Mike Shaw didn't want to be caught by surprise when the state starting cracking down on diesel engines. He owned more than 100 of them – powering the scrapers, graders and bulldozers that are the backbone of his San Diego construction business. So he paid close attention when the state's air pollution regulators wrote new rules requiring the owners of diesel-powered equipment to clean up their fleets. And as he thinned the oldest, dirtiest engines from his stock, Shaw thought he was well on his way to satisfying the state's requirements.

Then he ran the numbers. The state's calculator showed that he still was not even close.

"I'm overwhelmed," Shaw said recently. "I'm humbled by this."

He's not alone. California's construction industry, already laid low by the economy, is now coming to terms with the regulation the Air Resources Board adopted a year ago. The new rules – the nation's toughest – require the owners of off-road diesel construction equipment to replace their old engines, retrofit them with soot traps or get rid of them. The rules begin taking effect in 2010, and each year the regulation gets tighter and tighter until, eventually, all the engines in use in California will have to be the latest models.

Diesel exhaust is nasty stuff. The tiny particles it contains – about one-seventieth the diameter of a human hair – can lodge in your lungs. Chemicals carried on those particles can then dissolve in the lungs' fluid linings and be absorbed into the body. Older people and children living near busy roads and construction sites are especially vulnerable. The state attributes 2,000 premature deaths a year to the effects of diesel pollution.

In that light, the crackdown sounds sensible. But the owners of all those diesel-powered machines bought their equipment for tens of thousands of dollars, sometimes hundreds of thousands of dollars, under the rules that were in place at the time. They made those investments thinking that their earth movers would last long enough to allow them to recoup the money they put into them.

Now the rules have changed, and they've been forced to begin selling off their machines at the worst possible time. With the private construction business collapsing, demand for the old equipment is already low. Add to that the flood of equipment on the market, and the machines are going for pennies on the dollar. Buyers from other states and countries without the same kind of diesel regulations are showing up at auctions and getting great deals. And California companies are hurting.

Less than two years ago, Shaw's firm owned 117 pieces of equipment with diesel engines, a total of 52,000 horsepower. Today his fleet is half that size, in both numbers and horsepower.

And it is much cleaner. Two years ago, nearly 80 percent of the horsepower in his fleet came from the oldest, dirtiest engines that were the air board's biggest concern. He owned almost none of the newest engines that will one day be the standard.

Today, less than 20 percent of his fleet's power comes from the oldest machines, and a third of it comes from the state-of-the-art engines. But he still does not meet the threshold that will be required when the rule takes effect in 2010.

"We spent a lot of money upgrading our fleet, and we lost a lot of money throwing away equipment that was still in pretty darn good shape," Shaw said. "It's kind of an exercise in futility."

Shaw's industry is preparing to ask the air board to slow implementation of the regulation. The industry says it will still meet the clean-air standards the state is requiring for 2012. But it wants more flexibility between now and then as it continues to remake its fleets.

Besides, the construction industry argues, with housing starts at a 17-year-low, revenues down 24 percent and diesel fuel consumption off by the same amount, diesel emissions right now from construction equipment are probably already below the level the state projected for 2010, if not 2012.

Erik White, the air board manager overseeing implementation of the diesel regulation, concedes that thanks to the economic slowdown, emissions today are probably below what the board projected when it adopted the regulation last year. But he said the plan took a long view that anticipated business cycles.

Companies that shrink their fleets or keep old machines idle get credit for that, White said. Subsidies are available to help companies make the transition. And the smallest firms, the ones least able to replace their engines or retrofit their equipment, already have a later compliance date.

"I don't think we need to make changes to the rule to address what is happening in the economy," White told me.

If White's bosses at the air board agree, the construction companies will simply have to absorb the blow. Some probably won't make it. Others will have to charge more, if they can, to maintain the same profit margin.

Californians want clean air, good jobs and affordable houses and roads.

Sometimes all of those things are not compatible. Something's got to give.

In this case, it's the construction industry.