1. Regulating fuel economy of heavy-duty vehicles (HDVs) Winston Harrington Alan Krupnick For USAEE Meeting Washington, DC, October 11, 2011

2. Outline  Background on HDVs  The regulations  Some economic issues  Conclusions

3. Caveat: TO ABRIDGE IS TO LIE  Final rule: 958 pages  RIA: 391 pages  This presentation: 15 slides

4. Background on heavy-duty vehicles

5. Energy use (almost all oil) in transport (2010)  Light duty vehicles: 58%  Heavy-duty vehicles: 17%  Air: 9%  Other: 16%  Eliminating diesel CO2 emissions reduces U.S. CO2 by.17*.30 = 5% CO2 vs. miles (LDVs and HDVs): LDVs: 77% of CO2, 90% of miles HDVs: 23% of CO2, 10% of miles

6. HDV energy losses (Class 8 Combination trailers) UrbanIntercityPotential Gains* Engine losses60%59%28% Aerodynamic4-10%15-22%12% Tires8-12%13-16%11% Braking/drive train 20-26%2-4%7% Auxiliary7-8%1-4% Total Gain is 47% * NRC report (2009)

7. Complex industry-complex products  Purchase engine, vehicle and trailer/body separately  tough for regulation and could be inefficient  Strong secondary market with modifications easy to do  hard to regulate  Strong announcement and new-source bias effects around NOx, PM regs

8. Regulation

9. Authority  Energy Information and Security Act (EISA) gives NHTSA a mandate to regulate fuel use in HDVs  Massachusetts v. EPA (2008) gave EPA the authority/responsibility to regulate CO2 as a criteria pollutant  Agencies jointly proposed regulations in Nov. 2010, promulgated in August 2011

10. Vehicle classifications  Traditional classification (FHWA): 8 vehicle classes, based on weight  1-2a: Light duty vehicles  2b-8: Heavy-duty vehicles  Regulatory categorization (NHTSA/EPA):  Class 2b-3 HD pickups and vans (20% of energy use)  Class 7-8 Combination vehicles (Semis) (65%)  Class 2b-8 “Vocational” vehicles (15%)  Basis: duty cycle, energy use, weight, similarities in manufacture/assembly

11. Regulatory description  Class 2b-3 HD pickups and vans  Regulated like LDVs (whole-vehicle, payload- based attribute regulation)  Class 7-8 combination vehicles  Separate standards for engines and cabs  Subcategorization : 2 engine, 9 cab classifications  Vocational vehicles  3 engine-chassis combinations, based on weight

12. Development of standards  Set baseline for engine and vehicles (e.g., class 8: HD 15-liter engine producing 455 hp); can be based on mfg fleet average  Apply performance-enhancing technologies in order of cost-effectiveness  Set percent reduction equating estimated average cost/ton CO2 across categories (equity?)  Allow trading of emissions credits with banking within vehicle subcategories

13. Regulatory effectiveness in 2018 (% reduction in fuel use or CO2 emissions)  HD Pickups and vans  With gasoline engines: 12%  With diesel engines: 17%  Combination vehicles  Engines: 6%  Vehicles: 10-24%; higher for sleeper cabs (more aerodynamic opportunities)  Vocational vehicles  Engines: 5-9%  Vehicles: 6-9%

14. Estimated cost of regulations for combination and vocational vehicles (2008 $)  Hardware Cost per vehicle (2020):  Combination vehicles: $5661  Vocational vehicles: $343  Cost per ton CO2:  Combination vehicles: $30  Vocational vehicles: $30  Net cost per ton incl energy savings:  Combination vehicles: -$220  Vocational vehicles: -$230

16. What’s good and not Good  Redo of categories  Credit trading Not so good  No alternate fuel credits  Technique for setting level of standards. Are marginal costs being equated across categories?  Standards appear too weak, but perhaps understandably so

17. Broader Issue  The usual problems with new source standards  Rebound effect (5-15%) (plus road damage and accidents)  New source bias  Missed opportunities for existing vehicles  Class shifting  Lack of vehicle innovation incentives  Raise tax on diesel fuel

18. Takeaways  This is only a first step. Expect further and more expensive regulation  Could fix some issues  We’d be better off with carbon/diesel taxes or, much less so, feebates