Document ID: EPA-HQ-OAR-2014-0827-2218
Agency: epa
Document Type: Supporting & Related Material
Title: 
Posted Date: 2016-10-25T04:00Z

U.S. DEPARTMENT OF TRANSPORTATION

NATIONAL HIGHWAY TRAFFIC SAFETY ADMINISTRATION

1200 NEW JERSEY AVENUE SE.

WASHINGTON DC, 20590	UNITED STATES ENVIRONMENTAL PROTECTION AGENCY

OFFICE OF AIR AND RADIATION

NATIONAL VEHICLE AND FUEL EMISSIONS LABORATORY

2000 TRAVERWOOD DRIVE

ANN ARBOR, MI  48105-2498

July 18, 2016

MEMORANDUM

SUBJECT:	Small Business Economic Burden Calculations for Trailer SISNOSE
Analysis

FROM:	Jessica Brakora, Engineer, Assessment and Standards Division

Office of Transportation and Air Quality

TO:	Greenhouse Gas Emissions Standards and Fuel Efficiency Standards for
Medium- and Heavy-Duty Engines and Vehicles - Phase 2 - Dockets
NHTSA-2014-0132 and EPA-HQ-OAR-2014-0827

This memo documents the calculations used to determine the economic
burden of the trailer-specific small businesses potentially impacted by
the Greenhouse Gas Emissions Standards and Fuel Efficiency Standards for
Medium- and Heavy-Duty Engines and Vehicles - Phase 2 rules.  For more
information regarding the use of these calculations, see section XIV.D
of the preamble to these rules and the Final Regulatory Flexibility
Analysis found in Chapter 12 of the Regulatory Impact Analysis (RIA).

The agencies are providing a one-year delay as a small business
flexibility.  Since the costs to a business are delayed and not expected
to change with that one year, for this analysis, the “first year” is
assumed to be 2017 for all trailer manufacturers and costs are evaluated
for the 11 years out to 2027.  The one-year delay simply allows
manufacturers to spread out some of the initial capital costs and become
familiar with the compliance processes at a more gradual pace.  

EPA estimated trailer compliance costs based on four general categories:
 startup costs, infrastructure costs, testing costs, and continuous
costs.  Startup and infrastructure costs would be accrued in the first
year, but payment is expected to be distributed over multiple years. 
The number of vehicle families impacts the continuous compliance costs. 
Small manufacturers that produce both box vans and non-box trailers are
assumed to submit information for six families for compliance. 
Manufacturers that produce only box vans are assumed to have three
families, and manufacturers that only produce non-box trailers (tanks,
flatbeds and/or container chassis) are assumed to have a single family. 

Startup costs include computer system and software updates, equipment
and software needed for labeling, resources for user manuals, and
training for these systems.  Manufacturers that produce box vans are
expected to need more sophisticated software to track purchases and
perform compliance calculations.  As a result, the cost of the computer
software and training for manufacturers that only produce non-box
trailers are half the cost estimated for box van manufacturers. 
Labeling equipment is consistent for all manufacturers.  Startup costs
are estimated to be $65,600 for any manufacturers that produce box vans
and $46,500 for manufacturers that only produce non-box trailers.  These
costs are assumed to be zero beyond the first year of the program.

Infrastructure costs are also only estimated for box van manufacturers
who may need additional storage space for aerodynamic devices or process
changes to include device installation in their manufacturing line.  We
estimated a warehouse construction cost of $250,000 for large
manufacturers and $125,000 for small manufacturers who produce fewer
trailers and would require less storage.  Including process adjustments,
infrastructure costs are estimated to be $129,700 for small
manufacturers.  These costs are assumed to be zero beyond the first year
of the program.

The agencies developed the trailer program such that manufacturers have
the ability to use pre-approved test data from aerodynamic device
manufacturers in lieu of performing their own tests.  Similarly, it is
expected that the tire manufacturers will provide tire rolling
resistance data to the trailer manufacturers.  We expect some large
manufacturers will perform their own aerodynamic testing, but we assumed
all small manufacturers would take advantage of the pre-approved data
and perform zero testing.  We do expect the small manufacturers will
review the test procedures in the regulations in order to be familiar
with the requirements of the program.  However, we do not anticipate
they will accrue additional costs associated with the tests.  We
estimate testing costs of $1300 in the first year of the program for
test procedure review by the engineers and managers.  

Continuous costs include review of the regulations and guidance
documents, evaluation of aerodynamic device (box vans only) and tire
performance data, maintenance of the user manuals, training for device
installation, data collection and compliance calculations (box vans
only), preparation of certification application and end-of-year reports,
and data storage.  In the early years, costs to evaluate test data are
expected to be larger, when the program is new and more devices and
tires will need evaluation.  In addition to the reviewing the
regulations, we estimate 50 existing aerodynamic devices and 100 tire
models will be evaluated in the first year of the program at a cost of
$55,100 for any manufacturer that produces vans, and $15,000 for
manufacturers that exclusively produce non-box trailers.  In the
following years, five new tire models and 10 new aerodynamic devices are
estimated to be evaluated per year in addition to submitting compliance
information.  The number of certification applications and compliance
calculations depend on the number of families.  We assume 40 separate
labels may be needed for small manufacturers’ annual box van
production.  Non-box manufacturers will not have to make significant
updates to their labels annually.  The continuous costs for small
manufacturers that produce both box vans and non-box trailers are
estimated to be $58,200 after the first year.  Those that only produce
box vans would have continuous costs of $48,100 and those that only
produce non-box trailers would be $18,900.    REF _Ref455475832 \h 
Table 1  summarizes these intermediate costs.

Table   SEQ Table \* ARABIC  1   Estimated Small Business Manufacturer
Costs Based on Trailers Produced

	Vans & Non-Box

(6 Families)	Vans Only

(3 Families)	Non-Box Only

(1 Family)

	First

Year	Program Year	First

Year	Program Year	First

Year	Program Year

Start-Up	$65,600	$0	$65,600	$0	$46,500	$0

Infrastructure	$129,700	$0	$129,700	$0	$0	$0

Testing (aero and tire)	$1,300	$0	$1,300	$0	$0	$0

Continuous	$55,100	$58,200	$55,100	$48,100	$15,000	$18,900

EPA identified 178 trailer manufacturers.  Of those manufacturers, 147
companies qualify as small businesses according to SBA’s threshold of
1000 employees or fewer.  We believe 73 of these small businesses
exclusively manufacturer non-box trailers that are excluded from the
Phase 2 program with zero regulatory requirements and no associated
costs.  We believe 69 small businesses manufacturer the three types of
non-box trailer that are included in the trailer program (tanks,
flatbeds, and/or container chassis) or a combination of those trailers
and excluded trailers.  These non-box trailers have design-based tire
standards with an estimated 11-year average annual cost of $22,700 for
compliance.  We believe three of the small businesses exclusively
manufacture box vans and the estimated 11-year average annual cost for
the van-only manufacturers is $66,600.  The two small manufacturers that
produce both box van and non-box trailers would have average annual
costs of $75,800.    REF _Ref455475684 \h  Table 2  summarizes the
costs.

Table   SEQ Table \* ARABIC  2   Estimated Annual Average Small Business
Manufacturer Costs Based on Trailers Produced

	Vans & Non-Box	Vans Only	Non-Box Only	Excluded Vehicles

Number of Small Manufacturers	3	2	69	73

11-Year Average Annual Cost	$75,800	$66,000	$22,700	$0

EPA used 2014 annual revenue information from Hoovers online database to
estimate the number of businesses that would be significantly impacted
by these rules.  The 11-year average compliance costs for the specific
trailer production and business size was estimated to evaluate economic
impact.  As shown in   REF _Ref455475787 \h  Table 3 , it was found that
129 (88%) of the 147 small business trailer manufacturers would have an
impact less than one percent of their annual revenue.  The impact was
between one and three percent for 15 manufacturers (10%) and greater
than three percent for three manufacturers (2%).  When considering the
first year costs only (which are higher than the average costs), 119
manufacturers have an impact less than one percent, 11 manufacturers
have an impact between one and three percent, and 17 manufacturers have
an impact greater than three percent.  Even using the first-year costs,
less than 20 percent of the industry is impacted by greater than one
percent of their annual revenue. See the attached Excel file for the
specific trailer calculations, including estimated costs for large
business manufacturers.

Table   SEQ Table \* ARABIC  3   Estimated Impact on Small Business
Trailer Manufacturers Based on Annual Revenue

 	Number of Companies	Fraction of Industry

Businesses with <1% impact	129	88%

Businesses with >1% impact	15	10%

Businesses with >3% impact	3	2%

Attachment:  MemoAttachment_SBREFA_TrailerImpact_Calculations.xlsx

Small Business Economic Burden Calculations for Trailer SISNOSE
Analysis, Page   PAGE  2  of   NUMPAGES   3