Alternative Fuels and Alternative Fuel Vehicles

Alternative fuel vehicles (AFVs) and their fuels face two central problems. First, they typically suffer from several marketplace disadvantages compared to conventional vehicles running on conventional fuels. Hence, they inevitably require government incentives or mandates to succeed.

Second, they typically do not provide cost-effective solutions to major energy and environmental problems, which undermines the policy case for having the government intervened in the marketplace to support them.

On the second point, in September 2003, the US Department of Transportation Center for Climate Change and Environmental Forecasting released its analysis, Fuel Option for Reducing Greenhouse Gas Emissions from Motor Vehicles. The report assesses the potential for gasoline substitutes to reduce greenhouse gas emissions over the next 25 years. It concludes that “the reduction in GHG emissions from most gasoline substitutes would be modest” and that “promoting alternative fuels would be a costly strategy for reducing emissions.”

The U.S government and others (such as of California and Canada) have tried to promote AFVs for a long time. The 1992 Energy Policy Act established the goal of having alternative fuels replace at least 10% of petroleum fuels in 2000, and at least 30% in 2010. Currently, alternate fuels consumed in AFVs substituted for under 1% of total consumption of gasoline. A significant literature has emerged explaining this failure.32

Besides the question of whether AFVs deliver cost-effective emissions reductions, there have historically been six major barriers to AFV success:
1. High first cost for vehicle
2. On-board fuel storage issues (i.e. limited range)
3. Safety and liability concerns
4. High fueling cost (compared to gasoline)
5. Limited fuel stations: Chicken & egg problem
6. Improvements in the competition (better, cleaner gasoline vehicles).

All AFVs that have so far been promoted with limited success—electric vehicles, natural gas vehicles, methanol vehicles, and ethanol vehicles—have each suffered from several of these barriers. Any one of these barriers can be a showstopper for an AFV or an alternative fuel, even where other clear benefits are delivered. MTBE, for instance, has had its biggest difficulty with the safety and liability issue, even though it has minimal problems in the other areas because it can be blended directly with gasoline.

Electric vehicles deliver the clear benefit of zero tailpipe emissions, and can even have lower per mile costs than gasoline cars, but range, refueling, and first cost issues have limited their success and caused most major auto companies to withdraw their electric vehicles from the marketplace.

The chicken & egg problem who will build and buy the AFVs if a fueling infrastructure is not in place and who will build the fueling infrastructure before the AFVs are built remains the most intractable barrier. Consider that there are millions of flexible fuel vehicles already on the road capable of running on E85 (85% ethanol, 15% gasoline), 100% gasoline, or just about any blend, for about the same price as gasoline powered vehicles, and yet the vast majority of them run on gasoline and there are have been very few E85 stations built.

In the case of natural gas vehicles, the environmental benefits were oversold, as were the early cost estimates for both the vehicles and the refueling stations: “Early promoters often believe that ‘prices just have to drop’ and cited what turned out to be unachievable price levels.” One study concluded, “Exaggerated claims have damaged the credibility of alternate transportation fuels, and have retarded acceptance, especially by large commercial purchasers.”

All AFVs face the increasing “competition” from improved gasoline-power vehicles. Indeed, two decades ago when tailpipe emissions standards were being developed requiring 0.02 grams/mile of NOx, few suspected that this could be achieved by internal combustion engine vehicles running on we formulated gasoline.

The new generation of hybrid PZEVs such as the Toyota Prius and Ford Escape hybrid have substantially raised the bar for future AFVs. These vehicles have no chicken and egg problem (since they can be fueled everywhere), no different safety concerns than other gasoline cars, a substantially lower annual fuel bill, greater range, a 40% to 50% reduction in greenhouse gas emissions, and a 90% reduction in tailpipe emissions.

The vehicles do cost a little more, but that is more than offset by the current government incentive and the large reduction in gasoline costs, even ignoring the performance benefits. Compare that to many AFVs, whose environmental benefits, if any, typically come at the expense not merely of a higher first cost for the vehicle, but a much higher annual fuel bill, a reduced range, and other undesirable attributes from the consumer’s perspective.