2024 Report

Confusion in the Wake of New Emissions and ZEV Regulations Expected to Persist

The landscape for fleets in 2023 was characterized by a dual narrative of confusion and adaptation as manufacturers and customers responded to the rollout of new, stringent emissions and ZEV regulations. EPA introduced its Phase 3 GHG emissions standard in late spring 2023 and finalized it just after the turn of the year as California continued enacting its ACT, ACF and Omnibus rules, introducing new selling and purchasing deadlines alongside credit/deficit systems.

The burden of compliance in California and eight other states that have adopted some combination of Omnibus and 10 additional states that adopted ACT ZEV OEM requirements for later years — nearly identical lists of states — rests largely on vehicle and engine makers who are each taking different strategies to meet their individual rules. Fleets may hear differences in how their vehicles comply from various manufacturers, in various locations, as a result. Uncertainty also remains around how states that have adopted Omnibus will apply any amended regulatory language that emerges from the Clean Truck Partnership. Confusion for fleet operators and the wider marketplace on engine standards is expected to continue at least for the next few years until the nation aligns with the EPA plan starting with MY 2027.

Amidst this regulatory upheaval, an unprecedented influx of over $32 billion in federal and state funding aimed to bring some relief. Even as federal and some state and local governments signaled their robust commitments to decarbonizing transportation and improving air quality, their diverse approaches fostered immense confusion that is expected to persist for at least the next few years.

Diesel Vehicle Sales Rise Ahead of Regulatory Changes, Renewable Diesel Supply Continues Surge

Facing an estimated 12% increase in the price of new diesel trucks as EPA’s MY2027 emissions standards approach and buoyed by a drop in the price of fuel, fleets purchased 7% more diesel trucks in 2023 compared to the previous year, with a notable drop in diesel prices to $3.32 per gallon following oil market stability. Concurrently, fleet adoption of renewable diesel (RD) accelerated, driven by the fuel’s favorable economics in states with carbon credit markets and “drop in” compatibility with existing engines. Nationally, RD consumption increased 68% in 2023 compared to 2022, with most consumption occurring in the western Pacific states where carbon credit markets ensured diesel price parity. Biodiesel (BD) remained a widely used and cost-effective blending option for fleets pursuing low-carbon solutions, but demand did not grow nearly as much.

On the supply side, RD production and distribution grew substantially, continuing a multi-year trend to increase availability as a sustainable fleet solution, with investments aimed at expanding domestic supply chains to meet the rising demand. This is a pivotal trend that reflects a strategic shift in the fleet industry to reduce emissions without incurring the significant financial and operational risk that the newer ZE options introduce in numerous applications and geographic areas today. The expanding RD supply, coupled with the strategic procurement of diesel vehicles ahead of regulatory changes, describes a period of significant hedging and wider adoption of easier-to-integrate solutions within the fleet sector.

RNG Leads Growth in Natural Gas Sector, CNG Maintains Cost Competitiveness

RNG production continued to grow in 2023 with over 150 new facilities coming online to meet the rising demand from fleets seeking improved sustainability without sacrificing economic viability. This growth helped sustain competitive retail prices even as the average retail price of conventional natural gas rose to $3.04/DGE due to geopolitical factors, averaging 50% less expensive than diesel on a dollar per diesel gallon equivalent basis.Carbon credit markets in several states including California helped ensure diesel price parity or better for the renewable version in those states.

Fleet demand for natural gas, particularly RNG, grew for the third consecutive year although at a more moderate pace. The average NGV fleet used RNG for 70% of their fueling needs by volume in 2023, up from 46% the prior year. However, use is becoming more concentrated with the number of fleets operating natural gas vehicles that use RNG dropping below 50% for the first time in several years. RNG’s increasingly negative carbon intensity (CI) continued to secure its value to fleets that used it in 2023 when it attained an average CI of -119 gCO2e/MJ, a more than 20% improvement over 2022’s figures.

Vehicle sales similarly point to concentrated demand. Natural gas vehicle (NGV) deliveries dropped 11%. The Class 8 tractor segment saw the sharpest decline in new vehicle deliveries (20%) followed by a drop in sales to transit agencies (11%). The majority of new NGV deliveries were made to fleets in refuse (33%) and general freight (29%) vocations, where demand is expected to grow in the coming years. Cummins’ development of the X15N engine, expected to enhance NGV appeal by meeting current and 2027 emissions standards, signifies that this year’s dip may be a blip in the overall NGV trend this decade.

Medium-Duty Battery-Electric Vehicle Deployments Double While Infrastructure Challenges Intensify

In 2023, BEV adoption surged as more than 26,000 buses, trucks, and vans were delivered, effectively doubling the record deliveries in 2022. MD commercial cargo vans and pickup trucks constituted 90% of BEV deliveries, 95% of which were produced by Ford and Rivian. Tractor deliveries increased six-fold, to nearly 700 units. This growth reflects the broadening interest spanning the fleet industry: in every duty cycle and fleet type studied in this report’s survey, at nearly 40% of fleets reported BEV some usage. Although sales growth is steep and broad, widespread displacement of gasoline and diesel vehicles is still far off with most BEV users reporting that BEVs account for only 1-2% of all their vehicles.

While new vehicles rolled off production lines, charging infrastructure gaps and supply chain delays dominated discussions in 2023. The scale of upgrades being pursued in larger fleet electrification projects constitute sizeable capital projects which may require longer lead times for siting, permitting, and interconnection. Utilities need locational data about expected fleet load growth and fleets need utility data on existing power supply, infrastructure capacities, and upgrade costs – both of which can be difficult to access and may lack necessary detail across a disaggregated industry of more than 3,000 utilities in the U.S. Innovative “as a service” models developed rapidly in the past year to mitigate upfront costs for vehicle access, charging infrastructure, or both. The partnership between utilities, fleets, and any third parties such as “as-a-service” providers has emerged as the crucial element for fleet electrification, especially for the larger projects.

Regional Hubs and Vehicle Availability Push Hydrogen Economy Forward Despite Significant Cost and Infrastructure Hurdles

The hydrogen market in 2023 was marked by pivotal federal investments, notably the U.S. DOE’s allocation of $7 billion to seven proposed fuel production and distribution hub spanning 16 states. This move, aimed at slashing hydrogen production costs to $1/kg, is expected to catalyze over $40 billion in private investment. Awardees are in contract negotiations through 2024, and it will be several years before the H2 Hubs meaningfully impact fuel price and supply, but advocates assert that the program reduces the risk for investors exploring hydrogen fuel and vehicle production today. Despite these advancements, the average retail price of hydrogen in 2023 nearly doubled from mid-2022 levels to as much as $36/kg in California, spotlighting the challenge of the road ahead. Fleets in the annual survey indicate hydrogen fuel cost is a top concern.

One critical development was the controversial draft terms for the Hydrogen Production Tax Credit (also known as 45V). Many proposed H2 Hubs and other projects aim for a zero-CI standard, but the draft terms released in December indicate that deep system changes to supply chain reporting and multi-party operating schedules may be required for a project to qualify for these benefits. If passed, these terms could render many projects economically infeasible. The IRS is expected to address the large volume of comments and release a final ruling that will be very consequential for future investment and hydrogen fuel costs by mid-2024.OEMs expanded in a market previously limited to a few transit buses and passenger car offerings, with major players like Kenworth, Peterbilt, and Toyota taking orders for their commercially produced hydrogen fuel cell Class 8 tractors. Hyundai and Nikola launched much-anticipated demonstrations and deliveries, and Nikola’s HYLA brand invested in public access fueling infrastructure, setting the stage for greater adoption by 2025. However, the delivery of transit buses declined, reflecting a cautious market still grappling with high costs, operational suitability, and nascent infrastructure. Meanwhile, a growing number of engine and vehicle providers are betting on hydrogen combustion engine architectures as an affordable bridge to fully ZE fuel cell vehicles.