Expert: Hybrid trucks need to dump cost

Editor's Note: My co-blogger Melissa Mahony's story "Big regs for big rigs: new efficiency, pollution rules for heavy trucks," reminded me of an interview I've kept on ice for the past several months concerning what it will take to entice businesses to buy hybrid trucks.

In July, I spoke with Mike Walker, president and founder of Massachusetts based Beacon Consultants, and asked him what it will take for business to adopt hybrid trucks. I attempted to contact hybrid engine maker Eaton and Volvo Group earlier today for added perspective, but was unable to reach a spokesperson at either company.

The incremental cost of hybrid trucks over diesel haulers has made going green an expensive proposition for businesses, but a federal incentive program modeled after one in California could bridge that difference, Walker said.

Hybrid cars have proven popular in the United States, with nearly two million purchased by consumers this decade, but appreciably fewer diesel trucks have been sold to businesses.

That is because the payback on a hybrid truck, based on fuel savings, is about 23 years, said Walker. "A 23-year payback is not a scenario in which any self respecting business will put its money," Beacon Consultants provides research to for profit and not-for-profit organizations about how to change consumer behavior to adopt green technologies.

The incremental cost of making a hybrid truck is typically US$25,000-$75,000 depending on the size of the truck, Walker noted. "The incremental cost of making a bucket utility truck a hybrid is different from a mid-sized pickup or delivery truck that you see from FedEx or UPS."

Beacon Consultants conducted an informal survey among companies that have large fleets of trucks and found that businesses are willing to absorb some of the cost and financial risk associated with buying hybrids - as much as an "eye popping" fifty percent of the incremental costs, Walker claimed.

A federal incentive program modeled after the California Air Resources Board's Hybrid Truck and Bus Voucher Incentive Project (HVIP) would help drive adoption of hybrid vehicles among businesses, Walker said. "We have to look at the universe of state and regional inventive programs to see what is working," he noted.

As of May 17, California has allocated $12,255,000 worth of vouchers to businesses under the HVIP program, according to its Web site. A total of 441 vouchers have been requested, and $9,859,376 of voucher funding remains to be spent. The program went into effect last year.

Programs such as HVIP can help truck manufacturers reach economies of scales, Walker said. However, he acknowledged that hybrid drive trains are more complex to manufacture and therefore more costly than diesel vehicles. "Personally I think it will be more experience than a traditional drive train for a long time," he said.

"If you combine that with Federal tax credits, somewhere in the neighborhood of 80 percent of the cost of the hybrid drive train is taken care of," Walker said. The Environmental Protection Agency has given States over $464.9M in Diesel Emissions Reduction Act (DERA) grants since 2005 for diesel retrofit projects.

The Federal government provided a tax credit for consumer to buy hybrid cars during 2006-2007. Purchasers of a Toyota Prius received a tax credit of $787.50-$3,150, according to data compiled by Beacon Consultants. Over 60,000 hybrid vehicles were sold in the U.S. during that period.

Recent Federal efforts to promote fuel efficiency have been supply side instead of demand side. The Department of Energy awarded $2.2 billion to accelerate the deployment of next generation batteries for electric vehicles in Aug. 2009, and announced $187M in funding to raise the fuel efficiency of U.S-manufactured vehicles.

"Why not the demand side?" Walker asked, adding that businesses and consumers will not buy advanced technology if it is exorbitantly expensive.

Ultimately, society must decide whether the price of diesel technology is priced to incur its full cost or not, Walker concluded. "Don't know a whole lot of economists that say the entire cost of gas or diesel is captured in the price at the pump. Subsidizing hybrids can take a chunk out of demand for fossil fuels."

What do you think? Does government have a roll to play to reduce the price of hybrid trucks or should it keep its hand out of the private sector?

This post was originally published on Smartplanet.com