While the notion of a single truck product appropriate for all global markets remains firmly in the realm of the hypothetical, ongoing trade negotiations between the United States and Europe have ushered in the possibility of a common harmonised heavy duty truck emissions standard applicable to both markets.
Speaking earlier this year at the Mid-America Trucking Show, Head of Daimler’s truck business, Wolfgang Bernhard placed the current emissions debate into clear context: “We need to sweep away some of the non-tariff barriers. For example, if I look at the emissions standards in the US and in Europe, they are so similar,” he said. “Despite the fact that they are so similar, the industry has to spend a lot of money to ensure compliance with both in terms of different parts, different testing and different development. If we could agree that everyone recognises each other’s standards, all the money that is being wasted right now on two different standards could be put to far better use.”
It’s not difficult to see where Bernhard’s logic comes from. The impact on fixed cost absorption accruing from a harmonised standard would be significant, albeit not one without downside risk. In times of an up cycle, gross margin would improve markedly but the opposite could apply in the down cycle. Bernhard’s thesis would thus seem to be one that views the positive as outweighing the negative once that amplitude averages out through the entire cycle.
This is not a new argument. However, what is new is the adoption of a regulatory environment on both sides of the Atlantic that views greenhouse gas (GHG) as being the key determinant of future emissions mandates. The previous regulatory environment – one that concentrated upon the management and reduction of PM and N0x – was one that developed out of a regional focus. GHG – and the reduction of C02 – is positioned as a more global imperative. Unsurprisingly so: what is C02 in London is also C02 in Lexington, Kentucky. What has proved a restraint to a common goal previously is not the goal in itself but the means by which attaining – and more pertinently, measuring – success are facilitated.
“US, EU, and Japanese standards all provide stringent emission controls,” comments Sean Waters, Director of Product Compliance and Regulatory Affairs, Daimler Trucks North America. “Recognising each other’s standards as valid would provide benefits for manufacturers, fleets, and consumers. Certainly there is the benefit to manufacturers of reduced R&D costs and, in turn, cost of vehicles – a benefit to fleets. Additionally, allowing manufacturers to focus more engineers on different value-added tasks, as opposed to focusing effort on variations of the same emission-reduction tasks, provides further benefits to the fleets, such as further improved total cost of ownership.”
“Common standards would free up significant engineering and financial resources that could be directed toward innovation of new technologies, rather than developing multiple products to comply with multiple regulatory standards,” says Susan Alt, SVP Public Affairs for Volvo Group North America. “Harmonisation of emissions standards could enable Volvo Group to adjust where its conventional models are exported throughout the world, but emissions standards are just one of the elements that must be considered before adjusting which brands and models serve each market. Electrical systems, such as 24 volt versus 12 volt, or the FMVSS versus EU braking standards, and local parts and services capabilities must all be considered. Fuel is also a consideration. While ultra-low-sulphur diesel is common in the US, Canada, Australia and much of Europe, other global markets contain a patchwork of standards.”
Whereas Waters and Alt both point to the upside benefits of an agreement, Waters also points to the downside impact of continued fragmentation. “By contrast to the savings from harmonised standards or laws that provide for mutual recognition of other countries’ standards, divergent standards increase costs and create further issues,” he explains. “With the EU focusing its efforts on full-vehicle procedures for GHG minimisation, US laws that regulate the engine separately from the vehicle miss potential system-level improvements like the optimised, fuel-saving powertrains in which Daimler invested so much effort. Moreover, California’s proposal to mandate NOx emissions an order of magnitude lower than today’s near zero levels will deprive fleets in the state of many of the fuel savings and GHG emission reductions that are developed for customers elsewhere in the country and the world. The cost required to develop such unique engines, after-treatment, and the on-board diagnostics associated with them would significantly increase California vehicles’ costs, and potentially disrupt the market.”
While much common ground exists between the EU and the US in terms of the need to focus upon GHG, enabling this in terms of a future common mandate is a far from simple task. Many within the industry on both sides of the Atlantic see the Transatlantic Trade and Investment Partnership (T-TIP) negotiations currently ongoing between the US and Europe as offering an environment suitable for pursuing this aim. As such, the debate moves away from one predicated upon industry issues towards one more prone to a broader political influence.
The European Commission appears to be at least in part supportive of an exploration of a common standard: “The Commission is well aware that there are the differences between the European legislation on emissions from heavy-duty vehicles (Euro VI) and the corresponding US legislation,” commented a spokesperson. “Up to now, nobody has analysed whether these differences also lead to different environmental performances. At the same time, the costs of these differences for industry are considerable.
“Regarding technical aspects, the discrepancies between both pieces of legislation at the level of technical prescriptions are important. Hence it would be very difficult to set out a harmonised standard that is operative in the short term. However, the Commission considers that, even if the approaches used are different, the level of environmental protection provided could well be similar, hence exploring equivalence of both rules in the frame of the T-TIP is worth considering, thus avoiding costs of compliance for the industry.”
The US EPA is rather more cautious: “EPA continues to monitor the negotiations and the suggestions being made by stakeholders,” says a spokesperson. “We understand that various methodologies for determining where equivalence can be determined for certain safety requirements are being proposed or studies are being pursued. The discussions of whether some measures or standards can be considered collectively or whether such measures are required to be examined individually for purposes of driver safety and to meet legal objectives is ongoing.”
But Ian Graig of Washington DC-based Global Policy Group sounds a note of warning. While T-TIP negotiations are ongoing, the current political environment in the US may not be amenable to a successful resolution.
“Many members of Congress are either opposed to or only weak supporters of T-TIP and the Trans-Pacific Partnership (TPP) talks, with both liberal Democrats and conservative Republicans seeming especially wary of any free-trade negotiations,” he explains. “While most business groups are supportive of T-TIP in particular, trade liberalisation is not a top priority in Congress at this time.”
The role of Congress is particularly important here; the Administration needs Congress to revive presidential ‘fast-track’ trade negotiating authority, which is also known as trade promotion authority (TPA). Fast-track authority would place a time limit on Congressional consideration of legislation to implement any trade agreement, and would prevent Congress from amending such implementing legislation after it is introduced. This is, according to Graig, essential in the case of complex trade negotiations like T-TIP.
“The T-TIP talks can continue without trade promotion authority, but a revival of TPA is needed before those talks are completed and a deal is signed and implemented,” he says. “Thus at some point the Obama Administration and Congress will need to reach a deal on trade promotion authority if the T-TIP talks are to succeed.”
While this could provide a significant – and arguably a growing – roadblock, the heavy truck industry could be aided in its aims by the fact that it is not the only industry that seeks commonality across both markets. Moreover, as Graig points out, the environmental lobby is likely to be less alarmed by any move towards harmonisation.
“Environmental groups in the US have long been wary of free-trade agreements, and have pushed US negotiators to include environmental provisions in recent FTAs,” he comments. “This is probably a bit less of a concern with T-TIP, however, since the US and EU both have relatively stringent environmental laws. As a result, a T-TIP accord would be unlikely to pose a threat to US environmental standards or to create a situation in which production was shifted abroad to take advantage of weaker environmental rules.”
This is a high stakes game: the benefits of harmonisation are, from an industrial perspective, plain to see. The downside – namely continued fragmentation of regulations that seek the same result – are similarly clear. While the OEMs have a clear vested interest in the pursuit of harmonisation, it is difficult to see quite how either the environmental or the political stakeholders within this debate would be alarmed by a move towards such an end.
So will we see harmonisation?
“Yes, I think it is increasingly likely that this will happen,” say Scania’s Chief Executive, Martin Lundstedt. “Emissions that are local – NOx and particulate matter – were dealt with by Euro VI. Now we are talking about global emissions, CO2, and there I am pretty sure global harmonisation will happen.
“However, it will be interesting to see how much this will be led by legislation. I believe the market economy will have a major role to play. CO2 is fuel, and fuel is money. There we have a natural business logic that we didn’t have for NOx and particulate matter, where there was a negative offset between fuel consumption and particulates. For NOx and particulates, it was more efficient and effective to legislate than it is on CO2.”
“A common standard does not mean a lower standard, and it’s important for T-TIP to focus not just on short term adjustments but upon long term benefits,” says Wolfgang Bernhard. “It is an historic opportunity that we cannot afford to miss.”
