United States

Environmental Protection

Agency

Air and Radiation EPA420-R-02-021

August 2002

Final Technical Support

Document: Nonconformance

Penalties for 2004 Highway

Heavy Duty Diesel Engines

 Printed on Recycled Paper
EPA420-R-02-021

August 2002

Final Technical Support Document:

Nonconformance Penalties for 2004

Highway Heavy Duty Diesel Engines

Assessment and Standards Division

Office of Transportation and Air Quality

U.S. Environmental Protection Agency
Table of Contents

CHAPTER 1: INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page -1-

I. Background on Nonconformance Penalties . . . . . . . . . . . . . . . . . . . . . . . . Page -1-

A. Clean Air Act Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page -1-

B. Previous NCP Rulemakings and Regulations . . . . . . . . . . . . . . . . Page -2-

II. Promulgation of 2004 Emission Standards . . . . . . . . . . . . . . . . . . . . . . . . Page -4-

A. 1997 FRM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page -4-

B. 2000 FRM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page -4-

III. Characterization of the Heavy duty Engine and Vehicle Industries . . . . . . Page -4-

A. Vehicle Applications and Classes . . . . . . . . . . . . . . . . . . . . . . . . . Page -4-

B. Engine and Vehicle Manufacturers . . . . . . . . . . . . . . . . . . . . . . . . Page -5-

IV. Heavy Duty Diesel Consent Decrees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page -7-

References for Chapter 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page -9-

CHAPTER 2: TECHNOLOGIES NEEDED TO MEET 2004 STANDARDS . . . . . . . Page -10-

I. Projections of Technologies from 2000 FRM . . . . . . . . . . . . . . . . . . . . . Page -10-

A. Cooled Exhaust Gas Recirculation . . . . . . . . . . . . . . . . . . . . . . . Page -10-

B. Improved Fuel Injection Systems . . . . . . . . . . . . . . . . . . . . . . . . . Page -11-

C. Exhaust Aftertreatment Systems . . . . . . . . . . . . . . . . . . . Page -11-

II. Current Manufacturer Projections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page -11-

III. Fuel Consumption Impacts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page -12-

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page -14-

CHAPTER 3: COMPLIANCE COSTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page -15-

I. Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page -15-

A. General Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page -15-

B. Net Present Value of Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page -17-

C. Costs Included . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page -18-

D. Upper Limit Engine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page -19-

E. Use of Optional Standard . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page -20-

II. Manufacturer Cost Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page -20-

III. Analysis of Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page -25-

A. COC50 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page -28-

B. COC90 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page -35-

C. MC50 and F . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page -40-

D. Urban Buses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page -42-

References for Chapter 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page -44-
Table of Contents

CHAPTER 4: REGULATORY PARAMETERS FOR NCPs . . . . . . . . . . . . . . . . . . . . Page -46-

I. NCP Equations and Parameters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page -46-

II. Refund for Engineering and Development Costs . . . . . . . . . . . . . . . . . . Page -49-

APPENDIX A: FUEL CALCULATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page -50-

APPENDIX B: SAMPLE COST CALCULATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . Page -54-
Chapter 1: Introduction

Page -1-

CHAPTER 1: INTRODUCTION

The Technical Support Document (TSD) for this rulemaking presents analyses and

supporting data for the provisions EPA used for establishing nonconformance penalties for

model year 2004 and later on-highway heavy duty diesel engines.

I. Background on Nonconformance Penalties

A. Clean Air Act Requirements

Section 206(g) of the Clean Air Act (the Act), 42 U.S.C. 7525(g), requires EPA to

establish nonconformance penalties for HDEs or HDVs which exceed the applicable emissions

standard, provided that their emissions do not exceed an appropriate upper limit. Congress

adopted section 206(g) in the Clean Air Act Amendments of 1977 as a response to perceived

potential for problems with technology-forcing heavy-duty emissions standards. Following

International Harvester v. Ruckelshaus, 478 F.2d 615 (D.C. Cir. 1973), Congress realized the

dilemma that technology-forcing standards were likely to cause. If strict standards were

maintained, then some manufacturers, "technological laggards," might be unable to comply

initially and would be forced out of the marketplace. NCPs were intended to remedy this

potential problem. The laggards would have a temporary alternative that would permit them to

sell their engines or vehicles by payment of a penalty. At the same time, conforming

manufacturers would not suffer an economic disadvantage compared to nonconforming

manufacturers, because the NCP would be based, in part, on money saved by the technological

laggard and its customer from the nonconforming engine or vehicle. The resulting provisions of

the Act require that NCPs account for the degree of emission nonconformity; increase

periodically to provide incentive for nonconforming manufacturers to achieve the emission

standards; and, most importantly, remove any competitive disadvantage to conforming

manufacturers. 

Under section 206(g)(1), NCPs may be offered for HDVs or HDEs. The penalty may

vary by pollutant and by class or category of vehicle or engine. HDVs are defined by section

202(b)(3)(C) as vehicles in excess of 6,000 pounds gross vehicle weight rating (GVWR). The

light-duty truck (LDT) classification includes trucks that have a GVWR of 8500 lbs or less. 

Therefore, certain LDTs may be classified as HDVs. Historically, LDTs up through 6000 lbs

GVWR have been considered "light light-duty trucks" (LLDTs) and LDTs between 6,001 and

8,500 pounds GVWR have been considered "heavy light-duty trucks" (HLDTs). Based on

various new requirements established by the Clean Air Act Amendments of 1990, each of these

two light truck categories has been further subdivided into groups by weight. The LLDTs are

classified by weight based on "loaded vehicle weight," or LVW, which maintains its current

definition: curb weight plus 300 lbs. The trucks up through 3750 lbs LVW make up a subclass
Chapter 1: Introduction

Page -2-

called light-duty-trucks-1, or LDT1. Those greater than 3750 lbs LVW but less than or equal to

6000 lbs GVWR are the subclass light-duty-trucks-2, or LDT2. The HLDTs are divided at 5750

lbs "adjusted loaded vehicle weight," or ALVW. Adjusted loaded vehicle weight is the average

of the curb weight and the GVWR. The HLDTs that are up through 5750 lbs ALVW are called

light-duty trucks-3, or LDT3. Those above 5750 lbs ALVW but less than or equal to 8500 lbs

GVWR are light-duty-trucks-4, or LDT4. The LDT3 and LDT4 subclasses make up the HLDT

vehicle class.

Section 206(g) authorizes EPA to require testing of production vehicles or engines in

order to determine the emission level on which the penalty is based. If the emission level of a

vehicle or engine exceeds an upper limit of nonconformity established by EPA through

regulation, the vehicle or engine would not qualify for an NCP under section 206(g) and no

certificate of conformity could be issued to the manufacturer. If the emission level is below the

upper limit but above the standard, that emission level becomes the "compliance level," which is

also the benchmark for warranty and recall liability; the manufacturer who elects to pay the NCP

is liable for vehicles or engines that exceed the compliance level in-use, unless, for the case of

HLDTs, the compliance level is below the in-use standard. The manufacturer does not have

in-use warranty or recall liability for emissions levels above the standard but below the

compliance level. 

B. Previous NCP Rulemakings and Regulations

The generic NCP rule (Phase I) was promulgated August 30, 1985 (50 FR 35374). It

established regulations for calculating NCPs in 40 CFR Part 86 Subpart L. It also established

three basic criteria for determining the eligibility of emission standards for nonconformance

penalties in any given model year. First, the emission standard in question must become more

difficult to meet. This can occur in two ways, either by the emission standard itself becoming

more stringent, or due to its interaction with another emission standard that has become more

stringent. Second, substantial work must be required in order to meet the emission standard.

EPA considers "substantial work" to mean the application of technology not previously used in

that vehicle or engine class/subclass, or a significant modification of existing technology, in

order to bring that vehicle/engine into compliance. EPA does not consider minor modifications

or calibration changes to be classified as substantial work. Third, a technological laggard must

be likely to develop. A technological laggard is defined as a manufacturer who cannot meet a

particular emission standard due to technological (not economic) difficulties and who, in the

absence of NCPs, might be forced from the marketplace. EPA will make the determination that a

technological laggard is likely to develop, based in large part on the above two criteria. However,

these criteria are not always sufficient to determine the likelihood of the development of a

technological laggard. An emission standard may become more difficult to meet and substantial

work may be required for compliance, but if that work merely involves transfer of

well-developed technology from another vehicle class, it is unlikely that a technological laggard

would develop.
Chapter 1: Introduction

Page -3-

The above criteria were used to determine eligibility for NCPs during Phase II of the NCP

rulemaking process (50 FR 53454, December 31, 1985). NCPs were offered for the following

1987 and 1988 model year standards: the particulate matter (PM) standard for 1987 diesel-fueled

light-duty trucks with loaded vehicle weight in excess of 3750 pounds (LDDT2s), the 1987

gasoline-fueled light HDE (LHDGE) HC and CO emission standards, the 1988 diesel-fueled

HDE (HDDE) PM standard, and the 1988 HDDE NOx standard. As discussed in the Phase II

rule, NCPs were considered, but not offered, for the 1987 HLDT NOx standard and the 1988

(later, the 1990) gasoline-fueled HDE (HDGE) NOx standard. 

The availability of NCPs for 1991 model year HDE standards was addressed during

Phase III of the NCP rulemaking (55 FR 46622, November 5, 1990). NCPs were offered for the

following: the 1991 HDDE PM standard for petroleum-fueled urban buses, the 1991 HDDE PM

standard for petroleum-fueled vehicles other than urban buses, the 1991 petroleum-fueled HDDE

NOx standard, and the PM emission standard for 1991 and later model year petroleum-fueled

light-duty diesel trucks greater than 3750 lbs loaded vehicle weight (LDDT2s). As discussed in

the Phase III rule, NCPs were also considered, but not offered for the methanol-fueled

heavy-duty diesel engine and heavy-duty gasoline engine standards as it was concluded that those

standards did not meet the eligibility criteria established in the generic rule. In addition, Phase III

of the NCP rulemaking described how NCPs would be integrated into the HDE NOx and PM

averaging program. 

The availability of NCPs for HDVs and HDEs subject to the 1994 and later model year

emission standards for particulate matter (PM) was addressed by Phase IV of the NCP

rulemaking (58 FR 68532, December 28, 1993). NCPs were offered for the following: the 1994

and later model year PM standard for heavy-duty diesel engines (HDDEs) used in urban buses,

and the 1994 and later model year PM standard for HDDEs used in vehicles other than urban

buses. NCPs were also considered, but not offered, for the 1994 and later model year

methanol-fueled HDE PM standard and the 1994 and later model year cold carbon monoxide

(CO) standard for heavy light-duty gasoline fueled trucks. 

The availability of NCPs for HDVs and HDEs subject to the 1998 and later model year

emission standards for NOx was addressed by Phase V of the NCP rulemaking (61 FR 6949,

February 23, 1996). NCPs were offered for the following: the 1998 and later model year NOx

standard for heavy duty diesel engines (HDDEs), the 1996 and later model year for Light-Duty

Truck 3 (LDT3) NOx standard, and the 1996 and later urban bus PM standard. A concurrent but

separate final rule (61 FR 6944, February 23, 1996) established NCPs for the 1996 LDT3 PM

standard and discussed other standards for which NCPs were considered. 
Chapter 1: Introduction

Page -4-

II. Promulgation of 2004 Emission Standards

A. 1997 FRM

On October 21, 1997, EPA issued a final rule (62 FR 54694). The rule established a NOx

+ NMHC standard of 2.4 g/bhp-hr (or 2.5 g/bhp-hr with a 0.5 g/bhp-hr NMHC cap) for 2004 and

later model year heavy-duty diesel-cycle engines. The rule also adopted other related compliance

provisions for diesel-cycle heavy-duty engines beginning with the 2004 model year, as well as

revisions to the useful life for the heavy-heavy duty diesel engine service class. The feasibility

and cost-effectiveness analyses for that rule were described in the 1997 Regulatory Impact

Analysis (RIA). We have placed a copy of the 1997 RIA into the docket for this rulemaking.

B. 2000 FRM

 The 1997 FRM included a commitment by EPA to review in 1999 the technological

feasibility of the NMHC+NOx standard and its appropriateness under the Clean Air Act. EPA

published an FRM in 2000 that reaffirmed the technical and economic feasibility of the 2004

model year diesel NOx + NMHC standard (64 FR 58472, October 29, 1999). The reanalysis of

the feasibility and cost-effectiveness of these standards were described in the 2000 Regulatory

Impact Analysis (RIA). That 2000 RIA can be found in the docket for this rulemaking. 

III. Characterization of the Heavy duty Engine and Vehicle Industries

A. Vehicle Applications and Classes

Heavy duty engines are used in a wide variety of vehicle applications. Smaller engines

are used in large pickup trucks, vans and other vehicles using those same chassis. At the other

extreme, the largest engines are used in cement mixers, garbage trucks, and line-haul trucks. In

matching the engines to the vehicles, the minimum requirement is that the engine would be large

enough to power a fully-loaded truck up a hill. More typically, especially for the larger trucks,

the engine is selected to provide the best fuel consumption. In other cases, especially for lightheavy duty, larger engines are used to provide additional performance. 

In applying heavy duty emission standards, EPA categorizes heavy duty vehicles into

three classes: light-heavy duty; medium-heavy duty; and heavy-heavy duty. Light-heavy duty

includes pickup trucks and vans. Medium-heavy duty includes delivery trucks and recreational

vehicles (CVS). Heavy-heavy duty includes buses and line-haul trucks.
Chapter 1: Introduction

Page -5-

Table 1-1

Service Classes of Heavy Duty Vehicles

Service Class Typical

Vehicle Class

Typical GVWR

(lbs.)

Light 2B - 5 8,500 - 19,500

Medium 6 - 7 19,501 - 33,000

Heavy 8 33,001 +

B. Engine and Vehicle Manufacturers

Table 1-2 shows the major heavy duty engine and vehicle manufacturers for the U.S. and

Canada. It also illustrates the degree to which vehicle manufacturers buy engines from different

engine manufacturers. The industry operates so that the vehicle manufacturer decides during the

design stage which engines it will make available in its vehicles, and the ultimate customer

chooses its engine from among the available options. The result is that most of the vehicle

manufacturers use engines from two or more engine suppliers. This practice make the industry a

very competitive marketplace. This is particularly true for the medium-heavy and heavy-heavy

market place. The light-heavy market is dominated by exclusive relationships between vehicle

manufacturers and engine manufacturers, specifically: General Motors historically supplied their

own diesel engines in the light-heavy pick-up trucks offered by GC and Chevrolet (such a

relationship continues today between General Motors and Isuzu); Ford exclusively offers

Navistar/International diesel engines in their light-heavy pick-up truck and van models, and

DaimlerChrysler subsidiary Dodge exclusively uses Cummins supplied diesel engines in their

light-heavy pick-up trucks. However, in the medium-heavy and heavy-heavy vehicle market,

there is a wide range of engines available to choose from for the same vehicle, for example, a

end-user can purchase a Western Star vehicle with either a Caterpillar, Cummins, or a Detroit

Diesel engine in it. In this sense, it has been common practice in the medium-heavy and heavyheavy marketplace to treat the engine almost as a commodity.
Chapter 1: Introduction

Page -6-

 Table 1-2

1999 U.S./Canada Diesel Engine Market Share1

Engine Manufacturer

Vehicle

Make

Caterpillar Cummins Detroit

 Diesel

GM Mack Mercedes

Benz

Navistar Volvo Total

Chevrolet 18.9 81.1 100

Dodge 100 100

Ford 100 100

Freightliner 27.3 41.9 30.3 0.4 100

GC 52.2 47.8 100

Kenworth 57.9 28 14.1 100

Mack 0.1 0.1 99.8 100

Navistar 7 18.2 8.4 66.4 100

Peterbuilt 68.5 19.6 11.9 100

Sterling 70.4 21.7 7.8 100

Volvo 0.1 51.3 32.1 16.4 100

Western

Star

59 21.9 18.1 99

Other 18.3 64.2 12.8 4.8 100

12-

Mos.1999

17.4 20.4 9.3 6.8 4.8 0.1 40.4 0.7 100

Table 1-3 contains an estimate of the factory sales of diesel engines into the heavy duty

market for the major truck manufacturers in the U.S. as well as Canada. This table indicates that,

for the light heavy market, Ford dominates the sales of diesel-powered vehicles with nearly 70

percent, while General Motors and DaimlerChrysler each roughly split the remaining 30 percent

between them. In the medium-heavy duty truck market, International (formerly Navistar)

controls nearly 40 percent of the market, followed by DaimlerChrysler with 26 percent (mostly

from the Freightliner subsidiary), GM and Ford with roughly 17 percent each, and Paccar’s two

units Kenworth and Peterbuilt each with under 1 percent. The heavy-heavy duty truck market

contains a wider diversity of truck manufacturers. In the heavy-heavy duty market

DaimlerChrysler has the largest share with approximately 38 percent (Western Star is now a

subsidiary of DaimlerChrysler), of which nearly 30 percent comes from Freightliner. The next

largest heavy-heavy duty truck manufacturer is Paccar with 21 percent of the market, which is

divided approximately equally between it’s two subsidiaries Kenworth and Peterbuilt. The rest

of the heavy duty truck market is divided between International, Mack and Volvo, which have

approximately 17, 13, and 12 percent of the market respectively. Table 1-3 illustrates that in a

similar manner to the HD engine market, the HD truck market is a competitive marketplace with

a number of players, particularly in the medium-heavy duty and heavy-heavy duty categories.
Chapter 1: Introduction

Page -7-

Table 1-3

1999 U.S./Canada Factory Sales of Diesel Trucks2

Manufacturer

 Light-Duty Medium-Duty Heavy Duty

 Units % Total Units % Total Units % Total

 Total DaimlerChrysler 43,643 14.5 26.4 107,592 35.5

 Dodge 42,832 14.2 - - - 

 Freightliner 811 0.3 44,548 23.2 88,338 29.1

 Sterling - - 6,214 3.2 19,254 6.4

 Ford 208,314 69.2 16.7 - - 

 Total General Motors 48,923 16.3 17.6 - - 

 Chevrolet 32,817 10.9 9,955 5.2 - - 

 GMC 16,106 5.4 23,911 12.5 - - 

 Mack - - 38,528 12.7

 Navistar/International - - 37.8 50,151 16.5

 Total Paccar - - 2,745 1.4 63,746 

 Kenworth - - 1,298 0.7 32,320 10.7

 Peterbuilt - - 1,447 0.8 31,426 10.4

 Volvo - - - - 34,751 11.5

 Western Star - - - - 7,207 2.4

 Other - - - - 1,175 0.4

 1999 Totals 300,880 100 100 303,150 100

IV. Heavy Duty Diesel Consent Decrees

On October 22, 1998, the Department of Justice and the Environmental Protection

Agency announced settlements with seven major manufacturers of diesel engines. The

settlements resolved claims that they installed illegal computer software on heavy duty diesel

engines that turned off the engine emission control system during highway driving. The

settlements were entered by the Court on July 1, 1999.

These Consent Decrees are relevant with respect to this rulemaking because of their

impact on the heavy-heavy duty diesel engines sold in the U.S. today. The Consent Decrees

allow currently certified heavy-heavy service class diesel engines to continue to use emission

control strategies which result in very high NOx emissions when the engines operate in the real

world. Even though these engines pass the current FTP emission standard of 4.0 g/bhp-hr NOx

when operated over the FTP duty-cycle in the laboratory, when operated in-use these engines can

have NOx emission levels as high as 6 or even 7 g/bhp-hr NOx. The heavy-heavy market place

is dominated by Consent Decree companies, such that the vast majority (>95%) of model year

2000 heavy-heavy engines produced for the U.S. market were manufactured by Consent Decree

companies. As specified in the Consent Decrees, these heavy-heavy service class engines must
Chapter 1: Introduction

Page -8-

currently comply with the 4.0 g/bhp-hr NOx standard when tested over the FTP, and in addition

they also must meet an emission limit of 6.0 g/bhp-hr NOx when tested over the Euro-3 steadystate test cycle, and an emission limit of 7.0 g/bhp-hr NOx when tested for compliance with the

not-to-exceed test limits.3

 The docket for this rulemaking contains a memorandum summarizing

engine certification data for model year 2001 heavy duty diesel engine families which includes

test data from both the FTP and the Euro-3 test procedures.4 The “baseline” engine which these

companies will need to modify in order to comply with the 2004 FTP standard and the defeat

device prohibition is therefore represented by engines with NOx emission performance well

above the FTP emission standard.
Chapter 1: Introduction

Page -9-

1. 2000 Wards Automotive Yearbook, page 59.

2. 2000 Wards Automotive Yearbook, page 59.

3. A copy of the Consent Decree between the United States and Volvo has been placed in the

docket for this rulemaking, EPA Air Docket A-2001-30.. Though there are differences between

the various Consent Decrees, with respect to the heavy-heavy service class emission limits and

test procedures the various Consent Decrees contain the same requirements. 

4. EPA Technical Memorandum “Summary of Model Year 2001 Heavy Duty Diesel Engine

Certification Data”, copy available in EPA Air Docket A-2001-25.

References for Chapter 1
Chapter 2: Technologies Needed To Meet 2004 Standards

Page -10-

CHAPTER 2: TECHNOLOGIES NEEDED TO MEET

2004 STANDARDS

I. Projections of Technologies from 2000 FRM

In the 2000 FRM which affirmed the technical feasibility of the new HDDE 2004

NMHC+NOx emission standards (64 FR 58472, October 29, 1999), EPA presented a detailed

discussion of the technologies we believed would enable a HDDE manufacturer to achieve the

2.5 g/bhp-hr NMHC+NOx standard. The following discussion will briefly summarize the

technological feasibility discussion contained in the 2000 FRM, and the reader is refereed to the

Regulatory Impact Analysis document of the previous rulemaking for a detailed discussion.1

A. Cooled Exhaust Gas Recirculation

EPA projected that cooled exhaust gas recirculation (cooled EGR) would be the principal

technology used to reduce NOx emissions from the 1998 HDDE standard of 4.0 g/bhp-hr to the

combined 2004 NMHC+NOx standard of 2.4 g/bhp-hr. Non-methane hydrocarbon emissions

from modern on-highway HDDEs is relatively small, generally less than 0.5 g/bhp-hr, and it is

expected that approximately a 50 percent reduction in NOx emissions will be necessary to

achieve the 2004 NMHC+NOx standard. Cooled EGR lowers NOx emissions principally by

replacing a portion of the fresh intake air oxygen with exhaust by-products and other inert gases,

such as CO2, water vapor, and N2. These inert gases dilute the in-cylinder mixture and reduce the

peak cylinder temperatures during the combustion process and thus reduce NOx formation. 

Thus, a cooled EGR system must be capable of routing exhaust gas from the exhaust system to

the intake system, as well as cooling the exhaust during that process.

The cooled EGR technology projected by EPA to be used be engine manufacturers

consists of several major hardware components, including an EGR cooler, EGR piping, and an

electronically controlled EGR valve, as well as appropriate sensors to estimate the rate of EGR

gas flow, such as a delta-pressure sensor.

One of the difficulties with using EGR in a turbocharged diesel engine is that for a large

portion of the engines operating map (as represented by a full-load torque map), the intake

manifold pressure is greater than the exhaust pressure, and therefore no EGR will flow into the

intake manifold without some additional mechanism to change the pressure differential. In the

RIA for the 2000 FRM we discussed several methods to overcome this pressure differential. 

However, for the Agency’s cost estimate in the 2000 FRM we assumed manufacturers would use

a new turbocharger technology, variable geometry turbocharger (VGT), to assist in delivering

and controlling EGR. A VGT, unlike the conventional fixed geometry turbochargers, provides
Chapter 2: Technologies Needed To Meet 2004 Standards

Page -11-

some level of control over either the turbine vanes or the turbine exit geometry which provides a

means to create additional back pressure in the exhaust system to drive EGR.

B. Improved Fuel Injection Systems

The Agency also predicted in the RIA of the 2000 FRM that manufacturers would use

next-generation fuel injection technology in order to achieve the new 2004 NMHC+NOx

standard. Relatively recent improvement in fuel injection systems for HDDEs, such as the

common-rail system or advanced electronically controlled unit injectors, provide engineers with

the ability to perform pilot injection, ramped injections, and post injections (in some cases

multiple pilot and/or post injections). They can also provide engineers with complete control in

some cases over injection pressure and duration. These systems provide important flexibilities

for design engineers, including the ability for improved NOx and PM emissions performance.

C. Exhaust Aftertreatment Systems

The RIA for the 2000 FRM discussed several types of aftertreatment technologies which

could be used with today’s on-highway fuel sulfur levels, including diesel oxidation catalysts and

lean NOx catalysts. In both cases, EPA did not predict that these technologies would be the

prime technologies which would enable manufacturers to achieve the new 2004 NMHC+NOx

standards, however, both technologies could provide modest emission reductions which could be

combined with other technologies to achieve the necessary emission reductions.

Diesel oxidation catalysts (DOCs) are capable of oxidizing the soluble organic fraction

(SOF) of diesel particulate matter as well as the hydrocarbons present in diesel exhaust. The

SOF fraction of PM varies from engine to engine, but is typically on the order of 10 to 30 percent

of the total particulate matter, which a DOC can essentially eliminate. As mentioned previously,

NMHC from modern diesels is typically less than 0.5 g/bhp-hr, and a well functioning DOC can

eliminate a significant portion of these hydrocarbons.

Lean NOx catalysts continue to offer limited NOx reduction capability when considered

across the entire temperature operating range encountered by HD diesel engines, while peak

reduction capabilities may approach 60 percent under limited operating range, overall reductions

on the U.S. HD FTP continue to be modest, between 10 and 30 percent. 

II. Current Manufacturer Projections

Engine manufacturers generally agree with us that cooled EGR is one of the principal

technologies capable of achieving the 2004 emission standards. In the past several months, a

number of engine manufacturers have announced they are pursuing cooled EGR technology as

their principle means of complying with the 2004 standards.2 In addition, at least one engine
Chapter 2: Technologies Needed To Meet 2004 Standards

Page -12-

manufacturer has announced they are pursuing an alternative technology for complying with the

2004 HDDE standards which does not include the use of cooled EGR.3

III. Fuel Consumption Impacts

As is described in the next chapter, changes in fuel consumption are projected to be a

significant component of the cost of compliance, in particular for medium-heavy and heavyheavy duty diesel engines. We believe there are a number of reasons why some manufacturers

are projecting a fuel consumption increase for their 2004 model year engines as compared to

today’s engines, as discussed below.

In the 2000 final rule RIA which affirmed the appropriateness of the 2004 standards, we

discussed a number of technologies which manufacturers could use to meet the new

NMHC+NOx standard. In that RIA, we discussed cooled EGR, improved fuel injection systems,

advanced turbochargers, and next generation electronic controls. Of these technologies, EGR in

particular has the potential to increase fuel consumption, if it is incorporated in isolation as an

add-on component, and is not integrated successfully into a well designed system with the

additional technologies. For on-highway HDDEs, a positive pressure differential exists between

the exhaust manifold and the intake manifold over a large part of the engine map, which means

that exhaust gases must be forced from the exhaust manifold to the intake manifold. This

requires energy which can negatively impact efficiencies. However, we also discussed changes

which can improve fuel efficiency, such as using better fuel systems which have a more favorable

NOx-fuel economy trade-off, and the use of variable geometry turbochargers, which have the

potential to provide efficiency gains in the air-handling system of the engine. For current

engines, which do not incorporate these advanced NOx controls, manufacturers have relied

heavily on timing retard to meet the applicable FTP emission standards. These current engines

relying on injection timing for NOx control are now near the limits of the NOx reduction

potential which can be achieved without excessive fuel economy penalties or adverse impacts on

PM and durability.

The incorporation of all of these technologies (i.e., EGR, improved fuel systems, VGT,

improved ECMs) into a HDDE is not a simple task, and it requires significant research and

development. In general, we expect manufacturers to design their engines by first installing the

hardware needed to achieve the new emission standards, and then to change EGR rates, VGT

vane position, and/or fuel injection parameters (injection timing, injection rate, post/pre injection

events) to optimize fuel consumption rates while maintaining NOx, HC, and PM control. This

was discussed in both the 1997 final rule which established the 2004 standards, as well as the

2000 final rule which affirmed the new standards. During those rules, we estimated there would

be no net long-term change in the fuel consumption performance of HDDEs, but there was a

potential for higher fuel consumption rates in the short term. To the extent a manufacturer is

unable to optimize its control system to meet the emission standards with the addition of the new

hardware (e.g., EGR, fuel system improvements, and turbocharger improvements), they may be
Chapter 2: Technologies Needed To Meet 2004 Standards

Page -13-

forced to rely more on fuel injection timing retard in the short term as their initial means of

meeting the emission standards.

 Based on the most recent information from engine manufacturers, including both public

company announcements as well as the data presented in the next chapter, we see a wide range of

estimated fuel economy impacts from companies. In the light-heavy market, we see some

companies are predicting an improvement in fuel efficiency as compared to the current

technology engines. In the medium-heavy and heavy-heavy markets, we see that while some

companies are predicting no change in fuel economy for the 2004 model year, others are

predicting decreased fuel efficiency, in some cases up to 5 percent. In large part, this range

reflects the differing degrees to which manufacturers have invested in the research and

development needed to optimize fuel consumption for their various products. We believe that a

fully optimized EGR engine (or other advanced engines) will rely less on timing retard and will

not experience any net fuel consumption increase compared to 4.0 g/bhp-hr NOx engines.

It is important to note that our analysis of fuel consumption impacts for heavy-heavy duty

engines is affected by our setting the Upper Limit at 6.0 g/bhp-hr NMHC+NOx (which is

discussed in more detail in the next chapter and in the preamble for this rulemaking). This 6.0

g/bhp-hr level is significantly greater than the current FTP NOx standard of 4.0g/bhp-hr, but it is

representative of how current heavy-heavy duty engines operate in the field. This difference is

largely due to how the engines are calibrated with respect to injection timing. There is also a

corresponding difference in fuel consumption rates, with fuel consumption tending to be lower

with 6.0 g/bhp-hr NMHC+NOx emissions. In the 1997 and 2000 rulemakings which established

and affirmed the 2004 standard, we did not analyze the fuel economy impacts of reducing

emissions from 6.0 g/bhp-hr NMHC+NOx to the 2004 standards. Thus we did not analyze in

these previous rules the short-term or long-term fuel economy impacts for which manufactures

are now providing us estimates. However, even for these heavy-heavy engines, at least one

manufacturer has indicated that any increase in fuel consumption would be short-term in nature.4
Chapter 2: Technologies Needed To Meet 2004 Standards

Page -14-

1. “Regulatory Impact Analysis Document: Control of Emissions of Air Pollution from Highway

Heavy-duty Engines”, Chapter 3, EPA Publication # EPA-420-R-00-010, July 2000. Copy

available in the Docket for this rule, EPA Air Docket A-2001-25.

2. “Documentation of Industry Press Releases Regarding Compliance with highway HD 2004

Standards in 2002", EPA Memorandum from William Charmley. Copy available in the docket

for this rule, EPA Air Docket A-2001-25.

3. “Introducing Clean Power by Caterpillar”, Caterpillar brochure. Copy available in the docket

for this rule, EPA Air Docket A-2001-25.

4. “Documentation of Industry Press Releases Regarding Compliance with highway HD 2004

Standards in 2002", EPA Memorandum from William Charmley. See specifically press release

from Detroit Diesel Corporation. Copy available in the docket for this rule, EPA Air Docket A2001-25.

References for Chapter 2
Chapter 3: Compliance Costs

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CHAPTER 3: COMPLIANCE COSTS

This chapter describes our analysis of the costs of compliance. The analysis is based on

our projections of actual measurable costs to manufacturers and operating costs for vehicle

owners. It generally does not include analysis of engine pricing or vehicle purchaser perceptions

that could affect purchase decisions.

I. Methodology

A. General Methodology

This chapter describes our analysis and projection of the costs of compliance for model

year 2004, which are the primary inputs for determining NCPs. This analysis differs from the

analyses for the model year 2004 standard-setting rulemakings in three basic ways:

(1) The goal of this analysis is to estimate manufacturer and operator costs during the

first year of the new standards rather than to project the long-term societal costs.

(2) The baselines for calculation of compliance costs differ significantly.

(3) We now have more detailed information about costs identified in the earlier

analysis, as well as cost categories not previously included. 

The model year 2004 standard-setting analyses were based on a uniform emission control

strategy for designing the different categories of engines to meet the standards. More

specifically, we estimated the cost of developing an EGR system for a typical engine within a

service class, and applied that per engine cost to all engines within the service class. However,

for this NCP rulemaking, we considered the compliance costs on an engine model-by-engine

model basis (or as close to that as possible based on the available data). We requested this

information from several of the engine manufacturers for each engine model that they plan to

produce for model year 2004. These data are described in Section II. We used these

manufacturer estimates, along with other available information to estimate the average and 90th

percentile compliance costs. In addition, it is necessary for this NCP analysis to focus solely on

the compliance costs associated with the first year of production, while standard-setting analyses

require a longer term view. This is most significant with respect to the costs associated with

hardware, reliability (warranty, repairs, and associated costs), and fuel consumption. 

Manufacturers often make significant progress in reducing these costs with additional time. For

example, in the recent final rule in which we affirmed the appropriateness of the 2004

NMHC+NOx standard, we suggested that in the short-term, average fuel consumption could

increase by up to 1.0 percent, but in the long-term fuel consumption would remain either

unchanged, or potentially decrease by up to 1.5 percent. However, we did not include the shortterm fuel cost in the analysis. Similarly, the 2000 FRM analysis did not include an analysis of
Chapter 3: Compliance Costs

Page -16-

short-term warranty or repair costs. The only category in which we separately estimated shortterm and long-term costs in the FRM was hardware cost category.

There is another important reason why the analysis for this specific NCP rulemaking is

different from the analysis performed for the standards-setting rules. As is discussed later in this

document, the engine designs currently produced and marketed under the Consent Decrees lead

us to choose an Upper Limit value of 6.0 g/bhp-hr NMHC+NOx for the heavy-heavy duty service

class, which fundamentally changes the cost analysis. The rationale for the heavy-heavy service

class 6.0 g/bhp-hr NMHC+NOx upper limit is discussed in detail in Section III(C) of the

Preamble. The penalty rate factors are based on the compliance costs associated with lowering

the emissions from Upper Limit to the standard. So for heavy-heavy duty engines, the NCPs are

based on the compliance costs associated with lowering the emissions from 6.0 g/bhp-hr

NMHC+NOx to the 2004 standard of 2.5g/bhp-hr NMHC+NOx. This analysis was not

performed in the standards-setting rules, and therefore the costs estimates in the standard-setting

rule and this NCP rule are not comparable. For the standard-setting rules, we estimated the

compliance costs associated with bringing an engine which meets the current NOx standard of

4.0 g/bhp-hr into compliance with the 2.5g/bhp-hr NMHC+NOx. This difference in baseline (6.0

vs. 4.0), has a significant impact on every cost category we have considered in this rulemaking,

including the fixed, hardware, operating (including fuel consumption), and vehicle manufacturer

costs. 

Even for the other service classes, where we have established an Upper Limit based

directly on the 4.0 g/bhp-hr NOx standard, the impact on engine designs of the alleged defeat

device strategies used by a number of engine manufacturers over the past decade makes

comparison between the standard-setting rule cost analysis and this analysis difficult. If such

strategies had never been used, as was assumed in the standard-setting analyses, manufacturers

would have optimized their current engines differently than their current products. Thus the two

approaches for estimating compliance costs rely on different "baselines". A number of the

manufacturers who submitted cost information on light-heavy and medium-heavy products are

also companies who signed consent decrees with the government. The model year 2001

light-heavy and medium-heavy engines from Consent Decree companies must meet off-cycle

emission performance which is equal to or comparable to the 4.0 g/bhp-hr NOx standard. 

However, in the past a number of these products were equipped with engine strategies whose use

resulted in high NOx emission performance relative to the applicable emission standard. 

Manufacturers are continuing to spend research, development, and hardware money in order to

address durability and other performance issues as a result of designing engines to meet the 2004

standards. It is likely that, in some cases, the issues that manufacturers are spending resources to

address issues that are partially a result of the fact they can no longer use the problematic control

strategies which were used in the past. For example, the combustion chambers in today's lightand medium-heavy duty engines have not been optimized as well as they would have been had

manufacturers not used the problematic control strategies. This nonoptimization affects fixed

costs, as well as fuel consumption and repair costs.
Chapter 3: Compliance Costs

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Finally, for this NCP rulemaking, we have received new information since the

standard-setting FRMs. This included more detailed estimates of actual manufacturer costs, plus

data on a few additional cost items which were not part of the standards-setting rulemaking

analysis. Manufacturers are now able to provide more detailed cost information than they did

during the earlier rulemakings because they are farther along the development path for

compliance. They also now have a clearer understanding of the potential for additional costs. 

Specifically, we have included new cost items for vehicle manufacturer costs, post-warranty

repairs, and revenue impacts. We did not have this information during the standard-setting rule. 

We have not evaluated whether post-warranty repairs and revenue impact costs would be

significant over the longer term. However, we believe that these costs will occur during the first

model year, and that it is appropriate to include them in this analysis. Based on submissions

from manufacturers, it is clear that repair rates will decrease significantly within the first few

years of production.

It is also important to point out that, in addition to the analytical differences described

above, the resulting costs also differ because of the use of different baseline dollars. The

rulemaking costs were estimated in terms of 1995 and 1999 dollars, while the costs in this

analysis are expressed in terms of 2001 dollars. This is discussed in more detail in the following

section.

B. Net Present Value of Costs

All costs are presented in 2001 dollars. Because the NCP is paid by the manufacturer in

the model year that the engine is produced, we need to account for cost differences at the point of

sale. All costs were converted to net present value (NPV) for calendar year 2004. Appendix B

contains sample calculations showing how we dealt with the time value of money. Costs that

occur prior to production (e.g., research and development) are adjusted upward by 7.0 percent per

year. Costs that occur after production (e.g., fuel costs) are discounted by 7.0 percent per year. 

It is also important to remember that since all costs are presented in terms of constant 2001

dollars, the discount rate does not include an adjustment with respect to the rate of inflation. 

Costs expressed in terms of 2000 or earlier dollars were adjusted upwards based on the

Consumer Price Index (CPI) to be equivalent to 2001 dollars.1 For example, the difference

between a 1999 dollar and a 2001 dollar would be about six percent. We recognize that concerns

have been raised about using the CPI to adjust costs for inflation. However, we are not aware of

a better method for adjusting general costs for inflation. Also, given the relatively small number

of years involved in the adjustments (generally three years or less), we believe that any errors

introduced into the analysis by using the CPI would not be significant. 
Chapter 3: Compliance Costs

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C. Costs Included

This section describes the cost categories that we included in our analysis. These costs

include engine manufacturing costs, vehicle manufacturing costs, and operating costs. Engine

manufacturer costs of control include variable costs (for incremental hardware, assembly, and

associated markups), fixed costs (for tooling, R&D, etc.), and warranty costs. Vehicle

manufacturers are also expected to incur some variable hardware costs, and may include some

fixed costs. Owner costs include fuel costs, maintenance and repair costs, and costs associated

with any time that the vehicle is down for repair.

We typically markup the variable hardware costs (or material costs) to the engine

manufacturer at a rate of about 30 percent in our analyses. We do this to account for the engine

manufacturer's overhead and profit that are associated with producing the new hardware. For this

analysis, we asked engines manufacturers to include their markups in their estimates. Based on

input from engine manufacturers, we believe that in some cases, vehicle manufacturers will need

to make modifications to their vehicle designs to accommodate the new engines. Such changes

could include larger cooling systems, or even larger engine compartments. We included these

costs separately where applicable. We do not include any general vehicle manufacturer markup

of engine manufacturer costs. We only included actual identifiable costs for the vehicle

manufacturers, such as increased radiator size. It is appropriate to include a vehicle manufacturer

markup for these costs, since these items are actually produced by the vehicle manufacturer to a

large extent.

Fixed costs for R&D are incurred by the manufacturer several years before the standards

take effect. Tooling costs are generally incurred at least one year ahead of initial production. 

Both kinds of fixed costs need to be increased for every year before the start of production to

reflect the time value of the money invested in these expenditures. We used a seven percent

annual rate for these adjustments, so costs incurred in years before 2004 are multiplied by 1.07n

(i.e., 1.07 raised to the nth power). For example, fixed costs incurred in 2002 are converted to be

equivalent to costs incurred in 2004 by multiplying them by 1.072. The fixed cost estimates

reported by the manufacturers should account for this by specifying the costs in terms of NPV for

calendar year 2004. In general, we amortized this total pre-production cost at seven percent

interest over a five-year period during which the manufacturer would be able to recoup the fixed

costs. We did not include certification costs because manufacturers would incur these costs

whether or not they used NCPs. Appendix B shows a sample calculation of how we accounted

for the time value of fixed costs.

Manufacturers would generally be expected to incur additional warranty costs due to the

addition of new components. For this analysis, the relevant costs would be the total warranty

cost to the engine manufacturer for the new emission control hardware related to the first model

year of production. Typically, this would cover the costs of repairs that are needed within the

first two calendar years of vehicle life (the typical warranty period for heavy duty engines). 
Chapter 3: Compliance Costs

Page -19-

These new systems can incur other additional maintenance costs that are projected to be incurred

at regular mileage intervals throughout the vehicle life, or at rebuild. There can also be

additional unscheduled repairs to the new hardware. Considered from the point of purchase (i.e.,

2004), these repair and maintenance costs are future costs and thus are discounted in this

analysis. For both warranty repairs and post-warranty repairs, there are also real costs incurred

by the vehicle owners for demurrage (i.e., the time during which the vehicle is out of service). 

Manufacturers have indicated that they expect some of the new compliant engines to have

different fuel consumption rates than the noncompliant engines. We projected the changes in

lifetime brake-specific fuel consumption that will occur for vehicles produced in the first model

year of production.

Both the maintenance and fuel costs are dependent on the number of miles projected to be

driven by the vehicles. For this analysis, we used the same projected mileage accumulation rates

that we have used in previous rulemakings. These projections are shown in Appendix A, along

with projection of vehicle survival fractions that are based on projected scrappage rates. These

projections are described in a 2001 EPA Technical Report.2

 We use the survival fractions to

weight the mileage rates to estimate the number of miles driven by typical vehicles within each

service class. These estimates do not distinguish between miles driven before rebuild and miles

driven after rebuild. These newer mileage estimates are slightly different from the estimates used

in the 2004 FRM.

 

D. Upper Limit Engine

The upper limit is an important aspect of the NCP regulations not only because it

establishes an emission level above which no engine can be certified, but it is also a critical

component of the cost analysis used to develop the NCP factors. The regulations specify that the

relevant NCP costs for determining the COC50 and the COC90 factors are the difference between

an engine at the upper limit and one that meets the new standards (see 40 CFR 86.1113-87). A

full discussion of the rationale for the Upper Limit for each service class is contained in the

Preamble.

Upper Limit for Heavy-Heavy Duty

As described in the Preamble for this rule, an NMHC+NOx value of 6.0 g/bhp-hr is the

appropriate upper limit for heavy-heavy duty engines. 

Upper Limit for Light-Heavy Duty, Medium-Heavy Duty, and Urban Buses

As described in the Preamble for this rule, an NMHC+NOx value of 4.5 g/bhp-hr is the

appropriate upper limit for light-heavy duty, medium-heavy duty, and urban buses. 
Chapter 3: Compliance Costs

Page -20-

E. Use of Optional Standard

The 2004 standard has two forms. The first form is 2.4 g/bhp-hr NOx+NMHC for

combined emissions, with no constraint specific to either NOx or NMHC. The second form is an

optional 2.5 g/bhp-hr NOx+NMHC for engine families that meet a 0.5 g/bhp-hr NMHC cap. As

described above, we expect that all manufacturers will meet 0.5 g/bhp-hr NMHC cap, whether

they use NCPs or not. It is also our understanding that all of the compliance costs that we

received were for compliance with the second form. Thus, we have based our analysis on the

second form of the standard. 

We are applying the same NCP parameters (for UL, COC50, COC90, MC50, and F) for all

engines, without regard to form of the standard to which the manufacturer certifies. The effect of

this would be that the X value for engines certified to the first form (without the NMHC

constraint) would be 0.1 g/bhp-hr lower than the values listed in Chapter 4. This would have the

effect of raising the penalty level slightly for any given NOx+NMHC compliance level.

II. Manufacturer Cost Data

Prior to the NPRM, we requested from several of the engine manufacturers detailed cost

estimates for each compliant engine model that they plan to produce for model year 2004. We

requested that all costs be presented in 2001 dollars and adjusted to their net present value for the

year 2004. We also requested that manufacturers include only emission-related costs. The

companies that we contacted are listed in a memorandum to the docket for this rulemaking.3

That memorandum also includes more details about our request. Table 3-1 shows the sample

data table that we sent to the manufacturers.
Chapter 3: Compliance Costs

Page -21-

Table 3-1

Example of Cost Data provided for One Engine Configuration

Item Baseline Engine 2004 Engine

Family Name or Identifier

Engine Configuration Description

Technology Description

Value of Fixed Costs -NPV 2004

 - research & development

 - tooling

 - others

N/A

2004 Hardware Cost-NPV 2004 N/A

2004 Warranty Cost - NPV 2004

Maintenance/Operating Cost - NPV 2004 N/A

Brake-Specific Fuel Consumption (lb/bhp-hr)

U.S. Sales

Vehicle packaging costs N/A

Prior to the proposal, we received responses from most of the manufacturers that we

contacted, representing the majority of the current U.S. heavy duty diesel engine market. 

However, all of the data that we received were identified as confidential business information

(CBI). Therefore, we are not including details of the submissions in this document. Instead we

are presenting only the summary shown in Tables 3-2 through 3-4. This summary format was

approved by all of the manufacturers that provided CBI data for this rulemaking. However, one

manufacturer requested that their estimates of operating costs not be included in these summary

tables, therefore those numbers do not appear in the tables.

Some of the manufacturers that submitted cost information prior to the proposal

submitted revised estimates during the comment period for this rulemaking. The summary tables

below show these more recent data. Some of the other manufacturers reaffirmed their earlier

submissions in their public comments. We contacted those manufacturers who did not revise or

reaffirm their cost estimates during the comment period, and confirmed with them that their

earlier submissions remained valid. During our contacts with manufacturers, we clarified their

methods for projecting the NPV of their fixed costs. We also requested documents showing

internal cost projections (e.g., briefing documents for senior management) from each heavyheavy duty engine manufacturer that provided cost data.4

 However, not all of the manufacturers
Chapter 3: Compliance Costs

Page -22-

provided such documents. Nevertheless, the internal documents that we did receive were

consistent with the cost projections that manufacturers provided to us as part of this rulemaking.

With the exception of fixed costs, the manufacturer data presented in these tables were

provided to EPA on a consistent basis for model year 2004. However, in some cases, our followup conversation indicated that the fixed costs needed to be adjusted and amortized to fit the

format described above and in Appendix B. Total fixed costs for each manufacturer were

divided by the manufacturers' actual reported sales for model year 2000 to determine per engine

fixed costs. The fixed cost estimates in Tables 3-2 through 3-4 are shown using the same NPV

methodology. These data are rank-ordered from the highest value to the lowest value from right

to left independently for each cost category (e.g., heavy-heavy fixed costs). Thus, a column of

data does not represent any specific engine manufacturer's estimates. We have done this in order

to maintain the confidential nature of the cost data manufacturers submitted to EPA. It is also

important to note that though we requested data from manufacturers on all heavy duty service

classes, we received no data specific to urban buses.

Table 3-2

Engine Manufacturer Cost Submissions for Light-Heavy Service Class

Cost Category Manufacturer Data - per Engine Costs

Amortized Fixed Costs ($/engine) unknown at this time $397 $536

Hardware Costs, includes 

 engine manufacture markup $530 $793 $1,512

 Warranty 

 

no change or better than

 today's product 

 unknown at this time

 $115 

 

Operating Costs 

(excluding fuel economy impacts)

 unknown at this time 

 

 unknown at this time 

 

 estimate not releasable* 

 

Fuel Consumption Impact unknown at this time 2 % improvement 2 % improvement

Vehicle Manufacturing Cost 

($/engine) includes vehicle 

 manufacture markup 

 $0 unknown at this time $130

 * Detailed inputs provided on change in oil change intervals, demurrage (i.e., down time), and repairs outside the

warranty period, but manufacturer did not allow cost estimate to be placed in the public record.
Chapter 3: Compliance Costs

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Table 3-3

Engine Manufacturer Cost Submissions for Medium-Heavy Service Class

Cost Category Manufacturer Data - per Engine Costs

Amortized Fixed Costs ($/engine) 

 

no estimate

provided $291 $495 $856 $988

Hardware Costs, includes engine 

manufacturer markup $223 $433 $750 $793 $1,500

Warranty

unknown at this

time $0 $0 $10 $765

Operating Costs

(excluding fuel economy impacts) $0

unknown at this

time

unknown at this

time $1,672

estimate not

releasable*

Lost Revenue due to increased 

engine weight

no estimate

provided

no estimate

provided

no estimate

provided

no estimate

provided $196

Fuel Consumption Impact no change

unknown at this

time 3% worse 4% worse 5% worse

Vehicle Manufacturing Cost

($/engine) includes vehicle

manufacture markup $0

unknown at this

time

unknown at this

time $100 $155

 * Detailed inputs provided on change in oil change intervals, demurrage (i.e., down time), repairs outside the warranty

period, and revenue impacts from increased engine weight, but manufacturer did not allow cost estimate to be placed in the

public record.
Chapter 3: Compliance Costs

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Table 3-4

Engine Manufacturer Cost Submissions for Heavy-Heavy Service Class

Cost Category Manufacturer Data - per Engine Costs

Amortized Fixed Costs ($/engine) $395 $404 $506 $940 $1,982

Hardware Costs, 

includes engine 

 manufacture markup $1,100 $1,298 $1,559 $2,520 $2,899

Warranty $0 $23 $188 $840 $1,680

Operating Costs: (excluding fuel

economy impacts) $0 $0

unknown at

this time $429

estimate not

releasable*

Lost Revenue due to increased

engine weight no estimate provided

no estimate

provided

no estimate

provided

no estimate

provided $871

Fuel Consumption Impact 

 0 to 1 percent better 2 percent worse

3 percent

worse

3 to 5 percent

worse

3 to 5 percent

worse

Vehicle Manufacturing Cost 

($/engine), includes vehicle

manufacture markup $150 $195 $250 to $350 $408 $500

 * Detailed inputs provided on change in oil change intervals, demurrage (i.e., down time), repairs outside the warranty period, and

revenue impacts from increased engine weight, but manufacturer did not allow cost estimate to be placed in the public record.

 
Chapter 3: Compliance Costs

Page -25-

III. Analysis of Costs

Our estimated average compliance costs (COC50) and 90th percentile costs (COC90) are

shown in Tables 3-5 through 3-7. These estimates are based on the data provided by

manufacturers, independent cost analyses, and the Agency's technical judgement. The derivation

of these estimates is described in detail below. The estimated 90th percentile cost is conceptually

equivalent to high-mileage vehicles from a high-cost manufacturer, although not necessarily the

highest cost manufacturer. This concept is described in detail in the COC90 section below. 

Derivation of these parameters for urban buses is described separately at the end of this section.

Table 3-5

Light-Heavy COC50 and COC90 Estimates

(Net Present Value to 2004 in 2001 Dollars)

COC50 COC90

Per Engine Fixed Cost $500 $700

Hardware Cost $810 $1,500

Warranty Cost $30 $120

Operating Costs: 

Scheduled Maintenance 

$0 $0

Operating Costs: 

Post-Warranty Repairs 

$30 $190

Operating Costs: 

Demurrage 

$20 $70

Fuel Cost ($) @ $1.34 / gal(a) ($280 savings) $0

Operating Costs: 

Revenue Impact 

$0 $0

Vehicle Manufacturing Costs $130 $130

Total $1,240 $2,710

(a) As discussed in Section III(A) of this Chapter under the heading “Fuel Costs”, fuel costs were estimated using a

price of $1.29/gallon for 2004 and 2005, and $1.34/gallon for 2006 and beyond.
Chapter 3: Compliance Costs

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Table 3-6

Medium-Heavy COC50 and COC90 Estimates

(Net Present Value to 2004 in 2001 Dollars)

COC50 COC90

Per Engine Fixed Cost $540 $700

Hardware Cost $810 $1,200

Warranty Cost $160 $360

Operating Costs: 

Scheduled Maintenance 

$90 $150

Operating Costs 

Post-Warranty Repairs 

$170 $510

Operating Costs: 

Demurrage 

$100 $250

Fuel Cost ($) @ $1.34 / gal(a) $780 $1,560

Operating Costs: 

Revenue Impact 

$20 $50

Vehicle Manufacturing Costs $70 $150

Total $2,740 $4,930

(a) As discussed in Section III(A) of this Chapter under the heading “Fuel Costs”, fuel costs were estimated using a

price of $1.29/gallon for 2004 and 2005, and $1.34/gallon for 2006 and beyond.
Chapter 3: Compliance Costs

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Table 3-7

Heavy-Heavy COC50 and COC90 Estimates

(Net Present Value to 2004 in 2001 Dollars)

COC50 COC90

Per Engine Fixed Cost $610 $900

Hardware Cost $1,890 $2,340

Warranty Cost $380 $700

Operating Costs: 

Scheduled Maintenance 

$460 $800

Operating Costs: 

Post-Warranty Repairs 

$370 $940

Operating Costs: 

Demurrage 

$220 $470

Fuel Cost ($) @ $1.34 / gal(a) $2,500 $5,930

Operating Costs: 

Revenue Impact 

$80 $170

Vehicle Manufacturing Costs $300 $500

Total $6,810 $12,210

(a) As discussed in Section III(A) of this Chapter under the heading “Fuel Costs”, fuel costs were estimated using a

price of $1.29/gallon for 2004 and 2005, and $1.34/gallon for 2006 and beyond.
Chapter 3: Compliance Costs

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A. COC50

Fixed Costs and Hardware Costs

Average per-engine fixed costs were calculated as the sales-weighted average of the

manufacturer data shown in Tables 3-2 through 3-4. The average hardware costs were calculated

as the sales-weighted average of the engine hardware costs provided by manufacturers. Salesweighting was done using the independent sales information provided by manufacturers.5

 

We adjusted the hardware costs for heavy-heavy duty engines to account for a reduction

in costs expected from experience gained from the pull-ahead production that is required under

the Consent Decrees. In our recent rulemakings, we have estimated that hardware costs drop by

20 percent after two years of production. Since nearly all of the heavy-heavy duty engines

currently sold in the U.S. are manufactured by companies that are required to pull-ahead

production by 15 months, we believe that hardware costs for model year 2004 will be lower than

the costs manufacturers gave to us. Based on the estimate that hardware costs should drop by 20

percent after two years of production, we believe that hardware costs should drop by at least 10

percent after 15 months of production. Therefore, we have adjusted the manufacturers hardware

costs for heavy-heavy duty engines down by 10 percent to more accurately reflect expected actual

hardware costs for model year 2004.

Warranty Costs

The estimates of expected incremental warranty costs provided by manufacturers covered

a wide range. In some cases, they provided us with detailed analyses. In the proposal, we salesweighted the manufacturers information to estimate the average warranty costs in the same

manner as we did for fixed and hardware costs. However, we now believe that this is not the

most appropriate methodology for medium- and heavy-heavy duty engines. As shown in Tables

3-3 through 3-4, the manufacturers' estimates vary greatly. To some degree these differences are

the result of manufacturers using different approaches to estimating these costs. Some

manufacturers are much more conservative in projecting these costs than others. Since the

manufacturers' projections are not equivalent, we do not believe that averaging them together

would be the most appropriate approach. In the standard-setting rulemakings, we estimated that

long-term marginal warranty costs would be equal to 10 percent of the new hardware costs. For

this analysis, where we are looking at costs for model year 2004, we believe that it would be

more appropriate to use 20 percent of the hardware costs. This reflects the reality that short-term

warranty costs for a new product would be expected to be significantly higher than long-term

warranty costs for a mature product. The resulting estimated warranty costs are in the middles of

the ranges, and are significantly less than the most conservative estimate. These estimates are

closer to the median of the manufacturer estimates than to the sales-weighted average. 

For light-heavy duty engines, we used the proposed approach of sales-weighting the

manufacturers information to estimate the average warranty costs. The range of estimates
Chapter 3: Compliance Costs

Page -29-

provided by the manufacturers was not as large for light-heavy duty engines, and showed no

evidence of being conservative. In fact, the manufacturer estimates were significantly less than

20 percent of the hardware costs. The lower estimates are reasonable since the number of miles

covered during the warranty period for a light-heavy duty engine is much less than for the other

service classes.

The estimated average warranty costs were divided by estimated repair costs of $300,

$400 and $500 per repair for light-, medium- and heavy-heavy duty, respectively, to estimate the

repair rates in Table 3-8. The average repair costs are based on confidential information

provided by manufacturers. These estimates for medium- and heavy-heavy duty are less than

used in the draft analysis because of new manufacturer information. The resulting estimated

repair rates during the warranty periods are used to estimate repair costs after the warranty

period, which is included as part of the maintenance costs described in the next sub-section titled

“Operating Costs: Post-Warranty Repairs, Demurrage, and Scheduled Maintenance Costs”.

Operating Costs: Post-Warranty Repairs, Demurrage, and Scheduled Maintenance

Costs

We asked manufacturers to provide us with estimates of the incremental maintenance

costs that would be associated with their new engines. However, not all of the manufacturers

provided estimates. Some only provided qualitative descriptions, while others provided no

estimates. Also, some included maintenance costs with demurrage, while others did not. After

reviewing these different estimates, it became clear that they were not consistent, and that we

needed to estimate maintenance and demurrage costs separately. 

Based on the confidential submissions from the manufacturers (that is, the detail behind

the manufacturers cost information in Tables 3-2 through 3-4) , we estimate that for the first

model year, the incremental rate of repairs (repairs per vehicle-mile) after the warranty period

would be one-half of the rate within the warranty period. This is a reasonable expectation

because during the warranty period when repairs are performed, manufacturers often will

incorporate additional, preemptive repairs which the engine manufacturer has learned is needed,

but did not cause a failure on the vehicle/engine. We also estimate that the typical warranty

period would be two years.6

 Given the projected mileage accumulation rates listed in Appendix

A, this would mean that the number of miles covered within the warranty period would be about

55,000 miles for light-heavy duty, 70,000 miles for medium-heavy duty, and 215,000 miles for

heavy-heavy duty. The post-warranty period is estimated to be the difference between these

mileages and the typical lifetime mileages from Appendix A (209,000, 262,000 and 767,000

miles) The estimated costs associated with incremental post-warranty repairs are shown in Table

3-9.
Chapter 3: Compliance Costs

(a) Note: the estimate of the equivalent out-of-service cost in the draft analysis included an additional $30 per day

for insurance that we now believe is not relevant for most truck operations. 

(b) [60% × 130%] + [40% × 100%] = 118%

Page -30-

For both warranty and post-warranty repairs, we estimated the cost associated with

demurrage (i.e., the cost of the vehicle being out of service), assuming that a repair frequently

removes the vehicle for service for some time. To determine how long a vehicle would be out of

service for each repair, we considered the per repair cost estimate discussed under the Warranty

Costs sub-section above, in which we estimated the average per-repair cost to be $300, $400 and

$500 per repair for light-, medium- and heavy-heavy duty, respectively. Based on these costs,

which would include labor and parts, we believe that a typical repair will be completed within

one day. While a few repairs may take more than one day, many others may be completed in less

than one day, or even during other scheduled maintenance. Thus, our estimated demurrage costs

are equal to the approximate cost of renting a vehicle for one day7, plus $50.00 for administrative

costs (including the labor cost associated with picking up and returning the vehicle), but not

including a rental mileage charge.a Mileage rates charged by rental fleets are typically roughly

equivalent to the price of the vehicle divided by the number of miles expected for its lifetime

(e.g., $50,000 / 300,000 miles = 17 cents per mile for a typical medium-heavy duty vehicle). 

Thus, the cost of mileage to a fleet operator would be comparable whether the miles were driven

in a rental vehicle or in its own vehicle. The demurrage cost does not include costs associated

with failures that occur on the road, and which cause the vehicle to cease being operational until

repaired. What little data we received from manufacturers indicates that this type of catastrophic

failure should not be common The estimated costs of demurrage are $90, $140, and $170 per

repair for LHDE, MHDE, and HHDE, respectively. The NPV values shown in Tables 3-2

through 3-4 are the total combined values for the demurrage costs for warranty repairs and for

post-warranty repairs.

 We recognize that manufacturers typically markup replacement parts. While we do not

believe that it is necessarily appropriate to make additional profit from the in-use failure of

emission-related parts, we do believe that there are legitimate overhead costs that should be

included in the cost of the parts. We estimate that parts will comprise 60 percent of the warranty

costs and should be marked-up by 30 percent for post-warranty repairs. This means that postwarranty repairs would cost 1.18 times as much as warranty repairs.b

 Given the expected

sensitivity of customers to the potential for failure of new technology, we believe that

manufacturers will be reluctant to markup emission-related replacement parts any more than this.

In the 2000 FRM, we projected that additional maintenance costs would be incurred for

medium- and heavy-heavy duty engines when they are rebuilt to ensure proper functioning of the

EGR systems. No similar costs were estimated for light-heavy duty engines because of the lower

mileage accumulation rates and the much lower rate of engine rebuilding. We are projecting that

EGR equipped engines will require replacement of the EGR valve and cleaning of the EGR
Chapter 3: Compliance Costs

(c) Our estimate is based on estimates provided by one engine manufacturer, one national fleet operator, and one

independent truck service center. These estimates were $120, $176, and $195 per oil change (including labor, oil,

and filters).

Page -31-

cooler at rebuild. We estimate that the incremental cost for the EGR valve replacement will be

$100 for MHDE and $150 for HHDE. Based on manufacturer comments, we believe that

different cooling methods will be used for different engines, depending on engine design and on

operator preference. We are projecting that one-half of the cooler cleaning will involve coreswap at a cost of $400 for HHDE and $150 for MHDE, and the other half will be cleaned by the

operator at a cost of $80 (equivalent to approximately one hour of labor). The estimated costs for

core-swaps of the coolers are equivalent to the hardware costs to a manufacturer for the cooler

during the original manufacture of the engine, plus markup. Our cost estimates are based on the

information provided by manufacturers. We believe that this estimate properly accounts for

labor costs to remove and reinstall the cooler during rebuilding, cleaning and pressure-testing

costs, shipping and handling of the old cooler and cleaned coolers, and the cost for replacing

damaged coolers than cannot be cleaned. We are projecting the rebuild costs to occur at

mileages equal to the length of the engine's useful life (185,000 and 435,000 miles). The NPV

of these costs (adjusted to 2001 dollars) are shown in Table 3-10. It is important to note that at

least one manufacturer has indicated that it will not use cooled-EGR. Therefore, we are

projecting that one-third of all medium- and heavy-heavy duty engines will have no incremental

costs during rebuild. The resulting average rebuild costs are $260 for HHDE, and $140 for

MHDE. The net present value of these costs would be about $200 for HHDE, and $90 for

MHDE.

Some manufacturers indicated that they will recommend shorter oil change intervals for

their EGR-equipped engines to address problems with soot loading and acidification. However,

other manufacturers projected that there will be no changes in oil change intervals, or did not

provide specific comments regarding oil change intervals. Based on this information, we are

projecting that this effect will be negligible for the average light- and medium-heavy duty engine

over its lifetime, but for heavy-heavy duty, we are projecting that the typical engine will require

about 2 additional oil changes over its lifetime. This is equivalent to an engine requiring an oil

change every 32,000 miles instead of every 35,000 miles. We estimate the cost of an oil change

to be $180.c The net present value of the two additional oil changes would be about $260 per

engine. 
Chapter 3: Compliance Costs

Page -32-

Table 3-8

Estimated Average Warranty Costs and Repair Rates

Average Warranty

Cost per Engine

Warranty Miles Cost per

Repair

Incremental

Repairs per

Vehicle Within

Warranty Period

Light Heavy $30 55,000 $300 0.10

Medium Heavy $160 70,000 $400 0.40

Heavy Heavy $380 215,000 $500 0.76

Table 3-9

Estimated Average Post-Warranty Repair Costs

Post-Warranty

Miles

Incremental Repairs

per Vehicle After

Warranty Period

Cost per

Repair

NPV of

Repairs 

Light Heavy 154,000 0.14 $350 $30

Medium Heavy 192,000 0.55 $470 $170

Heavy Heavy 552,000 0.98 $590 $370

Table 3-10

Estimated NPV Average Scheduled Maintenance Costs

Increased Oil

Change

EGR Maintenance

at Rebuild

Average Scheduled

Maintenance Cost

per Engine

Light Heavy $0 $0 $0

Medium Heavy $0 $90 $90

Heavy Heavy $260 $200 $460
Chapter 3: Compliance Costs

Page -33-

Fuel Costs

We estimated fuel penalties using VMT (vehicle-miles traveled) patterns listed in

Appendix A and the estimates of expected percent changes in fuel consumption listed in Table 3-

11. These estimates of percent change in fuel consumption rates fall within the range of

estimates provided by manufacturers for this rulemaking. We developed these estimates using

the sales-weighted averages manufacturers projections, which were consistent with their internal

estimates that manufacturers are using for planning purposes. However, since internal cost

projections may be somewhat conservative for internal cost projections, we also considered the

manufacturers' public projections of fuel consumption impacts, especially for heavy-heavy duty

engines. In general, the public projections of fuel consumption impacts reflected lower fuel

consumption rates than the manufacturers' submissions to EPA, often more than one percent

better.8

 Expecting lower fuel consumption rates is reasonable since market demands will force

manufacturers to continue to reduce fuel consumption rates to the maximum extent possible over

the next year or two. We are estimating that actual fuel consumption impacts will be between the

manufacturers' internal projections and their public statements for model year 2004 to balance

any tendency for the estimates to be either conservative or optimistic. Our estimate of the

percent change in fuel consumption rates for heavy-heavy duty engines is about one-half of one

percent lower than the sales-weighted average of the manufacturer projection that were submitted

to EPA, which is higher than the manufacturers' public projections. Given the lower demand for

fuel consumption improvements for other engines, a smaller adjustment was made to the

manufacturer projection for medium-heavy duty, and no adjustment was made for light-heavy

duty. 

We calculated the NPV of these impacts using a fuel price of $1.29 per gallon for

calendar years 2004 and 2005, and a fuel price of $1.34 per gallon for later calendar years to

account for the introduction of lower sulfur fuel. The $1.29 price represents the five-year

average retail price of on-highway diesel fuel for 1997 through 2001 (EIA estimate)9

 adjusted to

be equivalent to 2001 dollars, plus 44 cents for federal and state tax. Appendix A contains a

detailed description of the estimated mileage accumulation rates that we used in our analysis.

As shown in Figure 3-1, diesel fuel prices have been highly variable, even when adjusted

for inflation. We are using a five-year average because we believe that it is a better estimate of

future fuel prices than a single-year average. In addition, it probably also better approximates

how purchasers will make purchase decisions, considering the economic significance of changes

in fuel consumption rates. 
Chapter 3: Compliance Costs

Page -34-

1980 1985 1990 1995 2000 2005

$0.60

$0.70

$0.80

$0.90

$1.00

$1.10

$1.20

$1.30

$1.40

$1.50

Price ($/gal)

Retail Price of Diesel Fuel Before Taxes

Adjusted by CPI to 2001 Dollars

Figure 3-1

Table 3-11

Estimated Average Lifetime Mileage and Fuel Consumption Change

VMT for Average

Vehicle

Average Change in

Fuel Consumption

2004 NPV of 

Fuel Impact

Light Heavy 209,000 -2.0% ($280 savings)

Medium Heavy 262,000 +2.5% $780

Heavy Heavy 767,000 +2.0% $2,500
Chapter 3: Compliance Costs

Page -35-

Operating Costs: Revenue Impacts

Some engine manufacturers suggested that there could be some increase in engine/vehicle

weight as a result of the new standards which could have a small impact on revenue for trucks

operating at their weight limit. Other manufacturers, however, did not. Manufacturer estimates

of the increase in weight ranged from zero to 100 pounds. Based on these inputs, we are

estimating that the average medium- and heavy-heavy duty vehicle will weigh 40 and 50 pounds

more than current vehicles, respectively. 

We are estimating revenue impacts for this increase in weight based on the operation of

liquid tanker trucks, which are often weight limited. According to the U.S. Census Bureau 10,

operation of tanker trucks comprises approximately 7 percent of all medium- and heavy-heavy

duty truck operation. We also estimate that tanker revenue is approximately 8 cents per tonmile.11 While we recognize that these trucks are not always weight limited, we also recognize

that trucks other than tankers can be weight limited. We believe that these two factors largely

offset one another. It is also important to note that, while we requested comment on how to best

estimate revenue impacts, we received no new data. 

Assuming that freight revenue is 8 cents per ton-mile, and that these trucks operate at

their weight limit 7 percent of the time, 50 additional pounds could cost a heavy-heavy duty 

truck operator about $80 (NPV) over a typical vehicle life of 760,000 miles. For medium-heavy

duty, we estimate that the revenue impact of 40 additional pounds would be $20 (NPV) over a

typical vehicle life of 262,000 miles.

Vehicle Manufacturing Costs

Engine manufacturers estimated increased vehicle manufacturing costs of up to $500 for

vehicles changes such as bigger fans and radiators. We estimated the average incremental

vehicle cost to be equal to the sales-weighted average of the engine manufacturer's estimates.

which are $130 for light-heavy duty, $70 for medium-heavy duty, and $300 for heavy-heavy

duty. These estimates include a vehicle manufacturer markup. 

B. COC90

The estimated 90th percentile cost is conceptually equivalent to high-mileage vehicles

from a high-cost manufacturer. However, we did not base this on the highest mileage vehicle

and the highest cost vehicles, since that would result in the 99th percentile costs. Given the

relative market shares of the various engine manufacturers, as well as the relative importance of

fuel costs and engine manufacturer costs, we determined that it would be appropriate to use the

70th percentile mileage accumulation rates to calculate changes in fuel consumption and other

operating costs which are proportional to mileage, such as post-warranty repair rates and revenue

impacts. Assuming no co-dependence of the distributions, we would need to target the 67th
Chapter 3: Compliance Costs

(d) Assuming no co-dependence between manufacturing costs and mileage accumulation rates, 90th percentile

costs occur when the product of (100%-manufacturing cost percentile) and (100%-mileage percentile) is equal to

10%. For example, for 70th percentile mileage rates, the manufacturing cost percentile that would correspond to ten

percent of the fleet would be the 67th percentile; (100% - 67%) X (100%-70%) = 0.33 X 0.30 = 0.10 =10%. Thus,

1/3 of the model year’s production will have manufacturing costs at least as high as the 67th percentile, and 30

percent of those engines (or 10 percent of the total) will have lifetime mileage accumulation at least as high as the

70th percentile value. Similarly, for 80th percentile mileage rates, the manufacturing cost percentile that would

correspond to ten percent of the fleet would be the 50th percentile; (100% - 50%) X (100%-80%) = 0.50 X 0.20 =

0.10 =10%. However, based on the cost information provided by manufacturers, the ten percent of the fleet captured

by this 50/80 analysis would have lower costs than the ten percent of the fleet captured by the 67/70 analysis used

here.

Page -36-

percentile of engine manufacturer costs (and other manufacturer specific parameters, such as

percent change in fuel consumption) to result in precisely 10 percent of the model year 2004 fleet

having both mileage accumulations and engine costs at least this high.d Given concerns about

protecting confidential business information, as well as the fact that we did not receive

information for every manufacturer, we cannot describe our COC90 analysis in terms of actual

cost data from a specific manufacturer. Instead, we used in our COC90 analysis representative

numbers from the higher cost manufacturer(s), as described below. 

We have attempted to estimate costs representative of the 67th percentile engine

manufacturer costs for fixed costs, hardware costs, warranty costs and vehicle manufacturer

costs. Similarly, we attempted to estimate rates representative of the 67th percentile engine for

post-warranty repair rates (repairs per mile, not the repair costs), decreased oil change intervals,

revenue impact due to weight increase, and change in fuel consumption rate (percent change). 

For most inputs, we used values representative of the highest two or three manufacturer values. 

However, for light-heavy duty, where we often had only two manufacturer estimates for a given

cost category, we sometimes used the single highest cost. When considered together, our

estimated COC90 costs are less than the highest compliance costs reported by the highest cost

manufacturer.

Fixed Costs and Hardware Costs

We estimated the COC90 fixed costs and hardware costs from the same manufacturer

estimates used to calculate the COC50 estimates (including the downward adjustment of the

hardware costs by 10 percent to reflect manufacturer production experience prior to 2004). In

general, we estimated the COC90 cost to be between the two highest estimates. However, the

estimated fixed cost for heavy-heavy engines is between the second and third highest

manufacturer estimates because the manufacturer data with the highest fixed cost estimate

represents a relatively small fraction of the heavy-heavy duty market. 
Chapter 3: Compliance Costs

Page -37-

Warranty Costs

Warranty costs depend on several different factors, such as hardware cost, technology

design, past corporate warranty practices, etc. Thus, it is reasonable to expect that COC90

warranty costs would be higher than the average costs. For the medium- and heavy-heavy duty

analysis, we estimated COC90 warranty repair rates to be 50 percent higher than the average

repair rates, so that warranty costs would be estimated as 30 percent of the COC90 hardware

costs, as opposed to the 20 percent estimate for COC50. These costs are shown in Table 3-12. 

Consistent with the COC50 warranty analysis, we used the manufacturer costs to estimate the

light-heavy duty COC90 warranty costs. We estimate that the COC90 warranty cost for lightheavy duty will be equal to the highest warranty cost estimated by a manufacturer. 

Operating Costs: Post-Warranty Repairs, Demurrage, and Scheduled Maintenance

Costs

We estimated 90th percentile post-warranty repair and demurrage costs in the same

manner as the average costs. However, we based the repair frequency (repairs per mile) on this

COC90 warranty cost estimate, and on the 70th percentile mileage rates. For scheduled

maintenance, we estimated COC90 costs in the same manner as COC50 costs. We estimated no

increase in the number of rebuilds. However, since the COC90 engine is projected to be an EGR

engine, rebuild costs would include EGR valve replacement and EGR cooler cleaning/core-swap

for all engines (i.e., half of the COC90 engines would have the coolers cleaned, while the other

half would have a core-swap). The NPV of these rebuild estimated costs is $150 for MHDE and

$300 for HHDE. Post-warranty repair and maintenance costs are shown in Tables 3-13 and 3-14. 

 We estimate that, for the heavy-heavy COC90 engine, there will be 4 more oil changes

over the life of the vehicle (for 70th percentile mileage rates). This is equivalent to an engine

requiring an oil change every 31,000 miles instead of every 35,000 miles. We estimated the cost

of an oil change to be $180. The net present value of this would be about $500 per engine. We

are projecting that this effect will be negligible for the average light- and medium-heavy duty

engines. 
Chapter 3: Compliance Costs

Page -38-

Table 3-12

Estimated Warranty Costs and Repair Rates for COC90

Warranty Cost

per Engine

Warranty Miles Cost per Repair Incremental

Repairs per

Vehicle Within

Warranty Period

Light Heavy $120 55,000 $300 0.40

Medium Heavy $360 70,000 $400 0.90

Heavy Heavy $700 215,000 $500 1.40

Table 3-13

Estimated Post-Warranty Repair Costs for COC90

PostWarranty

Miles

Incremental

Repairs per Vehicle

After Warranty

Period

Cost per

Repair

NPV of Repair

Costs

Light Heavy 225,000 0.82 $350 $70

Medium Heavy 273,000 1.76 $470 $250

Heavy Heavy 785,000 2.56 $590 $470

Table 3-14

Estimated Scheduled Maintenance Costs for COC90

Increased Oil

Change

EGR Maintenance

at Rebuild

Average Scheduled Maintenance

Cost per Engine

Light Heavy $0 $0 $0

Medium Heavy $0 $150 $150

Heavy Heavy $500 $300 $800
Chapter 3: Compliance Costs

Page -39-

Fuel Costs

We estimated 90th percentile fuel costs in the same manner as the average rates. 

However, we based the percentile change on the COC90 engines (e.g., a HHDDE with a 3.5% fuel

consumption increase), and used the 70th percentile mileage rates. The estimated impacts are

shown in Table 3-15. This analysis is shown in Appendix A.

The estimates of percent change in fuel consumption rates fall within the range of

estimates provided by manufacturers for this rulemaking. As we did for the COC50 analysis, we

also considered the manufacturers' public projections of fuel consumption impacts. Our estimate

of the percent change in fuel consumption rates for medium- and heavy-heavy duty engines is

near the low end of the range of estimates of the high cost manufacturers. For light-heavy-duty

engines, the two manufacturers that provided estimates for fuel consumption impacts each

projected a two percent improvement in fuel consumption. This would represent a lifetime

savings of a few hundred dollars for the average light-heavy-duty vehicle. However, if different

configurations and driving patterns are considered, we believe that there would likely not be

significant fuel savings for the COC90 vehicles. 

Table 3-15

Estimated Lifetime Mileage and Fuel Consumption Change for COC90

VMT for Average

Vehicle

Change in Fuel

Consumption

2004 NPV of Fuel

Impact

Light Heavy 280,000 No Change $0

Medium Heavy 343,000 +4% $1,560

Heavy Heavy 1,000,000 +3.5% $5,390

Operating Costs: Revenue Impacts

Based on manufacturer inputs, we are estimating that the COC90 medium- and heavyheavy duty vehicle will weigh 70 and 80 pounds more than current vehicles, respectively. 

Assuming that freight revenue is 8 cents per ton-mile, and that these trucks operate at their

weight limit 7 percent of the time, 50 additional pounds could cost a heavy-heavy duty truck

operator about $170 (NPV) over a vehicle life of 1,000,000 miles. For medium-heavy duty, we

estimate that the revenue impact of 40 additional pounds would be $50 (NPV) over a vehicle life

of 343,000 miles.
Chapter 3: Compliance Costs

Page -40-

Vehicle Manufacturing Costs

We estimated the COC90 vehicle cost as approximately the highest estimate provided by

engine manufacturers.

C. MC50 and F

MC50 and F are two parameters used in the existing regulations in the calculation of the

value X (see 40 CFR 86.1113-87 (a)(4)). X is the compliance level(g/bhp-hr) above the standard

where the penalty equals COC50. This section describes the derivation of MC50 and F for light-,

medium-, and heavy-heavy duty engines. The values for urban buses are described in a later

section.

Estimated value of MC50

MC50 is the marginal cost of compliance for the average vehicle, expressed in terms of

dollars per gram of NMHC+NOx emission controlled. In concept, it would be based on the

difference in total compliance costs for an engine that had emissions equal to the standard (i.e.,

2.5 g/bhp-hr) and an engine that had emissions slightly above the standard. For example, if we

had an estimate of the total cost of compliance for a typical engine with emissions equal to 2.6

g/bhp-hr, then we would calculate MC50 as the difference between that cost and the average

divided by the difference in emissions (0.1 g/bhp-hr). However, in the case of this rulemaking,

we do not have such detailed information. Therefore, we have estimated MC50 based on the

estimated costs of those control strategies that we believe will be used by manufacturers to

achieve marginal NOx or NMHC control near the 2.5 g/bhp-hr standard.

We are aware of studies that investigated the effect of injection timing retard on NOx

emissions and fuel consumption for HDDEs with emission performance on the order of 2.5

g/bhp-hr NOx.12,13 These studies showed marginal fuel consumption changes of 0.2 to 0.8

percent increase in fuel consumption for each 0.1 g/bhp-hr of NOx reduction. Similar effects

have been observed with changes in EGR rate.13 Another study looked at other diesel engine

types, and found marginal fuel consumption changes of 0.3 to 0.6 percent increase in fuel

consumption for each 0.1 g/bhp-hr of NOx reduction.14 For this analysis, we are estimating that

the average marginal cost of achieving the last 0.1 g/bhp-hr of NOx reduction for light-, 

medium-, and heavy-heavy duty is equivalent to a 0.45 percent increase in fuel consumption, or

$60, $140, and $560, respectively, based on the data cited above.

We are also aware that at least one manufacturer is considering using a diesel oxidation

catalyst (DOC) to reduce NMHC emissions from light-heavy duty engines. Based on

information provided by light-heavy duty engine manufacturers, we have estimated cost

effectiveness of using DOCs to reduce hydrocarbons. In a 1998 submission to EPA, the
Chapter 3: Compliance Costs

Page -41-

Manufacturers of Emission Control Associations (MECA) estimated a range of costs for a DOC

for a light-heavy duty engine to be between $230 and $500 (1998 dollars), using typical engine

displacement, engine family production volumes, and industry wide production volumes for the

light-heavy duty diesel engine market.15 Given the current emission rates for light-heavy duty

engines, we project that a DOC would reduce hydrocarbons by about 0.2 g/bhp-hr. Based on this

information and the recent manufacturer data, we estimate that the marginal cost of compliance

would be $200 per 0.1 g/bhp-hr of NMHC+NOx reduced (in 2001 dollars). We are using this

value to estimate MC50 for light-heavy duty engines since this cost is higher than the cost of a

0.45 percent increase in fuel consumption for light-heavy duty engines.

 Based on the preceding analysis, we estimate MC50 for light-, medium-, and heavy-heavy

duty to be $2000, $1600, and $5600, respectively. It is useful to compare these values to the

minimum values of MC50 (i.e., the average cost of compliance (COC50) divided by the difference

between the standard and the upper limit). MC50 would equal the minimum value if all of the

emission controls were equally cost effective. Given our estimates of COC50, and our upper

limits, the minimum values for MC50 are $620, $1370, and $1950 for light-, medium-, and

heavy-heavy duty vehicles. 

Estimated value of F

The parameter F is defined in the existing regulations as a value from 1.1 to 1.3 that

describes the ratio of the 90th percentile marginal cost (MC90) to MC50. Given that the MC50 for

medium- and heavy-heavy duty is estimated to be equivalent to a 0.45 percent increase in fuel

consumption per 0.1 g/bhp-hr, we considered the F values that would be associated with the

observed experimental range of fuel consumption impacts described above.7,8 The high end of

the range of 0.8 percent increase per 0.1 g/bhp-hr would be equivalent to an F value of 1.8, which

is outside of the range allowed by the existing regulations. An F value of 1.3 would be

equivalent to a 0.59 percent increase per 0.1 g/bhp-hr. We believe that the true value of MC90 is

likely to be between these two estimates, and therefore are setting F equal to 1.3.

For light-heavy duty, a catalyst at the upper range of the MECA cost ($545 in 2001

dollars) that would reduce NMHC emissions by 0.2 g/bhp-hr would result in an F value of 1.36. 

Thus, we are setting F at the maximum level of 1.3 for light-heavy duty.
Chapter 3: Compliance Costs

Page -42-

D. Urban Buses

We did not receive any cost information specific to urban buses. Therefore, we are

basing our cost estimates on the information provided for heavy-heavy duty engines because an

urban bus is a sub-category of the heavy-heavy service class. We estimate that the per-engine

fixed costs, hardware costs, and vehicle costs will be the same for buses as for other heavy-heavy

duty engines. We estimate that there would be no revenue impact. Our estimated warranty and

maintenance costs were derived using the same per-mile costs as for other heavy-heavy duty

engines. However, we estimated no cost associated with demurrage. We estimated MC50 and F

in the same manner as we did for the heavy-heavy duty service class, but used the bus-specific

fuel consumption costs.

Table 3-16

Estimate of Warranty Costs, Post-Warranty Repair Costs, and

Maintenance Costs (Oil Changes for Urban Buses

COC50 Estimates COC90 Estimates

Urban Bus Other HHDV Urban Bus Other HHDV

Warranty Period

Miles

89,000 215,000 89,000 215,000

Warranty Cost $160 $380 $290 $700

Post-Warranty

Miles

501,000 552,000 511,000 785,000

Post-Warranty

Repair Cost

$340 $370 $610 $940

Total Life Miles 590,000 767,000 600,000 1,000,000

Oil Cost $210 $270 $300 $500

The fuel costs were calculated using the bus-specific mileage estimates in Appendix A,

and our estimates of the bus-specific fuel consumption rate impacts shown in Table 3-17. These

estimates (0.5 percent for COC50 and 2.0 percent for COC90) are 1.5 percent lower than the

corresponding rates estimated for other heavy-heavy duty engines. This difference is intended to

reflect the effect of setting the upper limit at 4.5 instead of 6.0, while keeping the hardware for

bus engines the same as for other heavy-heavy duty engines. For the proposal, we estimated that

this difference in upper limits could be approximated by reducing the heavy-heavy fuel

consumption penalty by 2.0 percent. However, the net adjustment must also reflect differences
Chapter 3: Compliance Costs

Page -43-

in in-use operation and the lesser degree to which manufacturers will optimize urban bus fuel

consumption. These differences probably would have resulted in a difference of about 0.5

percent if these engines had the same upper limit. Thus, we are estimating that the fuel

consumption penalty for urban buses will be 1.5 percent less than it will be for other heavy-heavy

duty engines. 

Table 3-17

Estimated Lifetime Mileage and Fuel Consumption Change

VMT

Change in Fuel

Consumption

2004 NPV of

Fuel Impact

COC50 590,000 0.5% $420

COC90 600,000 2.0% $1,720

Table 3-18

Urban Bus COC50 and COC90 Estimates

(Net Present Value to 2004 in 2001 Dollars)

COC50 COC90

Per Engine Fixed Cost $610 $900

Hardware Cost $1,890 $2,340

Warranty Cost $160 $290

Operating Costs: 

Scheduled Maintenance 

$210 $300

Operating Costs: 

 Post-Warranty Repairs 

$340 $610

Operating Costs: 

 Demurrage 

$0 $0

Fuel Cost $420 $1,720

Operating Costs: 

Revenue Impact 

$0 $0

Vehicle packaging costs $300 $500

Total $3,930 $6,660
Chapter 3: Compliance Costs

Page -44-

1. U.S. Department of Labor, Bureau of Labor Statistics, CPI Inflation Calculator,

http://data.bls.gov/cgi-bin/cpicalc.pl.

2. "Fleet Characterization Data for MOBILE6: Development and Use of Age Distributions,

Average Mileage Accumulation Rates and Projected Vehicle Counts for Use in MOBILE6",

EPA420-R-01-047, September 2001.

3. “Collection of Compliance Cost Estimates for the Purpose of Establishing NCPs for the

2004 Heavy duty Diesel NMHC+NOx Emission Standard”, Roberts French, EPA Memorandum,

copy available in the docket for this rulemaking.

4. "Internal Company Documents Submitted to EPA for NCP Rulemaking", Charles Moulis,

EPA Memorandum, copy available in the docket for this rulemaking.

5. "Data Received from Heavy Duty Diesel Engine Companies regarding 2001 Medium-Heavy

and Heavy-Heavy Diesel Engine Sales", William Charmley, EPA Memorandum, copy available

in the docket for this rulemaking.

6. “Heavy-duty Diesel Engine Warranty Information”, Charles Moulis, EPA Memorandum,

copy available in the docket for this rulemaking.

7. Estimated rental prices are based on prices published at www.ryder.com, a copy of the

published prices has been placed in the docket for this rulemaking.

8. "Documentation of recent Heavy-duty Diesel Engine Industry Press Releases, Trade Journal

Articles, and other Material Regarding Fuel Economy Performance", William Charmley, EPA

Memorandum, copy available in the docket for this rulemaking.

9. U.S. Department of Energy, Energy Information Administration, Petroleum Marketing

Monthly, Table 17, April 2002. 

10. "1997 Economic Census: Vehicle Inventory and Use Survey", U.S. Census Bureau,

EC97TV-US, October 1999.

11. "Infrastructure Requirements for an Expanded Fuel Ethanol Industry", Chapter 4,

Downstream Alternatives Inc., January 15, 2002.

12. “Cooled EGR - A Key Technology for Future Efficient HD Diesels”, P. Zelenka et. al. 

Society of Automotive Engineers Technical Paper # 980190, February 1998.

References for Chapter 3
Chapter 3: Compliance Costs

Page -45-

13. “Gaseous Emissions from a Caterpillar 3176 (with EGR) Using a Matrix of Diesel Fuels

(Phase 2)”, Southwest Research Institute, September 1999. Copy available in the docket for this

rulemaking.

14. "European Programme on Emissions, Fuels and Engine Technologies (EPEFE) - Heavy Duty

Diesel Study, M. Signer, et al., Society of Automotive Engineers Technical Paper #961074, May,

1996.

15. “Report on Agreed-Upon Procedures”, Manufacturers of Emission Control Associations,

December 17, 1998, Available in EPA Air Docket A-98-32, Docket Item # II-D-09.
Chapter 4: Regulatory Parameters for NCPs

Page -46-

CHAPTER 4: REGULATORY PARAMETERS FOR NCPs

I. NCP Equations and Parameters

EPA's existing regulations for calculating NCPs are contained in 40 CFR Part 86 Subpart

L. NCP schedules can be calculated from those same equations using the Upper Limit, COC50,

COC90, MC50, and F values from the previous chapter, and a standard level (S) of 2.5 g/bhp-hr

NMHC+NOx. The values for X are calculated using these values and the following equation

from Subpart L:

X = (COC50 / F / MC50) + S 

The purpose of this equation is to achieve a penalty curve in which the slope for engines with

compliance levels near the standard is equal to the 90th percentile marginal cost of compliance

(MC90 equals MC50 times F).

Table 4-1

Parameters for NCP Equations

Light-Heavy Medium-Heavy Heavy-Heavy Urban Bus

COC50 $1,240 $2,740 $6,810 $3,930

COC90 $2,710 $4,930 $12,210 $6,660

MC50 $2,000 

per g/bhp-hr

$1,400

per g/bhp-hr

$5,600

per g/bhp-hr

$3,800

per g/bhp-hr

F 1.3 1.3 1.3 1.3

UL 4.5 4.5 6.0 4.5

X 3.0 4.0 3.4 3.3

When the factors listed in Table 4-1 are input into the existing NCP equations specified in 40

CFR 86.1113(a)(1) and (2), for year n=1 (that is, the first year the penalties are used, thus the

annual adjustment factor is equal to 1), the resulting penalty vs. compliance level for each service

class are shown in Figures 4-1 through 4-4.
Chapter 4: Regulatory Parameters for NCPs

Page -47-

2.0 2.5 3.0 3.5 4.0 4.5

Compliance Level

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

Penalty

Light-Heavy Duty Penalty Rates

2.0 2.5 3.0 3.5 4.0 4.5

Compliance Level

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

Penalty

Medium-Heavy Duty Penalty Rates
Chapter 4: Regulatory Parameters for NCPs

Page -48-

2.0 3.0 4.0 5.0 6.0

Compliance Level

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

Penalty

Heavy-Heavy Duty Penalty Rates

2.0 2.5 3.0 3.5 4.0 4.5

Compliance Level

$0

$1

$2

$3

$4

$5

$6

$7

Thousands

Penalty

Urban Bus Penalty Rates
Chapter 4: Regulatory Parameters for NCPs

Page -49-

II. Refund for Engineering and Development Costs

Section 1113-87(h) of the existing regulations specify provisions under which a

manufacturer that pays NCPs can recover some of the amount it has paid, provided it certifies a

conforming replacement for the engines which used the NCPs. The maximum amount that can

be recovered is limited to 90 percent of the portion of the penalty which EPA determines to be

related to engineering and development. Thus, it is necessary for EPA to establish in each NCP

rule a factor for each service class (FE&D) which define the fractions of the NCP which is

considered to be related to engineering and development. We are setting these factors equal to

the ratio of the projected average fixed costs per engine divided by the COC50 for each class. The

factors are listed in Table 4-2.

Table 4-2

Engineering and Development Refund Factors

Light-Heavy Duty

Engines

0.403

Medium-Heavy Duty

Engines

0.197

Heavy-Heavy Duty

 Engines

0.090

Urban Bus

Engines

0.155
Page -50-

APPENDIX A: FUEL CALCULATIONS

This appendix lists the inputs used to project fuel costs. It also details an analysis of the

net present value (NPV) of changes in fuel consumption. The projected fuel cost changes are

shown for one percent changes in fuel consumption rates. These resulting NPV projections are

directly proportional to the percent change in fuel consumption, whether it is positive or

negative. 

The first table lists the inputs used for the analysis. The second table shows the weighted

average VMT rates and the project change in annual fuel cost for a typical vehicle. The weighted

average VMT rates are the products of the "Annual VMT" and "Survival Fraction" entries from

Table A-1. Thus, Table A-2 represents the fleet average of all 2004 model year vehicles within a

given class (e.g., light-heavy duty diesel vehicles). With the exception of urban buses, Table A-3

represents individual 2004 model year vehicles that remain in service for 19 years. Our data

indicate that 70 percent of these vehicles remain in service for 19 years or less. Thus, we project

that 30 percent of model year 2004 heavy duty vehicles would have fuel cost impacts equal to or

greater than those listed at the bottom of Table A-3 for each one percent change in their fuel

consumption rates. For urban buses Table A-3 represents individual 2004 model year buses that

remain in service for 17 years.
Page -51-

Table A-1

Inputs Used for Fuel Consumption Analysis

Light 

HDDV

Medium

HDDV

Heavy

HDDV

 NPV Discount Rate = 0.07

Base fuel economy, mi/gallon 14 8.0 6.0 Cost of Diesel Fuel = 1.34/gallon

(Includes 5 cents/gal for low sulfur

after 2005) Percent increase in fuel consumption 1.0% 1.0% 1.0%

Annual VMT and Fraction of Vehicle Remaining in the Fleet vs. Vehicle Age

Light HDDV Medium HDDV Heavy HDDV Urban Bus

Vehicle 

Age

Annual

VMT

Survival

Fraction

Annual

VMT

Survival

Fraction

Annual

VMT

Survival

Fraction

Annual

VMT

Survival

Fraction

1 28,951 1.000 36493 1.000 113,208 1.000 45171 1.000

2 26,479 1.000 33203 1.000 102,211 1.000 43731 1.000

3 24,226 0.932 30221 0.935 92,288 0.935 42337 1.000

4 22,173 0.870 27519 0.875 83,332 0.875 40987 1.000

5 20,301 0.811 25069 0.818 75,250 0.818 39681 1.000

6 18,593 0.756 22849 0.765 67,954 0.765 38416 1.000

7 17,035 0.705 20836 0.715 61,369 0.716 37191 1.000

8 15,613 0.657 19012 0.669 55,424 0.670 36005 1.000

9 14,314 0.613 17359 0.626 50,059 0.626 34857 1.000

10 13,128 0.572 15861 0.585 45,214 0.586 33746 0.999

11 12,043 0.533 14502 0.547 40,840 0.548 32670 0.996

12 11,052 0.497 13271 0.512 36,892 0.513 31629 0.989

13 10,146 0.464 12155 0.478 33,327 0.479 30620 0.970

14 9,317 0.432 11145 0.447 30,107 0.448 29644 0.925

15 8,558 0.403 10228 0.418 27,200 0.419 28699 0.832

16 7,864 0.376 9397 0.391 24,575 0.392 27784 0.662

17 7,227 0.351 8644 0.366 22,204 0.367 26898 0.413

18 6,645 0.327 7962 0.342 20,063 0.343 26041 0.197

19 6,111 0.305 7342 0.32 18,129 0.321 25211 0.161

20 5,622 0.284 6782 0.299 16,382 0.300 24407 0.132

21 5,173 0.265 6274 0.28 14,804 0.281 23629 0.108

22 4,762 0.247 5814 0.262 13,379 0.263 22875 0.089

23 4,384 0.231 5396 0.245 12,091 0.246 22146 0.072

24 4,038 0.215 5017 0.229 10928 0.230 21440 0.059

25 3,720 0.207 4674 0.218 9877 0.220 20757 0.065

26 3,427 0.194 4363 0.204 8928 0.207 20095 0.033

27 3,159 0.177 4082 0.179 8069 0.179 19454 0.033

28 2,913 0.167 3826 0.179 7294 0.179 18834 0.033

29 2,686 0.153 3595 0.165 6595 0.165 18234 0.016

30 2,477 0.119 3385 0.151 5962 0.152 17652 0.016
Page -52-

Table A-2

Average Per Vehicle Cost From 1% Increase in Fuel Consumption

Light HDDV Medium HDDV Heavy HDDV Urban Bus

Age VMT Fuel

Penalty

VMT Fuel

Penalty

VMT Fuel

Penalty

VMT Fuel

Penalty

1 28,951 $27 36,493 $59 113,208 $243 45,171 $97

2 26,479 $24 33,203 $53 102,211 $219 43,731 $94

3 22,579 $22 28,257 $47 86,289 $192 42,337 $94

4 19,291 $18 24,079 $40 72,916 $163 40,987 $91

5 16,464 $16 20,506 $34 61,555 $137 39,681 $88

6 14,056 $13 17,479 $29 51,985 $116 38,416 $86

7 12,010 $11 14,898 $25 43,940 $98 37,191 $83

8 10,258 $10 12,719 $21 37,134 $83 35,995 $80

9 8,774 $8 10,867 $18 31,337 $70 34,847 $78

10 7,509 $7 9,279 $16 26,495 $59 33,707 $75

11 6,419 $6 7,933 $13 22,380 $50 32,547 $73

12 5,493 $5 6,795 $11 18,926 $42 31,273 $70

13 4,708 $4 5,810 $10 15,964 $36 29,692 $66

14 4,025 $4 4,982 $8 13,488 $30 27,427 $61

15 3,449 $3 4,275 $7 11,397 $25 23,876 $53

16 2,957 $3 3,674 $6 9,633 $21 18,381 $41

17 2,537 $2 3,164 $5 8,149 $18 11,115 $25

18 2,173 $2 2,723 $5 6,882 $15 5,136 $11

19 1,864 $2 2,349 $4 5,819 $13 4,070 $9

20 1,597 $2 2,028 $3 4,915 $11 3,228 $7

21 1,371 $1 1,757 $3 4,160 $9 2,559 $6

22 1,176 $1 1,523 $3 3,519 $8 2,028 $5

23 1,013 $1 1,322 $2 2,974 $7 1,605 $4

24 868 $1 1,149 $2 2,513 $6 1,275 $3

25 770 $1 1,019 $2 2,173 $5 1,353 $3

26 665 $1 890 $1 1,848 $4 655 $1

27 559 $1 731 $1 1,444 $3 634 $1

28 486 $0 685 $1 1,306 $3 614 $1

29 411 $0 593 $1 1,088 $2 297 $1

30 295 $0 511 $1 906 $2 288 $1

Total 209,205 $198 261,692 $433 766,554 $1,691 590,116 $1,309

NPV $143 $313 $1,246 $844
Page -53-

Table A-3

High Case per Vehicle Cost From 1% Increase in Fuel Consumption

For 30 Percent Remaining in Fleet

Light HDDV Medium HDDV Heavy HDDV Urban Bus

Age VMT Fuel

Penalty

VMT Fuel

Penalty

VMT Fuel

Penalty

VMT Fuel

Penalty

1 28,951 $27 36,493 $59 113,208 $243 45171 $97

2 26,479 $24 33,203 $53 102,211 $219 43731 $94

3 24,226 $23 30,221 $51 92,288 $206 42337 $94

4 22,173 $21 27,519 $46 83,332 $186 40987 $91

5 20,301 $19 25,069 $42 75,250 $168 39681 $88

6 18,593 $18 22,849 $38 67,954 $152 38416 $86

7 17,035 $16 20,836 $35 61,369 $137 37191 $83

8 15,613 $15 19,012 $32 55,424 $124 36005 $80

9 14,314 $14 17,359 $29 50,059 $112 34857 $78

10 13,128 $13 15,861 $27 45,214 $101 33746 $75

11 12,043 $12 14,502 $24 40,840 $91 32670 $73

12 11,052 $11 13,271 $22 36,892 $82 31629 $71

13 10,146 $10 12,155 $20 33,327 $74 30620 $68

14 9,317 $9 11,145 $19 30,107 $67 29644 $66

15 8,558 $8 10,228 $17 27,200 $61 28699 $64

16 7,864 $8 9,397 $16 24,575 $55 27784 $62

17 7,227 $7 8,644 $14 22,204 $50 26898 $60

18 6,645 $6 7,962 $13 20,063 $45 0 $0

19 6,111 $6 7,342 $12 18,129 $40 0 $0

20 0 $0 0 $0 0 $0 0 $0

Total 279,776 $265 343,068 $569 999,646 $2,211 600,066 $1,311

NPV $180 $389 $1,536 $858
Page -54-

APPENDIX B: SAMPLE COST CALCULATIONS

This appendix shows sample calculations for some of the cost components used in the

analysis. It shows how fixed costs were adjusted to constant 2001 dollars, and how they were

amortized. It also shows how per-mile fuel cost impacts were calculated. The last table shows

the annual cost stream from the owner's perspective. Manufacturer costs are expressed as retail

price equivalents, without regard to the extent to which the manufacturers actually pass the costs

on to the customers.
Page -55-

Sample Calculation of NPV Fixed Costs from

Annual Fixed Costs from a Manufacturer

Calendar

Year That

Money Is

Spent

Research

Spending1

Tooling

Costs1

Total Fixed

Costs for

Calendar

Year

Value of

Dollars for

Reported

Costs2

CPI

Adjustment

to 2001

Dollars

Total Annual

Fixed Cost in

2001 Dollars2

NPV of Annual

Fixed Costs3

1998 $5,000,000 $5,000,000 1998 1.087 $5,435,000 $8,156,469

1999 $5,000,000 $5,000,000 1999 1.063 $5,315,000 $7,454,562

2000 $10,000,000 $10,000,000 2000 1.029 $10,290,000 $13,488,091

2001 $10,000,000 $10,000,000 2001 1.000 $10,000,000 $12,250,430

2002 $10,000,000 $1,000,000 $11,000,000 2001 1.000 $11,000,000 $12,593,900

2003 $10,000,000 $3,000,000 $13,000,000 2001 1.000 $13,000,000 $13,910,000

* Costs for 2001 - 2003 are projected costs, costs for 1998 - 2000

are actual costs 

Total NPV = $67,853,453

 1 Costs for 2001 - 2003 are projected costs, costs for 1998 - 2000

are actual costs.

 2 Actual costs were generally reported in terms of actual dollars

spent in a calendar year without adjusting for inflation. These

costs were adjusted upwards based on the Consumer Price Index to

be equivalent to 2001 dollars. Projected costs are generally

reported in terms of current year dollars. 

 3 The net present value of these costs were calculated by multiplying

the cost (in 2001 dollars) by 1.07n

, where n = (2004 - the year of

the cost). 

Sample Amortization of Fixed Costs1 for a Manufacturer

 Total Fixed Costs (2004 NPV) $67,853,453

 Recovery Period (years) 5

 Recovery Rate 7%

 Amortized Cost $16,548,826

 Sales per Year 30000

 Amortized Cost per Engine $552

1 Total NPV fixed costs are amortized to be recovered

 as equal annual payments at the end of calendar years

 2004, 2005, 2006, 2007, and 2008 with a return of 7%

 of the outstanding balance at the beginning of the year.
Page -56-

Sample Calculation of Per Mile Fuel Costs

 Fuel Economy 

 (miles/gal)

6.0 

 Fuel Consumption

 (gal/mile)

 =1/6.0 0.167 

 Increase in Fuel Consumption 

 (%)

1.0% 

 Increase in Fuel Consumption 

 (gal/mi)

 = (0.167) x (0.010) 0.00167 

 Increased Fuel Cost 

 ($/1000 miles)

 = (0.00167)x($1.338)x(1000) $2.24 
Page -57-

Sample Annual Costs for a Model Year 2004 Vehicle1

Amortized

Fixed

Engine

Manufacturer

Hardware

Manufacturer

Warranty

Cost

Vehicle

Manufacturer

Cost

Fuel

Cost

Other

Operating

2004 $552 $1,800 $100 $100 $708 $118

2005 $100 $639 $106

2006 $557 $224

2007 $471 $189

2008 $398 $274 2

2009 $336 $135

2010 $284 $114

2011 $240 $96

2012 $202 $81

2013 $171 $69

2014 $145 $58

2015 $122 $49

2016 $103 $41

2017 $87 $35

2018 $74 $30

2019 $62 $25

2020 $53 $21

2021 $44 $18

2022 $38 $15

2023 $32 $13

2024 $27 $11

2025 $23 $9

2026 $19 $8

2027 $16 $7

2028 $14 $6

2029 $12 $5

2030 $9 $4

2031 $8 $3

2032 $7 $3

2033 $6 $2

NPV

(2004)

$552 $1,800 $193 $100 $3,615 $1,232

 1 Costs are presented on a fleet wide average basis. As shown in Appendix A, estimates of annual

miles traveled account for the number of miles traveled by vehicles in the fleet and the fraction of

vehicles remaining in the fleet.

 2 Includes cost for rebuild at end of useful life.