# 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 CO 2 

## 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 CO 2 

### 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 d ata (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 CO 2 

## 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 CO 2 

## reductions 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 S ensitivity 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