel installed under Carl Moyer (or other port-sponsored clean air offset program), before requiring replace ment of that engine. (BAYLINK1)

Response: We disagree with this request. Engines funded th rough the Carl Moyer Program are required to meet a specified project li fe to ensure that these public funds are spent in a cost-effective manner and gain near- term emission reductions that go above and beyond, or in advance of, a regulation’s requirements. The Carl Moyer Program guidelines establish a minimum project life of three years and a maximum44

project life of five years for marine projects. Th e in-use engine compliance schedule allows a 15-year useful life for all Tier 1 engines outside the SCAQMD and 13 years within the SCAQMD. The compliance date for an engi ne rebuilt to Tier 1 standards prior to January 1, 2008, is based on an effective model year which is the same as the rebuild date. Consequently, all Tier 1 engines, an d engines rebuilt to Tier 1 standards, will have fulfilled their Carl Moyer Program projec t lives (5 years maximum) prior to required compliance with the regulation. Since the project life required for the Carl Moyer Program will be fulfilled prior to the requir ed compliance date, these engines should be treated on an equal basis to other Tier 1 engines.

10. Comment: We have acted proactively by replacing all of our t wo stroke engines with cleaner burning Tier 1 four-stroke engines. T he eight main engines and eight auxiliary engines have been replaced over the past seven years at a cost of almost $2 million. The Carl Moyer program financed a portion of the cost of these engines. We feel that we acted in good faith by replacing our polluting engines. We ask CARB to allow 20 full years of ope ration for any engine and any vessel installed under Carl Moyer Program, befo re the engine would be required to be replaced. (BLUEGOLD)

Response: While we applaud those owners/operators who have replaced older engine with Tier 1 engines, reducing engine replacement ti melines is a mechanism that ARB has employed for many industries to reduce emission s. If these Tier 1 engines are replaced per the compliance schedule, they will be replaced with engines that meet

Tier 3 emission standards. This will result in abo ut a 75 percent PM emission reduction and a 40 to 50 percent NOx emission reduction. Sta ff evaluated the cost of these reductions, including reduced engine life, to be $2 9 per pound of reduced PM if all costs

are associated with the PM reduction. These costs are within the range of other recent regulatory measures. Also, see response to Comment H.9 regarding the replacement of engines originally funded through the Carl Moyer Program.

11. Comment: We request that a Tier 1 engine installed since 200 1, particularly one that was funded from the Carl Moyer Program, have a phase out of 15 years from the effective date of the regulation. (BLUEGO LD)

Response: The effective date of the regulation is January 1 , 2009. Allowing 15 years from that date for the first compliance requirement would delay the turnover of a Tier 1 engine installed in 2002 by an additional 7 years, or until 2024. This would delay the emission reductions necessary to meet the goals of the Diesel Risk Reduction Plan and

the Goods Movement Emission Reduction Plan and the associated health benefits. See the response to Comment H.9 regarding the use o f Carl Moyer Program funding and the associated project life. See the response to Comment H.10 regarding the magnitude of emission reductions that would be dela yed under this scenario.

12. Comment: For those of us who were pro-active in installing T ier 1 or better, we believe that the regulation cuts our life cycle in those engines and that dollars that were expended by at least 25 percent, we belie ve all of those engines went45

in with the thought in mind of at least lasting 20 years. That’s the normal turn over period of a good engine. (CATALINA)

Response: We disagree with the suggestion that compliance d ates be extended for Tier 1 or better engines for the reasons provided i n the response to Comment H.10.

13. Comment: We recommend that engines with the model year 1996 and newer should have a compliance extension of five addition al years. By taking into account those companies that have been purchasing n ew engines for their vessels using a company replacement cycle, CARB wil l help offset the fiscal impact those companies will face. An engine with a model year 2003 would then be subject to compliance on December 31, 2023. Thi s engine life cycle still does not reflect the true life cycle of a tug engine; ho wever, it does reflect a compromise that will reduce the financial burden on the industry. (AWO1, 14) (SAUSE)

Response: The ARB does not agree with the proposal to give model year 1996 and newer a compliance extension of five additional yea rs. Reducing engine replacement timelines is a mechanism that ARB has employed for many industries to reduce emissions and provide needed public health protecti on. Staff evaluated the cost of these reductions, including reduced engine life, to be $29 per pound of reduced PM if all

costs are associated with the PM reduction. These costs are within the range of other recent regulatory measures. Engines of model year 1996 through 1999 are unregulated (pre-Tier 1) engines. Compliance with Tier 2 stand ards will provide 25 to 30 percent reduction in PM and 40 to 45 percent reduction in N Ox emissions for these engines. See response to Comment H.10 regarding the reductio ns obtained when a Tier 1 engine is brought into compliance with Tier 3 stand ards. Extending compliance dates for these engines by five years delays these reduct ions similarly.

In the evaluation of the economic impact of the reg ulation, staff used a useful life of 25 years to determine the lost value of the reduced engine life for a tugboat propulsion engine, as discussed in Chapter VIII of the Technic al Support Document. ARB staff developed the useful life values based on the resul ts of a statewide survey of commercial harbor craft administered in 2004 (Appen dix D of the Technical Support Document). See responses to Comments L.1 and L.3 r egarding the evaluation of the fiscal impact on affected companies.

Staff’s analysis of the economic impact of the regu lation assumed the most costly option for regulatory compliance will be used. However, e ngine replacement is not the only compliance option for meeting the in-use engine req uirements. Retrofit technology and rebuild-to-a-cleaner-standard kits can be employed to meet the required emission limits.

The U.S. EPA has certified kits to remanufacture la rge locomotive engines to a cleaner standard. The propulsion engines used on many tugb oats are marinized locomotive two-stroke engines. There are currently rebuild ki ts available for these engines, as well as for some other two-stroke engines widely used in marine vessels. While these kits46

do not bring the engines to Tier 2 standards, it is expected that engine manufacturers will develop engine upgrade rebuild kits that will clean engines to the Tier 2 level in response to this ARB regulation and requirements re cently finalized in the U.S. EPA marine and locomotive engine rulemaking (40 CFR Par t 1042). The U.S. EPA rulemaking specifies new remanufacture requirements for engines at or above 800 hp, Tier 2 and earlier, manufactured in 1973 or later. If a rebuild kit that has been certified to reduce PM emissions by at least 25 percent is av ailable for an engine at the time of rebuild, this kit must be used. This ruling, in co njunction with the ARB requirement that certain in-use marine engines meet Tier 2 standards , has created a market for these rebuild kits. It is anticipated that kits to rebui ld to a Tier 2 standard will be developed and available in the near future. As one example o f industry’s efforts to develop new rebuild kits, Caterpillar’s rebuild kit for their 3 500 series marine engines has been recognized by the U.S. EPA as an emerging technolog y. This kit is for engine model years 1984 to 2008 with maximum power rating greate r than 750 horsepower. This kit will not rebuild to Tier 2 standards. However, onc e such kits are available, rebuilding the engine to meet Tier 2 standards will bring the engine into compliance with the in-use engine requirements if compliance occurs before Tie r 3 standards become effective for the engine.

14. Comment: Delay enacting one size fits all policy. Regulat ions should be based on duty cycle or fuel consumption rather than age o f engines. As written, the legislation unfairly penalizes low use vessels.

The philosophy behind the timetable of phase-out da tes for existing pre-Tier 1 and Tier 1 engines is to give owners a certain amou nt of time/operation to take advantage of at least a portion of the engine’s use ful life. However, using the year as the measure works better for a vessel/engin e in service many hours of the day. This results in a large number of actual operational hours and corresponding emissions. In contrast, the vessel/e ngine that operates less frequently or only a short time per day gets consid erably fewer actual hours of operation over the remaining regulatory life grante d to the engine. Thus, with a ferry and a dinner boat both having the same phase- out date, the dinner boat gets far fewer hours of actual operation before the required engine replacement than does the ferry, incurring a substantial econom ic penalty while operating without subsidy.

A year in the life of a dinner excursion vessel is not the same as a year in the life of a ferry vessel. Hornblower charter and dining c ruise vessels rarely travel above 6 knots and burn very little fuel. A vessel that makes 200 trips a year at this speed will burn substantially less fuel than a ferry vessel making 300 trips at

20 knots.

For example, comparing two classes that have been l umped together in the Regulation:47

Characteristic Typical New Ferry Vessel Classic Cha rter Vessel Age 1-20 Years 40-90 Years Appearance Contemporary Classic

Construction Aluminum Wood Drive Engine BHP 4,000 to 20,000 200-600 Annual Days of Use 250-300 100-150
Annual Hours of Use 2,000 to 4,000 500-1,200 Annual Fuel Use-Gallons 200,000 to 1,000,000 5,000- 10,000

Relative Emission Factor 1,000 1 Repower $/% of Vessel $ 20%-40% 50% to 150%

(HORNBLOWER1)

Response: The regulation provides a low-use exemption for e ngines that operate less than 300 hours annually. The in-use engine complia nce schedule requires that the oldest and highest use engines comply first. These oldest engines required to comply in the first two years have already been in operati on much longer than a 20-year useful life. These are unregulated (pre-Tier 1) engines t hat generate significantly more pollution, about 40 percent more NOx and 25 to 30 p ercent more PM, than a Tier 1 engine that will be required to comply in a later y ear. Additionally, as an engine ages, it experiences wear, which increases clearances and in troduces more variability into engine operation. Generally, the older an engine i s, the more pollution it emits. Consequently, an older engine operating fewer hours may generate more emissions than a newer engine operating more hours.

Further, the emissions comparison provided in the c omment is unrealistic. For example, an unrealistically high horsepower range o f 4,000 to 20,000 horsepower was cited for the total vessel propulsion horsepower fo r California ferries. As provided in Chapter III of the Technical Support Document, the 2004 ARB Statewide Commercial Harbor Craft Survey indicated the average total ves sel propulsion horsepower for a typical California ferry is about 2,200 horsepower (based on two 1,100 horsepower propulsion engines). Conversely, the commenter und erestimates the average power rating for an excursion vessel at 200 to 600 horsep ower whereas the survey indicated an average propulsion engine power rating of 800 ho rsepower (two 400 horsepower engines). Also, the survey data indicated that exc ursion vessels operate an average of about 1,000 hours annually, which would indicate th at the range cited in the comment is

underestimated.

Consequently, the annual days of use and fuel use c ould be similarly adjusted to reflect more realistic vessel horsepower and hours of opera tion. We do not know how the

commenter estimated their “relative emission factor .” However the 1,000 to 1 value is not realistic, as demonstrated by the high range of the vessel horsepower presented for ferries and the low horsepower and hours of operati on presented for excursion vessels. None of the data provided in the comment addresses the difference in emission levels from a 40- to 90-year-old engine and a much newer e ngine, one less than 20 years old. Taking this into account makes the emission levels significantly more comparable.48

Based on excursion vessel average engine size, aver age annual engine use, average engine age, and operation proximity to shore (a fac tor in determining health risk impact),

ARB determined that excursion vessels should be inc luded in the in-use engine requirements of the regulation.

As discussed above, “duty cycle” was taken into acc ount in determining regulation requirements. “Fuel consumption” would be an inapp ropriate parameter to determine regulation requirements because, as discussed above , the associated emissions can vary significantly depending on engine age.

15. Comment: The SCAQMD timeline should be removed from this reg ulation. It is unreasonable to expect companies operating within C alifornia waters to adhere to two separate and unique timelines. This will un doubtedly limit the number of tugs able to operate in southern California and pla ce even more burden on those companies attempting to conduct business in Califor nia. (AWO1) (SAUSE)

Response: The SCAQMD timeline is necessary in order to prov ide early emission

reductions in the South Coast Air Basin which is in non-attainment for the federal annual PM2.5 and PM10 ambient air quality standards and 8- hour ozone standard. The South Coast Air Basin is required to attain the PM2.5 sta ndards by 2015 but must demonstrate that goals are met in 2014. This is because the U. S. EPA requires that all necessary emission reductions be achieved one calendar year s ooner – by 2014 – in recognition of the annual average form of the standard. NOx emiss ion reductions are needed because NOx leads to formation in the atmosphere of both ozone and PM2.5. Diesel

PM emission reductions are needed because diesel PM contributes to the ambient

concentrations of PM2.5.

We understand that having a different compliance sc hedule for the SCAQMD does create added complexity to the rule. However, staf f’s evaluation indicated that requiring the entire State to adhere to the SCAQMD compliance schedule would overburden the State’s resources for bringing these engines into c ompliance. The accelerated SCAQMD timeline is two years faster than the rest o f the State. However, as discussed above, the two year acceleration is necessary. Thi s two year acceleration should not limit the number of tugboats available to work in t he SCAQMD. ARB does not believe costs of compliance in SCAQMD, home to California’s largest port (the combined ports of Los Angeles and Long Beach), which is also one o f the nation’s busiest ports, will affect the number of tugboat and towboats available in the South Coast. In addition, see discussion in response to Comment H.13 about al ternative options for larger engines in tugboats to comply with the in-use engin e requirements.

During the course of developing the regulation, ARB staff evaluated the fiscal impact on affected companies in both the SCAQMD and the rest of the State. As discussed in the Staff Report Technical Support Document (Chapter VI II), ARB staff analyzed the potential impacts of regulation compliance on affec ted tugboat and towboat businesses and estimated that the average impact on business’s return on equity (ROE) was a decrease of 3.6 percent and 0.5 percent, respective ly. However, tugboat and towboat49

businesses provide a needed service that is not eas ily replaced, and they will likely be able to pass on the costs to their customers in ter ms of higher service fees. To the extent that they are able to pass on these costs, t he impact on their profitability would

be less than estimated here.

These businesses may also be able to reduce the imp act of the regulation on their businesses by taking advantage of available public funding. Both Carl Moyer Program and Proposition 1B funds are available for early co mpliance with the regulation. The Board approved an allocation of $40 million of Prop osition 1B funding specifically for reducing emissions associated with commercial harbo r craft vessels involved in freight movement operations, including tugboats and towboat s. See the response to Comment M.1 for more information regarding incentiv e funding.

16. Comment: We recommend synchronizing the compliance time fram es for the

South Coast with the rest of the state. I believe the compliance time frame for the South Coast is eleven years. And that’s a real ly long time. And for the rest of the state, there’s even more time through 2022. And I think there is a lot of room to speed up that compliance and offer the earl ier public health benefits to these impacted communities. I also want to note th at there are significant safeguards already in place in the existing regulat ory language that’s proposed here to make sure that we don’t run up against the problems of capacity in terms of getting enough vessels replaced or repowered in a year. And that if that did happen, compliance extensions would be possible. S o I don’t think that that’s a significant issue. (NRDC)

Response: We interpret this comment as suggesting that the State in-use engine compliance schedule be accelerated to match the SCA QMD schedule. See the response to Comment H.15 regarding the South Coast Air Basin’s non-attainment status and the necessity of the SCAQMD accelerated schedule.

The statewide compliance timeline spans 14 years be cause it requires in-use Tier 1 engines just recently purchased and installed to co mply with more stringent standards. The statewide compliance schedule is based on allow ing a minimum 15-year useful life for Tier 1 and Tier 0 diesel engines. Consequently , the engines complying in the latter timeframe are all engines meeting Tier 1 engine emi ssion standards. All Tier 0 engines are brought into compliance by 2013 in the SCAQMD, and by 2016 in the rest of the State. The useful life of newer Tier 1 engines is shortened by five to seven years due to these requirements, depending on whether they have a homeport in the SCAQMD or

elsewhere in the State. While useful life was shor tened to 13 years in the SCAQMD,
this was due to non-attainment issues, as discussed in the response to Comment H.15. Shortening their useful life further by compressing the compliance schedule without compelling reason would be unreasonable and burdens ome.

Accelerating the statewide schedule would also resu lt in more engines being brought into compliance before Tier 3 standards become effe ctive. Staff demonstrated to the Board at the November 2007 Hearing that replacing a Tier 0 engine with a Tier 2 engine50

two years early results in a 20 to 25 percent loss of long-term benefits when compared with replacing the engine with a Tier 3 engine at t he original compliance date. While it is important to obtain the short term benefits of e arly replacement in the South Coast,

this is not true for the remainder of the State.

Implementing the SCAQMD in-use engine compliance ti meline for the entire State would overextend the statewide capacity of boat bui lders, boat repair facilities, and ship yards to complete the additional work associated wi th implementation of the regulation in a timely fashion. During the course of the rule making process, the ARB staff surveyed more than 60 California-based boat builder s, boat repair facilities, and ship yards to ascertain the statewide cumulative annual vessel repair/maintenance carrying capacity. The results of that survey indicated tha t accelerating the compliance schedule would overburden the existing vessel repair/mainten ance infrastructure. The Board agreed with the staff recommendation that the compl iance schedule developed for the SCAQMD not be implemented statewide. In developing regulations, the ARB works to develop a balance that obtains the necessary emissi on reductions and protects public health while still allowing businesses to continue to operate within the State.

Finally, accelerating the statewide compliance time line reduces the opportunity for businesses to use incentive funds to comply early. This increases the burden on industry.

17. Comment: The strongest argument that the staff has for not r equiring an

accelerated turnover for the rest of the state on t he same time line as the South Coast is they’re concerned about the capacity of th e industry to be able [to] change over the engines on time. Even the accelera ted South Coast version is a long time line. You’re looking at a ten-year windo w of opportunity to either increase staff or expand a facility to enable addit ional engine turnover or replacement. The Board should feel empowered to require the whol e state to go with the South Coast time line. Significant emissio n reductions justify the Board going with the South Coast time line that’s a two o r three year acceleration to the overall program. (CCA)

Response: We disagree for reasons provided in the response to Comment H.16.

18. Comment: ARB should accelerate and compress the compliance s chedule. At a minimum, ARB should duplicate the compliance sche dule for the South Coast Air Quality Management District statewide. In keep ing with a condensed compliance timeline, at a minimum we support the se cond alternative considered in the September 2007 CARB Staff Report. In this a lternative, total DPM emissions reductions: “. . . would be significantly more than with the proposed schedule, 6.0 million pounds during the 14 years fr om 2009 to 2022 . . . The total NOx reduction of this same time would be 46,000 ton s, nearly 20 percent more than with the proposed regulation. This alternativ e would produce earlier reductions than the current proposal, with a cost-e ffectiveness similar to the current proposal.” This alternative was rejected d ue to concerns about statewide51

engine replacement capacity. However, possible alt ernatives exist to address these concerns including out-of-state engine replac ement locations, financial inducements (such as the Carl Moyer Memorial Air Qu ality Standards Attainment Program), and subsidized increased capacity arrange ments. These possible

alternatives should be evaluated to accelerate and augment needed vessel emission reductions. (COALITION) (FOTE1) (FOTE2)

Response: We disagree for reasons provided in the response to Comment H.16. While some vessel owners with larger vessels will s end their vessels out of state for repower, ARB believes this will be a small minority of the repower population. Basing capacity on California facilities is reasonable.

There are financial inducements in place for encour aging vessel owners to comply early with the in-use engine requirements. Adopting a co ndensed timeline for the entire State would reduce opportunities for incentive funding fo r early compliance. The Carl Moyer Program requires that funds be expended at least th ree years prior to the regulatory compliance date, and Proposition 1B funding guideli nes require two years. The availability of these funding sources will allow pr oactive vessel owners to bring their engines into compliance years earlier than required by the compliance timeline.

ARB does not have the funding authority to subsidiz e an increase in boat yard capacity. Nor can ARB advise boat builders, boat repair facil ities, and ship yards as to what business model they should pursue, or mandate that these facilities increase their business capacity, either through increased staff o r facility expansion, to meet the needs of the regulation.

19. Comment: It appears in 2011 and 2012 and 2014 there’s some space to shift around the[se] numbers. I know the capacity number that was referenced is 150 [engines per year]. And if possible, we can us e any means at our disposal to move that around so that we can go forward on the s tatewide replication of that

at the South Coast level. (FOTE2)

Response: The compliance schedule in the regulation provide s a more even distribution of engine repower than either of the t wo alternatives considered in the Technical Support Document. While the anticipated number of engines coming into compliance in 2011, 2012, and 2014 are lower than t he estimated statewide capacity, requiring engines scheduled for compliance in 2015 and later to comply in those years would reduce their useful life to significantly les s than 15 years. This would make the regulation more costly and also reduce the opportun ity for using incentive funds for early compliance.

20. Comment: The regulation sets unrealistic compliance dates. (AWO1) (AWO2) (SAUSE) (WESTAR1) (WESTAR2)

Response: The compliance schedule is reasonable and takes i nto consideration economics, engine and dry dock availability, and em issions impacts. The regulation52

includes extensions for cases in which there are no suitable engines available, installation difficulties exist, and when a fleet h aving sets of engines on multiple vessels are required to comply in the same year. There are also alternative compliance

methods that can be used to meet the emission limit requirements, as discussed in the response to Comment H.13.

21. Comment: The compliance timeline, as drafted, is extremely l engthy and should be shortened as much as practicable. No explanatio n has been provided for why the compliance deadline is 2022 despite the urgent need to reduce harbor craft emissions. (FOTE) (COALITION)

Response: See the response to Comment H.16 regarding the le ngth of the compliance

timeline.

I. Compliance Methods

1. Comment: We recommend that Tier 4 repowers be considered for certain size vessels (e.g., over 800 hp) subject to a feasibilit y demonstration. If infeasible, Tier 3 engine repower requirements would then apply . (CAPCOA)

Response: We do not believe it is appropriate to include a requirement for meeting Tier 4 standards for in-use vessels. During our pu blic workshops, engine owners and manufacturers raised an issue about the proposed re gulation’s originally proposed requirement to install Tier 4 engines on existing v essels. The U.S. EPA’s proposed Tier 4 marine engine emission standards will result in the necessity for exhaust aftertreatment (i.e., selective catalytic reduction and diesel particulate filters) on Tier 4 engines. Owners and manufacturers stated that inst alling Tier 4 engines that utilize exhaust aftertreatment equipment on existing vessel s would create space and weight difficulties, U.S. Coast Guard approval problems, a nd vessel stability issues. After consideration of these issues, staff modified the p roposal so that engines meeting Tier 4 standards are not required for engine repowers (i.e ., on in-use vessels), unless the engine being replaced is a Tier 4 engine, but they would be required for new vessels.

Additionally, see response to Comment F.10 regardin g the feasibility of requiring Tier 4 engines prior to the U.S. EPA effective date for th ese standards.

J. Compliance Extensions

1. Comment: We recommend that a three-year automatic extension be granted when there is no suitable engine replacement. Requ esting annual extensions for engines that have not been developed is unnecessary and burdensome for a company. The industry already has to face the brun t of this regulation and it

should not have to also face an undue administrativ e burden. (AWO1) (SAUSE)

Response: The regulation allows a compliance extension when there is no suitable engine replacement available. The ARB Executive Of ficer (E.O.) may grant to an owner53

or operator a one-year extension, which can be rene wed annually, provided the owner or operator demonstrates to the E.O.’s written sati sfaction that there is no suitable Tier 2-certified or Tier 3-certified replacement en gine available that can be used in the specific vessel, and the owner cannot otherwise mee t the requirements of subsection (e)(6) of the regulation. The annual extension app lication requirement provides accountability in the extension process. It is app ropriate that the availability of a suitable engine for a vessel be evaluated annually due to the possibility of new offerings in the market place, and ARB does not believe this annual extension process is burdensome to the company.

2. Comment: We recommend that an automatic extension be granted to the company as long as it submits documentation showing both that it has ordered the engine and the manufacturer’s expected delivery date. There is an economic incentive for the engine manufacturers to ensure th at there are as few delays as possible in the delivery of a new engine. However, the burden should not fall on the operator to continually submit requests for six -month extensions when the manufacturer is delayed. In order to alleviate the administrative burden that this section imposes on the industry and expedite the ex tension process, documentation from the operator and manufacturer sh ould be sufficient to warrant an extension to the compliance date that re flects the manufacturing delay. (AWO1) (SAUSE)

Response: The extension application process requires only t hat the vessel operator provide the documentation cited in the comment and documentation showing that the engine was ordered no later than six months prior t o the engine’s compliance date. This is not an onerous process, and ARB will make a n objective determination of eligibility for the extension. The 6-month extensi on ensures that at least one full year is allowed for compliance from the date the engine is ordered.

3. Comment: We recommend that this extension [an installation d ifficulty (six month extension)] should mirror the extension comme nts made previously in regards to manufacturer delays [be granted to the c ompany as long as it submits documentation showing both that it has ordered the engine and the installer’s expected installation date.] Currently this regula tion imposes the burden on the operators when the delays are out of their hands. (AWO1) (SAUSE)

Response: As stated in the response to Comment J.2 above, t he extension application process requires only that the vessel operator prov ide the documentation cited in the comment, documentation showing that the engine was ordered no later than six months prior to the engine’s compliance date, and document ation of the installation difficulties. This is not an onerous process, and ARB will make a n objective determination of eligibility for the extension.

4. Comment: We request automatic compliance for the extension d ates on replacement engines due to the manufacturers, not a one year, six month. We54

need automatic compliance or automatic extension fo r compliance. That would be in line with when we can get the engines. (AWO2 )

Response: We disagree for reasons provided in the response to Comment J.2.

5. Comment: We request the exemption process through the Exec utive Officer for infeasibility be modified to allow for a longer per iod between submittals, the current writing calls for annual submissions of ver y complex and time consuming documents. (BAYLINK1)

Response: We are interpreting this comment to be referring to the compliance extension for the case where no suitable engine is available, rather than an exemption. There are no repeated submittals for exemptions. S ee response to Comment J.1. As discussed in the response to Comment J.1, annual su bmittals are appropriate for accountability. If no new technology is available, then the submittal should not require further evaluation of the suitability of available technology. If new technology has become available, it is appropriate that the techno logy be evaluated for suitability.

6. Comment: The regulation contains a burdensome application pr ocess. (AWO1) (AWO2) (SAUSE)

Response: We disagree for reasons provided in the responses t o Comments J.1, J.2,

and J.3.

7. Comment: We recommend that an extension [to an owner having multiple vessels whose engines need to comply during the sam e year] not be a one-time only extension. The impact on an operator with mul tiple vessels coming into compliance will only be compounded if this extensio n is limited to one use. (AWO1) (SAUSE)

Response: We disagree with the comment except in the case w hen the compliance date is in one of the first two compliance years. Except when the compliance dates are in the first two compliance years, the vessel opera tor has sufficient time to plan for the engine compliance requirements and possibly comply early with incentive funding or apply for an alternative control of emissions plan. The one-year extension allows an operator to phase the dry dock times for their mult iple vessels over a two-year period rather than just over one year.

For those cases where compliance is required for se ts of engines on multiple vessels in one of the first two compliance years, a change was made in the regulation as part of the 15-day Notice. The original proposal provided a one-year compliance extension for vessel owners or operators with multiple vessels re quiring engine compliance in a single year. However, there are at least two fleets with a large number of vessels with engines older than 1975 model year that would need to bring all of the effected engines on these vessels into compliance in the first two compliance years, 2009 and 2010. The original proposed compliance extension would only have exten ded their compliance deadline for55

either of these dates by one year. Based on Board direction at the November 2007 Hearing, staff made changes in the 15-day Notice to provide an extension to allow a phased compliance schedule for owners and operators with sets of engines on multiple vessels requiring compliance in either 2009 or 2010 . The phased compliance schedule would require that a portion of the fleet be brough t into compliance each year and that all engines be brought into compliance by the end o f 2013. This would allow up to four years for the engines to be brought into compl iance but would not jeopardize the early reductions necessary in the South Coast or th e rest of California.

8. Comment: We renew our objection to compliance extensions o ffered to owners or operators possessing multiple vessels in the sam e fleet. While some extensions are reasonably provided for – such as th ose pertaining to the absence of suitable replacement engines – assisting owners and operators who own multiple vessels is neither essential nor argua bly equitable. (FOTE1)

Response: The extension the commenter is referring to is a one-year extension for cases when there are sets of engines on more than o ne vessel in a fleet with compliance required in the same year. If complianc e for these sets of engines is required in one of the first two compliance years ( 2009 or 2010), a longer extension is provided, as discussed in the response to Comment J .7. This extension requires more than simply for owners or operators to own multiple vessels, as implied in the comment. This extension was provided because compliance with the regulation is expected to require a nontrivial period of time, during which t he vessel must be in dry dock. The extension will allow the vessel owner to phase that out-of-service time for vessels over two or more years rather than one. This extension also allows more time for financing of any modifications required. When sets of engine s on multiple vessels in a fleet are required to comply within one of the first two year s, additional time beyond a one-year

extension is allowed because there is little time f or the owners to plan for the expense and out-of-service time. Requiring compliance with in one of the first two years also does not allow for early compliance with the use of incentive funding.

9. Comment: Write into the regulation or give the Executive D irector and staff more discretion to allow appropriate time to compan ies that can demonstrate undue economic burden in any given year of the prog ram . . . i.e., to extend implementation dates if a company has more than two vessels to be re-powered in any given year (estimated implementation cost of over $250,000). (HORNBLOWER1)

Response: We disagree with this recommendation. The determ ination of undue economic burden is very subjective in nature, which makes equitable evaluation difficult. As explained in the response to Comment J.7, more f lexibility has been added to the regulation for vessel owners with sets of engines o n multiple vessels that are required to comply in one of the first two years. For cases wh ere compliance is required in later years, there is sufficient time for the vessel owne r to plan for compliance, including considering various compliance options, as discusse d in the response to56

Comment H.13, and the use of incentive funding, as discussed in the responses to

Comments H.15 and M.1.

10. Comment: We request that the extension for same fleet vess els that share compliance dates be broadened. Due to our extensiv e re-engining under the Carl Moyer program, Westar currently has seven vess els that have a compliance

date of 2015 and seven vessels with a date of 2017. We would have to reengine 14 vessels over a four year period. Based o n our extensive experience with re-engining, we do not believe that we could m anage that many re-enginings with in that time period. A single one-year extension is just not adequate. We request that this extension not be limited to one u se. (WESTAR1) (WESTAR2)

Response: For cases where compliance is required in later y ears, there is sufficient time for the vessel owner to plan for compliance, i ncluding considering various compliance options, as discussed in the response to Comment H.13, and the use of incentive funding, as discussed in the responses to Comments H.15 and M.1. See responses to Comments L.1 and L.3 for additional di scussion on the impacts on

businesses.

11. Comment: I’d also like to comment briefly on engine availa bility and second what you’re hearing that it takes a year or so to g et the engines. We’re going to schedule six months for our ferries to be re-powere d. And we’re going to have to take it to a shipyard in Washington. . . . we are actually having to modify the hull

of the vessel in order to accommodate the added wei ght of the engine. And that’s going to involve significant shipyard time. (BAYLINK2)

Response: Every commercial harbor craft repair/maintenance/ repower project is different and, as such, the regulation includes a c ompliance extension for manufacturer delays or installation difficulties. In addition, ARB staff plans to work closely with owners that are fulfilling the intent of the regula tion when dealing with these types of issues. There are other options besides engine rep lacement that can be considered for compliance. See response to Comment H.13 for a dis cussion of these options.

12. Comment: There’s much more to this exchange of engines tha n I think what I’ve heard talked about today. There’s no way you can c omplete this task within a three week period. It’s been a minimum of three mo nths per vessel. (CATALINA)

Response: ARB staff surveyed more than 60 California-based boat builders, boat repair facilities, and ship yards to determine an e stimate of the time it takes to repower a commercial harbor craft. The time estimates ranged from three to four weeks up to three months, with the vast majority indicating the former. Also, see response to

Comment J.11.57

K. Alternative Control of Emissions

1. Comment: We reiterate our opposition . . . to elements of the Alternative Control of Emissions (ACE) program. We remain concerned th at Fleet Averaging may create disproportionate impacts. Further, we belie ve that several of the provisions allowable in an ACE should be required, as opposed to optional. These provisions include engine modifications, exha ust treatment control, engine repower, use of alternative fuels or fuel additives and shore-side power, especially shore-side power for tugboats. ARB shou ld evaluate whether ACE methods can be made mandatory elements of this rule . (FOTE1)

Response: ARB believes the ACE provision is important for p roviding flexibility in achieving equivalent emission reductions compared t o direct compliance with the regulation. The regulation will require ACE applic ations be made available for public

review and comment before Executive Officer action. Fleet reductions that are part of an ACE plan cannot be used to compensate for emissi ons in another air district or locale, as provided for in the definition of “fleet ”. This will avoid any disproportionate impacts from occurring due to the ACE plan. Until Executive Officer approval is granted, the owner or operator would be required to meet the performance requirements in the regulation.

The multiple strategies possible in an ACE plan and the costs and risks associated with those strategies make them more appropriate to cons ider on a case-by-case basis as opposed to a general mandate. To make these strate gies mandatory would impose a prescriptive standard for the in-use engines affect ed. In contrast, the regulation imposes a performance standard for these engines wh ich allows vessel owners to choose how they will meet these standards.

As discussed in the response to Comment G.8, staff is considering including shore power requirements for at-berth commercial harbor c raft as part of a future rulemaking

effort.

L. Economic Burden and Impact on California’s Econo my

1. Comment: We oppose the draft harbor craft regulation. It pl aces unnecessary and overly burdensome regulations on the tugboat, t owboat and barge industry that have the potential to put many operators out o f business, thereby striking a severe blow to California’s economy, as well as the nation’s. (AWO1) (SAUSE)

Response: We do not believe this regulation will significan tly affect California’s or the nation’s economy. As discussed in the Technical Su pport Document (Chapter VIII), ARB staff analyzed the potential impacts of regulat ion compliance on affected tugboat

and towboat businesses and estimated that the avera ge impact on business’s return on equity (ROE) was a decrease of 3.6 percent and 0.5 percent, respectively. Tugboats and towboats are a significant source of commercial harbor craft emissions, resulting in reduced air quality and contributing to significant public health risks. However, these58

businesses provide a needed service that is not eas ily replaced, and they will likely be able to pass on the costs to their customers in ter ms of higher service fees. To the extent that they are able to pass on these costs, t he impact on their profitability would

be less than estimated here. The State’s and the n ation’s economies are not expected to be impacted by the passing on of these costs. T he ultimate customer base to which the costs will be passed is the mass of consumers o f imported goods. The distribution of these costs among a customer base that is many o rders of magnitude larger than the source will greatly mitigate the increase in costs such that it becomes negligible.

These businesses may also be able to reduce the imp act of the regulation on their businesses by taking advantage of available public funding. Both Carl Moyer Program and Proposition 1B funds are available for early co mpliance with the regulation. The Board approved an allocation of $40 million specifi cally for reducing emissions

associated with commercial harbor craft vessels inv olved in freight movement operations, including tugboats and towboats. See t he response to Comment M.1 for more information regarding incentive funding.

2. Comment: The proposed regulation will have a significant eff ect on our operations and our ability to stay in business. (W ESTAR1) (WESTAR2)

Response: See response to Comment L.1.

3. Comment: The ramifications of this regulation have not been adequately addressed by CARB staff in the economic impact stat ement. For example, imposing a short life cycle on marine engines will be so costly that it will push smaller vessel operators out of business, which wil l decimate the ship assist business in California waters and cause employees t o lose family-wage jobs, and also possibly severely limit the number of vessels that operate in California from outside of the state and weaken the state’s economy

.

Ocean-going tugs operating as ships and only making port calls, ship assist vessels and marine construction companies will all be severely impacted. (AWO1) (SAUSE) (AWO2)

Response: We disagree with these comments. See response to Comment L.1 for a discussion of economic impact on affected businesse s and the State’s and nation’s economies. The analysis that staff conducted took into account the lost economic value due to engines being replaced before the end of the engine’s useful life. This cost was

included in the estimated reduction in ROE discusse d in the response to Comment L.1. The economic analysis assumed that vessel operators would comply with the regulation by replacing their engines. This is the most costl y option for regulation compliance. There may be other, less costly options available t o many fleet owners for complying, including rebuilding engines with engine upgrade ki ts that reduce emissions (as discussed in the response to Comment H.13), employi ng emission control technologies,

which could include aftertreatment devices and fuel strategies, or applying for approval for an ACE plan. An ACE plan must obtain emission reductions equivalent to or greater59

than direct compliance with the regulation. ACE pl ans may include the use of engine rebuild kits, exhaust treatment, use of alternative fuels or additives, shore side power, or

other methods which reduce emissions for their flee t but allow more flexibility. Consequently the regulation will not cause the ship assist industry to be decimated or result in lost jobs.

There are provisions in the regulation to extend th e compliance time for vessel owners/operators for manufacturer delays, installat ion difficulties, and for engines on multiple vessels that have the same compliance date . ARB staff plan to work closely with owners/operators when dealing with these types of issues. If an extension is warranted, the owner or operator is required to app ly for this extension at least six months prior to the engine regulatory complianc e date. The approval process for some extensions includes a public review period.

Operators who bring out-of-state vessels into Calif ornia for operation may need to assign their cleanest harbor craft to California op eration and, as maintenance schedules permit, clean up other vessel engines to allow more flexibility in vessel use.

4. Comment: One example of a similar situation in the past is in the 1990’s when California imposed an eight percent sales tax on bu nker fuel. Ships simply chose to buy fuel elsewhere. This increase obliterated t he bunkering business and, in turn, approximately 75 percent of the market left C alifornia. The impact of the harbor craft regulation on the tug and barge indust ry will have a greater negative impact than the bunker tax and, unlike the bunker t ax, the harbor craft regulation will impact multiple business sectors. (AWO1)

Response: See responses to Comments L.1 and L.3 for a discuss ion on the economic impacts on affected businesses. The example of the bunker fuel sales tax is not applicable to this situation. As discussed in the response to Comment H.15, the combined ports of Los Angeles and Long Beach are on e of the nation’s busiest ports due to the large amount of imported goods that flow through this port and the size of the metropolitan area that the port and other local tra nsportation industries service. The businesses that commercial harbor craft are engaged in (primarily import/export) will not

relocate to outside of California due to the cost o f this regulation. The customer base

that the harbor craft industries service is suffici ently large to bear the cost of the regulation.

5. Comment: However, legitimate concerns of the tug boat indu stry presented during development of the regulation have mostly no t been addressed. Of particular note are the unrealistic compliance date s and the gross underestimation of total costs involved. Many vess els are going to have to be reengined.

And there’s going to be disruptions in commerce whe n tug boats are unavailable due to time out of service, engine delivery delays, and limited shipyard resources. This is going to cost California consum er much more than is60

estimated in this proposed rulemaking. And many sm aller tugboat companies

with limited financial resources will sell their bo ats outside of California and go out of business. (WESTAR1) (WESTAR2)

Response: ARB believes it has addressed the concerns of the tugboat industry, as described more specifically in other responses to c omments within this document, even though not all changes that companies requested in the regulation have been made. See response to Comment H.20 for a discussion regar ding unrealistic compliance dates and extensions for delays due to engine delivery an d installation difficulties (including delays due to limited shipyard resources). As disc ussed in Chapter VIII of the Technical Support Document and the responses to Comments L.1 and L.3, staff conducted an economic analysis and calculated that the average i mpact on tugboat business ROE was a decrease of 3.6 percent. Tugboat and towboat businesses provide a needed service that is not easily replaced, and they will likely be able to pass on the costs to their customers in terms of higher service fees. T o the extent that they are able to pass on these costs, the impact on their profitability w ould be less than estimated here. Assuming these costs are passed on to and spread am ongst millions of consumers, the cost to each individual consumer will be insignific ant. Alternative methods of meeting the emission limits are discussed in the response t o Comment H.13.

6. Comment: Typically the main engines on tugs will last many r ebuild cycles. Most of the EMD engine blocks have pre 1980 origina l build dates. To re-power with like engines can cost 2.5-3.5 million dollars per tug, sometimes exceeding the total value of the tug. The current compliance schedules will decimate the ocean tugs and ship assist business in California w aters and cause employees to lose family-wage jobs, and also possibly severely l imit the number of vessels that operate in California from outside of the state and weaken the state’s economy. (SAUSE) (AWO2)

Response: We disagree with the commenter’s conclusion. See responses to Comments H.13 and L.3 regarding less costly alterna tive compliance options available. See Comment L.1 regarding the economic impact on bu sinesses. It is not expected that the regulation will result in job losses or ha ve a significant impact on tugboat businesses because they provide a necessary service that will continue to be in high demand. See the response to Comment L.3 regarding the possibility of the regulation limiting the number of vessels that operate in Cali fornia from outside of the State and the impact on the State’s economy.61

7. Comment:

. . . our company cannot survive the proposed Commercial Harbor Craft Regulation as drafted.

The impact of the legislation will bankrupt our co mpany:

 14 of 35 Vessels would require re-power in the fir st two years (2010-11). Regulation does not recognize the impact it will cr eate on a large fleet of

vessels.

 All of these vessels combined have fewer emissions than the average commuter ferry due to hours of operation and fuel c onsumption rate.

 Recent rebuild and re-power write-offs would excee d $500,000

 Historic Register(s) registration concept as draft ed is not compatible with USCG Inspected Vessels. Many vessels were built ar ound the engines and will require substantial demolition to replace. Ou r fleet has at least 5 such vessels that would be permanently removed from serv ice as a result.

 Collateral damage in re-power situations is substa ntial, including reduction in capacity, additional capital expenditures, and rout e/service reduction.

 Private Lender support will dry up with regulation s that increase ownership

cost (HORNBLOWER1)

Response: As discussed in the responses to Comments H.13, L .1, and L.3, owners/operators have other options for regulation compliance besides engine replacement that are substantially less expensive. Larger fleets, such as described in the comment are particularly suited to using the AC E option. Additionally, a change has been made to the regulation through the 15-day Noti ce and public comment that includes a compliance extension specific to fleets with sets of engines on multiple vessels that are required to comply within the firs t two years. The extension allows phasing compliance through multiple years, as long as all affected vessel engines are brought into compliance by the end of 2013, as disc ussed in the response to

Comment J.7.

See the response to Comment H.14 regarding the comp arison of emissions from older

excursion vessels to those from newer ferries.

Capital expenses will be incurred; however, as disc ussed above and in the responses to Comments L.1 and L.3, these costs are not expected to be devastating to affected businesses. In Appendix H, included as Attachment 4 in the 15-day Notice, staff estimated an increase in ticket price required to c over the expense of regulation compliance for three businesses for which staff was able to obtain Dun & Bradstreet credit and business report information. These busi nesses represent a range of business sizes, including a large, medium, and smal l ferry/excursion company. Estimated new equipment costs were based on the fle et description provided in the survey responses for these companies. An average a nnual new equipment cost was estimated for the years over which compliance would be required. The average new equipment costs ranged from between three to five p ercent of the average annual sales62

for these three companies. As a worst case hypothe tical example generated to confirm this estimated range of ticket price increase, ARB staff estimated the costs to a small excursion company with a single older vessel. The analysis estimated that if the annualized cost, amortized over 10 years at an inte rest rate of 5 percent, was passed on to the passengers through a ticket price increas e, the resulting increase in ticket price would be 10.5 percent. These estimated incre ases in the ticket prices should not significantly reduce the number of passengers nor c ause bankruptcy.

See response to Comment D.1 to address the applicab ility of the National Historic Registry to U.S. Coast Guard inspected vessels. Th e response to Comment D.1

discusses two fireboats that are listed in the Nati onal Historic Register: one which is currently part of the Los Angeles Fire Department’s fleet and the other which previously operated in Oakland. Since these types of vessels are registered by the U.S. Coast Guard, we assume that there is no conflict between U.S. Coast Guard registration and registration with the National Historic Registry.

The commenter claims that compliance with the regul ation will reduce capacity and

routes and services. Whether or not such reduction s occur will be dependent on how the operator chooses to comply with the regulatory requirements. If they choose to reduce engine operating hours to below the low-use limit, these reductions may occur. Otherwise, compliance with the regulation should no t reduce vessel capacity, routes, or

services.

With higher costs, businesses may find it more diff icult to qualify for loans from private lenders. A private lender will want to see a retur n on investment and proof that the borrower can pay back the loan. As discussed in Ch apter VIII of the Technical Support Document, the reduction in return on equity due to regulatory compliance that was estimated for ferry/excursion companies ranged from 3 to 5 percent. This is not considered an economic hardship and is not expected to impact the ability of businesses to qualify for loans.

We acknowledge that some vessel owners may be force d to change their business model and increase their debt to comply with the co mmercial harbor craft regulation. Many vessel owners may have to change how they allo cate capital resources, and they may need to borrow money to purchase retrofits or r epowers. The amount of debt acquired will depend on the compliance path chosen by the vessel owner. Also, for vessel owners with engines with later compliance da tes, taking early actions with the use of incentive funding is another way to spread o ut the costs of the regulation without accruing large amounts of debt in the beginning yea rs where the compliance costs can be the highest.

8. Comment: The regulation does not accurately address the econ omic impact of us and unfairly requires ocean tugs to comply. (AW O2)63

Response: We are confident in the economic impact analyses conducted for this regulation and believe it is appropriate to include ocean-going tugboats in the regulation. See responses to Comments B.1, L.1, an d L.3.

9. Comment: To get a better understanding of how flawed the fin ancial impact statement is, this section will detail how a real C alifornia tug company will comply with this regulation. The company has a total of 1 0 tugs and operates a ship

assist business. The numbers contained within this example will be in today’s dollar; any future impacts would need to have an es calator of at least 10 percent annually due to inflation.

The engines in the tug company are model years 1996 and 1997 and operate more than 1,500 hours annually. Based on the propo sed regulation, the compliance date for these tugs would be 2015, which means that this company would have to replace its entire fleet’s engines du ring the same year. Each tug would be out of service for approximately 30 days, during which time the tug will have to be ripped open and have the engines removed with a crane. Also, during this time the company would have to pay a ch arter tug to cover the company’s existing contracts.

After taking into account lost revenues, engine cos ts, service costs, service equipment costs and the expense to charter a vessel , the company will have to invest $2.2 million per tug. This means that withi n a two-year period, if the onetime extension for multiple vessels is utilized, th e small business in question will have to spend $22 million.

This is one tug company of many that will probably not be able to afford compliance with the harbor craft regulation as it i s currently written. Companies will also have to examine the various ports to dete rmine if the enormous additional expense of complying with the regulation is worth continuing to stay in operation in California.

However, if AWO’s suggestions are incorporated, the tug company in the previous example will be able to spread the $22 mil lion expense over a period of five to 10 years. This time will allow the company to continue to use part of its fleet to generate revenue so that it can pay the co sts imposed by the regulation and not be forced out of business. (AWO1) (SAUSE)

Response: We do not agree with the dire picture that the comm ent has drawn. With a compliance date in 2015, the business has six years to plan for the required compliance. Incentive funds, as discussed in the r esponse to Comment M.1, are available for tugboat projects if they choose to co mply early with the regulation requirements. Additionally, other options besides engine replacement are anticipated to be available for compliance, as discussed in the re sponse to Comment H.13.64

10. Comment: Example of how the proposed policy will impact one “classic Vessel”

in our fleet –

Built in 1942 and owned by John Wayne, she currentl y carries 150 Passengers maximum, 80 average, 100 days per year. We have sp ent $200,000 over the last 2 years to maintain her classic condition. Th e vessel has large slow speed EMD engines with average operation of 800 hours ann ually.

Under the present proposal, Hornblower will need to re-power by 2010. We do not think that a re-power is possible and the vesse l will be rendered unusable at a great loss to the public, who enjoy the vessel an d her history.

a. Large heavy engines are part of the vessel balla st system (USCG Issue) b. Vessel would require partial destruction to remo ve engines (USCG Issue) c. Estimated cost of new engines & generators $200, 000. Estimated additional cost of re-power (if even possible) $500 ,000. Estimated fair value of vessel $2,000,000. d. Vessel contributes over 40% of our gross revenue in Newport Beach, and employs over 50 local residents. (HORNBLOWER1) (HORNBLOWER2)

Response: We do not agree with this comment. There are opt ions for regulation compliance other than repowering. See responses to Comments H.13 and L.1 regarding alternative ways for owners/operators to comply with the regulation. See responses to Comments D.3 and H.14 regarding the em issions from “classic vessels.”

11. Comment: Implementing a hastily-constructed regulation wou ld cripple an industry and harm the overall economic health of th e state. (AWO1) (SAUSE)

Response: As discussed in the Staff Report (pages 25-26) and Technical Support Document (Chapter II, pages II-7 to II-9), ARB has worked extensively with the various stakeholders since 2004. ARB staff has held 12 pub lic workshops during the development process. In addition to the public wor kshops, staff participated in numerous industry and government agency meetings ov er this timeframe regarding the development of the regulation. See responses to Co mments L.1 and L.3 regarding the impact of the regulation on tugboat industry and th e State’s economy.

12. Comment: There is not an appreciation by the state of the severity of the regulation’s impact on the entire maritime communit y. (AWO1) (SAUSE)

Response: See responses to Comments L.1 and L.3 regarding the economic impact on the tugboat and towboat industry and the State’s economy. The regulation was crafted to include sufficient flexibility, as discu ssed in responses to Comment H.13, regarding alternative methods for compliance, Comme nt H.20, regarding available extensions, and Comment J.7, regarding fleets with sets of engines on multiple vessels65

required to comply in the same year (to mitigate th e regulation’s impact on the maritime community).

13. Comment: We don’t believe that the staff has done an adequ ate analysis to determine the ROE on our company. In fact, we thin k it could jeopardize our viability as a company to serve the public of Calif ornia. (HORNBLOWER2)

Response: As discussed in Chapter VIII of the Technical Sup port Document, staff

used the available Dunn and Bradstreet financial da ta to analyze the economic impact of the regulation on the ROE of impacted businesses . Staff was able to obtain representative data for each of the three vessel ty pes. However, it was not possible to conduct an ROE analysis for every individual compan y impacted. ARB is confident that its financial impact projections are sound and that the regulation has sufficient compliance options and flexibility to accommodate t he specific needs of individual

businesses

14. Comment: AWO’s concerns with previous drafts of the harbor craft regulation have, in large part, gone unaddressed, and we are n ow presented with a draft regulation that will have an enormously negative ec onomic impact on the tug and barge industry. (AWO1) (SAUSE)

Response: ARB believes it has addressed the concerns of the tugboat and towboat industry by including a number of compliance option s and flexibility into the regulations, as discussed more specifically in other responses. In particular, see the responses to Comments L.1 and L.3 regarding the economic impact on the tugboat and towboat

industries.

M. Incentives

1. Comment: We suggest CARB authorize tax incentives and grants to tug companies to invest in cleaner burning, more effici ent engines. It is uncertain whether or not Carl Moyer funding will be available after the adoption of the harbor craft regulation, since the funding is not a vailable to meet regulatory compliance. This would allow small businesses and companies heavily invested in equipment the opportunity to find capital to mak e the necessary modifications to their engines to meet the compliance standards. (AWO1) (SAUSE)

Response: ARB has no authority to initiate tax incentives. T he State Legislature and U.S. Congress have exclusive authority to amend Sta te and federal tax law, respectively.

Grants for early compliance are available. The Car l Moyer Memorial Air Quality Standards Attainment Program, now in its tenth year , provides incentive grants to public and private entities. Carl Moyer Program funding s ubsidizes the incremental cost of installing cleaner-than-required engines and rebuil ding older, dirty engines to a cleaner standard. The objective is to encourage operators to exceed emission reductions66

required by regulation. During its first seven yea rs, the Carl Moyer Program provided $170 million to clean up approximately 7,500 engine s throughout California.

As of the 2003-2004 fiscal year, about 400 propulsi on engines and 50 auxiliary engines had been replaced in approximately 300 harbor craft through the Carl Moyer Program. Specifically, $6.3 million was granted to tugboat o perators to rebuild and replace 68 engines, and $3.7 million was granted to ferry/e xcursion operators to rebuild and replace 30 engines.

The Carl Moyer Program is available to commercial h arbor craft operators who undertake projects to reduce emissions early or bey ond what is required by regulations. Grants are available as long as replacing engines w ith new cleaner engines is completed at least three years prior to regulation compliance dates. Project completion

deadlines are summarized in Table VIII-16 and Table VIII-17 Chapter VIII of the Technical Support Document.

In addition, Proposition 1B funding is available to reduce tugboat and towboat emissions; $40 million has been allocated for reduc ing emissions from commercial harbor craft. These funds are available in the spe cified goods movement corridors and may also be used for projects to reduce emissions f rom work, pilot, crew, and supply boats as well as high-use commercial fishing vessel s. Engine replacements for tugboats and towboats must be completed at least tw o years prior to regulation compliance dates.

At the local port level, grants are available to su pport air quality improvements from port operations. For example, grant funds are available from the Port of Los Angeles for air emission reductions that go beyond current regulato ry requirements. The Port of Los Angeles Air Quality Mitigation Incentive Progra m (PAQMIP) has granted millions of dollars since 2003 for air quality mitigation proje cts.

2. Comment: We request that incentives be crafted to assist eco nomically challenged companies or industries, this in order t o attain CARB goals in a faster time frame. (BAYLINK1)

Response: Incentive money to fund early reductions is avail able as discussed in the response to Comment M.1. However, public funding i s specifically meant for obtaining emission reductions surplus to regulation complianc e, such as early compliance, and are not awarded based on need. Additionally, the d etermination of economic need is very subjective in nature which makes equitable eva luation difficult.

3. Comment: We’ve never seen funding available that will do the complete job. When you replace this engine, you don’t just replac e the engine . . . You redo the engine beds. You have to replace drive lines. And you may end up replacing water jets and everything else. They just don’t co me out the same. They either run at a different RPM that changes torque levels. (CATALINA)67

Response: Incentive money to fund early or excess reduction s is available as discussed in the response to Comment M.1. However, the vessel operator is expected

to share in these costs. Alternative methods to re placing an engine in order to meet the emission limits are discussed in the response to Co mment H.13.

4. Comment: There’s just one point I wanted to clarify as far a s duty cycles of a dinner cruise boat. Historically, that has not all owed us to get Carl Moyer funding. In fact, on the occasions we’ve applied, we did not get it. From the criteria I hear today from this future bond funding , I don’t think we’ll get it either. (HORNBLOWER3)

Response: As discussed in ARB’s response to Comment M.1, th e Carl Moyer Program has provided several millions of dollars to install new engines in commercial harbor craft. Over the past several years, 12 excursion v essel engines have been repowered under the Carl Moyer Program and other local incent ive programs. The Carl Moyer Program is typically over-subscribed, and the air d istricts typically award funding to the most cost-effective projects. To be competitive fo r these funds, excursion vessel operators may choose to make their proposals more c ost effective in order to be awarded funds. One way to increase cost effectiven ess is to share a more significant portion of the cost.68

IV. SUMMARY OF PUBLIC COMMENTS AND AGENCY RESPONSES – NOTICE

OF MODIFIED TEXT

Ten written comments were received on changes made in the regulation at the time of the 15-day Notice dated June 18, 2008. Two of the written comments received were not responsive to the modifications in the 15-day N otice as they did not address the specific changes in the regulation. Additionally, several commenters included nonresponsive comments along with responsive ones in t heir written correspondence. For example, both Red and White Fleet and San Francisco Bay Area Water Emergency Transportation Authority made comments regarding su bsections that were rearranged

or otherwise modified to make them easier to read b ut did not include substantive changes. Comments that were not responsive to the modifications are not addressed in this FSOR. Eight commenters suggested changes to t he proposed modified regulations. These eight commenters are listed in Table II. Set forth below is a summary of the comments together with the Agency’s response.

Table II Comments Received During the 15-day Comment (excluding comments that were not specific to modif ication made)

Abbreviation Reference

Number Commenter

AWO AWO Jason A. Lewis The American Waterways Operators Written testimony: July 3, 2008

FOTE FOTE John Kaltenstein

Friends of the Earth Written testimony: July 3, 2008

HORNBLOWER HORNBLOWER Terry A. MacRae

Hornblower Cruises and Events Written testimony: July 3, 2008

PPS PPS Brett Greene

Peterson Power Written testimony: July 3, 2008

PVA PVA Edmund B. Welsh Passenger Vessel Association Written testimony: July 3, 2008

RED AND WHITE RED AND WHITE Joe Burgard

Red and White Fleet Written testimony: July 3, 200869

WETA WETA Mary Culnane San Francisco Bay Area Water Emergency Transportation Authority Written testimony: June 27, 2008

BLUE AND GOLD BLUE AND GOLD Carolyn Horgan

Blue and Gold Fleet Written testimony: July 3, 2008

Summary of 15-Day Comments and Responses

A. Engine’s “Model Year + 5” Method of Determining Effective Model

Year

1. Comment: The “engine model year plus five years” methodolo gy is an important option in the proposed regulation. It is to be reg retted that this methodology will

not be allowed for vessels in the South Coast. Ret ention of this concept for vessels in the South Coast would not impede that re gion’s efforts to achieve its air quality goals, but it would demonstrate CARB’s sensitivity to the fact that the affected passenger vessel operators in the South Co ast area are all private small businesses with limited financial resources. (PVA)

Response: The “engine model year + 5” method was removed for use in the South Coast Air Quality Management District (SCAQMD) beca use there was concern that this option would delay the emission reductions necessar y in the South Coast to bring the region into attainment with federal standards. The South Coast is in non-attainment

with the federal annual PM2.5 and PM10 ambient air quality standards and 8-hour ozone standard. Early emissions reductions are nec essary in order to meet the PM2.5 standards in 2014. The attainment date is 2015, bu t the U.S. EPA requires that all necessary emission reductions be achieved one calen dar year sooner – by 2014 – in recognition of the annual average form of the stand ard. NOx emission reductions are needed because NOx leads to formation in the atmosp here of both ozone and PM2.5.

Diesel PM emission reductions are needed because di esel PM contributes to the

ambient concentrations of PM2.5.

The impact of compliance costs on ticket price was estimated for typical small, medium, and large ferry/excursion businesses and the analys is documented in Appendix H, included as Attachment 4 in the 15-day Notice. The ticket price increase was estimated to range from 5 to 10 percent and with little diffe rential across the range of business sizes. This cost will impact all excursion busines ses within California and so will not generate a competitive advantage or disadvantage.

2. Comment: Some of [the South Coast] operators have already demonstrated their financial commitment to clean air by obtainin g Carl Moyer funds and70

combining them with their own private resources to repower their vessels with lower-emissions engines in recent years before they had any legal obligation to do so . . . PVA urges CARB to reconsider this prop osed modification and restore the “engine model year plus five years” option stat ewide. An alternative would be to restore this “engine model year plus five years” option for any engine in the

South Coast area that was obtained with the assista nce of Carl Moyer grant funding. (PVA15)

Response: While we applaud those owners and operators who h ave replaced older engines with Tier 1 engines, reducing engine replac ement timelines is a mechanism that ARB has employed for many industries to reduce emissions. Engines funded through the Carl Moyer Program are required to meet a specified project life to ensure that these public funds are spent in a cost-effecti ve manner and gain near-term emission reductions that go above and beyond, or in advance of, a regulation’s requirements. The Carl Moyer Program guidelines es tablish a maximum project life of five years for marine projects. The in-use engine compliance schedule allows a 15-year useful life for all Tier 1 engines outside the SCAQ MD and 13 years within the SCAQMD. The compliance date for an engine rebuilt to Tier 1 standards prior to January 1, 2008, is based on an effective model year which is the sa me as the rebuild date. Consequently, all Tier 1 engines, and engines rebui lt to Tier 1 standards, will have fulfilled their Carl Moyer Program project lives (5 years maximum) prior to required compliance to the regulation.

Also, see response to Comment A.1 regarding the nec essity of achieving early emission

reductions in the South Coast.

3. Comment: The proposed amendments to the original draft reg ulation only make

it more onerous to conduct business in Southern Cal ifornia and do little to help mitigate the negative impact of the regulation’s co mpliance schedule. (AWO)

Response: The amendments proposed in the 15-day Notice that specifically impact vessel operators in the South Coast include disallo wing the use of the Model Year + 5 method for determining model year in the South Coas t, adding a compliance extension for operators with sets of engines on multiple vess els required to comply with the in-use engine requirements in one of the first two years o f the compliance schedule, and modifying the date for reporting compliance plans. Only the amendment to exclude the

use of the Model Year + 5 method in the South Coast could be construed as having a negative impact on businesses. This modification p revents any delay in engine replacement emission reductions in the SCAQMD. See response to Comment A.1 regarding the necessity of early reductions in the South Coast.

4. Comment: FOE does not believe the “Engine Model Year +5” m ethod to determine engine model year is desirable, despite i ts application being restricted to vessels with home ports outside the SCAQMD. FOE references below its previously stated reasons for opposition to the pro vision:71 With respect to the regulation’s provision for Comp liance Schedules and Determination of Engine Model year an d its “Engine’s Model Year +5” method, we have reservatio ns concerning the limited amount of pollution control that could trigger a compliance extension, thus potentially vitiating overall emission reductions. For example, an owner can achieve a 25 percent reduction in diesel particulate matter and a 9 perc ent increase in oxides of nitrogen for a net emissions reduction of 14 percent and thus have a legitimate emissions control strategy, entitling him or her to use the “Engine’s Model Year +5” method. In some instances, the election of this method can postpone compliance requirements two years. The overall benefits of th is alternative compliance strategy seem questionable, and the stra tegy furthermore offers another way in which an owner or operator can extend his or her compliance timeline – timelines, which as referenced previously, have already been pushed bac k and prolonged considerably. We suggest that this alter ative compliance option be altered to mandate emission re ductions equivalent to those realizable from replacing exist ing engines with Tier 2 and 3 engines.“ (FOTE)

Response: The “Engine Model Year + 5” method was included to encourage the development and use of diesel emission control stra tegies (DECS) for marine applications. While control technologies have been proven to reduce emissions of PM and NOx from land-based diesel-fueled engines, ther e is limited experience applying controls to marine engines. To date there are no A RB verified diesel emission control strategies (VDECS) for marine applications. Theref ore, commercial harbor craft operators who employ this method do not have the as surances that accompany a verified strategy. However, this optional method p rovides an opportunity for DECS manufacturers to verify their systems.

The minimum 25 percent emission reduction level was chosen to be consistent with a Level 1 VDECS. The requirement that there be no mo re than a 10 percent increase in

NOx or PM is also consistent with the Level 1 VDECS requirements. The emission

control alternatives available to a harbor craft ow ner or operator range from aftertreatment controls to engine modifications. T hese DECS and possible future VDECS could be used to help reduce emissions from o ther commercial harbor craft vessel types which are not subject to the in-use en gine requirements, and could result in larger overall commercial harbor craft emission reductions.

The commenter suggests that the method require emis sion reductions equivalent to replacing with a Tier 2 or Tier 3 engine. This mod ification would change this method into a compliance option, which is not the purpose of the method. Compliance Methods C2 and C3 already provide compliance options that a llow the use of DECS.72

B. Acceleration of Compliance Schedule for 1996-199 9 Model Year Ferry Engines

1. Comment: WETA suggests that CARB reconsider issuing restri ctive timeframes and advancing timeframes for ferries for compliance when CARB doesn’t retain any responsibility for liability for CARB’s actions . The financial burden could have disastrous results especially when there is a state-wide call to increase the number of ferries for emergency response. CARB’s a ctions could potentially put ferry companies out of business. (WETA)

Response: We are interpreting this comment to be in reference to the acceleration of the compliance schedule for 1996-1999 model year fe rry Tier 0 engines such that all unregulated ferry engines are brought into complian ce by the end of 2014. This acceleration only impacts ferries with homeports ou tside the SCAQMD. As documented in Appendix I, included as Attachment 5 of the 15-d ay Notice, staff completed a phone survey of known ferry operators in California and f ound only 4 out of 24 ferries operating outside the SCAQMD that would be impacted by this c hange. Based on this result, staff estimated that less than 10 ferries throughout the State would be impacted. ARB does not believe that the magnitude of this impact is co nsistent with the commenter’s

conclusion that the financial burden would have dis astrous results for the ferry industry.

C. Vessel Owners or Operators with Multiple Vessels Requiring In-Use Engine Compliance in Either 2009 or 2010

1. Comment: For an extension to be invoked there must be a “s et” (2 or more) of engines on two or more vessels. Many vessels will have engines of varying ages and may not have a set of engines that needs to be addressed at the same time. Moreover, to take a vessel into dry dock to replace only one set of engines is cost prohibitive and will lead to a more expensive project in the long run. The Board should eliminate the requirement that there m ust be a set of engines on a

vessel and allow extensions when an owner has to ad dress two or more engines. Proposed draft only offers flexibility for vessels required to comply in 2009 and 2010. However, the way in which the time tables ar e structured there will be other years where multiple vessels in a fleet will need to comply with the proposed regulations. In the Hornblower fleet, we have several years (2009, 2010, 2011, 2012, 2013, and 2014) where multiple ve ssels/engines will need to comply with the propose regulations. Permit time e xtensions in any year where a vessel owner has to address two or more engines (re gardless of vessel). (HORNBLOWER)

Response: If this extension were provided to vessel owners required to bring two or more engines into compliance in the same year, rega rdless of whether they were on two or more vessels, it would apply in cases where ther e are multiple engines on a single vessel that were required to comply in the same yea r. Having multiple engines repowered on a vessel at the same time is more econ omical then staggering the repowers. While it involves a larger, single capit al investment, only one dry dock time73

period and one out-of-service time period is requir ed rather than multiple events. This is a significantly different case than having to pull two different vessels out of service and put into dry dock in the same year. Additionally, there are a large number of vessels with twin propulsion engines of the same model year , and every one of these vessels would then be eligible for the extension. This wou ld greatly increase the number of engines to which the extension would apply. See re sponse to Comment C.2 below for additional discussion on multiple vessels with comp liance dates in 2011 and beyond.

2. Comment: The proposed modification allows more flexibility for a covered owner with multiple engines or two or more vessels with a compliance date of 2011 or later. Under these circumstances the regul ations would allow Blue & Gold a one-time extension of one year, upon the app roval by the CARB Executive Officer. We request that CARB reconsider this part of the proposed modification and restructure it to be equivalent to the potential relief offered owners with a compliance date of 2009-2010

In 2017 and 2018 Blue & Gold will need to replace f ive engines in each year. We are asking that the rule be modified to allow the C ARB Executive Officer the latitude to approve a compliance extension plan tha t allows three to four years beyond the original compliance date. (BLUE AND GOL D)

Response: Vessel fleet operators with engines having compli ance dates of 2011 and beyond will have sufficient time to plan and execut e regulatory compliance, compared to vessels which need to comply in the first two years of the compliance schedule. A vessel owner who needs to bring engines into compli ance with the regulation in 2011 will have up to three years to prepare and execute regulatory compliance. While this timeframe is short, it does allow the use of incent ive funding if the operator is willing to bring the engine into compliance early.

With compliance dates of 2017 and 2018, the comment er has sufficient time to formulate a compliance plan for these engines. The re are multiple options for compliance, including rebuilding or retrofitting en gines to meet Tier 2 standards prior to the Tier 3 effective date, submitting an ACE compli ance plan that utilizes alternative emission reduction strategies which obtain equivale nt or more emission benefits, and applying for incentive funding for early compliance

.

The extension was necessary for the first two years of the compliance schedule for a couple of reasons. For one, the first two years co ver a wide range of engine model years (>1975 model year) compared to later complian ce dates with engine model year ranges up to 10 years. A small number of fleets ha ve a large number of 1975 and older engines on their vessels. These fleets will be hea vily impacted in the first two years of the compliance schedule. Secondly, the timeframe d oes not allow for the use of incentive funding for early compliance, whereas com pliance dates in later years do

allow time for this.74

3. Comment: Section 6(E)4b offers some operational and financ ial relief, we believe the E.O. should be granted greater flexibil ity when considering the length of an extension for those vessels having to comply after 2011, similar to that provided in section 6(E)4a. (RED AND WHITE)

Response: We disagree with this comment for reasons provide d in the response to

Comment B.2.

4. Comment: The proposed modification provides somewhat more flexibility for a covered owner with multiple engines on two or more vessels with a compliance

date of 2011 or later. Such an owner can seek a on e-time extension of one year, upon approval by the CARB Executive officer. PVA p roposes that CARB reconsider this part of the proposed modification a nd restructure it to be equivalent to the potential relief afforded to cove red owners with compliance

dates of 2009-2010. PVA believes that there are a small number of vessel operators with multiple vessels and engines to be r eplaced in given years in 2011 and beyond; PVA has asked those owners to identify themselves and characterize their fleets in their submissions purs uant to this 15-day review and comment. The capital and financial challenges faci ng them will be the same as those facing owners with compliance years of 2009-2 010. The proposed rule

should be modified to allow the CARB Executive Offi cer to approve a compliance extension plan that embraces as much as four years (not a single year) beyond the original compliance date . . . [a compliance ex tension plan] gives the owner with multiple vessels and multiple vessels with a c ompliance year of 2011 or beyond the chance to propose an acceptable method o f “spreading out” the heavy capital costs. (PVA)

Response: We disagree with this comment for reasons provide d in the response to

Comment B.2.

5. Comment: FOE believes that providing a three- to four-year compliance extension for owners of multiple vessels who need t o comply by 2009 or 2010 is not warranted . . . we again urge that ARB remain v igilant to ensure that the cumulative emissions impacts from compliance extens ions are not significant and do not forestall expected public health benefits . . . If ARB finds that compliance extensions and exemptions are hindering regulatory objectives, the agency should scale back or eliminate those provisions, as needed. (FOTE)

Response: The original proposal provides a one-year complia nce extension for vessel owners or operators with sets of engines on multipl e vessels requiring engine compliance in a single year. However, these initia l compliance dates occur within two years of the final adoption of the regulation, leav ing vessel owners or operators minimal time to plan for these expenses and no time to comp ly early with the help of incentive funding. There are at least two fleets with a larg e number of vessels with engines older than 1975 model year that would need to bring all o f the engines on these vessels into compliance in the first two compliance years, 2009 and 2010. The modified compliance75

extension approved by the Board for these vessels a llows a phased compliance schedule, wherein the portion of the fleet required to comply in 2009 and 2010 would be brought into compliance over a period of up to four years, as long as all engines are brought into compliance by 2013. Because all engin es would be in compliance by 2013, this does not jeopardize the early reductions necessary in the South Coast to meet federal standards and has minimal impact on th e expected health benefits.

D. Reporting Requirements

1. Comment: Covered owners of in-use harborcraft vessels must submit a report as to how they intend to comply. The proposed modi fication sets the due date for this report as February 28 of the year complian ce is required. CARB needs to further clarify this reporting requirement for owne rs of multiple vessels with different compliance years. Is such an owner to su bmit a single report addressing the compliance plan for the entire fleet as of February 28 of the year of compliance for the first vessel? Or does that r eport cover only the vessel or vessels with a compliance date of that year, with s ubsequent reports required in later years when additional vessels must comply? ( PVA)

Response: We disagree that clarification is required in the r egulatory text. The requirement is clear in the text. Vessel owners an d operators may report a compliance plan for their entire fleet by February 28 of the y ear of the first compliance date, or they may choose to report for each engine in the year of its compliance date. Any revisions to the compliance plan will need to be reported by February 28 of the compliance year for the affected engine. ARB staff will work with operators during implementation to ensure they understand their reporting obligations.

E. Appendix H: Estimated Ticket Price Increase for Ferry/Excursion

Businesses

1. Comment: The estimated ticket price increase calculation [ for ferry/excursion businesses] is an interesting method to demonstrate the cost to the consumer for a non-funded state mandate. By way of an actual ex ample, WETA will

demonstrate that CARB’s estimate errors on the low side. It is important to note that WETA ferries, constructed to a 85% better than EPA Tier II (2007) standard are a method to reduce congestion and improve air q uality; but, the increase in ticket prices tend to deter ridership; consequently , the air quality improvement benefits may be lost. State assistance to meet CAR B’s emission reduction goals is required in order for the concept to be successf ul. Unfunded state mandates are not productive and do not set up the ferry oper ators for success. (WETA)

Response: The estimated ticket price increase presented in th e new Appendix H, included as Attachment 4 in the 15-day Notice, deal t with the costs to bring engines into compliance with the in-use engine regulation requir ements. The commenter is addressing the cost to include BACT on new ferry pr opulsion engines. This was not the purpose of the analysis. The ticket price increase was estimated to range from 5 to76

10 percent. This magnitude of increase will not de ter ridership, so the air quality

benefits will not be lost. This estimated increase does not include the added benefit of the possible use of public incentive funds if engin es are brought into compliance earlier than required. These funding sources are discussed in Chapters VI and VIII of the Technical Support Document.

WETA is building a new ferry that is 85 percent cle aner than Tier 2 standards, independent of the ARB requirements. The ARB requi rements do not become effective until January 1, 2009. Since WETA is already requi red to provide additional emission controls for the new ferry propulsion engines, it i s not appropriate to assign the additional cost for these controls to the ARB regul ation.

2. Comment: One must consider emission reduction equipment (S CR) catalyst replacement cycles, maintenance of the additional s ystem, etc., and CARB’s estimate of 5-10% just doesn’t compute. . . WETA s uggests that CARB reevaluate their financial estimates. (WETA)

Response: The commenter is referring to the cost of applyin g BACT for new ferry engines. The estimated ticket price increase prese nted in Appendix H dealt with the costs to bring in-use engines into compliance with the regulation requirements, not the cost of applying BACT for new ferry propulsion engi nes. As discussed in the response to Comment E.2, WETA is already required to provide additional emission controls to the ferry propulsion engines, independent of the AR B regulation.

3. Comment: The proposed amortization of costs does not accou nt for the down time needed to make required modifications to the v essels. (HORNBLOWER)

Response: This is true. As stated in Chapter VIII of the T echnical Support Document, “Staff has not assigned an out-of-service cost for the regulation. We assumed that engine replacement for excursion vessels would occu r during their low-use season and not have an impact on revenue. For transit ferries , tugboats, and towboats, we assumed that most companies have sufficient excess capacity to schedule engine replacements so as to maintain the current level of service and minimize the “out-ofservice” cost. An additional factor we considered is that companies currently, as a normal business practice, take the vessels out of s ervice every five years for an engine

overhaul. We believe that the out-of-service time for a repower would replace the outof-service time for an overhaul.” Consistent with the previous economic analysis, down time, or out-of-service time, was not included in t he economic analysis.

4. Comment: The owner will experience several other costs ass ociated with the down time including laying off vessel staff during the period (approximately 6-8 staff members per vessel); indirect effects on supp liers and vendors who depend on the activity of the vessel to generate demand fo r their products; lost income to the landlords (many of which are public enterprise agencies such as Port authorities) as many excursion vessels are on a per centage lease provision (if77

the vessel does not operate then it does not genera te income to share with the underlying landlord). (HORNBLOWER)

Response: See response to Comment E.3 regarding out-of-serv ice costs. As discussed in the response to Comment E.3, there is routine maintenance that also requires out-of-service time. These out-of-service times could be planned for a low-use season or to occur at the same time as a planned ou t-of-service time. It would be expected that operators will plan this out-of-servi ce time for the low-use season.

5. Comment: Staff (cost) assumptions are based on 2004 costs. Obviously costs have changed since 2004. As mentioned in the Novem ber hearing, as more and more vessels are pressed into the shipyards for wor k, prices will rise in the shipyards due to availability of time slots and sch edules of workers. It was also pointed out by the engine manufacturers that as dem and increases for available engines, supplies will contract leading to inevitab le price increases for available products. (HORNBLOWER)

Response: As stated in Chapter VIII of the Technical Suppor t Document, costs are presented in 2006 dollars. Use of 2006 dollars wou ld not impact the percentage increase in ticket price that was calculated. The commenter suggests that costs will increase due to increased demand for parts and serv ices. However, ARB has organized compliance dates so as not to overtax the statewide capacity for this type of work, and would not expect this to occur.

6. Comment: Amortization is not an accurate means of looking at the ability of owners to implement equipment improvements. The und erlying premise of the analysis is the owner can somehow finance the impro vements over time. Ticket revenue from excursion operations is seasonal and d riven by the economy. During poor weather months the number of clients ma y drop as much as 50% which will affect total revenue. Similarly when the economy is in a recession, or gas prices spike limiting discretionary travel, the number of clients will drop accordingly. (HORNBLOWER)

Response: We disagree with this comment. Staff assumed a t ypical interest rate and period of time to amortize the costs assuming norma l business practice. ARB does not believe that increasing ticket prices by five to te n percent will significantly reduce ticket sales of this recreation. The ticket sales assumpt ions in the analysis were an overall yearly average, not a seasonal maximum.

7. Comment: Staff assumes the owner can simply raise ticket p rices and gain additional revenue. This assumption does not refle ct market reality. Increased ticket prices will force the customer to look for m ore economical ways of access the water, driving business away from excursion ves sels to less expensive resources. Staff analysis makes a static revenue a ssumption that does not reflect the reality of revenue flows in small busin esses. (HORNBLOWER)78

Response: Given the history of excursion vessel activity in California, the Board does not believe that a five- to ten-percent increase in ticket price would deter the public from utilizing this service. See also response to Comme nt D.6.

8. Comment: Staff should re-evaluate the economic impact of t he proposed regulations on vessel owners, and develop measures to mitigate the potential devastation to many small business owners throughou t the State. Possible

measures could include: a. Revise the eligibility guidelines of various inc entive grants (i.e., Carl Moyer, Prob. 1B, etc.) of the Board to provide a necessary stream of revenue to achieve the air quality goals.

b. Provide low or no interest loans to vessel owner s so that amortization can actually take place with ticket revenues. c. Allow adjustment in implementation dates for fin ancial hardship. (HORNBLOWER)

Response: Staff has already conducted the economic impact a nalysis using the best available data. As discussed in the Staff Report T echnical Support Document (Chapter VIII), ARB staff analyzed the potential im pacts of regulation compliance on affected tugboat and towboat businesses and estimat ed that the average impact on businesses’ return on equity (ROE) was a decrease o f 3.6 percent and 0.5 percent, respectively.

The regulation has not developed further measures t o mitigate the cost to small

business owners because we believe there are suffic ient incentive funding opportunities to help mitigate costs for those with compliance da tes after the first two years. Compliance dates within the first two years do not allow sufficient time to obtain incentive funding for early compliance.

For those cases where compliance is required for se ts of engines on multiple vessels in one of the first two compliance years, a 15-day cha nge has been made to the original regulation. The original proposal provided a one-y ear compliance extension for vessel owners or operators with multiple vessels requiring engine compliance in a single year. Based on Board direction at the November Hearing, s taff made changes in the 15-day Notice to provide an extension to allow a phased co mpliance schedule for owners and operators with sets of engines on multiple vessels requiring compliance in either 2009 or 2010. The phased compliance schedule would requ ire that a portion of the fleet be brought into compliance each year and that all engi nes be brought into compliance by the end of 2013. This would allow up to four years for the engines to be brought into compliance but would not jeopardize the early reduc tions necessary in the South Coast

or the rest of California.

Finally, a revision in the eligibility guidelines o f the various incentive programs is outside the scope of this rulemaking and would affect many other control programs. These guidelines were decided by the Board in a separate proceeding.79

The legislature has not authorized funding for low or no interest loans for vessel owners. The legislature would need to authorized these fund s and direct them to ARB for

administration.

There are no provisions for adjusting compliance da tes for financial hardship because the determination of economic need is very subjecti ve in nature, which makes equitable

evaluation difficult.

F. Appendix G: Assumptions for Estimating Greenhou se Gas Emissions from Commercial Harbor Craft Operating in California

1. Comment: To use private ferry vessel characteristics as a generic model for all vessels in California inherently over estimates the amounts of CO2 emission projected. Private ferry operations are:

Scheduled services from one point to another point on New York Harbor,

Vessels run every 15 to 20 minutes with little or no down time,

Operations that produce a large number of annual hours. This is inconsistent with typical excursion, tug an d tow operations in California
which have low vessel annual hours, not scheduled o n a daily time schedule, and have large amounts of down time between operati ons. Staff should adjust CO2 calculations for vessels that do not have ferry operational characteristics, such as crew, tug and excursion vessels. (HORNBLOW ER)

Response: The emission factor used was based on the only av ailable source for commercial harbor craft CO2 emissions, the New York private ferry fleet emission study. However, this emission factor is also consi stent with the ARB OFFROAD Model factor used to estimate emissions from off-road equ ipment. The agreement between the factor from the ferry fleet and the general fac tor for off-road equipment in the offroad model indicates that the factor can be used fo r a more broad range of applications,

such as the commercial harbor craft fleet.

G. Miscellaneous

1. Comment: To achieve more certainty in the legislation, in various places in the text, the word “may” needs to be changed to “shall” . (HORNBLOWER) (2)

Response: We disagree with the comment. In cases where the re are specified conditions that must be met, once the conditions ha ve been met, the verb “may” indicates a non-discretionary result and the indica ted action will be taken. For example, the E.O. may grant a one-year extension for No Suit able Engine Replacement for Harbor Craft, “only if the person demonstrates to t he E.O.’s written satisfaction that

there is no suitable Tier 2-certified or Tier 3-cer tified replacement engine available anywhere that can be used in the person’s specific vessel, and the person cannot otherwise meet the requirements . . .” (subsection (e)(6)(E)(2)) In this example, once the specified conditions have been met, “may” indic ates a non-discretionary result, and the compliance extension will be granted.80

2. Comment: 93118.5.e.6.C.3.b. (Method C3) Mentions that DECS can be implemented for meeting tier 3 standards but appear s to not mention that simply meeting tier 2 might be appropriate for some engine s prior to EPA tier 3 being available. (PPS)

Response: We disagree with the comment. The referenced tex t is specifically dealing with compliance requirements after Tier 4 engine em ission standards have come into effect. In (e)(6)(C)(2), Compliance Method C2 exp lains that compliance can be met by meeting Tier 2 engine emission standards prior to t he date when Tier 3 marine engine

emission standards come into effect.

3. Comment: There is a verb omitted at the bottom of page A-4 1 where the current text reads, “Upon written request, the E.O. grant t o the person . . .” (PVA)

4. Comment: There is a typo – on page A41, the text should re ad “The E.O. MAY grant . . .” (HORNBLOWER)

Response: We agree with these comments. To fix this typogr aphical error, ARB added the word “may” so the text reads “the E.O. ma y grant”.