The high cost of clean air
Clean air regulations set to take effect this decade could drive up both fuel and equipment costs for truckers. Will higher freight rates be far behind?
By James A. Cooke, Senior Technology Editor -- Logistics Management, 6/1/2001
It's not easy being green ... nor is it cheap. Federal clean air regulations will kick in over this decade, driving up the costs of transportation for carriers and shippers alike. Over-the-road trucking will be hardest hit: Motor carriers will likely be forced to buy a new formulation of diesel fuel as well as vehicles equipped with pollution-cutting technology in order to meet clean air standards.
If truckers are forced to assume increased costs to comply with clean air requirements, it follows that shippers can expect to pay higher freight rates. But how much higher is still unclear. "We know it will cost more, we just don't know how much," says Mike Russell, a spokesman for the American Trucking Associations (ATA) , an organization that represents the nation's motor carriers.
Clean Air's Price Tag
A Supreme Court decision earlier this year gave the Environmental Protection Agency (EPA) the go-ahead to begin cracking down on air pollution. That decision arose from a court challenge the ATA had mounted contesting the EPA's authority to impose a new federal emission standard for ozone, a key ingredient in smog. In its case, the ATA contended that the EPA had usurped Congress's power in interpreting the 1970 Clean Air Act. It further charged that the EPA had set its clean air rules without considering their cost.
Although the high court did instruct a lower court to revisit how the EPA set its ozone standard, the Supreme Court rejected both of the ATA's key arguments. That rejection of the ATA's challenge means the EPA can now begin forcing the states to meet the agency's air-quality standards. But it won't happen right away. "The industries that depend on transportation will feel the impact of these rulings in the next three to five years," says Allen Schaeffer, executive director of the Diesel Technology Forum , a coalition of truck-engine manufacturers, diesel fuel suppliers, and exhaust filter makers.
At the moment, the EPA still has to defend its ozone standard before a lower federal court. But in the meantime, Schaeffer expects that the agency will begin reviewing which states currently conform to federal air-quality standards for ozone and fine particulates and which do not. States deemed non-compliant will have to come up with a plan to improve air quality. "We are about 18 to 24 months away from getting into the nitty gritty of what the Supreme Court decision will mean for transportation," he says.
Low-Sulfur Diesel
Even as truckers and shippers attempt to determine what impact the ozone standard will have on their operations, they're facing another mandate from the EPA, which proposed a new clean air rule a mere week after the high court's decision. On Feb. 28, the new EPA administrator, Christie Whitman, moved forward on the agency's proposal to require heavy-duty trucks and buses to use ultra-low-sulfur fuel. Under that mandate, the environmental agency will require a 97-percent reduction in the sulfur content of highway diesel fuel, to 15 parts per million from its current level of 500 parts per million. The agency contends that the ultra-low-sulfur fuel is necessary to enable modern pollution-control technology to be effective. "You have to have cleaner diesel fuel to make this technology work," concedes Schaeffer.
Environmentalists believe that taken together, new truck engine technology and a switch to ultra-low-sulfur fuel represent the most effective way to curtail air pollution. And the government is proceeding on that basis. The EPA projects that these new systems, when fully implemented, will reduce nitrogen oxide (NOx) emissions by 2.6 million tons each year. (NOx, which is formed when fossil fuels such as diesel fuel are burned at high temperatures, forms ozone when combined with hydrocarbons in the presence of sunlight.) In addition, implementation of the plan would reduce soot or particulate matter by 110,000 tons a year. As the first step toward reaching this goal, the EPA has directed truck-engine manufacturers to begin phasing in the technology that will allow their vehicles to use ultra-low-sulfur fuel between 2007 and 2010.
At the moment, however, the 2007 rules are far from the truck-engine makers' minds. Engine manufacturers are preoccupied with meeting the NOx-reduction standards for the 2002 ozone guidelines. For example, Mack Trucks Inc. has just unveiled its E-Tech engine, which uses cooled exhaust gas recirculation technology, to meet the 2002 deadline for NOx emission reductions. Cummins Engines has also introduced an engine designed to meet the 2002 standard, but it's still developing technology for its engines to run on ultra-low-sulfur fuel. Another engine maker, DaimlerChrysler AG subsidiary Detroit Diesel Corp ., won't introduce new truck engines that use exhaust gas recirculation technology to meet the new standards until 2002.
But one truck engine maker, Caterpillar Engine , has started looking ahead. Caterpillar has already announced plans to deploy its Advanced Combustion Emission Reductions Technology in truck engines to meet the tougher 2007 emissions regulations. Ray Hartwell, a spokesman for the Caterpillar Engine Division, says the new engines will be available in the fourth quarter of 2003.
Fuel Fight
Although many of the truck manufacturers are going along with the EPA mandates, the petroleum industry is girding for a fight over ultra-low-sulfur fuel, whose phased-in introduction begins in 2006 and ends in 2010. One trade group—the National Petrochemical and Refiners Association (NPRA) —filed a challenge in federal court this past February. The NPRA contends that the EPA failed to develop a rule that balanced energy supply concerns with environmental objectives.
A study conducted for the petroleum industry by Charles River Associates , a Boston-based consulting firm, projected that, depending upon the availability of ultra-low-sulfur diesel, overall diesel prices could climb anywhere between 15 and 50 cents per gallon by 2007 if the EPA rule is implemented. The EPA dismisses that contention, arguing that prices will only rise between 4 and 5 cents a gallon.
Ironically, the largest state trucking group—the California Trucking Association (CTA )—has intervened in the NPRA's lawsuit on the EPA's behalf. The CTA supports a national standard because California truckers have been required since 1993 to use a blend of low-sulfur fuel. (Under California law, low-sulfur diesel fuel cannot contain more than 120 parts of sulfur per million.) The CTA notes that over the past year, its members have paid 15 to 40 cents more per gallon for the low-sulfur diesel fuel than the national average price. "If everybody does the same thing, you'll have economies of scale that go with a national product," says Stephanie Williams, CTA's vice president of environmental affairs. "We want a national fuel standard."
The litigation over low-sulfur diesel fuel is expected to take at least a year. "The whole standard is up in the air, but it will be resolved in the next year," says Schaeffer. "At the end of the day, it's a question of how much sulfur [is removed from] diesel fuel. And the level of sulfur will determine how clean manufacturers can make their engines. If the EPA loses the court case and is forced to back off on how clean the [fuel] has to be, then you have to allow the engines to emit more [particulates]."
Higher Freight Costs
Even if the EPA backs off a bit from its ultra-low-sulfur fuel mandate, motor carriers are still likely to pay more to comply with clean air initiatives in the decade ahead. "If you're a trucker, you're looking at higher fuel prices and new trucks that cost more because of these emission controls," says Schaeffer. "It's hard to say how much because the technology is just now being developed. Right now, a new engine costs between $12,000 and $15,000, and prices for these new engines will be thousands of dollars higher. The truck will also cost more because these new engines will have to have catalytic converters and additional cooling capacity."
But truckers may not bear this burden alone for long. Other transportation modes could soon find themselves dealing with similar costs for anti-pollution technology. In its filing with the EPA on ultra-low-sulfur fuel, the ATA pointed out that although its members would be forced to operate with low-sulfur fuel, users of non-road diesel would still be allowed to buy fuel with a higher sulfur content. Citing that inequity, the trucking organization asked federal regulators for an amendment that would apply the new rules to "non-road sources that consume diesel fuel."
If the EPA heeds the truckers' complaints, rail and ocean carriers that use diesel fuel to run their equipment may face the same mandate that truckers do in the near future. "Ninety percent of the nation's freight moves on diesel engines, whether [they power] barges, trains, trucks, or ocean-going vessels," says Schaeffer. "We're entering a new era in terms of stringency."
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