MD and HD GHG and FE Rule

Interagency Comments

20 July 2011

*** EPA Staff - Deliberative *** 1
4 Issues Raised by Interagency

• Average, Banking and Trading (ABT)

– Agencies should consider lifting restrictions on trading between 

market segments

• Natural Gas Vehicles (NGVs)

– NHTSA should consider providing additional credits for NG 

vehicles

• Maximizing net benefits 

– Agencies should provide net benefits by sector

• Probabilistic Uncertainty 

– Agencies should augment existing benefits analysis with a cost 

sensitivity

*** EPA Staff - Deliberative *** 2
Interagency Recommendation on ABT

• Removing cross category ABT credit restrictions 

could reduce the cost of regulation.

• Vocational truck standards look highly cost 

effective relative to tractors, and hence, 

worthwhile savings could be realized by removing 

effective relative to tractors, and hence, 

worthwhile savings could be realized by removing 

that barrier.

• For similar reasons, all restrictions on ABT 

transfers between market segments should be 

lifted.

*** EPA Staff - Deliberative *** 3
Agencies’ Concerns with Structural 

Changes to ABT Provisions

• We support the broad use of ABT to achieve our goals more cost effectively except 

where we have identified the potential for a distortion in the market (windfall 

credits, unlevel playing field) 

• However, we remain concerned that an open market for credits will not happen, 

and inst and instead, the cr ead, the cross mark oss market trading in the AB ading in the ABT progr T program will am will confer mark er market power et power 

on select companies in this market segment.

– Comments in response to proposal indicates that much of the industry shares 

the concern as well as environmental organizations.

– Next few slides will walk through the concern

• We will fully reevaluate the credit program in the context of the next HD 

rulemaking where we can develop the tools to support the widening the trading 

opportunities.

*** EPA Staff - Deliberative *** 4
Large Potential Savings from Vocational Truck 

Credits Doesn’t Exist

Vocational Segment

Regulates These

(chassis = tires & engines) We

Do Not

Regulate 

These

4 major

Chassis 

OEMs Literally 100’s of 

bodybuilders

• Standard premised on 100% application of Low Rolling Resistance (LRR) tires and 

100% application of compliant engines.

• Generating credits based on even lower tire rolling resistance or even greater 

engine improvements is unlikely given the performance tradeoffs for tires and the 

projected high cost of additional engine reductions beyond our proposed 

standards.

• Significant overcompliance by vocational trucks or engines is unlikely, and hence, 

significant credit generation in the sector is unlikely.

*** EPA Staff - Deliberative *** 5
MHD Vocational Chassis Market & HHD Tractor Market

Manufacturer

2008 Wards NA Sales Data

MHD Chassis Manuf

Market Share

HHD Tractor

Market Share

Freightliner (Daimler) 31% 28%

Navistar 41% 17%

Paccar 

(Peterbilt/Kenworth)

0% 32%

Volvo (Mack/Volvo) 0% 23%

55%

Volvo (Mack/Volvo) 0% 23%

GM/Ford/Other 28% 0%

6

• “Regardless of the possibility that various flexibility scenarios may have similarly cost effective emissions reduction outcomes, we discourage the 

agency from allowing ABT across weight classes. Certain manufacturers with a wide product range (like Daimler) would be positioned to take 

advantage of such flexibilities and to gain commercial advantage over manufacturers whose product range is narrower. We do not believe, however, 

that it is EPA's intent to create rules that lead to such imbalances or have negative impacts on intra-industry competition.” - Comments of Daimler 

Trucks North America

• Paccar & Volvo make up 55% of the Tractor Market but 0% of the “cheap” MHD credits from averaging or banking

• Freightliner & Navistar have 45% of the Tractor Market and 72% of the “cheap” MHD credits from averaging or banking

• The initial allocation of credits (ability to generate them) shouldn’t matter if a free market in trading exists (Coase 1960)

• In the 30 years of heavy-duty AB&T, only one trade has ever occurred (Caterpillar when it left the heavy-duty market). 

• In a concentrated market where withholding credits can increase market power, we and the majority of the industry believe 

free trading market will not arise. Given the potential for significant market power in this market, the agencies need to 

consider the competitive aspects of ABT on the industry.
HHD Tractor Market & HDD Engine Market

Manufacturer

2008 Wards NA Sales Data

HHD Engine

Market Share

HHD Tractor

Market Share

Freightliner (Daimler) 27% 28%

Navistar 8% 17%

Paccar 

(Peterbilt/Kenworth)

1% 32%

Volvo (Mack/Volvo) 13% 23%

Cat/Cummins 53% 0%

7

• Cat & Cummins (Cummins now) are 50% of the Engine Market but can’t create vehicle credits 

• OEMs have no access to Averaging or Banking credits from markets where they do not sell.

• If credits can only be used in markets where they are generated, the access to credits from a 

company’s own production provides assurance of a competitive market.

• If credits can be brought from an outside market by some OEMs but not others, the 

manufacturers that have access to these external credits have a significant advantage. 

• Since the this market is highly concentrated, proceeding with credit trading is somewhat risky.

• Because of our experience over 30 years and the comments of the OEM’s, we are concerned 

that a competitive market for credits will not arise.

• Limiting trading can also encourage capital-intensive investments in the engine sector that are 

unlikely to occur with open trading
ABT Summary

• In principle, we agree with the interagency and support the use of ABT programs 

to reduce the cost of achieving our goals.

• The gains from trading are likely to be less than anticipated, since significant 

overcompliance by vocational trucks or engines is unlikely.

• We are concerned that with a market that is highly concentrated among 

manufacturers there is the pot e is the potential for concentr r concentrating additional ating additional market power et power 

through credits from other markets. The agencies believe that the current program 

aligns credit creation and use with the real HD market.

• Limiting trading will reduce the effects of further concentrating market power.

• The agencies are committed to investigating how such an credit market could be 

developed while reducing the possibility of conferring superior market power to 

parts of the industry as we work on the next phase of regulation.

*** EPA Staff - Deliberative *** 8
Treatment of NG Vehicles

• EPA has fully recognized the benefits of NGV in CO2 approach.

• We are implementing the Presidential Directive to promote 

the use of natural gas. 

• CO2 approach allows NGV to generate credits against the 

higher emission performance of gasoline and diesel engines.

– NGV credits =20% lower than diesel, 30% lower than gasoline

• We could have set a more stringent standard for NG engines based 

on the same technology improvements as diesel and gasoline 

engines but chose not to do so. 

• As a result NG engines can comply and generate CO2 credits 

without any additional cost or new technology.

*** EPA Staff - Deliberative *** 9
Consequences of Dis-harmonization

(NHTSA points)

• Dis-harmonization will effectively make NHTSA’s regulation of alternative-fueled vehicles a 

dead letter. There will be no point to the NHTSA standard.

• Dis-harmonization will increase industry burden through cost of compliance and 

recordkeeping, and fundamentally goes against the industry’s understanding of this effort 

when they supported the President’s memorandum for a joint rule.

• A significantly less stringent NHTSA-specific standard for alternative-fueled vehicles will result 

in some manufacturers building up excess credits that they cannot sell, as there will not be a 

demand for NHTSA-specific credits. In addition to failing to give these manufacturers any real 

benefit, these excess stores of credits will give environmental NGOs in the next HD 

rulemaking a clear argument that the NHTSA alternative fuel standard is too lenient and 

should be significantly more stringent. 

*** EPA Staff - Deliberative *** 10
Consequences of Dis-harmonization, Cont.

(NHTSA points)

If interagency commenters are correct that a greater NHTSA incentive will lead to more natural 

gas vehicles, then:

By creating an artificial shift toward certain technologies, the agency favors a specific petroleum 

reducing technology over others and “picks” winners, making the overall program more costly by 

creating an artificial shift toward certain technologies.

• As the rule is structured, manufacturers will select the most cost effective set of technologies that 

meets their performance needs. 

• If manufacturers can achieve the same result more cheaply other technologies, a program that 

incentivizes natural gas conversion could result in unnecessarily higher price increases for 

consumers.

• This also creates an incentive for manufacturers to game the system.

Alternatively, if NHTSA is correct that disharmonized standards will be stop-gapped by the more 

stringent standard:

A greater NHTSA incentive will not lead to more natural gas vehicles or greater fuel efficiency 

gains.

• There will be no market demand for additional NHTSA-specific credits.

*** EPA Staff - Deliberative *** 11
Net Benefits By Category

3% Discount Rate 3% Discount Rate 3% Discount Rate

HD Pickups & Vans Alt2 Alt3 Alt4 Alt5 Vocational Alt2 Alt3 Alt4 Alt5 Tractors Alt2 Alt3 Alt4 Alt5

Truck Program Costs -$1,780 -$1,970 -$3,220 -$9,890 Truck Program Costs -$670 -$1,140 -$9,140 -$15,840 Truck Program Costs -$3,300 -$4,950 -$8,430 -$11,540

Fuel Savings (pre-tax) $3,480 $4,060 $4,910 $7,700 Fuel Savings (pre-tax) $3,420 $5,420 $8,930 $14,270 Fuel Savings (pre-tax) $38,140 $40,650 $50,030 $57,190

Energy Security Impacts $190 $220 $270 $420 Energy Security Impacts $180 $290 $480 $760 Energy Security Impacts $2,030 $2,160 $2,660 $3,040

A,C,N -$330 -$350 -$370 -$350 A,C,N -$540 -$650 -$670 -$500 A,C,N -$450 -$480 -$590 -$770

Refueling $40 $50 $60 $90 Refueling $40 $60 $110 $170 Refueling $230 $250 $300 $350

Non-GHG n/a n/a n/a n/a Non-GHG n/a n/a n/a n/a Non-GHG n/a n/a n/a n/a

Reduced CO2 Reduced CO2 Reduced CO2

5% (avg SCC) $100 $100 $100 $200 5% (avg SCC) $100 $100 $200 $300 5% (avg SCC) $900 $1,000 $1,200 $1,400

3% (avg SCC) $500 $500 $600 $900 3% (avg SCC) $400 $600 $1,000 $1,500 3% (avg SCC) $4,200 $4,500 $5,600 $6,500

2.5% (avg SCC) $800 $900 $1,100 $1,500 2.5% (avg SCC) $700 $1,100 $1,700 $2,600 2.5% (avg SCC) $7,000 $7,500 $9,300 $11,000

3% (95th percentile) $1,400 $1,600 $1,900 $2,800 3% (95th percentile) $1,300 $1,900 $3,100 $4,700 3% (95th percentile) $13,000 $14,000 $17,000 $20,000

Monetized net benefits Monetized net benefits Monetized net benefits

5% (avg SCC) $1,700 $2,110 $1,750 -$1,830 5% (avg SCC) $2,530 $4,080 -$90 -$840 5% (avg SCC) $37,550 $38,630 $45,170 $49,670

3% (avg SCC) $2,100 $2,510 $2,250 -$1,130 3% (avg SCC) $2,830 $4,580 $710 $360 3% (avg SCC) $40,850 $42,130 $49,570 $54,770

• Alt 3 = Final Standards

• For Pickups & Vocational Alt 3 maximizes net benefits relative to Alt 2 and Alt 4

• For Tractors alt 4 (including trailers) would increase net benefits

*** EPA Staff - Deliberative ***

12

3% (avg SCC) $2,100 $2,510 $2,250 -$1,130 3% (avg SCC) $2,830 $4,580 $710 $360 3% (avg SCC) $40,850 $42,130 $49,570 $54,770

2.5% (avg SCC) $2,400 $2,910 $2,750 -$530 2.5% (avg SCC) $3,130 $5,080 $1,410 $1,460 2.5% (avg SCC) $43,650 $45,130 $53,270 $59,270

3% (95th percentile) $3,000 $3,610 $3,550 $770 3% (95th percentile) $3,730 $5,880 $2,810 $3,560 3% (95th percentile) $49,650 $51,630 $60,970 $68,270

7% Discount Rate 7% Discount Rate 7% Discount Rate

HD Pickups & Vans Alt2 Alt3 Alt4 Alt5 Vocational Alt2 Alt3 Alt4 Alt5 Tractors Alt2 Alt3 Alt4 Alt5

Truck Program Costs -$1,780 -$1,970 -$3,220 -$9,890 Truck Program Costs -$670 -$1,140 -$9,140 -$15,840 Truck Program Costs -$3,300 -$4,950 -$8,430 -$11,540

Fuel Savings (pre-tax) $2,180 $2,550 $3,090 $4,830 Fuel Savings (pre-tax) $2,280 $3,630 $5,970 $9,410 Fuel Savings (pre-tax) $26,420 $28,170 $34,710 $39,680

Energy Security Impacts $120 $140 $170 $260 Energy Security Impacts $120 $190 $320 $500 Energy Security Impacts $1,410 $1,500 $1,850 $2,110

A,C,N -$220 -$230 -$250 -$230 A,C,N -$380 -$450 -$460 -$350 A,C,N -$320 -$340 -$420 -$550

Refueling $30 $30 $40 $60 Refueling $30 $40 $70 $110 Refueling $160 $170 $210 $240

Non-GHG n/a n/a n/a n/a Non-GHG n/a n/a n/a n/a Non-GHG n/a n/a n/a n/a

Reduced CO2 Reduced CO2 Reduced CO2

5% (avg SCC) $100 $100 $100 $200 5% (avg SCC) $100 $100 $200 $300 5% (avg SCC) $900 $1,000 $1,200 $1,400

3% (avg SCC) $500 $500 $600 $900 3% (avg SCC) $400 $600 $1,000 $1,500 3% (avg SCC) $4,200 $4,500 $5,600 $6,500

2.5% (avg SCC) $800 $900 $1,100 $1,500 2.5% (avg SCC) $700 $1,100 $1,700 $2,600 2.5% (avg SCC) $7,000 $7,500 $9,300 $11,000

3% (95th percentile) $1,400 $1,600 $1,900 $2,800 3% (95th percentile) $1,300 $1,900 $3,100 $4,700 3% (95th percentile) $13,000 $14,000 $17,000 $20,000

Monetized net benefits Monetized net benefits Monetized net benefits

5% (avg SCC) $430 $620 -$70 -$4,770 5% (avg SCC) $1,480 $2,370 -$3,040 -$5,870 5% (avg SCC) $25,270 $25,550 $29,120 $31,340

3% (avg SCC) $830 $1,020 $430 -$4,070 3% (avg SCC) $1,780 $2,870 -$2,240 -$4,670 3% (avg SCC) $28,570 $29,050 $33,520 $36,440

2.5% (avg SCC) $1,130 $1,420 $930 -$3,470 2.5% (avg SCC) $2,080 $3,370 -$1,540 -$3,570 2.5% (avg SCC) $31,370 $32,050 $37,220 $40,940

3% (95th percentile) $1,730 $2,120 $1,730 -$2,170 3% (95th percentile) $2,680 $4,170 -$140 -$1,470 3% (95th percentile) $37,370 $38,550 $44,920 $49,940
Cost Sensitivity

• Package includes a probabilistic uncertainty analysis for portions of the benefits 

analyses were the agencies have tools and input data to create such an analysis.

• While we are highly confident of the cost estimates in this rule especially given 

that most of the technologies are already in production, we have also created a 

cost sensitivity analysis with a high and low cost case to bound our estimates.

• Cost elements that most significantly impact compliance costs were selected.

• High Cost Case

– AEO2011 High Oil Price

– ICM estimate increased 20%

– Aerodynamics increased 10%

– Auxiliary Power Unit increased 10%

– Turbocompounding increased 10%

• Low Cost Case

– AEO2011 Low Oil Price

– ICM estimate decreased 20%

– Aerodynamics decreased 10%

– Auxiliary Power Unit decreased 10%

– Turbocompounding decreased 10%

*** EPA Staff - Deliberative ***

13
Cost Sensitivity

Pkg_v2.6.2; Prog_v1.22.0-Low Pkg_v2.6.1; Prog_v1.22.0 Pkg_v2.6.2; Prog_v1.22.0-High

Monetized Values 2014MY 2015MY 2016MY 2017MY 2018MY Sum Monetized Values 2014MY 2015MY 2016MY 2017MY 2018MY Sum Monetized Values 2014MY 2015MY 2016MY 2017MY 2018MY Sum

Costs Costs Costs

Truck Program Costs -$1,500 -$1,300 -$1,400 -$1,500 -$1,800 -$7,500 Truck Program Costs -$1,600 -$1,400 -$1,500 -$1,600 -$2,000 -$8,100 Truck Program Costs -$1,700 -$1,500 -$1,600 -$1,700 -$2,100 -$8,600

Benefits Benefits Benefits

Pre-tax Fuel Savings $5,900 $5,100 $4,900 $6,800 $7,600 $30,200 Pre-tax Fuel Savings $9,300 $8,300 $8,100 $11,500 $12,900 $50,100 Pre-tax Fuel Savings $13,600 $12,000 $11,800 $16,700 $18,800 $72,900

Energy Security $500 $400 $400 $600 $700 $2,700 Energy Security $500 $400 $400 $600 $700 $2,700 Energy Security $500 $400 $400 $600 $700 $2,700

Accidents, Congestion, Noise -$300 -$300 -$300 -$300 -$300 -$1,500 Accidents, Congestion, Noise -$300 -$300 -$300 -$300 -$300 -$1,500 Accidents, Congestion, Noise -$300 -$300 -$300 -$300 -$300 -$1,500

Refueling $60 $60 $60 $80 $100 $360 Refueling $60 $60 $60 $80 $100 $360 Refueling $60 $60 $60 $80 $100 $360

Reduced CO2 emissions Reduced CO2 emissions Reduced CO2 emissions

5% (avg SCC) $200 $200 $200 $300 $300 $1,200 5% (avg SCC) $200 $200 $200 $300 $300 $1,200 5% (avg SCC) $200 $200 $200 $300 $300 $1,200

3% (avg SCC) $1,100 $900 $900 $1,300 $1,500 $5,700 3% (avg SCC) $1,100 $900 $900 $1,300 $1,500 $5,700 3% (avg SCC) $1,100 $900 $900 $1,300 $1,500 $5,700

2.5% (avg SCC) $1,800 $1,600 $1,500 $2,100 $2,400 $9,400 2.5% (avg SCC) $1,800 $1,600 $1,500 $2,100 $2,400 $9,400 2.5% (avg SCC) $1,800 $1,600 $1,500 $2,100 $2,400 $9,400

3% (95th percentile) $3,300 $2,900 $2,800 $4,000 $4,500 $17,000 3% (95th percentile) $3,300 $2,900 $2,800 $4,000 $4,500 $17,000 3% (95th percentile) $3,300 $2,900 $2,800 $4,000 $4,500 $17,000

Net Benefits Net Benefits Net Benefits

5% (avg SCC) $4,860 $4,160 $3,860 $5,980 $6,600 $25,460 5% (avg SCC) $8,160 $7,260 $6,960 $10,580 $11,700 $44,760 5% (avg SCC) $12,360 $10,860 $10,560 $15,680 $17,500 $67,060

Low Cost Case 4:1 Benefit to Cost Reference Case (Rule) 6:1 Benefit to Cost High Cost Case 8:1 Benefit to Cost

Estimated Societal Impacts of the Proposed Heavy-duty Program

(Millions of 2009 dollars; 3% discount rate)

Estimated Societal Impacts of the Proposed Heavy-duty Program

(Millions of 2009 dollars; 3% discount rate)

Estimated Societal Impacts of the Proposed Heavy-duty Program

(Millions of 2009 dollars; 3% discount rate)

*** EPA Staff - Deliberative *** 14

3% (avg SCC) $5,760 $4,860 $4,560 $6,980 $7,800 $29,960 3% (avg SCC) $9,060 $7,960 $7,660 $11,580 $12,900 $49,260 3% (avg SCC) $13,260 $11,560 $11,260 $16,680 $18,700 $71,560

2.5% (avg SCC) $6,460 $5,560 $5,160 $7,780 $8,700 $33,660 2.5% (avg SCC) $9,760 $8,660 $8,260 $12,380 $13,800 $52,960 2.5% (avg SCC) $13,960 $12,260 $11,860 $17,480 $19,600 $75,260

3% (95th percentile) $7,960 $6,860 $6,460 $9,680 $10,800 $41,260 3% (95th percentile) $11,260 $9,960 $9,560 $14,280 $15,900 $60,560 3% (95th percentile) $15,460 $13,560 $13,160 $19,380 $21,700 $82,860

Monetized Values 2014MY 2015MY 2016MY 2017MY 2018MY Sum Monetized Values 2014MY 2015MY 2016MY 2017MY 2018MY Sum Monetized Values 2014MY 2015MY 2016MY 2017MY 2018MY Sum

Costs Costs Costs

Truck Program Costs -$1,500 -$1,300 -$1,400 -$1,500 -$1,800 -$7,500 Truck Program Costs -$1,600 -$1,400 -$1,500 -$1,600 -$2,000 -$8,100 Truck Program Costs -$1,700 -$1,500 -$1,600 -$1,700 -$2,100 -$8,600

Benefits Benefits Benefits

Pre-tax Fuel Savings $4,400 $3,700 $3,400 $4,600 $4,900 $20,900 Pre-tax Fuel Savings $6,900 $5,900 $5,600 $7,600 $8,300 $34,400 Pre-tax Fuel Savings $10,100 $8,600 $8,100 $11,100 $12,000 $49,900

Energy Security $400 $300 $300 $400 $400 $1,800 Energy Security $400 $300 $300 $400 $400 $1,800 Energy Security $400 $300 $300 $400 $400 $1,800

Accidents, Congestion, Noise -$200 -$200 -$200 -$200 -$200 -$1,000 Accidents, Congestion, Noise -$200 -$200 -$200 -$200 -$200 -$1,000 Accidents, Congestion, Noise -$200 -$200 -$200 -$200 -$200 -$1,000

Refueling $50 $40 $40 $60 $60 $250 Refueling $50 $40 $40 $60 $60 $250 Refueling $50 $40 $40 $60 $60 $250

Reduced CO2 emissions Reduced CO2 emissions Reduced CO2 emissions

5% (avg SCC) $200 $200 $200 $300 $300 $1,200 5% (avg SCC) $200 $200 $200 $300 $300 $1,200 5% (avg SCC) $200 $200 $200 $300 $300 $1,200

3% (avg SCC) $1,100 $900 $900 $1,300 $1,500 $5,700 3% (avg SCC) $1,100 $900 $900 $1,300 $1,500 $5,700 3% (avg SCC) $1,100 $900 $900 $1,300 $1,500 $5,700

2.5% (avg SCC) $1,800 $1,600 $1,500 $2,100 $2,400 $9,400 2.5% (avg SCC) $1,800 $1,600 $1,500 $2,100 $2,400 $9,400 2.5% (avg SCC) $1,800 $1,600 $1,500 $2,100 $2,400 $9,400

3% (95th percentile) $3,300 $2,900 $2,800 $4,000 $4,500 $17,000 3% (95th percentile) $3,300 $2,900 $2,800 $4,000 $4,500 $17,000 3% (95th percentile) $3,300 $2,900 $2,800 $4,000 $4,500 $17,000

Net Benefits Net Benefits Net Benefits

5% (avg SCC) $3,350 $2,740 $2,340 $3,660 $3,660 $15,650 5% (avg SCC) $5,750 $4,840 $4,440 $6,560 $6,860 $28,550 5% (avg SCC) $8,850 $7,440 $6,840 $9,960 $10,460 $43,550

3% (avg SCC) $4,250 $3,440 $3,040 $4,660 $4,860 $20,150 3% (avg SCC) $6,650 $5,540 $5,140 $7,560 $8,060 $33,050 3% (avg SCC) $9,750 $8,140 $7,540 $10,960 $11,660 $48,050

2.5% (avg SCC) $4,950 $4,140 $3,640 $5,460 $5,760 $23,850 2.5% (avg SCC) $7,350 $6,240 $5,740 $8,360 $8,960 $36,750 2.5% (avg SCC) $10,450 $8,840 $8,140 $11,760 $12,560 $51,750

3% (95th percentile) $6,450 $5,440 $4,940 $7,360 $7,860 $31,450 3% (95th percentile) $8,850 $7,540 $7,040 $10,260 $11,060 $44,350 3% (95th percentile) $11,950 $10,140 $9,440 $13,660 $14,660 $59,350

Estimated Societal Impacts of the Proposed Heavy-duty Program

(Millions of 2009 dollars; 7% discount rate)

Estimated Societal Impacts of the Proposed Heavy-duty Program

(Millions of 2009 dollars; 7% discount rate)

Estimated Societal Impacts of the Proposed Heavy-duty Program

(Millions of 2009 dollars; 7% discount rate)