Phase 2 GHG Standards 

for Heavy-Duty Trucks:

Analysis of the impact of regulatory 

structure on product cost for compliance

Morgan Andreae

Director, Corporate Development, Cummins Inc.

Presentation to U.S. Office of 

Management and Budget

April 21, 2015
Executive Summary

 Does a separate engine standard in addition to a vehicle standard to 

regulate CO2 emissions lead to higher product costs as compared to a 

regulation at the vehicle level only?

 This study evaluates the product cost impact for a regulatory structure that 

includes an engine program versus a structure that is vehicle-only

– Analysis shows that an engine program will not result in a less cost-effective program

– Even large errors in estimating future engine technology costs will not lead to a 

significant impact on the relative cost of the product nor to the target balance for CO2

reductions from engine and other vehicle systems

 Other benefits of an engine program are not considered in this analysis: 

ease of assuring / enforcing compliance, competition / market impacts, 

development cost benefits from product clarity and certainty, reuse of 

existing certification and enforcement protocols, etc.

2
Analysis

 Linehaul tractor data (technologies, GHG reduction and product cost impact) collected 

from internal Cummins analysis, EPA RIA report, and TIAX report 

 Technologies are sorted by lowest $ per % improvement to highest

 Evaluation of cost to meet 20% reduction in CO2 emissions from the 2017 standards 

with different combinations of engine and vehicle technologies (20% selected as a 

reasonable target to evaluate and illustrate cost impacts)

3
Product Cost for Compliance

 Product cost for compliance is calculated for different contributions from engine and 

vehicle technologies to meet a total reduction of 20%

 This plot shows cost sensitivity in achieving CO2reductions to the split between 

engine and vehicle improvements

4

Product cost is minimum when engine compliance 

target is ~12% and vehicle 8%: ~$10,000

20% improvement for $10,000 is a 1 year payback 

for a linehaul tractor

Vehicle % improvement does not include engine 

benefits for this plot
Product Cost Sensitivity to Engine Cost 

Variation

5

Optimum product cost and % reduction from engine + vehicle 

program based on a target set in 2015 from current knowledge

Potential cost curve in future (assuming engine 

cost increases by 50% over initial prediction)

Compliance cost curve while 

setting the standard in 2015
Product Cost Sensitivity to Engine Cost 

Variation

6

Optimum product cost with no engine program (assuming 

engine cost increases by 50% over initial prediction)

Delta cost = ~ $1500

(All regulation will have some error in estimation 

of future costs (+/-) regardless of structure)

Optimum product cost and % reduction from engine + vehicle 

program based on a target set in 2015 from current knowledge
Product Cost Sensitivity to Engine Cost 

Variation

7

Optimum product cost with no engine program (assuming 

engine cost increases by 50% over initial prediction)

Delta cost = ~ $700

Optimum product cost and % reduction from engine + vehicle 

program based on a target set in 2015 from current knowledge

Optimum product cost if engine standard is 12% (assuming 

engine cost increases by 50% over initial prediction)
Product Cost Sensitivity to Engine Cost 

Variation

8

• Any unnecessary increase in product cost should be avoided

• As shown through this analysis, a scenario that includes an engine standard 

and cost estimates that are off by 50% results in a modest product cost impact

• This potential should be considered in the context of:

o Overall price of the vehicle

o Reduction in engine development costs through regulatory clarity and certainty

o Enforcement and compliance aspects linked to an engine program

o Maintaining the competitive environment between engine and other manufacturers