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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!

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!

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!

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!

CARB Levies $532,875 Fine to Close Out 2016

“Punitive…Rather Than Compensatory”

Make no bones about it, they will find you. And when they find you, they will fine you…eventually. Now that CARB has audited some of the largest fleets operating in California, requesting smoke testing data, truck and bus compliance, contractor info, ECL proof, drayage compliance, TRU compliance, idling polices, maintenance practices etc…it is just a matter of time before they lock their sights on the remaining fleets who have been flying under the radar and avoiding the rules for years.

CARB performs thousands of roadside inspections annually. In 2015, they executed close to 18,000 inspections on diesel trucks alone. While 129 “diesel investigations” for the truck and bus rule were settled in 2015, only 26% of all investigations across the diesel program suite resulted in a compliance finding. Although 26% is a low compliance rate, in reality, the smaller number comes from a more efficient approach.

CARB has shifted their enforcement tactics away from “complaint and referral” to a “smart audit” approach.  This new tactic is leading them towards the non-compliant carriers and away from the law-abiding folks who can’t be bothered anyway since they are constantly on the road, turnin’ and earnin’ to pay for all the new equipment has CARB scooched them into over the last 5 years.  

Smart audit or otherwise, you don’t have to be a genius to figure out that if you register your trucks with the DMV, then CARB has carte blanche access to that data for enforcement purposes. Despite what many would call the “shortcomings” of DMV customer service, you can bet dollars to DEF fluid that with the push of a button all registration information for any particular carrier registered in California can be shuttled over to CARB headquarters lickety-split.

So, one has to wonder how a massive, nationwide leasing and rental company like Penske could drop the ball so badly going all the way back to 2013. While their fleet is in the thousands or tens of thousands, or hundreds of thousands (231,000 according to their website), the only trucks that matter are the trucks that are operating in California. Regardless, CARB nailed the nearly 50 year old company for numerous violations including truck and bus rule and periodic smoke inspection (PSIP) compliance. Settlement Summary Click Here

During an audit, CARB throws pretty much everything at the fleet to see what sticks. In Penske’s case, it's likely that they didn’t realize they had 3 MHD vehicles with pre 1995 engines actively registered  as non-compliant for almost 24 months until CARB told them. Typically, each violation of the truck and bus rule is supposed to receive a $1000, per month, per truck fine. However, several factors come into play in how severe the citation is.

Factors such as, "extent of harm to public health, safety and welfare caused by the violation; Nature and persistence of the violation, including the magnitude of the excess emissions;  Compliance history of the company, including the frequency of past violations; Preventive efforts taken by the company, including the record of maintenance and any program to ensure compliance....Efforts of the company to attain, or provide for, compliance; Cooperation of the company during the course of the investigation and any action taken by the company, including the nature, extent, and time of response of any action taken to mitigate the violation; and finally, The financial burden to the company".

Notice the very last consideration is the financial burden of the company. It is not that CARB is full of leather clad sadists; it’s that they need these penalties to sting. In part to punish the company in violation but to also act as a deterrent to any would-be scallywags who are skirting or thinking of skirting the rules (not to be confused with skirting the trailer).

Nevertheless, Penske is not alone.  Hundreds of fleets (and hundreds more) have received citations or can expect something from the air police sooner than later. CARB’s smart audit approach has already shown its effectiveness and the 2016 enforcement efforts should eclipse the 2015 statistics. They are sighting the non-compliant carriers, punishing them with fines and releasing them back into the wild as tagged game. For those who have already spent the money for compliance this is promising news; better late than never, but eventually, nonetheless.  

Stay Tuned!