The cost of compliance

As the new Tier 4-compliant equipment starts to roll off assembly lines, equipment manufacturers are anxiously waiting to see how they will be received by the farmers and contractors. Despite price increases of 5% to 15%, they believe farm equipment sales will be strong thanks to an agricultural economy buoyed by food shortages and heightened demand for crop-based fuels like ethanol. They are even seeing glimmers of hope in the recession-plagued construction industry.

“There was a great sense of confidence at CONEXPO-CON/AGG,” says Charlie O’Brien, vice president of agricultural services for the Assn. of Equipment Manufacturers (AEM). “Vendors were upbeat and deals were getting done. I think people are starting to see the light at the end of the tunnel.”

Although the construction industry is still on the long road to recovery, many of the projects being awarded are government projects that often include incentives or requirements for the use of low-emission equipment.

“Customers are recognizing that having Tier 4 machines in their fleets creates opportunities to compete for some government-funded contracts and operate in more government-regulated jobsites,” says Tim O’Brien, marketing manager, Case Construction Equipment.

The most comprehensive and costly regulations to date

The Tier 4 regulations are the most comprehensive and costly off-highway regulations ever implemented by the federal Environmental Protection Agency (EPA). The first wave of interim regulations, impacting equipment powered by engines above 175 hp (130 kW), took effect at the start of this year. A second wave of interim regulations, impacting equipment powered by engines between 75 and 175 hp (56-130 kW), will take effect next January. These interim regulations give engine and equipment manufacturers some flexibility in meeting Tier 4’s nitrogen oxides (NOx) and hydrocarbon (HC) emission standards. That flexibility will end when the final Tier 4 regulations are implemented in 2014.

When EPA adopted the rules in 2004, it estimated the new regulations would cost equipment manufacturers and end-users $2 billion per year and add, on average, 20% to the cost of an engine and 3% to the cost of equipment. Engine and equipment manufacturers have long contended that EPA low-balled its estimates, and while manufacturers are reluctant to discuss costs, it appears they were right.

“When we looked at the cost to equipment manufacturers it has been in the 5% to 15% range for the entire piece of equipment,” AEM’s C. O’Brien says.

New technologies prompt redesigns

In order to meet the new emissions requirements, most equipment manufacturers relied on two different technologies: exhaust gas recirculation (EGR), which recirculates exhaust gases to reduce NOx emissions, and SCR, a European technology that uses a chemical reagent, diesel exhaust fluid, to reduce nitrogen oxides. Both technologies require engine and equipment modifications. EGR requires manifolds, plumbing and a larger cooling system. SCR needs an additional fuel tank to hold the diesel exhaust fluid.

While both of these technologies have been proven in on-road applications, they present unique challenges for the off-highway market, which utilizes nearly six times as many engine families as the on-highway industry. In addition, the off-highway market is dominated by small businesses that have little or no on-highway experience.

“There has been a real scurry of activity over the last two years with some companies spending half of their research and development budgets just on Tier 4 compliance,” C. O’Brien says. “They had to do a lot of redesign.”

Joe Suchecki, a spokesperson for the Engine Manufacturers Assn., agrees. “The biggest challenge was integrating the new aftertreatment devices into the design and operation of the large number of nonroad equipment types,” he says. “Engine and equipment manufacturers had to ensure the placement and operation of the emissions control equipment would not impact the operation and function of that particular piece of nonroad equipment.”