diesel technology and the american economy...the fundamental characteristic of an engine operating...

D02378-00Report

Diesel Technology and the American Economy

Prepared for: Diesel Technology Forum One Dulles Tech Center 2191 Fox Mill Road, Suite 100 Herndon, VA 20171

Prepared by: Charles River Associates 1201 F Street, N.W., Suite 700 Washington, D.C. 20004 October 2000

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Table of Contents

1. Introduction.......................................................................................................... 1 What Makes an Engine a “Diesel” Engine? ........................................................ 1 Why are Diesel Engines Used?.......................................................................... 1 Organization of This Report................................................................................ 3

2. Diesel Use in the United States—A Bird's Eye View ......................................... 5 How Diesel Energy Use in America Compares to Diesel Energy Use in Other Countries ......................................................................................... 7

3. The Work Performed by Diesel Engines in the American Economy—A Sector-by-Sector Look............................................................... 9 The Transportation of Freight ............................................................................. 9 Three Sectors That Are Especially Dependent on Diesel Power ........................ 23 Diesel’s Role in the Transportation of People ..................................................... 33 The Use of Diesels by the U.S. Military .............................................................. 44

4. The Diesel Industry and the U.S. Economy ....................................................... 49 How Big Is the Diesel Industry?.......................................................................... 50 Industries That Sell Goods and Services to the Diesel Industry.......................... 51 Diesel Technology Is an Engine of Economic Growth ........................................ 54 Industries That Are Critically Dependent on Diesel Technology.......................... 55 Diesel Fuel Represents a Large Share of Total Purchases for Some Industries....................................................................................................... 58 Diesel Technology Plays a Role in Nearly Everything Consumers Buy............... 59 What Would Happen If We Could Not Use Diesel Technology........................... 62 Cost Estimates for Replacing Diesel Technology in Three Key Sectors ............. 64 Summary of Costs Incorporated into the I/O Model ............................................ 69

Appendix A: Measurement of the Size of the Diesel Industry ............................. 73 Introduction ........................................................................................................ 73 How Large Is the Diesel Industry........................................................................ 73 Major Components of the Diesel Industry........................................................... 74

Appendix B: Techniques of the Input-Output Analysis ....................................... 79 Matrix Equations for Combining Calculations of Industry Output and Commodity Production Requirements in Input-Output Analysis.............. 79

Appendix C: Incorporation of the Diesel Industry in CRA’s Input-Output Analysis ........................................................................................ 85

References ..............................................................................................................89

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1. INTRODUCTION

Just over a century ago, a German engineer named Rudolf Diesel obtained patents on a new type of reciprocating engine. At that time, two main types of reciprocating engines existed. Steam engines obtained the pressure to drive their cylinders from an external source—steam produced in a boiler. Otto-cycle engines introduced a mixture of fuel and air into their cylinders, compressed it, and ignited the mixture with an electrical spark. Diesel realized that if air could be sufficiently compressed in a cylinder, temperatures would reach the point at which the fuel would ignite spontaneously. Injecting the fuel directly into the cylinder at this stage of the compression cycle would eliminate the need for electric ignition. This process would extract the maximum energy from the fuel, enabling the engine to operate very efficiently.

Since Germany imported all its oil at that time, Diesel originally hoped to be able to fuel the engine with locally available powdered coal. When this option proved impractical, he turned to liquid petroleum. A number of engines demonstrating Diesel’s concept were built, but the first commercial engine constructed on Diesel’s patents was installed not in Germany, but in St. Louis, Missouri, by the brewer Adolphus Busch.1

What Makes an Engine a “Diesel” Engine?

The fundamental characteristic of an engine operating on Rudolf Diesel’s principles is that it compresses air within its cylinders to the point where the heat generated by this compression permits injected fuel to ignite spontaneously, thereby driving the piston. This process—compression ignition—is what distinguishes diesel engines from other engine types. When we use the term “diesel engine” in this report, we will be referring to an engine operating by compression ignition rather than spark ignition.

Why Are Diesel Engines Used?

Diesel engines are used for one or more of the following reasons: (1) energy efficiency, (2) packaging efficiency, (3) durability/reliability, and (4) fuel safety.

1 http://www.britannica.com/bcom/eb/article/6/0,5715,108536+4+106037,00.html.

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Charles River Associates

Energy efficiency. The single most important reason that diesel engines are used in most applications is their superior energy efficiency. Where both diesel engines and spark-ignition engines have reasonably equivalent power output characteristics, the diesel will consume less fuel in performing the same work. How much less fuel the diesel engine will use varies with the application, but typical estimates range between 25 percent and 35 percent.

Packaging efficiency. Spark-ignition engines are not a viable alternative to diesel engines for applications requiring high power output at low speeds. All internal combustion engines produce high temperatures inside their cylinders, but spark-ignition engines generally run hotter than compression-ignition engines and, therefore, require more cooling.2 Generally speaking, spark-ignition engines do not exceed ten liters (600 in3) in displacement and are not used in applications where power requirements exceed about 400 horsepower.

Durability and reliability. Diesel engines are legendary for their durability and reliability. One major diesel engine manufacturer recently tore down a randomly selected 412 horsepower heavy truck engine that had been driven 800,000 miles. The engine was a 1996 model that had been hauling average loads of 80,000 pounds at an average driving speed of 63.1 mph. The engine was judged to be capable of going another 250,000 miles before an overhaul was needed.3 The latest, most powerful AC diesel railroad freight locomotives have a six-year engine overhaul period, a scheduled maintenance interval of 122 days, and a MTBF (mean time between failure) target of 140 days. Large ocean-going ships, typically equipped with only a single engine, trust their safety and the safety of their crew and cargoes to the reliability of diesel engines.

Fuel safety. Diesel fuels generally are less volatile and, therefore, safer to store and handle than the fuels used in spark-ignition engines. This lower fuel volatility is another characteristic that dictates the use of diesel engines in certain applications. Fire fighting equipment, ambulances, military vehicles, boats, school buses, and engines used in certain stationary applications rely on diesel power, at least in part, because of the low volatility and, hence, greater safety of diesel-type fuels. 2 Willard W. Pullcrabek, Engineering Fundamentals of the Internal Combustion Engine, Prentice Hall, 1997. The temperature in the exhaust system of a typical compression-ignition engine will average between 200° and 500°C, whereas the temperature in the exhaust system of a typical spark-ignition engine will average 400° to 600° C, and will rise to about 900°C at maximum power. A full list of references can be found at the end of this report. 3 “Caterpillar C-12 Tear-Down Inspection Confirms Engine’s Durability,” Press Release, September 8, 1999.

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Organization of This Report

This report consists of three chapters in addition to this Introduction. In Chapter 2, we provide a bird’s eye view of diesel use in the United States. In Chapter 3 we present a detailed review of the role that diesel engines play in various sectors. We begin with freight transportation because it is the sector that makes the most extensive use of diesel power. We also review diesel use in agriculture, construction, passenger transportation, and the military.

In Chapter 4 we measure the impact of the “diesel industry” on the U.S. economy. We define the “diesel industry” as including the production of diesel engines, the fuels that power them, and the equipment that contains them. Using a technique known as input-output analysis, we first calculate the composition and magnitude of the diesel industry’s purchases from other sectors of the economy. We then estimate the impact of the diesel industry’s own products on the sectors of the economy that purchase them.

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2. DIESEL USE IN THE UNITED STATES—A BIRD’S EYE VIEW

Diesel engines provide power for an incredibly wide range of applications. The largest diesel engines have up to 10 cylinders, each of which measures nearly three feet in diameter and generates over 7,500 horsepower. These massive engines are used to power containerships capable of hauling over 6,000 twenty-foot freight containers. Diesel engines pull all the trains that haul freight on the nation’s railroads and power all the towboats that move freight by water. They power nearly all of the big trucks that haul freight across the country, over three-quarters of the tugs that push back airliners from their gates, approximately 95 percent of our city transit buses, over 60 percent of school buses, a large fraction of all military vehicles, and much of the farm equipment used to produce the food we eat and export. Indeed, the uses to which diesel engines are put are so varied that it is difficult to catalog them all.

One way to portray the extent of diesel engine use in the United States is to track where the fuel they burn is consumed. Table 2.1 is an effort to do this. Taken at face value, Table 2.1 would appear to indicate that diesel fuel is the country’s number two “transportation” fuel. But this conclusion needs to be carefully qualified. Diesel- powered vehicles account for a relatively small share of the transportation of people—about 3 percent of all passenger-miles. But they dominate the transportation of goods, accounting for nearly 95 percent of all freight ton-miles. It is not an exaggeration to say that the nation’s freight would not move without diesel engines.

It is also important to understand that diesel’s share of total energy consumption understates the share of the total work in the economy that diesel engines perform. The most important reason that diesel engines are used in most applications is their superior energy efficiency. A vehicle powered by a diesel engine can do more useful work per unit of energy consumed than a comparable vehicle using an engine powered by gasoline or by an “alternative fuel” such as natural gas. So merely comparing gallons or even total Btu’s of various fuels consumed in performing various activities ignores the superior efficiency of diesel engines.

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Table 2.1 Diesel Share of Energy Consumption (1997 data except where otherwise noted)

TRANSPORTATION EXCLUDING GOVERNMENT (trillion Btu)Gasoline [a] Diesel fuel [b] LPG Jet fuel Natural gas Electricity Diesel Share

HIGHWAY TRANSPORTATION 15228 3950 28 0 4 1 21%Automobiles 8617 126 0 1%Motorcycles 25 0 0%Buses 32 147 1 3 1 80% Transit 5 78 1 3 1 89% Intercity[c] 24 100% School[c] 27 45 62%Trucks 6554 3677 27 1 36% Light trucks[d] 5949 226 13 1 4% Other trucks 605 3451 14 0 85%

NON-HIGHWAY TRANSPORTATION 335 1527 0 2290 775 273 29%Air 35 2290 0% General aviation 35 86 0% Domestic air carriers 1857 0% International air carriers[e] 346 0%Water 300 1009 77% Freight 1009 100% Recreational 300 0%Pipeline 775 212 0%Rail 518 61 89% Freight (Class I) 500 100% Passenger 18 61 23% Transit 43 0% Commuter 9 15 37% Intercity[c] 9 3 74%

TOTAL 15563 5477 28 2290 779 274 22%

FEDERAL GOVERNMENT LAND NONCOMBAT VEHICLES (million gallon-equivalent)

Gasoline [a] Diesel fuel [b] LPG Natural gas Electricity Meth/Eth Diesel ShareCivilian Agencies 129 12 0 1 0 0 8%Military Agencies 51 27 0 1 0 0 34%US Postal Service 100 27 0 3 0 0 21%Total 280 65 0 4 0 0 19%

ENERGY USED IN SELECTED SECTORS (trillion Btu)Gasoline [a] Diesel fuel [b] LPG Natural gas Electricity Coal Diesel Share

Construction 38 179 n.a. n.a. n.a. n.a. 83%Agriculture 173 485 78 n.a. n.a. n.a. 66%Mining 34 196 0 340 263 41 22%

Production of oil and gas 26 68 0 239 117 0 15%Coal mining 4 55 0 0 39 0 56%Mining of metallic ores 2 47 0 38 68 0 30%Other mining 2 26 0 62 37 41 15%

Sources:

Construction -- Transportation Energy Data Book, Edition 19; data are for 1985.Agriculture -- USDA AREI/Production Inputs, Energy, 1994, fuels purchased for on-farm use; converted to BTUs by CRA, data are for 1994Mining -- 1997 Economic Census, converted to btus by CRA; excludes coal, crude petroleum and natural gas produced and used in the same plant as fuel

Notes: n.a. = not available[a] Includes ethanol and methanol blends[b] Includes residual fuel oil; for federal fleet, also includes biodiesel[c] Estimated from travel data[d] Two axle, four wheel trucks[e] One-half of fuel used by domestic carriers in international operations

Transportation excluding government -- Transportation Energy Data Book, Edition 19, Table 2.3.Federal government land noncombat vehicles -- Federal Fleet Report, 1997, Table 6.

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How Diesel Energy Use in America Compares to Diesel Energy Use in Other Countries

This report will focus primarily on diesel use in the United States, but this use is placed in perspective by comparison with diesel use elsewhere. Table 2.2, compiled from data collected by the International Energy Agency (IEA), shows diesel energy as a percentage of transport sector energy use for a number of developed countries.4 As important as diesel is to the U.S. economy, Table 2.2 shows that it plays a considerably more significant role in fueling the transport sectors of other countries. These countries have employed a variety of measures to encourage diesel use, especially in automobiles. We will explore this point in more detail in the next chapter.

Table 2.2 Energy Use by Transport Sector by Fuel Type, 1995 (000 metric tons, oil equivalent)

CountryLPG + Ethane

Motor Gasoline

Aviation Fuels* Diesel** Electricity Other Total

Percent Diesel

U.S. 360 331,684 71,729 92,762 - - 496,535 19%

France 26 15,621 4,593 23,320 834 - 44,394 53%

Germany 63 29,894 5,844 23,519 1,392 - 60,712 39%

Italy 1,478 17,080 2,685 14,637 651 - 36,531 40%

Japan 1,272 37,584 9,220 32,638 1,851 - 82,565 40%

U.K. - 21,972 7,705 15,165 648 - 45,490 33%

*Includes aviation gasoline, jet fuel and kerosene**Includes residual fuel oilTransport Sector includes International and Domestic Civil Aviation, Road, Rail, Internal Naviation, and Non-specified; excludes Pipeline Transport

Source: IEA, Energy Statistics of OECD Countries, 1994-1995.

4In the IEA data, the “transport sector” consists of commercial aviation, road vehicles, railroads, and inland waterways. It is not as broadly defined as in Table 2.2.

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3. THE WORK PERFORMED BY DIESEL ENGINES IN THE AMERICAN ECONOMY—A SECTOR-BY-SECTOR LOOK

The previous chapter used energy consumption data to present a bird’s eye view of diesel engine use. This chapter provides a more comprehensive picture of the work that diesel engines perform in the American economy. It begins with the transportation of freight, the part of the economy where the dominance of diesel is perhaps greatest. The chapter then turns to agriculture, construction, and mining, sectors where diesel engines play a surprisingly important role. Finally, the chapter reviews diesel use in personal transportation and by the U.S. military. Even this review, however, is still somewhat incomplete. Available statistics simply do not permit a comprehensive calculation of the full extent to which diesel use is interwoven into the fabric of the American economy.

The Transportation of Freight

America’s rising standard of living depends in part on moving a growing volume of freight greater distances for less money. Despite the popular image of America becoming an “information economy,” Figure 3.1 shows that between 1960 and 1998, the amount of freight moved each year for each American increased by 50 percent.5 Each of these tons of freight was moved 21 percent further. The amount of real GDP supported by each dollar of spending on freight transportation grew by 50 percent. And the average cost of moving a ton of freight one mile (adjusted for inflation) fell by 12½ percent.

This improvement in freight transportation system efficiency was made possible in large part by diesel power. Between 1992 and 1997, the number of large diesel trucks hauling freight increased by 1.2 million. Between 1990 and 1998, the average horsepower of each towboat used to move freight on America’s inland river system (all of which boats are powered by diesel engines) increased by 8 percent. The average horsepower of locomotives used to haul freight (all of which also are diesel) increased by 17 percent. Three of the new higher-powered locomotives can do the work that previously required five. Diesel-powered construction equipment helped the construction industry renovate the nation’s highway bridges. The number of bridges deemed structurally deficient or functionally obsolete declined from 42 percent in 1990 to 29 percent in 1999. 5 Total freight tons more than doubled from 3.6 billion to 8.1 billion since the number of Americans increased from 181million to 270 million.

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Figure 3.1 Measures of Freight Activity, 1960 and 1998

80

90

100

110

120

130

140

150

160

Tons of freight moved percapita (1960=20 tons)

Average distance moved(1960=364 miles)

Average cost of moving one tonof freight one mile

(1960=$0.16)

$ of GDP for each $ ofexpenditure on freightmovement (1960=$11)

Inde

x (1

960

= 10

0)

19601998

Source: Calculated from data in Eno Transportation Foundation, Inc., Transportation in the U.S., 1999.

In spite of its impact on their daily lives, most people have little contact with the nation’s freight transportation system. They see the trucks that bring packages to their homes or businesses. They certainly encounter trucks on the streets of their cities and on the highways that run between these cities. They may catch sight of a train hauling coal, grain, automobiles, or containers full of merchandise. If they live near one of the nation’s major inland river systems, they may be familiar with the huge tows carrying bulk commodities along these waterways. And if they live in one of our major seaports, they may see bulk carriers and containerships arriving or departing. But few people realize how enormous and complex the business of transporting freight is, or how much it depends on diesel engines. We estimate that diesel power moves about 90 percent of the nation’s entire freight tonnage. Diesel is responsible for moving an even larger share of total freight ton-miles—94 percent. Although harder to calculate, we believe that diesel’s share of the total value of freight moved is about 85 percent.

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Trucking

In 1997, 104,000 establishments engaged primarily in truck transportation. These establishments employed 1.3 million individuals and had an annual payroll of $38 billion.6 In single-mode service (i.e., where trucks were the only mode involved in the move), trucks hauled 7.7 billion tons of freight worth $4.98 trillion. Trucks participated with rail and barge in intermodal movement of an additional 87 million tons of freight worth $84 million.7 Revenues of firms engaged primarily in truck transportation totaled $141 billion.8 Trucking and warehousing accounted for 1.2 percent of the nation’s 1997 GDP.9

Trucking—especially long haul, heavy-duty trucking—provides an excellent illustration of how the superior fuel economy, packaging efficiency, and durability of the diesel engine combine to produce a power source that dominates its application. In 1997, diesel engines powered 59 percent of all trucks (excluding pickups, panel trucks, minivans, SUVs, and station wagons—the great majority of which are used for personal rather than freight transportation). This was up from 48 percent in 1992. In 1997, these diesel-powered trucks accounted for 87 percent of the total number of miles traveled by all trucks, up from 81 percent in 1992.10

Different segments of trucking rely on diesel engines to somewhat different degrees. (See Figure 3.2 for definitions of the truck classifications used in this report and illustrations of truck types falling into these categories as typically used.) But the following generalizations apply:

6 US Census Bureau, 1997 Economic Census, “Transportation and Warehousing,” Geographic Area Series, p. 7. 7 U.S. Census, 1997 Economic Census, “Transportation, 1997 Commodity Flow Survey,” Table 12. Shipment Characteristics by Three-digit Commodity and Mode of Transportation for the United States: 1997 8 U.S. Census Bureau, 1997 Economic Census, “Transportation and Warehousing,” Table 1, Summary Statistics for the United States, 1997. 9 Ibid., and U.S. Department of Commerce, Bureau of Economic Analysis, National Income and Product Accounts. 10 U.S. Census Bureau, 1997 Economic Census, “Vehicle Inventory and Use Survey,” Table 3a.

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Figure 3.2 Truck Size Classification Schemes

Gross Vehicle Weight (lbs)* Weight Classes VIUS** Categories Typical Vehicle

33,001 or greater Class 8 Heavy-heavy note: pictures have to be inserted. See me for details

26,001-33,000 Class 7 "

19,501-26,000 Class 6 Light-heavy

16,001-19,500 Class 5 Medium-duty14,001-16,000 Class 4 "10,001-14,000 Class 3 "

6,001-10,000 Class 2 Light-duty6,000 or less Class I "

Dump Cement Heavy Tandem Conventional

Fuel Recycling Medium Conventional

Stake Beverage Single Axle Van

Short-Nose Conven-tional with Van Body

Cab Forward with Van Body

Walk-In Van

Pickup Cargo Van Mini Van

• The larger the truck, the more likely it is to have a diesel engine. The percentage of trucks that are diesel-powered rises from 40 percent for “medium” trucks to 50 percent for “light-heavy” trucks to 91 percent for “heavy-heavy” trucks. This latter category includes almost all truck tractors with a single trailer (98+ percent diesel) and truck tractors with double trailers (99+ percent diesel).11

• The more miles a truck is operated each year, the more likely it is to be diesel-powered. Only 4.3 percent of trucks operated less than 20,000 miles annually are powered by diesel engines; for trucks operated 75,000 miles or more annually, the share powered by diesel engines rises to 85 percent.12

• The longer a truck’s typical trip, the more likely it is to be diesel-powered. Only 6.2 percent of trucks whose typical trips are local in nature (defined as 50 miles or less) have diesel engines. This increases to 16 percent for trucks that typically travel 51–100 miles per trip; 30 percent for trucks having typical trip lengths of 101–200 miles; 55 percent for trucks having typical trip lengths of 201–500 miles; and 66 percent for trucks having typical trip lengths of 501 miles or more.13

11 CRA calculation using 1997 TIUS CD-ROM microdata. 12 Ibid. 13 Ibid.

* Includes weight of empty vehicle plus payload** VIUS = US DOT Vehicle Inventory and Use Survey

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As with other diesel applications, the most important reason that diesel engines are used to power freight-hauling trucks is their superior energy efficiency. According to the 1997 Vehicle Inventory and Use Survey, the average “heavy-heavy” truck traveled 46,000 miles and ran 6.1 miles on each gallon of fuel.14 This means that the typical “heavy-heavy” truck burned 7,540 gallons of fuel that year. At the national average diesel fuel price of $1.45 per gallon that prevailed in early July of this year, the annual fuel bill for such a truck would total $10,933. If diesel engines average 30 percent better fuel economy than gasoline engines, the annual fuel bill for a gasoline truck of similar size (assuming that such a truck exists; see below) would be $15,977—a difference of about $5,000 per truck per year.15 Since there are about 2.5 million “heavy-heavy” trucks in operation, this represents a savings of $12.5 billion annually in fuel expense, just for this one category of truck.

However, for the largest trucks that travel the greatest distances and carry the largest share of freight, diesel power is not merely more economical than gasoline power; the latter is not even an option. No manufacturer selling trucks in the United States currently offers a gasoline-powered Class 8 truck, and only one manufacturer currently offers a gasoline engine in a Class 6 or Class 7 truck. Reflecting the higher fuel costs overseas, all importers except one, Isuzu, market diesels right down to Class 3. Isuzu offers a GM-built 350 horsepower gasoline-fueled V-8 in its NPR series. This vehicle is said to be popular among “tradesmen and others who do not run high annual mileage.”16 What this means is that the small fraction of gasoline-powered “heavy-heavy” trucks shown as being in the nation’s truck fleet in the 1997 Vehicle Inventory and Use Survey are either Class 7s or are older (and smaller) Class 8 units.

The fact that no manufacturer currently offers a Class 8 gasoline-powered heavy truck reflects more than the diesel engine’s overwhelming economic advantage in powering such vehicles. It also reflects the heat generation characteristics of large spark-ignition engines, a phenomenon that we mentioned briefly in the Introduction. Spark-ignition engines displacing more than about 10 liters (600 in3) and more powerful than about 400 horsepower are just not practical from an engineering perspective. Certainly, none of the alternative fuel spark-ignition engines that we have seen referenced in the literature have larger displacement or greater power output.

14 CRA calculation based on TIUS data. 15 This calculation is based on the national average price for regular unleaded gasoline of $1.63 per gallon in early July 2000. 16 “It’s In The Numbers,” Heavy Trucking, November 1998.

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The Transportation of Freight by Rail

In 1997, America’s Class I freight railroads employed 227,000 individuals, and paid wages and benefits totaling approximately $13 billion.17 In single-mode service (i.e., where they were the only carrier involved in the move) railroads hauled 1.5 billion tons of freight worth $320 billion. Together with trucks or water carriers, they participated in the intermodal movement of another 134 million tons of freight worth $77.5 million.18 Revenues of the Class I freight railroads in 1997 totaled $35 billion.19 Rail transportation accounted for approximately 0.4 percent of the nation’s 1997 GDP.20 U.S. freight railroads operate 20,000 diesel locomotives.

America depends to a larger extent on its railroads for hauling its freight than most other industrialized countries. Figure 3.3 shows the volume of freight hauled by rail for each of the seven largest industrialized countries—the “G7”—as well as the percentage of total freight moved by rail. The United States moves a larger share of its freight by rail than any other country listed except Canada (see Figure 3.4). Further, the volume of freight moved by rail in this country exceeds the volume of freight moved by rail by the other six G7 countries combined.21

17 Association of American Railroads, 1997, Railroad Service in the United States, http://www.aar.org/comm/statfact.nsf. 18 U.S. Census Bureau, 1997 Economic Census, Transportation, “1997 Commodity Flow Survey,” Table 1a. 19 Association of American Railroads, 1997, Railroad Service in the United States, http://www.aar.org/comm/statfact.nsf. 20 U.S. Department of Commerce, Bureau of Economic Analysis, National Income and Product Accounts. 21 US Department of Transportation, Bureau of Transportation Statistics, “G-7 Countries: Transportation Highlights,” November 1999, p. 20.

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Figure 3.3 Rail Freight Movement (Billions of Tonnes-KM)

0

500

1000

1500

2000

2500

Canada France Germany Italy Japan UK US

Bill

ions

of t

onne

-km

Figure 3.4 Rail Share of Freight Tonnes-KM

0%

10%

20%

30%

40%

50%

60%

Canada France Germany Italy Japan UK US

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Currently, of the most important commodities moved by rail is coal. According to the Association of American Railroads, America’s freight railroads haul 64 percent of the nation’s coal. This coal generates 36 percent of the nation’s electricity. Railroads also haul 40 percent of the nation’s grain. Railroads participate in the distribution of 70 percent of the new vehicles built by domestic manufacturers. Railroads ease congestion on the highways (and save shippers money) by transporting millions of truck trailers and containers—8.8 million in 1998. Figure 3.5 shows the volume of rail traffic by track segment. The thickest lines, representing movement of over 100 million tons per year, link coal-mining areas such as Wyoming’s Powder River Basin with river ports and electric generating plants. (The mining and movement of Powder River Basin coal is discussed in more detail below.) Other high-traffic routes carry coal from Appalachia to East Coast ports; containers and truck trailers from the West Coast to the Midwest and East; and grain from the Midwest to river ports. Diesel locomotives pull all these trains.

Figure 3.5 Railroad Freight Density

Source: U.S. Department of Transportation, Federal Railroad Administration, Carload Waybill Statistics, 1995.

The phrase “diesel locomotive” is somewhat misleading. A diesel locomotive actually uses electric motors to provide power to the locomotive’s wheels. The diesel engine

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drives a generator that powers the electric traction motors. Thus, a diesel locomotive is actually a mobile electric power generating plant that utilizes on site all the power it generates. The diesel engines used in diesel-electric locomotives today are rated at up to 6,000 horsepower.

Diesel engines were used to power switching engines as early as the 1920s, but it was not until late the 1930s before the first over-the-road diesel-electric freight engines entered service. The number of diesel-electric locomotives in service on the nation’s railroads passed 1,000 in 1940, and most of these presumably were used in passenger service. World War II slowed the rate at which the railroads adopted diesels, but once the war was over, the conversion was accomplished with astonishing speed. By the early 1950s, the number of diesel locomotives exceeded the number of steam locomotives. During the 1950s, steam engines were operated only by railroads (such as the Chesapeake & Ohio) that operated in coal-producing areas. But by the late 1950s, even the advantage of locally abundant coal ceased to be adequate to stave off dieselization. In 1959, the number of steam locomotives in service dropped below 1,000; by 1964 it was less than 100.22

The economic advantages of diesel power were just too overwhelming for steam engines to survive. The thermal efficiency of diesels is about four times as great as that of steam locomotives, so they require substantially less fuel for equivalent power. They can accelerate more quickly, run at higher speeds with less damage to the track, and require less servicing than steam engines. They function with the efficiency of electric locomotives (within the limits of their power-generating capacity) but do not require the capital investment in substations and electrical-distribution networks needed by electric locomotives. Finally, many units can be combined according to the power needed for a particular train with only one crew required for all the units.

The Transportation of Freight by Water

In 1997, 1,921 establishments were engaged primarily in deep sea, coastal, Great Lakes, or inland water transportation. These establishments employed 73,000 individuals and had a payroll of $2.8 billion.23 Water carriers moved 563 million tons worth $76 billion

22 U.S. Census, Historical Statistics of the United States, Bicentennial Edition, p. 728. 23 U.S. Census Bureau, 1997 Economic Census, Transportation and Warehousing, Table 1, Summary Statistics for the United States, 1997.

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in single-mode movements and participated with truck and rail in the intermodal movement of 113 million additional tons of freight worth $10 billion.24 Water transportation accounted for approximately 0.2 percent of the nation’s 1997 GDP.25

The United States is the world’s largest importer and exporter of goods. The great bulk of these goods imported into or exported from this country move by ship. Virtually all of the bulk carriers that transport oil, ore, wheat, and other goods are diesel-powered. So are the containerships that transport the majority of all manufactured imports and exports. The engines that power these bulk carriers and containerships are the largest diesels made.

Bulk carriers are a long-standing mode of transport. The principal recent development in bulk carrier vessels has been an increase in their size. By contrast, the containership is a relatively recent development. The first ocean-going containerships began operating in 1966. By 1980, containerships carried approximately 20 percent of all ocean-going general cargo. By the early 1990s, this share had reached 40 percent and was expected to exceed 50 percent by 2000.26

A surprisingly large variety of goods moves by container. Table 3.1, adapted from data published earlier this year by the Journal of Commerce, identifies the 25 largest U.S. importers of freight in containers, the number of containers they imported in 1999, and the major categories of goods in the containers. The firm importing the largest number of containers is Wal-Mart. A number of electronics firms—Samsung, Sharp, Canon, Hewlett Packard, Aiwa, Thompson, and Phillips—are among the top 25.

The dominance of the diesel engine in powering ocean-going ships reflects improvements in the engines over the last few decades. In the 1970s, a significant number of containerships were powered by steam turbines—American President Lines’ C-8 series, for example. But during the 1980s and 1990s, diesel engines swept the field because they permitted substantial savings in fuel costs. APL’s next generation of containerships, the C-10s, were powered by diesels, and achieved a 60 percent savings per TEU27 in fuel use over the steam turbine-powered C-8s. Indeed, a review of the 1998 edition of the

24 U.S. Census Bureau, 1997 Economic Census, Transportation, 1997, “Commodity Flow Survey,” Table 1a. 25 U.S. Department of Commerce, Bureau of Economic Analysis, National Income and Product Accounts. 26 Drewry Shipping Consultants, Ltd., Global Container Markets, 1996, pp. 31 and 43. 27 TEU stands for “twenty-foot equivalent unit,” the standard measure of containership capacity. One forty-foot container would equal 2 TEUs.

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Containerisation International Yearbook, which lists all container vessels in commercialservice or under construction at the time of publication, reveals that only about 250 of the nearly 7,000 containerships in commercial service as of November 1997 were powered by steam turbine engines. A significant number of inactive, mostly federally owned, containerships did have steam turbines, but no containership under construction in late 1997 was listed as being powered by any means other than diesel. Indeed, the only vessels currently being designed and built to be powered by steam turbines are certain high-speed naval vessels (see below).

Table 3.1 Twenty-five Largest Importers of Containerized Goods, 1990 (Ranked by Number of Containers Imported)

Company Major Category of Goods Containersa

Wal-Mart Household (dept. store) goods 241,000 Dole Food, agricultural 146,000 Chiquita Brands Food, agricultural 89,000 Target Stores Household (dept. store) goods 79,800 Bridgestone Firestone Chemicals, plastics 65,200 Michelin Tire Chemicals, plastics 39,800 Nike Household (dept. store) goods 39,000 Payless Shoe Source Clothing, textiles 30,500 Montgomery Ward Household (dept. store) goods 29,800 Pier One Imports Household (dept. store) goods 26,000 Lowes Household (dept. store) goods 24,900 Samsung Electronics, machinery 24,900 Mattel Household (dept. store) goods 24,500 IKEA Household (dept. store) goods 24,400 Owens Corning Fiberglass Household (dept. store) goods 23,300 Ashley Furniture Ind Household (dept. store) goods 23,000 Nissan Motor Vehicles, parts 22,000 Del Monte Food, agricultural 21,100 Hasbro Ind Household (dept. store) goods 20,000 Sharp Electronics Electronics, machinery 19,500 Canon Electronics, machinery 19,000 Hewlett Packard Electronics, machinery 17,600 Yamaha Motors Vehicles, parts 17,600 Aiwa America Electronics, machinery 17,600 DaimlerChrysler Vehicles, parts 17,500 Total, Top 25 1,103,000

a Measured in twenty foot container equivalent units (TEUs)Source: Journal of Commerce , "Special Report, Top 100 Importers & Exporters," March 29, 2000, p.12.

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Inland Waterways

Unless they live on one of America’s major rivers—the Mississippi, Missouri, Ohio, Columbia—most people are unaware of how much freight travels by barge. In 1997, approximately 650 million tons of freight, about 8 percent of the total freight tonnage transported by all modes, moved through the nation’s 12,000 miles of commercially viable channels.28 This network moved 60 percent of the nation’s grain exports, 24 percent of its chemical and petroleum shipments, and 20 percent of its domestic coal tonnage. All of this traffic was propelled by diesel power.29

The workhorse of the inland waterways is the diesel-powered towboat. These towboats are in essence a hull wrapped around one or more extremely powerful diesel engines. The firm that advertises itself as the operator of the largest barge fleet in the United States, ACBL, has 200 of these towboats, ranging in size from below 1,800 horsepower to 10,500 horsepower. ACBL’s towboats are used to propel over 5,000 barges, which the company estimates this year will haul 70 million tons of coal, grain, steel, liquids, and other bulk commodities over rivers, canals, and the intercoastal waterway.30

According to the U.S. Army Corps of Engineers, there are over 5,000 towboats in the U.S. towboat fleet. The engines powering these towboats generate a total of 9.4 million horsepower.31

The Intermodal Movement of Freight

In 1997, 217 million tons of freight worth $946 billion moved by multiple modes.32

One aspect of freight transportation that is not commonly understood is intermodal. The term “intermodal” refers to freight that travels by more than one mode of transportation. The most familiar form of intermodal transportation is the movement of truck trailers and ocean containers by rail. But other transportation movements are also intermodal—high-value priority freight that moves by truck to an airport, by air between cities, and then by

28 U.S. DOT, Maritime Trade and Transportation ’99, Table 1-16. 29 U.S. Maritime Administration, MARAD ’98, p. 39. 30 ACBL website http://www.acbl.net/welcome.asp.. 31 U.S. Army Corps of Engineers, Waterborne Transportation Lines of the United States, Calendar Year 1998, Vol. 1, Table 1. 32 U.S. Census Bureau, 1997 Commodity Flow Survey, Table 13.

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truck to its final destination; new automobiles that are moved by truck from the assembly plant to rail sidings, then transported by train to “mixing centers,” and finally delivered by truck to new car dealers; or coal that is moved from where it is mined first by rail and then by barge. Intermodal movements make up a substantial and growing share of total freight movements in this country. The Association of American Railroads refers to intermodal movements as the “fastest growing segment of the railroad industry.”

The data on intermodal movements of freight are not as complete as are the data on single-mode movements. The most recent Commodity Flow Survey indicates that in 1997 intermodal movement accounted for only about 2 percent of freight tons, about 7.5 percent of the freight ton-miles, and about 17 percent of the value of all freight.33 This probably understates the magnitude of intermodal freight movements, but there appear to be no better data.

Intermodal freight movement requires the transfer of freight between modes. Bulk commodities, containers full of clothes or computers, new automobiles, or express packages must be transferred between railroad cars and trucks, between airplanes and delivery trucks, or between containerships, container-hauling unit trains, and trucks hauling individual containers to their final destination. Accomplishing such moves requires the use of specialized equipment. This equipment ensures that the transfer between modes is handled rapidly and accurately—an absolute necessity if the value of using intermodal freight is to be realized. In many cases, the equipment that moves freight between modes is diesel-powered.

Some of the largest intermodal transfer activities are undertaken at the container terminals, the largest of which cover hundreds of acres. In 1999 the terminals in the nation’s busiest container port, the Port of Long Beach, handled the equivalent of 4.4 million twenty-foot containers.34 The huge quay cranes that move containers on and off ships at a rate of up to 30 per hour are powered by electricity, but each crane is supported by a fleet of other equipment, most of which is diesel-powered. For example, a typical “small/medium” terminal, capable of handling 210,000 TEUs per year, would require two quay cranes, three spreaders, two reach stackers, six forklift tucks, and eight tractor/trailer units. All but the quay cranes would be diesel-powered.35

33 This figure combines all multiple mode moves with air moves (which include truck and air). 34 Contanerisation International, 1998 Yearbook “Top 30 Ports,” p. 85. 35 Drewry Shipping Consultants, Ltd., World Container Terminals, 1998, p. 87.

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Large airports are also major intermodal hub points. Much of the ground support equipment used at these airports is diesel-powered, as detailed below. The figure is 77 percent in the case of cargo loaders. This equipment is used to handle not only passenger aircraft (which carry much of the freight moved by air as “belly cargo”), but also specialized freight-carrying aircraft. UPS, in addition to operating more than 150,000 of its ubiquitous brown delivery vehicles, also operates a fleet of over 500 aircraft.36 FedEx, the “father” of overnight package delivery service, operates 650 aircraft and about 45,000 ground vehicles.37 Every movement of a package between air and surface modes constitutes an intermodal movement, and accurate, rapid handling of this intermodal movement is critical to the success of these two firms. Each relies heavily on diesel-powered equipment to ensure high standards of delivery reliability.

The single largest intermodal freight operator in the country is the U.S. Postal Service. In 1997, 21 percent of the fuel consumed by Post Office vehicles was diesel. Indeed, USPS diesel consumption in 1997 equaled that of the U.S. military.

36http://www.corporate-ir.net/ireye/ir_site.zhtml?ticker=UPS&script=2100. 37http://www.fedex.com/US/about/express/facts.html/

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E-Commerce—It Takes More than a Click (The following is an abridged version of an article from The Economist.)

In a corner of a big warehouse in rural Virginia, Bobby Thompson spends his days, amidst stacks of Teletubbies and incontinence products, waiting for e-mail. When the PC dings with a message, he follows its instructions, picking some product off the shelf, then boxing and labeling it to be picked up. This is a new venture and still quite, with hours between messages, so Mr. Thompson fills in time by sweeping the floor and tidying up. Yet in this sleepy scene lie the seeds of a radical transformation of the trucking industry, one that is catapulting it to the forefront of e-business.

Although Mr. Thompson’s employer, Great Coastal Express, is a mid-sized regional trucking firm, the goods on the shelves around him belong to small Internet retailers and business-to-business (B2B) firms from as far away as Canada. They pay Great Coastal’s GCX logistics subsidiary to handle their order fulfillment, its bricks complementing their clicks.

Today there are about 250 successful e-commerce fulfillment and logistics firms in America, of which around 25 have come from out of the trucking industry. But the number is expected to grow, as more trucking firms capture the obvious opportunity. Already, some of the larger trucking and logistics firms, such as Schneider National, are building dedicated B2B e-commerce fulfillment operations. For instance, when a buyer clicks on the “ship now” button on paperloop.com, a bulk paper distributor, the order goes directly to Schneider, which fills it from its own warehouses in its own trucks.38

Three Sectors That Are Especially Dependent on Diesel Power

The diesel applications described above are ones that many Americans would not find particularly surprising—though they might be surprised at just how widely diesels are used in some of these applications. These applications are also ones for which fuel accounts for a comparatively large share of total operating costs, so it is natural that firms engaging in them would find diesel’s superior fuel economy especially important.39 We now consider several sectors of the economy where the role that diesel power plays is much less likely to be comprehended by the general public. In these sectors, fuel costs

38 The Economist, “Big Rigs’ Lucky Break,” June 10, 2000. 39 In 1997, the cost of “purchased fuels” constituted 10.1 percent of motor freight operating costs (excluding purchased transportation).

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are a smaller share of total costs than in freight transportation.40 But each relies heavily on diesel because other attributes of diesel power enable the sector to attain the high productivity that is essential to profitability.

Agriculture

In 1997, the United States had 1.9 million farms employing 3.4 million individuals. Cash receipts from agricultural output totaled $208 billion. Agriculture was responsible for 1.3 percent of the nation’s 1997 GDP.41

U.S. agriculture is the envy of the world. Only 3.4 million individuals (about 2.5 percent of the labor force), farming 310 million cultivated acres of land, manage not only to feed our citizens but export a significant share of what they produce. This productivity makes food inexpensive. The typical American family spends only about 8.3 percent of its budget on food prepared and consumed in the home.42

The period since World War II has witnessed two revolutionary events in American agriculture: the completion of the transition from animal to tractor power, and the intensive application of science to farming. In 1945, America had 5.9 million farms; each averaged 195 acres. Nearly 25 million people—17.5 percent of the country’s population—lived on farms. America’s farmers used only 2.3 million tractors, an average of 0.39 per farm. The total power output of these 2.3 million tractors was 61 million horsepower, an average of just over 25 horsepower per tractor. Just after the war, wheat yields averaged 17 bushels per acre; corn, about 36 bushels per acre; and cotton, 273 pounds per acre.

By 1997, America had fewer than two million farms and less than a million individuals who identified farming as their principal occupation. The average size of a farm had grown to 487 acres. The number of tractors had grown to 3.9 million—an average of about 2 per farm. Seven hundred thousand farms had either two or three tractors, and almost 300,000 farms had four tractors or more. These tractors were much larger. In 1983, the last year for which these particular data are available, each tractor averaged 66 horsepower. By 1997 nearly one million of the 3.9 million tractors had a power output

40 In 1997, the cost of fuels made up only 3.3 percent of total farm production costs, for example. 41 U.S. Department of Agriculture, 1997 Census of Agriculture, Volume 1; and U.S. Department of Commerce, Bureau of Economic Analysis, National Income and Product Accounts. 42Statistical Abstract of the United States, 1999 edition, Table 738.

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of greater than 100 horsepower. Wheat yields in 1998 averaged 43 bushels per acre; corn averaged 134 bushels per acre; and cotton, 618 pounds per acre.

While farming had become much more mechanized, agriculture was using less energy. Indeed, agricultural energy use peaked in the late 1970s and declined throughout most of the 1980s (Figure 3.6). During the mid-1990s it was only slightly higher than it had been in 1974. Yet between 1974 and 1994, food crop output rose by nearly 80 percent. (See Figure 3.7.)

Figure 3.6 Farm Inputs–Labor, Durable Equipment, and Fuels and Electricity, 1974-1994 (1974=100)

0

20

40

60

80

100

120

140

160

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

Fuel and Electricity

Durable EquipmentLabor

Why was this possible? A U.S. Department of Agriculture publication summarized the reason as follows: “This change reflects the shift away from gasoline-powered machinery toward more efficient, diesel-powered machinery.”43 In 1974, gasoline accounted for

43 USDA, Economic Research Service, Natural Resources and Environment Division, Agricultural Resources and Environmental Indicators, “Production Inputs,” 1995, pp. 135–136. The data in this report include electricity in addition to liquid fuels. However, data on electricity use in agriculture ceased to be available after 1991. The data reported above are for liquid fuels—gasoline, diesel, and LP gas.

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49 percent of the energy supplied by fuels purchased by farms, diesel accounted for 38 percent. By 1994, gasoline’s share had fallen to 24 percent; diesel’s had risen to 66 percent. Figure 3.7 Indices of Food Crop Output and Various Agricultural Inputs,

1974–1994 (1974=100)

0

20

40

60

80

100

120

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160

180

200

1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994

Food Crop Output

Input of Energyfrom Diesel

Input of Energy from LP Gas

Input of Labor

Input of Durable Equipment

Input of Energy from Gasoline

While America’s farmers have found it possible to reduce the use of most agricultural inputs, diesel has been an important exception (see Figure 3.7). This is because diesel power supports the continued growth of agricultural productivity, on which both our favorable agricultural export performance and our low domestic raw food prices depend. As Figures 3.8 and 3.9 show, diesel use is concentrated in those areas of the country where agriculture is the most highly mechanized—and most highly productive.

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Figure 3.8 Expenses for Diesel Fuel by County, 1997

Source: 1997 Census of Agriculture

Figure 3.9 Market Value of Agricultural Products Sold by County, 1997

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How Diesel Power Is Used in Agriculture

One challenge in describing the extent of diesel use in a sector as diverse as agriculture is that diesel-powered equipment falls into several different categories, each of which is included in a different set of data. For example, nearly 3.5 million of the 73 million trucks included in the Census Bureau’s 1997 Vehicle Inventory and Use Survey identified “agriculture” as their major use; 1.7 million of these trucks, including 236,000 light trucks, were diesel-powered. (Neither figure includes trucks that are reported as being used primarily for personal transportation by persons engaged in agriculture.)44 Another very important class of diesel-powered agricultural equipment is “off-road mobile” equipment such as tractors, combines, etc. These vehicles are not registered to travel on public roads, so they do not appear in the Census Bureau’s vehicle surveys. As has already been indicated, the 1997 Census of Agriculture reports that American farmers were using nearly four million tractors during that year. The Census of Agriculture does not indicate how many of these vehicles are diesel-powered. However, by combining Census data with data from a recent EPA regulatory analysis of “off-road” diesel use, we believe it is reasonable to estimate that three-quarters of wheel tractors over 100 horsepower and a similar share of the combines purchased by farmers between 1994 and 1997 were diesel-powered.45 This is consistent with the findings of an August 1999 Canadian study that identifies Canadian agricultural equipment by fuel type.46 The agricultural tractors, combines, and bailers are overwhelmingly diesel-powered. Two-wheel tractors, agricultural mowers, sprayers, and tillers were predominantly gasoline-powered. Swathers were split 60 percent diesel-powered, 40 percent gasoline-powered.

Another important agriculture-related use of diesel power is to drive irrigation pumps. In 1997, diesel-powered pumps were used to provide the water that irrigated over 10 million acres—over one-quarter of all irrigated land. This represented a 25 percent increase in the number of acres irrigated using diesel-powered pumps since 1994, a period when total acres irrigated increased by only about 7 percent. The reason for diesel’s growth in this application is fuel efficiency. As Figure 3.10 shows, energy expense per acre for

44 U.S. Census Bureau, 1997 Economic Census, “Vehicle Inventory and Use Survey.” 45 U.S. EPA, Final Regulatory Impact Analysis: Control of Emissions from Non-road Diesel Engines. 46 ICF Kaiser Consulting Group, “Off-Road Vehicle and Equipment: GHG Emissions and Mitigation Measures,” August 1999, Table 9, p. 21.

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pumping irrigation water using diesel is less than for any other fuel except LP gas, propane, or butane.47

Figure 3.10 Energy Cost per Irrigated Acre by Fuel Type, 1998

$17.78

$39.75

$33.99

$28.14

$16.99

$0.00

$10.00

$20.00

$30.00

$40.00

$50.00

diesel electricity natural gas gasoline LP, propane, butane

Construction

In 1997, 656,000 establishments were primarily engaged in construction. These establishments employed 5.7 million individuals and had an annual payroll of $174 billion. Construction also purchased $241 billion in materials, components, supplies, and fuels. The value of construction work in 1997 totaled $846 billion, and construction was responsible for 4.1 percent of 1997’s GDP.48

Construction is another sector that relies extensively on diesel power. Establishments engaged in construction purchased $10 billion in power, fuels, and lubricants, $7.5 billion of which was gasoline and diesel fuel. About $5.25 billion of this was spent for on-

47 U.S. Department of Agriculture, 1997 Census of Agriculture, “Farm and Ranch Irrigation Survey.” 48 U.S. Census Bureau, 1997 Economic Census, Construction Subject Series; and U.S. Department of Commerce, Bureau of Economic Analysis, National Income and Product Accounts.

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highway use; $2.1 billion was for off-highway use.49 We estimate that a significant share of the on-highway use and an extremely high share of the off-highway use represent diesel.50

According to the 1997 Vehicle Inventory and Use Survey, about 850,000 diesel-powered trucks were used primarily in construction or contractor activities.51 This number includes only trucks that are registered for “on-road” use. Much of the diesel-powered equipment used in construction is classified as “off-road.” Less is known about the number and power characteristics of this equipment. But the same EPA regulatory analysis referred to above, reported that 440,000 items of diesel-powered off-road equipment identified as used primarily in construction was produced in this country between 1991 and 1995.52 And the study referred to above reported that in Canada operation of all of the concrete pavers, scrapers, and asphalt pavers, rollers, trenchers, bore/drill rigs, and excavators over 100 horsepower were diesel-powered.53 There is no reason to believe that the situation is any different in the United States.

Diesel is used to power construction equipment for the same reasons it is used elsewhere in the economy. It provides more power per unit of fuel—an important consideration when fuel must be hauled to distant and sometimes-remote construction sites. Its lower volatility makes it safer to handle than gasoline.

Mining

In 1997, there were 26,000 establishments engaged primarily in mining (including the production of oil and gas). These establishments employed 550,000 individuals and had a total payroll of $22 billion. Mining contributed approximately 1.5 percent to 1997’s GDP.54

49 U.S. Census Bureau, 1997 Economic Census, Construction Subject Series. 50 Analysis of data from the 1997 Vehicle Inventory and Use Survey reveals that approximately 43 percent of all trucks and just under 50 percent of all truck miles used in off-road applications in construction were diesel-powered. We expect that nearly 100 percent of the other off-road equipment used in construction is diesel-powered. 51 U.S. Census Bureau, 1997 Economic Census, Vehicle Inventory and Use Survey. 52 U.S. EPA, Final Regulatory Impact Analysis: Control of Emissions from Non-road Diesel Engines. 53 ICF Kaiser Consulting Group, “Off-Road Vehicle and Equipment: GHG Emissions and Mitigation Measures,” Table 8, p.18. 54 U.S. Census Bureau, 1997 Economic Census, Mining Industry Series; and U.S. Department of Commerce, Bureau of Economic Analysis, National Income and Product Accounts.

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Mining, especially “open pit” or “surface” mining, shares many characteristics of heavy construction in its use of diesel power. Indeed, the largest rubber-tired, diesel-powered equipment is to be found in mining—off-road trucks with engines of over 2,500 horsepower, capable of hauling over 300 tons per load. Different sectors of mining depend on diesel to different degrees.

Bituminous Coal and Lignite Surface Mining

Bituminous coal and lignite surface mining exemplifies the use of diesel power in surface mining applications. It is the most important (in terms of value of output) surface mining activity in the United States, with value of shipments in 1997 exceeding $12 billion. Over 600 companies, employing over 36,000 individuals, were engaged in this activity. In 1997, the producers of bituminous coal and lignite from surface mines spent $448 million on energy. Seventy-two percent of this fuel was diesel.

The surface mining of bituminous coal and lignite requires the movement of massive quantities of material. When an exploitable coal deposit is discovered, access roads must be built and heavy earthmoving equipment must be transported to the site. Much of this equipment is so large that it cannot be driven over roads; it must be assembled at the site. The next step is the removal of the soil that lies above the coal seam. This is accomplished using massive draglines. Once the coal seam has been exposed, power shovels dig out the coal and load it into large trucks. These trucks transport the coal to the point at which it is sorted and loaded onto railroad cars or barges. Once a mine has been exhausted, the draglines replace the soil, and earthmoving equipment restores the contour of the land, enabling it to be used once again.

Throughout this process, the ability to move material at low cost is critical to the success of the mining operation, and diesel-powered equipment is key. Only diesel-powered equipment offers the productivity that permits the economical surface mining of bituminous coal and lignite.

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From the Powder River Basin to Your Light Switch

The mining and transportation of coal from Wyoming’s Powder River Basin is a marvel of logistics. It has to be in order for it to be economically feasible to make use of this resource.

Commercial mining in the Powder River Basin only began in the 1970s. However, the thick, easily-strippable seams of low-sulfur coal have made Wyoming the nation’s largest coal producer. The nine largest coal mines in the U.S. in 1998 (in terms of production) were all located here.55 In that year, 305 million tons of coal were being shipped to electric utilities in 25 states, Canada, and Spain.

Diesel power is vital to the success of every step in the mining and delivery of Powder River Basin coal. Diesel locomotives haul the trains either to electric utilities or to inland waterway points for further shipment by barges pushed by diesel-powered towboats.

The quantities of coal involved are hard to grasp, but this past January, the Union Pacific, one of two railroads operating into the Powder River Basin, announced that it had originated 904 trains of coal during just that one month. This surpassed its previous monthly record of 884 trains, set the previous March.56

These coal trains are not small. Each one generally has between 110 and 120 cars and each car hauls 100 tons or more of coal. Each train is pulled by three to five locomotives having a total of between 10,000 and 15,000 horsepower. In some segments, the volume of coal traffic is so high that the railroads have installed triple track. All these improvements permit the railroads to transport growing volumes of coal using less and less equipment. This improved efficiency translates into lower prices for electricity and, since Powder River Basin coal has a very low sulfur content, into cleaner air.

Oil and Gas Production

Though some may not consider it so, oil and gas production is treated by the U.S. Census as a “mining” operation. Indeed, the drilling of oil and gas wells; the extraction of crude petroleum, natural gas, and natural gas liquids; and the supporting of oil and gas

55 http://www.eia.gov/cneaf/coal/cia/html/t14p1.html. 56 UPRR Press Release, February 14, 2000. “UP Sets New Coal Origination Record Out of Wyoming’s PRB.” http://www.uprr.com/uprr/ndes/corpcomm/365e.shtml.

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operations probably together constitute the single biggest “mining” activity in the country. Like the rest of mining, such activity depends heavily on diesel power.

This is especially true for drilling and support operations. Diesel represents 85 percent of the energy identified by type used in drilling and 52 percent used in support operations. The drilling rigs are powered by diesel engines, as is much of the equipment used in connection with them. For onshore wells, the rigs and their associated equipment are transported to and from sites by diesel-powered trucks. The boats that service offshore drilling and production platforms are also diesel-powered.

Diesel’s Role in the Transportation of People

The role that diesel plays in transporting people in this country may be overshadowed by its role in freight transportation and off-road uses, but it is still significant. There are about two million diesel-powered passenger cars and personal-use light-duty trucks registered for on-road use in the United States. Diesel-powered buses dominate both public transit and intercity bus transportation, and over half the fuel that powers America’s school buses is diesel. Since very few track miles outside the Northeast Corridor are electrified, diesel engines pull many of the country’s long-haul passenger trains as well as many commuter trains. Even with respect to air transportation, where the aircraft themselves do not use diesel, diesel-powered ground support equipment plays a vital role in enabling the mode to function efficiently.

Automobiles

Less than 2 percent of this country’s passenger cars are powered by diesel engines—the smallest share of any major industrialized country. In contrast, the share of diesel-powered passenger cars exceeds 10 percent in Denmark, Finland, Japan, and West Germany, and exceeds 25 percent in France and Italy.

This larger percentage of diesel-powered automobiles in countries such as France and Italy is a direct result of policies by their governments to exploit the superior energy efficiency of diesels. It is produced by a combination of the overall higher motor fuel prices that typify those countries and, certainly in the case of France and Italy, government policies designed to encourage the use of diesel engines in passenger cars and light trucks. Figure 3.11 illustrates the situation in France. Since at least the early 1970s, France has kept the price of road diesel fuel well below the price of gasoline. The

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price of both fuels has increased, but diesel has increased by a lesser amount. The relative price advantage of diesel helps to explain why the share of new automobiles in France powered by diesel grew from less than 10 percent in 1980 to nearly 50 percent in 1994 (see Figure 3.12). Figure 3.11 Relative Price of Road Diesel and Diesel Share of New Automobile

Registration, France, 1980–1995

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1980 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995

Inde

x of

pric

es --

Lea

ded

gaso

lines

, 198

0 =

1.0

Super Leaded Road Diesel

$3.50

$2.25

$1.50$2.25

Source: Eurostat, “Road Transport and the Environment – Energy and Fiscal Aspects,” 1995.

That this result was the deliberate outcome of government policy choice can be shown by a comparison France and Sweden. In contrast to France, Sweden has imposed taxes on vehicle purchase that discriminated against the purchase of diesel-powered vehicles; when these taxes had to be eliminated, Sweden instituted fuel taxes that did not encourage diesel use. The average price of all motor fuels in Sweden is roughly the same as in France. But the diesel-gasoline differential that exists in France doesn’t exist in Sweden. Though the two countries were about equal in 1980, the share of new automobiles powered by diesel engines in Sweden has not increased to the extent it has in France. There clearly is disagreement among European countries about how aggressively to promote light-duty vehicle dieselization, but the temptation to reap the enormous energy conservation potential of new, low-polluting diesels is clear. Just this summer, Volkswagen reported that it had successfully circumnavigated the globe (33,333 km) with

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its turbodiesel-powered Lupo, consuming just 792 liters of fuel, and putting it within striking distance of achieving the “holy grail” of passenger car energy efficiency—the ability to travel 100 kilometers on three liters of fuel.57

Figure 3.12 Percentage of New French Automobiles That Were Diesel-Powered, 1980–1994

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

1980 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994

Source: Eurostat, “Road Transport and the Environment – Energy and Fiscal Aspects,” 1995.

There is a significant potential to increased diesel use in automobiles and light trucks in the U.S. A recent study undertaken by the EIA for the DOE’s Office of Energy Efficiency and Renewable Energy reported that an increase in the share of new light-duty vehicles that are diesel-powered from its current level to 30 percent by the year 2010 would, by 2020, reduce total light-duty vehicle energy use by about 0.35 million barrels per day.58 Over time, this savings would increase further as fleet turnover raised the share of diesel-powered light-duty vehicles to 30 percent of the entire light-duty vehicle fleet.

57 Michael Harvey, “Closing in on Diesel’s Last Taboo,” Financial Times, August 12/13, 2000, p. xiv. Three liters per 100 kilometers is equivalent to approximately 80 miles per gallon. 58 U.S. EIA, Report No. SR/OIAF/98-02, The Impacts of Increased Diesel Penetration on the Transportation Sector.

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Personal Use Light-Duty Trucks

The category labeled “light trucks” in Table 2.1 of the previous chapter included all trucks having two axles and four tires. Using a slightly different definition of “light” truck—those having a gross vehicle weight of 10,000 pounds or less—the 1997 Vehicle Inventory and Use Survey reported 1.7 million “light” diesel-powered trucks registered for on-road use in the United States during that year.

By far the largest number of these diesel-powered light trucks (as well as gasoline-powered light trucks) are used for personal transportation. Most belong to individuals who routinely haul heavy loads or pull trailers. Gasoline engines having the power characteristics to handle these tasks certainly are available. But a significant share of light -truck purchasers specify diesel engines because, for their particular application, the superior fuel economy and durability of the diesel more than offset its higher initial cost.

Table 3.2 provides a concrete illustration of the advantages of diesels in powering light trucks used to haul travel trailers. The basic data used in Table 3.2 are adapted from a test performed by the publication Trailer Life. This test was intended to show from the viewpoint of a prospective truck purchaser just what the tradeoff between gasoline and diesel entails.

Trailer Life chose two Ford F-250 Super Duty four-wheel drive vehicles that had approximately equivalent trailer towing ability—one powered by a 6.8 liter V-10 gasoline engine, the other powered by a 7.3 liter intercooled V-8 diesel. The difference in price between the two trucks as tested was $1,65, but the extra cost of the diesel was $3,825 or 11.8 percent above the cost of the gasoline-powered truck. Both vehicles towed 6,800 pound trailers over a 640 mile closed test loop. The performance of both trucks (in terms of acceleration, hill climbing ability, etc.) during the test was comparable. The gasoline- powered truck consumed 84.8 gallons of fuel; the diesel-powered truck, 58.4 gallons.

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Table 3.2 Comparison of Operation Costs for Gasoline and Diesel-Powered ’99 Ford F-250 Super Duty Pickup Trucks Towing 6,800 lb. Trailer

Trailer Life Calculations

6.8 L V-10 Gasoline Powered

7.3 L Intercooled V-

8 Diesel Difference

Vehicle price as tested $32,360 $34,045 $1,685.00

Difference attributable to diesel engine a $3,825.00

% increase over gasoline-powered vehicle 11.8%

Fuel used in 640 mile test loop towing 6800 lb trailer (gal) 84.8 58.4 -26.4

Miles per gallon 7.5 11.0 3.4Actual US average, week of July 3, 2000c $1.63 $1.45 -0.18

Fuel cost per mile $0.22 $0.13 -0.08Operating cost per mile $0.22 $0.15 -0.07

France, July 1, 1995d $3.75 $2.75 -1.00Fuel cost per mile $0.50 $0.25 -0.25Operating cost per mile $0.50 $0.27 -0.24

Notes:

Discounted Payback

Source: Jeff Johnston, "Gas vs. Diesel? Truck Engines," Trailer Life, April 1, 1999; plus calculations performed by CRA.

aReflects cost of different transmissions required to ensure equivalent performance for the two trucksbBased on manufacturer's recommended maintenance schedule and prevailing labor rates for maintenance services

dEurostat, Road Transport and the Environment -- Energy and Fiscal Aspects , Tables 4 & 6, converted to dollars at 1 ecu = $1 and 3.785 l = 1 gallon

cUS Energy Information Agency website

To provide an “apples-to-apples” comparison, Trailer Life estimated the difference in maintenance costs over 100,000 miles of towing. Its estimate was based on the manufacturer’s recommended maintenance schedules and the current cost of maintenance labor and material.

The fuel price on which Trailer Life based its results was $1.30 per gallon for both diesel and gasoline. At that price, the diesel-powered truck cost 4 cents per mile less to operate. This meant that someone contemplating the purchase of a diesel-powered truck would

36


have to plan to operate it over 86,000 miles to offset the higher initial price of the diesel engine.

The analysis published by Trailer Life did not discount these savings to reflect the fact that the higher initial cost of the diesel-powered truck is incurred at the time of purchase but the savings occur only in the future. Assuming that the truck was purchased on January 1, 2000, and operated 25,000 miles per year, and that the purchaser discounted the future fuel cost savings at 10 percent per year, the diesel engine option would have “paid for itself” by the end of the fourth year of operation, or by the end of 2003.

With higher fuel prices overall and/or with a favorable diesel price/gasoline price differential, there is a growing incentive to use diesel-powered light-duty trucks in applications such as trailer towing. Table 3.2 shows a similar calculation we performed using the nationwide average gasoline and diesel prices that actually prevailed during the week of July 3, 2000—$1.63 per gallon for gasoline and $1.45 per gallon for diesel. This calculation shows diesel power having a cost advantage not of 4 cents per mile but rather of 7 cents per mile. Recoupment of the diesel-powered truck’s higher initial cost occurs early in the third year of operation rather than near the end of the fourth. Table 3.2 also shows a third calculation, one using the prices for gasoline and diesel that existed in France in the mid-1990s. In this case, the cost advantage from using the diesel-powered truck is 24 cents per mile. Recoupment occurs in well under one year.

Diesel and gasoline compete head-to-head for powering light-duty, personal-use trucks. Owners who plan to use their vehicles intensively or who plan to haul heavy loads, such as trailers, can find diesel power to be the most efficient option.

Buses—Transit, Intercity, and School

Just as for light-duty vehicles, the principal reason for using diesel engines in buses is their superior fuel economy and greater durability. These characteristics lower operating costs and permit a greater distance between refueling stops, an especially important consideration for intercity buses. The diesel engine’s more compact size (providing greater interior room in the same-sized vehicle) and the lower volatility of diesel fuel (making diesel-powered buses safer in an accident and reducing capital costs associated with fuel handling) are also important considerations.

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Transit buses

In 1998, transit buses traveled 2.3 billion miles and transported 5.4 billion passengers, representing 62 percent of all trips made using public transit. Though the number of cities with various forms of rail transit is increasing, except in a very few cases (such as New York City), the transit bus is the principal way that people can get to work without using their private automobiles.

The vast majority of transit buses—95 percent of full-sized transit buses in 1997—is powered by diesel engines. Transit buses of all sizes used a total of 554 million gallons of diesel fuel in 1998, compared with 38 million gallons of other fuels.

A number of alternative fuels are being tried for powering transit buses. However, compressed natural gas (CNG) is by far the leading one of these “alternative” fuels. In 1997, CNG-powered buses still made up only 4 percent of full-sized transit buses. The GAO report from which Figure 3.13 is adapted makes clear why. Buses burning alternative fuels currently cost more to purchase and, generally speaking, more to run than do diesel-powered buses. GAO also reports that, in some cases, alternative-fueled transit buses have experienced maintenance difficulties.

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Figure 3.13 Number of Full Size Transit Buses by Fuel Type

50,417 49,529 49,384 48,856 47,807 47,252

579 22961743146913741115

0

10,000

20,000

30,000

40,000

50,000

60,000

1992 1993 1994 1995 1996 1997

Diesel AlternativesDiesel

Source: US General Accounting Office, “Mass Transit: Use of Alternative Fuels in Transit Buses,” RCED-00-18, December 1999.

School Buses

There are more than 435,000 school buses on U.S. roads. Each school day, these buses transport about 23.5 million students—about 55 percent of the K-12 population. Since the typical school bus travels less than the typical transit bus—an average of about 7,750 miles per year for the former compared with over 35,000 miles per year for the latter—fuel economy concerns are not paramount, and a lower percentage are diesel-powered. Still, as we noted earlier, an estimated 60 percent of the fuel used in school buses is diesel. Because this fuel delivers more mileage than gasoline, a fraction larger than the energy efficiency of diesel engines, this means that somewhat over 60 percent of the 23.5 million pupils transported each day to and from school travel on diesel-powered buses.

Virtually all non-diesel school buses are gasoline-powered, but several jurisdictions have been experimenting with using alternative fuels to power school buses. A May 1999 report by the California Energy Commission details the results of the “Safe School Bus

39


Clean Fuel Efficiency Demonstration Program,” a program in which 777 school buses powered by “advanced” diesel engines (410 buses), methanol-fueled engines (150 buses) and CNG-fueled engines (217 buses) were made available to over 124 school districts and consortia throughout the state between 1990 and 1997. (An additional 498 CNG-fueled school buses were delivered in 1999. These were not covered by the report.)

The district receiving the largest number of these buses, the Antelope Valley School District, was the subject of a special U.S. Department of Energy study published in 1998. Antelope Valley began receiving school buses under the project in 1992, and by the 1996–97 school year was operating the vehicles shown in Table 3.3. Table 3.3 also compares purchase, fuel, and maintenance costs by vehicle type for the 1996–97 school year.

Table 3.3 Alternative School Bus Fuel Experience

Type of VehiclePurchase Cost ($)

Number of Vehicles

Fuel Cost Maintenance Amortizationb Sum Index

Conventional Diesel busa 80,000 5 0.14 0.24 0.53 $0.91 100

Advanced diesel bus 89,638 8 0.16 0.21 0.60 $0.97 106

CNG (Tecogen) bus 127,226 15 0.29 0.37 0.85 $1.51 165

CNG (John Deere) bus 101,100 16 0.13 0.13 0.67 $0.93 102

Electric busc 260,482 1 0.09 1.98 1.74 $3.81 417

Methanol bus 151,758 16 0.29 0.34 1.01 $1.64 180

Misc. diesel vehicles N/A 40 0.15 0.32 N/A N/A N/A

Special-ed. diesel van N/A 56 0.16 0.27 N/A N/A N/A

a Purchase costs divided by 150,000 -- 15,000 miles of use per year times 10 year assumed useful life.c Electric bus maintenance costs include cost of regular preventive maintenance as well as cost of experiments with new technology, such as labor to exchange batteries for evaluation, analyze performance of components, and work with manufacturers.Source: US Department of Energy, Argonne National Laboratory, Alternative-Fuel Buses Earn High Marks from Antelope Valley Schools , January 1998. Additional calculations by CRA

Antelope Valley Schools Transportation Authority

1996-1997 School Year Vehicle Operating Costs, cents per mile

a For purposes of the calculations in this table, the purchase cost for conventional diesel bus was assumed to be $80,000.

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In 1998, intercity buses carried 357 million passengers a total of 32 billion passenger miles—1.3 percent of all domestic intercity passenger miles, and 6 percent of all domestic intercity passenger miles provided by public carriers.

Intercity buses play a vital role in passenger transportation. The United States has only 566 civil airports receiving service by certificated air carriers. Amtrak provides service to just over 500 stations. Everywhere else in the country, diesel-powered intercity buses provide the principal transportation alternative to the private automobile. For example, Greyhound, the nation’s largest intercity bus operator, serves about 3,700 destinations. Indeed, although intercity buses only accounted in 1998 for 6 percent of all domestic intercity passenger miles provided by public carriers, the passengers they carried represented 27 percent of all passengers carried by intercity “for hire” modes, intercity bus, rail, and air.

To the best of our knowledge, all intercity buses are diesel-powered. These buses log as many miles per year as do many freight hauling trucks, an average of 61,000 miles. This means that the superior fuel economy of their diesel power plants is very important in helping to keep their cost of operation down and their fares affordable.

Airport Operations

Modern airplanes do not burn diesel fuel (though diesel-powered aircraft did exist at one time in Europe). But the country’s air transportation system depends heavily on diesel engines nonetheless. An EPA report on airport ground support equipment provides an estimate of the population of such equipment by fuel type. This report indicates that approximately one-third of all pieces of airport ground support equipment—15,000 out of a total of 45,000—are diesel-powered.

The use of diesel-powered aircraft ground support equipment varies widely by equipment type. Table 3.4 groups these types of equipment into three categories—those that are predominantly diesel-powered, those that are predominantly powered by gasoline or other fuels, and those that are split roughly evenly between diesel and gasoline/other power. Table 3.4 also shows the average horsepower rating of the diesel- and gasoline-powered units in each category. Generally speaking, the diesel-powered units are larger and, therefore, used in the jobs requiring greater power, such as towing jumbo jets like the Boeing 747 and 777. When fully fueled and loaded with passengers and cargo, these aircraft can weigh as much as 875,000 pounds. The tugs that maneuver these aircraft

41


must be able to move them easily and precisely. The ability of diesel engines to generate great power in a compact space greatly facilitates this movement.

Table 3.4 Air Transportation Ground Support Equipment by Fuel Type

Predominant Fuel Used By Type of

EquipmentType of Equipment Number Using

DieselNumber Using Gasoline/Other Diesel Share (%)

Diesel Aircraft Pushback Tractor 2,113 646 76.6%Conditioned Air Unit 376 103 78.5%Air Start Unit 771 110 87.5%Cargo Loader 1,129 330 77.4%Ground Power Unit 2,504 549 82.0%

Roughly Equal Split Baggage Tug 4,399 6,106 41.9%Belt Loader 2,429 2,725 47.1%Bus 115 173 39.9%

Gasoline/Other Various* 1,254 19,239 6.1%

* Includes belt loaders, bobtails, carts, deicers, forklifts, fuel trucks, lavatory carts, lavatory trucks, lifts, maintenance trucks, other GSE, service trucks, cars, pickup trucks, vans, and water trucks

Source: Sierra Research, Inc., “Technical Support for Development of Airport Ground Support Equipment Emissions Reductions,” Prepared for Office of Mobile Sources, USEPA, Contract No. 68-C7-0051, December 31, 1998.

Diesel-powered equipment also plays an important role in permitting airliners to load and unload quickly. This is especially true for the very large airliners that containerize their baggage and must have these containers loaded and unloaded smoothly and efficiently. Jumbo jets costing over $100 million each must be kept as productive as possible. Quick turnarounds translate directly into improved utilization of these key assets which, in turn, helps to lower fares.

The critical nature of diesel fuel in airport operations was indicated during protests at fuel terminals in the United Kingdom in September 2000 that halted fuel deliveries throughout the country. Gatwick Airport announced that it would have to close if its fuel supplies remained interrupted for over a week because its ground equipment would run out of diesel fuel.59

59 Sky Television News, September 13, 2000.

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The Use of Diesels by the U.S. Military

According to the Federal Fleet Report, motor vehicles owned or leased by the U.S. military consumed 79 million gallon-equivalents of fuel in 1997, 26 million gallon-equivalents of which were diesel fuel. This number does not include fuel consumed in powering “special-purpose” vehicles such as weapons systems.

The applications of diesel power by the U.S. military are every bit as diverse as those in the civilian economy. Diesel engines reported in the Defense Logistics Service’s Federal Supply Schedule range in size from a one-cylinder, 180-pound engine to a 16-cylinder engine weighing more than 17 tons. These engines are used to propel weapon systems and to power all kinds of auxiliary mobile and stationary equipment such as generators, compressors, pumps, and cranes.

The military uses diesels for many of the same reasons as civilian enterprises. The diesel engine’s superior fuel economy means that a diesel-powered piece of equipment can travel further on the same amount of fuel. Since one of the major items that the military must transport is fuel, the greater fuel efficiency of diesels significantly reduces the military’s need for logistical support. It also extends the military’s striking range. The military also greatly values the greater safety of diesel-powered equipment. When gasoline-powered vehicles are hit in combat, their fuel supply can explode. The low volatility of diesel-powered vehicles greatly reduces this risk. Finally, compression-ignition engines are much more “fuel tolerant” than spark-ignition engines. This means that they can burn a wide range of fuels, depending on what is available, thus increasing the military’s flexibility in adverse conditions.

Fighting and Other Ships

None of the Navy’s main combatant surface ships (including carriers, cruisers, destroyers, frigates, and command ships) employ diesels as their main propulsion units. However, the vessels in both the Nimitz and Enterprise Classes of carriers have four diesel engines, generating 10,000 horsepower, to provide emergency propulsion if needed. The Navy’s auxiliary ships are divided between turbine and diesel propulsion units. Fast combat support vessels and submarine tenders use turbines, steam-driven in the older ships and gas-driven in those that are relatively new. Fewer than half the auxiliaries are powered by diesels.

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In contrast, the Navy’s amphibious force vessels are almost all diesel-powered. These ships carry troops, equipment, and materiel to the site of a mission and unload them there. Some serve as docks in the vicinity of the mission site, others unload at existing docks, and still others are capable of unloading through bow or stern ramps. The San Antonio class, with a length of almost 700 feet, is among the newest of these vessels. Now under construction, these vessels have four large diesels generating 40,000 horsepower. Amphibious vessels utilizing diesel engines range in size down to “Landing Craft Personnel” with an overall length of less than 40 feet and a 425 horsepower engine. The unclassified, minor auxiliaries, large harbor tugs, and research vessels include a wide range of vessel sizes and perform a broad spectrum of missions. All of these vessels are powered by diesel engines. Within the Military Sealift Command, there is a split between diesels and turbines. The split occurs within individual designations as well. For instance, the 12 new (still in design) auxiliary dry cargo ships will have either diesel or gas turbine engines, the older ammunition ships have steam turbines, and the combat stores ships are equally divided between diesels and steam turbines. Oilers and fleet ocean tugs are propelled solely by diesels. Of the 25 ships in the Navy’s Sealift Force, only the eight fast sealift ships, which were delivered in the 1970s, are powered by steam turbines. The main propulsion units of the Ro-Ro (Roll on-Roll off) and tanker ships (i.e., all of the others that have been delivered since the mid-1980s) are diesels. The Navy also is charged with prepositioning equipment and supplies on ships at strategic locations in a readiness condition that permits their rapid deployment to sites where the United States finds need to exert military force. Thirty-six ships are in this program. As the mission suggests, the fleet includes several types of vessels, such as Ro-Ro, container, Fo-Fo (Float on-Float off), tankers, and vehicle cargo ships. In some cases, the vessels are converted or re-outfitted older ships. (Some of these may be units identified by the 1998 Containersation International Yearbook as “inactive.”) Most are powered by diesels but several have steam or gas turbine main propulsion units. The U.S. Coast Guard has a fleet of nearly 570 vessels composed of cutters, icebreakers, tenders, harbor tugs, and various patrol and rescue boats. The most heavily armed of these are the cutters, the high-endurance version of which is nearly 400 feet in length while the medium-endurance version is between 200 and 300 feet long. While the faster,

44


high-endurance cutters have 36,000 horsepower gas turbines, all cutters are also powered by diesel engines that deliver as much as 7,000 horsepower. For other than the high-endurance cutters, diesels are the sole source of propulsion. The 12 workhorse icebreakers are generally lower-speed, heavier vessels adapted to their function. All are powered by diesel-electric propulsion systems; the two ships of the Polar class also have gas turbines. The Coast Guard buoy tenders maintain the system of buoys deployed in navigable waters. Of the 31 seagoing tenders, the 15 Balsam class vessels are powered by diesel-electric systems; the others are straight diesel propulsion units. The 15 coastal tenders, 6 inland water tenders, and 18 river tenders are all diesel-powered. So are the construction tenders that operate on the Atlantic and Gulf Coasts, and the Coast Guard harbor tugs that are part of the Atlantic fleet. Finally, the Coast Guard maintains 416 boats in its fleet of patrol forces, rescue, and utility craft. The patrol forces include 44 25-foot Boston Whalers, powered by gasoline-fueled outboard motors. The other 120 patrol-force boats range in overall length from 80 to more than 100 feet. All are powered by single or multiple diesel engines ranging from 1,600 to 11,000 horsepower. The Coast Guard’s 252 rescue and utility craft consist of motor lifeboats and utility boats in the 40–50 foot class. These vessels are powered by twin diesels rated at between 630 and 850 horsepower.

Armor and Self-Propelled Artillery

The front-line tank in the U.S. Army and Marine forces is the M1 Abrams Main Battle Tank in its several improved models and functional variations. The 9,044 units of this tank in the force structure have gas turbine engines generating 1,300 horsepower as their main propulsion units. (In the late 1990s the manufacturer of this tank developed a version of the M1 powered by a 12-cylinder 1,500 horsepower diesel for the export market.) The M1 also has an auxiliary power unit that is run by a diesel engine. With the exception of the Abrams, most armor and self-propelled artillery are diesel-powered. The M2/M3 Bradley armored personnel carrier is employed by the mechanized infantry and cavalry in several variants that carry different armament and weapons complexes. These vehicles are powered by 8-cylinder diesel engines developing 600 horsepower. The more numerous M113 family of armored personnel carrier also has a larger number of variants, the roles of which include sapper support, ambulances, mortar carriers, anti-aircraft gun carrier, cargo carrier, missile launcher, and recovery vehicle. Among all of these variants, there are currently more than 25,000 of these vehicles in use in the military services. Each is powered by a 6-cylinder diesel engine delivering from 212 to 275 horsepower.

45


The U.S. Army has one active tank destroyer, the M901 improved TOW (tube launched, optically tracked, wire-guided) missile vehicle. There are currently over 3,400 of these vehicles, each powered by a 6-cylinder diesel engine. There are two types of self-propelled guns and howitzers: the M110 self-propelled howitzer and the M109 series of self-propelled howitzers. The first of these carries a 203mm barrel, the second a 155mm barrel. There are over 3,500 of these howitzers, each of which is powered by an 8-cylinder, turbo-charged diesel engine developing more than 400 horsepower. The U.S. Marines currently have 1,323 of the LFTP7A1 amphibious assault vehicles. In addition to landing personnel, these vehicles were also deployed in recovery, mine clearing, various gun carrier, and command vehicle roles. These are all powered by an 8-cylinder, turbo-charged diesel engine that delivers 400 horsepower.

Military Vehicles and Logistics Systems

This type of equipment provides the “muscle” support for the first-line combatants. Some are armored but many are not because they do not come into the direct line of fire. They include engineer vehicles, recovery vehicles, self-propelled bridges, special attack vehicles, a very wide range of trucks, heavy-equipment transporters, tracked prime movers, material-handling equipment, deployable earth movers, and self-propelled water well drillers. Virtually all are diesel-powered. The most widely known of this class of vehicles among the general public is the High-Mobility Multipurpose Wheeled Vehicle or HMMWV (“Humvee”). These have replaced the Jeep except for a few of the latter retained by the Marines. The basic HMMWV vehicle has been adapted to a large number of functions by the Army and Marines. Between the two services there are almost 110,000 vehicles in the force. While the Jeep was gasoline- powered, the HMMWV’s are powered by a 6-cylinder turbocharged diesel engine that develops 275 horsepower.

Other Equipment

A review of the more than 600 diesel engines listed in the Defense Logistics Information Service Characteristics Data CD-ROM reveals many additional types of equipment powered by diesel engines. These include:

• Flight line tow tractors

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• Scoop loaders • Trenchers • Road and airstrip equipment • Crash/rescue vehicles • Fire trucks • Buses • Mobile command and control units • Communications units • Mobile medical facilities • Mobile maintenance and repair operations • Mobile warning and tracking radar and fire control • Mobile repair and test stands.

Diesel Engines in Combat—Operation Desert Shield/Desert Storm

It is in the ground forces of the U.S. Army and Marine Corps that the diesel engine is most dominant. Gas turbines propel the current Main Battle Tank, the M1 Abrams and its variants. However, after that, and beginning with the Bradley series of armored personnel carriers that are expected to keep up with the MBT, the diesel engine is used almost exclusively. Indeed, of the principal land equipment employed in Desert Shield/Desert Storm less than a decade ago, all vehicles except the Main Battle Tank have diesel engines serving as their main propulsion units. These include systems in both the “tooth” and the “tail” of the land forces—front-line combat weapons systems and supporting equipment used at various distances from the leading edge of the combat area. A few of these were included in the media coverage of that operation, such as the Abrams M1 tank and the Bradley Fighting Vehicle. Most, by far, were not directly involved in the dramatic breakouts or overwhelming combat maneuvers. However, they were not terribly far away because their functions were essential to the front line combatants’ making those breakouts and maneuvers. For example, there was much coverage of the Patriot missile system’s interceptions of Iraqi Scud missile launches at Saudi Arabia and Israel. Nonetheless, it was diesel equipment that transported the Patriot system to the sites where the interceptions of the Scuds became possible. The M1 tank drove virtually unscathed through the Iraqi defenses and into Iraq itself. However, it was diesel equipment that carried those tanks to sites proximate to the battlefields, and diesel equipment that carried the fuel and ammunition re-supply that kept the tanks going.

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4. THE DIESEL INDUSTRY AND THE U.S. ECONOMY

Use the word “industry,” and a picture of some well-defined set of activities generally pops into people’s minds. The motor vehicle industry is understood to make cars and trucks; the computer industry is understood to design and build computers; the chemicals industry is understood to create chemicals from a variety of raw materials. But the designation of a particular collection of activities as an “industry” is actually quite arbitrary, and sometimes industry designations do not adequately characterize an important collection of activities that can be usefully thought of as a group – i.e., as an “industry.”

The government’s standard industrial classification system does not include a “diesel industry.” So, in order to analyze the impact of diesel technology on the U.S. economy, we have had to construct one. For purposes of this report, and especially this chapter, we will define the “diesel industry” to be that collection of activities that: (1) designs and builds diesel engines and related components; (2) incorporates these diesel engines into various types of machinery; and (3) manufactures and distributes diesel fuel.60

Our diesel industry purchases goods and services from other industries. We identify the amount and source of these purchases. Other industries purchase products from our diesel industry. We identify these industries and the volume of their purchases. We also trace, using an analytical technique known as “input-output analysis,” the magnitude of the “diesel industry’s” direct and indirect contributions to the economy.

The principal themes of this chapter are as follows:

60 We measure the size of the diesel industry in terms of “gross output “and “value added.” Gross output of the diesel industry is measured consistently with the definition of gross output of the economy in input-output analysis. Gross output is measured as the total output of all industries in the United States. Some goods (so-called “intermediate goods”) are sold from one industry to another, rather to a final user. Diesel engines are mostly sold as intermediate goods, to OEMs who produce the diesel equipment also included in our measure of total diesel industry output. Gross output for the United States is about twice GDP, the measure of the value of goods and services delivered to final demand. It is appropriate to compare the gross output of the diesel industry to gross output of other industries and of the United States as a whole. Value added by an industry is the value of its output minus the cost of all intermediate goods purchased from other industries. The engines produced by diesel engine manufacturers do not appear in value added by diesel equipment manufacturers, so that there is no double counting in value added accounting. GDP measures total valued added in the U.S. economy, so that it is appropriate to compare value added by the diesel industry to GDP.

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• With output valued at over $85 billion, the diesel industry is an important source of income and jobs.

• Diesel technology is an engine of economic growth, with over 5 percent of the economy’s gross annual investment in machinery and equipment going to build the nation’s stock of diesel-powered equipment.

• The services of diesel technology are responsible for a substantial share of total sector value added for certain key industries, including food, transportation, construction, and mining.

• Diesel technology is pervasive in the economy. It accounts for only 0.4 percent of consumer direct spending, but this share rises to over 1.1 percent when all the indirect purchases of diesel by consumers are included.

• Without diesel technology, a wide range of goods and services would be much more expensive.

• Replacing diesel technology with the “next-best” alternative would slow economic growth and reduce productivity.

How Big Is the Diesel Industry?

The collection of activities we call the “diesel industry” is an important source of income and jobs. Altogether, the gross output of the diesel industry totaled more than $85 billion in 1997.61 The important contribution of the diesel industry to the U.S. economy goes largely unnoticed because diesel technology is so widely applicable and is used in many different types of equipment. As illustrated in Figure 4.1, providing diesel technology to the American economy involves oil refiners (who produce and distribute the fuel); engine manufacturers; and makers of trucks, buses, marine vessels, construction equipment, pumps, compressors and generators powered with diesel engines. Producing diesel fuel generates sales of $31.3 billion for the U.S. petroleum refining industry. Manufacturing

61 The primary data source in all of the following input-output analysis is the 1992 Bureau of Economic Analysis (BEA) input-output table. Appendix A outlines our definition of the diesel industry within these accounts using satellite data from the Census Bureau.

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of diesel engines includes all engines that are delivered to original equipment manufacturers (OEMs). Diesel engines produced in 1997 were worth $9.0 billion. Diesel-powered pumps, compressors, and generator sets worth $1.9 billion are also produced annually. Diesel-powered transportation equipment includes cars, trucks and buses, railroad locomotives, and boats and ships, amounting to $37.3 billion worth of annual output. Farm, construction, and mining equipment account for another $5.7 of output. The diesel industry pays workers producing these fuels and equipment almost $18 billion annually.

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Figure 4.1 Diesel Industry Gross Output by Component ($ Million)

$1,301

$14,322

$16,670

$31,334

$1,052

$1,883

$5,657

$2,101$1,936

$8,969

Motors and generatorsRailroad equipmentPumps and CompressorsMining machineryFarm Machinery and EquipmentInternal Combustion EnginesWater Transportation EquipmentConstruction Machinery and EquipmentMotor VehiclesRefined Petroleum

This scale of gross output makes the diesel industry comparable in size to other key industries whose contribution to the U.S. economy are widely recognized and whose health is frequently a matter of concern in national economic policy. Because of limitations in the data, it is not posible to make a strict “apples to apples” comparison of size. But Figure 4.2 suggests that, roughly speaking, the diesel industry about the same size as apparel manufacturing, electronic component manufacturing, iron and steel manufacturing, or the lumber and wood products industry.62

Industries That Sell Goods and Services to the Diesel Industry

Producing diesel engines, the equipment they go into, and the fuel they burn also supports jobs and sales in other key industries. Manufacture of diesel engines requires raw materials and components, as well as the services of a variety of professions and institutions. Figure 4.3 shows how purchases by the diesel industry are distributed across other industries. Crude oil must be produced so that refineries can supply diesel fuel.

62 The data comparability problem is created by the fact that data from the 1997 Economic Census is being released piecemeal, and data for certain key sectors is unavailable or incomplete at this time. The data for computer manufacturing is from the 1992 Economic Census, and we know that computer manufacturing has grown significantly since that date. However, other of the industries shown in the table are roughly the same size today as they were in the early 1990s when the previous complete Economic Census was taken.

51


Metal products and forgings in addition to chemicals, rubber, and plastic go into diesel engines and equipment. Other manufacturing industries produce parts and components for both diesel engines and the vehicles and equipment powered by diesel engines.

52


Figure 4.2 3 Digit Industries Similar in Size to the Diesel Industry

Source: For an explanation of the derivation of diesel industry gross output, see Appendix A. The data for gross output for other sectors is from the 1992 Economic Census. As explained in the footnote, the data from the 1997 Economic Census that would be necessary to calculate industry gross output for all the industryies shown are not yet available.

0 20 40 60 80 100 120

Aerospace

Pulp and Paper products

Dairy/Meat/Poultry

Instruments/Measuring Devices

Logging, Milling, and Wood Processing

DIESEL INDUSTRY

Iron and Steel

Electronic Component Manufacturing

Apparel

Computers and Office Machines

Gross Output ($ billion)

53


Figure 4.3 Distribution of the Diesel Industry’s Purchases ($ Million)

$12,876

$9,605

$5,393

$5,666

$2,517

$809$739

$581

Natural Gas and Crude

Other Manufacturing

Other Services

Metal Mills/Foundries

Chemicals Rubber and Plastic

Trucking and Warehousing

Pipelines except natural gas

Electric generation

Figure 4.4 shows that, of these industries, the diesel market is most important to the crude oil production and pipeline industry, and to metal mills, foundries, and forging industries. These are industries that have been subject to highly cyclical markets over the past decade. Crude oil prices have swung in the past two years from the lowest to the highest levels seen in three decades, and these cycles can be expected to continue. Losing a market for over 12 percent of current crude oil purchased by refineries would further stress the U.S. oil producing industry, as well as the pipeline and service industries that support it. Metals industries are also highly cyclical; because they have large fixed investments, supply is very inelastic and variations in demand produce large swings in prices and profitability. Losing the 4 percent of its sales that go to the diesel industry would further endanger the viability of portions of the industry.

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Figure 4.4 Industries Selling 0.25% or More of Their Output to Diesel Industry

Source: CRA Calculations.

Diesel Technology Is an Engine of Economic Growth Diesel fuels are consumed by freight, transport, farming, mining, and construction, as well as the variety of passenger cars and light trucks with diesel engines. Diesel-powered equipment, on the other hand, is a durable good, and almost all of its output is purchased for investment purposes. The $54 billion of diesel-powered equipment produced annually represents 2.7 percent of gross investment in the U.S. economy (see Table 4.1). It is an even larger fraction of annual investment in machinery and equipment, amounting to $21.3 billion, or 5.5 percent, of the $389 billion invested in durable equipment.

12.66%

10.10%

3.60%

0.86%

0.51%

0.47%

0.45%

0.45%

0.35%

0.32%

0.30%

0.27%

0% 2% 4% 6% 8% 10% 12% 14%

Natural Gas and Crude



Other Manufacturing


Chemicals Rubber and Plastic

Non Metalic Mineral Products

Natural Gas Distribution

Water transportation

Railroads

Electric generation

Air transportation

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Table 4.1 Investment in Diesel

Capital Type $ Millions Source% of

Equipment % of Total $ Millions Source% of

Equipment % of TotalDiesel 21,343 1 5.5% 2.7% 141,349 1 6.5% 0.8% All Equipment 388,700 2 100.0% 49.1% 2,175,742 3 100.0% 12.6% All Capital 790,991 1 NA 100.0% 17,235,269 3 NA 100.0%

1. Model (BEA I/O 1992)2. 1999 Economic Report of the President3. Fullerton and Rogers (1993). 1983 data grown to 1992 values.

Investment Capital Stock

As the economy grows, more trucks, locomotives, and ships are required to move the increasing volume of goods; more farm equipment is required to produce ever larger amounts of food and to increase the productivity and competitiveness of U.S. agriculture; and more construction equipment is required to build the roads where freight moves and the structures where people work. For these reasons, new diesel-powered equipment, with an average life of about eight years, is added to the economy’s stock of capital and provides the machinery needed to keep the economy expanding and to enhance productivity. The value of the diesel equipment in place in the economy in 1997 was almost $150 billion. This amounts to just under 1 percent of the total capital stock in the economy, which includes long-lived structures as well as machinery and equipment. The share of diesel equipment in the total stock of machinery and equipment is 6.5 percent.

Industries That Are Critically Dependent on Diesel Technology

Diesel technology is particularly important for a few key industries. Transportation, farming, mining, and construction depend on cheap mechanical energy to provide goods to U.S. consumers at low cost and to maintain their competitiveness in global markets. Table 4.2 shows that three industries own the largest share of the diesel capital stock—the trucking, construction, and farming industries. The transportation sector utilizes diesel equipment worth almost $60 billion. Agriculture (including forestry and fishing) depends on almost $19 billion worth of diesel-powered equipment. The construction industry has the next-largest stock of diesel-powered equipment, worth over $17 billion. Mining utilizes nearly $7 billion worth of diesel-powered equipment.

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Table 4.2 Value of Diesel Capital Stock by Sector and Value of Annual Services Provided by Diesel Capital Stock as Share of Sector Value Added

Value of Diesel Capital

Stock for Sector ($ million)

Annual Services of Diesel Capital Stock as Share of Sector

Value Added (%) Transportation $59,248 Air transportation $3,433 6.3% Freight forwarders/Arrange transport $523 2.0% Local/suburban/interurban transit $4,852 22.6% Railroads $2,439 5.8% Trucking and Warehousing $45,828 28.3% Water transportation $2,174 6.6% Agriculture $18,815 Dairy and Livestock $2,669 3.7% Food and Kindred Products $4,911 0.3% Forestry and fishery $2,303 1.8% Grain Crops $5,271 3.7% non-Grain Crops $3,660 2.0% Construction $17,486 Construction Services $16,496 4.1% Hydraulic Cement $490 9.3% Concrete Products $500 3.5% Mining $6,937 Coal $1,091 2.5% Fertilizer minerals and mining $915 14.6% Non Metalic Mineral Products $1,091 2.7% Other Mining $3,840 15.4% Equipment Manufacturing $6,515 Aircraft and aerospace $831 1.6% Construction Machinery/Equipment $553 1.9% Farm Machinery/Equipment $547 1.0% Internal Combustion Engines $517 6.6% Mining machinery $523 6.0% Motors and generators $518 6.6% Motor Vehicles $1,383 0.6% Pumps and Compressors $534 4.6% Railroad equipment $527 14.8% Water Transportation Equipment $581 4.3% Other $32,347 Chemicals Rubber and Plastic $1,589 0.2% Electric generation $3,320 0.6% Logging and Lumber Products $4,012 3.8% Metal Mills/Foundries $1,776 2.4% Natural Gas and Crude $504 0.2% Natural Gas Distribution $1,272 1.3% Newspapers $1,523 0.4% Other Manufacturing $4,764 0.2% Other Services $10,436 0.2% Pipelines except natural gas $486 1.9%

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Pulp and Paper Products $889 0.5% Refined Petroleum $486 0.1% Textiles and Apparel $1,289 0.2%

How important is diesel technology in the different industries where it is used, and to the cost of the products and services that these industries deliver to consumers? One indication of this importance is the share of value added that is accounted for the services of the industry’s stock of diesel equipment. “Value added” is a measure of the contribution of labor and capital employed in a particular industry to the value of the industry’s output. The cost of materials and components purchased by an industry from other industries is excluded, so that value added reflects, as its name suggests, only the increase in value attributable to the capital and labor employed by the industry in question. Figure 4.5 shows the share of sector value added accounted for by the services of the sector’s diesel capital stock for sectors where this share exceeds 2.5 percent.

Trucking, not surprisingly, is the industry in which diesel equipment contributes the largest share of value added, amounting to almost 30 percent of value added in trucking. Diesel equipment is almost as large a share of value added in local and intercity passenger transportation, amounting to almost one-quarter of value added by that sector. Mining, of metallic and non-metallic ores and fertilizer, is the next-highest in its dependence on diesel technology, with diesel equipment accounting for between 15-16 percent of value added. The cement industry also depends heavily on diesel equipment for mining and processing, with diesel equipment amounting to 10 percent of value added. Among farming sectors, the largest diesel shares are in the grain and dairy/livestock industries, amounting to about 4 percent of value added. Despite railroads’ heavy investment in rolling stock, track and other facilities, diesel equipment accounts for 6 percent of value added in the railroad industry and 7 percent of value added in water transportation. Construction is such a large industry, ranging from construction of small buildings to huge highway, bridge, and dam projects, that diesel equipment accounts for 4 percent of value added for the industry as a whole. In particular segments, such as heavy construction involving large earth-moving equipment, diesel equipment and technology are far more critical and would provide a much larger share of value added.

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Figure 4.5 Diesel Share of Sector* Value Added

*Includes all sectors where diesel share equals or exceeds 2.5%.

Diesel Fuel Represents a Large Share of Total Purchases for Some Industries

The trucking industry uses over $11 billion worth of diesel fuel per year. Railroads spend about $2 billion on diesel fuel, with about the same amount used by the non-combat vehicle fleets of the military services. Local and suburban transit agencies, as well as long-distance bus companies, purchase another $2 billion worth of diesel fuel in the aggregate.

28.3%

22.6%

15.4%

14.8%

14.6%

11.5%

9.3%

6.6%

6.6%

6.6%

6.3%

6.0%

5.8%

4.6%

4.3%

4.1%

3.8%

3.5%

2.7%

2.5%

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0%


Local/suburban/interurban transit

Other Mining

Railroad equipment

Fertilizer minerals and mining

Agriculture

Hydraulic Cement

Internal Combustion Engines


Motors and generators

Air transportation

Mining machinery

Railroads

Pumps and Compressors

Water Transportation Equipment

Construction Services

Logging and Lumber Products

Concrete Products


Coal

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Almost $4 billion in diesel fuel is used in the production and delivery of food, including the food products, grain crops, dairy and livestock, and non-grain crops sectors.

Diesel Technology Plays a Role in Nearly Everything Consumers Buy

Diesel technology is pervasive in the economy, but diesel engines and the equipment that uses them are so efficient that consumers must devote a surprisingly small fraction of their total household budgets to obtain the benefits of this valuable technology. How small? By adding up the expenditures on diesel fuel and the value of the services of diesel-powered equipment for all U.S. industries, we can determine the total contribution of diesel technology to the cost of goods and services produced in the economy. (We also need to include the cost of diesel fuel and diesel-powered cars, trucks, and boats purchased directly by consumers.) Dividing this total by the value of goods and services produced for final demand (i.e., for consumption, rather than as input to used by another sector), we obtain diesel’s share in the cost of goods consumers buy. This turns out to be 1.1 percent.

The cost of diesel technology embedded in the cost of goods and services consumers buy varies widely by sector. Figure 4.6 shows this cost as a share of each dollar of final consumer demand for a range of sectors.63 This calculation underscores the fact that, although the public may be largely unaware of it, diesel plays an important role in supporting nearly everything that consumers buy.

The flowchart below (Figure 4.7) illustrates a simplified example of the direct and indirect uses of diesel fuel and equipment in the production of food products. These are the prepared and packaged foods that actually appear on supermarket shelves and are delivered to restaurants and food service operations. The upper box shows that production of food and kindred products requires inputs of diesel fuel and equipment equal to $4,954 million, which is equal to 1.1 cents per dollar of the food commodity delivered to final demand. Of this 1.1 cents, 0.3 cents comes from direct requirements of diesel, which include the use of diesel fuel and diesel engines in the food sector. A larger share of the effects of the diesel industry on the food sectors comes through the indirect requirements for diesel, which are equal to 0.8 cents per dollar of food delivered to final demand.

63 We show this figure for all sectors for which the direct plus indirect cost of diesel technology represents at last one cent out of every dollar of output for consumption.

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Indirect uses of diesel fuel and technology occur in the industries that are drawn below food and kindred products in Figure 4.7. These industries supply goods to the food and kindred products sector, including farming and trucking, as well as the industries that supply farming and trucking with diesel fuel and engines.

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Figure 4.6 Diesel’s Contribution per Dollar of Commodity Delivered to Final Demand — Direct and Indirect*

* Includes all sectors where total contribution exceeds $0.01 per dollar.

$0.00 $0.02 $0.04 $0.06 $0.08 $0.10 $0.12 $0.14 $0.16 $0.18

Fertilizer minerals and mining

Local/suburban/interurbar transit


Railroads and related services

Other Mining

Coal


Grain Crops


Logging and Lumber Products

Dairy and Livestock

non-Grain Crops


Forestry and fishery

Electric generation

Concrete Products

Air transportation


Food and Kindred Products

Construction Services

Hydraulic Cement

Pulp and Paper Products

Other Manufacturing

US Postal Service

Other Services

DirectIndirect

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Figure 4.7 Agriculture Sector

Food and Kindred Products

Gross Output = $602,941 million Employment = $59,399 million Value Added = $305,071 million Diesel Fuel = $1,008 million Total Diesel Requirement = $4,954 million Total Diesel Contribution per $ = 1.1 cents Diesel Direct Contribution per $ = 0.3 cents Diesel Indirect Contribution per $ = 0.8 cents


Gross Output = $166,953 million Input to Food Sector = $6,341 million Input to Agriculture Sector = $3,349 million Input to Farm Machinery Sector = $262 million Input to Fertilizer Mining Sector = $62 million Input to Diesel Refining Sector = $84 million

Agriculture

Gross Output = $261,948 million Input to Food Sector = $118,822 million

Farm Machinery and Equipment Chemicals, Rubber, Plastics Diesel Refining

Gross Output = $5,657 million Gross Output = $480,843 million Gross Output = $31,334 million Input to Agriculture Sector = $1,339 million Input to Food Sector = $14,378 million Input to Food Sector = $1,798 million

Input to Agriculture Sector = $16,179 million Input to Agriculture Sector = $5,566 million Input to Trucking Sector = $12,552 million

Diesel Engines Fertilizer Minerals and Mining

Gross Output = $53,891 million Gross Output = $3,163 million Input to Trucking Sector ~ $103 million Input to Chemicals Sector = $1,532 million Input to Farm Machinery Sector ~ $982 mill Input to Agriculture Sector = $1 million Input to Fertilizer Sector ~ $11 million

Indirect requirements capture the ways in which the diesel industry contributes to goods produced by these other sectors that are utilized in the production of food. Indirect requirements of diesel fuel and equipment for production of food and kindred products are included in the purchases from other industries by the food and kindred products sector. Trucking is important in every stage of production of food products, and is heavily dependent on diesel technology. The diesel technology used in trucking is one of the components of the indirect use of diesel for producing food and kindred products.

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The food and kindred products sector directly purchases $6,341 million of trucking services, out of a gross output for the trucking industry as a whole of $166,953 million. Indirect diesel requirements for producing food and kindred products include the share of that sector’s expenditures on trucking that can be attributed to diesel fuel and equipment used in trucking. The trucking industry also is an input to production in the agriculture, farm machinery, fertilizer mining, and oil refining sectors. The effects of the diesel component of the trucking industry will flow into food’s indirect use of the diesel industry through all of these sectors.

Farming produces the grain and non-grain crops, and dairy and livestock products that are prepared and packaged by the food and kindred products industry. In agriculture, diesel fuel, farm machinery, and related diesel equipment are used directly, and diesel technology is used indirectly to produce and transport these inputs as well as chemicals (principally agriculture and fertilizer). The sum of all indirect uses of diesel technology accounts for 0.8 percent of the cost of producing food and kindred products, making direct and indirect expenditures on diesel equal to 1.1 percent of the cost of food and kindred products.

What Would Happen If We Could Not Use Diesel Technology?

The true measure of the value of diesel technology to the economy is not what it costs to purchase it but rather the price that users would be willing to pay to avoid losing diesel technology’s services. If it turns out to be possible to obtain the same services currently being provided by diesel technology in some other less-efficient or higher-cost way, the value of diesel technology is the additional cost the users incur by employing this “next-best” alternative.64

In some applications, clearcut “next best” alternatives exist and the extra cost of using them can be easily calculated. Every manufacturer of light-duty trucks offers a diesel engine option. As we illustrated in Section 3, the choice between diesel and gasoline for these is entirely a matter of cost and performance. At the prices of diesel and gasoline that existed during July 2000, each mile of pulling a 6000 pound trailer cost an extra seven cents per mile. There are subtleties to measuring the performance differences

64 A simple example may help make this clearer. The value of water is not what water costs, but what we would pay to avoid being without it. If there is an alternative to water that meets the same needs that water does, then the value of water is the cost we save by being able to use it rather than the other presumably more expensive alternative.

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between gasoline and diesel engines in particular applications, such as towing, but there is ample experience on which to base comparative evaluations.

For some applications, no simple substitute exists, so one must consider alternatives that require a more fundamental reconfiguration of the applications. For example, we have been unable to locate an alternative to diesel engines for railway freight locomotives. However, electrification is clearly an alternative that is in use elsewhere in the world. Indeed, Amtrak has just completed electrifying a 156 mile section of main line track between New Haven, Connecticut, and Boston, Massachusetts for high speed rail passenger service. In the case of railroads, we estimate the cost of such electrification. This permits their diesel engines to be scrapped.

In still other applications, diesel power so dominates due to its superior efficiency that “next-best” alternatives, though perhaps technically possible, are not commercially available anywhere. For example, it is difficult to conceive how a large open-pit coal mine could operate without diesel technology. The draglines that move the overburden might somehow be electrified and the trucks that that move 300 or more tons of overburden and ore on each trip might be replaced by electric trains. But such technologies, though they once existed, have been supplanted by diesel powered equipment. Moreover, the increase in cost likely would render the coal produced by such a mine uncompetitive. The low-sulfur, low-Btu subituminous coal produced in the Powder River Basin is only able to compete as a fuel throughout much of the United States because of the extremely low mining and transportation costs made possible by diesel technology. This immense low-sulfur coal deposit would be either severely downsized or eliminated altogether if diesel technology were not available. Indeed, the Wyoming coal fields were known to exist long before they were exploited. It just wasn’t practical to exploit them without diesel technology.

Any assessment of the ramifications to an economy of not having access to diesel technology has to steer between two kinds of errors: that of exaggerating the costs of replacing diesel technology by assuming that no substitute of any kind is available, and that of seriously underestimating costs by failing to consider the special characteristics that make diesel technology attractive in particular applications.

In the sections that follow, we definitely err on the side of underestimating costs. For one thing, we attempt to make cost estimates only for a small (but important) set of uses of diesel technology – ones for which a “next best” alternative has been demonstrated to be feasible and, indeed, is being utilized somewhere in the world. These uses are heavy

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trucking, buses, and rail freight. Together these account for 75 percent of the transportation-related diesel use reported in Table 2.1 above.65 But they may well represent the least costly applications of diesel technology to replace.

Even in analyzing these three uses, we cannot fully measure the costs of having diesel technology unavailable. We probably do not capture the performance losses (for example, reduced reliability and durability or reduced fuel safety) that result from the switch to the “next best” alternatives. We also cannot fully capture the additional requirements that would be placed on other sectors, such as the powerplants required to generate the extra electricity needed to power the electrified freight railroads. We also do not calculate the impact of the loss of competition – e.g., between rail and inland waterway for the transportation of bulk commodities – that would occur if inland waterways could not utilize diesel-powered towboats.

Cost Estimates for Replacing Diesel Technology in Three Key Sectors The three sectors for which we can determine a reasonable estimate of the cost of an alternative to diesel power are trucking, bus transportation, rail transportation, and agriculture.

Local and Long Distance Trucking

Trucking is a complex industry to analyze because there are no currently available 100 percent LNG engines to meet the power and size requirements for the heaviest over-the-road trucks.66 One possible alternative is to use smaller engines and reduce the size and weight of trailers so that the smaller engines are sufficient to maintain highway speeds and hill-climbing abilities. The cost of this alternative to large diesel engines includes both the additional cost of natural gas engines and fueling systems and the additional cost of more drivers and cabs to move freight in smaller loads. Double and

65 The major transportation uses omitted are waterborne, light trucks, and automobiles. 66 Raley’s Supermarkets, a large retail grocery company based in northern California, participated in a test using eight LNG-powered Class 8 Kenworth trucks and three Class 8 Kenworth diesel-powered trucks over a two-year period beginning in April 1997. The LNG engines that were used displaced 10 liters (610 cubic inches) had a maximum rated power output of 300 horsepower (@ 2100 rpm) and produced 900 lb-ft of torque (@1300 rpm). However, roughly half of all diesel-powered trucks (excluding pickups, panels, minivans, SUVs, and station wagons), responsible for 78 percent of truck miles, have engines displacing 600 cubic inches or greater. The results of this test are reported in National Renewable Energy Laboratory, Raley’s LNG Truck Fleet: Final Results, March 2000.

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triple rigs and longer trailers, which have substantially reduced trucking costs in recent years, would disappear and be replaced by smaller single-trailer rigs. The additional cost of labor and capital would be added to the cost of engines and fuel. Consequently, in the following analysis, we consider not only the fuel-cost impacts associated with using LNG, but the necessity of using light-heavy trucks, which can use currently available LNG technology, to replace heavy-heavy trucks.

As with other diesel applications, the most important reason that diesel engines are used to power freight-hauling trucks is their superior energy efficiency. According to the 1997 Vehicle Inventory and Use Survey, the average “heavy-heavy” truck traveled 46,000 miles and ran 6.1 miles per gallon of fuel. This implies that the typical heavy-heavy truck burns 7,540 gallons of fuel per year. At the national average diesel fuel price prevailing in early July 2000 ($1.45 per gallon), the annual fuel bill for such a truck would total $10,933. If diesel engines average 30 percent better fuel economy than gasoline engines, the annual fuel bill for a gasoline truck of similar size would be $15,977—a difference of about $5,000 per truck per year, based on the national average price for regular unleaded gasoline in early July of $1.63 per gallon. Since there are about 2.5 million heavy-heavy trucks in operation, this amounts to a savings of $12.5 billion annually in fuel expense, just for this one category of truck.

To capture the efficiency differences between gasoline engines, or LNG engines, and diesel engines, the following analysis employs the assumption that switching from diesel to alternative fuels like gasoline or LNG will increase fuel costs by 30 percent for the trucking, bus, and agriculture sectors.67 This figure represents a fairly conservative

67 One argument normally made in favor of natural gas over diesel is that natural gas is cheaper, which helps offset diesel’s efficiency advantage. However, this argument does not account for the true economic costs of diesel and natural gas. Diesel fuel is subject to significant taxes, whereas natural gas is generally not taxed—implying an effective subsidy for natural gas. In order to examine the relative costs to society of the two fuels, it is important to compare their pre-tax prices. According to the EIA’s Petroleum Marketing Annual, the average pre-tax cost of diesel fuel between 1990 and 1999 was equal to approximately $0.60/gallon, or $4.29 per million Btu (MMBTU). Natural gas prices (in EIA’s Natural Gas Annual) are normally quoted by consumer class: commercial, industrial, vehicle, residential, and utilities. The fuel markets for residential consumers (with prices higher than average) and utilities (with prices lower than average) are not necessarily comparable to the markets for diesel fuel, so we compared prices for the other consumer classes. The 1990-1999 average costs for commercial, industrial, and vehicle uses are (on an energy-equivalent basis) $5.07/MMBTU, $2.97/MMBTU, and $4.03/MMBTU, respectively. All of these prices are close enough to the diesel price, especially when factors such as natural gas compression and storage costs are included, to discount any fuel cost savings associated with LNG. This allows the diesel/LNG comparison to be made based on relative fuel efficiencies.

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estimate of diesel engine’s fuel efficiency. A recent DOE analysis68 examining diesel-fueled engines in light-duty vehicles uses the assumption that diesel technology is 50 percent more fuel-efficient than gasoline, and notes that some currently available diesel engines are approximately 63 percent more efficient. The study of Raley’s Supermarket’s LNG trucks69 found that the LNG trucks traveled 38% fewer miles per energy equivalent gallon of fuel than the diesel trucks. Although it is difficult to compare the fuel efficiencies of large gasoline- and diesel-powered trucks, since most heavy-duty vehicles are diesel, a comparison of medium-size trucks (Class 4/5) shows that trucks with diesel engines are between 22 and 32 percent more fuel-efficient,70 based on 1992 statistics that are likely to underrepresent today’s diesel fuel-economy advantage. Tables 4.4 and 4.7 will present the fuel economy data,71 along with an estimate of the associated increase in operating costs from operating LNG trucks (given that 134 billion miles are traveled by medium to heavy-heavy diesel trucks, the operating costs increase by $5.5 billion per year).

However, for the largest trucks that travel the greatest distances and carry the largest share of the freight, diesel power is not merely more economical than gasoline power—gasoline power is not even an option (see Chapter 3). Most heavy, over-the-road trucks simply cannot use CNG/LNG or gasoline engines as direct replacements. Spark-ignition engines cannot be packaged with the size, power, and torque characteristics now required by over-the-road trucks.

Suppose that, for some reason, the trucking industry were no longer able to use diesel engines and the freight now being hauled by truck had to be moved in the size of truck that could be powered by gasoline engines. Class 8 trucks might still exist, but the ones that did, together with their payloads, would weigh near the bottom of the Class 8 range.

Just how many more trucks might be required to haul what diesel-powered trucks haul now? Table 4.3 below, taken from the draft DOT 1997 Comprehensive Truck Size and Weight Study, shows the mean average payload and mean average loaded weight for a

68 U.S. Department of Energy, The Impacts of Increased Diesel Penetration in the Transportation Sector, 1998. 69 National Renewable Energy Laboratory, Raley’s LNG Truck Fleet: Final Results, March 2000 (corrected version, based on personal conversation with author, October 18, 2000.) 70 Table 8.8, Truck Fuel Economy by Fuel Type and Size Class 1992, Transportation Energy Data Book: Edition 1999, Office of Transportation Technologies, DOE. 71 Due to the fact that National Income Accounts data are used in the I/O model, the change in fuel economy can only be accurately applied to those trucks in the transport-for-hire market, rather than including private fleets, as well.

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number of common truck types. The average payload carried by most of these truck types exceeds 33,001 pounds, the weight that marks the lower boundary of Class 8. However, that boundary does not refer to just the weight of a truck’s payload; it refers to the payload plus the weight of the empty truck. Assume that the largest practical truck powered by a spark-ignition engine would weigh 40,000 pounds including its load. If this were the case, the number of trucks required to haul the freight currently hauled by diesel-powered trucks shown in Table 4.3 would increase from 42 percent to 100 percent, depending on the configuration and body type. At least an equal number of additional drivers would be required, plus maintenance and support personnel.

Table 4.3 Mean Average Payload and Loaded Weight of Common Truck Types (pounds)

Body Type

Payload Loaded Payload % Payload Loaded Payload % Payload Loaded Payload %Platform/flatbed 30,715 56,900 54% 36,780 65,350 56% 45,330 64,470 70%Van 34,890 60,340 58% 30,555 61,550 50% 33,935 65,100 52%Grain Body 48,970 63,340 77% 48,030 74,570 64% 56,380 80,140 70%Dump Truck 34,760 59,460 58% 42,580 72,160 59% ** ** n.a.Tank Body 47,980 72,410 66% 46,410 74,490 62% ** ** n.a.

* Tractor plus two trailers of the type and weight permitted by the Surface Transportation Act Amendments of 1982** No data provided due to small sample size

Source: 1997 US DOT Comprehensive TS&W Study (Draft), p. 111-112.

5-Axle Truck-Trailer 5-Axle Tractor-Semitrailer STAA Double*

In our analysis, we include the costs associated with this potential size shift in trucks in the following manner (see Table 4.4). With the average size of available LNG engines limited to about 300 horsepower, and average heavy-heavy truck engines averaging 450 horsepower, 50 percent more units would be required to replace the horsepower now provided by diesel. This implies that there would be 1.1 million new trucks on the road, representing $120.6 billion dollars worth of capital. New drivers would be necessary for the 1.1 million new trucks, implying that labor costs would increase by 1.1 million times the average wage, or $34.9 billion per year.

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Table 4.4 Costs of Selected Alternatives to Diesel in Trucking

Alternative Technology LNG/SizeShiftDiesel Engine Cost $8,000-$13,500 1

Cost of Complete Unit $47,000-$92,500 1

Number of Units (thousands) 2,285 2

Miles (millions) 134,271 2

%Change in Fuel Economy 30.0%Increase in Operating Cost due to Alternative ($/mile) $0.041 3

Increase in Cost of Complete Unit With LNG Power $35,000 3

Change in the Cost of a Unit Due to Reduced Size -$21,300 4

Increase in Cost of Complete Unit $13,700

Increase in Number of Units (thousands) 1,136 2

Average Truck-Driver Wage (1997 $) $31,717 5

1 Data from Caterpillar.2 Vehicle Inventory and Use Survey , 1997 Economic Census, U.S. Census Bureau.3 Interim Results from Alternative Fuel Truck Evaluation Project , 1999-01-1505, SAE Technica4 Battelle Team (1995) "Comprehensive Truck Size and Weight (TS&W) Study" prepared for th5 National Transportation Statistics, 1998 , U.S. Dept. of Transportation, http://www.bts.gov/ntd

Urban, Suburban, and Intercity Bus Passenger Transportation

As with the trucking sector, the bus transportation sector’s fuel costs increase directly as a result of substituting more expensive and less efficient fuel for diesel. An increase in the fuel cost for buses of 30 percent times the $1.9 billion spent on diesel fuel per year indicates a $570 million increase in the fuel cost for providing Local and Suburban Transit (LTR) services. In addition, operating expenses for LNG buses are higher than diesel on average by $0.041 per mile (see Table 4.5). At 4.1 billion miles driven, that totals $167 million per year. LNG buses are more expensive than comparable diesel units by $55,000 times the number of units, which increases the capital costs associated with the fleet of buses.

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Table 4.5 Costs of Selected Alternatives to Diesel in Bus Transportation

Alternative Technology LNGCost of Complete Unit $262,500 1

Diesel Fuel Cost $1.098 2

Number of Units (thousands) 419 3

Miles (millions) 4,080 3

%Change in Fuel Cost 30% 4

Increase in Operating Cost due to Alternative ($/mile) $0.041 2

Increase in Cost of Complete Unit With LNG Power $55,000 1

1 Transit Bus Study, GAO report.2 Interim Results from Alternative Fuel Truck Evaluation Project , 1999-01-1505, SAE Technical Paper Series.3 Vehicle Inventory and Use Survey , 1997 Economic Census, U.S. Census Bureau.4 See previous section on trucking.

Rail Transportation

Railroads and barges use large diesel engines of up to 6,000 horsepower. However, the same issues, such as heat generation, that limit the size of gasoline engines used in trucks apply with even more force in the case of engines used to power rail locomotives. Gasoline engines of 6,000 horsepower just do not exist today. Some use of small (under 1,000 horsepower) gas turbines to power passenger trains has occurred, but passenger trains are very light compared to freight trains. Gas turbines have not proved practical for powering freight locomotives. We understand that the Burlington Northern Santa Fe (BNSF) has operated a dual-fuel compression-ignition locomotive using natural gas, and that the Union Pacific has assessed a similar conversion using liquefied natural gas (LNG) hauled in a tender. The same source that reported these experiments also reports that “maintenance and reliability questions” associated with the use of spark-ignition engines “have not been addressed for railway engines.” Consequently, the most likely alternative to diesel technology would be electrification of the rail system and shifting of most barge traffic to rail.

In these circumstances, if America’s railroads could not use either diesel engines or “dual fuel” compression-ignition engines, the next most practical alternative might be to electrify the most heavily used sections of the nation’s rail system, and use smaller

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locomotives powered by some type of engine to haul freight on non-electrified branch lines. But while this alternative might be “practical” in a strictly technical sense,72 it would be tremendously expensive. Amtrak has just finished spending a reported $400 million electrifying its track from New Haven, Connecticut, to Boston, Massachusetts, a distance of 156 miles. This implies an average cost per mile of about $2.6 million.

According to the Association of American Railroads, in 1998 America’s Class 1 railroads operated about 120,000 route-miles.73 This constitutes about 50 percent of total US traack mileage, because it omits tracks operated by smaller railroads and secondary and switching track. At an average cost per mile of $2.6 million, electrifying the Class I system would require a capital expenditure of approximately $310 billion (see Table 4.6).

Table 4.6 Costs of Selected Alternatives to Diesel in Rail Transportation

Alternative Technology Electric ($2.6M/mile) 1

Miles (millions) 0.120 2

1 Estimated budget for recent electrification of a portion of the Northeast Corridor.2 Class I Road Miles (Association of American Railroads, "Analysis of Class I Railroads", 1998).

Summary of Costs Incorporated into the I/O Model To incorporate the additional costs experienced by the three sectors listed above into our I/O model they were translated into costs per dollar of sector output. We converted equipment costs for non-diesel replacement equipment into a capital stock cost associated with this equipment. 74 To be conservative, we did not assume that diesel technology users must immediately scrap their diesel equipment and finance the purchase of new non-diesel equipment. Rather, we assume that they are able to lease the necessary non-

72 The September 2000 issue of Progressive Railroading reports that the Spoornet, the state railway of South Africa, is operating 200-wagon, 20,000-ton coal trains on 520 mile round trips between Ermelo, where the coal is mined, to Richards Bay, the port through which the coal is exported. These trains have four electric locomotives in front and two in back and, with new electronically-controlled pheumatic braking systems, can run at 31 mph. Pat Foran, “Power Integration: ECP/DP-equipped coal trains passing preliminary tests, Spoornet says,” Progressive Railroading, September 2000, p. 19. 73 “Economic Impact of U.S. Freight Railroads,” http://www.aar.org/…635385602a044d638525688000662273?OpenDocument. 74 In general, when calculating these numbers, we assume a discount rate of 4 percent and depreciation rate of 13 percent, and that capital earns a gross rate of return of 17.2 percent – following Fullerton (1993).

72


diesel equipment (with these lease payments being the capital payment or return on the non-diesel capital).75 Table 4.7 converts these total capital, labor, operating, and fuel costs into costs per dollar of output. 76

In the trucking sector, the calculations imply that 1.1 million additional trucks would be required, representing $120.6 billion dollars worth of capital. At a gross return (gross of taxes and depreciation expenses) of 17.2 percent, this translates into an additional required annual flow of capital services of $26.1 billion. These new trucks would require drivers. The drivers to operate these additional trucks would require additional labor outlays of $34.9 billion per year.77 In total these cost increases represent $69.8 billion, or 42 percent of the original cost of providing trucking services to the economy. In this industry, increases in labor cost are the largest component of the increase in cost, and these costs are probably underestimated because we assume that only one additional driver is required for each additional truck. The capital charge for the larger and more costly fleet of trucks is the next-largest cost, followed by the increase in fuel cost. These estimates also fail to include any more subtle economies that come from the logistics of running large units at high utilization rates, or changes in the trailer fleet that might be required.

In the bus transportation sector, LNG buses are more expensive than comparable diesel units by $55,000 times the number of units, which represents an implied increase in the value of capital in the sector of $23 billion. This $23 billion in new capital multiplied by the 17.2 percent gross rate of return to capital indicates a required increase in the annual services of capital of $4 billion in the bus sector. Table 4.7 shows that the capital charges for the much more costly fleet of LNG buses represent the principal cost element, far outweighing additional fuel and operating costs. Considering the sum of these cost increases to provide the same service, the cost of bus transportation will increase by $4.7 billion, or 23 percent under our assumption of a LNG alternative.

One of the economic calculations about the railroad sector is slightly different from the other industries. Capital in the railroad transportation sector depreciates much more slowly than other transportation equipment, which needs to be captured in the calculation 75 We assume no investment cost for the new capital, but do assume that a new capital payment or return is required to support this capital. 76 The methodology employed to develop these costs out of the data in Tables 4.4-4.6 is described in Appendix C. 77 We do not assume that it would be necessary to raise drivers’ wages to attract these additional drivers into the trucking industry. This is obviously a very conservative assumption, especially in today’s full-employment economy.

73


of costs. In the analysis, we incorporate this feature by assuming a reduced gross rate of return to rail capital of 5.2 percent. The required annual service payment is thus $16 billion, which represents a 45 percent increase in rail transport cost to deliver the same transportation services.

74


Table 4.7 Additional Cost per Dollar of Output

Figure 4.8 shows how the total cost (direct plus indirect) of providing bus, rail and truck transportation would increase as a result of replacing diesel technology in these sectors with the “next best” alternatives described above. The cost of bus transportation would increase by 24 percent; the cost of rail transportation, 48 percent; and the cost of trucking and warehousing, 56 percent.

Figure 4.8 Total Cost Increase for Three Transportation Sectors of Replacing Diesel Technology with the “Next Best” Alternative

56%

24%

48%

0% 10% 20% 30% 40% 50% 60%

Trucking andWarehousing

Railroads

Local/suburban/interurbantransit

Sector Fuel CostOperating

CostLabor Cost

Capital Cost

Local/suburban/interurban transit 0.0277 0.0083 --- 0.1961Trucking and Warehousing 0.0199 0.0330 0.2158 0.1562Railroads --- --- --- 0.4489

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APPENDIX A: MEASUREMENT OF THE SIZE OF THE DIESEL INDUSTRY

Introduction This appendix examines the components of the diesel industry, explores which sectors of the U.S. economy are dependent on the industry, and estimates the costs associated with eliminating the diesel industry. The investigation of how dependent the U.S. economy as a whole is on diesel, and the potential costs associated with its removal, is accomplished using an input-output model, which is based on data appearing in BEA, 1992. Once a “diesel industry” has been defined, this type of model allows us to determine the total contribution of the Diesel industry to the economy. The analysis can then be extended to consider the impacts of moving to an economy without diesel.

How Large Is the Diesel Industry?

The first step in modeling the role of the diesel industry in the U.S. economy is to define the industry. Diesel technology is used in a variety of different kinds of equipment, which makes it necessary to establish a clear definition of those types of equipment that are in the industry versus those sectors of the economy that use the industry’s output.

We define the diesel industry to include the sector of the economy that produces diesel engines, the fuel used in diesel engines, and the equipment that works by means of diesel engines. In order to set a boundary on the industry definition, we do not include industries that use diesel-powered equipment in our definition of the diesel industry, no matter how pervasive that equipment is. Thus, we include transportation equipment manufacturing, which produces heavy-duty trucks, but not the freight transportation industry, which uses those trucks to move goods. The analysis, however, will examine the impacts of the diesel industry on these other areas of the economy.

Table A.1 below presents information about the sectors included in the diesel industry from the 1992 BEA data. The first two columns under the label “Total Industry” give the total gross output and value added for the sectors shown on the left-hand side of the table, where “gross output” is defined as the total value of shipments by the industry including payments for all inputs, and “value added” is only payments for labor and capital services. The third column shows the percentages of those sectors that are considered to be a component of the diesel industry. For example, firms that produce internal

76


combustion engines have a gross output of $11.8 billion in the BEA data. Diesel engines are responsible for 75.7 percent of this value,78 adding $9.0 billion to our definition of the diesel industry. This section of the diesel industry makes $2.2 billion of payments to labor and $1.0 billion of payments to the owners of the capital in the sector. Applying this approach to the remaining components of the diesel industry yields a total gross output of $85 billion and a value added of $36 billion. Note that these numbers on the value of shipments from U.S. Census sources include both producer prices and trade margins, so they may differ slightly from other numbers presented below that do not include wholesale/retail margins.

Table A.1 The Diesel Industry Total Industry Diesel Share

Sector Gross Output Value Added Diesel % Gross Output Value Added Labor CapitalMotor Vehicles $256,462 $80,090 6.5% $16,670 $5,206 $2,428 $2,777 Refined Petroleum $189,900 $78,447 16.5% $31,334 $12,944 $1,188 $11,756 Farm Machinery and Equipment $20,721 $12,575 27.3% $5,657 $3,433 $906 $2,527 Construction Machinery and Equipment $18,795 $9,311 76.2% $14,322 $7,095 $3,344 $3,751 Water Transportation Equipment $16,265 $9,599 8.0% * $1,301 $768 $582 $186 Internal Combustion Engines $11,848 $4,341 75.7% $8,969 $3,286 $2,271 $1,015 Pumps and Compressors $9,681 $4,786 20.0 % * $1,936 $957 $556 $401 Motors and generators $8,352 $3,995 12.6% $1,052 $503 $333 $170 Mining machinery $6,309 $3,225 33.3% $2,101 $1,074 $579 $495 Railroad equipment $4,816 $2,027 39.1% $1,883 $793 $554 $239 Total $543,149 $208,396 $85,225 $36,059 $12,741 $23,317 (Units are millions of dollars, except where indicated)* These estimates are subject to considerable uncertainty.

Major Components of the Diesel Industry

This section discusses the individual components of the diesel industry and explains the derivation of the percentages shown in Table A.1. These percentages are necessary to separate the diesel segment of each sector from the rest of the sector since the BEA data do not generally distinguish between diesel and non-diesel components within a sector of the economy.

Internal Combustion Engines (SIC 3591)

The internal combustion engine sector is the starting point for examining the diesel industry. It manufactures the diesel and gasoline engines that are used throughout other sectors of the economy. Information on this category of manufacturers is contained in the

78 The calculation of these percentages is discussed in the next subsection.

77


1997 U.S. Census Bureau Current Industrial Report (CIR-1997) for the internal combustion engine sector (MA35L). As shown in Table A.2 below, it gives data on the quantity and value of production, exports, and imports by these manufacturers. These data show that shipments of diesel engines amounted to nearly $9.0 billion, while the value of gasoline-type engines produced in the U.S. was only $2.8 billion.79 This is in spite of the fact that the sector makes approximately 24 times more gasoline than diesel engines in quantity terms. Exports of diesel engines are quite significant compared to gasoline engines with over $2 billion being sold abroad, almost as much as the total value of gasoline-engine production. It is important to note that the “automotive” category in the table includes truck engines as well as car engines, which accounts for the large quantities and values in these entries for diesel engines.

Table A.2 Internal Combustion Engines U.S. Census Bureau

Internal Combustion EnginesProduction, Exports, and Imports of Diesel Engines: 1997

Production Exports ImportsValue of

Shipments (f.o.b. plant) Value at Port Value

Quantity ($1000) Quantity ($1000) Quantity ($1000)Automotive Diesel Engines 771,049 $5,957,064 81,260 $815,651 18,721 $143,697Non-Automotive Diesel Engines 299,649 $3,032,636 102,767 $1,390,782 339,928 $885,494Diesel Total 1,070,698 $8,989,700 184,027 $2,206,433 358,649 $1,029,191Gasoline Engines 23,988,749 2,408,524 1,873,972 314,703 2,169,196 948,768Gas/LPG Engines 17,688 421,371 3,852 69,804 43,914 25,007Gasoline Total 24,006,437 $2,829,895 1,877,824 $384,507 2,213,110 $973,775

Farm Machinery and Equipment (SIC 3523)

Based on the CIR-1997, shipments of Farm Machinery and Lawn and Garden Equipment equaled $14.0 billion. Of this, $5.8 billion could be identified as large self-propelled or otherwise potentially carrying a diesel-based power source. At the subcategory level, this equipment included: wheel tractors, self-propelled harvesting machinery, and feed grinders. Excluded are tractor attachments (plows, harrows, and identifiable PTO

79 Data on the value of shipments from the CIR-1997 and other US Census sources are reported in producer prices, so in general these output numbers will be below those reported in Table 4.1, which includes trade margins.

78


machinery). The $5.8 billion was further refined to identify the share of equipment that is diesel-based by multiplying by the share of diesel fuel use in the agriculture sector. We estimated that 27 percent of farm machinery and equipment output should be included in our definition of the diesel industry.

Construction Machinery (SIC 3531)

The CIR-1997 provides a detailed breakout of construction machinery by type. This made it relatively easy to identify which machinery was diesel-based. We identified $11.5 billion of shipments from an aggregate of $15.1 billion to be primarily diesel- based. This includes output of self-propelled cranes, excavators, off-highway trucks and tractors, and loaders.

Mining Machinery and Mineral Processing Equipment (SIC 3531-3532)

As defined in the CIR-1997, mining machinery and equipment generally includes augers, drills, and grinding and pulverizing equipment, but some of these could be identified as self-propelled vehicles and mobile equipment likely to use diesel as the primary power source. We identified $0.7 billion of shipments from an aggregate of $2.1 to be diesel- based.

79


Sector / Sub-sector Value / ShareConstruction Machinery and Equipment: $15,066,766

Power cranes, draglines, and excavators, including surface mining equipmentHydraulic operated excavators $1,570,415 Cranes, lattice boom $40,132 Cranes, hydraulic operated, telescopic boom

Wheel cranes (integral), multiple control stations (rubber mounted) $103,141 Wheel cranes, one control stations (self-propelled, rubber mounted) $357,054 All-terrain cranes $0

Mixers, pavers, and related equipmentFor concrete, plaster, or mortar applications

Concrete mixers (except plastic and mortar) $338,592 Slipform concrete paving machines $61,137 Concrete pumps, mobile $0

For asphalt or bituminous applications $466,632 Off-highway trucks, truck-type tractor chassis, trailers, or wagons $1,590,127 Tractor shovel loaders $3,911,610 Crawler tractors, contractors' off-highway -type wheel tractors, dozers, and… $1,720,279 Motor graders and light maintainers $0 Rollers and compactors $654,605 Rough terrain forklifts (integral units only) $499,872 Ditchers and trenchers, self-propelled (integral units only)

Ladder-type digging element5000 lb gross weight and over $149,090

Diesel Total $11,462,686

Mining Machinery and Mineral Processing Equipment $2,128,011 Underground mining machinery (except parts sold separately)

Face haulage vehicles, rubber-tired, self-propelled $323,843 Support vehicles, rubber-tired or track-mounted $20,777

Portable drilling rigs and partsRotary, trailer- and truck-mounted with pull-back capacity $85,565 Rotary blasthole drills, truck-, trailer-, or track-mounted $141,630 Construction drills $18,869 Other portable drilling rigs, including workover (service) rigs $63,203

Diesel Total $653,887

(Value units are thousands of dollars)

80


Motor Vehicles (SIC 3711)

Included in output of the Motor Vehicle industry are diesel trucks and tractors for highway use. The CM-1992 reports data on the value of shipments by detailed product classes. There is no distinction between trucks that are powered by diesel or other fuels, but we are able to combine the value data by weight class with the US Census Vehicle Inventory and Use Survey (VIUS) to arrive at an estimate of sales of diesel vehicles. Based on the 1992 data, total Motor Vehicle output was $147.5 billion. Of this we estimate that 6.5 percent or $9.6 billion was diesel-powered. This number is conservative because it excludes data on combat vehicles that is withheld to avoid disclosing proprietary information for individual companies.

Motors and Generators (SIC 3621)

Many diesel internal combustion engines are combined into a “generator set” prior to installation in a diesel electric vehicle or sold for stationary generation. To capture this important source of diesel equipment, we again identified the share of Motors and Generators’ output attributable to diesel using the CIR-1997 subcategory data. Of the $10.3 billion of motor and generator shipments, $1.3 is identified as diesel engine-driven generator sets.

Pumps and Compressors (SIC 3561-3563)

In the detailed CIR-1997 there is no identification of diesel versus gasoline or electric drivers for the categories of pumps and compressors. In most categories there is a separate sub-account for the value of drivers, but even if we could identify those that are most likely diesel, there is no logical means of distributing that value across the other subcategories of the actual pumping and compressing mechanism. Aggregate output of pumps is $8.7 billion, with $2.8 billion for compressors. We assume that approximately 20 percent of pumps and compressors are diesel-powered, roughly based on data from the Census of Agriculture, which reports pumping by fuel type.

Railroad Equipment (SIC 3743)

Although rail transport equipment does not appear in the CIR-1997, the 1992 Census of Manufactures (CM-1992) publishes industry statistics by primary product class. We were

81


able to establish that in 1992 rail locomotive shipments totaled $1.8 billion out of a total industry output of $4.6 billion. We are assuming that the share of electric locomotives is negligible or included in the electrified subway or streetcar category.

82


Water Transport Equipment (SIC 3731-3732)

Ship and Boat building industries appear in the CM-1992, but there is no information on propulsion systems. We identify non-propelled ships, and assume that except for nuclear power, all other ships are diesel-powered. The diesel share that we assume is 80 percent, which is roughly based on fuel use in water transport reported in the Transportation Energy Data Book, 1999.

Refined Petroleum (SIC 2900)

We also include in the diesel industry the production of diesel fuel. This component of the diesel industry is represented by the percentage of the value of output of the refining industry that is attributable to diesel fuel production. Data were drawn from the Petroleum Marketing Annual 1999, published by the Energy Information Agency (EIA) at the Department of Energy (DOE). The data indicate that 16.5 percent of the value of the total output of the refining industry comes from the sales of diesel fuel. The figure below presents a breakdown of the value components of the refining industry.

83


Figure A.1 Refining Industry Output

Value of Refining Industry Output(Total Output is ~$190 billion)

62.3%16.5%

9.1%

5.4%3.7%

2.5%

0.5%

0.2%

Motor GasolineDieselJet FuelOther DistillatesPropaneResidual Fuel OilKeroseneAviation Gasoline

84


APPENDIX B. TECHNIQUES OF THE INPUT-OUTPUT ANALYSIS

Matrix Equations for Combining Calculations of Industry Output and Commodity Production Requirements in Input-Output Analysis

Given the basic equations for determining the total direct and indirect requirements for industry and commodity output to satisfy a particular bill of final demands,80 it is possible to restate the relationships to facilitate the computations. In the first of these restatements, the problem is formulated to derive the industry output levels and the intermediate use of the various commodities produced by domestic industries. A second restatement derives industry outputs and total commodity production/use.

Industry Production/Intermediate Use of Commodities

In matrix form, the first restatement is

(1) +−�

��

mA

−+

�

��

II

*XZ�

��

�

�� =

Y0�

��

�

��

where m = a c x n matrix of coefficients showing the value of a particular commodity produced by a specific industry per dollar’s worth of the industry’s output,

A = a c x n matrix of coefficients measuring the value of a particular commodity used by a specific industry per dollar’s worth of the industry’s output X = an n-order vector of industry outputs Z = a c-order vector of the amounts of the various commodities used as intermediate inputs by all the producing sectors Y = a c-order vector of the amounts of the various commodities delivered to final demands I = the identity matrix, and c = n. That is, the number of distinct commodities equals the number of distinct industries (but many commodities are produced by more than one industry).

80 See Trozzo, Using the Bureau of Economic Analysis Input-Output Data.

85


The solution of this system for the industry outputs and intermediate commodity use by the producing industries is given by:

(2) XZ�

��

�

��=

+−�

��

mA

−+

�

��

−II

1

*Y0�

��

�

�� .

It is possible to develop expressions for the various parts of the inverse matrix in (2) in terms of the original component matrices. To do this, it is necessary first to define a new matrix Π , partitioned in the same dimensions.

(3) Π = ΠΠ

11

21

�

��

ΠΠ

12

22

�

�� =

+−�

��

mA

−+

�

��

−II

1

From the relationship that the product of the premultiplication of a matrix by its inverse is the identity matrix, we have:

(4) ΠΠ

11

21

�

��

ΠΠ

12

22

�

�� *

+−�

��

mA

−+

�

��

II

= I0�

��

0I�

�� .

Now it is possible to derive the following sets of equations.

From the multiplication of the first row of the inverse and the first column of the original matrix:

(5) Π 11 *m - Π 12 * A = I .

From the multiplication of the first row of the inverse and the second column of the original matrix:

( )

( ' )

6 0

6

11 12

12 11

− + =

=

Π Π

Π Πor

Substituting (6’) into (5) gives

(7) ( )Π 11 m A I− = .

86


Therefore,

(8) ( )Π Π111

12= − =−m A .

That is, the two submatrices in the first row of the partitioned inverse Π are the same, and are also equal to the inverse of the “multi-product industry” Leontief matrix. That matrix is used to solve for industry output levels based on (1) the multi-product composition of the various industries’ output and (2) the commodity by industry input coefficient matrix.

Multiplying the second row of the inverse by the first column of the original matrix produces the following relationship:

(9) Π Π21 22 0* *m A− = .

Multiplication of the second row of the inverse by the second column of the original matrix gives the following:

(10) − + =Π Π21 22 I

or

(10’) Π Π22 21= +I

Substituting (10’) into (9) and solving for Π21:

(11)

)(

( )

( )

Π Π

Π

Π

21 21

21

211

0* *

.

m

m

m

I A

A A

A A

− + =

− =

= − −

From (10’)

(12) ( )Π 221= + − −I A Am

Substituting Π into (2):

87


(13) XZ�

��

�

�� =

ΠΠ

11

21

�

��

ΠΠ

12

22

�

�� *

Y0�

��

�

��

Or, industry output, X, and industry intermediate commodity use, Z, can be obtained in the following fashion.

(14) X Y

Z Y

= +

= +

Π Π

Π Π

11 12

21 22

0

0

* *

* *

Industry Production/ Total Commodity Production

Alternatively, let C = total commodity production, then

(15) +−�

��

mA

−+

�

��

II

*XC Y�

��

�

�� =

�

��

�

��

0.

Expanding,

(16) mX C− = 0

and

(17) − + =AX C Y

Equation (16) says, using the definitions under (1) above, that total commodity output, C, is that produced across all industries, mX. Equation (17) says that total commodity output is distributed between its intermediate use in the producing industries, AX, and final demands, Y.81

81 It should also be noted that this formulation differs from that proposed by the Bureau of Economic Analysis. The latter’s formulation maintains constant market shares for a particular commodity among the

88


The solution to this set of equations is given by

(18) XC�

��

�

�� =

ΠΠ

11

21

�

��

ΠΠ

12

22

�

�� *

0Y�

��

�

�� .

From (8) above, Π11 = Π12; therefore, X is invariant to the formulation alternative, as should be hoped.

The major difference is, of course, that the system (15)-(18) also solves for the total commodity deliveries required to support industry production and final demands. Those are calculated by

(19) C Y= Π22 * .

Let πij be the element in the ith row and jth column of the submatrix Π22. This element is interpreted as the total direct and indirect requirements for commodity i per dollar of deliveries of commodity j to final demand.

industries producing that commodity. The present formulation maintains a constant product mix within each industry.

89


APPENDIX C: INCORPORATION OF THE DIESEL INDUSTRY IN CRA’S INPUT-OUTPUT ANALYSIS

Using the 1992 BEA Input-Output table, we calculate the contributions of diesel to the economy. The calculations include a consideration of both the direct and indirect contributions of the purchase of diesel products and fuel by each sector, and the direct and indirect payments to diesel services (as a value-added component) by each sector.

The first step is to define the diesel industry. For any given aggregation of the I-O data we construct a vector of output shares representing the proportion of a given sector’s output that is included in our definition of the industry. For example, 76 percent of output from the Internal Combustion Engine sector is diesel, and 16.5 percent of oil refinery output is diesel fuel. In our definition we include diesel fuel, diesel engines, and diesel-based machinery and equipment.

A standard I-O computation that identifies the total (direct plus indirect) requirements per dollar of final demand for a commodity involves finding the inverse of the accounts (see Appendix B, above). Multiplying, element by element, any column of the inverse by the vector of diesel output shares (see Table 4.1) yields the total requirements of diesel materials. The sum of these is the diesel requirement per dollar of final demand for the commodity in question.

This standard computation misses a key component of diesel’s contribution to the economy. Consistent with standard accounting principles, the majority of purchases of diesel machinery and equipment are considered investments, not material purchases by a given sector. The services that diesel equipment provides are not included in the coefficients computed in the inverse matrix. To capture this value-added component we first use the output shares to approximate the portion of commodity investments that are diesel-related durables. The total of these investment flows is assumed to support a steady-state capital stock. We can determine the value of the capital stock by noting that steady-state investment must just cover growth and depreciation.

In addition, in equilibrium, the real rate of return on diesel capital must be consistent with a firm’s discount rate. These relationships determine the total (value-added) payments to diesel equipment. Distributing the capital stock and its implied rental return across sectors was accomplished by deriving a target share and then using a least-squares routine to establish shares consistent with the aggregates. The target shares were based on either commodity investments that were likely to provide service in a corresponding industry or

90


diesel fuel purchases, which complement diesel equipment in production. Maintaining fixed proportions, it is consistent to multiply, element by element, the diesel equipment rental payments by a given column of the inverse. The resulting coefficients are interpreted as the total requirements of value-added payments (by sector) to diesel equipment per dollar of final demand for the commodity in question. For example, the delivery of food products to consumers requires direct and indirect purchases of transport services, and this can be decomposed to reveal the portion of that payment that is required for the use of diesel-based transportation equipment. Summing these coefficients yields the total requirement of diesel rental payments necessary per dollar of final demand for the commodity in question.

Combining the total materials contribution and value-added contribution of diesel gives an estimate of diesel’s contribution to the economy. The analysis can be extended to consider the impacts of moving to an economy without diesel. The key impact is that diesel substitutes are more expensive. It might be reasonable to assume that the cost of internal combustion engines will go up by some factor, and equipment costs might increase to accommodate different configurations of power and fuel tanks. More importantly, however, the direct operating costs for equipment will go up. For example, converting the trucking fleet to natural gas might require more trucks and more drivers to compensate for lower horsepower engines, as well as an investment in fueling infrastructure. In addition, because alternatives are less efficient direct fuel costs might increase.

In considering alternatives, we consider four possible sources for cost increases: fuel cost (FCi), other operating expenses (OCi), increased labor cost (LCi), and additional capital requirements (KCi). Given information on the cost of alternative technologies, we compute the increase in fuel costs per dollar of a given industry’s output as follows:

i

iii tputIndustryOu

selPurchaseOriginalFuFuelCostFC

*∆=

Similarly, increased operating costs can be directly computed as:

i

iii tputIndustryOu

MileseCostPerMilOC

*∆=

For over-the-road trucking, it is likely that reduced horsepower in alternative-fuel vehicles will lead to a reduction in load per truck. Therefore, more trucks will be

91


necessary to transport the same overall quantity. Given an estimate of the increased number of units on the road, we assume that each of these will require one driver at the average wage.

i

iii tputIndustryOu

AvgWageUnitsLC

*∆=

The increased capital requirement is more complex because, although we might estimate the increase in the cost of equipment and additional equipment required, these must be translated into a flow of value added by capital. We make a conservative assumption in only adding the new steady-state value-added payments—not the required initial investment—to transition from diesel to non-diesel technology. In the new steady-state, investment must increase by an amount that covers the growth and depreciation of additional unit costs multiplied by the number of units plus any new units:

[ ] )(*)(*)*( δ+∆+∆+∆=∆ gUnitsUnitsUnitCostUnitsUnitCostI i

With the change in investment established, we compute the change in capital required (the term in braces above) and the implied value added by this new capital per year:

i

ii tputIndustryOu

rkKKC

*∆= , where rk is the gross rate of return.

92


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