Rice Farming

Green Highways

Diesel fuel regulations loom large on California’s horizon

By Brenda Carol

It may be an ailing economy, but that isn’t stopping California regulators from implementing increasingly stricter provisions regarding diesel fuel emissions in an attempt to “go green.” The California Air Resources Board (ARB) recently enacted two regulations that will affect an estimated one million heavy-duty diesel trucks operating in California, and those will no doubt have a significant impact on agricultural operations.

Beginning Jan. 1, 2011, the Statewide Truck and Bus rule will require operators of trucks and buses in California (over a 14,000 gross vehicle weight rating) to install diesel exhaust filters and upgrade all vehicles by 2014, unless exempt under special provisions. Engines older than the 2010 model year must be replaced somewhere in the time period ranging from 2012 to 2022.

It’s an expensive proposition for California rice growers, but a proactive effort from the California Rice Commission (CRC) and other agricultural commodity groups is easing the pain – or at least delaying it. CRC and other commodity groups lobbied for more time to ease the transition and succeeded.

Alternative program provides more compliance time
Under a special exemption, “low-mileage” diesel trucks that operate fewer than 10,000 miles a year can remain on California roads through 2022 without being replaced or incurring costly retrofits. Additionally, “limited-mileage vehicles” which rack up a few more annual miles than “low-mileage” vehicles still get a reprieve in terms of transition deadlines, but only through 2016.

“This victory came after about 18 months of intense negotiations,” says Mark Kimmelshue, CRC Chairman.

It was a tough fight, but well worth it for the agricultural sector, which is constantly embattled by rising fuel prices, regulations and difficult economic realities.

“The Air Resources Board approved a program that offers the agriculture industry a sensible alternative by providing additional time to comply,” says Paul Buttner, CRC Environmental Affairs Manager in Sacramento, Calif.

“While the regulation still hurts, it allows growers more flexible compliance options that represent real savings,” he adds.

Special agricultural truck provisions
Ultimately, all growers and haulers will have to comply. “Small fleet” operators get a little more breathing room initially. Under the new regulations, growers/haulers who operate only one to three diesel trucks are exempt from the regulation through 2012.

However, by Jan. 1, 2013, a small fleet operator will be required to show at least one vehicle equipped with a 2004 model year or newer engine having a verified diesel particulate matter (PM) exhaust retrofit. By January 1, 2018, that vehicle will then need to meet the PM and oxides of nitrogen (NOx) performance requirements of the regulation.

“I was suspecting something much worse,” says Charley Mathews, Marysville, Calif., grower and CRC Director. “As an industry, we are very fortunate to have a scaled-down approach that gives growers time to make changes.”

It’s unclear at this point exactly what the impact of the new diesel emission regulations will have on California’s rice industry. The only sure bet is what starts in the West eventually trickles east to rice-growing regions across the U.S. Close to home, the immediate numbers aren’t that difficult to calculate.

“A new truck is probably going to run around $120,000,” Mathews says. “A retrofit can vary between an exhaust scrubber or a new engine, and those updates can mean $10,000 to $20,000.”

Compliance cost for the rice industry
From a broader, long-range perspective, the economic impact multiplies exponentially.

“It is very difficult to estimate a precise compliance cost,” Buttner says. “However, it’s probable the regulation will cost the California rice industry about $25 to $35 million dollars over the next dozen years, but that’s less than half of what it would have cost without the special agricultural truck provisions.”

Certainly, it could have been much worse and a lot more biased.

“The original proposed regulations would have caused a disproportionate cost to agriculture versus other industries,” Buttner says, “but ARB recognized that fact and offered special low-use and limited-use provisions for agricultural operators. Without these special provisions, agriculture would have incurred up to 20 percent of the statewide compliance costs (approximately $900 million) while only being responsible for about four percent of statewide emissions.

“We estimate these provisions adopted by ARB reduced the impact to approximately eight percent of statewide compliance costs ($400 million), representing a savings to California agriculture of about $500 million, including at least $40 million for rice farmers over the life of the regulation. While a $400 million compliance bill still stings, we appreciate ARB finding a more reasonable solution that allows us to help the State meet its 2023 air quality goals in a manner that keeps small farms viable.”

Many California rice growers rely on independent haulers, but even those increased costs will eventually trickle home.

“The same trailers that haul rice are also used for wheat, corn, safflower, walnuts, almonds, fertilizer, seed and other commodities,” Mathews says. “In that aspect, a trucking company is very diversified and able to handle the demand of rice harvest and spread the regulatory burden among other commodity groups.

“The rice farmer-owner-operator is probably a minor player in that segment of our industry, but I would imagine he still accounts for close to half of the total trucking for rice,” he says. “Many of these rice farmer truckers haul green rice during harvest as well as dry rice to mills in the off-season. This is the group that will be most affected by the diesel rule changes.”

California Rice Commission pitches in
As tough as the regulations have been on agriculture, CRC’s efforts to mitigate the economic impact of the regulations have undoubtedly helped. For now, the rice industry has some breathing room, and it’s largely due to grower feedback and participation.

“Our work on this project was guided by the surveys that CRC member truck operators filled out and returned to CRC, allowing us to fully understand how trucks were operated in rice production,” Kimmelshue says. “Without this key data, it would have been difficult to fully evaluate the benefit of various proposals for regulatory relief. We estimate that the special provisions incorporated into the truck regulation will apply to approximately 85 percent of the rice industry’s trucks, depending on annual mileage accrual.”

That point is echoed by California’s rice growers who are constantly under the regulatory gun. “While most of CRC’s members do not realize the magnitude of the technical challenges that occurred during negotiations with the ARB, they never forget the importance of the CRC and what it can bring to the industry by achieving success one challenge at a time,” Mathews says.

Brenda Carol is a freelance writer based in California. Contact her at (805) 226-9896 or brenda@brendacarol.net.



Compliance details
• Each fleet of low- and limited-mileage agricultural vehicles must be established by Jan. 31, 2010, and must be comprised of vehicles owned on Jan. 1, 2009.

• The size of each low- and limited-mileage agricultural vehicle fleet cannot increase through the life of this regulation (through 2022). However, a designated agricultural vehicle can be replaced with another vehicle, providing that it is at least one year newer than the one being replaced.

• Annual reporting on low- and limited-mileage agricultural vehicles is required.

• All low- and limited-mileage agricultural vehicles must be identified with the letters “AG” affixed or painted on both the left and right doors of the vehicle. The letters must be printed in black printing, three inches high and on a five- by eight-inch white background.

• Incentive funds can be used to achieve early compliance with the Truck & Bus Regulation, but only if the project is completed in advance of the regulatory compliance deadline. For most trucks, the upgrade must be completed at least two years before it would be required by regulation.

• Most incentive programs are administered by local air districts. Fleet owners may contact their local air district to apply for funding.

ARB loan incentives program

California’s Air Resources Board (ARB) is developing innovative financing programs to provide fleet owners, particularly small business owners, easier access to loan opportunities. The ARB’s programs may offer several options to increase financing accessibility, including loans, loan guarantees and other mechanisms to assist industries affected by ARB regulations.

Since 1994, participating financial institutions throughout California have used the CalCAP program to fund about 7,200 loans totaling about $1.3 billion for small businesses that fall just outside conventional underwriting standards.

Through its proven and successful loan guarantee model, CalCAP has achieved an historical fund leveraging ratio of about seven-to-one with a loan default rate of about four percent. For ARB and for borrowers, this means that the total dollar amount of loans made with lender funds will be at least seven times greater than the funds ARB contributes to the program.

With an historically low default rate, CalCAP’s loan guarantee model provides a stable financing structure that enables lenders to provide competitive rate loans to borrowers that do not fit within conventional underwriting standards. Borrowers may also use available incentive grants as down payments in combination with their CalCAP loans to achieve better loan terms.

While each lender will determine the interest rate for every loan it offers, ARB expects CalCAP lenders to offer interest rates in the range of seven percent to12 percent to qualified truckers.

The CalCAP program provides a win-win situation both for the state and for truck owners – a proven program structure that is already in place to meet the demands for affordable financing in the trucking sector.
In addition to meeting ARB’s program criteria, eligible borrowers must meet basic CalCAP requirements such as: 1) the trucking company qualifies as a small business (less than 100 employees); 2) the trucking company generates less than $10 million in annual revenue; and 3) the trucking company must have a “primary economic” effect in California.

To determine if you qualify and to view the approximate credit risk, go to www.arb.ca.gov/diesel/rppot.htm, “Diesel Activities,” “Related Programs, Plans & Other Topics,” “Loan Incentives Program,” “On-Road Heavy Duty Air Quality Loan Program” then “Heavy Duty Vehicle Loan Program Overview.”

Source: California Air Resources Board