More
Isn’t Always Better
EPA
to propose stricter Phase 2 GHG Standards for new HD engines
There seems to be little respite for the heavy duty
trucking industry when it comes to emissions reductions in this day and age.
While California toys with the idea of a zero-emission, all-electric fleet, the
Feds have again thrown down the gauntlet in their efforts to squeeze additional Greenhouse Gas (GHG) reductions from the
heavy duty trucking fleet via “Phase 2” new engine standards to take effect
in 2018 with full implementation in 2027.
While some regulators and politicians have described
the industry as a “necessary evil”, industry members themselves are passionate
defenders of their work, pointing to the fact the vast majority of Americans
would be “naked and starving” if the trucking industry stopped moving.
Of course, no one in the industry wants to stop
moving and they especially don’t want their customers naked or starving. That brings us to a crossroads; the economy
needs the industry to help maintain and grow economic activity and the industry
needs a strong economy to maintain and grow the industry, it is a symbiotic
relationship. As goes trucking, so goes the economy. The industry is the
proverbial canary in the coal mine when it comes to the economic health of the
country.
So a healthy trucking sector is a good thing, for
everybody. There is a concern that as the cost of doing business rises,
especially in relation to new and used truck prices, fleets will need to become
more efficient to compensate for higher costs in order to remain competitive. Today, every model year new truck prices go up approximately $3,500, a new truck that would
have cost $84,000 15 years ago now costs upwards of $120,000.
Although inflation and peripheral costs related to
manufacturing contribute to this increase, the main culprit is the complicated
engine emissions controls that are found on every new heavy duty engine (HD) and
really every HD engine built since 2007.
Profit margins are near razor thin in trucking;
regulations are everywhere and costs are only going up. These EPA proposed
efficiency mandates are appreciated in the abstract, but are doing nothing to stop
the upward trend of truck prices happening today.
For the industry, the assumed future cost savings of
increased efficiency across unique sectors is a tough pill to swallow,
especially when it is coming from the same folks who are doing the regulating. They,
along with a host of environmental groups claim the higher equipment costs will
be made up in future fuel savings. Future savings do nothing to lower upfront
costs. Somebody has to pay.
The reality is, as has been evidenced here in
California, the general public doesn’t want to pay more for the goods and
services they consume, and the shippers and cargo owners do not want to pay
more for the goods or services they produce or provide.
When a trucking fleet is faced with higher costs of
doing business (high cost of equipment, fuel, workman's comp, payroll, etc…)
more often than not, to keep existing customers or attract new ones, fleets
will to operate at a loss to maintain that business relationship or perhaps build new
ones.
Shippers and cargo owners do not give rate increases
out of the goodness of their hearts.
In California, the trucking industry has been mired
in a regulatory cyclone with emission control requirements for their engines,
efficiency upgrades for their trailers, stricter engine standards for their
refer units, requirements for forklifts, as well as off-road yard hostlers, underground or
above ground storage tanks and even portable and stationary generators.
The costs of upgrading for these rules have been
bore by the industry alone.
Complicating this matter is the fact that customers are reluctant to pay a higher rate to one carrier
for a California move when another down the street (or out of state) can do the
same haul for cheaper. Since they do not face the same costs, either because of
size, scope or their “inability” to meet imposed in-use emissions standards, a lower freight rate can be charged.
Nevertheless, these cost discrepancies
not only stem from ability between fleets to meet air quality rules, but also from the general
business climate in California (which in and of itself is a whole other topic).
For national fleets operating outside of the Golden
State, and other out of state fleets who vow to “never, ever, ever, over my
dead body” enter California again, the only emission control technology they
are subject to is the kind that comes from the factory in the form of a new
truck engine.
Outside a select number of ports, the US trucking
fleet does not have California-like turnover or control standards requiring
cleaner in-use operation. While some states such as Oregon examine potential
rules, California remains the only state with emissions standards for in-use HD
vehicles.
For California, this is not the first time at the
dance. The in-use California only truck standards were preceded by separate
California only diesel fuel standards as well as stricter control levels for
new engines sold only in California and other opt-in states.
While California still
maintains the designation as a “fuel island” because of CARB Diesel #2, the California only engine controls eventually spread to the entire country via
Federal decree after everyone from the Engine Manufacturers to EPA to CARB were
done suing each other, well sorta.
Suffice it to say and putting it mildly, over the
years California has helped drive Federal engine standards. The resulting
engine standards for 2007 and 2010 model year were primarily geared towards
criteria pollutants such as Particulate Matter (PM) and Oxides of Nitrogen
(NOx). Lately, the Feds have started to move beyond criteria control towards efficiency upgrades for GHG reductions.
The Phase 1, GHG/Carbon Dioxide (CO2) thresholds for 2014 through
2018 engine model year standards required up to a 20% efficiency improvement for
combination vehicles. The next phase, Phase 2, includes an additional 20%
efficiency improvement through 2027. That equals a 40% increase in fuel efficiency
over 2010 standards.
This type of mandate typically results in millions
of dollars in R&D leading to sophisticated technology adoption, all
resulting in higher costs to the end user with the usual promises of future savings.
The industry will always look towards any cost
savings that helps maintain competitive rates while lowering the cost of doing
business. But in an industry weary of promises for newer, cleaner, technology
that will pay for itself in no time at all, full end user buy-in requires more than
just lip service.
When struggling to survive as a for hire motor
carrier, dollar and cents matter. More expensive trucks are just that, more
expensive. Grants, potential tax incentives and creative financing can all help
offset these higher costs, but for the small to mid-size carrier that is easier
said than done.
So if the technology can actually deliver real world
savings, fleets will adopt it. The Feds are seeking to reduce fuel consumption
of HD engines, and since fuel is the number one cost for fleets, any little bit
will help, especially since there are other costs that go beyond annual emissions
escalators for new engine standards.
The proposed future savings may be lost in required
maintenance procedures for complicated technology that may potentially be more
prone to failure, resulting in down time and lost revenue for fleets. In the “just-in-time”
freight network, if a delivery is missed because of a truck breakdown, carriers
can usually expect to not carry that load for that customer again.
The durability of emission control technology is not a
new concern. Hopefully the Feds will recognize the major investments fleets will
be making into the 2027 standards and provide manufacturers enough flexibility
to meet the requirements without sacrificing product quality just to meet
imposed thresholds.
All in all, the quest for greater efficiency is a
worthy endeavor; it must however consider the real world challenges of Heavy Duty
Truck operation and effort towards a measured approach to implementation while
avoiding impediments to implementation.
Unfortunately, once such impediment towards greater
efficiency may come from the same state that started the ball rolling on new
engine emission controls in the first place. California always has something to
say if the Feds are considering Heavy Duty (HD) engine standards, this is no
different.
In the recently released Sustainable Freight Plan,
CARB has boldly lain out a strategy to request stricter NOx controls for new
engines manufactured for sale in the US. They make no bones about their
willingness to pursue a California only standard if the Feds do not act, both
on the Phase 2 standards and the new California lower NOx proposals.
There is precedence for California only engine
standards and whether the industry will need to suffer again through 49 and 50
state engines remains to be seen.
Nobody wants a California only rule, not the Industry,
not the Feds, not even California. So, the Feds will have their work cut out
for them, especially if California forces the mandate of lower NOx standards.
The bottom line here is that although regulators and
environmentalists point to future cost savings from more efficient engines, the
annual up front cost escalations for emissions controls in new heavy duty
trucks are pinching an already squeezed industry. And with the Golden State cultivating
their low NOx vision through federal action, things can only get more
complicated from here on out.
And, it is quite possible that as costs continue to
rise, small independent trucking companies will find themselves behind a wall
of debt unable to pass on cost increases while waiting ever patiently for the
fuel savings pay back promised by the very regulators who put them in that
precarious position in the first place.
Stay Tuned!
