Consumer Federation of America 

Statement of 

Jack Gillis, Director of Public Affairs 

Consumer Federation of America 

Author, The Car Book 

Before the 

U.S. Environmental Protection Agency and the 

National Highway Traffic Safety Administration 

on the 

Proposed Greenhouse Gas Emissions and Fuel Efficiency Standards for Medium-and HeavyDuty Engines and Vehicles-Phase 2 

RIN 2060-AS16; RIN 2127-AL52 

Public Hearing, Long Beach, CA 

August 18, 2015 

Good Afternoon, my name is Jack 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 economic 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 freight. 

Two recent Consumer Federation of America 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, which transport virtuall 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. 

While 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 Federation of America supports standards which 

1 
will increase the fuel economy of big trucks. In this particular case, what is good for the 

consumer's pocketbook is also good for both the environment and the economics of the trucking 

industry. 

Do Consumers Understand that Truck Fuel 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, • 2014 

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 implementing 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 poll ORC surveyed over a thousand Americans with an error rate of+/- 3%. 

Do Consumers Favor 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 

• 2015 
While there is already clear consumer support for big truck fuel economy standards, CF A 

will be working to ensure that the public better understand the impact these standards will have on 

their pocketbooks. As such, we would expect public support to become even stronger. 

Increasing truck fuel efficiency standards are a win-win-win as they will benefit 

consumers' pocketbooks, big truck fleet owners and operators, and the economy. Clearly, the vast 

majority of consumers understand how important these standards are, and want them to go into 

effect. 

ln addition to the significant consumer benefits of the proposed new standards, there are 

other strong arguments which justify a standard which will include in our comments on the 

proposed rule, including: 

• The benefits of energy savings teclmology fa r outweigh the costs. The typical 

payback period for a diesel tractor-trailer will be about 14 months. In the first eight 

years the payback will be five times the cost, and these trucks are on the road for 

substantially more than eight years. We will be using this cost/benefit ratio to 

further refme the financial benefits to households. 

• Currently, there are market imperfections that cause the underinvestment in energy 

savings technologies. These include uncertainty about future cost savings and 

transaction costs, different interests of trailer versus tractor owners, different 

interests of owners, operators, buyers and sellers. Performance standards are an 

excellent tool to reduce or eliminate these market imperfections. 

The data referred to above are provided in an update of CF A's paper: Paying the 

Freight: The Consumer Benefits of Increasing the Fuel Economy of Medium and Heavy 

Duty Trucks, Version 2. 0 which, along with my statement, I have requested be put in the 

record today. While others have made strong environmental and industry economic 

arguments regarding the benefits of the proposed rule, CF A believes that consumer benefits 

will be in the billions, and we will further demonstrate why the standards are needed in our 

detailed comments on the proposed rule which will be submitted next month. 

About the CFA polls cited in this statement 

CFA commissioned ORC International to poll over a thousand Americans in July 2014 and July 

2015 about the Obama Administration's proposed fuel-efficiency rules for heavy-duty trucks. The 

sampling error rate was +/- 3%. 

The Consumer Federation of America is an association of more than 250 non-profit organizations 

that was established in 1968 to advance the consumer interest through research, advocacy, and 

education. 

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. INTRODUCTION 

PURPOSE 

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 durables including automobiles and households appliances. 1 Because gasoline and 

electricity bills are such a large part of household annual expenses - currently about $2,600 for 

gasoline and over $1400 for electricity2 - it is not surprising that polls consistently elicit this 

support. Consumers clearly feel the pain in their pocketbooks and understand the economic 

impact of energy costs on their households. 

Economic analysis has shown that there is a sound basis for consumer support of energy 

efficiency standards.3 Although energy saving technologies require an investment, when they 

lower energy bills by much more than their cost, the result is substantial net savings to 

consumers. 

While direct household expenditures on personal energy consumption are significant, 

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, which actually exceeds the energy 

consumed in the residential sector.4 

Although the consumer impact of commercial and industrial energy costs will vary across 

goods, services and markets, these expenditures on energy are substantial and have a significant 

impact on U.S. households. One of the largest contributors to commercial energy consumption 

is America's medium and heavy duty trucks. Consumers pay the cost of commercial and 

industrial transportation energy consumption in the price of the goods and services they buy. In 

fact, we conclude that indirect freight truck fuel costs passed on to consumers are about 

half as large as direct gasoline expenditures and almost equal to household electricity bills. 

Reducing the energy consumption of 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 National Highway 

Transportation Safety Administration regarding medium and heavy duty truck fuel consumption 

deserves close scrutiny and support. 

This paper examines the costs of energy used by medium and heavy duty trucks, the 

potential for energy savings in this transportation sector, and the positive impact increased truck5 

fuel efficiency will have on Ameri ca's households. When fuel pr1ces rise, so does the cost of 

consumer goods due to the cost oftransporting those goods. Conversely, because of 

1 Mark Cooper, 2013, Energy Efficiency Performance Standards: The Cornerstone of Consumer-Friendly 

Energy Policy, Consumer Federation of America, presents an extensive bibliography of survey 

analysis by the Consumer Federation of America and other consumer groups. 

2 Based on Bureaus of Labor statistics, Consumer Expenditure Survey, for 2013 and 20 13-2014 

3

Cooper, 20 13 

4 Household gasoline consumption accounts for about half of transportation fuels. Households account 

for about one-third of electricity consumption and one-sixth of natural gas consumption. 

5 For the purposes of simplic ity, in this paper, we will refer to medium and heavy duty trucks as 'tTucks'. 

1 
competition, 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 of fuel expenditures on their costs, reinforces the notion that 

not passing on these extra costs will make them more competitive.6 

In evaluating the EP AINHTSA 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 EP A!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, AT A. 

7 For most of the products that we evaluate, the first question is straightforward 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. 

2 
Because light duty vehicles, which make up the vast majority of households 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 household expenditures on medium 

and heavy duty transportation fuel. 

Table 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 Transportation Survey; the Annual Energy Outlook of the 

Energy Information Administration; the Bureau of Labor's Consumer Expenditure Survey; and 

the U.S. Department of Transportation, Bureau ofTransportation statistics each which estimates 

fuel usage by types of vehicles. Because 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 METHODOLOGIES FOR ESTIMATI NG THE I NDIRECT, ANNUAL HOUSEHOLD 

CONSUMPTION OF TRANSPORTATION ENERGY 

Billion Gallons 

BLS/CE, EIA NHTS/ EIA BTS 

2009 

Household Gasoline 100 96 

2010 

Household Gasoline Light Duty Short Axle 91 

Commercial Light Duty Light Duty Long Axle 36 

Medium & Heavy Duty 2Axle-Six Wheel 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), Annual Energy Outlook, 2013, Appendix A; Department of 

Transportation (DOT), Bureau of Traffic Statistics (BTS) Data Base, Tables 4-11 to 4-14. Department of 

Transportation, National Household Transportation Survey, 2009 Price: Energy Information Administration, 

Petroleum Database,· Households, Bureau of the Census, Statistical Abstract of the United States: 2012, Table 

59, ll8 million households. EIA, Mollfhly Energy Review, miles per gallon, total gasoline and diesel onhighway supplies. 

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 estimates, 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 vehicle miles traveled 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 EIA data that identifies the amount of energy consumed by 

automobiles and light 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 

Consumer Expenditure Survey from the Bureau of Labor Statistics to estimate the gasoline 

consumed by households. We subtracted this from the total for light duty vehicles, as reported in 

the Annual Energy Outlook, to determine the amount of energy consumed by light duty vehicles 

3 
that is not consumed by households. We call this 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 axle length and the number of tires. 

Again, the estimates are quite close, although they are lower than the estimate for 2009. There 

was a decrease in consumption between 2009 and 2010 in the aggregate consumption. The 

consistency of this data provides us with a substantial level of confidence in the amount of 

medium and heavy duty truck fuel we use for our calculations. We compared the 2013 BLS/EIA 

numbers with previous year numbers from other sources and discovered that all of the estimates 

were within 10% of each other. 

Table 11-2 (below) applies the BLS/EIA approach from Table Il-l to the data for 2013 

and 2014. 1 We prefer this approach since it can be updated easily. As a result, for 2013, we 

estimate 92 billion gallons of household gasoline consumption and 43 billion in medium and 

heavy duty truck consumption. We reduce the freight truck consumption by 11% to account for 

exports, since the cost burden would not fall on consumers. 

TABLE 11-2: HOUSEHOLD EXPENDITURES (BLSIEIA Method) 

Fuel Consumptions 

Total Per HH $/gal. Annua l 

Bil. Gal. Gal. cost 

201 3 

Household Gasoline Gasoline 92 730 $3.58 $2,61 3 

Medium & Heavy Duty Diesel 43 300 $3.92 $1,176 

2014 

Household Gasoline Gasoline 93 730 $3.54 $2,511 

Medium & Heavy Duty Diesel 45 310 $3.82 $1,184 

Source: See Table IJ-1. 

This confirms the conclusion we reached in our earlier analysis. We estimate 730 direct 

gallons per household and 300 indirect gallons of diesel fuel consumption. For every dollar that 

consumers spend on household gasoline, they spend about $0.50 on freight transport fuel 

consumption. At an annual cost of nearly $1,200, households spend almost as much on freight 

truck fuel as they do on electricity. 

Price 

As shown in Figure II-3, the prices of transportation fuels in recent years have been 

volatile while clearly trending upward. For a little over a decade, diesel fuel has cost more than 

gasoline. 

F UTURE HOUSEHOLD EXPENDITURE TRENDS 

Any cost/benefit analysis of a proposed standard must be forward looking and factor in 

expected costs at the time of implementation. As shown in Figure II-4, the EIA projects lower 

prices for both gasoline and diesel in 2020, followed 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, which is the primary source that government agencies use for future 

pricing, projects diesel prices to rise slightly faster than gasoline prices, which has been the trend 

4 
for the past decade. Because actual 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 which the agency analysis was based) and the 2015 projection. 

FIGURE 11--3: FUEL PRICE (NOMINAL $/GALLON) 

$5.00 

$4.50 

$4.00 

$3.50 

$3.00 

$2.50 

$2.00 

$1.50 

$1.00 

$0.50 I 

$0.00 l ------------

Jan-1993 Oct-1995 Jul-1998 Apr-2001 Jan-2004 Oct-2006 Jul-2009 Apr-2012 Dec-2014 

• Gasoline .& Diesel 

Source: EIA, Petroleum Price Database. 

F IGURE 11-4: FUTURE PRICES, REAL AND DISCOUNTED 

$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 

5 
standard discount rates established by the OMB for regulatory analysis 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 lower the household impact of fuel costs associated with consumer and 

commercial light duty vehicles. On the other hand, without some controls, the burden on 

households due to medium and heavy duty truck fuel costs will only increase both absolutely and 

related to their direct expenditures on gasoline. Figure II-5 shows that, historically, the fuel 

economy of heavy-duty trucks has not increased. 

FIGURE Il-5: MOTOR ECONOMY 1949-2011 (MILES PER GALLON) 

:s-

.31-

IS- - -........... 

ID-....__ _____ _ -- -- - ----./'.-- - - s0 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 1955 1Si'O 1Si5 1S9J 

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 

1985 159) 1995 3XXl JJIE 2C 10 

Source: U.S. Energy Information Administration, Monthly Energy Review, July 2015, page 17. 

The most recent Annual Energy Outlook from the EIA, incorporating the new fuel 

economy standard for light duty vehicles, projects a substantial 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, fuel consumption of light duty vehicles (and therefore 

household gasoline) is projected to decline because the increase in fuel economy is larger than 

the expected increase in miles driven8

. 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 lack of MPG improvement and rising fuel prices will significantly 

increase fuel costs. 

8 Population growth will increase vehicles on the road and overall miles driven. 

6 
F IGURE 11-6: TRENDS IN FUEL ECONOMY AND CONSUMPTION M ILEAGE BY VEHICLE TYPE 

Expected MPG 

50 

40 

30 

20 

10 

0 

2012 

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 

_...,._ Light Duty _._Freight Trucks 

Household Gasoline v. Freight Diesel 

~----- -------------· . -------- . 

2 -+-Household Gasoline ~ Freight Diesel - e- Freight Diesel, Price Adjusted 

0 

2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 

Source: Energy Information Administration, Annual Energy Oudook, 2015. 

Without long-term standards for freight trucks, fuel consumption of trucks is projected to 

increase because fuel economy improvements will not keep up with increasing demand for 

freight services. Within 20 years, taking the price difference between gasoline and diesel into 

effect, the gap between direct and indirect household expenditures on transportation energy will 

narrow considerably. 

7 
III. COMMERCIAL FUEL COSTS ARE PASSED THROUGH TO HOUSEHOLDS 

While we have calculated the size of fuel expenditures on a per household basis, we must 

ask, "do households actually pay these costs?" The answer is "Yes:· These costs are just like 

any other commercial costs in the economy. When a farmer pays for fertilizer or the delivery 

driver gets his paycheck, these business costs are recovered in the price of the related goods and 

services. The same is true with fuel costs. In fact, the Mid-Atlantic Freight Coalition confirms 

the pass through of transportation costs in a recent report on how transportation and logistics 

consume a significant portion of household budgets. According to the report, 

"the &eight logistics system costs nearly $4,500 per person, which is spent moving and 

warehousing goods. Tlus $4,500 factors into the cost of every product we buy. Anything 

that industry or government can do to make the logistics system more efficient will return 

benefits in terms of lower cost and greater global competitiveness."9 

Although this estimate of the size of the expenditure on freight logistics includes all 

transportation modes and all costs, (equipment, maintenance, salaries, etc.), it acknowledges the 

importance of transportation costs to the economy which includes truck fuel costs. In addition to 

the pass through of these costs to consumers, there is the significant dependence on foreign 

sources for this fuel. 

While the recognition that transportation costs are paid by consumers is obvious, the 

concept is reinforced by two observations: First. although transportation costs 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-third 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, fuel is the largest component of that pass-through (see Figure III2). 

ECONOMETRIC MODELS D EMONSTRATE THE PASS-THROUGH NATURE OF TRANSPORTATION 

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/output tables, and transportation costs are a significant input in the models. In 

building these models, the pass-through of transportation costs is assumed, since transportation 

plays a fundamental role in the overall cost of production. 

Transportation is an economic factor of production of goods and services, implying 

that relatively small changes can have substantial impacts on costs, locations and 

performance ... 

9 Mid-America Freight Coalition "The Economic Lmportance of Freight," p. 2. 

10 NRC, 20 I 0, Table 6. 1 

8 
FIGURE 111-1: GROSS DOMESTIC PRODUCT BY SECTORS 

14% 

12% 

10% 

8% 

6% 

I I I I I I I I I I I 

4% 

2% 

Source: GDP by Industry, http://en.wikipedia.org/wiki/ Economy of the United States 

FIGURE 111-2: AVERAGE TRUCK OPERATION COSTS 

[CELLRANGE], [VALUE] 

[CELLRANGE], (VALUE] [CELLRANGE], (VALUE] 

Source: EPA/NHTSA, Regulatory Impact Analysis, Medium and Heavy Duty Truck Rule, 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, travel 

agencies, transit operators) employment are associated with transport. Producers and 

consumers make economic decisions on products, markets, costs, location, prices 

9 

I 
which 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 its 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 201 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 MULTIPLIERS FOR THE CALIFORNIA ECONOMY 

3 

2.5 

2 

1 

0.5 

0 

Transport Oil extraction Petrol Mfct. Median 

Industry 

Source: California Economic Strategy Panel, Using Multipliers to Measure Economic Impacts, 2009, Table 1 

in modeling the impact of higher 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 services increases due to their 

lower costs. In addition, as the population and economy grows, the need for commercial 

transportation increases as well. Nevertheless, the fuel savings from greater efficiency are much 

larger than the increase in consumption. The net effect is to reduce expenditures on fuel as a 

11 Transportation and Economic Development Authors: Dr. Jean-Paul Rodriguez and Or. Theo 

Notte boom, 

http://peoplc. hofstra.edu/geotrans/eng/ch 7en/conc7en/ch 7c I cn.htrn 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 deliver its products. Manufacturing is 

usually a highly competitive activity. Un less an area has other low cost attributes, high transportation 

costs will cause manufacturers to leave or avoid that area 

10 
percent 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 multipliers, the economy expands. So it is clear that the pass 

through to consumers of truck fuel costs is important for both energy policy and economic 

policy. 

IV. PUBLIC OPINION 

While we have been able to demonstrate that these fuel cost are considerable and, in fact, 

passed on as indirect costs to households, consumers as well, understand that fact. 

Two recent Consumer Federation of America surveys, found that the vast majority of 

consumers (over 90%) understand that "some, most, or all " of the fuel costs of heavy-duty 

trucks, which transport virtually every consumer good, are passed on to consumers (See Figure 

IV -1 ). In fact, over 55 percent) believe that "all or most" of these costs are passed on to the 

consumer. 

Figure IV-1 Do Consumers Understand that Truck Fuel Cost Are Passed on to Them? 

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 

All Some None Don't Know 

• 2014 

• 2015 

With the average American household 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 households hundreds 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 

fuel 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%. 

11 
While 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 win-win-win as 

they will benefit consumers' pocketbooks, big truck fleet owners and the economy. Clearly, the 

vast majority of consumers understand how important these standards are and want them to go 

into effect. 

FIGURE IV-2-Do Consumers Favor Regulations Requiring More 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. CONCLUSION 

• 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 household budgets, but there is strong public understanding that consLLmers shoulder 

these costs and support requirements to reduce them. 

In addition there are other strong arguments which justify a standard. These include: 

• The benefits of energy savings technology far outweigh the costs, 

• There are market imperfections that cause the underinvestment in energy savings 

technologies, and 

• Performance standards are a good tool to reduce or eliminate these market 

imperfections. 

Now that EPA and NHTSA have proposed new standards and provided lengthy analysis 

of technologies and regulatory options, we can move from the general to the specific in our 

12 
evaluation which we will 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 evidence, 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, Regulatory Impact Analysis, Medium and Heavy 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 available after they completed their analysis. 

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 are five times the cost 

providing 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 rule 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 level of indirect expenditure today, it would equal an annual 

savings of $200 per household. Projecting forward, however, we would have to adjust for the 

12 EPA/NHTSA, Regulatory Impact Analysis, Medium and Heavy Duty Truck Rule, p. 5-3. 

13 
price 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 

While others have made strong environmental and industry economic arguments 

regarding the benefits of the proposed rule, CF A believes that consumer benefits will be in the 

billions and we will further demonstrate those savings in our official comments on the proposed 

rule. 

1 We estimate 20 14 based on total products supplied and average price for the year, assuming a I% 

increase in the number of households and constant consumption per household. This is consistent 

with the difference between the 2013Cconsumer Expenditure Survey and the mid-year 2014 

Consumer Expenditure Survey. While price is down 3% between 20 14 and 2013, expenditures are 

down 1.5% in the year Ju ly 20 13-July 20 I 4. By the end of the year we would expect the increase in 

consumption stimulated by declining prices to be offset by the decrease in consumption reflecting 

more fuel efficient vehicles and the underlying trend. For diesel. we divide the total expenditures by 

the estimated number of households. 

14