Calculating the consequences

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From a public policy perspective, this is a classic case of the left hand not knowing what the right hand is doing.” –Pete Ruane, president, American Road & Transportation Builders Association (ARTBA)

It’s inevitable that regulatory decisions in the transportation arena lead to a range of both intended and unintended consequences.

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Take airbag safety systems, for example. In 1984, the federal government mandated that all cars built after April 1989 must incorporate “passive” safety restraints – either airbags or automatic seat belts (light trucks weren’t covered by this regulatory change until 1997). Almost all the automakers went with airbags and between 1990 and 2000, some 3.3 million airbag deployments occurred, saving 6,397 lives and preventing countless injuries, according to the National Highway Traffic Safety Administration (NHTSA)

Yet airbags also killed some passengers, too – a wholly unexpected development. Some 175 people, mostly children (104 to be precise) died as a result of airbag deployment; largely because the bags inflated at speeds in excess of 100 mph, thus leading rare but nonetheless fatal impact injuries.

As a result, the feds went back to the rulemaking board in 1998 and amended the rule to “de-power” airbags so they would not cause injuries to un-belted males or females in the 50th percentile for height and weight. Placards were also developed warning parents not to place children in front seat.

Now – switching gears here – while no lives are at risk from the new fuel economy standards being proposed for cars and light trucks by the Obama Administration, there’s an unintended transportation funding issue it could cause, meaning yet another fix of some kind will be needed.

The issue is pretty simple: more fuel efficient vehicles will, by their very nature, consume less fuel. That means the federal and state governments alike will collect far less fuel tax revenue than projected, thus meaning far fewer funds will be available to fund highway, road, and bridge repair and construction needs.

According to an analysis conducted by the American Road & Transportation Builders Association (ARTBA), the decision to increase fuel efficiency standards for cars and light trucks to an average 54.5 miles per gallon (mpg) between 2017 and 2025 would result in the loss of more than $65 billion in federal funding for state and local highway, bridge and transit improvements – the equivalent of eliminating all federal highway funding for nearly two years, noted ARTBA President Pete Ruane.

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“Like everyone else, we are supportive of efforts to reduce carbon emissions and improve fuel economy. However, from a public policy perspective, this is a classic case of the left hand not knowing what the right hand is doing,” Ruane said in a statement.

The group’s analysis, conducted by William Buechner, a Harvard-trained economist and ARTBA’s vp-economics & research, assumes the increase in fuel efficiency standards between now and 2016 will occur as required, but does NOT incorporate the impact of the Obama Administration’s rules issues last year that mandated an increase in average light vehicle fuel efficiency from 28.3 mpg to 34.1 mpg by 2016.

ARBTA’s figuring also assumes the fuel mileage requirement will be phased in at 5% per year from 2017 through 2025 as proposed, with a baseline for calculating revenue losses developed from the U.S. Treasury's February 2009 projections of Highway Trust Fund (HTF) revenues (which, oddly, gets handled by the Federal Highway Administration). As new cars and light trucks are purchased in the future and old ones retired, average fuel economy will improve, reducing the 2009 forecast of gasoline sales and HTF revenues, Buecher aid.

“The HTF is already taking a revenue hit with the standards put in place in 2010,” he noted. “From fiscal years 2010-2016, that action will cost the HTF about $9 billion. Thus, if the new standards are enacted, the total loss of revenue for transportation improvements through 2025 is projected at $75 billion.”

This situation also reminds me of a similar unintended conflict created when the Obama Administration proposed fuel economy standards for heavy trucks back in 2010, which were a way of reducing greenhouse gases (GHGs) – largely carbon dioxide (CO2) – that are created as a result of diesel combustion.

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Over the previous two decades, of course, mandates were imposed to reduce diesel exhaust pollutants such as particulate matter (PM) and oxides of nitrogen (NOx). But reducing GHGs, it turned out, conflicted with the very costly technology the trucking industry painfully adopted in order to eliminate harmful exhaust emissions.

“The key to reducing GHG emissions – of which CO2 is a major focus – boils down to improving the fuel efficiency of the entire transportation network,” Allen Schaeffer, executive director of the Diesel Technology Forum, told me last year.

“Reducing carbon emissions is a direct function of reducing GHGs,” he said. “You do that by burning less petroleum fuel. But from a GHG perspective, you are no longer looking at controlling emissions from just a diesel engine by itself – you are looking at the fuel efficiency of the entire vehicle, which includes how it’s operated.”

And that is leading to conflicting policies in many ways, Schaeffer noted. “We’ve spent the last two decades controlling PM and NOx emissions in trucking, which led to reductions in fuel economy,” he pointed out. “Now, we’re looking to control GHGs, requiring improvements in fuel economy. If we’d started with this goal first, we wouldn’t have done what we did over the last 20 years.”

It’s an even more aggravating situation when examined from the cost perspective. For starters, about $1,800 to $3,000 got added to the base cost of a Class 8 truck in 2002 to meet the first round of emissions regulations. In 2007, an extra $5,000 to $10,000 got tacked on to Class 8 sticker prices, followed by another $6,700 to $10,000 extra in 2010 to meet the final round of emissions mandates.

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Higher maintenance costs followed sticker price increases as well to cover all this extra emissions-related equipment, including all the new computer controls and wiring harnesses. Engine maker Detroit Diesel Corp. (DDC) estimates that fleets fork over an average of $367 extra per truck, per year just for the 2007-related upgrades alone.

Truckers also now use new ultra-low sulfur diesel (ULSD) fuel as part of the emissions reduction equation. ULSD is a fuel with a sulfur content of just 15 parts per million (ppm) compared to the 500-ppm level in on-road diesels prior to October 2006. According to research by the American Trucking Asscoiations (ATA), that 15-ppm blend added between 5¢ and 13¢ per gallon to the price of diesel at the pump.

Fleets also artificially shifted their buying patterns in response to those higher costs; a big unintended consequence that created all sorts of problems for truck manufacturers.

For example, in 2005 and 2006 – right ahead of the 2007 emission technology changeover – Class 8 sales went through the roof, with North American Class 8 shipments totaling 335,014 and 371,916 units, respectively, according to data tracked by FTR Associates. Then Class 8 sales plummeted, with the Great Recession adding to the steep decline, with only 119,734 units shipped in 2009, FTR noted.

With the economy in retrograde and new trucks too pricey, fleets then decided to stretch out ownership cycles – to the point now where the average age of a Class 8 tractor is now approaching in excess of over 9.5 years, FTR’s research indicates.

At the moment, of course, fleets are now madly trying to buy new units to replace these older models, as freight volumes are now back to high enough levels to give them the necessary cash. Yet OEMs are now faced with a ceiling in production capacity, in no small part to the massive falloff in demand following the artificially inflated 2005/2006 sales boom.

It’s a long, convoluted story, no doubt, how truck sales were affected by emissions regulations. Let’s just hope a similarly tangled and twisted – and ultimately negative – course of events can be avoided with the federal government’s proposal to mandated increased fuel efficiency for light and heavy vehicles alike.

What's Trucks at Work?

Trucks at Work: Sean Kilcarr comments on trends affecting the many different strata of the trucking industry.

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