Nonconformance Penalties for
On-high way Heavy-duty Diesel Engines:
Technical Support Document
&EPA
United States
Environmental Protection
Agency
-------
Nonconformance Penalties for
On-highway Heavy-duty Diesel Engines:
Technical Support Document
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.
United States
Environmental Protection
Agency
EPA-420-R-12-014
August 2012
-------
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 Diagnostics (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 8
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 9
1.7 Energy Paradox 14
1.8 Relation of NCP Costs to Rulemaking Costs 15
CHAPTER 2: TECHNOLOGIES TO MEET THE 2010 NOX STANDARD
STANDARDS 16
2.1 Engine Service Classes 16
2.2 Emission Control Technologies for Diesel Engines 16
2.2.1 Air Handling System and Turbocharging Technology 16
2.2.2 Advanced Fuel Injection Systems 17
2.2.3 Diesel Particulate Filters and Oxidation Catalysts 17
2.2.4 Selective Catalytic Reduction 18
2.3 Optimization Strategies 20
2.3.1 Engine-Out NOx Emission Reduction Strategies 20
2.3.2 Integrated Aftertreatment System 21
2.3.3 Integrated Engine and Aftertreatment Strategies 22
2.3.4 Integrated Engine and Vehicle Strategies 25
2.4 Summary of Strategies Used by Engine Manufacturers for 2010 25
2.4.1 SCR Engines 25
2.4.2 Non-SCR Engines 25
2.4.3 Marketing Claims 26
in
-------
CHAPTER 3: COMPLIANCE COSTS 27
3.1 Methodology 27
3.1.1 General Methodology 27
3.1.2 Net Present Value of Costs 29
3.1.3 Costs Analysis 29
3.1.4 Upper Limit 31
3.2 Manufacturer Cost Data 32
3.3 EPA Analysis of Costs for Heavy Heavy-Duty Engines 33
3.3.1 Consideration of Manufacturer Cost Estimates 33
3.3.2 Basis of EPA Cost Estimates 34
3.3.3 NCP Compliance Costs: COC90 35
3.3.4 NCP Compliance Costs: COC50 46
3.3.5 MC50 and F 46
3.4 EPA Analysis of Costs for Medium Heavy-Duty Engines 47
CHAPTER 4: REGULATORY PARAMETERS AND FINAL PENALTIES 48
4.1 Heavy Heavy-Duty Engine NCP Equations and Parameters 48
4.1.1 Refund for Engineering and Development Costs 49
4.2 Factors Influencing Competition 50
4.2.1 Market Prices 51
4.2.2 Market Share 52
4.2.3 Sensitivity to Operating Costs 52
Appendix A: Calculations 54
Appendix B: Alternative Heavy Heavy-Duty Compliance Costs 59
Appendix C: Medium Heavy-Duty (MHD) Compliance Costs 69
IV
-------
List of Acronyms
AEO
CH4
CL
CO
CO2
COC50
90
coc
CPI
DBF
DOC
DPF
EGR
EIA
EPA
F
FE&D
FEL
g/hp-hr
GHG
GVWR
HC
HD
HHD
HDDE
HDE
HDGE
HDOBD
HDV
HLDT
ICM
LDT2
LHDGE
MC50
MC90
MHD
MOVES
mpg
N2
N2O
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 90th 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 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
medium heavy-duty
Motor Vehicle Emissions Simulator
miles per gallon
nitrogen
nitrous oxide
-------
NCP nonconformance penalty
NHTSA National Highway Traffic Safety Administration
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
-------
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. This document
updates and replaces the Interim Technical Support Document.1 That earlier document
supported an Interim Final Rule (that was subsequently vacated by the U.S. Court of Appeals
for the District of Columbia Circuit) and a Notice of Proposed Rulemaking (NPRM) that were
promulgated on January 31, 2012 (77 FR 4678 and 77 FR 4736). This document supports the
Final Rule that follows the NPRM.
This TSD addresses technical and analytical issues, rather than policy issues. See the
preamble to this Final Rule and the Response to Comments document for discussions of
policy matters and other more subjective discussions. For example, see the FRM preamble
and the Response to Comments document for our explanation of why we believe that the NCP
criteria have been met for the 2010 NOx emission standard for heavy heavy-duty diesel
engines.
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 an 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.
-------
Section 206(g)(l), which authorizes NCPs, states that they may be offered for heavy-
duty engines and vehicles. The Act also states 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).A
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 the upper limit of nonconformity (established by EPA through
regulation), the vehicle or engine would not qualify for an NCP under section 206(g) and no
certificate of conformity could be issued to the manufacturer. If the emission level is below
the upper limit but above the standard, that emission level becomes the "compliance level,"
which is also the benchmark for warranty and recall liability; the manufacturer who elects to
pay the NCP is liable for vehicles or engines in that engine family 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 is a new emission
standard or that the standard is an existing standard and becomes 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, EPA must find that substantial work is 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. EPA
considers that substantial work is required if such work is needed to bring emissions from the
level of the previous standard to the level of the new or revised standard, even if at the time
the NCP rulemaking is taking place, some manufacturers have already completed such work.
A Note that certain other provisions of the Clean Air Act and regulations also consider features other than
GVWR when defining whether a motor vehicle is a heavy-duty vehicle.
-------
Third, EPA must find that a manufacturer is likely to be noncomplying for
technological reasons (such a manufacturer have been referred to in earlier rules as a
"technological laggard"). Prior NCP rules have considered a technological laggard to be 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.
The above criteria were used to determine eligibility for NCPs during Phase II of the
NCP rulemaking process (50 FR 53454, December 31, 1985). NCPs were offered for the
following 1987 and 1988 model year standards: the particulate matter (PM) standard for 1987
diesel-fueled light-duty trucks with loaded vehicle weight in excess of 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
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 parti culate 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.8 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.
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) the 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. (Note that the 2001 rulemaking also
set new standards for pollutants other than NOx, but we are not setting NCPs for these other
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, one manufacturer has been
using the interim NCPs for some of their engine families in model year 2012. As seen in
Figure 1-1, all manufacturers certified their model year 2012 medium and heavy-heavy duty
engine families at NOx levels below 0.50 g/hp-hr. Note that these values are the final
deteriorated emission results, not family emission limits.
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
manufacturers 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.
-------
OA C
OA.C\
3
o n oc
-------
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,
when combined with lower emission standards, the OBD requirements can lead to increased
repair costs because of lower emission thresholds. For example, a malfunctioning component
that affected emissions to a small enough degree that it would not trigger an OBD response at
a higher threshold could trigger an OBD response at a lower threshold. For most operators,
this would lead to the malfunctioning component being repaired. While this would be good
for the environment, it would be an additional cost to the operator.
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 2011.2 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) for most medium and heavy heavy-duty engines. 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 (NHTSA regulations also explicitly regulate 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 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 that manufacturers would pursue.
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 heavy-duty pickup trucks and vans. Medium heavy-duty includes
delivery trucks and recreational vehicles. Heavy heavy-duty includes buses and line-haul
tractors. Table 1 lists the gross vehicle weight rating of the vehicles by service class. Engines
are classified by the primary vehicle service class for which the engine is intended.
Vehicles
Table 1: Gross Vehicle Weight Rating of Light, Medium, and Heavy Heavy-Duty Engines and
Service Class
Light Heavy
Medium Heavy
Heavy Heavy
DOT Weight Classes
2b-5
6-7
8
GVWR (Ibs.)
8,501 - 19,500
19,501 -33,000
33,001 +
1.6.2 Engine and Vehicle Manufacturers
Table 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
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 Corporation0 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 diesel 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
c Engines made by Navistar International Corporation are typically known by the brand name Navistar, while
trucks are known by the brand name International.
-------
pick-up trucks for their respective companies. Chrysler exclusively uses Cummins-supplied
diesel engines in their Ram 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 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 (Ram)
Daimler Trucks (Freightliner, Western Star)
Ford (Ford)
General Motors (Chevrolet, GMC)
Hino (Hino)
Isuzu (Isuzu)
Navistar (International)
Nissan (Nissan)
PACCAR (Kenworth, Peterbilt)
Volvo Truck (Volvo, Mack)
10
-------
Figure 1-2 contains an estimate of the 2011 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 nearly 60 percent,
while Cummins follows at approximately 14 percent. The remaining quarter of the diesel
engine sales are made up of General Motors, 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,
which are sold in much higher numbers than medium heavy-duty and heavy heavy-duty
trucks.
2011 Diesel Engine Market Share
I Ford
I Cummins
General Motors
I Navistar
I Detroit Diesel
I Mack
VolvoTruck
PACCAR
Hino
Mercedes-Benz
Figure 1-2: 2011 Diesel Engine Manufacturer Market Share. Source: Ward's Automotive Group
11
-------
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.
2011 Diesel Truck Manufacturer Market Share
I Ford
I International
General Motors
I Daimler
I PACCAR
I Volvo/Mack
IHino
Figure 1-3: 2011 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 2011 (shown in Figure 1-4). These
are the types of trucks for which the NCPs may be used. Although the market share of each
varies from year to year, each manufacturer generally has had 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 market share of each
manufacturer resembles the 2008 breakdown, although Navistar's market share was slightly
lower. Preliminary data shows that Navistar's market share may be even lower for 2012.
12
-------
Since producing engines that comply with a 0.20 g/hp-hr NOx emission standard is
obviously 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. The two most likely
ways in which such an advantage would be manifested would be either higher profit per
engine or increased market share. Increased market share could result from offering engines
at lower prices or by offering engines with superior performance.
However, such advantage does not appear to have affected market share. In 2010 and
2011, Navistar was selling engines with NOx emissions near 0.50 g/hp-hr by using banked
NOx credits, without paying any penalty.0 However, International's share of the Class 8
truck market was no higher in 2011 than it was in 2008. Only International is using non-
SCRE engines in its 2011 Class 8 trucks, and it is using them in all of its trucks.F So the small
decrease in International'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
40%
35%
30%
25%
20%
15%
10%
I Daimler
I International
Paccar
I Volvo/Mack
2008
2009
2010
2011
Figure 1-4: Class 8 Truck Market Share. Source: Ward's Automotive Group
D While interim NCPs were available in 2012, no NCPs were available in 2010 or 2011.
E See Chapter 2 for a discussion of SCR and non-SCR emission control technologies.
F 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.
13
-------
1.7 Energy Paradox
It is often asserted that there are cost-effective fuel-saving technologies that markets do
not take advantage of. This is commonly known as the "energy gap" or "energy paradox."
Standard economic theory suggests that in normally functioning competitive markets,
interactions between vehicle buyers and producers would lead producers to incorporate all
cost-effective technology into the vehicles that they offer, without government intervention.
Unlike in the light-duty vehicle market, the vast majority of vehicles in the medium- and
heavy-duty truck market are purchased and operated by businesses with narrow profit
margins, and for which fuel costs represent a substantial operating expense.
Even in the presence of uncertainty and imperfect information - conditions that hold
to some degree in every market - we generally expect firms to attempt to minimize their costs
in an effort to survive in a competitive marketplace, and therefore to make decisions that are
in the best interest of the company and its owners and/or shareholders. Nevertheless, it is
possible that truck buyers and operators may sometimes ignore opportunities to make
investments in higher fuel efficiency that appear to offer significant cost savings.
The existence of an energy paradox is relevant to this NCP rule because EPA has
historically used a lifetime cost analysis to set penalties that are required by the statute to be
set at a level that would not provide a competitive advantage for manufacturers paying NCPs.
To the extent an energy paradox exists, it would mean that the competitive advantage of
reduced operating costs (or disadvantage of increased operating costs) would be less than the
actual lifetime operating cost difference.
As discussed in the recent heavy-duty GHG rule,3 there are several possible
explanations in the economics literature for why trucking companies do not adopt
technologies that would be expected to increase their profits: there could be a classic market
failure in the trucking industry - market power, externalities, or asymmetric or incomplete
(i.e., missing market) information; there could be institutional or behavioral rigidities in the
industry (union rules, standard operating procedures, statutory requirements, loss aversion,
etc.), whereby participants collectively do not minimize costs; or the engineering estimates of
fuel savings and costs for these technologies might overstate their benefits or understate their
costs in real-world applications.
To try to understand why trucking companies have not adopted these seemingly cost-
effective fuel-saving technologies, EPA surveyed published literature about the energy
paradox, and held discussions with numerous truck market participants. The heavy-duty GHG
rule discussed five categories of possible explanations derived from these sources. These
hypotheses include imperfect information in the original and resale markets, split incentives,
uncertainty about future fuel prices, and adjustment and transactions costs. As the discussion
indicated, some of these explanations suggest failures in the private market for fuel-saving
technology in addition to the externalities caused by producing and consuming fuel that are
the primary motivation for the rules. Other explanations suggest market-based behaviors that
may imply additional costs of regulating truck fuel efficiency that are not accounted for in this
14
-------
analysis. An additional explanation - adverse effects on other vehicle attributes - did not
elicit supporting information in the public comments. Anecdotal evidence from various
segments of the trucking industry suggests that many of the hypotheses discussed may play a
role in explaining the puzzle of why truck purchasers appear to under-invest in fuel efficiency,
although different explanations may apply to different segments, or even different companies.
The published literature does not appear to include empirical analysis or data related to this
question.
1.8 Relation of NCP Costs to Rulemaking Costs
Traditionally, NCP costs are different than compliance costs presented in the
rulemaking analysis that supported the implementation of the standards. This occurs for
several reasons. Most importantly, since the Clean Air Act requires that NCPs be set to
protect the complying manufacturer, it is necessary to avoid underestimating reasonably
projected actual costs. Standard-setting costs, on the other hand, should be EPA's best
estimate of the average costs of compliance. NCP costs also represent costs that apply during
the first few years of a new standard. Thus, unlike standard-setting cost analyses, NCP
analyses generally do not include the effects of manufacturing learning that occurs in reality,
but do include the full amortized annual fixed costs which are eliminated after the first few
years of production. For these reasons, even if the NCP and standard-setting analyses are
based on the same factual information, the NCP estimates of compliance costs should be
higher than standard-setting estimates. However, it is also usually true that the factual cost
information available during the NCP rulemaking process reflects a more complete
understanding of the optimum technology path for compliance and the operating costs and
savings which occur over the life of the vehicle/engine as compared to the information that
existed during the standard-setting rulemaking.
Moreover, in the cases of this current NCP rulemaking (and to some extent, the last
NCP rulemaking), there are substantial differences in the emission characteristics of the
baseline engine used in the analyses. The standard-setting analysis for the 2007/2010
standards estimated compliance costs relative to engines emitting 2.0 g/hp-hr or more NOx
(the amount allowed by the 2004 NMHC+NOx emission standard), while this NCP analysis is
estimating compliance costs relative to engines with NOx emissions at 0.50 g/hp-hr (the upper
limit).
Finally, it is also important to note that this NCP analysis is being conducted after
manufacturers chose to add SCR hardware to achieve lower fuel consumption for operators.
However, when first adopting the 0.20 g/hp-hr NOx standard, we projected that manufacturers
would have used less expensive lean NOx traps (LNTs) to meet the standard, which would
have not had much impact on fuel consumption rates.
15
-------
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 exhaust gas recirculation (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
engines 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 can be more difficult to reduce engine-out NOx emissions
from the light and medium heavy-duty engines than it is from heavy heavy-duty engines.
Thus, while the emission controls discussed in this chapter can be applied to engines of any
service class, other constraints lead to differences in optimal technology packages for each
service class.
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
16
-------
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.
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. The degree to which an
engine depends on EGR for NOx control impacts the performance requirements of the
turbocharger and thus the costs of the turbocharger. 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 examples 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 DPF is a device (typically ceramic) 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 the exhaust stream and a 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 temperatures than active regeneration.
This requires increasing the NO2 fraction of the NOx, which is usually low coming out of the
engine. Both active and passive regeneration require some catalytic materials in the exhaust,
especially for high soot conditions.
Advanced thermal management can be used in production engines to eliminate the
need for active regeneration, thus significantly improving fuel efficiency. Volvo's 2010
DPF+SCR system has eliminated active regeneration for on-highway vehicles.4 All other
manufacturers using SCR are working in the same direction, minimizing or eliminating active
regeneration, thus improving fuel economy and providing efficiency improvements in the real
world, although they are not directly reflected in the HD engine test procedure. Given its very
17
-------
low engine-out NOx levels, Navistar is more dependent on active regeneration than the SCR
engine manufacturers.
2.2.4 Selective Catalytic Reduction
Selective Catalytic Reduction (SCR) is an exhaust aftertreatment system used to
control NOx emissions from heavy-duty diesel engines by converting NOx into nitrogen (N2)
and water (H2O). The technology depends on the use of a catalytic converter and a chemical
reducing agent, which generally is in an aqueous urea solution, and is often referred to as
DEF. DEF is injected into the exhaust upstream of the catalyst where it forms ammonia and
carbon dioxide according to the following equation:
CO(NH2)2+H2O -^2NH3 + CO2
The ammonia then reacts with NO and NO2 molecules as summarized by 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. DEF
dosing rates vary among engines and are roughly proportional to the amount of NOx being
reduced. For 2010 model year engines, DEF rates typically range between two and four
percent of fuel consumption. In other words, DEF consumption is approximately two to four
gallons for every 100 gallons of fuel consumed.
The 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 „-• (ABSNOx\( 1 \ (Moles Urea\ ( 1 \
Ideal DEF to Fuel Ratio =
V BSFC ) \MWNOxJ \MolesNOxJ \UreaMolar DensityJ
For example, for the proposal, we calculated the ideal DEF rate needed to achieve a
0.30 g/hp-hr NOx emission reduction (i.e., the difference between the upper limit and the
standard) based on the assumptions shown below in Table 3.
18
-------
Table 3: 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-hr5
50%
32.5% by mass (5.904 mol/liter)
Ideal DEF to Fuel Ratio =
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 (beyond the amount need to get to 0.50 g/hp-
hrNOx).
The catalyst in the SCR systems used today in the HD 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.6
A robust SCR system can achieve more than 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.7
100
90
80-
| 60
| so-
O 40
20-
10-
2007
100 150 20* 250 »0 150 -WO i'f>
Inlet Gas Temperature (*C)
Sit
too
Figure 2-1: SCR Efficiency Rate Improvement over Time.
19
-------
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, most manufacturers have found 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 have been relying
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.
2.3.1 Engine-Out NOx Emission Reduction Strategies
Tailpipe NOx emissions reductions (i.e., downstream of all 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 tends to 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 some but not all operating modes. Over the full range of
operating conditions such benefits are limited.
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 temperature 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.
20
-------
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.9 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.10 This decomposition reactor component converts DEF into ammonia
through hydrolysis. A long pipe between DPF and SCR ensures DEF to be well mixed with
exhaust gas, thus achieving optimal NOx conversion efficiency.
21
-------
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. A given
aftertreatment system's efficiency is impacted by changing 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. Figure 2-2 shows an example of how one engine reacts
to various engine-out NOx conditions at one operating condition. As shown, 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.
240 ~
V Tin
*£
o
*^_
_i_j
E
3
VI
T3
*3
_CT
15 20°
£
-o
c
u
LU
to
CO
•i on
C
Fluid Consumption by Mass
«• Fuel
- A - Total
• DEF
- Log. (Fuel)
- Linear (DEF)
'f\
'•v 4-
v _--""^
* • " „-'
* -A* ^,j
S •'
^
^
*%
X^,
— -' *
,V "»
> 5 10 1
Engine NOx Emission (g/kW-h)
- 60
40 j.
I
bo
=tn <-^-
u
LL.
UJ
D
t/>
n
5
Figure 2-2: Fluid Consumption Impact on Engine NOx Emissions Rates.11
22
-------
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, DEF
costs approximately $2.60 per gallon in 2012. 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 from a few dollars to $220 per year depending on the number of miles travelled.
Second, an increase in DEF consumption will require either an increase in DEF capacity on
the vehicle or an increase in the frequency of DEF refills. Optimal calibrations balance the
fuel and DEF consumptions and 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. It is important to emphasize that this figure
represents a snapshot of technology for a developmental engine. Thus, while the general
trends shown can be considered to broadly represent other engines, the absolute values
cannot.
SCR manufacturers provided comments in response to the proposal's treatment of fuel
costs. For the proposal, we developed a baseline engine which maintained the same fuel
consumption, at the expense of extra DEF costs. However, several commenters noted that
fuel is a major cost for this sector and manufacturers have the ability to optimize their
compliant engines relative to fuel and DEF consumption to achieve a fuel savings if they were
to increase the tailpipe NOx emissions to the upper limit. The fuel consumption advantage
would come from higher engine-out NOx emissions, lower engine-out soot emissions which
would lead to fewer particulate filter regenerations, and the possibility for lower exhaust
system backpressure.
23
-------
EGR+DOC+DPF 2007 Engine
In-Cylinder NOx Control
EGR+DOC+DPF
Q.
Q
W
00
SCR
SCR
DPF+SCR
\ EGR System + Combustion System + Air Handling
^^ Program Baseline
Advanced Fuel Injection System + EGR System + Controls
Low AP, High Flow Rate EGR + WA
Engine 0
ut PM Level
Assuming DPF
SCR NOpc Conversion Efficiency! 79%-84%
1 1 1—
85%-88%
0%
-3%
>
C (D
O (fi
-6% l
5 E
-9% o 3
^
-12% °
>89%
0.0
0.2
0.4 0.6 0.8
BSNOx (g/hp-hr)
1.0
1.2
Figure 2-3: Fuel economy, NOx, and PM emissions with different engine technology.
24
-------
2.3.4 Integrated Engine and Vehicle Strategies
Engine manufacturers develop engines to achieve the optimum balance of factors such
as emissions, fuel consumption, horsepower, and costs. 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 vehicle attributes 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
2.4.1 SCR Engines
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 may be more than enough to offset the cost of supplying the SCR system with
DEF. So the incremental cost impact to the operator is the net effect of an upfront increase in
hardware costs that can be offset significantly by reduced operating costs.
2.4.2 Non-SCR Engines
Navistar is the one engine manufacturer that chose instead to comply with the 2010
NOx emission standard by using an 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 targets, compared to a 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 systems relative to the engines they
produced in 2007-2009. Electronic control of 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.
25
-------
More recently, Navistar has announced that it plans to change its emission control
strategy to include urea-based SCR.13 At the time of this FRM, Navistar expected that its new
emission control strategy would be in production sometime in the 2013 model year, but that it
would continue to produce non-SCR engines with NOx emissions at nearly 0.50 g/hp-hr NOx
until then.
2.4.3 Marketing Claims
Each manufacturer claims in its marketing materials that its 2010 engines offer
superior performance relative both to its earlier engines and to those of its competitors.
Examples of these claims have been placed in the docket for this rulemaking.14' 15'16'17'18 If
the claims of the SCR engine manufacturers are true, then it would seem that non-SCR
engines have no advantage over SCR engines. However, if the claims of the non-SCR engine
manufacturer are true, then it would seem that non-SCR engines have a significant advantage
over SCR engines.
In general, SCR engine manufacturers claim that fuel consumption for their 2010
engines is several percent better than non-SCR engines, including both their own 2009 non-
SCR engines, and their competitor's 2010 non-SCR engines. They further claim that these
fuel savings more than offset the cost of DEF. On the other hand, the one manufacturer of
non-SCR 2010 engines claimed that DEF costs are not offset by fuel savings with SCR.
To some extent, manufacturers' comments on this rulemaking appear to contradict
some of these marketing claims. Since the purpose of NCPs is to remove competitive
advantages, SCR engine manufacturers arguing for higher penalties based on the costs of SCR
are indicating (either explicitly or implicitly) that non-SCR engines have significant
advantages over SCR engines. Similarly, manufacturers arguing for lower penalties are
indicating that non-SCR engines do not have significant advantages over SCR engines.
It is beyond the scope of this rulemaking for us to evaluate the accuracy of these
claims other than to state that there is significant uncertainty related to the precise difference
in operating costs between SCR and non-SCR engines. While we do not believe that
manufacturers are being dishonest in either their marketing claims or comments on the
NPRM, it appears that they are being somewhat selective with respect to the information they
present. Thus, while we have considered information provided by manufacturers, we are
basing the NCPs on our own analysis of compliance costs and performance.
26
-------
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 does not include detailed analysis of engine pricing or vehicle
purchaser perceptions that could affect purchase decisions (see Section 4.2).
Note that the cost parameters being finalized are generally higher than the values
proposed. These changes reflect new information received during the public comment period.
Most significantly, this new information (that was not available at the time of the proposal)
supports using higher fuel prices and lower DEF prices. The Energy Information
Administration (EIA) now projects that fuel prices will be higher than the EIA estimates
available at the time of the proposal. On the other hand, more recent data on DEF now
indicates that DEF prices will be lower than the DEF price used for the proposal. Both of
these changes lead directly to higher estimated compliance costs.
In addition, we received comments suggesting that the effectiveness of the NCPs in
meeting the statutory requirement to remove competitive disadvantage for complying
manufacturer needs to be evaluated relative to engines that could be developed in the near
term (such as a reoptimized SCR engine), especially in light of the higher projected fuel
prices. In response to these comments, EPA is revising the COCgo baseline engine used to
estimate worst case compliance costs because we believe that the revised baseline engine
better represents an engine optimized for higher fuel prices than the baseline engine used for
the proposal.0
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.
Prior to the proposal, and during the public comment period, we received cost of
compliance information from several engine manufacturers and used that information to
inform our own analysis of compliance costs. In the most recent NCP rule (67 FR 51464,
' Note that we assume that current compliant engines have generally been optimized for 0.20 g/hp-hr NOx.
27
-------
August 8, 2002), EPA based the NCPs directly on the average of actual compliance costs
relative to its current model year engines for all manufacturers. This was possible because
each of the manufacturers had actually produced engines at the upper limit. 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, however, compliant manufacturers have generally not
designed and optimized their in-production engines for the U.S. market at 0.50 g/hp-hr NOx
(the upper limitH) and then reengineered their engines to meet the 0.20 g/hp-hr standard.1
Thus, a compliance cost estimate based directly on actual experience for the full range of in-
production engines was not available for this NCP rule.
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. We are using one engine to represent the baseline
for 90th percentile costs and a combination of engines to represent the average costs.
However, it should be noted that since we are estimating the marginal costs of compliance to
be constant (i.e., the cost to reduce emissions from 0.30 g/hp-hr to 0.20 g/hp-hr is not different
from the cost to reduce emissions from 0.50 g/hp-hr to 0.40 g/hp-hr), we calculate a penalty
curve that is a straight line. This in turn makes our estimate of the average cost of compliance
irrelevant to the calculation of the penalty. So most of the discussion in this chapter focuses
on estimation of the compliance costs for a near worst case engine which is the COC90 value.
References to the baseline engine refer to the engine used for the baseline for COCgo
As described in Section 3.3.2, we are assuming the baseline heavy heavy-duty engine
is already equipped with SCR. Specifically, EPA is assuming that the baseline heavy heavy-
duty (HHD) engine (or upper limit engine) is an optimized, SCR-equipped engine that
complies with all other emission standards and requirements (but EPA is not necessarily
assuming that such an engine exists in the current market). 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.
We also evaluated alternative baseline engine scenarios for heavy heavy-duty engines.
Our analysis of these scenarios is summarized in Appendix B. These scenarios were
evaluated to determine if they represented realistic scenarios in which the alternative baseline
engine would have a greater competitive advantage than the baseline engine used in this
analysis. These scenarios generally represent alternatives recommended by commenters.
H See Section 3.1.4 for a description of the upper limit.
1 Note that one SCR engine manufacturer is using emission credits to certify one medium heavy-duty engine
family with a NOx PEL at 0.50 g/hp-hr.
28
-------
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. However, the regulations include inflation-related provisions to calculate NCPs
for later years using these 2012 costs.
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 (in previous
rulemakings, though no issues were raised during the comment period for this rulemaking).
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.
29
-------
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 the bill of
materials approach utilized in the Heavy-Duty GHG rule.19 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 used 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.20 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 4 below, the ICM varies with the complexity of the technology and the
maturity of the technology.
Table 4: Indirect Cost Multipliers Used in this Analysis21
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
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 two percent (0.02).22 This means that for
each $100 dollars of incremental direct hardware costs, there would also be an additional $2
for research and development. We received comments that EPA should include a greater cost
for research and development. However, we see no evidence that research and development
costs for the noncomplying manufacturer are substantially lower than for complying
manufacturers. Thus, we are continuing to use the ICM method to estimate the research and
development cost element. The remaining thirteen percent (0.13) of the ICM includes two
percent (0.02) for incremental warranty costs, and eleven percent (0.11) for other
manufacturing overhead.
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 estimates for the prices 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.23 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
30
-------
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).
For the Final Rule, we updated the fuel price projections and used the Energy
Information Administration's (EIA) Annual Energy Outlook 2012 (AEO2012) to project fuel
prices through 2035 and applied the annual projected price increase found in AEO2012 to
project the fuel prices through 2042.24 The annual fuel price values (dollars per gallon) used
in this analysis were adjusted from 2010 dollars (as supplied in AEO2012) to 2011 dollars.
The annual fuel price projections are included in Appendix A.
We revised the source for current and future DEF prices in the Final Rule based on the
comments we received on the Interim TSD. Instead of using a constant DEF price through
2042, we are projecting that the long term DEF prices will trend with the prices of industrial
natural gas, which is used in the production of urea, at an annual increase of 1.3 percent based
on AEO 2012. For the near term, we used the Integer Research retail DEF pricing projections
for 2012 through 2014, which range between $2.60 and $2.50 per gallon.25 Note that our
analysis uses an annual average price, which does not consider seasonal variations in DEF
prices or other short term fluctuations.
3.1.4 Upper Limit
The upper limit (UL in the NCP formula) 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 an upper limit at the previous
standard should be reasonably achievable by all manufacturers with vehicles in the relevant
class. Thus, the manufacturers 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 HDE 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.
31
-------
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 (family emission limit) 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 instead of the previous standard (or an equivalent NOx
level such as 2.3 g/hp-hr NOx for model years 2004-2006 or 1.2 g/hp-hr for model years
2007-2009). This will conform to the purpose of NCPs, which is to allow manufacturers to
continue selling engines they are producing, but not to encourage backsliding.
3.2 Manufacturer Cost Data
We received responses (before and/or after the NPRM) from manufacturers
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.
Some engine manufacturers submitted confidential cost estimates in their comments to
the NPRM which identified the incremental costs they would expect to incur taking a model
year 2012 engine from 0.50 g/hp-hr NOx to 0.20 g/hp-hr. Two other manufacturers provided
cost information based on projections of the costs incurred to take an engine from 1.2 g/hp-hr
NOx to 0.20 g/hp-hr. We also received similar cost information before the proposal.
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. In general, there were two distinct options presented to the Agency
in public comments for baseline engine technology as shown in Table 3-2.
Table 5: Manufacturer Baseline Engine Scenarios
Baseline Engine Option #1
Baseline Engine Option #2
SCR?
Yes
No
EGR?
Yes
Yes
32
-------
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, ammonia oxidation catalyst and DOC; the addition of a sensor to control DEF
dosing for OBD; thermal management of the exhaust system; and 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, but did not provide
details in their public comments. 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.
Other SCR engine manufacturers suggested the Option #2 pathway, which assumed a
non-SCR baseline engine with high performance EGR system (representing their 2007-2009
engines with 1.2 g/hp-hr NOx) and that they added SCR systems to achieve the 0.20 g/hp-hr
NOx emissions level. They noted that there would be both an improvement to the fuel
consumption due to the SCR system, a cost for the DEF consumption required for the SCR,
and an increase in warranty/maintenance costs.
The non-SCR manufacturer also projected the costs it would incur to achieve 0.20
g/hp-hr without SCR. Its methodology is not summarized here because we cannot do so
without disclosing its research plans. We merely note that it projected costs lower than EPA's
estimated COCso and COCgo 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
$8,000 to $15,000 range. They recommended that EPA set the maximum penalty at a level at
least as high as these cost estimates. See the Response to Comments document for an
explanation why we believe these higher estimates are not appropriate.
3.3 EPA Analysis of Costs for Heavy Heavy-Duty Engines
The NCP regulations are structured to calculate the penalty amounts based on certain
cost parameters, primarily based on the total incremental costs (relative to the upper limit) and
marginal costs for the average and highest cost manufacturer. EPA has independently
estimated these costs.
3.3.1 Consideration of Manufacturer Cost Estimates
In the most recent previous NCP rule phase, EPA based the NCPs primarily 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. It was relatively simple
for them to provide us with a confidential engineering analysis of the costs they actually
33
-------
incurred, the cost of the additional hardware, and differences in performance characteristics.
There was little opportunity for strategic estimates since manufacturers needed to reflect
actual costs that EPA could largely 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. In nearly all cases, manufacturers that
have reached 0.20 g/hp-hr generally did not have equivalent 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. Only Cummins has
equivalent engines at 0.20 and 0.50; and even then, only for medium heavy-duty 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 across the industry. 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.
Finally, it is important to emphasize that neither the Clean Air Act nor our regulations
require us to give any special consideration to manufacturers' estimates of compliance costs.
In the end, the compliance costs must be those that EPA determines to most appropriately
conform to the intent of the Clean Air Act. As EPA noted in the generic Phase I NCP rule,
NCP costs are to be based on "the best cost and emission performance data available to EPA
during the specific NCP rulemaking."
3.3.2 Basis of EPA Cost Estimates
Based on our technical judgment and discussions with engine manufacturers, EPA is
assuming the baseline engine meeting 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. See Appendix B for a
discussion of other alternative baseline engines that we considered. As noted later in Chapter
4 of this document, we believe this method leads to penalty parameters that will remove the
competitive disadvantage for complying manufacturers.
For the Interim TSD, we selected a baseline engine that led us to cost out a technology
package to reduce tailpipe NOx emissions from 0.50 g/hp-hr to 0.20 g/hp-hr which had
constant engine-out NOx emissions (and thus had no impact on fuel consumption), but
included some hardware modifications and a higher DEF consumption rate. We have revised
our technology packages and cost estimates for the new baseline engine, which was based on
stakeholder comment and the updated fuel and DEF costs.
The purpose of adopting NCPs is to allow a noncompliant manufacturer to continue
selling its engines. However, the Clean Air Act directs EPA to set the NCPs at a level that
34
-------
will "remove any competitive disadvantage" to complying manufacturers. Thus, the statute
effectively requires us to set the penalties at a level that we reasonably expect to protect the
complying manufacturers, but not substantially higher than that. For the proposal and interim
rule, EPA evaluated the NCPs in the context of competition between SCR engines with NOx
emissions at or below 0.20 g/hp-hr and non-SCR engines with NOx emissions at or just below
0.50 g/hp-hr. This was appropriate because these two categories represented the vast majority
of heavy heavy-duty engines being sold currently. However, EPA agrees with commenters
that the final NCPs must be high enough to also protect complying manufacturers from a
competitive disadvantage relative to SCR engines that are more fully optimized for 0.50 g/hp-
hr than were considered for the proposal and interim rule. The final rule must be more
forward looking to also address potential competitive advantages that could arise in the future.
The Clean Air Act's requirements to "remove any competitive disadvantage" to complying
manufacturers effectively requires EPA to consider not only existing engines with NOx
emissions over the standard, but also engines that could reasonably be developed during the
period in which NCPs are available. In this case, this requires EPA to also consider SCR
engines that would be reoptimized for 0.50 g/hp-hr.
3.3.3 NCP Compliance Costs: COC90
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. For the Final Rule, we re-evaluated fuel-
DEF optimization based on the updated fuel price projections from AEO 2012 and from
revised DEF prices based on Integer Research and the natural gas price trend projection from
AEO 2012. The pathway we analyzed for the Final Rule includes both fuel and DEF
operating costs.
We first calculated COCgo, 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 90th percentile costs (COC90) are shown in Table 6. The
derivation of this estimate is described in detail below.
Table 6: Heavy Heavy-Duty COC90 Estimates (Net Present Value to 2012 in 2011$)
NPV of Hardware and Lifetime Operating
Costs
COC90
$3,775
35
-------
3.3.3.1 Operating Costs: Optimizing Fuel and DEF Consumption
For the proposal, we estimated that reducing NOx emission from 0.50 g/hp-hr to 0.20
g/hp-hr would require an increase in DEF consumption of 0.40 gallons for every 100 gallons
of fuel consumed, but would not change fuel consumption. This was consistent with our
projection that there would be little price difference between DEF and fuel. For most engines,
without a difference in fuel and DEF prices, there is little to be gained by reoptimizing for
lower fuel consumption because much or all of the savings would be offset by higher DEF
costs. However, we now have new information indicating that fuel prices will likely be
significantly higher than DEF prices for the foreseeable future. We agree with commenters
that engines manufacturers designing engines for 0.50 g/hp-hr NOx would have responded
(and could still respond) to this price difference by optimizing the engines to have slightly
higher engine-out NOx to improve fuel consumption and reduce the excess NOx by
increasing DEF consumption. In essence, this strategy would save money for operators by
trading an increase in DEF consumption for a similarly sized volume reduction of the more
expensive diesel fuel.
As noted earlier, we first defined a baseline engine (at the upper limit) and a compliant
engine (meeting the 0.20 g/hp-hr tailpipe NOx emissions standard), both equipped with SCR.
We estimate that the baseline engine would have engine-out NOx emissions of approximately
4.8 g/hp-hr. This value was derived from the assumption that the engine would have 0.50
g/hp-hr tailpipe NOx emissions and that its aftertreatment system is 90 percent efficient at
reducing NOx (for a system at the end of the useful life). This efficiency level was based on
discussions with manufacturers. Similarly, we derived the engine-out emissions of the
compliant engine emitting 0.20 g/hp-hr at the tailpipe assuming that this engine's
aftertreatment system could achieve 94 percent end-of-useful life efficiency due to the
additional hardware we discuss below. We estimate that complying engines have engine-out
NOx emissions around 3.0 g/hp-hr. These values are largely consistent with confidential
business information we received from some manufacturers.
To determine the DEF consumption for each engine, we considered test data showing
how NOx emissions and DEF consumption were related for a SCR engine. We obtained test
data from a heavy-duty engine equipped with SCR tested at the National Vehicle and Fuel
Emissions Laboratory. Figure 3-1 shows the impact of DEF dosing rate on NOx emission
reduction achieved in the SCR system follows a linear trend, as long as the SCR catalyst is
large enough. We used the linear trend equation for each scenario to determine the DEF
dosing rate based on the NOx emissions reduction required of the resized aftertreatment
system. The baseline engine, which would require a 4.3 g/hp-hr NOx reduction (4.8 g/hp-hr
engine-out minus 0.5 g/hp-hr tailpipe NOx emissions) would require a DEF dosing rate of 5.9
percent. Similarly, the compliant engine would require a 2.8 g/hp-hr NOx reduction (3.0
g/hp-hr engine-out emissions minus 0.2 g/hp-hr tailpipe NOx emissions) in the aftertreatment
system and therefore a DEF dosing rate of 3.8 percent.
36
-------
NOx Reduction Achieved from Diesel Exhaust Fluid Dosing Rates
o
0.001
IT -2
.c
Q.
.C
.£5
c
•2 -4
HI
ce.
X
O
-6
-10
0.021
0.041
0.061
0.081
y=-73.679x +0.0149
R2 = 0.9959
DEF Dosing Rate (gal DEF/gal Fuel)
0.101
0.121
Figure 3-1: Diesel Exhaust Fluid Dosing Rate Impact on NOX Reduction
37
-------
We estimated the fuel consumption impact due to engine calibration changes, such as
changes to injection timing and EGR rates, to achieve various engine-out NOx emissions.
Figure 3-2 shows our estimate of the impact. This curve was developed from confidential
business information provided by engine manufacturers, based on the following principles:
• Manufacturer data should be roughly weighted based on each manufacturer's
approximate share of the heavy heavy-duty engine market.
• Data provided in the 3.0 to 4.8 g/hp-hr range should be given a greater weight because
this is the range that represents the expected change in engine-out emissions and
resulting fuel consumption from the baseline engine to a compliant engine. Thus, this
is in the range used to define the final penalty amount.
• Data provided in more detail should be weighted more highly than data provided in
lesser detail.
• The line should be continuous, but curve slightly to reflect the known trend of
flattening at higher NOx levels.
• The projections for NOx levels below 3.0 g/hp-hr should represent fuel consumption
changes observed and reported for 2010 engines relative to 2009 engines.
• The curve should be somewhat conservative to protect complying manufacturers, but
not unreasonably conservative. It should be conservative with respect to both the
analysis used to set the penalty and the alternative scenarios.
We project that the fuel consumption of the compliant engine with engine-out
emissions of 3.0 g/hp-hr would be approximately 1.9 percent worse than the baseline engine
with engine-out emissions of 4.8 g/hp-hr. This net value is very similar to the net values
recommended by several commenters. See the Response to Comments document for this
Final Rule for a more complete discussion of how this value compares to the values
recommended by commenters.
It is important to emphasize that we do not believe that a 1.9 percent increase in fuel
consumption is actually a worst case assumption. We are not using a truly worst case
assumption because we believe that may very well overstate the market value of reduced fuel
consumption. As is described in Section 1.7, there is reason to believe that many truck
purchasers may undervalue future fuel savings (relative to our estimate of the net present
value). Thus, including^/// lifetime costs of even the likely difference in fuel consumption
rates is somewhat conservative. However, we believe that the 1.9 percent increase is
somewhat higher than the likely difference for most engines, and it therefore even more
conservative.
38
-------
1.04
1.03
1.02
c
o
Q.
« 1.01 -
C
-------
Table 7: Undiscounted DEF and Fuel Costs for Heavy Heavy-Duty Engines (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
2042
Fuel Costs
$1,247
$1,132
$1,117
$1,064
$992
$924
$858
$791
$729
$667
$607
$555
$509
$469
$428
$387
$351
$321
$293
$270
$247
$220
$199
$182
$168
$154
$141
$130
$119
$110
$101
DEF Savings
-$878
-$850
-$775
-$724
-$675
-$628
-$584
-$543
-$503
-$462
-$423
-$389
-$358
-$329
-$302
-$277
-$253
-$232
-$213
-$194
-$177
-$163
-$149
-$137
-$125
-$114
-$105
-$96
-$88
-$81
-$74
Total Fluid Cost
$369
$282
$342
$340
$317
$296
$274
$248
$226
$205
$184
$167
$151
$140
$126
$110
$98
$89
$80
$76
$70
$57
$50
$46
$42
$39
$36
$34
$31
$29
$27
3.3.3.2 Hardware, Warranty, and Research & Development Costs
An SCR aftertreatment system originally designed for 0.50 g/hp-hr NOx would
require hardware modifications to achieve tailpipe emissions levels of 0.20 g/hp-hr. Based on
conversations with manufacturers and our own engineering analysis, we believe that the lower
NOx emissions levels would require:
• The addition of SCR catalyst volume to gain NOx efficiency,
• Improvements to the diesel oxidation catalyst (DOC) due to the lower engine-out
NOx emissions and higher soot conditions,
• An optimized turbocharger to cover a broader range of EGR flow, and
• An ammonia sensor for better control over the urea injection.
40
-------
Note that this list of hardware changes is consistent with the list of hardware changes
provided by Cummins in its public comments. Nearly all these costs would actually be born
directly by the engine manufacturer, but in some cases some small fraction may be born by
the vehicle manufacturer. For simplicity, our analysis includes engine manufacturing and
vehicle manufacturing costs together.
The incremental SCR catalyst costs were estimated from the direct manufacturing
costs of a SCR system projected for a light-duty pickup truck in the 2017-2025 Light-Duty
Greenhouse Gas Emissions Notice of Proposed Rulemaking.27 We first converted the costs
from 2009 dollars to 2011 dollars and then scaled the direct manufacturing cost of the SCR
catalyst based on the ratio of a typical engine displacement in each engine class, as shown in
Table 8 below.
Table 8: SCR Direct Manufacturer Cost (2011$)
Complete SCR
Catalyst
Light-Duty (4.0L)
$427
HHD(13L)
$1,387
As proposed, we estimated 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 costj, 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.28 The marked up costs are shown below in Table
9.
Table 9: SCR Catalyst Incremental Cost
Incremental Direct Manufacturing Cost
Research and Development Cost (2%)
Warranty and Other Cost (13%)
Total Incremental SCR Catalyst Cost
HHD
$277
$6
$36
$319
The incremental DOC costs were estimated using the same cost process used for the
SCR catalyst. The direct manufacturing costs of the DOC are estimated from a light-duty
pickup truck DOC cost in the 2017-2025 Light-Duty Greenhouse Gas Emissions Notice of
1 This value can be calculated from the conversion efficiencies noted in Section 3.3.3.1. If you assume a uniform
conversion rate throughout the catalyst, to achieve an overall conversion of 90 %, each fifth of the catalyst must
reduce NOx emissions by 37%: (1-.37)A5 = 0.10. Reducing these NOx emissions by an additional 37 percent
results in a 94% conversion; (1-.37)A6 = 0.06.
41
-------
29
Proposed Rulemaking. We first converted the DOC costs from 2009 dollars to 2011 dollars
and then scaled the direct manufacturing cost of the DOC based on the ratio of a typical
engine displacement in each engine class, as shown in Table 10 below.
Table 10: DOC Direct Manufacturer Cost (2011$)
DOC
Light-Duty (4.0L)
$528
HHD(13L)
$1,717
We agree with commenters who stated that the DOC would require additional
precious metals in the compliant engine because the lower total engine out NOx emissions
would also lead to lower NO2 concentrations in the exhaust. Because NO2 is used to
regenerate the DPF, manufacturers would need to actually produce additional nitrogen
dioxide from the DOC in order to completely regenerate the DPF. Similar to our estimate of
the required catalyst change, we estimate that the improved loading would cost approximately
20 percent of the total DOC cost, as shown below in Table 11. Also shown in the table
below, we then applied a two percent mark up for research and development and 13 percent
for warranty and other costs.
from engine manufacturers.
30
This cost is similar to costs provided in confidential comments
Table 11: DOC Incremental Cost
Incremental Direct Manufacturing Cost
Research and Development Cost (2%)
Warranty and Other Cost (13%)
Total Incremental DOC Cost
HHD
$343
$7
$45
$395
42
-------
We are adding the cost of an ammonia sensor which allows for better control of the
urea injection to achieve lower tailpipe NOx emissions. 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 for the SCR catalyst cost. The direct
manufacturing costs were calculated based on the Retail Price Equivalent (RPE). The RPE for
heavy-duty engines is 1.35 as found in the study conducted by ICF International for the
Heavy-Duty Greenhouse Gas Emissions rulemaking.31 The sensor costs are shown in Table
12.
32
Table 12: 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
HHD
$221
$164
$3
$21
$189
We calculated the costs of modifications required for the variable geometry
turbocharger. Based on the Light-Duty GHG cost estimates, we estimated that the VGT
would have a direct manufacturing cost of $218 (2011$) for a large pick-up truck. Using
cylinder displacement volume to ratio the costs into the heavy heavy-duty class, we derived
the VGT costs included in Table 13.
Table 13: VGT Direct Manufacturer Cost (2011$)
VGT
Light-Duty (4.0L)
$218
HHD(13L)
$709
We agree with commenters who stated that the turbomachinery may require additional
costs in the compliant engine because the higher EGR rates required to achieve the lower
engine-out NOx emissions would require additional thermal management and performance
balancing. Our estimate is that the improved VGT would cost approximately 20 percent more
than the total VGT cost for the 0.50 g/hp-hr baseline engine, as shown below in Table 14.
This value is similar to costs provided in confidential comments from engine manufacturers.
Table 14: VGT Incremental Cost for COCgn
Incremental Direct Manufacturing Cost
Research and Development Cost (2%)
Warranty and Other Cost (13%)
Total Incremental VGT Cost
HHD
$142
$3
$18
$163
43
-------
3.3.3.3 Operating Costs: Post Warranty Repair and Demurrage
Manufacturers would generally be expected to incur additional warranty costs due to
the addition of new components, as noted above in the hardware costs. Using our ICM
method, we estimate that this incremental warranty cost would be two percent of the
incremental hardware cost. Typically, this would cover the additional costs of repairs that are
needed during the warranty period that are associated with incremental hardware costs. Note
that, as is described later in this section, we believe there would also be additional warranty
costs associated with the effect of the lower emission levels on the OBD system, rather than
the incremental hardware costs.
There can also be additional unscheduled repairs to the new hardware after the
warranty period ends. In addition, for both warranty repairs and post-warranty repairs, there
are also real costs incurred by the vehicle owners for demurrage (i.e., the time during which
the vehicle is out of service). Some manufacturers provided us with estimates with post-
warranty repair costs with demurrage, while others did not. After reviewing these different
estimates, it became clear that they were not consistent with our estimates of warranty repairs,
and that we needed to estimate post-warranty repair and demurrage costs independently.
For the Final Rule, we calculated the post-warranty repair and demurrage costs
relative to the incremental warranty costs. We used the ratio of post-warranty repair costs and
demurrage costs relative to warranty costs developed in the 2004 NCP Technical Support
Document.33 Table 15 includes the costs developed for warranty, post-warranty repair, and
demurrage for the 2004 NCP rule.
Table 15: 2004 Heavy Heavy-Duty Engine NCP Costs
Warranty Costs
Post-warranty repair Costs
Demurrage Costs
2004 HHD
$380
$370
$220
Expressed as
Percent of
Warranty Costs
-
97%
58%
We utilized the ratio of the post-warranty repair and demurrage costs relative to the
warranty costs from 2004 to calculate the 2012 post-warranty repair and demurrage costs, as
shown in Table 16 below.
Table 16: Final Rule Warranty, Post-Warranty repair, and Demurrage Costs for 2012 MY HHD
Engines Associated with Incremental Hardware Costs
Warranty Costs (see Section 3.3.3.2)
Post-warranty repair Costs
Demurrage Costs
COC90
$19
$18
$11
44
-------
In addition to the typical warranty and post-warranty repair costs, commenters stated
that there may be an increase in repair costs for compliant engines compared to engines at the
upper limit. Since OBD systems must detect emission problems relative to thresholds
specified as an addition to the family emission limit (or compliance level for NCP engines)
and notify the operator of concerns, using NCPs to certify above the standard could result in
fewer emission-related repairs. We estimate that the warranty and post warranty costs of the
OBD-related issues are $38 based on the assumption that a HHD engine costs approximately
$30,000 and that all warranty costs are two percent of the direct manufacturing cost, per our
Indirect Cost Multiplier approach that is being used throughout this analysis. We assumed
that 50 percent of the warranty costs are emission-related, and of those, only five percent are
related to OBD threshold levels. This leads to an OBD-caused warranty level of $15, and
using the ratios in Table 15, the post warranty OBD and demurrage operator costs would be
$23. The OBD-related repair costs for HHD engines are included below in Table 17. It is
important to emphasize that such costs are appropriate for NCP rulemakings that address
competitive effects; however, such costs were not included in our OBD rule because the OBD
system is only catching failure modes for which manufacturers were already responsible.
Table 17: Final Rule OBD-Related Repair Costs for 2012 MY HHD Engines
OBD Threshold Related Costs
OBD Related
Warranty
$15
OBD Related
Post-warranty
repair and
demurrage
$23
3.3.3.4 Total Costs
The total estimated costs for COCgo for HHD engines are included below in Table 18.
Table 18: HHD COC90 Costs
Fuel Operating Costs
DBF Operating Savings
Hardware Costs
Research and Development Cost
Warranty and Other Manufacturer Costs
Post-warranty Repair Costs
Demurrage Costs
Total Cost
COC90
$8,833
-$6,191
$927
$19
$135
$41
$11
$3,775
45
-------
3.3.4 NCP Compliance Costs: COC50
This section describes our estimate of the typical compliance costs to reduce tailpipe
NOx emissions 0.50 g/hp-hr to 0.20 g/hp-hr. This cost is COCso. Note that while this value
does not affect the actual penalty curve, the regulations require that we determine a value for
COC50.
We calculated COC50 from two parallel estimates of compliance costs. The first was
the COCgo cost, which was described in the previous section and is intended to represent the
total life-cycle costs for reducing the emissions from the upper limit to the standard level for
an SCR engine. The second is an estimate of the total life-cycle costs for reducing the
emissions to the standard level for a non-SCR engine. As described in Appendix B, we
estimated this cost to be $994. We calculated COCso as a weighted average of these two
values, assuming the SCR costs represent 80 percent of the fleet and the non-SCR costs
represent 20 percent of the fleet. The resulting weighted average of the estimated cost for
EGR ($994) and the COC90 cost for SCR ($3,775) is $3,219.
3.3.5 MC50 and F
and F are two parameters used in the existing regulations in the calculation of
the value X (see 40 CFR 86. 1 1 13-87 (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 heavy heavy-duty engines.
3.3.5.1 Estimated value
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
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 is $10,729 per g/hp-hr for heavy heavy-duty.
46
-------
3.3.5.2 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 (MCgo) to MCso. We calculated F by
first calculating an MCgo in the same way that we calculated MCso. We then calculated the
value of F that would give these values of MCgo, and then set F equal to MCgo divided by
MC50. Using this approach we calculated MC90 to be $12,583 per g/hp-hr for heavy heavy-
duty. This led to F values of 1.173 for heavy heavy-duty.
3.4 EPA Analysis of Costs for Medium Heavy-Duty Engines
The Interim TSD provided EPA's proposed NCP values for both medium and heavy
heavy-duty engines. We have decided to seek additional comment before finalizing medium
heavy-duty engine NCPs. However, we performed an analysis of three alternative methods to
calculate medium heavy-duty NCP values, which mirror the approaches evaluated for heavy
heavy-duty engines. The description and analysis of these alternatives are included in
Appendix C.
47
-------
Chapter 4: Regulatory Parameters and Final Penalties
4.1 Heavy Heavy-Duty Engine NCP Equations and Parameters
EPA's existing regulations for calculating NCPs are contained in 40 CFR Part 86
Subpart L. NCP schedules can be calculated from those same equations using the Upper
Limit, COCso, COCgo, MCso, and F values from the previous chapter, and a standard level (S)
of 0.20 g/hp-hr NOx. The values for X are calculated using these values and the following
equation from Subpart L:
X = (COC50/F/MC50)+S
The purpose of this equation is to achieve a penalty curve in which the slope for
engines with compliance levels near the standard is equal to the 90th percentile marginal cost
of compliance (MC90 equals MC50 times F).
Table 19: NCP Parameters
NCP Parameter
COC50
COC90
MC50 ($ per g/hp-hr)
MC90 ($ per g/hp-hr)
F
UL (g/hp-hr)
S (g/hp-hr)
X (g/hp-hr)
Heavy Heavy-Duty Engines
$3,219
$3,775
$10,729
$12,583
1.173
0.50
0.20
0.456
When the factors listed in Table 19 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.
48
-------
$4,000
$3,500
$3,000
$2,500
$2,000
0.
u
$1,500
$1,000
$500
$-
0.
2012 Heavy Heavy-Duty Engine NCP
/
~/_
~/_
~X_
./
.s
/_
/s
20 0.25 0.30 0.35 0.40 0.45 0.50
NOx Emissions Level (g/hp-hr)
Figure 4-1: Heavy Heavy-Duty Engine NCP
4.1.1 Refund for Engineering and Development Costs
Section 86.1113-87(h) of the existing regulations specifies 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&o) which define the fractions of the NCP
which is considered to be related to engineering and development. As discussed in Chapter 3,
we determined that $19 of the NCP COCgo value is related to engineering and development.
Thus, the FE&D value is equal to $19 divided by the COC90 value of $3,775, or 0.005.
Table 20: Engineering and Development Refund Factors
Service Class
Heavy Heavy-Duty Engines
FE&D Factor
0.005
49
-------
4.2 Factors Influencing Competition
The structure of the NCP regulations is intended to result in NCPs that will remove the
competitive disadvantage to complying manufacturers. It does this by setting the maximum
penalty based directly on the nominally worst case (90th percentile) cost that a complying
manufacturer (and the operator) 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.
In particular, it is worth noting that to the extent the energy paradox (discussed in
Section 1.7) applies, purchasers would tend to discount future operating costs or savings
relative to purchase prices. While we include the full net present value of lifetime operating
costs/savings in our COCso and COCgo values, we considered the possibility of an energy
paradox when evaluating how conservative to make our assumptions about operating cost
parameters. See Section 4.2.3 for a discussion of how sensitive the effectiveness of NCPs is
to the assumed operating costs.
The analyses are presented here primarily for the comparison of engines equipped
with SCR to those that are not equipped with SCR because we believe that NCPs will be used
only for such engines. We note that the NCP must also prevent SCR engine manufacturers
from gaining any competitive advantage by paying NCPs to increase NOx emissions.
Because the NCPs being established are based on that specific scenario, we are confident that
50
-------
the NCPs are high enough to prevent this from happening. Nevertheless, we evaluate this
scenario further in Section 4.2.3.
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,
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.
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.34 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 mark up
their actual costs. As discussed in Appendix B, we believe that the actual cost difference
could be significantly more than this.
Note that these costs are relative to the manufacturers' 2009 engines which generally
had NOx emissions near 1.2 g/hp-hr; this level 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, along with changes to the loading of the DPF. We believe
the hardware costs of SCR systems could be $4,000 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. As discussed in Appendix B, we believe that much of the additional
hardware cost will be recovered by operators due to reduced fuel consumption for SCR
engines.
51
-------
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 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 significant trend observed is that
the one non-SCR manufacturer has actually lost market share since 2008, even though it
appears to be offering its engines with a lower emissions surcharge. Preliminary data shows
that its market share may be even lower for 2012.
4.2.3 Sensitivity to Operating Costs
More than one-half of our estimated compliance costs for heavy heavy-duty engines
are due to a projected difference in net operating costs between engines at 0.20 g/hp-hr and
engines at 0.50 g/hp-hr. Thus, it is appropriate to evaluate the market impacts of potential
errors in the analysis. In particular, we evaluated three alternative price scenarios. In the
first, we estimate costs in the same way as for our COCgo analysis, except we assume that
annual operating costs are higher than we assumed because DEF costs 60 percent less than
fuel, as recommended by Cummins in its comments on the NPRM. This same scenario could
result from fuel prices being higher than we assumed in our analysis. The second and third
scenarios would be the same as the first, but we would discount future costs by three percent
or zero percent instead of seven percent. We believe these scenarios significantly
overestimate the annual operating costs associated with meeting the 0.20 g/hp-hr standard and
represent worse than worst case scenarios.
Figure 4-2 plots the streams of costs for all scenarios as a function of vehicle age for
the first 10 years of a vehicle's lifetime. This figure shows that even using very conservative
price assumptions, it would take at least four years for an operator to save enough money to
recover the cost of the first year NCP. Since the NCP will increase in each subsequent model
year, recovery times will also increase. Thus, since manufacturers consistently tell us that
they do not voluntarily pursue engines changes with payback periods this long, we can
conclude that the NCPs being established are high enough to preclude any SCR engine
manufacturer from backsliding.
52
-------
NCR Recovery Time Assuming Various Fluid Prices
(Manufacturer Savings plus Cummulative Operating Savings vs Vehicle Age)
$5,000
$4,500
$4,000
$
£ $3,500
Q)
Q.
| $3,000
&
| $2,500
IS
I/)
1 $2,000
$1,500
$1,000
$500
$-
MY 2012 NCR
EPA with 7% discount rate
.. Lower DBF Price with 7%
discount rate
-Lower DBF Price with 3%
discount rate
-Lower DBF Price undiscounted
456
Operating Year
10
Figure 4-2- NCP Recovery Time for Various Fluid Prices.
We also considered a scenario based on late comments from PACCAR. In those
comments, PACCAR claimed that an SCR engine optimized for 0.50 g/hp-hr NOx would
have four percent better fuel consumption than a 0.20 g/hp-hr engine, but would consume two
percent more DEF. It is important to note that this is a much larger impact than was claimed
by any other engine manufacturer in comments on this rule. Nevertheless, while we cannot
verify these claims, we did evaluate a scenario in which an SCR engine would reduce fuel
consumption by four percent but increase DEF consumption by two percent. If one assumes
that this engine would have the same hardware savings as our baseline engine but not incur
significant additional development costs, it would take more than two years for operator
savings to offset the net cost of the first year NCP (the NCP amount minus the hardware
savings). To the extent that a manufacturer incurred additional development costs or was
unable to achieve the same hardware savings, this payback period would be longer. Also, the
annual escalation of the NCP amount would also make the payback period longer for later
model years. We do not believe that this scenario justifies a higher penalty, especially
considering the uncertainty associated with it.
53
-------
Appendix A. Calculations
This appendix provides additional details for the calculations used to estimate the
NCP costs.
1. Calculation of Operating Costs
This section A. 1 includes the values used in the fuel and DEF consumption cost
calculations other than prices. Table A - 1 lists the inputs used for the analysis.35 Table A - 2
shows the fleet average annual vehicle miles travelled 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 A -1: Inputs Used for Operating Cost Analysis
Parameter
Medium HD Vehicle Typical Fuel Economy (mpg)
Heavy HD Vehicle Typical Fuel Economy (mpg)
Discount Rate
Input
9.7
4.9
7.0%
54
-------
Table A - 2: Annual Vehicle Miles Traveled by Calendar Year for Typical 2012 Model Year Vehicles
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
2042
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
1,821
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
5,043
2. Fuel Prices
The diesel fuel prices used in the Final Rule are based on the Annual Energy Outlook
(AEO) 2012 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. The annual Consumer Price Index values used in this analysis are the
following:36
• 2009 = 214.537
• 2010 = 218.056
• 2011=224.939
55
-------
The AEO 2012 fuel price forecasts are provided by EIA in terms of 2010 dollars.
Thus, for this analysis, we adjusted EIA's diesel fuel price projections upward by a factor
equal to 224.9 divided by 218.1 to convert them into 2011 dollars. The diesel fuel prices
used in the analysis are included in Table A - 3 below. These prices represent retail pump
prices including taxes.
Table A - 3: 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
2042
Diesel Fuel Price per Gallon
$ 3.86
$ 3.55
$ 3.77
$ 3.89
$ 3.94
$ 4.00
$ 4.04
$ 4.06
$ 4.10
$ 4.13
$ 4.16
$ 4.20
$ 4.23
$ 4.30
$ 4.33
$ 4.32
$ 4.35
$ 4.39
$ 4.43
$ 4.52
$ 4.60
$ 4.52
$ 4.51
$ 4.58
$ 4.65
$ 4.73
$ 4.80
$ 4.88
$ 4.96
$ 5.03
$ 5.12
56
-------
3. DEF Prices
The DEF prices used in the Final Rule are included below in Table A - 4. The 2012
through 2014 DEF prices are based on Integer Research projections of retail DEF price.
These prices are projected to decline due to economies of scale as DEF usage becomes more
widespread. We are projecting the price of DEF will begin to increase after 2014 as natural
gas prices increase. Thus, the 2015 and beyond DEF prices are based on the AEO 2012
industrial natural gas price trend of 1.3 percent increase per year. For example, the 2015
price is estimated to be equal to 101.3 percent of the 2014 price, and the 2016 price is
estimated to be equal to 101.3 percent of the 2015 price. See Chapter 3 for additional
information about these prices.
Table A - 4: Diesel Exhaust Fluid Price per Gallon (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
2042
Diesel Exhaust Fluid Price per Gallon
$ 2.60
$ 2.55
$ 2.50
$ 2.53
$ 2.57
$ 2.60
$ 2.63
$ 2.67
$ 2.70
$ 2.74
$ 2.77
$ 2.81
$ 2.84
$ 2.88
$ 2.92
$ 2.96
$ 3.00
$ 3.03
$ 3.07
$ 3.11
$ 3.15
$ 3.20
$ 3.24
$ 3.28
$ 3.32
$ 3.36
$ 3.41
$ 3.45
$ 3.50
$ 3.54
$ 3.59
57
-------
4. Fuel and DEF Price Differences between FRM and NPRM
Figure A-l shows the comparison between the fuel and DEF prices used in the FRM
and in the NPRM.
$5.00
$4.50
$4.00
$3.50
$3.00
$2.50
$2.00
$1.50
$1.00
$0.50
$0.00
FRM Fuel Price
NPRM Fuel Price
• FRM DEF Price
NPRM DEF Price
Figure A-l: Fuel and DEF Price Differences between the NPRM and FRM.
58
-------
Appendix B. Alternative Heavy Heavy-Duty Compliance Costs
As noted earlier, the goals of the NCP provisions are to set the penalties at a level that
we reasonably expect to protect the complying manufacturers, but not so high that it
effectively forces any noncomplying manufacturers from the market. To determine how to
best meet these statutory goals, we considered the following methodologies for determining
compliance costs:
1. 1.2 g/hp-hr NOx Baseline Engine - Scaled Cost of SCR Hardware
2. 0.50 g/hp-hr NOx Baseline Engine with EGR
3. 0.50 g/hp-hr Baseline Engine with Optimized SCR+EGR
4. 0.50 g/hp-hr Baseline Engine with Redesigned SCR+EGR
For heavy heavy-duty engines, we are using method #3 - basing our NCPs on costs of
compliance relative to a reoptimized SCR engine. More specifically, we are basing our costs
on an engine that could be produced in model year 2013 by making simple changes to SCR
engines currently in production. As described below, we also considered the three other
approaches. A summary of each approach is found in Section 4 of this Appendix B.
The purpose of analyzing these approaches is to determine if any of them would have
been a more appropriate approach, because it uses a more optimal baseline engine, i.e., that a
manufacturer would choose to build an engine to this design if it were to build an engine
emitting at 0.50 g/hp-hr.
1. 1.2 g/hp-hr NOx Baseline Engine - Scaled Cost of SCR Hardware
Some commenters support basing the NCPs on the full cost of hardware needed to
reduce NOx emissions from 1.2 g/hp-hr (the typical emission level of a 2009 engine) to 0.20
g/hp-hr, rather than comparing a compliant 0.20 g/hp-hr engine to a 0.50 g/hp-hr engine.
However, since the regulations clearly state that compliance costs are to be calculated relative
to the upper limit, this approach could only be used if we set the upper limit at 1.2 g/hp-hr.
As discussed elsewhere, this would be inappropriate because all manufacturers currently
certify engines at no more than 0.50 g/hp-hr. Therefore, while we estimated the COCgo costs
for a 0.20 g/hp-hr engine relative to a 1.2 g/hp-hr engine, we calculated the NCP cost for an
engine with a compliance level at 0.50 g/hp-hr. This was done by scaling the total costs by 30
percent to reflect the smaller NOx emission reduction from the upper limit - a 0.30 g/hp-hr
NOx reduction instead a 1.0 g/hp-hr NOx reduction. Note that while we evaluated this
approach with respect to costs and competitive advantage, we think that it would not be
appropriate to set the upper limit at 1.2 g/hp-hr. In particular, NCPs should not be available
for levels that are higher than the level that EPA determines is practicable, which in this case
would be no higher than 0.50 g/hp-hr.
59
-------
For this scenario, going from the 1.2 g/hp-hr engine to the 0.20 g/hp-hr engine, the
manufacturer would need to add an SCR system (catalyst, DBF tank, brackets, and dosing
unit), an ammonia clean up catalyst, and a NOx sensor. Consistent with the cost methodology
discussed in Chapter 3, the costs were estimated from the direct manufacturing costs of a SCR
system and DOC projected for a light-duty pickup truck in the 2017-2025 Light-Duty
Greenhouse Gas Emissions Notice of Proposed Rulemaking.37 We assumed that the ammonia
clean up catalyst would cost approximately one-fourth of the cost of a DOC due to the
catalyst volume difference between the two. We converted the light-duty costs from 2009
dollars to 2011 dollars and then scaled the direct manufacturing cost of the SCR system and
ammonia clean up catalyst based on the ratio of typical engine displacement in each engine
class, as shown in Table B - 1 below.
Table B -1: Direct Manufacturer Cost (2011$)
Complete SCR System
Ammonia Clean Up Catalyst
Light-Duty (4.0L)
$1,295
$132
HHD (13L)
$4,208
$429
The cost for a NOx sensor was developed by converting a sensor's retail price to a
direct manufacturing cost, just as in Chapter 3. The retail price of the sensor is unchanged
from the proposal. The direct manufacturing costs were calculated based on the Retail Price
Equivalent (RPE). 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 rulemaking.38 The
sensor costs are shown in Table B - 2.
39
Table B - 2: Direct Manufacturer Sensor Cost
Sensor Retail Price
Sensor Direct Manufacturing Cost
HHD
$221
$164
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 a two percent mark
up for research and development and 13 percent mark up for warranty and other costs.40 The
marked up costs are shown below in Table B - 3.
Table B - 3: Total Hardware Cost
Incremental Direct Manufacturing Cost
Research and Development Cost (2%)
Warranty and Other Cost (13%)
Total Incremental Cost
HHD
$4,801
$96
$624
$5,522
We next calculated the costs for post-warranty repair and demurrage using the ratio of
each of these costs to the warranty costs that was established in the 2004 NCP rule, similar to
60
-------
the process used in Section 3.3.3.3 above. The 2004 ratios are listed in Table 15. Table B - 4
below shows the post-warranty repair and demurrage costs based on a warranty cost of $96.
Table B - 4: Post-warranty repair and Demurrage Costs for 2012 MY HHD Engines
Post-warranty repair Costs
Demurrage Costs
HHD
$94
$56
In summary, the total hardware, post-warranty repair, and demurrage costs for a SCR
system to achieve 0.20 g/hp-hr relative to a 1.2 g/hp-hr engine is $5,671.
Next, we estimated the fuel and DEF operating cost differences between an engine
meeting 1.2 g/hp-hr using EGR and a compliant engine (meeting the 0.20 g/hp-hr tailpipe
NOx emissions standard) using SCR. We estimate that the baseline engine would have
engine-out NOx emissions of 1.2 g/hp-hr. We used the same compliant engine that we
defined in the final scenario described in Section 3.3.3 where the engine-out emissions were
derived based on the assumption that this engine's aftertreatment system could achieve 94
percent efficiency (at the end of the useful life) and thus have engine-out NOx emissions of
3.0 g/hp-hr. As described in the Section 3.3.3 above, the compliant engine would require a
2.8 g/hp-hr NOx reduction in the aftertreatment system and therefore aDEF dosing rate of 3.8
percent. We also estimated that the compliant engine would have 2.25 percent better fuel
consumption than the engine emitting at 1.2 g/hp-hr using the data in Figure 3-2 above.
The net present value (assuming a seven percent discount rate) of the fuel savings is
$10,035 and the DEF costs is $11,354. Lastly, the COCgo value was calculated based on the
sum of the hardware costs, DEF costs, and fuel savings scaled to reflect the increment
between a baseline engine of 0.50 g/hp-hr and 0.20 g/hp-hr per the equation below.
Scaling Factor = (0.50 - 0.20 g/hp-hr) + (1.2 - 0.2 g/hp-hr) = 0.30
As shown in Table B - 5 below, the COCgo value using this method would be $2,097,
which is less than the COCgo value calculated using an optimized SCR baseline engine (as
described in Section 3.3.3). Since the COC90 described in Section 3.3.3 reflects the
competitive advantage of an SCR engine optimized for 0.50 g/hp-hr over a compliant engine,
setting the penalty based on this scaled SCR cost approach would not protect the compliant
manufacturers from competitive disadvantage relative to a reoptimized SCR engine.
Table B - 5: Scaled 1.2 g/hp-hr EGR Baseline Engine Costs - Heavy Heavy-Duty Engines
Hardware Costs
DEF Costs
Fuel Savings
1.2 to 0.20 g/hp-hr
$5,671
$11,354
-$10,035
Total
COC90-equivalent
for 0.50 to 0.20 g/hp-hr
$1,701
$3,406
-$3,011
$2,097
61
-------
Based on comments received, we also calculated the NCP value using the surcharges
used by SCR manufacturers in 2010, instead of a bill of materials approach. The emission
surcharges that manufacturers have released publicly are what they determined to be the price
increase necessary to recover costs associated with reducing emissions, including R&D,
tooling, hardware, warranty and other overhead. Since many purchasers negotiate a lower
price, the official surcharge can be assumed to be somewhat higher than the actual cost
increase paid by the customer. The surcharges for SCR equipped heavy heavy-duty engines
ranged from $9,000 to $9,600. To be conservative in this alternate analysis, we used $9,600.
Calculating a COC90 using a hardware cost of the highest emission surcharge ($9,600) would
clearly be a worst case cost of compliance. Applying this value to a linear penalty curve with
an upper limit of 1.2 g/hp-hr would result in the following scaling factor equation:
Scaling Factor = (0.50 - 0.20 g/hp-hr) - (1.2 - 0.2 g/hp-hr) = 0.30
The hardware cost for a 0.50 g/hp-hr engine would be $2,880 based on the scaling
factor. Because surcharges do not cover operating costs, we also need to evaluate the cost for
DEF and the reduced costs for fuel. As shown in Table B - 6, combining the same additional
DEF cost to take and engine from 1.2 to 0.20 g/hp-hr NOx and the same fuel savings to due to
the SCR system would lead to a heavy heavy-duty COC90 value of $3, 276 which is slightly
less than the final NCP COCgo value. This means setting NCPs based on this scenario would
not protect the compliant manufacturers from competitive disadvantage relative to a
reoptimized SCR engine.
Table B - 6: Scaled 1.2 g/hp-hr EGR Baseline Engine Costs Using a SCR Surcharge - Heavy
Heavy-Duty Engines
Hardware Costs
DEF Costs
Fuel Savings
1.2 to 0.20 g/hp-hr
$9,600
$11,354
-$10,035
Total
COC90-equivalent
for 0.50 to 0.20 g/hp-hr
$2,880
$3,406
-$3,011
$3,276
We did not choose the 1.2 g/hp-hr baseline for several reasons. First, as discussed
above, a 1.2 g/hp-hr engine is inappropriate for a baseline engine where the upper limit is 0.50
g/hp-hr. While we have scaled the costs to do this calculation, it is impossible to determine
how such an engine would have actually been changed to emit at 0.50 g/hp-hr.
Further, the calculations indicate that the costs of a hypothetical engine emitting at
0.50 g/hp-hr under this scenario would be greater than the costs of the optimized 0.50 g/hp-hr
engine chosen in the final rule. This means it would be an unlikely choice of a manufacturer.
Put another way, the cost savings of using this approach would be only $2,097 or
$3,276, compared to a compliant engine. A manufacturer currently meeting the 0.20 g/hp-hr
62
-------
standard but contemplating paying NCPs to meet a 0.50 g/hp-hr level would be unlikely to
use this approach, as it does not optimize the cost savings a manufacturer would achieve.
Given that NCPs are intended to protect compliant manufacturers from competitive harm
from other manufacturers paying NCPs, we need to set the NCPs at the level we would expect
a noncompliant manufacturer would save using an optimal cost-saving strategy.
2. 0.50 g/hp-hr Baseline Engine with EGR
We also analyzed a scenario with a baseline engine that achieved 0.50 g/hp-hr NOx
with EGR only. We calculated the net hardware cost of adding SCR, but removing some
hardware that would no longer be required with an SCR equipped engine.
Adding SCR to a 0.50 g/hp-hr engines would affect operating costs in three ways: it
would add a cost for DEF, reduce costs for fuel, and could either increase or decrease the
frequency of repairs.
For this scenario (like the scenario above), we added a SCR system (catalyst and
dosing unit), an ammonia clean up catalyst, and a NOx sensor. The SCR costs were estimated
the same as Scenario 1 above. The total hardware costs for the SCR system are shown in
Table B - 7 below. In summary, the total hardware, post-warranty repair, and demurrage
costs for a SCR system to achieve 0.20 g/hp-hr relative to a 1.2 g/hp-hr engine is $5,671.
Table B - 7: SCR Hardware Cost (2011$)
Incremental Direct Manufacturing Cost
Research and Development Cost (2%)
Warranty and Other Cost (13%)
Post-warranty repair Costs
Demurrage Costs
Total Hardware Cost
HHD
$4,801
$96
$624
$94
$56
$5,671
Unlike Scenario 1 above, we did not scale the SCR costs for this alternative. Instead,
we took the entire cost of the SCR system and subtractedthe costs for the hardware that could
be removed from a 0.50 g/hp-hr NOx EGR only engine. In other words, this would be the net
cost of hardware changes made to the 0.50 g/hp-hr engines. Adding SCR would affect EGR
cooling, diesel parti culate filter regeneration, and turbocharging. We project that one of the
two EGR coolers used on the 0.50 g/hp-hr engine could be removed because of the lower
EGR requirements. In addition, we believe that the diesel paniculate filter precious metal
loading could be reduced by approximately 20 percent because the 0.20 g/hp-hr engine would
have higher engine-out NOx emissions and lower engine-out PM emissions. Lastly, we
project that the twin turbochargers used on a 0.50 g/hp-hr engine could be replaced with a
single variable geometry turbocharger. We did not include any additional warranty savings
beyond those associated with the hardware savings. However, Navistar has publicly noted
that it has had very high emission-related warranty claims for its 2010 engines. To the extent
63
-------
there are additional warranty costs for non-SCR engines, our estimate of SCR compliance
costs relative to a 0.50 g/hp-hr EGR engine would overestimate these costs. Nevertheless,
this would not change our conclusion that a non-SCR engine would not have been an
appropriate baseline engine for our NCP costs.
We estimated the EGR cooler costs based on the average retail price of four
replacement EGR coolers available for 2008-2010 heavy-duty pickup trucks.41 The retail
prices for the HHD engines were scaled relative to the engine displacement. Then the retail
prices were converted to direct manufacturing costs using the heavy-duty engine Retail Price
Equivalent of 1.35 used throughout this analysis. The costs are included in Table B - 8 below.
Table B - 8: EGR Cooler Costs
Retail EGR Cooler Cost
Direct Mfr. EGR Cooler Cost
HD Pickup Truck
(6.4L)
$477
HHD(13L)
$969
$718
We estimated the diesel paniculate filter precious metal loading and washcoat costs
based on the costs derived from the 2017-2025 Light-Duty GHGNPRM. We assumed 20
percent of the loading could be saved based on the higher engine-out NOx emissions and
lower soot emissions of the 0.20 g/hp-hr engine. The direct manufacturing costs were scaled
relative to the engine displacements, as shown in Table B - 9 below.
Table B - 9: Diesel Paniculate Filter Costs
Diesel Paniculate Washcoat and
Precious Metal Loading Direct Mfr.
Cost
20% of Diesel Paniculate Washcoat and
Precious Metal Loading
Light-Duty
Pickup Truck
(4.0L)
$861
$172
HHD (13L)
$560
The retail turbocharger costs were derived from the cost report developed by ICF
International for the Heavy-Duty Greenhouse Gas rule.42 The retail prices were converted to
direct manufacturing costs using the heavy-duty engine Retail Price Equivalent of 1.35 used
throughout this analysis. The costs are included in Table B - 10 below.
Table B -10: Turbocharger Costs
Twin Turbochargers
Variable Geometry Turbocharger
Retail Price
$1,000
$935
Net HHD Turbocharger Cost
Direct Mfr. Cost
$741
$693
$48
64
-------
The sum of the direct manufacturing costs for the components that could be removed
from the 0.50 g/hp-hr EGR engine are included in Table B - 11, while the marked up
hardware costs are included in Table B - 12.
Table B -11: Net EGR Direct Manufacturer Hardware Costs
EGR Cooler
DPF Loading
Net Turbocharger Cost
EGR Direct Mfr. Hardware Cost
HHD
$718
$560
$48
$1,326
Table B -12: Heavy Heavy-Duty Marked Up EGR Hardware Costs
Incremental EGR Direct Manufacturing Cost
Research and Development Cost (2%)
Warranty and Other Cost (13%)
EGR Marked Up Hardware Cost
HHD
$1,326
$27
$172
$1,524
We next calculated the costs for post-warranty repair and demurrage using the ratio of
each of these costs to the warranty costs that was established in the 2004 NCP rule, similar to
the process used in Section 3.3.3.3 above. The 2004 ratios are listed in Table 15. The
resulting values are shown in Table B - 13 below.
Table B -13: Heavy Heavy-Duty EGR Post-warranty repair and Demurrage Costs
EGR Hardware Cost
Post-warranty repair Cost
Demurrage Cost
EGR Incremental Cost
HHD
$1,524
$26
$15
$1,565
The net hardware costs, taking into account the SCR hardware that would be required
to meet the 0.20 g/hp-hr NOx emissions and the components on the 0.50 g/hp-hr engine that
would no longer be required, are $4,105 as shown in Table B - 14.
Table B -14: Heavy Heavy-Duty Engine Net Hardware Costs
SCR Incremental Cost
EGR Incremental Cost
Net Hardware Cost
HHD
$5,671
-$1,565
$4,105
65
-------
Next, we estimated the fuel and DEF operating cost differences between an engine
meeting 0.50 g/hp-hr using EGR and a compliant engine (meeting the 0.20 g/hp-hr tailpipe
NOx emissions standard). We estimate that the baseline engine would have engine-out NOx
emissions of 0.50 g/hp-hr. We used the same compliant engine that we defined in Section
3.3.3 where the engine-out emissions assumes that this engine's aftertreatment system could
achieve 94 percent efficiency (at the end of the useful life) and thus have engine-out NOx
emissions of 3.0 g/hp-hr. As described in the final scenario above, the compliant engine
would require a 2.8 g/hp-hr NOx reduction in the aftertreatment system and therefore a DEF
dosing rate of 3.8 percent. We also estimated that the compliant engine with 3.0 g/hp-hr NOx
engine-out emissions would have 3.25 percent better fuel consumption than the baseline
engine with engine-out emissions of 0.50 g/hp-hr NOx using the data in Figure 3-2 above.
The net present value of the fuel savings are $14,355 and the DEF costs are $11,244,
using a seven percent discount rate. The COCgo value was calculated based on the sum of the
hardware costs, DEF costs, and fuel savings. As shown in Table B - 15, the COC90 value
using this method would be $994, which is substantially less than the COCgo value calculated
using a SCR baseline engine, and therefore would not protect the compliant manufacturers
relative to reoptimized SCR engines.
Table B -15: 0.50 g/hp-hr EGR Baseline Engine COC90 - Heavy Heavy-Duty Engines
Hardware Costs
DEF Costs
Fuel Savings
Total
COC90 for 0.50 toO
20 g/hp-hr
$4,105
$11,244
-$14,355
$994
As with the 1.2 g/hp-hr baseline engine discussed above, the calculations indicate that
the costs associated with a non-SCR engine emitting at 0.50 g/hp-hr under this scenario would
be greater than the costs of the optimized 0.50 g/hp-hr SCR engine chosen in the final rule,
and the cost savings of using this approach, would be less than the savings from the optimized
0.50 g/hp-hr engine. In fact, even if the substantial savings in operating costs is completely
ignored (which would not be appropriate), this scenario would not lead to a competitive
advantage that is significantly higher than the NCPs being finalized.
66
-------
3. 0.50 g/hp-hr Baseline Engine with Completely Redesigned SCR+EGR
Some commenters supported (in CBI comments) basing the penalty on an SCR engine
that was fundamentally redesigned to have NOx emissions at 0.50 g/hp-hr (rather than
reoptimizing an existing design). For example, some manufacturers have suggested that it
would be possible to redesign engines to meet 0.50 g/hp-hr without cooled EGR. This could
result in significant saving for hardware and warranty costs.
We consider such redesigns to be speculative. Thus, we cannot accurately estimate
costs for any of these options. Nevertheless, we have concluded that such redesigns are
highly unlikely. While it may well be technologically possible to redesign current SCR
engines to meet 0.50 g/hp-hr NOx with significantly lower hardware costs, we do not believe
that there is a feasible business model in which such savings would justify paying an NCP.
Fundamentally redesigning an engine would take a minimum of two years. So a
manufacturer that began redesigning its engines today could not expect to have the new
engine ready for production before model year 2015. At that point, the annual adjustments to
the NCPs would have increased the penalty to $5,000 or more. Moreover, if the manufacturer
elected to certify and produce such an engine, two things would happen. First, using NCPs in
model year 2015 would result in a rapidly increasing penalty due to the annual adjustment
factors, perhaps up to $8,000 by 2017. Second, if we determined that a manufacturer that was
capable of complying was choosing to pay NCPs instead, we would revise the regulations to
substantially increase the penalties to remove any cost advantage for such engines. Thus, a
manufacturer would need to recover all of its investments within one or two model years.
67
-------
4. Summary of Heavy Heavy-Duty Alternatives
We selected the cost methodology described in Chapter 3 because it best conforms to
the statutory requirements to allow noncomplying manufacturers to continue selling engines
without any competitive advantage. We considered two other options that would have been
less protective for complying manufacturers and another option that we found to be
unrealistic. These alternatives are summarized in the Table B - 16.
Table B -16: Summary of the Alternatives Considered
Description of
Alternative
First- Year Penalty
at 0.50 g/hp-hr
Comparison to
Primary
Methodology
Reoptimized SCR
Baseline 0.50 g/hp-
hr Engine
Base NCPs on a
baseline engine that
achieves 0.50 g/hp-
hr NOx using SCR
that is reoptimized
for fuel and DBF
consumption.
$3,775
Primary
methodology
1.2g/hp-hr SCR
Baseline Engine
with Scaled Costs
Base NCPs on the
full cost of
hardware needed to
reduce NOx
emissions from 1.2
g/hp-hr (the typical
emission level of a
2009 engine) to
0.20 g/hp-hr scaled
to represent the
costs for an engine
with a compliance
level at 0.50 g/hp-
hr.
$2,097-$3,276
Less protective to
complying
manufacturers
0.50 g/hp-hr EGR
Baseline Engine
Base NCPs on a
baseline engine that
achieves 0.50 g/hp-
hr NOx without
SCR.
$994
Less protective to
complying
manufacturers
0.50 g/hp-hr
Fundamentally
Redesigned SCR
Baseline Engine
Base NCPs on a
baseline engine that
achieves 0.50 g/hp-
hr NOx using SCR
that is
fundamentally
redesigned (such as
removing cooled
EGR or removing
the DPF).
Not determined
Unrealistic business
model
68
-------
Appendix C. Medium Heavy-Duty (MHD) Compliance Costs
The purpose of adopting NCPs is to allow a noncompliant manufacturer to continue
selling its engines. However, the Clean Air Act directs EPA to set the NCPs at a level that
will "remove any competitive disadvantage" to complying manufacturers. Thus, the statute
effectively requires us to set the penalties at a level that we reasonably expect to protect the
complying manufacturers, but not so high that it effectively forces any noncomplying
manufacturers from the market.
To determine how to best meet these statutory goals, we considered the following
methodologies for determining compliance costs:
1. 1.2 g/hp-hr NOx Baseline Engine with EGR - Scaled Cost of SCR Hardware
2. 0.50 g/hp-hr NOx Baseline Engine with EGR
3. 0.50 g/hp-hr Baseline Engine with Optimized SCR+EGR
1. 1.2 g/hp-hr NOx Baseline Engine - Scaled Cost of SCR Hardware
Some commenters support basing the NCPs on the full cost of hardware needed to
reduce NOx emissions from 1.2 g/hp-hr (the typical emission level of a 2009 engine) to 0.20
g/hp-hr, rather than comparing a compliant 0.20 g/hp-hr engine to a 0.50 g/hp-hr engine.
However, since the regulations clearly state that compliance costs are to be calculated relative
to the upper limit, this approach could only be used if we set the upper limit at 1.2 g/hp-hr.
Therefore, we estimated the COC90 costs for a 0.20 g/hp-hr engine relative to a 1.2 g/hp-hr
engine, but calculated the NCP cost for an engine with a compliance level at 0.50 g/hp-hr.
This was done by scaling the total costs by 30 percent to reflect the smaller NOx emission
reduction from the upper limit - a 0.20 g/hp-hr NOx reduction instead a 1.0 g/hp-hr NOx
reduction. Note that while we evaluated this approach with respect to costs and competitive
advantage, we think that it would not be appropriate to set the upper limit at 1.2 g/hp-hr. In
particular, NCPs should not be available for levels that are higher than the level that EPA
determines is practicable, which in this case would be no higher than 0.50 g/hp-hr.
For this scenario, a manufacturer would need to add an SCR system (catalyst, DEF
tank, and dosing unit), an ammonia clean up catalyst, and a NOx sensor. Consistent with the
cost methodology discussed in Chapter 3, the costs were estimated from the direct
manufacturing costs of a SCR system and DOC projected for a light-duty pickup truck in the
2017-2025 Light-Duty Greenhouse Gas Emissions Notice of Proposed Rulemaking.43 We
assumed that the ammonia clean up catalyst would cost approximately one-fourth of the cost
of a DOC due to the catalyst volume difference between the two. We converted the light-duty
costs from 2009 dollars to 2011 dollars and then scaled the direct manufacturing cost of the
SCR system and ammonia clean up catalyst based on the ratio of typical engine displacement
in each engine class, as shown in Table C - 1 below.
69
-------
Table C -1: Direct Manufacturer Cost (2011$)
Complete SCR System
Ammonia Clean Up Catalyst
Light-Duty Pickup
Truck (4.0L)
$1,295
$132
MHD (8L)
$2,590
$264
The cost for a NOx sensor was developed by converting a sensor's retail price to a
direct manufacturing cost, just as in Chapter 3. The retail price of the sensor is unchanged
from the proposal. The direct manufacturing costs were calculated based on the Retail Price
Equivalent (RPE). 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 rulemaking.44 The
sensor costs are shown in Table C - 2.45
Table C - 2: Direct Manufacturer Sensor Cost
Sensor Retail Price
Sensor Direct Manufacturing Cost
MHD
$221
$164
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 mark up
46
for research and development and 13 percent mark up for warranty and other costs. The
marked up costs are shown below in Table C - 3.
Table C - 3: Total Hardware Cost
Incremental Direct Manufacturing Cost
Research and Development Cost (2%)
Warranty and Other Cost (13%)
Total Incremental Hardware Cost
MHD
$3,018
$60
$392
$3,470
We next calculated the costs for post-warranty repair and demurrage using the ratio of
each of these costs to the warranty costs that was established in the 2004 NCP rule. The 2004
NCP ratios are listed below in Table C - 4.
Table C - 4: 2004 Medium Heavy-Duty Engine NCP Warranty, Post-warranty repair, and
Demurrage Costs
Warranty Costs
Post-warranty repair
Costs
Demurrage Costs
2004 MHD Costs
$90
$170
$100
Ratio to Warranty
Cost
53%
111%
70
-------
We utilized the ratios of the post-warranty repair and demurrage costs relative to the
warranty costs from 2004 to calculate the 2012 post-warranty repair and demurrage costs
relative to a warranty cost of $60, as shown in Table C - 5 below.
Table C - 5: Post-warranty repair, and Demurrage Costs for 2012 MY HHD Engines
Post-warranty Repair Costs
Demurrage Costs
MHD
$114
$67
In summary, the total hardware, post-warranty repair, and demurrage costs for a SCR
system to achieve 0.20 g/hp-hr relative to a 1.2 g/hp-hr medium heavy-duty engine is $3,651.
Next, we estimated the fuel and DEF operating cost differences between an engine
meeting 1.2 g/hp-hr using EGR and a compliant engine (meeting the 0.20 g/hp-hr tailpipe
NOx emissions standard) using SCR. We estimate that the baseline engine would have
engine-out NOx emissions of 1.2 g/hp-hr. We used the same compliant engine that we
described in Section 3.3.3 where the engine-out emissions were derived based on the
assumption that this engine's aftertreatment system could achieve 94 percent efficiency (at the
end of the useful life) and thus have engine-out NOx emissions of 3.0 g/hp-hr. As described
in the Section 3.3.3 above, the compliant engine would require a 2.8 g/hp-hr NOx reduction in
the aftertreatment system and therefore a DEF dosing rate of 3.8 percent. We also estimated
that the compliant engine would have 2.25 percent better fuel consumption than the engine
emitting at 1.2 g/hp-hr using the data in Figure 3-2 above.
The net present value of the 2.25 percent fuel savings is $2,002 and the DEF costs of a
3.8 percent dosing rate is $2,266, using a seven percent discount rate. Lastly, the COCgo
value was calculated based on the sum of the hardware costs, DEF costs, and fuel savings
scaled to reflect the increment between our baseline engine of 0.50 g/hp-hr and 0.20 g/hp-hr
per the equation below.
Scaling Factor = (0.50 - 0.20 g/hp-hr) - (1.2 - 0.2 g/hp-hr) = 0.30
The resulting COC90 value using this method would be $1,174, as shown in Table C -
6.
Table C - 6: Scaled EGR Baseline Engine COC90 - Medium Heavy-Duty Engines
Hardware Costs
DEF Costs
Fuel Savings
1.2 to 0.20 g/hp-hr
$3,651
$2,266
-$2,002
Total
COC90 for 0.50 to 0.20 g/hp-hr
$1,095
$680
-$601
$1,174
Based on comments received, we also calculated the NCP value using the surcharges
used by SCR manufacturers in 2010, instead of a bill of materials approach. The emission
71
-------
surcharges that manufacturers have released publicly are what they determined to be the price
increase necessary to recover costs associated with reducing emissions, including R&D,
tooling, hardware, warranty and other overhead. Since many purchasers negotiate a lower
price, the official surcharge can be assumed to be somewhat higher than the actual cost
increase. The surcharges for SCR equipped medium heavy-duty engines ranged from $6,000
to $7,300. To be conservative, we used $7,300. Calculating COC90 using a hardware cost of
the highest emission surcharge ($7,300) would clearly be a worst case cost of compliance.
Applying this value to a linear penalty curve with an upper limit of 1.2 g/hp-hr would result in
the following scaling factor equation:
Scaling Factor = (0.50 - 0.20 g/hp-hr) + (1.2 - 0.2 g/hp-hr) = 0.30
The hardware cost for a 0.50 g/hp-hr engine would therefore be $2,190 based on the
scaling factor. However, surcharges do not cover operating costs; therefore, the NCP value
should also include operating costs related to DEF and fuel.
Assuming the same operating conditions as the previous scenario, the additional DEF
cost to take and engine from 1.2 to 0.20 g/hp-hr NOx would be $2,266 based on 3.8 percent
DEF dosing and the fuel savings to due to the SCR would be $2,002. Again, these values
would be scaled to represent only the difference between 0.50 and 0.20 g/hp-hr NOx. The
sum of the hardware and operating costs would lead to a medium heavy-duty NCP value of
$2,269, as shown in Table C - 7.
Table C - 7: MHD Costs
Hardware Costs
DEF Costs
Fuel Savings
1.2 to 0.20 g/hp-hr
$7,300
$2,266
-$2,002
Total
MHD for 0.50 to 0.20 g/hp-hr
$2,190
$680
-$601
$2,269
2. 0.50 g/hp-hr NOx Baseline Engine with EGR
We also analyzed a scenario with a baseline engine that achieved 0.50 g/hp-hr NOx
with EGR only. We calculated the net hardware cost of adding SCR, but removing some
hardware that would no longer be required with SCR to the engine.
Adding SCR to a 0.50 g/hp-hr EGR engine would affect operating costs in three ways:
it would add a cost for DEF, reduce costs for fuel, and could either increase or decrease the
frequency of repairs.
For this scenario (like the scenario above), we added a SCR system (catalyst and
dosing unit), an ammonia clean up catalyst, and a NOx sensor. The SCR costs were estimated
using the same calculations as the previous scenario. In summary, the total hardware, post-
72
-------
warranty repair, and demurrage costs for a medium heavy-duty SCR system to achieve 0.20
g/hp-hr relative to a 1.2 g/hp-hr engine is $3,651,as shown in Table C - 8 below.
Table C - 8: Direct Manufacturer Cost (2011$)
Incremental Direct Manufacturing Cost
Research and Development Cost (2%)
Warranty and Other Cost (13%)
Post-warranty Repair Costs
Demurrage Costs
Total Hardware Cost
MHD
$3,018
$60
$392
$114
$67
$3,651
Unlike Scenario #1 above, we did not scale the SCR costs for this alternative. Instead,
we took the entire cost of the SCR system and subtractedthe costs for the hardware that could
be removed from a 0.50 g/hp-hr NOx EGR only engine. In other words, this would be the net
cost of hardware changes made to the 0.50 g/hp-hr engines. Adding SCR would affect EGR
cooling, diesel parti culate filter regeneration, and turbocharging. We project that one of the
two EGR coolers used on the 0.50 g/hp-hr engine could be removed because of the lower
EGR requirements. In addition, we believe that the diesel paniculate filter precious metal
loading could be reduced by approximately 20 percent because the 0.20 g/hp-hr engine would
have higher engine-out NOx emissions and lower engine-out PM emissions. Lastly, we
project that the twin turbochargers used on a 0.50 g/hp-hr engine could be replaced with a
single variable geometry turbocharger.
We estimated the EGR cooler costs based on the average retail price of four
replacement EGR coolers available for 2008-2010 heavy-duty pickup trucks.47 The retail
price for the MHD engines was scaled relative to the engine displacement. Then the retail
prices were converted to direct manufacturing costs using the heavy-duty engine Retail Price
Equivalent of 1.35 used throughout this analysis. The costs are included in Table C - 9 below.
Table C - 9: MHD EGR Cooler Costs
Retail EGR Cooler Cost
Direct Mfr. EGR Cooler Cost
HD Pickup Truck
(6.4L)
$477
MHD (8L)
$596
$442
We estimated the diesel particulate filter precious metal loading and washcoat costs
based on the costs derived from the 2017-2025 Light-Duty GHGNPRM. We assumed 20
percent of the loading could be saved based on the higher engine-out NOx emissions and
lower soot emissions of the 0.20 g/hp-hr engine. The direct manufacturing costs were scaled
relative to the engine displacements, as shown in Table C - 10 below.
73
-------
Table C -10: Diesel Participate Filter Costs
Diesel Particulate Washcoat and Precious
Metal Loading Direct Mfr. Cost
20% of Diesel Particulate Washcoat and
Precious Metal Loading
Light-Duty (4.0L)
$861
$172
MHD (8L)
$344
The retail turbocharger costs were derived from the cost report developed by ICF
International for the Heavy-Duty Greenhouse Gas rule.48 The retail prices were converted to
direct manufacturing costs using the heavy-duty engine Retail Price Equivalent of 1.35 used
throughout this analysis. The costs are included in Table C - 11 below.
Table C -11: Turbocharger Costs
Twin Turbochargers
Variable Geometry Turbocharger
Retail Price
$1,000
$935
Net MHD Turbocharger Cost
Direct Mfr. Cost
$741
$693
$48
The sum of the direct manufacturing costs for the components that could be removed
from the 0.50 g/hp-hr EGR engine are included in Table C - 12, while the marked up
hardware costs are included in Table C - 13.
Table C -12: Net EGR Direct Manufacturer Hardware Costs
EGR Cooler
DPF Loading
Net Turbocharger Cost
EGR Direct Mfr. Hardware Cost
MHD
$442
$344
$48
$834
Table C -13: Medium Heavy-Duty Marked Up EGR Hardware Costs
Incremental EGR Direct Manufacturing Cost
Research and Development Cost (2%)
Warranty and Other Cost (13%)
EGR Marked Up Hardware Cost
HHD
$834
$17
$108
$959
We next calculated the costs for post-warranty repair and demurrage using the ratio of
each of these costs to the warranty costs that was established in the 2004 NCP rule, similar to
the process used in Section 3.3.3.3 above. The 2004 ratios are listed in Table C - 4 above.
The resulting values are shown in Table C - 14 below.
74
-------
Table C -14: Medium Heavy-Duty EGR Post-warranty repair and Demurrage Costs
Total EGR Hardware Cost
Post-warranty Repair Cost
Demurrage Cost
EGR Incremental Cost
MHD
$959
$32
$19
$1,009
The net hardware costs, taking into account the SCR hardware that would be required
to meet the 0.20 g/hp-hr NOx emissions and the components on the 0.50 g/hp-hr engine that
would no longer be required, are $2,642 as shown in Table C - 15.
Table C -15: Medium Heavy-Duty Engine Net Hardware Costs
SCR Incremental Cost
EGR Incremental Cost
Net Hardware Cost
HHD
$3,651
-$1,009
$2,642
Next, we estimated the fuel and DEF operating cost differences between an engine
meeting 0.50 g/hp-hr using EGR and a compliant engine (meeting the 0.20 g/hp-hr tailpipe
NOx emissions standard). We estimate that the EGR baseline engine would have engine-out
NOx emissions of 0.50 g/hp-hr. We used the same compliant engine that we defined in the
previous scenario where the engine-out emissions assumes that this engine's aftertreatment
system could achieve 94 percent efficiency (at the end of the useful life) and thus have
engine-out NOx emissions of 3.0 g/hp-hr. As described in the final scenario above, the
compliant engine would require a 2.8 g/hp-hr NOx reduction in the aftertreatment system and
therefore a DEF dosing rate of 3.8 percent. We also estimated that the compliant engine with
3.0 g/hp-hr NOx engine-out emissions would have 3.25 percent better fuel consumption than
the baseline engine with engine-out emissions of 0.50 g/hp-hr NOx using the data in Figure
3-2 above in Chapter 3.
The net present value of the fuel savings are $2,864 and the DEF costs are $2,244,
using a seven percent discount rate. The COCgo value was calculated based on the sum of the
hardware costs, DEF costs, and fuel savings, as shown in Table C - 16. The COC90 value
using this method would be $2,022.
Table C -16: 0.50 g/hp-hr EGR Baseline Engine COC90 - Medium Heavy-Duty Engines
Hardware Costs
DEF Costs
Fuel Savings
Total
COC90for0.50toO
20 g/hp-hr
$2,642
$2,244
-$2,864
$2,022
75
-------
3. 0.50 g/hp-hr Baseline Engine with Optimized SCR+EGR
For the proposal, we estimated that reducing NOx emission from 0.50 g/hp-hr to 0.20
g/hp-hr would require an increase in DEF consumption of 0.40 gallons for every 100 gallons
of fuel consumed, but would not change fuel consumption. This was consistent with our
projection that there would be little price difference between DEF and fuel. However, we
now have new information indicating that fuel prices will likely be significantly higher than
DEF prices for the foreseeable future. We agree with commenters that engines manufacturers
designing engines for 0.50 g/hp-hr NOx would have responded to this price difference by
optimizing the engines to have slightly higher engine-out NOx to improve fuel consumption
and reduce the excess NOx by increasing DEF consumption.
For this Final Rule, we first defined a baseline and a compliant engine (meeting the
0.20 g/hp-hr tailpipe NOx emissions standard), both equipped with SCR. We estimate that
the baseline engine would have engine-out NOx emissions of approximately 4.8 g/hp-hr. This
value was derived from the assumption that the engine would have 0.5 g/hp-hr tailpipe NOx
emissions and that the aftertreatment system is 90 percent efficient at reducing NOx.
Similarly, we derived the engine-out emissions of the compliant engine emitting 0.20 g/hp-hr
at the tailpipe assuming that this engine's aftertreatment system could achieve 94 percent
efficiency due to the additional hardware we discuss below. We estimate that the complying
engine would have engine-out NOx emissions of 3.0 g/hp-hr.
To determine the DEF consumption for each engine, we considered test data showing
how NOx emissions and DEF consumption were related for a SCR engine. We obtained test
data from a heavy-duty engine equipped with SCR tested at the National Vehicle and Fuel
Emissions Laboratory. Figure 3-1 above in Chapter 3 shows the impact of DEF dosing rate
on NOx emission reduction achieved in the SCR system follows a linear trend. We used the
linear trend equation for each scenario to determine the DEF dosing rate based on the NOx
emissions reduction required of the aftertreatment system. The baseline engine, which
requires a 4.3 g/hp-hr NOx reduction would require a DEF dosing rate of 5.9 percent.
Similarly, the compliant engine would require a 2.8 g/hp-hr NOx reduction in the
aftertreatment system and therefore a DEF dosing rate of 3.8 percent.
We estimated the fuel consumption impact due to engine calibration changes, such as
changes to injection timing and EGR rates, to achieve various engine-out NOx emissions.
Figure 3-2 above in Chapter 3 shows our estimate of the impact, based partially on
confidential business information provided by engine manufacturers. We project that the fuel
consumption of the compliant engine with engine-out emissions of 3.0 g/hp-hr would be
approximately 1.9 percent worse than the baseline engine with engine-out emissions of 4.8
g/hp-hr.
Next we calculated the NPV of the DEF and fuel consumption changes. We estimated
the NPV of the DEF impact using a DEF prices discussed above in Section 3.1.3 and included
in Appendix A. We estimated the NPV of the fuel impact using projected fuel prices from the
Annual Energy Outlook 2012. The baseline fuel economy of a typical medium heavy-duty
76
-------
vehicle was assumed to be 9.71 mpg based on the baseline fuel consumption rates generated
for the Heavy-Duty GHG rule.49 The NPV of the lifetime costs of the incremental decrease in
DEF consumption is $1,235 and increase in fuel consumption of $1,762, using a seven
percent discount rate and 2011 dollars.
An SCR aftertreatment system may require hardware modifications to achieve tailpipe
emissions levels of 0.20 g/hp-hr. Based on conversations with manufacturers, we believe that
the lower NOx emissions levels would require the addition of SCR catalyst volume to gain
NOx efficiency, improvements to the diesel oxidation catalyst (DOC) due to the lower
engine-out NOx emissions and higher soot conditions, an optimized turbocharger to cover a
broader range of EGR flow, a sensor for better control over the urea injection. All of these
costs would apply for both the typical and worst case engines, except for the turbocharger
enhancements, which would only apply to the worst case engine.
The incremental SCR catalyst costs were estimated from the direct manufacturing
costs of a SCR system projected for a light-duty pickup truck in the 2017-2025 Light-Duty
Greenhouse Gas Emissions Notice of Proposed Rulemaking.50 We first converted the costs
from 2009 dollars to 2011 dollars and then scaled the direct manufacturing cost of the SCR
catalyst based on the ratio of typical engine displacement in each engine class, as shown in
Table C-17 below.
Table C -17: SCR Direct Manufacturer Cost (2011$)
Complete SCR Catalyst
20% SCR Catalyst Cost
Light-Duty Pickup
Truck (4.0L)
$427
MHD (8L)
$853
$171
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.51 The marked up costs are shown below in Table C - 18.
Table C -18: SCR Catalyst Incremental Cost
Incremental Direct Manufacturing Cost
Research and Development Cost (2%)
Warranty and Other Cost (13%)
Total Incremental SCR Catalyst Cost
MHD
$171
$3
$22
$196
77
-------
The incremental DOC costs were estimated using the same cost process used for the
SCR catalyst. The direct manufacturing costs of the DOC are estimated from a light-duty
pickup truck DOC cost in the 2017-2025 Light-Duty Greenhouse Gas Emissions Notice of
Proposed Rulemaking.52 We first converted the DOC costs from 2009 dollars to 2011 dollars
and then scaled the direct manufacturing cost of the DOC based on the ratio of typical engine
displacement in each engine class, as shown in Table C - 19 below.
Table C -19: DOC Direct Manufacturer Cost (2011$)
DOC
Light-Duty (4.0L)
$528
MHD (8L)
$1,057
We agree with commenters which stated that the DOC would require additional
precious metals in the compliant engine because the lower engine out NOx emissions would
require additional nitrogen dioxide production from the DOC. Our estimate is that the
improved loading would cost approximately 20 percent of the total DOC cost, as shown
below in Table C - 20. Also shown in the table below, we then applied a two percent mark up
for research and development and 13 percent for warranty and other costs.53
Table C - 20: DOC Incremental Cost
Incremental Direct Manufacturing Cost
Research and Development Cost (2%)
Warranty and Other Cost (13%)
Total Incremental DOC Cost
MHD
$211
$4
$27
$243
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
for the SCR catalyst cost. The direct manufacturing costs were calculated based on the Retail
Price Equivalent (RPE). 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 rulemaking.54
The sensor costs are shown in Table C - 21.
Table C - 21: Incremental Sensor Cost
55
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
$164
$3
$21
$189
78
-------
Finally, we calculated the costs of modifications required for the variable geometry
turbocharger. Based on the Light-Duty GHG cost estimates, we estimated that the VGT
would have a direct manufacturing cost of $218 (2011$) for a large pick-up. Using cylinder
displacement volume to ratio the costs into the medium and heavy heavy-duty classes, we
derived the VGT costs included in Table C - 22.
Table C - 22: VGT Direct Manufacturer Cost (2011$)
VGT
Light-Duty Pickup
Truck (4.0L)
$218
MHD (8L)
$436
We agree with commenters who stated that the turbomachinery may require additional
costs in the compliant engine because of the higher EGR rates required to achieve the lower
engine-out NOx emissions would require additional thermal management and performance
balancing. Our estimate is that the improved VGT would cost approximately 20 percent of
the total VGT cost, as shown below in Table C - 23.
Table C - 23: VGT Incremental Cost for COC90
Incremental Direct Manufacturing Cost
Research and Development Cost (2%)
Warranty and Other Cost (13%)
Total Incremental VGT Cost
MHD
$87
$2
$11
$100
Manufacturers would generally be expected to incur additional warranty costs due to
the addition of new components, as noted above in the hardware costs. Typically, this would
cover the costs of repairs that are needed during the warranty period. There can also be
additional unscheduled repairs to the new hardware. In addition, for both warranty repairs
and post-warranty repairs, there are also real costs incurred by the vehicle owners for
demurrage (i.e., the time during which the vehicle is out of service).
79
-------
Some manufacturers provided us with estimates with post-warranty repair costs with
demurrage, while others did not. After reviewing these different estimates, it became clear
that they were not consistent, and that we needed to estimate post-warranty repair and
demurrage costs separately.
For the Final Rule, we calculated the post-warranty repair and demurrage costs
relative to the incremental warranty costs we calculated above. We utilized the ratio of the
post-warranty repair and demurrage costs relative to the warranty costs from 2004 to calculate
the 2012 post-warranty repair and demurrage costs, as shown in Table C - 24 below.
Table C - 24: Final Rule Warranty, Post-warranty repair, and Demurrage Costs for 2012 MY
MHD Engines
Warranty Costs
Post-Warranty Repair Costs
Demurrage Costs
MHD
$13
$13
$8
We estimate that the warranty and post warranty costs of the OBD-related issues are
$27 based on the assumption that a MHD engine costs approximately $20,000 and that all
warranty costs are two percent of the direct manufacturing cost, per our Indirect Cost
Multiplier approach that is being used throughout this analysis. We assumed that 50 percent
of the warranty costs are emission-related, and of those, only five percent are related to OBD
threshold levels. This leads to an OBD-caused warranty level of $10 and using the ratios in
Table C-4, the post warranty OBD costs would be $17. The OBD-related repair costs for
MHD engines are included below in Table C - 25. It is important to emphasize that such costs
are appropriate for NCP rulemakings that address competitive effects, however, such costs
were not included in our OBD rule because the OBD system is only catching failure modes
for which manufacturers were already responsible.
Table C - 25: OBD Warranty and Post-Warranty Repair Costs for 2012 MY MHD Engines
OBD Threshold Related Costs
OBD Related
Warranty
$10
OBD Related
Post-warranty
Repair
$17
80
-------
The total estimated costs for COCgo for MHD engines are included below in Table C -
26.
Table C - 26: MHD COCgn Costs
Fuel Operating Costs
DBF Operating Savings
Hardware Costs
Research and Development Cost
Warranty and Other Manufacturer Costs
Post-warranty Repair Costs
Demurrage Costs
Total Cost
MHD
COC90
$1,762
-$1,235
$633
$13
$92
$30
$8
$1,303
4. Summary of the MHD NCP Analysis
As noted earlier, a complying manufacturer could be competing against not only EGR-
equipped engines, but also against SCR-equipped engines that could be reoptimized to emit at
0.50 g/hr-hr. Thus, in selecting our cost methodology we must consider both types of
engines. For medium heavy-duty, we currently believe that the methodology based on a 0.50
g/hp-hr EGR engine would best conform to the statutory requirements to allow noncomplying
manufacturers to continue selling engines without any competitive advantage. We are also
considering the methodology based on a reoptimized 0.50 g/hp-hr SCR engine. However, we
believe that the EGR baseline engine would have a larger competitive advantage over
compliant medium heavy-duty engines, so that basing the penalties on the reoptimized SCR
engine would be less protective for complying manufacturers. This is reflected in the fact that
our estimate of the costs associated with bringing an optimized 0.50 g/hp-hr SCR into
compliance is less than our estimate of the costs associated with bringing a 0.50 g/hp-hr EGR
into compliance.
The reason the why the appropriate baseline engine for medium heavy-duty (an EGR
engine) is different than the appropriate baseline engine for heavy heavy-duty (an SCR
engine) is that medium heavy-duty vehicles do not normally accrue as many miles during
their lifetimes as heavy heavy-duty vehicles, which reduces the lifetime operating costs.
Purchasers of medium heavy-duty engines tend to more concerned about hardware costs (and
less about operating costs) than purchasers of heavy heavy-duty engines.
81
-------
Note that while we evaluated approach involving a higher upper limit, we think that it
would not be appropriate to set the upper limit at 1.2 g/hp-hr. In particular, NCPs should not
be available for levels that are higher than the level that EPA determines is practicable, which
in this case would be no higher than 0.50 g/hp-hr.
Table C-27. Summary of the MHD NCP Analysis
Description of
Alternative
First- Year Penalty
at 0.50 g/hp-hr
Reoptimized SCR
Baseline 0.50 g/hp-
hr Engine
Base NCPs on a
baseline engine that
achieves 0.50 g/hp-
hr NOx using SCR
that is reoptimized
for fuel and DBF
consumption.
$1,303
1.2 g/hp-hr SCR
Baseline Engine
with Scaled Costs
Base NCPs on the
full cost of
hardware needed to
reduce NOx
emissions from 1.2
g/hp-hr (the typical
emission level of a
2009 engine) to
0.20 g/hp-hr scaled
to represent the
costs for an engine
with a compliance
level at 0.50 g/hp-
hr.
$1,174-2,269
0.50 g/hp-hr EGR
Baseline Engine
Base NCPs on a
baseline engine that
achieves 0.50 g/hp-
hr NOx without
SCR.
$2,022
82
-------
References
1 "Interim and Proposed Technical Support Document: Nonconformance Penalties for On-highway Heavy-Duty
Diesel Engines," EPA-420-R-12-004, January 2012.
2 Federal Register. Volume 76, September 15, 2011. Page 57106.
3 76 FR 57316, September 15, 2011.
4 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
5 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).
6 Cavataio, G., etal. Performance Characterization of Cu/Zeolite and Fe/Zeolite Catalysts for the Selective
Catalytic Reduction of NOx.
7 Cavataio, G., etal. SAE 2008-01-1025. Enhanced Durability of Cu/Zeolite Based SCR Catalyst. 2008.
8 W. Tang, et al., BASF. DOE DEER Conference, October 4, 2011. Page 3.
9R. Aneja, K, Yury, and D. Kayes, DEER Conference, Aug 3 -6, 2009, Page 14.
10 Cummins. "Meeting 2010 Emissions - The Cummins Solution" Last viewed on November 25, 2011 at
http://cumminsengines.co m/every/misc/Technology/Aftertreatment_System.page
11 T. Johnson, Corning; DOE DEER Conference, October 4, 2011; Page 20.
12 D. Stanton, DEER Conference, August 3 -6, 2009, page 4.
13 "Navistar Announces Advanced Clean Engine Technology To Meet Emissions Regulations", Navistar Press
Release, July 6, 2012.
14 "Frequently Asked Questions: Cummins EPA 2010 Heavy-Duty and MidRange Engines and Products,"
Cummins Inc., September 12, 2011.
15 "Detroit Diesel's New Fuel Efficient BlueTec Technology Masters Final Season of Winter Conditions Before
Start of Production," Press Release: Freightliner Trucks, February 9, 2009.
16 "SCR: Preferred Technology for EPA 2010 Engines," and "SCR & Fuel Efficiency," Volvo Trucks, 2009.
17 "MAXXFORCE ADVANCED EGR. THE SIMPLE ANSWERS," Frequently Asked Questions," Navistar,
Inc., 2012.
83
-------
18 http://www.paccarengines.com/en-us/TechEmissions.aspx#scr. Last Accessed July 25, 2012.
19 76 FR at 57200 (September 15, 2011)
20 RTI International. Heavy-duty Truck Retail Price Equivalent and Indirect Cost Multipliers. July 2010.
21 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.
22 RTI International. Heavy-duty Truck Retail Price Equivalent and Indirect Cost Multipliers. Table 4-8. July
2010.
23 Information regarding the MOVES model can be found at http://www.epa.gov/otaq/models/moves/index.htm
24 U.S. Energy Information Administration. Annual Energy Outlook 2012. Last accessed on July 12, 2012 at
http ://www. eia. gov/forecasts/aeo/
25 Cummins comments to the NCP NPRM. Docket EPA-HQ-OAR-2011-1000-0025. April 4, 2012. Page 17.
26 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.
27 U.S. Environmental Protection Agency and National Highway Traffic Safety Administration. Draft Joint
Technical Support Document: Proposed Rulemaking for 2017-2025 Light-Duty Vehicle Greenhouse Gas
Emission Standards and Corporate Average Fuel Economy. Page 3-96. Last viewed on April 25, 2012 at
http://www.epa.gov/otaq/climate/documents/420dll901.pdf. The SCR and DOC costs are built into the
Advanced Diesel costs.
28 RTI International. Heavy-duty Truck Retail Price Equivalent and Indirect Cost Multipliers. Table 4-8. July
2010.
29 U.S. Environmental Protection Agency and National Highway Traffic Safety Administration. Draft Joint
Technical Support Document: Proposed Rulemaking for 2017-2025 Light-Duty Vehicle Greenhouse Gas
Emission Standards and Corporate Average Fuel Economy. Page 3-96. Last viewed on April 25, 2012 at
http://www.epa.gov/otaq/climate/documents/420dll901.pdf. The SCR and DOC costs are built into the
Advanced Diesel costs.
30 RTI International. Heavy-duty Truck Retail Price Equivalent and Indirect Cost Multipliers. Table 4-8. July
2010.
31 RTI International. Heavy-duty Truck Retail Price Equivalent and Indirect Cost Multipliers. July 2010.
32 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
84
-------
ds=2,2496&groupid=2497&subgroupid=104139&make=6&model=Silverado%203500HD&year=2011&catalog
id=2&displayCatalogid=0
33 U.S. Environmental Protection Agency. Final Technical Support Document: Nonconformance Penalties for
2004 Highway Heavy Duty Diesel Engines. August 2002. Table 3-7 on Page 27.
34 FleetOwner.com, "Daimler releases 2010 emissions surcharges", August 6, 2009, Jim Mele.
35 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.
36 U. S. Department of Labor, Bureau of Labor Statistics. Consumer Price Index. Table 1 A, All Urban
Consumers (CPI-U), U.S. City Average, all items. Last accessed on April 18, 2012. The base years for the CPI
are 1982-1984 (where the CPI=100) perBLS.
37 U.S. Environmental Protection Agency and National Highway Traffic Safety Administration. Draft Joint
Technical Support Document: Proposed Rulemaking for 2017-2025 Light-Duty Vehicle Greenhouse Gas
Emission Standards and Corporate Average Fuel Economy. Page 3-96. Last viewed on April 25, 2012 at
http://www.epa.gov/otaq/climate/documents/420dll901.pdf. The SCR and DOC costs are built into the
Advanced Diesel costs.
38 RTI International. Heavy-duty Truck Retail Price Equivalent and Indirect Cost Multipliers. July 2010.
39 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
40 RTI International. Heavy-duty Truck Retail Price Equivalent and Indirect Cost Multipliers. Table 4-8. July
2010.
41 Last viewed on April 25, 2012 at http://www.bulletproofdiesel.com/BulletProof EGR Cooler Square_p/nt-
egrc-l.htm. http://www.ocdiesel.com/Bullet-Proof-Diesel-EGR-Cooler-Horizontal^pd%206700001.htm.
http://www.ocdiesel.co m/Bullet-Proof-Diesel-EGR-Cooler-Vertical-p/bpd%206700002. htm.
http://www.napaonline.co m/Catalog/CatalogItemDetail.aspx?R=BK_6003561_0359565975
42ICF International. Investigation of Costs for Strategies to Reduce Greenhouse Gas Emissions for Heavy-Duty
On-Road Vehicles. July 20, 2010. Page 83.
43 U.S. Environmental Protection Agency and National Highway Traffic Safety Administration. Draft Joint
Technical Support Document: Proposed Rulemaking for 2017-2025 Light-Duty Vehicle Greenhouse Gas
Emission Standards and Corporate Average Fuel Economy. Page 3-96. Last viewed on April 25, 2012 at
http://www.epa.gov/otaq/climate/documents/420dll901.pdf. The SCR and DOC costs are built into the
Advanced Diesel costs.
44 RTI International. Heavy-duty Truck Retail Price Equivalent and Indirect Cost Multipliers. July 2010.
85
-------
45 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
46 RTI International. Heavy-duty Truck Retail Price Equivalent and Indirect Cost Multipliers. Table 4-8. July
2010.
47 Last viewed on April 25, 2012 at http://www.bulletproofdiesel.com/BulletProof EGR Cooler Square p/nt-
egrc-l.htm. http://www.ocdiesel.com/Bullet-Proof-Diesel-EGR-Cooler-Horizontal^pd%206700001.htm.
http://www.ocdiesel.co m/Bullet-Proof-Diesel-EGR-Cooler-Vertical-p/bpd%206700002. htm.
http://www.napaonline.co m/Catalog/CatalogItemDetail.aspx?R=BK_6003561_0359565975
48ICF International. Investigation of Costs for Strategies to Reduce Greenhouse Gas Emissions for Heavy-Duty
On-Road Vehicles. July 20, 2010. Page 83.
49 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.
50 U.S. Environmental Protection Agency and National Highway Traffic Safety Administration. Draft Joint
Technical Support Document: Proposed Rulemaking for 2017-2025 Light-Duty Vehicle Greenhouse Gas
Emission Standards and Corporate Average Fuel Economy. Page 3-96. Last viewed on April 25, 2012 at
http://www.epa.gov/otaq/climate/documents/420dll901.pdf. The SCR and DOC costs are built into the
Advanced Diesel costs.
51 RTI International. Heavy-duty Truck Retail Price Equivalent and Indirect Cost Multipliers. Table 4-8. July
2010.
52 U.S. Environmental Protection Agency and National Highway Traffic Safety Administration. Draft Joint
Technical Support Document: Proposed Rulemaking for 2017-2025 Light-Duty Vehicle Greenhouse Gas
Emission Standards and Corporate Average Fuel Economy. Page 3-96. Last viewed on April 25, 2012 at
http://www.epa.gov/otaq/climate/documents/420dll901.pdf. The SCR and DOC costs are built into the
Advanced Diesel costs.
53 RTI International. Heavy-duty Truck Retail Price Equivalent and Indirect Cost Multipliers. Table 4-8. July
2010.
54
RTI International. Heavy-duty Truck Retail Price Equivalent and Indirect Cost Multipliers. July 2010.
55 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
86
------- |