Monday, April 22, 2019

Earth Day and the Trucking Industry

While the Planet Turns, the Industry Keeps Moving

Well, another Earth Day is upon us and as we cycle around the sun one more time to celebrate the beautiful blue marble we live on, we should not only stop to take in the wildflowers, the trees, the furry little varmints and boundless blue sky above, but we should also pause to consider the most important part of it all, the trucking industry.

At this point most readers would ask what the trucking industry has to do with Earth Day, yet alone wildflowers and furry little varmints.

Besides the fact that if, “you got it, a truck brought it”, when we take a step back to appreciate trucking industry contributions to environmental improvements though new, clean engine purchases, a clear image begins to emerge and it is no longer the old, dirty trruck belching black smoke.

In the trucking industry, the questions have never been about why we need to improve the environment or protect air quality but rather, how to do it, how much will it cost and who is paying?

When the Government wants emissions reductions from the trucking industry, they know starting from the top down is the most pragmatic approach. Begin with the Original Equipment Manufacturers (OEMs) and then move to end users.

For years, engine manufacturers, the state of California and the EPA went back and forth with Lawsuits, Decrees and Memorandums of Understanding all which resulted in eventually forcing the cleanest diesel engine standards for new trucks sold in the United States starting in 2010.

With no place for nostalgia in the California regulatory regime, fleets were then given a decision whether or not to meet strict in-use standards for California operation starting in 2012 by ditching the old and buying the new, retrofitting or leaving the market entirely. 

Many fleets decided to stick around and invest into some of the cleanest diesel engine technology in the world. Many have also leveraged government incentive funds to turnover old equipment through state scrap and replace programs. 

So far, Billions of dollars have been spent to meet in-use emissions standards and Billions more will be needed to fund the final turnover of the legacy fleet into the emerging technologies that will eventually displace the diesel engine in many vocational segments.

Regardless of additional regulatory pressure on OEMs or end user fleets for that matter, all segments of the trucking and transportation industries will continue to respond, helping protect the very lifestyles we have all become accustomed to, while simultaneously improving the environment with every mile logged.

So, on this Earth Day, consider the trucks, they do more than you think.

Friday, January 11, 2019

Wait, What?

California Based Fleets Who Retrofitted  Left with Few Options
The onset of 2019 has brought with it a barrage of half-truths, lies and outright falsehoods when it comes to what California based fleets must do to comply with CARB rules for 2019.

While for the more proactive fleets who skipped interim on-road retrofit standards and went straight into 2010 engine technology, there is smooth sailing ahead for meeting the on-road truck and bus rule compliance well past 2023...for now. 

Meanwhile, anyone who utilized an aftermarket PM retrofit device to comply with the first round of the rule going all the way back to 2012 is now wondering what fate lies ahead for their investments. Outside of the Cleaire LongMile issue, folks who have functioning PM Traps are left scratching their heads.

Granted, most of these vehicles probably need a refresh of some sort, but the reality for various segments of the industry doesn’t involve new truck, or even newer truck purchases. Margins are thin, drivers are scarce and there is still too much work. 

Where the problem really permeates this proud segment of the industry is a timeline that was bestowed upon those who complied with the rule early by retrofitting way back when, in 2012 and through 2014. 

During that fateful year, CARB adopted amendments to the on-road rule and, among other things, gave anyone who installed an aftermarket CARB verified retrofit prior to 2014 some extra time before the 2010 engine standards were required. Up to 3 years for particular model year engines.

Once CARB adopted these amendments, they were almost immediately sued for, among other things, a violation of the Administrative Procedures Act when they issued a regulatory compliance pathway for particular fleet segments prior to formally adopting a regulation. 

CARB lost the lawsuit and all the flexibility provided in the amendments that really spanned the entire industry were gone.
Depending on what side of the diesel demilitarized zone you are on, this is either a good thing or a bad thing.
Either way, fleets who retrofitted early thought they had more time for compliance and potential grant opportunities.

At this current juncture, aftermarket retrofitted trucks are subject to the previous version of the regulation adopted in 2010, which basically eliminated the ability of trailblazing retrofit adherents to flex some extra time prior to full 2010 engine compliance.
At the time these fleets retrofitted between 2012-2014,but before the amendments, the on-road standards required turnover to 2010 engines starting in 2020 for 1996-1999 or pre 1995 engines that were allowed to retrofit for compliance.

Once a verified CARB device was installed the engine was in compliance unitl those dates in the schedule shown here:

The 2014 amendments gave fleets who met the standards through retrofitting extra time to 2023, consistent with the 2023 compliance date for 2007-2009 OEM Engines that were built with PM control. The catch was that this was only available if they could prove they were in compliance prior to 2014 via a retrofit installation and reported that information into the TRUCRS database.
So, if you had the extra time, you had the extra time. Right? Wrong.

The 2014 amendments were an easing of the rule, most controversially for fleets with 3 or fewer trucks over 14K GVWR. They got more time on the second or third truck. 
While the first truck in this fleet segment was supposed to still meet standards in 2014, a backdoor outlet was created for “financial hardship” for fleets who couldn’t comply.
Suffice it to say, asset-based fleets, among others, who spent the money on newer, compliant trucks felt they were being treated unfairly (to put it lightly) by CARB. 

They were being undercut by non-asset-based fleets with all this new “flexibility”, all the while getting little recognition for billions they had spent themselves to meet the same standards originally adopted back in 2010 that CARB just loosened in 2014.

Further lawsuits notwithstanding, CARB will be sending letters to those who are affected by the changes, or rather the change reverting back to the back to the old way, which will give those fleets some time to figure out next steps within the next 11 months. 
There is assistance from the state for certain size segments through the PLACE program, but besides that, truck operators are on their own.
Complicating matters is the fact that the 2020 registration ban impacts the first round of vehicles that did the initial retrofit back in 2012. 

Although they should had known going into the initial retrofit installation that 2020 was a drop-dead date, most if not all thought they had more time once the amendments were adopted in 2014, unfortunately for them, no longer the case. 

At the end of the day, no good deed goes unpunished. CARB basically broke their own rules, got called out, got it handed back to them and now here we are, back where we started.

No wonder everyone is confused... Stay tuned!

Monday, December 10, 2018

CARB Cracks Down

The holidays just another reminder that the registration ban is only 13 months away
Most folks who make up the California transportation industry have been focused on making it through the remainder of 2018 with the lights on and drivers in the seats. While the industry at large has been booming as of late, looming issues for fleets domiciled in the Golden State are drawing closer still.

Besides the obvious issues like misclassification, wage and hour law, ELD, PAGA, the driver shortage, truck parking etc…thousands of trucks registered to thousands of fleets in California will be facing a registration ban for non-compliant equipment starting in 2020.

That means if a truck of a certain vintage does not meet section 2025, Tile 13 of the California Code of Regulations, more commonly referred to as the “Truck and Bus Rule”, DMV will deny registration on or after January 1, 2020.

If a fleet can demonstrate Truck and Bus CARB compliance, and prove as much to the DMV, then registration may be issued. So, it is possible to have older vehicles that are issued registration; provided they are part of an eligible, reported fleet.  However, for the remaining legacy population of non-reported, non-compliant Heavy-Duty vehicles with CA registration that do not have an exemption, there is no respite.

Of course, the On-Road rule is only one of many rules CA fleets need to adhere to.
Several other programs exist for trucks and trailers, both dry van and refrigerated. There are also idling restrictions across the state along with annual smoke testing requirements for fleets with more than 2 vehicles based in California.

What may or may not be of a surprise to fleets across the country is that not only are domiciled CA fleets subject to the CA Rules, but any diesel fueled vehicle over 14,000 pounds GVWR (Gross vehicle Weight Rating) travelling in California must meet the Truck and Bus standards or will be subject to penalties, no matter where base registration plate on the front of the truck is from.
Recently, glider kits were banned from registration in California and the industry is only a few years away from the final milestone of the Truck and Bus rule; 2023. At that point, practically the entire fleet will be required to meet 2010 on-road engine standards or DMV will deny registration.

In the meantime, a new Governor, and pretty much the same, basic political lexicon will continue and the “reign of air” will mosey right on down the path towards a “zero emissions everywhere feasible, near zero everywhere else” future for the transportation network in California.

For the trucking industry, it is it full steam (or wind or solar or hydro) ahead for additional reductions above and beyond what the on-road rule requires, and more than a few measures are moving forward.

One particular measure, known as an Indirect Source Rule (ISR) has been under consideration for several years and has started to materialize already for major freight hubs, specifically LAX. The trickledown effect notwithstanding, warehouses and distribution centers located in disadvantaged communities throughout California are being looked at for a fee-based plan that “encourages” facilities to police truck traffic and eventually only allow zero or near zero truck traffic on property to avoid a fee.
While most disbelieve the ability of the state to drive this turnover through an ISR, other entities are already moving beyond what is currently required and into the promised future of zero emission freight transport.

The ports of LA and Long Beach have already committed to the electric boogaloo through a CAAP modification, seeking a fully zero emission truck fleet by 2035. Leading up to the 2035 standard, in 2020, to hasten the move to cleaner truck engine platforms, the ports will seek to apply a “rate” to any container moved by a truck that doesn’t meet zero or near zero standards.
While there are no specifics on what the rate will be, yet, suffice it to say, for shippers and cargo owners who move several containers a month, week, or day, this is no small concern. The ports have made it clear that it paying the rate on each container move will quickly exceed the cost of transition to cleaner engine platforms for the truck fleets shippers and cargo owners contract with. So, to avoid the fee, use a clean truck.

The rate or fee concept is not new, and really it is all that is left for the regulatory apparatus of the Golden State when it comes to forcing another accelerated truck turnover.
On January 1, 2018 it became official that the state, nor any political subdivisions of the state (like ports or air districts) have the ability to pass a regulatory measure that forces the turnover of existing, in-use compliant engines to cleaner standards unitl those engines reach a certain age.

The “useful life” provision of the lauded SB1, signed by Governor Brown in 2017, gave the CA based trucking industry a little breathing room when it comes to the ability of regulatory agencies to force accelerated turnover standards on the in-use fleet, but at the same time didn’t completely hamstring the ability of those agencies to again force an accelerated move to cleaner technology. 

Although the fact that no state agency may force a truck to turn over to a cleaner standard until that truck engine reaches 12 years of age or 850,000 miles (with a maximum age of 18 years from the year the engine was built) it does not stop the California Leviathan from concocting schemes to backdoor the statute and force turnover through “fees” and “rates”.

So basically, there is no escape. But, there may be options. STAY TUNED!

Friday, September 1, 2017

Lonely Island

CARB to Adopt More Stringent GHG Trailer Standards
With a potential weakening of the Federal Phase 2 GHG standards, CARB has thrown down the gauntlet and put manufacturers and end users on notice that Phase 2 standards will be the standard in California, regardless of a potential weakening by EPA. 

Within the building uncertainties, CARB will first harmonize the California only standards with the Phase 2 standards in 2018 which will allow end users to use Phase 2 standards for compliance with the Tractor Trailer GHG rule (TTGHG) in California.

Initially, most, if not all of the industry was happy to see CARB moving towards one standard to rule them all instead of the dreaded California-Only standard. 

Alas, nothing lasts forever. The changing of the guard has now left it up to California to bravely go it alone should the EPA weaken or pull back the Phase 2 standards.

If Phase 2 is diluted one iota, CARB will seek to modify the TTGHG to incorporate the Phase 2 guidelines as the standards for California.  And while the current focus of the TTGHG is on box type trailers, flatbeds, tankers and other non-box type trailers may see automatic tire inflation and low rolling resistant tire requirements in the rule development…basically, no one is safe.  
Quite possibly, CARB will also adopt their own verification and test method here in CA to get outside of the additional uncertainties about the future of the SmartWay program (Currently, only SmartWay verified devices achieve TTHGH compliance).
Of course all of this may be subject to an EPA waiver request. 

CARB is non-committal on their need for a Waiver from EPA, which sounds very familiar to the discussions that were happening when the Tractor Trailer Greenhouse Gas Rule was being developed back in 2008. Initially they didn’t think they needed a waiver then either, until they did.

Today, while CARB keeps a close eye on developments in DC, we can expect more side stepping and non-commitments from our now 50 year old favorite four letter agency as this rule makes its way through promulgation. EPA will determine how far CARB needs to go, but suffice it to say, things won’t be getting any easier here in California regardless of how the Federal line is bending.

If CARB is successful in implementing CA only GHG standards for new trailers and tractors sold in the Golden State quite possibly we will see another CARBpocolypse that could decimate a still recovering CA trucking industry. 

It is likely that the home grown  California Truckers will again be left holding the bag while out of state carriers avoid the assuredly more expensive standards by purchasing, you guessed it, out of state. In CARB’s collective hive mind, adherence to and compliance with the TTGHG rule will be necessary for everyone; even for carriers coming into California from out of state.
However, first, the out of state carrier must get caught violating the standards. 

There is no mechanism besides a roadside inspection for CARB to determine compliance of out of state carriers. Carriers can voluntarily report, but why would they report to CARB if they aren’t meeting the standards? 

Even if they are found and cited, it would take EPA to follow through on the citation if it was ignored, and in today’s EPA, the staff that would have handled that are now possibly selling hot dogs at the Lincoln Memorial.  

With few available avenues to go after out of state trucks (which make up the majority of the vehicles operating on CA roads annually), CARB will turn its sights on California based carriers. 
When a California carrier is citied and doesn’t pay the fine for any CARB rule violation, they get a registration hold put on their vehicles. So no  registration renewals and CHP could potentially seize and impound the vehicle at a roadside inspection since it would have been operating with invalidated registration. Impound and tow fees will just add insult to the already hefty violation that would have caused the registration hold in the first place.

Things can get really expensive, really fast.

During the all-day GHG rule(s) workshop held on Thursday August 31, CARB did mention the “economic impacts” to the CA trucking industry and mentioned that these impacts still need some “ironing out”. Usually statements like that result in little being ironed out with fleets most of the time just getting taken to the cleaners. 

And this is just one of the several possible rule developments CARB is sinking their dentures into, each with its own unique impact to the on-road trucking fleet in California…so much for no more regulations…2008 anyone?
While anything can happen and everything can change, CARB will be moving forward on several new measurers in conjunction with a potential influx of incentive funds from Cap and Trade money the CA Senate Democrats are pushing for. 

The state of California knows equipment can get expensive, but the biggest cost isn’t the fancy new all electric Aeos, it’s how many small CA based fleets will end up leaving the market because they can’t afford to exist in the regulatory climate of California…basically; adapt or die; never a dull moment.

Stay tuned!

Friday, August 4, 2017

Bringing the Heat!

The summer of 2017 so far has been chalk full of exciting developments in the intriguing world of tansportation and air quality here in California. Just a quick once over below, in case ya missed it... 

Surprise! CARB has again thrown down the regulatory gauntlet, this time on warranty enhancements for new truck sales in California, ZEV Sales requirements for HD Truck OEMs, cold storage limits for TRUs, enhanced maintenance procedures for existing equipment and lower opacity levels for the entire fleet over 10,000pds GVWR. 

CARB has also begun the dialogue on controlling emissions from freight facilities. Most people familiar with the concept call it what it is:  "Facility Caps” where a private business may require users of said facility to install specific levels of control  technology because the state says they need to stay under a “cap”. 

This all comes along with a brand spankin’ new CARB enforcement policy that after many discussions with stakeholders across many different industry sectors, will be adopted this September, probably with little fanfare, despite, or maybe because of, all the hard work by CARB enforcement staff.

While the cold storage rule is “on ice” during the current public outreach phase, a very near future rulemaking will set the stage for control measures that will phase in the use of zero emissions TRU technologies starting sometime in 2020. It is no secret that the goal for the state transportation sector is zero emissions with near zero emissions everywhere else.

Of course, in that vein and not to be outdone, the proverbial mother of all plans, the Sustainable Freight Action Plan under the direction of no less than 7 state agencies (that we know of) is gaining momentum on its way to fulfilling the Governor’s goal of reducing GHG 40% below 1990 levels and reducing petroleum use up to half from current levels by 2030.  

Part of the plan seeks to implement freight focused pilot projects and so far they have peeked through the curtain and pronounced their presence with the release of 3 separate work plans related to 3 separate pilot projects focused on California’s primary freight corridors.

The concepts attempt to integrate advanced technologies, alternative fuels, freight and fuel infrastructure and local economic development opportunities. 
Of particular interest are the concepts surrounding advanced truck corridors that are meant to be coupled with a statewide freight information platform giving drivers insight into traffic patterns and congestion in real time.

Dynamic Truck Parking is also of note, similar to parking sensors at the local shopping mall, notifications would be provided regarding available parking at state run rest stops. Although the most interesting plan in this cabinet of curiosities (not merely for the potential acronym that may accompany this particular plan in the future) is the pilot project seeking to use dairy bio-methane for freight vehicles; pretty self-explanatory.  
The other parts of the Action Plan are much more direct in their attempt to reduce emissions from the freight sector. The biggest push will be felt in the local and last mile delivery sectors; CARB is taking the reins and in theory will first force the OEMs to sell a certain percentage of ZEV’s compared to their total sales in CA. They will then roll over into the end user; drayage, PnD, local, pretty much any sector that goes home to the same terminal every night will more than likely be under the electric eye before they know it. 

Speaking of electric eyes, the Ports of Los Angeles and Long Beach have also recently released the latest version (3.2?) of their Clean Air Action Plan (CAAP), where their collective electric eye is set on an entirely zero emission fleet starting in 2035. 

In the interim, all new trucks entering LA/LB drayage service in “early 2018” will need to have a vehicle equipped with an engine meeting the USEPA 2014 engine standard. Then, in 2023, all new trucks entering port service for the first time will need to meet the ultra-low NOx standard, with all other non ultra-low NOx engines being charged a “rate” that will be billed to the cargo owner or shipper. 

The only snag in this otherwise genius plan is that legally, the ports of LA/LB cannot mandate a particular level of NOx control on engines in port service until the EPA certifies a national or California only engine to that standard of control  (More Info), the 2035 ZEV date is a different story all together. 

The efforts of our air regulators are always evolving and continually changing, or at least, it feels like they are. More often than not the standards have not changed, it is interpretation or implementation of the standards, which leave many fleet operators with little confidence in a system that only seems to take and rarely has anything to give. 

Measures to reduce harmful pollutants in California will not subside, the Golden State has a history of getting its way when it comes to environmental protection and the Trump administration will be hard pressed to slow it down. Get used to it my fellow Californians; at least the weather is nice!

Stay Tuned!

Friday, February 17, 2017

Three Years and a Maybe

Electric Freight Transport Forges Forward

The public policy goal is clear, move the California freight transport network to zero emissions everywhere feasible and near zero emissions everywhere else. While the idea is nothing new, 20 years ago, it was thought to be basically impossible.

Today, in the heavy duty truck market, we are starting see electric drive engine platforms emerge for particular sectors, especially in the short haul, package van and drayage segments. Transit buses, shuttle vans and school buses have found success with all electric drive engines in recent years by leveraging heavy subsidies from state, local and federal sources.  So, it is only a function of natural progression that freight specific projects would be next, specifically heavy duty trucks.

CARB is focusing a three year plan on how to encourage zero emissions equipment into the commercial marketplace. There are two main levers, money and regulatory measures. Money is easy, it is coming from all sorts of sources and the three year plan speaks to concepts for effective investments moving towards the goal. Regulation, while as abundant, it proves occasionally to be an erratic endeavor.
Within the larger scope of the zero emission transition, the sustainable freight plan has called out a segment for a direct regulatory measure affecting short haul and local haul delivery possibly including drayage trucks.

The regulatory side might prove more difficult since the equipment isn’t fully commercialized now and we are years away from a product that makes operational sense for fleets. But in the interim, there is money out there and CARB is looking to use it to help remove some of the biggest roadblocks to implementation.

The challenges, which CARB has readily accepted include battery durability, weight and payload capability, range, infrastructure, charging uniformity and finally the main culprit, cost.

Of course, manufacturers speak to reducing the overall operating cost hurdles based on battery efficiency and weight reduction advancements, but, the real cost challenge is the upfront cost.

Once an operator can afford to pony up the $300-$450K to purchase the electric drive vehicle and if he is cognizant when he is charging the equipment, diesel fuel cost savings running 50,000 miles per year could pay him back that initial investment within 5 – 10 years.
His operating costs will based on how far he can go and how much he can haul and so range and weight will of course be the deciding operational factors.

Nevertheless, even if range and weight can be adapted, without massive commercialization, upfront costs are not going to change much, in fact, they are probably going up. And with a 10 year payback period for a port operator who is making two-three turns a day on a good day is completely unrealistic. NO bank or finance company is going to extend a ten year note on experimental equipment that has no secondary market without a MASSIVE down payment and gold star credit.
Enter the State of California.

Millions, if not Billions will be invested in the electric boogaloo over the next 3-10 years, enticing manufacturers to come to market with commercially viable products while soliciting fleet participation though good  old fashioned bribes. Well, not actual bribes, but, massive amounts of incentive or demonstration money to offset the initial costs making the equipment more affordable if not at least palatable.

Although he doesn't know it...he's next...
CARB figures that once fleet operators have an opportunity to log some windshield time behind the wheel of an all-electric drive vehicle, they will be singing its praises from the mountaintops, cajoling their counterparts into ditching the dirty diesel and compelling manufacturers to engineer a cost reduction. Well, in a perfect world anyway

In reality, this will be more than a challenge. Regardless, California is committed to this transportation future and will push the envelope all the way to the brink of no return. In fact, the ports of LA/LB have already thrown down the gauntlet with a 2035 date for zero emissions trucks. It is a sliding date based on where the technology is, but a line in the sand nevertheless. So really, it has already begun…Grab the extension cord, it’s gonna be along decade.

Stay Tuned!

Tuesday, February 14, 2017

Out of Touch and Out of PLACE?

The state of California is up to its old tricks again….an established program is up for a revamp!
While the state has set their sights on zero and near zero transport, a legacy program is being bled out to make way for “sustained” investments in the zero emission future. Since the piggy bank is being shaken dry, CARB is looking for ways to have their bacon and eat it too.

The unfortunate reality of the CARB on-road truck and bus rule is that is expensive to comply with, very expensive. CARB is synonymous for throwing good money after bad at HD truck incentives to help offset escalating costs. While these programs do help, especially grant programs, a supplemental program that assists with residual financing has been instrumental in the compliance rate for the truck and bus rule and it is currently under threat of a change for the worse.  

The threatened program is administered through the state treasurer’s office and in some circles is known as the Providing Loan Assistance for California Equipment (PLACE) program. While in reality its true moniker is the California Capital Access Program (CalCAP) on-road truck loan program. It started back in 2009 with a onetime $35m investment from AB118, the bill that basically created the Air Quality Improvement Program (AQIP).
The initial investment was used to create the program and start enrolling qualified trucking fleets that could not obtain financing anywhere else. However, the program was hopelessly underutilized until SB 832 in 2010 and in SB 225 in 2011 when the laws were changed to allow for private finance company participation and for the enrollment of Terminal Rental Adjustment Clause (TRAC) leases, respectively.Hoiwever, no one began seriously partic Since then, the program has received close to $100 Million and has enrolled over 10,000 vehicles into the program with over a dozen active lenders

Back in 2009, when the AQIP was created, legislative direction was given to create a low-interest loan guarantee program to assist small trucking fleets who cannot access financing in order to achieve early compliance with CARB rules.

This was the original intent of the program.

Today, the intent is there but a couple things were massaged a little to take into account the realities small trucking fleets were facing.

First, the early compliance provision definition needed to be revisited because the people who needed the loans most were the exact ones who were out of compliance.

Second, the individual loan guarantee program didn’t have enough oomph to help all the people that needed the helping.

A more robust approach was eventually adopted.

Instead of the loan guarantee approach, CARB agreed on a concept that shared basic DNA with the original CalCAP program for small business; the pooled reserve. Basic difference between a loan guarantee and a pooled reserve is a that a loan guarantee is a guarantee on a single loan, the pooled reserve is exactly what it sounds like, a pool of reserved contribution money that is used across an entire portfolio or pool of loans.

More simply, if a loan with a loan guarantee goes bad, there is a set amount dedicated up front to that particular loan which is then paid back to the lender to help cover losses incurred on the original net investment should a default occur.

The pooled reserve concept is where individual loans are each given a set contribution rate which is then put into a reserve account that the lender can draw from once a loan is terminated in order to cover any losses after liquidation.
The pooled approach is more effective because it spreads out the risk across a larger portfolio, making the money go further. The loan guarantee is on a loan by loan basis, there is no co-mingling. While the loan guarantee concept has merit, shifting from a loan reserve pool to a loan guarantee once a loan reserve pool is established is akin to changing horse mid-stream. 

Nevertheless, for lenders, the larger the reserve pool, the more it can be leveraged against the risky credit profiles that the state of California essentially created the program for. Since the effective reserve percentage (which is calculated by taking the total dollar amount in a particular lenders reserve account and dividing that into the total outstanding balance) was being used to justify loans to these risky credit profiles that lenders would have never lent to without the reserve threshold.

The mere thought of having the reserve account gutted by a recapture program while simultaneously shifting the program to a loan by loan guarantee is chilly to say the least.  
The original mission of the program was to help those who could not secure traditional financing for compliant truck purchases. The majority of credit profiles enrolled in the CalCAP on-road program are those exact people. To put it bluntly, there is a reason they couldn’t get financing.

So, living up to its job, the pooled reserve account justified issuing affordable loans to folks who have little or no positive credit history to lean on. Compounding this issue was the fact that in 2014, the eligible fleet size limit was lowered from 40 or fewer trucks to 10 or fewer trucks. This has been directly responsible for shifting the overall average credit profiles for eligible loans enrolled in the program to higher credit risk tiers.
Complicating the issue further is the fact that over the years, CalCAP has been lowering the contribution rate for participating lenders with larger reserve accounts. It started at a 20% contribution, went down to 14%, then 10%, and it is now currently at 4%. With a 4% contribution rate, effective reserve thresholds of active lenders are dwindling since new loans are being enrolled at a greater rate than the 4% contribution can cover.   

If another economic downturn hit, lenders could be facing losses in the tens of millions of dollars. More immediately, regardless of pending economic downturns, the unfortunate reality of these credit profiles is that more often than average, these loans go bad, that’s why they are risky credit profiles to begin with.
Data from PayNet Inc., one of the leading collectors and distributors of information on commercial loans and leases, forecasts an increase in credit defaults for the Transportation industry in 2017. So right at the time this industry begins to contract taking several small, single truck fleets with it, the floor is simultaneously being pulled out from under the lenders who issued the loans because the floor was there in the first place.

With a sharp increase in defaults, CalCAP claims will skyrocket; resulting in the same millions of dollars in losses unless the reserve account thresholds are maintained at an appropriate level. Lenders are looking ahead towards these higher defaults on the exact loans they justified because of the effective reserve pool that the state created.
CARB would be well served to reconsider their across the board recapture concept and seek additional funds elsewhere or the program in its proposed form will dwindle and wither. Lately, it seems that money for zero and near zero emissions demonstration and grant projects, alternative fuel and the like are coming out of the wood work. In the VW settlement alone California is getting $800m for zero emissions transport projects over the next ten years. $800 Million! Surely CARB can redirect some AQIP allocations to sustain the program in light of the recent treasure trove for the all-electric boogaloo CARB is endeavoring towards.

And, instead of draining already invested money that has been used by banks and finance institutions to help justify loans to some of the most challenged credit profiles in the trucking industry, CARB and CalCAP should keep existing funds intact with guarantee for a reasonable effective threshold that lenders can count on. The program should continue, but not at the expense of the very lenders who have made it successful.
Stay Tuned!