Stricter Calif. emissions rules prompt companies to sell equipment overseas

In scramble to meet cleaner diesel guidelines, Calif. rental firms try selling older machinery elsewhere

News San Francisco Chronicle August 13, 2007
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In response to a regulation approved last month as part of California's efforts to cut emissions, some California equipment rental companies required by the California Air Resources Board to make their diesel-engine fleets greener say they plan on selling their older machines to nations with less stringent environmental restrictions, according to a report in the San Francisco Chronicle.

The move is an unplanned consequence of California's campaign to cut air pollution as well as greenhouse gas emissions that cause global warming.

"We don't want to export pollution from California, although to a certain extent, there are places that don't have quite the air pollution problems that California has," said Bill Magavern, a lobbyist for the Sierra Club.

But as companies rush to meet deadlines to retrofit their diesel vehicles or replace them with machinery with lower emissions, transporting air-polluting equipment out of the state rather than taking it out of commission seems to be an option rental firms are considering, the newspaper reported.

"We are working with a number of different organizations to see if we can move this equipment to Asia, South America or elsewhere," said Rich Soltero, project manager at Dahl's Equipment Rental Inc. in San Jose, Calif.

One such broker is Power Systems International in Oakland, Calif., which already sends about 50 shipping containers of old heavy construction equipment abroad.

"We buy used equipment that doesn't meet [the Environmental Protection Agency] standards. We ship to Mexico, Taiwan, Vietnam ... they know our [regulatory] situation here so they don't pay much for them, though," said Ray Ferraris Sr., the co-owner of Power Systems.

With more rules approved by the state air board on July 26, Ferraris expects to get more calls from California diesel-engine construction fleet owners needing to dispose of their older equipment, the Chronicle reported.

Under the new regulations, firms must begin reporting their diesel-fleet information to the air board in 2009. Businesses with large fleets need to start complying in 2010, while medium and small firms must begin decreasing their diesel emissions beginning 2013 and 2015 respectively, according to the newspaper.

The goal of the state's diesel-reduction plan is to cut diesel emissions in California to 85% below 2000 levels by 2020.

Mary Nichols, chairwoman of the air board, said California's old equipment being sent abroad shows the state's role as a pioneer in fighting for a better environment, the newspaper reported.

"The equipment that will be moving to other parts of the world will still be meeting U.S. standards and may be cleaner than what they've got now," she said. "It's a little bit of a trickle-down effect, but it's better than not doing anything at all."

Supporters of the new regulations say the rules are necessary to reduce illnesses like childhood asthma and to improve public health in smog-heavy regions such as the greater Los Angeles area and the San Joaquin Valley, according to the newspaper.

The new standards for cleaner-burning diesel engines could help decrease premature deaths by 4,000 over the next twenty years as well as result in possible savings of between $18 billion and $26 billion in health care costs, according to the air board's staff.

Despite the benefits, the changes come at a price, especially for construction firms, heavy equipment rental companies and other owners of California's 180,000 earthmovers, excavators and other off-road diesel machinery. It could cost between $3 billion and $12 billion to upgrade or replace their fleets, industry officials have said.

The new rules would result in a loss of 1,400 to 3,400 jobs a year, the air board staff acknowledged.

Although he doesn't think he will have to lay off any of his 30 employees, Soltero is trying to figure out how to operate under the stricter regulations. He has 128 pieces of diesel-engine equipment that would be affected by the tougher regulations.

Initially, the plan is to decrease the number of the firm's diesel-engine rental fleet by selling older equipment on the used market while purchasing less new machines. Since the 128 machines represented a quarter of the firm's $6.3 million revenue last fiscal year, that's a difficult choice to make.

"You hope that you'll come up with other equipment to rent, such as electricity-powered light towers," Soltero said. "You just try to make up revenue in other areas."

Lisa Carter, general manager of California Diesel & Power in Martinez, Calif., said her rental firm already upgrades its equipment on a regular basis, so she doesn't expect any wholesale changes to its fleet.

There will still be equipment that will probably have to be taken offline sooner than usual and the machinery will probably be sold on the used market.

"I already sell older equipment, and they go out of state or across the border," Carter said.

The used market already is a burgeoning industry worth about $100 billion, said Richard Aldersley, Southern California regional manager for Ritchie Brothers Auctioneers, the world's largest auctioneer of heavy construction equipment.

In fact, the new California regulation helped fuel extra business for Ritchie Brothers even before the rules were approved. The proposed regulations helped boost the company's three-day auction in Los Angeles to new records for the number of consignors and lots, generating more than $41 million in gross auction sales, the company announced in May.

One-fifth of the equipment sold went overseas to countries including Chile, Ghana, Australia, Latvia, Nigeria, Pakistan and Venezuela.

Fighting global warming and cutting air pollution has become a popular mantra among many political leaders in California, especially after the passage of last year's landmark AB32 legislation, which aims to cut greenhouse gas emissions by 25% by 2020.

California Governor Arnold Schwarzenegger, for example, has traveled around the world supporting the cause and attempting to convince other governmental leaders stateside and abroad to adopt similar measures, said Aaron McLear, the governor's spokesman.

Steve Maviglio, spokesman for Assembly Speaker Fabian Núñez (D-Los Angeles), who co-authored the bill, said the fact that businesses need to figure out ways to see returns on their investments needs to be recognized. Even if that means moving polluting equipment elsewhere, replacing it with greener machines in California is a good first step toward saving the environment, he said.

"We never intended to save the world, but we've intended to do our part," Maviglio said.

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