Don’t Use Faulty Economics to Make an Environmental Argument

April 14, 2016 by Jeremy Anwyl

A coalition of businesses – including notable names such as General Mills and Unilever’s Ben & Jerry’s ice cream – believes the Environmental Protection Agency and the National Highway Traffic Safety Administration aren’t going far enough in forcing the trucking industry to increase fuel economy and reduce emissions.

The 12 companies working with Ceres, a business-oriented environmental advocacy organization, told the federal agencies that they want to see fuel use slashed by a headline- grabbing 40 percent by 2025. That’s even higher than the government’s proposed 37 percent reduction by 2027.

After reading our Trucks.com coverage of the issue, I reviewed the Ceres-organized letter, which was a response to a request by the agencies for public comment. The letter argues that the nation needs more stringent standards for trucking to improve the environment — and that proposal makes economic sense.

They used some tortured logic to get there.

The coalition tells the EPA and NHTSA that the costs of adopting the fuel-saving technologies will pay for themselves with a greater reduction in fuel use. They say this will make economic sense, citing an EPA report calculating that costs to meet the proposed federal standards can be recouped through fuel savings within 2-6 years, depending on truck type.

I have to admit that this argument that we can benefit the environment and save money at the same time is very alluring. The problem is that the claim doesn’t add up.

Here’s why:  Fleet operators, independent drivers and other trucking companies want to increase profits. That’s their job.

If I could upgrade my fleet with fuel-saving technologies that yielded a net savings, I would rush to get onboard. I could borrow the money required to perform the upgrades at today’s low interest rates and spread the payments over, say, seven years. I would see immediate net savings that could be used to gain shipping market share through lower rates or simply keep as profit.

Moreover, I would feel compelled to make this investment because I would expect my competition to make the same move. I would not want to get left behind in this fiercely competitive segment of our nation’s economy.

What I am driving at is that if the technology were proven, available and as cost-efficient as the proponents of increased standards claim, then we wouldn’t need to regulate higher standards at all. Market forces would see to the adoption of the required technologies in short order.

It may be that today’s $2-a-gallon diesel fuel so delays the payback that few trucking firms are pushing for expensive investments in fuel-saving technology.  Either the technology is not yet available or the expense just doesn’t pencil out for now.

Viewed this way, the proposed increase in fuel-efficiency standards, let alone a more extreme increase, introduces risk through the forced adoption of new technologies. It would also raise costs at a time when the industry is under huge pressure to reduce expenses. In other words, things aren’t as simple as some would suggest.

That’s how the economics work. But there also is the issue of our environment.

Only the most recalcitrant observers would deny there aren’t benefits from reducing emissions and slashing the burning of fossil fuels.

Many people in the trucking, automotive and transportation industries, as well as much of the U.S. population, would agree these goals are worthy even if there is some cost involved.

That should be the centerpiece of this business coalition’s argument. The debate we should be having is over the size of the environmental benefits from increasing the standards and what expenses are reasonable to bear. We also need to talk about who should bear these costs.

Should the burden fall on the trucking industry, which provides the wheels upon which our economy rolls? Should it be the consumer who orders a book or a case of bath soap in the evening and expects it to be delivered on their doorstep the next day?

That’s where the real discussion needs to take place. Arguments pretending that gains can be painless suggest that proponents are afraid the environmental argument isn’t strong enough to prevail on its own.

2 Responses

  1. Dean Thompson

    Although I really do believe that the protection of the environment is one of the most important discussions of our time, I have to agree that any arguments we make in favor of this should take the force of the markets into serious consideration. I hope that there are technologies in the future that make this possible.

    Reply

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