A heavy-duty economic growth engine

Published Tue, 2016.09.13 | By

Rachel Muncrief

We usually talk about vehicle fuel efficiency in terms of the amount of carbon we can keep out of the atmosphere, or the amount of oil we can save, or direct benefits to drivers: more miles to the gallon means fewer stops at the pump.

Those things are important, to be sure. But in focusing on them we can overlook the fact that fuel inefficiency, like other kinds of inefficiencies, is a cost to business, too—a cost that translates into higher prices to customers, less money available to pay in wages, and lower profits to reinvest in the kind of R&D that produces innovation and leads to job creation and economic expansion.

That fact should be front and center now that EPA has released its final “Phase 2” regulation setting efficiency standards for medium- and heavy-duty trucks and trailers. If you want to stimulate growth in the U.S. economy, you could find a lot worse places to start than with a policy that will drive technology innovation in the freight sector and cut the fuel costs from on-road goods movement more than a third by 2030.

Transportation accounts for about 10% of the commercial cost of most products. On average for freight carriers, fuel represented about 39% of total costs in 2015. Transportation costs are a significant chunk of total revenue for U.S. businesses. In 2013, nearly a third of them spent more than 5% of their total sales on domestic transportation. So it’s not a surprise to see support for truck efficiency standards from major freight-hauling companies like Pepsico, Frito Lay, UPS, Waste Management and food suppliers like Ben and Jerry’s, General Mills, Organic Valley. And the standards are pushing in the same direction as companies like Walmart’s and Anheuser-Busch’s own efficiency performance goals.

The Phase 2 rule, as its name suggests, is the second U.S. standard meant to directly improve the efficiency of on-road freight-hauling trucks. The first phase started affecting new vehicles in 2014, and the second will affect new vehicles from 2018 to 2027. Together, the two regulations will lead to a 35% fuel efficiency improvement in the new heavy-duty vehicle fleet, achieved through the adoption of more advanced vehicle technologies. The technologies needed will cost an estimated $33 billion, but save over $200 billion in fuel costs.

And here’s something to concentrate the mind in a presidential election year with a spotlight fixed on the U.S. economy in a competitive global marketplace: China and the European Union are taking steps to make sure that their freight transportation sectors become more efficient, too.

Europe’s truck fleet, like its car fleet, has been more fuel efficient than the U.S. fleet for a long time, due to Europe’s higher fuel taxes. But thanks to the EPA’s phase 1 regulation, that gap is closing quickly, and our research shows the U.S. is on track to overtake the EU on tractor-trailer efficiency within a few years. The Europeans have noticed, and just last month the European Commission announced that it will propose the first mandatory efficiency standard for trucks in Europe. The announcement specifically called out the progress happening in the U.S. and elsewhere, noting that “Europe cannot lag behind. Lower running costs for transport of goods, more fuel efficient vehicles will benefit the entire economy and ultimately, the consumers and passengers.”

China’s HDV fleet is not as technologically advanced as either the U.S. or EU, but China’s government has recently proposed a new phase of truck efficiency standards whose goal is to match the U.S. and EU by 2020. China’s proposal states “Tightening fuel consumption limits will motivate the development and adoption of advanced technology, reduce HDV fuel consumption, and thus ensure achieving the goal of ‘in 2020, fuel consumption of new vehicles is close to globally advanced markets’.”

We in the U.S. have a record of complacency when it comes to competing on fuel economy. The HDV regulation cuts against that tradition, and China’s and Europe’s scramble to keep up attests to how effective it can be. The EPA is doing the right thing by keeping the pedal to the metal with the second phase of heavy truck standards.