Interim and Proposed Technical
Support Document:
Nonconformance Penalties for
On-highway Heavy-Duty Diesel Engines
United States
Environmental Protection
Agency
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Interim and Proposed Technical
Support Document:
Nonconformance Penalties for
On-highway Heavy-Duty Diesel Engines
Assessment and Standards Division
Office of Transportation and Air Quality
U.S. Environmental Protection Agency
NOTICE
This technical report does not necessarily represent final EPA decisions or
positions. It is intended to present technical analysis of issues using data
that are currently available. The purpose in the release of such reports is to
facilitate the exchange of technical information and to inform the public of
technical developments.
&EPA
United States
Environmental Protection
Agency
EPA-420-R-12-004
January 2012
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of
CHAPTER 1: INTRODUCTION 3
1.1 Background on Nonconformance Penalties 3
1.2 Previous NCP Rulemakings and Regulations 4
1.3 Promulgation of 2007/2010 Emission Standards 6
1.4 The Onboard Diagnostic (OBD) System Requirements for 2010 and Later Heavy-
Duty On-highway Engines 7
1.5 The Heavy-Duty Vehicle and Engine Greenhouse Gas Emissions Standards 7
1.6 Characterization of the Heavy-Duty Engine and Vehicle Industries 8
1.6.1 Vehicle Applications and Classes 8
1.6.2 Engine and Vehicle Manufacturers 8
CHAPTER 2: TECHNOLOGIES TO MEET THE 2010 NOX STANDARD
STANDARDS 13
2.1 Engine Service Classes 13
2.2 Emission Control Technologies for Diesel Engines 13
2.2.1 Air Handling System and Turbocharging Technology 13
2.2.2 Advanced Fuel Injection Systems 14
2.2.3 Diesel Particulate Filters and Oxidation Catalysts 14
2.2.4 Selective Catalytic Reduction 14
2.3 Optimization Strategies 16
2.3.1 Engine-Out NOx Emission Reduction Strategies 17
2.3.2 Integrated Aftertreatment System 17
2.3.3 Integrated Engine and Aftertreatment Strategies 18
2.3.4 Integrated Engine and Vehicle Strategies 21
2.4 Summary of Strategies Used by Engine Manufacturers for 2010 21
CHAPTER 3: COMPLIANCE COSTS 22
3.1 Methodology 22
3.1.1 General Methodology 22
3.1.2 Net Present Value of Costs 23
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3.1.3 Costs Analysis 23
3.1.4 Upper Limit Engine 25
3.2 Manufacturer Cost Data 25
3.3 EPA Analysis of Costs 27
3.3.1 Consideration of Manufacturer Costs Estimates 27
3.3.2 Basis of EPA Cost Estimates 28
3.3.3 NCP Compliance Costs 29
3.3.4 MC50 and F 34
CHAPTER 4: REGULATORY PARAMETERS FOR NCPS 36
4.1 NCP Equations and Parameters 36
4.1.1 Refund for Engineering and Development Costs 38
4.2 Statutory Evaluation of NCPs 39
4.2.1 Market Prices 40
4.2.2 Market Share 40
APPENDIX A: CALCULATIONS 42
Calculation of DEF Consumption Costs 42
Fuel Prices 43
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List of Acronyms
AEO
CH4
CL
CO
CO2
COC50
COC90
CPI
DBF
DOC
DPF
EGR
EIA
EPA
F
FE&D
FEL
g/hp-hr
GHG
GVWR
HC
HD
HDDE
HDE
HDGE
HDOBD
HDV
HLDT
ICM
LDT2
LHDGE
MC50
MC90
MOVES
mpg
N2
N2O
NCP
NHTSA
Annual Energy Outlook
methane
compliance level
carbon monoxide
carbon dioxide
estimate of the average total incremental cost to comply with standard relative
to complying with the upper limit
estimate of the 90th percentile total incremental cost to comply with standard
relative to complying with the upper limit
Consumer Price Index
diesel exhaust fluid
diesel oxidation catalyst
diesel particulate filter
exhaust gas recirculation
U.S. Energy Information Administration
U.S. Environmental Protection Agency
factor used to estimate the 90* percentile marginal cost based on the average
marginal cost
engineering and development factor
family emission limit
gram per horsepower-hour
greenhouse gas
gross vehicle weight rating
hydrocarbon
heavy-duty
heavy-duty diesel engine
heavy-duty engine
gasoline-fueled heavy-duty engine
heavy-duty onboard diagnostics
heavy-duty vehicle
heavy light-duty truck
indirect cost multiplier
Light-Duty Truck 2
gasoline-fueled light heavy-duty engine
estimate of the average marginal cost of compliance with the standard
estimate of the 90th percentile marginal cost of compliance with the standard
Motor Vehicle Emissions Simulator
miles per gallon
nitrogen
nitrous oxide
nonconformance penalty
National Highway Traffic Safety Administration
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NOx oxides of nitrogen
NPV net present value
OBD onboard diagnostics
PM particulate matter
S emission standard
SCR selective catalytic reduction
TSD Technical Support Document
UL upper limit
VMT vehicle miles travelled
X compliance level above the standard at which NCP equals COC50
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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
(NCPs) for model year 2012 and later on-highway heavy-duty diesel engines. Note that this
TSD serves as a supporting document for both an Interim Final Rule establishing interim
NCPs for heavy heavy-duty diesel engines and the Notice of Proposed Rulemaking seeking
comments on establishing NCPs for other engines.A
1.1 Background on Nonconformance Penalties
Section 206(g) of the Clean Air Act (the Act), 42 U.S.C. 7525(g), allows EPA to
promulgate regulations permitting manufacturers of heavy-duty engines (HDEs) or heavy-
duty vehicles (HDVs) to receive a certificate of conformity for HDEs or HDVs that exceed
the applicable emissions standard, provided that they pay a nonconformance penalty (NCP)
and 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. If strict technology-
forcing standards were promulgated, 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. 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).
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
A Note that the NPRM proposes to establish NCPs for medium heavy-duty diesel engines, but not light
heavy-duty diesel engines or gasoline engines.
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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.
1.2 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.
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 paniculate matter (PM) standard for 1987
diesel-fueled light-duty trucks with loaded vehicle weight in excess of 3,750 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 II 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 III 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 3,750 Ibs loaded vehicle
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weight (LDDT2s). As discussed in the Phase III 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 III 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.
The availability of NCPs for 2004 model year HDE standards was addressed during
Phase VI of the NCP rulemaking (67 FR 51464, August 8, 2002). NCPs were offered only
for the NOx+NMHC standards. One notable aspect of that rule was that the upper limit for
heavy heavy-duty diesel engines was set at a level above the previous standard. This was
done because a legal settlement of compliance violations (i.e. a consent decree) allowed
certain manufacturers to exceed the otherwise applicable 4.0 g/hp-hr NOx standard for a brief
period.6 The upper limit for these engines was set at 6.0 g/hp-hr to allow manufacturers to
continue producing engines allowed by the consent decree.
B 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. The Consent
Decrees allowed heavy-heavy service class diesel engines to continue to use emission control strategies which
could result in NOx emission levels as high as 6 or even 7 g/hp-hr NOx.
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1.3 Promulgation of 2007/2010 Emission Standards
The 0.20 g/hp-hr NOx standard currently applicable to heavy-duty engines was
adopted January 18, 2001 (66 FR 5001) and first applied in the 2007 model year. However,
because of phase-in provisions adopted in that rule and use of emission credits generated by
manufacturers for early compliance, manufacturers were able to continue to produce engines
with NOx emissions over 0.20 g/hp-hr until (and in some cases after) 2010 model year. The
phase-in provisions ended after model year 2009 so that the standards were fully phased-in for
model year 2010. Equally important, the cap applicable to Family Emission Limits for credit-
using engine families was lowered to 0.50 g/hp-hr beginning in model year 2010. Because of
these changes that occurred in model year 2010, the 0.20 g/hp-hr NOx emission standard is
often referred to as the 2010 NOx emission standard, even though it applied to engines as
early as model year 2007. For this rulemaking, the fully phased-in NOx requirements are
referred to as the 2010 NOx standards.
While some manufacturers still retain NOx emission credits that currently allow them
to produce engines with NOx emissions as high as 0.50 g/hp-hr, we expect that one or more of
these manufacturers could exhaust their supplies of credits as early as model year 2012. As
seen in Figure 1-1, all manufacturers certified their model year 2011 medium and heavy-
heavy duty engine families at NOx levels below 0.50 g/hp-hr.
2011 Model Year Heavy-Duty
Ocn
^ n An -
Q.
J=
00
n
z
01 n
Engine NOx Certification Levels
Heavy Heavy-Duty Engines
i
1
357
9
11 13
15
17
19 21 23 25 27
Engine Family
29
|
31
Medium
Heavy-Duty Engines
33 35 37 39 41 43 45
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Figure 1-1: 2011 Model Year Heavy-Duty Engine NOx Emissions Certification Levels
1.4 The Onboard Diagnostics (OBD) System Requirements for 2010 and
Later Heavy- Duty On-highway Engines
For 2010 and later model year heavy-duty diesel and gasoline engines used in highway
applications over 14,000 pounds gross vehicle weight rating, EPA requires that all major
emissions control systems be monitored and malfunctions be detected prior to emissions
exceeding a set of emissions thresholds. Most notably, we require that the aftertreatment
devices—e.g., the diesel particulate filters and NOx reducing catalysts—that will be used on
highway diesel engines to comply with the 2010 emissions standards will be monitored and
their failure will be detected and noted to the driver. We also require that all emission-related
electronic sensors and actuators be monitored for proper operation.
For these highway applications over 14,000 pounds, we require that one engine family
per manufacturer be certified to the OBD requirements in the 2010 through 2012 model
years. Beginning in 2013, all highway engines for all manufacturers will have to be certified
to the OBD requirements. This phase-in is designed to spread over a number of years the
development effort required of industry and to provide industry with a learning period prior to
implementing the complex OBD requirements on 100 percent of their highway product line.
These OBD requirements are potentially relevant to this NCP rulemaking because
lower emission standards can make the OBD requirements more difficult.
1.5 The Heavy-Duty Vehicle and Engine Greenhouse Gas Emissions
Standards
EPA and the Department of Transportation's National Highway Traffic Safety
Administration (NHTSA) issued the first-ever program to reduce greenhouse gas (GHG)
emissions and improve fuel efficiency of heavy-duty trucks and buses in 2011.l The agencies
adopted complementary standards under their respective authorities covering model years
2014-2018 and beyond, which together form a comprehensive national program, referred to in
this document as the Heavy-Duty GHG rule. While improvements in the whole vehicle will
be required, these regulations will specifically require reductions in the engine's brake-
specific fuel consumption (BSFC). The program regulates combination tractors and
vocational vehicles separately from the engines installed in these vehicles. This approach
ensures existing technologies readily available to improve fuel efficiency are applied to both
engines and trucks resulting in the maximum improvement in overall vehicle efficiency
possible.
The Heavy-Duty GHG rule begins in model year 2014 and controls the CO2, N2O, and
CH4 emissions and fuel consumption from HD engines. The program drives approximately 3
to 5 percent improvements in CO2 emissions from engines in model year 2014 and an
additional 2 to 4 percent improvement in model year 2017. The program also allows
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manufacturers to generate greenhouse gas emission credits by meeting these greenhouse gas
emission standards prior to model year 2014.
The greenhouse gas requirements are potentially relevant to this NCP rulemaking
because they affect the types of emission controls manufactures would pursue. As noted later,
we believe that it is appropriate to assume that even if the NOx standard was higher,
manufacturers would not have chosen emission controls that would have increased fuel
consumption rates because they must also meet the greenhouse gas emission standards.
1.6 Characterization of the Heavy-Duty Engine and Vehicle Industries
1.6.1 Vehicle Applications and Classes
Heavy-duty engines are used in a wide variety of vehicle applications. Smaller
engines are used in heavy-duty 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 tractors. 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 service 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. Heavy heavy-duty includes buses and line-haul tractors. Table 1-1
lists the gross vehicle weight rating of the vehicles by service class. Engines are classified by
the primary service class for which the engine is intended.
Table 1-1: Gross Vehicle Weight Rating of Light, Medium, and Heavy Heavy-Duty Engines and Vehicles
Service Class
Light Heavy
Medium Heavy
Heavy Heavy
DOT Weight Classes
2b-5
6-7
8
GVWR (Ibs.)
8,500 - 19,500
19,501 -33,000
33,001 +
1.6.2 Engine and Vehicle Manufacturers
Table 1-2 shows the major heavy-duty engine and vehicle manufacturers for the U.S.
What is not shown in the table is the degree to which vehicle manufacturers buy engines from
different engine manufacturers. The industry operates such that the vehicle manufacturer
decides during the design stage which engines it will make available in its vehicles, and the
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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 for at least
some of their vehicle models. This practice makes the industry a very competitive
marketplace. This is particularly true for the medium heavy-duty and heavy heavy-duty
marketplace, where the Navistar International Corporation is currently the only engine and
vehicle manufacturer that is not offering engines from another manufacturer in its U.S.
vehicle models. The light heavy-duty market is a mix of integrated manufacturers and
exclusive relationships between vehicle manufacturers and diesel engine manufacturers.
Specifically, General Motors and Ford currently supply their own diesel engines in the light
heavy-duty pick-up trucks for their respective companies. Chrysler exclusively uses
Cummins supplied diesel engines in their Dodge light heavy-duty pickup trucks. However, in
the medium heavy-duty and heavy heavy-duty vehicle market, there is a wider range of
engines available to choose from for the same vehicle. For example, an end-user can
purchase a Western Star vehicle with either a Cummins or a Detroit Diesel engine in it.
Engines produced by Cummins tend to be offered by all of the major heavy duty truck
manufacturers in at least some of their truck models. In this sense, it has been common
practice in the medium and heavy heavy-duty marketplace to treat the engine almost as a
commodity.
Table 1-2 Heavy-Duty Engine and Vehicle Manufacturers
Heavy-Duty Diesel Engine Manufacturers
(Brands)
Cummins
Daimler (Detroit Diesel, Mercedes Benz)
Ford
General Motors
Hino
Navistar
PACCAR
Volvo Truck (Volvo, Mack)
Heavy-Duty Vehicle Manufacturers (Brands)
Chrysler (Dodge)
Daimler Trucks (Freightliner, Western Star)
Ford (Ford)
General Motors (Chevrolet, GMC)
Hino (Hino)
Navistar (International)
PACCAR (Kenworth, Peterbilt)
Volvo Truck (Volvo, Mack)
Figure 1-2 contains an estimate of the 2010 market share by sales volume of diesel
engine manufacturers in the heavy-duty market for the major engine manufacturers in the U.S.
This table indicates that Ford dominates the sales of diesel engines with just above 60 percent,
while General Motors follows at approximately 13 percent. The remaining quarter of the
diesel engine sales are made up of Cummins, Navistar, Mack, Detroit Diesel, Volvo,
PACCAR, Hino, and Mercedes Benz. It is important to note that when all service classes are
considered together, the distribution is dominated by light heavy-duty pickups and vans,
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which are sold in much higher numbers than medium heavy-duty and heavy heavy-duty
trucks.
2010 Diesel Engine Manufacturer Market Share
I Ford
I General Motors
I Cummins
I Navistar
Mack
I Detroit Diesel
Volvo Truck
PACCAR
Hino
Mercedes-Benz
Figure 1-2: 2010 Diesel Engine Manufacturer Market Share. Source: Ward's Automotive Group
Figure 1-3 illustrates by sales volume that in a similar manner to the HD engine
market, the HD truck market is a competitive marketplace with a number of players.
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2010 Diesel Truck Manufacturer Market Share
I Ford
I General Motors
Navistar
I Paccar
Volvo
Daimler
Hino
Figure 1-3: 2010 Diesel Truck Manufacturer Market Share. Source: Ward's Automotive Group
We also separately evaluated the market share by sales volume of each of the largest
Class 8 heavy-duty truck manufacturers in 2008 through October 2011 (shown in Figure 1-4).
These are the trucks for which the interim NCPs may be used. Although the market share of
each varies from year to year, each manufacturer generally has about 20 to 30 percent of the
Class 8 market. These annual variations occur for a variety of reasons, such as introduction of
a new model by one manufacturer or new purchases by large fleets (which represent a large
fraction of new Class 8 purchases). When considering these data, it is important to note that
economic conditions in 2009 and 2010 led to significantly reduced sales in the heavy-duty
market relative to 2008, and market shares in these years may be especially variable.
However, sales in 2011 have returned to 2008 levels or better. The 2011 year-to-date market
share of each manufacturer closely resembles the 2008 breakdown.
Since producing engines that comply with a 0.20 g/hp-hrNOx emission standard is
more difficult than producing those with NOx emissions at 0.50 g/hp-hr, it can be presumed
that allowing a manufacturer to produce engines with NOx emissions at 0.50 g/hp-hr without
paying an NCP would bestow some competitive advantage. However, such advantage does
not appear to have affected market share. Only Navistar is using non-SCR engines in its
/-i
2011 Class 8 trucks, and it is using them in all of its trucks. So the small decrease in
c Note that while some other manufacturers have certified engines using emission credits, only Navistar
is selling non-SCR engines for the U.S. market. So the market share for Navistar trucks is exactly the same as
the market share for Navistar engines and the market share for non-SCR engines.
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Navistar's market share between 2008 and 2011 indicates that, while selling non-SCR engines
in its trucks may provide some competitive advantage, it has not allowed Navistar to increase
in market share.
Class 8 Truck Market Share
I Navistar
• Paccar
IVolvo
• Daimler
2008
2009 2010
Calendar Year
2011(Jan.-Oct.;
Figure 1-4: Class 8 Truck Market Share. Source: Ward's Automotive Group
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Chapter 2: Technologies to Meet the 2010 NOx Standard
All engines that currently meet the 2010 0.20 g/hp-hr NOx emission standard without
using credits rely on selective catalytic reduction (SCR) aftertreatment systems that use diesel
exhaust fluid (DBF) to reduce NOx emissions. They also include traditional emission control
technologies such as cooled EGR and injection timing optimization to reduce engine-out NOx
emissions. The one non-SCR manufacturer also uses these traditional emission controls, but
to a greater degree. All of the manufacturers use integrated diesel oxidation catalysts (DOC)
and diesel paniculate filters (DPFs) to control particulate matter (PM). This chapter
summarizes these technologies and explains the effect on costs for different strategies for
optimizing them.
2.1 Engine Service Classes
Manufacturers design light heavy-duty, medium heavy-duty, and heavy heavy-duty
engine differently. The lighter duty engines tend to have smaller displacements, operate at
higher engine speeds, and are not as likely to be rebuilt. This impacts mixing, heat rejection,
and engine life. These differences affect which emission controls are most appropriate for
each service class. In general, it is more difficult to reduce engine-out NOx emissions from
the light and medium heavy-duty engines than it is from heavy heavy-duty engines.
2.2 Emission Control Technologies for Diesel Engines
This section describes the emission control technologies that were used to meet the
2007 NOx and PM standards and are being used to meet the 2010 NOx standard. See Section
2.4 for a discussion of how the different engine manufacturers are using these technologies.
2.2.1 Air Handling System and Turbocharging Technology
Cooled exhaust gas recirculation (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. The amount of exhaust that is recirculated varies
with engine conditions. Thus, a cooled EGR system must be capable of routing different
amounts of exhaust gas from the exhaust system to the intake system, as well as cooling the
exhaust during that process. These inert gases dilute the in-cylinder mixture and reduce the
peak cylinder temperatures during the combustion process and thus reduce NOx formation.
The downside of EGR is that it tends to increase PM emissions and fuel consumption and can
degrade engine oil. Manufacturers are continuing to make improvements to EGR systems,
such as reducing pumping loss in the EGR piping system, which allows more EGR to flow
without sacrificing engine performance. All engines that currently meet the 2010 0.20 g/hp-hr
NOx emission standard use EGR as part of their emissions solution.
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Advancements in turbocharger technology can improve engine performance while
meeting emissions standards. Variable geometry turbines with better control and higher
efficiency, allow optimal EGR control, thus better emission control. While turbo-compound
is mainly used to improve engine thermal efficiency, its integration with the engine air
handling system provides the engine manufacturer more flexibility for combustion
optimization, thus delivering optimal overall engine system performance. The DD15 and
DD16 engines developed by Detroit Diesel are an example of this strategy.
2.2.2 Advanced Fuel Injection Systems
Modern fuel injection systems for HD diesel engines, such as the common-rail system
or advanced electronically controlled 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 over injection timing,
pressure and duration. These systems provide important flexibilities for engineers, including
the ability for improved engine-out NOx and PM emissions performance. They are especially
significant with respect to minimizing a trade-off between NOx emissions and fuel
consumption.
2.2.3 Diesel Particulate Filters and Oxidation Catalysts
A diesel paniculate filter (DPF) is a ceramic device that collects PM in the exhaust
stream. The high temperature of the exhaust heats the ceramic structure and allows the
particles inside to break down (or oxidize) into less harmful components. All on-highway
heavy-duty diesel engine manufacturers use DPFs to reduce PM. Periodic regeneration to
oxidize and remove loaded soot is required for all DPFs. One method of regeneration, called
active regeneration, directly injects the fuel into exhaust stream and a diesel oxidation
catalyst (DOC) or other device then oxidizes the fuel in the exhaust stream, providing the heat
required for DPF regeneration. Active regeneration increases the fuel consumption of the
vehicle, in some cases by more than one percent. The other regeneration method , called
passive regeneration, uses NO2 to directly react with soot in the exhaust at much lower
exhaust temperature than active regeneration. This requires increasing the NO2 fraction of the
NOx, which is usually low coming out of the engine. Advanced thermal management can be
used in production engines to eliminate active regeneration, thus significantly improving fuel
efficiency. Volvo's 2010 DPF+SCR system has eliminated active regeneration for on-
highway vehicles.2 All other manufacturers using SCR are working in the same direction,
minimizing or eliminating active regeneration, thus improving fuel economy, providing
efficiency improvements in the real world, although they are not directly reflected in the FID
engine test procedure.
2.2.4 Selective Catalytic Reduction
Selective Catalytic Reduction (SCR) is an exhaust aftertreatment system used to
control NOx emissions from heavy-duty engines by converting NOx into nitrogen (TS^) and
water (F^O). The technology depends on the use of a catalytic converter and a chemical
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reducing agent, which generally is in an aqueous urea solution, and is often referred to as
diesel exhaust fluid (DBF). DBF injected into the exhaust upstream of the catalyst where it
forms ammonia and carbon dioxide according to the following equation:
CO(NH2)2+H2O -
The ammonia then reacts with NO and NO2 molecules according to the following equations:
4NO + 4NH3 + O2 -> 4N2 + 6H2O
2NO2 + 4NH3 + O2 -> 3N2 + 6H2O
Thus, one molecule of urea can reduce two molecules of NO or one molecule of NO2.
However, not all urea molecules will find NOx molecules with which to react. Manufacturers
design their system to inject slightly more urea than this stoichiometric amount. This is called
overdosing the system. The excess ammonia reacts with oxygen to form N2 and water. DBF
dosing rates vary among engines and are roughly proportional to the amount of NOx being
reduced. For 2010 model year engines, DBF rates typically range between one and three
percent of fuel consumption. In other words, DBF consumption is approximately one to three
gallons for every 100 gallons of fuel consumed.
The catalyst in the SCR systems used today in the FID engine industry generally
contains either copper/zeolite or iron/zeolite formulations. Both formulations can achieve
NOx conversion rates of over 90 percent. In general, iron/zeolite substrates have a greater
acceptable maximum temperature for durability; whereas the copper/zeolite substrates have
higher NOx efficiency rates at lower exhaust temperatures.3
A robust SCR system can achieve about 90 percent reduction in cycle-weighted NOx
emissions. Improvements have been made over the last several years to improve the NOx
conversion rate and reduce the impact of temperature on the conversion rate. Figure 2-1
shows the improvement over a three year period in both NOx conversion efficiency and
maximizing conversion efficiency over a wider gas temperature range.4
15
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too
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I 70
.1 *0
e
* En
20
10-
2007
IW 1(0 2« 250 tuO 1» «C- *90 t»
Intel Gas Temperature \
too
Figure 2-1: SCR Efficiency Rate Improvement over Time. W. Tang, et. al., BASF. DOE DEER
Conference, October 4,2011. Page 3.
2.3 Optimization Strategies
Manufacturers can design and calibrate the EGR, fuel injection, and aftertreatment
systems in different ways to optimize engines with respect to hardware costs, performance,
emissions, operating costs, and reliability. In the context of this rulemaking, one of the
central trade-offs to be optimized is the one between engine-out NOx emissions and DBF
consumption rates.
There are two typical paths to reduce NOx emissions at the tailpipe - improving the
NOx conversion efficiency of the aftertreatment or reducing the NOx emissions coming out of
the engine. However, the most effective way to meet 2010 emissions standards is the use of
integrated engine and aftertreatment approach while continuously improving engine fuel
economy. The next few sections will discuss each approach in more detail.
All on-highway heavy-duty diesel engine manufacturers except one rely on SCR to
reduce NOx emissions. SCR NOx conversion efficiency allows higher engine-out NOx
emissions (while still meeting the tailpipe NOx standard due to the aftertreatment), and
therefore, gives more room for engine system optimization.
16
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2.3.1 Engine-Out NOx Emission Reduction Strategies
Tailpipe NOx emissions reductions (i.e., downstream of any aftertreatment) can be
achieved by reducing the NOx emissions from the engine (i.e., engine-out emissions) by
different methods. First, engine-out NOx emissions can be reduced by optimization of
combustion. This includes retarding injection timing and combustion chamber optimization in
matching different fuel injection strategies depending on applications. Retarding injection
timing tends to reduce the peak pressure and temperature inside the engine cylinder and
therefore reduce the amount of NOx created in the cylinder. However, this type of injection
timing change can increase fuel consumption of the engine. By appropriately optimizing
piston bowl geometry and matching it with the injection angle and pressure, NOx emissions
can be reduced in certain operating modes, but benefits would be limited over a wide range of
operating conditions.
An increased EGR rate can also reduce the amount of NOx produced in the engine.
EGR replaces a portion of the fresh intake air oxygen with exhaust by-products and other inert
gases, such as CO2, water vapor, and N2. It leads to lower cylinder pressure and therefore less
NOx emissions. EGR rates have a linear impact on NOx emissions. However, an increase in
EGR rates may lead to a reduction in power and increase PM emissions. Although this
approach is one of the ways to reduce overall NOx emissions, the challenges in balancing the
benefits of emissions reduction and thermal efficiency are significant.
2.3.2 Integrated Aftertreatment System
An advanced integrated aftertreatment system can allow individual components to be
optimized, such as DOC, DPF, and SCR, on a system level. In general, catalyst efficiency is
dependent on catalyst volume, surface area, chemical composition of the substrate, and
packaging configurations. An increase in catalyst volume can increase the amount of
emissions that are converted. However, a larger catalyst would typically have a higher
hardware cost. An increase in surface area of the catalyst increases the amount of exhaust gas
which can be catalyzed. Surface area increases can be achieved through smaller pore sizes,
however, this can lead to higher system backpressure which can reduce engine power and
increase fuel consumption of the engine. Optimization of DOC and DPF precious metal
loading can have profound impacts on NOx reduction of a downstream SCR catalyst, while
reducing system cost.
Depending on technologies as well as applications, different manufacturers use
different system configurations to achieve optimal NOx reduction. An example of this
approach is the one-box system that packages the DOC, DPF, and SCR together, such as the
one being used by Detroit Diesel in its 2010 production engine.5 This integrated system
makes the vehicle packaging more compact and the engine more efficient in performance due
to lower back pressure. Cummins' 2010 SCR system utilizes a decomposition reactor that is
integrated with the total aftertreatment system, which is different from other manufacturers'
aftertreatment systems.6 This decomposition reactor component converts DEF into ammonia
17
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through hydrolysis. A long pipe between DPF and SCR ensures DEF to be well mixed with
exhaust gas, thus achieving optimal NOx conversion efficiency.
2.3.3 Integrated Engine and Aftertreatment Strategies
An increase in aftertreatment efficiency allows an engine to maintain constant or even
increasing engine-out NOx emissions while reducing tailpipe NOx emissions. Aftertreatment
efficiency is impacted by DEF rates. An increase in DEF rate can increase the efficiency of
the NOx conversion in the SCR system with proper engine control strategies. The ammonia
produced from the DEF along with the catalyst converts NOx into nitrogen and water. As
shown in Figure 2-2, DEF consumption rates have a linear impact on NOx emissions over a
broad range. However, the benefits of increasing DEF rates will decline at some point and the
conversion efficiency will be limited more by the residence time and other catalyst
characteristics.
•S
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Figure 2-2: Fluid Consumption Impact on Engine NOx Emissions Rates. Source: T. Johnson,
Corning. DOE DEER Conference, October 4,2011. Page 20.
There are some negative impacts of increased DEF dosing rates. First, the operating
cost of the vehicle increases with dosing rates. As discussed in more detail in Chapter 3
below, DEF costs approximately $3 per gallon. As an example, an increase in DEF of 0.5
gallon of DEF consumption for every 100 gallons of fuel consumed (which would generally
be described as a one-half percent increase in DEF) may lead to an increase annual operating
costs ranging between a few dollars and $220 per year depending on the number of miles
travelled. Second, an increase in DEF consumption will require either an increase in DEF
18
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capacity on the vehicle or an increase in the frequency of DEF refills. Optimal points with
balance of the fuel and DEF consumptions can be found as indicated in Figure 2-2.
More advanced and higher efficiency aftertreatment systems provide engine
manufacturers more opportunities to improve engine fuel economy while meeting emissions
standards. Figure 2-4 shows NOx trade-off on fuel economy and PM emissions with different
engine technology road maps. Although some of the technologies noted in this figure may be
beyond current production feasibilities and more in the area of research today, the figure does
show the relation between SCR efficiency and engine technology requirements in order to
meet 2010 emissions standards. This figure also qualitatively highlights the penalty of fuel
economy for an engine that solely relies on non-SCR solution in order to meet 2010 emissions
standards.
As indicated in Figure 2-3, the typical technologies to improve both engine emissions
and fuel economy include, but not limited to, better air handling system, lower friction loss of
EGR piping, optimal fuel injection strategies, optimized combustion system, and advanced
engine and aftertreatment system control.7
19
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EGR+DOC+DPF 2007 Engine
In-Cylinder NOx Control
EGR+DOC+DPF
SCR
SCR
DPF+SCR
Q
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•
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Engine C
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Figure 2-3: Fuel economy, NOx, and PM emissions with different engine technology road maps
20
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2.3.4 Integrated Engine and Vehicle Strategies
Engine manufacturers develop engines to achieve the optimum balance of emissions,
fuel consumption, horsepower, costs, among other aspects. Vehicle manufacturers conduct
similar optimizations of the vehicle and have an impact on the overall fuel consumption. The
recent Heavy-Duty GHG rule noted the opportunities to reduce GHG emissions and fuel
consumption through both engine technologies and vehicle improvements. Aerodynamics,
rolling resistance, weight, and other systems in the vehicle will impact the power required to
move the vehicle down the road. For example, an improvement to a vehicle's aerodynamics
will reduce the amount of power required from the engine and thus reduce the fuel consumed.
When considered together, improvement to the vehicle efficiency can be well over 10 percent,
which would be enough to offset any increase in fuel consumption due to specific emission
reduction strategies used to reduce NOx to meet the 2007 and 2010 NOx emission standards
(such as EGR). This can make it difficult for purchasers to discern whether changes in fuel
consumption are due to changes in the engine or vehicle.
2.4 Summary of Strategies Used by Engine Manufacturers for 2010
Most engine manufacturers chose to comply with the 2010 NOx emission standard by
adding SCR to the engine models they produced in 2007-2009. They also recalibrated the
engines to reduce fuel consumption rates to levels lower than the 2007-2009 engines. In
general, the approach with an SCR system appears to be a sound and cost effective pathway to
achieve 2010 emissions standards while improving fuel economy and it is the primary path
being used around the world. The reduction in operating costs due to improved fuel
consumption was more than enough to offset the cost of supplying the SCR system with DEF.
So the incremental savings to the operator is the net effect of an upfront increase in hardware
costs that is offset significantly by reduced operating costs.
One engine manufacturer chose instead to comply with the 2010 NOx emission
standard by using in-cylinder EGR solution in combination with NOx emission credits earned
prior to the 2010 model year. In this solution, a higher EGR rate is required in order to meet
desired emission target, compared to typical engine system with the SCR solution. Therefore,
requirements on air handling, EGR and charged air cooling are much higher than the 2007-
2009 engines. Consequently, a two-stage turbocharger system with a relatively large
intercooling system is used. In addition, the 2010 model year engines contained many other
improvements in the fuel injection and combustion systems, as well as better integration
between engine and aftertreatment system relative to the engines they produced in 2007-2009.
Electronic control on the total engine and aftertreatment system is also considerably
enhanced. Many of these changes were made to partially offset the tendency of the increased
EGR to increase fuel consumption.
21
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Chapter 3: Compliance Costs
This chapter describes our analysis of the costs of compliance. The analysis is based
on our projections of costs to engine and vehicle manufacturers and operating costs for
vehicle owners. This chapter generally does not include analysis of engine pricing or vehicle
purchaser perceptions that could affect purchase decisions.
3.1 Methodology
3.1.1 General Methodology
The costs of compliance for model year 2012 are the primary inputs for determining
NCPs. In each of our six previous NCP rulemakings, we estimated costs using a
methodology appropriate for the specific circumstances that applied at the time. None were
approached in exactly the same way. In each case we considered key factors such as
differences in calibration, hardware, and operating costs, but there have been some NCP
calculations where other potential individual cost or cost saving elements have been included
or excluded for various reasons.
We requested cost of compliance information from several engine manufacturers and
used that information to inform our own analysis of compliance costs. In past rules, EPA has
based the NCPs directly on the average of actual compliance costs for all manufacturers. This
was possible because each of the manufacturers had actually produced engines at the upper
limit (which was almost always the previous emission standard). It was relatively simple for
them to provide us with a confidential engineering analysis of the costs they actually incurred,
the cost of the additional hardware, and differences in performance characteristics. It was
also reasonable for EPA to assume a high degree of accuracy in these costs. In the case of
this NCP rule, most manufacturers generally have never had production engines at 0.50 g/hp-
hr (the upper limit). So averaging the manufacturers' estimates of expected compliance costs
does not necessarily lead to the average actual compliance costs.
The NCP penalty formulas are based primarily on the cost difference between an
engine emitting at the upper limit (the baseline engine) and one emitting at the standard (the
compliant engine). Thus, the assumption of what technologies are on the baseline engine is
central to the calculation of the penalties. As described in Section 3.3.2, we are assuming the
baseline engine is already equipped with SCR. Specifically, EPA is assuming that the
baseline engine (or upper limit engine) is an optimized, SCR-equipped engine that complies
with all other emission standards and requirements. We estimated incremental costs both in
terms of dollars per engine and dollars per g/hp-hr for the theoretical average and worst case
manufacturers.
It is worth noting that each of the five engine manufacturers contacted assumed a
different technology package on its baseline engine. Manufacturers that produced engines
below 0.20 g/hp-hr based their compliance costs on the following baseline engines: engines
equipped with similar (but not identical) SCR and EGR hardware, SCR-equipped engines
22
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without EGR, an EGR version of its own engine, or the non-SCR engines produced by a
competitor. Some of these manufacturers estimated costs relative to more than one baseline
engine, while others provided costs relative to a single baseline engine. Four of the
manufacturers compared the costs for their assumed baseline engine to the costs for their
actual compliant engines. The one non-SCR manufacturer we contacted provided its
projections of what it will spend to bring its current 2011 engine below 0.20 g/hp-hr.
3.1.2 Net Present Value of Costs
All costs are presented in 2011 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 calculated or converted to net present value (NPV) for calendar
year 2012. Costs that occur after production (e.g., DEF 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 2011 dollars, the discount rate does not include an adjustment with respect to the rate
of inflation.
Costs expressed in terms of 2010 or earlier dollars were adjusted upwards based on the
Consumer Price Index (CPI) to be equivalent to 2011 dollars. For example, the difference
between a 2009 dollar and a 2011 dollar would be approximately five 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 inflation adjustments (generally three years
or less), we believe that any errors introduced into the analysis by using the CPI would not be
significant.
3.1.3 Costs Analysis
This section describes the cost categories that we considered in our analysis. These
costs include engine manufacturing costs, vehicle manufacturing costs, and operating costs.
Engine manufacturer costs of emissions control include variable costs (for incremental
hardware, assembly, and associated markups), fixed costs (for tooling, research and
development, etc.), and warranty costs. We also evaluated whether vehicle manufacturers are
expected to incur some variable hardware costs or some fixed costs. Owner costs can include
fuel costs, diesel exhaust fluid costs, maintenance and repair costs, and costs associated with
any time that the vehicle is down for repair.
To produce a unit of output, engine and truck manufacturers incur direct and indirect
costs. Direct costs include cost of materials and labor costs. Indirect costs are all the costs
associated with producing the unit of output that are not direct costs - for example, they may
be related to production (such as research and development), corporate operations (such as
salaries, pensions, and health care costs for corporate staff), or selling (such as transportation,
dealer support, and marketing). Indirect costs are generally recovered by allocating a share of
the costs to each engine or vehicle sold.
23
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For this cost analysis, EPA considered both the direct or "piece" costs and indirect
costs of individual components of technologies. For the direct costs, we followed a bill of
materials approach utilized in the Heavy-Duty GHG rule.8 A bill of materials, in a general
sense, is a list of components or sub-systems that make up a system— in this case, an item of
technology which reduces NOx emissions.
Indirect costs were accounted for using the Indirect Cost Multiplier (ICM) approach.
The heavy-duty engine cost projections in this analysis used this same approach in the Heavy-
Duty GHG rule. For the GHG rule, EPA contracted with RTI International to update EPA's
methodology for accounting for indirect costs associated with changes in direct manufacturing
costs for heavy-duty engine and truck manufacturers.9 These indirect cost multipliers are
intended to be used, along with calculations of direct manufacturing costs, to provide
improved estimates of the full additional costs associated with new technologies. As shown
in Table 3-1 below, the ICM varies with the complexity of the technology and the maturity of
the technology.
Table 3-1: Indirect Cost Multipliers Used in this Analysis"
CLASS
HD diesel engines
COMPLEXITY
Low
Medium
Highl
High2
NEAR
TERM
1.15
1.24
1.28
1.43
LONG
TERM
1.12
1.18
1.19
1.29
Note:
a Rogozhin, A., et. al., "Using indirect cost multipliers to estimate the total cost of adding new technology in the automobile
industry," International Journal of Production Economics (2009); "Documentation of the Development of Indirect Cost
Multipliers for Three Automotive Technologies," Helfand, G., and Sherwood, T., Memorandum dated August 2009; "Heavy
Duty Truck Retail Price Equivalent and Indirect Cost Multipliers," Draft Report prepared by RTI International and
Transportation Research Institute, University of Michigan, July 2010.
The NCP regulations contain provisions to refund manufacturers for their research and
development costs. Thus, EPA notes that the near term, low complexity ICM value of 1.15
includes an ICM for research and development of 0.02.10
Any DEF or fuel cost impacts on the operator are dependent on the number of miles
projected to be driven by the vehicle, along with assumptions for a price for fuel and DEF.
For this analysis, we used the projected mileage accumulation rates generated by the Motor
Vehicle Emissions Simulator, more commonly called MOVES, EPA's official mobile source
emission inventory model.u The MOVES2010a version was used along with some post-
processing of the MOVES output to develop separate projections of vehicle miles travelled
(VMT) for the medium and heavy heavy-duty engine classes. These annual VMT projections
are shown in Appendix A and include a projection of vehicle survival fractions that are based
on scrappage rates. (Note that the mileage estimates in this rule are slightly different from the
estimates used in the final rulemaking that established the 2010 heavy-duty engine criteria
pollutant standards). We used the Energy Information Administration's (EIA) Annual Energy
24
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19
Outlook 2011 (AEO2011) to proj ect fuel prices through 203 5. The annual price values
(dollars per gallon) used in this analysis were adjusted from 2009 dollars (as supplied in
AEO2011) to 2011 dollars. The annual fuel price projections are included in Appendix A.
We also used a DEF cost of $2.99 per gallon based on the national retail pump average in
November 2011.13 We are using a constant value for the DEF price because we are not aware
of any reliable projections that the price will change significantly in the coming years.
3.1.4 Upper Limit Engine
The upper limit (UL) used in the NCP derivation is the emission level established by
regulation above which NCPs are not available and a heavy-duty engine cannot be certified or
introduced into commerce. CAA section 206(g)(2) refers to the upper limit as a level above
the emission standard, set by regulation, that corresponds to an emission level EPA
determines to be "practicable." 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 COCso and the COCgo
factors are the cost difference between an engine emitting at the upper limit and one that
meets the new standards (see 40 CFR 86.1113-87).
The regulatory approach adopted under the prior NCP rules sets the default upper limit
at the prior emission standard when a prior emission standard exists and that standard is
changed and becomes more stringent. EPA concluded that the UL should be reasonably
achievable by all manufacturers with vehicles in the relevant class. It should be within reach
of all manufacturers of HDEs or HDVs that are currently allowed so that they can, if they
choose, pay NCPs and continue to sell their engines and vehicles while finishing their
development of complying engines. A manufacturer of a previously certified engine or
vehicle should not be forced to immediately remove an FIDE or HDV from the market when
an emission standard becomes more stringent. The prior emissions standard generally meets
these goals, because manufactures have already certified their vehicles to that standard.
In the past, EPA has rejected suggestions that the upper limit should be more stringent
than the prior emission standard because it would be very difficult to identify a limit that
could be met by all manufacturers. For this rule, however, all manufacturers are currently
certifying all of their engines at or below the 0.50 g/hp-hr FEL cap. Thus, since NCPs were
not intended to allow manufacturers to increase emissions, we are setting the upper limit at
0.50 g/hp-hr. This will conform to the purpose of NCPs, which is to allow manufacturers to
continue selling engines they are producing, but not to allow backsliding.
3.2 Manufacturer Cost Data
Prior to this IFR/NPRM, we requested from several of the engine manufacturers cost
estimates to identify the incremental costs they would expect to take a model year 2012
engine from 0.50 g/hp-hr NOx to 0.20 g/hp-hr. The incremental costs could include variable
costs such as the hardware component cost, fixed costs such as R&D costs, and operating
25
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costs such as fuel costs. These costs were supposed to include costs for vehicle manufacturers
and operators as well as engine manufacturers. We requested that all costs be presented in
2011 dollars. We also requested that manufacturers include only emission-related costs.
We received responses from all of the manufacturers that we contacted, representing
virtually all of the current U.S. heavy 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 information in this document. Instead we are presenting
only a broad description of the information provided.
As discussed above in Chapter 2, there are a variety of means to reduce NOx. Each of
the manufacturers who currently produce heavy heavy-duty diesel engines which emit less
than 0.20 g/hp-hr NOx provided information about at least one pathway to reduce NOx from
0.50 to 0.20 g/hp-hr. Each provided a combination of changes to hardware (and other
associated costs such as warranty costs), DEF consumption rate, engine-out NOx emissions,
and/or fuel consumption. However, none of the manufacturers selected the same combination
of changes. In general, there were three distinct options presented to the Agency for baseline
engine technology as shown in Table 3-2.
Table 3-2 Manufacturer Baseline Engine Scenarios
Baseline Engine Option #1
Baseline Engine Option #2
Baseline Engine Option #3
SCR?
Yes
No
Yes
EGR?
Yes
Yes
No
More than one manufacturer chose Option #1 and assumed the baseline 0.50 g/hp-hr
engine would contain both SCR and EGR. One of these manufacturers stated that relatively
small changes would have been needed to hardware, such as changes to the loading in the
SCR catalyst and the addition of a sensor to control DEF dosing, along with a re-optimization
of engine-out NOx emissions, fuel consumption, and DEF dosing to achieve 0.20 g/hp-hr
NOx. Similarly, another manufacturer stated hardware changes may be required to the DOC
and DPF system, along with possible changes to the turbocharger and EGR configuration.
Based on these manufacturers' projections that fuel will be much more expensive than DEF,
they assumed that 0.50 g/hp-hr engines would have been recalibrated to have much higher
engine-out NOx emissions. This would reduce fuel costs but increase DEF costs. It should
26
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be noted that in some cases, when these costs were recalculated using EPA's projections of
fuel and DBF prices, the compliance costs for these recalibrated engines were less than EPA's
estimated COC90.
Another SCR manufacturer suggested that the Option #2 pathway, which assumed a
non-SCR baseline engine with high performance EGR system, could have achieved a the 0.50
g/hp-hr level and that they would have added an SCR system to achieve the 0.20 g/hp-hr NOx
emissions. In its estimate for this scenario, the improvement to the fuel consumption due to
the SCR system would be offset by the DEF consumption required for the SCR, and thus
produce a neutral fluid economy impact. The manufacturer estimated costs based on its
approximation of the costs and performance of engines produced by a competitor with NOx
levels above 0.20 g/hp-hr and their own engine which emits at less than 0.20 g/hp-hr.
The fourth SCR manufacturer suggested an approach which assumed the 0.50 g/hp-hr
NOx engine would contain SCR, but not require EGR. This strategy would lead to an
increase in engine-out NOx emissions which would require a change in DEF and fuel
consumption.
The non-SCR manufacturer also projected the costs it will ultimately incur to achieve
0.20 g/hp-hr. Its methodology is not summarized here because we cannot do so without
disclosing its product plans. We merely note that it projected costs lower than EPA's
estimated COC50 and COC90 costs.
In summary, all of the SCR manufacturers stated that the compliance costs should
include some cost for additional hardware (several hundred to a few thousand). Although not
all of them estimated total incremental compliance costs to reduce NOx emissions from 0.50
g/hp-hr to 0.20 g/hp-hr, those that did generally estimated the incremental costs to be in the
$3,000 to $5,000 range. They recommended that EPA set the maximum penalty at a level at
least as high as these cost estimates.
3.3 EPA Analysis of Costs
The NCP regulations are structured to calculate the penalty amounts based on certain
cost parameters, primarily on the total incremental and marginal costs for the average and
highest cost manufacturer. EPA has independently estimated these costs.
3.3.1 Consideration of Manufacturer Costs Estimates
In past rules, EPA has based the NCPs directly on the average of actual compliance
costs for all manufacturers. This was possible because each of the manufacturers had actually
produced engines at the upper limit (which was almost always the previous emission
standard). It was relatively simple for them to provide us with a confidential engineering
analysis of the costs they actually incurred, the cost of the additional hardware, and
differences in performance characteristics. There was little opportunity for strategic estimates
27
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since manufacturers needed to reflect actual costs that EPA could confirm. Thus, it was
reasonable for EPA to assume a high degree of accuracy in these costs.
The same cannot be said for this NCP rule. Those manufacturers that have reached
0.20 g/hp-hr generally have never had production engines at 0.50 g/hp-hr (the upper limit). In
some cases they had development engines, but this does not fully address the costs that would
have been incurred for production engines. While manufacturers have a great deal of
experience projecting production costs based on development engines, there is no way for us
to verify the actual hardware, fuel, and DEF costs that would have occurred. Thus, we must
consider the costs to be at least somewhat speculative.
It also must be considered that each of the manufacturers was aware that their
estimated costs could be used to determine the amount of the NCP paid by a competitor. We
are concerned about this because we cannot independently verify the validity of the
manufacturers' costs. Thus, while we have used the technical and cost inputs from all of the
manufacturers to inform our estimate, we believe under these circumstances it would be
inappropriate to simply average these inputs.
3.3.2 Basis of EPA Cost Estimates
Each manufacturer identified a different technology that it would have taken to reduce
NOx emissions from 0.50 to 0.20 g/hp-hr. Each provided a combination of changes to
hardware (and other associated costs such as warranty costs), DEF consumption rate, engine-
out NOx emissions, and fuel consumption. Based on our technical judgment and discussions
with engine manufacturers, EPA is assuming the baseline engine used to meet the 0.50 g/hp-
hr NOx level is equipped with SCR (as well as a cooled EGR system) to control the tailpipe
NOx emissions. We believe estimating costs from this scenario is the least speculative
method to estimate compliance costs. As noted later in Chapter 4 of this document, we also
believe this method leads to penalty parameters that will remove the competitive disadvantage
for complying manufacturers.
Specifically, we developed a pathway to reduce tailpipe NOx emissions by
maintaining constant engine-out NOx emissions (and thus having no impact on fuel
consumption), but include some hardware modifications and a higher DEF consumption rate
to reduce tailpipe NOx emissions. Based on our analysis and discussions with manufacturers,
we estimate an average increase of 0.004 gallons of DEF per gallon of fuel consumption
would have been needed to reduce the NOx emissions from 0.50 to 0.20 g/hp-hr. In addition
to the DEF rate change, we project that some hardware costs would be incurred to achieve the
NOx reduction to the standard level.
We did consider the other technology paths suggested by manufacturers (which
assumed baseline engines with EGR but not SCR, or baseline engines with SCR but not
EGR). However, we believe it is likely that these baseline engines would have had high
operating costs. In general, relying on EGR to reduce NOx emissions significantly increases
fuel consumption. Technology paths that involve significant changes in fuel consumption
28
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possess high degrees of uncertainty in their COC90 estimates due to the uncertainty
associated with the price of fuel in the future. Similarly, relying on SCR to reduce NOx
emissions without EGR requires large amount of DBF. We are not aware of an authoritative
estimate of future DEF prices. For the more modest change in the amount of DEF in EPA's
approach, we assumed a constant DEF price. In either case, it is possible that over the life of
a truck, the increased operating costs could be greater than the original hardware cost. We do
not have the information required to calculate these operating costs with the accuracy needed
to use these scenarios as the basis of our NCPs. In addition, since there is only one
manufacturer producing low-NOx engines without SCR, we believe that we could not have
developed an accurate estimate of the actual compliance costs for non-SCR engines without
revealing confidential business information from that manufacturer.
3.3.3 NCP Compliance Costs
This section provides details on the total compliance costs to reduce the tailpipe NOx
emissions of a baseline engine at 0.50 g/hp-hr to 0.20 g/hp-hr. As mentioned above, our
assumed baseline engine with 0.50 g/hp-hr NOx emissions contains an SCR aftertreatment
system. As discussed in Chapter 2 above, there are many pathways that can be used to reduce
tailpipe emissions, including changing the engine-out emissions, increasing the efficiency of
the aftertreatment system, and hardware changes. We selected a pathway to determine the
total compliance cost which assumes that the engine-out emissions remain constant and the
NOx emissions are reduced primarily with an increase in DEF consumption, along with small
hardware modifications. Without a change to engine-out NOx emissions levels, the agency
assumes that there will be no impact on the fuel economy of these vehicles (see discussion
below).
We calculated two parallel estimates of compliance costs. The first was COC50,
which represents the total life-cycle costs to reduce a typical baseline engine's emissions to
the level of the standard. The second was COC90, which represents the total life-cycle costs
for reducing the emissions to the standard level for an engine produced by the manufacturer
with the highest production costs. Our estimated average compliance costs (COC50) and 90th
percentile costs (COC90) are shown in Table 3-3 and Table 3-4. The derivation of these
estimates is described in detail below.
Table 3-3: Medium Heavy-Duty COC50 and COC90 Estimates (Net Present Value to 2012 in 2011$)
NPV of Hardware and Lifetime DEF
Consumption Costs
COC50
$462
COC90
$682
Table 3-4 Heavy Heavy-Duty COC50 and COC90 Estimates (Net Present Value to 2012 in 2011$)
NPV of Hardware and Lifetime DEF
Consumption Costs
COC50
$1,561
COC90
$1,919
29
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3.3.3.1 Operating Costs: DBF Consumption
The rate of DBF consumption can be calculated from the chemical reaction necessary
to convert urea to ammonia and the reactions to reduce NOx. These reactions proceed
according to the following chemical equations:
CO(NH2)2+H2O -
4NO + 4NH3 + O2 -> 4N2 + 6H2O
2NO2 + 4NH3 + O2 -> 3N2 + 6H2O
As these equations show, one molecule of urea can reduce two molecules of NO or
one molecule of NO2. So the minimum molar ratio of urea needed to NOx reduced is equal to
the NO2 fraction plus one-half the NO fraction. This stoichiometric rate can be thought of as
the ideal rate. This ideal rate can be calculated relative to fuel consumption rates for a given
brake-specific NOx reduction from the following equation:
fj 7ncr+. r 7 n „-• (BSFNOx\ ( 1 \ (Moles Urea\ ( 1 \
Ideal DBF to Fuel Ratio = - - - -
V BSFC J \MWNOxJ \MolesNOx J \UreaMolar Density J
For the purpose of this rule, we calculated the ideal DBF rate needed to achieve a 0.30
g/hp-hr NOx emission reduction based on the assumptions shown below in Table 3-5.
Table 3-5: DEF Calculation Assumptions
Assumptions for DEF Calculations
Brake-Specific Fuel Consumption
Molar Percent of Total NOx that is NO at SCR Inlet
Urea Concentration in DEF
0.2173 liter/hp-hr14
50%
32.5% by mass (5.904 mol/liter)
Ideal DEF to Fuel Ratio =
0.3(
, g
hp-hr
,0.2173
liters
hp-hr)
<46.006 g/mol
= 0.003812
This means that under these conditions, the DEF rate would need to be increased by
0.38 gallons for every 100 gallons of fuel consumed.
We recognize that in many cases manufacturers use dosing strategies that overdose by
five percent or more of the total DEF rate to account for maldistribution of the ammonia in the
catalyst. For this rule, we believe that a five percent DEF overdose rate is appropriate for the
marginal increase in DEF consumption. Thus, we calculated the incremental DEF rate
30
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increase as 1.05 times the ideal DEF rate of 0.38 percent, for a total DEF rate increase of 0.40
percent, to reduce NOx emissions by 0.30 g/hp-hr.
Next we calculated the NPV of this impact using a DEF price of $2.99 per gallon for
calendar years 2012 and beyond. The DEF price represents today's national average retail
pump price of on-highway DEF.15 Appendix A contains the baseline fuel economy and the
baseline DEF consumption rate, and projected vehicle miles travelled (VMT) for both
medium and heavy heavy-duty engines. The baseline fuel economy of a typical medium and
heavy heavy-duty vehicle were based on the baseline fuel consumption rates generated for the
Heavy-Duty GHG rule.16 The baseline fuel economy used in the analysis was 9.71 mpg for
medium heavy-duty vehicles and 4.93 mpg for heavy heavy-duty vehicles. Table 3-6 contains
the projected annual incremental cost due to the 0.40 percent increase in DEF consumption.
Table 3-6: Incremental DEF Cost due to 0.40% Increase in DEF Consumption (2011$)
Calendar Year
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
Medium HD Vehicle
$45
$43
$39
$36
$33
$30
$27
$24
$22
$20
$18
$16
$14
$13
$12
$11
$10
$ 9
$ 8
$ 7
$ 6
$ 6
$ 5
$ 5
$ 4
$ 4
$ 3
$ 3
$ 3
$ 3
Heavy HD Vehicle
$208
$205
$191
$176
$162
$149
$137
$125
$115
$104
$94
$85
$77
$70
$64
$58
$52
$47
$43
$38
$35
$31
$28
$26
$23
$21
$19
$17
$16
$14
The NPV of the lifetime costs of the incremental increase in DEF consumption, using
a seven percent discount rate, is $275 for medium heavy-duty engines and $1,374 for heavy
31
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heavy-duty engines (in 2011 dollars). The heavy heavy-duty engine cost is greater due to the
higher average vehicle miles travelled and lower miles per gallon for these vehicles over their
lifetimes, as compared to medium heavy-duty engines.
3.3.3.2 Operating Costs: Fuel Consumption
As noted earlier, we are estimating that the 0.50 g/hp-hr baseline engine and the fully
compliant engine will have the same fuel consumption rates. The two primary reasons for
this are the relative importance operators place on keeping fuel consumption rates low for the
customer and the upcoming GHG emission standards. The Heavy-Duty GHG rule requires
that manufacturers reduce their CO2 emissions/fuel consumption starting in 2014 model year
by an average of three to five percent from a baseline 2010 model year engine. Thus, a
pathway to reduce NOx that leads to an increase in fuel consumption in 2012 model year
would require the manufacturer to apply technologies to recover the increase by 2014 model
year.
As a sensitivity analysis, we estimated the lifetime costs of a 0.25 percent increase in
fuel consumption using VMT (vehicle-miles traveled) patterns listed in Appendix A. We
calculated the NPV of these impacts using projected diesel fuel prices, also included in
Appendix A.
The NPV of the lifetime costs of a 0.25 percent incremental increase in fuel
consumption, using a seven percent discount rate, would be $196 for medium heavy-duty
engines and $986 for heavy heavy-duty engines (in 2011 dollars). The heavy heavy-duty
engine cost is greater due to the higher average vehicle miles travelled and lower miles per
gallon for these vehicles over their lifetimes, as compared to medium heavy-duty engines.
3.3.3.3 Hardware, Warranty, and Research & Development Costs
An SCR aftertreatment system may require hardware modifications to achieve tailpipe
emissions levels of 0.20 g/hp-hr. Based on conversations with manufacturers, we believe that
the lower NOx emissions levels would require the addition of a sensor for better control over
the urea injection. This cost would apply for both the typical and worst case engines. In
addition, for the worst case manufacturer, we believe a larger SCR catalyst would be required
to increase the NOx conversion efficiency, and a separate ammonia sensor would be needed
for better control. We estimate that the size and loading of the catalyst would need to increase
by about 20 percent. Note that this would be proportional to the increase in NOx reductions
for engines with engine-out emissions of 2.0 g/hp-hr (1.5 g/hp-hr reduction versus 1.8 g/hp-hr
reduction).
We estimate hardware costs to reduce NOx emissions from 0.50 to 0.20 g/hp-hr. The
hardware costs fall into two categories - improved SCR catalyst to increase the NOx
conversion efficiency and an additional sensor to improve the ammonia dosing control.
The incremental catalyst costs were estimated from the retail cost of a SCR system
available today on a 6.6L diesel engine used in a heavy-duty pickup truck, which is a light
32
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17
heavy-duty engine. We scaled the retail cost of the SCR system based on the ratio of typical
engine displacement in each engine class, as shown in Table 3-7 below.
Table 3-7: SCR Retail Price
Complete SCR
Catalyst Retail Price
LHD (6.6L)
$1,076
MHD (8L)
$1,304
HHD (13L)
$2,119
Next, the direct manufacturing costs were calculated based on the Retail Price
Equivalent (RPE) as shown in Table 3-8. The RPE for heavy-duty engines is 1.36 as found in
the study conducted by ICF International for the Heavy-Duty Greenhouse Gas Emissions
18
rulemaking.
Table 3-8: Direct Manufacturing Cost of SCR Catalyst
Complete SCR Catalyst Direct
Manufacturing Cost
MHD
$959
HHD
$1,558
The incremental cost of the catalyst to improve the NOx conversion efficiency through
increased SCR catalyst volume and/or improved loading is estimated to be 20 percent of the
total catalyst cost, as shown below. The agency then applied a 1.15 indirect cost multiplier
(ICM) to convert the direct manufacturing costs to marked up costs. The 1.15 multiplier
consists of two percent for research and development and 13 percent for warranty and other
costs.19 The marked up costs are shown below in Table 3-9.
Table 3-9: SCR Catalyst Incremental Cost
Incremental Direct Manufacturing Cost
Research and Development Cost (2%)
Warranty and Other Cost (13%)
Total Incremental SCR Catalyst Cost
MHD
$192
$4
$25
$221
HHD
$312
$6
$41
$358
The cost for an ammonia sensor was developed by converting a sensor's retail price to
a direct manufacturing cost and then to a marked up cost, similar to the procedure used above
r\f\
for the SCR catalyst cost. The costs are shown in Table 3-10. The same sensor could be
used for both the medium and heavy heavy-duty engines, thus we estimated that the sensor
cost be the same for both engine classes.
33
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Table 3-10: Incremental Sensor Cost
Sensor Retail Price
Sensor Direct Manufacturing Cost
Sensor Research and Development Cost (2%)
Sensor Warranty and Other Cost (13%)
Total Incremental Sensor Cost
MHD
$221
$163
$3
$21
$187
HHD
$221
$163
$3
$21
$187
The total incremental hardware costs for the SCR catalyst and sensor are estimated to
be $407 for MHD and $545 for HHD for COC90. The total incremental sensor cost is
estimated to be $187 for both MHD and HHD engines for COC50.
3.3.3.4 Total Costs
The total estimated costs for COC50 and COC90 for MHD and HHD engines are
included below in Table 3-11.
Table 3-11: COC50 and COC90 Costs
DBF Operating Costs
Hardware Costs
Research and Development
Cost
Warranty and Other Cost
Total Cost
MHD
COC50
$275
$163
$3
$21
$462
COC90
$275
$192
$4
$25
$682
HHD
COC50
$1,374
$163
$3
$21
$1,561
COC90
$1,374
$474
$9
$62
$1,919
3.3.4 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/hp-hr) above the
standard where the penalty equals COC50. This section describes the derivation of MC50 and
F for medium and heavy heavy-duty engines.
3.3.4.1 Estimated value of MC50
MC50 is the marginal cost of compliance for the average vehicle, expressed in terms
of dollars per g/hp-hr of 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., 0.20 g/hp-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 0.30 g/hp-hr, then we would calculate MC50 as the difference between that cost and the
average divided by the difference in emissions (0.10 g/hp-hr). However, in the case of this
rulemaking, we do not have such detailed information. Moreover, the range of NOx
34
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emissions control is narrow, which means that marginal cost can reasonably be assumed to be
constant over the range. Therefore, we have calculated MC50 as COC50 (the estimated costs
of the average control strategies that we believe will be used by manufacturers to achieve
NOx control in the 0.20 to 0.50 g/hp-hr range), divided by the difference between the upper
limit and the standard (0.30 g/hp-hr). This would be $1,540 per g/hp-hr for medium heavy-
duty and $5,203 per g/hp-hr for heavy heavy-duty.
3.3.4.2 Estimated value of F
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. We calculated F by
first calculating an MC90 in the same way that we calculated MC50. We then calculated the
value of F that would give these values of MC90, and then set F equal to MC90 divided by
MC50. Using this approach we calculated MC90 to be $2,273 per g/hp-hr for medium heavy-
duty and $6,397 per g/hp-hr for heavy heavy-duty. This led to F values of 1.48 for medium
heavy-duty and 1.23 for heavy heavy-duty. However, since F is capped at 1.3 under the
regulations, we set F equal to 1.3 for medium heavy-duty engines and adjusted MC90 to equal
$2,002 per g/hp-hr.
35
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Chapter 4: Regulatory Parameters for NCPs
4.1 NCP Equations and Parameters
EPA's existing regulations for calculating NCPs are contained in 40 CFR Part 86
Subpart L. NCP schedules can be calculated from those same equations using the Upper
Limit, COC50, COC90, MC50, and F values from the previous chapter, and a standard level
(S) of 0.20 g/hp-hr NOx. The values for X are calculated using these values and the following
equation from Subpart L:
X = (COC50 / F / MC50) + S
The purpose of this equation is to achieve a penalty curve in which the slope for
engines with compliance levels near the standard is equal to the 90th percentile marginal cost
of compliance (MC90 equals MC50 times F).
Table 4-1: NCP Parameters
NCP Parameter
COC50
COC90
MC50 ($ per g/hp-hr)
MC90 ($ per g/hp-hr)
F
UL (g/hp-hr)
S (g/hp-hr)
X (g/hp-hr)
Medium Heavy-Duty Engines
$462
$682
$1,540
$2,002
1.3
0.50
0.20
0.43
Heavy Heavy-Duty Engines
$1,561
$1,919
$5,203
$6,397
1.23
0.50
0.20
0.44
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
available, thus the annual adjustment factor is equal to 1), the resulting penalty versus
compliance level for each service class are shown in Figure 4-1 and Figure 4-2. Note that the
bend in the penalty curve medium heavy-duty engines in Figure 4-2 occurs because F is
capped at 1.3.
36
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2012 Heavy Heavy-Duty Engine NCP
$2,000
$1,600
$1,400
:> $1,000
a.
0.20 0.25
0.30 0.35 0.40
NOx Emissions Level (g/hp-hr)
0.45 0.50
Figure 4-1: Heavy Heavy-Duty Engine NCP
37
-------
2012 Medium Heavy-Duty Engine NCP
$800
$700
$600
$500
$400
$300
$200
$100
$-
0.20
0.25
0.30 0.35 0.40
NOx Emissions Level (g/hp-hr)
0.45
0.50
Figure 4-2: Medium Heavy-Duty Engine NCP
4.1.1 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 90 percent of the value which is equal to 0.02 times the direct manufacturing
costs of the incremental hardware costs. The factors are listed in Table 4-2.
Table 4-2: Engineering and Development Refund Factors
Service Class
Medium Heavy-Duty Engines
Heavy Heavy-Duty Engines
FE&D Factor
0.009
0.004
38
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4.2 Statutory Evaluation of NCPs
Section 206(g) of the Clean Air Act, which provides EPA authority to set NCPs, also
sets some conditions. Specifically, section 206(g)(3) requires that NCPs meet three
conditions:
1) It must account for the degree of emission nonconformity.
2) It must increase periodically to provide incentive for nonconforming
manufacturers to achieve the emission standards.
3) It must remove the competitive disadvantage to conforming manufacturers.
The existing regulations are structured so that NCPs based on the default formulas will
automatically conform to the first two conditions. This structure is also intended to result in
NCPs that will also remove the competitive disadvantage to complying manufacturers. It
does this by setting the maximum penalty based directly on the worst case (90th percentile)
cost that a complying manufacturer had to pay to reduce emissions from the upper limit to the
standard.
However, subjective factors can possibly make the monetary value of the competitive
advantage higher or lower than the compliance costs incurred by the complying
manufacturers and users. Possible factors include:
• Perceived inconvenience of using DEF
• Public relations benefits for a company using the cleanest engines
• Fears of new technology
• Uncertainty about future fuel and DEF prices
• Operator preference for a particular vehicle manufacturer limiting engine choice
• Marketing claims and unknown performance characteristics
For example, a purchaser unfamiliar with SCR technology may imagine that costs and
convenience will be worse than they actually would be, and as a result may avoid purchasing
an SCR-equipped truck unless the manufacturer discounts the price. This would exacerbate
the disadvantage for SCR manufacturers beyond what would be calculated based on costs
alone. On the other hand, a trucking company that promotes itself as being an
environmentally responsible company may be willing to pay a premium to ensure that its
trucks have low-emitting engines. Similarly, a purchaser with a strong preference for a
particular truck brand may be relatively unaffected by the price of the compliant engines if
they are the only engines it can get in a truck of that brand. These factors would tend to make
the disadvantage for compliant manufacturers less than what would be calculated based on
costs alone.
EPA recognizes that insufficient information is available to conclusively prove that the
NCP removes all competitive disadvantages to all complying manufacturers. However, it is
still helpful to consider market data to put the amount of the NCPs into context. To do this,
39
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EPA considered the available information about market prices and market share. As
described below, both market prices and market shares support our conclusion that the NCPs
are large enough to remove the competitive disadvantage to complying manufacturers. The
analyses are presented here for the comparison of engines equipped with SCR to those that are
not equipped with SCR.
4.2.1 Market Prices
When heavy-duty truck manufacturers increase prices to recover costs associated with
reducing emissions, they typically identify the cost as an emission surcharge. The surcharges
are applied at the time the trucks are purchased and are intended to cover all additional costs
to the engine and truck manufacturers, including R&D, tooling, hardware, warranty and other
overhead. They are not intended to cover operating costs. In many cases, purchasers may
negotiate a lower surcharge, especially when purchasing a large number of trucks at once.
We considered the surcharges that manufacturers publicly released as the additional
cost for the 2010 emission controls. The surcharges ranged from $9,000 to $9,600 for SCR
equipped heavy heavy-duty engines, and was $8,000 for the one non-SCR manufacturer.21
To the extent these surcharges are based on the actual costs, it suggests that the cost advantage
for non-SCR engines is about $1,000 to $1,600 dollars. Of course, different manufacturers
may be applying different discounts to their surcharges, or use different factors to markup
their actual costs.
Note that these costs are relative to the manufacturers' 2009 engines which generally
had NOx emissions near 1.2 g/hp-hr, which is significantly above the upper limit for the
NCPs. So these costs do not reflect the costs upon which the NCP are based. For complying
manufacturers, the surcharges include the costs that would be associated with reducing NOx
emissions to 0.50 g/hp-hr as well as the cost associated with further reducing NOx emissions
to 0.20 g/hp-hr.
These surcharges are not fundamentally inconsistent with our understanding of the
differences in hardware costs between the two technology paths. SCR manufacturers need to
recover the costs of the SCR catalyst itself, as well as the costs of the urea supply and delivery
systems. The non-SCR manufacturer needs to recover the costs of the additional
turbochargers and EGR coolers. We believe the hardware costs of SCR systems to be at least
$1,000 more than the hardware costs of the non-SCR system. Of course, each manufacturer
also needs to recover its R&D, warranty and other overhead costs.
4.2.2 Market Share
As noted in Chapter 1, we also evaluated the market share of each of the largest Class
8 heavy-duty truck manufacturers in 2008 through October 2011 (shown in Figure 1-4).
Although the market share of each manufacturer normally varies from year to year (for a
variety of reasons, such as introduction of a new model by one manufacturer or new
purchases by large fleets), observing longer term trends can be instructive. The most
40
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significant trend observed is that the one non-SCR manufacturer has not gained market share
since 2008, even though it appears to be offering its engines for a lower price. The market
appears to consider the SCR engines to be worth about $1,000 to $1,600 more than the non-
SCR alternative.
41
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APPENDIX A: Calculations
This appendix provides additional details for the calculations used to estimate the NCP
costs. The appendix is split into two sections -DEF Consumption Rates and Fuel Prices and
Costs.
Calculation of DEF Consumption Costs
This section of the appendix includes the values used in the DEF consumption cost
calculations. The first table lists the inputs used for the analysis. The second table shows the
fleet average annual vehicle miles travelled (VMT) of all 2012 model year vehicles within a
given class (e.g., medium heavy-duty diesel vehicles) after considering the survival fraction of
each vehicle class.
Table: Inputs Used for DEF Consumption Analysis
Parameter
Medium HD Vehicle Typical Fuel Economy (mpg)
Heavy HD Vehicle Typical Fuel Economy (mpg)
Incremental DEF Consumption to Achieve 0.20 g/hp-hr NOx (gallon
DBF/gallon fuel)
DEF Price ($/gallon)
Discount Rate
Input
9.7
4.9
0.0040
$2.99
7%
42
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Table: Annual Vehicle Miles Traveled by Calendar Year for a Typical 2012 Model Year Vehicle
Calendar Year
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
Medium HD Vehicle
34,698
33,610
30,664
27,882
25,349
22,988
20,822
18,851
17,074
15,326
13,784
12,410
11,212
10,161
9,180
8,280
7,460
6,721
6,109
5,520
4,934
4,493
4,054
3,682
3,321
2,977
2,683
2,460
2,185
1,973
Heavy HD Vehicle
82,130
81,056
75,406
69,566
64,019
58,820
54,014
49,532
45,303
41,073
37,113
33,674
30,606
27,805
25,162
22,781
20,553
18,605
16,822
15,190
13,679
12,408
11,206
10,140
9,172
8,272
7,484
6,789
6,133
5,537
Fuel Prices
EPA did not include additional fuel operating costs as part of the NCP calculation.
However, if we did project an impact on fuel consumption, then we would have used the
Annual Energy Outlook (AEO) 2011 fuel price projections adjusted to 2011 dollars. Below is
the Consumer Price Index used in the fuel price conversion and a table with the annual diesel
fuel price projections.
43
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The annual Consumer Price Index values used in this analysis are the following:
• 1982-1984=100
• 2009 = 214.537
• 2010 = 218.056
• 2011 (average January through October) = 224.740
The AEO 2011 fuel price forecasts are provided by EIA in terms of 2009 dollars.
Thus, for this analysis, we adjusted EIA's diesel fuel price projections upward by a factor
equal to 224.740 divided by 214.537 to convert them into 2011 dollars. The diesel fuel prices
used in the analysis are included in the table below.
Table: Post-Tax Diesel Fuel Price Projections (2011$)
Calendar Year
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
Diesel Fuel Price per Gallon
$ 3.06
$ 3.11
$ 3.17
$ 3.23
$ 3.34
$ 3.45
$ 3.54
$ 3.63
$ 3.69
$ 3.71
$ 3.78
$ 3.80
$ 3.88
$ 3.90
$ 3.93
$ 3.98
$ 4.00
$ 4.05
$ 4.02
$ 4.02
$ 4.03
$ 4.03
$ 4.06
$ 4.07
$ 4.15
$ 4.22
$ 4.30
$ 4.38
$ 4.46
$ 4.54
44
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Table: Operating Cost Increase Due to a 0.25% Increase in Fuel Consumption
Calendar Year
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
MHD Engine
$27
$27
$25
$23
$22
$20
$19
$18
$16
$15
$13
$12
$11
$10
$9
$9
$8
$7
$6
$6
$5
$5
$4
$4
$4
$3
$3
$3
$3
$2
HHD Engine
$128
$128
$122
$114
$109
$103
$97
$92
$85
$77
$71
$65
$60
$55
$50
$46
$42
$38
$34
$31
$28
$25
$23
$21
$19
$18
$16
$15
$14
$13
45
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References
1 Federal Register. Volume 76, September 15, 2011. Page 57106.
2 FleetOwner.com. "SCR Will Eliminate Need for Active DPF Regeneration for Volvo Trucks Next Year."
March 2009. Last accessed on June 27, 2011 at http://fleetowner.com/mid-america/volvo-trucks-scr-solution-
0320/indexl.html
3 Cavataio, G., etal. Performance Characterization of Cu/Zeolite and Fe/Zeolite Catalysts for the Selective
Catalytic Reduction of NOx.
4 Cavataio, G., etal. SAE 2008-01-1025. Enhanced Durability of Cu/Zeolite Based SCR Catalyst. 2008.
5 R. Aneja, K, Yury, and D. Kayes, DEER Conference, Aug 3 -6, 2009, Page 14.
6 Cummins. "Meeting 2010 Emissions - The Cummins Solution" Last viewed on November 25, 2011 at
http://cumminsengines.com/every/misc/Technology/Aftertreatment_System.page
7 D. Stanton, DEER Conference, August 3 -6, 2009, page 4.
8 76 FR at 57200 (September 15, 2011)
9 RTI International. Heavy-duty Truck Retail Price Equivalent and Indirect Cost Multipliers. July 2010.
10RTI International. Heavy-duty Truck Retail Price Equivalent and Indirect Cost Multipliers. Table 4-8. July
2010.
11 Information regarding the MOVES model can be found at http://www.epa.gov/otaq/models/moves/index.htm
12 U.S. Energy Information Administration. Annual Energy Outlook 2011. Last accessed on November 18,
2011 at http://38.96.246.204/forecasts/aeo/.
13
DieselExhuastFluid.com. Last accessed on November 14, 2011 at http://www.dieselexhaustfluid.com/.
14 The brake specific fuel consumption value in liters per hp-hour was converted from the baseline heavy heavy-
duty fuel consumption over the FTP cycle referenced in the Heavy-Duty GHG Rule (76 FR at 57236, September
15,2011).
15 DieselExhuastFluid.com. Last accessed on November 14, 2011 at http://www.dieselexhaustfluid.com/.
16 U.S.EPA. Final Rulemaking to Establish Greenhouse Gas Emissions Standards and Fuel Efficiency Standards
for Medium- and Heavy-Duty Engines and Vehicles - Regulatory Impact Analysis. Page 6-2. The baseline fuel
efficiency for HHD is 20.3 gal/100 mile and vocational diesel vehicles equal 10.3 gal/100 mile.
17 NewGMParts.com. SCR system for 6.6L Diesel GM 3500 HD Pickup Truck retailed for $1,076. Last viewed
on 12/5/2011 at
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http://www.newgmparts.com/partlocator/index.cfm?action=getJointLocator&siteid=213815&chapter=§ioni
ds=7,2489&groupid=60222&make=6&model=Silverado%203500HD&year=2011&catalogid=l&displayCatalo
gid=0
18
RTI International. Heavy-duty Truck Retail Price Equivalent and Indirect Cost Multipliers. July 2010.
19RTI International. Heavy-duty Truck Retail Price Equivalent and Indirect Cost Multipliers. Table 4-8. July
2010.
20 NewGMParts.com. NOx sensor for a 6.6L diesel engine for a GM 3500 HD Pickup truck retailed for $221.
Last accessed on 12/5/2011 at
http://www.newgmparts.co m/partlocator/index.cfm?action=getJointLocator&siteid=213815&chapter=§ioni
ds=2,2496&groupid=2497&subgroupid=104139&make=6&model=Silverado%203500HD&year=2011&catalog
id=2&displayCatalogid=0
21 FleetOwner.com, "Daimler releases 2010 emissions surcharges", August 6, 2009, JimMele.
22 U.S. Department of Labor, Bureau of Labor Statistics. Consumer Price Index. All Urban Consumers (CPI-U),
U.S. City Average, all items. Last accessed on November 16, 2011.
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