Summary of Interagency Wo rking Comments Received on Draft Rule under EO 12866 Review. Subject to Further Policy Review

Below is a summary of interagency co mments received during EO 12866 review of the draft proposed 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.

1) Interagency commenter suggests incl uding the following language in the

Preamble and RIA:

“The agencies request comment on the me thods and assumptions used to estimate costs, benefits, and technology cost-effec tiveness for the main proposal and all of the alternatives. The agencies also seek comment on whether finalizing a different alternative stringency level fo r certain regulatory classes would be appropriate given agency estimat es of costs and benefits.”

2) Commenters note that the statement made in the “welfare impacts” section -- that the technologies do not change anything excep t fuel efficiency -- is potentially contradictory to the statements made in the “Conceptual Framework” section.

a. P. 6 of 9: Regarding single-wide tire s “drivers may not like the slightly different “feel” of wheel torque needed.”

b. P. 5 of 9: “As a result, capital investments by truck owners may be channels into equipment that improves vehicles’ durability or reduces their

maintenance costs.”

Commenter requests clarification as to wh ether this implies a tradeoff between the

two?

3) Please find below suggested interagency edit s in red to the Alternatives discussion which would apply to both th e RIA and Preamble discussion.

The heavy-duty truck segment is very co mplex. The sector consists of a diverse group of impacted parties, including engine manufacturers, chassis manufacturers, truck manufacturers, trailer manufact urers, truck fleet owners a nd the air breathing public. The proposal the agencies have laid out t oday is largely shaped to maximize the environmental and fuel savings benefits of the program respecting the unique and varied nature of the regulated industries. In de veloping this proposal, we considered a number

of alternatives that could have resulted in fewer or pot entially greater GHG and fuel consumption reductions than the program we are proposing. This section summarizes the alternatives we considered and presen ts assessments of technology costs, CO 2 reductions, and fuel savings associated with each altern ative. The agencies request comments on all of these alternatives, including whether a spec ific alternative coul d achieve greater netSummary of Interagency Wo rking Comments Received on Draft Rule under EO 12866 Review. Subject to Further Policy Review

2 of 12 benefits than the preferred alternative, e ither for all regulatory classes, or for any individual regulatory class. The agencies also request comments on whether any specific additional analyses could provide informati on that could further inform the selection among alternatives for the final rule.

How Do These Alternatives Compare in Overall GHG Emissions Reductions and Fuel Efficiency and Cost?

The agencies analyzed all nine altern atives through MOVES to evaluate the impact of each proposed a lternative, as shown in Error! Reference source not found.

. The table contains the annual CO 2 and fuel savings in 2030 and 2050 for each alternative (relative to the reference scenario of Alte rnative 1), presenting both the total savings across all regulatory classes, and for each regulatory class. Error! Reference source not

found. presents the annual technol ogy costs associated with e ach alternative (relative to the reference scenario of Alternative 1) in 2030 and 2050 for each regulatory class. Finally, the total annual downstream impacts of NO

x , CO, PM, and VOC emissions in 2030 for each of the primary a lternatives are included in Error! Reference source not

found. . The agencies request comment on whet her any of these alternatives could achieve greater net benefits than the preferred alternative, eith er for all regulatory classes, or for any individual regulatory class.

In analyzing the marginal economic impact of each of the alternatives relative to one another, or relative to the preferred Alternative 6, various potentially relevant timeframes and frames of reference for analys is could be employed. For example, it may be relevant to consider the impacts of an alternative not only in 2030 and 2050, but also in 2020. Likewise, it may be relevant to c onsider not just tota l annual impacts on the entire fleet in a given year, but also the ne t present value (NPV) impacts on the specific model year vehicles that are to be direc tly regulated in this rulemaking (i.e., MY2014 through MY2018). For the preferred Alterna tive 6, the agencies presented such an analysis of NPV impacts on each model year in Section VIII.K of the Regulatory Impact Analysis. However, such an analysis ha s not yet been performed for each regulatory

class or for the other alternatives. In the final rulemaking, the agencies will add to the economic analyses of alternatives presented in this NPRM by including, for each regulatory class, annualized impacts in 2020, as well as NPV lifetime impacts on the model year vehicles directly regulated by this rulemaking (i.e., MY2014 to MY2018). The agencies also request comments on the ti meframes of, and frames of reference for, economic analyses of alternatives that commen ters believe are relevant in evaluating the incremental impact of the agencies prefe rred Alternative 6, relative to the other

alternatives examined.Summary of Interagency Wo rking Comments Received on Draft Rule under EO 12866 Review. Subject to Further Policy Review

3 of 12 4) Please find below suggested interagency edits to the conceptual framework

discussion.



### A. Conceptual Framework for Evaluating Impacts

This regulation is motivated primarily by the goals of reducing emissions of greenhouse gases and promoting U.S. ener gy security by reducing consumption and imports of petroleum-based fuels. These motivations involve cl assic externalities, meaning that private decisions do not incorpor ate all of the costs associated with these problems; these costs are not borne complete ly by the households or businesses whose actions are responsible for them. In the absence of some mech anism to “internalize” these costs – that is, to tran sfer their burden to individua ls or firms whose decisions impose them – individuals and firms will consume more petroleum-based fuels than is socially optimal. Externalities are a classi c motivation for government intervention in markets. These externalities, as well as e ffects due to changes in emissions of other pollutants and other impacts, are discu ssed in Sections VIII.H – VIII.J.

In many (but not all) some cases, these classic externalities are by themselves enough to justify the costs of requiring these fuel

- saving technologies imposing fuel efficiency standards . For some discount rates and some projected social costs of carbon, however, the reductions in these external costs are less than the costs of the new fuel saving technologies needed to meet the standards . (See table 9-10 and 9-11 in the DRIA.)Nevertheless, this regulation reduces tr ucking companies’ fuel costs; according to our estimates, these savings in fuel costs are by themselves sufficient to pay for the technologies over periods of time considerably shorter than vehicles ’ expected lifetimes under the assumptions used for this analysis (e.g., AEO 2010 projected fuel prices). If these estimates are correct, then the entire value of the reductions in external costs represents additional net benef its of the rule, beyond those resulting from the fact that the value of fuel savings exceeds the costs of technologies necessary to achieve them.

The fact that we can identify It is often asserted that there are cost-effective fuelsaving technologies that truck co mpanies are not taking advantage of . This is a puzzle commonly known as the “energy gap” or “ener gy paradox.” Standard economic theory suggests that in normally functioning compe titive markets, interactions between vehicle buyers and producers would lead producers to incorporate all cost-e ffective technology into the vehicles that they offer, without government intervention. Unlike in the lightduty vehicle market, the vast majority of ve hicles in the medium- and heavy-duty truck market are purchased and operated by busin esses with narrow profit margins, and for which fuel costs represent a subs tantial operating expense.

Even in the presence of uncertainty a nd imperfect information – conditions that hold to some degree in every market – we ge nerally expect firms to attempt to minimize

their costs in an effort to survive in a competitive marketplace, and therefore to make

decisions that are in the best interest of the company and its owners and/or shareholders.Summary of Interagency Wo rking Comments Received on Draft Rule under EO 12866 Review. Subject to Further Policy Review

4 of 12 In this case, the benefits of the rules woul d be due exclusively to reducing the economic costs of externalities resulting from fuel production and consumption. However, as discussed below in Section VIII.E, the agenci es have estimated that the application of fuel-saving technologies in respons e to the proposed standards would , on average, yield private returns to truck owners of 140% to 420% (see Table VIII-21 below). The agencies have also estimated that the a pplication of these technologies would be significantly lower in the absen ce of the proposed standards ( i.e. , under the “no action” regulatory alternative), meaning that truck buyers and operators i gnore opportunities to make investments in higher fuel economy that appear to offer significant cost savings.

There are several possible explanations in the economics literature for why trucking companies do not adopt technologies that would be expected to increase their profits: there is could be a classic market failure in the trucking industry – market power, externalities, or asymmetric or incomple te (i.e., missing market) information; there are could be institutional or behavioral rigidities in the industr y (union rules, standard operating procedures, statutory requirements, loss aversion, etc.), whereby participants collectively do not minimize costs; or the engi neering estimates of fu el savings and costs for these technologies might overstate their benefits or under state their costs in real-world applications. To try to understand why trucking companies have not adopted these seemingly cost-effective fuel-saving technolog ies, the agencies have surveyed published literature about the energy pa radox, and held discussions w ith numerous truck market participants. Below, we have listed five ca tegories of possible explanations derived from these sources. Collectively, these five hypothe ses may explain the a pparent inconsistency between the engineering analysis, which finds a number of cost-effective methods of improving fuel economy, and the observation th at many of these t echnologies are not widely adopted.

These hypotheses include imperfect information in the original and resale markets, split incentives, uncertainty about future fuel prices, and adjustment and

transactions costs. As the discussion will indicate, some of these explanations suggest failures in the private market for fuel-savi ng technology, in addition to the externalities caused by producing and consuming fuel that ar e the primary motivation for the rules. Other explanations suggest market-based be haviors that may imply additional costs of regulating truck fuel efficiency that are not accounted for in this analysis. Anecdotal evidence from various segments of the tr ucking industry suggests that many of these hypotheses may play a role in explaining the puzzle of why truck pur chasers appear to under-invest in fuel economy, although differe nt explanations may apply to different segments, or even different companies. Th e published literature does not appear to include empirical analysis or da ta related to this question.

The agencies invite comment on these explanations, and on any data or information that could be used to investig ate the role of any or all of these five hypotheses in explaining this energy paradox as it applies sp ecifically to trucks. The agencies also request comment and inform ation regarding any other hypotheses thatSummary of Interagency Wo rking Comments Received on Draft Rule under EO 12866 Review. Subject to Further Policy Review

5 of 12 could explain the appearance that cost-effec tive fuel-saving technologies have not been widely incorporated into trucks.

(1) Information Issues in the Original Sale Markets

One potential hypothesis for why the tr ucking industry does not adopt what appear to be inexpensive fuel saving technologies is that ther e is inadequate or unreliable

information available about the effectivene ss of many fuel-saving technologies for new vehicles. As the NAS report notes, “Re liable, peer-reviewed data on fuel saving performance is available only for a few technol ogies in a few applications. As a result, the committee had to rely on information fr om a wide range of sources, ... including many results that have not been duplicated by other researchers or verified over a range of duty cycles.” If reliable information on the effectiveness of ma ny new technologies is absent, truck buyers will unde rstandably be reluctant to spend additional money to purchase vehicles equipped w ith unproven technologies.

This lack of information can manifest its elf in multiple ways. For instance, the problem may arise purely because collecting reliable information on technologies is costly (also see Section VIII.A.5 on transa ction costs). Moreover, information has aspects of a public good, in that no single firm has the incentive to do the costly experimentation to determine whether or not particular technologies are cost-effective, while all firms benefit from the knowledge that would be gained from that experimentation. Similarly, if multiple firms must conduct the same tests to get the same information, costs could be reduced by so me form of coordination of information gathering.

There are several possible reasons why trucking firms may experience difficulty gathering or interpreting inform ation about fuel saving technol ogies. It may be difficult for truck drivers and fleet operators to se parate the individual effects of various technologies and operating strategi es from one another, particul arly when they tend to be used in conjunction. It may also be difficult for truck operators to assess the applicability of even objective and reliable test results to their own specific vehi cle configurations and operating practices; at the same time, the effects of speci fic technologies or operating practices may vary with geography, season of the year, or other f actors. In highly competitive markets, any firm that conducts test s of fuel efficiency is unlikely to share results with other firms. If so, then co st-effective technological improvements may not be adopted because they cannot be reliably dis tinguished from inefficient technologies.

To some extent, information about th e effectiveness of some selected technologies does exist, and it suggests that so me technologies appear to be very costeffective in some situations . The SmartWay Transport Partnership is a complementary partnership between EPA and the freight goods industry (shippers, truck and rail carriers, and logistics companies) whose aim is to provide better informa tion on fuel-efficient, low-carbon technologies and operatio nal practices to help acce lerate their deployment.Summary of Interagency Wo rking Comments Received on Draft Rule under EO 12866 Review. Subject to Further Policy Review

6 of 12 SmartWay initially focused on evaluating a nd testing technologies for use in over-theroad class 8 tractor-trailers, commonly operate d by the large, national trucking fleets. For this reason, more information is available a bout the configuration and operation of these types of trucks. Many of the technologies that SmartWay selected for evaluation can also save fuel and reduce greenhouse gas emissions in other types of trucks and trucking operations.

However, due to the wide diversity among other types of trucks and truck operations, and lack of precise information about the effectiveness of technologies in each one of these types of truck and trucking operations, it is difficult for the program to provide good information that is specific to each company. This makes it much more challenging to improve market confidence in fuel-saving technologies for these other truck types in the same way that SmartW ay has done with its existing partners. SmartWay will continue to serve as a test bed for emerging technologies and as a conduit for technical information by developing a nd sharing information on other types of medium and heavy duty vehicles, helping to build market conf idence in innovative financial, technical and operational solutions for medium- and heavy-duty vehicles across the freight goods industry, and promoting re trofit fuel-saving technologies within the existing legacy fleet. Information provision, such as the efforts of the SmartWay program, is a direct, non-regulatory appro ach to addressing the problem of the availability and reliability of results, as l ong as truck purchasers ar e able and willing to

act on the information.

While its effect on information is indirect, we expect the requirement for the use of new technologies include d in this proposal will encourage circumvent these information

issues, resulting in their adoption their adoption , thus providing more readily available information about their benefits. The agencies appreciate, however, that the diversity of truck uses, driving situati ons, and driver behavior may still will lead to variation in the fuel savings that individual trucks or fleets experience fr om using specific technologies

and some fleets or trucks ma y be made worse off by the imposition of fuel efficiency

standards

. (2) Information Issues in the Resale Market

In addition to issues in the new vehi cle market, a second hypothesis for why trucking companies may not adopt what appear to be cost-e ffective technologies to save fuel is that the resale market may not re ward the addition of fuel-saving technology to vehicles adequately to ensure their or iginal purchase by new truck buyers. This inadequate payback for users beyond the orig inal owner may cont ribute to the short payback period that new purch asers appear to expect. 1 The agencies seek data and

information on the extent to which costs of fu el saving equipment can be recovered in the

resale truck market.

1 See NAS 2010, Note Error! Bookmark not defined. , at p. 188.Summary of Interagency Wo rking Comments Received on Draft Rule under EO 12866 Review. Subject to Further Policy Review

7 of 12 Some of this unwillingness to pay for fu el-saving technology may be due to the extension of the information problems in the new vehicle market into resale markets. Buyers in the resale market have no more reason to trust info rmation on fuel-saving technologies than buyers in the original market . Because actual fuel economy of trucks on the road depends on many factors, includi ng geography and driving styles or habits, even objective sources such as logs of tr uck performance for used vehicles may not provide reliable information about the fuel economy that potential purchasers of used trucks will experience.

A related possibility is that vehicles w ill be used for different purposes by their second owners than those for which they we re originally designed. For instance, a vehicle originally purchased for long hauls might be used by its second owner instead for regional or intrastate trips, in which case some of the fuel-savi ng measures that proved effective in its original use may not be equall y effective in these new uses. If information were more widely available and reliable, then purchasers in the resale market would seek vehicles with technologies th at best suited their purposes , and buyers would be matched

with sellers so that used ve hicles would be used primarily for purposes in which their fuel-saving technologies we re most valuable.

It is also possible, thoug h, that the fuel savings e xperienced by the secondary purchasers may not match those experienced by their original owne rs if the optimal secondary new use of the vehicle does not earn as many benefits from the technologies. In that case, the premium for fuel-saving technology in the secondary market should accurately reflect its value to potential buyers pa rticipating in that market, even if it is lower than its value in the original market , and the market has not failed. Because the information necessary to optimize use in the secondary market may not be readily available or reliable, however, buyers in th e resale market may ha ve less ability than purchasers of new vehicles to identify and gain the advantages of new fuel-saving technologies, and may thus be even less likely to pay a premium for them.

For these reasons, purchasers’ willingness to pay for fuel

‐ economy technologies may

be even lower in the resale market than in the original equipment market technology diffusion is likely to be even lower in the resa le market than in the original market . Even when fuel-saving technologies will prov ide benefits in the resale ma rkets, purchasers of used vehicles may not be willing to compensate thei r original owners fully for their remaining value. As a result, the purchasers of origin al equipment may expect the resale market to provide inadequate appropriate compensation for the new technologies, even when those technologies would reduce costs for the new buye rs. This information issue may partially explain what appear to be the very short payback periods required for new technologies

in the new vehicle market.Summary of Interagency Wo rking Comments Received on Draft Rule under EO 12866 Review. Subject to Further Policy Review

8 of 12 (3) Split incentives in the mediu m- and heavy-duty truck industry

A third hypothesis explaining the energy pa radox as applied to trucking involves split incentives. When markets work effectivel y, signals provided by transactions in one market are quickly transmitted to related markets and influence the decisions of buyers

and sellers in those related markets. For instance, in a well-func tioning market system, changes in the expected future price of fu el should be transmitted rapidly to those who purchase trucks, who will then reevaluate the amount of fuel-saving technology to purchase for new vehicles. If for some reas on a truck purchaser will not be directly responsible for future fuel costs, or the i ndividual who will be responsible for fuel costs

does not decide which truck characteristics to purchase, then those price signals may not be transmitted effectively, and incentiv es can be describe d as “split.”

One place where such a split may occur is between the owners and operators of trucks. Because they are generally responsib le for purchasing fuel, truck operators have strong incentives to economize on its use, and are thus likely to support the use of fuelsaving technology. However, the owners of tr ucks or trailers are often different from their operators, and, when purchasing vehicl es, may be more concerned about their longevity or maintenance costs than about th eir fuel efficiency. As a result, capital investments by truck owners may be channele d into equipment that improves vehicles’ durability or reduces their maintenance costs, rather than into fuel-saving technology. If operators can choose freely among the truc ks they drive, competition among truck owners to employ operators would encourage ow ners to invest in fuel-saving technology. However, if truck owners have more abil ity to choose among opera tors, then market signals for improved fuel savings that woul d normally be transmitted to truck owners may be muted.

Anecdotal information about large truc k fleets suggests that, even within a company, the office or department responsible for truck purchases is often different from that responsible for purchasing fuel. Theref ore, the employees who purchase trucks may have strong incentives to lower their initial capital cost, bu t not equally strong incentives to lower operating costs.

Single-wide tires, which sa ve fuel and allow more payload (thus increasing revenue), offer another example of split incentives. They require a different driving style; those concerned about re taining drivers may resist their purchase, because drivers may not like the slightly different "feel" of wheel torque needed. Maintenance and repair staff may resist them because the tires may not be as available as they would like on the road, or they may need to change road serv ice providers. Finally, those who resell the trucks may believe that the resale market will not value the tires. While financial pressures should provide incentives for greate r coordination, especia lly when fuel costs are a large share of operating co sts, it may be difficult inst itutionally to change budgeting procedures and to coordinate across offices. Thus, even within a company incentives for fuel savings may not be fully transmitted to those responsible for purchasing decisions.Summary of Interagency Wo rking Comments Received on Draft Rule under EO 12866 Review. Subject to Further Policy Review

9 of 12 In addition, the NAS report notes that sp lit incentives can ar ise between tractor and trailer operators. 2 Trailers affect the fuel efficien cy of shipping, but trailer owners do not face strong incentives to coordinate w ith truck owners. Although some trucking

fleets own or lease their own tr ailers, a significant part of the trucking business is “drop and hook” service, in which trucking fleets pick up and drop off traile rs and containers. These trailers and containers can belong to shippers, other trucking companies, leasing companies, or ocean-going vessel lines, in whic h cases their owners may not face strong incentives to economize on fuel consump tion by tractor operators. Though tractor operators should, in principle, have some ability to arrange tractor-trailer combinations that provide increased fuel efficiency, the valu e of the resulting fuel savings may be small relative to the complexity and cost involved. EPA and NHTSA are not proposing to regulate trailers in this proposal.

By itself, information provision may be inadequate to address the potential underinvestment in fuel economy resulting from such split incentives. In this setting, regulation may contribute to fuel savings th at otherwise may be difficult to achieve.

The agencies seek evidence and data on the extent to which split incentives affect purchasing choices in truck markets. For exampl e, are trailer buyers that do not own their own tractors less likely to purchase aerodynami c trailers than thos e that purchase and

drive both tractor s and trailers?

(4) Uncertainty about Future Cost Savings

Another hypothesis for the l ack of adoption of seemingl y fuel saving technologies may be uncertainty about future fuel prices or truck maintenance costs. When purchasers have less than perfect foresi ght about future operating expe nses, they may implicitly discount future savings in those costs due to uncertainty about potential returns from

investments that reduce future costs. In c ontrast, the immediate costs of the fuel-saving or maintenance-reducing technologies are certain and immediate, and thus not subject to discounting. In this situati on, both the expected return on capital investments in higher fuel economy and potential varian ce about its expected rate ma y play a role in a firm’s calculation of its payback pe riod on such investments.

In the context of energy efficiency investments for the home, Metcalf and Rosenthal (1995) and Metcal f and Hassett (1995) observe that households weigh known, up-front costs that are essentia lly irreversible against an unkno wn stream of future fuel savings. 3 Uncertainty about the va lue of future energy savi ngs may make risk-averse

2 See NAS 2010, Note Error! Bookmark not defined. , at p. 182.

3 Metcalf, G., and D. Rosenthal (1995). “The ‘New’ View of Investment Decisions and Public Policy Analysis: An Application to Green Lights and Cold Refrigerators,” Journal of Policy Analysis and Management 14: 517–531. Hassett and Metcalf (1995). “Energy Tax Credits and Residential Conservation Investment: Evidence from Panel Data” Journal of Public Economics 57 (1995): 201-217. Metcalf, G., andSummary of Interagency Wo rking Comments Received on Draft Rule under EO 12866 Review. Subject to Further Policy Review

10 of 12 households reluctant to invest in energy- saving technologies that appear to offer

attractive economic returns. These authors find that it is possible to replicate the observed adoption rates for household energy efficiency improvements by incorporating the effect of uncertainty about the value of fu ture energy savings into an empirical model. Notably, in this situation, requiring househol ds to adopt technologies more quickly may make them worse off, by imposing additional risk on them.

Greene et al. (2009) also find support for this ex planation in the context of lightduty fuel economy decisions: a loss-averse consumer’s expe cted net present value of increasing the fuel economy of a passenger car can be very close to ze ro, even if a riskneutral expected value calcula tion shows that its buye r can expect significant net benefits from purchasing a more fuel-efficient car. 4 These authors note th at uncertainty regarding the future price of gasoline is a less important source of this result than is uncertainty about the lifetime, expected use, and reliabi lity of the vehicle. Supporting this hypothesis is a finding by Dasgupta et. al (2007) that consumers are more likely to lease than buy a vehicle with higher maintenance costs because it provides them with the option to return it before those costs become too high. 5 However, the agencies know of no studies that have estimated the impact of uncertainty on perceived future savings for medium- and heavy-duty vehicles.

Purchasers’ uncertainty about future fuel prices implies that mandating improvements in fuel efficiency can reduce th e expected utility associated with truck purchases. This is because adopting such regulation requires purchasers to assume a greater level of risk than they would in its absence, even if the future fuel savings predicted by a risk-neutral ca lculation actually materialize. Thus the mere existence of uncertainty about future savings in fuel co sts does not by itself assu re that regulations requiring improved fuel efficiency will necessa rily provide economic benefits for truck purchasers and operators. On the other ha nd, because risk aversion reduces expected returns for businesses, competitive pressures can reduce risk aversion: risk-neutral companies can make higher average profits ove r time. Thus, significant risk aversion is unlikely to survive competitive pressures.

(5) Adjustment and Transactions Costs

Another hypothesis is that transactions costs of changing to new technologies (how easily drivers will adapt to the changes, e.g.) may slow or prevent th eir adoption. Because of the diversity in the trucking industry, truck owne rs and fleets may like to see how a new technology works in the field, when applied to their specific operations,

K. Hassett (1999). “Measuring the Energy Savings from Home Improvement Investments: Evidence from Monthly Billing Data.” The Review of Economics and Statistics 81(3): 516-528.

4 Greene, D., J. German, and M. Delucchi (2009). “Fuel Economy: The Case for Market Failure” in Reducing Climate Impacts in the Transportation Sector, Sperling, D., and J. Cannon, eds. Springer Science.

5 Dasgupta, S., S. Siddarth, and J. Silva-Risso (2007). “To Lease or to Buy? A Structural Model of a Consumer’s Vehicle and Contract Choice Decisions.” Journal of Marketing Research 44: 490 – 502.Summary of Interagency Wo rking Comments Received on Draft Rule under EO 12866 Review. Subject to Further Policy Review

11 of 12 before they adopt it. A If a conservative approach to new technologies may lead s truck buyers to adopt new technologies slowly , then successful new tec hnologies are likely to be adopted over time without market interv ention, but with delays in achieving fuel saving, environment, and energy security benefits. or not at all

. .

In addition, there may be costs associated with training drivers to realize the potential fuel savings enabled by new technol ogies, or with accelerating fleet operators’

scheduled fleet turnover and re placement to hasten their acq uisition of vehicles equipped with new fuel-saving te chnologies. Here, again, there may be no market failure requiring the widespread use of these technologies ma y impose adjustment and transactions costs not included in this analysis. As in the disc ussion of the role of risk, these adjustment and transactions costs are typically immedi ate and undiscounted, while their benefits are future and uncertain; risk or loss aversi on may further discourage companies from adopting new technologies.

To the extent that there may be trans actions costs associated with the new technologies, then regulation gives all new tr uck purchasers a level playing field, because it will require all of them to adjust on approximately the same time schedule. If experience with the new technol ogies serves to reduce uncerta inty and risk, the industry as a whole may become more accepting of new technologies. This could increase demand for future new technologies and induce additional benefits in the legacy fleet through complementary efforts such as SmartWay.

(6) Summary

On the one hand, commercial vehicle opera tors are under competitive pressure to reduce operating costs, and thus their purchasers would be exp ected to pursue and rapidly adopt cost-effective fuel-saving technologies . On the other hand, the short payback period required by buyers of new trucks is a symptom that suggests some combination of uncertainty about future cost savings, transactions costs, and imperfectly functioning markets. In addition, widespread use of tr actor-trailer combinations introduces the possibility that owners of trailers may have weaker incentives than truck owners or operators to adopt fuel-saving technology for their trailers. The ma rket for medium- and heavy-duty trucks may face these problems, bot h in the new vehicle market and in the

resale market..

Provision of information about fuel-s aving technologies through voluntary programs such as SmartWay will assist in th e adoption of new cost-saving technologies, but diffusion of new technologies can still be obstructed. Those who are willing to experiment with new technologies expect to find cost savings, but those may be difficult to prove. As noted above, because individua l results of new technologies vary, new truck purchasers may find it difficult to identify or verify the effects of fuel-saving technologies. Those who are risk-averse ar e likely to avoid new technologies out of concerns over the possibility of inadequate returns on the investment, or with otherSummary of Interagency Wo rking Comments Received on Draft Rule under EO 12866 Review. Subject to Further Policy Review

12 of 12 adverse impacts. Competitive pressures in the freight transport industry can provide a strong incentive to reduce fuel consumption and improve environmental performance. However, not every driver or trucking fleet operating today has the requisite ability or

interest to access the techni cal information, some of wh ich is already provided by SmartWay, nor the resources necessary to evalua te this information within the context of his or her own freight operation.

As noted at the beginning of this secti on, the agencies seek comments on all these hypotheses, as well as any data that could inform our understa nding of what appears to be slow adoption of cost-effective fuel-sav ing technologies in these industries.