# Consumer Federation of America

Statement of Jack Gilli s, Director of Public Affairs Consumer Federation of America Author, The Car Book Before the U.S. Environmenta l Protection Agency and the National Highway Traffic Safety Administration on the Proposed Greenhouse Gas E missions and Fuel Efficiency Standards for Medium- a nd HeavyDu ty E ngines and Vehicles-Phase 2 RIN 2060-AS 16 ; RIN 2127 -AL52

Public Hearing, Long Beach, CA August 18 , 2015 Good Afternoon , my name is J ack Gillis and I am director of public affairs and vehicle expert at the Consumer Federation of America. CFA is one ofthe nation ' s leading consumer organizations being an association of more than 250 local , state and national non -profit groups that was established in 1968 to advance the consumer interest through research, advocacy , and education. We sincerely appreciate the opportunity to participate in this hearing in an effort to ensure that consumer econom ic issues are considered in promulgating this standard
. I would like to request that my statement, which includes the latest version of our report entitled, "Paying the Freight: The Consumer Benefits of Increasing the Fuel Economy of Medium and Heavy Duty Trucks " be made a part of the record
. When it comes to goods and services , as you will see from our report , the American consumer really does ' pay the freight. ' More than $ 1 ,100 of the cost of the everyday goods and services that households buy each year goes to pay for the fuel used to transport those goods and services
. From the perspective of household energy costs , the amount consumers pay for truck fuel is almost as much as they spend for home electricity and about half of what a typical household pays for gasoline. So indeed , we pay the fre ight. Two recent Consumer Federation of Amer ica surveys conducted in July 2014 and July 2015 , found that the vast majority of consumers , over 90% , actually understand that " some , most , or all " of the fuel costs of heavy-duty trucks , wh ich transport virtua ll y every consumer good , are passed on to consumers. In fact , over 55 percent believe that " all or most" of these costs are passed on to the consumer. Wh il e much of what you have heard today has largely focused on the environment and industry concerns , consumer economics must be an important component in the decision to implement the proposed standards. The bottom line , consumers get it. As our surveys show, they understand the pass through of big truck fuel costs. As a result, the Consumer Federat ion of America supports standards which 1will increase the fuel economy of b ig trucks. In this particular case, what is good for the consumer's pocketbook i s also good for both the environment and the economics of the trucking industry. Do Cons umers Understand that Truck F u el Costs Are Passed on to Them? 

### How Much of the Fuel Costs of Large Trucks is Passed on to Consumers in the Price of Goods? 2014 and 2015 Survey Results 7CJK, 61 % 60% - - -- 5CJK, 4CJK, • 20 14 3CJK, 2CJK, • 2015 6% 4% 1 % 1 % All Some None Don't Know With the average household spending over $1, 100 on consumer goods and services to cover the costs of fuel inefficient trucks, we estimate that imp lementin g these standards will put about $200 back into household budgets each year. Thjs results in a national savings of a whopping $170 billion. And these billions represent money that will contribute to strengthening America ' s economy. In both ofthe CFA surveys, consumers clearly understood the possibility of these savings. When asked , nearly three quarters of the respondents favored requiring truck manufacturers to increase the fuel economy of large trucks
. Both surveys were conducted by ORC International, and 

### in each po ll ORC surveyed over a thousand Americans with an error rate of+/

- 3%
. Do Consumers Fav o r Regulations Requiring More Fuel Efficient Trucks?

80% 70% 60% Would You Favor Requiring Truck Manufacturers to Increase Fuel Economy of Large Trucks to Reduce Fuel Costs? 2014 and 2015 Survey Results
72% 71%

25% 23%

3% 6 %
Favor Oppose No Opinion/Don't Know
2 • 2014 • 2015While there is a lready clear consumer support fo r bi g truck fuel eco no my standard s , CF A wi ll be wo rkin g to e nsure th at the public better under stand the imp act these standard s will have on their pocketbooks. As such , we would expect public support to beco me even stronger. Increasing truck fu e l ef ficiency standards are a win-win-win as they will benefit co ns umers ' pocketbooks , big truck fleet owners and operato rs, and the eco nomy. C learly, the va st majority of consumers und ers tand how important these s tandards are , and want the m to go into effect. ln additi on to the significant consumer ben efits of the propo sed new standard s , there are other strong arguments which j u st ify a standard whic h w ill incl ude in our comments on the proposed rule , including:

• The benefits of e nergy sav ings tec lmolog y fa r outweigh the costs . The typical payback period for a die se l tractor-trailer will be about 14 month s . In the fir st eight years the payback wi ll be fi v e time s the cos t , and these truck s are o n the road for subs tantiall y more than eight years . We will be us ing this cost/benefit ratio to further refme the financial benefits to households.
• Currently , there are market imp erf ections th at cause the unde rin vestment in e nergy sav ings technologies. These include un certa int y about future cost sav ings and transaction costs , diff erent interests of tra il er vers us tractor owners , di ffe rent interests of own e rs , operators, buyers and se ll ers. Performance s ta ndards are an excellent tool to reduc e or eliminate these marke t imperfection s. T he data referred to above are provided in an update of CFA's paper: Paying the F

r eigh t: The Consum e r B enefits of Increasing th e Fuel Economy of Medium and Heav y Duty Trucks, Vers ion 2. 0 whi ch , along wi th my statement, I hav e requested be put in the record today
. While o the rs have made s trong environmental and indu stry ec o nomi c arguments regardin g the benefits of the proposed rule , CFA believe s that consumer benefits will be in t h e billions , and we wi ll further de mon s trate why the standard s are nee ded in our detailed comments on th e proposed rul e which wi ll be submitted ne xt month
. 

### Abo ut the CFA p o ll s ci ted in thi s s tatem ent CFA commiss ion ed ORC International to po ll over a thousand American s in July 20 14 and Jul y 2015 about the Obama Ad mini strat ion ' s proposed fue l- efficiency rules for heavy-duty trucks. Th e sampling error rate was +/

- 3%. The Consumer Fed eration of America is an association of more than 250 non-profit organizations that was es tablished in 1 968 to advance th e consum e r inte rest through research, advocacy , and educa tion.



### 3

# Consumer Federation of America



# PAYING THE FREIGHT: THE CONSUMER BENEFITS OF INCREASING THE FUEL ECONOMY OF MEDIUM AND HEAVY DUTY TRUCKS VERSION 2.0

Dr. Mark Cooper Director of Research, CF A With contributions from Jack Gillis Director of Public Mfairs, CF A and author, The Car Book
August, 2015

### I. INTRODUC T IO N PURPO SE Over the past decade public opinion polling by the Consumer Federation of America and other organizations has revealed strong and widespread support for energy efficiency standards for consumer durable s incl udin g a utomob il es and hou seholds app li ances. 1 Because gaso line and electricity bills are such a l arge part of household annual expenses - currentl y about $2,600 fo r gasoline and over $1400 for e lectricity2

- it is not surprising that po ll s consis tently elic it this support. Consumer s clearly feel the pain in their pocketbooks and understand th e economic impact of energy costs o n their household s . Economic analys i s has shown that there is a sound basis for consumer support of energy efficiency standards. 3 Although energy sav ing technologies require an investment , when the y lower energy bills by much more than their cost , the result i s s ub stantial net savings to co n sumers. While direct household expenditures on personal energy consumption are signific ant, they are only part of the consumer 's expenditures on energy. We also pay, indirectly , for the energy consumption in the commercial and industrial sectors, whic h actuall y exceed s the energy consumed in the residential sector. 4 Altho ugh the consumer impact of commercial and industrial energy costs will vary across goods, services and markets , these expenditures o n ene rgy are s ub stantial and have a s ignificant impact on U
. S
. households
. One of the largest contributors to commercial en ergy co nsumption is America's medium and heavy duty trucks
. Cons umer s pay the cost of commercial and industrial trans p ortation energy consumptio n in the price of the goods and services th ey buy. In 

### fact , we conclude that indirect freight truck fuel costs passed on to consumers are abo ut half as large as direct gasoline expenditures an d almo s t equal to household electricity bills
. Reducing the energy consumption o f medium and heavy duty trucks will reduce household expenditures by lowering the cost of all goods and services. As such , the rulemaking currently underway at the U.S. Environmental Protection Agency and the N ational Highway Transportat ion Safety Administration regarding medium and heavy duty truck fu el consumption deserves close scrutin y and support. T his paper examines the costs of energy used by medium and heavy duty trucks, the potential fo r energy savings in this transportation sector, and th e positive imp act increased truck 5 fuel efficiency wil l have on Ameri ca's hou seholds. Whe n fu e l pr1ces rise , so does the cost of consumer goods du e to the cost oft ran sporting those goods
. Conversely , because of

1 Mark Cooper, 2013, Energy Efficiency Performance Standards: The Co rn e r sto ne of Consumer-Friendly Energy Policy, Consumer Federatio n of America, presents an exte ns ive b ibli ography of survey ana l ys i s by the Consumer Federatio n of America and other consumer gro up s. 2 Based on Bureaus of Labor s tatistics , Consumer Expenditure Survey, for 2013 and 20 13

- 2014 3Cooper , 20 13 4 H o u seho ld gaso lin e co ns um ptio n accounts for about h alf of transportation fuel s . Hou seholds acco unt for about one-third of electricity consumption a nd o ne-s ixth of natu ral gas co nsu mption. 5 Fo r the purposes of simp li c i ty, in this paper , we will refer to med ium and heavy duty trucks as 't Tuck s'
. 1competition , a reduction in transportation costs will result lowering the cost of goods and services for consumers. The fact that a significant part of the trucking industry is also seeking ways to reduce the enormous impact offuel expenditures on their costs , reinforces the notion that not passing on these extra costs will make them more competitive. 6 In evaluating the EPAINHTSA proposal for increasing truck fuel efficiency , we ask three questions: First , would consumers benefit from an increase in energy efficiency of the trucks that deliver goods and services? In other words, would the reduction in fuel costs exceed the cost of the technology needed to improve efficiency by a sufficient amount to reduce the cost of goods and services to consumers? 7 Second, why hasn't competition in the marketplace done more to drive the technology needed to increase truck fuel efficiency? Here we look for market imperfections that inhibit investment in energy saving technologies. Third , are the performance standards proposed by NHTSA and the EPA a good tool to overcome the market imperfections? This paper focuses on the first question
. We first estimate the potential size of the indirect consumer expenditure , then we discuss the evidence that the costs are passed through to consumers. In addition , we will present survey evidence which shows that the public understands the impact of transport costs on their pocketbooks and the role of truck fuel economy standards in alleviating the burden. We will address the second two questions in our formal comments to the EPA!NHTSA by the September 

### II , 20 15 deadline.

II
. CONSUMERS PAY THE FUEL COSTS FOR AMERICA'S TRUCKING AND DELIVERY INDUSTRY HOUSEHOLD EXPENDITURES FOR MEDIUM AND HEAVY DUTY TRUCK FUEL Expenditures for transportation fuels , whether direct or indirect, are the result of the amount of energy consumed and the price of that energy. Consumption To estimate the potential consumer savings from improvements in the fuel economy of trucks, we first estimated the fuel used by the three main vehicle categories (household light duty, commercial light duty , and medium-heavy duty trucks). We undertake this analysis because different organizations that analyze energy use slightly different categorizations of energy use by types of vehicles and we want to make clear how we arrived at our figures.

6 Consumer Federation of America (Gillis) interviews with UPS , Navistar, Peterbilt , ATA.
7 For most of the products that we evaluate, the first question is s traightforward because consumers pay the bill for the energy that they use . In the case of freight trucks , this relationship is indirect. Thus , we have to establish why consumers should care about freight truck fuel costs. 2Because light duty vehic les , which make up the vast majority of hous eholds vehicles , are already covered by CAFE standards , we do not include them in our analysis. We have been careful not to double count energy consumption in our estimate of indirect househo ld expend itures on medium and heavy duty transportation fue l. Tab le 11- 1 (below) shows three different approaches to estimating household gasoline consumption. We used four data sources to build our estimate , the Department of Transportation, National Household Transpo rtation Survey; the Annual Energy Outlook of the Energy Information Administrati on; the Bureau of Labo r 's Consumer Expenditure Survey; and the U.S. Department of T ransportation, Bureau ofTransportation stati stics each w hi ch estim ates fuel usage by types of vehicles . B ecause consumption varied on a year-to-year basis , we looked at estimates for three different years in order to ensure that an outlying year didn ' t bias the estimate. TABLE 11-1: THREE METHODOLOGIE S FOR EST IMATI NG THE I NDIRE C T, ANNUAL HO USE HOLD CONSUMPTION O F TRANSPORTATION ENERGY Billion Gallons BLS/ CE, EIA NHTS/ EIA BT S 2009 H o u sehold Gasoline 100 96 2010 Hou sehold Gasoline Light Dut y Short A xle 91 Co mmercial Light Duty Light Du ty Lon g Axle 36 M edium & Heavy Dut y 2Axl e- Six Wh ee l 43 & Combination Method- BLSIEIA: ($per HH I $ per gallon) X No. HH; NHTS/EIA: (VMT/MPG) 88 36 45

Source: Consumptions: Bureau of Labor Statistics (BLS) , Consumer Expenditure Survey 2010, Energy Information Administration (EIA), A nnual Energy Outlook, 2013, Appendix A; D e partment of Transportation (DOT), Bureau of Traffic Statistics (BTS) Data Bas e, Tables 4-11 to 4-14
. Department o f Transportation, Na tional Hou se hold Transportation Survey, 2009 Price: Energy Information Administration, P

etroleum Databas e,· Hou se holds , Bureau of the Census , Statistical Abstra ct of th e U nit ed States: 2012, Table 59 , ll8 million hou se h o ld s. E I A, Mollfhly Energy R eview, miles per gallon , total gasoline and diese l onhighwa y s upplie s . The 2009 estimate compares an estimate based on the Bureau of Labor Consumer Expenditure Survey to an estimate based on the National Household Transportation Survey , both for 2009. Using each of the est imates , we divided the household expenditure by the average price per gallon to arrive at the number of gallons per household. We then multiplied the household consumption by the total number of households. The National Household Transportation Survey estimates the total number of ve hicl e miles trave led by households. We divided this by the average miles per gallon of the light duty vehicle fleet to arrive at the amount of gasoline consumed
. These two estimates are quite close. The 2010 estimate is based on E I A data that id entifies the amount of energy consumed by automobiles and li ght duty vehicles , medium duty vehicles and heavy duty trucks
. The EIA data does not separate out household and commercial use of light duty vehicles , so we used the Con s umer Expenditu re Surve y from the Bureau of Labor Statistics to estimate the gasoline consumed by households. We subtracted this from the total for light duty vehicl es , as reported in the Annual Energy Outlook , to determine the amount of energy consumed by light duty vehicle s 3that is not consumed by households
. We ca ll th i s commercial light duty
. As shown in Table Ill , this approach provides an estimate that is consistent with the Department ofT ransportation data, Transportation data, which categorizes vehicles by ax le length and the number of tires. Again, the estimates are quite c lose , a lth ough they are lower than th e es tim ate for 2009
. There was a decrease in co nsumption between 2009 and 2010 in the aggregate consumpti on. The consistency of this data provides us with a substantial level of confidence in the amount of medium and heavy du ty truck fuel we use for our calcul ati ons . We compared the 2013 BLS/EIA numbers with previous year n umbers from other sources and discovered that all of the estimates were within 10% of each other
. Ta ble 11-2 (bel ow) applies th e BLS/EIA approach from Table Il -l to the data for 2013 and 20 14
. 1 We prefer this approach since it can be updated easily
. As a result , for 20 1 3 , we estimate 92 billion gall ons of household gasoline consumption and 43 billion in medium and heavy duty truck co nsumption. We reduce the freight truck consumption by 11% to account for exports, s ince the cost b urden would not fall on consumers. TABLE 11-2: HO USE HOLD EXPEND ITURE S (BL SIE IA Met h od) Fuel Con s umption s Tota l P e r HH $/ga l. Ann u a l Bi l. Ga l. Gal. cost 201 3 Hou s e h o ld Gasoline Gaso li ne 9 2 730 $3.58 $2, 61 3 Med i um & H eavy Dut y Die s e l 43 3 00 $3.92 $ 1 , 176 2014 H o u se ho ld Gaso li n e Gaso li n e 93 730 $3 .54 $2,5 11 Medium & Heav y Du ty Di ese l 45 3 10 $3. 82 $ 1 , 1 84 Source : See Tab l e IJ -1. This confirms the conclusion we reached in our earli er analys is. We estimate 730 direct gall ons per household and 300 indirect gallons of diesel fuel consumption
. For every dollar that consumers spend o n househo ld gasoline, they spend about $0.50 on fre i gh t transport fuel consumption. At an annual cost of nearly $1,200, households spend almost as much on freight truck fuel as they do on e lectricity
. 

### Price As shown in Figure II -3, the prices of transportation fuels in r ecent years have been volatile while clear ly trending upward. For a little over a decade , diesel fuel has cost more than gaso li ne. F U T URE HOUSEHOLD EXPENDITURE TRENDS Any cost/benefit analysis of a proposed standard must be forward looking and factor in expected costs at the t ime of implementation. As shown in Figure II- 4, the E IA projects lower prices for both gasoline and diese l in 2020, fo ll owed by a steady increase in prices to 2030
. The table shows both " real " prices , which are adjusted to compensate for inflation and actual expected prices
. The EIA, whic h is the p rimary source that government agenc ies use for future pricing , projects diesel prices to rise slightly faster than gasoline prices , which has been t he trend 4for the past decade. Because actua l prices have recently fallen, in analyzing the proposed rule , we will reduce the projection of future benefit by 10 % to reflect the difference between the 2014 EIA projection (on wh ich the agency analysis was based) and the 2015 projection. FIGURE 

### 11

-- 3: FUEL PRIC E (NOMINAL $/GALLON)

$5.00 $4.50 $4.00 $3.50 $3.00 $2.50 $2.00 $1.50 $1.00 $0.50 I 

# l $0.00

------------ Jan-1993 Oct
- 1995 Jul-1998 Apr-2001 Jan-2004 Oct-2006 Ju l-2009 Apr- 2012 Dec-2014
• Gasoline .& Diesel Source: EIA, Petroleum Price Database.
F I GURE 11-4: FUTURE PRICES, REAL AND DI SCOUNTED

$4.00 $3.50 $3.00



# - $2.50



# - $2.00



# - $1.50 

# - $1.00 

# - $0.50 

# - $0.00 

## - Gas Real Diesel Real Gas Real & Discounted (3%) Diesel Real & Discounted {3%) II 2013 ;;; 2020 • 2025 t "'t 2030 Source: Annual Energy Outlook, 2015, Appendix A. Figure 11-4 also shows the effect of " discounting " future prices. The reason to discount is that the use of money has value. It could have been put to other uses and earned a return. The 

### 5standard discount rates establ is hed by the OMB for regulatory analys i s are 3% for the consumer discount rate and 7% for the producer discount rate . In our analysis of the proposed rule , we use the consumer discount rate of 3%. Consumption As large as current household spending is on transportation fuel used by medium and heavy duty trucks, it will become even larger in the future. Going forward , the new CAFE requirements will lo wer the household impact of fue l costs associated with consumer and commercial li ght duty vehicles
. On the other hand, w ithout some controls , the burden on households due to medium and heavy duty truck f u e l costs will only increase both absolutely and re lated to their direct expenditures on gasoli ne . Figure II- 5 shows that , historically, the fuel economy of heavy-duty trucks has not increased. FIG URE Il-5: MOTOR ECONOMY 1949-2011 (MILE S PER GALLON) 

## :s - .31

- I S

- - 

## - ......... .. ID -

### ....__

# _____ _**--** 

# -- - ----./'.-

- 

# - - s

0 0 I ' I i 0 I u u 1 u u, u 1, u u u 1, u u u t u o u o 1 1 $J 1 955 1 S i'O 1 Si5 1 S9J it.tl r.g.**I~ W•**  u**ltWa Dtl** **'- um** **) ttt** **e** Hee\ yQtj**Tr~**

0 I I 0 I I I I'' I 0 I I I' 0 I 0 0 0 0 I 0 0 0 i I 0 0 i

1 985 1 59) 1995 3XXl JJIE 2C 1 0

So urce: U. S
. E nergy Information Administration, Monthl y Energy R eview, Jul y 2015, p age 17. The most recent Annual Energy Outlook from the E IA , incorporating the new fuel economy standard for light duty vehicles , projects a substanti al decline in fuel consumption as a result of increasing fuel economy standards, as shown in the top graph of Figure II -6
. As shown in the bottom graph of Figure II-4 , fue l consumption of light duty vehicles (and th erefore household gasoline) is projected to decline because the increase in fuel economy i s l arger than the expected increase in mil es driven 8

. On the other hand , in spite of the recently adopted truck standard (2014) , the EIA projected MPG for these vehicles to remain flat. As the use of these vehicles increases, the l ack of MPG improvement and rising fuel prices will significantly increase fuel costs.

8 Popu l at i on growth wi ll increase ve hi cles on the road and overall mi les driven. 

### 6F IGURE 

### 11-6: TRENDS IN FUEL ECO NOMY AND CONSUMPTION M ILEAGE BY VEH ICLE TYPE Expected MPG

50 40 30 20 10 02012

12 10

:::> 8 1- CD c 6

. Q

·c 1- 4 2014



# • Projected MPG by Vehicle Type

2016 2018 2020 2022 2024 2026 2028 2030

_...,._ Li ght Duty _._ Freight Trucks
Household Gasoline v. Freight Diesel



# -------------·

**~-----** 

# . -------- 

# .

2 -+- Household Gasoline

**~** Frei ght Diesel - e- Freight Diesel , Price Adjusted
0 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 So urce: E n e rgy Inf ormation Adm ini stration, Annual Energy Oud ook, 2015. Without lo ng- term s tandard s fo r freight truck s , fuel consumption of truck s is projected to increase because fuel economy improvements w ill not keep up with increasing demand for f re ig ht serv ices . Within 20 years , taking the pric e difference between gaso line and diesel into effect, the gap between direct and indirect household expend itures on transportation energy w ill narrow con s iderably.

7

### III. COMME RC IAL FUEL COSTS ARE PASSE D T HRO UGH TO HOUSEHOLDS While we have calculated the size of fuel expenditures on a per household basis , we must ask , " do hou seh o ld s actually pay these costs? " The answer is " Ye s :· These costs are just like an y other commercial costs in the economy. When a farmer pays for fertilizer or the delivery driver gets hi s paycheck, these business costs are recovered in the price of the re lated goods and services. The same is true with fuel costs. In fact, the Mid-Atlant ic Freight Coalition confirms the pa ss through of transportation costs in a recent report on how transportation and logistics consume a significant portion ofhousehold budgets. According to the report , "the &eight logis tics system costs nearl y $4,500 per perso n , which is s pent moving and ware ho u s in g goo ds. Tlus $4,500 factors into the cost o f e very pro duct we bu y. Anything that indu stry o r government can do to make the logis tic s sys tem m o re efficient will return benefits in term s of lower cost and greater global comp etitivene ss." 9 Although this estimate of the size of the expenditure on freight log i stics includes all transportation modes and all costs , (equipment, maintenance , salari es , etc.) , it acknowledges the importance of transportation costs to the economy which includes truck fuel costs. In addition to the pa ss through of these costs to consumers , there is the s ignificant dependence on foreign sources fo r thi s fuel. Whi le th e recognition that transportation costs are pa id by consumers is obvious , the concept is re inforced b y two observations: First. although tran s portation cos ts are a small part of the total economy Gust under 3%), they are as large or larger , than several other sectors, including agriculture, mining , utilities and construction (see Figure III-I). Second , fuel costs are the single largest component of transportation costs, representing over one-th ird of the total transportation costs . Fuel costs are slifthtly larger than driver pay and three times as large as the cost of owning and insuring the truck. 0 As transportation costs are passed through to consumers , fue l is the largest component of that pass-through (see Figure III2)
. ECONOMETRIC MOD ELS D E MO NST RAT E THE PA SS -THROUG H NATURE OF TRAN S PORTAT IO N FUEL COSTS The economic reality of the flow through to consumers of transportation fuel costs is reflected in the way econometric models describe the growth of the economy. Such models are built on input/o utput tables , and transportation costs are a s ig nificant input in the models. In buildin g the se models , the pass-through of transportation costs is assumed , since transportation plays a fundamental role in the overall cost of production. Tran sportation is an econo mic factor of production of goods and services, imply ing that relative ly s mall c han ges can hav e s ub sta ntial impacts o n costs, locations an d performance
...

9 Mid-America Freight Coa liti o n " The Economic Lmportance of Freight ," p. 2. 10 NRC , 20 I0 , Tabl e 6. 1 8FIGURE 

### 111-1: GROSS DOME ST IC PROD UCT BY SECTORS 14% 12% 10% 8% 6 % 

# I I I I I 

# I I I I I I 4% 2 %

Source: GDP by Indu s try, http: //en.wikipedia.org/ wiki / Eco nomy o f the United States FIGURE 

### 111-2 : AVERAGE TRU C K OPERATION COSTS
[CELLRANGE], [VALUE]

[C ELLRA NGE], (VALUE ] [CELLRANGE], (VALUE]

Sou rc e: EPA/NHTSA , Regu latory Impact Analys i s, Medium an d Heavy Du ty Truck Rul e, p. 8 -1 Transport also contributes to economic development through job creation and its derived economic activities. Accordingly, a large nwnber of direct (freighters, managers, shippers) and indirect (insurance, finance, packaging, handling, trave l agencies, transit operators) emp loyment are associated with transport. Producers and consumers make economic decisions on products, markets, costs, locatio n, price s 9 

### Iwhich arc themselves based on transport services, their a\· ailability, costs and

. 11 capac1ty. The importance of transportation in these economic models is reflected in the high multiplier it is given. In order to build a model of the economy, analysts study the places where a sector purchases inputs and sells output. Typically , the more places that are touched by a sector, the larger it s multiplier. Because most economic models are built on the flow of goods and services through the economy, they depend on the geographic scope and nature of activity within the economy being modeled. Transportation is generally seen as a central input to measuring broader economic activity. To further reinforce the impact of transportation costs on consumer pocketbooks , Figure III- 3 fresents the sector multipliers for the state of California. Transportation has the 20 1 largest multiplier, in a study of 60 California sectors. Not only is the transportation cost multiplier above average, but it is substantially larger than the multipliers on related to the petroleum production
. FIGURE 

### 111-3: SECTOR MULT IPLI ERS FOR THE CALIFORNIA ECONOMY 3
2.5

2

1 0.5

0 Transport Oil extraction Petrol Mfct. Median Industry
Sou rc e: Ca lif ornia Economic Strategy Panel , Using Multipliers to Measure Economic Impa ct s, 2009, Table 1 in modeling the impact ofhigher fuel economy with these econometric models, it is important to understand certain market factors. As the cost of transportation declines , demand for transportation increases because the demand for goods and serv ic es increases due to their lower costs. In addition , as the population and economy g row s, the need for commercial transportation increases as well. Nevertheless , the fuel savings from g reater efficiency are much larger than the increase in consumption. The net effect is to reduce expenditures on fuel as a

11 Transportation and Economic De ve lopment Authors: Dr. J ean-Paul Rodriguez and Or. Theo Notte boom , http: //peop lc. hofs tra.e du/ geotran s/e ng/c h 7e n / co nc7e n /c h 7c Icn . ht rn l
. A regional analysis reinforces this observation , Oregon , Transportation , Plan Update, Transportation and the Economy Manufacturing is dependent on transportation to receive raw materials and to deliv er it s products. Manufacturing is usually a highly competit ive activity. Un less an area has other low cost attributes, high transportation costs will ca u se manufacturers to leave or avo id that area 10percent of total output. In fact, the reduction in energy consumption may be so large that the absolute level of consumption is lowered. This has a positive effect on the economy . We consume less petroleum products and more of other goods and services
. Because those other goods and services have bigger multip liers, the economy expands. So it is clear that the pass through to consumers of truck fuel costs i s important for both energy policy and economic policy. I V. PU B L I C O PINIO N Wh il e we have been ab le to demonstrate that these fuel cost are considerable and , in fact, passed on as indirect costs to househo lds, consumers as we ll , understand that fact. Two recent Consumer Federati on of America surveys, found that the vast majority of consumers (over 90%) understand that "s ome , most , or all " of the fue l costs of heavy

- duty trucks , which transport virtually every consumer good, are passed on to consumers (See F igure I V

- 1 ). In fact, over 55 percent) believe that "all or mos t " of these costs are passed on to the consumer. F i g ure I V

- 1 Do Co n s umers Unders t a nd th a t Truck F u el C o s t A re P ass ed on to T hem ?

70% 600/o 500/o 400/o 300/o 20% 10%

0% 

### How Much of the Fuel Costs of large Trucks Is Passed on to Consumer in the Price of Goods? 2014 and 2015 Survey Results

A ll Some None Don't Know • 2014
• 2015

With the average American househo ld spending nearly $1 ,200 extra on consumer goods and services to cover the costs of fueling up inefficient trucks , improving their fuel efficiency will save househo lds h undreds of dollars. In both of the CF A surveys, consumers clearly understood the possibility of these savings as nearly three quarters of the respondents favored requiring truck manufacturers to increase the fue l economy of large trucks (see Figure IV

- 2). Both surveys were conducted by ORC International, and in each poll ORC surveyed over a thousand Americans with an error rate of +/

- 3%.

11While consumer support for big truck fuel economy is already substantial , as consumers better understand the impact these policies have on their pocketbooks , public support will become even stronger. The proposed truck fuel efficiency standards are a w in- win-win as they will benefit consumers ' pocketbooks , big truck fleet owners and the economy. Clearly, the vast majority of co n sumers understand how important these standards are and want them to go into effect. 

### FI GURE IV-2-Do Co ns um ers Favo r Regula tio ns R eq uirin g Mo r e Fuel Efficient Trucks?

80% 70% 

# I 60% SO% 40% 30% 

# 1 20% 10% 0% 

### Would You Favor Requiring Truck Manufacturers to Increase Fuel Economy of Large Trucks to Reduce Fuel Costs? 2014 and 2015 Survey Results
72% 71%

-- 25% 23%

3% 6%
Favor Oppose No Opinion/Oon•t Know



### V. CONC LUS IO N • 2014 • 2015

This analysis presents the consumer case for the need increased fuel efficiency standards for medium and heavy duty trucks. Not only does truck energy consumption impose a substantial burden on hous ehold budgets, but there is strong public understand ing that consLLmers shoulder these costs and support requirements to reduc e them
. In addition there are other strong arguments which justify a standard. These include:

• The benefits of energy savings techno logy far outweigh the costs , • There are market imperfections that cause the und erinv es tment in energy savings technologies , and
• Performance standards are a good tool to reduce or elim inat e these market imperfections. Now that EPA and NHTSA have proposed new standard s and provided lengthy analysis of technologies and regulatory options, we can move from the ge neral to the specific in our 12evaluation which we wi ll do 

### in our formal comments to be submitted next month. In the meantime , we can clearly conclude that the standard proposed by EPA and NHTSA will deliver substantial benefits to consumers. As preliminary ev idence , based on the price /consumption estimates above. consider the case of a tractor trailer delivered in 2027 that meets the proposed standard (see Figure V-1). FIGURE V-1: CUMULATIVE COSTS AND SAVINGS

$100,000

$90,000 $80,000 $70.000 $60,000 $50,000 $40,000 $30,000 $20,000 ... 

### ~=----+-----4t----+---- 

### ...... ----.-----+-----e $10,000 $0

2027 2028 2029 2030 2031 2032 2033 2034

_._ Cumulative Costs -.- cumulative Fuel Savings
Source: EPAINHTSA, Regu l atory Impact Analys is , Medium and H eavy Duty Truck Rule, p. 7-42. We choose tractor trailers for this example because they account for the majority of freight truck fuel , especially diesel. Figure V-1 shows the stream of costs and benefits in real, discounted dollars with all teclmology, maintenance and insurance costs included. We reduced the stream of benefits by 10% to account for the reduction in the projected price of diesel fuel in the Annual Energy Outlook between 2014 (which was the year the EPAINHTSA used) and 2015, which became avai lable after they completed their analys i s . Several key aspects of this analysis are striking.
• First , the investment in technology pays for itself in 14 months , an extremely rapid payback. • Second , in the first eight years, the cumulative net savings a re five times the cost provid ing a cost/benefit ratio of five-to-one. • Third , we can use this cost/benefit ratio to estimate the financial benefits to households. While the ru le reduces the consumption of tractor trailers by about 18.5% , 12 the technology cost uses one fifth of that , yielding a net cost reduction of just under 15 %. If we apply this to the l evel of indirect expend iture today , it would equal an annual savings of $200 per hou sehold. Projecting forward, however, we would have to adjust for the

12 E PA/N HT SA , Regulatory Imp act Analys is, Medium and Heavy Duty Truck Rule , p . 5-3
. 13price of energy and the growth of freight truck fuel consumption. 1 f the fuel standards were in place , consumption would not grow as much as suggested by the EIA Annual Outlook. Ironically , the projected growth was 15% , which would be offset by the standard Wh il e others have made strong env i ronmental and industry economic arguments regarding the benefits of the proposed rule, CFA believes that consumer benefits will be 

### in the billions and we will further demonstrate those savings in our offic ial comments on the proposed rule.

1 We est i mate 20 14 based o n total pro duc ts s up pl ie d and average price for the year , ass um in g a I % inc r ease in the numb er of ho useho ld s a nd co nsta nt co ns u mpt i o n per house ho ld. T hi s is co n sistent w ith the difference betwee n the 2 0 13Cconsumer Expen diture S urvey a nd the mid- yea r 2014 Co n sumer Expe ndi ture Survey. Whi l e price is d ow n 3% between 20 14 and 2013, expe ndi tures are dow n 1 .5% in the year Ju ly 20 13 -Jul y 20 I4 . By the end of the year we wo u ld expect the inc r ease in consumption stim u lated by decli n ing prices to be offset by the decrease in co nsumption reflecting more fuel efficient vehicles and the underl ying trend. For diesel. we divide the total expenditures by the estimated number of households
.

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