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Federal Register Document



[Federal Register: October 27, 1997 (Volume 62, Number 207)]
[Notices]               
[Page 55622-55625]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr27oc97-56]

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DEPARTMENT OF ENERGY

Office of Energy Efficiency and Renewable Energy
[Docket No. EE-NOA-97-506]

 
Proposed Technical and Policy Analysis on Replacement Fuels and 
Alternative Fuel Vehicles

AGENCY: Office of Energy Efficiency and Renewable Energy, Department of 
Energy (DOE).

ACTION: Notice of availability and request for comments.

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SUMMARY: The Department of Energy is today publishing this notice of 
availability of a proposed analysis, as required by section 506 of the 
Energy Policy Act of 1992, on issues relating to replacement fuels and 
alternative fuel vehicles. The Department is requesting public comment 
on the proposed analysis prior to submission of the final report to the 
President and Congress. A short summary of the proposed analysis is 
included in this notice.

DATES: Written comments (5 copies) must be received by the Department 
by January 26, 1998.

ADDRESSES: Copies of the proposed Technical and Policy Analysis (which 
is approximately 75 pages long, single-spaced) may be obtained from the 
National Alternative Fuels Hotline, 9300 Lee Highway, Fairfax, Va. 
22031-1207, (800) 423-1DOE, or electronically from the Office of Energy 
Efficiency and Renewable Energy's Transportation Technologies website 
at: http://www.ott.doe.gov, under the Rules and Legislation section 
(http://www.ott.doe.gov/office.rules.html).
    Written comments (5 copies) are to be submitted to the U.S. 
Department of Energy, Office of Transportation Technologies, EE-34, 
Docket No. EE-NOA-97-506, 1000 Independence, Avenue S.W., Washington, 
D.C. 20585, telephone (202) 586-3012.
    Commenters are requested to provide a supplemental electronic copy 
of comments (1 copy), if possible, to facilitate the posting of 
comments on the Department's website. These optional electronic 
versions of comments should be stored in common text or word processor 
formats, and saved on a pc-compatible 3.5'' diskette and mailed to the 
address above; or emailed directly to afv-deployment @hq.doe.gov. 
Electronic versions are considered supplemental only--the Department is 
not able at this time to guarantee the inclusion in the docket of 
comments provided only in electronic format.

FOR FURTHER INFORMATION CONTACT: Mr. Paul McArdle, Program Manager, 
Office of Energy Efficiency and Renewable Energy (EE-34), U.S. 
Department of Energy, 1000 Independence Avenue, S.W., Washington, DC 
20585, email: afv-deployment@hq.doe.gov, or phone (202) 586-9171.

SUPPLEMENTARY INFORMATION:

I. Purpose
II. Summary of Findings of Technical and Policy Analysis
III. Availability of Proposed Technical and Policy Analysis
IV. Public Comment Procedures

I. Purpose

    Section 506(c) requires DOE to seek and consider public comments on 
the draft Technical and Policy Analysis on issues relating to 
replacement fuels and alternative fuel vehicles prior to its final 
transmission to the President and Congress. DOE may revise the Analysis 
prior to such final submission in light of comments received. DOE is 
also required by section 506(c) to preserve all comments received on 
the Analysis for use in required rulemaking proceedings under section 
507, including rulemaking to consider alternative fuel vehicle 
acquisition requirements for private and municipal fleets. In addition, 
DOE is in the process of devising a Replacement Fuel Supply and Demand 
Program under section 502. Comments received on the proposed Technical 
and Policy Analysis could be very useful in designing this program.

II. Summary of Findings of Technical and Policy Analysis

Energy Security Concerns

    The geopolitical context surrounding energy security has changed 
enormously since the oil shocks of the 1970s, with the end of the Cold 
War, the Organization of Petroleum Exporting Countries (OPEC) in 
disarray, and the cementing of U.S. security ties to the most important 
oil exporting nations. Unfortunately, these developments have 
engendered a complacency on the part of the American public not unlike 
that which preceded previous oil shocks. Historically, periods of low 
prices have been followed by steep price spikes, a pattern that could 
well be repeated in coming years.

[[Page 55623]]

    In contrast to the current geo-strategic environment, economic 
realities and trends seem to be recreating many of the preconditions 
for a potential oil shock in the U.S. sometime in the future. Economic 
growth in the Pacific rim is giving rise to a growth in world oil 
demand which could well lead to a short-supply situation within the 
next five to ten years. The world's oil resources are as concentrated 
as ever in the OPEC nations, notably in the Persian Gulf. DOE's Energy 
Information Agency (EIA) projects that by 2010, OPEC's market share is 
likely to reach the levels of the 1970s, as its share of world exports 
grows from 41 percent in 1993 to 53 percent in 2010.
    The costs to the U.S. economy from a future oil price shock could 
be enormous. Based on analyses of previous oil shocks, a number of 
recent studies have estimated the macroeconomic impacts as reducing 
U.S. economic activity by an average of over 2 percent per year for 
three to four years or more, which translates into GNP reductions in 
the range of six hundred billion dollars over three years, up to 
possibly $3 trillion over fifteen years if the lost economic growth 
were not subsequently made up.
    Unlike other energy using sectors, which have introduced substitute 
fuels and fuel switching flexibility since the oil shocks of the 70s 
and 80s, the transportation sector remains overwhelmingly dependent on 
petroleum based fuels (approximately 97.5 percent of transportation 
energy coming from petroleum) and on technologies that provide 
virtually no flexibility. The transportation sector currently accounts 
for approximately two-thirds of all U.S. petroleum use and roughly one-
fourth of total U.S. energy consumption.
    Substitution of petroleum-based transportation fuels (gasoline and 
diesel) by non-petroleum-based fuels (``replacement fuels,'' including 
alternative fuels such as electricity, ethanol, hydrogen, liquefied 
petroleum gas, methanol, and natural gas) could be a key means of 
reducing the vulnerability of the U.S. transportation sector to 
disruptions of petroleum supply. Centrally-fueled fleets are probably 
critical to the transportation sector's transition to alternative fuels 
and vehicles. Early introduction of alternative fuels in these fleets 
is more feasible since they generally refuel at a central facility and 
operate within a fuel tank's driving range of that central facility. 
Accordingly, fleets feature prominently in Title V of EPACT, which aims 
to displace substantial amounts of petroleum based motor fuel with 
alternative fuels.
    Since EPACT was enacted in 1992, transportation petroleum 
consumption has risen from 10.3 million barrels per day to 10.7 million 
barrels per day in 1994. EIA projects this consumption to rise to 14.0 
million barrels per day by 2010. U.S. dependence on imported petroleum 
has also grown since EPACT enactment. In 1992, 41 percent of total U.S. 
petroleum consumption was derived from foreign sources. By 1994, 
imports had increased to 45 percent. EIA projects U.S. petroleum import 
dependence to reach approximately 54 percent of consumption by 2000 and 
57 percent of petroleum consumption by 2005.
    In that dependence of U.S. autos and trucks on imported oil was one 
of the major driving forces behind Congressional passage of EPACT, the 
imperatives are even stronger now than at the time of passage.

Progress Toward Achieving the Goals Described in Sec. 502(b)(2)

    Section 502(b)(2) of EPACT suggests tentative goals of displacing 
10 percent of transportation fuel with replacement fuels by the year 
2000 and displacing 30 percent by the year 2010. DOE is making steady 
progress in carrying out the provisions of EPACT Title V and related 
programs, which should yield measurable results in alternative fuel and 
AFV usage in the future. DOE supports and coordinates the Federal Fleet 
Program for acquisition of alternative fuel vehicles (AFVs), which had 
put over 25,000 AFVs into the federal fleet by the end of fiscal year 
1996. DOE's Clean Cities Program promotes voluntary commitments and 
coordinated action by the key groups within participating city regions 
for installation of alternative fuel infrastructure and acquisition of 
vehicles. As of August 1997, 54 cities and over a thousand stakeholder 
organizations were participating. DOE is also carrying out the 
rulemaking and analytical activities prescribed by EPACT Title V, 
including its assessment of the technical and economic feasibility of 
reaching the 10 percent and 30 percent goals. The Research, Development 
and Demonstration program has been instrumental in fostering technology 
development in its two spheres, Advanced Vehicle Propulsion 
Technologies and Alternative Fuels Research and Demonstration. The 
latter is now turning its focus to alternative fuels infrastructure 
technology. DOE is also involved with the Environmental Protection 
Agency (EPA) in Clean Air Act programs that promote use of advanced 
technology vehicles, including alternative fuel vehicles, for use in 
ozone non-attainment areas. Many of the programs authorized by EPACT 
have not been in place long enough to allow a credible assessment of 
program impacts. The statutory requirement for this Technical and 
Policy Analysis actually precedes the start of implementation for some 
of the EPACT programs.

Actual and Potential Role of Replacement Fuels and AFVs in Reducing Oil 
Imports

    While DOE modeling suggests that the potential use of replacement 
fuels in the U.S. is very high, by 1996 the transportation sector has 
barely scratched the surface of this potential. The actual use of 
replacement fuels in 1996 in the U.S. is estimated by EIA to be about 
4.6 billion gallons gasoline equivalent (or 3.1 percent of total 
highway transportation fuel). Of this, 4.2 billion equivalent gallons 
was oxygenates blended into gasoline (2.9 percent of highway fuel) and 
323 million equivalent gallons was alternative fuel use by AFVs (0.2 
percent of highway fuel). The preliminary partial results of DOE's 
study of the feasibility of reaching the goals suggested by sec. 502(b) 
indicate that the potential use of replacement fuels sustainable by the 
market could be as high as 30 to 38 percent in 2010 under various 
scenarios and could ultimately be nearly double that.
    In order to reach such levels of alternative fuel use, however, 
major transitional impediments would have to be overcome, including 
changes in relative fuel/vehicle prices to consumers. For example, the 
EPACT suggested goals of displacing 10 percent of transportation fuels 
in the year 2000 and 30 percent in the year 2010 would require that AFV 
sales--
    <bullet> Grow to between 35 and 40 percent of total new light-duty 
vehicle sales by 1999 to meet the 2000 goal; and
    <bullet> Stay in the range of 30 to 38 percent to build an AFV 
population sufficiently large to meet the 2010 goal.
    Even to meet a 30 percent goal for year 2020, AFV growth would have 
to--
    <bullet> Double every year between 1995 and 2000, going from 
approximately 30,000 to 500,000 sales per year;
    <bullet> Increase by 50 percent per year to 4,000,000 in the period 
from 2001 through 2005; and
    <bullet> Remain at a constant 32 percent of total light-duty 
vehicle (LDV) sales in the period of 2005 through 2010.
    Under this scenario, the AFV population in 2020 (ten years later 
than

[[Page 55624]]

the EPACT 30 percent goal) would be large enough so that 30 percent of 
LDV motor fuel would be replacement fuel (alternative fuels plus 
oxygenates used in conventional vehicle fuel). This alternative 
scenario is believed to be more representative of new vehicle 
technology market introduction generally, than the growth paths 
necessary to meet the unmodified EPACT goals but would still be 
enormously ambitious.
    Analysis indicates that currently authorized Federal, state and 
local AFV programs could displace approximately 220,000 barrels per day 
of motor fuel or roughly 3 percent of the LDV transportation fuel use 
projected by EIA for 2010, while replacement fuels in the form of 
oxygenates could contribute an additional 4.8-6.7 percent of LDV motor 
fuel during this period. The gap between these volumes and those 
necessary to reach or approach the EPACT sec. 502(b)(2)(B) goal of 30 
percent fuel displacement by 2010 would have to be met by AFV use by 
motorists not covered by these programs, that is, largely by the 
general public.
    Examination of international policy experience shows EPACT fleet 
programs to be a unique approach. Nonetheless, experience of other 
countries' programs does provide the following lessons:
    <bullet> Spillover into voluntary use of alternative fuels and AFVs 
in non-mandated sectors is likely to be determined by the relative 
economic costs and benefits during each stage of the transition, 
including (at least for dedicated AFVs) some differential to compensate 
for future uncertainty and for the operational disadvantages of 
dedicated AFVs.
    <bullet> Merely putting in place novel and limited infrastructure 
networks is likely to be insufficient in generating high levels of 
spillover to non-mandated motorists, even in conjunction with 
cognizance of societal benefits and potential future widespread 
availability.
    Applying these lessons to the U.S. environment suggests that 
changes in the overall economics, access and convenience factors (or 
the perception of such imminent changes) will be necessary 
preconditions for AFV penetration in the general public. Such changes 
could occur in various ways, including policy induced changes, cyclical 
price swings or market disruptions.
    Experience of other countries also suggests that the political will 
to support alternative fuel programs is greatest when oil prices are at 
peak levels. When incentives are most critical to sustaining 
alternative fuel momentum, at the low end of the oil price cycle, 
governments have often been least committed.

Actual and Potential Availability of Replacement Fuels and AFVs

    Alternative fuel vehicle technologies are available for the 
principal alternative fuels believed most likely to play major parts in 
any transition to substantial alternative fuel use. Alcohol, liquefied 
petroleum gas (LPG), and natural gas vehicle technologies are 
sufficiently developed for such vehicles to be introduced into the 
market on large scales. Electric vehicle technology per se is also 
close to market-ready, but battery cost and range probably limit 
penetration to select market niches for the next five to ten years. 
Hybrid electric, fuel cell and hydrogen vehicle technologies are in 
various stages of development and could play significant roles in the 
future.
    A number of types of vehicles are currently available for purchase 
from original equipment manufacturers (OEMs) by the public and fleets, 
but not the whole range of vehicles for each of the alternative fuels.
    <bullet> Passenger cars are available for use with 85 percent 
alcohol/15 percent gasoline mixtures or any mixtures down to straight 
gasoline, at the same price as the same conventional model.
    <bullet> A minivan will soon be available for 85 percent ethanol 
use.
    <bullet> Pick-up trucks, vans and mini-vans are available from OEMs 
for CNG use. A full sized sedan is available for dedicated CNG 
operation and others may follow. Costs for dedicated CNG vehicles are 
generally $3000-$5000 more than conventional models.
    <bullet> CNG vehicles (bi-fuel and dedicated) may also be obtained 
by conversions of conventional vehicles by many small conversion firms.
    <bullet> Electric vehicles are now available, mostly sub-compact 
and small pickup models.
    Although alternative fuel refueling sites have been proliferating 
in recent years, none of the alternative fuels are currently available 
at retail for vehicle refueling in adequate networks to support 
widespread use. Adequate refueling sites could be available as a 
transition proceeds but would involve additional capital costs.
    All of the major alternative fuels are available at national and 
regional levels in volumes sufficient for transportation use at levels 
significantly greater than the current levels. While this available 
supply includes both domestic production and imports, domestic supply 
will be adequate to serve AFV needs for coming years. If alternative 
fuel use were to approach the levels suggested by the EPACT 30 percent 
goal, market pressures could change the split between domestic and 
import supply. Natural gas, ethanol and electricity have the greatest 
potential for domestic production to meet large-scale transportation 
use. LPG and methanol could be available in adequate quantities either 
domestically or internationally.

Key Issues and Perspectives

    While available evidence indicates that substantial spillover from 
EPACT Title V programs into household AFV acquisitions is unlikely in 
the absence of some economic incentive to households to make the shift, 
such incentive might occur in any one of a number of ways. It would not 
necessarily have to represent a government incentive program.
    An oil price rise could well cause dramatic changes in relative 
prices between gasoline and a number of alternative fuels, resulting in 
natural fuel-switching if the conditions enabling motorists to switch 
fuels are in place. Comparative historical movements in relative prices 
for alternative fuels and their feedstocks show clear divergences in 
price movements from crude oil and gasoline, particularly for 
electricity, ethanol and methanol. There is probably no way of reliably 
assessing the impact of a future oil price rise on the effectiveness of 
EPACT programs until such an event occurs. On the other hand, it does 
appear possible to infer from prior experience that a price spike is 
unlikely to result in major fuel switching in the transportation sector 
in the absence of certain preconditions relating to the availability of 
AFVs and alternative fuel infrastructure, which EPACT Title V begins to 
address. It should be noted that most of the fuel switching in Brazil 
and the Netherlands, the two countries where AFV programs have been 
most effective, occurred after an oil shock which had been preceded by 
more modest programs promoting the alternative fuel to which the 
country partly switched after the shock.
    EPACT also provides incentives to restrain rising oil demand before 
it leads to a run-up in oil prices of the nature of those discussed 
above. EPACT programs could also reduce the likelihood or magnitude of 
a future oil shock in another way. One potential benefit of developing 
a fuel switching capability is the potential to alter the behavior of 
primary fuel suppliers. If viable competing fuels are available, the 
likelihood of a restriction of oil supplies could be diminished. EPACT 
has the potential to shorten the time lag

[[Page 55625]]

between an oil price shock and the oil use reductions following it and 
to magnify such reductions in the key transportation sector, where 
reductions have been small compared to other sectors. The perceived 
potential of the U.S. to introduce alternatives in the event of an oil 
price increase, may dampen the price increase sought by oil-exporting 
countries in the event of a supply disruption.<SUP>1</SUP>
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    \1\ While the U.S. share of world oil imports and its importance 
in the world oil market are likely to be less in the next century 
than in the 1970s and 80s, U.S. leadership in alternative 
transportation fuel policy and technology development could well 
catalyze similar developments in other importing countries.
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    It is also possible that a well designed EPACT-initiated process of 
fuel switching could avoid or reduce the magnitude of problems such as 
inflation, involved with the relatively abrupt technological 
transitions in transportation that historically follow major oil shocks 
and which have also characterized historical fuel switches. Alternative 
fuel transportation systems could be more fully ripe for widespread 
deployment and the American public more amenable to fuel switching as a 
result of EPACT fleet programs and DOE RD&D programs.
    Despite the many uncertainties, it preliminarily appears that the 
programs authorized by Congress in EPACT will fall substantially short 
of the year 2010 goal of 30 percent. DOE may need to modify that goal 
under EPACT sec. 504, possibly by rolling back the target dates. EPACT 
provides ample flexibility for DOE to so scale back the ambitious 
statutory goals rather than to adopt draconian policies. At the same 
time, DOE understands that many are concerned over what is perceived as 
EPACT's excessive reliance on mandates rather than economic incentives.

III. Availability of Proposed Technical and Policy Analysis

    The Technical and Policy Analysis required by EPACT Section 506 is 
available in a draft report for pubic review and comment. Copies of the 
draft analysis, written comments, and any other docket material 
received may be read and copied at the DOE Freedom of Information 
Reading Room, U.S. Department of Energy, Room 1E-190, 1000 Independence 
Ave., S.W., Washington, D.C. 20585, telephone 202-586-6020 between the 
hours of 8:30 a.m. and 4:00 p.m. Monday through Friday except Federal 
holidays. The docket file material will be filed under ``EE-NOA-97-506 
''. An electronic version of the proposed Technical and Policy Analysis 
and electronically compatible portions of the docket material will be 
available from the Office of Transportation Technologies's website at: 
http://www.ott.doe.gov, under the Rules and Legislation section (http:/
/www.ott.doe.gov/office.rules.html). Additional copies of the proposed 
Technical and Policy Analysis may be obtained from the National 
Alternative Fuels Hotline and Data Center, P.O. Box 12316, Arlington, 
Va. 22209, (800) 423-1DOE, (703) 528-3500 (local), Fax: (703) 528-1953.

IV. Public Comment Procedures

    The Department of Energy encourages the maximum level of public 
participation in review and comment of the proposed Technical and 
Policy Analysis. The Department has established a comment period of 90 
days following publication of this notice for persons to provide 
comment. The public comment period closes on January 26, 1998.
    All public comments and other docket material will be available for 
review in the DOE Freedom of Information Reading Room at the address 
shown at the beginning of this notice. The docket material will be 
filed under ``EE-NOA-97-506.''
    Interested persons are invited to participate in this proceeding by 
submitting written data, views or arguments with respect to the 
subjects set forth in this notice. Instructions for submitting written 
comments are set forth at the beginning of this notice and below.
    Written comments (5 copies) should be labeled both on the envelope 
and on the documents, ``Section 506 Technical and Policy Analysis 
(Docket No. EE-NOA-97-506),'' and must be received by the date 
specified at the beginning of this notice. All comments and other 
relevant information received by the date specified at the beginning of 
this notice will be considered by DOE.
    In addition, commenters are requested to provide a supplemental 
electronic copy of comments (1 copy), if possible, to facilitate the 
posting of comments on the Department's website. These optional 
electronic versions of comments should be stored in common text or word 
processor formats and saved on a pc-compatible 3.5'' diskette and 
mailed to the address above; or emailed directly to afv-deployment 
@hq.doe.gov. Electronic versions are considered supplemental only--the 
Department is not able at this time to guarantee the inclusion in the 
docket of comments provided only in electronic format.
    Pursuant to the provisions of 10 CFR 1004.11, any person submitting 
information or data that is believed to be confidential and exempt by 
law from public disclosure should submit one complete copy of the 
document and 3 copies, if possible, from which the information believed 
to be confidential has been deleted. The Department will make its own 
determination with regard to the confidential status of the information 
or data and treat it according to its determination.

    Issued in Washington, DC, on September 2, 1997.
Brian T. Castelli,
Chief of Staff, Energy Efficiency and Renewable Energy.
[FR Doc. 97-28401 Filed 10-24-97; 8:45 am]
BILLING CODE 6450-01-P