LAO 2009-10 Budget Critical of CARB's Rules Cost to Caltrans

More Cost–Effective Approach Needed To Meet Air Quality Regulation

March 4, 2009

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Caltrans’ budget includes about $63 million from SHA in 2009–10 to retrofit and replace many of the vehicles and equipment in its fleet in order to meet four different sets of state air quality regulations. About $54 million of this total would be provided on a one–time basis. Regulations adopted by ARB require Caltrans to replace substantially more of its fleet each year than the department would otherwise based on the useful life of its vehicles and equipment. The regulations also require Caltrans to make various retrofits to its fleet, such as installing specialized filters to reduce diesel emissions.

Compliance With Diesel Rules Much More Costly Than Planned. The department’s ongoing efforts to comply with the state’s air quality rules are not limited to the budget–year request. Over multiple years, Caltrans expects to spend a total of about $260 million (including $82 million in prior expenditures) to comply with four sets of state air quality regulations. The ARB’s diesel regulations for both on–road vehicles (such as maintenance trucks) and off–road vehicles (such as graders and other heavy equipment) account for about 90 percent, or $240 million, of the total cost. These costs for Caltrans are substantially greater than ARB estimated when it developed the diesel rules. The ARB had estimated the total cost for all state agencies would be about $60 million over multiple years.

The department’s high cost estimate is due in part to the requirement that many of its diesel vehicles must be retrofitted with a filter—known as a particulate matter trap. These traps cost about $20,000 each. For some vehicles, two such traps are required at a cost of $40,000 per vehicle. Additionally, as discussed below, our review finds that other factors are contributing to the department’s high cost estimate.

Caltrans and ARB Disagree About Steps Needed to Comply. The ARB’s diesel rules impose various requirements for Caltrans to replace and/or retrofit a specified portion of its fleet each year for a number of years. Additionally, in some cases, such as for off–road vehicles, even new replacement vehicles must be retrofitted with particulate matter traps. These retrofit devices can be difficult and costly to install. Because most such devices are too large to easily fit onto the department’s trucks, Caltrans is requesting staff to modify and rebuild some of its vehicles in order to install the retrofit devices.

Caltrans has concluded, based on discussions with ARB, that this expensive and difficult process is the only way it can come into compliance with the new air quality rules. However, ARB has advised us, to the contrary, that Caltrans should not need to modify or rebuild any vehicles to comply with its rules. According to ARB, the steps being taken by Caltrans are not necessary because the air quality requirements that would otherwise apply would be deemed to be technologically infeasible.

At the time this analysis was prepared, Caltrans and ARB had not resolved this disagreement over what steps are needed to comply with air quality requirements.

Exemptions Possible…But Not Necessarily for Caltrans. The ARB staff indicates there are some exemptions to its rules. For instance, if the retrofit device is too large to easily fit on a vehicle, as is the case with many Caltrans vehicles, the department could qualify for a one–year exemption based on a finding that the regulations were technologically infeasible to implement. However, ARB’s process for providing such an exemption calls for a review of such issues on a vehicle–by–vehicle basis, rather than through a fleet–wide assessment of vehicles. While Caltrans may legitimately qualify for such an exemption, we are advised by the department that the process of applying for exemptions individually for each of the thousands of vehicles in its fleet is not practical.

An alternative, more practical solution, is also possible. The ARB does have a process available to reevaluate its regulations to determine if the technology needed to comply with air quality rules is currently in existence. If, upon reevaluation, the ARB determines that the technology does not exist, then an across–the–board exemption to compliance with the rule would be granted. If granted, no entity would be required to comply with the rule for that year.

The ARB staff has advised us that across–the–board exemptions may be approved in the coming months for a couple of air quality rules, including those currently being applied to Caltrans. However, there are further complications. This reevaluation of ARB regulations would occur no sooner than ten months before the compliance deadline. Thus, it is possible that Caltrans could eventually be exempted from at least some of ARB’s rules in 2009–10, but that the department might not learn of this exemption until after the Legislature has had to make a decision on whether to provide funding for these compliance activities in the department’s budget. Another complication is that, if a reevaluation does not result in the granting of exemptions, Caltrans would have only ten months to make all the required retrofits. That likely would not be enough time for Caltrans to comply with the rules due to the department’s large fleet of vehicles.

Another potential solution would be for Caltrans to seek the exemption of some of its vehicles on the grounds that they are emergency vehicles. Our analysis indicates that ARB rules specifically exempt certain vehicles from air quality rules that are classified as emergency service vehicles. Because many other state departments have qualified for this exemption, they are not incurring substantial costs to comply with these rules. However, at the time this analysis was prepared, Caltrans had not taken full advantage of this option. Caltrans has indicated that it has encountered difficulty in getting ARB to accept a number of its vehicles as qualifying for this exemption.

Interaction of Rules Increases Costs and Limits Benefits. In addition to ARB’s statewide rules, one regional air district—the South Coast Air Quality Management District (SCAQMD)—has its own air quality regulations. One of SCAQMD’s requirements is that any vehicle replaced by Caltrans in the South Coast region be fueled by an alternative energy source. For the types of trucks used by Caltrans, the only alternative fuel option available is natural gas–powered trucks that cost about $100,000 more than an equivalent diesel truck.

While Caltrans has been complying with the SCAQMD requirements, ARB’s on–road diesel rule has recently caused an unexpected complication. Specifically, under ARB rules, Caltrans must either retrofit or replace large portions of its vehicle fleet over the next few years, including vehicles in the South Coast region. Because retrofitting vehicles can be costly, Caltrans would prefer to replace many of its diesel trucks with new ARB–compliant diesel trucks. However, if Caltrans replaces its trucks, SCAQMD would require Caltrans to buy more costly alternatively fueled vehicles. To avoid these extra costs, Caltrans instead plans to retrofit its diesel trucks in the South Coast region rather than replace them. Thus, due to the unintended interaction between the two sets of air quality rules, Caltrans is prevented from buying new diesel trucks that would have greater air quality benefits and are a more cost–effective option.

Recommendation: Legislature Should Determine Cost–Effective Approach. As discussed above, the costs for Caltrans to comply with ARB’s regulations are substantially higher than had been originally estimated. This is in part because there is a lack of agreement between ARB and Caltrans on what specific steps the department must take to meet the air quality regulations and whether statutory changes are needed to allow a more cost–effective approach to do so. In addition, while Caltrans may legitimately qualify for some exemptions to the rules, ARB’s process for obtaining such exemptions is not practical due to Caltrans’ large fleet of vehicles. Furthermore, Caltrans is prevented from choosing the most cost–effective method of compliance due to an unintended interaction between statewide and regional rules.

In light of these factors, we think additional information should be provided to the Legislature to help it to determine how much Caltrans should spend to comply with these air quality rules in a cost–effective way, and what statutory changes, if any, are needed to do so. Accordingly, we recommend that the Legislature direct Caltrans and ARB to jointly report the following information at budget hearings.

  • Any changes to the statewide and regional air quality regulations that should be made to allow the state to reach its air quality goals in a cost–effective manner.
  • Any legislation needed to allow the state to take a more cost–effective approach to comply with these air quality rules. This could include changes in the way the ARB and SCAQMD implement their air quality rules.
  • How Caltrans can comply with these air quality requirements, over multiple years, in the most cost–effective manner.
  • The steps Caltrans can take that are technologically feasible to comply with these air quality rules and what actions are not technologically feasible.
  • The number of Caltrans vehicles that provide emergency services and whether or not these vehicles have been (and can be) exempted from the regulations.

With this information, the Legislature should determine a cost–effective approach for Caltrans to meet these requirements and consider any statutory changes, if necessary, to allow Caltrans to do so.