Tier 4 Better for the Environment, But What about the Used Equipment Market

Whether you’re a business owner, a heavy equipment operator, or both — if your work involves using big machinery in the United States, you’ve probably been paying pretty close attention to the introduction of the Tier 4 emissions standards by the Environmental Protection Agency (EPA).1

North of the border, Environment Canada is essentially mirroring the new regulations with emission standards and testing that will align with those being put in place by the EPA. In fact, countries all around the world are starting to introduce more stringent emission standards for heavy equipment.

Tier 4: The Facts
The mandate of Tier 4 emission standards is simple: significantly reduce the amount of NOx (nitrogen oxide), HC (hydro carbons) and PM (particulate matter) produced and released into the atmosphere as a result of running heavy equipment and other types of non-road engines.

• The “tiered” series of emissions regulations have been phased in since 1996, and will be fully in place by 2015
• Older Tier 0 engines have no modern emissions controls; in comparison, new Tier 4 engines have close to zero emissions
• Tier 4 requirements apply only to new engines; there is no federal U.S. mandate to upgrade existing engines to the new Tier 4 standards
• New Tier 4 generation engines and equipment must use ultra-low sulfur diesel fuel (ULSD), used only in the U.S., Canada, Europe and Japan
• States can set additional emissions regulations (as California is doing with regulations to upgrade and modernize in-use off-road equipment2)
• After the deadlines, manufacturers can only produce equipment with Tier 4 engines; however, dealers can continue selling Tier 3 machines
• There are no constraints on buying or selling non-Tier 4 equipment

Long-Term Benefits
The long-term benefits of Tier 4 regulations are considered significant. According to DieselNet: “When the full inventory of older non-road engines are replaced by Tier 4 engines, annual emission reductions are estimated at 738,000 tons of NOx and 129,000 tons of PM. By 2030, 12,000 premature deaths would be prevented annually due to the implementation of the proposed standards.”

Drawbacks
There are also a number of drawbacks being considered about making engines cleaner and more efficient to meet new Tier 4 regulations. One of the more outstanding of these is the fact that the engine envelope has gotten somewhat larger. This creates a challenge for off-road equipment manufacturers to fit the engines into existing chassis5.

Many of the small off-road equipment manufacturers faced the challenge by installing space-saving, compact catalysts that allowed them to meet Tier 4 standards and meet the first deadline at the beginning of 2012. The catalyst can be installed separately or as part of a combined catalyst-and-muffler unit 6.

Impact on Used Equipment Values
So what does this all mean on the used equipment market? A few factors will come into play:

• Newer, high tier equipment is more expensive to produce, which could reduce demand; however, emissions-compliant equipment may be required on certain contracts, especially public projects, increasing demand. Therefore, higher costs on new machines will get passed on to contracts, which will ultimately get passed on to the consumer.

• Diesel equipment is known for its durability, so Tier 4 equipment will represent only a fraction of in-use equipment for some time — which may result in further changes to state or federal regulations, with unknown impacts

• Until ULSD becomes available, Tier 4 engines will need to be de-tiered to be usable in most markets outside the United States. There is concern that one of the unintended consequences of Tier 4 regulations is the creation of “quarantine markets.” The United States will isolate itself because of its regulations and Tier 4 machines could not be operated in less-developed countries because ULSD is not available. As a result, according to Ritchie Bros. chief sales officer Steve Simpson, “The value of this Tier 4 equipment is a significant unknown.”

Addressing the third point during the 2012 Associated Equipment Distributors (AED)/Infor Executive Forum, Peter Blake, CEO of Ritchie Bros. Auctioneers, the world’s largest auctioneer of used industrial equipment, stated free markets will figure out a way to make Tier 4 equipment work. “If there is a demand, people will figure out how to get the fuel there. Part of the answer is the availability of service. If you get new, complicated engines, but move into Latin America where serviceability may not be available, that will impact the saleability of the engines.”

There’s no doubt that Tier 4 regulations will affect the used equipment market — exactly how remains to be seen. Whether you’re buying or selling equipment, the most important thing is to stay informed:

• Education and compliance: large contractors can rely heavily on dealers and manufacturers to keep abreast of the current requirements for engine emissions. Similarly, they can rely on equipment exchange platforms that create a global equipment marketplace, like Ritchie Bros. Auctioneers, so they can see where demand is coming from on any given auction day.
• Trends to watch: state and local requirements, emphasis on reducing equipment idling, climate change, fuel economy and hybridization are a few of the topics you should keep informed about in order to make sure your fleet is meeting all emission regulations.
• Technician training: ensure your technicians have a general familiarity with electronically-controlled engines, exhaust after treatment, control devices as well as general exhaust equipment maintenance and operation.
If you scan through the list of emissions standards on DieselNet, you will note that more countries around the world are starting to introduce more stringent emission standards for heavy equipment. Although it’s not foreseeable that one standard will be implemented globally in the near future, perhaps this is the direction that international emission regulatory bodies are starting to head in. In the meantime, equipment owners should continue to stay educated and informed about this significant regulatory introduction and the factors that surround it.

Richard Aldersley is vice president of sales, U.S. Southwest and Latin America for Ritchie Bros. Auctioneers.

Resources and sources:
1 http://www.aem.org/PDF/DTF_Tier4WP_FIN.pdf
2 www.arb.ca.gov/diesel
3 http://www.dieselnet.com/standards/us/nonroad.php#tier4
4 http://www.equipmentworld.com/ritchie-bros-president-sees-turnaround-for-construction-unsure-on-value-of-tier-4
http://www.equipmentworld.com/tier-4-will-tough-regulations-make-construction-equipment-resale-a-quarantine-market/
5 http://www.oemoffhighway.com/article/10226787/what-epa-tier-4-flexibility-rules-mean-for-manufacturers-of-non-road-equipment
6 http://www.oemoffhighway.com/article/10248022/the-cost-of-compliance?page=2