2023 Report

Public policy and funding shifts sharply to build the ZEV market and accelerate the sunset of diesel

Federal and state regulations and funding were crucial to establish and build markets for renewable fuels and natural gas and propane vehicles during the past few decades. In 2022, federal and many state policymakers ramped up a trend that began the past few years with new laws and legislation aimed at requiring ZEV and associated infrastructure deployments. A total of 13 states and the District of Columbia have passed or are considering some form of California’s 2020 Advanced Clean Trucks (ACT) mandate on vehicle manufacturers to begin selling ZEVs. These same states are expected to consider California’s Advanced Clean Fleets (ACF) mandate that passed in April and requires many vehicle fleet operators to begin transitioning to ZEVs as early as 2024. Most of these same policymakers have directed historic levels of funding, averaging $32 billion per year for the next four to five years, to support vehicle purchases and install infrastructure that is mostly aimed at ZEVs.

The federal government and California have also passed rules requiring that diesel engines cut NOx emissions by 80%. The EPA’s Clean Trucks Plan, passed at the end of 2022, joins California’s even more stringent Heavy-Duty Low NOx Omnibus with requirements that take effect as early as 2024 in California and 2027 nationally. Engine manufacturers that have evaluated the solutions that will be needed to meet these requirements, including rigorous new testing procedures and longer useful life and warranties, expect compliance to add tens of thousands to the cost of a new diesel tractor, while likely requiring additional ongoing maintenance. In anticipation of a transition to new technologies that these and other signals have brought about, leading HD manufacturer DTNA announced the “beginning of the end of the diesel era” and rival Navistar signaled plans to sunset their diesel development programs starting in 2027.

Value of efficiency and renewable fuel for diesel vehicles remains strong, renewable diesel supply growth continues

With diesel prices reaching historic highs in 2022 due to factors like the ongoing war in Ukraine and U.S. inflation — both of which are unlikely to resolve in the near term — fuel efficiency and renewable fuels are ever more essential for fleets. Average per-gallon prices of gasoline and diesel rose by 41% and 56%, adding $0.80/gal and $1.50/gal to fueling bills, respectively, last year. While biodiesel (BD) blends and RD also saw prices increase, the highest BD blends offer about 5% savings compared to diesel, and fleets report equivalent-or-better prices for RD in states with carbon credit markets. Fleets that have adopted diesel alternatives can use BD to replace up to 20% of their diesel consumption, while RD is effectively a 1:1 replacement, and those same fleets in the annual survey report a preference for them when costs are near or at parity with diesel. Combined with efficiency technologies and practices, where most fleets can achieve an average 16% improvement in fuel economy and up to 9.6 miles per gallon with the newest tractors, these technologies offer cost and emissions benefits for many fleets that they can “drop-in” to their existing diesel fleet.

RD itself continued to experience dramatic supply grow and increased demand in states with carbon credit markets. In 2022, domestic RD production doubled from 800 million gallons in 2021 to more than 1.7 billion gallons. A significant drop in credit prices related to large volumes of renewable fuels in California’s carbon credit market may reduce the rate of RD supply growth, but the industry still expects to reach its national 5-billion-gallon production capacity target in 2024, one year ahead of schedule. On the demand side, national RD consumption increased by more than 45% for the second year in a row, and it represented 83% of all bio-based diesel consumed in transportation in California for the first three quarters of 2023. For the first time since the inception of the annual State of Sustainable Fleets survey of fleets, more fleets report using RD than BD.

CNG and propane retain cost advantages while new vehicles entering the market expand options for fleets

CNG and RNG continue to offer price advantages compared to diesel, with long-term fuel supply contracts protecting fleets from market volatility. The national average public retail price of fossil CNG reached $2.73 per diesel-gallon equivalent (DGE) in 2022, and surveyed fleets report similar prices as well as an average of $3.11/DGE for RNG, with RNG purchased mostly in California. While the end of 2022 brought supply shortages that resulted in a price spike, it was short-lived, and a multi-year extension of the Alternative Fuel Tax Credit (AFTC) helps ensure ongoing price advantages. Combined with California’s Low Carbon Fuel Standard (LCFS) market, it is a primary reason why more than 95% of natural gas used in transportation is now renewable for the second year in a row in the state.

Propane vehicles also continue to be a cost-effective solution for many MD and school bus fleets, with propane prices remaining lower than gasoline, even while year-over-year fuel prices rose by 15% to $2.10 per gasoline-gallon equivalent (GGE). Fleets using private fueling, which are the majority of propane vehicle adoptees, saved $1.94 per GGE over gasoline on average. The extended AFTC provides a tax credit of $0.36 per GGE for propane along with a 30% tax credit or up to $10,000 for fueling infrastructure investments through 2024.

Both fuels are supported with new vehicle options entering the market in 2024 that expand these technologies for additional applications. For natural gas, PACCAR has already announced plans to offer a 15-liter CNG engine with its Kenworth and Peterbilt brands, and other manufacturers are rumored to be considering it. Walmart is testing the X15N now at its Fontana, California location. With propane, MAFI revealed a propane yard truck design using PSI’s 8.8-liter engine and Cummins will bring a 6.7-liter engine to market that could be suitable for off-road vehicles such as yard trucks. Manufacturers of many of the new CNG and propane engines aim for certification to the 0.02g/bhp-hr NOx standard to ensure that vehicles using them comply with new California and EPA standards.

Interest in battery-electric vehicles is high and broad, though supply, cost, and infrastructure barriers persist

BEV interest by fleets has grown to become the highest among clean drivetrains in the State of Sustainable Fleets survey, and it is spreading across a broad range of fleet types. According to respondents, 65% of surveyed fleets have used a BEV in the past two years and 92% of fleets with BEVs intend to grow their use in the next five years. For the first time among the technologies studied in this report, use reached at least 50% of respondents in all 11 of the applications — called “fleet types” — tracked in the annual survey. Interest is translating into demand in some applications: Orders for MD vehicles soared to nearly 30,000 in 2022, with most represented by Ford and GM products. Demand for HD vehicles remained steady overall, with tractor and transit vehicles seeing orders in the mid hundreds and school bus orders climbing to 2,400. Although interest is high and broad, BEVs currently comprise an average of 4% of a fleet’s vehicle population per survey results, reflecting this technology’s state as an early commercial product that fleets are still learning.

Supply chain disruptions, high costs, and infrastructure availability and reliability persist as barriers to larger deployments. Ford paused Lighting orders temporarily and Rivian slashed production targets, while Lightning eMotors reoriented to focus on repowers — three examples of manufacturers adapting to ongoing supply chain troubles. The more mature passenger car market saw raw materials costs rise 140% between May 2020 and May 2022, while battery prices rose by at least 14%. Changes in the passenger market suggest that commercial BEV prices also increased. The base price of a Class 8 BEV tractor is approximately $350,000 to $500,000, or three to five times the price of a new diesel truck. Fleets that overcome the vehicle price barrier can still face multi-year queues for electrical service and concern over charging during flex alerts and rolling brownouts and blackouts. Government and industry committed hundreds of billions of dollars to infrastructure development in 2022 to bridge the gap, but grid capacity must grow by 60% before 2030 to meet national electrification goals.

Public and private hydrogen investment emphasizes fueling, while commercial heavy-duty vehicle offerings expand this year

Public and private investments continue to focus on building the supply and infrastructure for hydrogen as a transportation technology. The U.S. Department of Energy (DOE) projects that the need for electrolyzer capacity, a technology that most experts consider essential to producing renewable hydrogen, will grow by 1,600%. The DOE will make a decision late this year on project applications to distribute $8 billion in funding designated by the IIJA to develop six to 10 regional “hubs” of production and distribution, several of which are expected to focus on renewable hydrogen.

Analysis suggests that hydrogen fuel production projects announced in 2022 will add more than 900 metric tons per day of hydrogen capacity by 2023. Station network growth to distribute this capacity has resumed, expanding 12% to 54 stations in 2022, all but one in California. Plans by infrastructure developers now include networks across the central, mid-Atlantic, and southwestern U.S. — a first for public hydrogen fueling networks outside of California.

Sales and deliveries of fuel cell electric buses for transit continued, while tractor demonstrations moved the technology closer to early commercial orders. Public announcements indicate that transit agencies and manufacturers prioritized filling existing orders in 2022 rather than placing new orders. The first Class 8 tractor demonstrations continued in 2022, with Hyundai preparing for its June 2023 demonstration of 30 Xcients in California and startup Hyzon delivering units to TTSI in California and Exxon Mobil in Texas. Nikola plans to make the first customer deliveries of a commercial fuel cell tractor in Q3 2023 after receiving approval in December from California to sell to in-state customers and apply for state incentives. Other OEMs that have announced fuel cell electric tractors include Hino and Kenworth, with some models available as early as 2024.