Cover Story — January/February 2007

The Death of a Fleet

New Air-Quality Regulations Will Impact Equipment Fleets in '07

Contractors should plan to retrofit or replace older equipment as soon as possible

By Bruce Buckley

This 345-hp, 100,000-lb hydraulic excavator uses Komatsu Tier 3 engine technology to meet the EPA's new emissions standards. Photo courtesy of Komatsu

In the past, contractors assessing their equipment fleets might have seen a five-year-old bulldozer as an investment that could help the company for years to come. But in the eyes of air-quality regulators in many parts of the country, that dozer could soon be over the hill.

As new federal air-quality standards take effect around the U.S., state and local authorities are looking for ways to comply-and construction equipment could be a target. Potential impacts range from idling restrictions on machines to mandatory re-powering or even the retiring of older equipment. Current federal standards focus on the country's most populous areas, but discussions about statewide standards in California could soon broaden the scope everywhere.

"If you own a big spread of construction equipment, you have to start thinking about how you are going to comply with these standards because it's going to happen eventually," said Brian Deery, senior director with the highway and transportation division of AGC.

Stricter Standards Coming

The debate over how states will address looming federal air-quality standards is expected to heat up in 2007. States are feeling the pressure because failure to comply could lead to the loss of federal funding for key programs such as highways.

Currently, 474 counties in 31 states violate federal 8-hour ozone standards that address smog, according to the U.S. Environmental Protection Administration. By June 2007, states will have to submit state implementation plans outlining how they will bring affected areas into compliance.

Komatsu's Tier 3 engine system uses exhaust-waste gates for efficient combustion, step-timing valves that meter fuel use and common rail high-pressure fuel injection. Photo courtesy of Komatsu

Meanwhile, 208 counties or partial counties in 20 states violate standards on particulate matter emissions. Those implementation plans are due by April 2008, according to EPA. "States are looking for a way to reduce emissions, and the untapped area is off-road construction equipment," Deery says.

With plans to meet regulations taking effect soon, a new set of rules is right behind them. In September, EPA promulgated a more stringent standard for particulate matter that could increase the number of affected counties from 208 to as many as 631. Implementation plans for those standards are due in April 2013.

California's Model

Many contractors in rural areas of the country won't be directly or immediately impacted by these regulations, but new standards currently under review in California could put more of the industry at risk. The California Air Resources Board is developing rules that could cut short the lifespan of older equipment across the state, including rural areas.

The standards under discussion would require all pre-2001 equipment-outfitted with Tier 0 and Tier 1 engines-to be re-powered, retrofitted with emissions controls or retired, says Dave Sbaffi, special projects manager with the equipment division of Granite Construction Inc., Watsonville, Calif. Final recommendations are scheduled to go before CARB in summer 2007.

As goes California, so could other states. California is the only state allowed by the federal government to set more stringent emissions standards for off-road vehicles. Once that system is in place, other states can adopt statewide plans as long as they implement the same control measures.

The new Caterpillar 14M Motor Grader is powered by a Cat C11 engine with ACERT Technology. The engine meets or exceeds all U.S. EPA Tier 3 and European Union Stage IIIa emissions control standards. Photo courtesy of Caterpillar

"States are facing potentially onerous restrictions," Deery said. "They are looking for a way to get around those, and adopting the California plan is one way to do it."

Big Retrofit Costs

Rural areas in states with major cities, including Illinois and Texas, could be impacted if they follow California's lead.

For those in targeted counties, the financial implications of updating equipment could be devastating. Many analysts have estimated that retrofits could easily cost up to $15,000 per unit.

"I'd estimate that on a $50-million highway project [in areas not in compliance with federal air-quality standards], upgrades to address particulate matter could easily cost $400,000," says Bob Lanham, vice president of Williams Brothers in Houston. "If you start getting into retrofits for nitrogen oxides, it could be four times as much."

Those would be just the upfront costs. Fortunately, several grant programs are in place to help contractors bear the expense of retrofits. Williams Brothers is among the firms touting the Texas Emissions Reduction Program, which offers grants for up to 100% of the cost of purchasing and installing retrofit equipment.
In California, firms can take advantage of the Carl Moyer program, which offers similar incentives. However, the program promotes voluntary emissions control improvements and doesn't apply to projects with mandated standards, Sbaffi says.

Help with Retrofits

On a federal level, SAFETEA-LU includes some funding that contractors can tap into when state provisions call for emissions standards that require retrofits. AGC is backing proposed amendments to the federal tax code that would allow companies to write off or expense retrofits.

All six models of the John Deere D-Series Excavator have Tier 3-certified engines with fuel system and turbocharger upgrades. Photo courtesy of John Deere

These programs have their financial limits and are not sufficient to handle all requests for aid, analysts note. But even if the grants were unlimited, retrofitting the bulk of the industry's equipment expeditiously is not feasible.

Williams Brothers has already put the system to the test and the results were discouraging. The firm received grants through TERP to retrofit 150 pieces of equipment. Using five available machine shops as well as field work, the project took nearly two years to complete.

"If we had the money to replace every engine around here, there's not an equipment infrastructure to support it," Lanham says. "Folks estimate there are 35,000 pieces of equipment in the eight-county area around Houston. Start doing the arithmetic."

In California, forecasts are even more dire. Sbaffi estimates that 180,000 pieces of equipment could be affected by the new CARB regulations. "If everyone needed to start replacing engines, there's no way they could be supplied in a reasonable amount of time," he says.

If contractors choose to replace old equipment rather than retrofitting it, they could be declaring it worthless, Sbaffi says. "No one could buy or sell used [non-compliant] equipment in the state of California because it couldn't be used here," he adds. "The neighboring states that don't have these standards would see a saturation of this equipment."

Rendering equipment useless could affect the financial standing of many companies, Lanham says.
"If I've got equipment I've paid for as collateral on a loan, and I'm told through regulations that the equipment is no longer eligible to be used, what's its value?" he says. "In that case, you'd end up with loans that are under-collateralized. The finances of this are potentially devastating to a construction company."

"As far as purchasing new equipment, the things contractors will be buying are Tier 4. If it's new equipment, they have no choice," Deery says. "It will be compliant. What people can do now is start evaluating what the cost is going to be to retrofit their existing equipment compared to the cost of replacing equipment. Changes are on the horizon, and they have to look at those factors as they consider the long-term turnover of their equipment fleet."