Appendix G
Economic Impact Analysis
Methodology
Economic Impact Analysis
Methodology
The major factors affecting the economic
impact of the proposed ATCM are: (1) the number and characteristics
of engines affected; (2) changes in the overall portable diesel-fueled
engine population due to implementation of the proposed ATCM; (3) the
cost and timing of early replacement of engines before the end of their
useful life; and (4) the cost and timing associated with the addition
of diesel PM control technologies.
Engine Population
Staff estimates that there are 33,000
portable diesel-fueled engines larger than 50 horsepower operating within
California. This estimate is based upon the number of engines
identified for the year 2000 emissions inventory, with updated information
for agricultural irrigation pumps.
Information for engines registered with
the Statewide Portable Equipment Registration Program (PERP) and assumptions
used for estimating the year 2000 emissions inventory was used to characterized
the engines. There are about 14,000 diesel-fueled engines registered
with PERP. For each of these engines, the owners registering the
engines were required to provide the following information as part of
the application for registration: the size of the engine based upon
horsepower rating, age of the engine, and application description for
the engine (for example, the engine was used to power a compressor).
In addition, emissions were estimated using operating hours that were
used to establish the 2000 inventory.
Because permits have not been required
for agricultural activities, there is limited information regarding
the use of agricultural irrigation pumps. Staff relied on information
provided by local district staff as well as data collected for the Carl
Moyer Program. Based upon these information sources, staff assumed
that the average irrigation pump is 99 horsepower and operates about
1,000 hours annually.
For the other 16,000 engines, information
for engines registered with PERP was used to characterize these engines.
All the engines registered in PERP, as a whole, are probably not reflective
of all the portable diesel-fueled engines that operate in California.
PERP is more heavily populated with engines associated with the rental,
oil-well services, and marine construction industries. The rental
industry has the newest fleets in California, while both the oil-well
services and marine construction industries use very large engines that
tend to comprise some of the oldest fleet of portable engines in California.
Removing these particular categories of engine applications from PERP,
the ARB staff believes that the remaining PERP engines collectively
represent the rest of the portable engines in California.
Overview
of Impact of Proposed ATCM
The proposed ATCM initially requires
all portable diesel-fueled engines to be certified to an emission standard
for newly manufactured off-road engines by January 1, 2010. Owners
of portable diesel engines will meet with this requirement by replacing
any noncertified engines in their fleets with new certified engines.
Fleet emission standards then become applicable January 1, 2013 and
January 1, 2017, with full compliance by January 1, 2020. These
standards are expected to be satisfied by a combination of engine replacement
and add-on retrofit technology.
Engines used exclusively in emergency
applications or designated as low-use engines are subject to the 2010
requirement, but are not subject to the fleet emission standards.
Nevertheless, these engines are required by January 1, 2020, to be either
certified to a Tier-4 emission standard or equipped with a Level-3 verified
technology.
Costs
The economic impact for the proposed
ATCM is based upon replacing an engine prematurely and the costs associated
with the addition of air pollution equipment. Costs were projected
from 2005 to 2037, the last year a cost would be attributed to the proposed
ATCM.
The proposed regulation will require
the early replacement of existing portable diesel-fueled engines with
newer cleaner engines. The cost attributed to engine replacement
or repower would be the economic value to the owner for each year the
engine has been prematurely replaced. Based on information used
for the emissions inventory and the PERP, staff assumed the useful life
of a diesel-fueled portable engine to be about 25 years. The lost
useful life would be the difference between 25 years and the average
age of the affected engines at the time a standard becomes effective
that forces the replacement of the engines. The average age of
each affected group of engines was based upon the age of engines for
similar types of engines registered with the PERP. Conversely,
for the purposes of this analysis, engines that are more than 25 years
old have reached the end of their useful life, and no cost was include
in the economic impact of the proposed ATCM for the replacement of this
group of engines.
To estimate the economic impact caused
by early replacement of portable engines, staff estimates the annual
value for each year of lost useful life as the cost of the engine annualized
over a 25-year period. The cost to replace or repower a portable
engine is expected to range between $135-220/horsepower. The $135 dollars
per horsepower represents replacement and installation of the engine
and the $220 dollars per horsepower represents the cost of replacing
an entire unit, such as a generator set.
The use of verified Level-3 control technologies
will be necessary to satisfy the proposed fleet standards that become
effective by January 1st, 2017. For the purposes of
evaluating the economic impact associated with these standards, the
cost is based upon retrofitting the engines with diesel PM particulate
filters. The cost of a filter is estimated at $40/horsepower and
this cost would be paid out over 10-year period. Based upon current
manufacturer’s guarantees of 8,000 hours of use for a particulate
trap and the average operation of a portable diesel-fueled engine, the
particulate trap should have a useful life of 16 years. In some
cases, an additional particulate trap was included in the cost analysis.
All costs are reported as 2002 dollars.
Where future costs are mentioned, they have also been adjusted to 2002
dollars using standard accepted economic procedures. An annual
interest rate of five percent is used. In addition, no cost or
benefit was included for the ATCM for engines registered with PERP for
the purposes of complying with the 2010 requirement. Engines registered
with the PERP are already required to be replaced by January 1st,
2010.
2010
Requirement that All Engines Must be Certified
This requirement is expected to affect
11,500 engines. At January 1st, 2010, these engines
would have five years of useful life at the time the engine was replaced.
Cost associated with early replacement would be distributed from 2010
to 2014. In addition, agricultural irrigation pump engines were
assumed to have five years of useful life at the time the engine was
replaced.
No costs were assumed for engines that
are already at the end of their useful life. This was true of
25% of the engines that are less than 175 horsepower and 37% of the
engines that are 175 horsepower and larger.
2013
Fleet Emission Standard
The proposed fleet standard would require
the replacement or use of retrofit technology on nearly all Tier 1 engines
that are less than 750 horsepower. This requirement is expected
to affect about 6,000 engines. At January 1st, 2013,
these engines would have operated 9-17 years or would have a remaining
useful life of 8-16 years at the time the engine was replaced.
Cost associated with early replacement would be distributed from 2010
to 2028.
The engines that are less than 175 horsepower
would be replaced with a Tier 3 engine, since the Tier 4 engines are
not expected to be available for this horsepower range until 2012 or
2013. For engines that are 175 horsepower and larger, Tier 4 engine
are expected to be available since 2011. The economic impact analysis
assumes that all engines within this size range would be replaced with
a Tier 4 engine. In addition, staff included in the analysis the
purchase of an additional diesel particulate filter 15 years after the
initial engine purchase.
2017
and 2020 Fleet Emission Standard
The proposed fleet standards will require
the retrofit of 30,000 engines. About half of the retrofits would
occur by January 1st 2017 and the remainder would be completed
by January 1st, 2020. In addition, engines that have
not been subject to the fleet requirements (engines used only in emergency
applications or are low-use engines) would be required to either retrofit
or replace the engine.
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