Summary of Interagency Working Comments Received on Draft Rule Under EO 12866 and EO 13563 

Review. Subject to Further Policy Review.

1 

Below is a summary of interagency comments received during EO 12866 and EO 13563 

review of the draft final rule establishing GHG emissions standards and fuel efficiency standards 

for medium and heavy duty trucks. They are for your consideration and subject to further policy 

review. 

I. Page 419 of Preamble: 

Truck fleets that rent their vehicles may provide an example: renters may observe the 

cost of renting the truck, but not its fuel efficiency; if so, then the purchasers will aim for 

vehicles with lower costs, to lower the cost of the rental. It would be possible to test this theory 

by comparing the fuel efficiency of trucks by owner-operators with those that are leased by 

operators. However, the agencies have not conducted these experiments.

One commenter noted that there are always tradeoffs in an investment decision: a 

purchaser may prefer to invest in other vehicle attributes than fuel efficiency. In an efficient 

market, however, a purchaser should invest in fuel-saving technology as long as the increase in 

fuel-saving technology costs less than the expected fuel savings. This result should hold 

regardless of the level of investment in other attributes, unless there are constraints on a 

purchaser’s access to investment capital. 

Anecdotal information about large truck fleets suggests that, even within a company, the 

office or department responsible for truck purchases is often different from that responsible for 

purchasing fuel. Therefore, the employees who purchase trucks may have strong incentives to 

lower their initial capital cost, but not equally strong incentives to lower operating costs. A 

discussed elsewhere in this preamble, we believe that truck fleets do have an incentive to make 

efficiency investments, and that assumption is reflected in this analysis. The agencies also 

believe, however, that sufficient evidence suggests that truck fleets are not availing themselves 

of all the opportunities for efficiency improvements. We elaborate on some of those reasons 

below.

II. Last paragraph on page 421 under discussion of additional hypotheses. 

Current text in Preamble reads:

A second suggestion is that a truck may be a “positional good” – that is, a good whose value

depends on how it compares to the goods owned by others.  If trucks confer status on their

owners or operators, and if that status depends on easily observable characteristics, then

owners may invest disproportionately in status‐granting characteristics rather than less visible

characteristics, such as fuel efficiency.  Because status depends on comparisons to others, an
Summary of Interagency Working Comments Received on Draft Rule Under EO 12866 and EO 13563 

Review. Subject to Further Policy Review.

2 

“arms race” may develop in which all parties spend additional money on visible characteristics

but may not manage to make themselves better off.  In this case, regulation may improve

welfare:  by increasing the requirements for non‐positional fuel efficiency, regulation could

reduce expenditures made purely for competition rather than actual increase in welfare.  In a

competitive business, cost reduction provides a major opportunity cost to investing in status

rather than in fuel‐saving technology; thus, this argument may play less of a role in the heavy‐

duty market than in the consumer market for vehicles.

III. Page 422 of Preamble currently reads: 

Both these hypotheses leave open the question, though, why additional investments were not

made in fuel efficiency if they would provide rapid payback.  Truck purchasers should, in

principle, be willing to buy additional fuel‐saving technology as long as it is cost‐effective,

regardless of other vehicle attributes.  Limited access to capital, if it is a problem in this sector,

might provide some reason for the “crowding out” of the purchase of fuel‐saving technology.

Imposing fuel efficiency standards would solve the problem of access to capital by...

(interagency commenters request that agencies include information here on means of solving

this problem).

IV. Chapter 9 or RIA: 

9.8 Employment Impacts 

(1) Introduction 

Although analysis of employment impacts is not part of a cost-benefit analysis (except to 

the extent that labor costs contribute to costs), employment impacts of federal rules are of 

particular concern in the current economic climate of sizeable unemployment. The recently 

issued Executive Order 13563, “Improving Regulation and Regulatory Review” (January 18, 

2011), states, “Our regulatory system must protect public health, welfare, safety, and our 

environment while promoting economic growth, innovation, competitiveness, and job creation” 

(emphasis added). Although EPA and NHTSA did not undertake an employment analysis of the 

proposed rules, several commenters suggested that we undertake an employment analysis for the 

final rulemaking. Therefore, we have provided a robust qualitative discussion of the potential 

employment impacts of the Heavy-Duty National Program. 

When the economy is at full employment, an environmental regulation is unlikely to have 

much impact on net overall U.S. employment; instead, labor would primarily be shifted from one 

Comment [A1]: Interagency commenters note 

that this argument seems misplaced in the heavy 

duty market. Commenters recommend that the 

agencies delete this paragraph. 

Comment [A2]: Interagency commenters suggest 

agencies move this section entirely into chapter 10 of 

RIA. 
Summary of Interagency Working Comments Received on Draft Rule Under EO 12866 and EO 13563 

Review. Subject to Further Policy Review.

3 

sector to another. These shifts in employment impose an opportunity cost on society, 

approximated by the wages of the employees, as regulation diverts workers from other activities 

in the economy.1

 In this situation, any effects on net employment are likely to be transitory as 

workers change jobs (e.g., some workers may need to be retrained or require time to search for 

new jobs, while shortages in some sectors or regions could bid up wages to attract workers). 

On the other hand, if a regulation comes into effect during a period of high 

unemployment, a change in labor demand due to regulation may affect net overall U.S. 

employment because the labor market is not in equilibrium. Schmalansee and Stavins2

 point out 

that net positive employment effects are possible in the near term when the economy is at less 

than full employment due to the potential hiring of idle labor resources by the regulated sector to 

meet new requirements (e.g., to install new equipment) and new economic activity in sectors 

related to the regulated sector. In the longer run, the net effect on employment is more difficult to 

predict and will depend on the way in which the related industries respond to the regulatory 

requirements. As Schmalansee and Stavins note, it is possible that the magnitude of the effect on 

employment could vary over time, region, and sector, and positive effects on employment in 

some regions or sectors could be offset by negative effects in other regions or sectors. For this 

reason, they urge caution in reporting partial employment effects since it can “paint an inaccurate 

picture of net employment impacts if not placed in the broader economic context.”A 

This rulemaking is expected to affect net employment in the United States through the 

regulated sector – the truck and engine manufacturer industry. – and several related sectors, 

specifically, industries that supply the truck and engine manufacturing industry (e.g., truck 

parts), the trucking industry itself, other industries involved in transporting goods (e.g., rail and 

shipping); the petroleum refining sector, and the retail sector. According to the U.S. Bureau of 

Labor Statistics, about 1.25 million people were employed in the truck transportation industry 

and about 675,000 people were employed in the motor vehicle parts industry between 2010 and 

2011.3 Although heavy-duty vehicles (HD) account for approximately 4% of the vehicles on the 

road, these vehicles consume more than 20% of on-road gasoline and diesel fuel use. As 

discussed in Chapter 5 of this RIA, this rulemaking is predicted to reduce the amount of fuel 

these vehicles use, and thus affect the petroleum refinery industry. The petroleum refinery 

industry employed about 65,000 people in the U.S. in 2009, the most recent year that 

employment estimates are available for this sector.4 Finally, since the net reduction in cost 

associated with these rules is expected to lead to lower transportation and shipping costs, in a 

competitive market a substantial portion of those cost savings will be passed along to consumers, 

who then will have additional discretionary income (how much of the cost is passed along to 

consumers depends on market structure and the relative price elasticities). 

Several commenters suggested that the HD vehicle rules would lead to an increase in

employment in affected sectors by offering the potential for new employment opportunities in 

the design and production of new vehicle technologies. Also, these commenters suggested that 

 

A Although there would be opportunity cost associated with shifting workers from one activity to another, the 

employment level would not change.

Comment [A3]: Unless responding to comments, 

interagency commenters suggest deleting this 

discussion since it is dealing with second order 

effects. 
Summary of Interagency Working Comments Received on Draft Rule Under EO 12866 and EO 13563 

Review. Subject to Further Policy Review.

4 

since the U.S. manufacturers and suppliers are leaders in certain advanced truck technologies, 

this program has the potential to help them consolidate their leadership and thrive in a global 

market. In this context, several commenters referred to an assessment by the Union of 

Concerned Scientists (UCS) and CalStart of the economic and employment benefits of the 

improved efficiency in HD vehicles.

5 The study predicts an increase in 63,000 jobs in 2020 and

124,000 in 2030, as result of higher fuel efficiency for HD vehicles. These quantitative estimates 

were derived using a standard input-output model, though the estimates themselves have not yet 

been peer reviewed. Input-output (I/O) models do not account for opportunity costs of labor –

that is, all employment needs due to the regulatory change will be met by unemployed workers. 

In addition, I/O models assume no changes in the average use of labor per dollar of output in the 

affected sectors. For these and other reasons, these may at best be considered an imprecise upper 

bound on actual employment impacts.6

Determining the direction of employment effects even in the regulated industry may be 

difficult due to the presence of competing effects that lead to an ambiguous adjustment in 

employment as a result of environmental regulation. Morgenstern, Pizer and Shih7

 identify three 

separate ways employment levels may change in the regulated industry in response to a new (or 

more stringent) regulation. First, higher production costs due to the regulation will lead to higher 

market prices; higher prices in turn reduce demand for the good, reducing the demand for labor 

to make that good (“demand effect”). Second, costs rise because of increased use of inputs, 

including labor, in order to comply with the new regulatory requirements (“cost effect”). Third, 

post-regulation production technologies may be more or less labor-intensive (i.e., more/less labor 

is required per dollar of output) (“factor-shift effect”). The “demand effect” is expected to have 

a negative effect on employment, the “cost effect” to have a positive effect on employment, and 

the “factor-shift effect” has an ambiguous effect on employment. Without more information as 

to the magnitudes of these competing effects, it is not possible to predict the total effect 

environmental regulation will have on employment levels in a regulated sector 

Morgenstern et al. estimated the effects on employment of spending on pollution 

abatement for four highly polluting/regulated industries (pulp and paper, plastics, steel, and 

petroleum refining). They conclude that increased abatement expenditures generally have not 

caused a significant change in employment in those sectors. More specifically, their results show 

that, on average across the industries studied, each additional $1 million spent on pollution 

abatement results in a (statistically insignificant) net increase of 1.5 jobs. While the specific 

sectors Morgenstern et al. examined are different that the sectors considered here, the 

methodology that Morgenstern et al. developed is still useful in this context. 

(2) Overview of Affected Sectors 

The above discussion focuses on employment changes in the regulated sector, but the 

regulated sector is not the only source of changes in employment. In these rules, the regulated 

sectors are truck and engine manufacturers; they are responsible for meeting the standards set in 

these rules. The effects of these rules are also likely to have impacts beyond the directly 

regulated sector. The related sectors which these rules are also likely to impact include: motor 

vehicle parts producers, to the extent that the truck and engine industries purchase components 

rather than manufacture them in-house; shipping and transport, because many companies in this 

Comment [A4]: Intergency commenters strongly 

recommend deleting this reference. Not only it is 

not peer reviewed, and quoting here could be 

considered dissemination of this result by the 

agency, it is by definition a one-sided analysis that 

does not take into account an obvious potential 

negative impact. 
Summary of Interagency Working Comments Received on Draft Rule Under EO 12866 and EO 13563 

Review. Subject to Further Policy Review.

5 

sector purchase trucks and their operating costs will be affected by both higher truck prices and 

fuel savings; oil refineries due to reduced demand for petroleum-based fuels; and the final retail 

market, which is where any net cost reductions due to fuel savings are ultimately expected to be 

experienced. However this discussion is focused on the regulated sector because assessing the 

employment effect on related sectors become increasing difficult analytically.The following 

discussion describes the direction of impacts on employment in these industries. The effects of 

the HD rule on net U.S. employment depend, not only on their relative magnitudes, but also on 

employment levels in the overall economy. As previously discussed, in a full-employment 

economy these sector-specific impacts will be mostly offset by employment changes elsewhere 

in the economy and would not be expected to result in a net change in jobs. However, in an 

economy with significant unemployment these changes may affect net employment in the U.S. 

(a) Truck and Engine Manufacturers 

The regulated sector consists of truck and engine manufacturers. Employment associated 

with manufacturing trucks and engines may be affected by the demand, cost, and factor-shift 

effects. 

The demand effect depends on the effects of this rulemaking on HD vehicle sales. If 

vehicle sales increase, then more people will be required to assemble trucks and their 

components. If vehicle sales decrease, employment associated with these activities will 

decrease. The effects of this rulemaking on HD vehicle sales depend on the perceived 

desirability of the new vehicles. On one hand, this rulemaking will increase vehicle costs; by 

itself, this effect would reduce vehicle sales. On the other hand, this rulemaking will reduce the 

fuel costs of operating the vehicle; by itself, this effect would increase vehicle sales. The 

agencies have not made an estimate of the potential change in vehicle sales. However as 

discussed in Preamble Section VIII.E.5 the agencies have estimated an increase in vehicle miles 

traveled (i.e., VMT rebound) due to the reduced operating costs of trucks meeting these new 

standards. Since increased VMT is most likely to be met with more drivers and more trucks, our 

projection of VMT rebound is suggestive of an increase in vehicle sales and truck driver 

employment (recognizing that these increases may be partially offset by a decrease in 

manufacturing and sales for equipment of other modes of transportation such as rail cars or 

barges). 

As discussed in Preamble Section VIII.A., the agencies find that the reduction in fuel 

costs associated with this rulemaking outweigh the increase in vehicle cost. This finding is 

puzzling: market forces should lead truck manufacturers and buyers to install all cost-effective 

fuel-saving technology, but the agencies find that they have not. Preamble Section VIII.A. 

discusses various hypotheses that have been suggested to explain this phenomenon. Some of the 

explanations suggest that vehicle manufacturers and buyers will benefit from the rulemaking, 

and vehicle sales will increase; others suggest that the opposite might occur. The agencies do 

not have strong evidence supporting one specific explanation over another. As a result, the 

agencies do not suggest a direction for changes in employment due to changes in vehicle sales, 

though the net effect (as discussed above related to rebound) is not expected to be negative. 

Comment [A5]: interagency commenters suggest 

deleting this discussion since it is dealing with 

second order effects. 

Comment [A6]: This discussion isn’t consistent 

with Morgenstern et al. Please discuss the 

employment effects consistent with the framework 

set up by Morgenstern et al. 
Summary of Interagency Working Comments Received on Draft Rule Under EO 12866 and EO 13563 

Review. Subject to Further Policy Review.

6 

One commenter raised the issue of whether there could be a loss of recreation vehicle 

(RV) industry jobs due to a reduction in the sales of motor homes and towable RVs. As 

mentioned above, the effects of this rulemaking on HD vehicle sales depend on the desirability 

of the new vehicles. 

The truck and engine manufacturing sector has great flexibility in how to respond to the 

requirement for reduced greenhouse gases and increasing fuel efficiency, with a broad suite of 

technologies being available to achieve the standards. These technologies are described in detail 

in Chapter 2 of this RIA. Among these technologies, a distinction can be made between 

technologies that can be “added on” to conventional trucks versus those that replace features of a 

conventional truck. “Added on” features require additional labor to install the technologies on 

trucks, thus clearly increasing labor demand (the “cost effect”). For “replacement” technologies, 

the predicted impact on labor demand from regulation depends on the change in the amount of 

labor used to install one type of technology compared to another. In many cases, the new 

technologies are predicted to be more complex than the existing technologies and are therefore 

likely to require additional labor installation inputs. However, most of the technologies that are 

expected to be used to meet these standards are replacement technologies, therefore overall 

changes in the labor intensity are expected to be relatively small. For example, almost all of the 

engine improvements involve replacement technologies that are not expected to significantly 

change the labor requirements. Similarly, regulations of the chassis on vocational vehicles will 

only require the installation of a different type of tire, which is also not expected to have large 

labor intensity impacts. Therefore, the potential magnitude of the factor shift effect is expected 

to be relatively small, though slightly positive due to the additional labor needed to install more 

complex technologies. 

For the truck and engine manufacturing sector, the demand effect may result in either 

increased or decreased employment (though a decrease is considered unlikely); the cost effect is 

expected to increase employment; and the factor-shift effect may have a slightly positive effect 

on employment in this sector. 

(b) Motor Vehicle Parts Manufacturing Sector 

Some vehicle parts are made in-house and would be included directly in the regulated 

sector; alternatively, some are made by independent suppliers and are not directly regulated, but 

they will be affected by the rules as well. The parts manufacturing sector will be involved 

primarily in providing “add-on” parts, or components for replacement parts built internally. 

Because demand for these parts is expected to increase, employment effects in this sector are 

expected to be positive. 

(c) Transport and Shipping Sectors 

Although not directly regulated by these rules, employment effects in the transport and 

shipping sector are likely to result from these regulations. If the overall cost of shipping a ton of 

freight decreases because of increased fuel efficiency (taking into account the increase in upfront 

purchasing costs), in a perfectly competitive industry these costs savings will be passed along to 

customers. With lower prices, demand for shipping would lead to an increase in demand for 

Comment [A7]: interagency commenters suggest 

deleting this discussion since it is dealing with 

second order effects. 
Summary of Interagency Working Comments Received on Draft Rule Under EO 12866 and EO 13563 

Review. Subject to Further Policy Review.

7 

truck shipping services (consistent with the VMT rebound effect analysis) and therefore an 

increase in employment. In addition, if the relative cost of shipping freight via trucks becomes 

cheaper than shipping by other modes (e.g., rail or barge), then employment in the truck 

transport industry is likely to increase. To the extent that the trucking industry is more labor 

intensive than other modes, we would expect this effect to lead to an overall increase in 

employment in the transport and shipping sectors. 

(d) Fuel Suppliers 

In addition to the effects on the trucking industry and related truck parts sector, these 

rules will result in reductions in fuel use that lower GHG emissions. Fuel saving, principally 

reductions in liquid fuels such as diesel and gasoline, will affect employment in the fuel suppliers 

industry sectors, principally the Petroleum Refinery sector.8

 

Expected fuel consumption reductions by fuel type, and by heavy-duty vehicle type, can 

be found in Table VIII-7. These reductions reflect impacts from the new fuel efficiency and 

GHG standards and include increased consumption from the rebound effect. These fuel savings 

are monetized in Table VIII-8 by multiplying the reduced fuel consumption in each year by the 

corresponding estimated average fuel price in that year, using the Reference Case from the AEO 

2011. In 2014, the pre-tax fuel savings is $1.2 billion (2009$). While these figures represent a 

level of fuel savings for purchasers of fuel, it also represents a loss in value of output for the 

petroleum refinery industry. Since 50 percent of the fuel would have been refined in the U.S., 

the loss in output to the U.S. Petroleum Refinery sector is $600 million (2009$), which will 

result in reduced sectoral employment.9

 Because this sector is very capital-intensive, the 

employment effect is not expected to be large. 

(e) Fuel Savings 

As a result of this rulemaking, it is anticipated that trucking firms will experience fuel 

savings. Fuel savings lower the costs of transportation goods and services. and, as a result, 

could increase the profitability of trucking firms operating in the U.S. In a competitive market, 

the fuel saving that initially accrue to trucking firms are likely to be passed along as lower 

transportation costs that, in turn, could result in lower prices for final goods and services. In 

either case, the savings will accrue to some segment of consumers: either owners of trucking 

firms or the general public. In both cases, the effect will be increased spending by consumers in 

other sectors of the economy, creating jobs in a diverse set of sectors, including retail and service 

industries. 

As mentioned above, the value of fuel savings from this rulemaking is projected to be 

$1.2 billion (2009$) in 2014, according to Table VIII-8. If all those savings are spent by 

consumers or trucking firm owners, the fuel savings will stimulate increased employment in the 

economy through those expenditures. If the fuel savings accrue primarily to firm owners, they 

may either reinvest the money or take it as profit. Reinvesting the money in firm operations 

would increase employment directly. If they take the money as profit, to the extent that these 

owners are wealthier than the general public, they may spend less of the savings, and the 

resulting employment impacts would be smaller than if the savings went to the public. 

Comment [A8]: interagency commenters suggest 

deleting this discussion since it is dealing with 

second order effects. 

Comment [A9]: interagency commenters suggest 

deleting this discussion since it is dealing with 

second order effects. 

Comment [A10]: Lowering per unit costs of 

transportation is more plausible than the profitability 

argument, which is not needed here. 
Summary of Interagency Working Comments Received on Draft Rule Under EO 12866 and EO 13563 

Review. Subject to Further Policy Review.

8 

(3) Summary 

The net employment effects of this rulemaking are expected to be found throughout 

several key sectors: truck and engine manufacturers, the trucking industry, truck parts 

manufacturing, fuel production, and consumers. For the regulated sector, the demand effect may 

result in either increased or decreased employment, depending on the net effect on HD vehicle 

sales. The cost effect is expected to increase employment in the regulated sector; and the factorshift effect may have a slightly positive effect on employment, though we cannot definitively say 

this is the case without quantification. Increased expenditures by truck and engine manufacturers 

are expected to require increased labor to build parts, though this effect also depends on any 

changes in the labor intensity of production; increased complexity of technologies may imply 

increased labor inputs. The rule will displace other HD sector investment, which would have a 

negative effect on employment in the areas no longer the subject of investment. Lower prices 

for shipping are expected lead to an increase in demand for truck shipping services and, 

therefore, an increase in employment, though this effect may be offset somewhat by changes in 

employment in other shipping sectors. Reduced fuel production implies less employment in the 

fuel provision sectors. Finally, any net cost savings would be expected to be passed along to 

some segment of consumers: either the general public or the owners of trucking firms, who are 

expected then to increase employment through their expenditures Although we have not made a 

specific quantitative estimate of the overall employment impacts of this program, it is likely that 

employment increases due to additional truck parts manufacturing and to increased consumer 

expenditures will outweigh employment reductions in the fuel refining sector. Given the current 

level of unemployment, net positive employment effects are possible in the near term due to the 

potential hiring of idle labor resources by the regulated sector to meet new requirements (e.g., to 

install new equipment).
Summary of Interagency Working Comments Received on Draft Rule Under EO 12866 and EO 13563 

Review. Subject to Further Policy Review.

9 

Reference 

1

 Schmalensee, Richard, and Robert N. Stavins. “A Guide to Economic and Policy Analysis of EPA’s Transport 

Rule.” White paper commissioned by Excelon Corporation, March 2011. 

2

 Ibid. 

3

 U.S. Bureau of Labor Statistics seasonally-adjusted Current Employment Statistics Survey for the Truck 

Transportation Industry (NAICS 484) and the Motor Vehicle Parts Manufacturing Industry (NAICS 3363). 

4

 U.S. Census Bureau, 2009 Annual Survey of Manufactures, Published December 3, 2010. 

5 Union of Concerned Scientists and CalStart, Delivering Jobs: The Economic Costs and Benefits of Improving Fuel 

Economy of Heavy Duty Vehicles, July, 2010. http://www.ucsusa.org/deliveringjobs.

6 Berck, Peter, and Sandra Hoffman. “Assessing the Employment Impacts of Environmental and Natural Resource 

Policy.” Environmental and Resource Economics 22 (2002): 133-156.

7

 Morgenstern, Richard D., William A. Pizer, and Jhih-Shyang Shih. “Jobs Versus the Environment: An IndustryLevel Perspective.” Journal of Environmental Economics and Management 43 (2002): 412-436. 

8

 North American Industry Classification System (NAICS) Code 32411. 

9

 EPA and NHTSA estimate that approximately 50 percent of the reduction in fuel consumption resulting from 

adopting improved fuel GHG standards and fuel efficiency standards is likely to be reflected in reduced U.S. imports 

of refined fuel, while the remaining 50 percent is expected to be reflected in reduced domestic fuel refining. Of this 

latter figure, 90 percent is anticipated to reduce U.S. imports of crude petroleum for use as a refinery feedstock, 

while the remaining 10 percent is expected to reduce U.S. domestic production of crude petroleum. Because we do 

not expect to see a significant reduction in crude oil production in the U.S., we do not expect this rule to have a 

significant impact on the Oil and Gas Extraction industry sector in the U.S. (NAICS 211000). For more 

information, refer to Section VIII-I on the energy security impacts from the program.