CARB Releases Warranty Cost Study for Heavy-Duty Omnibus Regulation
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The California Air Resources Board has released its analysis of cost estimates for lengthened warranties required under the new Heavy-Duty Low NOx Omnibus Regulation (regulation). The regulation went into effect at the end of 2021 and is a key part of California’s Mobile Source Strategy for improving public health by reducing air pollution from the transport sector. The purpose of longer warranty periods for emission control-related equipment on heavy duty trucks is to better ensure they perform as intended for the hundreds of thousands of miles trucks are typically driven. The new report released by CARB provides analysis of cost estimates for longer warranties required for the emissions reduction equipment used in 2024 model year and later heavy-duty vehicle engines. The report is in response to board direction to staff given when the board approved the regulation in August 2020. CARB staff’s original warranty cost estimates were challenged by the Engine Manufacturers Association, and the board directed staff to form a working group to review their estimates in comparison to industry estimates.
The working group met more than 16 times over nine months. Based on the working group process and documentation in the report, staff concluded no substantial changes to its original estimates are required. As part of the report, CARB staff compared 2022 model year warranty cost estimates made by CARB and manufacturers that reflect the intermediate impact of lengthening warranty periods. The report finds that, on a “per miles covered” basis, the industry data essentially agrees with CARB’s lower estimates for current model year vehicles.
Other conclusions identified in the report include:
• Staff disagrees with industry assertions that costs of poor design for new technology should be considered warranty costs; warranty is intended to help ensure defects in materials and workmanship are repaired but is not meant to protect manufacturers from having to design durable components. Additionally, most of the equipment involved uses technology that is already on the market.
• Industry contends new technology design means large additional cost assuming higher failure rates of new technology and additional warranty costs to cover failures of new technologies. Staff on the other hand concluded new technology costs are part of engineering design costs and not warranty costs. The analysis shows that even if warranty costs of new technology were included, its recommendations would be the same, and any additional cost would be far below industry estimates.
• A staff survey of owner-operators also indicates that the extended warranties will likely increase the resale value of compliant vehicles due to remaining miles of warranty coverage. For example, A remaining two years or 200,000 miles of warranty coverage can increase resale an average of $2,000.
• The regulation is cost-effective, returning an estimated $23.4 billion in benefits compared to about $2.39 billion in costs. This includes 2,480 lives saved and 2,010 avoided hospitalizations over the life of the regulation from decreased diesel emissions.
• This regulation will have a direct public health benefit in California’s environmentally overburdened communities, which are often surrounded by major highways and transport facilities. The regulation will reduce oxides of nitrogen (NOx, which is a basic component of smog) from heavy-duty trucks and engines by 17 tons a day statewide when fully in force by 2031. That is equivalent to removing 12 million light-duty vehicles from the road for a year.
The new rule will be phased in, allowing engine manufacturers time to prepare for compliance. The NOx standards that engines must meet will be cut to approximately 75 percent below current standards beginning in 2024, and 90 percent below current standards in 2027.
