What will it really cost to build the next generation of low-NOx trucks?
The California Air Resources Board (CARB) recently adopted a new rule to significantly reduce real-world nitrogen oxide (NOx) emissions from new on-road heavy-duty engines sold in the state between 2024 and 2031. The rule is badly needed because these engines emit very high levels of NOx in everyday operation—much higher than the engines are certified to. In urban driving conditions specifically, actual on-road NOx emissions from new heavy-duty vehicles (HDVs) sold today are, on average, about 7 times the regulatory limits. Those excess NOx emissions while operating on city streets and highways mean that a huge number of people, many if not most of them members of disadvantaged communities, are exposed to dangerous levels of a harmful air pollutant. New research even links poor air quality to increased risks of contracting and dying from COVID-19. California’s regulation will change that. And now a number of other states are looking to follow California’s lead, as they are permitted to do under Section 177 of the Clean Air Act.
Vehicle and engine manufacturers historically dislike this situation. Their preference has always been for a national standard over a patchwork of regulations among the states. They have in the past lobbied hard against state by state action, and this time is no different.
One of their main arguments against the new California low-NOx truck rule is that the cost of complying will be so high as to outweigh the health benefits. CARB, on the other hand, estimates the benefit-cost ratio is more than 7:1. Who to believe?
Five studies have been published that analyze the cost to manufacturers of the low-NOx regulation: one by us at the International Council on Clean TransportationManufacturers of Emissions Control Association (MECA); one by the California Air Resources Board itself; one by the National Renewable Energy Laboratory (NREL); and one by the Truck and Engine Manufacturers Association (EMA).
The bar chart below chart shows what each of the five studies found to be the incremental per engine cost (for 12L–13L engines) to the manufacturer of full compliance with the final step of CARB’s regulation. Quite obviously, there are huge differences. The estimates range from $2,170 (the lowest, from our study) to $80,821 (the highest, from EMA). For reference, a new tractor-trailer costs around $170,000–$180,000, on average.
Summary of results from 5 studies on the incremental per engine (12L–13L) cost to fully comply with CARB’s low-NOx omnibus regulation. (Note that while the other studies all produced a range of cost estimates, CARB’s only produced one – the norm for a regulation.)
What accounts for such a large differential? A number of factors, but the largest appears to be methodology. The table below summarizes the methodologies used in each study to estimate the five key cost elements: hardware/manufacturing, durability requirements, warranty requirements, research and development, and compliance activities.
As mentioned, our cost estimates were the lowest. Why? We conducted a bottom-up study to estimate the cost of manufacturing the improved emissions controls systems, meaning we determined every component of the new system and priced out how much it would cost in the year 2027—a very accurate way of estimating. In addition, we used well-vetted methods to calculate R&D costs for new technology as well as costs related to increased durability requirements. But we did not include the cost of the warranty and the cost of manufacturers’ compliance activities (like implementation of new test procedures and expanded reporting requirements); our focus was on the hardware, not the administrative costs. So, not surprising perhaps that our number was the lowest.
The EMA study, conducted by ACT Research, did include warranty and compliance costs. Fair enough, their members have to pay them. But the methodology they used was . . . to survey themselves. Yes, the engine manufacturers hired a consultant to ask the engine manufacturers how much they thought the rule would cost. An anonymous and confidential survey, to boot, of which the details have not been disclosed. This is about as technically rigorous as me concluding that ice cream is a healthy dinner option based on a survey of my kids. CARB staff were a bit more diplomatic: “[I]t is possible that some OEMs may have strategically inflated their survey responses to make any resulting conclusions less supportive of CARB staff’s Proposed Amendments.”
So, were there any cost estimates that utilized a sound methodology while also including warranty and compliance costs? Why yes, as it happens, one of the five studies did just that: CARB’s own. That study estimates an incremental, per-vehicle cost increment of $8,478. The hardware/durability/R&D part of that estimate is about $6,700, about two-and-a-half times our estimate. The remaining $1,800 is the added costs for extended warranty and expanded compliance activities.
CARB’s numbers translate into about a 5% increase in the cost of new HDVs in order to save billions of dollars from avoided premature deaths, hospitalizations, doctor visits, use of medication, and emergency room visits due to exacerbation of chronic heart and lung diseases and other adverse health conditions caused by exposure to diesel exhaust. Other states that chose to adopt this regulation would see similar benefit-cost outcomes.
I don’t know what explains EMA’s choice of “methodology.” I do know that if EMA wants their input on future rulemakings to be taken seriously, they need to adopt a different approach to data collection—one that, just to begin with, is more transparent and replicable by outside groups. Without that there’s no option but to conclude that EMA’s numbers are not based on sound science.
|ICCT||Hardware/Manufacturing||Bottom-up analysis. Each in-cylinder and aftertreatment component is studied independently. The cost information for each item comes from bottom-up cost assessments, available literature, trade publications, suppliers, and expert reviews. Includes manufacturer learning curves modeling which decreases projected manufacturing costs over time as production volumes scale and manufacturing processes improve.|
|Durability||Analyzed two cases: (1) lower cost case that is parallel to current technology progression (since 2010); (2) higher cost case where increased durability requirements force changes in component sizes.|
|R&D||Calculated through indirect cost multiplier technique (EPA methodology).|
|Compliance Activities||Not included|
|MECA||Hardware/Manufacturing||Anonymous survey of emissions control manufacturers (MECA members). Only aggregated results presented.|
|Durability||Anonymous survey of emissions control manufacturers (MECA members). Only aggregated results presented.|
|Warranty||Anonymous survey of emissions control manufacturers (MECA members). Only aggregated results presented.|
|Compliance Activities||Not included|
|CARB||Hardware/Manufacturing||Utilized NREL results (with adjustments for updated useful life and warranty requirements, which were decreased between NREL’s study and the final proposed amendments). Applied a learning curve.|
|Durability||Integrated into hardware cost analysis|
|Warranty||CARB did not utilize NREL’s results for warranty costs as they found the costs unjustifiably high. Instead they determined these costs based on analysis of historical warranty costs: warranty claims rate and average repair cost. Scaled up based on new hardware components and increase in mileage (using mileage ratio). Includes analysis of how many miles are currently traveled under warranty vs. how many will likely be traveled under the new program (e.g., how many vehicles will reach their minimum years before the minimum miles).|
|R&D||Utilized NREL results (with adjustments for updated useful life and warranty requirements, which were decreased between NREL’s study and the final proposed amendments).|
|Compliance Activities||Calculated detailed analysis of costs of each increase in compliance activities, including implementation of new test procedures, new expanded reporting requirements, emissions warranty information report (EWIR), and corrective action costs.|
|NREL||Hardware/Manufacturing||Anonymous survey of emissions control manufacturers, engine manufacturers and suppliers (five survey responses total, MECA’s response was one of the five, the other four were not shared).|
|Durability||Anonymous survey of emissions control manufacturers, engine manufacturers and suppliers (five survey responses total, MECA’s response was one of the five, the other four were not disclosed).|
|Warranty||Anonymous survey of engine manufacturers only (exact number of respondents unclear, but somewhere between one and four)|
|R&D||Anonymous survey of emissions control manufacturers, engine manufacturers and suppliers (five survey responses total, MECA’s response was one of the five, the other four were not disclosed).|
|Compliance Activities||not included|
|EMA||Hardware/Manufacturing||Anonymous survey of commercial vehicle and engine manufacturers (EMA members). Only aggregated results presented.|
|Durability||Anonymous survey of commercial vehicle and engine manufacturers (EMA members). Only aggregated results presented.|
|Warranty||Anonymous survey of commercial vehicle and engine manufacturers (EMA members). Only aggregated results presented. Includes a mention that the assumption is that each emissions control system will need to be fully replaced twice under the warranty period (no explanation as to the reason for this).|
|R&D||Anonymous survey of commercial vehicle and engine manufacturers (EMA members). Only aggregated results presented. Includes an assumption that R&D costs will be over $600 million (no explanation as to the reason for this; for reference, the cost to develop and demonstrate a fully working system meeting the 2027 ARB 0.02 gNOx/bhp-hr target at Southwest Research institute was $5.4 million total)|
|Compliance Activities||Anonymous survey of commercial vehicle and engine manufacturers (EMA members). Only aggregated results presented.|