Implementation Timeline & Flexibility Provisions

There are several options for a regulatory time line for implementation of HDV fuel efficiency standards. The first is to set a specific fuel efficiency standard for each HDV vehicle type, to take effect for vehicles sold beginning in a specific vehicle model year (i.e. beginning in model year 2015 HDVs must get 5% better fuel efficiency than the 2012 baseline). A second approach would be to set a specific standard for each HDV vehicle type, to take effect for vehicles sold beginning in a specific vehicle model year, and to periodically tighten the standard every few years (i.e. beginning in model year 2015 HDVs must get 5% better fuel efficiency than the 2012 baseline, beginning in model year 2017 HDVs must get 10% better fuel efficiency than the 2012 baseline, etc.).

Under this second scenario the initial standard might be “easy” to reach using off-the-shelf technology, while later more stringent standards would require new technology development or maturation. The lag for application of more stringent standards would be designed to allow time for the required technology development.

Whichever of these methods is chosen, it is not a given that the standard must apply to all HDVs sold in the first model year to which they apply. It might be advantageous to allow manufacturers compliance flexibility by phasing in the requirements over several model years.

Design of HDV Fuel Economy Regulations

 % of Models: phase-in the requirement on a percent-of-models basis (i.e. in the first year 25% of each manufacturer’s models must meet their target, in year two 50%, etc).

 % of Sales: phase-in the requirement on a percent-of-sales basis (i.e. in the first year 25% of all vehicles sold by each manufacturer must meet their target, in year two 50%, etc). Another approach that would allow manufacturers flexibility would be to set a fleet average fuel efficiency standard, rather than requiring every HDV model to meet a specific standard. Under fleet averaging the sales-weighted or fuel-weighted average16 _{of all vehicles sold by each}

manufacturer must meet a specific fuel efficiency standard, while individual vehicle models would be allowed to be less efficient. Obviously, to meet the fleet average standard some models would also have to be more efficient, and the net effect would be the same as if every model exactly met the standard. A fleet average requirement could also be periodically tightened over some range of model years to allow for technology development required to meet the final, most stringent standards.

U.S. Class 8 combination trucks typically burn eight times as much fuel per year as other HDVs because they are heavier and typically travel many more miles. In this situation, sales-weighted fleet averaging across all HDV types would not be optimal. Fleet averaging would have to be done for each separate type of HDV sold by each manufacturer, or a fuel-weighted fleet average would have to be used, which takes into account the amount of fuel that each truck typically uses in a year in addition to the number of trucks sold.

An approach that would give manufacturers additional compliance flexibility is the use of averaging, banking, and trading. “Averaging” is often used to mean that manufacturers are given “credit” for over-compliance in one area, which they can use to off-set under-compliance in another area. “Trading” is often used to describe the sale of a “credit” from one company to another. “Banking” would allow manufacturers to over-comply in earlier years, in exchange for lesser reductions in following years. Averaging, banking and trading could be used to ease compliance across vehicle types within a single model year, or across model years. One advantage is the ability to potentially set tighter limits at equal or possibly even lesser cost than standards that must be met by each and every unit.

For example, let’s say that a fuel efficiency regulation requires a separate fleet average fuel efficiency rating for each type of vehicle sold by a manufacturer (i.e. combination trucks, single- unit freight trucks, buses). Cross-vehicle banking and trading would allow a manufacturer to get credit for over compliance by their buses and apply that to offset under compliance for the combination trucks they sell. Likewise, under a scenario in which the fleet average standard gets more stringent over time, a manufacturer could be given credit for over compliance in the early years through “banking”, which would allow them to take more time to meet the more stringent standards required in later model years.

Averaging, banking and trading schemes can be complex, and must be carefully crafted to ensure that the reduction in fuel use of over-complying vehicles is at least as great as the increase in fuel use from non-complying vehicles that are allowed to be sold under the averaging, banking and trading scheme. For the U.S. HDV fleet, careful attention must be paid to the relative “worth” of an over- or under-complying Class 8 combination truck compared to other HDV types which typically burn much less fuel annually.

16 _{Due to the fact that different types of HDVs have significantly different annual usage, the sales-}

weighted average and the fuel-weighted average will not be the same. For example, if 75% of trucks sold are single-unit trucks that get 8 MPG and 25% are combination trucks that get 6 MPG, the sales-weighted average fuel economy will be 7.5 MPG. However, if single units trucks average 12,000 miles per year

Design of HDV Fuel Economy Regulations