United States Air and Radiation EPA420-R-02-021
Environmental Protection August 2002
Agency
vxEPA Final Technical Support
Document: Nonconformance
Penalties for 2004 Highway
Heavy Duty Diesel Engines
> Printed on Recycled Paper
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EPA420-R-02-021
August 2002
Final Technical Support Document:
Nonconformance Penalties for 2004
Highway Heavy Duty Diesel Engines
Assessment and Standards Division
Office of Transportation and Air Quality
U.S. Environmental Protection Agency
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Table of Contents
CHAPTER 1: INTRODUCTION Page -1-
I. Background on Nonconformance Penalties Page -1-
A. Clean Air Act Requirements Page -1-
B. Previous NCP Rulemakings and Regulations Page -2-
II. Promulgation of 2004 Emission Standards Page -4-
A. 1997 FRM Page -4-
B. 2000 FRM Page -4-
in. Characterization of the Heavy duty Engine and Vehicle Industries Page -4-
A. Vehicle Applications and Classes Page -4-
B. Engine and Vehicle Manufacturers Page -5-
IV. Heavy Duty Diesel Consent Decrees Page -7-
References for Chapter 1 Page -9-
CHAPTER 2: TECHNOLOGIES NEEDED TO MEET 2004 STANDARDS Page -10-
I. Projections of Technologies from 2000 FRM Page -10-
A. Cooled Exhaust Gas Recirculation Page -10-
B. Improved Fuel Injection Systems Page -11-
C. Exhaust Aftertreatment Systems Page -11-
II. Current Manufacturer Projections Page -11-
in. Fuel Consumption Impacts Page -12-
References Page -14-
CHAPTER 3: COMPLIANCE COSTS Page -15-
I. Methodology Page -15-
A. General Methodology Page -15-
B. Net Present Value of Costs Page -17-
C. Costs Included Page -18-
D. Upper Limit Engine Page -19-
E. Use of Optional Standard Page -20-
II. Manufacturer Cost Data Page -20-
in. Analysis of Costs Page -25-
A. COC50 Page -28-
B. COC90 Page -35-
C. MC50 and F Page -40-
D. Urban Buses Page -42-
References for Chapter 3 Page -44-
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Table of Contents
CHAPTER 4: REGULATORY PARAMETERS FORNCPs Page -46-
I. NCP Equations and Parameters Page -46-
II. Refund for Engineering and Development Costs Page -49-
APPENDIX A: FUEL CALCULATIONS Page -50-
APPENDIX B: SAMPLE COST CALCULATIONS Page -54-
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Chapter 1: Introduction
CHAPTER 1: INTRODUCTION
The Technical Support Document (TSD) for this rulemaking presents analyses and
supporting data for the provisions EPA used for establishing nonconformance penalties for
model year 2004 and later on-highway heavy duty diesel engines.
I. Background on Nonconformance Penalties
A. Clean Air Act Requirements
Section 206(g) of the Clean Air Act (the Act), 42 U.S.C. 7525(g), requires EPA to
establish nonconformance penalties for HDEs or HDVs which exceed the applicable emissions
standard, provided that their emissions do not exceed an appropriate upper limit. Congress
adopted section 206(g) in the Clean Air Act Amendments of 1977 as a response to perceived
potential for problems with technology-forcing heavy-duty emissions standards. Following
International Harvester v. Ruckelshaus, 478 F.2d 615 (D.C. Cir. 1973), Congress realized the
dilemma that technology-forcing standards were likely to cause. If strict standards were
maintained, then some manufacturers, "technological laggards," might be unable to comply
initially and would be forced out of the marketplace. NCPs were intended to remedy this
potential problem. The laggards would have a temporary alternative that would permit them to
sell their engines or vehicles by payment of a penalty. At the same time, conforming
manufacturers would not suffer an economic disadvantage compared to nonconforming
manufacturers, because the NCP would be based, in part, on money saved by the technological
laggard and its customer from the nonconforming engine or vehicle. The resulting provisions of
the Act require that NCPs account for the degree of emission nonconformity; increase
periodically to provide incentive for nonconforming manufacturers to achieve the emission
standards; and, most importantly, remove any competitive disadvantage to conforming
manufacturers.
Under section 206(g)(l), NCPs may be offered for HDVs or HDEs. The penalty may
vary by pollutant and by class or category of vehicle or engine. HDVs are defined by section
202(b)(3)(C) as vehicles in excess of 6,000 pounds gross vehicle weight rating (GVWR). The
light-duty truck (LOT) classification includes trucks that have a GVWR of 8500 Ibs or less.
Therefore, certain LDTs may be classified as HDVs. Historically, LDTs up through 6000 Ibs
GVWR have been considered "light light-duty trucks" (LLDTs) and LDTs between 6,001 and
8,500 pounds GVWR have been considered "heavy light-duty trucks" (HLDTs). Based on
various new requirements established by the Clean Air Act Amendments of 1990, each of these
two light truck categories has been further subdivided into groups by weight. The LLDTs are
classified by weight based on "loaded vehicle weight," or LVW, which maintains its current
definition: curb weight plus 300 Ibs. The trucks up through 3750 Ibs LVW make up a subclass
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Chapter 1: Introduction
called light-duty-trucks-1, or LDT1. Those greater than 3750 Ibs LVW but less than or equal to
6000 Ibs GVWR are the subclass light-duty-trucks-2, or LDT2. The HLDTs are divided at 5750
Ibs "adjusted loaded vehicle weight," or ALVW. Adjusted loaded vehicle weight is the average
of the curb weight and the GVWR. The HLDTs that are up through 5750 Ibs ALVW are called
light-duty trucks-3, or LDT3. Those above 5750 Ibs ALVW but less than or equal to 8500 Ibs
GVWR are light-duty-trucks-4, or LDT4. The LDT3 and LDT4 subclasses make up the HLDT
vehicle class.
Section 206(g) authorizes EPA to require testing of production vehicles or engines in
order to determine the emission level on which the penalty is based. If the emission level of a
vehicle or engine exceeds an upper limit of nonconformity established by EPA through
regulation, the vehicle or engine would not qualify for an NCP under section 206(g) and no
certificate of conformity could be issued to the manufacturer. If the emission level is below the
upper limit but above the standard, that emission level becomes the "compliance level," which is
also the benchmark for warranty and recall liability; the manufacturer who elects to pay the NCP
is liable for vehicles or engines that exceed the compliance level in-use, unless, for the case of
HLDTs, the compliance level is below the in-use standard. The manufacturer does not have
in-use warranty or recall liability for emissions levels above the standard but below the
compliance level.
B. Previous NCP Rulemakings and Regulations
The generic NCP rule (Phase I) was promulgated August 30, 1985 (50 FR 35374). It
established regulations for calculating NCPs in 40 CFR Part 86 Subpart L. It also established
three basic criteria for determining the eligibility of emission standards for nonconformance
penalties in any given model year. First, the emission standard in question must become more
difficult to meet. This can occur in two ways, either by the emission standard itself becoming
more stringent, or due to its interaction with another emission standard that has become more
stringent. Second, substantial work must be required in order to meet the emission standard.
EPA considers "substantial work" to mean the application of technology not previously used in
that vehicle or engine class/subclass, or a significant modification of existing technology, in
order to bring that vehicle/engine into compliance. EPA does not consider minor modifications
or calibration changes to be classified as substantial work. Third, a technological laggard must
be likely to develop. A technological laggard is defined as a manufacturer who cannot meet a
particular emission standard due to technological (not economic) difficulties and who, in the
absence of NCPs, might be forced from the marketplace. EPA will make the determination that a
technological laggard is likely to develop, based in large part on the above two criteria. However,
these criteria are not always sufficient to determine the likelihood of the development of a
technological laggard. An emission standard may become more difficult to meet and substantial
work may be required for compliance, but if that work merely involves transfer of
well-developed technology from another vehicle class, it is unlikely that a technological laggard
would develop.
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Chapter 1: Introduction
The above criteria were used to determine eligibility for NCPs during Phase II of the NCP
rulemaking process (50 FR 53454, December 31, 1985). NCPs were offered for the following
1987 and 1988 model year standards: the particulate matter (PM) standard for 1987 diesel-fueled
light-duty trucks with loaded vehicle weight in excess of 3750 pounds (LDDT2s), the 1987
gasoline-fueled light HDE (LHDGE) HC and CO emission standards, the 1988 diesel-fueled
HDE (HDDE) PM standard, and the 1988 HDDE NOx standard. As discussed in the Phase H
rule, NCPs were considered, but not offered, for the 1987 HLDT NOx standard and the 1988
(later, the 1990) gasoline-fueled HDE (HDGE) NOx standard.
The availability of NCPs for 1991 model year HDE standards was addressed during
Phase IE of the NCP rulemaking (55 FR 46622, November 5, 1990). NCPs were offered for the
following: the 1991 HDDE PM standard for petroleum-fueled urban buses, the 1991 HDDE PM
standard for petroleum-fueled vehicles other than urban buses, the 1991 petroleum-fueled HDDE
NOx standard, and the PM emission standard for 1991 and later model year petroleum-fueled
light-duty diesel trucks greater than 3750 Ibs loaded vehicle weight (LDDT2s). As discussed in
the Phase HI rule, NCPs were also considered, but not offered for the methanol-fueled
heavy-duty diesel engine and heavy-duty gasoline engine standards as it was concluded that those
standards did not meet the eligibility criteria established in the generic rule. In addition, Phase HI
of the NCP rulemaking described how NCPs would be integrated into the HDE NOx and PM
averaging program.
The availability of NCPs for HDVs and HDEs subject to the 1994 and later model year
emission standards for particulate matter (PM) was addressed by Phase IV of the NCP
rulemaking (58 FR 68532, December 28, 1993). NCPs were offered for the following: the 1994
and later model year PM standard for heavy-duty diesel engines (HDDEs) used in urban buses,
and the 1994 and later model year PM standard for HDDEs used in vehicles other than urban
buses. NCPs were also considered, but not offered, for the 1994 and later model year
methanol-fueled HDE PM standard and the 1994 and later model year cold carbon monoxide
(CO) standard for heavy light-duty gasoline fueled trucks.
The availability of NCPs for HDVs and HDEs subject to the 1998 and later model year
emission standards for NOx was addressed by Phase V of the NCP rulemaking (61 FR 6949,
February 23, 1996). NCPs were offered for the following: the 1998 and later model year NOx
standard for heavy duty diesel engines (HDDEs), the 1996 and later model year for Light-Duty
Truck 3 (LDT3) NOx standard, and the 1996 and later urban bus PM standard. A concurrent but
separate final rule (61 FR 6944, February 23, 1996) established NCPs for the 1996 LDT3 PM
standard and discussed other standards for which NCPs were considered.
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Chapter 1: Introduction
II. Promulgation of 2004 Emission Standards
A. 1997 FRM
On October 21, 1997, EPA issued a final rule (62 FR 54694). The rule established a NOx
+ NMHC standard of 2.4 g/bhp-hr (or 2.5 g/bhp-hr with a 0.5 g/bhp-hr NMHC cap) for 2004 and
later model year heavy-duty diesel-cycle engines. The rule also adopted other related compliance
provisions for diesel-cycle heavy-duty engines beginning with the 2004 model year, as well as
revisions to the useful life for the heavy-heavy duty diesel engine service class. The feasibility
and cost-effectiveness analyses for that rule were described in the 1997 Regulatory Impact
Analysis (RIA). We have placed a copy of the 1997 RIA into the docket for this rulemaking.
B. 2000 FRM
The 1997 FRM included a commitment by EPA to review in 1999 the technological
feasibility of the NMHC+NOx standard and its appropriateness under the Clean Air Act. EPA
published an FRM in 2000 that reaffirmed the technical and economic feasibility of the 2004
model year diesel NOx + NMHC standard (64 FR 58472, October 29, 1999). The reanalysis of
the feasibility and cost-effectiveness of these standards were described in the 2000 Regulatory
Impact Analysis (RIA). That 2000 RIA can be found in the docket for this rulemaking.
III. Characterization of the Heavy duty Engine and Vehicle Industries
A. Vehicle Applications and Classes
Heavy duty engines are used in a wide variety of vehicle applications. Smaller engines
are used in large pickup trucks, vans and other vehicles using those same chassis. At the other
extreme, the largest engines are used in cement mixers, garbage trucks, and line-haul trucks. In
matching the engines to the vehicles, the minimum requirement is that the engine would be large
enough to power a fully-loaded truck up a hill. More typically, especially for the larger trucks,
the engine is selected to provide the best fuel consumption. In other cases, especially for light-
heavy duty, larger engines are used to provide additional performance.
In applying heavy duty emission standards, EPA categorizes heavy duty vehicles into
three classes: light-heavy duty; medium-heavy duty; and heavy-heavy duty. Light-heavy duty
includes pickup trucks and vans. Medium-heavy duty includes delivery trucks and recreational
vehicles (CVS). Heavy-heavy duty includes buses and line-haul trucks.
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Chapter 1: Introduction
Table 1-1
Service Classes of Heavy Duty Vehicles
Service Class
Light
Medium
Heavy
Typical
Vehicle Class
2B-5
6-7
8
Typical GVWR
(Ibs.)
8,500- 19,500
19,501 -33,000
33,001 +
B. Engine and Vehicle Manufacturers
Table 1-2 shows the major heavy duty engine and vehicle manufacturers for the U.S. and
Canada. It also illustrates the degree to which vehicle manufacturers buy engines from different
engine manufacturers. The industry operates so that the vehicle manufacturer decides during the
design stage which engines it will make available in its vehicles, and the ultimate customer
chooses its engine from among the available options. The result is that most of the vehicle
manufacturers use engines from two or more engine suppliers. This practice make the industry a
very competitive marketplace. This is particularly true for the medium-heavy and heavy-heavy
market place. The light-heavy market is dominated by exclusive relationships between vehicle
manufacturers and engine manufacturers, specifically: General Motors historically supplied their
own diesel engines in the light-heavy pick-up trucks offered by GC and Chevrolet (such a
relationship continues today between General Motors and Isuzu); Ford exclusively offers
Navistar/International diesel engines in their light-heavy pick-up truck and van models, and
DaimlerChrysler subsidiary Dodge exclusively uses Cummins supplied diesel engines in their
light-heavy pick-up trucks. However, in the medium-heavy and heavy-heavy vehicle market,
there is a wide range of engines available to choose from for the same vehicle, for example, a
end-user can purchase a Western Star vehicle with either a Caterpillar, Cummins, or a Detroit
Diesel engine in it. In this sense, it has been common practice in the medium-heavy and heavy-
heavy marketplace to treat the engine almost as a commodity.
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Chapter 1: Introduction
Table 1-2
1999 U.S./Canada Diesel Engine Market Share1
Vehicle
Make
Chevrolet
Dodge
Ford
Freightliner
GC
Kenworth
Mack
Navistar
Peterbuilt
Sterling
Volvo
Western
Star
Other
12-
Mos.1999
Engine Manufacturer
Caterpillar
18.9
27.3
52.2
57.9
0.1
7
68.5
70.4
0.1
59
18.3
17.4
Cummins
100
41.9
28
0.1
18.2
19.6
21.7
51.3
21.9
64.2
20.4
Detroit
Diesel
30.3
14.1
8.4
11.9
7.8
32.1
18.1
12.8
9.3
GM
81.1
47.8
6.8
Mack
99.8
4.8
4.8
Mercedes
Benz
0.4
0.1
Navistar
100
66.4
40.4
Volvo
16.4
0.7
Total
100
100
100
100
100
100
100
100
100
100
100
99
100
100
Table 1-3 contains an estimate of the factory sales of diesel engines into the heavy duty
market for the major truck manufacturers in the U.S. as well as Canada. This table indicates that,
for the light heavy market, Ford dominates the sales of diesel-powered vehicles with nearly 70
percent, while General Motors and DaimlerChrysler each roughly split the remaining 30 percent
between them. In the medium-heavy duty truck market, International (formerly Navistar)
controls nearly 40 percent of the market, followed by DaimlerChrysler with 26 percent (mostly
from the Freightliner subsidiary), GM and Ford with roughly 17 percent each, and Paccar's two
units Kenworth and Peterbuilt each with under 1 percent. The heavy-heavy duty truck market
contains a wider diversity of truck manufacturers. In the heavy-heavy duty market
DaimlerChrysler has the largest share with approximately 38 percent (Western Star is now a
subsidiary of DaimlerChrysler), of which nearly 30 percent comes from Freightliner. The next
largest heavy-heavy duty truck manufacturer is Paccar with 21 percent of the market, which is
divided approximately equally between it's two subsidiaries Kenworth and Peterbuilt. The rest
of the heavy duty truck market is divided between International, Mack and Volvo, which have
approximately 17, 13, and 12 percent of the market respectively. Table 1-3 illustrates that in a
similar manner to the HD engine market, the HD truck market is a competitive marketplace with
a number of players, particularly in the medium-heavy duty and heavy-heavy duty categories.
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Chapter 1: Introduction
Table 1-3
1999 U.S./Canada Factory Sales of Diesel Trucks2
Manufacturer
Total DaimlerChrysler
Dodge
Freightliner
Sterling
Ford
Total General Motors
Chevrolet
CMC
Mack
Navistar/International
Total Paccar
Kenworth
Peterbuilt
Volvo
Western Star
Other
1999 Totals
Light-Duty
Units % Total
43,643 14.5
42,832 14.2
811 0.3
208,314 69.2
48,923 16.3
32,817 10.9
16,106 5.4
300,880 100
Medium-Duty
Units % Total
26.4
44,548 23.2
6,214 3.2
16.7
17.6
9,955 5.2
23,911 12.5
37.8
2,745 1.4
1,298 0.7
1,447 0.8
100
Heavy Duty
Units % Total
107,592 35.5
88,338 29.1
19,254 6.4
38,528 12.7
50,151 16.5
63,746
32,320 70.7
31,426 10.4
34,751 11.5
7,207 2.4
1,175 0.4
303,150 100
IV. Heavy Duty Diesel Consent Decrees
On October 22, 1998, the Department of Justice and the Environmental Protection
Agency announced settlements with seven major manufacturers of diesel engines. The
settlements resolved claims that they installed illegal computer software on heavy duty diesel
engines that turned off the engine emission control system during highway driving. The
settlements were entered by the Court on July 1, 1999.
These Consent Decrees are relevant with respect to this rulemaking because of their
impact on the heavy-heavy duty diesel engines sold in the U.S. today. The Consent Decrees
allow currently certified heavy-heavy service class diesel engines to continue to use emission
control strategies which result in very high NOx emissions when the engines operate in the real
world. Even though these engines pass the current FTP emission standard of 4.0 g/bhp-hr NOx
when operated over the FTP duty-cycle in the laboratory, when operated in-use these engines can
have NOx emission levels as high as 6 or even 7 g/bhp-hr NOx. The heavy-heavy market place
is dominated by Consent Decree companies, such that the vast majority (>95%) of model year
2000 heavy-heavy engines produced for the U.S. market were manufactured by Consent Decree
companies. As specified in the Consent Decrees, these heavy-heavy service class engines must
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Chapter 1: Introduction
currently comply with the 4.0 g/bhp-hr NOx standard when tested over the FTP, and in addition
they also must meet an emission limit of 6.0 g/bhp-hr NOx when tested over the Euro-3 steady-
state test cycle, and an emission limit of 7.0 g/bhp-hr NOx when tested for compliance with the
not-to-exceed test limits.3 The docket for this rulemaking contains a memorandum summarizing
engine certification data for model year 2001 heavy duty diesel engine families which includes
test data from both the FTP and the Euro-3 test procedures.4 The "baseline" engine which these
companies will need to modify in order to comply with the 2004 FTP standard and the defeat
device prohibition is therefore represented by engines with NOx emission performance well
above the FTP emission standard.
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Chapter 1: Introduction
References for Chapter 1
1. 2000 Wards Automotive Yearbook, page 59.
2. 2000 Wards Automotive Yearbook, page 59.
3. A copy of the Consent Decree between the United States and Volvo has been placed in the
docket for this rulemaking, EPA Air Docket A-2001-30.. Though there are differences between
the various Consent Decrees, with respect to the heavy-heavy service class emission limits and
test procedures the various Consent Decrees contain the same requirements.
4. EPA Technical Memorandum "Summary of Model Year 2001 Heavy Duty Diesel Engine
Certification Data", copy available in EPA Air Docket A-2001-25.
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Chapter 2: Technologies Needed To Meet 2004 Standards
CHAPTER 2: TECHNOLOGIES NEEDED TO MEET
2004 STANDARDS
I. Projections of Technologies from 2000 FRM
In the 2000 FRM which affirmed the technical feasibility of the new HDDE 2004
NMHC+NOx emission standards (64 FR 58472, October 29, 1999), EPA presented a detailed
discussion of the technologies we believed would enable a HDDE manufacturer to achieve the
2.5 g/bhp-hr NMHC+NOx standard. The following discussion will briefly summarize the
technological feasibility discussion contained in the 2000 FRM, and the reader is refereed to the
Regulatory Impact Analysis document of the previous rulemaking for a detailed discussion.1
A. Cooled Exhaust Gas Recirculation
EPA projected that cooled exhaust gas recirculation (cooled EGR) would be the principal
technology used to reduce NOx emissions from the 1998 HDDE standard of 4.0 g/bhp-hr to the
combined 2004 NMHC+NOx standard of 2.4 g/bhp-hr. Non-methane hydrocarbon emissions
from modern on-highway HDDEs is relatively small, generally less than 0.5 g/bhp-hr, and it is
expected that approximately a 50 percent reduction in NOx emissions will be necessary to
achieve the 2004 NMHC+NOx standard. Cooled EGR lowers NOx emissions principally by
replacing a portion of the fresh intake air oxygen with exhaust by-products and other inert gases,
such as CO2, water vapor, and N2. These inert gases dilute the in-cylinder mixture and reduce the
peak cylinder temperatures during the combustion process and thus reduce NOx formation.
Thus, a cooled EGR system must be capable of routing exhaust gas from the exhaust system to
the intake system, as well as cooling the exhaust during that process.
The cooled EGR technology projected by EPA to be used be engine manufacturers
consists of several major hardware components, including an EGR cooler, EGR piping, and an
electronically controlled EGR valve, as well as appropriate sensors to estimate the rate of EGR
gas flow, such as a delta-pressure sensor.
One of the difficulties with using EGR in a turbocharged diesel engine is that for a large
portion of the engines operating map (as represented by a full-load torque map), the intake
manifold pressure is greater than the exhaust pressure, and therefore no EGR will flow into the
intake manifold without some additional mechanism to change the pressure differential. In the
RIA for the 2000 FRM we discussed several methods to overcome this pressure differential.
However, for the Agency's cost estimate in the 2000 FRM we assumed manufacturers would use
a new turbocharger technology, variable geometry turbocharger (VGT), to assist in delivering
and controlling EGR. A VGT, unlike the conventional fixed geometry turbochargers, provides
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Chapter 2: Technologies Needed To Meet 2004 Standards
some level of control over either the turbine vanes or the turbine exit geometry which provides a
means to create additional back pressure in the exhaust system to drive EGR.
B. Improved Fuel Injection Systems
The Agency also predicted in the RIA of the 2000 FRM that manufacturers would use
next-generation fuel injection technology in order to achieve the new 2004 NMHC+NOx
standard. Relatively recent improvement in fuel injection systems for HDDEs, such as the
common-rail system or advanced electronically controlled unit injectors, provide engineers with
the ability to perform pilot injection, ramped injections, and post injections (in some cases
multiple pilot and/or post injections). They can also provide engineers with complete control in
some cases over injection pressure and duration. These systems provide important flexibilities
for design engineers, including the ability for improved NOx and PM emissions performance.
C. Exhaust Aftertreatment Systems
The RIA for the 2000 FRM discussed several types of aftertreatment technologies which
could be used with today's on-highway fuel sulfur levels, including diesel oxidation catalysts and
lean NOx catalysts. In both cases, EPA did not predict that these technologies would be the
prime technologies which would enable manufacturers to achieve the new 2004 NMHC+NOx
standards, however, both technologies could provide modest emission reductions which could be
combined with other technologies to achieve the necessary emission reductions.
Diesel oxidation catalysts (DOCs) are capable of oxidizing the soluble organic fraction
(SOF) of diesel particulate matter as well as the hydrocarbons present in diesel exhaust. The
SOF fraction of PM varies from engine to engine, but is typically on the order of 10 to 30 percent
of the total parti culate matter, which a DOC can essentially eliminate. As mentioned previously,
NMHC from modern diesels is typically less than 0.5 g/bhp-hr, and a well functioning DOC can
eliminate a significant portion of these hydrocarbons.
Lean NOx catalysts continue to offer limited NOx reduction capability when considered
across the entire temperature operating range encountered by HD diesel engines, while peak
reduction capabilities may approach 60 percent under limited operating range, overall reductions
on the U.S. HD FTP continue to be modest, between 10 and 30 percent.
II. Current Manufacturer Projections
Engine manufacturers generally agree with us that cooled EGR is one of the principal
technologies capable of achieving the 2004 emission standards. In the past several months, a
number of engine manufacturers have announced they are pursuing cooled EGR technology as
their principle means of complying with the 2004 standards.2 In addition, at least one engine
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Chapter 2: Technologies Needed To Meet 2004 Standards
manufacturer has announced they are pursuing an alternative technology for complying with the
2004 HDDE standards which does not include the use of cooled EGR.3
III. Fuel Consumption Impacts
As is described in the next chapter, changes in fuel consumption are projected to be a
significant component of the cost of compliance, in particular for medium-heavy and heavy-
heavy duty diesel engines. We believe there are a number of reasons why some manufacturers
are projecting a fuel consumption increase for their 2004 model year engines as compared to
today's engines, as discussed below.
In the 2000 final rule RIA which affirmed the appropriateness of the 2004 standards, we
discussed a number of technologies which manufacturers could use to meet the new
NMHC+NOx standard. In that RIA, we discussed cooled EGR, improved fuel injection systems,
advanced turbochargers, and next generation electronic controls. Of these technologies, EGR in
particular has the potential to increase fuel consumption, if it is incorporated in isolation as an
add-on component, and is not integrated successfully into a well designed system with the
additional technologies. For on-highway HDDEs, a positive pressure differential exists between
the exhaust manifold and the intake manifold over a large part of the engine map, which means
that exhaust gases must be forced from the exhaust manifold to the intake manifold. This
requires energy which can negatively impact efficiencies. However, we also discussed changes
which can improve fuel efficiency, such as using better fuel systems which have a more favorable
NOx-fuel economy trade-off, and the use of variable geometry turbochargers, which have the
potential to provide efficiency gains in the air-handling system of the engine. For current
engines, which do not incorporate these advanced NOx controls, manufacturers have relied
heavily on timing retard to meet the applicable FTP emission standards. These current engines
relying on injection timing for NOx control are now near the limits of the NOx reduction
potential which can be achieved without excessive fuel economy penalties or adverse impacts on
PM and durability.
The incorporation of all of these technologies (i.e., EGR, improved fuel systems, VGT,
improved ECMs) into a HDDE is not a simple task, and it requires significant research and
development. In general, we expect manufacturers to design their engines by first installing the
hardware needed to achieve the new emission standards, and then to change EGR rates, VGT
vane position, and/or fuel injection parameters (injection timing, injection rate, post/pre injection
events) to optimize fuel consumption rates while maintaining NOx, HC, and PM control. This
was discussed in both the 1997 final rule which established the 2004 standards, as well as the
2000 final rule which affirmed the new standards. During those rules, we estimated there would
be no net long-term change in the fuel consumption performance of HDDEs, but there was a
potential for higher fuel consumption rates in the short term. To the extent a manufacturer is
unable to optimize its control system to meet the emission standards with the addition of the new
hardware (e.g., EGR, fuel system improvements, and turbocharger improvements), they may be
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Chapter 2: Technologies Needed To Meet 2004 Standards
forced to rely more on fuel injection timing retard in the short term as their initial means of
meeting the emission standards.
Based on the most recent information from engine manufacturers, including both public
company announcements as well as the data presented in the next chapter, we see a wide range of
estimated fuel economy impacts from companies. In the light-heavy market, we see some
companies are predicting an improvement in fuel efficiency as compared to the current
technology engines. In the medium-heavy and heavy-heavy markets, we see that while some
companies are predicting no change in fuel economy for the 2004 model year, others are
predicting decreased fuel efficiency, in some cases up to 5 percent. In large part, this range
reflects the differing degrees to which manufacturers have invested in the research and
development needed to optimize fuel consumption for their various products. We believe that a
fully optimized EGR engine (or other advanced engines) will rely less on timing retard and will
not experience any net fuel consumption increase compared to 4.0 g/bhp-hr NOx engines.
It is important to note that our analysis of fuel consumption impacts for heavy-heavy duty
engines is affected by our setting the Upper Limit at 6.0 g/bhp-hr NMHC+NOx (which is
discussed in more detail in the next chapter and in the preamble for this rulemaking). This 6.0
g/bhp-hr level is significantly greater than the current FTP NOx standard of 4.0g/bhp-hr, but it is
representative of how current heavy-heavy duty engines operate in the field. This difference is
largely due to how the engines are calibrated with respect to injection timing. There is also a
corresponding difference in fuel consumption rates, with fuel consumption tending to be lower
with 6.0 g/bhp-hr NMHC+NOx emissions. In the 1997 and 2000 rulemakings which established
and affirmed the 2004 standard, we did not analyze the fuel economy impacts of reducing
emissions from 6.0 g/bhp-hr NMHC+NOx to the 2004 standards. Thus we did not analyze in
these previous rules the short-term or long-term fuel economy impacts for which manufactures
are now providing us estimates. However, even for these heavy-heavy engines, at least one
manufacturer has indicated that any increase in fuel consumption would be short-term in nature.4
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Chapter 2: Technologies Needed To Meet 2004 Standards
References for Chapter 2
1. "Regulatory Impact Analysis Document: Control of Emissions of Air Pollution from Highway
Heavy-duty Engines", Chapter 3, EPA Publication # EPA-420-R-00-010, July 2000. Copy
available in the Docket for this rule, EPA Air Docket A-2001-25.
2. "Documentation of Industry Press Releases Regarding Compliance with highway HD 2004
Standards in 2002", EPA Memorandum from William Charmley. Copy available in the docket
for this rule, EPA Air Docket A-2001-25.
3. "Introducing Clean Power by Caterpillar", Caterpillar brochure. Copy available in the docket
for this rule, EPA Air Docket A-2001-25.
4. "Documentation of Industry Press Releases Regarding Compliance with highway HD 2004
Standards in 2002", EPA Memorandum from William Charmley. See specifically press release
from Detroit Diesel Corporation. Copy available in the docket for this rule, EPA Air Docket A-
2001-25.
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Chapter 3: Compliance Costs
CHAPTER 3: COMPLIANCE COSTS
This chapter describes our analysis of the costs of compliance. The analysis is based on
our projections of actual measurable costs to manufacturers and operating costs for vehicle
owners. It generally does not include analysis of engine pricing or vehicle purchaser perceptions
that could affect purchase decisions.
I. Methodology
A. General Methodology
This chapter describes our analysis and projection of the costs of compliance for model
year 2004, which are the primary inputs for determining NCPs. This analysis differs from the
analyses for the model year 2004 standard-setting rulemakings in three basic ways:
(1) The goal of this analysis is to estimate manufacturer and operator costs during the
first year of the new standards rather than to project the long-term societal costs.
(2) The baselines for calculation of compliance costs differ significantly.
(3) We now have more detailed information about costs identified in the earlier
analysis, as well as cost categories not previously included.
The model year 2004 standard-setting analyses were based on a uniform emission control
strategy for designing the different categories of engines to meet the standards. More
specifically, we estimated the cost of developing an EGR system for a typical engine within a
service class, and applied that per engine cost to all engines within the service class. However,
for this NCP rulemaking, we considered the compliance costs on an engine model-by-engine
model basis (or as close to that as possible based on the available data). We requested this
information from several of the engine manufacturers for each engine model that they plan to
produce for model year 2004. These data are described in Section n. We used these
manufacturer estimates, along with other available information to estimate the average and 90th
percentile compliance costs. In addition, it is necessary for this NCP analysis to focus solely on
the compliance costs associated with the first year of production, while standard-setting analyses
require a longer term view. This is most significant with respect to the costs associated with
hardware, reliability (warranty, repairs, and associated costs), and fuel consumption.
Manufacturers often make significant progress in reducing these costs with additional time. For
example, in the recent final rule in which we affirmed the appropriateness of the 2004
NMHC+NOx standard, we suggested that in the short-term, average fuel consumption could
increase by up to 1.0 percent, but in the long-term fuel consumption would remain either
unchanged, or potentially decrease by up to 1.5 percent. However, we did not include the short-
term fuel cost in the analysis. Similarly, the 2000 FRM analysis did not include an analysis of
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Chapter 3: Compliance Costs
short-term warranty or repair costs. The only category in which we separately estimated short-
term and long-term costs in the FRM was hardware cost category.
There is another important reason why the analysis for this specific NCP rulemaking is
different from the analysis performed for the standards-setting rules. As is discussed later in this
document, the engine designs currently produced and marketed under the Consent Decrees lead
us to choose an Upper Limit value of 6.0 g/bhp-hr NMHC+NOx for the heavy-heavy duty service
class, which fundamentally changes the cost analysis. The rationale for the heavy-heavy service
class 6.0 g/bhp-hr NMHC+NOx upper limit is discussed in detail in Section in(C) of the
Preamble. The penalty rate factors are based on the compliance costs associated with lowering
the emissions from Upper Limit to the standard. So for heavy-heavy duty engines, the NCPs are
based on the compliance costs associated with lowering the emissions from 6.0 g/bhp-hr
NMHC+NOx to the 2004 standard of 2.5g/bhp-hr NMHC+NOx. This analysis was not
performed in the standards-setting rules, and therefore the costs estimates in the standard-setting
rule and this NCP rule are not comparable. For the standard-setting rules, we estimated the
compliance costs associated with bringing an engine which meets the current NOx standard of
4.0 g/bhp-hr into compliance with the 2.5g/bhp-hr NMHC+NOx. This difference in baseline (6.0
vs. 4.0), has a significant impact on every cost category we have considered in this rulemaking,
including the fixed, hardware, operating (including fuel consumption), and vehicle manufacturer
costs.
Even for the other service classes, where we have established an Upper Limit based
directly on the 4.0 g/bhp-hr NOx standard, the impact on engine designs of the alleged defeat
device strategies used by a number of engine manufacturers over the past decade makes
comparison between the standard-setting rule cost analysis and this analysis difficult. If such
strategies had never been used, as was assumed in the standard-setting analyses, manufacturers
would have optimized their current engines differently than their current products. Thus the two
approaches for estimating compliance costs rely on different "baselines". A number of the
manufacturers who submitted cost information on light-heavy and medium-heavy products are
also companies who signed consent decrees with the government. The model year 2001
light-heavy and medium-heavy engines from Consent Decree companies must meet off-cycle
emission performance which is equal to or comparable to the 4.0 g/bhp-hr NOx standard.
However, in the past a number of these products were equipped with engine strategies whose use
resulted in high NOx emission performance relative to the applicable emission standard.
Manufacturers are continuing to spend research, development, and hardware money in order to
address durability and other performance issues as a result of designing engines to meet the 2004
standards. It is likely that, in some cases, the issues that manufacturers are spending resources to
address issues that are partially a result of the fact they can no longer use the problematic control
strategies which were used in the past. For example, the combustion chambers in today's light-
and medium-heavy duty engines have not been optimized as well as they would have been had
manufacturers not used the problematic control strategies. This nonoptimization affects fixed
costs, as well as fuel consumption and repair costs.
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Chapter 3: Compliance Costs
Finally, for this NCP rulemaking, we have received new information since the
standard-setting FRMs. This included more detailed estimates of actual manufacturer costs, plus
data on a few additional cost items which were not part of the standards-setting rulemaking
analysis. Manufacturers are now able to provide more detailed cost information than they did
during the earlier rulemakings because they are farther along the development path for
compliance. They also now have a clearer understanding of the potential for additional costs.
Specifically, we have included new cost items for vehicle manufacturer costs, post-warranty
repairs, and revenue impacts. We did not have this information during the standard-setting rule.
We have not evaluated whether post-warranty repairs and revenue impact costs would be
significant over the longer term. However, we believe that these costs will occur during the first
model year, and that it is appropriate to include them in this analysis. Based on submissions
from manufacturers, it is clear that repair rates will decrease significantly within the first few
years of production.
It is also important to point out that, in addition to the analytical differences described
above, the resulting costs also differ because of the use of different baseline dollars. The
rulemaking costs were estimated in terms of 1995 and 1999 dollars, while the costs in this
analysis are expressed in terms of 2001 dollars. This is discussed in more detail in the following
section.
B. Net Present Value of Costs
All costs are presented in 2001 dollars. Because the NCP is paid by the manufacturer in
the model year that the engine is produced, we need to account for cost differences at the point of
sale. All costs were converted to net present value (NPV) for calendar year 2004. Appendix B
contains sample calculations showing how we dealt with the time value of money. Costs that
occur prior to production (e.g., research and development) are adjusted upward by 7.0 percent per
year. Costs that occur after production (e.g., fuel costs) are discounted by 7.0 percent per year.
It is also important to remember that since all costs are presented in terms of constant 2001
dollars, the discount rate does not include an adjustment with respect to the rate of inflation.
Costs expressed in terms of 2000 or earlier dollars were adjusted upwards based on the
Consumer Price Index (CPI) to be equivalent to 2001 dollars.1 For example, the difference
between a 1999 dollar and a 2001 dollar would be about six percent. We recognize that concerns
have been raised about using the CPI to adjust costs for inflation. However, we are not aware of
a better method for adjusting general costs for inflation. Also, given the relatively small number
of years involved in the adjustments (generally three years or less), we believe that any errors
introduced into the analysis by using the CPI would not be significant.
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Chapter 3: Compliance Costs
C. Costs Included
This section describes the cost categories that we included in our analysis. These costs
include engine manufacturing costs, vehicle manufacturing costs, and operating costs. Engine
manufacturer costs of control include variable costs (for incremental hardware, assembly, and
associated markups), fixed costs (for tooling, R&D, etc.), and warranty costs. Vehicle
manufacturers are also expected to incur some variable hardware costs, and may include some
fixed costs. Owner costs include fuel costs, maintenance and repair costs, and costs associated
with any time that the vehicle is down for repair.
We typically markup the variable hardware costs (or material costs) to the engine
manufacturer at a rate of about 30 percent in our analyses. We do this to account for the engine
manufacturer's overhead and profit that are associated with producing the new hardware. For this
analysis, we asked engines manufacturers to include their markups in their estimates. Based on
input from engine manufacturers, we believe that in some cases, vehicle manufacturers will need
to make modifications to their vehicle designs to accommodate the new engines. Such changes
could include larger cooling systems, or even larger engine compartments. We included these
costs separately where applicable. We do not include any general vehicle manufacturer markup
of engine manufacturer costs. We only included actual identifiable costs for the vehicle
manufacturers, such as increased radiator size. It is appropriate to include a vehicle manufacturer
markup for these costs, since these items are actually produced by the vehicle manufacturer to a
large extent.
Fixed costs for R&D are incurred by the manufacturer several years before the standards
take effect. Tooling costs are generally incurred at least one year ahead of initial production.
Both kinds of fixed costs need to be increased for every year before the start of production to
reflect the time value of the money invested in these expenditures. We used a seven percent
annual rate for these adjustments, so costs incurred in years before 2004 are multiplied by 1.07"
(i.e., 1.07 raised to the nth power). For example, fixed costs incurred in 2002 are converted to be
equivalent to costs incurred in 2004 by multiplying them by 1.072. The fixed cost estimates
reported by the manufacturers should account for this by specifying the costs in terms of NPV for
calendar year 2004. In general, we amortized this total pre-production cost at seven percent
interest over a five-year period during which the manufacturer would be able to recoup the fixed
costs. We did not include certification costs because manufacturers would incur these costs
whether or not they used NCPs. Appendix B shows a sample calculation of how we accounted
for the time value of fixed costs.
Manufacturers would generally be expected to incur additional warranty costs due to the
addition of new components. For this analysis, the relevant costs would be the total warranty
cost to the engine manufacturer for the new emission control hardware related to the first model
year of production. Typically, this would cover the costs of repairs that are needed within the
first two calendar years of vehicle life (the typical warranty period for heavy duty engines).
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Chapter 3: Compliance Costs
These new systems can incur other additional maintenance costs that are projected to be incurred
at regular mileage intervals throughout the vehicle life, or at rebuild. There can also be
additional unscheduled repairs to the new hardware. Considered from the point of purchase (i.e.,
2004), these repair and maintenance costs are future costs and thus are discounted in this
analysis. For both warranty repairs and post-warranty repairs, there are also real costs incurred
by the vehicle owners for demurrage (i.e., the time during which the vehicle is out of service).
Manufacturers have indicated that they expect some of the new compliant engines to have
different fuel consumption rates than the noncompliant engines. We projected the changes in
lifetime brake-specific fuel consumption that will occur for vehicles produced in the first model
year of production.
Both the maintenance and fuel costs are dependent on the number of miles projected to be
driven by the vehicles. For this analysis, we used the same projected mileage accumulation rates
that we have used in previous rulemakings. These projections are shown in Appendix A, along
with projection of vehicle survival fractions that are based on projected scrappage rates. These
projections are described in a 2001 EPA Technical Report.2 We use the survival fractions to
weight the mileage rates to estimate the number of miles driven by typical vehicles within each
service class. These estimates do not distinguish between miles driven before rebuild and miles
driven after rebuild. These newer mileage estimates are slightly different from the estimates used
in the 2004 FRM.
D. Upper Limit Engine
The upper limit is an important aspect of the NCP regulations not only because it
establishes an emission level above which no engine can be certified, but it is also a critical
component of the cost analysis used to develop the NCP factors. The regulations specify that the
relevant NCP costs for determining the COC50 and the COC90 factors are the difference between
an engine at the upper limit and one that meets the new standards (see 40 CFR 86.1113-87). A
full discussion of the rationale for the Upper Limit for each service class is contained in the
Preamble.
Upper Limit for Heavy-Heavy Duty
As described in the Preamble for this rule, an NMHC+NOx value of 6.0 g/bhp-hr is the
appropriate upper limit for heavy-heavy duty engines.
Upper Limit for Light-Heavy Duty, Medium-Heavy Duty, and Urban Buses
As described in the Preamble for this rule, an NMHC+NOx value of 4.5 g/bhp-hr is the
appropriate upper limit for light-heavy duty, medium-heavy duty, and urban buses.
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Chapter 3: Compliance Costs
E. Use of Optional Standard
The 2004 standard has two forms. The first form is 2.4 g/bhp-hr NOx+NMHC for
combined emissions, with no constraint specific to either NOx or NMHC. The second form is an
optional 2.5 g/bhp-hr NOx+NMHC for engine families that meet a 0.5 g/bhp-hr NMHC cap. As
described above, we expect that all manufacturers will meet 0.5 g/bhp-hr NMHC cap, whether
they use NCPs or not. It is also our understanding that all of the compliance costs that we
received were for compliance with the second form. Thus, we have based our analysis on the
second form of the standard.
We are applying the same NCP parameters (for UL, COC50, COC90, MC50, and F) for all
engines, without regard to form of the standard to which the manufacturer certifies. The effect of
this would be that the X value for engines certified to the first form (without the NMHC
constraint) would be 0.1 g/bhp-hr lower than the values listed in Chapter 4. This would have the
effect of raising the penalty level slightly for any given NOx+NMHC compliance level.
II. Manufacturer Cost Data
Prior to the NPRM, we requested from several of the engine manufacturers detailed cost
estimates for each compliant engine model that they plan to produce for model year 2004. We
requested that all costs be presented in 2001 dollars and adjusted to their net present value for the
year 2004. We also requested that manufacturers include only emission-related costs. The
companies that we contacted are listed in a memorandum to the docket for this rulemaking.3
That memorandum also includes more details about our request. Table 3-1 shows the sample
data table that we sent to the manufacturers.
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Chapter 3: Compliance Costs
Table 3-1
Example of Cost Data provided for One Engine Configuration
Item
Family Name or Identifier
Engine Configuration Description
Technology Description
Value of Fixed Costs -NPV 2004
- research & development
- tooling
- others
2004 Hardware Cost-NPV 2004
2004 Warranty Cost - NPV 2004
Maintenance/Operating Cost - NPV 2004
Brake-Specific Fuel Consumption (Ib/bhp-hr)
U.S. Sales
Vehicle packaging costs
Baseline Engine
N/A
N/A
N/A
N/A
2004 Engine
Prior to the proposal, we received responses from most of the manufacturers that we
contacted, representing the majority of the current U.S. heavy duty diesel engine market.
However, all of the data that we received were identified as confidential business information
(CBI). Therefore, we are not including details of the submissions in this document. Instead we
are presenting only the summary shown in Tables 3-2 through 3-4. This summary format was
approved by all of the manufacturers that provided CBI data for this rulemaking. However, one
manufacturer requested that their estimates of operating costs not be included in these summary
tables, therefore those numbers do not appear in the tables.
Some of the manufacturers that submitted cost information prior to the proposal
submitted revised estimates during the comment period for this rulemaking. The summary tables
below show these more recent data. Some of the other manufacturers reaffirmed their earlier
submissions in their public comments. We contacted those manufacturers who did not revise or
reaffirm their cost estimates during the comment period, and confirmed with them that their
earlier submissions remained valid. During our contacts with manufacturers, we clarified their
methods for projecting the NPV of their fixed costs. We also requested documents showing
internal cost projections (e.g., briefing documents for senior management) from each heavy-
heavy duty engine manufacturer that provided cost data.4 However, not all of the manufacturers
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Chapter 3: Compliance Costs
provided such documents. Nevertheless, the internal documents that we did receive were
consistent with the cost projections that manufacturers provided to us as part of this rulemaking.
With the exception of fixed costs, the manufacturer data presented in these tables were
provided to EPA on a consistent basis for model year 2004. However, in some cases, our follow-
up conversation indicated that the fixed costs needed to be adjusted and amortized to fit the
format described above and in Appendix B. Total fixed costs for each manufacturer were
divided by the manufacturers' actual reported sales for model year 2000 to determine per engine
fixed costs. The fixed cost estimates in Tables 3-2 through 3-4 are shown using the same NPV
methodology. These data are rank-ordered from the highest value to the lowest value from right
to left independently for each cost category (e.g., heavy-heavy fixed costs). Thus, a column of
data does not represent any specific engine manufacturer's estimates. We have done this in order
to maintain the confidential nature of the cost data manufacturers submitted to EPA. It is also
important to note that though we requested data from manufacturers on all heavy duty service
classes, we received no data specific to urban buses.
Table 3-2
Engine Manufacturer Cost Submissions for Light-Heavy Service Class
Cost Category
Amortized Fixed Costs ($/engine)
Hardware Costs, includes
engine manufacture markup
Warranty
Operating Costs
(excluding fuel economy impacts)
Fuel Consumption Impact
Vehicle Manufacturing Cost
($/engine) includes vehicle
manufacture markup
Manufacturer Data - per Engine Costs
unknown at this time
$530
no change or better than
today's product
unknown at this time
unknown at this time
$0
$397
$793
unknown at this time
unknown at this time
2 % improvement
unknown at this time
$536
$1,512
$115
estimate not releasable*
2 % improvement
$130
* Detailed inputs provided on change in oil change intervals, demurrage (i.e., down time), and repairs outside the
warranty period, but manufacturer did not allow cost estimate to be placed in the public record.
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Chapter 3: Compliance Costs
Table 3-3
Engine Manufacturer Cost Submissions for Medium-Heavy Service Class
Cost Category
Amortized Fixed Costs ($/engine)
Hardware Costs, includes engine
manufacturer markup
Warranty
Operating Costs
(excluding fuel economy impacts)
Lost Revenue due to increased
engine weight
Fuel Consumption Impact
Vehicle Manufacturing Cost
($/engine) includes vehicle
manufacture markup
Manufacturer Data - per Engine Costs
no estimate
provided
$223
unknown at this
time
$0
no estimate
provided
no change
$0
$291
$433
$0
unknown at this
time
no estimate
provided
unknown at this
time
unknown at this
time
$495
$750
$0
unknown at this
time
no estimate
provided
3% worse
unknown at this
time
$856
$793
$10
$1,672
no estimate
provided
4% worse
$100
$988
$1,500
$765
estimate not
releasable*
$196
5% worse
$155
* Detailed inputs provided on change in oil change intervals, demurrage (i.e., down time), repairs outside the warranty
period, and revenue impacts from increased engine weight, but manufacturer did not allow cost estimate to be placed in the
public record.
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Chapter 3: Compliance Costs
Table 3-4
Engine Manufacturer Cost Submissions for Heavy-Heavy Service Class
Cost Category
Amortized Fixed Costs ($/engine)
Hardware Costs,
includes engine
manufacture markup
Warranty
Operating Costs: (excluding fuel
economy impacts)
Lost Revenue due to increased
engine weight
Fuel Consumption Impact
Vehicle Manufacturing Cost
($/engine), includes vehicle
manufacture markup
Manufacturer Data - per Engine Costs
$395
$1,100
$0
$0
no estimate provided
0 to 1 percent better
$150
$404
$1,298
$23
$0
no estimate
provided
2 percent worse
$195
$506
$1,559
$188
unknown at
this time
no estimate
provided
3 percent
worse
$250 to $350
$940
$2,520
$840
$429
no estimate
provided
3 to 5 percent
worse
$408
$1,982
$2,899
$1,680
estimate not
releasable*
$871
3 to 5 percent
worse
$500
* Detailed inputs provided on change in oil change intervals, demurrage (i.e., down time), repairs outside the warranty period, and
revenue impacts from increased engine weight, but manufacturer did not allow cost estimate to be placed in the public record.
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Chapter 3: Compliance Costs
III. Analysis of Costs
Our estimated average compliance costs (COC50) and 90th percentile costs (COC90) are
shown in Tables 3-5 through 3-7. These estimates are based on the data provided by
manufacturers, independent cost analyses, and the Agency's technical judgement. The derivation
of these estimates is described in detail below. The estimated 90th percentile cost is conceptually
equivalent to high-mileage vehicles from a high-cost manufacturer, although not necessarily the
highest cost manufacturer. This concept is described in detail in the COC90 section below.
Derivation of these parameters for urban buses is described separately at the end of this section.
Table 3-5
Light-Heavy COC50 and COC90 Estimates
(Net Present Value to 2004 in 2001 Dollars)
Per Engine Fixed Cost
Hardware Cost
Warranty Cost
Operating Costs:
Scheduled Maintenance
Operating Costs:
Post- Warranty Repairs
Operating Costs:
Demurrage
Fuel Cost ($)@$1. 34 /gal(a)
Operating Costs:
Revenue Impact
Vehicle Manufacturing Costs
Total
COC50
$500
$810
$30
$0
$30
$20
($280 savings)
$0
$130
$1,240
COC90
$700
$1,500
$120
$0
$190
$70
$0
$0
$130
$2,710
(a) As discussed in Section III(A) of this Chapter under the heading "Fuel Costs", fuel costs were estimated using a
price of $1.29/gallon for 2004 and 2005, and $1.34/gallon for 2006 and beyond.
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Chapter 3: Compliance Costs
Table 3-6
Medium-Heavy COC50 and COC90 Estimates
(Net Present Value to 2004 in 2001 Dollars)
Per Engine Fixed Cost
Hardware Cost
Warranty Cost
Operating Costs:
Scheduled Maintenance
Operating Costs
Post- Warranty Repairs
Operating Costs:
Demurrage
Fuel Cost ($)@$1. 34 /gal(a)
Operating Costs:
Revenue Impact
Vehicle Manufacturing Costs
Total
COC50
$540
$810
$160
$90
$170
$100
$780
$20
$70
$2,740
COC90
$700
$1,200
$360
$150
$510
$250
$1,560
$50
$150
$4,930
(a) As discussed in Section III(A) of this Chapter under the heading "Fuel Costs", fuel costs were estimated using a
price of $1.29/gallon for 2004 and 2005, and $1.34/gallon for 2006 and beyond.
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Chapter 3: Compliance Costs
Table 3-7
Heavy-Heavy COC50 and COC90 Estimates
(Net Present Value to 2004 in 2001 Dollars)
Per Engine Fixed Cost
Hardware Cost
Warranty Cost
Operating Costs:
Scheduled Maintenance
Operating Costs:
Post- Warranty Repairs
Operating Costs:
Demurrage
Fuel Cost ($)@$1. 34 /gal(a)
Operating Costs:
Revenue Impact
Vehicle Manufacturing Costs
Total
COC50
$610
$1,890
$380
$460
$370
$220
$2,500
$80
$300
$6,810
COC90
$900
$2,340
$700
$800
$940
$470
$5,930
$170
$500
$12,210
(a) As discussed in Section III(A) of this Chapter under the heading "Fuel Costs", fuel costs were estimated using a
price of $1.29/gallon for 2004 and 2005, and $1.34/gallon for 2006 and beyond.
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Chapter 3: Compliance Costs
A. COC50
Fixed Costs and Hardware Costs
Average per-engine fixed costs were calculated as the sales-weighted average of the
manufacturer data shown in Tables 3-2 through 3-4. The average hardware costs were calculated
as the sales-weighted average of the engine hardware costs provided by manufacturers. Sales-
weighting was done using the independent sales information provided by manufacturers.5
We adjusted the hardware costs for heavy-heavy duty engines to account for a reduction
in costs expected from experience gained from the pull-ahead production that is required under
the Consent Decrees. In our recent rulemakings, we have estimated that hardware costs drop by
20 percent after two years of production. Since nearly all of the heavy-heavy duty engines
currently sold in the U.S. are manufactured by companies that are required to pull-ahead
production by 15 months, we believe that hardware costs for model year 2004 will be lower than
the costs manufacturers gave to us. Based on the estimate that hardware costs should drop by 20
percent after two years of production, we believe that hardware costs should drop by at least 10
percent after 15 months of production. Therefore, we have adjusted the manufacturers hardware
costs for heavy-heavy duty engines down by 10 percent to more accurately reflect expected actual
hardware costs for model year 2004.
Warranty Costs
The estimates of expected incremental warranty costs provided by manufacturers covered
a wide range. In some cases, they provided us with detailed analyses. In the proposal, we sales-
weighted the manufacturers information to estimate the average warranty costs in the same
manner as we did for fixed and hardware costs. However, we now believe that this is not the
most appropriate methodology for medium- and heavy-heavy duty engines. As shown in Tables
3-3 through 3-4, the manufacturers' estimates vary greatly. To some degree these differences are
the result of manufacturers using different approaches to estimating these costs. Some
manufacturers are much more conservative in projecting these costs than others. Since the
manufacturers' projections are not equivalent, we do not believe that averaging them together
would be the most appropriate approach. In the standard-setting rulemakings, we estimated that
long-term marginal warranty costs would be equal to 10 percent of the new hardware costs. For
this analysis, where we are looking at costs for model year 2004, we believe that it would be
more appropriate to use 20 percent of the hardware costs. This reflects the reality that short-term
warranty costs for a new product would be expected to be significantly higher than long-term
warranty costs for a mature product. The resulting estimated warranty costs are in the middles of
the ranges, and are significantly less than the most conservative estimate. These estimates are
closer to the median of the manufacturer estimates than to the sales-weighted average.
For light-heavy duty engines, we used the proposed approach of sales-weighting the
manufacturers information to estimate the average warranty costs. The range of estimates
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Chapter 3: Compliance Costs
provided by the manufacturers was not as large for light-heavy duty engines, and showed no
evidence of being conservative. In fact, the manufacturer estimates were significantly less than
20 percent of the hardware costs. The lower estimates are reasonable since the number of miles
covered during the warranty period for a light-heavy duty engine is much less than for the other
service classes.
The estimated average warranty costs were divided by estimated repair costs of $300,
$400 and $500 per repair for light-, medium- and heavy-heavy duty, respectively, to estimate the
repair rates in Table 3-8. The average repair costs are based on confidential information
provided by manufacturers. These estimates for medium- and heavy-heavy duty are less than
used in the draft analysis because of new manufacturer information. The resulting estimated
repair rates during the warranty periods are used to estimate repair costs after the warranty
period, which is included as part of the maintenance costs described in the next sub-section titled
"Operating Costs: Post-Warranty Repairs, Demurrage, and Scheduled Maintenance Costs".
Operating Costs: Post-Warranty Repairs, Demurrage, and Scheduled Maintenance
Costs
We asked manufacturers to provide us with estimates of the incremental maintenance
costs that would be associated with their new engines. However, not all of the manufacturers
provided estimates. Some only provided qualitative descriptions, while others provided no
estimates. Also, some included maintenance costs with demurrage, while others did not. After
reviewing these different estimates, it became clear that they were not consistent, and that we
needed to estimate maintenance and demurrage costs separately.
Based on the confidential submissions from the manufacturers (that is, the detail behind
the manufacturers cost information in Tables 3-2 through 3-4) , we estimate that for the first
model year, the incremental rate of repairs (repairs per vehicle-mile) after the warranty period
would be one-half of the rate within the warranty period. This is a reasonable expectation
because during the warranty period when repairs are performed, manufacturers often will
incorporate additional, preemptive repairs which the engine manufacturer has learned is needed,
but did not cause a failure on the vehicle/engine. We also estimate that the typical warranty
period would be two years.6 Given the projected mileage accumulation rates listed in Appendix
A, this would mean that the number of miles covered within the warranty period would be about
55,000 miles for light-heavy duty, 70,000 miles for medium-heavy duty, and 215,000 miles for
heavy-heavy duty. The post-warranty period is estimated to be the difference between these
mileages and the typical lifetime mileages from Appendix A (209,000, 262,000 and 767,000
miles) The estimated costs associated with incremental post-warranty repairs are shown in Table
3-9.
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Chapter 3: Compliance Costs
For both warranty and post-warranty repairs, we estimated the cost associated with
demurrage (i.e., the cost of the vehicle being out of service), assuming that a repair frequently
removes the vehicle for service for some time. To determine how long a vehicle would be out of
service for each repair, we considered the per repair cost estimate discussed under the Warranty
Costs sub-section above, in which we estimated the average per-repair cost to be $300, $400 and
$500 per repair for light-, medium- and heavy-heavy duty, respectively. Based on these costs,
which would include labor and parts, we believe that a typical repair will be completed within
one day. While a few repairs may take more than one day, many others may be completed in less
than one day, or even during other scheduled maintenance. Thus, our estimated demurrage costs
are equal to the approximate cost of renting a vehicle for one day7, plus $50.00 for administrative
costs (including the labor cost associated with picking up and returning the vehicle), but not
including a rental mileage charge.3 Mileage rates charged by rental fleets are typically roughly
equivalent to the price of the vehicle divided by the number of miles expected for its lifetime
(e.g., $50,000 / 300,000 miles = 17 cents per mile for a typical medium-heavy duty vehicle).
Thus, the cost of mileage to a fleet operator would be comparable whether the miles were driven
in a rental vehicle or in its own vehicle. The demurrage cost does not include costs associated
with failures that occur on the road, and which cause the vehicle to cease being operational until
repaired. What little data we received from manufacturers indicates that this type of catastrophic
failure should not be common The estimated costs of demurrage are $90, $140, and $170 per
repair for LHDE, MHDE, and HHDE, respectively. The NPV values shown in Tables 3-2
through 3-4 are the total combined values for the demurrage costs for warranty repairs and for
post-warranty repairs.
We recognize that manufacturers typically markup replacement parts. While we do not
believe that it is necessarily appropriate to make additional profit from the in-use failure of
emission-related parts, we do believe that there are legitimate overhead costs that should be
included in the cost of the parts. We estimate that parts will comprise 60 percent of the warranty
costs and should be marked-up by 30 percent for post-warranty repairs. This means that post-
warranty repairs would cost 1.18 times as much as warranty repairs.13 Given the expected
sensitivity of customers to the potential for failure of new technology, we believe that
manufacturers will be reluctant to markup emission-related replacement parts any more than this.
In the 2000 FRM, we projected that additional maintenance costs would be incurred for
medium- and heavy-heavy duty engines when they are rebuilt to ensure proper functioning of the
EGR systems. No similar costs were estimated for light-heavy duty engines because of the lower
mileage accumulation rates and the much lower rate of engine rebuilding. We are projecting that
EGR equipped engines will require replacement of the EGR valve and cleaning of the EGR
(a) Note: the estimate of the equivalent out-of-service cost in the draft analysis included an additional $30 per day
for insurance that we now believe is not relevant for most truck operations.
(b) [60% x 130%] + [40% x 100%] = 118%
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Chapter 3: Compliance Costs
cooler at rebuild. We estimate that the incremental cost for the EGR valve replacement will be
$100 for MHDE and $150 for HHDE. Based on manufacturer comments, we believe that
different cooling methods will be used for different engines, depending on engine design and on
operator preference. We are projecting that one-half of the cooler cleaning will involve core-
swap at a cost of $400 for HHDE and $150 for MHDE, and the other half will be cleaned by the
operator at a cost of $80 (equivalent to approximately one hour of labor). The estimated costs for
core-swaps of the coolers are equivalent to the hardware costs to a manufacturer for the cooler
during the original manufacture of the engine, plus markup. Our cost estimates are based on the
information provided by manufacturers. We believe that this estimate properly accounts for
labor costs to remove and reinstall the cooler during rebuilding, cleaning and pressure-testing
costs, shipping and handling of the old cooler and cleaned coolers, and the cost for replacing
damaged coolers than cannot be cleaned. We are projecting the rebuild costs to occur at
mileages equal to the length of the engine's useful life (185,000 and 435,000 miles). The NPV
of these costs (adjusted to 2001 dollars) are shown in Table 3-10. It is important to note that at
least one manufacturer has indicated that it will not use cooled-EGR. Therefore, we are
projecting that one-third of all medium- and heavy-heavy duty engines will have no incremental
costs during rebuild. The resulting average rebuild costs are $260 for HHDE, and $140 for
MHDE. The net present value of these costs would be about $200 for HHDE, and $90 for
MHDE.
Some manufacturers indicated that they will recommend shorter oil change intervals for
their EGR-equipped engines to address problems with soot loading and acidification. However,
other manufacturers projected that there will be no changes in oil change intervals, or did not
provide specific comments regarding oil change intervals. Based on this information, we are
projecting that this effect will be negligible for the average light- and medium-heavy duty engine
over its lifetime, but for heavy-heavy duty, we are projecting that the typical engine will require
about 2 additional oil changes over its lifetime. This is equivalent to an engine requiring an oil
change every 32,000 miles instead of every 35,000 miles. We estimate the cost of an oil change
to be $180.c The net present value of the two additional oil changes would be about $260 per
engine.
(c) Our estimate is based on estimates provided by one engine manufacturer, one national fleet operator, and one
independent truck service center. These estimates were $120, $176, and $195 per oil change (including labor, oil,
and filters).
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Chapter 3: Compliance Costs
Table 3-8
Estimated Average Warranty Costs and Repair Rates
Light Heavy
Medium Heavy
Heavy Heavy
Average Warranty
Cost per Engine
$30
$160
$380
Warranty Miles
55,000
70,000
215,000
Cost per
Repair
$300
$400
$500
Incremental
Repairs per
Vehicle Within
Warranty Period
0.10
0.40
0.76
Table 3-9
Estimated Average Post-Warranty Repair Costs
Light Heavy
Medium Heavy
Heavy Heavy
Post-Warranty
Miles
154,000
192,000
552,000
Incremental Repairs
per Vehicle After
Warranty Period
0.14
0.55
0.98
Cost per
Repair
$350
$470
$590
NPVof
Repairs
$30
$170
$370
Table 3-10
Estimated NPV Average Scheduled Maintenance Costs
Light Heavy
Medium Heavy
Heavy Heavy
Increased Oil
Change
$0
$0
$260
EGR Maintenance
at Rebuild
$0
$90
$200
Average Scheduled
Maintenance Cost
per Engine
$0
$90
$460
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Chapter 3: Compliance Costs
Fuel Costs
We estimated fuel penalties using VMT (vehicle-miles traveled) patterns listed in
Appendix A and the estimates of expected percent changes in fuel consumption listed in Table 3-
11. These estimates of percent change in fuel consumption rates fall within the range of
estimates provided by manufacturers for this rulemaking. We developed these estimates using
the sales-weighted averages manufacturers projections, which were consistent with their internal
estimates that manufacturers are using for planning purposes. However, since internal cost
projections may be somewhat conservative for internal cost projections, we also considered the
manufacturers' public projections of fuel consumption impacts, especially for heavy-heavy duty
engines. In general, the public projections of fuel consumption impacts reflected lower fuel
consumption rates than the manufacturers' submissions to EPA, often more than one percent
better.8 Expecting lower fuel consumption rates is reasonable since market demands will force
manufacturers to continue to reduce fuel consumption rates to the maximum extent possible over
the next year or two. We are estimating that actual fuel consumption impacts will be between the
manufacturers' internal projections and their public statements for model year 2004 to balance
any tendency for the estimates to be either conservative or optimistic. Our estimate of the
percent change in fuel consumption rates for heavy-heavy duty engines is about one-half of one
percent lower than the sales-weighted average of the manufacturer projection that were submitted
to EPA, which is higher than the manufacturers' public projections. Given the lower demand for
fuel consumption improvements for other engines, a smaller adjustment was made to the
manufacturer projection for medium-heavy duty, and no adjustment was made for light-heavy
duty.
We calculated the NPV of these impacts using a fuel price of $1.29 per gallon for
calendar years 2004 and 2005, and a fuel price of $1.34 per gallon for later calendar years to
account for the introduction of lower sulfur fuel. The $1.29 price represents the five-year
average retail price of on-highway diesel fuel for 1997 through 2001 (EIA estimate)9 adjusted to
be equivalent to 2001 dollars, plus 44 cents for federal and state tax. Appendix A contains a
detailed description of the estimated mileage accumulation rates that we used in our analysis.
As shown in Figure 3-1, diesel fuel prices have been highly variable, even when adjusted
for inflation. We are using a five-year average because we believe that it is a better estimate of
future fuel prices than a single-year average. In addition, it probably also better approximates
how purchasers will make purchase decisions, considering the economic significance of changes
in fuel consumption rates.
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Chapter 3: Compliance Costs
Figure 3-1
$1.50
$1.40
$1.30
— $1.20
f $1.10
^ $1.00
£ $0.90
$0.80
$0.70
$0.60
1<
Retail Price of Diesel Fuel Before Taxes
Adjusted by CPI to 2001 Dollars
f
\
\
\ *
L A *
*V v „. / *
XA '
** " .
•
ISO 1985 1990 1995 2000 2005
Table 3-11
Estimated Average Lifetime Mileage and Fuel Consumption Change
Light Heavy
Medium Heavy
Heavy Heavy
VMT for Average
Vehicle
209,000
262,000
767,000
Average Change in
Fuel Consumption
-2.0%
+2.5%
+2.0%
2004 NPV of
Fuel Impact
($280 savings)
$780
$2,500
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Chapter 3: Compliance Costs
Operating Costs: Revenue Impacts
Some engine manufacturers suggested that there could be some increase in engine/vehicle
weight as a result of the new standards which could have a small impact on revenue for trucks
operating at their weight limit. Other manufacturers, however, did not. Manufacturer estimates
of the increase in weight ranged from zero to 100 pounds. Based on these inputs, we are
estimating that the average medium- and heavy-heavy duty vehicle will weigh 40 and 50 pounds
more than current vehicles, respectively.
We are estimating revenue impacts for this increase in weight based on the operation of
liquid tanker trucks, which are often weight limited. According to the U.S. Census Bureau 10,
operation of tanker trucks comprises approximately 7 percent of all medium- and heavy-heavy
duty truck operation. We also estimate that tanker revenue is approximately 8 cents per ton-
mile.11 While we recognize that these trucks are not always weight limited, we also recognize
that trucks other than tankers can be weight limited. We believe that these two factors largely
offset one another. It is also important to note that, while we requested comment on how to best
estimate revenue impacts, we received no new data.
Assuming that freight revenue is 8 cents per ton-mile, and that these trucks operate at
their weight limit 7 percent of the time, 50 additional pounds could cost a heavy-heavy duty
truck operator about $80 (NPV) over a typical vehicle life of 760,000 miles. For medium-heavy
duty, we estimate that the revenue impact of 40 additional pounds would be $20 (NPV) over a
typical vehicle life of 262,000 miles.
Vehicle Manufacturing Costs
Engine manufacturers estimated increased vehicle manufacturing costs of up to $500 for
vehicles changes such as bigger fans and radiators. We estimated the average incremental
vehicle cost to be equal to the sales-weighted average of the engine manufacturer's estimates.
which are $130 for light-heavy duty, $70 for medium-heavy duty, and $300 for heavy-heavy
duty. These estimates include a vehicle manufacturer markup.
B. COG
90
The estimated 90th percentile cost is conceptually equivalent to high-mileage vehicles
from a high-cost manufacturer. However, we did not base this on the highest mileage vehicle
and the highest cost vehicles, since that would result in the 99th percentile costs. Given the
relative market shares of the various engine manufacturers, as well as the relative importance of
fuel costs and engine manufacturer costs, we determined that it would be appropriate to use the
70th percentile mileage accumulation rates to calculate changes in fuel consumption and other
operating costs which are proportional to mileage, such as post-warranty repair rates and revenue
impacts. Assuming no co-dependence of the distributions, we would need to target the 67th
Page-3 5-
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Chapter 3: Compliance Costs
percentile of engine manufacturer costs (and other manufacturer specific parameters, such as
percent change in fuel consumption) to result in precisely 10 percent of the model year 2004 fleet
having both mileage accumulations and engine costs at least this high.d Given concerns about
protecting confidential business information, as well as the fact that we did not receive
information for every manufacturer, we cannot describe our COC90 analysis in terms of actual
cost data from a specific manufacturer. Instead, we used in our COC90 analysis representative
numbers from the higher cost manufacture^s), as described below.
We have attempted to estimate costs representative of the 67th percentile engine
manufacturer costs for fixed costs, hardware costs, warranty costs and vehicle manufacturer
costs. Similarly, we attempted to estimate rates representative of the 67th percentile engine for
post-warranty repair rates (repairs per mile, not the repair costs), decreased oil change intervals,
revenue impact due to weight increase, and change in fuel consumption rate (percent change).
For most inputs, we used values representative of the highest two or three manufacturer values.
However, for light-heavy duty, where we often had only two manufacturer estimates for a given
cost category, we sometimes used the single highest cost. When considered together, our
estimated COC90 costs are less than the highest compliance costs reported by the highest cost
manufacturer.
Fixed Costs and Hardware Costs
We estimated the COC90 fixed costs and hardware costs from the same manufacturer
estimates used to calculate the COC50 estimates (including the downward adjustment of the
hardware costs by 10 percent to reflect manufacturer production experience prior to 2004). In
general, we estimated the COC90 cost to be between the two highest estimates. However, the
estimated fixed cost for heavy-heavy engines is between the second and third highest
manufacturer estimates because the manufacturer data with the highest fixed cost estimate
represents a relatively small fraction of the heavy-heavy duty market.
(d) Assuming no co-dependence between manufacturing costs and mileage accumulation rates, 90th percentile
costs occur when the product of (100%-manufacturing cost percentile) and (100%-mileage percentile) is equal to
10%. For example, for 70th percentile mileage rates, the manufacturing cost percentile that would correspond to ten
percent of the fleet would be the 67th percentile; (100% - 67%) X (100%-70%) = 0.33 X 0.30 = 0.10 =10%. Thus,
1/3 of the model year's production will have manufacturing costs at least as high as the 67th percentile, and 30
percent of those engines (or 10 percent of the total) will have lifetime mileage accumulation at least as high as the
70th percentile value. Similarly, for 80th percentile mileage rates, the manufacturing cost percentile that would
correspond to ten percent of the fleet would be the 50th percentile; (100% - 50%) X (100%-80%) = 0.50 X 0.20 =
0.10 =10%. However, based on the cost information provided by manufacturers, the ten percent of the fleet captured
by this 50/80 analysis would have lower costs than the ten percent of the fleet captured by the 67/70 analysis used
here.
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Chapter 3: Compliance Costs
Warranty Costs
Warranty costs depend on several different factors, such as hardware cost, technology
design, past corporate warranty practices, etc. Thus, it is reasonable to expect that COC90
warranty costs would be higher than the average costs. For the medium- and heavy-heavy duty
analysis, we estimated COC90 warranty repair rates to be 50 percent higher than the average
repair rates, so that warranty costs would be estimated as 30 percent of the COC90 hardware
costs, as opposed to the 20 percent estimate for COC50. These costs are shown in Table 3-12.
Consistent with the COC50 warranty analysis, we used the manufacturer costs to estimate the
light-heavy duty COC90 warranty costs. We estimate that the COC90 warranty cost for light-
heavy duty will be equal to the highest warranty cost estimated by a manufacturer.
Operating Costs: Post-Warranty Repairs, Demurrage, and Scheduled Maintenance
Costs
We estimated 90th percentile post-warranty repair and demurrage costs in the same
manner as the average costs. However, we based the repair frequency (repairs per mile) on this
COC90 warranty cost estimate, and on the 70th percentile mileage rates. For scheduled
maintenance, we estimated COC90 costs in the same manner as COC50 costs. We estimated no
increase in the number of rebuilds. However, since the COC90 engine is projected to be an EGR
engine, rebuild costs would include EGR valve replacement and EGR cooler cleaning/core-swap
for all engines (i.e., half of the COC90 engines would have the coolers cleaned, while the other
half would have a core-swap). The NPV of these rebuild estimated costs is $150 for MHDE and
$300 for HHDE. Post-warranty repair and maintenance costs are shown in Tables 3-13 and 3-14.
We estimate that, for the heavy-heavy COC90 engine, there will be 4 more oil changes
over the life of the vehicle (for 70th percentile mileage rates). This is equivalent to an engine
requiring an oil change every 31,000 miles instead of every 35,000 miles. We estimated the cost
of an oil change to be $180. The net present value of this would be about $500 per engine. We
are projecting that this effect will be negligible for the average light- and medium-heavy duty
engines.
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Chapter 3: Compliance Costs
Table 3-12
Estimated Warranty Costs and Repair Rates for COC90
Light Heavy
Medium Heavy
Heavy Heavy
Warranty Cost
per Engine
$120
$360
$700
Warranty Miles
55,000
70,000
215,000
Cost per Repair
$300
$400
$500
Incremental
Repairs per
Vehicle Within
Warranty Period
0.40
0.90
1.40
Table 3-13
Estimated Post-Warranty Repair Costs for COC90
Light Heavy
Medium Heavy
Heavy Heavy
Post-
Warranty
Miles
225,000
273,000
785,000
Incremental
Repairs per Vehicle
After Warranty
Period
0.82
1.76
2.56
Cost per
Repair
$350
$470
$590
NPV of Repair
Costs
$70
$250
$470
Table 3-14
Estimated Scheduled Maintenance Costs for COC90
Light Heavy
Medium Heavy
Heavy Heavy
Increased Oil
Change
$0
$0
$500
EGR Maintenance
at Rebuild
$0
$150
$300
Average Scheduled Maintenance
Cost per Engine
$0
$150
$800
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Chapter 3: Compliance Costs
Fuel Costs
We estimated 90th percentile fuel costs in the same manner as the average rates.
However, we based the percentile change on the COC90 engines (e.g., a HHDDE with a 3.5% fuel
consumption increase), and used the 70th percentile mileage rates. The estimated impacts are
shown in Table 3-15. This analysis is shown in Appendix A.
The estimates of percent change in fuel consumption rates fall within the range of
estimates provided by manufacturers for this rulemaking. As we did for the COC50 analysis, we
also considered the manufacturers' public projections of fuel consumption impacts. Our estimate
of the percent change in fuel consumption rates for medium- and heavy-heavy duty engines is
near the low end of the range of estimates of the high cost manufacturers. For light-heavy-duty
engines, the two manufacturers that provided estimates for fuel consumption impacts each
projected a two percent improvement in fuel consumption. This would represent a lifetime
savings of a few hundred dollars for the average light-heavy-duty vehicle. However, if different
configurations and driving patterns are considered, we believe that there would likely not be
significant fuel savings for the COC90 vehicles.
Table 3-15
Estimated Lifetime Mileage and Fuel Consumption Change for COC90
Light Heavy
Medium Heavy
Heavy Heavy
VMT for Average
Vehicle
280,000
343,000
1,000,000
Change in Fuel
Consumption
No Change
+4%
+3.5%
2004 NPV of Fuel
Impact
$0
$1,560
$5,390
Operating Costs: Revenue Impacts
Based on manufacturer inputs, we are estimating that the COC90 medium- and heavy-
heavy duty vehicle will weigh 70 and 80 pounds more than current vehicles, respectively.
Assuming that freight revenue is 8 cents per ton-mile, and that these trucks operate at their
weight limit 7 percent of the time, 50 additional pounds could cost a heavy-heavy duty truck
operator about $170 (NPV) over a vehicle life of 1,000,000 miles. For medium-heavy duty, we
estimate that the revenue impact of 40 additional pounds would be $50 (NPV) over a vehicle life
of 343,000 miles.
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Chapter 3: Compliance Costs
Vehicle Manufacturing Costs
We estimated the COC90 vehicle cost as approximately the highest estimate provided by
engine manufacturers.
C. MC50 and F
MC50 and F are two parameters used in the existing regulations in the calculation of the
value X (see 40 CFR 86.1113-87 (a)(4)). X is the compliance level(g/bhp-hr) above the standard
where the penalty equals COC50 This section describes the derivation of MC50 and F for light-,
medium-, and heavy-heavy duty engines. The values for urban buses are described in a later
section.
Estimated value ofMC
50
MC50 is the marginal cost of compliance for the average vehicle, expressed in terms of
dollars per gram of NMHC+NOx emission controlled. In concept, it would be based on the
difference in total compliance costs for an engine that had emissions equal to the standard (i.e.,
2.5 g/bhp-hr) and an engine that had emissions slightly above the standard. For example, if we
had an estimate of the total cost of compliance for a typical engine with emissions equal to 2.6
g/bhp-hr, then we would calculate MC50 as the difference between that cost and the average
divided by the difference in emissions (0.1 g/bhp-hr). However, in the case of this rulemaking,
we do not have such detailed information. Therefore, we have estimated MC50 based on the
estimated costs of those control strategies that we believe will be used by manufacturers to
achieve marginal NOx or NMHC control near the 2.5 g/bhp-hr standard.
We are aware of studies that investigated the effect of injection timing retard on NOx
emissions and fuel consumption for HDDEs with emission performance on the order of 2.5
g/bhp-hr NOx.12'13 These studies showed marginal fuel consumption changes of 0.2 to 0.8
percent increase in fuel consumption for each 0.1 g/bhp-hr of NOx reduction. Similar effects
have been observed with changes in EGR rate.13 Another study looked at other diesel engine
types, and found marginal fuel consumption changes of 0.3 to 0.6 percent increase in fuel
consumption for each 0.1 g/bhp-hr of NOx reduction.14 For this analysis, we are estimating that
the average marginal cost of achieving the last 0.1 g/bhp-hr of NOx reduction for light-,
medium-, and heavy-heavy duty is equivalent to a 0.45 percent increase in fuel consumption, or
$60, $140, and $560, respectively, based on the data cited above.
We are also aware that at least one manufacturer is considering using a diesel oxidation
catalyst (DOC) to reduce NMHC emissions from light-heavy duty engines. Based on
information provided by light-heavy duty engine manufacturers, we have estimated cost
effectiveness of using DOCs to reduce hydrocarbons. In a 1998 submission to EPA, the
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Chapter 3: Compliance Costs
Manufacturers of Emission Control Associations (MECA) estimated a range of costs for a DOC
for a light-heavy duty engine to be between $230 and $500 (1998 dollars), using typical engine
displacement, engine family production volumes, and industry wide production volumes for the
light-heavy duty diesel engine market.15 Given the current emission rates for light-heavy duty
engines, we project that a DOC would reduce hydrocarbons by about 0.2 g/bhp-hr. Based on this
information and the recent manufacturer data, we estimate that the marginal cost of compliance
would be $200 per 0.1 g/bhp-hr of NMHC+NOx reduced (in 2001 dollars). We are using this
value to estimate MC50 for light-heavy duty engines since this cost is higher than the cost of a
0.45 percent increase in fuel consumption for light-heavy duty engines.
Based on the preceding analysis, we estimate MC50 for light-, medium-, and heavy-heavy
duty to be $2000, $1600, and $5600, respectively. It is useful to compare these values to the
minimum values of MC50 (i.e., the average cost of compliance (COC50) divided by the difference
between the standard and the upper limit). MC50 would equal the minimum value if all of the
emission controls were equally cost effective. Given our estimates of COC50, and our upper
limits, the minimum values for MC50 are $620, $1370, and $1950 for light-, medium-, and
heavy-heavy duty vehicles.
Estimated value ofF
The parameter F is defined in the existing regulations as a value from 1.1 to 1.3 that
describes the ratio of the 90th percentile marginal cost (MC90) to MC50. Given that the MC50 for
medium- and heavy-heavy duty is estimated to be equivalent to a 0.45 percent increase in fuel
consumption per 0.1 g/bhp-hr, we considered the F values that would be associated with the
observed experimental range of fuel consumption impacts described above.7'8 The high end of
the range of 0.8 percent increase per 0.1 g/bhp-hr would be equivalent to an F value of 1.8, which
is outside of the range allowed by the existing regulations. An F value of 1.3 would be
equivalent to a 0.59 percent increase per 0.1 g/bhp-hr. We believe that the true value of MC90 is
likely to be between these two estimates, and therefore are setting F equal to 1.3.
For light-heavy duty, a catalyst at the upper range of the MECA cost ($545 in 2001
dollars) that would reduce NMHC emissions by 0.2 g/bhp-hr would result in an F value of 1.36.
Thus, we are setting F at the maximum level of 1.3 for light-heavy duty.
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Chapter 3: Compliance Costs
D.
Urban Buses
We did not receive any cost information specific to urban buses. Therefore, we are
basing our cost estimates on the information provided for heavy-heavy duty engines because an
urban bus is a sub-category of the heavy-heavy service class. We estimate that the per-engine
fixed costs, hardware costs, and vehicle costs will be the same for buses as for other heavy-heavy
duty engines. We estimate that there would be no revenue impact. Our estimated warranty and
maintenance costs were derived using the same per-mile costs as for other heavy-heavy duty
engines. However, we estimated no cost associated with demurrage. We estimated MC50 and F
in the same manner as we did for the heavy-heavy duty service class, but used the bus-specific
fuel consumption costs.
Table 3-16
Estimate of Warranty Costs, Post-Warranty Repair Costs, and
Maintenance Costs (Oil Changes for Urban Buses
Warranty Period
Miles
Warranty Cost
Post-Warranty
Miles
Post-Warranty
Repair Cost
Total Life Miles
Oil Cost
COC50 Estimates
Urban Bus
89,000
$160
501,000
$340
590,000
$210
Other HHDV
215,000
$380
552,000
$370
767,000
$270
COC90 Estimates
Urban Bus
89,000
$290
511,000
$610
600,000
$300
Other HHDV
215,000
$700
785,000
$940
1,000,000
$500
The fuel costs were calculated using the bus-specific mileage estimates in Appendix A,
and our estimates of the bus-specific fuel consumption rate impacts shown in Table 3-17. These
estimates (0.5 percent for COC50 and 2.0 percent for COC90) are 1.5 percent lower than the
corresponding rates estimated for other heavy-heavy duty engines. This difference is intended to
reflect the effect of setting the upper limit at 4.5 instead of 6.0, while keeping the hardware for
bus engines the same as for other heavy-heavy duty engines. For the proposal, we estimated that
this difference in upper limits could be approximated by reducing the heavy-heavy fuel
consumption penalty by 2.0 percent. However, the net adjustment must also reflect differences
Page-42-
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Chapter 3: Compliance Costs
in in-use operation and the lesser degree to which manufacturers will optimize urban bus fuel
consumption. These differences probably would have resulted in a difference of about 0.5
percent if these engines had the same upper limit. Thus, we are estimating that the fuel
consumption penalty for urban buses will be 1.5 percent less than it will be for other heavy-heavy
duty engines.
Table 3-17
Estimated Lifetime Mileage and Fuel Consumption Change
COC50
COC90
VMT
590,000
600,000
Change in Fuel
Consumption
0.5%
2.0%
2004 NPV of
Fuel Impact
$420
$1,720
Table 3-18
Urban Bus COC50 and COC90 Estimates
(Net Present Value to 2004 in 2001 Dollars)
Per Engine Fixed Cost
Hardware Cost
Warranty Cost
Operating Costs:
Scheduled Maintenance
Operating Costs:
Post- Warranty Repairs
Operating Costs:
Demurrage
Fuel Cost
Operating Costs:
Revenue Impact
Vehicle packaging costs
Total
COC50
$610
$1,890
$160
$210
$340
$0
$420
$0
$300
$3,930
COC90
$900
$2,340
$290
$300
$610
$0
$1,720
$0
$500
$6,660
Page-43-
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Chapter 3: Compliance Costs
References for Chapter 3
1. U.S. Department of Labor, Bureau of Labor Statistics, CPI Inflation Calculator,
http://data.bls.gov/cgi-bin/cpicalc.pl.
2. "Fleet Characterization Data for MOBILE6: Development and Use of Age Distributions,
Average Mileage Accumulation Rates and Projected Vehicle Counts for Use in MOBILE6",
EPA420-R-01-047, September 2001.
3. "Collection of Compliance Cost Estimates for the Purpose of Establishing NCPs for the
2004 Heavy duty Diesel NMHC+NOx Emission Standard", Roberts French, EPA Memorandum,
copy available in the docket for this rulemaking.
4. "Internal Company Documents Submitted to EPA for NCP Rulemaking", Charles Moulis,
EPA Memorandum, copy available in the docket for this rulemaking.
5. "Data Received from Heavy Duty Diesel Engine Companies regarding 2001 Medium-Heavy
and Heavy-Heavy Diesel Engine Sales", William Charmley, EPA Memorandum, copy available
in the docket for this rulemaking.
6. "Heavy-duty Diesel Engine Warranty Information", Charles Moulis, EPA Memorandum,
copy available in the docket for this rulemaking.
7. Estimated rental prices are based on prices published at www.ryder.com, a copy of the
published prices has been placed in the docket for this rulemaking.
8. "Documentation of recent Heavy-duty Diesel Engine Industry Press Releases, Trade Journal
Articles, and other Material Regarding Fuel Economy Performance", William Charmley, EPA
Memorandum, copy available in the docket for this rulemaking.
9. U.S. Department of Energy, Energy Information Administration, Petroleum Marketing
Monthly, Table 17, April 2002.
10. "1997 Economic Census: Vehicle Inventory and Use Survey", U.S. Census Bureau,
EC97TV-US, October 1999.
11. "Infrastructure Requirements for an Expanded Fuel Ethanol Industry", Chapter 4,
Downstream Alternatives Inc., January 15, 2002.
12. "Cooled EGR - A Key Technology for Future Efficient HD Diesels", P. Zelenka et. al.
Society of Automotive Engineers Technical Paper # 980190, February 1998.
Page-44-
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Chapter 3: Compliance Costs
13. "Gaseous Emissions from a Caterpillar 3176 (with EGR) Using a Matrix of Diesel Fuels
(Phase 2)", Southwest Research Institute, September 1999. Copy available in the docket for this
rulemaking.
14. "European Programme on Emissions, Fuels and Engine Technologies (EPEFE) - Heavy Duty
Diesel Study, M. Signer, et al., Society of Automotive Engineers Technical Paper #961074, May,
1996.
15. "Report on Agreed-Upon Procedures", Manufacturers of Emission Control Associations,
December 17, 1998, Available in EPA Air Docket A-98-32, Docket Item # H-D-09.
Page-45-
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Chapter 4: Regulatory Parameters for NCPs
CHAPTER 4: REGULATORY PARAMETERS FOR NCPs
I. NCP Equations and Parameters
EPA's existing regulations for calculating NCPs are contained in 40 CFR Part 86 Subpart
L. NCP schedules can be calculated from those same equations using the Upper Limit, COC50,
COC90, MC50, and F values from the previous chapter, and a standard level (S) of 2.5 g/bhp-hr
NMHC+NOx. The values for X are calculated using these values and the following equation
from Subpart L:
X = (COC50 / F / MC50) + S
The purpose of this equation is to achieve a penalty curve in which the slope for engines with
compliance levels near the standard is equal to the 90th percentile marginal cost of compliance
(MC90 equals MC50 times F).
Table 4-1
Parameters for NCP Equations
COC50
COC90
MC50
F
UL
X
Light-Heavy
$1,240
$2,710
$2,000
per g/bhp-hr
1.3
4.5
3.0
Medium-Heavy
$2,740
$4,930
$1,400
per g/bhp-hr
1.3
4.5
4.0
Heavy-Heavy
$6,810
$12,210
$5,600
per g/bhp-hr
1.3
6.0
3.4
Urban Bus
$3,930
$6,660
$3,800
per g/bhp-hr
1.3
4.5
3.3
When the factors listed in Table 4-1 are input into the existing NCP equations specified in 40
CFR 86.1113(a)(l) and (2), for year n=l (that is, the first year the penalties are used, thus the
annual adjustment factor is equal to 1), the resulting penalty vs. compliance level for each service
class are shown in Figures 4-1 through 4-4.
Page-46-
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Chapter 4: Regulatory Parameters for NCPs
$3,000
$2,500
$2,000
^
1 $1,500
,
! $3,000
-------
Chapter 4: Regulatory Parameters for NCPs
CD
Heavy-Heavy Duty Penalty Rates
3.0 4.0
Compliance Level
5.0
6.0
Urban Bus Penalty Rates
2.5
3.0 3.5
Compliance Level
4.0
4.5
Page-48-
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Chapter 4: Regulatory Parameters for NCPs
II. Refund for Engineering and Development Costs
Section 1113-87(h) of the existing regulations specify provisions under which a
manufacturer that pays NCPs can recover some of the amount it has paid, provided it certifies a
conforming replacement for the engines which used the NCPs. The maximum amount that can
be recovered is limited to 90 percent of the portion of the penalty which EPA determines to be
related to engineering and development. Thus, it is necessary for EPA to establish in each NCP
rule a factor for each service class (FE&D) which define the fractions of the NCP which is
considered to be related to engineering and development. We are setting these factors equal to
the ratio of the projected average fixed costs per engine divided by the COC50 for each class. The
factors are listed in Table 4-2.
Table 4-2
Engineering and Development Refund Factors
Light-Heavy Duty
Engines
Medium-Heavy Duty
Engines
Heavy -Heavy Duty
Engines
Urban Bus
Engines
0.403
0.197
0.090
0.155
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APPENDIX A: FUEL CALCULATIONS
This appendix lists the inputs used to project fuel costs. It also details an analysis of the
net present value (NPV) of changes in fuel consumption. The projected fuel cost changes are
shown for one percent changes in fuel consumption rates. These resulting NPV projections are
directly proportional to the percent change in fuel consumption, whether it is positive or
negative.
The first table lists the inputs used for the analysis. The second table shows the weighted
average VMT rates and the project change in annual fuel cost for a typical vehicle. The weighted
average VMT rates are the products of the "Annual VMT" and "Survival Fraction" entries from
Table A-l. Thus, Table A-2 represents the fleet average of all 2004 model year vehicles within a
given class (e.g., light-heavy duty diesel vehicles). With the exception of urban buses, Table A-3
represents individual 2004 model year vehicles that remain in service for 19 years. Our data
indicate that 70 percent of these vehicles remain in service for 19 years or less. Thus, we project
that 30 percent of model year 2004 heavy duty vehicles would have fuel cost impacts equal to or
greater than those listed at the bottom of Table A-3 for each one percent change in their fuel
consumption rates. For urban buses Table A-3 represents individual 2004 model year buses that
remain in service for 17 years.
Page-50-
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Table A-l
Inputs Used for Fuel Consumption Analysis
3ase fuel economy, mi/gallon
3ercent increase in fuel consumption
Light
HDDV
14
1.0%
Medium
HDDV
8.0
1.0%
Heavy
HDDV
6.0
1.0%
NPV Discount Rate = 0.07
Cost of Diesel Fuel = 1.34/gallon
(Includes 5 cents/gal for low sulfur
after 2005)
Annual VMT and Fraction of Vehicle Remaining in the Fleet vs. Vehicle Age
Vehicle
Age
1
2
o
J
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
Light HDDV
Annual
VMT
28,951
26,479
24,226
22,173
20,301
18,593
17,035
15,613
14,314
13,128
12,043
11,052
10,146
9,317
8,558
7,864
7,227
6,645
6,111
5,622
5,173
4,762
4,384
4,038
3,720
3,427
3,159
2,913
2,686
2.477
Survival
Fraction
1.000
1.000
0.932
0.870
0.811
0.756
0.705
0.657
0.613
0.572
0.533
0.497
0.464
0.432
0.403
0.376
0.351
0.327
0.305
0.284
0.265
0.247
0.231
0.215
0.207
0.194
0.177
0.167
0.153
0.119
Medium HDDV
Annual
VMT
36493
33203
30221
27519
25069
22849
20836
19012
17359
15861
14502
13271
12155
11145
10228
9397
8644
7962
7342
6782
6274
5814
5396
5017
4674
4363
4082
3826
3595
3385
Survival
Fraction
1.000
1.000
0.935
0.875
0.818
0.765
0.715
0.669
0.626
0.585
0.547
0.512
0.478
0.447
0.418
0.391
0.366
0.342
0.32
0.299
0.28
0.262
0.245
0.229
0.218
0.204
0.179
0.179
0.165
0.151
Heavy HDDV
Annual
VMT
113,208
102,211
92,288
83,332
75,250
67,954
61,369
55,424
50,059
45,214
40,840
36,892
33,327
30,107
27,200
24,575
22,204
20,063
18,129
16,382
14,804
13,379
12,091
10928
9877
8928
8069
7294
6595
5962
Survival
Fraction
1.000
1.000
0.935
0.875
0.818
0.765
0.716
0.670
0.626
0.586
0.548
0.513
0.479
0.448
0.419
0.392
0.367
0.343
0.321
0.300
0.281
0.263
0.246
0.230
0.220
0.207
0.179
0.179
0.165
0.152
Urban Bus
Annual
VMT
45171
43731
42337
40987
39681
38416
37191
36005
34857
33746
32670
31629
30620
29644
28699
27784
26898
26041
25211
24407
23629
22875
22146
21440
20757
20095
19454
18834
18234
17652
Survival
Fraction
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
0.999
0.996
0.989
0.970
0.925
0.832
0.662
0.413
0.197
0.161
0.132
0.108
0.089
0.072
0.059
0.065
0.033
0.033
0.033
0.016
0.016
Page-51-
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Table A-2
Average Per Vehicle Cost From 1% Increase in Fuel Consumption
Age
1
2
o
J
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
Total
NPV
Light HDDV
VMT
28,951
26,479
22,579
19,291
16,464
14,056
12,010
10,258
8,774
7,509
6,419
5,493
4,708
4,025
3,449
2,957
2,537
2,173
1,864
1,597
1,371
1,176
1,013
868
770
665
559
486
411
295
209,205
Fuel
Penalty
$27
$24
$22
$18
$16
$13
$11
$10
$8
$7
$6
$5
$4
$4
$3
$o
3
$2
$2
$2
$2
$1
$1
$1
$1
$1
$1
$1
$0
$0
$0
$198
$143
Medium HDDV
VMT
36,493
33,203
28,257
24,079
20,506
17,479
14,898
12,719
10,867
9,279
7,933
6,795
5,810
4,982
4,275
3,674
3,164
2,723
2,349
2,028
1,757
1,523
1,322
1,149
1,019
890
731
685
593
511
261,692
Fuel
Penalty
$59
$53
$47
$40
$34
$29
$25
$21
$18
$16
$13
$11
$10
$8
$7
$6
$5
$5
$4
$3
$3
$3
$2
$2
$2
$1
$1
$1
$1
$1
$433
$313
Heavy HDDV
VMT
113,208
102,211
86,289
72,916
61,555
51,985
43,940
37,134
31,337
26,495
22,380
18,926
15,964
13,488
11,397
9,633
8,149
6,882
5,819
4,915
4,160
3,519
2,974
2,513
2,173
1,848
1,444
1,306
1,088
906
766,554
Fuel
Penalty
$243
$219
$192
$163
$137
$116
$98
$83
$70
$59
$50
$42
$36
$30
$25
$21
$18
$15
$13
$11
$9
$8
$7
$6
$5
$4
$o
3
$o
3
$2
$2
$1,691
$1,246
Urban Bus
VMT
45,171
43,731
42,337
40,987
39,681
38,416
37,191
35,995
34,847
33,707
32,547
31,273
29,692
27,427
23,876
18,381
11,115
5,136
4,070
3,228
2,559
2,028
1,605
1,275
1,353
655
634
614
297
288
590,116
Fuel
Penalty
$97
$94
$94
$91
$88
$86
$83
$80
$78
$75
$73
$70
$66
$61
$53
$41
$25
$11
$9
$7
$6
$5
$4
$3
$3
$1
$1
$1
$1
$1
$1,309
$844
Page-52-
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Table A-3
High Case per Vehicle Cost From 1% Increase in Fuel Consumption
For 30 Percent Remaining in Fleet
Age
1
2
o
J
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Total
NPV
Light HDDV
VMT
28,951
26,479
24,226
22,173
20,301
18,593
17,035
15,613
14,314
13,128
12,043
11,052
10,146
9,317
8,558
7,864
7,227
6,645
6,111
0
279,776
Fuel
Penalty
$27
$24
$23
$21
$19
$18
$16
$15
$14
$13
$12
$11
$10
$9
$8
$8
$7
$6
$6
$0
$265
$180
Medium HDDV
VMT
36,493
33,203
30,221
27,519
25,069
22,849
20,836
19,012
17,359
15,861
14,502
13,271
12,155
11,145
10,228
9,397
8,644
7,962
7,342
0
343,068
Fuel
Penalty
$59
$53
$51
$46
$42
$38
$35
$32
$29
$27
$24
$22
$20
$19
$17
$16
$14
$13
$12
$0
$569
$389
Heavy HDDV
VMT
113,208
102,211
92,288
83,332
75,250
67,954
61,369
55,424
50,059
45,214
40,840
36,892
33,327
30,107
27,200
24,575
22,204
20,063
18,129
0
999,646
Fuel
Penalty
$243
$219
$206
$186
$168
$152
$137
$124
$112
$101
$91
$82
$74
$67
$61
$55
$50
$45
$40
$0
$2,211
$1 536
Urban Bus
VMT
45171
43731
42337
40987
39681
38416
37191
36005
34857
33746
32670
31629
30620
29644
28699
27784
26898
0
0
0
600,066
Fuel
Penalty
$97
$94
$94
$91
$88
$86
$83
$80
$78
$75
$73
$71
$68
$66
$64
$62
$60
$0
$0
$0
$1,311
$858
Page -53-
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APPENDIX B: SAMPLE COST CALCULATIONS
This appendix shows sample calculations for some of the cost components used in the
analysis. It shows how fixed costs were adjusted to constant 2001 dollars, and how they were
amortized. It also shows how per-mile fuel cost impacts were calculated. The last table shows
the annual cost stream from the owner's perspective. Manufacturer costs are expressed as retail
price equivalents, without regard to the extent to which the manufacturers actually pass the costs
on to the customers.
Page-54-
-------
Sample Calculation of NPV Fixed Costs from
Annual Fixed Costs from a Manufacturer
Calendar
Year That
Money Is
Spent
1998
1999
2000
2001
2002
2003
Research
Spending1
$5,000,000
$5,000,000
$10,000,000
$10,000,000
$10,000,000
$10,000,000
Tooling
Costs1
$1,000,000
$3,000,000
Total Fixed
Costs for
Calendar
Year
$5,000,000
$5,000,000
$10,000,000
$10,000,000
$11,000,000
$13,000,000
Value of
Dollars for
Reported
Costs2
1998
1999
2000
2001
2001
2001
* Costs for 2001 - 2003 are projected costs, costs for 1998 - 2000
arp artiial msts
CPI
Adjustment
to 2001
Dollars
.087
.063
.029
.000
.000
.000
Total Annual
Fixed Cost in
2001 Dollars2
NPV of Annual
Fixed Costs3
$5,435,000
$5,315,000
$10,290,000
$10,000,000
$11,000,000
$13,000,000
Total NPV =
$8,156,469
$7,454,562
$13,488,091
$12,250,430
$12,593,900
$13,910,000
$67,853,453
1 Costs for 2001 - 2003 are projected costs, costs for 1998 - 2000
are actual costs.
2 Actual costs were generally reported in terms of actual dollars
spent in a calendar year without adjusting for inflation. These
costs were adjusted upwards based on the Consumer Price Index to
be equivalent to 2001 dollars. Projected costs are generally
reported in terms of current year dollars.
The net present value of these costs were calculated by multiplying
the cost (in 2001 dollars) by 1.07", where n = (2004 - the year of
the cost).
Sample Amortization of Fixed Costs1 for a Manufacturer
Total Fixed Costs (2004 NPV)
Recovery Period (years)
Recovery Rate
Amortized Cost
Sales per Year
Amortized Cost per Engine
1 1
$67,853,453
5
7%
$16,548,826
30000
$552
Total NPV fixed costs are amortized to be recovered
as equal annual payments at the end of calendar years
2004, 2005, 2006, 2007, and 2008 with a return of 7%
of the outstanding balance at the beginning of the year.
Page-55-
-------
Sample Calculation of Per Mile Fuel Costs
Fuel Economy
(miles/gal)
Fuel Consumption
(gal/mile)
Increase in Fuel Consumption
(%)
Increase in Fuel Consumption
(gal/mi)
Increased Fuel Cost
r$/1000 miles^l
=1/6.0
= (0.167) x (0.010)
= (0.00167)x($1.338)x(1000)
6.0
0.167
1.0%
0.00167
$2.24
Page-56-
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Sample Annual Costs for a Model Year 2004 Vehicle1
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
NPV
r?n041
Amortized
Fixed
$552
$552
Engine
Manufacturer
Hardware
$1,800
$1,800
Manufacturer
Warranty
Cost
$100
$100
$193
Vehicle
Manufacturer
Cost
$100
$100
Fuel
Cost
$708
$639
$557
$471
$398
$336
$284
$240
$202
$171
$145
$122
$103
$87
$74
$62
$53
$44
$38
$32
$27
$23
$19
$16
$14
$12
$9
$8
$7
$6
$3,615
Other
Operating
$118
$106
$224
$189
$274 2
$135
$114
$96
$81
$69
$58
$49
$41
$35
$30
$25
$21
$18
$15
$13
$11
$9
$8
$7
$6
$5
$4
$3
$3
$2
$1,232
1 Costs are presented on a fleet wide average basis. As shown in Appendix A, estimates of annual
miles traveled account for the number of miles traveled by vehicles in the fleet and the fraction of
vehicles remaining in the fleet.
2 Includes cost for rebuild at end of useful life.
Page-57-
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