Think emissions standards are tough in your market area? Just consider what California contractors may soon be facing. At the end of the month, state air pollution regulators will vote on whether to implement a tough new regulation for in-use off-road diesel vehicles that would require modernization of all existing equipment to reduce emissions output by 2020.
The proposed regulation calls for retrofit or replacement of approximately 180,000 pieces of equipment not meeting specified target limits for particulate matter (PM) and NOx emissions. The California Air Resources Board (CARB) estimates industry's cost will be $3 billion over the 12-year period. However, the Construction Industry Air Quality Coalition (CIAQC) predicts the cost to construction contractors alone could exceed $13 billion and take over 13 years to complete.
The Associated General Contractors of America (AGC) points out that the legislation would render thousands of pieces of construction equipment worthless unless and until it is fitted with emissions controls - which may or may not be available - or repowered with new engines. This would essentially wipe out the net worth of many construction firms, depriving them of their bonding capacity, while simultaneously requiring them to make massive capital investments. The regulation would also compel contractors to retire equipment long before the end of its useful service life, and delay completion of essential infrastructure improvements.
The CIAQC also points out the potential job losses resulting from reduced profits and/or limited equipment availability. It conservatively estimates statewide employment loss at anywhere between 10,900 to 34,000 jobs.
Already, some contractors have taken steps to dispose of equipment that would fall under the proposed ruling. In late May, prior to a last-minute two-month extension of the legislation's comment period, Ritchie Bros. conducted its largest industrial equipment and truck auction ever held at its Los Angeles facility. The three-day auction generated more than $41 million in gross auction sales and featured more than 2,900 lots from over 500 consignors.
"Many equipment owners are choosing to sell with us rather than paying for expensive upgrades or scrapping their equipment," states Richard Aldersley, Ritchie Bros. regional manager. "In their current condition, many of these pieces of equipment still have a long, useful life in other markets."
Yet, this life could become limited even in other parts of the country. Although CARB has the unique authority to regulate emissions from off-road equipment, other states are permitted under the Clean Air Act to adopt California standards. This risk has prompted Stephen E. Sandherr, AGC's chief executive officer, to observe, "This is a truly national matter, and of great concern to construction contractors throughout the United States."
The regulation has been seven years in the making. So regardless of the vote's outcome on July 26th, clearly the issue is not going away. And given its potential implications for other states, it's definitely one piece of legislation every contractor should monitor carefully.