urban planning

MEMORANDUM

TO:​ Oregon Assembly for Trucking Electrification FROM: ​ DATE:​ June 11th, 2019 SUBJECT: ​Electrifying Heavy-Duty Trucking in Oregon

SUMMARY: ​This memo describes the current state of heavy-duty diesel trucking in Oregon and the need to steer towards electrification, with a focus on businesses that are vulnerable to policy changes. Recommendations are made to a future potential assembly of decision-makers and stakeholders in the realm of Oregon trucking. These recommendation include advocating for House Bill 2020 to reduce vehicle registration and taxes for MWESB trucking businesses, establishing a loan guarantee program to accelerate the deployment of electric trucking infrastructure, and creating a cash voucher program to lower the initial purchase price electric trucks for business owners. Pursuing these recommendations now will allow Oregon to move towards a cleaner, healthier future.

PROBLEM: ​Diesel emissions from heavy-duty trucks are significantly impacting the health of Oregonians and contributing to climate change.

Did you know​ that diesel exhaust causes more fatalities than do traffic crashes in Oregon each year (OEC, 2019)?

Diesel exhaust costs Oregon billions of dollars each year, with increases in health care costs, lost lives, and missed work and school. Oregon is burdened with up to $3.5 billion a year in health costs and lost productivity because of diesel pollution (Figure 1).

Figure 1: Diesel Pollution Health Impacts (Coleman, 2019)

Currently, 23 of 36 counties exceed the state benchmark for diesel pollution (OEC, 2019). This is a huge burden, and the impacts are felt disproportionately in vulnerable (children, elderly, low income, minority) populations (ODEQ, 2018).

In addition to the health impacts, diesel engines from heavy-duty trucks emit carbon dioxide, which contributes significantly to climate change. In addition, 70% of diesel particles are black carbon, which has immediate local climate effects. Black carbon can alter precipitation, cause faster snow and ice melt, and contribute to warmer temperatures.

Heavy-duty trucks make up the largest portion of diesel engines in Oregon. 73% of these trucks are older than 2010 models, which is before federal standards for much cleaner engines were established (OEC, 2016). Federal and state laws and regulations aim to reduce diesel pollution; however, these regulations are often established at a long time frame to give trucking companies enough time to phase out their fleet (OEC, 2019). Another issue is even when trucks begin to get phased out and replaced, the trucks that would provide the greatest reductions in emissions (electric trucks) are not the ones being purchased due to multiple barriers (UPS, 2018).

The critical issue here is that even with potential overall long term savings in fuel, and the overall public health and climate change mitigation benefits, trucking companies are hesitant to switch to electric fleets as they currently have no incentives that are strong enough to allow them to make the transition (UPS, 2018).

CONTEXT: ​Our current policies are not doing enough to mitigate the impacts of diesel emissions from heavy-duty trucks.

Nationwide, trucks are the primary choice for local and regional freight, accounting for more than 80% of goods movement under 250 miles (Birky et al., 2017). Trucks serve an incredible economic purpose in transporting goods and essential services in Oregon. The use of diesel trucks is well established in the trucking industry, and low diesel prices are helping to make a strong business case for continuing to purchase and use diesel trucks. While trucks may be here to stay for a long time, it doesn’t mean that diesel trucks must be the truck of choice for industries.

Newer trucking technologies have made some advances in reducing pollution. Recent federal laws and standards have helped reduce emissions, by requiring new engines that emit up to 95% less pollution (OEC, 2019). However, there are still many old polluting trucks on the road today. This is because diesel engines have a long life span and do not get replaced quickly. The EPA estimates that approximately one million old polluting engines will remain in use by

2030 (OEC, 2019). Oregon’s old heavy duty trucks are staying in use longer than predicted. Oregon’s current turnover rate for retiring old engines is 4-6% a year, which is much slower than the EPA’s estimated rate of 10% (OEC, 2019). This means that there will continue to be unsafe air in Oregon, unless there is something done to promote a faster transition to cleaner trucks. The status quo of waiting to phase out these older, more harmful trucks, is in discordance with multiple goals and regulations of the State of Oregon. 11 years ago, Oregon set a goal to reduce diesel pollution so that it would bring cancer risk below one in a million. Today, we have only reduced less than 2% of the pollution we would need to meet that goal (OEC, 2019). We must become more aggressive towards reaching these goals. The current market forces are allowing diesel trucks and diesel fuel prices to remain much lower than the true cost of using them. The low prices are not accounting for the additional health and climate change impacts that they are generating with their use. Unlike California and some other states, Oregon stopped funding diesel engine upgrades in 2009, and eliminated a tax credit program to support cleaner engines (OEC, 2019). A research study conducted by UPS found that the top barriers for purchasing electric trucks are “a prohibitive initial purchase price (55 percent), lack of EV charging infrastructure at facilities (44 percent) and lack of product availability (35 percent)” (UPS, 2018). Without incentives, trucking companies will continue the traditional business case model of using diesel trucks, which is something we need to try to change for the sake of all Oregonians. RECOMMENDATIONS Now imagine ​that heavy-duty trucking no longer causes a severely higher risk of lung and heart disease to Oregon’s population. In order to overcome the financial, infrastructure, and technological barriers to trucking electrification, with special attention to Minority-owned, Women-owned, and Emerging Small Businesses (MWESB), several actions are recommended. These businesses are especially vulnerable to policy changes that become cost-prohibitive to their operations. The first recommendation is to advocate for House Bill 2020 to reduce vehicle registration and taxes for MWESB trucking businesses to better handle the impending cap and trade costs as well as to direct cap and trade revenue to electric trucking technology and infrastructure development. The second recommendation is a loan guarantee program to accelerate the deployment of electric trucking infrastructure, like charging stations, specifically for emerging businesses. The third recommendation is a cash voucher program that could cover the cost difference between a conventional diesel truck and a new electric truck.

Recommendation 1: Advocate for MWESB Trucking in HB2020 House Bill 2020 aims to reduce carbon emission by at least 80% of 1990 levels over the next 30 years through the creation of a carbon credit system, with an increasingly strict emissions cap on designated energy-intensive, trade exposed (EITE) entities (Moore, 2019). While the agriculture and forestry sectors are currently excluded, the transportation businesses that provide much of the travel for these industries will fall under regulation as EITE entities. The initial cap of 25,000 million metric tons will immediately impact the trucking industry, specifically small businesses that emit over the cap but can not afford to purchase credits. Ensuring that these entities are not left behind through cap and trade is a critical step to advancing electrification in Oregon, as businesses struggling just to survive are not likely to be interested in upgrading their trucking technology (Jain & Williams, 2019). Costs for trucking businesses is high in Oregon relative to other states, and regulation by HB2020 is likely to raise diesel fuel costs by $0.15 to $0.20 per gallon. According to the Oregon Trucking Association (OTA), small businesses and the industry overall may not be able to bear any more significant costs or else begin to sacrifice efficiency and effectiveness (Oregon Trucking Associations, 2019). Based on findings from the Office of Economic Analysis at the Department of Administrative Services’ Highway Cost Allocation Study, OTA makes several suggestions for HB2020 in order to preserve the industry and also serve to advance trucking electrification. By reducing vehicle registration fees, taxes on fuel, and other vehicle-related fees, the OTA expects that trucking businesses, particularly lower-income and rural businesses, could better handle the impending cost of cap and trade allowances (Oregon Trucking Associations, 2019). The other suggestion is to provide greater discretion to the Oregon Transportation Commission in selection of projects funded by revenue generated from cap and trade. These could include projects specifically for the advancement of low- and zero-emissions trucking and infrastructure technologies, which would drive down the cost and barriers to electrification for all businesses (Oregon Trucking Association, 2019). Advocating for inclusion of these suggestions in HB2020 would help to uphold those most vulnerable to impending changes during cap and trade while bolstering proclivity for trucking electrification, specifically by small trucking businesses. Recommendation 2: Loan guarantees for electric trucking infrastructure To support the transition to electric trucks, there will be a need for additional supporting infrastructure throughout the state. A loan guarantee program could be created to accelerate the

deployment of electric trucking infrastructure, like charging stations. The loan guarantees could also go towards including associated hardware and software for the stations, in addition to installation, acquisition, design, development, operations, and maintenance of the infrastructure. Commercial lenders may be hesitant to support newer technologies and emerging businesses, if they do not have a history of successful commercial operation. The federal Title XVII Renewable Energy and Efficient Energy Projects program has provided more than $4.5 billion in loan guarantees to support renewable energy and efficient energy projects, including electric vehicle charging stations (US DoE, 2016). The Eugene Water and Electric Board, a publicly owned water and electric utility, offers a 4% loan to commercial customers, to encourage the installation of charging infrastructure. The loan covers the upfront costs, including installation for vehicle charging stations at their business for employees and public use (EWEB, n.d.). An additional loan guarantee from the state can be used to help support even more emerging businesses in developing electric vehicle infrastructure. Businesses would be able to take advantage of additional statewide loan guarantees which will help support the expansion of electric vehicle infrastructure throughout Oregon. The loan guarantees would provide guaranteed loan financing and would cover 100% of the debt obligation. The state loans could be targeted specifically towards Minority-owned, Woman-owned, and Emerging Small Businesses. With additional funding support, rebates of 10-15% could be provided after the loan has been repaid. A state loan guarantee program with a rebate incentive would help the state overcome one of the barriers that businesses have when it comes to transitioning to electric trucks, which is a lack of EV charging infrastructure (UPS, 2018). Recommendation 3: Cash voucher to purchaser program To encourage conversion to electric trucking as Oregon’s neighboring states are currently doing, a cash voucher program could be established. This voucher would be sent directly to the purchaser to cover the difference in cost between a heavy-duty electric truck and conventional diesel truck, estimated to be around $25,000 to $30,000 once the technology is fully available (Park, 2018). As financial cost is cited to be the most significant barrier to electrification for small businesses (UPS, 2018), offering the voucher strictly to MWESB businesses for the first ten years of such a program would help to support those with the most limited capital first. This aspect is especially important as the heavy duty diesel trucks are replaced by electric trucks in California and Washington and become likely to be sold for those seeking low-cost diesel equipment, such as small businesses in Oregon. Other aspects of the cash voucher, as utilized by California in its Hybrid and Zero-Emission Truck and Bus Voucher Incentive Project (HVIP), include increasing the voucher value along

with the gross vehicle weight rating and providing the first three vouchers to a fleet at a slightly greater amount (HVIP, 2019). This could encourage initial participation across a wide set of fleets. Important to providing a sufficient voucher is also covering the cost of scrapping the heavy duty truck that is being replaced with an electric truck (Davis & Xue, 2018). The effectiveness of a cash voucher incentive program is, of course, limited by the availability of cash funding. Given the successful utilization rate of the Federal Tax Credit Incentive for passenger vehicle electrification (Gorzelany, 2019) and momentum of California’s HVIP program however, a cash voucher appears as a viable incentive to accelerating the shift of the heavy-duty trucking market towards electrification. FUNDING Funding for a cash voucher program could be provided in part by Oregon’s apportionment of the Volkswagen Mitigation Trust Fund. These funds come from Volkswagen settlement with the United States Department of Justice, Environmental Protection Agency, and others for the company’s sale of diesel passenger cars with faulty emission control devices that violated federal motor vehicle emission standards and allowed for 40% higher nitrogen-oxide emissions (ODEQ, 2018). Of the nearly $3 billion to be distributed, Oregon is receiving $72.9 million based on its share of the diesel passenger vehicles sold. The initial plan authorized by Senate Bill 1008 in 2017 designates $18 million to the reduction of emissions from 450 diesel-powered school busses through vehicle replacement or upgrade. The remainder of the fund is intended to support projects that reach goals set forth by the Department of Environmental Quality’s Mitigation plan and include to maximize benefits for vulnerable populations, prioritize reduction of pollution in the most polluted areas, and maximize the cost effectiveness of efforts (ODEQ, 2018). A competitive annual selection process for highly qualified projects that support these goals will determine how the remaining $55 million is to be allocated over the next ten years (ODEQ, 2018). Using these dollars to incentivize electrification of MWESB fleets through a cash voucher program would be a strong proposal to the fund. COST-BENEFIT ANALYSIS The following analysis serves to examine the annual direct and indirect costs and benefits between a conventional heavy-duty diesel truck versus a heavy-duty electric truck from the perspective of a small trucking business in Oregon. The electric trucking option includes a cash voucher to cover the cost of upgrade to an electric truck and also considers cap and trade

implications from HB2020. Tables 1 and 2 enumerate the costs and benefits using estimated calculations based on available information. Table 3 presents a cost-benefit analysis based on these values over a 5-year period and shows undiscounted flows, discounted flows, and a comparison The discount rate of 3.5% is chosen based on standard convention for a governmental cost-benefit analysis (Moore, 2004). Table 1: Direct and indirect costs and benefits of a conventional heavy-duty diesel truck.

Diesel Truck Costs Benefits

Direct -State and Federal Highway User Fees: $30,410/year (may be reduced pending HB2020) -*Fuel (diesel): $40,019/year -**Maintenance costs: $18,710 / year -Carbon credits (pending HB2020) -Insurance and other costs

-Decreasing cost of new and used diesel trucks for future purchase

Indirect -Health costs to truck drivers from breathing diesel exhaust and hearing damage from engine noise -Diminishing resale value -Health cost to surrounding community from diesel exhaust

-Continued operation of business-as-usual

*Fuel calculation: ($2.31/gallon)/(6 miles/gallon)*(103,945 miles/year) = $40,019/year. (ODOT, 2019; Davis & Boundy, 2019; ATRI, 2017) **Maintenance calculation: ($0.18/mile)*(103,945 miles/year) = $18,710 /year. (ATRI, 2017) Table 2: Direct and indirect costs and benefits of an electric heavy-duty truck.

Electric Truck Costs Benefits

Direct -Conversion to electric truck: $0 if provided cash voucher covering full cost of upgrade and scrapping of old truck. -*Fuel (electric): $3,615/year -**Maintenance costs: $4,678/year -Insurance and other costs

-Reduced engine noise and alleviation of associated health impacts -Reduced engine emissions and alleviation of associated health impacts -Reduced fuel, maintenance, and operational costs -Extended truck life -High resale value

Indirect -Potential limited business market if certain areas lack electric charging infrastructure.

-Reduced health impact on surrounding community -Attraction of additional business -Economic returns from electric infrastructure technology + jobs -Innovation in the marketplace

*Fuel calculation: ($3.20/charge)/(92 miles/charge)*(103,945 miles/year) = $3,615/year. (Park, 2018; Ayre, 2017; ATRI, 2017) **Estimation of 75% less maintenance costs than diesel equivalent: ($18,710*.25) = $4,678

Table 3: Cost-Benefit Analysis over 5-Year Period of Diesel and Electric Heavy-Duty Truck. Diesel Truck 2020 2021 2022 2023 2024 TOTALS Undiscounted Flows Costs -$99,139 -$101,139 -$103,139 -$105,139 -$107,139 -$515,695 Benefits $1,000 $1,000 $1,000 $1,000 $1,000 $5,000 Net Cash Flow -$98,139 -$100,139 -$102,139 -$104,139 -$106,139 -$510,695 Discounted Flows 1.000 0.966 0.934 0.902 0.871 Costs -$99,139 -$97,719 -$96,281 -$94,829 -$93,365 -$481,334 Benefits $1,000 $966 $934 $902 $871 $4,673 Net -$98,139 -$96,753 -$95,348 -$93,927 -$92,494 -$476,661 Cumulative -$98,139 -$194,892 -$290,240 -$384,167 -$476,661 -$1,444,098 Net Present Value: -$476,661 Ratio: 0.01 Electric Truck 2020 2021 2022 2023 2024 TOTALS Undiscounted Flows Costs -$8,293 -$8,293 -$8,293 -$8,293 -$8,293 -$41,465 Benefits $10,000 $11,000 $12,000 $13,000 $14,000 $60,000 Net Cash Flow $1,707 $2,707 $3,707 $4,707 $5,707 $18,535 Discounted Flows 1.000 0.966 0.934 0.902 0.871 Costs -$8,293 -$8,013 -$7,742 -$7,480 -$7,227 -$38,754 Benefits $10,000 $10,628 $11,202 $11,725 $12,200 $55,756 Net $1,707 $2,615 $3,461 $4,245 $4,973 $17,002 Cumulative $1,707 $4,322 $7,783 $12,028 $17,002 $42,843 Net Present Value $17,002 Ratio: 1.44 Net Value Present Difference: $493,663 Cumulative Value Difference: $1,486,941

This cost-benefit analysis is based primarily on the difference in annual direct operational costs between a conventional diesel truck and an electric truck, though also includes estimated values of indirect costs and benefits like health and resale value. The results indicate nearly $1.5 million in cumulative savings over a 5-year period for businesses that choose to upgrade to an electric truck, showing significant reasoning for why a business should utilize a cash voucher.

ACTION PLAN To determine how best to apply for the mitigation trust funds and to better understand the implications of the recommended programs, an assembly of stakeholders should immediately be gathered. Members of this group should include both Republican and Democratic state legislators, The Oregon Transportation Commission, industry leaders in electric trucking manufacturing, like Daimler, The Oregon Trucking Associations, small trucking business owners and operators, potential infrastructure providers, advisors from California, and others with a stake in Oregon’s trucking industry. While diesel is a controversial topic amongst these groups in Oregon, creating space for the multiple perspectives to be heard and discussed on the future of electrification outside of just the legislative session could be a strategic step in directing available funds efficiently and equitably. Addressing the particular needs of minority-owned, women-owned, and emerging small businesses is an important step in trucking electrification, as these businesses have historically suffered greatly through the regulation of vehicle fuels in Oregon (OTA, 2019). By supporting these businesses through HB2020’s cap and trade by advocating for reduced vehicle registration fees, taxes on fuel, and other vehicle-related fees, they may be better posed to convert to electric vehicles. Lowering the cost of conversion, the greatest barrier to businesses, through technology research and development and support via cash voucher will help to support these companies, and big businesses will follow. As shown in the cost-benefit analysis, there is significant, long-term financial advantage to trucking electrification. Lastly, a loan guarantee program can help accelerate crucial electric trucking infrastructure and help to support MWESB businesses participation in that effort. Pursuit of these recommendations is timely, as Oregonians continue to suffer negative short-term and long-term health implications through exposure to diesel exhaust, and the climate continues to warm and shift due to increasing emissions. By working towards electrification now, legislators, businesses, and manufacturers can help Oregon reach a more prosperous and healthy future.

REFERENCES

American Transportation Research Institute (2017, October). An Analysis of the Operational Costs of Trucking: 2017 Update. Retrieved from: https://atri-online.org/wp-content/uploads/2017/10/ATRI-Operational-Costs-of-Trucking-2017-1 0-2017.pdf

Ayre, J. (2017, December 16). Electric Semi Trucks & Heavy-Duty Trucks - Available Models & Planned Models (In-Depth List). Retrieved from: https://cleantechnica.com/2017/12/16/electric-semi-trucks-heavy-duty-trucks-available-models-p lanned-models/

Birky A., Laughlin M., Tartaglia K., Price R., Lin, Z. (2017) Transportation Electrification Beyond Light Duty: Technology and Market Assessment. Retrieved from https://info.ornl.gov/sites/publications/Files/Pub72938.pdf

Bosshart Davis Interview Jain, S., Williams., J. (2019, June 3). Phone interview with S. Bosshart Davis.

California HVIP. (2019). Hybrid and Zero-Emission Truck and Bus Voucher Incentive Project (HVIP). Retrieved from: ​https://www.californiahvip.org/

Coleman, J (2019) Diesel Pollution and Health. Oregon Environmental Council. Retrieved from ​https://oeconline.org/diesel-pollution-and-health/

Davis, S.C., Boundy, R.G. (2019, April). Transportation Energy Data Book: Edition 37.1. Oak Ridge National Laboratory. Retrieved from: https://tedb.ornl.gov/wp-content/uploads/2019/03/Edition37_Full_Doc.pdf

Eugene Water and Electric Board (EWEB) (n.d.) Electric Vehicles. Retrieved from http://www.eweb.org/business-customers/going-green/electric-vehicles

Gorzelany, J. (2019, May 7). My EV Marketplace. Retrieved from: https://www.myev.com/research/interesting-finds/electric-vehicle-incentives-update

Moore, M., Boardman, A., Vining, A., Weimer, D., & Greenberg, D. (2004). "Just Give Me a Number!" Practical Values for the Social Discount Rate. ​Journal of Policy Analysis and Management,23 ​(4), 789-812. Retrieved from ​http://www.jstor.org/stable/3326238

Oregon Department of Environmental Quality (ODEQ). (2018, March). VW Environmental Mitigation Plan for the State of Oregon. Retrieved from https://www.oregon.gov/deq/FilterDocs/VWmitigplan.pdf

Oregon Department of Transportation. 2019. Current Fuel Tax Rates. Retrieved from: https://www.oregon.gov/ODOT/FTG/Pages/Current%20Fuel%20Tax%20Rates.aspx

Oregon Environmental Council. (2016). Dirt on diesel: The true cost to Oregon of delaying action. Retrieved from https://www.oregonlegislature.gov/dembrow/workgroupitems/5-27%20OEC%20Dirt%20on%20 Diesel%20Report%202016.pdf

Oregon Environmental Council (2019) Old Heavy-Duty Diesel Engines: Oregon’s Air Quality Problem. Retrieved from https://oeconline.org/wp-content/uploads/2019/01/Diesel-Factsheet-Jan2019-3.pdf

Oregon Trucking Association (OTA). (2019, February 11). Before the Joint Committee on Carbon Reduction: House Bill 2020. Testimony of Jana Jarvis, President, Oregon Trucking Associations. Retrieved from: https://olis.leg.state.or.us/liz/2019R1/Downloads/CommitteeMeetingDocument/158251

Park, J. (2018, February 13). How Much Does it Cost to Operate a Battery Electric Truck? Retrieved from: https://www.truckinginfo.com/279659/how-much-does-it-cost-to-operate-a-battery-electric-truck

UPS. (2018). Curve Ahead: The Future of Commercial Fleet Electrification. Retrieved from https://sustainability.ups.com/media/UPS_GreenBiz_Whitepaper_v2.pdf

US Department of Energy (US DoE) Loan Programs Office (2016) Renewable Energy & Efficient Energy Projects Solicitation. Retrieved from https://www.energy.gov/lpo/services/solicitations/renewable-energy-efficient-energy-projects-sol icitation