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Diesel Emissions Regs to Present Huge Costs

New emissions rules will have a devastating impact on the construction industry, forcing increased construction costs, possible job losses and business closures, say local builders.

The California Air Resources Board on July 26 approved stringent and aggressive regulations aimed at reducing pollution from off-road diesel engines.

The regulations affect 180,000 pieces of equipment, requiring fleet owners to meet standards or install exhaust retrofits, “re-power” engines by replacing them with cleaner models, or retire high-emitting vehicles by 2021.

The total cost of regulation is expected to be between $3 billion and $3.4 billion, according to CARB. The board estimated that the typical medium fleet with combined horsepower of 3,000 would see a cost of $333,000 to comply.

Scott Molloy, public policy advocate for the Building Industry Association of San Diego, said while there will be an environmental benefit from the regulations, there will also be negative impacts.

“We estimated the cost to be $13 billion,” he said. “That is a significant cost for one industry to shoulder entirely.”

CARB officials could not be reached for comment by last week’s deadline.


Disappointed

Molloy said he was disappointed that CARB largely ignored industry concerns and overlooked industry recommendations that he said were environmentally and business friendly.

One key recommendation was to allow fleet owners to achieve three years of progress toward lowered emissions in a three-year period, rather than making one year of progress each year in a three-year period.

The construction industry may need two to three years to develop the financial resources to meet new standards, said Molloy, and the industry recommendation allowed flexibility to fit individual business models better.

“One out of every five contracting businesses records a loss every year,” he said. “For 20 percent of the industry to have to deal with that and have to deal with cost associated with retrofitting, upgrading and replacing equipment is realistically something that is just not doable.”

The new regulations will undoubtedly drive up construction costs, but some feel the impact will also reduce the number of small businesses that can compete for contracts. Less competition will also drive up costs, according to Molloy.

“The impact is going to be severe for small contractors that don’t have the resources, that don’t have the ability to get financing the way larger companies do,” he added. “They are really going to be hit hard by these regulations.”


Legal Challenges?

Depending on the economic fallout of these regulations, Molloy said we may see a challenge legally or legislatively to these newfound and controversial standards.

Wayne Rosenbaum, an environmental attorney with the San Diego office of Foley & Lardner LLP, said new regulations, including runoff rules approved this year, and CARB’s new emission standards are causing the economy in the building industry to be out of adjustment.

“Once again we have a single-purpose agency with an appointed board fixated on a very limited scope on the environment without really evaluating the impacts on the rest of the environment and the rest of society,” said Rosenbaum.

He said everyone agrees on wanting better air quality, the issue is finding the regulations that achieve the greatest removal of pollution at the most efficient cost. He said the building industry will suffer.

“They can’t absorb all of these costs all of the time because these single-purpose agencies ignore each other and make some assumptions that air is more important than water, is more important than land, is more important than jobs and is more important than any of these other things and not required to the same type of (environmental impact report with financial impact analysis) that we would have to do in the private sector,” he said.

Rosenbaum questioned if funding for required modifications or replacement is feasible for small businesses. For the companies that survive, and there will be fewer of them according to Rosenbaum, the increases in operating costs will be great.

Rosenbaum said another effect of the new regulations will be when the city of San Diego wants to build a library or the city of Chula Vista wants to build a fire station.

“Those are costs that are going to affect the population as a whole,” he said.

Kathryn Phillips, an environmental advocate, said the regulations created clear and significant environmental and health benefits with minimal financial impacts.

“I think what would be appropriate for this industry is to stop whining and start looking for a way to be a part of the solution,” said Phillips. “If you look at the recent California public policy polls, it is pretty clear that Californians are very concerned about air quality; they want to have clean air; they know it is causing significant health impacts.”

Phillips, who testified at both the CARB hearing held in San Diego in May and the July 26 meeting in Sacramento, said these minimal costs will generally not cause the industry closures.

CARB estimates that construction costs are expected to increase by less than 0.5 percent under the new regulations, said Phillips. She said costs can then be passed along in construction costs charged to home buyers, commercial property developers and infrastructure developers. For the average new-home buyer, the regulation could add about $5 per month to a 30-year mortgage, said CARB.

Phillips said CARB’s analysis shows that the economic benefits in health care costs and lost productivity would be five times greater than the cost of implementation. The regulations would save $18 billion to $24 billion compared with $3.4 billion in industry costs, she said.

One local business has stepped up to offer consultation during this turbulent time. Dan Fauchier and Richard Bayer formed La Jolla-based 1 Stop Diesel Solutions to provide consulting for the new emission regulations created by CARB. The business provides new air quality compliance services to area contractors and helps fleet owners avoid fines for noncompliance. Even violations for paperwork can run $10,000 per day per machine, according to its Web site.

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