The R&D Tax Credit Aspects of Truck Fuel Efficiency

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        The U.S. trucking industry is experiencing major innovations in order to increase fuel efficiency.  Trucking is vital to the national economy and almost every industry in the nation depends on it in one way or another.  The cost of shipping is internalized into everything from healthcare, ATM fees, hamburgers, and everything in between.  

        Most large trucks get less than six miles per gallon and the rate at which they consume fuel has remained stagnant for the past fifty years.  Realizing this, President Obama directed the Environmental Protection Agency (EPA) and the Department of Transportation’s (DOT) National Highway Traffic Safety Administration (NHTSA) to develop joint greenhouse gas and fuel efficiency standards for heavy-duty vehicles in 2010.  

        The agencies responded in August 2011 with the first standards for new heavy-duty vehicles for model years 2014 through 2018.  Since then, a second phase of even more stringent standards has been proposed that would increase fuel efficiency by 24% by 2027.  

        Manufacturers can meet those standards with a range of different innovative technologies.  More efficient combustion processes, engine, and drive train improvements and shapely aerodynamics are a few of the possibilities. Truck manufacturers developing these and similar technologies are eligible for federal and state R&D tax credits which can be quite substantial.

The R&D Tax Credit

        Enacted in 1981, the federal Research and Development (R&D) Tax Credit allows a credit of up to 13% of eligible spending for new and improved products and processes. Qualified research must meet the following four criteria:

  • New or improved products, processes, or software
  • Technological in nature
  • Elimination of uncertainty
  • Process of experimentation

        Eligible costs include employee wages, cost of supplies, cost of testing, contract research expenses, and costs associated with developing a patent. On December 19, 2014, President Obama signed the bill extending the R&D Tax Credit for the 2014 tax year.

Trucking and the National Economy

        Tractor trailes, buses, trucks and other heavy duty vehicles drive the national and local economies in a way that many people often overlook. Almost every industry relies on them in one way or another in order to sustain oparations.  
        If they stopped running for just a few days, there would be extreme food shortages, hospitals would cease to operate, waste would pile up on the curb, ATMs would run out of cash, gas stations would run out of fuel, and nearly every type of manufacturer would shut down. The recent popularity of just-in-time manufacturing, zero inventory, and lean distribution chains have amplified this effect.

        The cost of maintaining inventory and transporting goods each day is ultimately passed on to the final consumer of any given product. The largest expense per mile for trucking companies is fuel.   Fuel costs per mile ($0.65) are even more than the competitive salaries that the industry pays their drivers ($0.56 including benefits).  Given the broad range of products and materials shipped by truck each day, the impact of fuel efficiency on the national economy is profound.   In 2014, the industry spent $150 billion on diesel fuel in order to ship 70% of freight in the country that is moved by truck.  Even the 30% of freight shipments moved by rail must ultimately be transported from rail yards to their final destination using trucks.  

        While trucks and buses make up only 7% of U.S. vehicles, they consume more than 25% of all the fuel used to travel them.  The annual emissions savings from just a 10% improvement in fuel efficiency for a typical tractor-trailer is equivalent to the annual emissions from nearly four passenger vehicles.  Given the fact that each long-haul tractor trailer averages over 100,000 miles per year, it is easy to see how a more fuel efficient vehicle could have a large impact on cost savings for trucking companies, a healthier environment and ultimately cheaper prices for consumers in every industry.


        The EPA recently proposed regulations for heavy duty trucks, requiring manufacturers to increase their fuel economy 40% by 2027.    The new regulations seek to raise the average mile per gallon from five to six to as much as nine miles per gallon.  The latest proposal which came out June 2015, is the second of a series of mandates that have been implemented incrementally since 2010.    

        Before 2010, heavy duty trucks and buses were required only to meet pollution standards for soot and smog causing air pollutants.  There were no such requirements for the fuel efficiency or even carbon pollution. In 2010, total fuel consumption and greenhouse gas emissions from heavy duty vehicles accounted for 23% of total U.S. transportation related greenhouse gas emissions.  

        Beginning in 2011, fuel economy and global warming standards are applied to new trucks sold between 2014 and 2018. These requirements will reduce oil consumption from the heavy duty vehicle fleet by 390,000 barrels per day in 2030, roughly equivalent to the amount of oil we import each year. The standards will also cut global warming emissions by 270 million metric tons in 2030, equivalent to the emissions from more than 4 million of today’s passenger cars over their lifetimes.

        Separate standards are required for gasoline powered trucks which must achieve up to 15% reduction in fuel consumption and greenhouse gas emissions by model year 2018.  Under the finalized standards, this translates to a savings of about one gallon of fuel for every 100 miles traveled.

        These proposed more advanced regulations are expected to apply to model years 2018 and beyond and cover almost any truck larger than a standard pickup and will cut millions of tons of carbon dioxide pollution in addition to saving millions of barrels of oil.    

        The EPA and DOT estimate the proposed standards would result in approximately $230 billion in net benefits over the lifetime of the vehicles sold in the regulatory timeframe, while costing the affected industry less than one-tenth that amount.  Per truck, those costs would amount to an increase of about $10,000-$14,000 on the sticker price but owners would recoup that amount in fuel savings in less than 2 years which is why the large majority of the industry is embracing the regulations.  Requiring all truck manufacturers to meet the standards eliminates a possible race to the bottom in which some manufacturers might otherwise try to appeal to a certain niche market that prefers a cheaper sticker price even if that means a less fuel efficient truck in the long run.


        There are a broad range of technologies being developed in the trucking industry to increase fuel efficiency.  Medium and heavy duty trucks and truck components are produced by a diverse group of manufacturers, including truck makers, engine, trailer, and tire manufacturers, and a large supply chain. Together, they are responsible for the sale of roughly 1,500,000 new vehicles each year, employing workers across the country.

Combustion Chamber
        Improving the efficiency of internal combustion engines is one of the most promising and cost-effective approaches to increasing heavy duty vehicles' fuel economy.   At highway speeds, more than half of the energy contained in diesel fuel is lost to inefficiencies in the combustion process of the engine.  Despite the evolution of engine technology over the past 100 years, the diesel engines used in most of today’s tractor trailers convert less than half of the energy in the fuel to operating the vehicle. The DOE sees that inefficiency as a good opportunity to improve fuel efficiency.  

        The Vehicle Technologies Office (VTO) undertakes R&D activities to improve the efficiency of engines for both light and heavy duty highway vehicles.  Research, in close collaboration with automobile and engine manufacturers, will directly impact the development of the next generation of high efficiency engines.  The Advanced Combustion Engine R&D subprogram’s SuperTruck initiative focuses on increasing the efficiency of internal combustion engines for commercial vehicles from 42% to 50% (a 20% improvement) by 2015.

        The goal by 2020 is to further improve engine efficiency to 55% with demonstrations on commercial vehicle platforms.  Besides collaborating with industry manufacturers, the federal government also works closely with universities in order to develop fuel efficient technologies.  

        The amount of recent grant money given to universities to develop combustion engine fuel efficiency technologies is listed below:

DOE Engine R&D Grants:
  • University of California, Berkeley - $1.65M
  • Michigan State University - $1.30M
  • Michigan Technological University - $0.65M
  • University of New Hampshire - $0.60M
  • The Pennsylvania State University - $0.60M
  • University of Connecticut - $0.80M
  • Stanford University - $1.2M
  • Clemson University - $1.0M
  • Yale University - $0.60M Emission Control Research
  • University of Kentucky - $0.90M
  • University of Houston - $1.20M
  • Purdue University - $1.50M

Diesel & Alternative Fuels
        Much of the innovation surrounding fuel efficiency involves not only using less of the fuel used to propel the engine but also making engines that run off non-conventional fuels or even have the capacity to interchange fuel types.  Many medium sized trucks run off gasoline however, greater use of diesel technology and other fuel alternatives would help the U.S. reduce petroleum consumption and improve energy security.  The EPA estimates that America could save up to 1.4 million barrels of oil per day if one third of U.S. cars, pickup trucks, and SUVs were diesel-powered or ran off alternative fuels.  

        MIT professors are developing an engine that has the ability to run off both gasoline and ethanol.  To make the engine workable they started with a regular gasoline turbo engine and added a conventional port-fuel injection system to it, then added a second, small fuel tank and filled it with ethanol. When pulling light loads, the engine runs off regular gasoline and port injection.  When more power is needed, the system injects the ethanol fuel.  The ethanol has a higher octane rating, saves the driver gasoline costs, and has an impressive cooling effect.

Natural Gas
        Natural gas is a good alternative to diesel fuel for trucking companies who are looking to identify with the green market.  Although the trucks cost as much as $50,000 more than diesel trucks, the initial cost outlay can be made up in a period of 4-5 years depending on how many miles the truck travels per year.   This year, UPS has ordered about 300 natural gas-powered heavy duty trucks and bought 700 gas tractors last year. The trucks operate mostly in corridors in the West and South that have plenty of natural gas stations, some of which UPS helped to finance. By the end of the year, about 2% of UPS's 100,000 vehicles worldwide will be powered by natural gas.

        Although there was an initial hype about natural gas alternatives in the trucking industry, some of that enthusiasm might have been curbed by the new mandates which require diesel and gas engines to improve fuel mileage by 6% by 2017.  With the new mandates, diesel trucks that are more fuel efficient can compete more competitively with the more efficient natural gas alternatives.  

        Some trucking companies prefer to convert diesel vehicles to run on natural gas.  Properly implemented, this is an excellent way to quickly reduce fuel costs, clean up the air and reduce noise with minimum capital costs. A poorly executed conversion, on the other hand, can lead to higher exhaust emissions, much higher fuel consumption, unacceptable power losses, poor durability, and high maintenance costs.

        EPA's emissions requirements and regulations still apply to vehicles converted to run on CNG or LNG.
EPA requires conversion system manufacturers to demonstrate that converted vehicles or engines meet or exceed the same standards as the original vehicle/engine. The benchmark for these vehicles is the required efficiency of an equivalent vehicle powered by diesel.  Thus, a natural gas vehicle, with 30% less CO2 emissions per gallon equivalent than the identical vehicle fueled by diesel, would be presumed to be 30% more efficient.  Such a large improvement of course would be more than the 6% requirement for diesels by 2017.

Drive Train Improvements
        In addition to combustion chamber research and innovative fuel alternatives, innovations in the drive chain also increase fuel efficiency. Transferring power from the engine to the transmission can account for up to 6% of total heavy duty vehicle energy losses.  The SuperTruck program has set a goal of increasing drive train efficiency to 55% and is currently demonstrating many technologies in order to achieve that result.      

        One approach aimed at improving this inefficiency is called engine down speeding.  With this technology, the engine is designed to provide more torque at lower revolutions per minute (RPMs), meaning less fuel consumption.  Also, because lower engine speeds require more shifting, engine down speeding is typically combined with an innovative automated manual transmission to save even more fuel.   

        Manual transmissions have long dominated the tractor trailer industry, primarily because of the superior fuel economy they deliver when compared with automatic ones. However, Automated manual transmission (AMT) hybrid technology is even more fuel efficient. AMTs, which have been recently gaining market share, combine the fuel economy benefits of a manual gearbox with an electronically controlled gearshift.  The electronic gearshift ensures consistent, fuel-efficient shifting under all conditions.  Electronic sensors help the transmission determine the right gear under any given road conditions, vehicle speed, and load to make optimal shift decisions.  In other words, the computer controls gear switching decisions with more accuracy than the driver.

        In addition, further efficiencies are achieved by implementing dual clutching automation.  When shifting gears on a manual transmission, the engine must be disengaged for a short time during the shift.  In between shifts the engine is running but the drive train is not being powered.   Dual clutch automated transmissions can eliminate this inefficiency by applying the engine’s power to one gear at the same time as it is being disengaged from the other.  Smart technologies such as this are maximizing efficiencies in a broad range of engine and drive train technologies.    

Mack Econodyne
        The MACK® MP8 Econodyne® engine for highway applications offers 505 horsepower and 1,860 lbs. of torque when operating at top gear. This maximizes fuel efficiency while also providing the necessary power to help drivers conquer long and steep grades.

        When ascending a steep incline, engine RPMs drop to around peak torque output.  When a driver is applying 100% throttle and the RPMs reach 1300, Mack’s EconoBoost torque strategy kicks in, providing the driver with an additional 200 lb. of torque, enabling the truck to remain in top gear for a longer time period until the hill is crested.  Drivers get more torque at lower engine speeds, resulting in greater fuel efficiency.

        Aerodynamic truck body designs can have a huge impact on fuel efficiency.  Traditional big rigs expend as much as 50% of their power just pushing air out of the way.  Innovative aerodynamic designs can increase efficiency by at least 15- 20%, eliminating a large chunk of that effect.  Much of the innovation here involves creative ways of closing the gaps in between sections of the outer truck and trailer bodies.  For example, gap fairings reduce turbulence by smoothing the airflow between the tractor and trailer. 

        Aerofficient, based in Livonia, MI develops aerodynamic technology and holds several patents pending.  Aerofficient’s innovative products are used to improve aerodynamics and have been awarded “Top 20 products of 2011” by Heavy Duty Trucking magazine for their Aerofficient Side Skirts product.
        Other innovations being developed in the industry sector involve closing the gap between the tractor and trailer, replacing side-view mirrors with less-obtrusive cameras, low-rolling resistance tires and even a so called “Airflow BulletTruck” designed for Wal-Mart with a front end so sharp that it only has one driver seat directly in the middle of the cab.

Electric Trucks
        Electric trucks are a good option for medium and light duty operators with short distance stop and go daily routines.  They can haul as much as 16,000 pounds and have a range of about 100 miles on a single charge. Large fleets such as Coca-Cola, UPS, and Fed-Ex utilize electric trucks.  

        Not only do they completely eliminate fossil fuel, achieve zero direct emissions, and reduce noise pollution, they also generate positive PR since they are extremely sustainable.  With about 1,000 on U.S. roads today, sales are expected to reach 2,500 to 3,500 units per year by 2020.   

DOE Super Truck Program

        The super truck program, sponsored by the Department of Energy is an industry cost-shared project with a goal to design a heavy duty class 8 truck which demonstrates a 50% improvement in overall freight efficiency measured in ton miles per gallon.  The collaboration of government and industry has far exceeded that goal.  Daimler Trucks North America (DTNA) announced that their Freightliner vehicle achieved a 115% freight efficiency improvement, measured in ton miles per gallon. The truck achieves an impressive 12.2 miles per gallon.

        Peterbilt’s version is the class 8 Peterbilt 587, powered by a six-cylinder, Cummins ISX15 engine with 400-600 HP and a host of energy saving subsystems, including waste heat collectors, navigation guidance that automatically reroutes to maximize fuel economy, and low-rolling resistance tires.  The Mercedes-Benz Aerodynamic Truck and Trailer increases aerodynamic savings by about 12% over conventional designs.  Mercedes says that if there is a demand for the truck, they could quickly have it ready for production.  


        The trucking industry in the U.S. is experiencing major innovations in order to increase fuel efficiency.  Recent government mandates are raising the bar for manufacturers who must now develop more fuel efficient technologies.  More efficient combustion chambers, drive trains, alternative fuels, and aerodynamics are a few ways of accomplishing fuel efficiency goals.  Truck manufacturers should be aware of federal and state R&D tax credits which are available to stimulate and support these innovative efforts.

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