The federal government wants to help trucking companies save money

The EPA and the U.S. Department of Transportation think trucking companies in the United States are not smart enough to understand that fuel expenses are worth managing carefully. Despite industry analysis identifying fuel costs ranging from 30 to 40 percent of variable costs per mile, so it is no secret in the trucking business, the federal government thinks the trucking industry is wasting billions of dollars by failing to invest in efficiency.

The government lays out its case in Chapter 8 of the Draft Regulatory Impact Analysis:

Potential savings in fuel costs would appear to offer [Heavy Duty Vehicles (HDV)] buyers strong incentives to pay higher prices for vehicles that feature technology or equipment that reduces fuel consumption. These potential savings would also appear to offer HDV manufacturers similarly strong incentives to produce more fuel-efficient vehicles. Economic theory suggests that interactions between vehicle buyers and sellers in a normally-functioning competitive market would lead HDV manufacturers to incorporate all technologies that contribute to lower net costs into the vehicles they offer, and buyers to purchase them willingly. Nevertheless, many readily available technologies that appear to offer cost-effective increases in HDV fuel efficiency (when evaluated over their expected lifetimes using conventional discount rates) have not been widely adopted, despite their potential to repay buyers’ initial investments rapidly.

This economic situation is commonly known as the “energy efficiency gap” or “energy paradox.”… Nevertheless, on the basis of evidence reviewed below, the agencies believe that a significant number of fuel efficiency improving technologies would remain far less widely adopted in the absence of these proposed standards.

Related material here: http://www.nhtsa.gov/fuel-economy.

Regulations are often justified based upon their ability to reduce externalities, but the federal government increasingly promotes energy efficiency regulations on their claimed ability to save money for energy consumers. In some cases the consumer savings are the most significant element in the agency benefit-cost analysis.

Scholars affiliated with Resources for the Future and the Mercatus Center have examined the federal government’s claims of an energy paradox with respect to heavy-duty vehicles and found the claims unsupported by the evidence. From the RFF website:

For years economists have debated why so many consumers appear to act irrationally when choosing not to buy energy efficient appliances, lights and heating and cooling systems that provide substantial cost savings—the energy paradox. The view that consumers act irrationally now underlies a large regulatory program by the Department of Energy (DOE), which has issued appliance efficiency regulations covering products ranging from dishwashers to air conditioners to water heaters.

However, recent regulations issued by DOE, the Environmental Protection Agency, and the National Highway Transportation Safety Administration have significantly extended the practical scope of this energy paradox beyond consumers to firms operating in competitive industries. More specifically, in three final rules and one proposed rule covering heavy-duty trucking, regulators have issued regulatory impact analyses that conclude billions in potential savings are lying on the sidewalk. These claims, unfortunately, are not substantiated by direct empirical evidence ….

We conclude that regulators should continue to be skeptical about claims that businesses fail to use energy efficient technologies in reasonably competitive markets. In addition, regulators should seek to test empirically the assumptions underlying claims that private businesses act irrationally and that large cost savings can be realized with federal regulation. [Emphasis added.]

The full analysis can be found on the Mercatus Center website: “The Energy Paradox and the Adoption of Energy-Saving Technologies in the Trucking Industry.”

Advertisements