BOARD MEETING DATE: May 2, 2008
AGENDA NO. 33

RECOMMENDED ACTION:

Adopt the attached resolution:

1. Opting in to the Surplus Off-Road Opt-In for NOx (SOON) provisions of State Regulation Title 13, CCR, Section 2449.3 – Surplus Off-Road Opt-In for NOx (SOON) Program and providing that the SOON Program is mandatory for solicitations that close after April 2, 2009.

2. Certifying the attached Final Environmental Assessment for Proposed Rule 2449.

3. Adopting Rule 2449—Control of Oxides of Nitrogen Emissions from Off-Road Diesel Vehicles.
 

Barry R. Wallerstein, D.Env.
Executive Officer

Background

The South Coast Air Basin is designated as nonattainment for PM2.5 and severe-17 for ozone (proposed for reclassification to extreme) by U.S. EPA. Because mobile sources are known to emit substantial amounts of particulate matter (PM) and NOx, the 2007 Air Quality Management Plan (AQMP) identified mobile source control strategies as essential to achieving the necessary reductions for meeting the PM2.5 and 8-hr ozone ambient air quality standards. Off-road diesel vehicles collectively represent one of the largest sources of NOx and significantly contribute to PM2.5 in the South Coast Air Basin. CARB recently adopted the “In-Use Off-road Diesel Vehicle” regulation to reduce these emissions statewide by requiring fleets to meet increasingly stringent PM and NOx fleet average targets or annual turnover requirements. Although this regulation is projected to achieve substantial emission reductions in the Basin, additional NOx reductions are necessary to attain the federal annual PM2.5 ambient air quality standard by 2015 and the federal 8-hr ozone ambient air quality standard by 2024. An additional 12 TPD of NOx reductions are identified for the off-road diesel source category in the AQMP.

CARB’s “In-Use Off-Road Diesel Vehicle” regulation includes the “Surplus Off-Road Opt-in for NOx” (SOON) provision. The SOON provision allows air districts to opt-in to the program to achieve additional NOx reductions from off-road diesel vehicles. The statewide rule is expected to achieve approximately 10.5 tons/day of NOx emission reductions in the South Coast Air Basin, with the SOON provision garnering an additional 12 tons/day of NOx emission reductions. The 2007 State Implementation Plan (SIP) for the South Coast Air Basin was adopted by CARB in September 2007 and includes control measures that would achieve the NOx emission reductions in the South Coast Air Basin from both the statewide regulation and the SOON provision.

Recognizing that air districts have varying air quality needs, the opt-in provisions of the SOON program allow an air district to garner more NOx emission reductions from fleets than prescribed by the CARB statewide regulation. The SOON provision is contained in Section 2449.3, Title 13, California Code of Regulation (CCR). Once an air district opts-in to the SOON provision of the State Regulation, and develops additional administrative guidelines (if necessary), an air district may offer incentive funds to fleets to replace, repower, or retrofit to lower NOx emitting engines based on the more stringent SOON NOx fleet average targets. Large fleets over 20,000 total maximum horsepower with more than 40% Tier 1 and Tier 0 vehicles as of January 1, 2008 must apply for sufficient incentive funds to meet the more stringent SOON NOx target levels. If awarded funding, a fleet must implement the proposed projects as detailed in its application for funding. The SOON provisions would accelerate the rate of introduction of newer, cleaner engine technologies, thus providing substantial and necessary NOx emission reductions by 2015.

As part of the development of the additional administrative guidelines for the SOON program, an implementation working group was formed consisting of representatives from affected private fleets, public sector fleets, sanitation districts, San Joaquin Valley Air Pollution Control District, CARB, and equipment vendors. The working group provided input on proposed guideline concepts and concerns relative to implementation of the SOON program.

The Board approved the release of Program Announcement PA#2008-01 on November 2, 2007 to solicit SOON projects in 2008. These funds were announced early to provide affected fleets sufficient time to comply with the requirements of the SOON program. The Program Announcement closes on May 2, 2008 with an anticipated staff recommendation on project awards at the Board’s July or September 2008 meeting.
 

Proposal

Staff is recommending that the Board opt-in to the SOON provisions of the CARB regulation and adopt Proposed Rule (PR) 2449 – Control of Oxides of Nitrogen Emissions from Off-Road Diesel Vehicles, which incorporates the SOON provisions by reference. The SOON provisions (Title 13, CCR, Section 2449.3) have been finalized by CARB and the final regulation was submitted to the California Office of Administrative Law for approval on April 4, 2008. Once the final regulation is certified by the Secretary of State, the AQMD may move forward with rule implementation. In addition to the proposed rule, staff has developed additional administrative guidelines for the Board’s consideration.

PR 2449 would apply to large fleets, containing over 20,000 total hp operating with 40% or more Tier 0 and Tier 1 equipment statewide. Tier 0 and Tier 1 vehicles that operate a majority of the time within the boundaries of the South Coast Air Quality Management District may apply for funding assistance to meet the next applicable SOON NOx fleet average target. Vehicle eligibility and funding awards would be based on the additional administrative guidelines developed to implement PR 2449. The Carl Moyer Program guidelines serve as the basis to implement PR 2449. The additional administrative guidelines encompass vehicle eligibility, compliance plan requirements, application requirements, operational requirements, and project awards. The goal of the administrative guidelines is to allow flexibility in the implementation of the SOON Program because of the varying operational needs of fleets while ensuring that the necessary NOx reductions needed to meet the PM2.5 standard are achieved by 2015.

One of the provisions of the SOON Regulation is that the Board consider whether the SOON Program should be mandatory. The SOON Regulations as currently proposed provide that solicitations prior to April 2, 2009, are voluntary. For solicitations after April 2, 2009, individual air districts must decide whether the SOON Program would be mandatory or voluntary. The Board must make this decision at the same time it decides whether to opt-in to the SOON Provisions.

Staff is recommending that the Board make a finding that the SOON Program be mandatory and has provided appropriate language in the Adoption Resolution to reflect staff’s proposed recommendation. Staff believes that a voluntary program would not provide assurance that sufficient number of older off-road diesel vehicles participate in the SOON Program. Comments were received from the construction industry that the SOON Program should be voluntary and that there are simpler approaches to identify the necessary vehicles for the SOON Program. However, the construction industry has not provided information specific approaches.

Given the critical need to achieve the NOx emission reductions in the adopted 2007 AQMP and the state SIP, having a mandatory program provides certainty that the total tons of NOx emission reductions called for in the 2007 AQMP are achieved by 2014. The primary compliance path under the SOON Regulation is the mandatory requirement that affected fleets must submit for funding, if funding is made available, and, if awarded, affected fleets must complete the awarded projects. The mandatory requirements would be the preparation of compliance plans as provided in the Draft Rule 2449 Administrative Guidelines and submittal for funding. To minimize the financial impacts of mandatory compliance plan reporting, staff has begun scheduling meetings with potential affected fleets and providing hands-on assistance in preparation of the compliance plans and funding submittal packages. In addition, staff is proposing to retain external resources to assist fleets in the preparation of compliance plans and submittals for funding.

Relative to the requirement that fleets must complete projects that receive an award, staff believes there is sufficient flexibility in the SOON Regulations to allow fleets to determine which vehicles would participate for SOON funding. In addition, having a mandatory program would provide certainty that sufficient number of vehicles participate in the SOON Program, while meeting the statewide regulation requirements. If a sufficient number of vehicles can be identified or if the funding program is oversubscribed, the Board would have the flexibility to make awards to the fleets that have the greatest desire to complete proposed projects or are able to complete the projects in a timely manner. Fleets that are recommended for award may be given an option to not move forward with the proposed project upon demonstration that the fleet could not complete the project as proposed, provided that there are a sufficient number of vehicles identified from the funding solicitation. Again, a mandatory program is necessary to ensure that sufficient vehicles are identified. Other compliance flexibilities relative to funding awards are discussed below.
 

Public Process

A public workshop was held on December 4, 2007 at the AQMD offices in Diamond Bar. Over 700 public workshop notices were mailed to all interested trade associations and workgroup members as well as published in the major newspapers in the four counties within AQMD’s jurisdiction boundaries. The workshop was attended by over 50 individuals and included representatives from public and private fleets. Five written comment letters were received by the closing deadline for written comments.

Three Implementation Working Group meetings were held on October 30, 2007, November 13, 2007, and January 10, 2008 to gather input from stakeholders and to assist in developing the SOON program administrative guidelines. In addition, staff has individually met with affected fleets and associations representing affected public and private fleets.

Finally, over 16,000 program announcement notices announcing the availability of SOON funding were mailed to all large construction contractors holding a General Engineering license (required for building large projects such as dams, bridges, etc.) in California, and the Program Announcement was published in newspapers in each county within AQMD’s jurisdiction boundaries. The announcement was also published in the State Contracts Register and the AQMD webpage.
 

Policy Issues

A number of issues concerning the SOON Program were raised at the workshop and the Implementation Working Group meetings, which are discussed below. The majority of the comments relate to: implementation of the SOON Program regarding funding eligibility, award criteria, equitable distribution of available funds, contract duration of funded projects, additional cost to co-fund awarded projects, the ability to move vehicles in and out of the Basin, availability of repower/retrofit solutions, and preparation of compliance plans. In addition, comments were made that the SOON Program should be strictly voluntary and comments were made relative to the SOON regulation, which have been forwarded to CARB for review. Staff has revised the draft administrative guidelines to address a majority of the comments. In addition, CARB has released the final regulation for public comments, which will address a majority of the comments. Three key issues may be raised during the public hearing and are further discussed below.
 

Contract Duration and Flexibility to Move Vehicles In and Out of the Basin

Staff has proposed that projects have a seven-year contract duration, which means that funded vehicles must operate at least seven years in the South Coast District region. Fleet owners are concerned that because construction projects may be outside of the Basin during the seven years, they need flexibility to move equipment outside the District to follow the work. In addition, some fleet owners expressed concern that a vehicle may reach the end of its useful life before the end of the contract due to unplanned heavy usage, and they need flexibility to replace the vehicle before the end of the contract.

Current AQMD Carl Moyer Program guidelines allow a vehicle to spend up to 25% of its operation outside AQMD boundaries and remain in compliance. Also, staff believes that most fleets should be able to identify vehicles that could operate in the District with this additional flexibility and ensure that the emission reductions are realized. Under the Carl Moyer Program, staff has worked with affected fleets when it was necessary to adjust the amount of time vehicles operate within AQMD boundaries through the contract process. In some instances, contract life was extended, while some fleet operators have chosen to return a portion of the award. Staff believes that there is sufficient flexibility in the contract provisions to address this issue.
 

Staff recognizes the need to incorporate such flexibility in implementing the SOON program and has added flexibility where possible in developing the draft administrative guidelines. However, the seven-year contract duration is needed to ensure the reductions are real and enforceable to meet the federal annual PM2.5 attainment deadline of 2015. Staff believes that most fleets because of their large size should be able to identify the relatively small (3 to 4 vehicles per year) number of vehicles where the seven-year contract commitment would not significantly affect their operational requirements. In the event a fleet does, through unexpected circumstances, need additionally flexibility in meeting its obligations, the AQMD has a long history of working with fleet owners on a case-by-case basis to best resolve these situations, which have occurred relative to project awards under the Carl Moyer Program and other incentive programs.
 

Cost to Implement the SOON Program

Comments were made that the SOON Program was originally envisioned to be voluntary and there would be no additional cost to fleet owners when awarded funding. However, to ensure that sufficient older, dirtier off-road diesel vehicles are cleaned up, the SOON Program requires that large fleets must meet more stringent NOx compliance targets beyond the statewide regulation. The cost relief is the ability to access funding assistance to comply with the SOON NOx targets rather than a requirement for affected fleet to apply for funding. Some affected fleets may readily meet the SOON NOx targets, while other fleets would need to identify vehicles needing to be cleaned up to meet the NOx targets. Those fleets that identify additional vehicles must apply for funding and if awarded must complete the project. Funding may not be available for all projects submitted. As such, there is no requirement to complete unfunded projects. Since the funding source that staff is recommending be used for the SOON Program is the Carl Moyer Program, the Carl Moyer Program Implementation Guidelines developed by CARB must be followed. The draft additional administrative guidelines prepared by staff provide additional guidance relative to the provisions of the SOON Program. One of the conditions of the Carl Moyer Program Guidelines is that funding awards be discounted 15% to reflect the cost associated with an engine rebuild, which would occur as a normal course of vehicle maintenance. To minimize some of the co-funding cost, staff is proposing that no single fleet receive more than 10% of the total available funds. In addition, 75% of the available funds are proposed to be allocated to the most cost-effective projects and the remaining 25% distributed equitably over those projects that are less cost-effective (i.e., projects that may exceed the $5,000/ton cost-effectiveness benchmark). The current Program Announcement is for $30 million. As such, the 10% cap would limit the award to a single entity to a maximum amount of $2.25 million, which reflects about 20 to 25 vehicles and 75% of the total available funds. The cost to the entity would be a maximum of $337,500. However, since the SOON targets are to be met every three years (the first year is 2011), staff believes that awarded projects may be completed over a two-year period allowing an entity to spread the cost over a longer period of time. In addition, it is not anticipated that most fleets would be submitting a large number of vehicles in any given year of funding.

Development of compliance plans will provide affected fleets the ability to plan for vehicles to be cleaned up under the statewide regulation and the SOON regulation. Staff believes that to the extent fleets can develop compliance plans out to 2014, there will be sufficient time and flexibility to minimize issues raised above and allow affected fleets to plan for potential costs. In addition, fleets are given the opportunity to declare which vehicles could be considered as “high priority” for funding under the SOON regulation. Staff believes that affected fleets would identify those vehicles that would remain in the Basin for a majority of the time during the contract life of the project. In addition, this would allow staff to prioritize awards to those vehicles that are given “high priority” status.
 

Emission Reductions and Cost-Effectiveness

The SOON regulation targets the oldest, dirtiest off-road diesel vehicles for repower to cleaner commercially available engine technologies. The resulting emissions reductions are expected to play an integral role in attainment of the federal PM2.5 and 8-hr ozone ambient standards in 2015 and 2024, respectively and would go beyond those accomplished through CARB’s statewide regulation.

Prior off-road equipment repowers through the Carl Moyer Memorial Air Quality Program have generally performed at or below a cost-effectiveness level of $5,000 per ton NOx reduced. Based on this cost-effectiveness, it is estimated that $120 million would be needed to realize 12 tons per day of NOx emission reductions by 2014 and would affect approximately 1000 to 1500 off-road vehicles from 100 to 125 fleets.

For repower projects, incentive funds will cover 85% of the cost of the repower in accordance with Moyer Guidelines. Co-funding by the fleets is expected to be approximately $20,000 per typical SOON Program engine repower. No fleet will receive more than 10% of the available funding each year ($2.25 million as discussed above) which would correspond to about 20 to 25 projects, resulting in a maximum annual co-funding cost of approximately $337,500 for a fleet. However, the most likely scenario would be a fleet repowering on the order of three to four engines per year at a co-funding cost of approximately $60,000 to $80,000.
 

California Environmental Quality Act (CEQA)

Pursuant to the California Environmental Quality Act (CEQA) Guidelines Section 15252 and the AQMD’s Certified Regulatory Program (Rule 110), staff has prepared an Environmental Assessment (EA) for the PR 2449. The Draft EA, which was made available for a 30-day review period, concluded that the proposed rule would not have any significant adverse affects on environment. All comments received on the Draft EA were addressed and incorporated in the Final EA.
 

Socioeconomic Assessment

Proposed Rule 2449 would affect about 1,300 Tier 0 and 1 off-road diesel engines operating in the South Coast Air Basin. To meet the NOx emission reduction target of 12 tons/day by 2015, affected off-road diesel vehicle owners must identify Tier 0 and 1 engines that could apply for public funding assistance over a four-year period. It is estimated that about $120 million would be needed to achieve the 12 tons/day of NOx emission reductions. The affected engines are owned by the construction and mining industries, government, and other entities that own ground service equipment and off-road equipment at landfills and transfer stations. After the projects are completed, the vehicle owners are allowed to use the repowered or replaced engines to comply with the statewide base regulation.

Two scenarios were evaluated for the socioeconomic assessment. The first scenario assumes vehicle owners may put off “rebuilding” engines in existing off-road equipment as part of their normal maintenance in light of potential economic downturn. PR 2449 would accelerate engine repowering and have affected fleet owners pay a portion of the engine repower since the current Carl Moyer Guidelines reduce the public funding award by 15 percent to reflect the normal rebuild cost. Under this scenario, the projected cost to off-road vehicle owners to implement PR 2449 would be about $1.8 million annually from 2008 to 2012. The projected cost would be entirely offset in the later years by an equivalent amount of savings as the affected engines are used by the fleets to comply with the statewide off-road base regulation.

In the second scenario, it is assumed that affected fleet owners would maintain their equipment on a normal schedule (with routine engine rebuilds) under foreseeable economic certainty. Implementation of PR2449 in this scenario would not pose as great a financial burden to affected fleet owners. Under this scenario, there will be fewer costs accrued to the affected vehicle owners from 2008 to 2012. Since repowered or replaced vehicles can be used by the fleets to comply with the statewide base regulation, this scenario also results in savings for the fleets with an estimated savings of $1.1 million annually.

As discussed above, implementation of PR 2449 would in the long term, not result in additional costs to off-road vehicle owners compared to not having PR 2449. In addition to the two scenarios analyzed, staff examined 18 fleets who potentially could participate in implementing PR 2449. Information on the 18 fleets came from CARB’s regulatory model. The analysis indicates that there will be overall savings with the implementation of PR 2449.
 

Resource Impacts

It is anticipated that there will be additional administrative costs associated with implementation of the SOON Program which is covered under the Carl Moyer Program administration. The Off-Road Section staff will be reviewing SOON compliance plans to monitor rule implementation as part of the regular workload budgeted for the Section.
 

Attachments (exe 671 kb)

A. Summary of PR 2449 Proposal
B. Rule Development Process
C. Resolution
D. Proposed Rule 2449
E. Staff Report on PR 2449
F. Final Environmental Assessment
G. Socioeconomic Assessment