DTF's Schaeffer, UCS's Robinson discuss future for diesel cars, energy tax provisions

New sulfur standards for diesel engines go into effect in 2007. But what about the millions of older diesel engines still on the road? Will a $1 billion Senate proposal to retrofit old diesel engines help fix the problem? Will the U.S. EPA get the funding needed for that effort? And should Congress give tax breaks to consumers who buy fuel-efficient diesel cars? Allen Schaeffer, executive director of the Diesel Technology Forum, and Michelle Robinson, Washington director for the clean vehicles program at the Union of Concerned Scientists, look ahead to the fuel's future.


Brian Stempeck: Hello and welcome to OnPoint. I'm Brian Stempeck. Joining us today is Allen Schaeffer, executive director of the Diesel Technology Forum, also with us is Michelle Robinson, Washington director of the Clean Vehicles Program at the Union of Concerned Scientists. Thank you both for joining us.

Michelle Robinson: Glad to be here.

Allen Schaffer: Thanks for having us, Brian.

Brian Stempeck: We just saw the Senate add a major amendment on diesel to the energy bill. Allen, just explain for us briefly what that amendment would do.

Allen Schaffer: Well this is really an important amendment. It sets up a diesel retrofit program that provides grants to both state government and federal programs, a distributed amount of 70/30 percent, 70 percent for national, 30 percent of the funds to the states. It's a five year program and one of its most important features is that it authorizes a program for five years, each year about $200 million eligible to be funded for a grand total of $1 billion over five years. We think that's very significant. It's really the right legislation at the right time for both the technology and where we are policy wise. So it looks at all retrofit technologies in all sectors, which is another very important part of it and I think, finally, the most notable piece about this legislation is the group of organizations that came together to help forge it. I think evidenced by this show today, the progress with industry, the Union of Concerned Scientists, Environmental Defense and other groups are really coming together with Senator Voinovich to hammer out a really fine piece of legislation.

Brian Stempeck: Basically this is being done in advance of the 2007 regulations from EPA in diesel which affects new engines and new vehicles built, but the other concern is all the existing vehicles on the road. I think there are about 11 million different engines that would be affected here. How many of those have been retrofitted and, I guess, how many would be affected by this new amendment?

Allen Schaffer: Well I'd say right now in terms of retrofits nationwide we're probably in the realm of 100,000, maybe 150,000 units have been retrofitted, depending on how you define that it might be a little bit higher. But what we have coming up next year is really the thing that will enable this bill to be very successful and that's the availability of cleaner diesel fuel, the ultra low sulfur fuel, starting in September. With that fuel nationwide this really offers endless opportunities to put catalytic converters, regenerative traps on lots and lots of different kinds of technology. Really one of the things that's held us back, up until now, has been the availability of cleaner fuel. So we think this bill, again, is the right legislation at the right time.

Brian Stempeck: Michelle, what do you see as, I guess, the major public health benefits and why was UCS involved on crafting this amendment?

Michelle Robinson: Well, Brian we got involved in this because we had been working for the last several years on the new regulations that, as you pointed out, are about to go into force and on cleaning up diesel fuel. We felt like now was the time to come together with industry, with some key folks in the federal government and create a national program. The main reason being, because there are 11 million existing diesel vehicles out there that range from on-road vehicles like transit buses and waste haulers and long haul trucks to off-road vehicles such as construction equipment and tractors, those kinds of vehicles. There's a huge pollution problem that still needs to be addressed. The good news is we have the technology to do that and it's very important because from a health perspective diesel exhaust has a number of compounds in it, 40 different compounds that have been identified as possible human carcinogens. So it's got cancer causing issues. It is made up of also smog forming pollution and fine particles also known as soot or particulate matter. Particular matter is probably the most important from a health perspective because we breathe it deeply down into our lungs. It's particularly a problem for children and the elderly and it can exacerbate asthma, respiratory ailments, heart disease and even cause premature death. So from our point of view, though diesel engines are very important part of our economy, it's even more important now to take the technology we have available and the progress that industry has made in cleanup technologies and get those out there on a large scale.

Brian Stempeck: Can you give me an example of how something like this goes into effect on the ground? You're talking about these grants that are going to go from the EPA to the states, what's that like if you were explaining this to the average person outside the Beltway, what is an example of how this kind of thing goes forward?

Michelle Robinson: Well, because a national program like this has never been put together, I think this is a new model.

Brian Stempeck: Right.

Michelle Robinson: But it's being built on successful programs that have already been developed in several large states, like the state of California, the state of Texas, the state of New York. They've kind of broken ground a bit to develop programs at the state level, what this legislation does is take some of the best lessons learned from the states and puts those into play at the federal level. So EPA will have a large say over the largest chunk of this money. They want to aim the funding at public fleets as much as possible because that will be a big bang for the buck. But also then have some money available to states, some matching funds for states so that they can leverage the money that they now have dedicated at the state level toward this end. So the process of applying for these monies and eligibility criteria and all that will move as we put this program together and get it going.

Allen Schaffer: Right, and there are plenty of factors that will help guide us, one being where the equipment is operated, if it's operated in urban areas, sensitive areas for example, and it requires the use of verified technologies, which the EPA and the California Resources Board have lists of today. We expect that in the next couple of years those lives will be growing, of equipment that can reduce NOX, PM, hydrocarbons substantially. So there's some guidance there to help us understand how this program works, but that will be one of the first challenges of the first year the program.

Brian Stempeck: One of the big questions of course moving forward, as we were talking about before the show, is will the money be there to fund this program? It's $1 billion over five years and, as we're talking about, it's a really tight budget situation. Is this going to be an unfunded mandate given to EPA, which is facing budget cuts in a lot of areas already?

Allen Schaffer: Well I think the important part about this program is that it establishes a program for five years. I think some other things have been just thrown in, line items, into a budget that can be easily stricken with no remorse. And what this does is say every year we've got an opportunity and it comes back to groups like ours to try and make that opportunity fully funded, as much as possible. So we'd love to see more than $200 million every year for five years, but I think we're realistic that it may not be that every year, but that's our goal and that's where we need to start and working together on the appropriations side we have our best chance.

Michelle Robinson: And the other important point is that the support for this bill is quite broad, and it came together fairly quickly, which I think demonstrates the interest in getting this program up and running even in a tough fiscal climate. So we have support from the lead sponsors, Senator Voinovich from Ohio, Senator Carper from Delaware, but then the support from the early cosponsors ranges across the country, from California to Texas to Vermont. So I think we've got broad bipartisan support initially in the Senate, and hopefully we'll have the same kind of response on the House of Representatives side.

Brian Stempeck: Kind of looking elsewhere in the energy bill, you both clearly agree on a lot of the diesel amendment that was offered last week, but as we're talking about some of the tax credits and we're looking at hybrid cars and clean diesel, I know this is an area where you probably differ. Allen, can you explain to us, as the House and Senate meet for conference coming up, what you expect the final product to be on tax credits for consumers to buy hybrid cars or clean diesel? What do you think is going to come out of there?

Allen Schaffer: Well back in April President Bush came out and made the bold statement, which had not been made before, that clean diesel vehicles should be eligible for the same kind of scaled tax credits that the hybrids have received for the last few years. And that's owing to diesel's progress and its opportunity to offer us a way to save energy in this country and reduce our dependence on foreign oil. I think that really set the ball in motion. What we're hoping for is just a chance, an opportunity to have that incentive to get more of these vehicles out there in the hands of consumers, because they do get 20 to 40 percent better fuel economy and they have to meet the EPA emission standards to be eligible for these credits. So we're not talking about changing standards. We're not talking about special treatment, we're talking about an incentive to try and get diesel vehicles out there today and right now diesel vehicles -- the sales every year and are less than 1 percent of all new vehicle sales. So it's an important opportunity for consumers that, you know, today with gasoline prices and crude prices just continuing to escalate up, the clean diesel option is an important one and we're hoping that it stays in the bill.

Brian Stempeck: But most consumers, if they're concerned about fuel economy and they want a car that gets better mileage, they're going to look to the Toyota Prius. They're going to look for hybrids. So you have a kind of a serious public relations battle on your hands, overcoming the past legacy of diesel and also, basically, you're competing with the hybrids that we're seeing from every manufacturer coming out now.

Allen Schaffer: Well, I would say this is not a challenge between diesel and hybrids. I think there's room for all of these technologies really and the same people that might be interested in the hybrid I think would give a diesel a look. For example, someone that wants to tow a small boat or trailer, a Jeep Liberty with a diesel engine is going to be able to tow up to 5,000 pounds, whereas the new Lexus hybrid, for example, that can't even be driven off-road. So you have different kinds of things that are going to appeal to different people and I think the consumers are the ones that will make the choice and what we've seen over the last five years is that a growth in, even with the very limited number of diesel models available, about 56 percent increase in the number of diesel cars sold from 2002 through 2004. So consumers, even with a very limited number of choices, they recognize the value and benefits of diesel. They feel more comfortable with it and they're willing to make an investment in the technology.

Brian Stempeck: Michelle, there's only a limited amount of money that Congress can put towards these energy tax credits and so a lot of people are saying why are we putting money towards diesel? There's a lot fewer cars that would benefit from that. What's your position on where the money for the tax credits should go?

Michelle Robinson: Well, I think we have primarily said that funding should go to truly advanced emerging technologies with the focus primarily on hybrid technologies, but also fuel cells and both these technologies are in the light duty sector, so passenger cars and trucks, but also in the heavy duty sector. So that's a lot of what is in the Senate finance package today.

Brian Stempeck: Right.

Michelle Robinson: The House of Representatives has had a little more of an inclination toward funding diesel vehicles and our position on that has been we want to make sure that incentive funding for diesel passenger cars and trucks needs to be pegged to environmental performance. Just the same way that we have it set up in terms of funding hybrid technologies or other advanced technologies. So, as Allen says, enormous progress has been made in the emissions area from diesel passenger cars. The challenge is we want to make sure that federal dollars go to consumer tax credits to help them purchase vehicles that are actually as clean as or cleaner than the average vehicle on the road and that's where we want to push diesel in that direction a bit. We want to make sure that the emissions criteria for federal consumer tax credits is pegged to a cleaner level, a cleaner emission standard than just the prevailing EPA standards, because the EPA standards are set up so that some vehicles can be dirtier than others. And if we're talking about federal investment we'd like to push the cleanest emission control technology into the marketplace for light duty diesels.

Allen Schaffer: The other side of that of course is that every day we hear stories upon stories about how consumers are waiting six months to get hybrids. Why does that technology need to be incentivized when people are already standing in line to buy it without necessarily having an incentive readily available? In some cases it's not in the state level, but at the federal level. So we look at it as let's give us an opportunity here. We're meeting the EPA emissions criteria and we're going to do as good or better on fuel economy. A diesel car, for example driving long distance over highways, it's going to be as good as if not better than a hybrid, because the hybrid cycle really optimized is optimized for suburban driving conditions. So they each bring different things to the table and I think the important thing here is let's have some equity in treatment and see what happens. Maybe the diesels won't take off in the U.S. market.

Brian Stempeck: Michelle, some of the diesels available now, like the Jeep Liberty, some of the Volkswagen models, are already available in the relatively clean diesel version. Do you think those cars available on the market right now are clean enough or should the tax credits only be applied to cars that are cleaner than that?

Michelle Robinson: Well actually, they are cleaner than diesel vehicles from many years ago, but they're not as clean as they could be. In fact, if you go into a showroom today to purchase a diesel vehicle, for the most part, you're going to find vehicles, for example the new Volkswagen Beetle, that is still dirtier in terms of smog forming pollutants than the average car, then say a Toyota Corolla.

Brian Stempeck: OK.

Michelle Robinson: So you can find diesel vehicles in the showrooms today that are better than diesels from days of old, but they are still four to eight times dirtier than the average gasoline car today. From our perspective diesel's moving in the right direction, and we want to see the best emission control equipment used on new diesel passenger cars. We want to push the industry in that direction, but they're not quite there yet. Several years down the road I think we will be there and certainly with cleaner diesel fuel that helps us get there, but we feel like there doesn't need to be a trade off between fuel economy and emissions and gasoline cars today can provide great fuel economy and great emissions performance. We want to see diesel get better on the emissions side of things and then we'll have vehicles that we feel like we can really recommend to consumers.

Allen Schaffer: Sure, the tax credits would only apply starting in the year 2007, the 2006 model year, when the cleaner diesel fuel becomes available. I think that opens the door for the opportunity to meet the more stringent emissions standards. So if the thing was passed tomorrow and incentives became available today, I'm not sure that the vehicles currently available would qualify, but we've seen some great opportunity here. DaimlerChrysler announced a bionic car, not more than two or three weeks ago, that gets 80 miles per gallon and meets emission standards and is a very interesting kind of car that provides us some very immediate benefits in saving energy. I think that's what we have to look at here. We have to balance the benefits that diesel brings to weigh energy in its environmental performance and none of our members, and none of the companies I've talked to, are talking about changing emission standards. We want to meet the emission standards for 2007. We're talking about the new standards that begin phasing in next year. So we agree about the need not to sacrifice environmental performance and folks are going to meet that target.

Brian Stempeck: One last question for you both because we're running out of time, but looking at your crystal ball to give the predictions, what do you think the Congress is going to do as they finish up the energy bill and finish with the tax package? What do you see as the breakdown for hybrids and diesels?

Allen Schaffer: Well, I have to be an optimist, and I think we're going to have the diesel hang in there, where we hope it to be, where we have in the House version, we're looking to get that same kind of carryover through the conference committee and we'll see where we are. But we have to be optimistic about it because we're looking at every day in the newspaper stories about high gasoline prices, and I think this year, more than the last three, we have the best chance ever to pass an energy bill and I hope we can get it done.

Brian Stempeck: Michelle, your thoughts?

Michelle Robinson: Well, hopefully the finance package, what we will see is the best combination of what's in the Senate package and what's in the House package now. We want to make sure, again across the board, that all the vehicle technologies are held to environmental performance criteria, that means that a consumer is actually -- when they're given public dollars to help them buy that vehicle, that the vehicle is actually as clean or cleaner than the average vehicle out there today and has great performance in terms of fuel economy. In particular, just to say one more thing about the hybrids, we're very pleased that there are waiting lists for the hybrid vehicles that are out there today. But one of the important reasons we need the tax incentives package to move forward is that we want the industry to begin to hybridize across lots of their vehicle models and right now there's just a handful of models that are available. And in terms of diesel vehicles, we want to make sure that any choices the industry makes to pursue different diesel models that they do it in a way that is going to incorporate the best emission control equipment.

Brian Stempeck: All right, we're out of time. We're going to stop there. I'd like to thank both of our guests today. That was Allen Schaffer and Michelle Robinson. I'm Brian Stempeck. This is OnPoint. Thanks for watching.

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