STUDY WARNS AGAINST PREMATURE ORDER FOR ALTERNATIVE MOTOR FUEL

A Charles River Associates study is warning the U.S. government not to require the use of alternative transportation fuels prematurely. The paper said requiring the use of specific alternative fuels creates a high likelihood that investment will go into the wrong fuels at the wrong time. "For example," it said, "if we felt that electric vehicles would become viable solutions in 15 years we would not want to face the costs of a broad transition to methanol over the next 10 years and then face

Sept. 9, 1991

4 min read

A Charles River Associates study is warning the U.S. government not to require the use of alternative transportation fuels prematurely.

The paper said requiring the use of specific alternative fuels creates a high likelihood that investment will go into the wrong fuels at the wrong time.

"For example," it said, "if we felt that electric vehicles would become viable solutions in 15 years we would not want to face the costs of a broad transition to methanol over the next 10 years and then face costs of another transition (to electric) over the following 10 years."

Charles River, a consulting firm with offices in Boston and Washington, D.C., prepared the study for the American Petroleum Institute. It examined the outlook for use of compressed natural gas, propane, methanol, ethanol, and electricity as alternatives to gasoline and concluded that gasoline currently is cheaper and more convenient than any of them.

The Senate is expected to consider an energy policy bill this fall, and amendments may be offered requiring the use of alternative fuels.

FAILING THE TEST

James Sweeney, a Stanford University professor and a consultant for Charles River, said, "Our analysis indicates that mandates would be justified only if the net economic and security benefits were large enough to justify rejection of normal market mechanisms and if there were no preferable means of achieving the benefits of alternate fuels. The alternate fuels that would be available to use in the near future do not meet this test."

The study said, "Each of the alternative fuels has a potential niche or could develop into a competitor for gasoline under some circumstances. Compressed natural gas is now the alternative fuel with the lowest net cost, considering all factors, and appears to be finding its way into the market under current policies.

"Its role may be greatest in fleet operations, especially those involving large vehicles, where central refueling and some loss in vehicle space is not important and where the low cost of natural gas fuel is important,"

Electric vehicle development needs smaller, cheaper, more durable batteries with high power densities to allow decent acceleration.

"On a pure cost basis, neither electric vehicles nor ethanol are even remotely competitive with natural gas, methanol, or gasoline."

Because ethanol is produced from U.S. agricultural products, mainly corn, it offers some security of supply benefits. But the net reduction in oil use is small because growing the grain requires fuel for trucks, tractors, other heavy equipment, and in the form of fertilizers.

Widespread methanol use would require a new distribution system, although small distribution systems are feasible in isolated markets. However, the study said, methanol use would do little for national security because it most likely would be produced in areas with large reserves of low cost natural gas-the Middle East, for example.

COST COMPARISON

In a breakout of costs, the study noted ethanol is currently marketed as a component of gasohol, a mixture of 10% ethanol and 90% gasoline, "even though it costs almost $2 to produce an amount of ethanol equivalent to 1 gal of gasoline." Ethanol receives a federal subsidy.

The study observed that use of any alternative fuel other than gasohol requires changes in vehicle design. By combining new design costs with fuel costs, it compared the costs of alternative fuels with reformulated gasoline, which it estimated would cost $1.13/gal in 2001, using 1990 dollars and not including taxes.

The study said electricity would cost the equivalent of $1.92/gal, a vehicle retrofitted for compressed natural gas $1.50, one designed for CNG $1.37, a vehicle dedicated to M85 (85% methanol and 15% gasoline) $1.36, M85 in a flexible fuel vehicle $1.46, pure ethanol in a dedicated vehicle $2, and pure ethanol in a flexible fuel vehicle $2.17.

"We conclude that most alternative fuels (and synthetic fuels) are unlikely to become broadly economically viable within the next decade, even considering national security and environmental consequences.

"Over a much longer time period, however, we believe some alternative fuels will become important-or even dominant-sources of transportation energy. But no one knows which, where, and when. Mandates, therefore, would force alternative fuels into the energy system prematurely and may well force adoption of the wrong fuels."