@Dave: This program exists (originated by the Diesel Emissions Reduction Act of a couple years ago) to provide grants and revolving loans to cover some of the incremental costs of retrofitting diesel engines with new pollution-control equipment, replacing engines/vehicles with ones certified to cleaner 2007/2010 emissions standards, adding auxiliary power units to reduce idling and replacing or retrofitting diesel vehicles with hybrid drive systems. It makes sense to administer it on a state level because there's a good infrastructure set up in each state to handle funding thousands of small projects.

Funding R&D is fine and is accomplished through other programs, but diesel vehicles have long life cycles: without some intervention directly with the vehicle owners like this program, millions of inefficient and dirty diesel engines will continue to be operated for decades despite the new emissions regs.