Air Pollution Emissions From Heavy-Duty Engines As Well As Related Standards For The Sulfur Content Of Diesel Fuel

ops.fhwa.dot.gov, Aug 01, 2005

The U.S. EPA has approved a series of new standards for air pollution emissions from heavy-duty engines as well as related standards for the sulfur content of diesel fuel. There are concerns that these standards could potentially cause disruptions to the motor carrier industry by affecting service quality and profitability.

In October 1997, EPA established standards for heavy-duty engine NOx emissions (2.5 g/bhp-hr) to take effect in 2004. Three years later in January 2001, EPA ordered further emissions reductions for heavy-duty engines to be phased in starting in 2007 (0.2 g/bhp-hr NOx and 0.01 g/bhp-hr PM). At that time, EPA also established much lower standards for the sulfur content of on-road diesel fuel (15 ppm, 95% lower than the current standard of 500 ppm) to begin in late 2006. The fuel standard is critical to emission reduction efforts because sulfur can contribute to particulate matter emissions and also “poison” some emission reduction devices like catalysts.

Soon after the 2004 standards were established, EPA sued most heavy-duty engine makers, charging that they had programmed engines to reduce emissions during certification tests but emit at a higher rate during on-road driving. Seven engine makers (Caterpillar, Cummins, Detroit Diesel, International, Mack, Renault, and Volvo) agreed to settle the lawsuit and accepted a consent decree. In addition to fines, the engine makers agreed to accelerate compliance with the 2004 NOx standards to October 1, 2002. Many in the motor carrier industry are concerned that engines meeting this new emissions standard are unproven and may saddle them with higher maintenance costs and lower fuel economy.

Industry leaders we interviewed were divided on the importance of this issue — more so than any other issue. Many ranked this issue as among the most serious facing their company due to the anticipated higher purchase price and maintenance costs, lower fuel economy, and uncertain reliability of the newly certified engines. The timing of our interviews, just after the October 1, 2002 deadline, probably contributed to a general anxiety over the issue. Several other carriers did not see this issue as much of a problem, primarily because it affects all carriers equally. The president of one large carrier said there is a spreading perception that the industry's fears about fuel costs and maintenance problems with the new engine requirements were exaggerated. Most carriers are not yet thinking about the 2007 emissions standards, which potentially present a much greater challenge to the engine makers.

8.1 Causes and Industry Effects

There is widespread concern that achieving the new emissions standards comes at the cost of some diminished engine performance. Most engine makers will meet the 2.5 g/bhp-hr NOx standard by adding exhaust gas recirculation (EGR), a technique that directs some of the oxygen-depleted exhaust gases back into the engine. While reducing NOx formation, EGR can also potentially cause:

Higher engine temperatures (requiring longer fan operation) Possible need for more frequent engine maintenance
Fuel economy is a major concern to motor carriers, given that fuel can make up 20 percent of operating costs.32 It is too soon to make an assessment of the new NOx standards on fuel economy. Engine makers claim that they have met the standard without compromising fuel economy. EPA’s regulatory impact analysis for the standard estimated that the fuel economy penalty associated with EGR will be offset by improvements to fuel injection and other engine enhancements.33 Most motor carriers are convinced that they will see lower fuel economy under the new standard.

Meeting the emissions standards with any technological approach increases engine manufacturing costs, and may result in higher truck purchase costs for motor carriers. EPA’s regulatory impact analysis estimated that meeting the 2004 standards would increase manufacturing costs by an average of $803 per engine.34 It is not yet clear what the actual cost increases have been, or how much of this cost will get passed on to final purchasers (carriers).

Because of these side effects, particularly uncertainty over engine reliability, motor carriers have been reluctant to purchase the newly certified engines. Instead, fleets have been purchasing larger numbers of older engines (used engines and new engines manufactured before 10/1/02), and also holding on to their current trucks longer than they normally do. Many of the carriers we interviewed have taken this approach, sometime buying a small number of the newly certified engines to assess their performance. Manufacturers have experienced a drop in new engines sales as a result of these purchasing patterns, a problem compounded by lower sales overall due to the sluggish US economy. Several engine makers have announced layoffs, including Caterpillar and Detroit Diesel.

The effects of the 2002/2004 emission standards on the motor carrier industry are uncertain, but will almost certainly not be as serious as the predictions of carriers in 2002. Before the October 1, 2002 deadline, the motor carrier industry and some engine makers were lobbying hard for a delay in the standards, and thus had every reason to predict disastrous effects. For example, ATA warned in June 2002 that the nation could face “massive truck manufacturing and fleet management disruptions.” That has clearly not happened. Because of the price premium on the new engines and possibly lower fuel economy, the emissions standards will increase costs at least slightly for fleets, and may increase bankruptcies among marginal carriers. This effect will probably be small relative to other market forces that affect carrier costs, including fuel price swings and insurance costs. If the new engines prove to have long-term reliability problems, this could lead to more significant losses across the entire industry.

The 2007 standards potentially pose a far greater challenge to the motor carrier industry. Allowable NOx and PM emissions in 2007 are just one-tenth the 2002/2004 levels. The technologies to achieve these reductions are unproven, and engine makers have yet to decide which ones they will use. In order to have finished models ready for testing by 2006, manufacturers have just three years to complete their research and develop prototypes. Engines meeting the 2007 standards are likely to be more expensive (EPA estimates a cost increase of $1,200 to $1,900 per truck), and may be trigger another round of concerns about reliability and performance.

The 2006 fuel standards are expected to raise the cost of producing and distributing diesel fuel by 4.5 to 5 cents per gallon.35 A 5 cent increase in fuel prices would add over $800 in annual operating costs per truck for a typical long-haul carrier. However, unlike the fuel price volatility issue, this price increase will be expected and can be matched by a similar increase in freight rates.