| Off Road Diesel Regulations (02/2009) |
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Off road Diesel Regulations (02/2009) | pdf version here Reprint: Written by Mark Richardson for the National Equipment and Business Brokers Institute Continuing Education Program (02/2009). Contact 714-282-1525. February 2009 Advisory 390 Ban on Addition of Tier 0 Vehicles for Owners of In Use Off-Road Diesel Vehicles “The Air Resources Board (ARB) has a new regulation for In-Use, Off Road Diesel Vehicles, which became effective under California law on June 15, 2008. This regulation is designed to reduce harmful emissions from diesel powered construction and mining vehicles operating in California. Among other things, fleet owners are subject to retrofit or accelerated replacement/ re-power requirements, as well as reporting requirements and restrictions on unnecessary idling. In addition, this regulation imposes a ban on the addition of the oldest, dirtiest vehicles, called Tier 0 vehicles, to fleets operating in California. This ban on adding vehicles with Tier 0 engines is effective and enforceable as of March 1, 2009. Fleets are still allowed to operate Tier 0 vehicles they already own; they just may not purchase additional Tier 0 vehicles for use in California. Tier 0 engines include the following:
This requirement is specified in title 13, California Code of Regulations as follows:
Sec.2449 (d) (7) Adding Vehicles.
Beginning March 1, 2009 - Beginning March 1, 2009 a fleet may not add a vehicle with a Tier 0 engine to its fleet.
Non-Compliance: Health and Safety Code, Section 39674 (a) authorizes civil penalties for the violation of the programs for the regulation of toxic air contaminants not to exceed one thousand dollars ($1,000) for each day in which the violation occurs. Health and Safety Code, Section 39674 (b) authorizes civil penalties for the violation of the programs for the regulation of toxic air contaminants not to exceed ten thousand dollars ($10,000) for each day in which the violation occurs.
As a matter of policy, fleets found to have illegally added Tier 0 vehicles will be assessed a minimum civil penalty of $50 per engine horsepower. For example, a fleet that illegally added a 150 horsepower vehicle would be assessed a $7,500 fine. The standard for assessing penalties is one of strict liability.
For further information about the In-Use Off-Road Diesel Vehicle regulation, please visit our website at:http://www.arb.ca.gov/msprog/ordiesel/ordiesel.htm.. Fact sheets, advisories, and guidance documents are available athttp://www.arb.ca.gov/msprog/ordiesel/knowcenter.htm, and the full text of the regulation is available athttp://www.arb.ca.gov/regact/2007/ordiesl07/frooal.pdf ”
End of Advisory
Discussion and Analysis, Prepared by Mark Richardson, CMEA
These new rules will require the phased overhaul of almost all off-road diesel vehicle fleets used in California.
Air quality is important, especially here in California and these rules are the latest in a series of regulations designed to comply with federally imposed clean air standards. Most off road vehicles have no emission controls and can last 30 years or longer. The new rules are intended to reduce nitrogen oxide (NOx) and particulate matter (PM) which, according to the ARB cause about 1100 premature deaths per year. The ARB estimates off-road diesel vehicles are responsible for 24 percent of statewide diesel mobile source PM emissions and 19 percent of statewide diesel mobile source NOx emissions.
The regulations are expected to affect about 180,000 vehicles in a wide range of industries. Construction equipment comprises roughly half of the affected equipment. The other half is used in a variety of industries, ranging from mining (11%) to utilities (7%) to retail trade, airlines and ski resorts (1% each).
Examples of affected equipment include backhoes, bulldozers, loaders, trenchers, scrapers, forklifts, snow cats, baggage tugs, cargo loaders, belt loaders and aircraft tractors. Much of the affected equipment is 10 years old or less. The regulation broadly excludes diesel equipment and vehicles used in agricultural operations.
The regulation requires fleets to apply exhaust retrofits that capture pollutants before they are emitted to the air, and to accelerate turnover of fleets to newer, cleaner engines. There are different requirements based on the size of the fleet. The earliest requirements are for large fleets, those with over 5,000 HP of affected vehicles. Medium fleets have total affected vehicle HP between 2,500 and 5,000. Fleets with less than 2,500 HP are considered small.
Regulation Requirements
“The regulation establishes fleet average emission rates for PM and NOx that decline over time. Each year, the regulation requires each fleet to meet the fleet average emission rate targets for PM or apply the highest level verified diesel emission control system to 20 percent of its horsepower. In addition, large and medium fleets are required each year to meet the fleet average emission rate targets for NOx or to turn over a certain percent of their horsepower (8 percent in early years, and 10 percent in later years).
“Turn over” means re-powering with a cleaner engine, rebuilding the engine to a more stringent emissions configuration, retiring a vehicle, replacing a vehicle with a new or used piece, or designating a dirty vehicle as a low-use vehicle. If retrofits that reduce NOx emissions become available, they may be used in lieu in lieu of turnover as long as they achieve the same emission benefits.
Source: California Environmental Protection Agency / Air Resources Board.
Implementation
The regulations establish a “fleet average emission rate target” and fleet owners are required to report their total fleet emissions. The process includes classifying equipment into “tiers.” The dirtiest or “uncontrolled” engines are classified as Tier 0, while higher tier 2 to 4 engines are cleaner. The emission rate target declines over time and become more stringent. The ARB provides and reporting tools and to assist fleet owners with their compliance plans.
Options for Fleet Owners
The path to compliance is costly as fleet owners have four ways to reduce diesel emissions – Replace, Re-power, Retrofit, or Retire their equipment. The following chart, discusses each option.
Table adapted from presentation prepared by C. Cox, Ironman Parts, Corona CA.
Retrofit technologies are relatively new and continue to be verified by the ARB. Construction equipment retrofit is challenging because of vehicle / equipment configurations, the size of the retrofit device and soot capacity, and safety considerations. Although it may seem at first to be the least costly path to compliance, ancillary costs such as maintenance, cleaning and reduced operating time must also be considered.
Recent Regulatory Requirements
Implications and considerations for machinery and equipment appraisers.
When appraising off-road diesel equipment, appraisers should be aware of regulations that may impair its value as well as the direct costs for compliance. Additionally, appraisers should diligently disclose all material facts to their client regarding valuations and the equipment’s marketability. Here is a perspective for appraisers to consider when estimating off road equipment values in California.
Replacing older vehicles with new ones is costly and coupled with the current economic environment project cash flows may not support investment in new equipment. In many situations replacement is not practical because newer equipment just doesn’t perform as effectively as older equipment. This is especially true with custom rigs but also with standard models where specification changes were made to standardize lines.
Re-powering off road diesel equipment is costly as well. Average re-power costs are approximately $250 / HP, as modeled on engines over 250 hp. Fleet owners would only consider this option for high cost equipment that is less than ten years old. The ARB in 2007 estimated that only about 2% of existing engines would be re-powered.
Estimated costs for retrofitting vary widely and technology is still developing. For example, Diesel Oxidation Catalyst filters (DOC) range from $500 to $2,000. Diesel Particulate filters (DPF) range from $3,000 to $10,000 and Selective Catalyst Reduction systems (SCR) cost $12,000 to $20,000.
The ARB issued a Technical Support Document in April 2007 illustrating Estimated PM Retrofit Costs:
Estimated PM Retrofit Costs
According to one industry expert, much of the existing off road equipment cannot be retrofitted because there isn’t the technology, or approved retrofit equipment available. Even if the equipment is available, many banks and lending institutions will not fund retrofits or re-powering.
The regulation decreases the value of older vehicles, as companies will not be able to resell Tier 0 vehicles within California after March 1, 2009, although it is difficult to determine if actual transfer prices decreased because of the regulation or due to a weak economy and low construction demand.
In 2008, there was significant sales activity in older Tier 0 assets, for two reasons. First, there were fleet owners selling equipment to meet early compliance exemptions and incentive programs, and secondly there were California buyers who took these older assets into their fleets, just to retire them in the future to meet future fleet emission reduction targets.
There continues to be a market for Tier 0 assets for construction fleet owners in California due to the agricultural exemption, albeit probably at reduced values and longer selling times. Excavators and dozers are selling well, especially in Northern California orchards. According to a survey conducted by National Equipment Appraisal in March 2009, older diesel construction equipment, especially wheel loaders, account for much of the equipment purchased at auction by overseas, Middle Eastern construction companies.
Sales demand for Tier 1 assets will likely decline here in California even before compliance is required. Appraisers might consider transportation costs to another state as one method to assess impairment. The ARB estimates the approximate cost of shipping a Tier 0 or Tier 1 vehicle out of state to be $10 per horsepower; however freight rates vary widely ($2.00 to $6.00 per mile depending on vehicle size and weight) and appraisers should use good judgment when estimating freight costs.
Machinery and Equipment Appraisers throughout the United States should stay abreast of Air Resources Board Activities in California because the EPA has designated California as a model state to implement diesel emission reductions. As the California program succeeds, the EPA will likely impose similar requirements throughout the country. Many states have already initiated programs dealing with Clean Air; to learn more about regulations that may affect your state, http://www.epa.gov/epahome/state.htm
Written by: Mark Richardson, CMEA
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