Increased Automobile Fuel Efficiency and

Synthetic Fuels: Alternatives for Reducing

Oil Imports

September 1982

NTIS order #PB83-126094
Library of Congress Catalog Card Number 82-600603

For sale by the Superintendent of Documents,

U.S. Government Printing Office, Washington, D.C. 20402
Foreword

This report presents the findings of an assessment requested by the Senate Committee on Commerce, Science, and Transportation. The study assesses and compares

increased automobile fuel efficiency and synthetic fuels production with respect to their

potential to reduce conventional oil consumption, and their costs and impacts. Conservation and fuel switching as a means of reducing stationary oil uses are also considered, but in considerably less detail, in order to enable estimates of plausible future

oil imports.

We are grateful for the assistance of the project advisory panels and the many other

people who provided advice, information, and reviews. It should be understood, however, that OTA assumes full responsibility for this report, which does not necessarily

represent the views of individual members of the advisory panels.

Director
Automobile Fuel Efficiency Advisory Panel

Maudine R. Cooper*

National Urban League, Inc.

John Ferron

National Automobile Dealers Association

Michael J. Rabins, Chairman

Wayne State University

Donald Friedman

Minicar, Inc.

Herbert Fuhrman

National Institute for

Automobile Service Excellence

James M. Gill

The Ethyl Corp.

R. Eugene Goodson**

Hoover Universal, Inc.

Charles M. Heinen***

Chrysler Corp.

Synthetic Fuels Advisory

Harvey O. Banks

Camp Dresser McKee, Inc.

Ellen Berman

Consumer Energy Council of America

Leslie Burgess

Fluor Corp.

Frank Collins

Oil, Chemical and Atomic Workers

International Union

Thomas F. Edgar

University of Texas

Louis Frick

E. 1. du Pent de Nemours & Co., Inc.

Bernard Gillespie

Mobil Research and Development Co.

John B. Heywood

Massachusetts Institute of Technology

John Holden

Ford Motor Co.

Maryann N. Keller

Paine, Webber, Mitchell, & Hutchins

Paul Larsen

GMC Truck and Coach Division

Robert D. Nell

Consumers Union

Kenneth Orski

German Marshall Fund of the United States

Howard Young*

United Auto Workers

Panel

Hans Landsberg, Chairman

Resources for the Future

Robert Howell

Refinery Consultant

Chairman, Synfuels Subcommittee

Sierra Club

Sheldon Lambert

Shell Oil Co.

John L. McCormick

Environmental Policy Center

Edward Merrow

Rand Corp.

Richard K. Pefley

Santa Clara University

AlIan G. Pulsipher

Tennessee Valley Authority

Robert Reilly

Ford Motor Co.

Fred Wilson

Texaco, Inc.

NOTE: The Advisory Panels provided advice and comment throughout the assessment, but the members

do not necessarily approve, disapprove, or endorse the report for which OTA assumes full responsibility.

● Resigned from panel.

● ● Formerly with Institute for Interdisciplinary Engineering Stud&, Purdue University.

* ● ● Retired from Chrysler cOrp.

ICurrently with LTV Corp.

iv
OTA Increased Automobile Fuel

Synthetic Fuels Project Staff

Efficiency and

Lionel S. Johns, Assistant Director, OTA

Energy, Materials, and International Security Division

Richard E. Rowberg, Energy Program Manager

Synthetic Fuels and Project Coordination Increased Automobile Fuel Efficiency

Thomas E. Bull, Project Director John A. Alic, Automobile Technology

Paula J. Stone, Assistant Project Director Marjory S. Blumenthal, Cost Analysis and

Steven E. Plotkin, Environmental Analysis Economic and Social Impacts

and Executive Summary Larry L. Jenney, Automobile Technology

Richard W. Thoreson, Economic Impacts Richard Willow, Electric Vehicles

Contributors

David Strom Franklin Tugwell

David Sheridan, Editor

Administrative Staff

Lillian Quigg Edna Saunders Marian Grochowski Virginia Chick

Contractors

E. J. Bentz & Associates, Inc., Springfield, Va.

Wright Water Engineers, Inc., Denver, Colo.

Michael Chartock, Michael Devine, and Martin Cines,

University of Oklahoma, Norman, Okla.

General Research Corp., Santa Barbara, Calif.

OTA Publishing Staff

John C. Holmes, Publishing Officer

John Bergling Kathie S. Boss Debra M. Datcher Joe Henson
Acknowledgments

OTA thanks the following people who took time to provide information or review part or all of the study.

John Acord

Montana Department of Natural Resources

and Conservation

David Alberswerth

Western Organization of Resource Councils

Louis E, Allen

Wyoming State Engineer’s Office

Morris Altshuler

U.S. Environmental Protection Agency

Marty Anderson

Transportation Systems Center

Department of Transportation

Ray Baldwin

Planning Department, Garfield County, Colo.

Craig Bell

Western States Water Council

Martin J. Bernard, Ill

Center for Transportation Research

Argonne National Laboratory

Don Bischoff

California Energy Commission

William Boehly

National Highway Traffic Safety Administration

Charles Brooks

U.S. Department of Energy

A. L. Brown

EXXON Coal Resources, USA, Inc.

George Byron

Transportation Systems Center

Department of Transportation

James Childress

National Council on Synthetic Fuels Production

George Christopulos

Wyoming State Engineer

David Cole

Office for the Study of Automotive Transportation

University of Michigan

George Davis

U.S. National Committee for International

Hydrology Program

Clarence Ditlow

Center for Auto Safety

C. Gilmore Dutton

Appropriations and Revenue Committee

Kentucky Legislative Research Commission

Vernon Fahy

North Dakota State Engineer

Jack Fitzgerald

U.S. Environmental Protection Agency

Gary Fritz

Montana Department of Natural Resources

and Conservation

Jack Gilmore

Denver Research Institute

University of Denver

Harris Gold

Water Purification Associates

David Gushee

Congressional Research Service

Jack Hannon

E. 1. du Pent de Nemours & Co., Inc.

Richard Hildebrand

U.S. Department of Energy

Frank von Hippel

Center for Energy and Environmental Studies

Princeton University

Edward Hoffman

Consultant

Harriet Holtzman

Environmental Policy Institute

Darrell Howard

Tennessee Valley Authority

Richard Howard

South Dakota Department of Water

and Natural Resources

Charles Hudson

Argonne National Laboratory

James John

Department of Mechanical Engineering

Ohio State University

Arvid Joupi

Joseph Kanianthra

National Highway Traffic Safety Administration

vi
Sarah La Belle

Argonne National Laboratory

Jonathan Lash

Natural Resources Defense Council

Minh-Triet Lethi

Office of Science and Technology Policy

Kevin Markey

Friends of the Earth

David Marks

Department of Civil Engineering

Massachusetts Institute of Technology

J. P. Matula

EXXON Research & Engineering Co.

Dennis McElwain

AFL-CIO

C. E. McGehee

Battlement Mesa, Inc.

Gary McKenzie

National Science Foundation

Ron McMahan

Abt/West

Gene Meyer

Shell Oil Co.

Carl Nash

National Highway Traffic Safety Administration

Christopher Palmer

National Audobon Society

Laszlo Pastor

DRAVO Corp.

E. Piper

Energy Development Consultants, Inc.

James Posewitz

Montana Department of Fish, Wildlife,

and Parks

Frank Richardson

National Highway Traffic Safety Administration

Richard D. Ridley

Occidental International Corp.

H. Robichaud

ANG Coal Gasification

Phil Scharre

Tennessee Valley Authority

William Schriver

U.S. Department of Labor

Roger Shun

U.S. Department of Energy

Tom Sladek

Colorado School of Mines Research Institute

Catherine Slesinger

General Accounting Office

John H. Smithson

U.S. Department of Energy

Earl Staker

Utah Deputy State Engineer

Dick Strombotne

National Highway Traffic Safety Administration

George Tauxe

Science and Public Policy Program

University of Oklahoma

David Tundermann

U.S. Environmental Protection Agency

Wallace Tyner

Department of Agricultural Economics

Purdue University

Richard A. Walde

Gulf Research and Development Co.

David Walker

Colorado Water Conservation Board

George Wang

Bechtel Group, Inc.

R. M. Wham

Oak Ridge National Laboratory

Mary Pat Wilson

WESTPO

Edward P. Yarmowich

U.S. Department of Energy

vii
Contents

Chapter Page

I. Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

2.introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

3. Policy . . . . . . . . . . . . . .. .. .. .. ... . . $........ . . . . . . . . . . . . . . . . . . . . . . 35

4. issues and Findings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

5. Increased Automobile Fuel Efficiency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105

6. Synthetic Fuels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157

T. Stationary Uses of Petroleum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183

8. Regional and National Economic Impacts . . . . . . . . . . . . . . . . . . . . . . . . . . . 195

9. Social Effects and Impacts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219

10. Environment, Health, and Safety Effects and Impacts . . . . . . . . . . . . . . . . . . 237

11. Water Availability for Synthetic Fuels Development . . . . . . . . . . . . . . . . . . . 279

Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 291
Chapter 1

Executive Summary
Contents

Page

Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Conclusions and Comparisons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Import Reductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Technological and Economic Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Additional Bases for Comparison-Environmental Social and

Economic Effects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Stimulating Oil Import Reductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Dealing With Other Effects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Overview of the lmport Reduction Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Increased Automobile Fuel Efficiency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Synthetic Fuels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Reducing Stationary Uses of Oil. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Electric Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

TABLES

Table No.

I. Projected Average Fuel Economy, 1985-2000 . . . . . . . . . . . . . . . . .

2. Domestic Investment for Increased Fuel Efficiency . . . . . . . . . . . . . . . . . . . . .

3. Consumer Costs for increased Automobile Fuel Efficiency, Without

Discounting Future Fuel Savings, Moderate Shift to Smaller Cars . . . . . . . . .

4. Price of Synthetic Fuels Required To Sustain Production Costs . . . . . . . . . . .

5. Two Comparisons of the Environmental impacts of Coal-Based Synfuels

Production and Coal-Fired Electric Generation . . . . . . . . . . .

6. Summary of Annual Energy Requirements To Displace 2.55

Stationary Fuel Oil Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

FIGURES

Figure No.

l. Potential Oil Savings Possible by the Year 2000 . . . . . . . . . .

. . . . . . . . . . . . .

MMB/D of

. . . . . . . . . . . . .

. . . . . . . . . . . . .

2. Estimated Investment Costs for the Oil Import Reduction Options . . . . . . . .

Page

11

13

14

17

20

23

Page

4

6
Chapter 1

Executive Summary

INTRODUCTION

In 1981, U.S. oil imports averaged 5.4 million

barrels per day (MMB/D)–approximately 34 percent of its oil consumption and 15 percent of its

total energy use. This is potentially a serious risk

to the economy and security of the United States.

Furthermore, recovery from the current recession

will increase demand for oil and, although currently stable, domestic oil production is likely to

resume a steady decline in the near future.

Several options exist for reducing oil imports.

However, even with moderate increases in automobile fuel efficiency, moderate success at developing a synthetic fuels industry and the expected reduction in stationary use of fuel oil, U.S.

oil imports could still be over 4 MMB/D by 2000,

if the U.S. economy is healthy and has not undergone unforeseen structural changes that might

reduce oil demand well below projected levels.

Only with vigorous promotion of all three options and technological success can the Nation

hope to eliminate oil imports before 2010.

Congress faces several decisions on how to reduce the U.S. dependence on imported petroleum. Two options, increased automobile efficiency and synthetic fuels, are particularly likely

to be subjects of congressional debates. First,

Congress may want to consider new incentives

to increase auto fuel efficiency beyond that mandated by the 1985 CAFE (Corporate Average Fuel

Efficiency) standards. Second, Congress will have

to decide whether to continue into the second

phase of the program to accelerate synfuels development under the Synthetic Fuel Corp. (SFC). The

purpose of this report is to assist Congress in making these decisions and comparing these options

by exploring in detail the major public and private

costs and benefits of increased automobile fuel

efficiency and synthetic fuels production. A third

option for reducing imports-increased efficiency and fuel switching in stationary (nontransportation) oil uses—is examined briefly to allow an

assessment of potential future levels of oil imports. Finally, electric-powered automobiles are

examined.

CONCLUSIONS AND COMPARISONS

Import Reductions

In the judgment of the Office of Technology

Assessment, increased automobile fuel efficiency,

synthetic fuels production, and reduced stationary (nontransportation) use of oil can significantly

decrease U.S. dependence on oil imports during the next two to three decades. indeed, reducing oil imports as quickly as possible requires that

all three options be pursued. Electric cars are

unlikely to play a significant role, however.

Although a precise forecast of the future contributions of the import reduction options is not feasible now, it is possible to draw some general

conclusions about their likely importance and to

estimate what their contributions could be under

specific circumstances (see fig. 1).

First, increases in auto fuel efficiency will continue, driven by market demand and foreign

competition. OTA believes that, with strong and

consistent demand for high fuel efficiency, there

is a good chance that actual average new-car fuel

efficiencies would be greater than OTA’s low scenario in which average new-car fuel economy*

was projected to be:

30 miles per gallon (mpg) . . . . . . . in 1985

38 mpg . . . . . . . . . . . . . . . . . . . . ., in 1990

43 mpg . . . . . . . . . . . . . . . . . . . . ., in 1995

51 mpg . . . . . . . . . . . . . . . . . . . . . . in 2000

with a moderate shift in demand to smaller cars.

Although this scenario is based on modest technical expectations, it is dependent on favorable

market conditions. Domestic automakers are unlikely to commit the capital necessary to continue

*EPA values, based on 55 percent city, 45 percent highway. Onthe-road fuel economy is expected to average about 10 percent less.

3
4 ● Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil /reports

Figure 1 .—Potential Oil Savings Possible by the Year 2000a (relative to 1980 demand)

. .

Synfuels

High

n

Conservation and

fuel switching in

stationary uses

of fuel oil

High Additiona l

Inc

fu

High

Low

‘

- reased auto

u

potential

el efficiency savings beyond

base case

n

Low Oil savings

incorporated in

base case

0

Low

SOURCE: Off Ice of Technology Assessment.

the current rapid rate of increase in efficiency

unless they improve their sales and profits.

If the industry is able to attain the fuel efficiency levels shown above, the United States would

save 800,000 barrels per day (bbl/d) of oil by 2000

compared with the case where post-1 985 newcar efficiency remained at 30 mpg. The savings

would increase to at least 1.1 MMB/D by 2010

because of continued replacement of older, less

fuel-efficient automobiles.

With a poorer economic picture and weaker

demand for high fuel efficiency, new-car efficiencies could be 40 mpg or less by 2000, with correspondingly lower savings. Achieving 60 to 80

mpg by 2000 would require not only favorable

economic conditions and strong demand for fuel

efficiency, but also relatively successful technical

development.

Second, substantial contributions to oil import

reductions from production of synthetic fuels

appear to be less certain than substantial contributions from the other options. Potential synfuels producers are likely to proceed cautiously

for the following reasons: 1 ) investment costs are

very high (even with loan guarantees covering

75 percent of project costs); 2) there is a fairly

small differential between the most optimistic of

OTA’s projected synfuels production costs and

the current price of oil; 3) investors are now unertain about future increases in the real price of

oil; and 4) there are high technological risks with

the first round of synfuels plants (possibly exacerbated by the cancellation of the Department of

Energy’s (DOE) demonstration program).

OTA projects that, even under favorable circumstances, fossil-based production of synthetic

transportation fuel could at best be 0,3 to 0.7

MMB/D by 1990 and 1 to 5 MMB/D by 2000. Biomass synfuels could add 0.1 to 1 MMB/D to this

total by 2000. In less favorable conditions—for

example, if the SFC financial incentives were

withdrawn—it appears unlikely that even the lower fossil synfuels estimate for 1990, and perhaps

2000, could be achieved unless oil prices increase

much faster than they are currently expected to.
Ch. 1—Executive Summary ● 5

Achieving much more than 1 MMB/D of synfuels production by 2000 would require fortuitous

technical success and either: 1 ) unambiguous

economic profitability or 2) continued financial

incentives requiring authorizations considerably

larger than those currently assigned to SFC.

Achieving production levels near the upper limits

for 2000 are likely to be delayed, perhaps by as

much as a decade, unless there is virtually a “war

mobilization’ ’-type effort.

Third, there are likely to be large reductions

in the stationary use of fuel oil (currently 4.4

MMB/D) in the next few decades. With just costeffective conservation measures, stationary fuel

oil use could be reduced significantly. Additional

conservation measures by users of electricity and

natural gas could make enough of these fuels

available to replace the remaining stationary fuel

oil use by 2000. Total elimination of stationary

fuel oil use by 2000 is unlikely, however, because

site-specific factors and differing investor payback

requirements will mean that a significant fraction

of the numerous investments needed for elimination will not be made.

Fourth, even a 20-percent electrification of the

auto fleet—a market penetration that must be

considered improbable within the next several

decades—is unlikely to save more than about

0.2 MMB/D. Electric cars are most likely to replace small, low-powered–and thus fuel-efficient

—conventional automobiles, minimizing potential oil savings.

Plausible projections of domestic oil production

—expected by OTA to drop from 10.2 MMB/D

in 1980 to 7 MM B/D or lower by 2000—suggest

that oil imports could still be as high as 4 to 5

MM B/D or more by 2000 unless imports are reduced by a stagnant U.S. economy or by a resumption of rapidly rising oil prices. * Achieving

low levels of imports-to perhaps less than 2

MM B/D within 20 to 25 years–is likely to require

a degree of success in the three major options

that is greater than can be expected as a result

of current policies.

*Rapidly rising oil prices are unlikely to occur simultaneously with

a stagnant U.S. economy unless the economies (and oil import requirements) of Europe and others are thriving at the same time.

costs

Except for stationary fuel oil reductions, economic analysis of the options for reducing oil imports involves a comparison of tentative cost estimates for mostly unproven technologies that will

not be deployed for 5 to 10 years or more. Even

if costs were perfectly estimated for today’s market (and the estimates are far from perfect), different rates of inflation in the different economic

sectors affecting the options could dramatically

shift the comparative costs by the time technologies are actually deployed. Figure 2 presents

OTA’s estimates for the investment costs for all

options except electric cars. The costs are expressed in dollars per barrel per day, which is the

amount of investment needed to reduce petroleum use at a rate of 1 bbl/d. * In OTA’s judgment,

the estimated investment costs (in dollars per

barrel per day) during the 1990’s of automobile

efficiency increases, synthetic fuels production,

and reduction of stationary uses of oil are essentially the same, within reasonable error bounds.

If Congress wishes to channel national investments preferentially into one of these options,

differentials in estimated investment costs cannot provide a compelling basis for choice.

On the other hand, investments during the

1980’s to reduce stationary oil use (from the current 4.4 to 3 MM B/D or less by 1990) and increase automobile fuel efficiency (to a 35 to 45

mpg new-car fleet average by 1990) are likely to

cost less than the 1990-2000 investments in any

of the options.

Electric vehicles are likely to be very expensive

to the consumer—costing perhaps $3,000 more

per vehicle than similar, conventional automobiles or $300,000 to $400,000/bbl/d of oil

saved, (The latter is not strictly comparable to investment costs for the other options. ) If batteries

must be replaced at moderate intervals, which

is necessary today, the total costs of electric cars

would escalate.

*This measure was chosen in order to avoid problems that arise

when comparing investments in projects with different lifetimes and

for which future oil savings may be discounted at different rates.
6 • Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

Figure 2.—Estimated Investment Costs for the Oil Import Reduction Options

Increased automobile

fuel efficiency

I 45-80 mpg

by 2000a

40-65 mpg , ,

by 1995aSynfuels Reduction in stationary

uses of fuel oil

in the 1990’s

35-50 mpg

by 1990a

Estimated 1985 cost of

conventional oil and gas

exploration and

development in the United States

SOURCE: Office of Technology Assessment.

Technological and Economic Risks

The general perception of the technological

and economic risks of the import reduction options is: 1 ) that the reduction of stationary oil use

has comparatively predictable costs and few technological risks; 2) that synthetic fuels have severe

economic and technological risks; and 3) that increased auto fuel efficiency has moderate economic and technological risks. OTA’s analysis indicates that these perceptions are correct only

to a limited extent.

Ž Although the costs and technology of fuel

switching are well known and involve little risk,

the success of retrofitting a given building to

increase its energy efficiency often cannot be

●

●

●

accurately predicted because of site-specific

considerations that cannot be adequately

quantified.

The differences in risks between synfuels development and increased automobile fuel efficiency are less a matter of overall magnitude than

of timing.

Synfuel production involves considerable technical and economic risks for the first round of

commercial-scale facilities, but once full-scale

process units have been demonstrated the risk

for future plants should drop substantially.

Some increases in automobile fuel efficiency

can be implemented with negligible technological and small economic risks, but increases

to very high efficiencies do involve significant
Ch. l—Executive Summary Ž 7

technical and economic risks. Also, as the

number and rate of changes in automobiles increases, there is increased risk that consumers

will not accept the automobiles and that insufficient development and testing will lead to poor

on-the-road performance and/or product recalls.

Additional Bases for Comparison—

Environmental, Social, and

Economic Effects

Increased auto fuel efficiency may reduce vehicle safety as cars are made smaller and lighter.

But in all but extreme cases of vehicle size reduction, improvements in vehicle design and increased passenger use of safety restraints have

the potential to offset any effects of reduced size

and weight on the vehicle’s protection of its occupants in a crash.

Continued pressure for increased fuel efficiency will dictate new plant investments which will

reinforce the ongoing restructuring of the U.S.

auto industry. This restructuring involves a shift

in manufacturing away from the traditional production centers to the Sun Belt and overseas, and

stronger industry ties with foreign manufacturers.

The composition and size of the manufacturing

work force may evolve towards a greater proportion of skilled workers but fewer workers overall.

Increased sophistication and capital investment

may be required for vehicle maintenance. A reduction in the number of suppliers to the auto

industry may also result.

Large-scale synthetic fuels production would

generate significant amounts of toxic substances, posing risks of health damage to workers and possible risks to the public through contamination of ground waters or by small

amounts of toxics left in the fuels. There should

not be any technological barrier to adequate

control of these substances, but OTA concludes

that there are substantial reasons to be concerned about the adequacy both of proposed

environmental protection systems and of the existing regulatory structure.

Other important effects of synfuels production stem from the very large scale of both the

individual projects and, potentially, the industry

as a whole. These may overwhelm the social and

economic resources of nearby population centers, especially in sparsely populated areas of the

West. At national production levels of a few million barrels per day, impacts from coal and shale

mining and population pressures on wilderness

areas and other fragile ecosystems can be substantial even in comparison with major industries

such as coal-fired power generation. On the other

hand, conventional air pollution problems from

such plants are likely to be considerably less than

those associated with similar amounts* of coalfired power generation.

Finally, although water requirements for synfuels are a small fraction of total national consumption, growth of a synfuels industry could

either create or intensify competition for water,

depending on both regional and local factors.

Such competition is of special concern in the arid

West. Unfortunately, a reliable determination of

both the cumulative impacts on other water users

and, in some instances, the actual availability of

water for synfuels development is precluded by

physical and institutional uncertainties, changing

public attitudes towards water use priorities, and

the analytical shortcomings of existing studies.

However, in areas where there are relatively

few obstacles to transferring water rights (e.g., as

is currently the case in Colorado), developers

should be able to obtain the water they need

because their consumption per barrel of oil produced is small enough to enable them to pay a

relatively high price without significantly affecting the final cost of their products.

Electric vehicles, if they are ever produced in

large quantities, could have an important positive environmental effect-the reduction of

automobile exhaust emissions and resulting improvements in urban air quality.

*On a “per unit of coal used” basis.

9a-2 e 1 ~ - a 2 - 2 : I: II J 3
8 • Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

POLICY

OTA’s analysis points to two conclusions that

may warrant congressional consideration of

changes in current Federal energy policy.

First, current policies affecting investments in

energy conservation and domestic energy production are not likely to result in levels of oil imports below 4 MMB/D in 2000, if the U.S. economy is healthy and has not undergone unforeseen structural changes that might reduce oil demand well below projected levels. During the

next 20 years, OTA expects that, under these

policies, oil import reductions due to synthetic

fuels production and decreased stationary and

automobile oil use will be partially offset by a

decrease in domestic production of conventional

oil. Reducing net oil imports to 1 or 2 MMB/D

or less by 2000 is likely to require more vigorous

pursuit of all options for reducing domestic consumption of conventional oil products. On the

other hand, elimination of current conservation

and synthetic fuels production policies could

cause imports to range from 5 to 6 MMB/D by

2000 under these same economic conditions.

Second, current policies may not provide society with adequate protection from some of the

adverse side effects of synthetic fuels development and increased automobile fuel efficiency.

Of particular concern are possible reductions in

automobile crash safety (as the number of

smaller, more fuel-efficient cars increases), inadequate control of toxic substances from synfuels

development, and adverse socioeconomic effects

from both options.

Because of the large technical, economic, and

market uncertainties inherent in the analyses of

oil displacement options, Congress may wish to

emphasize flexible incentives with provisions for

periodic review and adjustment. A stable commitment to oil import displacement will be necessary, however, to maximize the effect of such

policies.

Stimulating Oil Import Reductions

The level of oil imports at the turn of the century will be determined by market forces, modified by Government policy towards oil supply

and demand. The imposition of Federal policy

on the workings of the private market generally

is justified on the basis of the market’s failure to

value public costs and benefits. A particularly important public cost of U.S. dependence on imported oil, for example, is the national security

problem imposed by political instability in the

Middle East and the resulting potential for oil cutoffs. Although the precise magnitude of these

costs is debatable, most people would agree that

they are significant ($5 to $50/bbl depending on

various circumstances) and that the private market generally does not take them into account.

Efforts to displace imports also have both public

and private costs. In addition to the potential side

effects just mentioned, Government interference

in the oil marketplace can cause significant misalIocations of resources. Congress will have to balance costs and benefits, which cannot be reduced to common measures and which change

with time, in a complex tradeoff.

One policy option to displace imports is an energy tax, either on oil imports or on oil in general. Both taxes have the advantage of encouraging alternatives to conventional oil consumption without predetermining which adjustments

would be made. They could be used to provide

consistent price signals to the market—to assure

the auto industry, for example, that demand for

fuel-efficient cars would continue and to assure

synfuels developers that they would receive at

least a constant real price for their products. imposing a tax only on transportation fuels would

send the same signal to both the auto industry

and to producers of synthetic transportation fuels,

but this preferential treatment would be at the

expense of other conservation or synfuels

production investors.

All of these petroleum taxes also have a number

of other effects which must be considered. For

example, a tax only on oil imports leads to an

income transfer from domestic oil consumers to

domestic oil producers; and all oil taxes can lead

to reduced international competitiveness of domestic industries heavily dependent on oil, such

as the petrochemical industry.
Ch. I—Executive Summary ● 9

policies can also be directed specifically at the

automobile or synfuels industries. The most effective of these options will be those that directly

address the factors that shape, direct, and limit

the contributions that the automobile and synfuels industries can make to import displacement.

The critical factors that determine the pace of

increased automobile fuel efficiency are consumer demand for fuel efficiency and the financial health of the domestic auto industry. If the

industry is uncertain about demand, it will be reluctant to make the expensive investments. And

with continued poor sales, the industry will be

less able to afford them.

Aside from energy taxes, Congress can maintain and stimulate consumer demand for fuel efficiency by a variety of measures that would raise

the relative costs to consumers of owning inefficient cars. For example, registration fees (one

time or annual) and purchase taxes or subsidies

are incentives that can be directly linked to fuel

efficiency. However, fuel-efficiency incentives

that do not discriminate with respect to car size

would tend to increase sales of small cars at the

expense of larger cars. Such discrimination might

hurt domestic manufacturers, which have been

most vulnerable to foreign competition in the

small-car market.

Congress can also choose policies aimed at

auto production such as continuing to require

manufacturers to improve fuel efficiency by

means of stricter CAFE or similar standards that

would ensure increased fuel efficiency even if demand for this automobile attribute is low. This

regulatory route might reduce some risks to automakers by requiring all to make similar investments. On the other hand, car sales may suffer

if the costs of the fuel savings—either in higher

sticker prices or reductions in some desirable vehicle attributes–are higher than consumers are

willing to pay. Fuel-economy requirements are

likely to be perceived by the industry as exceedingly risky unless the requirements are accompanied by measures to stimulate demand or to

ease the resulting financial burden on the automakers.

To help ensure that the fuel-efficient cars are

actually bought and that the automakers can acquire the capital needed for increasing fuel efficiency, Congress may also wish to directly promote sales of fuel-efficient cars. A low-interestrate loan program (with interest rates tied to fuel

efficiency) is one potentially effective mechanism.

Congress may also wish to consider awarding direct grants or loan guarantees for qualifying investments in auto manufacturing facilities.

The factors that determine the pace of synfuels

development are the high degree of technical uncertainty and the continuing uncertainty about

future oil prices. Both areas of uncertainty contribute to doubts about profits.

Current Federal policy maintains the valuable

incentives associated with SFC, but reemphasizes

DOE’s research, development, and demonstration programs. The loan guarantee mechanism

offered by SFC significantly improves the probability of financial success for a developer and

probably will be necessary to ensure even a few

hundred thousand barrels per day of synfuels production by the early 1990’s. Several major risks

to synfuels investors remain, however. Cost overruns couId nuIlify any potential profits because

developers must base their product prices on the

market prices of competing fuels rather than on

synfuels production costs. It is also probable that

several first generation commercial-scale units

will function poorly, and rapid expansion of the

industry may thereby be delayed.

Since the SFC program appears to be attracting the capital needed to build and demonstrate

a series of first generation commercial-scale production units, cancellation of DOE’s programs

may not turn out to be particularly harmful to synfuels development if the first plants perform

well. However, cancellation of the demonstration program probably will mean that fewer technologies reach the stage where SFC support is

possible. Reemphasis of development programs

may also delay findings that would be useful in

fixing the technical problems that are likely to

arise in the first commercial-scale units. To hedge

against the possibility of poor operation delaying expansion, Congress may wish to support development programs intended to demonstrate the

technical feasibility of a variety of processes and

to gain basic knowledge of and experience with
10 ● Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

these processes. Although these demonstration

programs support second and third generation

processes, they will also provide engineering information that may be useful for correcting technical faults and reliability problems that may arise

in first generation plants.

Dealing With Other Effects

An important effect of increasing automobile

fuel efficiency is the potential for decreased automotive safety due to size and weight reduction.

There may also be major employment-related

side effects associated with the restructuring of

the auto industry and the accompanying accelerated rates of capital investment by the industry.

There are familiar policy instruments that can deal

with both of these effects. For the safety effects,

Congress can choose among safety standards for

new cars, educational programs, and support of

safety R&D. Employment effects may be eased

by minimizing plant relocations (through tax

breaks or direct assistance to the industry), or by

ameliorating the effects of employment reductions through aid to communities and affected

workers and other individuals.

potential environmental and worker-related

problems associated with synfuels development

are substantial, and there is cause for concern

about the adequacy of future regulation of the

synfuels industry. The Government can help to

assure that the private sector takes account of

these problems. Specific areas worthy of congressional attention include: the environmental research and regulatory programs of the Environmental Protection Agency (EPA), DOE, the Office

of Surface Mining, and the Occupational Safety

and Health Administration, in light of recent

budget cuts and changes in program direction;

the dismantling of DOE’s demonstration program

for synfuels technologies; and the progress of SFC

in demanding appropriate consideration of siting,

monitoring, pollution controls and occupational

safety as a condition for financial assistance. Congressional options range from holding oversight

hearings to increasing the resources of the environmental regulatory agencies and shifting their

program emphases by legislation.

To mitigate the socioeconomic effects on communities from synfuels development, Congress

may wish to consider several forms of growth

management assistance, including loan guarantees, grants, and technical assistance. Any new

Federal initiatives in this area will be complicated,

however, by continuing arguments about relative

responsibilities of Federal, State, and local governments and private industry. And new initiatives

need to be sensitive to the substantial differences

from location to location in the severity of impacts and the resources already available for mitigation.

OVERVIEW OF

Increased Automobile Fuel

Automobile fuel efficiency can

THE IMPORT REDUCTION OPTIONS

Efficiency Projections of Fuel Economy

be increased Future oil savings from increased automobile

through a variety of measures, including: fuel efficiency depend, first, on the magnitude

and character of future auto sales. In the past few

●

●

●

●

●

●

●

reductions in vehicle weight;

improvements in conventional engines,

transmissions, and lubricants;

better control of engine operating parameters;

new engine and transmission designs;

reduced aerodynamic drag;

improvements in accessories; and

decreases in rolling resistance.

years, consumer preferences for such fuel-economy-related characteristics as vehicle size and

performance have fluctuated while new car sales

have dropped significantly. Both the long-term

sales average and consumer preference for fuel

efficiency will be critical determinants of the rate

of penetration of fuel efficiency technology.

Second, in response to changing consumer

preferences and foreign competition, the rate of
Ch. I—Executive Summary • 11

change of vehicle technology has accelerated and

old rules about how long it takes to put a new

technology into place* are no longer valid. The

present rapid rate of replacement of capital equipment puts a great strain on the domestic auto industry. During the next several years, competitive

forces will push toward continued rapid technological change, but the financial weakness of the

domestic auto industry will pull toward slower

technological change. The strength of future foreign competition and consumer perceptions of

the future price and availability of gasoline and

diesel fuel, among other factors, will influence

the balance of these opposing forces, and, consequently, whether rapid increases in fuel efficiency

of domestically produced cars continue.

Third, the efficiency increases are not fully predictable. There can be discrepancies between test

resuIts and the results obtained in actual use.

Technical compromises that affect ultimate performance have to be made to allow better integration with existing equipment, easier and

cheaper production and assembly, and resistance

to extreme operating conditions and incorrect

maintenance procedures. Development problems are not always solved satisfactorily; such

problems could occur more frequently if technological change accelerates.

OTA developed projections (table 1) of plausible ranges of average new-car fuel economy

based on varying expectations of the relative demand for different-sized cars and the effectiveness

and rate of development and introduction of new

fuel-economy improvements. As reflected in

these projections, both technology and vehicle

size are critical factors for future fuel savings. Marketplace uncertainty is reflected even as early as

the 1985 projections—manufacturers’ plans and

the technology are already established, but the

*For example, previous assumptions were: 5 years to move from

initial production decision to introduction of a technology in a

model line; 5 to 10 years to diffuse the technology throughout the

new car fleet; and 10 to 15 years of production to pay for the investment. The estimate of 5 years to move from initial production decision to introduction may now be a bit too low, while increased

rate of change of vehicle technology would necessarily reduce the

other two estimates.

Table 1 .- Projected Average New-Car Fuel

Economy,a 1985.2000 (mpg)

1985 1990 1995 2000

No further shift towards smaller

cars beyond 1985 . . . . . . . . . . 30-34 36-45 39-5443-62

Moderate further shift to

smaller cars . . . . . . . . . . . . . . . 30-34 38-48 43-5951-70

Rapid shift to small cars . . . . . . 33-37 43-53 49-6558-78

aBased on EPA city/highway (55/45 percent) cycle. Each of the mileage ranges

(e g., 3034) reflects relative expectations of the performance and rate of development and deployment of new technologies. The lower value represents OTA’S

“low estimate” scenario, the upper value represents a “high estimate” scenario.

SOURCE: Office of Technology Assessment

Note on Table 1: Can We Do Better?

The projections in table 1 do not represent the teclmo/ogica/ limit

of what could be achieved in this century. The most efficient automobiles in each size class are likely to achieve considerably better

fuel economy than the average; for example, technologies are available that probably can allow a new-car fleet average of 60 mpg by the

mid-1990’s with the same mix of vehicle sizes as today’s and adequate

vehicle performance (compared with the table’s 1995 “same size mix”

projection of 39 to 54 mpg). This ignores consumer preferences for

vehic/e features that cor)f/ict with fuel economy maximization, however. By the same argument, the 1981 new-car fleet average COUM have

been 33 mpg if consumers had consistently chosen the most efficient

vehicle in each of the nine EPA size classes and producers had been

able to meet the demand. Instead, the actual 1981 model average to

January 1981 was 25 mpg.

Interestingly enough, if consumers had chosen only the most fuelefficient gasoline-powered automobiles in each size class, over 90

percent of the vehicles would have been U, S.-manufactured cars or

captive imports. The market problems of U.S. manufacturers in 1981

cannot be traced primarily to an inability of U.S. manufacturers to produce fuel-efficient cars, but depend on factors such as differences

in perceived value between American and imported automobiles.

The difference between average fuel efficiency, which is a function of consumer preference, and potential fuel efficiency, which

assumes that every car in the fleet embodies the most fuel-efficient

choice of technologies available, is critical to understanding why

OTA’S projections may differ from other projections that apply a single choice of technologies to the entire fleet. The latter assumption

is realistic only if future consumers value fuel economy, relative to

other automobile attributes, much higher than they do today.

projections still range from 30 to 37 mpg* (compared to the 1981 level of 25 mpg).

How much fuel can be saved by improved fuel

economy? Assuming 30 mpg as a base and using

the projections in table 1, continued developments in automobile fuel efficiency could save

0.6 to 1.3 MMB/D of oil by 2000. The lower

value represents pessimistic expectations about

the advance of automobile technology and the

shift towards smaller cars; the higher value represents optimistic technological expectations and

continued substantial shifts to small cars. Contin-

* Based on a weighted average of 55 percent EPA city test cycle

and 45 percent EPA highway cycle, the formula used to measure

compliance with currently mandated CAFE requirements.
12 ● Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

ued diffusion of these technologies into the

overall fleet could save 0.8 to 1.7 MMB/D by

2010 with no further technological advances beyond 2000. *

costs

OTA’s cost analysis of auto fuel-efficiency improvements concentrates on investment costs in

total dollars as well as dollars per barrel per day

of oil saved. Estimates of the costs for associated

technology and product development are included in the investment costs,** because they

are part of the normal outlays needed to put any

new vehicle in production and represent a sizable

fraction of the fixed costs (i.e., costs independent

of production levels).

It is not possible to make highly accurate estimates of the investment costs (per barrel per day

of oil saved), due to the uncertainty associated

with predicting actual efficiency increases that

will be achieved. In addition, the cost of developing technologies to the point where they can be

reliably mass-produced has been highly variable

and is difficult to predict.

Accurate cost estimation also is complicated by

the difficuIty of separating the cost of increasing

fuel efficiency from the other costs of doing business. Increases in fuel efficiency are inextricably

intertwined with other changes in the car. For example, the engine redesign for fuel efficiency may

incorporate other changes, to improve other

automobile attributes, at little additional cost. Design changes that increase efficiency may improve

or degrade other attributes such as emissions or

performance.

If it is the industry’s judgment that consumers

do value fuel efficiency, the normal cycle of capital turnover and vehicle improvement would result in an increase in fuel efficiency automatically. Unfortunately, the “normal” rate of fuel efficiency increase is not really predictable because

*Assuming 1.26 trillion vehicle miles (automobile only) traveled

annually in 2000, 1.31 trillion in 2010, and an on-the-road fuel efficiency 10 percent less than EPA rated fuel efficiency.

**In this context, development means all of the engineering activities needed to prove a design concept and determine how it can

best be integrated into the vehicle system and mass-produced.

it depends on marketplace preferences and corporate strategies.

Because of the difficulty of separating out the

marginal fuel efficiency investments from the

“normal” investments, OTA’s investment cost

estimates (in dollars per barrel per day) in table

2 are the total investments (including development costs) allocated to increasing fuel efficiency, divided by the total fuel savings rate expected.

(See footnote c of table 2 for the details of the

cost al location.) These investment rates may be

somewhat lower than the marginal rates would

be because, in designing their “normal” investment programs, manufacturers probably will select those investments with the highest potential

payoff in efficiency increase per dollars spent.

In any case, the range of investment rates for

increased fuel efficiency for each time period

overlap the rates for investments in synfuels plants

(see Synthetic Fuel section below), although the

1985-90 fuel-efficiency rates would be lower than

the synfuels rates if widespread expectations for

overruns in early synfuels investments are proved

correct,

The total domestic capital investment associated with increased fuel efficiency would be

about $25 billion to $70 billion between 1985 and

2000, or less than $2 billion to $5 billion annually during the period. This level of investment

can be compared with recent and projected capital investment by the industry* remembering that

part of the fuel-efficiency investment could be included in “normal” capital expenditures if consumer demand for fuel efficiency is high enough.

For the period 1968-77, annual capital investment

by General Motors (GM), Ford, and Chrysler averaged $6.68 billion in constant 1980 dollars. Investments by these companies rose to $10.4 billion in 1979 and $10.8 billion in 1980, and are

projected by some analysts to rise to $12 billion

per year during 1980-84. The ability of the

domestic industry to maintain their expected

schedule of capital expenditures is dependent on

*The two sets of figures are not fully analogous. A portion of the

domestic industry’s costs are for overseas investments, while a portion of the 1985-2000 fuel efficiency costs will be borne by outside

suppliers rather than the major manufacturers.
Ch. I—Executive Summary ● 1 3

Table 2.—Domestica Investment for Increased Fuel Efficiency

Total investment

Car sales New-car fuel Efficiency investment (billion 1980$

Time (mill ion/yr) efficiency (mpg)b

(thousand 1980 $/bbl/day) during time period)

1985-1990 . . . . . . . . . . . . . . . . . . . . . . . . . 8.6 38-48 20-60 8-29

1990-1995 . . . . . . . . . . . . . . . . . . . . . . . . . 8.8 43-59 60-140 9-20

1995-2000 . . . . . . . . . . . . . . . . . . . . . . . . . 9.1 51-70 50-150 7-18

aASSUrneS 75 percent of all cars sold are manufactured domestically.

bFleet average m~les per gallon at end of time period, with moderate shift in demand to W?’ Idler cars,

CRepresents costs allocated t. fuel efficiency, including associated development costs of 40 percent of capital spending. lnVW3tm(3nt WaS allocated in the fOliOWing

way: 50 percent of the total engine investment is assumed to be for fuel efficiency; 75 percent of the total investment for conventional transmissions is for fuel efficiency; and all of the investment for advanced materials substitution, automatic engine on/off, and energy storage devices is for fuel efficiency.

dlncludes all capital costs associated with fuel efficiency, including fraction allocated tO other attributes, but excluding development costs,

SOURCE: Office of Technology Assessment.

a resumption of their former levels of sales and

profitability. There are already signs that U.S. auto

manufacturers are beginning to cut back on

planned investments in the face of continued

poor sales and declining cash reserves.

If consumer demand for fuel efficiency is consistently strong, domestic manufacturers are likely

to respond by at least incorporating into their

“normal” * rate of capital turnover as many fuelefficiency features as possible. if capital turnover

is limited to its historical “normal” rates, then the

fuel efficiencies shown in table 1 could still be

achieved, but it would take longer to implement

the changes than is indicated by the schedules

shown in that table. In particular, implementation of the low scenario could require 25 percent

longer (relative to 1985) than the schedule in

table 1; and the high scenarios could require 45

percent longer. Whether the high or the low scenario is eventually achieved, however, also depends on the success of technical developments.

If demand for fuel efficiency were high enough,

however, the manufacturers would increase their

redesign/replacement rates. By adding $5 billion

to $10 billion in capital expenditures during

1985-2000, or $0.3 billion to $0.7 billion per year

(5 to 10 percent above “normal”), capital turnover can be speeded up to allow the low scenarios to be achieved on the schedule in table 1.

Similarly, if technology developments are successful, the high scenario could be achieved as

shown in table 1 with capital expenditures of $9

*Assuming “normal” capital turnover is: engines improved after

6 years, on average, redesigned after 12 years; transmissions same

as engines; body redesigned every 7.5 years; no advanced-materials

substitution.

billion to $23 billion above “normal” during the

period 1985-2000, or $0.6 billion to $1.5 billion

per year (10 to 20 percent above “normal”).

If future demand for fuel efficiency is not high

enough to support these rates of change, increases in fuel efficiency will be further delayed

unless required by new CAFE standards. On the

other hand, CAFE standards without analogously

high consumer demand for efficiency would require the manufacturers to either defer expenditures for other improvements that might help car

sales or to incur additional capital costs.

The consumer costs of increased fuel efficiency, measured in dollars per gallon of gasoline

saved, are speculative because the variable costs

—mostly material and labor costs—are even more

difficult than investment costs to determine accurately. OTA’s analysis is based on alternative assumptions about the degree of change in material

and labor costs. A direct calculation of these costs

would have been expensive and the results difficult to defend because the source data is proprietary and highly dependent on judgments about

the success of adapting technologies to mass production. Table 3 shows the range of costs attributed to fuel efficiency assuming that consumers

value future gasoline savings as highly as today’s

savings (i.e., without discounting future savings*)

and that manufacturers pass through the full

costs. Conceivably, foreign competition could

force the manufacturers to absorb part of these

costs.

*The cost perceived by consumers would be about 2.5 times as

high as those shown if the consumer discounts future fuel savings

at 25 percent per year, i.e., each future year’s savings during the

life of the car is valued at 25 percent less than the previous year’s

savings.
14 . Increased Autobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

Table 3.—Consumer Costs for Increased Automobile Fuel Efficiency, Without

Discounting Future Fuel Savings, Moderate Shift to Smaller Cars

Average new-car fuel Consumer costa ($/gal saved)

efficiency at end of No variable cost High variable

Time period time period (mpg) increase cost b increase

1985-1990 . . . . . . . . . . . . . . . . . . . . 38-48 0.15-0.40 0.40-1.10

1990-1995 . . . . . . . . . . . . . . . . . . . . 43-59 0.35-0.85 1.10-2.60

1995-2000 . . . . . . . . . . . . . . . . . . . . 51-70 0.30-0.95 0.90-2.80

aA~~Urn~~ a ~aPltal recovew factor per year of 0,15 times the capital investment allocated to fuel efficiency

bAssumes variable cost increas~ IS twice the capital charges associated with the capital investments allocated tO fuel efficiency.

SOURCE: Office of Technology Assessment.

The consumer costs of fuel efficiency range

from values that are easily competitive with today’s gasoline prices to values that are considerably higher, depending on the efficiency gains

actually achieved, the success of developing production techniques that can hold down variable

cost increases, and the value consumers place

on future fuel savings. Investments for increased

efficiency for the 1990-2000 model years will look

particularly risky if the current soft petroleum

market continues for a few more years, or if auto

manufacturers have difficuIty holding down their

labor and materials costs.

Another important measure of the cost to consumers of increased fuel efficiency is the increase

in the price of new cars required to recover the

industry’s increased production costs. If the

market demand for fuel efficiency is strong

enough to ensure that as much as possible of the

capital investment for fuel efficiency increases is

incorporated into the normal capital turnover,

and if the variable costs of production can be held

constant, then the cost* of achieving OTA’s fuelefficiency scenarios can be as low as $60 to $130

per car during the 1985-2000 time period. Under

these conditions, an average of 35 to 45 mpg

could be achieved by 1990 without increasing

new-car costs.

If actual market demand for fuel efficiency is

not this high, automakers would be unlikely to

incorporate a very high level of fuel efficiency investments into their normal capital turnover. Also,

the variable costs of production are likely to rise

somewhat. The “upper bound” for added costs

—assuming large increases in variable costs and

*Assumes a capital recovery factor of 0.15.

no market-driven investment for fuel efficiency

increases beyond 1985—is $800 to $2,300 per car

during the 1985-2000 period, and $250 to $500

per car to achieve 35 to 45 mpg by 1990. Therefore, the cost per car of increased fuel efficiency

beyond 1985 ranges from “clearly competitive”

to “probably unacceptable. ”

Economic Impacts

The domestic automobile industry is in the

midst of a massive investment program aimed at

improving the competitiveness of American automobiles. These expenditures are associated with

important structural changes in the industry; and

accelerating the rate of capital turnover (for increased fuel efficiency or other reasons) may accelerate some of these trends.

Manufacturers are closing older, inefficient

plants and building new ones that incorporate

extensive use of robots and other labor-saving

technology to increase productivity. For a number of reasons, including lower labor and other

costs, many of the new facilities may be built in

the Nation’s Sun Belt or overseas rather than in

the current North-Central auto manufacturing

centers, although recent labor concessions may

change this picture. Because of a shift in U.S. demand to smaller cars, which can be marketed

more universally, the incentive to produce in the

United States is diminishing. Finally, because rapid capital turnover is raising production costs at

a time when consumer demand for automobiles

has been sluggish, manufacturer profits have

diminished and it has become harder for the firms

to secure capital at affordable costs.

American companies are forging more extensive ties with foreign manufacturers to design,
Ch. l—Executive Summary ● 1 5

produce, and market fuel-efficient cars, and are

moving towards producing more nearly standardized automobiles that can compete in international markets. Current trends seem to be toward fewer separate automotive manufacturing and supply

firms worldwide; only GM and Ford appear to

be reasonably certain of remaining predominantly American-owned.

Certain regions such as the industrial Midwest

—and the Nation as a whole—will lose jobs if

these structural changes continue. Job losses also

would occur, however, if the process is interrupted, because the restructuring represents the

industry’s response to the conditions that caused

its present market problems, and it clearly is

aimed at regaining sales.

Social Impacts

As auto manufacturing and supply activities become more efficient and automated, there will

be important changes in the workplace environment. Robots and other automated equipment

will increasingly be used for the more routine and

dangerous jobs, and skilled workers such as engineers and maintenance technicians should become a greater percentage of the smaller total

work force. Shifting manufacturing overseas will

reduce U.S. employment in primary manufacturing as well as in supplier companies. Although

employment losses may be larger in the supplier

industries, the effects in these industries will be

distributed over a larger geographical area. Employment in related activities such as repair and

service will change to accommodate the new

auto characteristics—e.g., repairs of plastic body

components require adhesives, not welding—and

the increasing sophistication and capital investment required for vehicle maintenance will place

new demands on shops and dealers.

Fuel efficiency increases also affect automobile

owners by changing the physical attributes of the

vehicle and the economics of owning cars. For

example, a continued reduction in car size could

lead to increasing use of rentals for longer trips

or for occasional requirements for increased cargo-carrying capacity. Increases in the initial cost

of buying a car are likely to lead to a continuation of current trends of keeping cars longer,

resulting in a slower growth or reduction in newcar sales.

Environment, Health, and Safety

Increasing automobile fuel efficiency appears

likely to have a relatively benign effect on the natural environment and public health, because

most of the efficiency measures have few adverse

effects on auto emissions, emissions associated

with vehicle manufacturing, etc. An important exception may be any shift to widespread use of

diesel engines, which could cause problems with

vehicle particulate and nitrogen oxide (NOX)

emissions. Also, the increased production of lightweight materials—particularly aluminum—may

cause additional impacts, such as increased

energy consumption in processing and increased

demand for bauxite. On the other hand, significant downsizing of automobiles could allow either lower vehicle emissions or lower control

costs to maintain current emission levels.

In contrast to their expected small effect on pollution levels, fuel conservation measures that

stress reducing vehicle size may have a significant adverse effect on vehicle safety. This is because of the important role in crash survival

played by “crush space”* and other size- and

weight-related factors. Even a relatively small decline in vehicle safety could cause hundreds or

even thousands of additional deaths and serious

injuries per year.

There is no widely accepted estimate of the

magnitude of this effect. The National Highway

Traffic Safety Administration has projected a

10,000 per year increase in traffic deaths from

vehicle size reductions by 1990, but this is based

on a limited data set and a number of simplifying

assumptions. And a net increase in traffic deaths

is not inevitable, since increased usage of passenger restraints and improvements in vehicle design

could more than offset the effect of moderate size

reductions.

*With a smaller “crush space” (thus, more rapid deceJerat;on

of occupants in a crash), factors such as seatbelt and shoulder restraint usage, better driver training and traffic control, and other

safety measures, become more important determinants of traffic

safety.
16 ● Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

Synthetic Fuels

Production of a variety of fossil fuel-based synthetic fuels is planned or under development.

● Oil shale can be heated to release a liquid

hydrocarbon material contained in the shale.

After further upgrading a synthetic crude oil

similar to high-quality natural crude oil can be

produced. This can be refined into gasoline,

diesel and jet fuels, fuel oils, and other products.

● Coal can be partially burned in the presence

of steam to produce a so-called “synthesis” gas

of carbon monoxide and hydrogen, from

which gasoline, methanol, diesel and jet fuel,

and other liquid fuel products (“indirect liquefaction”) or synthetic natural gas (SNG) can

be produced.

● Coal also can be reacted directly with hydrogen (which is itself generated from a reaction

of steam and coal) to produce a synthetic

crude oil (“direct liquefaction”). This oil can

be converted to gasoline, jet fuel and other

products in specially equipped refineries.

Projection of Synfuels Development

The principal technical deterrent to rapid deployment of a synfuels industry is the lack of proven commercial-scale synfuels processes in the

United States. Shale oil, indirect coal liquefaction,

and SNG processes currently are sufficiently developed that the demonstration of commercialscale process units or modules is being pursued,

but these first units are likely to require considerable modification before they can operate satisfactorily. Once these commercial-scale modules

have been adequately demonstrated, full-size

commercial facilities can be constructed (from

several modules). in contrast, direct coal liquefaction requires further development before commercialization and probably will not contribute

significantly to the synfuels industry before the

mid to late 1990’s. A major technical obstacle,

the handling of high levels of solids in the process streams, is not now understood well enough

to allow developers to move directly to commercial- from small-scale units now in operation.

Normal planning, permitting, and construction

may take 7 to 8 years for a large synfuels plant,

with the last 5 years or so devoted to construction. Consequently, a first round of commercialscale plants conceivably could be operating by

the late 1980’s, although these would be quite

vulnerable to delays and cost overruns. Beginning

a second round of construction before the first

set of plants has been fully demonstrated would

risk additional costly revisions and delays.

In addition to scheduling constraints caused by

technological readiness, shortages of experienced

manpower (primarily chemical engineers and

project managers) could constrain the pace of

synfuels development. On the other hand, problems stemming from shortages of skilled craftsmen, construction materials, or specialized

equipment probably can be averted because of

the long Ieadtime before they are needed in large

numbers. However, some metals needed for certain steel alloys are obtained almost exclusively

from foreign sources.

Many variables affect the rate of development,

and predictions are extremely speculative. It is

OTA’s judgment that under favorable circumstances, fossil fuel-based production of synthetic

transportation fuels could be 0.3 to 0.7 MMB/D

by 1990, growing to 1 to 5 MMB/D by 2000,

depending on the success of the first round of

synfuels plants and the fraction of those plants

that produce transportation fuels as opposed to

fuel gases or fuel oils. Achievement of 0.3 MMB/D

by 1990 assumes that a sizable commercialization program, such as that being pursued by the

Synthetic Fuels Corp., is carried out, but that

technical problems limit total production; 0.7

MMB/D would require an increased number of

plant commitments within the next year or so,

a virtually complete emphasis on liquid transportation fuels, and a high level of technical success

with the first plants.

It must be stressed that even the “low” 0.3

MMB/D production level maybe considered as

optimistic in light of current expectations of at

least short-term stability in oil prices, as well as

remaining technical and environmental uncertainties. In addition, the dismantling of DOE’s

demonstration program may increase the perceived and actual technological risks of synfuels
Ch. l—Executive Summary ● 1 7

development. Thus, the goals of the National

Synfuels Production Program, created by Congress in 1980—0.5 MMB/D by 1987 and 2

MMB/D by 1992—appear unattainable without

a crash program that would involve extraordinary technical and economic risks and extensive Government intervention.

costs

The costs of synfuels are uncertain. First, the

factors that limit rapid deployment of the industry

also affect its costs. Technical uncertainties complicate cost evaluation, and long shakedown

times and potential construction delays would be

very expensive at prevailing interest rates. Second, synfuels’ relatively high capital costs mean

that their total costs are especially sensitive to the

type of financing used, the level of interest rates,

and the rate of return required by the investors.

The present high level of uncertainty in capital

markets therefore translates into a high level of

cost uncertainty. In addition, the long construction times associated with synfuels plants make

them vulnerable to hyperinflation. *

OTA has projected synthetic fuel costs based

on the best available cost estimates in the public

literature and OTA’s previous oil shale study.1

These sources indicate that, if the potential for

cost overruns is not considered, the capital investment (in 1980 dollars) for a 50,000 bbl/d (rated

capacity) synthetic fuels plant will range from $2.1

billion to $3.3 billion, or $47,000 to $73,000/bbl/d

of production (assuming the pIant produces at

90 percent of rated daily capacity). Total plant

investments for a 5 MMB/D synfuels industry

would thus be about $250 billion to $400 billion.

Based on past experience, however, there is a

very high probability that final costs will be

greater than these ranges.

For example, an extrapolation from recent cost

overruns in the chemical industry widens the single plant (50,000 bbl/d) range to $2.3 billion to

“Hyperinflation in construction costs of major capital projects

is a relatively recent phenomenon, however, and some industry

analysts consider it a temporary aberration.

1 U.S. Congress, Office of Technology Assessment, An Assessment

of Oi/ Sha/e Technologies, OTA-M-1 18 (Washington, D. C.: U.S.

Government Printing Office, June 1980).

$4.7 billion (excluding direct liquefaction, for

which cost estimates are less reliable), or about

$50,000 to $110,000/bbl/d. Other related investments (e.g., coal mining) raise the total to $50,000

to $125,000/bbl/d. The investment costs per barrel per day of production may be further inflated

by performance levels below the 90-percent design factor, although presumably this will be a

problem only with first generation plants.

The actual selling price of synthetic fuels will

be determined in the marketplace by the prices

of competing fuels regardless of the costs of production. Using the projected synfuels production

costs, however, OTA calculated the price that

service stations would have to charge in order

for the synfuels producer to attain a required return on investment. Table 4 displays these

“prices” for a few alternative combinations of financing and real* return on investment.

Based on these estimates, it is clear that companies that must bear the full investment burden

of a new synfuels plant are unlikely to invest in

synthetic fuels production unless: 1) they view

this investment as one of low risk and worthy

of a low expected return on investment, 2) they

expect fuel prices to rise very sharply in the future, or 3) they are willing to take a loss or low

return to secure an early market share. The first

alternative is not credible for the first generation of commercial plants.

With the large (75 percent of project costs)

loan guarantees that are possible under the En-

*The real rate of return is the nominal rate of return minus the

inflation rate.

Table 4.—Price of Synthetic Fuels Required To

Sustain Production Costsa (1980 $/gal of

gasoline equivalent)

Real return

Price (pretax) Financing equity investment

$0.80-$1 .10... 100% equity 50/0

$1.30-$1.60, . . 1000/0 equity 10%0

$1.70-$2 .40... 100% equity 15 ”/0

$0.80-$ 1.10... 25°/0 equity, 75°/0 debt 10 ”/0

aA~~umPtiOns: no cost Overruns, $1 .20/million Btu coal, 5 percent real interest

rate on debt financing, $.20/gallon distribution cost including retailer profit. For

more details, see ch. 8, table

SOURCE: Office of Technology Assessment.
18 . Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

ergy Security Act, * however, investments in synthetic fuels appear to be attractive even at 1981

fuel prices, but only if current capital cost estimates for synfuels plants are correct and there

are no cost overruns. Most industry experts,

however, consider the chances of substantial

cost overruns to be high. A cost overrun in plant

investment of so percent would increase the necessary price of synfuels by 20 to 30 percent, or

else reduce the return on investment.

OTA’s cost analysis implies that significant levels of investment in synfuels production are unlikely at this time without the kinds of financial

incentives offered by SFC. Of course, a further—

and currently unexpected—rapid escalation in oil

prices could change this conclusion.

Uncertainties associated with the cost estimates

are too large to allow in-depth comparison of the

costs of the various synfuels. Also, in OTA’s opinion, significant reduction of these uncertainties

cannot be achieved by further study but will require actual plant construction. There are indications, however, that shale oil and methanol

from coal could be the least expensive options

for producing transportation fuels. Shale oil

plants are less complex technically than other

synfuels processes and shale oil is relatively easy

to refine, thereby suggesting a lower cost. Methanol’s high octane and burning characteristics

make it more efficient than gasoline in specially

designed engines. But materials-handling problems for oil shale, engine technology developments that could offset methanol’s efficiency advantage, and unforeseen requirements for process changes could negate these apparent advantages.

Economic Impacts

Development of a fossil fuel-based synthetic

fuels industry could create a major new economic

activity in the United States, particularly in areas

with large reserves of coal or oil shale. There are

potential drawbacks, though. For example, be-

*The loan guarantees not only allow synfuels developers to borrow money at somewhat lower interest rates than without them,

but the 75 percent debt level is considerably higher than the industry average of about 30 percent. Also, in some cases, the loan

guarantee may be necessary to secure any debt capital at all.

cause of synfuel plants’ long lifetimes and construction Ieadtimes, a liquid fuel supply industry

based largely on synfuels would be less able than

a natural petroleum-based industry to respond

quickly to changing market conditions. Rapid

synfuels deployment would create a risk that unforeseen market changes could leave the United

States with an outdated, idle, capital-intensive

industry.

Development of the industry will have other

important consequences. For instance, because

of the large capital, technical and marketing requirements, and the high risks, small companies

are unlikely to enter the market except as parts

of consortia. This contrasts sharply with the large

number of small-scale producers currently involved in oil and gas development, although

ownership concentration in the oil and gas industry will grow in any case as the more easily recovered resources are depleted.

Rapid deployment of a synfuels industry could

lead to temporary shortages of equipment, materials, and personnel, which in turn can lead to

construction bottlenecks and local inflation.

However, long-term inflationary effects are not

expected to be large because, in general, the

Ieadtime is sufficient to expand production capacity and labor supply. An important exception may

be the supply of experienced chemical engineers

and project managers. If shortages of these personnel develop, poor project management or improper plant design could lengthen construction

schedules, delay plant startup, and increase costs

for chemical plants and oil refineries as well as

synfuels plants.

The financial requirements for rapid growth are

very large. For example, the rate of investment

required to achieve 5 MMB/D of synfuels by 2000

is likely to be greater than $30 billion per year*

after the first few years, about as much capital

as was spent for all U.S. oil and gas exploration

and development in 1979. Making this large a

commitment to synfuels would likely divert some

investment capital away from conventional oil

and gas exploration and development; and this

*OTA’S analysis of reducing stationary uses of fuel oil was done

primarily to provide a reference point and was less extensive than

its analysis of synfuels and increased automotive fuel efficiency.
Ch. 1—Executive Summary ● 1 9

could reduce conventional domestic oil production below the 7 MMB/D assumed for 2000.

Social Impacts

The principal social consequences of developing a synthetic fuels industry stem from shifting

large numbers of workers and their families in and

out of local areas as development proceeds.

These population shifts disproportionately affect

small, rural communities such as those that predominate in the oil shale and some of the coal

areas. High population growth rates can lead to

disruptions and breakdowns in social institutions;

systems for planning, managing, and financing

public services; local business activities; and labor, capital, and housing markets. Whether the

growth rates can be accommodated depends on

both community factors (e.g., size, location, tax

base, management skills, and availability of developable land), and technology-related factors

(e.g., the type of synfuels facilities, the timing of

development, and labor requirements).

On the other hand, communities should realize

social benefits from synfuels development, e.g.,

increased wages and profits and an expanding

tax base. A significant portion of these benefits

may not be realized, however, until after the plant

is built. In the meantime, the community must

make significant expenditures and the overall impact depends substantially on the existence of effective mechanisms to provide the “front end”

resources needed to cope with rapid growth.

Environment, Health, and Safety

The production of large quantities (2 MMB/D

or more) of liquid synthetic fuels carries a significant risk of adverse environmental and occupational health effects, some of which are quite dependent on the effectiveness of as yet unproven

control measures.

The industry will cause many of the same kinds

of mining, air quality, solid waste disposal, water

use, and population effects as are now associated

with coal-fired electric power generation and

other forms of conventional coal combustion.

Table 5 shows the amount of new coal-fired power generation that would produce the same effects as a 50,000-bbl/d coal-based synthetic fuels

plant, and also directly compares the effects of

this plant with a 3,000-MWe coal-fired powerplant. In general, the emissions of combustionrelated pollutants, especially the acid rain precursors sulfur dioxide (SO2

) and NOX, and the

water use of the synfuels plant are significantly

lower than for a powerplant processing the

same amount of coal.

To place these effects into perspective, actual

coal-fired generating capacity in the United States

is about 220,000 megawatts (MW), and about

200,000 MW are expected to be added by 1995.

In comparison, SO2 and NOX emissions from a

2 MMB/D coal-based synfuels industry would be

equivalent to emissions from less than 25,000

MW of power generation, and water use would

be equivalent to that of 30,000 MW or less if conservation practices were followed.

On the other hand, a 2-MMB/D industry

(equivalent in coal consumption to 110,000 to

160,000 MW of coal-fired electric generating

capacity) would mine hundreds of millions of

tons of coal each year, with attendant impacts

on acid drainage, reclamation, subsidence and

occupational health and safety, and would have

substantial population-related impacts such as

severe recreational and hunting pressures on

fragile Western ecosystems.

Oil shale development using aboveground retorts has the added problem of disposing of large

quantities of spent shale. Although successful

short-term stabilization of shale piles has been

achieved on a small scale, uncertainty remains

about the long-term effects of full-scale development. The major concern about shale disposal

as well as in-situ shale processing is the potential for contamination of ground waters.

Despite the relatively moderate level of emissions per unit of production, an intense concentration of synfuels development within relatively small areas may yield air quality problems and

violations of existing air quality regulations. Such

concentration is more likely with oil shale, because of the concentrated resource base. As a

result, air quality restrictions may limit oil shale

development to under 1 MMB/D unless there are

changes in the restrictions or improvements in
20 c Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

Table 5.—Two Comparisons of the Environmental Impacts of Coal-Based

Synfuels Production and Coal-Fired Electric Generationa

A. Coal-fired generating

capacity that would

produce the same B. Side-by-side comparison of

impact as a 50,000 bbl/d environmental impact parameters

coal-based synfuels 3,000 MW(e) 50,000 bbl/d

Type of impact plant (MW(e)) generator synfuels Units

Annual coal use . . . . . . . . . . . . . . 2,500 -3,600b6.4-15.0 5.3-17.9 million tons/yr

Annual solid waste . . . . . . . . . . . (2,500-3,600)±C

0.9-2.0+ 0.6-1 .8+ million tons/yr

Annual water use: acre-ft/yr

Current industry estimate. . . . 640-1,300 25,000 5,400-10,800

Conservation case . . . . . . . . . . 400-700 3,400-5,900

Annual emissions: tons/yr

Particulate. . . . . . . . . . . . . . . . 120-2,800 2,700 100-2,500

Sulfur oxides . . . . . . . . . . . . . . 90-500 27,000-108,000 1,600-9,900

Nitrogen oxides . . . . . . . . . . . . 60-300 63,000 1,600-7,800

Hourly emissions: Ib/hr

Particulate. . . . . . . . . . . . . . . . 90-2,200 880 30-800

Sulfur oxides . . . . . . . . . . . . . . 70-40 8,800-35,200 500-3,200

Nitrogen oxides . . . . . . . . . . . . 60-300 20,500 500-2,500

Peak labor . . . . . . . . . . . . . . . . . . . 4,100-8,000 2,550 3,500-6,800 persons

Operating labor . . . . . . . . . . . . . . 2,500 440 360 persons

a in example A the powerplant uses the same coal as the synfuels plant, new source performance standards (NSPS) aPPIY, SUlfUr oxide emissions assumed to be

0.6 lb/lOC Btu~ In B, NSPS aiso appiy but sulfur oxide emissions can range from 0.3-1.2 lb/104 Btu. In both cases, the synfuels piant parameters represent a range

of technologies, with a capacity factor of Xl percent and an efficiency range of 45 to 65 percent; the powerplant is a baseload plant, with a capacity factor of 70

percent, efficiency of 35 percent. The major data source for this table was M. A, Chartock, et al., Erw/rorrrnertta/ Issues of Syrrtfret/c Triwrsportatlorr Fue/s from Coa/:

8ac/rgrourrd Report University of Okiahoma Science and Public Policy Program, contractor report to OTA, July 1961.

b In other words, the amount of coal–and thus, the amount of mining–needed to fuel a 50,000 bblld synfuels plant iS the same as that required for a 2,500-3,600 MVV(e)

powerplant.

c A synfuels plant will have about as rllu’ti asfl to dispose of as a coal-fired powerplant using the same amount of COal. It may have 18SS scrubber sludge, but it maY

have to dispose of spent catalyst material that has no analog in the power plant thus the +.

SOURCE: Office of Technology Assessment.

control technology. In most cases, however, the

restrictions do not involve possible violations of

the health standards, but rather visibility or other

standards.

Aside from these effects, synfuels development

creates a potential for occupational, ecological,

and public health damage from the escape of

toxic substances formed during the conversion

processes. These include cancer-causing organic

compounds, chemically reduced sulfur and nitrogen compounds, and inorganic trace elements.

The occupational risks, generally acknowledged

as the most serious, are mainly associated with

“fugitive” emissions and leaks from valves, gaskets, etc., and with the handling of fuels and plant

cleaning. The major ecological and public health

risks are associated with contamination of surface

and ground waters—from inadequate treatment

of wastewaters, leakage from holding ponds or

solid-waste landfills, and disruption of aquifers by

mining operations—as well as with spills and exposure to contaminated fuels. Fugitive emissions

and leaks from the plants also pose some risk to

public health, but at a far lower level than to the

plant workers; a potentially important impact of

the public’s exposure to these substances, however, is likely to be discomfort from their odor.

The risks associated with these toxic substances, although possibly the most serious of synfuels’ potential environmental risks, are not quantifiable at this time. However, it does appear possible to differentiate, at least tentatively, among

some of the basic process groupings in terms of

their comparative risk. Direct processes (e.g.,

Exxon Donor-Solvent, SRC ll) appear to present

the greatest risk because of their comparatively

large number of potential sites for fugitive emissions, high production of toxic hydrocarbons, and

abrasive process streams. Indirect processes using

low-temperature gasifiers (such as Lurgi) maybe

intermediate in risk because they produce relatively large quantities of toxic hydrocarbons. Indirect processes using high-temperature gasifiers

(e.g., Koppers-Totzek, Shell, Texaco) appear to

be the cleanest group of coal-based processes.

Finally, if the risks from spent shale are excluded,
Ch. I—Executive Summary ● 21

the risks from toxics yielded by oil shale processes

probably are no worse than those of indirect,

high-temperature coal processes.

There is little doubt that it is technically feasible to moderate a synfuels industry’s adverse impacts to the satisfaction of most parties-of-interest.

in OTA’S judgment, however, despite substantial industry efforts to minimize adverse impacts, the environmental risks associated with

toxic substances generated by synthetic fuels

production are significant and warrant careful

Government attention.

Current development plans and existing legislation call for strong measures to reduce many of

the potential adverse environmental impacts from

synfuels plants through intensive application of

emission controls, water treatment devices, protective clothing for workers, monitoring for fugitive emissions, and other measures. Virtually all

of these measures have been adapted from controls used with some success in the petroleum

refining, petrochemical, coal-tar processing, and

electric power-generation industries. Synfuels industry spokesmen are confident that the planned

controls will adequately protect worker and public health and safety as well as the environment.

Spokesmen for labor and environmental organizations are far less confident, however, and

there remain important areas of doubt concerning the adequacy of environmental management.

The full range of synfuels impacts–especially

those associated with the toxic substances created

or released in the conversion processes—may not

be effectively regulated. Existing regulations do

not cover many of these toxic substances, and

extending regulatory controls to provide full coverage will be difficult. Critical stumbling blocks

are the large number of separate compounds that

must be controlled, and the recent reductions in

the budgets of Federal environmental agencies

and reemphasis of their synfuels research programs. Detecting synfuels environmental damages and tracing them to their sources—a key requirement in establishing and enforcing control

standards—may be difficult because many of the

damages will occur slowly and the relationship

between cause and effect is complex.

Another important concern is the possibility

that the industry’s environmental control efforts

may not be sufficient to avoid environmental surprises. Federal Government personnel are concerned that many developers are focusing their

control programs on meeting immediate regulatory requirements and are reluctant to commit

resources to studying and controlling currently

unregulated pollutants. Also, despite pollution

control engineers’ optimism that all synfuels

waste streams are amenable to adequate cleanup,

there are still doubts about the reliability of proposed control systems. These doubts are aggravated by differences in process conditions and

waste streams between synfuels plants and the

refineries, coke ovens, and other facilities from

which the proposed controls have been borrowed, and also by a lack of testing experience

with integrated control systems.

Water Availability for Synfuels Development

When aggregated nationally, water requirements for synfuels development are small (producing 2 MMB/D oil equivalent requires only

about 0.2 percent of estimated total current national freshwater consumption). Nevertheless,

these requirements may have significant impacts

on competing water uses. In each of the river

basins where major coal and oil shale resources

are located, there are hydrologic as well as

political, institutional, and legal constraints and

uncertainties involving water use (e.g., conflicts

over the use of Federal storage, Federal reserved

water rights including Indian water rights claims,

interstate and international compacts and treaties,

State water laws). In addition, existing water resource studies vary in the extent they consider

water availability factors and cumulative impacts.

Given the uncertainties that surround the question of water availability generally, only limited

conclusions about possible constraints on future

synfuels development can be drawn. This is especially true in areas where institutional rather than

market mechanisms play a dominant role in obtaining and transferring water rights. Where efficient markets do exist, however, water is not likely to constrain synfuels development because de-
22 “ Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

velopers can afford to pay a relatively high price

for water rights.

In the major Eastern river basins where coal

reserves are located (the Ohio, Tennessee, and

Upper Mississippi River Basins), water should be

adequate on the main rivers and large tributaries, without new storage, to support planned synfuels development. In the absence of appropriate

water planning and management, however, localized water shortages could arise during abnormally dry periods or from development on

smaller tributaries.

In the West, competition for water already exists and is expected to intensify with or without

synfuels development. In the coal-rich Upper

Missouri River Basin, the magnitude of the legal

and political uncertainties, together with the need

for major new water storage projects to averageout seasonal and yearly streamflow variations,

make it impossible to reach an unqualified conclusion as to the availability of water for synfuels development.

In the Upper Colorado River Basin, where

both oil shale and coal are located, water could

be made available to support initial synfuels development—as much as a few hundred thousand barrels per day of synfuels production by

1990—but political and legal uncertainties in the

basin make it difficult to determine which sources

would be used and the actual amount of water

that would be made available. Water availability after 1990 will depend both on how these uncertainties are resolved and on the expected continuing growth in other uses of water.

Reducing Stationary Uses of Oil

Stationary uses of oil include space heating and

cooling of buildings, electricity generation, production of industrial process heat, and use as a

chemical feedstock. These currently account for

nearly half of the oil used in the United States—

about 8.1 MMB/D out of a total of 16.8 MMB/D

in 1980. Of this, about 4.4 MMB/D are fuel oils—

middle distillates and residual oil. The remainder

include liquefied petroleum gas, asphalt, petroleum coke, refinery-still gas, and petrochemical

feedstocks.

Only reductions in the fuel oil portion of the

stationary oil uses are likely to lead to actual reductions in imports. The other oil products are

difficult to upgrade to premium fuels or use directly in transportation applications and, consequently, a reduction in their use probably would

have little effect on the supply of transportation

fuels. On the other hand, the crude oil fractions

normally used to produce residual and distillate

fuel oils can instead be converted profitably into

transportation fuels by refining.

Reductions in fuel oil use can be accomplished

by fuel switching and conservation. In the buildings sector, natural gas and electricity can replace

distillate oil, and insulation, furnace improvements, and other conservation measures can reduce fuel use in general. For utilities, conservation in all sectors that use electricity can reduce

generation requirements, coal and nuclear can

replace residual oil for baseload operation, and

natural gas can replace distillate oil in peaking

turbines. industrial oil use can be reduced by increases in process efficiency and fuel switching

to coal, * natural gas, and electricity.

Projection of Oil Savings

The Energy Information Administration projects

that the fuel oil consumed in stationary uses will

decline from today’s 4.4 MM B/D to 2.6 MM B/D

in 1990, assuming a 1990 price of $41/bbl of oil

(1979 dollars). This 2.6 MMB/D is the target for

further stationary use reduction OTA has assumed

for this study.**

OTA has evaluated two approaches to eliminating the remaining 2.6 MM B/D stationary fuel oil

use by 2000. One approach involves total reliance on fuel switching. Table 6 shows the energy

needed to displace the 2.6 MMB/D, substituting

coal for residual oil and natural gas and/or electricity for distillate oil.

*The Energy Information Administration has predicted that, by

1990, most of the industrial processes that can use coal (primarily

large boilers) will have been converted. Therefore, OTA’S calculations of post-1990 fuel-switching opportunities do not include coal

switching in the industrial sector.

* “If oil prices continue to decline in real dollars or stabilize at

current levels, 1990 stationary oil use is likely to be greater than

projected.
Ch. l—Executive Summary 23

Table 6.—Summary of Annual Energy Requirement To Displace

2.55 MMB/D of Stationary Fuel Oil Use

Oil Coal or Electricity replaced by (106 tons) Sector (M MB/D) plus (tfc) (10’ kWh)

Buildings . . . . . . . . . . 1.2 — 2.4 425

Industry . . . . . . . . . . . 0.3 — 0.6 120

Utilities. . . . . . . . . . . . 0.9 (resid.) 100 — —

0.15 (dist.) . . — 0.3 —

Total . . . . . . . . . . . . 2.55 100 3.3 545

SOURCE: Office of Technology Assessment.

The technical capability to accomplish this level

of switching depends on two factors. First, if natural gas is to play a major fuel-switching role, production of unconventional gas sources* will be

needed. A key to this is the future price of gas.

Second, production of additional electricity and

switching to coal in utility boilers depends primarily on the utility industry’s ability to solve its

current financial problems and gain access to capital. Either of these potential constraints could

severely restrict fuel switching.

A second approach combines fuel switching

with measures to conserve oil, natural gas, and

electricity. If conservation measures can save

enough natural gas and electricity to replace the

(reduced) oil requirement, additional gas and

electricity production may not be needed. An

analysis by the Solar Energy Research Institute

(SERI) indicates that conservation measures in the

buildings sector alone could save about 1.5 times

as much natural gas and electricity as would be

required to replace all remaining stationary uses

of distillate and residual fuel oil by 2000.** This

combined approach has fewer technical constraints than the “fuel switching only” approach.

In OTA’S judgment, a significant fraction of the

2.6 MMB/D of stationary fuel oil use expected

in 1990 can be eliminated by 2000 by conservation and fuel switching taken together.

Despite the lack of absolute constraints, however, it is unrealistic to expect total elimination

or near-elimination of stationary fuel oil uses by

2000. First, average capital costs are high enough

to discourage those investors who apply a high

*These sources include tight sands formations, geopressurized

methane, coal seam methane, and Devonian shale formations.

* *ASSuming that all such stationary uses are reduced by conservation as well.

discount rate to their investments. Second, the

site-specific variability and the large number of

different types of measures imply that some of

the individual measures will be far more expensive than the average. * Third, the record of oilto-coal switching in industry during the past decade has not been a good one despite apparently

favorable economic incentives. Finally, the continued reduction in supplies of high-quality

“light” crude may lead to excess supplies of

residual oil in the 1990’s, driving down its price

and making conversion from residual oil to coal

uneconomical in some cases. To a certain extent

the latter effect will be offset by the economic

attractiveness of retrofitting oil refineries to produce less low-priced residual oil and more gasoline, jet fuel, and diesel fuel.

costs

The investment costs for the two strategies for

reducing stationary oil uses are similar. OTA has

calculated the investment cost of the strategy that

relies mainly on fuel switching to be roughly $230

billion, or an average of $90,000/bbl/d of oil

saved. Using SERI’S cost analysis, the strategy that

combines strong conservation measures and replacement of the remaining oil use with electricity

and natural gas was calculated to cost roughly

$225 billion, or $88,000/bbl/d of oil saved. The

difference between the estimated costs for the

two strategies is too small to be meaningful.

Both the investment costs and the operating

costs paid by individual investors will vary over

an extremely wide range, This is particularly true

because the “strategies” are actually a combina-

*By the same reasoning, many will be less expensive than the

average.

98-281 0 - 82 - 3 : QL 3
——

24 ● /ncreased Automobile Fue/ Efficiency and Synthetic Fuels: Alternatives for Reducing oil Imports

tion of several markedly different kinds of investments. For example, conversion of oil-burning

utility boilers to coal has an average investment

cost of $74,000/bbl/d of oil replaced, whereas

conversion of distillate-using facilities to natural

gas averages $114,()()()/bbl/d (including the cost

of obtaining the new gas). Also, the costs of each

type of investment will vary from site to site.

Electric Vehicles*

Automobiles can be powered by rechargeable

batteries that drive an electric motor; indeed,

some of the first automobiles used battery-electric

powertrains. Present concepts of electric passenger vehicles generally envision small vehicles for

commuting or other limited mileage uses, with

recharging at night when electricity demand is

low.

Projections of Use

OTA does not expect electric cars to play a significant role in passenger transportation in this

century. Battery-electric cars are likely to be very

expensive, costing about $3,000 more in 1990

than comparable gasoline-fueled autos. And this

consumer investment may not yield any savings

in fuel costs. If batteries must be replaced every

10,000 miles, as required with current technology, total electricity plus battery costs will actually be considerably higher than gasoline costs

for a comparable conventional auto, even at

$2.00/gal gasoline prices (1980 dollars).

Another reason that OTA is not optimistic is that

progress in electric vehicles remains severely limited by battery performance. Currently available

batteries and components require 6 to 12 hours

for recharging and limit electric vehicles to a

range of less than 100 miles between charges. Acceleration is limited to about O to 30 mph in 10

seconds, which is lower than the poorest performing (O to 40 mph in 10 seconds) gasoline and

diesel fuel cars and may not be adequate for

many traffic conditions. Although predictions of

significant reductions in battery size and weight

2

See, Synthetic Fuels for Transportation: The Future Potential of

Electric and Hybrid Vehicles–Background Paper No. 1,

OTA-BP-E-13 (Washington, D. C.: U.S. Congress Office Of

Technology Assessment, April 1982).

continue, in OTA’S judgment current understanding of battery performance does not permit accurate predictions of future improvements.

Even if sufficient progress is made in battery development to encourage extensive usage of electric cars, electrification of automobile travel does

not offer the same potential for oil savings as

the other options. Under the best of circumstances, most electric passenger vehicles are likely to be small, limited-performance vehicles that

will substitute for small, fuel-efficient conventional autos. Consequently, a 20-percent electrification of the auto fleet is not likely to save

more than about 0.2 MMB/D. *

Environment, Health, and Safety

If technical developments, severe liquid fuel

shortages, and/or Government promotion were

to result in significant sales of electric vehicles,

the major environmental impacts probably would

be the air quality and other effects associated with

reducing auto emissions and increasing electricity

generation. The overall effects of widespread use

of electric vehicles on urban air quality should

be strongly positive, because the electric cars

would tend to be clustered in urban areas, many

of which have chronic automobile-related air

pollution problems that would be eased by the

displacement of conventional automobiles.

There would be, however, a small net increase

in regional and national emissions of SO2

, because conventional autos have few or no SO2

emissions to offset the SO2 emissions from fossilfueled electric power generation for battery recharging. Additionally, when coal is the fuel

source for recharge electricity, the amount of coal

mined per unit of oil replaced is comparable to

that for synfuels production,** with similar coal

mining impacts. Material requirements for batteries could add substantially to the demands for

certain minerals, e.g., lead, graphite, and lithium.

Electric passenger vehicles are likely to be

small and thus should share safety problems

*Assuming no oil is used for electricity production and the average gasoline- or diesel-powered vehicle replaced gets 60 mpg.

* *That is, 1 ton of coal yields the same oil savings in either technology.
Ch. I—Executive Summary ● 2 5 —

with small conventional automobiles. Additional dent-caused spill; this latter problem is balanced

safety and health problems may be caused by the somewhat by eliminating the fuel tank with its

batteries, which contain toxic chemicals that may highly flammable contents. Finally, extensive outpose occupational problems in manufacturing door charging of vehicle batteries may pose puband recycling and may be hazardous in an acci- Iic safety problems from the electrocution hazard.
s

o

Z
FIGURE

Figure No. Page

3. U.S. Petroleum Consumption, Domestic Production, and Imports . . . . . . . . 29
Chapter 2

Introduction

Petroleum has been at the heart of the Nation’s

efforts to secure its energy future since the 1973-

74 oil embargo. Petroleum products currently

supply about 40 percent of total U.S. energy

needs, and imports account for approximately 30

percent of total petroleum demand. The increases

in the price of imported crude that have occurred

since 1972—a barrel of imported crude that was

selling for $4.80 in 1972 was selling for $31.40

(both expressed in constant 1980 dollars) as of

February 1982–have severely strained the national economy by contributing to domestic inflation and trade deficits and by altering demand

patterns.

Instead of increasing gradually, petroleum

prices have gone up in two large, rapid jumps.

These price “shocks” have exacerbated strains

on the economy by preventing an orderly adjustment to higher fuel prices. Future price behavior

is also very uncertain and complicates economic

planning. Subsequent to decontrol of domestic

crude oil prices, a continued increase in the price

of oil was generally expected. The sharp drop in

demand, coupled with reemergence of Iran on

the world oil market, however, has created

downward pressure on oil prices. A substantial

drop in the real price of oil over the next few

years is quite possible.

This oil glut will not last indefinitely, however.

Indeed, importing nations will eventually again

face increasing competition for oil arising from

a combination of dwindling world supplies* and

increases in demand from both producing and

developing nations. This, in turn, will force oil

price increases with the possibility that they may

again come in the form of price shocks rather

than an orderly rise. Thus, the U.S. petroleum

problem is not simply that we import oil–indeed,

in a stable, economically rational world import-

*OTA estimates that non-Communist world oil production could

range from 45 to 60 MMB/D in 1990 and 40 to 60 MMB/D in 2000,

compared to 46 MM B/D in 1980. While an increase in world production is possible, it is more likely that production will remain

fairly stable or slightly decline. See World Petroleum Availability

19802000-A Technical Memorandum (Washington, D. C.: U.S.

Congress, Office of Technology Assessment, October 1980),

OTA-TM-E-5.

ing could be economically efficient-but that the

supply and price is subject to so much uncertainty

and dramatic change.

For 1981, the Nation’s imports of crude oil and

petroleum products averaged about 5.4 million

barrels per day (MMB/D), accounting for about

34 percent of total petroleum demand. These figures compare with 7.5 MMB/D of imports, about

41 percent of total petroleum demand, for 1980.

In fact, imports and demand have been on a

steady downward trend since their peak in 1978,

when imports of 8.2 MMB/D represented 44 percent of total demand (see fig. 3). The principal

cause of this downward trend in imports and their

share of total petroleum demand was the nearly

120-percent increase in the real price of crude

oil since 1978. If the trend were to continue, oil

imports could be eliminated by the end of the

century.

There is considerable disagreement, however,

on whether this trend can be maintained. The

current downward trend of prices as a result of

a soft market has already been noted. The principal focus of disagreement, however, is the adequacy of the Nation’s future domestic supply. The

current domestic production of crude oil and natural gas liquids is 10.2 MMB/D. Production of

these two liquids has been declining steadily since

Figure 3.—U.S. Petroleum Consumption,

Domestic Production, and Imports

c

 1 8

>

1 6

Consumption

Production

1973 1974 1975 1976 1977 1978 1979 1980 1981

Year

SOURCE: Energy Information Administration, U.S. Department of Energy.

29
30 . Increased Automobilr Fuel Efficiency and Synthetic Fuels; Alternatives for Reducing Oil Imports

Photo credit: U.S. Department of Energy

Oil tankers deliver most of the crude oil imported

to the United States

the peak year of 1970, when it reached 11.3

MMB/D, although the decline has slowed noticeably the last 3 years (see fig. 3). This, coupled with

the remarkable upsurge in drilling activity since

1979, has caused some forecasters to predict an

increase in production before the end of the century. In its most recent forecast, under a high

world oil price scenario, for example, the Energy

Information Administration of the Department of

Energy forecasts a production rate of 11.2

MMB/D of crude oil and natural gas liquids by

1995.1

Despite this increase in drilling and exploration

activity, as figure 3 shows, the effect of higher oil

prices to this point has been almost exclusively

in reducing demand, not increasing supply. In

addition, the Office of Technology Assessment

in a study, World Petroleum Availability:

79802000, did not find any evidence that a significant upturn in domestic production would

occur.2 In fact, OTA estimated a production rate

of 5 to 8 MMB/D by 1990 and 4 to 7 MMB/D by

2000. Exxon’s most recent energy outlook forecast domestic production of 7.1 MMB/D by 1990

and 7.8 MMB/D by 2000.3 Thus, production rate

1 Annual Report to Congress, 1980, vol. 3, DOE/EIA-01 73(80)/3,

Energy Information Administration, U.S. Department of Energy,

Washington, D. C., March 1981, p. 85.

2 World Petroleum Availability: 1980-2000-A Technical

Memorandum (Washington, D. C.: U.S. Congress, Office of

Technology Assessment, October 1980), OTA-TM-E-5.

3Energy Outlook: 1980-2000, Exxon Co., U. S. A., Houston, Tex.,

December 1980, p. 7.

estimates for the middle 1990’s differ by as much

as 7 MMB/D, an amount greater than current U.S.

imports.

In OTA’S judgment, the lower rates estimated

in its study are still valid and it would be imprudent to assume otherwise in planning for the

1990’s. The principal justification for these lower

rate estimates is not so much an actual decline

in total oil reserves as the increasing difficulty in

extracting the oil that is found. The rate at which

oil can be produced is declining because oil is

no longer being found in the very large oilfields

necessary to sustain or increase total production.

If domestic production does decline to 5 or 8

MMB/D by the mid-1990’s, demand will have to

decrease even faster than it has during the last

few years just to keep imports at their current level. It is possible to greatly reduce petroleum product demand by both fuel switching and increased

efficiency of use. This will require a substantial

investment, however, and it is not clear yet

whether it will be made. The current demand

response is a combination of shortrun elasticity

to the most recent price rise and the longer run

elasticity—involving turnover of capital stock—

to the 1973-74 price rise. Current forecasts of

energy demand all show a continued, but slower,

decline in petroleum demand for the rest of the

1980’s but a steadying during the 1990’s. In all

cases, substantial imports will be necessary in the

1990’s if the decline in domestic production assumed above takes place.

Faced with similar prospects after the 1973-74

oil embargo, Congress enacted a wide range of

legislation to encourage a reduction of the Nation’s dependence on oil imports. First, legislation was enacted to reduce petroleum demand.

Foremost among these initiatives was the establishment in the Energy Policy and Conservation

Act of the 1985 Corporate Average Fuel Efficiency (CAFE) standards for automobiles. More than

half of total U.S. petroleum demand is in the

transportation sector, which, in turn, uses about

half of its petroleum in passenger vehicles. Other

legislation to reduce petroleum demand included: 1 ) the Powerplant and Industrial Fuel Use

Act, whose provisions require large combustors

to convert from oil by 199o; and 2) systems of

tax credits and financial programs to encourage
Ch. 2—/ntroduction . 31

capital investments for energy conservation in industry and buildings. Finally, legislation was

passed to augment domestic supplies of petroleum substitutes through the production of synthetic fuels. The Energy Security Act of 1980 established the Synthetic Fuel Corp., with synfuel

production goals of 0.5 MMB/D in 1987 and 2.0

MMB/D by 1992.

The efficacy of this approach is now being reevaluated, not only because of the time limitations of the legislation, but also in light of the price

increases of 1979, which have caused the Nation

to reduce imports more quickly than originally

anticipated. The debate centers on whether the

Government should continue its approach of the

1975-80 period—and if so which path or paths

would be more effective-or whether the Nation

can depend primarily on the current high oil cost

—not entirely anticipated when the original legislation was passed–to reach an acceptably low

level of oil imports. Complicating current debate

is uncertainty about where oil prices will go in

the immediate future. A steady decline in real

prices over the next few years could substantially reduce market pressure toward increased conservation and development of alternative fuels,

with the result that the Nation will be that much

more economically vulnerable should there be

dramatic upsurges in prices later in the decade

or throughout the 1990’s. Further, no matter

which approach is preferable, general concern

exists about the side effects of the Nation’s movement to free itself from import dependence.

Of particular interest in the ongoing evaluation

of policy are the approaches directed at producing synthetic liquid fuels and at reducing petroleum consumption by automobiles. These are by

far the largest programs enacted by Congress,

both in terms of their costs and of their effects

on the economy.

In 1979, the Senate Committee on Commerce,

Science, and Transportation requested OTA to

assess and compare these two approaches to reducing oil imports. Because mandated increases

in CAFE standards were to end in 1985, the committee was interested in whether further standards would be more or less effective than the synfuels program in reducing oil imports. The large

increase in oil prices since 1979 and the response

to this increase have changed the environment

in which that request was made. As a result OTA

has broadened its study to consider how far and

fast automobile efficiency and synthetic fuels production can develop during the next 20 years,

and to evaluate the effects on and risks to the industries involved. Such an evaluation is particularly important for the automobile industry because of its current precarious state. No matter

what course the Nation chooses—continued regulation or more reliance on market mechanisms

—the industry may be in for continued difficulties

if the need for large capital investments continues

while demand for automobiles remains relatively low.

In addition to assessing the import reducing potential of synfuels and increases in automobile

fuel efficiency, this study also examines, although

in considerably less detail, the oil savings that

could be gained through fuel switching and conservation by stationary oil users. By combining

the three approaches, plausible development scenarios for reductions in oil consumption are derived, leading to estimates for oil imports over the

next 20 years.

The body of this report starts with an analysis

of policy options that: 1 ) could influence the rate

at which oil imports can be reduced or 2) affect

the consequences of changes needed to reduce

conventional oil consumption. The next chapter

presents the major issues and findings of the report, including a discussion of the cost of oil imports, comparisons between increased automobile fuel efficiency and synfuels, and analyses of

issues related solely to one or the other of these

options.

The remaining chapters of the report contain

the background analyses. Separate chapters on

increased automobile fuel efficiency, synfuels,

and stationary uses of petroleum present the technical and cost analyses for each. The final chapters analyze the economic and social effects and

environmental, health, and safety impacts associated with both increased automobile fuel efficiency and synfuels, as well as the availability of water

for synfuels development.
Chapter 3

Policy
Contents

Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Nation’s Ability To Displace Oil Imports. . . . . . . . . . . . . . . . . . . .

Rationale for a Direct Federal Role. . . . . . . . . . . . . . . . . . . . . . . . . . . .

Distinguishing Features of Increasing Automobile Fuel Efficiency and

Synthetic Fuels Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Factors Affecting the Rate of Automobile Fuel-Efficiency Increases

Automobile Fuel Efficiency-Policy Background. . . . . . . . . . . . . . . .

Factors Affecting the Rate of Synthetic Fuels Production . . . . . . . . .

Synthetic Fuels production–Poiicy Background . . . . . . . . . . . . . . . .

Policy Options. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

EconomyWide Taxation–Oil and Transportation Fuels . . . . . . . . . .

Economywide Taxation—Special Provisions . . . . . . . . . . . . . . . . . . .

Research and Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Trade Protection . . . . . . . . . . . . . . . . . + . . ? . . . . . . . . . . . . . . . . . . . .

Sector-Specific Demand Stimuli-Purchase Pricing Mechanisms . . .

Sector-Specific Supply Stimuli-Subsidies and Guarantees.. . . . . . .

Regulations on Output . . . . . . . . . . . . . .

Other Effects . . . . . . . . . . . . . . . . . . . . . .

Conclusions . . . . . . . . . . . . . . . . . . . . . . . . .

Appendix 3A.–Policy Options To Reduce

Appendix3B. –Additional CRS References

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. . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . .

Stationary Oil Use . . . . . .

. . . . . . . . . . . . . . . . . . . . . .

TABLES

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Page

35

35

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38

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41

42

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48

48

49

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52

55

56

60

62

63

Table No. Page

7. Distinguishing Features oflncreasing Automobile Fuel Efficiency

and Synfuels Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

8. Potential Average New-Car Fuel Efficiencyin 1995 . . . . . . . . . . . . . . . . . . . . . 56
Chapter 3

Policy

INTRODUCTION

Success of any efforts to reduce oil imports will

depend on many complex, unpredictable factors,

including world oil prices, the success of technological developments, consumer behavior,

general economic conditions, and–significantly

–Government policies and programs.

Government policy is vitally important, because energy inevitably affects, whether directly or indirectly, all production and consumption

decisions in an industrial society. How quickly

and to what level the Nation displaces oil imports

have direct implications for who benefits from,

and who pays the costs of, energy independence.

Such distributional questions arise regardless of

policy choices. Thus, the policy choices made by

Congress transcend a simple choice between intervention and nonintervention.

detailed discussion of policy options related to

fuel switching and conservation in stationary uses

of petroleum, and to biomass, the reader is referred to other OTA publications.1) The chapter

addresses the circumstances which might justify

direct Government intervention to displace oil

imports. The well-established auto industry and

the newly developing synfuels industry are then

described; and those economywide and sectorspecific characteristics which shape, direct, and

pace each industry’s ability to displace oil imports

are identified. A brief, recent history of Government policy towards each industry is also provided. Finally, the major policy options available

to Congress are discussed and evaluated based

on the characteristics of the industries.

This chapter describes the policy issues and options for increasing automobile fuel efficiency and

accelerating synthetic fuels development. (For a

‘Energy From Biological Processes, OTA-E- 124, July 1980; Residential Energy Conservation, OTA-E-92, July 1979; Dispersed Electric Energy Generation Systems, OTA, forthcoming; Energy Efficiency

of Buildings in Cities, OTA-E-168, March 1982.

THE NATION’S ABILITY TO DISPLACE OIL IMPORTS

The three principal means for displacing oil

imports-increased automobile fuel efficiency,

synfuels production, and fuel switching and conservation in stationary uses—can all make important contributions to the Nation’s energy future.

Legislation has recently been enacted in all three

areas to reduce conventional oil use, including

the Energy Policy and Conservation Act of 1975,

the Energy Security Act of 1980, the Fuel Use Act,

and various taxes and credits to encourage capital

investment for energy conservation in industries

and buildings. z Some progress in displacing imports can be expected as a result of these Government programs working in concert with market

forces.

OTA’S technical analysis, presented in this report, concludes that if Congress wishes to elimi2For details of recent legislation, see for example congressional

Quarterly, Inc., Energy Po/icy, 2d cd., March 1981.

nate net oil imports, significant accomplishment

in all three areas may in fact be necessary to

achieve this goal by 2000 if domestic production

falls from 10 million to 7 million barrels per day

(MMB/D) or less by 2000, as OTA expects.3 In

general, if there are no additional policies and

programs, if technology developments are only

partially successful, and if strong market forces

for import displacement do not materialize, the

United States can expect to import 4 to 5 MMB/D

or more by 2000 (see issue on “How Quickly Can

Oil Imports Be Reduced?” in ch. 4).

In the near future, Congress will face a number

of decisions about whether to increase efforts to

displace oil imports, and if so, at what speed imports should be displaced, Major decisions will

3 World Petroleum Availability: 1980-2000—A Technical

Memorandum, OTA-TM-E-5 (Washington, D. C.: U.S. Congress,

Office of Technology Assessment, October 1980).

35
36 “ Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

concern the two major programs enacted by

Congress: the setting of fuel efficiency (Corporate

Average Fuel Economy (CAFE)) standards beyond

the 1985 mandate for new cars sold in the United

States, and the provision of large subsidies to promote rapid development of the synfuels industry.

Such decisions will shape the future of both the

auto and synfuels industries. Whether new policy

initiatives are feasible, practical, and appropriate

cannot be determined until Congress specifies the

desired level and rate of import displacement. IS

the goal to “eliminate” or to “reduce” imports?*

IS this oil import displacement goal so vital to national interests that an emergency effort is required, regardless of any accompanying disruptions and dislocations?

Given the uncertainties, risks, and unpredictability associated with both the automobile fuelefficiency and synfuels options, it is difficult to

determine how far and in what direction present

policies and market forces will take the Nation.

OTA has not attempted to predict the detailed

outcomes of alternative policy futures, but rather

to demonstrate that the ability to displace oil depends on complex, interrelated factors, and to

demonstrate that the Government’s policy

choices—whether to implement additional policies or to “do nothing” —will make a difference

in the ability to achieve oil displacement goals.

Policies are also identified that could be effective if future Government action is necessary.**

OTA’S low estimate is that the average fleet fuel

efficiency for new cars could reach at least 40 to

so miles per gallon (mpg) by the early to mid1990’s and 45 to 60 mpg by 2000,*** based on

*“Elimination of oil imports” herein is assumed to mean the reduction of net oil imports to a level of about O to 1 MMB/D by 2000.

At this level, the “security premium” for oil—the difference between

the market price and full economic cost to the Nation of oil imports-would approach zero. This level of supplies could be procured primarily from the United Kingdom, Canada, and Mexico;

and foreign producers generally would be forced to compete for

markets. Because of the “security premium, ” policy decisions about

the value of displacing imports should not be based solely on the

international price of oil.

**An examination of Government policy related to the use of

petroleum in the stationary sector is beyond the scope of this report.

A summary of the major policy options for the stationary sector,

however, is found in app. 3A to this chapter.

***Earlier trends showing relatively strong demand for fuel economy have encouraged some domestic manufacturers to predict

new-car fuel economy averages of over 30 mpg by 1985 (the 1985

CAFE standard requires a fleet average of 27,5 mpg), while individual

vehicles already on the market exceed 45 mpg.

relatively pessimistic expectations about how

quickly improved automotive technology is deployed and purchased. Fleet fuel consumption

for passenger cars would be about 2.1 MMB/D

in 2000, for a cumulative savings of over 1 billion

barrels of oil between 1985 and 2000 (assuming

that the same proportion of large, medium, and

small cars are sold in 2000 as are expected to be

sold in 1985). The “high estimate” assumes that

technology development is both successful and

rapidly introduced into volume production. Average mpg ratings would be 55 to 65 mpg by 1995

and 60 to 80 mpg by 2000; and fleet fuel consumption for passenger cars could be as little as

1.3 MMB/D in 2000 for a cumulative savings of

over 4 billion barrels (relative to a 30-mpg fleet

and assuming a rapid shift to small cars).

However, the actual level of fuel consumption

will depend on market demand for fuel-efficient

cars and/or additional Government policies designed to facilitate either the manufacture or purchase of these cars. Although the low estimates

are believed to be achievable in the absence of

additional Government policies, they would be

contingent on consumer expectations that the

real price of gasoline will continue to increase.

The high estimates are unlikely to be achieved

in the absence of supporting Government policies

unless a strong and continuing consumer demand

for fuel efficiency is coupled with favorable technological progress.

OTA’S estimates for a low- and a high-development scenario for synthetic fuels production depend principally on the price of conventional oil

and the ease and rate with which synfuels processes are proven. A rapid buildup of the industry

could begin as early as the late 1980’s or as late

as the mid-l990’s, resulting in technically plausible production levels of fossil-synthetic transportation fuels of 0,3 to 0.7 MM B/D by 1990, 0.7 to

1.9 MMB/D by 1995, and 1 to 5 MMB/D by

2000. * In the absence of additional Government

policies, the lower estimates are probably attainable but are contingent on a Government-supported commercialization program that reduces

the high technical and associated financial risks

to private investors of first generation plants.

Without a successful commercialization program, even the low estimates are probably unat-

*These estimates exclude contributions from biomass.
Ch. 3—Policy ● 3 7

tainable. If there is a commercialization program,

synfuels production theoretically could reach the

high estimates without additional Government

programs if: 1 ) early commercial-scale demonstration units are built and work successfully, and

2) synfuels production becomes unambiguously

profitable. The maximum displacement of oil imports, however, would occur only if synfuels production concentrates on transportation fuels. it

is OTA’S judgment that, even with a commercialization program, the high estimates are likely to

be delayed by as much as a decade unless policies tantamount to energy “war mobilization” are

enacted.

Fuel switching and conservation of oil in stationary uses will also be extremely important for

displacing oil imports and would complement

both fuel-efficiency and synfuels efforts. Although

much of the potential for displacement could

probably be achieved by market forces by 2000

(under the high oil price scenario of the Energy

Information Administration (EIA)),4 additional policies to encourage fuel switching and conservation will likely be required to accelerate the

4Department of Energy, Energy Information Adminstration, Annual Report to Congress, vol. II 1, May 1982.

changes or completely eliminate stationary fuel

oil use. The level of displacement that can be obtained depends not only on future oil prices, but

on financing, regulation, and technical factors.

Efficiency increases in the various nonautomobile

transportation uses could also be significant.

Displacing oil imports is a necessary but not

a sufficient condition for achieving national

energy security. Such security translates into an

essential self-reliance, availability, affordability,

and sustainability of energy resources. Alternative

energy sources may present their own set of supply and/or distribution problems. Furthermore,

the relationship between the level of imports and

the level of insecurity is not proportional in an

obvious way. Even if the Nation could eliminate

all of its oil imports, U.S. energy security could

still be seriously affected if interruptions in world

oil supplies threatened international commitments with allies, imbalances in the world monetary system, and pressures on foreign exchange

markets. Thus, efforts to displace the Nation’s

most insecure oil resources—its imports-should

not divert attention away from ensuring the resilience of the alternatives chosen and thus the stability of both domestic and international energy

systems.

RATIONALE FOR A DIRECT FEDERAL ROLE

The basic rationale for direct Federal involvement in a market economy is that—in limited but

important areas— market prices and costs used

to evaluate returns on private investments do not

reflect the fuII value and cost of the investments

to society as a whole. National security and environmental protection are classic examples of values and costs that are not reflected in profit and

loss statements. Private calculation of profits also

causes market mechanisms to be most responsive to short-term economic forces as opposed

to long-term social and economic goals.

The three principal reasons for such market

“failures” are that: 1 ) some of the social benefits

are public and not private goods, 2) some of the

costs are not paid by the private sector, and

3) costs and benefits are not fully known. All three

situations arise in the context of displacing oil imports in general and of both increasing automobile fuel efficiency and producing synfuels in particular. The inability of the conventional marketplace to ensure the effective and rapid displacement of oil imports has major implications for the

Federal role, depending on the goals chosen and

the resources made available.

National security is a public good that has traditionally received Government support. National

energy security, promoted by the displacement

of oil imports, is an important component of overall security. Direct Government involvement

wouId thus be justified if market forces alone

were not believed capable of achieving the quantity and rate of oil displacement required by national security goals. The value to the Nation of
38 . Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

accelerating automobile fuel efficiency increases

and synfuels production would be in addition to

any private returns to investment.

Both increased automotive fuel efficiency and

synfuels production give rise to side effects and

tradeoffs; those who benefit from the investments

are not necessarily the ones who bear the full

costs. Side effects can fall on different sectors of

the economy, regions, or consumer groups depending on the investments chosen. In the case

of increased automobile fuel efficiency, the rationale for Government policy is that the activities

stimulated by market forces alone do not provide,

for example, adequate safety and employment

safeguards. There are other possible tradeoffs,

on the one hand, between improving the competitive position of the U.S. auto industry by

encouraging investments in increased auto fuel

efficiency, and, on the other hand, possible declines in auto-related employment levels (because

of increased automation, contraction of the domestic industry), increased consumer costs, and

decreased safety. With respect to synfuels, Government intervention could be similarly warranted if market decisions do not reflect environmental, health, safety, and other social concerns.

Both increased automobile fuel efficiency and

synfuels production are characterized by financial risks and uncertainties. If market forces alone

determine outputs, investments associated with

these alternatives might be delayed or canceled.

In such cases, the Government could choose

either to assume some of the risk or to help reduce components of uncertainty. The auto industry’s uncertainty focuses on unpredictable consumer demand for fuel-efficient cars, the long

Ieadtimes for investments, and, to a lesser degree,

on the rate of technological development. Synfuels production is subject to significant technological uncertainties and, in turn, financial risks.

Both the auto and synfuels industries are also affected by uncertain and as yet undetermined future Government policies.

DISTINGUISHING FEATURES OF INCREASING AUTOMOBILE FUEL

EFFICIENCY AND SYNTHETIC FUELS PRODUCTION

The major forces that will shape, direct, and

pace increases in automobile fuel efficiency and

synfuels production are summarized in table 7.

Identifying these forces may indicate both the

potential opportunities for and limitations of

Government policies in achieving a desired level

and rate of import displacement, and the appropriateness, practicality, and desirability of specific

policies or combinations of policies.

Although increased automobile fuel efficiency

and synfuels production share several attributes,

essential differences between them suggest that

there is no single role for Government policies

and programs. These two options should be

viewed as complementary measures for reducing oil imports. Each option has different implications for the rate of oil import displacement and

will give rise to different types of economic and

noneconomic impacts on the Nation. In addition,

within the uncertainty about investment costs

(per barrel per day oil equivalent (B/DOE) produced or saved), neither increased automobile

fuel efficiency nor synfuels production appears

to have an overall unambiguous enconomic advantage over the other. For this reason, the nonmonetary and often nonquantifiable differences

between these options will be the principal

means for distinguishing between them for policymaking purposes.

The factors that determine the rate of fuel

switching and conservation in stationary applications will share some common elements with

automobile fuel efficiency increases and synfuels

production. The success of fuel switching will depend critically on the efficiency of stationary

energy uses, the technologies for producing

natural gas from unconventional sources, the supply and future price of conventional natural gas,

and the ability of the utility industry to solve its

current financial problems. in the absence of

mandated conservation or performance standards, conservation measures will depend primar-
Ch. 3—Poicy Ž 39

Table 7.—Distinguishing Features of Increasing Automobile Fuel Efficiency and Synfuels Production

Increasing automobile fuel efficiency Synfuels production

1. Both near- and long-term restructuring of an existing

industry

2. Dominated by a few large, mature companies

3. Automobiles as consumer durables; differentiable;

deferrable

4. New technology involved, but can proceed incrementally; associated risks are an ongoing feature of

industry

5. Industry must produce competitive products each

year, including fuel-efficient cars

6. Precariousness of industry’s current financial position; need to ease readjustment of an industry in

distress

7. Large demand uncertainty

8. Dispersion of industrial activities, domestically and,

increasingly, internationally; some concentration of

activities in the North-Central region of the United

States

9. Capital intensity and associated risks

10. Declining profit margins in domestic industry

11. Significance of international competition (i.e., auto imports); importance of domestic market to financial

viability

12. Large amounts of capital continually required for

redesign, retooling, etc.; final costs for improved fuel

efficiency uncertain; calculation of capital costs for

fuel economy dependent on methods for cost

allocation

13. Can make significant contributions to reducing U.S.

oil imports; contributions have a long Ieadtime but

can have significance incrementally

14. Caters to a saturated market; focus on product

replacement rather than growth markets

15. Consumer costs are investment to reduce future fuel

purchases

16. Reduces consumption of fuel

17. Fuel savings in automobiles limited to about 3.5

MMB/D with about 1.5 MMB/D savings coming from

achieving a 30-mpg fleet

18. Principal health impact may be increased auto deaths

due to smaller cars

1. Growth and promotion of a new industry

2. Likely to be dominated by a few large, mature

companies

3. Synfuels as uniform, consumable commodities

4. Large technical risks; possibilities for “white

elephants, ” major risk occurs with first commercialscale demonstration plants

5.

6.

7.

8.

9.

10.

11.

12.

13.

14.

15.

16.

17.

18.

Sponsoring industry is involved in a breadth of activities that provides alternative investment and business

opportunities, of which synfuels is one

Soundness of sponsoring industry’s current financial

position; need to facilitate growth

No unusual demand risk except insofar as synfuels

differ from conventional fuels

Dispersion of activities among coal regions; current

oil shale activity concentrated in a small area of the

West

Capital intensity and associated risks

Potential for profit still highly uncertain

Long-term export potential; importance of international competition (i.e., oil imports) in terms of

establishing the marginal price

Large amounts of capital required primarily in the initial construction phase; final costs for synfuels production uncertain

Can make significant contributions to reducing U.S.

oil imports; contributions have a long Ieadtime and

will not be significant until commercialization

Caters to a slowly growing or possibly declining

market

No investment needed by consumer; consumer pays

incrementally for each increment of consumption

Substitutes one fuel for another

Fuel-replacement potential ultimately limited by demand for synfuels, environmental impacts of synfuels

plants, and coal and oil shale reserves

Environmental and health impacts from: large-scale

mining of coal and oil shale; possible escape of toxic

substances from synfuels reactors (major risks are

direct worker exposures, contamination of ground

water); visibility degradation; development pressures

on fragile, arid ecosystems

SOURCE: Office of Technology Assessment.

ily on investor behavior. Although there are few investments. Both fuel switching and conservatechnical constraints, there are technical uncer- tion are difficult to put into practice because the

tainties about the conservation potential of build- measures are varied, site-specific, and in some

ings and the success of particular conservation cases costly.

98-2 B 1 3 - 82 - 4 : QL, 3
40 ● /ncreased Automobile Fue/ Efficiency and Synthetic Fuels: Alternatives for Reducing oil Imports

Factors Affecting the Rate of

Automobile Fuel= Efficiency Increases

In order to be internationally competitive, the

domestic automobile industry is currently undergoing major structural adjustments. 5 This readjustment is the consequence of two interrelated

forces. First, the domestic industry is undergoing

a long-term restructuring that is being experienced by auto manufacturers worldwide. Resource pressures and a trend towards small, fuelefficient, and standardized “world cars” have resulted in a period of corporate consolidation, with

firms being more closely tied by joint design and/

or production ventures, and a geographic dispersion of product assembly. Secondly, U.S. auto

manufacturers are uniquely faced with a series

of short-term problems that arise because they

have historically served a market that demanded

large, relatively fuel-inefficient cars. U.S. manufacturers have been the principal producers (and

promoters) of large cars and have historically

earned their greatest profit margins on these cars.

The strains placed on the domestic industry,

as it redesigns its products and retools its facilities

for fuel efficiency in the near and midterm,6 are

the forces that could most appropriately be targeted and eased by Government policies. In addition, because of the size and dispersion of the

U.S. auto industry throughout the national economy, maintaining the health of the industry and

minimizing the side effects on both upstream activities (e.g., dealers, suppliers), and downstream

activities (e.g., consumers) are of potentially great

Government concern.

Some aspects of the domestic industry’s shortterm readjustment problems are caused by economywide factors such as rising energy prices, tight

credit, and high interest rates. These factors have

affected both manufacturers—by making capital

scarce and expensive—and consumers, who

(with approximately two-thirds of all purchases

historically being on credit) are deferring purchases.

The market changes associated with high gasoline prices and the threat of gasoline shortages

experienced in the 1970’s have shown that consumer demand is the most powerful influence on

the rate and manner of fuel-efficiency increases.

However, the prices consumers will pay, and the

tradeoffs consumers will accept in vehicle attributes—of which fuel efficiency is only one—are

highly uncertain and ambiguous. For example,

in the mid-1 970’s, and again in 1980-81, the proportion of relatively small cars purchased to large

cars purchased decreased. * Furthermore, consumers did not consistently buy the most fuelefficient car in a given size class. The ability of

the industry to sell cars is made additionally difficult because there has been a steady slowing in

the total demand for automobiles due to stagnant

per capita disposable income and a general aging

of the population, implying that the industry is

mainly serving a domestic replacement rather

than growth market. And at the same time, imports have captured an increasing share of the

domestic market.

The need to make large investments under conditions of uncertain demand for fuel efficiency

and slowing overall demand for automobiles, aggravated by economywide stresses, is the most

significant contributor to the financially precarious position now facing the domestic auto industry. Losses to U.S. auto manufacturers exceeded

$4 billion in 1980. As sales have decreased, profits have declined, and the industry’s longstanding

ability to reinvest with internally generated funds

has decreased. Because the industry is capital-intensive, any underutilization of capacity also implies large costs. Large amounts of outside capital will be required to retool for increasing fuel

economy. If companies are forced to cut back

on their capital investment programs in the near

term (as some are doing), they will not only forestall fuel-efficiency improvements but may also

become increasingly vulnerable to foreign competition. 7

In adjusting to this, U.S. manufacturers face a

series of complex decisions. Domestic manufacs~ee ~lso us. /nduStrja/ Competitiveness-A Comparison ofstee(

Electronics, and Automobiks, OTA-ISC-135 (Washington, D. C.: U.S.

Congress, Office of Technology Assessment, July 1981).

K3ee General Accounting Office, “Producing More Fuel-Efficient

Automobiles: A Costly Proposition,” CED-82-14, Jan. 19, 1982.

*These data include both domestically produced and imported

cars.

7U. S. Industrial Competitiveness, op. cit.
Ch. 3—Policy ● 4 1

turers’ weak competitive position is primarily due

to high production costs relative to foreign producers and consumers’ perceptions of value in

domestic v. imported cars, that are difficult to

quantify. If a strong demand for fuel efficiency

develops, rapidly increasing the fuel efficiency of

domestic automobiles could help to sell them.

Demand for fuel efficiency, however, is usually

accompanied by a shift in demand to smaller

cars, the market area where U.S. manufacturers

have been least competitive with imports. This

shift would therefore also require that domestic

manufacturers devote some of their investments

to changes unrelated or only partially related to

fuel efficiency. Corporate strategy, the way complex investment decisions are handled, overall

demand for new cars, and the demand for fuel

efficiency vis-a-vis other attributes of automobiles

will all interact in a complex way to affect the actual rate at which fuel efficiency increases.

Technological uncertainties will also figure in

determining fuel efficiencies actually achieved.

These uncertainties relate to the behavior of various elements of the vehicle system, the way in

which these elements are integrated and possible performance tradeoffs among elements, and

the cost of specific manufacturing techniques.

The rate of product and process development,

and particularly the success of the development

efforts (by no means assured) will influence the

extent of fuel-efficiency increases. Basic research

could lead to additional fuel economy gains by

providing a better understanding of some of the

complex processes related to fuel consumption

(e.g., nonsteady-state combustion).

The single most important factor limiting the

development of electric vehicles (EVS) is battery

technology. Even if EVS were to become practical, however, they would not have the potential

to displace significant amounts of imported oil,

primarily because they would be substitutes for

the most fuel-efficient gasoline or diesel-powered

cars. The Government could justify accelerating

the development and introduction of EVS if the

goal is to reduce automobile pollution in the

inner cities or to promote a transportation mode

that does not use petroleum. EVS are petroleum

independent except insofar as electricity is generated from oil.

Automobile Fuel Efficiency—

Policy Background

The industry has been regulated by Government policies and programs primarily since the

1960’s. Worker and public health and safety aspects are regulated by the Environmental Protection Agency (EPA) and the Occupational Safety

and Health Administration; product safety and

emissions by the National Highway Traffic Safety Administration (N HTSA) and EPA. Auto sales

are affected by all policies that influence consumer demand. In the aftermath of the 1973-74 oil

embargo, the Government became actively interested in promoting automobile fuel efficiency,

and legislation was subsequently enacted to reduce U.S. dependence on oil imports.

Policy for increasing automobile fuel efficiency is embodied principally in two programs. * The

principal policy instrument for increasing fuel efficiency was established by the 1975 Energy Policy

and Conservation Act (EPCA) and specifies CAFE

(i.e., fleet) standards for new cars and light trucks

between the model years 1978 and 1985. Provisions of the CAFE program have generally tried

to recognize the financial difficulties of the auto

industry. CAFE standards mandate that new-car

fuel efficiency will double, incrementally, between the early 1970’s and the mid-1980’s.

(American-made cars had averaged about 14 mpg

over the period 1965-75; the 1985 CAFE standards require fleet averages of 27.5 mpg and are

to remain in force after 1985.**) Subsequent provisions in the Fuel Efficiency Act of 1980 eased

the compliance requirements of the CAFE program, but the basic efficiency standards remain

in force. Possible alteration of the standards set

by the program for post-1 985 could be a major

policy issue coming before Congress.

a The sources ancJ magnitude of these cost advantages are not well

understood. Understanding the nature of any cost advantages enjoyed by competitors will be critical for determining how, when,

and if U.S. manufacturers can get their cost structure into line, See

U.S. Industrial Competitiveness, op. cit., pp. 96-99.

*A third program was enactment of the 55-mph speed limit.

**The Energy Policy and Conservation Act provided guidelines

for the Department of Transportation to set standards for the early

1980’s; Congress set standards for 1978 and 1985.
42 . /ncreased Automobjile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing oil Imports

The second major program, part of the 1978

National Energy Act, establishes excise taxes for

purchases of automobiles with low fuel-economy

ratings beginning in the model year 1980. Current “gas-guzzler” taxes range from $200 for cars

rated at 14 to 15 mpg in model year 1980 up to

$3,850 for specialty cars rated under 12.5 mpg

beginning in model year 1986. Such taxes raised

only $1.7 million in fiscal 1980.9

OTA’S analysis indicates large uncertainties in

both economic and noneconomic costs of fueleconomy increases. OTA has also identified uncertainties in demand for fuel-efficient cars as

critical to increasing fuel efficiency. These uncertainties, together with the desire of domestic manufacturers to serve a wide variety of consumer

tastes with a limited level of capital investment,

are mainly responsible for the industry’s reluctance to accelerate the development and introduction of fuel-efficiency increases. Until fuel efficiency is a–or perhaps the–major selling point

for new car buyers, this reluctance, understandably, is likely to continue.

Factors Affecting the Rate of

Synthetic Fuels Production

Unlike increasing automobile fuel efficiency,

which may entail restructuring a major existing

U.S. industry, production of synthetic fuels involves the emergence of a major new industry. *

The costs and therefore the profitability of producing synfuels are influenced by major uncertainties that both characterize the economy as

a whole and are specific to the synfuels industry.

At the economywide level, factors such as the

price of oil, the cost of capital, inflation in general

and hyperinflation in the construction industries,

‘Congress rejected 60 proposals to tax purchases of inefficient

new cars and 19 proposals to raise gasoline taxes between 1973

and 1977. In 1977, President Carter proposed a stringent “gas

guzzler” tax keyed to CAFE standards which included a rebate program for purchases of especially efficient cars (which Congress decided would violate the General Agreement on Tariffs and Trade—or

GAIT). When the current excise taxes were enacted, critics argued

that they would save only 10,000 bbl/d of imported oil, while the

Carter proposal, with higher taxes applied to more vehicles, was

estimated to be able to save 170,000 bbl/d (New York Times, Dec.

10, 1978).

*The liquid and gaseous fuel industry may also undergo a restructuring, however. Synfuels development will tie up capital in considerably larger blocks and for longer periods than historically experienced by the industry. A concentration of ownership is also likely.

and the availability of appropriate labor and materials will determine the financial risks that must

be assumed by investors. Like the auto industry,

the synfuels industry is capital-intensive. A moderately sized (50,000 B/DOE) fossil synfuels plant

could require an investment of $2 billion to $5

billion; the industry’s growth and ability to attract

capital will thus be highly sensitive to the investment climate.

The major constraint on the development of

a synfuels industry is the technical uncertainty

associated with synfuels processes. There is essentially no domestic commercial experience with

synfuels processes, and processes and design

concepts have not yet been adequately demonstrated at a commercial scale. It is thus conceivable that design errors and unexpected operational problems could delay construction or

cause a completed facility to be inefficient, even

a “white elephant” operating at only a fraction

of its capacity or at greatly higher cost than anticipated. As with any capital-intensive industry,

there are high costs associated with the underutilization of capacity.

Synfuels production will bean attractive investment if investors view the technical risks as being

low (i.e., commercial-scale demonstration units

are successful) and they expect oil prices to rise

sharply in the future, or if they want to secure

an early market share in case synfuels do become

competitive with the oil market. Unless oil prices

rise more rapidly than synfuel construction costs,

however, synfuels plants may not be economically attractive even after the processes are proven

and the technical risk is small.

Synthetic Fuels Production—

Policy Background

Congress created the National Synfuels Production Program (NSPP) under the Energy Security

Act of 1980 (ESA) to promote the rapid development of a major synfuels production capability.

Specific goals are set for 500,000 B/DOE by 1987

and 2 MMB/DOE by 1992.10

0IOsynthetic substitutes for petroleum and natural gas are the focus

of the NSPP; other programs support development of synthetic fuels

from biomass. Biomass subsidy options have been reviewed in detail in the Ot%ce of Technology Assessment’s Energy From Bio/ogica/

Processes. For the NSPP definition of synfuels see Public Law 96294,

sec. 112 (17) (A).
Ch. 3—Policy ● 4 3

In the first of three phases, the Department of

Energy (DOE) was authorized to offer financial

incentives for the production of alternative or synthetic fuels. The original authorizing legislation

(Public Law 96-1 26) made about $2.2 billion available, mainly for purchase commitments or price

guarantees pursuant to the provisions of the Federal Nonnuclear Research and Development Act

of 1974; total funds were subsequently increased

to approximately $5.5 billion. ’ 11

ESA created the Synthetic Fuels Corp. (SFC) in

the second phase as a quasi-investment bank, to

provide incentives to promote private ownership

and operation of synfuels projects. SFC is backed

by funds deposited in a special Energy Security

Reserve in the U.S. Treasury and to be used for

financial assistance in the form of: 1 ) price guarantees, purchase agreements, and loan guarantees; 2) direct loans; and 3) support to joint ventures. ” The governing board of SFC can decide

11This figure does not include an additional $1.27 billion that has

been made available for biomass energy, including alcohol fuels

and energy from municipal waste. For further details on this legislation, see Public Law 96-294, Public Law 96-304, and the CRS issue

brief (No. MB70245) “Synthetic Fuels Corporation, Policy and Technology,” by Paul Rothberg.

During the interim program, DOE awarded, in a first “round,”

$200 million of these funds, half each for feasibility studies and for

cooperative agreements. Of the first $200 million, approximately

two-fifths, or $80 million were for biomass projects, while the remainder went to synfuels activities. DOE has in past years also provided support for a variety of research and demonstration activities

to support synfuels development.

DOE originally planned a second “round” of awards for feasibility

studies and cooperative agreements, but at the request of the

Reagan administration the $300 million authorized for these awards

was rescinded as an economy measure.

*ln its guidelines to investors, SFC indicates that it strongly favors

price guarantees, purchase agreements, and loan guarantees, which

emphasize “contingent liabilities. ” The cost to the Government

of such aid varies with the success of the assisted projects; it is minimized when projects produce synfuels that can be priced competitively with other fuels. To prevent overconcentrating funds, SFC

can give no project or person more than 15 percent of its authorized

funds, which is about $3 billion during its early years (1981-84).

In the case of loan guarantees, SFC cannot assume a financial liability

for more than 75 percent of the initial estimated cost of the project, requiring the assisted company or companies to risk a sizable

amount of their own funds. Although there are broad guidelines,

the terms of each award will be negotiated separately with project

sponsors.

None of the contingent liability incentives available to SFC can

exceed the amounts held for SFC in the U.S. Treasury; that is, SFC

cannot “leverage” its funds by guaranteeing loans in excess of its

actual reserves. In the period since the passage of the synfuels legislation, estimates of the cost of commercial-scale synfuels plants have

continued to increase; therefore, unless investors are willing to

negotiate guarantees for smaller percentages of project costs than

allowed by legislation, the amount of synfuels produced by the subsidy program may be much smaller than originally anticipated.

which DOE projects it will take over once the

board becomes fully operational. Total funds

authorized for SFC are approximately $17 billion

through June 30, 1984.12

The third phase of the NSPP is to begin in mid1984, at which time Congress may appropriate

an additional $68 billion on the basis of a comprehensive synfuels development strategy to be

submitted by the SFC board. SFC is scheduled

to lose the authority to make awards in 1992 and

to be terminated in 1997. Some revision of NSPP

dates, goals, and/or financing may have to be

made if the production of synfuels falls short of

the original NSPP goals—as is expected. In OTA’S

judgment, Congress is unlikely to have sufficient

information by 1984 about the technical aspects

of synfuels processes to be able to make longterm synfuels decisions.

SFC has received continued political support,

and the administration is committed to ensuring

the development of a commercial synfuels industry, as announced in its A Plan for Economic

Recovery (February 1981 ). In addition DOE has

committed about 50 percent of its approximately $5.5 billion, and provisional commitments have

been made to two projects. *

Reflecting a recent major policy change however, Government support is now to emphasize

long-range, high-risk research and development

(R&D) activities that are unlikely to receive private

sponsorship. This shift is likely to have different

effects on the two main types of synfuels projects:

1) projects designed to test and demonstrate akernative design concepts, learn more about the details of the processes involved, and gain operating

experience (demonstration plants); and 2) projects designed to demonstrate commercial-scale

process units (CSPUs).

Demonstration plants are generally smaller

than commercial-scale plants and are not intended to earn a profit. Under the new policies,

DOE programs to support demonstration plants

ISynthetic Fuels corp,, “Assisting the Development of Synthetic

Fuels,” p. 1. The $17-bilIion figure is an approximation. SFC is

authorized to spend up to $2o billion, but the money obligated

in the interim program is to be subtracted from the larger figure.

*These are a loan guarantee of up to $1.5 billion to the Great

Plains Coal Gasification plant in North Dakota and an as yet unnegotiated assistance agreement with the Union Oil Co, oil shale

project (product purchase guarantee).
. .

44 . Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

are being terminated, but these projects presumably can apply to SFC for support.

If CSPUs can be made to operate properly, several such units might be built and operated in

parallel in a commercial synfuels plant. Because

the process unit is intended to be part of a commercial synfuels plant, support for CSPU demonstrations continues to be available through SFC,

under the new administration policies.

Termination of DOE support may lead to cancellation of several demonstration plants, since

they must now compete against more developed

technologies for SFC support. * This would result

in a poorer understanding of various synfuels

processes and a narrower range of technology

options available to potential investors. It could

also reduce the prospects for commercializing

plants capable of producing fuels from a variety

of coals found in different regions of the coun-

*Apparently as a result of reduced Government interest in directly

promoting synfuels, three projects previously supported by DOE

have been canceled (SRC 11 and two high-Btu gasification projects,

the Illinois Coal Gasification Project and the CONOCO Project in

Noble County, Ohio). Four additional demonstration projects are

continuing with reduced levels of DOE support and their futures

are in doubt: H-Coal, EDS, Memphis Medium-Btu, and SRC 1. At

least one upcoming project, not yet at the demonstration stage,

has also been canceled in light of recent developments (a Iow-Btu

Combustion Engineering project).

try.13 Finally, processes with the greatest immediate (i.e., not necessarily long-term) commercial

promise are likely to be favored by SFC in order

to meet production targets. *

Although every commercial-scale process will

have gone through a demonstration plant stage,

the design of the CSPU will also be based on numerous other sources of relevant information.

Terminating demonstration plant projects will reduce this pool of information, thereby increasing the risks that CSPUS will not function properly

and reducing the design options for correcting

malfunctions. Development of promising longer

term synfuels processes may also be delayed or

overlooked entirely. For these reasons, it is OTA’S

judgment that DOE’s termination of support for

demonstration plants is likely to reduce the rate

at which a synfuels industry is built.

1 JSee paul Roth berg, ‘‘Coal Gasification and Liquefaction, ” CRS

issue brief No. IB77105, Aug. 12, 1981.

*Legislation calls for SFC to consider a wide range of alternative

synfuels technologies in order to broaden industry’s experience with

the technical and economic characteristics of many processes. This

requirement may conflict with the mandate to meet production

targets—targets that already appear unrealistic.

POLICY OPTIONS

This section evaluates the major policy options

available for displacing oil imports generally and

specifically for stimulating auto fuel-efficiency increases and synthetic fuels production. The evaluation is based on the industry characteristics so

far discussed and on the technical analysis which

appears later in this report. In particular, the impacts of several policy options that have recently received congressional attention are estimated.

Note, however, that policies are not discussed

in the context of emergency oil shortfalls.

The policy choices available to Congress differ along several key dimensions: 1) the rate and

degree of oil import displacement; 2) the degree

and specificity of Government intervention and

budgetary effects; 3) the types, magnitude, and

distribution of benefits and costs; 4) implications

for the long-term, sustainable, and competitive

health of the affected industries; 5) the relationship of the choices to other Government programs; and 6) the feasibility of future actions. The

selection of policy instruments and resulting
Ch. 3—Policy 45

tradeoffs will reflect the priority ascribed to each

dimension. Policies can generally be designed either as incentives or penalties, incentives more

closely approximating the conventional marketplace. Policies can be directed at either economywide or sector-specific measures.

Economywide Level.–’’Economywide” policy

choices are concerned with overall economic

and business conditions—as measured by such

indicators as inflation, unemployment, and interest rates—that determine the financial health, investment climate, and productive capabilities of

U.S. industries. Fiscal and monetary policies are

the primary instruments in this category; other

measures could promote innovation, regulatory

reform, technology development, and human resources development. Such Government policies

generally seek either to remove or to reduce impediments to a strong and stable economy, as

well as to raise business and consumer confidence in the face of changing economic conditions. The advantage of such policies is that they

can be directed at many industries, although they

will have different impacts on the various affected

industries. They are most commonly preferred as

a complement to market forces, because their

scope enables them to enlist the broadest base

of support, and they are best equipped for integrating a wide range of economic and social objectives. General economic policy, however, has

only limited ability to promote the displacement

of oil imports and to stimulate specific actions,

and may indirectly distort capital flows among

oil displacement alternatives.

Automobile fuel efficiency and synfuels production (as well as fuel switching and conservation in stationary applications) are influenced by

such economywide factors as high interest rates,

tight credit, increasing resource costs, and

changes in real disposable income. As for the

auto industry, general economic conditions influence the ability of consumers to buy cars and

the ability of manufacturers and suppliers to invest in needed changes. General economic policy

could help to stimulate demand for automobiles

by lowering the costs of consumer credit and by

making credit available. Strong demand for new

cars, together with stimuli that reduce the effective costs of capital and retooling can, in turn,

stimulate the supply of fuel-efficient automobiles.

Economywide measures, however, would not

induce consumers to buy domestically manufactured vehicles rather than imports; and they could

have a mixed effect on local automobile production and employment. Economywide measures

may facilitate investments by foreign firms in U.S.

facilities, but they also assist investments by local

producers in labor-saving equipment and investments by domestic manufacturers in low-cost

production facilities abroad. These investments

may ensure the financial health of individual,

American-owned firms, but attendant reductions

in domestic employment may aggravate regional

economic problems.

Deployment of synfuels production capacity

will also be sensitive to general economic conditions: interest rates not only influence the availability of capital for building plants; the capital

costs also help determine whether products can

be priced competitively. Once established, however, the synfuels industry is expected to be relatively insensitive to general economic conditions

to the extent that synfuels are indistinguishable

from conventional fuels and are competitively

priced, and the plants do not require frequent

retooling. Based on the analysis provided in this

report, it is OTA’S judgment that favorable economywide conditions, by themselves, are still unlikely to provide sufficient incentive for private

firms and investors to accelerate the commercialization of a synfuels industry because of the large

technical risks associated with as yet commercially unproven synfuels processes.

Sector-Specific Level .–Policies can be aimed

at specific industries to stimulate industrial competitiveness, ease the adjustment of firms to new

economic conditions (rapid growth, short-term

distress, or long-term decline), or to promote the

achievement of national or regional objectives

(e.g., national security, regional development).

To formulate policies at this level, analyses of individual sectors and linkages among sectors are

essential. The major disadvantages of such policies are that they do not always address the underlying causes of market distortions and they

discriminate against other industries which are
46 INreased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

not similarly assisted. in terms of the auto industry, sector-specific policies would be most effective if they addressed the market risk, which is

a major factor determining the rate of fueleconomy improvements. The major constraint on

rapid deployment of a synthetic fuels industry is

technical uncertainty with respect to unproven

processes and, currently, the cost of conventional

oil products.

Economywide Taxation—Oil and

Transportation Fuels

General taxation measures are one vehicle for

stimulating capital investment across the economy. Economywide taxation measures that specifically relate to displacing oil imports are taxes

on oil imports, on oil in general, and on transportation fuels (e.g., gasoline and diesel fuel) in particular. To the extent that the Nation’s energy

“problem” is defined as dependence on insecure

foreign sources, an oil or transportation fuel tax

would promote security by reducing oil demand.

However, an oil or gasoline tax could be counterproductive to the degree that the energy “problem” is defined as a lack of relatively low-cost,

high-quality fuels. Consumers may oppose an oil

import tax, even though its impact would be

minor compared with that of large OPEC price

increases, as was the case when an oil import tax

of $0.33/bbl was in effect briefly during the Ford

adminstration. Its impact, if any, was minor in

comparison with that of OPEC’s hikes.

Oil taxes can be imposed either on oil generally

or on oil imports in particular. The advantages

of an oil tax arise because of three features. First,

the tax would make all uses of oil more expensive without prejudging which kinds of adjustments would be most desirable. A general tax on

oil would thus reduce consumption and, in turn,

imports. Second, the tax could be designed to

isolate consumer oil prices from reductions in international oil prices. For example, if OPEC prices

remain steady through 1984 and if inflation continues at current rates, the real price of oil could

decline by as much as 20 to 30 percent during

this period. While perhaps beneficial to consumers in the short term, declining real prices for

petroleum products would probably lead to increased petroleum demand. Consistent price signals would also provide assurance both to the

auto industry that demand for fuel-efficient cars

would be at least sustained if not increased, and

to synfuels developers that they would receive

at least a constant real price for their products.

Finally, tax revenues could be used, for example, to support import displacement investments,

or to offset some of the potential adverse effects

of the tax (e. g., to fund income support programs).

Taxing only crude oil, however, and not its

products could reduce the international competitiveness of industries heavily dependent on oil—

such as refineries and petrochemical companies. *

Furthermore, because oil taxes do not differentiate among industries that use oil, they are not

effective means of altering the competitive position of either automobile fuel economy or synfuels production relative to any other method for

displacing imports (if such alteration is desired).

Such taxes could also contribute to inflation generally and would be paid for disproportionately

by consumers with low incomes. Compensatory

programs and payments could deal with such

side effects, but at additional implementation and

administrative expense.

Taxes targeted at only oil imports could discriminate against companies, and regions of the country, that are heavily dependent on imported oil.

It is more likely, however, that import taxes

would cause the general price of oil to increase

to a level close to the price of taxed imports. Any

generaI price increase, in turn, would create additional revenues for domestic petroleum produc-

*lt is possible that refining activities would relocate overseas unless

additional import restrictions were also imposed. With respect to

synfuels production, refiners might be able to cut profit margins

and continue to process and sell oil at prices below synfuels prices

in order to maintain refining volumes (which are already rather low).

Because many old refineries do not have capital charges, refining

costs would be dominated by the variable costs of about 15 to

20¢/GALproduct plus the oil acquisition costs. Consequently, taxes

may have to raise the cost of imported oil to within about $6/bbl

of synfuel product (150gal of gasoline equivalent) to ensure that

the refiners cannot economically use oil imports as copetitors for

synfuels. This would directly harm some companies ened in oil

refining, but this may be a necessary tradeoff to ensure that synfuels actually displace imported oil, rather than act to reduce domestic petroleum product prices and thereby discourage a reduction

in domestic oil consumption.
Ch. 3—Policy ● 4 7

ers. The total revenues generated by an import

tax would thus be only partially received by the

Government. Compared with a general oil tax,

an import tax is thus likely to result in a smaller

fraction of revenues being available to the Government for additional import displacement

measures or to offset any adverse impacts of

higher oil prices. The windfall profits tax captures

some additional revenue, but is more complex

to administer than a general tax on all oil.

Another disadvantage of an import tax, frequently discussed, is the possibility that oil exporting nations might see the acceptance of added

cost by U.S. users as an indication that their crude

prices could be further increased without reprisal

or economic hardship. This objection probably

is not valid, however, during times of crude oil

surplus in the producing nations.

With respect to transportation fuel consumption, a tax either on oil or on transportation fuels

reduces demand for all uses of transportation fuel,

including automobile travel, as well as increasing the relative demand for fuel efficiency. It

could reduce new-car sales, however, and could

also reduce the profitability of truck transports,

agriculture, airlines, tourism, and other fueldependent industries. Taxes on only gasoline

would avoid some of these problems, but they

could encourage the purchase of diesel-fueled

automobiles.

Gasoline taxes in this country have increased

only slightly during the past two decades.l A The

Federal tax has been $0.04/gal since 1960, while

the average State tax has increased from $0.065

to $0.08/gal. A gasoline tax that increased the

price of gasoline by, say $0.05/gal (i.e., a 3-percent increase over a $1.50 price) would raise

about $5 billion per year at current consumption

rates, as would a $1 .00/bbl crude oil tax. I n order

to offset inflation since 1960, the current gasoline

tax would have to increase by about $0,1 5/gal.

Taxes on gasoline are significantly lower in the

United States than abroad. *

~4See Hans H. Landsberg, Energy Po/;cy Tasks for the 1980s, RFF

reprint 174 (Washington, D. C.: Resources for the Future, 1980).

*Taxes on gasoline (per gallon) in 1979 were, as examples, $1.59

in France, $0.88 in the United Kingdom, $1.14 in West Germany,

and $1.58 in Italy.

The ultimate effect an oil, gasoline, or diesel

fuel tax would have in displacing oil imports depends on at least three factors. First, the effectiveness of the tax in the long run depends on the

actual purchase and use of fuel-efficient vehicles.

Estimates of the responsiveness of demand (its

“elasticity”) to changes in gasoline, auto, and

other prices vary widely from study to study, but

they suggest that a tax on crude oil or transportation fuels would have to be relatively large to

motivate consumers to trade in their relatively inefficient cars for more efficient ones. ’ 5 Note,

however, that tax provisions per se would not differentiate between domestic and foreign manufacturers except insofar as one produces more

fuel-efficient vehicles.

Secondly, tax impacts will depend on final oil

or fuel prices. The entire tax amount need not

be passed onto consumers if producers are able

to maximize profits by lowering the price of gasoline, absorbing part of the tax, and increasing

sales. As long as demand for oil is slack relative

to supply, at least part of the tax will be absorbed

by producers.

Finally, the effect of taxes will depend on the

degree to which driving is reduced. While OTA’S

analysis of oil savings attributable to fuel economy

improvement assumes a steady increase in vehicle miles traveled (VMT) (but a drop in VMT per

capita), lower total VMT induced by high gasoline

prices would increase actual oil savings. * However, this could also reduce car sales.

While gasoline stations and refineries would be

affected by reduced demand, industry analysts

already expect that the number of service stations

and refineries will decline in the 1980’s. RemainIsDemand response is difficult to quantify because there is only

limited past experience with periods of gasoline price increases

(“preenergy crisis” conditions appear to be of limited value for predicting “postcrisis” consumer behavior); crude oil and transportation fuel prices affect consumers in dynamic, multiple ways to alter

real income and demands; and it is difficult to understand demand

response when vehicles have many different attributes, of which

fuel efficiency is only one. (See Motor Vehic/e Demand Mode/s:

Assessment of the State of the Art and Directions for Future Research, prepared by Charles River Associates, Inc., for the U.S.

Department of Transportation, April 1980.)

*For example, OTA estimates that about half of the 0.5 MMB/D

reduction in gasoline consumed by autos in 1978-80 was due to

reduced driving, while about half was due to increased efficiency

of vehicles in use.
48 . Icreased Automobileel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

ing stations and refineries should be financially

stronger and better able to adapt to gasoline price

increases. Any reduction in highway trust fund

revenues could presumably be balanced by proceeds from the gasoline tax or other taxes.

Economywide Taxation—

Special Provisions

Special taxation provisions are often applied at

the economywide level to promote investment

(e.g., by encouraging capital formation and restructuring cashflow positions). Examples of such

provisions are investment tax credits, depreciation allowances, R&D tax credits, and capital

gains. As with other taxes, special taxation provisions could have differential impacts on industries

and distort private returns to capital. Both the

auto and synfuels industries (as well as the electric utility industry), being capital-intensive, could

benefit from special taxing provisions. The scope

for additional special taxing provisions, however,

is believed to be limited because of the many existing provisions,

Although a firm would generally have to be

profitable to take advantage of special taxation

provisions, tax credit sales rules have been expanded and liberalized to give unprofitable firms

the chance to sell their investment tax credits and

depreciation rights. The auto industry has already

taken advantage of liberalized rules for selling tax

credits.lb This type of sale can help to strengthen

the financial position of the auto industry, although it does not directly encourage increased

fuel economy.

It is speculative to analyze how special taxing

provisions would stimulate investment in synfuels. Special taxing provisions have historically

been applied at the sector-specific level for domestic oil producers in the form of special depreciation allowances, and currently for expensing

drilling costs and for foreign tax credits.

lcFOr example, FOrd Motor Co., with losses in excess of $700 million in 1981, sold its tax credits on 1981 equipment purchases for

somewhere between $100 million and $200 million to IBM (kVashington ~05t, Nov. 11, 1981).

Research and Development

Government policies and programs could stimulate technical R&D at either the economywide

or sector-specific levels to help displace oil imports. The primary rationale for Government support of R&D is that there are social benefits from

R&D which surpass private gains, in large part because of high front-end learning costs. in addition, the Government tends to support research

that is too risky for private funding, and which

does not, for a variety of reasons, attract private

investment in the short term. A major advantage

of Government support for R&D is that programs

can assist the economy, and specific industries,

without direct intervention. However, the types

of basic research that Government has traditionally supported often have benefits only in the long

term, so a nearer term oil import savings implies

Government involvement in shorter term R&D

areas. Applied R&D also offers the opportunity

for the Government to acquire equity in projects

or royalties from the results of the R&D.

EconomyWide R&D support could be designed

to stimulate opportunities for displacing oil imports generally and for both increasing automobile fuel efficiency and accelerating synfuels production. Such measures could, as examples,

sponsor basic research, promote the climate for

technical innovation (e.g., increasing the rewards

to innovators through patent laws and/or special

tax incentives), or establish mechanisms for assembling and disseminating technical information. Such nonspecific support, however, is unlikely to have much impact on resolving the specific technological uncertainties that impede both

auto fuel-efficiency increases and synfuels development.

Although the Government has supported sector-specific R&D in the past, policies have seldom

supported product development with direct commercial application except in agriculture and

nuclear power. Research to increase automobile

fuel economy and to develop synfuels, as well

as other technologies for displacing oil imports,

would have direct commercial application.
Ch. 3—Policy 9

There has not yet been any substantial Government support for R&D to assist the automobile

industry. Several R&D and technology demonstration programs have been Government-sponsored, and a joint industry-Government-university

R&D program (the Cooperative Automotive Research Program) was attempted unsuccessfully in

1979-80.17 Some of the basic research areas that

could result in substantial long-term fuel-economy payoffs include:

1.

2.

3.

4.

5.

6.

the engine (e.g., advanced alcohol-fueled

engines, nonsteady-state combustion, microprocessor controlled fuel injection, high-temperature materials);

vehicle structure (e.g., crashworthiness);

aerodynamics;

friction, lubrication, and wear;

innovative production technologies for lightweight materials; and

exhaust emissions.

The Government might also continue to provide

some support for the advanced development of

electric and/or hybrid vehicles, alternative

engines, and alternative automobile fuels.

The technical uncertainties associated with synfuels development are substantial. It is OTA’s

judgment that, even in the presence of favorable

economywide conditions, investors would not

have sufficient incentive to accelerate synfuels

development because of the magnitude of the

technical risks associated with process technologies. For example, one of the major components

of technical uncertainty is concerned with the

flow and abrasive properties of soIid/liquid process streams. Gaining a basic understanding of the

properties of these streams so that equipment will

function properly is both a theoretical and an empirical engineering challenge. At present, engineers must proceed to full-scale commercial

plants without adequate analytical descriptions

of how well designs will work. OTA believes there

may be considerable benefit in continuing the

original concept of a demonstration program to

provide technical information. The results of both

‘The Justice Department also recently agreed to ease restrictions

which had barred the four major manufacturers from working together on development, as well as sale and installation, of pollution control devices. See The Washington Post, Nov. 10, 1981.

basic and applied research could lead to important near- and long-term advances in synfuels

technology, as well as in other technologies concerned with solids handling.le

Trade Protection

Trade protection–tariffs and duties, quotas, local content requirements—has economywide implications but has traditionally been used to temporarily insulate specific industries and products

from foreign competition. The case for import

protection for the domestic auto industry is based

on the claim that the industry requires only temporary protection in order to increase sales and

thus to improve its revenue position, to generate

capital for reinvestment, and to position itself for

manufacturing fuel-efficient cars. On the other

hand, it is argued that temporary trade protection would neither ameliorate the shot-t-term

competitive problems of the industry nor promote long-term restructuring for fuel economy.

It is seen as inefficient and indirect adjustment

assistance that can lead to higher consumer prices

due to reduced competition, to higher production costs for those industries that must compete,

unsubsidized, against autos for resources, and to

less innovation in general. Trade protection could

also lead to retaliation on the part of trading partners, and some measures are restricted by the

General Agreement on Tariffs and Trade

(GAIT).

19

Import quotas are generally considered less efficient than tariffs in reducing imports and stimuIating domestic industries. This inefficiency

arises because quotas directly distort both production and consumption (whereas tariffs change

relative prices), and quotas can be bypassed with

product differentiation. Duties have not generally

figured in the policy debate, * but U.S. auto manufacturers have been granted temporary trade

protection in the form of a 3-year Japanese automobile quota agreement. The ultimate effects of

}Bsee also “Repo~ to the American Physical Society by the Study

Group on Research Planning for Coal Utilization and Synthetic Fuel

Production,” Rev. Mod Phys, 53, 4 (pt. 2), October 1981.

1

9

’’ General Agreement on Tariffs and Trade, ” 55 U. N.T.5. 194,

T.1.A.S. No. 1700 (1947).

*Duties on car imports into the United States are 6 percent; this

compares with 14 percent into Canada, and 11 percent into France,

Italy, Germany, and the United Kingdom.
50 Ž Increased Automobile fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

these quotas on the domestic industry are unknown, but thus far the impacts of import restraints appear to be small due to low new-car

sales. However, if new-car sales recover, the

prices of all small cars could increase to the extent that shortages are artificially induced by the

trade restrictions.

Local content provisions are another form of

trade protection that has been discussed in the

context of the domestic automobile industry

(H.R. 51 33). These measures would not displace

oil imports directly but could help to protect

domestic automobile manufacturing jobs. Such

provisions are generally viewed as being economically inefficient, although they could serve other

social/equity objectives.

Trade protection is not likely to address any of

the major issues on which the future of the synfuels industry depends. Trade concerns may

eventually arise if large quantities of materials and

equipment are imported to construct synfuels

plants or if the United States is in a position to

export synfuels products or production experience.

Trade protection could be used to limit oil imports directly. Such a quota, however, could lead

to domestic shortages and price increases in the

absence of replacements. The Carter administration placed a quota on oil imports (and explored

alternatives for allocations within the United

States should demand exceed the quota), but it

was set at a level which did not influence imports.

import quotas were also in effect from 1959

1971.20

Sector-Specific Demand Stimuli—

Purchase Pricing Mechanisms

to

Demand for increased automobile fuel economy is an extremely important factor influencing the rate of increases in new-car fuel efficiency. Autos are large, long-term, and deferrable

investments for consumers. Furthermore, the

decision to buy a particular car depends on many

attributes, of which fuel economy is only one.

Imported oil will not be displaced by the man-

‘“’’Energy Policy,” 2d cd., Congressional Quarterly, Inc., Washington, D. C., March 1981, p. 30.

ufacture of more fuel-efficient cars unless these

cars are actually bought. Demand uncertainty can

be reduced, and the demand for fuel-efficient cars

can be stimulated, by raising the costs to consumers of buying and operating inefficient cars

and/or by lowering the costs of owning relatively efficient ones. The risks to manufacturers of

producing fuel-efficient cars could thus be reduced. Car ownership costs can be altered by taxing gasoline, as discussed, or by taxing/subsidizing automobiles directly.

Synfuels per se should not be directly influenced by consumer behavior except insofar as

weak demand for liquid fuels limits the profitability of synfuels production. Some synfuels, however, may not fully conform to end-use fuel specifications without more extensive processing or

end-use equipment modifications. The extent of

this potential demand problem cannot be determined in the absence of end-use testing, but is

likely to be minor except for alternative fuels such

as methanol.

Purchase Taxes and Subsidies

Automobile purchase taxes or price subsidies

can directly change the costs of owning cars of

differing fuel efficiencies. Purchase pricing mechanisms can be linked either implicitly or explicitly

to fuel-efficiency performance criteria. Current

taxes are now only loosely related to CAFE standards. The extent to which additional measures

would discourage the purchase of inefficient cars,

or encourage the purchase of efficient cars, depends on many factors, including the level of the

effective tax (or subsidy), the range of vehicles

affected, the extent that auto manufacturers’ pricing policies counteract the effect of the taxes (or

subsidies), and the responsiveness of consumer

behavior to changes in car prices. * There is also

*The difficulty in quantifying elasticities (i.e., the percentage

change in demand for a l-percent change in price) is discussed

in “Economywide Taxation—Oil Imports and Gasoline. ” The international Trade Commission analysis of the Carter gas-guzzler tax

proposal implied an elasticity of demand for subcompacts of –0.79

(i.e., sales of subcompacts increase less than proportionately with

decreases in their prices) and an elasticity of demand for full-size

cars of – 1.12 (i.e., sales of full-size cars decrease more than proportionately with increases in their prices). Assuming that these figures

are accurate, to reduce full-size car sales by 50 percent, for example, their prices should be raised by about 45 percent, or at least

$3,500.
Ch. 3—Policy ● 5 1

some risk that price subsidies targeting only domestic vehicles could violate the GATT provisions

which prohibit most-favored-nation trading partners from taking actions that discriminate against

imports from one another.

Low-interest loans for consumers could stimulate the purchase of all new cars, which are

generally more efficient than the average car on

the road. By tying the interest rates to the new

car’s fuel efficiency, sales of the more fuelefficient new cars could be stimulated.

Gas-guzzler taxes, as another type of pricing

mechanism, would reduce the demand for relatively fuel-inefficient cars. However, because

such taxes do not discriminate among different

types of users, a disproportionate share of the

taxes could be paid by those who are most constrained to using large vehicles. An equity argument can be made for excepting certain classes

of drivers in a tax program (e.g., taxis, hearses),

Income support programs could aid in the cases

of financial hardship; and tax proceeds could be

used to fund these relief measures.

Both purchase subsidies and taxes may additionally and at least temporarily strain the revenue

position of U.S. automakers because they are

the principal suppliers of large cars, but subsidies

could strengthen their long-term position due to

increased car sales.

If Congress wishes to avoid discrimination

against large cars (which are inherently less fuel

efficient than small cars), purchase taxes or subsidies could be based on the fuel efficiency of a

given model relative to other models within the

same size or market class. This type of approach

would lead to numerous cases where less fuelefficient cars are taxed at lower rates or subsidized at higher rates than the more fuel-efficient

ones, but it would create a demand for cars with

less powerful engines and technologically improved cars (as opposed to simply smaller ones)

and it would not favor imports in most cases.

Bounties

Another way to use purchase pricing mechanisms to stimulate rapid fleet turnover to higher

fuel economy is by offering a gas-guzzler bounty. Bounties could be designed, as examples, as

full payment for a trade-in, or as a payment upon

proof of scrappage of a fuel-inefficient car. Because consumers are relatively unresponsive to

changes in prices,21 the bounty would have to

be large to induce significant increases in sales

of more fuel-efficient cars. For example, if a value

of –0.3 is assumed for the price elasticity of demand for new cars, then for total new car sales

to rise by 10 percent, net prices would have to

fall by one-third. Since the average new car costs

about $8,000 in 1980-81, a bounty of about

$2,700 would be necessary on average to raise

new-car sales by 10 percent. Since many used

cars have market values under $2,700, this

scheme would be profitable for the owners of

used cars. However, it would be costly both to

the Government and to potential buyers of used

cars.

The bounty price would become the effective

minimum used-car market price and all used-car

prices would be proportionately increased. Because bounties distort existing relationships and

operations of both the new and used car markets,

bounties would be difficult to design and implement efficiently. Unless bounties were tied to

high-fuel-efficiency car purchases, they might

neither help manufacturers nor lead to significant

fuel savings.

Registration Taxes

Car registration taxes represent another demand-side stimulus. These taxes would affect the

owners of all automobiles, and they could be explicitly tied to fuel efficiency or some surrogate

measure* to encourage replacement of fuel-inefficient cars. However, they would make auto ownership more expensive regardless of the amount

and nature of the travel, and they would work

towards reducing demand for autos in the long

run. By effectively lowering consumer income,

registration taxes would also disproportionately

21 “Motor Vehicle Demand Models: Assessment of the State of

the Art and Directions for Future Research, ” prepared by Charles

Rivers Associates, Inc., for U.S. Department of Transportation, April

1980.

*One possible measure would be ton miles/gallon (e.g., how

much a vehicle weighs per rate of fuel use), Several foreign countries already have registration taxes that depend on automobile

weight and/or engine size.
52 . Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

affect low-income groups. * In addition, a registration policy implies State action, and consistent,

concerted implementation may be difficult to

achieve.

An important possible side effect of all demandside stimuli which have the effect of reducing

large-car demand is that only those domestic

manufacturers with a clear competitive advantage in producing large cars will continue to serve

this shrinking market. This reorientation of domestic production would be consistent with longterm international trends towards corporate consolidation and a standardized “world car. ”

Methanol

Promoting the use of methanol as an automobile fuel is likely to require coordination of supply

and demand stimuli. A limited supply of methanol, however, is currently available from the

chemical industry. * *

Automotive uses of fuel methanol are principally in a blend (with cosolvents) in gasoline or in

engines designed or converted to use straight

(neat) methanol. Because many automobiles now

on the road cannot accept methanol-gasoline

blends with more than 1 to 3 percent methanol,

the blend market for methanol is currently quite

limited (less than 50,000 B/DOE); but the potential market could be expanded if incentives were

provided to make new cars compatible with higher percentage blends. This would also add flexibility with respect to matching supply and demand, which would help to avoid methanol fuel

shortages and gluts. The use of blends could be

encouraged through direct subsidies and through

approval of methanol by EPA as a blending agent

in gasoline.

Demand for fuel methanol can also be stimulated with incentives to convert captive fleets***

(current fuel consumption by larger fleets is about

0.6 MMB/DOE22) to methanol. Captive fleets are

currently more attractive for neat methanol use

than privately owned cars because fleets often

have their own fuel storage and pumping facilities, which can be converted to methanol at the

same time as the fleet conversion.

Introduction of vehicles for general use which

are fueled with neat methanol probably will require coordinated planning to ensure that neat

methanol is available at service station pumps at

about the same time or before the vehicles appear for sale. However, if this fuel supply problem can be solved (see supply stimuli below) and

methanol is available at prices (per Btu) comparable to gasoline, it is likely that some auto manufacturers will supply alcohol-fueled vehicles without Government incentives.

Sector-Specific Supply Stimuli—

Subsidies and Guarantees

Supply-oriented stimuli–in the form of direct

subsidies, grants, and loan, price, and purchase

guarantees–are methods for quickly providing

visible and directed sector-specific support to industries and firms.23 These stimuli, by shifting a

portion of the costs and risks to the Government,

can provide a temporary inducement to firms to

accelerate investments (i.e., to the auto industry

to increase fuel economy and to the synfuels industry to accelerate production). Supply-oriented

stimuli can also be structured so as to minimize

or alleviate costly side effects associated with the

investment or stimulus. The rationale is that market-driven business practices would not provide,

at the time required, nationally desirable output

levels.

Sector-specific, supply-oriented policy measures share the disadvantages described earlier

that are associated generally with any sectorspecific policy approach. In addition, they could

put direct pressure on the Federal budget. De-

*other fees that could discourage fuel use by all drivers include

commuter taxes, car-pooling incentives, and parking fees.

**Total U.S. methanol production, which comes from natural

gas and residual fuel oil, corresponds to about one 50,000 B/DOE

synfuels plant or about 1.5 billion gal of methanol per year.

***A captive fleet is a fleet of cars or trucks owned and operated

by a single business or Government entity and often used primarily in a localized area with central refueling facilities also owned

and operated by the fleet owner.

ZZThe Department of Energy (“Assessment of Methane-Related

Fuels for Automotive Fleet Vehicles,” DOE/CE/501 79-1, vol. 2, pp.

5-23, February 1982) has estimated that automobile fleets of 10 or

more, truck fleets of 6 or more, and bus fleets consume about 0.6

MMB/D of gasoline and about 0.4 MMB/D of diesel. Replacing all

of the gasoline would require about 20 billion gal of methanol per

year.

~BSee An Assessment of Oil Shale Technologies, OTA-M-l 18

(Washington, D. C.: U.S. Congress, Office of Technology Assessment, June, 1980).
Ch. 3—Policy Ž 53

tailed analysis is required to ensure that policies

and programs do not perpetuate inefficient operations, that production changes and other efficient

innovations are not being discouraged, and that

targeted manufacturers are not benefiting inequitably. A major implementation problem is in linking of payment with performance: to ensure that

supply-oriented mechanisms promote oil displacement, they would need to be contingent on

savings or production performance. Ideally, a detailed study of the many factors that determine

fuel use could illuminate how much stimulation

would be required to reduce oil imports and how

such measures would affect the Nation’s energy

bill. In practice, however, any such study is likely to have numerous shortcomings and inaccuracies.

Loan Guarantees and Grants

The principal sector-specific supply-oriented

policy mechanisms are loan guarantees, price

and purchase commitments, and direct grants.

Of these, grants are the most advantageous for

investors, since they are a form of direct assistance. Grants for improving auto fuel efficiency

and producing synfuels may be unpopular because both alternatives are sponsored by the private sector and have profit-generating potential.

Objections to direct grants could be offset somewhat if the Government purchased equity in the

companies with the money.

Loan guarantees are also advantageous to investors because they allow investors to reduce

their financial exposure in case of default. Unlike

grants which require that the Government appropriate funds immediately, loan guarantees require

Government payment only in the event of a company’s default. Loan guarantees have been applied to both the auto and synfuels industries. In

the case of autos, loan guarantees were administered by the Government to the Chrysler Corp.

when it judged that the costs of not intervening

would be unacceptable from a national viewpoint. These loan guarantees represent a break

with historic policy. No direct aid had previously been given because the industry as a whole

was profitable and there was a reluctance both

on the part of the Government to subsidize the

private sector (except under unusual circumstances) and on the part of the private sector to

accept Government support and related conditions.

Three policy complications also would arise

when considering subsidizing domestic auto

manufacturers:

1. determining the eligibility of foreign firms

that establish production subsidiaries in the

U.S. (e.g., Volkswagen of America, Honda);

2. compliance with GATT provisions; and

3. the treatment of auto suppliers. *

Loan guarantees are administered by SFC under

ESA for the synfuels industry. These guarantees

have been justified on the basis that the costs and

technical risks of synfuels production are so great

that, in the absence of loan guarantees and other

supply-oriented stimulation, private investment

would be slow in coming. With the large (75 percent) guaranteed loans that are possible under

ESA, investments in synfuels appear to be attractive. * * industry has generally favored Government support in the form of loan guarantees to

stimulate investment, and OTA believes that this

is an effective way of making synfuels investments

financially attractive.24 Because of general inflation and steady increases in the estimated costs

of synfuels projects, however, the funds currently

available to SFC and the limitation of about $3

billion in aid per project may not be adequate

to support the number of projects originally envisioned or allow a full 75-percent loan guarantee

for the larger projects.

*Although many suppliers will have to invest to accommodate

automotive change, it may be most efficient to subsidize only manufacturers, who would in turn, fund suppliers as appropriate, for two

reasons: first, the amount of U.S. supplier investment (and to a lesser

degree U.S. manufacturer investment) depends on the amount of

outsourcing and the degree to which foreign supplies are used; and

second, it is easier to deal with the handful of manufacturers than

the thousands of suppliers they may use.

**The 61 proposals received by SFC in its first general solicitation are a preliminary confirmation of this. These proposals reflect

the variety of approaches considered viable by private industry:

14 oil shale projects, eight tar sands (including heavy oil) projects,

one coal-oil mixture project, one solid-fuel additive from coal project, and one hydrogen-from-water project. Of course, general economic conditions, as well as the price of imported oil, will also have

a major impact on the decisions of private investors. These conditions will, in turn, heavily influence the terms that SFC is able to

negotiate as it seeks to employ the funds available to it.

24lbid.
54 • Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

Purchase and Price Guarantees

Purchase and price guarantees protect investors

by ensuring that products can be sold at a price

equal to or greater than the minimum guaranteed, regardless of market conditions. But unless

the price is set at extremely high levels, these incentives do not ensure against losses that occur

if initial estimates are wrong with respect to cost,

price, production volume, or product quality.

These guarantees are most appropriate when

market demand and price are the major uncertainties (and are expected to be “too low”),

where commodities are homogeneous, and

when commodities have a value to the Government in use or resale. They could, however, distort relationships among producers and consumers; they can be administratively complex, and

they do not reduce investors’ financial exposure

in the case of poor performance.

Purchase and price guarantees have generally

not been considered viable for the auto industry

because of the differentiation of its products and

the complexity of manufacturer-dealer-consumer

relationships.

Although purchase and price guarantees do not

address the central technical uncertainties of synfuels production, they may nevertheless be useful

in conjunction with other incentives. Provisions

for price guarantees and purchase commitments

are included in the 1980 synfuels legislation.

Subsidies and guarantees can lead to large annual investments by the Government. For example, given that 6 to 8 million cars are produced

domestically each year, subsidies of several hundred dollars per car for fuel-economy improvements (which corresponds to the investments

needed to make the necessary changes) could

require annual expenditures of several billion

dollars.

To illustrate the magnitude of subsidy that

could be necessary through a price guarantee to

accelerate synfuels production, assume that

crude oil costs $40/bbl, that synfuel from a newly opened 50,000 B/DOE plant requires a $10

subsidy for each barrel of oil replaced, and that

synfuels production costs follow general inflation.

if the real price of oil were to escalate by 2 percent per year, the synfuel would have to be subsidized for 11 years at a total cost of about $1

billion. If the real price of oil escalates at 4 percent per year, the period of subsidization and the

total cost would be half as large. Similarly, a

1-percent real inflation rate for oil would double

the duration and magnitude of the subsidy. Thus,

price guarantee subsidies can reach levels that

are a significant fraction of the investment initially

needed to build the plant.

The Government could, however, require repayment of a subsidy if the manufacture of fuelefficient cars or the production of synfuels became profitable without subsidies.

Methanol

The supply incentives mentioned above and

those described under “demand stimuli” are

probably adequate to encourage production of

methanol from coal for use by the chemical market and some captive fleets of automobiles, and,

possibly, as blends in gasoline. However, additional supply incentives may be necessary to encourage the use of methanol in automobiles

which are not part of a captive fleet.

Once significant quantities (probably more than

0.1 to 0.2 MMB/DOE) of methanol are being used

in captive fleets and, possibly, in gasoline blends,

it may be possible to offer methanol for sale to

the public in enough places to make ownership

of a methanol-fueled vehicle practical for individuals. Incentives can be offered to owners of methanol-fueled captive fleets, who have their own

methanol storage and pumping facilities, to sell

methanol to the public. Incentives can also be

given to service station owners who sell methanol

blends to install methanol storage tanks and blend

the methanol with gasoline at the pump. They

could then sell straight methanol, as well.

Many owners of captive fleets probably cannot be easily induced to offer methanol for sale,

because it would not be related to their other

business activities and would be tantamount to

entering the service station business. Similarly,

very large economic incentives may initially be

necessary to induce service station owners to install methanol facilities, because the investment

would not lead to a near-term increase in sales.
Ch. 3—Policy ● 5 5

On the other hand, it could be mandated that

any supplies of methanol used for Governmentowned captive fleets be made available for public

sale. And some captive fleet and service station

owners would be willing to offer methanol to gain

an early market share or for the financial incentives offered by the Government. If these monetary and nonmonetary incentives were adequate,

methanol could compete directly with gasoline

and diesel fuel as an automobile fuel.

Regulations on Output

One of the most direct policy mechanisms for

promoting alternatives that can displace oil imports is regulation. Regulations are a common,

if controversial, form of Government intervention

in the economy. Although their effects can be felt

economywide, regulations are typically directed

at specific industries or products. In general, they

would target the supply aspects of oil import alternatives. Measures could also be designed to

target consumers (e.g., the 55-mph speed limit,

end-use fuel restrictions in the stationary sector),

but the Government has traditionally been reluctant to mandate changes in consumer behavior

and habits.

Regulations can be designed for two major purposes. First, they can serve to protect the public

from the side effects caused by the conduct of

industrial activities. These effects include impacts

on the environment, health, and safety which are

discussed in the next section. Regulations can

also be used to determine outputs directly—the

level of consumption or production of fuels–if

the market is unable to ensure desirable levels.

the investment risks since, although regulations

can affect the supply of fuel-efficient cars, they

do not directly influence purchases. Through the

1970’s consumers failed to demonstrate a consistent demand for fuel economy, * and the CAFE

standards probably increased fuel efficiency

above what the market would have achieved.

And recent data (fall 1981 ) show that, in fact, the

proportion of relatively large cars sold has once

again increased compared with the number of

smaller cars sold.

The arguments for extending CAFE standards

beyond 1985 are inconclusive. To the extent that

CAFE standards are met through sales of smaller

cars, as opposed to purely technological changes,

U.S. manufacturers must increasingly compete

with imports for the small-car market. Increasingly

stringent fuel economy standards could, therefore, result in higher import levels if domestic

manufacturers are unable to increase their competitiveness in this market, despite the product

changes they have made. Post-1 985 standards are

also likely to require additional capital for more

rounds of redesigning and retooling. But post1985 standards could result in important fuel savings to the Nation, especially if the demand for

fuel-efficient cars remains sluggish. Additional demand stimuli may also be necessary, depending

on national and international conditions, to ensure that fuel-efficient cars are bought.

In considering the effects of CAFE standards it

is important to recognize that CAFE standards do

not distinguish among average efficiency increases that result from: 1) technological improveThe auto industry has been regulated in the

United States in the areas of emissions, safety, and

more recently fuel economy. The major Government program mandating fuel-efficiency increases

is the CAFE standards. Whether or not to increase

these standards beyond levels set by current legislation for 1985 and beyond may be a major upcoming decision before Congress.

Effectiveness of the CAFE standards in spurring

fuel economy improvements is controversial, An

important feature of these standards is that they

are effective only if they force manufacturers to

do more than consumers demand. This increases

*The drop in demand for fuel efficiency and the resurgence in

large-car demand in the mid to late 1970’s led manufacturers to

petition (unsuccessfully) NHTSA to lower CAFE standards for the

early 1980’s because sluggish sales of fuel-efficient cars made

necessary investments appear especially costly and risky. Market

trends in the 1970’s also led manufacturers to concentrate initially

on improving fuel economy for relatively large cars rather than on

developing new small-car designs. Manufacturers attributed their

expectation to exceed voluntarily the 1985 CAFE standard of 27.5

mpg to renewed, strong demand for fuel economy arising from the

1979 oil crisis and increases in gasoline prices. This increase in demand and current industry efforts to raise fuel economy recently

led NHTSA, which administers the CAFE program, to terminate

rulemaking with respect to post-1 985 average fuel-economy improvements (Fed. Reg. 22243, Apr. 16, 1981 ). A petition from the

Center for Auto Safety that requested NHTSA to continue rulemaking was also subsequently denied (Fed. Reg. 48383, Oct. 1,

1981 ).

98-281 IC - 82 - 5 : ~11, 3
56 . Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

ments, 2) consumers’ purchasing the more fuelefficient cars in each size class, and 3) consumers

purchasing smaller cars. Depending on market

demand, success of technical developments and

auto manufacturers’ financial positions and capital stock, CAFE standards could be met through

various mixes of the three (see table 8). Consequently, without special provisions it probably

is impossible to establish conventional CAFE

standards which simultaneously: 1 ) are effective

(i.e., increase new-car fuel efficiency above what

market forces would dictate), and 2) do not promote the sales of small imported cars. Separate

fuel-efficiency standards for each automobile size

or market class could significantly reduce the indirect promotion of small-car sales; however, this

would greatly reduce automobile companies’

flexibility in responding to the regulations.

The NSPP sets targets for synfuels production

but the mandating of synfuels output has not

been of central congressional interest. The major

difficulty associated with developing synfuels

stems from technical uncertainties which, in turn,

affect the likely cost at which synfuels initially will

be produced. in addition, contributions to oil import savings from synfuels would not be made

incrementally (as with increasing automobile fuel

efficiency) but rather depend on the proper functioning of large-scale facilities. As experience and

knowledge is gained, it may become possible to

establish realistically achievable production levels

if the Government desires an assured level of synfuels supply.

Table 8.—Potential Average New-Car

Fuel Efficiency in 1995

Fuel efficiency of

Car size class average model (mpg)a

Large . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....30-45

Medium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....45-60

Small . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....60-75

Average new-car fuel

Size mix of cars sold efficiency (mpg)a

1961 size mixb. . . . . . . . . . . . . . . . . . . . . . . . ....40-50

Moderate shift to small carsc

. . . . . . . . . . . ....45-60

Large shift to small carsd . . . . . . . . . . . . . . ....50-65

a All mpg figures rounded to nearest 5 mpg. Mpg refers to the composite conslstlno of 55 percent EPA city cycle and 45 percent EPA highway cycle,

b 1~1 gales: 47 percent large cars, da percent medium-sized cars, and 5 percent small cars.

C l= gales: m percent large Cars, 55 percent medium, 25 percent small.

d l% gales: s percerlt large cars, 45 percent medium, 50 percent smali.

SOURCE: Office of Technology Assessment.

One possible form of regulation would be to

stipulate that a certain percentage of the output

from domestic oil producers be synfuels. However, this provision would be unworkable for

small oil producers, so it would have to be targeted at the larger oil companies. Similar problems arise with regulations aimed at refiners or

retailers. Furthermore, because refining and retailing are considerably less profitable than gas

and oil production, regulations aimed at the former might induce some of the companies that are

vertically integrated to abandon refining rather

than to incur the added costs and risks. For these

reasons, it would probably be very difficult to administer mandates on synfuel content.

Other Effects

Environment, Health, and Safety

Both increased automobile fuel efficiency and

synthetic fuels production have the potential for

creating large-scale environmental, health, and

safety hazards. A principal rationale for policy intervention is the general past failure of private

markets to internalize these other effects in investment decisions and operating practices. Policies

to protect the public have tended to take the form

of regulations that govern known or anticipated

impacts through performance standards or control specifications.

Apart from fuel efficiency, the auto industry is

regulated in the areas of emissions and safety.

Emissions standards require that each vehicle–

and automobile safety standards require that each

of certain vehicle parts-meet minimum performance standards. (By contrast, fuel-economy standards are for fleet averages.) There are proposals

before Congress to delay, modify, or eliminate

over 30 automotive-related environmental and

safety regulations.25

A potential threat to the public from size and

weight reduction of vehicles used to increase fuel

efficiency is decreased automotive safety. The

basic policy issue is whether the Government

should act to help prevent future highway fatalities if consumer demand for safety does not result

25 See Gwenell Bass, “The U.S. Auto Industry: The Situation in

the Eighties,” CRS issue brief No. IB81054, Sept. 30, 1981.
Ch. 3—Policy ● 5 7

in adequate safeguards. * Regulatory policy could,

as examples, reconsider the passive restraint program (rulemaking for that program was terminated by NHTSA although a recent U.S. Court

of Appeals ruling has reinstated the program, at

least for the moment), mandate the use of safety

belts, strengthen crashworthiness design standards, or maintain or tighten speed limits. Other

types of programs could provide for stricter driver

licensing standards and improved road maintenance and traffic control, support R&D, and provide for driver safety education. Another potential adverse effect is the air quality impact of a

large increase in diesel-powered autos. Policy alternatives include more stringent particulate and

NOX emission regulations for diesel engines and

Government assistance in diesel health effects

research and emissions control development.

Potential environmental and worker-related

problems associated with synthetic fuels development (e. g., contamination of drinking water, release of cancer-causing agents and other hazardous pollutants, highly visible plant upsets, obnoxious odors, and localized water availability conflicts) are substantial and have considerable

potential for arousing strong public opposition.

There are also elements of the present synfuels

development strategy that appear to increase the

potential for adverse impacts. These elements include the proposed siting of some synfuels demonstration plants close to heavily populated areas,

research budget cuts at EPA and the proposed

dismantling of DOE, the current policy to shift

environmental management responsibilities to

State and local agencies without a concomitant

shifting of resources, and an industry environmental control program that appears reluctant to

commit resources to currently unregulated pollutants and that may be overconfident about the

performance of integrated control systems.**

“Manufacturers may not pursue safety for fear that the added

cost will dampen market demand. In most cases safety has not been

a strong selling point in automobiles in the past.

*“In apparent response to their confidence that adequate environmental control of synfuels plants will involve only “fine tuning”

of existing control technologies, developers have passed up some

opportunities to test out control systems on demonstration plants.

For example, Exxon feeds the wastes from its Baytown, Tex., EDS

plant into a neighboring refinery rather than developing and testing

specific controls for the plant. In OTA’s opinion this increases the

risk of unforeseen problems at the first large-scale plants. Such problems appear quite possible given the differences between the conditions under which proposed control systems have been used

previously (in chemical plants, refineries, etc.) and the expected

conditions in synfuels plants.

Finally, the multiplicity of pollutants associated

with synfuels production and the difficulty of detecting and evaluating some of the potential impacts (e.g., long-term cancer impacts from lowIevel exposures), coupled with the above factors,

leads to a strong concern about the adequacy of

future regulation of a synfuels industry.

Government actions targeted at the potential

risks of synthetic fuels development may be an

important factor in assuring that the risks are

properly measured and in causing the private sector to account for these risks. A problem the Government faces, however, is that premature adoption of rigid standards could ultimately act to stifle innovation or force suboptimal environmental

decisions. Also, the capital-intensive nature of the

industry leaves it vulnerable to delays caused by

shifts in environmental requirements or standards

that ultimately prove unattainable.

The existence of these problems places a premium on an intensive research program and a

round of demonstration plants, that include full

environmental control systems, to avoid surprises

and provide timely information for intelligent regulation. Also, the impact of an environmental surprise might be minimized by choosing isolated

sites and requiring particularly strict controls for

the first round of plants, thus minimizing the actual impact suffered from excessive discharges or

other problems.

The vulnerability of synfuels plants to scheduling delays has also generated pressures on Congress and State legislatures to streamline environmental permitting for energy facilities. Although

it is too early to assess recent streamlining efforts

at both the Federal and State levels, considerable

improvement appears possible without a fullscale Energy Mobilization Board.26 In most cases,

regulatory delays are important only to the extent they delay construction starts or require

changes in plant design; otherwise, all necessary

permits are likely to be obtained before significant construction investment has been made. Delays after construction has started could, however, be costly. A 3-year delay, for example,

ZbCongressional Research Service, “Synfuels From Coal and the

National Synfuels Production Program: Technical, Environmental,

and Economic Aspects. ”
58 ● Increased Automobile Fuel Efficiency and Synthetic Fuel: Alternatives for Reducing Oil Imports

could increase synfuels product costs by 20 percent or more. In addition, the risk that retrofitting may be required will remain until synfuel

processes have been proven and both emissions

and products extensively tested. Formulating regulatory policy entails an assessment of the full

range of regulatory costs to industry versus the

possible costs arising in the absence of policy.

At present these complex tradeoffs are often determined in a lengthy, case-by-case process based

on judicial interpretations.

policy alternatives to regulation include effluent

charges and pollution vouchers. Although such

mechanisms have a strong theoretical basis, there

is a general lack of practical experience in using

them. Also, the toxic pollutants of most concern

in synfuels production cannot safely be traded

off among sources the way pollutants such as SO2

and NOX can be.

There are two additional levels for policy involvement. First, Congress could decide to increase the environmental capabilities of responsible regulatory agencies. One specific option is

to target resources for specific State and local environmental agencies, as was done under the

Clean Air Act in the early 1970’s. As a part of this

option, Congress may also wish to investigate the

effects of the programmatic changes and budget

reductions for synfuels environmental research

and control system development at EPA and

DOE.

Secondly, environmental concerns could be integrated directly into financial support decisions

—i.e., of SFC. Although some would claim that

this latter option is redundant given current environmental legislation, there are nevertheless

many concerns (e.g., siting) which are not

well-addressed by existing laws. In addition, the

protection of SFC investments would be wellserved by an ability to influence environmental

planning. SFC has not yet moved aggressively to

build a technical capability for the environmental assessment of projects it will support.

The availability of water resources may pose

special problems for policy because of the present controversies surrounding the allocation and

use of increasingly scarce supplies.27 How conflicts are resolved in areas where users presently

or could potentially compete for water will have

important implications for the distribution of costs

and benefits to all water users, especially since

the costs of procuring water are likely to be small

(in comparison with other costs) for the synfuels

industry. Present water policies and planning

mechanisms are fragmented and generally inadequate to assess water availability and plan for

future water needs on a consistent, comprehensive, and continuous basis. Because of the

magnitude, diversity, and nationwide distribution

of water resource problems and because the outcome of water-resource allocation conflicts will

have local, State, regional, and National impacts,

the Federal Government has an important role

to play in improving water resource management

practices in cooperation with the States. Major

policy issues include the resolution of uncertainties surrounding water rights and future water

needs and the definition of responsibilities, objectives, and priorities for water planning and allocation. Legislation pending before Congress (e.g.,

S.1095 and H.R. 3432, which both call for the

dismantling of the U.S. Water Resources Council) seeks to redefine the respective responsibilities of Federal and State Governments and to

clarify the role of regional and local interests in

managing water resources.

Social Adjustment Assistance

Increasing automobile fuel efficiency and developing a synfuels industry will result in social

costs and benefits which are side effects, i.e., effects that are external to the transactions made

between consumers and producers. The movement of capital and labor as a result of industrial

change (i.e., restructuring, contraction, or

growth) will have implications not only for the

character of the labor market but also, consequently, for lifestyles and standards of living.

ZzFOr further discussion of these issues see An Assessment of oil

Shale Technologies, OTA-M-118 (Washington, D. C,: U.S. Congress,

OtYice of Technology Assessment, June 1980); and A Technology

Assessment of Coal Slurry Pipelines, OTA-E-60 (Washington, D. C.,

U.S. Congress, Office of Technology Assessment, March 1978).
Ch. 3—Policy • 59

in the auto industry, the major social effects are

related to job losses resulting from structural adjustment. In the synfuels industry, the major social

externalities are related to new employment and

result from large, rapid and fluctuating population growth in some areas where the industry may

locate. Government policy may be important

both for easing those social adjustments that the

market does not address and for ensuring that

associated costs do not fall disproportionately on

particular groups. Social-adjustment assistance in

this country has generally been limited in the past

to sectors affected by international trade and to

several programs focusing on regional adjustment.

Labor market dislocations are of primary importance to the Nation because of the penetration,

numbers, and dispersion of auto-related jobs

throughout the economy as well as the geographic concentration of auto production jobs. Restructuring of the industry for improved international

competitiveness, productivity, and fuel efficiency is resulting in what is likely to be a long-term

decline in auto-related employment.

The problem of unemployment in the auto industry could be addressed by policy measures

that seek to ease the adjustment of firms, workers,

and communities to changing economic conditions. Policy options include, as examples: relocation assistance, support of retraining programs

and training institutions, local content provisions,

manpower training vouchers for targeted individuals, plant-closing restrictions, tax incentives to

other industries (or regions) to attract displaced

workers, and community aid programs (e. g., to

diversify local economies).

Some assistance has been available under the

Trade Act of 1974 provisions and through Housing and Urban Development, the Economic Development Administration, and other Government agency programs. These programs have

generally been limited in scope and funding and

have generally required evidence of economic

distress (i.e., they are not preemptive). They are

also candidates for curtailment under proposed

Federal budget cuts. Note that because employment displacement depends in part on labor

costs, automobile-related employment levels will

also vary with the degree to which autoworkers

accept changes in compensation and work rules,

behavior which is not generally subject to direct

Federal policy initiatives.

Major social side effects arise from synfuels development because the communities which absorb the large, rapid population increases (a portion of which is only temporary) are vulnerable

to institutional and social disruptions. These externalities could constrain synfuels development

by generating public opposition to synfuels and

by adversely affecting worker productivity. The

principal policy issues relate to who will bear the

costs of managing and mitigating these disruptions and how up-front capital can be made available to finance necessary public facilities and

services. Those who view social impacts as the

price of regional development emphasize the responsibilities of State and local governments

working with private developers. Those who associate local impacts primarily with the pursuit

of national energy objectives call for a continued

and expanded Federal role.

There are also many questions of equity that

arise in allocating resources among different

areas, because of the large variations in the

magnitude and character of adverse impacts and

the resources available to cope with these impacts. An acceptable assistance program must

deal with the problem that some of the shortages

of impact-mitigation resources are caused by limitations on planning and borrowing powers imposed by local and State governments themselves.

Current policies to deal with the social impacts

of energy development are unable to address

consistently and comprehensively the cumulative

impacts arising from the large-scale, rapid-growth

situations that characterize synfuels development.

Government policies could be directed at either

energy development generally or synfuels production specifically, and could provide, as examples: financial aid, technical assistance, growth

management planning assistance, regulation

(e.g., with respect to siting, phasing, pacing, monitoring), lending and borrowing assistance, or taxing provisions. The various forms of technical and

financial assistance for growth management are
60 Ž Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

examined in detail in previous OTA studies.28 29 30 31 All relevant Federal programs have

been targeted for substantial budget reductions,

or elimination, in fiscal year 1982 under proposals

submitted to Congress by the present administration.32

The development of a synfuels plant will lead

to the creation of new jobs in construction and

ZBAn Assessment of Oil Shale Technologies, Op. cit.

zgThe Dir~t L/se of~a~ OTA-E-86 (Washington, D. C.: U.S. Congress, Office of Technology Assessment, April 1979).

30&fanagement of Fue/ and Nonfuel Minerals in Federal Land,

OTA-M-88 (Washington, D. C.: U.S. Congress, Office of Technology

Assessment, April 1979).

31An ~sessment of ~ve~pment and production Potential of Fed

era/ Coa/ Leases, OTA-M-150 (Washington, D. C., U.S. Congress,

Office of Technology Assessment, December 1981).

3zCongressional Research Service, “Energy Impact Assistance Legislation, “ issue brief No. 1679022, Sept. 9, 1981.

engineering. Technically qualified personnel

should be available for most of these jobs. However, a shortage of experienced chemical process

engineers and project managers could arise, causing costly mistakes and production delays. The

overall number of chemical process engineers,

for example, would have to increase by about

one-third by the mid to late 1980’s to accommodate an optimistic level of synfuels plant construction.

The Federal Government could encourage the

education of engineers by providing financial support for facilities, equipment, retraining programs,

scholarships, and the hiring and retraining of faculty. Training in skills needed for complex project management could similarly be stimulated.

The auto industry would also benefit from programs to train engineers if the industry pursued

extensive development efforts domestically.

CONCLUSIONS

Both increasing automobile fuel efficiency and

synfuels production have economic and noneconomic risks and external costs. The decision to

pursue either, or both, alternatives–as well as

to pursue the third major technical alternative of

fuel switching and conservation in stationary uses

of petroleum—depends on the desired rate and

level of oil import displacement and what the Nation is prepared to spend to achieve its oil-displacement goals.

The availability and cost of capital are especially

important for the automobile and synfuels industries, since they are both capital-intensive. General economic conditions affect consumer confidence and purchasing power. Among the policies

mentioned in this chapter are general tax policies

and special taxing provisions which would encourage capital formation and stimulate industrial

innovation economywide.

The rate at which automobile fuel efficiency

can be increased and a synfuels industry developed are also affected by factors that are specific

to each alternative. Contributions to oil-import

displacement from increased automobile fuel efficiency depend critically on consumer demand

for fuel-efficient cars. Government actions to stimulate demand are a direct way to help ensure that

fuel-efficient cars are bought and, in turn, that

they will be produced. Demand-oriented measures that appear promising and that deserve further analysis include registration, purchase, and

fuel taxes and purchase subsidies. Supply incentives, depending on their nature, could help manufacturers pay for the investments necessary to

increase fuel efficiency, especially if there is an

absence of strong demand for either cars in general or fuel-efficient cars in particular. In the case

of weak demand for efficiency, increasing CAFE

standards beyond the 1985 level may help to ensure continued oil import displacement. However, the increased cost of the efficiency increases

could reduce new-car sales and thereby reduce

the potential savings. In general, a combination

of demand and supply incentives would be the

most effective means of promoting more efficient

fuel use in automobiles. This would contrast with

past policy, which has been aimed largely at producers.

The success of synfuels development in displacing oil imports hinges on the resolution of major

technical uncertainties associated with as yet un-
Ch. 3—Policy ● 6 1

proven processes. private investments are likely

to be accelerated once processes are demonstrated in commercial-scale units—provided the

processes are economically competitive sources

of fuels. The high costs and other risks associated

with demonstration projects are likely to necessitate Government support if synfuels production

is to become a significant fuel source by the end

of the century.

Other policy considerations for displacing oil

imports are applicable generally to planning in

a world of uncertainty. First, flexible and nonspecific policy interventions provide both public and

corporate decision makers with the maximum opportunities to adjust internally to changing economic and technical circumstances. Secondly,

periodic reviews and adjustments can help prevent prematurely locking the Nation into technical choices that discourage a continuing search

for better methods, although too much flexibility can lead to ad hoc programs.

A long-term, stable policy commitment to oil

import displacement, and to alternatives for displacing imports, is essential in order to send clear

signals about Government intentions and promote mutual confidence in any public-private

relationship. In the past, the Government has

sometimes sent conflicting signals. For example,

concurrent Government programs were in place,

on the one hand, to encourage automobile fuel

economy with CAFE standards and, on the other

hand, to discourage fuel conservation with price

controls on oil which helped to keep the price

of gasoline low. *

Increased automobile fuel economy and synfuels production contribute in different ways to

the Nation’s energy security. The advantages of

automobile fuel efficiency include the following:

1) through conservation, it directly eliminates the

need for oil imports in the Nation’s highest petroleum-consuming sector; 2) after large numbers

of fuel-efficient vehicles have been sold, the fuel

*U.S. policies in the 1970’s also implicitly encouraged oil use

for stationary purposes (e.g., Federal curtailment policy for natural

gas).

savings does not depend on the operation of a

few large plants, and there will continue to be

fuel savings even if particular vehicles perform

below standards; 3) it does not result in a net

reduction of natural energy resources and thus

preserves options for future generations; and

4) although there are long Ieadtimes for commercializing new products in the auto industry, savings are already occurring as technologies are diffusing into the consumer market. However, if

market and/or Government pressures for increased automobile fuel efficiency damage the

U.S. auto industry, there will be repercussions

throughout the economy.

The principal national security advantage of

synfuels production is that it may provide longterm strategic insurance against sustained shortfalls. Rapid and successful deployment could conceivably serve to reduce the rate at which oil import prices increase and thus help to reduce inflation. The vulnerability of the synfuels alternative

is related to the complexity of technical controls,

the high risks and costs of failure, potentially hazardous environmental side effects, institutional

barriers to deployment, and, in some cases, the

geographic concentration of facilities.

Because increasing auto fuel efficiency and synfuels development are both capital-intensive,

each will incur major economic penalties if facilities function below capacity. However, because

the “normal” rate of capital turnover is likely to

be lower in the synfuels than the auto industry,

synfuels production will be more limited in adapting to changing demands.

Developing a long-term, coordinated, and

comprehensive energy policy will be an incremental process. A prime objective is to choose

a least cost mix of options for reducing oil imports. Because investment costs (per barrel per

day of oil saved or replaced) for the various options considered in this report for the 1990’s are

highly uncertain, yet appear to be comparable

in magnitude, the judgment of relative costs will

depend largely on value assessments of the various externalties of pursuing each option.
62 ● Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil /reports

APPENDIX 3A.–POLICY OPTIONS TO

REDUCE STATIONARY OIL USE

Conservation

1. Tax credits for investments in conservation:

Ž Current 15-percent credit for investments by

homeowners–single-family and 4-unit or less

muItifamiIy.

● 10-percent tax credit for energy efficiency or renewable resource investments by industry.

2. Residential Conservation Service:

● UtiIity audit service for homeowners.

● Proposed extension to include apartment and

commercial buildings.

3. Subsidized loans to homeowners to finance conservation investments:

● Currently the purpose of the Solar and Conservation Bank.

● Private savings and loan institutions also offer below-market loans for conservation in some cases.

4. Targeted tax credits (20 percent) for investments in

energy efficiency by industry:

● Currently proposed in legislation now before

Congress.

● Tax credit in addition to current credits.

5. State public utility commission actions to encourage

conservation efforts by utilities:

Allowance of conservation investments in the rate

base of utilities (proposal).

Permission to sell saved energy to private investors (proposals).

Allowing utilities to set up separate companies to

provide conservation services—now occurs in

some cases,

6. Legislating standards and/or information:

●

●

●

●

Appliance efficiency standards–labeling of appliances.

Building standards–currently prescriptive standards through the minimum property standards of

the Department of Housing and Urban Development.

Building energy performance standards are legislated but currently not enforced.

Efficiency standards for industrial electric motors

were proposed but never enacted.

Fuel Conversion

1. Prohibition on oil use by utility boilers and large

industrial boilers:

● Principal focus of the Fuel Use Act.

● Goal to eliminate use of oil by 1990.

2. Financial assistance for utilities to convert from oil

to coal:

Ž State commissions have allowed New England

Electric Co. to secure a “loan” from their customers to pay for an oil-to-coal conversion.

● Federal legislation proposed to provide loan guarantees for these conversions was never passed

and is not likely to be pursued now.

3. Legislation to remove regulatory restrictions on use

of natural gas by industry:

● Currently part of several proposals to encourage

conversion to natural gas.

• Current regulations (Federal and State) either prohibit or discourage natural-gas use for many applications that now use fuel oil.

4. Environmental regulations affecting coal use in industry:

● Lowering of emission standards for applications

below a certain size.

• Financial assistance to help install control technologies.

General

1. R&D to increase efficiency of end-use technologies:

● Promotes general conservation.

• Can also be directed at developing efficient electric energy using technologies to make the economics of switching to electricity attractive.

2. Tax on oil–either on imports or on specific products such as fuel oil for boilers or space heating:

3. Economic incentives for development of unconventional natural gas:

● Currently unconventional natural gas is completely deregulated.

• Tax credits to encourage development of unconventional gas (this is currently not available).
Ch. 3—Policy ● 6 3

APPENDIX 3B.–ADDITIONAL CRS REFERENCES

The Congressional Research Service has recently 3.

published many reports on various aspects of energy

policy to which the reader is referred. These reports

include the following:

1.

2.

Rothberg, Paul, ‘Synthetic Fuels Corporation and 4.

National Synfuels Policy, ” CRS issue brief No.

1681139, Oct. 13, 1981.

Chahill, Kenneth, “Low-Income Energy Assist- 5.

ance Reauthorization: Proposals and Issues, ” CRS

mini brief No. MB81227, Aug. 26, 1981.

Abbasi, Susan R., “Energy Policy: New Directions

Indicated by the Reagan Administration’s Budget

Proposals, ” CRS mini brief No. MB81222, June

29, 1981.

Parker, Larry, Bamberger, Robert L., and Behrens,

Carl, “Energy and the 97th Congress: Overview,”

CRS issue brief No. 1681112, Sept. 15, 1981.

Rothberg, Paul, “Synthetic Fuels Corporation,

Policy and Technology,” CRS mini-brief No.

MB79245, July 13, 1979, updated Apr. 20, 1981.
Page

introduction . . . . . . . . . . . . . . . . . . . . . . . . 67

What Do Oil Imports Cost? . . . . . . . . . . . 67

Dependence of Price on Quantity

Imported . . . . . . . . . . . . . . . . . . . . . . . 68

Loss of U.S. Jobs and GNP Caused by

Rising Oil payments and by

Potential Supply Interruptions . . . . . . 68

Military Outlays and Foreign Policy

Directions Forced by Oil Import

Dependence . . . . . . . . . . . . . . . . . . . . 69

Conclusion . . . . . . . . . . . . . . . . . . . . . . . 69

How Quickly Can Oil Imports Be

Reduced? . . . . . . . . . . . . . . . . . . . . . . . 69

Chapter 4

Issues and Findings

What are the Investment Costs for

Reducing U.S. Oil Consumption? . . . 74

Introduction . . . . . . . . . . . . . . . . . . . . . . 74

Conventional Oil and Gas Production . 74

Automobile Fuel Efficiency . . . . . . . . . . 75

Electric Vehicles . . . . . . . . . . . . . . . . . . . 77

Synfuels . . . . . . . . . . . . . . . . . . . . . . . . . . 77

Stationary Uses of Petroleum . . . . . . . . 78

Conclusion . . . . . . . . . . . . . . . . . . . . . . . 78

Page

How Do the Environmental Impacts

of Increased Automobile Fuel

Efficiency and Synfuels Compare? . . . 83

Public Health and Safety . . . . . . . . . . . . 84

Worker Effects . . . . . . . . . . . . . . . . . . . . 84

Ecosystem Effects . . . . . . . . . . . . . . . . . . 85

Summary . . . . . . . . . . . . . . . . . . . . . . . . . 85

How Will the Social Impacts of

Synfuels and Increased Automobile

Fuel Efficiency Compare? . . . . . . . . . . 86

Employment . . . . . . . . . . . . . . . . . . . . . . 86

Community Impacts . . . . . . . . . . . . . . . . 86

How Do the Regional and National

Economic Impacts of Synfuels and

Increased Auto Efficiency Compare? . 87

Inflation and Economic Stability . . . . . . 87

Employment and International

Competition . . . . . . . . . . . . . . . . . . . . . 87

Income Distributing Among Regions . . . 88

Capital Intensity and Ownership

Concentration . . . . . . . . . . . . . . . . . . . 88
Page

What Do Incentives for Increased Fuel

Economy Imply for the Evolution

and Health of the U.S. Auto

Industry ?. . . . . . . . . . . . . . . . . . . . . . . . 89

Can We Have a 75-Mpg Car?. . . . . . . . . . 90

Are Small Cars Less Safe than Large

Cars?. . . . . . . . . . . . . . . . . . . . . . . . . . . 92

How Strong Is Current Demand for

Fuel Efficiency in curs?... . . . . . . . . . 93

What Are the Prospects for Electric

Vehicles? . . . . . . . . . . . . . . . . . . . . . . . 94

lf a Large-Scale Synfuels Industry ls

Built... Will Public and Worker

Health and Safety as Well as the

Environment be Adequately

Protected? . . . . . . . . . . . . . . . . . . . . . . 95

Will Water Supply Constrain Synfuels

Development? . . . . . . . . . . . . . . . . . . . 98

Are Synthetic Fuels Compatible With

Existing End Uses? . . . . . . . . . . . . . . . . 99

Alcohols . . . . . . . . . . . . . . . . . . . . . . . . . 99

Shale Oil . . . . . . . . . . . . . . . . . . . . . . . . . 99

Direct Coal Liquids . . . . . . . . . . . . . . . . . 99

Indirect Coal Liquids . . . . . . . . . . . . . . . 100

Caveat .. . . . . . . . . . . . . . . . . . . . . . . . 100

TABLES

Table P/o, Page

9. Minimum Oil lmports for Base Case . 70

10. Contributions to the Reduction of

Oil imports Beyond the Base Case . . 70

11. Estimated Investment Costs for

Conventional Oil and Natural

Exploration and Development . . . . . . 75

12. Capital Investment Allocated to Fuel

Efficiency Plus Associated

Development Costs . . . . . . . . . . . . . . . 76

Table No.

13.

14.

15.

16.

17.

18.

19.

Investment Cost for Various

Page

Transportation Synfuels and Electric

Vehicles . . . . . . . . . . . . . . . . . . . . . . . . 77

Estimated investment Cost of Fuel

Switching and Conservation in

Stationary Petroleum Uses During

the 1990’s. . . . . . . . . . . . . . . . . . . . . . . 78

Plausible Consumer Costs for

increased Automobile Fuel Efficiency

Using Alternative Assumptions About

Variable Cost Increase. . . . . . . . . . . . . 80

Estimated Consumer Cost of

Various Fossil Synfuels Using

Two Financing Schemes . . . . . . . . . . . 81

Comparison of Average and Highest

Fuel Efficiency for 1981 Model

Gasoline-Fueled Cars in Each

Size Class . . . . . . . . . . . . . . . . . . . . . . . 93

properties of Selected Jet Fuels

Derived From Shale Oil and SRC-11 . . 100

Properties of Selected Diesel Fuels

Derived From Shale Oil and SRC-ll. . 100

FIGURES

Figure No. Page

4. Comparison of Base Case Oil Imports

5.

and Potential Reductions in These

Imports . . . . . . . . . . . . . . . . . . . . . . . . . 73

Consumer Cost of Selected Synfuels

With Various Aftertax Rates of Return

on lnvestment . . . . . . . . . . . . . . . . . . . . 81

A.

B.

c.

BOXES

Page

Consumer Cost of lncreased

Automobile Fuel Efficiency . . . . . . . . . . 79

Consumer Cost of Synfuels. . . . . . . . . . 81

Total Cost and lnvestment Cost . . . . . . 82
Chapter 4

Issues and Findings

INTRODUCTION

This chapter is a summary and comparison of

major results from the analyses discussed later in

the report. It also contains additional analyses

where needed to put the results in perspective.

It begins with a discussion of the true cost of

imported oil. Increased automobile fuel efficiency, synfuels, and conservation and fuel switching

in stationary petroleum uses are then compared

according to the speed with which they can act

to reduce oil imports and their respective investment costs. Increased auto fuel efficiency and

synfuels are compared according to their environmental, social, and economic impacts. Estimated

consumer costs for increased automobile fuel efficiency and synfuels are also given in separate

boxes, but the uncertainties are too large for any

meaningfuI comparison. In addition, there is a

box discussing the uncertainties in total consumer

costs for each of the oil displacement options.

Following the comparisons, several issues related specifically to increased automobile fuel efficiency or to synfuels are covered. For automobiles, the issues include the effects of incentives

for increased fuel efficiency on the evolution and

health of the U.S. auto industry, the possibilities

for a highly fuel-efficient car, the safety of small

cars, current demand for fuel efficiency i n cars,

and the prospects for electric vehicles. For synfuels, probable environmental dangers, water

constraints, and compatibility of synfuels with existing end uses are considered.

Each separate entry in this chapter is designed

to stand alone and generally does not build on

other material in the chapter. The chapter is not

designed to be read from beginning to end; rather, each reader can turn directly to those comparisons and issues of interest without loss of context or regard for the way the entries are ordered.

WHAT DO OIL IMPORTS COST?

The private U.S. consumer pays the going market price for imported oil, but that is not its only

economic cost. In the last decade, the Nation has

been forced to pay a substantial additional “premium” because of its strategic dependence on

a small number of foreign oil producers. During

especially unstable periods, such as the 1973-74

Middle East War and the 1978-79 Iranian Revolution, this import premium payment is highly visible and, when measured in terms of the incremental cost for that segment of demand which

clearly exceeds available supplies, it can greatly

exceed the actual market price.

It is reasonable to attribute an exceptional premium payment to oil, and not to other imported

goods and services, because uninterrupted oil

supplies are critical to economic stability (i.e., few

substitutes exist at least in the short run) and

because the United States has become the prominent importer on the world scene and has assumed major responsibility for protecting world

oil trade. No other import constitutes such a vital

economic resource that must flow in such a large

continuous stream around the world. Although

the third quarter of 1981 has witnessed falling oil

prices and a modest supply surplus, future shortage risks remain plausible because of the expected longrun depletion of world oil reserves

and because of unresolved and potential international conflicts.

The existence of a national premium payment

for oil imports can be explained in terms of three

economic relationships:

1.

2.

the dependence of international price on the

quantity of U.S. imports;

the loss of U.S. jobs and gross national product (GNP) caused by oil payments abroad

and the associated depreciation of the dollar;

and

67
68 ● Increased Autornobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

3. the budgetary cost of military outlays and foreign military assistance related to assuring

the security of oil imports. These are described below.

Dependence of Price on

Quantity Imported

Market price is a good measure of real or total

cost when markets are competitive and in a state

of stable equilibrium. Neither situation is characteristic of international oil markets, which are

dominated by a small number of sellers and buyers in an unstable marriage of short-term convenience. Despite the complexity and unpredictability of this relationship, it seems reasonably clear

that raising U.S. oil imports drives price upward

and vice versa, simply because any movement

by such a prominent importer appears to the rest

of the world as a shift in the world demand curve.

This positive relationship between quantity imported and price means that the cost of incremental U.S. consumption exceeds current price

because the increment makes all future consumption more expensive. Conversely, decrements in

U.S. consumption save more money than the

marginal reduction in purchases.

Eventually, oil markets may anticipate this

price/quantity relationship, but market adjustments may not be smooth. Shocks can be expected, leading to domestic inflation and recession, because international relationships between

exporters and importers have become politicized

and because significant reductions in oil consumption are difficult to achieve over periods of

up to several years due to the long lifetimes of

energy-related capital stock and the long leadtime for alternative domestic fuels.

Loss of U.S. Jobs and GNP Caused

by Rising Oil Payments and by

Potential Supply Interruptions

Oil imports accounted for 26 percent of U.S.

payments for imports in 1979, which is about

twice the level of the second largest item. Consequently, compared with equivalent rates of

growth or decline for other imports, changes over

time in oil payments have a relatively large impact on the U.S. balance of trade, and, hence,

a relatively large impact on the exchange value

of the dollar.

In periods when the dollar is relatively strong,

as it has been recently (second half of 1981), it

is due in part to declining oil payments. In periods

when the dollar is weak, as it was during most

of the 1970’s and especially after 1975 because

of large deficits in merchandise trade, growing

oil payments increase selling pressure on the dollar, lowering its foreign exchange value. While

this makes U.S. exports more attractive to foreign

buyers, export sales may not increase elastically

because of stagnant world economy or failure of

U.S. goods to meet quality standards. Therefore,

market adjustments, including both higher prices

and undoubtedly reduced purchases, are forced

on U.S. importers.

Furthermore, the declining value of the dolIar

has relatively little effect on oil imports, again due

to the long lifetimes of capital related to oil consumption. Barring economic recession, oil consumption significantly declines only with the slow

replacement of capital. Thus, even though rising

oil imports or sharply rising oil import prices may

be clearly responsible for dollar depreciation, oil

consumption may not bear the brunt of the resulting short-term adjustment.

Overall, adjustments in the U.S. balance of payments also affect domestic economic activity. A

sharply rising oil import price directly increases

domestic inflation while at the same time larger

foreign payments can lower total demand for domestic goods and services if, as is likely in the

short run, oil exporters do not spend their larger

receipts in the United States. This combination

of rising inflation and declining total demand puts

the Federal Government in a difficult position because corrective policies are contradictory. If control of inflation is the primary objective, sharp oil

price increases may force the Government to

brake the growth momentum of the national

economy or exaggerate downward cycles in order to limit propagation of inflationary pressures.

In addition to oil price shocks, potential supply interruptions of oil imports present the clearest, most direct threat to national economic activity. As discussed above, few good substitutes exist
Ch. 4—issues and Findings ● 6 9

for oil in the short run, so that reduced flow results in lost production and unemployment as

soon as stockpiles can no longer make up for the

deficit.

The potential premium payment, implied by

both unstable oil import prices and supply interruptions, can be illustrated in terms of the 1973-

74 shock. In 1974 and again in 1975, real GNP

declined by more than a percentage point after

having grown at a rate of 5 percent in 1973 and

4 percent in 1972. Although cause and effect in

macroeconomics is highly speculative, the losses

in 1974 and 1975 are widely believed to have

been due in part to the disruption of oil supplies

and the associated quadrupling of imported oil

prices. If, in fact, real GNP growth had been reduced by just one percentage point by oil-related

events, it would have meant a loss of about $15

billion in U.S. production ($1.5 trillion GNP in

1975), which amounts to $6.80 per barrel (bbl)

for the 2.2 billion bbl imported that year. The

price of oil at that time was about $11.

Military Outlays and Foreign Policy

Directions Forced by Oil

Import Dependence

Military and foreign policy are predicated on

many national objectives, but apparently one

very important consideration for the United States

is protection of oil supply lines. The cost of such

protection cannot be ascertained directly, but

current debate over defense budget priorities

indicates that the United States intends to develop

weapons systems and train personnel in order to

be able to fight a war in the Middle East, if necessary.

If 10 percent of estimated 1982 defense outlays

were justified to meet military threats to Middle

East oil supplies, it amounts to about $18 billion

or about $9/bbl for the 2 billion bbl of oil imported (net of exports) in 1981.

Conclusion

The complexity and unpredictability of world

oil markets and world oil politics make it difficult

to predict the oil import premium over time. * In

OTA’s judgment, the possible future import premium could range up to $50/bbl. It could be negligible if world demand continues its sharp downward trend and if major new discoveries are

made outside the Middle East, but could be much

larger than the current price of oil if hostilities

break out which cut off most supplies from the

Middle East.

A technical analysis must stop short of greater

certainty except to indicate that a significant reduction of imports would drive the premium

down by reducing the visibility of the United

States in world oil markets and by reducing U.S.

dependence on supplies from politically unstable

countries. In other words, the premium payment

for the last barrel of imports is much higher than

for the first, and it is the last barrel which would

be displaced by domestic synfuels or by higher

fuel efficiency in automobiles.

*A number of estimates for both components of the oil import

premium are available. For the most detailed discussion of related

economic issues and documentation of results from current economic models, see VVor/cf Oil, Energy Modeling Forum, Stanford

tJniversity, Stanford, Calif., ch. 5 (forthcoming).

HOW QUICKLY CAN OIL IMPORTS BE REDUCED?

Options for reducing U.S. oil consumption are Table 9 shows the estimated level of imports

considered in detail later in the report. Here, the in the absence of synthetic fuels and automobile

results of those analyses are summarized and the fuel-efficiency increases beyond a 1985 level of

relative contributions that the various options can 30 mpg. This base case also assumes: 1) the Enmake to reducing imports over the next two dec- ergy Information Administration’s (EIA) high oil

ades are considered. price future to 1990 for the consumption of oil
70 ● Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

Table 9.-Minimum Oil Imports

for Base Case (MM B/DOE)

1980 1985 1990 1995 2000

Stationary demanda (no

additional measures

past 1990) . . . . . . . . . . . . 8.1 7.3 6.4 6.4 6.4

Transportation demand

(other than

automobiles . . . . . . . . . . 4.5 4.7 5..0 5.4 5.7

Automobiles (with

1985 new-car average

of 30 mpg, no change

thereafter) . . . . . . . . . . . . 4.3 3.6 3.0 2.7 2.7

Sum of demand . . . . . . . . . 16.9 15.6 14.4 14.5 14.8

Domestic production . . . . 10.2 8.6 7.6 7.1 7.0

Imports. . . . . . . . . . . . . . . . . 6.7 7.0 6.8 7.4 7.8

%cludes all nonfuei oil uses such as asphalt, petrochemical feedstock, liquefied

petroleum gas, etc., which are projected by the Energy Information Administration to total 3.8 MMB/D by 1990,

boil PIUS natural gas liquids.

SOURCE: Office of Technology Assessment,

for stationary uses;1 2) the transportation petroleum demand (other than for passenger cars) explained in chapter 5; 3) fuel oil demand by stationary uses is held constant after 1990; and 4)

the maximum domestic oil production projected

by OTA.2 For 1995 and 2000, the trends of the

1980’s for stationary uses of petroleum other than

fuel oil have been extrapolated, while holding

fuel oil consumption constant at the projected

1990 level. The assumption of constant fuel oil

demand for the 1990’s was chosen as the base

case to help illustrate the importance of eliminating this demand relative to other options for reducing oil imports in the 1990’s.

It should be emphasized that a considerable

reduction in oil consumption through increased

efficiency and fuel switching in the 1980’s is already built into the base case. in particular,

achieving an average new-car fuel efficiency of

30 mpg by 1985 saves about 0.8 million barrels

per day oil equivalent (MMB/DOE) by 1990, relative to 1980 demand;* and conservation and fuel

switching in the EIA high oil price scenario reduce

oil consumption by 1.7 million barrels per day

1 Energy Information Administration, U .S. Depatiment of Errergy.

z wOr/d petfo/eurn Availability: 19802~ Technical Memorandum, OTA-TM-E-5 (Washington, D. C.: U.S. Congress, Office of

Technology Assessment, October 1980).

*The fuel saved in cars is 0.9 million barrels per day (MMB/D),

but the assumed increase in transportation needs raises consumption in other types of transportation by 0.1 MMB/D.

(MMB/D) in stationary uses by 1990. However,

domestic oil production is likely to drop by at

least 2.6 MMB/D during this same time period,3

thereby nullifying any reduction in oil imports

from these measures alone.

Table 10 shows the various reductions in oil

consumption that may be achieved beyond the

base case. These include contributions from further conservation and fuel switching in stationary

uses, increased automobile fuel efficiency beyond

a 1985 level of 30 mpg, electric vehicles (EVs),

and synfuels. Each of the areas where additional

oil savings are possible is discussed below.

By 1990, stationary demand for residual and

distillate fuel oil is 2.6 MMB/D in the base case. *

As explained in chapter 7, a combination of costeffective conservation measures and switching to

natural gas and electricity can eliminate this stationary fuel oil demand without a need to increase gas production or electric generating capacity. How much of this potential actually is

reached will depend on such things as individual

decisions about conservation investments and

3 World Petroleum Availability: 19802-Technical Memorandum, op. cit.

*The remainder of the 6.4 MM B/D of stationary oil use includes

asphalt, petrochemical feedstocks, liquefied petroleum gas, and refinery still gas.

Table 10.—Contributions to the Reduction of Oil

Imports Beyond the Base Case (MMB/DOE)

1980 1985 1990 1995 2000

Conservation and

switching in

stationary

applications . . . . . 0 0 0 0.8a

-1.3 l.5a-2.6

Increased automobile

fuel efficiency

beyond 1985

average of 30

mpg . . . . . . . . . . . . 0 0-0.1 0.1-0.5 0.3-1.0 0.6-1.3

(Average new-car

efficiency,

mpgb

). . . . . . . . . (23) (30-37) (36-49) (40-63) (45-79)

Electric vehicles . . . 0 0 0 0 0-0.1

Synthetic transportation fuels:

Fossil . . . . . . . . 0 0-0.1 0.3-0.7 0.7-1,9 1.3-4.5

Biomass . . . . . . 0 (c) 0-0.3 0-0,6 0,1-1.0

.——— —

Total . . . . . . . . . . . 0 0-0.20 .4-1.5 1.8-4.8 3.5-9.5

aEnergY Information Administration forecast.

bss percerlt EPA citylds percent EPA highway test wcles.

CLeSS tharl 0.05 MMBID.

SOURCE: Office of Technology Assessment.
Ch. 4—issues and Findings ● 7 1

availability of transmission and distribution systems. The most recent projection of EIA provides

a reasonable lower bound on the reduction in

fuel oil that can be achieved during the 1990’s.

The range of potential savings from increased

automobile fuel efficiency corresponds to the low

and high estimates derived in chapter 5 and different assumptions about relative future demand

for small-, medium-, and large-sized cars, i.e.,

1) no shift to smaller cars and pessimistic assumptions about efficiency increases from automotive

technologies, and 2) a substantial shift to smaller

cars and optimistic assumptions about the technologies. By 2010, automobiles containing the

average technology of 2000 would have replaced

most cars on the road and the savings, relative

to the base case, would be 0.8 to 1.7 MMB/D (2.3

to 3.2 MMB/D relative to 1980 demand).

It should be emphasized that average new-car

fuel efficiencies shown in table 10 do not represent a technical limit to what can be achieved.

In any given year, cars with higher (and lower)

mileages than those shown would be produced

and sold. * Rather, the mileage ranges correspond

to what OTA considers to be feasible through a

variety of technological improvements.

If a very strong demand for fuel-efficient cars

develops, e.g., as the result of continued large

oil price increases, consumers may be willing to

accept poorer performance or pay the added cost

in order to achieve higher fuel efficiency. In this

case, the estimated average fuel efficiency shown

for 2000 in table 10 could be achieved by the

mid- 1990’s.

The contribution from EVs was calculated by

assuming that O to 5 percent of passenger automobiles would be electric by 2000, growing

linearly from O percent at 1985, The savings from

EVs is relatively small, however, because of the

relatively low consumption of petroleum by automobiles (1.3 to 2.1 MMB/DOE in 2000) and the

*For example, u p until January 1981, the 1981 model new-car

fuel efficiency of cars sold averaged slightly less than 25 mpg, but

if the most fuel-efficient cars in each size class had been bought,

the average would have been about 33 mpg.4

4Derived from data in J. A. Foster, J. D. Murrell, and S. L. Loos,

“Light Duty Automotive Fuel Economy . . . Trends Through 1981 ,“

U.S. Environmental Protection Agency, SAE paper No. 810386, February 1981,

fact that EVs would be a substitute for the most

fuel-efficient cars.

The final category in table 10, synthetic fuels,

must be considered carefully to ensure that only

the synthetic fuels production that displaces oil

is included and technical difficulties are accounted for. To derive the low estimate of synfuels contributions, it is assumed that by the time

synthetic fuels become available, the only remaining stationary uses of petroleum are for

chemical feedstocks, asphalt, petroleum coke,

still gas, and liquefied petroleum gas (LPG). Since

these products cannot now be economically converted to transportation fuels, the low estimate

in table 10 assumes that their replacement by synthetic fuels (synthetic gas) would not result in additional transportation fuels. * In addition, poor

performance of the first round of synfuel pIants

is assumed, limiting production until the early to

mid-1 990’s. As a consequence of this, the low

synfuels production scenario from chapter 6 is

used in the table 10 low estimate.

A more optimistic scenario is possible if it is assumed that market or other forces strongly favor

the production of transportation fuels over synthetic fuel gases and that half of the synthetic

gas* * plants projected in chapter 6 actually are

built to produce synthetic transportation fuels.

With these assumptions and the high scenarios

presented in chapter 6, one arrives at the upper

estimate for oil displacement by synfuels shown

in table 10. The high estimate, however, represents a vigorous dedication to synfuels production and what might be termed near “war mobilization” development of the industry.

The range of oil savings from each of these

sources is shown in figure 4, alongside the import levels calculated in the base case. As can

be seen, under the most favorable circumstances

it is technically possible to eliminate oil imports

by 2000. However, if domestic oil productions

is below that shown in table 9 and if only the low

estimates of table 10—or even only the low esti-

*LPG can, however, be used directly in appropriately modified

automobiles.

**Excluding biogas from manure, which would be used principally on the farms where it is produced.

5 World Petroleum Availability: 1980-2000- Technical Memorandum, op. cit.

98-281 0 - 82 - 6 : QL 3
72 . Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

Photo credit: Paraho Development Corp.

The Paraho Semiworks Oil Shale Unit at Anvil Points, Colo.
Ch. 4—issues and Findings ● 7 3

Figure 4.—Comparison of Base Case Oil Imports and Potential Reductions in These Imports

10 —

9 —

8 -

7 -

6 —

5 —

4 “

3 -

2 —

1

0

1980 1985 1990 1995

B

2000

Year

Oil import. in base cas e

Increased efficiency and fuel switching in stationary uses Fossil and biomass synthetic fuels

= Electric vehicles

Increased automobile fuel efficiency (relative to 1985 A = Low scenarios as outlined in text

average of 30 mpg)

SOURCE Office of Technology Assessment.

mate for synfuels—are reached, then it is quite

unlikely that oil imports can be eliminated before

sometime well into the first decade of the 21st

century.

Although the large number of noteworthy uncertainties make an exact determination of the

course of oil imports impossible, several conclusions can be drawn.

First, increased efficiency and fuel switching in

buildings and industry are extremely important

for the reduction of oil consumption. Although

much of the potential in this area will be achieved

through market forces by 2000 under the high

oil price scenario of EIA, implementing the necessary changes at an earlier date could significantly reduce oil imports before 2000. For example,

B = High scenarios as outlined in text

fully implementing the potential for reducing stationary uses of fuel oil by 1990 would save about

15 billion bbl of oil imports or $600 billion (at

an average of $40/bbl) for the imports during the

period 1981-2000.

Second, synthetic fuels development has approximately the same importance as the conservation and fuel switching options but its contribution to reduced imports will not be as large until

at least the late 1990’s. Further, if a large part of

the synfuels is used as a substitute for increased

efficiency and for conventional fuel switching in

stationary uses or as a substitute for petroleum

products not readily converted to transportation

fuels, elimination of oil imports is likely to be

delayed.
74 ● Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

Third, increases in automobile fuel efficiency

beyond a 1985 average of 30 mpg could reduce

automobile fuel consumption 20 to sO percent

(0.6 to 1.3 MMB/D) by 2000 below the fuel consumption of a 30-mpg fleet. in addition, because

fuel efficiency increases in automobiles (to and

beyond 30 mpg) could reduce the automobile’s

share of transportation fuel needs from so percent (in 1980) to 20 to 25 percent (in 2000), it

is likely that efficiency increases in various nonautomobile transportation uses beyond those assumed in the base case could also make significant contributions to reducing transportation fuel

needs. This option has not been analyzed by

OTA.

In summary, it probably will be necessary to

implement fully all of the options for reducing

oil consumption if one wants to eliminate net oil

imports before the first decade of the next century. This will require full implementation of

charges needed for increased efficiency in all uses

of oil and fuel switching in stationary uses, as well

as directing synfuels production to transportation

fuels.

WHAT ARE THE INVESTMENT COSTS FOR

REDUCING U.S. OIL CONSUMPTION?

Introduction

investment costs are an important consideration when comparing alternatives for reducing

U.S. oil consumption. OTA’s analysis indicates

that synfuels production, increased fuel efficiency

in automobiles, and conservation and fuel switching in stationary uses of oil all will require investments of the same order of magnitude for comparable reductions in oil. consumption in the

1990’s; whereas, synfuels production appears to

require larger investments than the other alternatives for the 1980’s. Uncertainties in the cost estimates as well as the fundamental differences in

the nature of the investments are too large, however, to allow a choice between approaches on

this basis alone.

In order to compare investment costs, they

have been expressed as the investment needed

to either produce or save 1 barrel per day oil

equivalent* of petroleum products. This method

was chosen in order to avoid problems that arise

when comparing investments in projects with different lifetimes and for which future oil savings

may be discounted at different rates.** In addition, from a national perspective the per unit in-

*One barrel of oil equivalent = 5.9 MMBtu.

**It does not, however, avoid the problem that the different parties making the investments will have fundamentally different constraints on and perspectives about these investments and thus will

react quite differently in the face of investments of the same size.

vestment cost is important in that it is the parameter used in the aggregate to make choices

among competing investments. Conventional oil

and gas exploration are considered first to provide a reference point. Following this, OTA’s estimates for the investment costs for increased automobile fuel efficiency, EVs, synfuels, and increased efficiency and fuel switching in stationary

uses are discussed briefly.

Conventional Oil and Gas Production

Two estimates of recent investment costs for

conventional oil and gas exploration and

development in the United States are shown in

table 11. The data in this table were developed

from estimates of the annual investments in oil,

gas, and natural gas liquids exploration and development per barrel of increased proven reserves

of these fuels (corrected for depletion). These latter estimates were then converted to investments

for an increase of 1 barrel per day (bbl/d) of production (corrected for depletion) using the 1980

ratio of crude oil reserves to crude-oil production and assuming an 8 percent refining loss. The

ratio of reserves to production for natural gas was

not used because price controls on natural gas

tend to inflate this ratio and thus the estimated

costs; and investments for oil exploration and development were not separated from those for natural gas because there is no practical way to do

so.
Ch. 4—issues and Findings Ž 75

Table 11 .—Estimated Investment Costs

for Conventional Oil and Natural

Exploration and Development

Estimated investment cost

(thousand 1980 dollars per

barrel per day of petroleum

production)

Year Estimate Ab Estimate Bc

1974 . . . . . . . . . . . . . . . . . . . . . . 13 15

1975 . . . . . . . . . . . . . . . . . . . . . . 17 19

1976 . . . . . . . . . . . . . . . . . . . . . . 20 17

1977 . . . . . . . . . . . . . . . . . . . . . . 22 20

1978. . . . . . . . . . . . . . . . . . . . . . 29 18

1979. . . . . . . . . . . . . . . . . . . . . . 31 57d

1980. . . . . . . . . . . . . . . . . . . . . . Not available 39”

Extrapolated to 1985f . . . . . . . 53 49

“ ASSUflleS&perCent refirlingloss”rld a1980ratio ofcrude Oil reServe9tOPrOductionof3.07 x 10’ barrels ofreserves ~erbarrel perday production. lfEIA

data for petroleum resemes are used, the figures are increased byabout 10

percent.

b lnvestrnen!cos!perbarrel of increased rese~es from A. T. Guernsey, ”EconomIcs of Domestic Crude 011 and Natural Gas Exploration and Development

1959-1976,” December 1977, and “1977 and 1976 Addendum,” June 1979,

Prepared for Exploration and Production Department, Shell Oil Co., Houston,

Tex.; and W. C, Hamber, Manager, Forecasting, Exploration and Production

Economics, Shell 011 Co., Houston, Tex., private communication, Nov. 11,1981

c Investment cost ~r barrel of ~ncreased resewes fOr the 26 major ener9Y corn.

panles in the United States calculated for OTA by John Rasmussen, Economics

and Statistics, Energy Markets and End Use, EIA, October 1981, based on EIA

and American Petroleum Institute data See also “Pedormance Profiles of Major

Energy Producers 1979,” EIA, U.S. Department of Energy, DOE/EIA-0206(79),

July 1981.

d This estimate iS anomalously high due to downward revision Of estimated reserves by Texaco during the year and because Ashland Oil sold aome of its

crude oil reserves to a company not included in a sample of 26 ma)or energy

companies.

e Thia estimate may be IOW because petroleum reserve additions are overstated

due to the purchase of Texas Pacific Oil & Gas (not one of the 26 major companies included in the calculation) by Sun 011 Co. (one of the 26 major energy

companies Included in the calculation).

f B~ed on least squares fit of 1974-80 data, exclusive Of 1979 data in estimate

B. Correlation coefficient la 0.98!5 for estimate A and 0.82 for estimate B.

SOURCE: Office of Technology Assessment.

There are significant uncertainties in these estimates due to numerous anomalies in the data,

some of which are detailed in footnotes to table

11, and because the ratio of reserves to production changes with market prices, production techniques (e. g., enhanced oil recovery), and the nature and quantity of reserves. Nevertheless, these

data do indicate that it is reasonable to expect

costs of $50,000/bbl/d or more for conventional

petroleum exploration and development by the

mid-1 980’s if recent cost trends continue.

Automobile Fuel Efficiency

OTA’s estimates of the investment plus associated product development costs for increased

automobile fuel efficiency are shown in table 12.

There are notable technical, accounting, and

market uncertainties associated with this type of

cost analysis, however.

The estimates in table 12 were derived by first

estimating the efficiency gains that can reasonably be expected over time from various changes

in the automobile system. They are based on both

published estimates and OTA’s analysis. The rates

at which these technologies may be incorporated

into new cars were then estimated and resultant

schedules for capital turnover derived. Next, the

investment cost calculations were based on published estimates for the cost of replacing the applicable capital equipment (e.g., facilities for producing a new engine or transmission, etc.). The

actual investment cost and resultant fuel efficiency increases, however, will depend on a number

of factors specific to individual production plants

(and their future evolution), the way various production tradeoffs are resolved, and the results of

future product development programs.

In addition to capital investment, development

costs have been included as part of the investment necessary to produce modified vehicles.

During the 1970’s, domestic auto manufacturers’

R&D (mostly development) costs averaged from

40 to 60 percent of their capital investments.6 In

table 12, development costs are assumed to be

40 percent of the capital investment allocated to

fuel efficiency (see below), but the actual costs

of developing the technologies for producing

more efficient cars at minimum cost are highly

uncertain. *

Beyond the uncertainties in the investment and

development costs, there is the problem of determining what fraction of the investments should

be ascribed to fuel efficiency. This arises because

some of the investments can be used not only

to increase fuel efficiency, but also to make other

6G. Ku[p, D. D. Shonka, and M. C. Halcomb, “Transportation

Energy Conservation Data Book: Edition 5,” oak Ridge National

Laboratory, ORNL-5765, November 1981.

*lt should be noted that R&D costs are not included for synfuels

because several essentially identical synfuels plants could be constructed with little additional R&D costs beyond those needed for

the first plant, whereas product and process development are necessary for each major change in automobiles.
76 ● Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

Table 12.—Capital Investment Allocated to Fuel Efficiency Plus Associated Development Costs

Average capital investment plus

associated development costsb

Thousand 1980 dollars per

barrel per day oil

New-car fuel efficiency at equivalent of

Time of investment Mix shift end of time perioda (mpg) fuel savedc

1980 dollars per car producedd

1985-1990 . . . . . . . . . Moderatee

38-48 20-60 g50-1909

Largef

43-53

1990 -1995 . . . . . . . . . Moderatee43-59 60-1309 70-1809

Largef

49-65

1995-2000 . . . . . . . . . Moderatee

51-70 50-1509 50-1509

Largef58-78

a EpA rated 5w45 percent city/highway fuel efficiency of avera9e new car.

b Development costs assumed to be 40 percent of capital investment allocated

to fuel efficiency (see text). One barrel of oil equivalent contains 5.9 MMBtu.

c Averages are calculated by dividing average investment fOr technological improvements by fuel savings for average car at end of time period relative to

average car at beginning of time period. The resultant average cost per barrel

per day is lower than a straight average of the investments for each car size

because of mathematical differences in the methodology (i.e., average of ratios

v. ratio of averages) and because extra fuel is saved due to demand shift to

smaller cars. The averaging methodology used is more appropriate for comparisons with synfuels because it relates aggregate Investments to aggregate fuel

savings. It should be noted that the cost of adjusting to the shift in demand

to smaller-sized cars is not included. Only those investments which increase

the fuel efficiency of a given-size car are included.

d Assuming lnve9tment iS used to produce cars fOr 10 Years, on the avera9e.

e Moderate shift In demand to smaller cars. Percentage Of new carS sold in each

size clasa are:

SOURCE: Office of Technology Assessment.

changes in the car. * The cost allocation problem

associated with multipurpose investments is well

known in accounting theory, and there is no fully

satisfactory solution to it.7

For table 12, it was assumed that 50 percent

of the cost of engine and body redesign, 75 percent of the cost of most transmission changes,

and 100 percent of the cost of advanced materials

substitution and energy storage and automatic

engine cutoff devices should be allocated to fuel

efficiency. This results in between 55 and 80 percent of the investments being allocated to fuel

efficiency, depending on the time period and scenario chosen. For further details on how this and

other problems in estimating the cost of fuel efficiency were resolved, see chapter 5.

*For example, automobile designs with low aerodynamic drag

may be preferred by consumers on esthetic grounds; front wheel

drive may be introduced to improve traction and increase interior

volume; microprocessor control of carburetion or fuel injection,

spark advance, exhaust gas recirculation, and other operating conditions can be used to reduce exhaust emissions, improve performance, and enable the use of lower octane fuels; continuously variable transmissions may be introduced to produce smoother acceleration and improve performance. These and many other changes

can also be exploited to improve fuel efficiency.

7A. L. Thomas, “The Allocation Problem in Financial Accounting Theory, ” American Accounting Association, Sarasota, Fla., 1969,

pp. 41-57, and A. L. Thomas, “The Allocation Problem: Part Two, ”

American Accounting Association, Sarasota, Fla., 1974.

Year/size class Large Medium Small

1985 35 60 5

1990 25 60 15

1995 20 55 25

35 f

Large shift in demand to smaller cars. Percentage of new cars sold in each

size class are:

Year/size class Large Medium Small

1965 15 75 10

1990 5 65 30

1995 5 45 50

2000 5 25 70

gWithin uncertainties, the costs are the same for both mix shifts.

During the period 1985-2000, total capital investments in changes associated with increasing

fuel efficiency (i.e., allocating 100 percent of the

multipurpose investments to fuel efficiency) could

average $2 billion to $5 billion per year, depending on the number of new cars sold and the rate

at which fuel efficiency is increased. However,

if one deducts the cost of changes that would

have been made under “normal” circumstances, * the added capital investment needed

to achieve the lower mpg numbers in table 12

would be $0.3 billion to $0.7 billion per year. The

higher mpg numbers in table 12 would require

added capital investments (above “normal”) of

$0.6 billion to $1.5 billion per year. Adding 40

percent of the capital investment for development

costs results in added outlays of $0.4 billion to

$0.9 billion per year and $0.8 billion to $2 billion

per year for the low and high scenarios, respectively.

A detailed examination of the scenarios presented in chapter 5 shows that a 1990 new-car

*Assuming “normal” capital turnover is: engines improved after

6 years, on average, redesigned after 12 years; transmissions same

as engines; body redesigned every 7.5 years; no advanced materials

substitution.
Ch. 4—issues and Findings . 77

average fuel efficiency of 35 to 45 mpg (depending on the proportion of small, medium, and large

cars sold) probably can be achieved with what

is termed here “normal” rates of capital turnover.

However, the validity of this conclusion and of

the above incremental investment and development cost estimates will depend on market demand for fuel efficiency, and, in OTA’s judgment,

there is no credible way to predict future market

demand for fuel efficiency.

Electric Vehicles

Use of EVs more nearly approximates synfuels

than increased automobile fuel efficiency, in that

EVs involve switching from conventional oil to

another energy source rather than reducing energy consumption. Consequently, the costs (per

barrel per day of oil replaced) for EVs are included in table 13 with synfuels. As shown in

table 13, the costs for EVs appear to be significantly higher than for the various synfuels options,

due to the high purchase price of the vehicle (relative to a comparable gasoline-fueled car) and

the fact that EVs would be replacements for relatively fuel-efficient cars (because of an EVs limited size and acceleration). Furthermore, if batteries must be replaced at regular intervals and

the cost of this is included as an investment cost,

the total investment per barrel per day rises dramatically.

Synfuels

The best available estimates for the investment

costs for various liquid synthetic transportation

fuels are shown in table 13. Because of uncertainties in the cost estimates, no meaningful intercomparison among synfuels on the basis of cost

is currently possible. I n addition, as discussed in

chapter 6, the final investment in synfuels is likely to be different from these estimates. As the

processes approach commercial production, they

will be revised as costs to overcome problems

encountered in demonstration units are determined. Construction costs will inflate at an unknown rate relative to general inflation. And delays during construction due to such possibilities

as lawsuits, strikes, late delivery of construction

materials, or other causes can increase the investment cost. In sum, current investment estimates

provide a very tentative guide to what synfuels

plants constructed in the 1990’s will cost. In addiTable 13.—lnvestment Cost for Various Transportation Synfuels and Electric Vehicles

Thousand 1980 dollars per barrel per day oil equivalent to end users

Methanol Coal to methanol and

Shale oil from coal Mobil methanol to gasoline Direct liquefaction Electric vehicle

Mining . . . . . . . . . . . . . . . . (Included in 4-15 4-15 4-15 5-19

conversion plant)

Conversion plant . . . . . . . 49-73a

47-93a

53-110a67-100a

0-69b

Refinery. . . . . . . . . . . . . . . 0-10’ o 4-22d

o

Distribution system. . . . . 0 O-2e

o 0

End use. . . . . . . . . . . . . . . 0 0-11f

o 0 320°3909

Total . . . . . . . . . . . . . . . 49-83 51-121 57-125 75-137 325-478

aflange of investments in ch. 6 plUS possible 50-percent cost overrun and assuming plants operate at m Wrcent of rat~ capacity

bupper limit corresponds t. ca9e where new coal-fired eiectric generating capacity would be naeded. That Is not currently the case, however.

Cupper limit corres~nds to a dedicated reflnOV.

dupper Iimlt from UC)P and Systems Development corp., “Crude Oil v. Coal Oil Processing Comparison Study,” DOE/ET1031 17, TR-80/ml, November 1979. Infiated

by 12 percent to refiect 1980 cost. Assumes a refinery dedicated to conversion faciiity. Lower iimit from “SRC-ii Demonstration Project, Phase Zero, Task No. 3, Market

Assessment Transportation Fueis From SRC-ii Upgrading,” Pittsburgh and Midway Coai Mining Co., prepared for U.S. Department of Energy, Juiy 31, 1979. Assumes

oniy upgrading of iiquid for use as feadstock in an existing refinery.

eupper limit ~sumes that haif of Cap=lty must use newiy constructed or expanded facilities, as foiiows: 500-miiO piPOiine at $1 miiiion Per mile, 500,000 bbild caPacitY;

tank truck (9,200 gai) costing $90,~, 10 runs per week; storage tanks and pumps costing $700/bbi/d of throughput.

f UpWr limit ~aume~ new engine design costing $540 miiilon for a ~,~ car per year f~tory; 0.15 capitai recovery factor; repiacing car consuming 250 gai of gasoiine/yr.

Beyond the initial investment in new engine production facilities, the Investments are the same as for a gaaoiine engine, making the added investment zero, reiative

to gasoline vehicies.

gAssumes an eiectric vehicie costs $3,000 more than a comparably performing gasoiine-powerw car and the eiectric vehlcie repiaces 8,000 to 10,MI miles/yr that

wouid have been driven in a 60-mpg gasoline- or diesei-fueied car. if batteries must be replaced every 10,000 miles (nine timea over iife of cad at a cost of $2,000

each time, the totai investment becomes $2.7 miiiion/bbi/d repiaced. These calculations assume that no oii is used in the eiectric generating faciiitles; however, if

oii is used to generate part of the electricity, the investment costs per barrei per day of oil dispiaced grow rapidly,

SOURCE: Office of Technology Assessment,
78 ● Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

tion, they most likely represent a lower limit of

the synfuels investment costs. *

Stationary Uses of Petroleum

OTA has also considered the costs of conservation and fuel switching in stationary uses of oil,

although not in the same detail as for synfuels

and increased automobile fuel efficiency. The

major candidates are the residual and distillate

fuel oils still used in stationary applications after

1990. Other stationary uses of petroleum—asphalt, petrochemical feedstock, still gas, and liquefied petroleum gas (LPG)—were not considered

to be major potential supplies of increased transportation fuels. Although LPG can technically be

used as a transportation fuel, and petrochemical

feedstocks can be replaced by synthesis gas from

coal, a preliminary analysis indicates that the fuel

oils are more economically attractive alternatives

for increasing supplies of transportation fuels in

most cases.

OTA’s estimates for the investment costs of fuel

switching and increased energy efficiency in stationary uses during the 1990’s are shown in table

14. Although only single numbers are shown, in

fact there will be a range of costs depending on

development costs for new energy supplies, installation costs for end-use equipment, the extent

of changes needed at oil refineries, and variations

in conservation investments. Of the fuel switching

options the range is narrowest for fuel switching

to electricity because of the fairly well-defined

“Decisions about whether and how quickly to proceed with investments in synfuels production, however, will be strongly influenced not only by estimated costs but by corporate strategy.

cost of producing electricity from coal and largest

for fuel switching to natural gas because of differences in the cost of developing various unconventional gas supplies.

In deriving the numbers in table 14, it was assumed that the lower cost opportunities for fuel

switching and conservation would already have

been carried out by 1990. To the extent that this

does not occur, the per-unit investment cost estimates for the 1990’s wouId be lowered somewhat. Also, increased end-use efficiency of electricity for heat and hot water would reduce the

investment needed for electric powerplants; and

if large supplies of relatively inexpensive gas are

found, fuel switching to gas could be a very attractive option, in terms of capital investment. Because of these uncertainties and site-specific differences in installation costs, one cannot clearly

choose among the alternatives on the basis of investment costs alone. All of the options to eliminate stationary fuel oil use seem to require the

same order of magnitude of investments.

Conclusion

Three principal conclusions emerge from

OTA’s analysis of investment costs for the various

ways of reducing oil consumption. First, there is

a great deal of uncertainty about investment costs

due to technological unknowns, lack of experience, and site-specific cost differences. * Second,

*The situation is further complicated by the different nature of

the investments. Synfuel plant construction requires large investments over a number of years before any product is sold. Auto industries tend to make incremental changes in capital stock, with

the sum of several such investments sometimes costing more than

one abrupt changeover in capital stock. Investments in fuel switching and conservation are paid back through future fuel cost savings rather than product sales.

Table 14.—Estimated Investment Cost of Fuel Switching and

Consecration in Stationary Petroleum Uses During the 1990’s

Thousand 1980 dollars per barrel per day of oil replaced or saved

Conversion to Conversion to Conversion of boilers from Increased efficiency

Investment at natural gas electricity residual fuel oil to coal and fuel switching

End use equipment . . . . . . . . . . . . . . . . . . 24 32 37 (51)a

88

New production of fuel . . . . . . . . . . . . . . . 90 78b

16C(22)a o

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114 110 53 (74)a

88

The number in parenthesis is corrected for the 72-percent efficiency of refining residual fuel oil and is the Investment per barrel per day of resultant distillate oil produced from the residual 011.

btin9truction of coal-fired powerpiant ($74,000) Plus new coal mining (S4,400).

CM~ification of reflnerleg t. upgr~e residual oil to distillate fuels, $14,000, and incre~~ COSI production, $2,000. The refinery modification is based on data presented

in ch. 6, assuming that 0.6 MMB/D of domestically produced residual oil is already being upgraded in 1990.

SOURCE: Office of Technology Assessment.
Ch. 4—issues and Findings Ž 79

even if more certain cost data were available to- been made, the annual capital investment

day, different inflation rates in different sectors needed to maintain all aspects of liquid fuel proof the economy or modest technical develop- duction and use will depend on the level of fuel

ments could change any conclusions about rela- efficiency actually achieved. In particular, high

tive costs by the 1990’s. Finally, once the initial levels of efficiency in end uses will require lower

investments to reduce oil consumption have levels of annual capital investment.

Box A.-Consumer Cost of Increased Automobile Fuel Efficiency

For the purposes of this section, the consumer

cost of increased fuel efficiency was defined to

be the added cost of producing a more fuel-efficient car (relative to an otherwise comparable

but less efficient car) per gallon of fuel saved by

using the more efficient vehicle. The added cost

of producing more fuel-efficient cars will depend

not only on the investments needed to change

automobile production facilities and the production volumes, but also the resultant changes in

the variable costs* of production, such as

changes in materials and labor costs.

As discussed on page 75, the capital investments that are needed to increase fuel efficiency also produce other changes in automobiles;

and allocation of costs among fuel efficiency and

the other changes is somewhat arbitrary. In addition, if market demand for fuel efficiency is

strong, many changes that increase fuel efficiency would be incorporated into the normal capital turnover of the industry. For the purpose of

calculating consumer costs, however, essentially

the same approach was taken as with the investment cost estimates. The fraction of investments

allocated to fuel efficiency are the same as for

the investment costs per barrel per day of fuel

saved; and only the average costs per average

gallon saved have been calculated-relating

each 5-year period to the previous 5-year period

—rather than compounding errors by assuming

some market-driven scenario as a point of

reference.

In addition, it was assumed that production

volumes are sufficiently large so that there are

no significant diseconomies from small-scale

plants or losses from underutilized facilities.

Weak demand for fuel efficiency and/or for new

cars in general could of course result in additional costs of this sort.

A key factor in consumer costs is the change

in variable costs associated with producing more

fuel-efficient vehicles. Variable cost estimates,

● Variable production costs are those that vary in proportion to the

number of units produced as opposed to fixed costs such as capital

charges.

however, are generally proprietary and can vary

considerably from one company to another. Furthermore, changes in variable costs with increased fuel efficiency will depend, to a large

extent, on the success of efforts to develop production technologies that can hold down production costs. Some of the uncertainties in variable cost changes are discussed below, followed

by illustrative examples of plausible consumer

costs for increased fuel efficiency.

Some changes that increase fuel efficiency will

lower variable costs; some will increase some

variable costs while lowering others; and still

other changes are likely only to increase variable

costs.* However, factors which are only peripheral to the nature of the technology incorporated

in the car often dominate the change in variable

costs, These factors include: 1) the existing

nature and layout of equipment in the plant

being modified to produce the new car, 2) various specific production decisions (e.g., which

of various processes is used in manufacturing a

component, what equipment will be modified,

what will be the production volume), and 3) the

success of developing new, lower cost procedures for producing a component and assembling it in the vehicle. In other words, the net

change in variable costs depends not only on

the nature of the new technology and the way

it is produced, but also on the path the manufacturer has chosen to evolve from the current production facilities and configurations to those

needed to produce the more advanced tech nol-

*For exampte, reducing automobile size and weight by reducing

the quandtyofmetedals mshms variable costs. Switching to lighter

wei@t matedats has the side dfsct of reducing the needed size of

axtes, auto fra~ ate,, which rbduces costs; but the higher cost of

the new matena“ tand i~dtfficuky of handling that material

(e@ ddiw dw Xfinishin& painting, heat treating) can

incraase vat?abtecmsts. Srt#@dy, producing a more efficient engine

may enatdemductton }a##ne s&e, number of cylinders and complexity of the polhKion control w@prnent, which reduces costs; but

the need for more precise machining and possibiy added equipment

(e.g., turbochargers) can raise thevariabie costs. Finally, changes such

as going from a three-speed transmission to a four-speed, five-speed,

or continuously variabie transmission are iikeiy to increase variabie

costs because of increased complexity and materiais and processing requirements.
80 Ž Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports
Ch. 4—issues and Findings . 81

BOX B.-Consumer Cost of Synfuels

The consumer cost of synthetic transportation Figure 5.-Consumer Cost of Selected Synfuels 

fuels will depend on a number of factors. The WithRates of Returns on Investments

most important of these are the actual capital investment needed to build the synfuels plant, the

way plant construction is financed, the required

return on investment, the cost of delivering the

fuel to the end user, and the end-use efficiency

of the synthetic product. For the first generation

of synfuels plants, the costof producing the synfuel will also depend critically on plant perform- ‘

ance, specifically the amount of time the plant

is operated Mow its rated capacity due to the

technical problems. (See ch. 6 for a more detailed sensitivity analysis.) Depending on

assumptions about these factors, one can derive

a wide variety of consumer costs.

Table 16 shows two sets of consumer costs for

various fossil synfuels. These costs are based on

the best available investment and operating cost

estimates and assume no cost overruns, good

plant performance (90 percent of rated capacity), a lo-percent real return on equity investment* and two financing schemes: 100-percent

equity financing and 75/25 percent debt* */equity financing. Figure 5 shows how these con-

*ln other words, a return on investment that is 10 percent higher

than general inflation.

● *The debt must be.project.specific, i.e., the money is loaned for

the specific project and is not general debt capital whose payback

is guaranteed by other company assets.

0 5 10 15 20 25

Real return on investment (%)

 Coal to methano l

. oil shal e and SNG

, Coal to Methanol

to gasoline

a

5% real interest rate on debt.

SOURCE: Office of Technology Assessment.

Table 16.-Estimated Consumer Cost of Various

Fossil Synfuels Using Two Financing Schemes

Cost of Synfuel delivered to end usera($/gallon gasoline equivalent)

Liquid transportation fuel 100% equity financingb

75% debt, 25°A equity financing

Reference cost of gasoline from

$32/bbl crude oil . . . . . . . . . . . . . . . . . 1.20

Shale oil ‘ :

. . . . . . . . . . .. . . . . ..

Methanol from coal . . . . . . . . . . . . . . . 1.30d

(1.10)e 0.95d

(0.80)e

1.60f(1.30)e

1.10 (0.90)e

Coal to methanol with 1.2 5

d

Mobil methanol to gasoline. . . . . . . . . . . . . 0.80d

.. . 1.6 0

g

1.00 g

0.85

d

anol usually costs more per gallon of

twice as high for methanol as for

real return on equityinvestment, 5-percent real investment on debt.

~~~~-m’ “ ‘ ‘ “ ‘“ :’:- - ~, (, ~,+

%Ju~ln ~hOOOS aaeume methanof ueed In englnedealgned for methanot uaewhlch Is 20 @“~ta~~lclentthm ● amapondmg

sine Ongtne.

fMettWot

@Geeollne R $%s=:

SOUftOE: Offtoe of Teohndogy Aeaeaement.

Ch. 4—issues and Findings ● 8 3

creases the apparent cost of fuel efficiency per

gallon saved by a factor of 2.5 over the situation where no discount is applied to future fuel

savings. In practice, there will be a wide variety

of discounting rates used by various consumers,

and the rates will change with market conditions

(including oil prices and interest rates) and consumers’ beliefs about future oil prices and availability, among other things.

Synthetic Fuels

For synfuels processes that produce sizable

quantities of different fuel products (e.g., synthetic natural gas and fuel oil), one encounters accounting problems similar to those discussed

under increased automobile fuel efficiency-i.e.,

how to allocate production costs to the various

synfuels products. However, these problems are

less severe for synfuels than for automobiles because all of the major products of the former are

separate consumer products with known current

prices. Furthermore, the accounting problems

can be largely avoided by considering only processes that produce only fuels of similar quality

(e.g., gasoline, jet, and diesel fuel), and avoided

entirely by considering processes that produce

only one major product.

Variations in operating and maintenance costs

and future coal prices produce some uncertainty in the cost of synfuels. The more important

uncertainties, however, involve the cost of building a synfuels plant, how this cost will be financed, and investors’ required rates of return

on investment. The cost of synfuels from the first

generation of synfuels plants will also depend

critically on plant performance, with frequent

shutdowns and repairs increasing costs dramatically. Presumably, later generations of plants

will perform reliably.

Fuel Switching and Conservation

The total cost of switching utility boilers from

fuel oil to coal is fairly welt known. There are,

however, some areas of the country where coal

is not readily available, and there is insufficient

space to accommodate coal handling facilities

at some electric generating plants.

The major variability in the cost of switching

to natural gas and electricity for buildings and

in industry results from widely varying required

rates of return on investments in different industries and for different building owners or renters.

At some sites, though, natural gas is not available

or space limitations prevent the installation of

gas facilities. There is also uncertainty in the cost

of finding and processing unconventional natural gas (from tight sands, etc.).

The total cost of conserving heat and hot water

in buildings is probably the least certain of the

measures for reducing stationary oil use. Not

only are there large uncertainties and variability

in the savings that can be achieved through various conservation measures, but also consumers

will discount future fuel savings at widely differing rates.

HOW DO THE ENVIRONMENTAL IMPACTS OF INCREASED

AUTOMOBILE FUEL EFFICIENCY AND SYNFUELS COMPARE?

The synfuels, auto fuel efficiency, and electric

auto alternatives for displacing imported oil have

sharply different potential impacts on public

health and safety, on workers, and on ecosystems. In addition, probabilities of these impacts

actually occurring—few of them are inevitable—

are also quite different. Both the potential impacts

and their risks are briefly compared below. The

nature of some of the risks, however, is obscured

by the brevity of the following discussion. For example, the actual risk associated with possible

contamination of drinking water by synfuels production is heavily dependent on the degree of

prior recognition of the risk and response to this

recognition –for example, development of

ground water monitoring systems. Also, risks that

are similar in magnitude are often valued differently because of the degree of choice involved

(e.g., willing exposure to the risks of auto travel

v. unwilling exposure to accidental toxic spills)

and the precise nature of the risks (e.g., multiple

automobile accidents involving only a few peo-
84 ● Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil lmports

ple at a time v. a serious accident or control failure at a large synfuels plant).

Public Health and Safety

Reductions in vehicle size, part of the auto fuelefficiency measures, could have the strongest effect on public health and safety through their potential adverse effects on vehicle safety. The effect is difficult to estimate because of a lack of

comprehensive traffic safety data that would allow an evaluation of the relative effect of car size

and other key safety variables on vehicle crash-’

worthiness and accident avoidance, and because

of uncertainty about the compensatory measures

that might be taken by the vehicle manufacturers

and by drivers. Although the National Highway

Traffic Safety Administration has projected vehicle size reductions to cause an additional 10,000

annual traffic deaths by 1990 if compensatory

measures are not taken, this and other quantitative estimates of changes in traffic safety are based

on limited data and relatively crude models. Nevertheless, an increase in traffic deaths of a few

thousand per year because of vehicle size reductions does seem plausible.

Diesel use could have an adverse effect on

emissions of nitrogen oxides (NOX

) and particuIates, and conceivably could cause public health

problems in congested urban areas. The risk is

moderated, however, because: 1) controls for

NOX and particulate are under active development, although success is not assured and it is

possible that the current level of effort will not

be continued; and 2) the evidence for health

damage from diesel particulate is equivocal.

Electric passenger vehicles are likely to be

small, and thus should share safety problems with

radically downsized high-mileage conventional

automobiles. Additional safety problems caused

by the batteries, which contain toxic chemicals

that may be hazardous in an accident-caused

spill, are offset somewhat by eliminating the fuel

tank with its highly flammable contents. Also,

electric cars shouId have a positive effect on air

quality, especially in urban areas, because the

reductions in automobile emissions outweigh increased emissions from powerplants, except for

sulfur dioxide (SO2).

Synfuels plants may expose the general public

to health and safety hazards in a variety of ways:

contamination of drinking water from leaching

of wastes, accidental spills, or failure of effluent

controls; accidental release of toxic vapors; exposure to contaminated fuels; and routine emissions of conventional air pollutants such as SO2

and NOX. Only the routine emissions are essentially inevitable, however, and health and safety

problems from these should be minimized by

Federal ambient air quality standards and by the

relative magnitude of these emissions, which

should be considerably lower than emissions

from projected levels of development of coal-fired

electric generation during the same time frame.

The extent of risk from the other sources is not

well understood because the toxic waste streams

from the plants have not been fully characterized,

the effects of some of the known and suspected

waste products are not yet well understood, and

the effectiveness and reliability of some critical

environmental control systems have not been

demonstrated under synfuels plant conditions

(see issue on p. 95). Chemical industry sources

believe that few problems will arise, but, as

discussed in the above-mentioned issue, some

areas of concern remain.

Worker Effects

With the possible exception of some worker

exposure to toxic materials in battery manufacture, the only significant occupational health and

safety problem associated with the automobile

measures appears to be mine safety and health

effects involved in any increased mining of coal

for electricity needed for recharging electric car

batteries, and, to a lesser extent, for aluminum

manufacture. These impacts are not trivial, because the amount of coal needed per barrel of

oil saved for electric cars is of the same order of

magnitude as that needed for synfuels production (assuming coal-fired electricity and coalbased synfuels). The coal-to-oil balance for aluminum use is somewhat less certain, although some

analyses have calculated it to be similarly high.

The use of aluminum is not the major part of the

efficiency measures, however, and the actual

amount of coal required is not likely to be significant in comparison with the coal used for synthetic fuels.
Ch. 4—issues and Findings ● 8 5

As noted, synfuels production has a coal requirement similar to that of electric autos, and

thus shares similar mineworker problems. It has

important additional problems. The sources of

moderate risks to public health and safety—fugitive emissions, spills, plant accidents, and contaminated fuels–pose more serious risks to workers because of their frequency and severity of exposure. For example, workers will be continuously exposed to low levels of polynuclear aromatics

and other toxic substances because fugitive emissions cannot be reduced to zero. Another important source of possible worker exposure is the

maintenance requirements of synfuels reactors;

the materials that must be handled in these operations are likely to have the highest concentrations

of dangerous organics.

Exposure to hazardous substances is common

in the petrochemical industry, and worker-protection strategies developed in this and related

industries will be used extensively in synfuels

plants. These strategies clearly will reduce the

hazards, but the degree of reduction is highly uncertain (see issue on p. 95).

Ecosystem Effects

The only significant sources of ecosystem effects from the automobile measures are likely to

be the changes in air quality caused by the use

of electric autos (which probably will be positive)

and diesels, and the air, land, and water pollution associated with the mining and processing

of both coal for electricity (for battery recharging or aluminum production) and battery materials such as lead and lithium. Obtaining the new

battery materials is thought unlikely to cause important environmental problems, but there are

many different kinds of potential battery materials, and final judgment probably should be withheld at this time. Nevertheless, with the exception of the electric-car coal-mining requirements,

any adverse ecosystem effects of the automobile

measures appear likely to be mild.

Synfuels production is likely to cause significantly greater adverse effects, because it will have

coal-mining damages per barrel of oil roughly

similar to electrical autos as we//as several additional and potentially important adverse impacts.

These include substantially increased mining and

waste disposal requirements if oil shale is the synfuels feedstock, and a variety of potential adverse

impacts stemming from the possibility that toxic

materials generated during the conversion processes will escape to the environment. The pathways of potential damage from toxics are essentially identical to those threatening public health

and safety—surface and ground water contamination, toxic vapors, and exposure (in this case from

spills) to contaminated fuels. Unfortunately, probability of the damage actually occurring is equally

difficult to evaluate.

An additional concern is that synthetic fuels

from biomass sources–which in general have

similar or less severe environmental problems

than coal-based synfuels—may have more severe

ecosystem effects because of the very extensive

nature of their resource base. The adverse ecosystem effects of large increases in grain production

to produce gasohol, for example, can be quite

serious, and, given the nature of the current

agricultural system, the probability of such effects

occurring is high.

Summary

The environmental impacts of increased automobile fuel efficiency and synthetic fuels development will be quite different and difficuIt to compare. The major impacts of auto efficiency improvements are likely to be increases in crashrelated injuries and fatalities from auto size reductions. The severity of these impacts is heavily

dependent on vehicle design and driver behavior

(especially seatbelt usage). Synthetic fuels development’s major impacts will include the wellknown ecosystem effects as well as public and

worker health and safety effects of large-scale

mining and combustion of coal. Oil shale development will have many similar effects; a most

serious environmental risk may come from inadequate disposition of the spent shale. In addition,

there are potentially serious impacts on people

and ecosystems from the escape of toxic substances from synfuels conversion processes. The

severity of these impacts is unclear because important waste streams have not been characterized and environmental control effectiveness and

reliability has not been demonstrated.
86 . Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

HOW WILL THE SOCIAL IMPACTS OF SYNFUELS AND INCREASED

AUTOMOBILE FUEL EFFICIENCY COMPARE?

Identifying, assessing, and comparing the social

impacts of synfuels development and improved

automobile fuel efficiency are difficult because

these impacts will not be distributed evenly in

time or among regions. Moreover, they cannot

necessarily be measured in equivalent (e.g., dolIar) terms, and they are difficult to isolate and attribute to specific technical choices. Both beneficial and adverse social consequences will arise

from these two approaches to reducing oil imports.

Employment

Synthetic fuels production presents two major

considerations about social impacts related to

employment. First, there is the possibility of shortages of experienced chemical engineers and

skilled craftsmen. A rapid growth in synfuels

would likely put increased pressure on engineering schools, which are now suffering from insufficient numbers of faculty. The second concern

arises from the large and rapid fluctuations in

labor requirements for construction. While no

shortages of construction workers are expected,

on the average, fluctuating labor requirements

during construction and startup can have severe

secondary effects on communities at the construction sites. A population increase of about

three to five people per new worker could occur,

leading to possible population fluctuations of

30,000 to 60,000 people for some synfuels construction.

The changing structure and markets of the established automobile industry are likely to lead

to a long-term, permanent decline in auto-related

industrial employment. The nature of this decline

will depend on import sales, the growth rate of

the U.S. auto market, the competitiveness and

labor intensity of U.S. manufacturing, the use of

foreign suppliers and production facilities, and

the adoption of more capital-intensive production processes and more efficient management

practices. The skill mix will also shift increasingly towards skilled labor. Scarcities of experienced

engineers and certain supplier skills could inflate

the prices of skilled manpower resources for both

synfuels and changing automotive technology.

Community Impacts

Synfuels development will have its most immediate effect in relatively few small and rural oil

shale communities in the West, as well as in the

small rural communities located near many of

the Nation’s dispersed coal resources. In the long

term, local communities should benefit from synfuels in terms of expanded tax bases and increased wages and profits. However, in the near

term, there are risks of serious disruptions in both

the public and private sectors of these communities. The nature and extent of these disruptions

will be determined by the community’s ability to

absorb and manage growth, and the rate and

scale of local synfuels development.

Automobile production jobs are presently concentrated in the North-Central region of the Nation. The geographical distribution can be expected to change as inefficient plants are closed

and new production facilities are established in

other parts of the United States. New plants will

provide new employment opportunities with accompanying community benefits (e. g., tax revenues); plant closings in areas heavily oriented

towards the auto industry would deepen the existing economic problems of the North-Central

region, i.e., high unemployment, rising social

welfare costs, and declining tax base.
 Ch. 4—issues and Findings . 87

HOW DO THE REGIONAL AND NATIONAL ECONOMIC IMPACTS

OF SYNFUELS AND INCREASED AUTO EFFICIENCY COMPARE?

In addition to comparisons on the basis of cost

per barrel, environmental impacts and local social

impacts, increased automobile fuel efficiency and

synfuels can be compared on the basis of their

potential regional and national economic impacts. The latter comparison is important because

each type of investment implies an alternative national strategy to achieve the goals of price stability, national economic growth, and equity as well

as oil import reduction.

Regional and national aggregation are also important because both industries are capital-intensive. Large blocks of investment must be mobilized, with key investment decisions made by a

relatively small number of firms, based on very

uncertain longrun predictions about the future.

As summarized below, a variety of important national and regional issues are raised by the uncertainties and inflexibilities inherent in these decisions.

Inflation and Economic Stability

Inflation may be dampened and the economy

stabilized if either type of investment is successful.

In the case of synfuels, if first generation plants

demonstrate competitive costs, the mere prospect of rapid deployment could moderate oil import prices and thus help to control what has

been one of the major inflationary forces during

the last decade. In the case of autos, if increased

fuel efficiency helps domestic firms to hold or perhaps increase their market share, this would keep

U.S. workers employed and at least stabilize foreign payments for autos. Higher employment also

tends to reduce Federal transfer payments, which

either reduces the Federal deficit or lowers taxes.

Reductions or stabilization of foreign payments

tends to strengthen the value of the dollar in foreign exchange markets. Both changes, in the Federal budget and on foreign accounts, reduce inflationary pressure.

On the other hand, attempts to displace oil

imports too quickly may be inflationary. Risks of

inflation, technical errors, and market miscalculations all increase with the rate of synfuels deployment and with shortening the time taken to convert the domestic auto fleet to high fuel efficiency.

in the case of synfuels, rapid investment growth

in the next decade, beyond construction of demonstration projects, could cause inflation by creating suppliers’ markets in which prices for construction inputs, especially chemical engineering

services, can rise more rapidly than the general

inflation rate. Deployment prior to definitive testing in demonstration plants also compounds

potential losses due to design errors.

In the case of autos, rapid large-scale investments can inflate prices of vehicles as firms attempt to amortize capital costs quickly. However,

if these attempts fail, presumably because buyers

stop buying high-priced domestic autos, then

newly invested capital must be written off prematurely, resulting in the waste of scarce resources for the firm and the Nation. Furthermore,

if rapid fuel-efficiency improvements are forced

by abrupt, real fuel price increases or by aggressive foreign auto competition, then the

domestic auto industry and owners of fuel-inefficient cars will both be forced to absorb lump

sum losses in the real value of current assets. Low

prices for new cars resulting from competition do,

however, benefit purchasers of these cars.

Employment and International

Competition

If improved fuel economy makes domestically

produced autos more competitive with imports,
88 ● Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

there will be two major national economic payoffs besides fuel savings. First, this improved competitiveness will protect traditional U.S. jobs; second, it will reduce the drain of foreign payments

to auto exporting countries as well as to oil exporters. Synfuels do not present a similar coupling

of economic possibilities.

There are major doubts, though, about the

longrun success of U.S. automakers with foreign

competition. The United States may not be able

to compete in the mass production of fuel-efficient autos for a variety of reasons—such as high

wages, low productivity, and inefficient or outof-date management. All such explanations are

speculative, but together they have raised serious

doubts about U.S. competitiveness in the context of the recent, rapid increase in the market

share of auto imports. If foreign automakers continue to drive domestics out of the market for fuelefficient autos, synfuels investments may be preferred over investments in fuel efficiency even if

the apparent cost per barrel of the former are

higher.

Assuming investment in either industry does

lead to increased U.S. production, employment

opportunities for synfuels and autos can be compared based on 1976 data (the most recent available). Synfuels production involves mainly mining and chemical processing activities, which in

1976 dollars had $59,000 and $55,000 invested

per worker respectively. On the other hand, the

transportation equipment sector of the economy

(which is dominated by autos) had $27,000 invested per worker and auto suppliers such as fabricators of metal, rubber, and plastic products had

about $21,000 per worker. In other words, in the

recent past the auto industry created about twice

as many jobs per dollar of investment as industrial

activities similar to synfuels. The current trend

toward automation in automating will undoubtedly lower its labor intensity, but the auto industry

should continue to employ more workers per unit

of investment.

Income Distribution Among Regions

Another question concerns the likely regional

distribution of incomes from autos and synfuels.

An analysis of location factors was not carried out,

but two points can be made. First, to the extent

that the auto industry could use existing plants

or build nearby, current employment patterns

and established communities could be maintained. This would preclude costly relocation and

would tend to favor the North-Central region of

the United States, which has been losing its industrial base.

Second, new auto plants can be located in

more areas of the country than new synfuels

plants because of the high cost of transporting

synfuels feedstocks, especially oil shale, compared with the cost of transporting manufactured

materials and parts for automobiles. Transportation costs are likely to concentrate synfuels investments in regions of the Nation with superior shale

and coal reserves. Biomass options are least likely

to be concentrated, because resources are dispersed, and coal-based options are much more

flexible than shale because coal is more widely

dispersed.

Capital Intensity and

Ownership Concentration

Finally, both strategies for oil import substitution affect the number of profitable firms in each

industry. In both industries, the number of competitive firms is severely constrained by the size

of investment outlays and by the acquired knowledge of those already in the business.

In liquid fuels, the introduction of synthetic

fuels sharply increases the amount of capital investment required per barrel of liquid fuels production capacity. For example, in the case of one

major oil company, present capitalized assets per

average daily barrel of oil equivalent of production from old reserves of conventional oil and natural gas is less than 20 percent of OTA’s estimate

of the similar ratio for oiI shale. * However, new

reserves of conventional oil and gas will also require much larger capital outlays than old reserves, due to depletion of finite natural resources.

*Value of assets for Exxon was obtained from its 1980 Annual

Report.
Ch. 4—issues and Findings ● 8 9

From the investor’s viewpoint, the sequence

of investments for conventional petroleum resources is very different from synfuels projects.

For conventional petroleum, small operators can

explore for new reserves, at least on shore, with

only a relatively small amount of high-risk money

and the limited technical staff required to rent

a drilling rig and to determine where the wildcat

well should be drilled. If a discovery is made, subsequent, much larger investments in development wells and pipelines can be made at relatively low risk. In synfuels, a firm simply cannot enter

the business without command of all capital requirements up-front, or without a very large staff

of technicians and managers.

In summary, investment options to discover

and develop conventional oil and gas will be exploited before synthetics even if estimated total

capital outlays are the same, because the former

confine major risks to the front-end of projects

before the largest blocks of capital must be committed.

As a result, it is likely that only a very small fraction of the hundreds of firms currently producing conventional oil and gas will have the financial and technical means to produce synfuels

when conventional resources are depleted.

While this growing concentration of ownership

may not lead to the classical problem of price fixing by domestic producers, because oil and gas

are traded on worldwide commodity markets, it

does at least make the industry appear to be more

monolithic, since synfuels project managers will

command very large blocks of human and

material resources.

In domestic automating, ownership may become more concentrated because at least two

out of the three major U.S. companies are being

forced, by lack of capital and perhaps by high

production costs, to curtail the number of different vehicles made. Although foreign automakers

are increasing their U.S. manufacturing activities,

the growing dominance of one major U.S. automaker over the other two may decrease price

competition in certain types of cars and possibly

reduce profitmaking opportunities for domestic

suppliers to auto manufacturing because of the

market leverage of the one dominant buyer.

WHAT DO INCENTIVES FOR INCREASED FUEL ECONOMY IMPLY

FOR THE EVOLUTION AND HEALTH OF THE U.S. AUTO INDUSTRY?

The auto industry began a process of structural

changes in the 1970’s which complicates evaluation of how fuel economy policy might affect the

industry, auto manufacturing communities, and

the national economy. Regardless of fuel economy policy, the U.S. auto industry is undergoing

a long-term decline in terms of employment, the

number of domestic firms (including suppliers),

and the proportion of global auto production

sited in the United States. Recent consumer demand for fuel economy and other auto characteristics have supported these trends by motivating

costly product changes to meet competition from

foreign firms. Factors such as the relatively fast

sales growth in foreign auto markets and lower

costs of labor and capital abroad have induced

U.S. manufacturers to increase investments in foreign production activities.

Increases in demand and other pressure on

U.S. firms to raise fuel economy will reinforce and

perhaps accelerate current industry and market

trends. Although large spending needs will motivate reductions in the number of independent

firms and, perhaps, the breadth of their operations, the size and financial health of the U.S. auto

industry in the future will depend, to a great

degree, on its ability to compete with foreign

firms–particularly in the small-car market. The

competitiveness of U.S. auto firms depends not

only on product designs and production facilities

but also on total manufacturing costs, which reflect labor costs and the efficiency of production,

organization, and management. Incentives for accelerating fuel-efficiency increases will not only

directly affect the investment requirements, but

a combination of high perceived investment
90 . Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil /reports

needs, possible rigidity in U.S. costs, and a slowgrowing competitive U.S. market may discourage

U.S. firms from investing in U.S. capacity.

There are some auto company activities that

should be relatively invulnerable to fuel economy-motivated market changes and should continue in the United States. These activities include

production of specialty cars and nonautomotive

projects such as defense contracting. U.S. auto

companies may continue to conduct some activities in the United States at historic or greater

levels, while they may reduce the levels of others

or eliminate them entirely.

A decline in U.S. auto production, especially

one that is not substantially offset by growth in

foreign-owned capacity in the United States,

poses a major policy dilemma. On the one hand,

the auto industry metamorphosis may result in

a more economically efficient domestic industry

that is more competitive with strong import competition. On the other hand, the process of industry change results in loss of jobs for current autoworkers and loss of employment and business

activity for local economies, losses which are relatively large and regionally concentrated in the

already economically depressed North-Central

region. These concerns can be dealt with through

industrial and economic development policies,

but it should be recognized that policy to accelerate fuel economy improvements may aggravate

them. In addition, many of these changes may

occur even in the absence of strong demand for

fuel efficiency, but possibly at a slower rate.

CAN WE HAVE A 75= MPG CAR?

There are no technological barriers to designing and building a four-passenger automobile that

could achieve 75 mpg on the combined 55/45

percent highway/city EPA driving cycle. Such a

car would take at least 5 years to design and develop and might be costly to manufacture, but

it is technically feasible. It should be noted, of

course, that the appearance of one or a few models that get 75 mpg would have littIe immediate

effect on fleet average fuel economy, or on the

Nation’s petroleum consumption.

High fuel economy entails tradeoffs and compromises that affect other features of vehicle

design–carrying capacity, performance, safety,

comfort, and related amenities. Technology is a

critical factor in managing these tradeoffs. Some

routes to improved passenger car fuel economy

also increase manufacturing costs (diesel engines,

more complicated transmissions, lightweight materials). Here again, better technology can help

to improve fuel economy at the least cost.

If a 75-mpg car can be made sufficiently attractive to consumers in terms of the other features

beyond fuel economy that affect purchasing decisions—including price, but also the variety of less

tangible factors that contribute to perceived value—then automakers will build such cars, confident that they will find a market. The interplay

between consumer demand and automotive

technology will determine when 75-mpg cars will

appear. Consumer expectations concerning fuel

costs and the possibility of future shortages of fuel,

as well as their judgments of the practicality of

such cars, will be important factors affecting the

rate at which these cars would be introduced.

An automobile designed to achieve 75 mpg

might look much like a current subcompact—

e.g., a General Motors Chevette—but, as discussed in chapter 5, would be considerably different under the skin. It would have to be lighter,

and might also be somewhat smaller—with a curb

weight of perhaps 1,600 lb as opposed to about

2,000 lb for the Chevette. The actual weight depends not only on the size of the car, but also

on the materials from which it is made. By using

materials with high strength-to-weight ratios

wherever possible—or, where strength or stiffness

are not important, materials of low density—a

four-passenger car could weigh, in principle,

even less than the 1,600 lb suggested above.

Costs are the limiting factors in the use of such

materials—both the costs of the materials themselves and the costs of the required manufacturing processes.
Ch. 4—issues and Findings • 91

Photo credit: Volkswagen of America

Artists drawing of the VW2000, a three-cylinder diesel test vehicle that has achieved over 60 mpg in

standard fuel-efficiency tests

The other essential element in a 75-mpg car is

an efficient powertrain. For a car weighing 1,600

lb or less, a relatively small diesel engine–one

with a displacement in the range of 0.9 to 1.3

liters–would suffice. The transmission could be

either a manual design or a considerably improved automatic, perhaps a continuously variable transmission.

To get 75 mpg would also require a great deal

of attention to the detailed design of many aspects

of the car—low aerodynamic drag, low rolling resistance, use of microprocessor controls, minimal

accessories, and parasitic loads—with careful engineering development throughout the vehicle

system. None of this depends on technological

breakthroughs.

Given equally good design practices, the resulting car would not be as safe as a larger vehicle.

Nor would it be luxurious. It might not have air

conditioning. It would probably not be able to

pull a camping trailer through the Rocky Mountains. But it could get 75 mpg. When automobile

manufacturers—here, in Europe, and in Japan—

decide that American consumers want such a car,

they will build it.
92 . Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil /reports

ARE SMALL CARS LESS SAFE THAN LARGE CARS?

One of the easiest ways to increase the fuel

economy of passenger cars is to make them lighter. Although it is possible to make cars somewhat

lighter without making them smaller, in general

size and weight go together. Thus, cars with increased fuel economy are typically smaller—a

downward trend in the size and weight of cars

sold in the U.S. market began in 1977 and will

continue through the 1980’s, although gradually leveling off.

Size is the more critical variable for safety, although weight also affects the dynamics of collisions. A great deal of improvement in the safety

of cars of all sizes is possible through improved

design–but given best practice design, a big car

will always be safer than a small car in a collision. As a result, making cars smaller to improve

fuel economy will, everything else being equal,

increase risks to drivers and passengers. Assuming no change in the way the cars are driven,

there will be more injuries and fatalities than

would occur with bigger cars embodying equivalent design practices and having identical accident avoidance capabilities.

Size affects safety because when an automobile

hits another object–whether another car, a truck,

or a roadside obstacle—the car itself slows, or is

decelerated (the “first collision”), and the occupants must then be slowed with respect to the

vehicle (the “second collision”). To minimize the

chance of injury, the decelerations of the occupants with respect to the passenger compartment

during the second collision must be minimized,

The occupants must also be protected against intrusion or penetration of the passenger compartment from the outside. But controlling decelerations during the second collision depends on the

deceleration of the entire vehicle during the first

collision. Given good design practices, the severity of both the first and the second collision can

be lowered, on the average, if the car is made

larger.

Ideally, the vehicle structure will deform in a

controlled manner around the passenger compartment during a collision, so that the average

deceleration of the passenger compartment in the

first collision will be low. The larger the car, the

more space the designer can utilize to manage

the deformations and decelerations—e.g., by

using a crushable front-end. In a small car, there

is less room for controlled deformation without

intruding on the passenger compartment. Within

the passenger compartment, more space means

more room to control the deceleration of the passengers—using belts, harnesses, padding, and

other measures—with less risk of hitting unyielding portions of the vehicle structure. More room

also makes penetration or other breaches of the

integrity of the compartment less likely. One

pathway to increased fuel economy without sacrificing collision protection is therefore to make

cars lighter by design changes and/or different

materials while preserving as much space as possible for managing the energies that must be dissipated in the first and second collisions.

Because vehicle size and weight are not the

only significant factors in determining vehicle

safety, and because “all other things being equal”

does not apply in actual real-world situations, any

conclusion about the relative safety of large and

small cars should be tempered with the following observations:

1.

2.

3.

The recent series of crash tests sponsored by

the National Highway Traffic Safety Administration demonstrated that vehicles of approximately equal size can offer remarkably different degrees of crash protection to their

occupants. In many cases, differences between cars of equal size overshadowed differences between size classes in the kind of

accident tested (35-mph collision head-on

into a barrier).

Crash-avoidance capabilities of large and

small cars are unlikely to be the same, and

any differences must be factored into an

evaluation of relative safety. Unfortunately,

the effects of differences in such capabilities

are difficult to measure because they represent both physical differences in the vehicles

and driver responses to those differences.

Available traffic safety data and analysis is

often confusing and ambiguous on the subject of large car/small car safety differences.
Ch. 4—issues and Findings • 93

Although analyses of car-to-car crashes tend

to agree that occupants of large cars are at

a lesser risk than those of smaller cars, there

is no such firm agreement about the other

classes of accidents that account for threequarters of all passenger vehicle occupant

fatalities. A probable reason for the ambiguity of results is the shortage of consistent, nationwide data on accident incidence and details; only fatal accidents are widely recorded. Another reason is the multitude of

factors other than car size that might affect

injury and fatality rates. Important factors include differences (among different size

classes) in driver and occupant age distribution, general types of trips taken, average annual mileage, vehicle age distribution, and

seatbelt usage.

HOW STRONG IS CURRENT DEMAND FOR

FUEL EFFICIENCY IN CARS?

An extremely important factor influencing fu- Table 17 presents a compari

ture new-car average fuel efficiency is the market

demand for this attribute, relative to the other

features the new-car buyer wants. Although it is,

at best, only an approximate measure of future

market behavior, examination of recent demand

patterns in the new-car market can provide some

insights about current demand for fuel efficiency. I n particular, the importance of fuel efficiency as compared with car size, price, and performance is examined for 1981 model gasoline-fueled

cars* sold through January 5, 1981.

son of the average

fuel efficiency of new gasoline-fueled 1981 model

cars sold through January 5, 1981, with the fuel

efficiency of the most efficient car in each of the

Environmental Protection Agency’s (EPA) nine

size classes. Also shown are the sales fractions

and the nationality of the manufacturer of the

most efficient vehicle, These data show that the

average fuel efficiency of new cars sold was 25

mpg, but if consumers had bought only the most

fuel-efficient car in each size class* (and manufacturers had been able to supply this demand),

*The results of the analysis would change somewhat if diesels

were included, primarily with respect to nationality of manufac- *lnterestingly, this would also have resulted in U.S. manufacturers because U.S. manufacturers did not offer diesels in several turers and captive imports capturing over 90 percent of sales, rather

size classes in 1981. U.S. manufacturers, however, are beginning than 74 percent of sales that they actually achieved in this period.

to offer diesels in most size categories; but the relevant data are If diesels are included, however, average fuel efficiency could have

not now available. In 1981, about 95 percent of the automobiles been slightly higher than 33 mpg, but less than 60 percent of the

sold were gasoline-powered. cars purchased would be domestically produced.

Table 17.—Comparison of Average and Highest Fuel Efficiency

for 1981 Model Gasoline-Fueied Cars in Each Size Class

Sales-weighted average

fuel efficiency of cars Fuel efficiency of most Nationality of

Sales fraction sold through Jan. 5, 1981 fuel-efficient model in manufacturer of most

EPA size class (percent) (mpg) size class (mpg) fuel-efficient model

Two-seater. . . . . . . . . . . . . 2 22 30 Italian

Minicompact . . . . . . . . . . . 3 34 45 Japanese

Subcompact . . . . . . . . . . . 30 28 42 United States

(Captive Import)

Compact . . . . . . . . . . . . . . 9 27 37 United States

Midsize . . . . . . . . . . . . . . . 37 23 31 United States

Large . . . . . . . . . . . . . . . . . 9 24 United States

Small wagon . . . . . . . . . . . 4 30 37 Japanese

Midsize wagon . . . . . . . . . 5 23 30 United States

Large wagon . . . . . . . . . . . 1 18 20 United States

Sales-weighted average 25 33

SOURCE: Data from J. A, Foster, J. D. Murrell, and S. L. Loos, US. Environmental Protection Agency, “Light Duty Automotive Fuel Economy . . Trends Through 1981,”

SAE papar No. 810388, Februa~ 1981.
94 ● Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

the average fuel efficiency would have been 33

mpg (a 33 percent increase). Because EPA’s size

classes are based on cars’ interior volume, it is

clear that demand for large interior volume in cars

is not currently preventing a significantly higher

average fuel efficiency in new cars than is actually

being purchased.

Similarly, a comparison of prices shows that the

most fuel-efficient 1981 model cars generally had

a base sticker price in the middle or lower half

of the price range of cars in each size classification. * Thus, there is no evidence that price is constraining the purchase of fuel-efficient cars either.

A further comparison of the average and most

fuel-efficient cars in each size category shows that

the average cars are heavier and have more powerful engines than the most fuel-efficient models.

However, OTA’s analysis indicates that the greater engine power found in the average car sold

is, to a large extent, needed simply because the

car is heavier.** There is no indication that the

“Sales-weighted average sticker prices for comparably equipped

cars are not currently available.

**For example, in subcompacts and midsized cars (accounting

together for 67 percent of sales), the average car weighed about

33 percent more and had about 50 percent larger engine displacement (which is correlated to power) than the most fuel-efficient

car. A further comparison of specific fuel efficiency (ton miles per

most fuel-efficient car in most size categories performs (e.g., accelerates) significantly worse than

the averge 1981 model car actually sold in that

category. Although there are exceptions to this

in certain size categories (e.g., two-seaters, large

cars, and possibly midsized station wagons), these

exceptions account for only about 10 to 15 percent of total sales.

This analysis indicates that interior volume,

price, and performance cannot account for the

large difference between the fuel efficiency of

cars actually sold and what was available. As in’

the past, consumers consider features such as

style, quality, safety, ability to carry or haul heavier loads, and energy-intensive accessories to be

of comparable importance to fuel economy. It

is probable, therefore, that new-car average fuel

efficiency could be significantly increased if consumer demand for fuel economy were strengthened.

gallon, or the mpg of an equivalent car weighing 1 ton) shows that,

for midsized cars (37 percent of sales), the difference in fuel efficiency between the average and the most fuel-efficient car can be

explained solely on the basis of weight. Thus, there is no indication that the average car has better performance characteristics (e.g.,

acceleration) than does the most fuel-efficient model. A similar comparison of subcompacts indicates that, if anything, one would expect the most fuel-efficient model to perform better than the

average.

WHAT ARE THE PROSPECTS FOR ELECTRIC VEHICLES?

EVs were among the first cars built, but they

had almost vanished from the marketplace by the

1920’s, primarily because they could not compete with gasoline-powered vehicles in terms of

price and performance. Due to concern over

automobile emissions, the increasing price of oil

and recent oil supply disruptions, however, there

has been a renewed interest in this technology.

The advantages of EVs are that they derive their

energy from reliable supplies of electricity, which

can be produced from abundant domestic energy

sources, and they operate without exhaust emissions. Their disadvantages are their high cost and

poor performance and the increased sulfur dioxide emissions that result from increased electric

generation.

From the consumer’s point of view, the problems with EVs are principally centered on battery technology. Current batteries are expensive

and heavy, relative to the energy they store; they

require several hours to recharge; and they must

be replaced approximately every 10,000 miles at

a cost of $1,500 to $3,000. The weight of batteries

limits vehicle range, * performance, and cargoand passenger-carrying capacity. Because of the

cost of batteries and electric controls, a new EV

is estimated to cost about $3,000 more than a

comparable gasoline-powered vehicle. And replacing batteries every 10,000 miles because of

limited life would add more than $().10/mile to

*Usually 100 miles or less between recharging.
Ch. 4—Issues and Findings ● 9 5

operating costs, which is equivalent to gasoline

costing more than $4 to $6/gal for a 40- to 60-mpg

car.

Future developments in battery technology

could improve the prospects for EVs, and several

approaches are being pursued. But the understanding of battery technology is not adequate

to predict if or when significant improvements

will occur.

If battery problems persist, sales of EVs could

be limited to a relatively few people and firms

that can afford to pay a premium to avoid transportation problems that would arise if liquid fuel

supplies were disrupted. On the other hand, if

gasoline prices increase by more than a factor of

four or five or if gasoline and diesel fuel are rationed at levels too low to satisfy driving needs

even with the most fuel-efficient cars, then EVs

could be favored—provided electricity prices do

not also increase dramatically.

Prospects for EVs may also be influenced by

Government incentives based on national and

regional considerations. One such consideration

is the oil displacement potential of EVs. EVs are

most nearly a substitute for small cars, which are

likely to be relatively fuel efficient in the 1990’s;

but the limited range of current and near-term

EVs prevents them from being a substitute for all

of the yearly travel needs supplied by a small gasoline-driven car. As a result, oil displacement by

EVs is likely to be relatively small; probably no

more than 0.1 million barrels per day (MMB/D)

with a 10-percent market penetration, even assuming no oil consumption by those electric utilities supplying electricity to EVs.

At current levels of utility oil consumption,

however, the net oil displacement would be less

than 0.1 MMB/D (see ch. 5 for details). Future

reductions in utility oil consumption will improve

the oil displacement potential of EVs, while increased fuel efficiency in petroleum-fueled cars

will reduce any advantage EVs might have in this

connection.

A final consideration is the reduced automotive

emissions and other environmental effects of EV

use. Because that use would be concentrated in

urban areas and the necessary increased electric

power generation would be well outside of these

areas, cities with oxidant problems that replace

large numbers of conventional vehicles with EVs

will significantly improve their air quality. This incentive could improve the prospects for EV sales

and use. Emissions and other impacts of increased

power generation may cancel some of this benefit, but the positive urban effects are likely to be

considered the most important environmental attributes of EVs.

IF A LARGE-SCALE SYNFUELS INDUSTRY IS BUILT . . . WILL

PUBLIC AND WORKER HEALTH AND SAFETY AS WELL AS THE

ENVIRONMENT BE ADEQUATELY PROTECTED?

It is virtually a truism that all systems designed environmental community has focused on the

to produce large amounts of energy will have the potential damaging effects, while the industry has

potential to adversely affect the environment and focused on the controls and environmental manhuman health and safety. It is equally true that, agement procedures available to them. Gaining

with few exceptions, it is technically feasible to a perspective on the correct balance between

reduce these effects to the point where they are these two points of view—on the likelihood that

generally considered an acceptable exchange for some of the potential damages will actually occur

the energy benefits that will be obtained. In cur- —is especially important in the case of synfuels

rent arguments concerning synthetic fuels devel- development because environmental dangers

opment, as with many other such arguments, the have become a genuine public concern.
96 . Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil /reports

As shown in the evaluation of potential environmental impacts in this report, many of the important impacts of a large synfuels industry will

be similar in kind to those of coal-fired electric

power generation. The magnitude of these impacts (acid drainage and land subsidence from

coal mines, emissions of sulfur and nitrogen oxides and particulate, effects of water use, population increases, etc. ) is likely to be similar to and

in some cases less than the likely impacts of the

new, tightly controlled electric-generating capacity projected to be installed in the same time

frame.

A second set of impacts–those associated with

the toxic materials present in the process and

waste streams of the plants and possibly in their

products—are not predictable at this time but are,

nevertheless, very worrisome. Factors that should

be useful in gaging the risk from these impacts

include the technical problems facing the designers of environmental controls, the availability of

adequate regulations and regulatory agency resources, past industry and Government behavior

in implementing environmental and safety controls, and difficulties that might be encountered

in detecting adverse impacts and tracing them to

their sources. A brief discussion of these factors

follows:

1. Technical Problems.—Virtually all the controls which are planned for synthetic fuels

plants are based on present engineering

practices in the petroleum refining, petrochemical, coal-tar processing and power

generation industries, and industry spokesmen appear confident that they will work

satisfactorily. Problems may be encountered,

however, because of differences between

these industries and synfuels plants—the Iatter have higher concentrations of toxic hydrocarbons and trace metals, higher pressures, and more erosive process streams, in

particular, As yet, few effluent streams have

been sent through integrated control systems, so it has not yet been demonstrated

that the various control processes will work

satisfactorily in concert, Technical personnel at the Environmental Protection Agency (EPA) and the Department of Energy

2.

3.

(DOE) have expressed particular concerns

about control-system reliability.

Judging from these indications, it appears

possible that a considerable period of time–

possibly even a few years–will be necessary

to solve control problems in the first few

plants and get the environmental systems

working with adequate performance and

reliability. Delays are especially likely for

direct-liquefaction pIants, which have some

particularly difficult problems involving toxic

substances and erosive process streams.

These delays may be aggravated by a potential gap in control technology development.

Recent Federal policy has left the development of environmental controls largely to industry. The major concern of the synfuels

industry, on the other hand, is to clean up

waste streams so that existing regulations

may be met. Less emphasis is placed on controlling pollutants such as polynuclear aromatics that are not currently regulated. It appears certain that there will be considerable

pressure to regulate these and other pollutants, but it is not certain that the industry

will be able to respond quickly to such regulations.

Detecting and Tracing Impacts. —One of the

major potential dangers of synfuels plants

will be low-level emissions of toxic substances, especially through vapor leaks (primary danger to workers) or ground water

contamination from waste disposal (primary

danger to the public and the general environment), Current ground water monitoring

probably is inadequate to provide a desirable

margin of safety, although presumably

knowledge of this danger will result in better monitoring systems. A major problem

may be the long lag times associated with

detecting carcinogenic/mutagenic/teratogenic damages—a major concern associated

with trace hydrocarbons produced under

the physical and chemical conditions present in most synfuels reactors.

Regulation. –The regulatory climate facing

an emerging synfuels industry is mixed. On

the one hand, ambient standards for particulates, sulfur oxides, and other pollutants
Ch. 4—issues and Findings ● 9 7

— .-.

associated with conventional combustion

sources are in place and should offer adequate protection to public health with respect to this group of pollutants. A limited

number of other standards, including those

for drinking water protection, also are in

place. On the other hand, new source performance standards–federally set emission

standards—have not been determined yet,

nor have national emission standards for

hazardous air pollutants been set for the variety of fugitive hydrocarbons or vaporized

trace elements that might escape from synfuels plants. Likewise, although Occupational Safety and Health Administration (OSHA)

exposure standards and workplace safety requirements do apply to several chemicals

known or expected to occur in synfuels production, the majority of such chemicals are

not regulated at this time.

These regulatory gaps are not surprising,

given the limited experience with synfuels

plants, and several of the standards–especially the emissions standards—probably

could not have been properly set at this stage

of industry development even had there

been intensive environmental research.

However, the difficulties in detecting impacts described above, and some doubts as

to the availability of environmental research

resources at the Federal level, lead to concern about the adequacy of future regulation.

4. Past History. –Given both the potential for

environmental harm and the potential for

mitigating measures, the attitude and behavior of both the industries that will build and

operate synfuels plants and the agencies that

will regulate them are critical determinants

of actual environmental risk. Consequently, an understanding of the past environmental record of these entities should be a useful

guide in gaging this risk. Unfortunately, there

is little in the way of comprehensive research

on this behavior. Even the compilation of

data on compliance with existing regulations

and incidence of deaths and injuries is quite

weak.

For example, to our knowledge EPA has

sponsored only one major evaluation of

compliance with emission regulations; this

recent study of nine States showed that 70

percent of all sources failed to comply fully

with those regulations. Also, Department of

Labor statistics on occupational hazards are

compiled in such a way as to overlook health

problems that cannot easily be attributed to

a specific cause—just the kinds of problems

of most concern to an evaluation of potential synfuels problems. Consequently, occupational health and safety statistics that appear favorable to synfuels-related industries

are likely to be an inadequate guide to the

actual hazard potential.

Anecdotal evidence, although not an adequate basis for evaluating risk, may be useful

as a warning signal of future causes of health

and safety problems. For example, recent

studies have demonstrated that protective

gloves used in the chemical industry fail to

protect workers from several hazardous, and

commonly encountered, chemicals. This

points to both an immediate technical problem and an institutional failure in the chemical industry itself and its regulating agencies.

On the other hand, the tests, which were

sponsored by OSHA, also demonstrate the

ability of the regulatory agency to correct

past failures.

Another example of anecdotal evidence

that may indicate some future problems with

industry performance is that some developers have failed to incorporate separate and

measurable control systems in synfuels pilot

plants. For example, a direct-liquefaction

facility in Texas has its effluents mixed with

those of a neighboring refinery, rather than

having a separate control system whose effectiveness at treating synfuels wastes can be

tested and optimized. This might reflect industry’s lack of priority or, more likely, its

high level of confidence that no unusual

control problems will arise that cannot be

readily handled at the commercial stage.

There is considerable disagreement about

the validity of this confidence.
98 . Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil lmports

Finally, there is ample evidence that the

chemical industry and its regulators have had

significant problems in dealing properly with

subtle, slow-acting chemical poisons. Chemicals that were unregulated or inadequately

regulated for long periods of time, and

whose subsequent regulation became major sources of conflict between industry and

Government, include benzene, formaldehyde, vinyl chloride, tetraethyl lead, the

pesticide 2,4,5-T, and many others. In some

cases, controversy persists despite years or

even decades of research.

An implication of the above discussion is that

adequate environmental management of synfuels

is unlikely to occur automatically when development begins in earnest. Although OTA believes

that the various waste streams can be adequately controlled, this is going to require a strong industry effort to determine the full range of potential environmental impacts associated with development and to devise and implement measures

to mitigate or prevent the important impacts. At

present, however, there are indications that most

developers are interested primarily in meeting

current regulatory requirements, most of which

are limited in their coverage of potential impacts.

And completing the regulatory record, to provide

the incentive necessary to stimulate further environmental efforts, is going to be a difficult and

time-consuming job, particularly if ongoing cutbacks in Government research and regulatory

budgets are not accompanied by promised improvements in efficiency.

Finally, there are some remaining doubts about

the reliability of proposed control systems in

meeting current regulatory requirements. These

potential problem areas imply that congressional

oversight of an emerging synfuels industry will

need to be especially vigorous in its coverage of

environmental concerns.

WILL WATER SUPPLY CONSTRAIN SYNFUELS DEVELOPMENT?

In the aggregate, the water consumption requirements for synfuels development are small.

Achieving a synfuels production capability of 2

million barrels per day oil equivalent would require on the order of 0.3 million acre-feet/year

or about 0.2 percent of estimated total current

national freshwater consumption, Nevertheless,

synfuels plants are individually large water consumers. Depending on both the water supply

sources chosen for synfuels development and the

size and timing of water demands from other

users, synfuels development could create conflicts among users for increasingly scarce water

supplies or exacerbate conflicts in areas that are

already water-short.

The nature and extent of the impacts of synfuels development on water availability are controversial. The controversy arises in large part because of the many hydrologic as well as institutional, legal, political, and economic uncertainties and constraints which underlie the data, and

because of varying assumptions and assessment

methodologies used. The importance of the factors influencing water availability will vary in the

different river basins where the energy resources

are located.

In the major Eastern river basins where energy

resources are located (i.e., the Ohio, Tennessee,

and the Upper Mississippi), water should generally be adequate on the mainstems and larger tributaries, without new storage, to support likely

synfuels development. However, localized water

scarcity problems couId arise during the inevitable dry periods or due to development on smaller

tributaries. The severity of these local problems

cannot be ascertained from existing data and they

have not yet been examined systematically. With

appropriate water planning and management, it

should be possible to reduce, if not eliminate, any

local problems that might arise.

Competition for water in the West already exists and is expected to intensify with or without

synfuels development. In the Missouri River

Basin, the magnitude of the institutional, legal,

and political uncertainties, together with the need
Ch. 4—Issues and Findings . 99

for major new water storage projects to averageout seasonal and yearly streamflow variations,

preclude an unqualified conclusion as to the

availability of water for synfuels development.

The major sources of these uncertainties, which

are difficult to quantify because of a lack of supporting information, include Federal reserve water rights (including Indian water rights claims),

provisions of existing compacts, and instream

flow reservations.

In the Upper Colorado River Basin, water could

be made available to support the level of synfuels

development expected over the next decade.

However, the institutional, political, and legal

uncertainties make it difficult to determine which

sources would be used and the actual amount

of water that would be made available from these

sources. The principal uncertainties concern the

use of Federal storage, the transfer of water rights,

provisions of existing compacts and treaties, and

Federal reserve rights. The range of uncertainty

surrounding the water availability to the entire

basin after 1990 is so broad that it tends to subsume the amount of water that would be needed

for expanded synfuels development.

ARE SYNTHETIC FUELS COMPATIBLE WITH EXISTING END USES?

When introducing new fuels into the U.S. liquid fuels system, it is important to determine the

compatibility of the new fuels with existing end

uses in order to determine what end-use changes,

if any, may be necessary. In this section the compatibility of various synfuels with transportation

end uses is briefly described.

Alcohols

Neither pure ethanol nor pure methanol can

be used in existing automobiles without modifying the fuel delivery system, but cars using them

can be readily built and engines optimized for

pure alcohol use would probably be 10 to 20 percent more efficient than their gasoline counterparts. New cars currently are being built to be

compatible with gasohol (1 O percent ethanol, 90

percent gasoline), so potential problems with this

blend are likely to disappear with time.8 Methanol-gasoline blends have been tested with mixed

results. Principal problems include increased

evaporative emissions and phase separation of

the fuel in the presence of small amounts of

water. These problems can be reduced by blending t-butanol (another alcohol) with the methanol,

and such a blend is currently being tested.9 However, due to the corrosive effects of methanol on

afnergy From Biological Processes, Volume 11: Technical and fnvironmenta/ Ana/yses, OTA-E-1 28 (Washington, D. C.: U.S. Congress,

Office of Technology Assessment, September 1980).

91bid.

some plastics, rubbers, and metals in some vehicles, it probably is preferable to use methanol in

its pure form in modified vehicles or to require

that components in new automobiles be compatible with methanol blends.

Shale Oil

Shale oil has been successfully refined at the

pilot plant level to products that meet refinery

specifications for petroleum derived gasoline,

diesel fuel, and jet fuel.10 The properties of the

diesel and jet fuels are shown in tables 18 and

19, where they are compared with the petroleum

counterparts. Current indications are that the major question with respect to compatibility of these

fuels with their end uses is what minimum level

of refining (and thus refining cost) will be needed

to satisfy the needs of end users.

Direct Coal Liquids

One of the direct coal liquids, SRC II, has also

been successfully refined to products that meet

refinery specifications for gasoline and jet fuel

(tables 18 and 19). (The cetane number of the

resultant “diesel fuel, ” however, is lower than

that normally required for petroleum diesel fuel.)

The gasoline, because of its aromatics content,

‘

OR. A. Sullivan and H. A. Frumkin, “Refining and Upgrading of

Synfuels From Coal and Oil Shales by Advanced Catalytic Processes, ” third interim report, prepared for DOE under contract No.

EF-76-C-01-2315, Chevron Research Co., Apr. 30, 1980.
100 • Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

Table 18.–Properties of Selected Jet Fuels Derived From Shale Oil and SRC-II

350° to 500° F 300° to 535° F

Typical petroleum hydrotreated hydrocracked 300° to 550° F or 250° to 570° F

(Jet A) shale oil shale oil hydrotreated SRC-11

Gravity, ‘API . . . . . . . . . . . . . . 37-51 42 47 33-36

Group type, LV%:

Paraffins. . . . . . . . . . . . . . . 35 55 3-4

Cycloparaffins. . . . . . . . . . . 45 40 93-81

Aromatics . . . . . . . . . . . . . . <20 20 5 4-15

Smoke points, mm. . . . . . . . . > 20 21 35 20-23

Freeze point, 0 F . . . . . . . . . . –40 –42 –65 –75 to –95

Nitrogen. . . . . . . . . . . . . . . . . (a) 2 0.1 0.1

a

in addition, severe stability requirements mean that heteroatom content must be very low(usually the nitrogen content is less than 10 ppm for petroleum-derived

jet fuel).

SOURCE: R. A. Sullivan and H. A. Frumkin, “Refining and Upgrading of SYnfuels From Coal and Oil Shales by Advanced Catalytic Processes,” third interim report,

prepared for DOE under contract No. EF-76-C-01-2315, Chevron Research Co., Apr. 30, 19S0.

Table 19.–Propertles of Selected Diesal Fuels Derived From Shale Oil and SRC-II

350° to 600° F

350° to 650° F hydrotreated shale oil

Typical petroleum hydrotreated shale oil coker distillate 350° F+ hydrotreated SRC-II

Gravity, API . . . . > 3 0 38 41 29

Cetane No. . . . . . . > 4 0 46a

48 39

Pour point, 0 F. . . <+ 15 – 5 –20 –55

Group type, LV%:

P . . . . . . . . . . . . . 37 41 –4-7

N . . . . . . . . . . . . 44 41 70-93

A . . . . . . . . . . . . 19 18 2-23

Nitrogen, ppmb . . (b) 350 350 0.1-0.5

aEatlmated.

bHeterOatOrnS rnwt be removed to level required for stability (usually 600 Ppm N for petroleum).

SOURCE: R. A. Sulllvan and H. A. Frumkln, “Refining and Upgrading of Synfuels From Coal and 011 Shales by Advanced Catalytic Processes, ” third interim report,

prepared for DOE under contract No. EF-76-C-01-2315, Chevron Research Co., Apr. 30, 1960.

would be used as an octane-enhancing blending

agent in conventional gasoline. Aromatics, such

as benzene and toluene, are currently used for

this purpose in gasoline. Again, a principal question is what minimum level of refining will be

needed. other direct coal liquids probably are

similar to SRC Ii liquids.

Indirect Coal Liquids

Other than methanol, which was considered

above, the principal indirect coal liquids for

ground transportation are gasolines, although the

Fischer-Tropsch (FT) processes can be arranged

to produce a variety of distillate fuels, as well.

There are no indications that these gasolines

would not be compatible with the existing automobile fleet, either alone or in blends with conventional gasoline.

Caveat

Despite the apparent compatibility of hydrocarbon synfuels with existing end uses, refinery specifications do not uniquely determine all of the

properties of the fuel. The tests used to characterize hydrocarbon fuels were designed for petroleum products and may be inadequate indicators

for the synfuels. Some potential problems with

the hydrocarbon synfuels that have been mentioned include:

● Lubrication. –Hydrotreating of synfuels is

necessary to meet refinery specifications.

However, the lubricating properties of the

synfuels drop with this hydrotreating. This

drop in lubricity could lead to possible problems with fuel-injection nozzles and other

moving parts that rely on the fuel for lubricat ion.
Ch. 4—issues and Findings ● 1 0 1

——-. -—— -——— .

● Emissions. —The particulate and nitrogen oxide emissions of synthetic diesel fuel could

be greater than those from an otherwise

comparable petroleum diesel fuel. Automobile manufacturers are having difficulty meeting emissions standards with conventional

diesel fuel, and there is some concern that

synfuels could aggravate these problems.

● Variability. —The direct liquefaction synfuels

from coal can vary in composition depending on the coal used.11 Consequently, although the synfuel from one coal may be

compatible with an end use, the same process might produce an incompatible synfuel

if another coal is used.

In principle, if the exact chemical composition

of synfuels were known, synfuels could be

blended from petrochemicals and tested extensively for these potential problems before synfuels

plants were built. In practice, however, the chemical compositions are so complex, varied, and

process-dependent that this option is probably

not practical.

The alternative is to wait until sufficient quantities of synfuels are available and to conduct extensive field tests of synfuels processed in various

ways and from different coals. Until this is done,

statements about the compatibility of hydrocarbon synfuels with current end uses are somewhat

speculative.

1 Ibid,
Chapter 5

Increased Automobile Fuel Efficiency

Contents

Page

Status and Trends . . . . . . . . . . . . . . . . . . . 105

Automobile Technologies . . . . . . . . . . . . . 108

Vehicle Size and Weight . . . . . . . . . . . . 110

Powertrain . . . . . . . . . . . . . . . . . . . . . . . . 111

Fuel Economy–A Systems Problem . . . 113

Tradeoffs With Safety and Emissions. . . 113

Methanol-Fueled Engines . . . . . . . . . . . . 115

Battery-Electric and Hybrid Vehicles. . . 117

Future Automobile Fuel Efficiency . . . . . . 120

Technology Scenarios . . . . . . . . . . . . . . 121

Projection of Automobile Fleet

Fuel Efficiency . . . . . . . . . . . . . . . . . . . 122

Estimated Fuel Consumption, 1985-2000. 126

Projected Passenger-Car Fuel

Consumption . . . . . . . . . . . . . . . . . . . . 126

Substitution of Electric vehicles . . . . . . 128

Fuel Use by Other Transportation

Modes . . . . . . . . . . . . . . . . . . . . . . . . . 129

Page

Costs of Increased Fuel Efficiency . . . . . . 130

Overview . . . . . . . . . . . . . . . . . . . . . . . . . 130

Fuel Savings Costs . . . . . . . . . . . . . . . . . 137

Consumer Costs . . . . . . . . . . . . . . . . . . . 139

Electric and Hybrid Vehicles, . . . . . . . . 141

MethanoI Engines . . . . . . . . . . . . . . . . . . 142

Appendix A.–Prospective Automobile

Fuel Efficiencies . . . . . . . . . . . . . . . . . . 142

Appendix B.–Oil Displacement Potential

of Electric Vehicles . . . . . . . . . . . . . . . 149

TABLES

Table No. Page

20. Potential Battery Systems for Electric

(and Hybrid) Vehicles . . . . . . . . . . . . . 118

21. Prospective Automobile

Fuel-Efficiency Increases, 1986-2000 . 122
Table No. Page Page

22. Small, Medium, and Large Size 36. Total Domestic Capital Investments

Classes Assumed for 1985-2000 . . . . . 123 for Changes Associated With

23. Automobile Characteristics– Increased Fuel Efficiency. . . . . . . . . . . 136

High-Estimate Scenario . . . . . . . . . . . . 124 37. Estimated Capital Investment

24. Automobile Characteristics— Allocated to Fuel Efficiency per

Low-Estimate Scenario. . . . . . . . . . . . . 124 Gallon of Fuel Saved. . . . . . . . . . . . . . 138

25. Estimated New-Car Fuel Economy: 38. Capital investment Attributed to

1985 -2000 . . . . . . . . . . . . . . . . . . . . . . . 125 Increased Fuel Efficiency Plus

26. Effect on Size Mix on Estimated Associated Development Costs per

Fuel Economy of the New-Car Sales Barrel/Day of Fuel Saved . . . . . . . . . . 139

in the United States. . . . . . . . . . . . . . . 126 39. Plausible Consumer Costs for

27. Baseline Assumptions for Projections Increased Automobile Fuel Efficiency

of Automobile Fuel Consumption . . . 126 Using Alternative Assumptions About

28. Effects of Substituting Electric Variable Cost Increase. . . . . . . . . . . . . 140

Vehicles . . . . . . . . . . . . . . . . . . . . . . . . 128

29. Projected Petroleum-Based Fuel

Use for Transportation . . . . . . . . . . . . 129

30. Post-1985 Automotive Capital Cost FIGURES

Estimates. . . . . . . . . . . . . . . . . . . . . . . . 132 Figure No. Page

31. Summary of investment 6. Historical Average New-Car Fuel

Requirements Associated With Efficiency of Cars Sold in the United

Increased Fuel Efficiency. . . . . . . . . . . 134 States . . . . . . . . . . . . . . . . . . . . . . . . . . 105

32. Average Capital Investments 7. Historical Capital Expenditures by

Associated With Increased Fuel U.S. Automobile Manufacturers . . . . . 108

Efficiency by Car Size and by 8. Fuel Use in City Portion of EPA

Scenario . . . . . . . . . . . . . . . . . . . . . . . . 134 Fuel-Efficiency Test Cycle . . . . . . . . . . 109

33. Average Capital Investments 9. Sales-Weighted Average New-Car

Associated With Increased Fuel Fleet Specific Fuel Efficiency. . . . . . . . 125

Efficiency by Car Size and by 10. Projected Passenger-Car Fuel

Scenario . . . . . . . . . . . . . . . . . . . . . . . . 135 Consumption . . . . . . . . . . . . . . . . . . . . 127

34. Average Capital Investments 11. Cumulative Oil Savings From

Associated With Increased Fuel Increased Automobile Fuel Efficiency

Efficiency by Car Size and by Relative to 30 MPG in 1985, No

Scenario . . . . . . . . . . . . . . . . . . . . . . . . 135 Change Thereafter . . . . . . . . . . . . . . . . 128

35. Percentage of Capital Investments 12. Real and Nominal U.S. Car Prices,

Allocated to Fuel Efficiency . . . . . . . . 136 1960-80 . . . . . . . . . . . . . ... , . . . . . . . . 139
Chapter 5

Increased Automobile Fuel Efficiency

STATUS AND TRENDS

Until the 1970’s, fuel economy was seldom important to American car buyers. Gasoline was

cheap and plentiful, taxes on fuel and on car size

low. In contrast with automobile markets in most

of the rest of the world, automakers had few incentives to build small cars, or consumers to purchase them. The typical American passenger car

–large, comfortable, durable–evolved in relative

isolation from design trends and markets in other

parts of the world. Fuel economy was a minor

consideration. (This was not the case for heavy

trucks, where fuel costs have always been a substantial component of operating expenses.)

In the late 1960’s and early 1970’s, Federal

emissions control standards worked at the expense of fuel economy. But fuel economy pressures were also building—signified by gasoline

shortages, the sudden rise in oil prices, and the

passage of the Energy Policy and Conservation

Act of 1975 (EPCA). EPCA set fleet average mileage standards for automobiles sold in the United

States beginning in 1978. The combination of

Corporate Average Fuel Economy (CAFE) standards and market forces stimulated rapid changes

in the design of American cars, followed by a

sharp swing in consumer demand during 1979

and 1980 toward small, economical imports.

A similar upsurge in small-car demand had followed the 1973-74 oil shock. Over the 1965-75

period, American-made cars averaged about 14

to 15 miles per gallon (mpg). * For model year

1980, the average for cars sold in the domestic

market was up to 21 mpg, 1 mpg above the EPCA requirement. For 1981 models, domestic cars

sold through January 5, 1981, averaged almost

24 mpg, or almost 2 mpg above EPCA requirements. (See also fig. 6.)

Most of the increases in fuel economy have

come from downsizing—redesigning passenger

cars so that they are smaller and lighter, and can

use engines of lower horsepower. Other changes

*Based on EPA’s combined test cycles (55 percent city and 45

percent highway cycle).

Figure 6.—Historical Average New-Car Fuel

Efficiency of Cars Sold in the United States

30,

25 -

20 -

15

1 0

c

1970 1972 1974 1976 1978 1980 1982

Year

SOURCE: J. A. Foster, J. D. Murrell, and S. L. Loaa, “Light Duty Automotive Fuel

Economy. . Trends Through 1981 ,“ SAE Paper 810386, February 1981.

in vehicle designee. g., decreased aerodynamic

drag and rolling resistance, improved automatic

transmissions and higher rear axle ratios, electronic engine controls, greater penetration of

diesels–have also helped to reduce fuel consumption.

While the latest technology is used in these redesigns, technology itself is not–and has not

been–a limiting factor in passenger-car fuel economy in any fundamental sense. The limiting factor is what the manufacturers decide to build

based on judgments of future consumer demand.

Decisions on new models may also be constrained by the costs of new capital investment.

Technology does have a vital role in managing

the many tradeoffs among manufacturing and investment costs, fuel economy, and the other attributes that affect consumer preferences—quality, comfort, carrying capacity, drivability, and

performance. Technology is also critical in managing possible tradeoffs involving fuel economy,

emissions, and safety.

American automakers are still incrementally

downsizing their fleets–in the process convert105
106 ● Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

ing to front-wheel drive, which helps to preserve

interior space. These redesigns have been largely paced by three interrelated factors: 1) CAFE

standards, which require fleet averages of 27.5

mpg by 1985; 2) each manufacturer’s estimates

of future market demand in the various size

classes (until 1979, market demand for smaller,

more fuel-efficient cars lagged behind the CAFE

standards, but it has now outstripped them—several recent projections point toward fleet averages

of more than 30 mpg by 19851); and, 3) the capital resources of U.S. firms, which affect both their

ability to design and develop new small cars and

their ability to invest in new plant and equipment

for manufacturing them.

The gradual downsizing of the U.S. automobile

fleet has been accompanied by an intensive developmental effort aimed at maximizing the fuel

economy of cars of a given size, consistent with

the need for low pollutant emission levels and

occupant safety—both also matters of Government policy. Foreign manufacturers, who in 1980

accounted for about one-quarter of sales in the

United States, are also improving the fuel economy of their fleets, but they can concentrate on

technical improvements rather than new smallcar designs because their product lines are already heavily oriented toward cars that are small

in size and low in weight.

Because the U.S. automobile fleet now contains over 100 million cars, increases in new-car

fuel economy take time to be felt. Typically,

about half the cars of a given model year are still

on the road after 10 years; it takes about 17 years

before 99 percent are retired. Thus, while newcar fuel economy for the 1980 model year

reached about 21 mpg, the average for the U.S.

fleet in 1981 is still only about 16 to 17 mpg, a

legacy of the big cars of earlier years. if new cars

average 30 to 35 mpg by 1985—a target that is

easily attainable from a technological standpoint–the average fuel efficiency of cars on the

road would reach only about 22 mpg by 1985.

While more than half the annual fuel savings associated with the 1985 CAFE standards will be

achieved by 1985, the full benefit of the 30-mpg

new cars of 1985—and of further improvements

in later years—will not come until the end of the

century.

Of course, 30-mpg CAFE standards are possible

right now, and 50-mpg cars are currently being

sold. Proportionately higher fuel economy figures

will in principle be attainable in the future, as

automotive technology progresses. But today

only a portion of consumers want such vehicles—

because fuel economy often comes at the expense of comfort, accommodations for passengers and luggage, performance, luxury, convenience features and accessories, and other attributes more commonly found in larger cars–and

manufacturers try to plan their future product mix

to appeal to a broad range of consumer tastes.

The sudden shift in market demand toward

small, fuel-efficient cars in 1974-75, followed by

a resurgence in large-car sales during 1976-78 and

another wave of demand for fuel efficiency in

1979 and 1980, illustrates the unpredictable nature of consumer preferences. The 1979 market

shift has outpaced the CAFE standards. The 27.5-

mpg requirement set by EPCA for the 1985 model

year remains in effect for subsequent years unless

modified by Congress. If world oil prices again

stabilize, and supply exceeds demand—as occurred through much of 1981 —the risks and uncertainties facing U.S. automakers could multiply, a particularly worrisome situation given their

precarious financial situations and the large capital outlays necessary for redesign and retooling.

Recently, American automakers have been reassessing their commitments to rapid downsizing

and new small-car lines—both because of cash

flow shortfalls and because of uncertainty over

future market demand.2

The 14-mpg U.S. fleet average of 1975 is a useful baseline for estimating recent and near-term

fuel savings resulting from the combination of

EPCA standards and market forces. For the period

1975-85, OTA estimates that fuel economy inIW. G. Agnew, “Automobile Fuel Economy Improvement,” General Motors Research Publication GMR-3493, November 1980; The

U.S. Automobile Industry, 1980: Report to the President From the

Secretary of Transportation, DOT-P-1 O-81-O2, January 1981. independent estimates by OTA are similar.

ZJ. Holusha, “Detroit’s Clouded Crystal Ball; Gasoline Glut Spurs

Review of Small Cars,” New York Times, July 28, 1981, p. Dl;

j. Holusha, “For G. M., a Fresh Look at Spending Strategy,” New

York Times, Nov. 10, 1981, p. D1.
Ch. 5—Increased Automobile Fuel Efficiency • 107

creases in passenger cars alone will have saved

slightly more than 0.8 MMB/DOE (million barrels per day, oil equivalent) on the average—

much less in the earlier years, and about twice

as much near the end of this 10-year period, Considering only passenger cars, the cumulative saving through 1985 will be approximately 3 billion

barrels (bbl) of petroleum–about 75 percent of

the total U.S. crude oil imports during 1979 and

1980. For the period 1985-95, by the end of

which the average efficiency of all cars on the

road should be 30 mpg or more, the daily savings would be at least 3 million barrels per day

(MMB/D), giving an additional cumulative saving of at least 10 billion bbl compared with a 14-

mpg fleet. Thus, for the 20-year period 1975-95,

the total savings from increased passenger-car fuel

economy would be over 13 billion bbl—equivaIent to 8 years of crude oil imports or about 7

years of net petroleum imports at the 1981 rate.

These estimated reductions in petroleum consumption could be larger if fuel-economy improvements proceed faster than assumed. Fueleconomy improvements in trucks, particularly

light and medium trucks, will also save significant

amounts. Nonetheless, the U.S. passenger-car

fleet would still consume 3.6 MMB/D in 1985 and

3 MMB/D in 1995–compared with 4.3 MMB/D

in 1980—if the passenger-car fleet grows as expected and cars continue to be driven at the historical rate of 10,000 miles per year, on the average. If automobile travel is reduced, fuel consumption would be decreased proportionately.

The savings in petroleum consumption–which

represent a direct benefit to consumers as well

as an indirect benefit because of the expected

improvement in the U.S. balance of payments—

also carry costs. These will generally take the form

of higher purchase prices for new cars, even

though these cars will be smaller. Costs will be

higher because the redesign and retooling for a

downsized U.S. fleet requires capital spending

at rates significantly higher than the historical

average for American manufacturers. Increased

capital spending—which, along with the sales

slump of 1979-81, shares responsibility for the

over $4 billion lost by U.S. automakers during

1980–is passed along at least in part to purchasers. To the extent that competitive forces allow,

importers will also raise prices even though their

capital spending rates may not have gone up.

Many of the technological roads to improved

fuel economy also carry higher direct manufacturing costs. A familiar example is the diesel engine—which, for comparable performance, can

increase passenger car fuel economy, and decrease operating costs, by as much as 25 percent,

but at a substantial penalty in purchase price. In

this case, the higher costs stem largely from an

intrinsically expensive fuel injection system, but

also from the greater mechanical strength and

bulk required in a diesel engine. Beyond economic costs and benefits, smaller cars cannot be

designed to be as safe as larger cars (given best

practice design in both) –thus, risks of death and

injury in collisions could go up.

For the 10-year period 1968-77, average annual

capital investment by the big three U.S. automakers in constant 1980 dollars was $6.68 billions

(AMC and, in later years, Volkswagen of America

add only small amounts to these averages). Over

this period, production fluctuated considerably,

but with only a slight upward trend; thus, the

average expenditure is primarily that for normal

redesign and retooling as new models are introduced and existing product lines updated, rather

than for increases in production capacity. Note

that the period 1968-77 includes investments associated with the introductions of several new

small cars around 1970 (Pinto, Maverick, Vega),

as well as later subcompact designs (Chevette,

Omni/Horizon). The figures also include overseas

investments by the three U.S. firms.

The 2 years with the highest investments during the 1968-77 period were 1970 ($7.67 billion)

and 1977 ($7,78 billion). In 1978, investment rose

to $9.21 billion, and in 1979 it reached $10.5 billion (still in 1980 dollars) –half again as much as

the historical level. (See fig. 7.) Estimates of investment for the 5-year period 1980-84 reach close

JThese investment figures were tabulated from annual reports by

R. A. Leone, W. J. Abernathy, S. P. Bradley, and J. A. Hunker, “Regulation and Technological Innovation in the Autombile Industry, ”

report to OTA under contract No. 933-3800.0, May 1980, pp. 2-92.

Conversions to 1980 dollars are based on the implicit price deflator for nonresidential fixed domestic investment.
708 ● Increased Automobile Fuel Efficiency and Synthetic fuels: Alternatives for Reducing Oil Imports

Figure 7.—Historical Capital Expenditures by

U.S. Automobile Manufacturers

SOURCE: G. Kulp, D. B Shonka, and M. C, Holcomb, “Transportation Energy

Conservation Data Book: Edition 5,” Oak Ridge National Laboratory,

ORNL-5765, November 1981.

to $60 billion.4 5 Such estimates have generally

been based on fleet redesigns to meet EPCA requirements through 1985. While it is doubtful that

Weneral Accounting Office, “Producing More Fuel-Efficient Automobiles: A Costly Proposition, ” CED-82-14, Jan. 19, 1982.

‘Fuel Economy Standards for New Passenger Cars After 1985

(Washington, D. C.: Congressional Budget Office, December 1980),

p. 56. Other estimates are generally comparable but may differ as

to whether development costs or only fixed investment are included.

they include much spending for new models to

be introduced in the immediate post-1985 period,

they do include substantial overseas expenditures

—perhaps one-quarter or more.

The $60 billion estimate represents about $12

billion per year in 1980 dollars, nearly double the

historical spending level. It is a clear indication

of the market pressures (for smaller cars as well

as for greater fuel economy in vehicles of all sizes,

including light trucks) being placed on domestic

manufacturers. Component suppliers also face

higher-than-normal investments.

The remainder of this chapter treats the factors

that determine automobile fuel consumption in

more detail—both the technological factors and

market demand—as well as the net savings in fuel

consumption that may accrue from increases in

automobile fuel economy. While consumer preferences—as judged by manufacturers in planning

their future product lines–are dominant, technology is vitaI in maximizing the fuel economy that

can be achieved by cars of given size and weight,

as well as given levels of performance, emissions,

and occupant safety.

AUTOMOBILE TECHNOLOGIES

Fuel consumed by an automobile (or truck) depends, first, on the work (or power) expended

to move the vehicle (and its passengers and cargo), and second, on the efficiency with which the

energy contained in the fuel (gasoline, diesel fuel)

is converted to work. The power requirements

depend, in essence, on: 1) the driving cycle–

the pattern of acceleration, steady-state operation, coasting, and braking–which is affected by

traffic and terrain, but otherwise controlled by

the driver; 2) the weight and rolling resistance of

the vehicle; and 3) the aerodynamic drag, which

depends on both the size and shape of the vehicle and is also a function of speed. The designer

controls weight, aerodynamic drag, and to some

extent the rolling resistance, but can affect the

driving cycle only indirectly –e.g., through the

power output and gear ratios available to the

driver.

The fuel consumed in producing the power to

move a vehicle of given size and weight is again

a function of vehicle design, primarily engine design. The efficiency with which the engine converts the energy in the fuel to useful work depends on the type of engine as well as its detail

design; diesel engines are more efficient than

spark-ignition (gasoline) engines, but not all diesel

engines have the same efficiency.

Furthermore, an engine’s efficiency varies with

load. For example, when a car is idling at a traffic light, the engine’s efficiency is virtually zero
Ch. 5—Increased Automobile Fuel Efficiency ● 109

because the energy in the fuel is being used only

to overcome the internal friction of the engine

and to power accessories. Engines are more efficient at relatively high loads (accelerating, driving fast, or climbing hills), but such operation will

still use fuel at a high rate simply because the

power demands are high–hence the justification

for the 55-mph speed limit as an energy-conservation measure.

Efficiency–the fraction of the fuel energy that

can be converted to useful work—cannot be 100

percent in a heat engine for both theoretical and

practical reasons. For a typical automobile engine, peak efficiency may exceed 30 percent, but

this is attained for only a single combination of

load and speed. Average efficiencies, characteristic of normal driving, may be only 12 or 13 percent, even lower under cold-start and warmup

operation. To illustrate this point, figure 8 shows

energy losses for the drivetrain in one 1977 model car in the Environmental Protection Agency’s

(EPA) urban cycle. This figure should not be taken

too literally because losses vary considerably from

car to car and numerous design changes have

been implemented since 1977, but the figure

does serve to illustrate approximate magnitudes.

The design of the engine affects the amount of

fuel consumed during the driving cycle in two

basic ways. First, the size of the engine fixes its

maximum power output. In general, a smaller engine in a car of given size and weight will give

better fuel economy, mainly because the smaller

engine will, on the average, be operating more

heavily loaded, hence in a more efficient part of

its range, There are practical limits to engine

downsizing, however, because a heavily loaded,

underpowered engine provides poor performance and can suffer poor durability.

Second, the designer can directly affect drivingcycle fuel economy through the transmission and

axle interposed between the engine and wheels.

Significant gains in fuel economy over the past

few years have come from decreases in rear axle

Figure 8.—Fuel Use in City Portion of EPA Fuel’ Efficiency Test Cycle (2,750 lb/2.3 liter)

Alternator

Fan

0.7%

Coolant

42.3%

0.5% m

Exhaust

r 22%

/

Friction

1 12.2 %

I

Heat axl e

0.8%

Power 

steering 1

““”” 

Delivered to wheels

11.5%0

SOURCE Serge Gratch, Ford Motor Co., prwate communication, 1982.
110 . Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

ratios* so that engines are operating at higher efficiencies during highway operation, and from

changes in transmission ratios** to better match

driving needs to engine efficiency (in earlier years

transmission ratios were often chosen to maximize performance rather than fuel economy).

Adding more speeds to the transmission—whether manual or automatic—serves the same objective. The optimum would be a continuously variable, stepless transmission allowing the engine

to operate at all times at high loads where its efficiency is greatest. (Such transmissions can be

built today, but require further development for

widespread use in cars.)

Changes in many other areas of automobile design can help increase fuel economy, but the primary factors are size (which is one of the factors that determines aerodynamic drag), weight

(which determines the power needed for acceleration, as well as rolling resistance), and powertrain characteristics (engine plus transmission).

These are discussed in more detail below, in the

context of the driving cycle—itself a critical variable in fuel economy—followed by brief discussions of emissions and safety tradeoffs, methanolfueled vehicles, and electric vehicles (EVs).

Vehicle Size and Weight

On a sales-averaged basis, the inertia weight

of cars sold in the United States during 1976 (including imports) came to slightly over 4,000 lb.6

This corresponds to an average curb weight***

of 3,700 to 3,800 lb. The average inertia weight

for 1981 is expected to be about 3,100 lb, and

may further decrease to around 2,750 lb by 1985.

Although the lightest cars sold here still have inertia weights close to 2,000 lb–as they did in 1975

—the distribution has shifted markedly toward the

lower end of the range. Many heavier models

*Rear axle ratio is the ratio of the drive shaft speed to the axle

speed.

**Transmission ratio is the ratio of the engine crankshaft speed

to the drive shaft speed.

6J. A. Foster, j. D. Murrell, and S. L. Loos, “Light Duty Automotive Fuel Economy . . . Trends Through 1981 ,“ Society of Automotive Engineers Paper 810386, February 1981. Inertia weight is a rep

resentative loaded weight—equal to curb weight, which includes

fuel but not passengers or luggage, plus about 300 lb–used by EPA

for fuel economy testing.

***Curb weight is the weight of the car with no passengers or

cargo.

have disappeared; consumers are now selecting

smaller and lighter vehicles—downsized or newly

designed U.S. models as well as imports.

While size is a primary determinant of weight,

newer designs typically make greater use of lightweight materials such as plastics and aluminum

alloys, as well as substituting higher strength

steels—in thinner sections—for the traditional

steels. Materials substitution for weight reduction

will continue, but is constrained by the higher

costs of materials with better strength-to-weight

or stiffness-to-weight ratios. As production volumes go up, costs of at least some of these materials will tend to decline.

Weight is a fundamental factor in fuel economy because much of the work, hence energy,

needed for a typical driving cycle is expended

in accelerating the vehicle. The fuel consumed

in stop-and-go driving is directly related to the

loaded weight of the car (including passengers

and payload) and the inertia of its rotating parts.

Everything else being the same, it takes twice as

much energy to accelerate a 4,000-Ib car as a

2,000-lb car over the same speed range. Urban

driving, in particular, consists largely of repeated

accelerations and decelerations; thus, weight is

critical to fuel consumption. (This also points up

the potential that smoothing flows of traffic offers for gasoline savings.) Lighter cars consume

less fuel even at constant speeds because they

have less rolling resistance.

Although the weights of cars can be reduced

by making them from lightweight materials and

by shifting from separate body and frame designs

to unitized construction, cars can always be made

lighter by making them smaller.

Small cars can also have lower aerodynamic

drag, because drag depends on frontal area as

well as on the shape of the vehicle. Drag can be

reduced by making cars lower and narrower, as

well as by streamlining the vehicle. Drag reduction has become at least as important as styling

in recent years; working primarily with wind tunnel data, automakers have reduced typical drag

coefficients* from 0.5 to 0.6, characteristic of the

*The drag coefficient is a measure of how aerodynamically “slippery” the car is. The aerodynamic drag is proportional to the drag

coefficient, the frontal area and the velocity squared.
Ch. 5—Increased Automobile Fuel Efficiency ● 111

Photo credit Genera/ Motors Corp

The shape of this experimental car is designed for low aerodynamic drag

early 1970’s, to 0.4 to 0.5 at present, with a number of models being under 0.4. Values in the

range of 0.35 will eventually be common.

It takes only 15 or 20 horsepower to propel a

typical midsized car at a steady 55 mph—that is

all that is needed to overcome rolling resistance

and aerodynamic drag. The remainder of the engine’s rated power is used for acceleration, climbing hills, and other demands. The low power requirements for constant-speed driving–typically

15 to 20 percent of the engine rating—emphasize

the importance of the fuel used in start-and-stop

driving (and the influence of weight) in determining driving-cycle fuel economy.

Powertrain

The engine (or other vehicle prime mover) converts the energy stored in fuel (or, for an EV, in

batteries) to mechanical work for driving the

wheels. The efficiency of the engine—as well as

the efficiency of the transmission—determines the

proportions of the energy in the fuel which are,

respectively, used in moving the car and lost as

waste heat. Under most operating conditions,

transmissions are much more efficient than the

engine.

The efficiency-work output divided by energy

input—of any engine depends on both detail design and fundamental thermodynamic limitations.

The temperatures at which the engine operates

place practical constraints on the efficiencies of

some types of engines—e.g., gas turbines—but

not on others—e.g., spark-ignition (SI) (gasoline)

and compression-ignition (Cl) (diesel) engines

where the combustion process is intermittent.

The components of the latter need not withstand

temperatures as high as those where combustion

is continuous.

Many other factors besides efficiency enter into

the choice of engine for a motor vehicle; until

recently, efficiency was often of secondary importance. Cars and trucks have been powered by

gasoline or diesel engines because these have favorable combinations of low cost, compact size,

light weight, and acceptable fuel economy. Neither demands for improvements in exhaust em is-
112 ● Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

sions nor for better fuel economy have yet resulted in serious challenge to these engines—

which have been dominant for 70 years. At least

through the end of the century, most passenger

cars are likely to be powered by reciprocating SI

or diesel engines.

SI and Cl or diesel engines have peak efficiencies generally in the range of 30 to 40 percent.

However, their efficiency at part-load can be

much less; the farther the engine operates from

the load and speed for which its efficiency is

greatest, the lower the efficiency. In typical urban driving, the average operating efficiency is

less than one-third of the peak value–e.g., in the

range of 10 to 15 percent.

Part-load fuel economy remains a more critical

variable for an automobile engine than maximum

efficiency because of the light loading typical of

most driving. Such a requirement favors Cl engines, for example, but works against gas turbines. Cl engines have good part-load efficiency

because they operate unthrottled, thereby avoiding pumping losses. They also have high compression ratios–which, up to a point, raises efficiency under all operating conditions.

Various modifications to SI engines can increase part-load efficiencies. This is one of the

advantages of stratified-charge engines—which

use a heterogeneous fuel-air mixture to allow

overall lean operation, ideally without throttling

as in a diesel—and also of SI engines that burn

alternative fuels such as alcohol or hydrogen.

Smaller, more heavily loaded SI engines also tend

to have greater driving-cycle fuel economy because the higher loads mean the engine is running with less throttling. Among the steps that can

be and are being taken to give greater fuel economy are:

●

●

●

●

using the highest compression ratio consistent with available fuels;

refined combustion chamber designs, particularly those optimized for rapid burning of

lean mixtures, one of the routes to higher

compression ratios;

minimizing engine friction;

optimizing spark timing consistent with emissions control;

●

●

●

minimizing exhaust gas recirculation consistent with emissions control;

precise control of fuel-air ratio, both overall

and cylinder-to-cylinder, particularly under

transient conditions such as cold starts and

acceleration—again consistent with emissions control; and

minimizing heat losses.

Transmission efficiencies also depend on load,

but much less so than engines; transmission efficiencies are also much higher in absolute terms.

For manual transmissions, more than 90 percent

of the input power reaches the output shaft except at quite low loads. Because they have more

sources of losses, automatic transmissions are less

efficient, particularly those without a lockup

torque converter or split-path feature. In these

older transmissions, all the power passes through

the torque converter, even at highway cruising

speeds. The resulting fuel-economy penalty, compared with a properly utilized manual transmission, is typically in the range of 10 to 15 percent.

By avoiding the losses from converter slippage

at higher speeds, split-path or lockup designs cut

this fuel-economy penalty approximately in half,

four-speed transmissions offering greater improvement than those with only three forward

gears.

One function of the transmission is to keep the

engine operating where it is reasonably efficient.

Although automatic transmissions are less efficient than manual designs, they can sometimes

increase overall vehicle efficiency by being

“smarter” than the driver in shifting gears. Further benefits are promised by improved electronic control systems for automatics. These microprocessor-based systems can sense a greater

number of operating parameters, and are thus

able to use more complex logic, perhaps in conjunction with an engine performance map stored

in memory. Such control systems could also be

used with manual transmissions—e.g., to tell the

driver when to shift. A continuously variable

transmission would be better still. As mentioned

above, these can be built now, but they have not

been practical because of problems such as high

manufacturing cost, low efficiency, noise, and

limited torque capacity and durability.
Ch. 5—increased Automobile Fuel Efficiency ● 113

Fuel Economy—A Systems Problem

An automobile is a complex system; design improvements at many points can improve fuel

economy. Even if each incremental improvement

is small, the cumulative effect can be a big increase in mileage. Interactions among the elements of the system (engine, transmission, vehicle weight) and the intended use of the vehicle

are among the keys to greater system efficiency.

At the same time, as the state of the art improves,

further increases in efficiency tend to become

more difficult unless there are dramatic technical

breakthroughs–and OTA thinks such breakthroughs are improbable. This is a mature technology in which, as a general rule, radical

changes are few and far between.

Making cars smaller and lighter helps in many

ways to reduce the power needed, hence fuel

consumed. Front-wheel drive preserves interior

space while allowing exterior size and weight to

be reduced. Reductions in the weight of the body

structure mean that a smaller engine will give

equivalent performance, while also allowing lighter chassis and suspension members, smaller tires

and brakes, and related secondary weight savings. Among other steps taken in recent years

have been the adoption of thinner, hence lighter,

window glass—and even redesigned window lift

mechanisms.

Once major decisions have been made concerning overall vehicle design parameters—size,

engine type, etc.—subsystem refinement and systems integration become the determining factors

in the fuel economy achieved in everyday driving. Some of these refinements decrease the need

for power, as by reducing friction or making accessories more efficient; others increase the efficiency of energy conversion, as by using threeway exhaust catalysts and feedback control of the

fuel-air ratio to limit emissions while preserving

fuel economy.

Tradeoffs With Safety and Emissions

Government policies to increase automobile

fuel efficiency, reduce pollutant emission levels,

and improve passenger safety involve significant

tradeoffs. Measures to control auto emissions can

impair fuel efficiency. Reducing the size of cars

to increase fuel economy makes them intrinsically

less safe. Meeting regulatory goals also affects

manufacturing costs. Tradeoffs like these have not

always been fuIly recognized in the formulation

of Federal policy,7 but will continue to be important as policy makers focus on questions of post1985 fuel economy.

The issues include whether Government policies are to be directed at further improvements

in mileage, such as by a continued increase in

CAFE standards, or by a gasoline tax, and whether

emissions standards are to be tightened or relaxed. The tradeoffs will involve manufacturing

costs, as always—but the relationship of fuel

economy to safety will perhaps be most critical.

Safety

The tradeoffs between fuel economy and occupant safety are largely functions of vehicle size—

therefore of weight as well. Although many characteristics of the car are important for occupant

safety, protection in serious collisions depends

quite substantially on the crush space in the vehicle structure and on the room available within

the passenger compartment for deceleration.

Penetration resistance is also vital. Design requirements are based on a “first collision” between vehicle and obstacle, and a “second collision” between occupants and vehicle. In the

“first collision,” the more space available for the

structure to crush—without encroaching on the

passenger compartment-the slower the average

rate of deceleration that the passenger compartment and the passengers experience. More crush

space translates directly to lower decelerations.

Space, hence vehicle size, is also important

within the passenger compartment. The more

space available inside, the easier it is to preserve

the basic integrity of the structure and the slower

the occupants can be decelerated during the

“second collision. ” Seatbelts, for example, can

stretch to lower the decelerations the restrained

occupants experience, but only if there is nothing

7

U.S. Industrial Competitiveness. A Comparison of Steel Electronics, and Automobiles, OTA-ISC-135 (Washington, D. C.: U.S.

Congress, Office of Technology Assessment, June 1981), pp.

120-122.
114 . Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

rigid for the occupants to hit; deformable anchors

for seatbelts are thus a further method for improving safety.

Because of their larger crush space and interior

volume, big cars can always provide more protection for their occupants in a collision—given

best practice design. However, not all cars embody best practice designs, and the crashworthiness of autos in the current fleet does not improve

uniformly and predictably with vehicle size. Furthermore, vehicle safety depends on avoiding

crashes as well as surviving them, and therefore

on factors such as braking and handling as well

as driver ability. These and other factors related

to the potential effects on auto safety of increasing fuel efficiency are discussed in chapter 10.

Emissions Control

Fairly direct tradeoffs exist between engine efficiency and several of the measures that can be

used to control the constituents of exhaust gases

that contribute to air pollution. The three major

contributors in the exhaust of gasoline-fueled vehicles, all regulated by the Clean Air Act and its

amendments, are hydrocarbons (HC), carbon

monoxide (CO), and nitrogen oxides (NOX

).8

Emissions control measures have frequently

worked against the fuel economy of cars sold in

the United States since 1968, when manufacturers began to retard spark timing to reduce HC

emissions. Although the costs of emissions control measures—as reflected in the purchase price

of the vehicle—have often been disputed and remain controversial, there have also been operating cost penalties because fuel economy has been

less than it would otherwise have been.

Mileage penalties were more severe in the mid1970’s than at present, but efficiency increases

have come at the expense of higher first cost.

Ground is periodically lost and regained, but

even with best practice technology at any given

time, the engineering problems of balancing

emissions and fuel economy at reasonable cost

have forced many compromises. One recent estimate of the net effect of emissions control

through 1981 finds a 7.5-percent fuel-economy

penalty. 9

“The single change with the greatest continuing

effect has been reduced compression ratios resulting from the changeover to unleaded gasoline. Cl engines require high compression ratios;

SI engines, in contrast, suffer from a form of combustion instability termed detonation (i.e., the engine “knocks”) if the compression ratio is too

high for the octane rating of the fuel. Thus, decreases in the already lower compression ratios

of SI engines—to values in the range of 8:1 versus ratios as high as 10:1 in the early 1970’s—have

led to significant decreases in fuel economy.

Lead compounds, formerly added to gasoline

to raise the octane, have been removed to prevent poisoning (deactivation) of catalytic converters—themselves adopted to control, first, HC and

CO, and later NOX as well–and also because of

concern over the health effects of lead compounds. While electronic engine control systems,

including knock detectors, have allowed compression ratios to be increased somewhat, only

a portion of the ground lost can be regained in

this way.

Methanol with cosolvents can be used as an

octane-boosting additive to gasoline that does

not interfere with the catalytic converter. In addition, compact, fast-burn combustion chambers

may help. By burning the fuel fast enough that

the preflame reactions leading to detonation do

not have time to occur, fast-burn combustion systems might allow compression ratios to be increased by several points. This latter approach,

however, increases HC and NOX emissions, and

it is not yet clear how much compression ratios

can be raised while maintaining emissions within

prescribed limits.

Related measures used to control emissions—

and/or to limit detonation—can also degrade engine efficiency. Retarding ignition timing—to limit

detonation, and in some cases help control HC

and CO emissions by promoting complete combustion of the fuel–hurts fuel economy. Other

techniques adopted in the early 1970’s to con6D. j. Patterson and N. A. Henein, Emissions From Combustion

Engines and Their Control (Ann Arbor, Mich.: Ann Arbor Science

Publishers, 1972).

‘L. B. Lave, “Conflicting Objectives in Regulating the Automobile,” Science, May 22, 1981, p. 893.
Ch. 5—Increased Automobile Fuel Efficiency • 115

trol HC and CO—such as thermal reactors, which

were likewise intended to drive the combustion

process toward complete reaction of HC and CO

—also led to increased fuel consumption.

Unfortunately, while more complete combustion decreases HC and CO pollutants, NOX in the

exhaust is increased under conditions leading to

more complete combustion. Thus, not only does

control of exhaust emissions conflict with fuel

economy, but there are also potential conflicts

between control of HC and CO on the one hand,

and NOX on the other. The NOX standards of the

mid-1 970’s could be met by adding exhaust gas

recircuIation (EGR) to the repertoire of measures

used for HC and CO control. Although EGR initially carried a substantial fuel economy penalty,

and also impaired driveability, improved control

systems—which recirculate exhaust only when

needed—have improved both economy and

driveability substantially. Still, the drawbacks of

other methods of NOX control, * together with

the more stringent NOX standards of later years,

have led to the most common current control

technique—the three-way catalytic converter,

which reduces levels of all three pollutants. This

gives fuel economy comparable to an uncontrolled engine, though at higher first cost.

Compression ratios of diesel engines are often

twice those for SI engines; at these high levels

small changes in compression ratio have relatively

little effect on efficiency. For this reason and because of the different set of emissions standards

applied, Cl engines have faced fewer conflicts between emissions control and fuel economy. This

advantage has helped them to compete with SI

engines for passenger cars, although the situation

may change in the future, as the diesel standards

become tougher. Particulate (bits of unburned,

charred fuel) are the most difficult of diesel emissions to control, although NOX also poses problems. However, future regulations for particulate

in diesel exhaust are not yet definite. This creates

uncertainty not only about the control technologies that might be needed, but also about the

*It should be noted, however, that burning a very lean fuel/air

mixture also reduces NOX emissions substantially. Because methanol has considerably wider flammability limits than does gasoline,

the use of methanol opens new opportunities for controlling NOX

.

future penetration of Cl engines in passenger

vehicles.

Nonetheless, as will be seen below, OTA remains cautiously optimistic about diesels. Their

higher intrinsic efficiency at both full- and partIoad makes them quite attractive in terms of fuel

economy, and there is considerable scope for further improvements in their driveability and related characteristics that are more important for

passenger cars than for trucks and other uses in

which diesels have been more common. The

long developmental history of Cl engines provides a useful foundation for passenger-car applications.

Methanol-Fueled Engines

There are basically two routes to higher SI engine efficiency via alternate fuels: lean operation,

which cuts pumping and other thermodynamic

losses, and higher compression ratio.10 Fuels vary

in the extent to which these factors operate and

there are a number of secondary effects, but alcohols and hydrogen have excellent potential for

both lean burning and higher compression ratios,

with possible driving-cycle economy improvements in the range of 10 to 20 percent. Further

engineering development—but no breakthroughs

—would be needed before alcohols or other alternate fuels could be used in U.S. cars, but the production and distribution of such fuels are more

significant barriers.

Diesels, like SI engines, can operate on a variety

of alternative fuels, although perhaps needing

spark-assisted combustion. Powerplants such as

open-chamber stratified-charge engines and continuous combustion engines can often tolerate

quite broad ranges of fuels with minimal design

changes.

Because methanol from coal is an attractive

synthetic fuel, methanol-burning engines for passenger cars are discussed in more detail below.

Unlike ethanol, which will probably be used primarily as a gasoline extender (e.g., in gasohol),

10J. A. Alic, “Lean-Burning Spark Ignition Engines–An Overwew,”

Proceedings, 2nd Annual UMR-MECConference on Energy, Rolla,

Me., Oct. 7-9, 1975, p. 143.
sufficient quantities of methanol could be produced to consider using it as the only or principal

fuel for some automobiles.

If methanol-fueled engines receive intensive development aimed at maximizing fuel economy

and driveability, driving-cycle fuel-efficiency improvements (on a Btu basis) of 20 percent or more

should be possible, compared with a well-developed but otherwise conventional SI engine burning gasoline. Most of the improvement stems from

the higher octane rating of methanol, which

would permit compression ratios in the range of

11 or 12:1—perhaps even higher, depending on

whether preignition is a serious limiting factor—as

well as the somewhat leaner air-fuel ratios possible.

The engineering of vehicles to run on methanol

—or other alchohols—is rather straightforward.11 

Indeed, a good deal of experience has already

been accumulated. Despite the greater efficiency possible with methanol, vehicles fueled with

11’’CH30H: Fuel of the Future?” Automotive Engineering,

December 1977, p. 48.

it probably will require larger fuel tanks to achieve

acceptable cruising ranges, because methanol

has significantly less energy per gallon than gasoline or diesel fuel. Methanol corrodes some of

the materials commonly used in gasoline-fuel systems, which must be replaced by more corrosionresistant components.

Because alcohols have much higher heats of

vaporization than gasoline and therefore do not

vaporize as easily, alcohol-fueled engines are

more difficult to start in cold weather. Driveability

during warmup also tends to be poor. Fuel injection is one approach to mitigating such difficulties. Another solution is to start and warm up the

engine on a different fuel. In Brazil, where many

cars and trucks run on 100 percent ethanol, engines are typically started on gasoline via an auxiliary fuel system. A lower cost alternative might

be to blend in a small fraction–5 to 10 percent–

of a hydrocarbon to aid in starting and warmup.

Fuel blends could be tailored seasonally just as

gasolines are.

Methanol also offers advantages in reducing

heat losses and thus raising fuel efficiency. Al-
Ch. 5—Increased Automobile Fuel Efficiency ● 117

though its high specific heat and high heat of

vaporization can cause starting and warmup

problems, these characteristics also mean that the

fuel can, in principle, be used to help control internal engine temperatures and heat flows so as

to reduce heat losses.

Test programs with alcohol fuels have sometimes shown abnormally high engine wear—particularly piston ring and bore wear. While the

causes have not yet been fully determined, corrosion, perhaps associated with wall-washing and

crankcase dilution during cold-start, are possible

contributing factors.12 If this is the case, solving

the cold-start and warmup difficulties would also

be expected to cut down on wear. Oil additive

packages specially tailored for alcohols should

be a further help.

Emissions from methanol-burning automobiles

can be controlled with many of the same technologies used for gasoline engines. However, because of the differing fuel chemistries, standards

developed for gasoline-burning vehicles are not

necessarily appropriate for alcohols. Aldehydes,

for example, may need to be controlled.

Battery-Electric and Hybrid Vehicles

The automobile powerplants considered by

OTA for increased fuel efficiency are all heat engines–i.e., they convert the energy (heat) produced when a fuel burns into mechanical work.

Passenger cars can also be powered from energy

stored in forms other than fuel—e.g., by mechanical energy drawn from a spinning flywheel.

Among these alternative storage media are rechargeable batteries that convert chemical energy

into electrical energy. The electric energy can

then drive a direct current (DC) (or sometimes,

through an inverter, an alternating current (AC))

motor. Many of the first automobiles built, around

the turn of the century, used battery-electric power.

In an extension of the battery-electric concept

—called a hybrid—a conventional heat engine

12T. w. RYan, III, D. w. Naegeli, E. C. OWens, H. w. MarbaCht

and J, G. Barbee, “The Mechanism Lending to Increased Cylinder

Bore and Ring Wear in Methanol-Fueled S.1. Engines, ” Society of

Automotive Engineers Paper 811200, 1981.

drives a generator (or alternator) which can then

supply power to an electric motor directly, charge

batteries, or both–depending on the instantaneous needs of the driving cycle. A parallel hybrid

is designed so the heat engine can also power

the wheels directly, through a transmission (the

engine turns the generator and the drive wheels

in parallel). A series hybrid, in contrast, has no

direct mechanical connection between heat engine and drive wheels. Diesel-electric submarines

provide examples of both series and parallel

hybrid powertrains, but automobiles have never

been mass produced with either arrangement.

Whether or not a battery-electric or hybrid

automobile would have an overall energy conversion efficiency greater or less than a more conventional SI- or Cl-powered car depends on many

variables, including the sources of the electricity used to charge the batteries. In the context of

this report, the potential of battery-electric or hybrid vehicles as substitutes for petroleum-based

fuels is more important than the net energy conversion efficiency. If the electricity for charging

the batteries comes from a coal or nuclear generating plant—or any other nonpetroleum energy

source—widespread sales of such cars could help

conserve liquid petroleum.

At present, however, the limitations of practical

electric and hybrid vehicles far outweigh any advantages that might be gained from their petroleum-displacing effects.13 Battery-electric cars will

have very limited applications until the performance of batteries (as measured, for example, by

the quantity of energy that can be stored per unit

of battery weight), increases roughly fivefold—

or unless petroleum availability declines much

more rapidly than now expected. Hybrids share

many of the disadvantages of battery-electric cars

and—although they offer theoretically promising

energy conversion efficiencies—are dependent

on fuels. Their current prospects are even dimmer than for battery-electrics, in large part because hybrid vehicles would be expensive and

complex—the duplication in the powertrain is a

formidable cost barrier.

13R. L, Graves, C. D, West, and E. C. Fox, “The Electric car—is

It Still the Vehicle of the Future, ” Oak Ridge National Laboratory

Report ORNLITM-7904, August 1981.
118 ● Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

Despite the widespread publicity given to battery-electric automobiles over the past 20 years—

most recently, the attention garnered by General

Motors’ announcement of production plans for

the mid-1980’s—progress in EVs remains severely

limited by battery performance. This is true both

for battery systems that are available now and for

those that appear to have possibilities for nearterm production. Power and energy densities of

available batteries remain too low for practical

use in other than highly specialized automotive

applications. Power density (watt per pound or

W/lb) measures the rate at which the battery can

supply energy. Energy density (watt hours per

pound or Whr/lb) measures the total amount of

energy that can be stored and then withdrawn

from the battery. For some battery systems, to get

all the energy out requires a slow rate of withdrawal, limiting the instantaneous delivery of

power. Because of the transient demands of automotive driving cycles, power density is almost as

important for vehicle applications as energy density, which determines the operating range before

the batteries need to be recharged.

In general, battery systems that are near-term

candidates for automotive applications suffer

from both low power density and low energy

density. Table 20, which includes several batteries

that are still in rather early stages of development,

gives typical values. Energy and power density

tend to be inversely related, a particular problem

for the familiar lead-acid battery; the inverse relation means that—for any given battery system—

the designer can choose higher energy density

only at the sacrifice of power density. Limited

power density restricts the acceleration capabilities of current EVs to low levels—for some driving conditions, to the detriment of safety. The enPhoto credit: Electric Vehicle Council

A view of the battew-pack configuration in a

demonstration electric vehicle

ergy density, in contrast, limits the total amount

of energy that can be carried, therefore, the range

of the vehicle before the batteries must be recharged. Recharging is a time-consuming process—as much as 10 hours for some, though not

all, batteries. If power density and energy density are low, then the vehicle must carry more batteries. This makes it heavier, increasing the demands for power and energy and compounding

the design problems.

As a rule-of-thumb, and assuming reasonable

costs, an energy density in the vicinity of 100

Table 20.-Potential Battery Systems for Electric (and Hybrid) Vehicles

Energy density Power density

Battery (Whr/lb) (W/lb) Status

Lead-acid . . . . . . . . . 15-20 5-20 Available

Nickel-zinc . . . . . . . . 30-40 40-80 Available, but expensive

Zinc-chlorine . . . . . . ~ 3 5 ~ 5 0 Experimental; potentially inexpensive

Aluminum-air . . . . . . 100-200 ~ 8 0 Experimental; cannot be electrically

recharged (requires periodic

additions of water and aluminum)

Sodium-sulfur. . . . . . ~100 ~100 Prospective; high-temperature;

potentially inexpensive

SOURCE: Office of Technology Assessment.
Ch. 5—increased Automobile Fuel Efficiency ● 119

Whr/lb, along with a power density of about 100

W/lb, would suffice for a practical general-purpose vehicle. With these characteristics, 400 lb

of batteries would give about 100 miles of travel

between battery recharging and produce about

55 horsepower. Urban or commuter cars might

get by with somewhat lower figures. Table 20

shows that currently available battery systems

either cannot achieve such figures, or—as with

nickel-zinc batteries-are too expensive for widespread use.

Battery-electric cars–often production vehicles

converted by replacing the engine and fuel system with an electric motor and lead-acid batteries

(like the storage batteries used in golf carts) -have

been built in prototype or limited-production

form for years. At present, a four-passenger electric car with lead-acid batteries would weigh

about twice as much as a conventionally powered car, cost twice as much, and have a range

of less than 50 miles before recharging. The battery pack alone would weigh 1,000 lb or more,

and would have to be replaced several times during the life of the vehicle, adding to the operating

costs.

In addition to the nickel-zinc batteries mentioned above, there are a number of other candidate battery systems for EVs–of which table 20

includes three as examples—the zinc-chlorine,

aluminum-air, and sodium-sulfur batteries. These

share the advantage of relatively inexpensive raw

materials, but have other drawbacks: for example, the zinc- chlorine battery has low energy

density; the aluminum-air system is “recharged,”

not by an inward flow of electricity, but by

mechanical replacement of materials (in consuming materials to produce electricity the aluminumair battery is like a fuel cell, but fuel cells are

continuous-flow devices); the sodium-sulfur battery operates at temperatures greater than 5000

F. All of these batteries are experimental, and

none has been developed as rapidly as once

hoped; the same is true of many other candidate

battery systems with theoretically attractive characteristics for EVs and/or hybrid vehicles.14

Not only are battery-electric cars severely limited in range and performance by the energy and

power densities of available batteries, but production costs would also be high, at least initially. A further and serious disadvantage is the limited life of many prospective battery systems.

Often, the batteries would need to be replaced–

at high cost—before the rest of the vehicle

reached the end of its useful life. Battery-electric

cars also pose new and different safety problems,

such as spills of corrosive chemicals in the event

of an accident,

Battery-electric powertrains may have a place

in local delivery trucks, and perhaps for small,

specialized commuter cars. More widespread use

depends on large improvements (a factor of at

Ieast 5 in battery performance, particularly energy

density). Although research and development

(R&D) on battery systems for EV applications will

continue, there seems little likelihood of significant production—i. e., hundreds of thousands of

vehicles per year—before the end of the century.

“Breakthroughs” in batteries are improbable;

slow incremental progress is more likely to characterize R&D on battery systems, and hence EV

(and hybrid) vehicles. Moreover, by the time battery performance is improved sufficiently for practical application, progress in fuel-cell technology

may make the latter a more attractive option.

(Fuel cells convert a fuel, now generally hydrogen

but potentially a hydrocarbon or methanol, directly to electricity.)

Hybrids also are limited by battery performance, but the on board charging capacity means

that not as many batteries are needed, so the batIAA. R. Lancfgrebe, et al., “Status of New Electrochemical Storage

and Conversion Technologies for Vehicle Applications, ” Proceec/-

ings of the 16th Intersociety Energy Conversion Engineering Conference, Atlanta, Ga., Aug. 9-14, 1981, Vol. 1 (New York: American

Society of Mechanical Engineers, 1981), p. 738.
120 ● Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil imports

tery pack is lighter. However, hybrids must carry

a complete heat engine, as well as a generator

or alternator, and an electric drive motor. Although the engine can be small, because it need

not be capable of powering the vehicle by itself,

the cost and complication of the hybrid powertrain are prohibitive, at least at present. The complication comes not only from the duplicate

energy conversion and drive systems but also

from the control system. While the performance

requirements for the control system are not unusual, the need for a reliable, mass-produced system at reasonable cost does create a demanding

set of constraints. The added weight of the batteries and duplicate drivetrain, and the efficiency losses associated with recharging the batteries,

also tend to counteract the theoretical advantages

of hybrids in fuel economy.

FUTURE AUTOMOBILE FUEL EFFICIENCY

Automobile technology is not a major constraint on fuel economy. Small cars can be designed today—indeed, are on the market—with

mileage ratings twice the current new-car average. Technology is important for increasing the

fuel economy of the larger, more powerful, and

more luxurious cars that many Americans still desire. Evolutionary improvements will continue to

increase the mileage of both large and small cars,

but the pacing factor at the moment is market

demand.

Because consumer demand is unpredictable,

estimates of post-1985 fuel economy are uncertain; these estimates largely reflect expectations

of the importance consumers will place on size

and gas mileage. Projections of the fuel economy

that the U.S. new-car fleet will achieve vary widely, but most now tend to be optimistic. Only 2

or 3 years ago, American automakers viewed the

CAFE standards, correctly, as pushing their product lines away from the sorts of cars that most

consumers still demanded. Now many of those

same consumers are buying cars with average

fuel economies above the CAFE requirements.

EPA statistics indicate that average domestic

new-car fuel economy averaged almost 24 mpg

for 1981 models sold through January 5, 1981.15

If imports are included, the figure is about 25

mpg. A few predictions are as high as 90 mpg

for 1995 or 2000, although such projections are

usually exhortations rather than realistic attempts

to project future trends. While the technology to

achieve such efficiencies will exist, fleet averages

1

5

’’ Light Duty Automotive Fuel Economy . . . Trends Through

1981 ,“ op. cit.

are likely to remain well below the economy ratings that the best performers will be able to

achieve.

The primary differences among the many projections of automobile fuel economy for the years

ahead arise from varying assumptions of future

market demand. Different assumptions for the

rate of introduction of new technology are also

common. A constraint for American manufacturers may be the ability to generate and attract capital for R&D and for investment in new plant and

equipment, particularly if movement toward

small, high-mileage cars and introductions of new

technology are more rapid than domestic firms

have been anticipating. Many foreign automakers

already produce cars that are smaller and lighter

—and get better fuel economy—than those they

now sell in the United States.

Although the fuel economy achieved by the

new-car fleet in future years will depend strongly on market demand and the health of the auto

industry, technology is also important. Both the

timing of new vehicle designs and their ultimate

costs—whether routine downsizing and materials

substitution, or more demanding tasks such as

improved powerplants—depend on extensive

programs of engineering development. These

take time and talent, as well as money. Complete

success can never be guaranteed. Some projects

will have more satisfactory outcomes than others.

To distinguish these technological dimensions

from questions of market demand, the discussion

below first outlines two scenarios for future developments in automobile technology. Designated

the “high-estimate scenario” and the “low-esti-
Ch. 5—Increased Automobile Fuel Efficiency . 121

mate scenario, ” they represent plausible upper

and lower bounds for fleet average passenger-car

fuel economy in future years. Of course, among

the cars on the market in any year, some would

have mileage ratings considerably below, some

considerably above, the fleet averages for that

year. These scenarios are independent of market

demand for cars of various size classes, and are

simply based, respectively, on optimistic and pessimistic expectations for rates of advance in automobile technology as these affect fuel economy.

Using these scenarios, later sections of the chapter discuss the effect of market demand on the

fuel economy of the U.S. auto fleet.

Technology Scenarios

Both the high- and low-estimate technology

scenarios take as a baseline the new-car fuel

economy now expected for 1985. This baseline

includes a “number of technical advances, as well

as further downsizing, compared with 1982 model cars. While the product plans of individual

manufacturers for 1985 are not known in detail,

the broad outlines of 1985 passenger-car technologies can be easily discerned. The scenarios then

cover the period 1985-2000. The high estimate

assumes:

●

●

●

The

●

●

that engineering development projects

aimed at improving fuel economy are generally successful;

that these technological improvements are

quickly introduced into volume production;

and

that they produce fuel economy improvements at the high end of the range that can

now be anticipated.

low estimate assumes, in contrast:

that development projects are not as successful–e.g., that technical problems decrease

the magnitude of fuel-economy gains,

lengthen development schedules, and/or

result in high production costs;

the pace of development is slower than

would result from the vigorous efforts to

“push” automotive technology assumed for

the high estimate scenario; and

● the resulting fuel-economy improvements

are at the low end of the range that can now

be anticipated.

From a technological perspective, the vehicle

subsystem most critical for fuel-economy

improvements is the powertrain-i.e., the engine

and transmission. Here, as in other aspects of

automotive technology, more-or-less continuous

evolutionary development can be expected. But

major changes in powertrains have also been occurring—e.g., new applications of diesel engines

to passenger cars.

The pace of development may vary for other

aspects of automobile technology—aerodynamics, downsizing and weight reduction, power

consumption by accessories—but individual innovations with large impacts on fuel economy are

unlikely. Engine developments, in contrast, depend more heavily on successful long-term R&D

programs; fundamental knowledge–e.g., of combustion processes–is often lacking, and the risks

as well as the rewards can be large. In contrast,

development programs aimed, for instance, at

friction reduction, are likely to be more straightforward–and less costly.

Table 21 presents OTA’s high and low estimates

for improvements in fuel economy by category

of technology, based largely on informed technical judgments. * Relative to an assumed 1985 car

which gets 30 mpg (EPA rating, 55 percent city,

45 percent highway driving cycle), table 21 indicates that gains of 35 percent in fuel economy

may be possible from engine redesigns, but that

percentage improvements in transmissions and

vehicle systems are likely to be smaller. Nonetheless, the cumulative improvements in fuel economy can be quite large.

*Alternative methodologies for estimating future fuel economy—

e.g., the use of learning curves, or analytical modeling of the vehicle system—generally lead to comparable results. All approaches

to projecting fuel economy have their limitations. The method

adopted by OTA does not always do the best job of evaluating the

systems effects of combining different technologies—i.e., openchamber diesel engines combined with four-speed lockup torque

converters. Learning curves, based on historical trends, do not take

explicit account of new technologies. Analytical modeling is a valuable tool for comparing alternative technologies, but models must

be validated by comparison with hardware results before the model

can be used with confidence.
122 . Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

Table 21.–Prospective Automobile Fuel-Efficiency Increases, 1986-2000

Percentage gain in fuel efficiency

High estimate Low estimate

Technology 1986-90 1991-95 1996-2000 1986-90 1991-95 1996-2000

Engines

Spark-ignition (SI) . . . . . . . . . . . . . . . . . . . . . . . . 10 10-15 15 5 5-1o 5-1o

Diesel:

Prechamber. , . . . . . . . . . . . . . . . . . . . . , . . . . . 15 15 15 15

Open chamber . . . . . . . . . . . . . . . . . . . . . . . . . 25 35 35 20 20 25

Open chamber (SI) stratified charge (SC) . . . . 15 20

Hybrid diesel/SC . . . . . . . . . . . . . . . . . . . . . . . . . 35

Transmissions

Automatic with lockup torque converter . . . . . 5 5 5 5 5 5

Continuously variable ((XT). . . . . . . . . . . . . . . . 10 15 10

Engine on-off . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 10 10

Vehicle system

Weight reduction (downsizing and

materials substitution) . . . . . . . . . . . . . . . . . . 8 13 18 4 8 10

Resistance and friction (excluding engine)

Aerodynamics. . . . . . . . . . . . . . . . . . . . . , . . . . 2 3 4 1 2 3

Rolling resistance and lubricants . . . . . . . . . 1 2 3 1 1 2

Accessories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 3 4 1 1 2

a improvements in fuel efficiency are expressed as percentage gain in mpg compared with an anticipated average 1985 passenger car. The 1985 average car used as

a reference has an Inertia weight of about 2,500 lb, is equipped with spark-ignition engine, three-aped automatic transmission, and radial tires, and has an EPA mileage

rating (55 percent city, 45 percent highway) of 30 mpg. The fuel efficiencies of the individual baseline cars, which are used to calculate future fuel efficiencies in

each size class, are given In tables 23 and 24. Percentages are given on an equivalent Btu basis where appropriate—e.g., for diesels, which use fuel having higher

energy content per gallon than gasoline, the percentage gain refers to miles per gallon of gasoline equivalent, which Is 10 percent less than miles per gallon of diesel

fuel. The table does not include efficiency improvements from alternate fuels such as alcohol.

SOURCE: Office of Technology Assessment.

None of the figures in this table should be interpreted as predictions. Rather, they illustrate

ranges in fuel-economy improvement, based on

OTA’s judgment of what is likely to be technically

practical. The projected improvements are not

directly associated with the developmental programs of specific automobile manufacturers—

either domestic or foreign. As changes in automobile technology occur, older designs will coexist with new—just as, recently, older V-8 SI engines have remained in production alongside replacements such as diesels and V-6 SI engines.

New engines and transmissions are typically introduced with the presumption that they will remain

in production for at least 10 years. These rather

slow and gradual patterns of technological

change are likely to continue unless market conditions force an acceleration. For this to happen,

the market pressures would have to be rather intense, if only because of the limited capital resources available at present to the domestic automakers.

Table 21 lists the net improvements in automobile components that could be expected, on the

average, for the high and low estimates during

each 5-year period. Note that the technologies

listed in the table are not in every case compatible with one another, nor can any simple combining procedure yield net figures that have clear

and direct meaning for particular hypothetical

vehicles. This is because different technologies

combine in different ways. For example, the poor

part-load efficiencies of throttled SI engines mean

that continuously variable transmissions and engine on-off will yield greater improvements than

for partially throttled open-chamber stratifiedcharge engines or diesels. Thus, the choice of

cost-effective technologies cannot be inferred

from such a table alone, but must depend on

more detailed analysis, and finally on testing.

The technologies listed in table 21 are discussed

in more detail in appendix 5A at the end of this

chapter.

Projection of Automobile

Fleet Fuel Efficiency

Based on the technological scenarios in table

21 and several assumptions about the size mix

of new cars, OTA has constructed a set of pro-
Ch. 5—Increased Automobile Fuel Efficiency • 123

jections for the fuel economy of passenger cars

sold in the U.S. market in future years. As emphasized earlier in this chapter, market demand—

not technology—is the key factor in determining

the mileage potential of the new-car fleet, Market

demand is particularly critical in determining the

size mix of new-car sales.

The automobile technologies listed in table 21

are more important as tools for increasing the fuel

economy of the larger, more Iuxurious cars that

many American purchasers still demand than for

cars that are small and Iight—e.g., nearly all current imports, as well as the new generations of

American-made subcompacts. Improved powertrains and the use of materials with high strengthto-weight ratios will lead to improved fuel economy in cars of all sizes. But a 10-percent increase

in gas mileage for a big car—with mileage that

is initially low—saves more fuel than a 10-percent

improvement to a small car that is already more

fuel efficient.

This is not to say, however, that a given technological development will necessarily give the

same percentage improvement for cars of all

sizes—or even be applicable to all types of cars.

Continuously variable transmissions (CVTs) have

been in limited use for many years in small cars,

and would no doubt be applied widely in subcompacts before finding their way into heavier

vehicles. The reason is simply that the mechanical

design problems for a CVT are simpler if the levels

of torque that must be transmitted are low.

On the other hand, if gas turbines become

practical as automobile powerplants, they are

likely to be used first–and perhaps exclusively–

in big cars, because turbine engines are more efficient in larger sizes.

Any projection of fleet fuel economy will depend on the assumed weight (size) mix of newcar sales in the years ahead. For its analysis, OTA

adopted a simplified description of this mix,

based on three size classes–small, medium, and

large. This allows possible market shifts to be analyzed in terms of the assumed proportion of newcar sales by size class—for each of which the average fuel economy has been estimated. This is

a considerable abstraction from the real situation

–-one in which the spectrum of curb weights

from which consumers select extends from less

than 2,000 lb to over 4,000 lb. For any given

weight—now and in the future—there will also

be a range of fuel economies, depending on vehicle design. The convenience of the description

in terms of only three size classes, for which other

characteristics are averaged, comes at the expense of the richness and variety that will actually

exist in the marketplace.

New-Car Fuel Efficiency by Size Class

Table 22 describes the small, medium, and

large size classes on which OTA’s projections are

based. The scheme is similar to current EPA practice for fuel-economy ratings—grouping cars of

similar passenger capacity and interior volume.

However, the designations of car sizes in table

22 differ from some current designations because

they are intended to reflect future vehicle characteristics rather than the past; in other words, OTA

prefers to call a future small car just that, not a

‘‘m in i compact .“ Each class in the table encompasses a considerable range of possible vehicle

designs. Under either the high or low estimate

scenarios, curb weights of cars in the U.S. fleet

are expected to decrease over the period 1985-

2000.

Table 22.–Small, Medium, and Large Size Classes Assumed for 1985-2000

Curb weighta (lb) 1981 equivalents

Class High estimate Low estimate Interior volume (ft3

) Passenger capacity Size class Typical models

Small . . . . . . . . 1,300-1,600 1,400-1,700 < 85 2-4 Minicompact, Honda Civic

two seaters Toyota Starlet

Medium. . . . . . 1,600-2,000 1,700-2,000 80-110 4 Subcompact, VW Rabbit

compact Chrysler K-Car

Large. . . . . . . . 2,200-3,000 2,500-3,000 100-160 5-6 Intermediate, GM X-Car

large, luxury Ford Fairmont

aCurb weight is the weight of the car without passengers or cargo.

SOURCE: Office of Technology Assessment.
124 ● Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

Tables 23 and 24 expand on the descriptions

in table 22. For these tables, OTA has estimated

weight averages, engine alternatives, and average

fuel economies at 5-year intervals through 2000

for the two technology scenarios. Again, these

estimates reflect informed technical judgment but

should not be viewed as predictions. The curb

weights are averages expected for each of the

three size classes; rather broad ranges in actual

weights are likely, especially in the medium and

large classes. The fuel economy estimates are likewise averages with considerable spread anticipated. Fuel economy projections are given in

terms of current EPA rating practice (combined

city-highway figures)—which overestimate actual

over-the-road mileage by as much as 20 percent.

The EPA rating basis has been adopted for ease

of comparison with fuel economy ratings for the

current fleet; in later sections, to estimate actual

fuel consumed, EPA ratings are adjusted downward to more realistic values.

The average fuel economy estimates in tables

23 and 24 for the high- and low-estimate technology scenarios are grouped together in table 25

so that the differences by size class and technology level can be more easily compared. Table

25 illustrates the importance of size and weight

for fuel economy. By 2000, the low-estimate average efficiency for medium-size cars is the same

as the high-estimate efficiency for big cars—both

are 50 mpg. Large cars show the greatest percentage improvements because more can be done

to improve fuel economy before diminishing returns become severe.

One way to abstract the effects of downsizing

and weight reduction from other technological

improvements is to examine specific fuel economy—by normalizing to ton-mpg, or the miles

per gallon that would result for an otherwise similar car weighing 1 ton. Ton-mpg values have exhibited an upward trend overtime as automotive

technologies have improved.16

Figure 9 shows the gradual increase–with considerable year-to-year fluctuations—that has characterized average fuel economy in ton-mpg for

the U.S. new-car fleet over the past decade, together with estimates through 2000 based on the

 16"Powerplant Efficiency Projected Via Learning Curves, ” Automotive Engineering July 1979, p. 52.

Table 23.—Automobile Characteristics- High-Estimate Scenario

Small Medium Large

1965 1990 1995 2000 1965 1990 1995 2000 1985 1990 1995 2000

Average curb weight (lb) . . . . . . . . . . . . . . . . . 1,600 1,500 1,400 1,300 2,000 1,800 1,700 1,600 3,0002,6002,4002,200

Engine type (percent):

Spark ignition . . . . . . . . . . . . . . . . . . . . . . . . 100 95 70 60 90 70 50 30 75 30 30 25

Prechamber diesel . . . . . . . . . . . . . . . . . . . . — 5 — — 10 10 — — 25 40 — —

Open chamber diesel or open

chamber stratified charge . . . . . . . . . . . . — 30 40 20 50 70 – 30 70 75

Fuel economya (mpg) . . . . . . . . . . . . . . . . . . . . 48 62 74 84 39 51 61 71 27 37 43 49

aCombined EPA clty/highway fuel-economy rating, baaed on 55 percent city and 45 percent highway driving.

SOURCE: Office of Technology Assessment.

Table 24.—Automobile Characteristics-Low-Estimate Scenario

Small Medium Large

1965 1990 1995 2000 1985 1990 1995 2000 1985 1990 1995 2000

Average curb weight (lb) . . . . . . . . . . . . . . . . . 1,7001,6001,500 1,400 2,0001,9001,600 1,700 3,0002,6002,6002,500

Engine type (percent):

Spark ignition . . . . . . . . . . . . . . . . . . . . . . . . 100 100 100 60 90 60 70 70 75 60 50 40

Prechamber diesel . . . . . . . . . . . . . . . . . . . . — — — — 10 20 30 25 40 20

Open chamber diesel . . . . . . . . . . . . . . . . . . — — — 40 — — — 30-––3O G

Fuel economya

(mpg) . . . . . . . . . . . . . . . . . . . . 45 52 57 65 35 41 45 50 23 28 31 34

aCombined EPA city/highway fuel-economy rating, baaed on 55 percent city and 45 percent highway driving.

SOURCE: Office of Technology Assessment.
Ch. 5–Increased Automobile Fuel Efficiency • 125

Table 25.—Estimated New-Car

Fuel Economy: 1985-2000

Average new-car fuel economya

Size class 1985 1990 1995 2000

Large:

High estimate . . . . . . . 27 37 43 49

Low estimate . . . . . . . 23 28 31 34

Medium:

High estimate . . . . . . . 39 51 61 71

Low estimate . . . . . . . 35 41 45 50

Small:

High estimate . . . . . . . 48 62 74 84

Low estimate . . . . . . . 45 52 57 65

aCombined EPA city/highway fuel-economy rating, based on 55 percent city and

45 percent highway driving.

SOURCE: Office of Technology Assessment.

Figure 9.—Sales.Weighted Average New-Car Fleet

Specific Fuel Efficiency

z -

1975 1980 1985 1990 1995 2000

Year

SOURCE: Off Ice of Technology Assessment.

high and low scenarios in table 21. As for the

earlier tables, figure 9 aggregates both domestic

automobiles and imports. Using such projections,

the fuel economies of future new-car fleets of

various size (weight) mixes can be estimated.

As the figure shows, average specific fuel consumption for new cars sold in the United States

has increased from less than 30 ton-mpg in the

early 1970’s to roughly 39 ton-mpg in 1981, a

30-percent improvement. The most efficient 1981

cars sold in this country gets 50 ton-mpg. * By

1990, the average should equal the current best.

By 2000, the average could be as high as 65

ton-mpg.

Based on the projections in tables 23-25, or alternatively those in figure 9, the effects of changes

in the size mix of the new-car fleet can be estimated. In the mix of new 1981 cars sold through

January 5, 1981, small cars made up only 5 percent of the market; the rest was almost evenly

divided between medium cars (48 percent) and

large cars (47 percent). By 1985, the share of small

cars may remain at 5 percent, but the share of

medium cars is expected to go up at least to 60

percent, dropping the large-car share to 35 percent or less. Even in the unlikely event that the

60:35, ratio remains unchanged beyond 1985–

that medium cars show no further sales gains over

large cars–the average fuel economy of the newcar fleet in 2000 would be 62 mpg in the highestimate scenario, 43 mpg in the low-estimate

scenario. * (See table 26, “no mix shift” case.)

These figures represent a substantial improvement over the 25 mpg expected in 1981 and the

30 to 35 mpg expected for 1985. A further shift

in consumer preference toward smaller and

lighter cars would increase the expected fleetaverage fuel economy even more.

To illustrate the effects of a continuing shift towards smaller and lighter cars, table 26 also gives

average fuel economies at 5-year intervals for a

“moderate” mix shift-leading to 35 percent

small cars, 50 percent medium cars, and 15 percent large cars by 2000-and for a “large-scale”

mix shift. The latter assumes 70 percent small

cars, 25 percent medium cars, and only 5 percent large cars in 2000. As the table shows, the

large-scale mix shift could give a new-car fleet

average fuel economy of 60 to 80 mpg by 2000.

Whether market demand will lead to such a mix

shift depends on factors such as price differentials between large and small cars, and the compromises in other vehicle characteristics that accompany smaller cars, as well as the pricing and

availability of fuel.

*These are diesels, for which the ton-mpg rating has been expressed on a gasoline-equivalent basis; the value based on diesel

fuel would be about 55 ton-mpg. The best current SI engine models sold in the United States have ton-mpg ratings about 10 percent lower, or roughly 45 ton-mpg.

*The corresponding numbers for the 1981 mix are 59 mpg in

the high estimate and 41 mpg in the low estimate.
126 . Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

Table 26.—Effect on Size Mix on Estimated Fuel Economy of the New-Car Sales in the United States

Estimated average new-car fuel economya (mpg)

No mix shiftb Moderate mix shiftc

Large-scale mix shiftd

Technology scenario 1985 1990 1995 2000 1985 1990 1995 2000 1985 1990 1995 2000

High estimate . . . . . . . . . . . . . . . . . . . . . . . . . . 34 45 54 62 34 48 59 70 37 53 65 78

Low estimate . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 36 39 43 30 38 43 51 33 43 49 58

a

55 percent city, 45 percent highway EPA rating.

C

The moderate mix shift assumption is as follows:

b

The no mix shift case assumes:

‘The large-scale mix shift assumption is:

Sales mix (percent) Sales mix (percent)

Size class Sales mix (percent) for all years

Small . .

Size class 1985 1990 1995 2000 Size class 1985 1990 1995 2000

5

Medium . . . . . 60

Small . . . 5 15 25 35 Small . . . . . . . 10 30 50 70

Medium . . . . . 60 60

Large . .

55 50

35

Medium . 75 65 45 25

Large . . . . . . . 35 25 20 15 Large . . . . . . . 15 5 5 5

SOURCE: Office of Technology Assessment.

ESTIMATED FUEL CONSUMPTION, 1985–2000

In this section estimates of the fuel consumed

by the U.S. passenger-car fleet are based on the

various assumptions and projections of car size

mix and efficiency discussed above, but assume

that gasoline and diesel fuel continue to power

passenger vehicles, with no significant penetration of alternative fuels such as methanol.

In 1975, when Federal fuel economy standards

were enacted, passenger cars consumed an average of about 4.3 MMB/D of fuel. (Trucks are

omitted from the calculations in this chapter, but

many light trucks and vans are used interchangeably with passenger cars and add about 1.1

MMB/D to average consumption). Passenger-car

fuel consumption rose to 4.8 MMB/D in 1978,

but has since declined to 4.3 MMB/D–about the

1975 Ievel.17 OTA projects that passenger-car fuel

consumption will continue to decline—to about

3.6 MMB/D in 1985, as the automobile fleet becomes more fuel-efficient. This estimate assumes

that the fleet will grow from about 107 million

cars in 1980 to 110 million in 1985, and that the

average car will continue to accumulate about

10,000 miles per year.

Projected Passenger-Car

Fuel Consumption

The baseline chosen for discussing fuel consumption by passenger cars past 1985 is outlined

in table 27. Growth in the automobile fleet—

which depends on both sales levels for new cars,

and the rates at which older cars are scrapped—is

Table 27.—Baseline Assumptions for Projections

of Automobile Fuel Consumption

1980 1985 1990 1995 2000 2005 2010

Vehicle miles of travel:

Trillion

miles/yr . . . 1.14 1.17 1.20 1.23 1.26 1.28 1.31

Also assumes 47 percent of fleet vehicle miles traveled

(VMT) by cars less than 5 years old, 38 percent of VMT

by cars 5 to 10 years old, and 15 percent of VMT by cars

older than 10 years.

New-car fuel economy (combined EPA ratings; 55 percent

city, 45 percent highway)

1985 base case (low-high estimate)

Small cars: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45-48 mpg

Medium cars: . . . . . . . . . . . . . . . . . . . . . . . . . . 35-39 mpg

Large cars: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23-27 mpg

Fleet baseline average efficiency

30 mpg, 1985-2010

High- and low-estimate scenarios

See table 25

lzDerived from j. K. pollard, et al., “Transportation Energy Outlook: 1985-2000,” Transportation Systems Center, U.S. Department

of Transportation, DOT-TSC-RS-1 12-55-81-6, September 1981, pp.

4-21; and “Monthly Energy Review, ” Energy Information Agency,

U.S. Department of Energy, DOE/EIA-0035 (81/10), October 1981.

On-the-road fuel efficiency:

10 percent less than EPA rated fuel efficiency

Size mix:

See table 26

SOURCE: Office of Technology Assessment.
Ch. 5—increased Automobile Fuel Efficiency ● 127

projected to average less than 2 percent per

year.18 Cars are assumed to be driven an average

of 10,000 miles per year, with newer cars driven

more and older cars driven less, on the average

(see table 27). The projections for new-car fuel

economy and future size mix are taken from the

tables in earlier sections. Because those fueleconomy projections were based on EPA ratings,

which overestimate actual on-the-road mileage,

fuel economy has been adjusted downward 10

percent to compensate.

If neither fuel economy nor size mix were to

advance past a 1985 baseline average of 30 mpg,

fuel consumption by passenger cars would still

decline slowly for 10 years, reflecting the larger

fraction of cars in the fleet with fuel economies

at this baseline value, Between 1985 and 1995,

passenger-car fuel consumption would decline–

even with a status quo in fuel economy and size

mix—from about 3.6 MMB/D in 1985 to 2.7

MMB/D in 1995. Thereafter, the upward trend

would resume because of increases in the total

size of the fleet.

But of course, automobile technology will continue to improve (table 21 ), and a continuing shift

toward smaller cars is also probable (table 26).

Therefore, under almost any realistic set of assumptions, passenger-car fuel consumption will

continue to decrease during the post-1995 period. At some point it may still turn upward because of increases in fleet size, this turning point

depending on both technology and size mix. In

any case, as figure 10 shows, the decline in passenger-car fuel consumption will level off by

about 2005 (unless growth in the fleet is slower

than projected in table 27 or cars are driven fewer

miles per year).

Figure 10 gives fuel-consumption projections

to 2010 based on these assumptions. The influence of technological improvements is striking.

For example, even without a mix shift toward cars

smaller than in the 1985 baseline mix, the high

estimate gives fuel savings greater than those for

the low estimate with a large-scale shift towards

smaller cars. But such a mix shift would also create substantial fuel savings. For the cases plotted

~au. S. /ndustrja/ Competitiveness: A Comparison of Stee( electronics, and Automobiles, op. cit., pp. 140-141.

Figure 10.—Projected Passenger-Car

Fuel Consumption

 5. 0

 4.0

30-mpg new-car

 3.5 average 1985-2000

 0

 3.0

 2.5

 2.0 Low estimate,

k* 

●

large mix shift

 1. 5

- - -

--- -

 1. 0

High estimate, ‘

- - -

no mix shift High estimate.

 0.5 large mix shift

 0. 0

1 I I 1 1 1

1975 1980 1985 1990 1995 2000 2005 2010

Year

SOURCE: Off Ice of Technology Assessment.

in this figure, passenger-car fuel consumption

stays well below 2.5 MMB/D during the early

years of the next century. The figure also shows

the potential benefits if technical success is accompanied by a strong shift to smaller cars. The

difference in 2010 between the low estimate with

no mix shift (about 2.0 MM B/D), and the high estimate with a large mix shift toward smaller cars

(1.1 MMB/D), is nearly a factor of 2. The lower

end of this range is about one-fourth the current

level of fuel consumption. Where within this

range the actual fuel consumption would fall is

likely to depend–as emphasized earlier–on market demand for fuel-efficient vehicles, and/or continuing Government policies designed to encourage the manufacture and purchase* of fuel-efficient cars. Changes in vehicle miles traveled

would also change the fuel consumption proportionately.

*An illustration of the importance of new-car sales can be derived as follows: In 1980, 47 percent of the vehicle-miles traveled

(VMT) were by cars 0 to 4 years old, 38 percent by 5 to 9 year old

cars, and 15 percent by cars 10 years old and older. Call this the

base case. A persistent 20 percent depression in new car sales could

change the VMT distribution by 1995 to: 40 percent by cars O to

4 years old, 35 percent by cars 5 to 9 years old, and 25 percent

by cars 10 years old and older. Call this the “low” car sales case.

If VMT are held constant at the 1980 level, fuel consumption under

the base case would be up to 0.3 MMB/D (or nearly 20 Percent)

lower than fuel consumption in the “low” car sales case in 1990,

everything else being equal. And cumulative oil savings could be

over 1 billion bbl during the period 1981-2000. The base case, however, probably would be accompanied by higher VMT than the

“low” sales case, and much of this savings could be lost.
128 Ž Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

Total projected oil savings are bracketed by the

curves in figure 11. These show the fuel conserved relative to the 1985 baseline case of newcar efficiencies of 30 mpg between 1985 and

2010. Clearly, the high-estimate technology scenario, accompanied by a continuing shift toward

smaller cars, leads to large fuel savings. By

2010–when virtually the full benefit of fuel savings from cars sold in the period 1985-2000 would

be realized–the cumulative savings (relative to

a 30-mpg fleet) could be as high as 10 billion bbl

of oil equivalent. This is equivalent to 6 years supply of passenger-car fuel at the 1980 rate of consumption. The fuel economy increases expected

between now and 1985 would add about 14 billion bbl to this cumulative savings between now

and 2010 (relative to 1980 fuel consumption).

Thus, between now and 2010, the total savings

possible is about 24 billion bbl relative to 1980

passenger-car fuel consumption–an amount

about equal to proven U.S. oil reserves, which

were 26.5 billion bbl as of 1980.19

Substitution of Electric Vehicles

The estimates above are based on a passengercar fleet for which energy comes from a fuel carried onboard—e.g., gasoline or diesel fuel. In the

19Wof/d Petro/eum Availability 19802(XXL Technical Memorandum, OTA-TM-5 (Washington, D. C.: U.S. Congress, Office of Technology Assessment, october 1980.)

Figure Il.—Cumulative Oil Savings From Increased

Automobile Fuel Efficiency Relative to 30 MPG in

1985, No Change Thereafter

0

1985 1990 1995 2000 2005 2010

Year

SOURCE: Office of Technology Assessment.

“Battery-Electric and Hybrid Vehicles” section,

the prospects for EVs were briefly discussed, with

the conclusion that major improvements in battery performance were necessary before EVs (or

hybrids) would be practical in any but very specialized applications. If, however, these improvements are achieved—or if acute shortages of

transportation fuels occur in the future—EVs

might be sold in sufficiently large numbers to affect petroleum consumption.

The result would be to replace some of the petroleum consumed in the transportation sector

by electric power generation. To the extent that

this electricity was produced from nonpetroleum

fuels–e.g., natural gas, coal, nuclear–the cumulative oil savings shown in figure 10 would increase (see app. 56). Table 28 illustrates the

results for a highly optimistic level of EV substitution. Note that this again is not a prediction; substantial penetration by electric and/or hybrid

vehicles (EHVs) before the end of the century is

unlikely, and doubtful even thereafter. The table

simply shows what might happen if battery improvements occur more rapidly than OTA expects, or if other factors combine to increase the

attractiveness of EHVs. Table 28 assumes that

EHVs represent 5 percent of the total U.S. passenger-car fleet by 2000, and 20 percent by 2010.

This would require EHV production and sales at

levels of several million per year during the last

few years of the century.

Table 28 shows that penetration of EHVs at high

enough rates could begin to replace meaningful

volumes (14 percent) of transportation fuels durTable 28.—Effects of Substituting Electric Vehicless

Passenger-car

Composition of fuel consumed

passenger-car or replaced

fleet (million) (MMBID)

2000 201 0 2000 2010

Conventional cars . . . . . 133 124 1.7 1.4

EVs . . . . . . . . . . . . . . . . . . 7 31 0.04 0.2

Percent EVs . . . . . . . . . . 5 20 — —

Percent fuel

consumption

replaced. . . . . . . . . . . . — — 2 14

qf battery Improvements occur more rapidly than OTA expects, or if other factors

combine to increaae the attractiveness of electric vehicles.

SOURCE: Office of Technology Assessment.
Ch. 5—Increased Automobile Fuel Efficiency • 129

ing the first decade of the next century. Nonetheless, the savings in petroleum would be relatively small in absolute terms–because EHVs are best

suited as replacements for small cars which already get good mileage.

Comparing the estimated fuel savings in table

28–only 0.2 MM B/D even for optimistic assumptions of EHV penetration—with the fuel-consumption trends projected in figure 9, demonstrates

that improvements in automobile technology,

particularly if combined with more rapid mix

shifts toward smaller cars, offer much greater

potential. Thus, the primary apparent advantage

of EVs during the next 30 years is that they would

not depend on petroleum supplies—an important factor if severe absolute shortages develop–

rather than any potential for saving petroleum.

Fuel Use by Other

Transportation Modes

Thus far, the discussion of fuel consumption

has been restricted to passenger cars, although,

as pointed out earlier, many light trucks—i.e.,

vans and pickups—are used primarily for passenger travel. In addition, medium and heavy trucks,

buses, motorcycles, and airplanes–plus rail and

marine transportation and military operations—

consume petroleum-based fuels. All of these

transportation modes depend predominately on

heat engines for power, although SI engines are

not so widely used as in passenger cars. Diesels

have already replaced SI engines in almost all

heavy trucks, and rates of installation in mediumduty trucks are going up rapidly. Diesels are also

common in rail and marine applications, although some large ships rely on gas turbines or

steam power. Commercial aircraft are generally

powered by turbine engines.

Table 29 summarizes the projected oil consumption for transportation between 1980 and

2000. The projections for automobiles are derived

in this chapter, while those for other transportation modes are taken from the “market trend”

base case in a recent Department of Transportation study.20 The projections for fuel consumption by trucks in table 29 assume that many of

the technological improvements discussed above

for passenger cars will also be applicable to light

trucks. However, the specific technologies discussed elsewhere in this chapter are more generally appropriate to pickup trucks and vans than

to medium and heavy trucks.

Zoj. K. Pollard, et al., “Transportation Energy Outlook: 1985-2000,”

Transportation Systems Center, U.S. Department of Transportation;

DOT-TSC-RS-1 12-55-81-6, September 1981.

Table 29.-Projected Petroleum-Based Fuel Use for Transportation

1980a

1990a2000a

Mode MMB/ D

b Percent MMB/ Db Percent MMB/ Db Percent

Passenger car . . . . . . . . . . . . . 4.3 49 2.4-2.9 35 1.3-2.1 23

Light trucks . . . . . . . . . . . . . . . 1.1 13 0.9 12 0.8 11

Other trucks. . . . . . . . . . . . . . . 1.1 13 1.2 16 1.4 19

Other highway (buses,

motorcycles, etc.) . . . . . . . . . . 0.1 1 0.2 3 0.2 3

Total highway . . . . . . . . . . . 6.6 75C

4.7-5.2 65C3.7-4.5 5 5

C

Air . . . . . . . . . . . . . . . . . . . . . . . 0.8 9 1.1 14 1.5 20

Marine. . . . . . . . . . . . . . . . . . . . 0.7 8 0.8 10 0.9 12

Rail . . . . . . . . . . . . . . . . . . . . . . 0.3 3 0.4 5 0.4 5

Pipelines d . . . . . . . . . . . . . . . . . 0.1 0.1 1 0.1 1

Military Operation . . . . . . . . . . 0.3 3 0.3 4 0.4 5

Total nonhighway . . . . . . . . 2.2 25C

2.7 35C3.3 45C

Total . . . . . . . . . . . . . . . . . 8.8 100 7.4-7.9 100 7.0-7.8 100

aA\\ fuel consumption numbers, except for passenger cars, from J. K. Pollard, C. T. Phillips, R. C. Ricci, and N. Rosenberg,

“Transportation Energy Outlook: 1985-201M,” U.S. Department of Transportation, Transportation Systems Center, Cambridge,

Mass., DOT-TSC-RS-112-55-81%, September 1981. Passenger-car fuel consumption from this study.

blB -5.9 MMBtu.

csum~ may not agr~ due to round-off errors.

dDoes not include naturai 9as.

SOURCE: Office of Technology Assessment.
130 • Increased Automobile Fuel Efficiency and Synthetic fuels: Alternatives for Reducing Oil Imports

Some of the fuel economy gains for other transportation modes—as for passenger cars—will be

offset by growth in miles traveled. Annual growth

rates of 1 to 3 percent per year are expected for

most modes of transport, although sales of light

trucks have recently dropped to such an extent

that mileage traveled by such vehicles may decrease in the years ahead. In total, fuel consumed

for transportation is projected to decline from 8.8

MMB/D in 1980 to the range of 7 to 8 MMB/D

by 2000, and then to rise slowly as diminishing

returns set in.

Because of the differing growth rates for the various transportation modes and the differing magnitudes of the fuel economy improvements expected, the distribution of fuel use by mode will

change. Passenger cars now account for half of

all the fuel used in transportation. Their share will

decrease to about 25 percent by the early part

of the next century. Medium and heavy trucks

currently consume 12 percent of all transportation fuel, a figure that could rise to 20 percent

by 2000. Likewise, the percentage of transport

fuels used by aircraft could nearly double.

COSTS OF INCREASED FUEL EFFICIENCY

Overview

Automobile manufacturers spend for many

purposes–R&D, investment in plant and equipment, labor, materials, marketing, and administration. How much a particular manufacturer

spends depends on the firm’s financial capabilities, the rate of technology change, initial characteristics of the product line, and the state of existing manufacturing facilities.

R&D on vehicle designs and manufacturing

processes is an important spending area. Development—on which most R&D money is spent,

research expenditures being small by comparison

—creates new product designs and production

methods. Growth in R&D activity, required to

support rapid changes in vehicle design, will raise

both the total costs of automobile production and

the proportion of development and other preproduction expenses.

In 1980, the four major domestic manufacturers

spent almost $4.25 billion (1980 dollars) on R&D.

For individual firms, this spending amounted to

2 to 5 percent of sales revenues. in addition, major parts and equipment suppliers spent about

$293 million on automotive R&Din 1980. Together, major automobile manufacturers and suppliers spent over $4.5 billion on R&D for automobiles and other vehicles.21

Capital investment levels are even greater.

These expenditures, which go hand-in-hand with

design and development activities, are the largest

single category of spending in automobile manufacturing. Major categories of capital goods include factory structures, production equipment

such as machine tools and transfer lines, and a

wide variety of special tools such as dies, jigs, and

fixtures.

Manufacturers today are making investments

to improve product quality, as well as increase

productivity and cut costs. Flexible manufacturing is also becoming an increasingly attractive investment. Such sophisticated facilities are relatively expensive but may yield low operating costs

and other long-term benefits. General Motors

(GM), Ford, and Chrysler spent $10.8 billion

(1980 dollars) on property, plant, equipment, and

special tooling in 1980.22

Financing is an important aspect of capital investment. Historically, the automobile industry

has financed capital programs with retained earnings, except during recessions when low sales

generated inadequate revenues. Several current,

and possibly enduring, factors—declining profitability, high inflation, slow market growth, market

volatility, and consumer resistance to real price

increases—have eroded manufacturers’ ability to

finance major capital programs from earnings (or

by issuing stock), leading them to borrow funds

2]’’ R&D Scoreboard: 1979,” Business Week, July 7, 1980; “R&D

Scoreboard: 1980, ” Business Week, JuIy 6, 1981. 22Annual Reports for 1980.
Ch. 5—Increased Automobile Fuel Efficiency . 131

and therefore to face potentially higher costs of

capital. GM and Ford each borrowed over $1 billion during 1980; they may together borrow as

much as $5 billion by the mid-1980’s.23

Although domestic manufacturers have recently borrowed from foreign and other nontraditional sources, they are able to borrow only a limited

portion of their capital needs (at acceptable interest rates). Borrowing in the United States has recently become more costly to automobile manufacturers because their bond ratings have been

lowered, in recognition of the low profitability,

high spending levels, and high risks that characterize today’s auto market. Consequently, they

are obtaining cash by restructuring their physical

and financial operations (e.g., by selling assets

and changing the handling of accounts receivable), engaging in joint ventures, and selling tax

credits (under Economic Recovery Tax Act of

1981 leasing rules).

Automotive fuel economy improvement affects

other costs as well, although not to the same extent that it affects R&D and capital investment,

Costs for labor and materials depend on vehicle

design and on production volumes and processes. For example, automated equipment reduces labor content; small cars require less material; and lighter body parts and more efficient

engines may require new, relatively expensive

materials (high-strength steels, aluminum alloys)

and processes (heat treatments, longer weld cycles, a greater number of forming operations,

slower machining). Reductions in the amounts

of labor and materials used per car help offset

inflationary and real increases in their costs. Labor

costs, however, are slow to change in the short

term because they are subject to union negotiations, and because contractual provisions constrain layoffs and require compensation payments.

Finally, spending on marketing and administration is not directly related to technological change

or to production; although these expenses may

be cut back to facilitate spending in other areas.

During 1980, for example, auto manufacturers

made large cuts in white collar staffs to lower adZ3AIS0 see “producing More Fuel-Efficient Automobiles: A CoStIy Proposition, ” op. cit.

ministrative costs. However, marketing activities

may increase because of heightened competition

or the introduction of new products.

The remainder of this chapter focuses on capital costs, because they are the critical component

of the overall costs of changing automobile designs. On a per car basis, however, labor and materials costs will remain higher than capital costs

because of the ways different types of costs are

allocated. The costs of capital goods (including

financing) are recovered throughout their service

life in vehicle prices. Since capital goods are used

to produce many vehicles over many years (at

least 30 years for plants, 12 years for much production equipment, and 3 to 5 years for special

tooling), each vehicle bears a relatively small percentage of the costs of capital to produce it. In

contrast, labor services and materials are effectively bought to manufacture each car.

Relative to other manufacturing costs, capital

costs are expected to undergo the greatest percentage increase as manufacturers increase their

output of fuel-efficient vehicles. Moreover, capital

costs are becoming proportionately greater because capital goods are being purchased at faster

rates and at higher real prices than historically,

and because automotive production is becoming

more capital-intensive as automation proceeds—

i.e., more capital equipment is being used to produce automobiles relative to labor, materials, and

other inputs. Consequently, capital costs will

have an especially pronounced influence on the

financial health of automobile manufacturers over

the next two decades.

Investments to Raise Fuel Economy

Technology-Specific Costs

Table 30 presents capital cost estimates prepared by OTA for the technologies described

earlier in this chapter, based on discussions with

industry analysts and the most recently published

analyses. However, they draw on the experience

and expectations of the mid and late 1970’s,

when limited consumer demand for fuel economy led manufacturers to make conservative projections of vehicle design changes and high projections of costs. Because of recent surges in the

demand for fuel economy and small cars, manufacturers now expect to make substantial im-
132 Ž Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

Table 30.—Post-1985 Automotive Capital Cost Estimates

$M/500,000 units Associated costs

Platform change

Weight reduction, redesign . . . . . . . . . . . . . 500-1,000 R&Da

, redesign

Material substitution . . . . . . . . . . . . . . . . . . . 100-400 R&Da, materials, labor

Engine change

Improved Sib, diesel . . . . . . . . . . . . . . . . . . . 50-250

New Sib, diesel, DISCC. . . . . . . . . . . . . . . . . . 400-700 R&Da

, redesign

Transmission change

Improve contemporary drivetrains. . . . . . . . 100-400 R&Da

, redesign

New drivetrains—CVTd

, energy storage,

engine on-off. . . . . . . . . . . . . . . . . . . . . . . . 500-700 R&Da

, redesign

%apital costs for accessory and iubricant Improvements and aerodynamic and rolling resistance reductions are not Included

separately. They may in total cost about S50M1500,000, an amount within the range of error impiied by the above estimates.

Note: aerodynamic improvements will be carried out with weight-reducing design changes; iubricant end tin changes are

already being made by suppliers and may continue as a regular aspect of their businesses; and some accessory Improvements

. are made regularfy and as accompaniments to engine redesigns.

%park ignition.

cDirect injection stratified charge.

d~ntinuoualy variable transmission.

SOURCE: Office of Technology Assessment.

provements in fuel economy by the mid-1980’s

by accelerating technological change schedules

and by increasing the proportion of small cars in

the sales mix.

Note that increasing production volume for existing models is much cheaper than introducing

new models; U.S. manufacturers could probably

double their output of many existing models. The

costs of design changes in the post-1985 period

now seem even more uncertain, because earlier

achievements will leave fewer and generally

more costly options available.

Projecting costs for specific design changes is

difficult, for several reasons. First, the redesign

of any one vehicle component or subsystem often

necessitates related changes elsewhere. Second,

such changes may require new production processes. Third, actual costs to individual manufacturers are technology-specific and sensitive to several factors—technological development, production volume, vertical integration, the rate at which

changes penetrate the fleet, and available manufacturing facilities. These factors are discussed

below.

Technological Development.–Many technologies are inherently expensive due to materials requirements or complexity of design or manufacture. The diesel engine for passenger cars is a

good example. Over time, experience with a new

technology may lead to some cost reduction.

Production Volume.–Costs vary with production volume because equipment and processes

are designed such that average product cost is

lowest once a threshold production volume is

achieved.24 Because this minimum volume or

scale grows as the production process becomes

more highly automated, the rising capital intensiveness of automobile production increases the

sensitivity of unit costs to production volume.

Operating costs (comprised of labor, materials,

and allocated marketing and administration costs)

per unit are sensitive to production volume in the

short term. For example, Ford’s operating costs

per dollar of sales were estimated to be under

$0.90 in the first quarter of 1979, but subsequent

sales declines brought them close to $1.05 by the

fourth quarter of 1980.25

The cost estimates in table 30 assume uniform

500,000-unit capacities. * Cost estimates for uniform or optimal capacity levels provide a better

measure for spending levels for the industry as

a whole than for individual manufacturers because individual firms acquire different levels of

capacity at different costs according to their finanZ4S& K. Bhasker, “The Future of the World Motor Industry” (New

York: Nichols Publishing Co., 1980.) The optimum production

volumes may change with manufacturing technology, however.

‘

s

’’ Ford’s Financial Hurdle: Finding Money is Harder and Harder,”

Business Week, February 1981.

*This procedure was aiso employed in the Mellon Institute study

(Ref. 32) which drew on data provided by automobile manufacturers.
Ch. 5—Increased Automobile Fuel Efficiency • 133

cial ability, sales volume, and technological options. The costs of acquiring more or less than

optimal capacity, however, are not linearly related to the level of capacity.

Vertical Integration.—Vertical integration refers to the degree to which a manufacturer is selfsufficient in production or distribution. integration can reduce costs in two ways: 1 ) by eliminating activities and costs associated with the transfer

of goods between suppliers and distributors (dealers), and the automakers themselves; and 2) by

enabling manufacturers to optimize the flow of

production and distribution. Major U.S. automobile manufacturers are highly integrated compared with firms in many other industries, although they are much less integrated than oil

companies. Various U.S. automobile firms make

steel, glass, electronic components, and robots,

but overall they buy about ha If of their materials

and other supplies. GM’s greater vertical integration relative to other U.S. automobile manufacturers is one reason for its lower manufacturing

costs. The high effective degree of vertical integration among Japanese auto manufacturers (over

80 percent for some firms) helps to make auto

production in Japan cheaper than in the United

States. *

Rate of Change.–The rate at which new technology is incorporated in automobiles influences

cost in three important ways. First, the faster a

design is implemented, the shorter are the product development, product and process engineering schedules, and the less likely is production

to be at minimum cost, given scale. Second, increasing the rate of technological change raises

the number and magnitude of purchases from

suppliers. Third, a faster rate of change can make

facilities and processes technologically obsolete,

necessitating investments in replacements before

original investments are recovered.

Available Facilities.—Opportunities for manufacturers to redesign their product lines are

shaped by the characteristics of their base vehicles and existing production facilities. The technological scenarios described at the beginning of

*These conditions reflect peculiarly close relationships between

Japanese manufacturer and supplier firms, even in the absence of

formal linkages.

this chapter illustrate how paths of change may

differ.

Estimates of manufacturing costs require evaluation of the requirements for implementing each

combination of new technologies. Investment by

different manufacturers to produce the same vehicle will differ because their initial facilities and

vehicle designs provide different bases for

change, and because manufacturers have choices

in the timing and extent of major facility renovations, in balancing plant renovation and new construction, and the selection of new production

equipment—e.g., degree of automation. Different

production bases make rapid change more costly

for some manufacturers than for others.

The variability in actual facilities costs is illustrated by recent projects associated with new

vehicle designs. Chrysler spent over $50 million

to renovate its Newark assembly plant to produce

1,120 K-cars per day. * Chrysler made similar alterations to its Jefferson Avenue (Detroit) assembly plant to enable K-car production at the same

rate as at the Newark plant, but at a cost of$100

million. GM plans to spend $300 million to $500

million to build a new Cadillac assembly plant

(replacing two old ones) on the Chrysler Dodge

Main site in Michigan. The differences in these

spending levels reflect different starting points and

differing objectives. Since automation, quality

control, and nonproduction aspects of the above

projects contribute to other goals in addition to

higher fuel economy, these examples illustrate

how difficult it is to infer the specific costs of investments to raise fuel economy.

New Car and Fleet Investments

The incremental investments manufacturers

make to raise automobile fuel efficiency will affect the costs of producing new cars and newcar fleets. To gage the effect of changing automotive technology on industry investment requirements, the costs of capacity associated with the

high- and low-estimate scenarios were estimated

*The project entailed new plant layout; body shop renovation;

conveyor system replacement and rearrangement; assembly tooling replacement; installation of automatic and computerized machine welding, transfer, and framing equipment; installation of new

painting, front-end alignment, trim and cushion assembly equipment and additional quality control systems.
134 ● Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

by weighting and adding the costs of specific

changes. This procedure produces crude estimates of the investments necessary to produce

cars at fuel efficiencies projected in the scenarios. * Table 31 presents investment projections by

scenario and by 5-year periods, and tables 32-34

present the derivation of table 31 in somewhat

more detail.

*Assuming that each technology is applied across the fleet at efficient volume, the calculations can be performed on a per-500,000

unit basis and scaled up or down to determine overall or implied

per unit investments. The average investment to produce each size

class in each period with projected technological characteristics

may be calculated by weighing the cost of each technology (table

30) by its proportion of application and summing the weighted

investments.

Adding the costs of specific technologies taken

separately—for which cost data are available—is

an imprecise way of estimating the costs of technology combinations embodied in new automobiles and fleets, because it does not capture the

costs of implementing changes together. Very accurate investment estimates can be made by evaluating for specific new automobile designs the

plant-by-plant changes in costs (for everything

from property and construction to engineering

and equipment to taxes), accounting for various

economies (concurrent and sequentially introduced technologies may share plant, equipment,

even special tooling) and extra costs for minor

changes to the car during production.

Table 31.—Summary of Investment Requirements Associated With Increased Fuel Efficiency

High estimatea

Low estimatea

Year Units Large Medium Small Large Medium Small

1985-90 . . . . . . . . . . . . $Mil./5OO,OOO 900-1,740 820-1,660 780-1,600 490-1,000 480-1,000 450-1,000

$/car 180-350 160-330 150-320 100-200 100-200 90-200

1990-95 . . . . . . . . . . . . $Mil./5OO,OOO 570-1,100 570-1,100 610-1,200 520-940 520-930 500-900

$/car 110-230 110-230 120-240 100-190 100-190 100-180

1995-2000 . . . . . . . . . . $Mil./5OO,OOO 350-950 370-980 350-050 480-860 520-930 500-900

$/car 70-190 70-200 70-190 100-170 100-190 100-180

aSee table 23 and 24 for definitions of these scenarios.

SOURCE: Office of Technology Assessment.

Table 32.—Average Capital Investments Associated With Increased

Fuel Efficiency by Car Size and by Scenario (1985=90)

Percent of production facilities that incorporate

new technologies or are redesigned

High estimate Low estimate

Large Medium Small Large Medium Small

Engines

SIE a $50-250M/500,000 . . . . . . . . . . . . . . . . . . . . 30 70 95 60 80 100

Prechambe b $400-700 M/500,000. . . . . . . . . . . . 15 — 5 15 10

Open chamberC $400-700M/500,000 . . . . . . . . . 30

—

20 —

Transmissions

Four-speed auto and TCLUd

$300-500M/500,00 . . . . . . . . . . . . . . . . . . . . . . 70 70 70 50 50 50

Platform

Variouse $500-1,000 M/500,000 . . . . . . . . . . . . . . 100 100 100 50 50 50

Capital costs for technology changes

weighted average)

Total $M/500,000. . . . . . . . . . . . . . . . . . . . . . . . . $905-1,740 $825-1,665 $778-1,623 $490-1,005 $480-1,020 $450-1,000

Per car (total÷500,000÷10)f . . . . . . . . . . . . . . . $181-348 $165-333 $156-325 $98-201 $96-204 $90-200

%ark-ignition engine.

bPrechamber diesel.

Cown chamber dlegel or open chamber stratified charge.

dFour.g~~ automatic with torque converter lockup.

weight reduction, material aubstitutlon, aerodynamic and rolling resistance reductions, improved lubricants end assessories.

fvehicle change inve9tment9 are divided by 10 tO approximate amortization practices. Forty percent of capital spending goes for plant (30 year) and equipment (12

years), which may together be summarized as “fecllities” and amortized over 15 years (Ford Motor Co. interview) 0.4x3+0.6x 15 = 10.2 or about 10 years.

SOURCE: Office of Technology Assessment.
Ch. 5—Increased Automobile Fuel Efficiency • 135

Table 33.—Average Capital Investments Associated With Increased

Fuel Efficiency by Car Size and by Scenario (1990-95)

Percent of production facilities that incorporate

new technologies or are redesigned

High estimate Low estimate

Large Medium Small Large Medium Small

Engines

SIE $400-700 M/500,000 . . . . . . . . . . . . . . . . . . . . 15 25 35 25 35 50

Prechamber $400-700 M/500,000 . . . . . . . . . . . . – — — 30 20

Open chamber $400-700 M/500,000 . . . . . . . . . . 40

—

30 30

Transmissions

CVT, four-speed auto and TCLU

$500 -700 M/500,00 . . . . . . . . . . . . . . . . . . . . . . 35 35 35 50 50 50

Engine on-off $500-700 M/500,000 ... , . . . . . . . 15 15 15

Platform

Various $100-400 M/500,000 . . . . . . . . . . . . . . . . 100 100 100 50 50 50

Capital costs for technology changes

Total $M/500,000 . . . . . . . . . . . . . . . . . . . . . . . . . $570-1,135 $570-1,135 $610-1,205 $520-935 $520-935 $500-900

Per car(total =500,000 +10). . . . . . . . . . . . . . . . $114-227 - $104-187 $104-187 $100-180

SOURCE: Office of Technology Assessment.

Table 34.—Average Capital Investments Associated With Increased

Fuel Efficiency by Car Size and by Scenario (1995.2000)

Percent of production facilities that incorporate

new technologies or are redesigned

High estimate Low estimate

Large Medium Small Large Medium Small

Engines

SIE $400-700 M/500,000 . . . . . . . . . . . . . . . . . . . .

Open chamber $400-700 M/500,000 . . . . . . . . . .

15

35

15

40

35

15

15

30

25

30

10

40

Transmissions

CVT improved $100-400 M/500,00 . . . . . . . . . . .

CVT $500-700 M/500,000 . . . . . . . . . . . . . . . . . . .

Engine on-off $500-700M/500,000 . . . . . . . . . . .

Platform

Various $100-400 M/500,000 . . . . . . . . . . . . . . . .

50—

—

50—

—

50—

—

35

15

35

15

35

15

100 100 100 50 50 50

Capita/ costs for technology changes

Total $M/500,000 . . . . . . . . . . . . . . . . . . . . . . . . .

Per car (total÷500,000÷ 10). . . . . . . . . . . . . . . .

$375-985

$74-197

$350-950

$70-190

$350-950

$70-190

$480-865

$96-173

$520-935

$104-187

$500-900

$100-180

SOURCE: Office of Technology Assessment.

The Transportation Systems Center of the U.S. engineering changes that are beyond the scope

Department of Transportation, for example, has of this report, and speculative for the 1990’s.

developed a “surrogate plant” methodology to

do this. The accuracy of this approach is based Note that investment figures presented here apon detailed consideration of vehicle designs and ply only to investments required to raise the

the corresponding equipment and plant needs. fuel economy of cars sold in the United States.

The methodology requires specific projections of Total capital spending reported by U.S. manufac98-281 f) - 82 - 10 : ;~ 3
136 . Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

turers also includes investment in nonautomobile

projects (such as truck and military equipment

production), investments in foreign subsidiaries,

and spending for normal replacement of wornout capital and for capacity improvement and expansion.

Note also that not all of a given investment may

be associated with fuel economy improvement.

For example, engines, transmissions, and car bodies are redesigned periodically. Changes of this

sort cannot always be distinguished from those

made for increased fuel efficiency, so the full cost

of the investments shown in table 31 should not

be allocated solely to fuel economy improvements.

The difficulty of allocating costs when a single

investment produces several distinct results is a

well-known problem of accounting,26 and there

is no fully satisfactory method for making the allocations. For the purposes of the fuel savings cost

analysis in the next sections, it is assumed that

the percentages shown in table 35 represent the

share of investment costs attributable to increases

in fuel economy. Engine and body redesigns are

made for many reasons other than fuel efficiency. On the other hand, most of the advanced

materials substitution (to plastics and aluminum)

Z6A ~. _fho-mas, “The Allocation Problem in Financial Accounting Theory” (Sarasota, Fla.: American Accounting Association,

1969), pp. 41-57, and A. L. Thomas, “The Allocation Problem: Part

Two” (Sarasoto, Fla.: American Accounting Association, 1974.)

assumed in the scenarios, or automatic engine

cutoff, probably would not be incorporated into

cars by 2000 without the impetus for increased

fuel efficiency. Advanced transmissions represent

an intermediate case between these extremes.

The total capital investment associated with the

production of fleets of given size mix is calculated

by taking an appropriately weighted sum of investments by size class. Assuming that U.S. newcar sales average 11.5 million units in 1985-90,

11.7 million units in 1990-95, and 12.1 million

units in 1995-2000 (conforming to growth rates

projected earlier in this chapter); and assuming

that imports throughout the 1985-2000 period average 25 percent of all sales (near recent levels),

foIlowing the high-estimate scenario for the 15-

year period may require $30 billion to $70 billion

in investments and R&D expenditures. Following the low-estimate scenario may require about

$25 billion to $50 billion (see table 36). if new-car

sales are lower due to continued recession and

consumers’ stagnant real disposable income, then

the investments would be proportionately smaller. For example, if domestic sales remain at 8 million vehicles per year (6 million domestically produced) between 1985 and 2000, then capital investments would be about two-thirds as large as

shown in table 36 (but R&D costs could remain

Table 36—Total Domestic Capital investments for

Changes Associated With Increased Fuel

Efficiencya (billion 1980 dollars)

Table 35.—Percentage of Capital Investments

Allocated to Fuel Efficiency

Percentage of investment

Category allocated to fuel efficiency

Engine. . . . . . . . . . . . . . . . . . . . 50

Transmission:

CVT, four- and five-speed

auto and TCLV . . . . . . . . 75

Energy storage and

engine on-off . . . . . . . . . . 100

Platform:

Weight reduction

(body redesign) . . . . . . . . 50

Materials

substitution . . . . . . . . . . . 100

Composite of all efficiency

related investments:

1985-90 . . . . . . . . . . . . . . . . . 55-85

1990-95 . . . . . . . . . . . . . . . . . 70-80

1995-2000 . . . . . . . . . . . . . . . 65-75

SOURCE: Office of Technology Assessment.

Time of investment High estimateb Low estimateb

High car salesa

1985-90 . . . . . . . . . . . . . . .

1990-95 . . . . . . . . . . . . . . .

1995-2000 . . . . . . . . . . . . .

Total. . . . . . . . . . . . . . .

Low car sales

1985-90 . . . . . . . . . . . . . . .

1990-95 . . . . . . . . . . . . . . .

1995-2000 . . . . . . . . . . . . .

Total . . . . . . . . . . . . . . .

14-29

10-20

7-18

8-17

9-16

916

31-67

10-20

7-14

4-12

21-46

26-49

6-12

6-11

6-11

18-34

assumptions about car sales:

High car sales

1985-90 . . . 11.5 million cars/yr

1990-05 . . . . . . 11.7 million cars/yr

1995-2000. . . . 12.1 million cars/yr

Low car sales

1985-2000. . . . 8 million cars/yr

Estimates also assume that imports average 25 percent of total car sales

between 1985 and 2000.

bWithin the uncertainties, the Investment requirements are the same for all three

sales-mix scenarios.

SOURCE: Office of Technology Assessment.
Ch. 5—Increased Automobile Fuel Efficiency Ž 137

— .

the same). If this happens, total investments plus

R&D would be reduced by about 25 percent below those for the high car sales case.

The greater investments (per vehicle) associated

with the high-estimate scenario reflect the fact

that the scenario contains more extensive

changes more often than the low-estimate

scenario. In either case, however, there is no

significant difference in the total investment for

increased fuel efficiency for the different sizemix scenarios, since the rate of capital turnover

for increased fuel efficiency is probably adequate

to accommodate the mix shifts. *

OTA estimates of cumulative investments imply that manufacturers would make capital investments of $2 billion to $5 billion per year (1980

dollars) over about 15 years to implement the

high-estimate scenario and about $2 billion to $3

billion per year to implement the low-estimate

scenario in the case of high car sales. The corresponding figures would be about $1.5 billion to

$3 billion and $1billion to $2 billion, respectively, for low car sales.

Actual added capital spending levels by manufacturers are likely to be lower than indicated

because some investments in technologies to

raise fuel economy will take the place of investments in more conventional technologies that

would normally be made as plant and equipment

wear out. In fact, deducting the cost of changes

that would have been made under normal circumstances,** but are obviated by or could be

incorporated in the investments shown in tables

32-34, could reduce the added investment cost

of implementing the scenarios by two-thirds in

the high estimate and by about 80 percent in the

low estimate, leading to capital investments averaging $0.3 billion to $0.7 billion per year for the

low estimate (high car sales) and $0.6 billion to

$1.5 billion per year for the high estimate (high

car sales) above “normal. ”

*On the average, over 50 percent of engines, transmissions, and

bodies are being redesigned during each 5-year period for increased

fuel efficiency, whereas the mix shift requires 10 to 20 percent

change during each 5-year period.

**Assuming “normal” capital turnover is: engines improved after

6 years, on average, redesigned after 12 years; transmissions same

as engines; body redesigned every 7.5 years; no advanced materials

substitution.

Spending by the automakers will be reduced

to the extent that they buy rather than make various items; to the extent that U.S. suppliers provide purchased items, the total investment levels

can be viewed as spending estimates for U.S.

automakers and suppliers together. However,

joint ventures with foreign firms, erection of

foreign plants with foreign government aid and

relatively labor-intensive designs, and purchases

of parts and knocked-down vehicle kits from

overseas would all lower investment costs to U.S.

firms. So would an increase in import penetration. Finally, note that future levels of normal

capital spending, however they are determined,

may be higher than past levels if competition from

foreign manufacturers makes it “normal” frequently spend to improve fuel economy and to

modernize facilities.

Fuel Savings Costs

To compare the costs and gains of saving fuel

by raising automobile fuel economy with the

costs and gains through other means, it is useful

to express costs in terms of a common measure

such as dollars per quantity of oil (gallons or barrels-per-day) saved. To measure the total dollars

per quantity of oil saved implied by raising fuel

efficiency requires estimating changes in variable

(labor and materials), fixed capital and R&D costs.

OTA was unable to obtain or develop reliable

variable cost figures for technologies discussed

in this report, because information about variable

costs, which vary considerably between companies, is proprietary and speculative for the 1990’s.

Four general observations about variable costs

of raising fuel economy can be made: First, implementing some new technologies, including

certain weight-reduction measures (e.g., smaller

engines and body frames), will lower variable

costs by reducing labor and materials requirements. Second, automation will lower labor requirements. Third, using some new technologies,

such as four- and five-speed transmissions and

alternative engines, will raise variable costs because they are inherently more complex than

conventional technologies. Fourth, use of new

materials will raise variable costs. The net change

in variable costs is uncertain and will depend

heavily on basic materials costs and the success
138 . Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

of adapting the new designs to mass production.

Note that variable costs have been about three

times the level of fixed costs for the average car

or light truck.

Based on the percentages shown in table 35,

however, table 37 shows the capital investment

attributable to increased fuel efficiency per gallon

of gasoline equivalent saved, assuming the average car is driven 100,000 miles and the average

service life of the investment is 10 years. In all

cases, the investment cost is less than $1.00 per

gallon saved. If, however, accelerated capital

turnover reduces the useful service life of the investment to 5 years, the costs would be twice

those shown in table 37. Conversely, if

automobiles are kept longer and driven further

in the future, then the cost per gallon is reduced. For example, if cars are driven 130,000 miles

over their lifetime, on the average, the costs

would be 75 percent of those shown in table 37.

The final cost category considered here is the

product development cost. Although it is difficult

to make detailed predictions of the costs of development, U.S. automobile manufacturers spent

from 40 to 60 percent as much on R&D (mostly

development) during the 1970’s as they spent on

capital investments.27 During 1978 and 1979,

R&D averaged about 40 percent of capital investments.

In order to compare the investments for increased fuel efficiency in automobiles with those

for synfuels, it is convenient to express them as

the investment cost attributable to fuel efficiency

plus the associated R&D expenditures per barrel per day oil equivalent saved by these investments. Assuming that development expenditures

are 40 percent of capital investment, the COSts

in table 37 can be converted to the investments

shown in table 38 for individual cars and fleet averages between 1985 and 2000. The combined

R&D and capital costs appear to increase somewhat from the 1985-90 period to the 1990-95 period. However, technical advances by the early

1990’s could prevent further increases during the

late 1990’s.

27G, Kulp, D. B. Shonka, and M. C. Halcomb, “Transportation

Energy Conservation Data Book: Edition 5,” oak Ridge National

Laboratory, ORNL-5765, November 1981.

Table 37.—Estimated Capital Investment Allocated

to Fuel Efficiency per Gallon of Fuel Saved

High estimate Low estimate

Car size: Car size:

Large Medium Small Large Medium Small

1985

Mpg . . . . . . . . . . . . . . . . . . . . . . . 27 39 48 23 35 45

1990

Mpg . . . . . . . . . . . . . . . . . . . . . . . 37 51 62 28 52

Gallons saved/yra . . . . . . . . . . . 910 550 430 705 380 270

Investment ($/car)b . . . . . . . . . . 100-190 90-180 90-180 60-110 60-110 50-110

Dollars per gallonc . . . . . . . . . . 0.11-0.21 0.17-0.34 0,21-0.42 0.084,16 0.15-0.30 0.19-0.41

1895

Mpg . . . . . . . . . . . . . . . . . . . . . . . 43 61 31 45 57

Gallons saved/yra . . . . . . . . . . . 340 240 310 200 150

Investment ($/car)b . . . . . . . . . . 80-180 80-180 90-180 70-130 70-130 70-130

Dollars per gallonc . . . . . . . . . . 0.24-0.51 0.29-0.60 0.37-0.77 0.22-0.42 0,35-0.67 0.44-0.83

Mpg . . . . . . . . . . . . . . . . . . . . . . . 50 85 35 50 65

Gallons saved/yra 

. . . . . . . . . . . 260 210 150 260 200 190

Investment ($/car)b . . . . . . . . . . 50-150 50-150 50-150 70-130 70-140 70-140

Dollars per gallonc . . . . . . . . . . 0.18-0.56 0.24-0.71 0.33-0.99 0.27-0.50 0.36-0.68 0.36-0.68

a

Fuel consumption of car relative to fuel consumption of comparable car 5 years earlier. Assumes 100,000 miles driven over

life of car and on-the-road fuel efficiency 10 percent less than the EPA rated mpg shown.

%he investment attributed to fuel efficiency assuming an average life of 10 yeara for the investment. Also assumes production

at rated piant capacity during the 10 years. Does not include R&D costs, which wouid add about 40 percent to the cost.

cThe investment ~r car divided by the fuel saved OVer the life of the car.

SOURCE: Office of Technology Assessment.
Ch. 5—Increased Automobile Fuel Efficiency • 139

Table 36.-Capital Investment Attributed to

Increased Fuel Efficiency Plus Associated

Development Costs per Barrel/Day of Fuel Saved

Capital investment plus

New-car fuel associated development

efficiency at costs (thousand 1980$

end of time per B/D oil equivalent

Car size perioda (mpg) fuel saved)b

1985-90

Large. . . . . . . . .

Medium . . . . . .

Small. . . . . . . . .

Average Ac 

. . . .

Averge Bc 

. . . . .

1990-95

Large. . . . . . . . .

Medium . . . . . .

Small. . . . . . . . .

Average A= 

. . . .

Average Bc 

. . . .

1995-2000

Large. . . . . . . . .

Medium . . . . . .

Small . . . . . . . . 

Average Ac 

. . . .

Average Bc 

. . . .

28-37

41-51

52-62

38-48

43-53

31-43

45-61

57-74

43-59

49-65

34-49

50-71

65-84

51-70

58-78

19-51

35-81

47-1oo

21-57d

21-60d

53-120

69-160

89-200

58-120d

64-140 d

44-130

57-170

78-240

48-150d

50-150d

“EPA rated 5W45 city/highway fuel efficiency of average car in each size class.

bAsgume9 development costs total 40 percent of capital investments and that

a car is driven 10,000 miles per year on averge. A barrel of oil equivalent contains

5.9 MMBtu.

c Averages A and B are based on the moderate and large mix shift scenarios,

respectively.

d Averages are calculated by dividing average investment fOr technological

improvements by fuel savings for average carat end of time period relative to

average car at beginning of time period. The resultant average cost per barrel

par day is lower than a straight average of the investments for each car size

because of mathematical differences in the methodology (I.e., average of ratios

v. ratio of averages) and because extra fuel is saved due to demand shift to

smaller cars. The averaging methodology used is more appropriated for

comparisons with synfuels because it relates aggregate investments to

aggregate fuel savings. It should be noted that the cost of adjusting to the shift

in demand to smaller sized cars is not Inciuded. Only those investments which

increase the fuel efficiency of a given-size car are included. However, given

the rate of capitai turnover assumed for the scenarios, adjustments to the shift

In demand probably can be accommodated within the investment costs shown.

SOURCE: Office of Technology Assessment.

Note that the costs and fuel savings benefit of

improving fuel economy are incurred at different

times by different parties. Manufacturer (and supplier) investments are made prior to production:

30 percent of capital spending occurs 12 to 24

months before first production, 65 percent occurs within the 12 months preceding production,

and 5 percent occurs after production begins.28

R&D costs may occur 5 to 7 years before first production. Fuel savings begin only after a vehicle

is purchased, and they accrue over several years.

Fuel savings benefit the consumer directly and

the industry only indirectly.

ZBHarbridge House, Inc., Energy Conservation and the passenger

Car: An Assessment of Existing Pub/ic Po/icy, Boston, July 1979.

Consumer Costs

Automotive fuel economy improvements can

affect costs to consumers through changes in real

car purchase prices and changes in real costs of

maintaining and servicing cars.

Prices

Trends in average car prices are easier to predict than trends in prices for specific car classes

or models, because manufacturers have flexibility

in pricing models and optional equipment. Real

car prices (on which consumers base their expectations) have been relatively stable over the last

20 years (see fig. 12), although nominal car prices

have risen steadily since the mid-1960’s, because

of general inflation. Labor and materials cost increases are not necessarily passed on to consumers. For example, the General Manufacturing

Manager of GM’s Fisher Body Division observed

in a recent interview that although raw materials

and labor costs have been rising about 11 to 12

percent annually, only 7 to 8 percent of those

increases have been recovered through price,

with improvements in productivity helping to

control costs.

Figure 12.— Real and Nominal U.S. Car

Prices, 1960-80

9

7

Price in 1980 dollars(corrected

6 with Consumer Price-lrtdex) A

 5

al

m 4

3

2

1

n

1960 1965 1970 1975 1980

Year

SOURCE: Bob Clukas, Bureau of Economic Analysis, U.S. Department of Commerce, private communication, 1981.
140 . Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

W/here expenses increase faster than prices,

manufacturers can still make profits by charging

higher prices for those options or car models for

which consumer demand is relatively insensitive

to price. This flexibility is eroded when large proportions of automotive costs increase due to rapid

and extensive change. Some industry analysts expect that through the mid-1980’s, large capital

spending programs and real increases in labor

and materials costs will lead to increases in real

car prices of up to 2 percent per year (approximately half of which reflects capital costs); more

rapid automotive change might lead to even

greater increases.29

Two percent of today’s average car price

(about $8,000) is about $160, although prices of

individual cars will rise by greater and lesser

amounts. OTA’s scenario analysis suggests that

investment costs alone for 5-year periods could

range fro-m $50 to $350 per car (assuming 10-year

amortization periods for plant and equipment).

The Congressional Budget Office (CBO), for comparison, concluded that average automobile production costs may increase by about $560 between 1985-95 because new technologies will

cost that much (per car, on average) to implement. 30 These analyses may overstate the average

amount of capital cost increase, because when

new technologies replace old ones, the capital

costs charged to old “technologies” should drop

zgMaryann N. Keller, Status Report: Automobile Monthly Vehic/e Market Review, Paine Webber Mitchell Hutchins, Inc., New

York, February 1981.

JoCongressional Budget Office, h./e/ ~COf10n7Y sta~~a~~s ‘or

Passenger Cars Afier 1985, 1980.

out of the vehicle cost calculation (unless old

equipment is made obsolete prematurely). Actual cost increases will also depend on changes

in variable costs, as illustrated below.

Table 39 shows two plausible estimates of consumer costs (per gallon of fuel saved) for increased fuel efficiency, based on the analysis in

this chapter. The lower costs are calculated assuming that labor and material (variable) costs are

no higher for more fuel-efficient cars than for cars

being produced in 1985.31 The higher costs include variable cost increases that are twice as

large as the capital charges associated with increasing fuel efficiency .32

Although the range varies from costs that are

easily competitive with today’s gasoline prices to

levels much above those prices, OTA does not

believe that future variable costs can be predicted

with sufficient accuracy to warrant more detailed

estimates of variable costs. Table 39 should therefore be viewed as illustrative; actual consumer

costs will depend on many factors, including the

success of new production technologies.

31 Richard L, Strom botne, Director, Office of Automotive Fuel

Economy Standards, National Highway Traffic Safey Administration, U.S. Department of Transportation, private communication,

1981.

JzRichard H. Shackson and H. James Leach, “Maintaining Automotive Mobility: Using Fuel Economy and Synthetic Fuels to Compete With OPEC Oil,” Energy Productivity Center, Mellon Institute,

Arlington, Va., Interim Report, Aug. 18, 1980. Variable cost changes

were deduced from the estimates of capital investment and changes

in consumer costs by assuming an annual capital charge of 15 percent of the investment and deducting this capital charge from the

consumer cost estimate.

Table 39.—Plausible Consumer Costs for Increased Automobile Fuel

Efficiency Using Alternative Assumptions About Variable Cost Increase

Consumer costa ($/gal gasoline saved)

Assuming no variable cost

Average fuel efficiency at increase relative to 1985 Assuming variable cost increase equal

Time period Mix shift end of time period (mpg) variable costs of production to twice the capital charges

1985-90 . . . . . . Moderate 38-48

Large 43-53 0.15-0.40a 0.40-1 lob

1990-95 . . . . . . Moderate 43-59

Large 49-65 0.35-0.85 b

1.10-2.60 b

1995-2000. . . . Moderate 51-70

Large 58-78 0.30-0.95 b

0.90-2.80 b

“A”~u~e~ annual ~Wlt~ ~harwa of 015 times ~aplt”l investment ~loc”t~ to fuel efficiency, no discount of future savings, Md car drl~n 1(K),000 miles durtng itS lifetime.

bwlthin the uncertalntieg the costs are the same for each mix shift.

SOURCE: Office of Technology Asseaament.
Ch. 5—increased Automobile Fuel Efficiency ● 141

Individual car prices will not necessarily change

in proportion to their costs, in any case. Specifically, there are three reasons why it is difficult

for U.S. manufacturers to finance automotive

changes through price increases: competition

from lower cost imports, the relationship between

new and used car prices, and limited consumer

willingness to tradeoff high car prices against

lower gasoline bills. First, because high fueleconomy imports from Japan cost about $1,000

(1980 dollars) less than American-made cars,33

U.S manufacturers have little freedom to raise

prices without losing sales volume to imports (all

things equal). International cost differences may

narrow in the future, however, as foreign labor

costs rise and if U.S. productivity increases.

Second, the effective price of new cars for most

buyers includes a trade-in credit on an older car.

Decline in demand for used cars, which might

occur if older cars were significantly less fuel efficient than new ones and if maximum fuel economy were in demand, would effectively raise the

price of new cars. This phenomenon would hinder a rapid mix shift.

Third, consumers may resist high prices for fuelefficient cars because they tend to discount such

future events as energy cost savings rather heavily, by perhaps 25 percent or more,34 Discounting at high rates would cause consumers to demand relatively large amounts of fuel savings in

return for a given increase in price. Each gallon

saved seems to cost more if consumers discount

at high rates, because discounting reduces the

perceived number of gallons saved over the life

of the car.

This phenomenon can be illustrated as follows:

The undiscounted lifetime fuel savings from raising a car’s fuel economy from 45 to 60 mpg is

557 gal; at a 25 percent discount rate the discounted savings is 227 gal (using a declining

schedule of yearly fuel consumption) or about

33LJ. S, ]ndustria/ Competitiveness: A Comparison of Stee( Ektronics, and Automobiles, op. cit.

34 Evidence of high consumer discount rates for energy- efficient

durable goods is presented in an article by J. A. Hausman, ‘Jlndividual Discount Rates and the Purchase and Utilization of Energy-Using

Durables,” Be//Journa/ of Economics, vol. 10, No. 1 (spring 1979),

and in a “Comment” article by Dermot Gately in the same journal, vol. 11, No. 1 (Spring 1980).

40 percent of the actual savings. If it costs $150

to $350 per car to raise the fuel economy from

45 to 60 mpg, the cost per gallon saved would

be $0.27 to $0.63 without discounting but about

2.5 times as much, $0.66 to $1.54, if fuel savings

are discounted at 25 percent. Consumer behavior

may be at odds with the national interest, because

future savings of oil have a relatively low “social”

discount rate for the Nation.

Maintenance

Automotive maintenance and service costs may

increase with vehicle design change but the

amount of increase depends on institutional as

well as technological change. Manufacturers are

modifying car designs to make servicing less frequent and less expensive, but—with more complex and expensive components in cars—there

is a definite potential for increased repair costs.

Also, use of new equipment, including electronic

diagnostic units, may lead to higher real costs for

service. For smaller shops, in particular, lack of

familiarity with new technologies and problems

with multiple parts inventories (necessary for servicing new- and old-technology cars) could add

to consumer service costs. Because dealerships

and larger service firms are in a better position

to adjust to changing technology, they are likely

to gain larger shares of the service market.

Available estimates of service cost changes for

future cars are very speculative. For instance,

CBO has estimated that maintenance and service

costs associated with transmission improvements,

adding turbochargers, and altering lubricants

could raise discounted lifetime maintenance costs

of new cars by $40 to $90 on average (assuming

a 10 percent discount rate). The actual changes

in maintenance costs, however, will depend

heavily on the success of development work

aimed at maintaining automobile durability with

changing technology.

Electric and Hybrid Vehicles

Costs of producing electric (EV) and hybrid vehicles (EHV) will differ from those of producing

conventional vehicles. EVs substitute batteries,

motors, and controllers for fuel-burning engines

and fuel tanks. Hybrid vehicles include most or
142 • Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

all of the components of conventional vehicles

as well as EVs, but in modified forms. The components required for electric propulsion, which

contribute directly to vehicle cost, further add indirectly to cost because they change the structural requirements of the vehicle. The size and

weight of batteries, in particular, increase the

need for space and structural strength,35 necessitating changes in vehicle design and weight increases.

Batteries are a major source of both direct and

indirect cost. They may comprise 25 percent of

total cost, depending on type, size, and capacity. *

Batteries available for electric vehicles by 1990

may be priced (1980 dollars) at $1,700 to $2,700

(corresponding to production cost of $1,300 to

$2,100) while advanced batteries available by

2000 may be priced below $2,000 (with production cost around $1,500).36

Electric motors are smaller, lighter, and simpler

than internal combustion engines. Motor controllers, however, are relatively bulky and may be

more expensive than the motors themselves, depending on their design. Motor-controller combinations likely to be available by 1990 may cost

around $1 ,000. *

JSCBO, op. cit.

*Batteries may comprise about 25 to 30 percent of the weight

of an electric vehicle and about 20 to 25 percent of the weight of

a hybrid vehicle. The electric motor and controller may comprise

about 10 percent of an electric or hybrid vehicle’s weight.

3qA/. M. Carriere, W. F. Hamilton, and L. M. Morecraft, General

Research Corp., Santa Barbara, Calif., “The Future Potential of Electric and Hybrid Vehicles,” contractor report to OTA, August 1980.

*Battery size is a function of the number and size of constituent

cells. Battery capacity—and therefore vehicle driving range—is a

function of the amount of energy deliverable by each pound of

battery.

Estimates given in the report cited in footnote

36 suggest that near-term EVs and EHVs would

cost at least sO percent more than comparable

conventional vehicles. Technological advances

in battery development could reduce electric and

hybrid vehicle costs, however. Note that manufacturers may initially set the prices of EVs close

to those of conventional cars to enhance their

appeal to consumers.

Methanol Engines

Production of automobiles designed to run on

methanol entails only minor modifications of the

engine and fuel system. Consequently, the cost

increase for engines designed to use methanol

are minor. However, the cost of modifying an engine to operate efficiently on a fuel for which it

was not designed can be more significant. One

estimate is that retrofitting a gasoline-fueled vehicle for methanol use would cost $600 to $900,

and redesigning an engine for methanol combustion would cost $50 to $100 per vehicle.37 Ford,

which is converting several Escorts to methanol

combustion for the Los Angeles County Energy

Commission, estimates that necessary modifications cost about $2,000 per vehicle, although they

would cost less if larger numbers of cars were

converted.38

J~illiam Agnew, G.M. Research Laboratories, private communication.

36’’Ford Converts 1.6L Escorts for Methanol,” Ward’s Engine Up

date, Feb. 15, 1981.

APPENDIX A.–PROSPECTIVE AUTOMOBILE FUEL EFFICIENCIES

Table 5A-1 summarizes the prospective automobile The table indicates increases in fuel economy of 15

fuel-efficiency increases used in OTA’s analysis. The percent at most for vehicles using improved S1 engines

technologies involved are described in more detail compared with the baseline 1985 car—everything else

below. In addition, alternative heat engines are dis- remaining the same. Sources of such improvements

cussed and the reasons for not including them in the include:

projections to 2000 are explained. ●

More or Less Conventional Engines

There is more diversity among the engine technol- ●

ogies listed in table 5A-1 than in any other category.

smaller engines, because lighter cars will not require as much power and because the engines

themselves will also continue to decrease in

weight;

decreases in engine friction–e. g., from new piston ring designs, smaller journal bearing diame-
Ch. 5—increased Automobile Fuel Efficiency ● 143

Table 5A-1.– Prospective Automobile Fuel= Efficiency Increases, 1986.2000

Percentage gain in fuel efficiency

—

High estimate Low estimate

Technology 1986-90 1991-95 1996-20000 1986-90 1991-95 1996-2000

Engines

Spark-ignition (S1) . . . . . . . . . . . . . . . . . . . . . . . . 10 10-15 15 5 5-1o 5-1o

Diesel:

Prechamber. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 15 15 15

Open chamber . . . . . . . . . . . . . . . . . . . . . . . . . 25 35 35 20 20 25

Open chamber (S1) stratified charge (SC) . . . . 15 20

Hybrid diesel/SC . . . . . . . . . . . . . . . . . . . . . . . . . 35

Transmissions

Automatic with lockup torque converter . . . . . 5 5 5 5 5 5

Continuously variable (CVT). . . . . . . . . . . . . . . . 10 15 10

Engine on-off . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 10 10

Vehicle system

Weight reduction (downsizing and

materials substitution) . . . . . . . . . . . . . . . . . . 8 13 18 4 8 10

Resistance and friction (excluding engine)

Aerodynamics. . . . . . . . . . . . . . . . . . . . . . . . . . 2 3 4 1 2 3

Rolling resistance and lubricants . . . . . . . . . 2 3 1 1 2

Accessories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 3 4 1 1 2

a Improvements in fuel efficiency are ~~pre~sed a9 percentage gain in mpg compared with an anticipated average 1985 passenger car. The 1985 average car used as

a reference has an inertia weight of about 2,500 lb, is equipped with spark-ignition engine, three-speed automatic transmission, and radial tires, and has an EPA mileage

rating (55 percent city, 45 percent highway) of 30 mpg. The fuel efficiencies of the individual baseline cars, which are used to calculate future fuel efficiencies in

each size class, are given in tables 23 and 24. Percentages are given on an equivalent Btu basis where appropriate—e.g., for diasels, which use fuel having higher

energy content per gallon than gasoline, the percentage gain refers to miles per gallon of gasoline equivalent, which is 10 percent less than miles per gallon of diesel

fuel. The table does not include efficiency improvements from alternate fuels such as alcohol.

SOURCE: Office of Technology Assessment

●

●

●

ters, increases in stroke-to-bore ratios, improved

engine oils;

new combustion chamber designs, particularly

fast-burn chamber geometries that permit lean

operation at higher compression ratios;

further refinements to electronic engine control

systems (although most of the possible gains will

have been achieved by 1985); and

decreases in heat losses, consistent with allowable thermal loadings of internal engine parts and

the octane ratings of available fuels.

Friction, which goes up with displacement, is a major source of losses in piston engines. Smaller engines

cut friction losses, and also operate with less throttling—another source of losses—under normal driving conditions. Turbocharging is one way to make the

engine smaller, improving fuel economy without sacrificing performance-albeit at rather high cost. Adding

a turbocharger can help a small engine meet transient

peak power demands and improve the driving-cycle

fuel economy of both S1 and Cl engines by perhaps

5 to 10 percent—provided economy and not performance is the goal. Further applications are possible if

the benefits perceived by consumers outweigh the

price increases.

Bigger gains over the 1985 baseline S1 powered car

are possible with Cl engines (table 5A-1). In the past,

most efforts on diesels have been directed at heavyduty applications such as trucks. Although the efficiency advantage of Cl engines relative to S1 engines decreases as engines become smaller, considerable

scope remains for improving the driving-cycle efficiency of passenger-car diesels. In particular, all diesel

engines now used in passenger cars are based on a

“prechamber” design (also termed indirect injection).

The combustion chambers in such engines consist of

two adjoining cavities, with fuel injected into the

smaller prechamber. At present, prechamber engines

have several advantages for passenger vehicles. They

are quieter than open-chamber (or direct injection)

diesels, have wider ranges of operating speeds, and

lower-cost fuel injection systems; in addition, emissions control is easier and smoke limitations are not

as serious. 39

As development of open-chamber diesels for passenger cars continues, substantial fuel-economy improvements can be expected–perhaps 15 percent

above the levels that might be achieved with prechamber diesels, themselves of course considerably better

than S1 engines (table 5A-1 )—assuming NO X and particulate emissions can be controlled, and noise held

to acceptable levels. The efficiency advantages of the

open chamber engine stem largely from higher volumetric efficiency, lower heat losses, and more rapid

39’’ Future Passenger Car Diesels May Be Direct injection, ” Automotive Engineering, June 1981, p. 51.
144 • Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

combustion. Estimates40 indicate that a 1.2-liter open

chamber diesel in an automobile with an inertia

weight of 2,000 lb should be able to achieve a 55/45

EPA fuel-economy rating of 60 to 65 mpg (with a manual transmission). Such estimates assume emissions

standards for Cl engines that do not severely compromise efficiency. Standards for NO X and for particulates—which, besides making diesel exhaust smoky,

are health hazards—are the most difficult to meet. In

general, measures that reduce NO X increase particulate emissions, and vice versa. To some extent,

diesel engines will probably face continuing sacrifices

in fuel economy to meet emissions standards.

To emphasize efficiency gains rather than differences in the energy content of various fuels, the diesel

engine improvements listed in table 5A-1 are all based

on miles per gallon of gasoline equivalent. Because

diesel fuel contains more energy (Btu) per gallon than

gasoline, miles per gallon of diesel fuel would be 10

percent greater than miles per gallon of gasoline

equivalent. For example, a 1990 prechamber diesel

is expected to be about 10 percent more efficient than

an S1 engine in the low estimate, but about 20 percent better in terms of miles traveled per gallon of fuel.

Stratified-charge (SC) engines (table 5A-1 ) are S1 engines that have some of the advantageous features of

diesels–such as potentially higher efficiency and potentially easier control of emissions, although low

emissions levels have been difficult to achieve in practice—as well as the disadvantages of diesels, such as

higher production costs. 41 SC engines, like diesels,

operate with a heterogeneous distribution of fuel and

air in the combustion chamber. But unlike diesels, the

SC engines now in production burn gasoline and use

spark plugs. SC engines, again like diesels, come in

two varieties–prechamber, such as the Honda CVCC

engine that has been sold in the United States since

1975, and open-chamber (also called direct injection).

Prechamber engines have shown little if any fuel economy advantage, while open chamber SC engines

promise good efficiencies in theory but have not yet

been successfully reduced to practice. As with openchamber diesels, it has proven difficult to achieve

good response and smooth operation over the relatively wide range of loads and speeds needed for passenger cars. Moreover, open-chamber SC engines

have the most potential in larger engine sizes; for a

smaller engine operating at a higher load level—a situation now more prevalent—one of the major advantages of the SC engine, its lower throttling requirement, is less of a factor. Such an engine would be

401bid.

41J, A. Alic, op. cit.

more costly to produce than a conventional S1 engine,

though less expensive than a diesel.

Another potential advantage of open-chamber SC

engines is their tolerance for a wide range of fuels—

including both gasoline and diesel, as well as alcohols

and other energy carriers not necessarily based on

petroleum. The broad fuel-tolerance of SC engines has

led to a good deal of work directed at military applications. Further, the low-emissions potential of SC engines provided early stimulus for R&D directed at automotive applications. Open-chamber SC engines could

find a place in passenger cars during the 1990’s if the

remaining problems are overcome.

Another possible path leads to a merging of diesel

and SC engine technologies (table 5A-1). This might

be visualized as a diesel with spark-assisted ignition.

Spark-ignition would increase the tolerance of the engine to fuels with poor ignition quality (i.e., to fuels

with a low cetane numbers such as gasoline or alcohols), but the combustion process would be more

nearly a constant pressure event, as in a diesel.

Gas Turbine, Brayton,

and Stirling Engines

Prospects for other “alternate engines” remain dim;

in particular, most alternatives to S1 and Cl engines

are poorly suited to small cars. Candidates include gas

turbines (i.e., those operating on a Brayton cycle), or

the Stirling cycle powerplants that have also been

widely discussed for automotive applications. At present, such alternatives to S1 and Cl engines suffer many

drawbacks. Gas turbines, for example, would need

ceramic components to achieve high efficiencies at

low cost–most critically in the power turbine, because high turbine inlet temperatures are needed to

raise the efficiency. Ceramics are inherently brittle,

and a great deal of work remains to be done before

durable and reliable engine parts can be mass-produced from materials such as silicon nitride. The technical problems are more severe for highly stressed

moving parts such as turbine rotors than for the applications such as combustor heads envisioned for Stirling engines. While the problems of developing tough

ceramics for high-temperature applications in energy

conversion devices are receiving considerable R&D

support, success cannot be guaranteed. Even if the ceramics can be developed successfully this will not necessarily suffice to make gas turbines (or Stirling-cycle

powerplants) practical for use in passenger cars.

With or without ceramic components, automotive

gas turbines would, at least initially, be high in cost;

and beyond high costs, they suffer a number of other

disadvantages as automobile engines. Although gas
Ch. 5–Increased Autornobile Fuel Efficiency ● 745

turbines are highly developed powerplants in the large

sizes used for stationary power or for marine and aircraft applications (500 hp and above) and ceramic

components would allow higher operating temperatures and theoretically high efficiencies, turbine

engines do not scale down in size as well as reciprocating engines. Both compressors and power turbines

lose efficiency rapidly as their diameters decrease toward the sizes needed for smaller cars (75 hp and

below). Brayton-cycle powerplants also have generally

poor part-load fuel economy–which is a severe disadvantage in an automobile, where low-load operation is the rule. Furthermore, they need complex transmissions because the power turbine runs at speeds

much higher than those of reciprocating engines.

Fixed-shaft turbines, in particular, pose difficult problems in matching engine operating characteristics to

automobile driving demands. But the most critical

drawback of gas turbine powerplants is finally that

they are unlikely to achieve competitive efficiencies

when sized for small cars—those in the vicinity of

2,000 lb. As these size classes become a larger fraction of the market, the prospects for automotive gas

turbines grow dimmer.

Stirling-cycle engines are at much earlier stages of

development. High efficiency in small sizes is a more

realistic possibility for a Stirling engine than for a gas

turbine, but the costs of Stirling engines are likely to

be even higher than those for gas turbines 42–and both

engines will probably always be more expensive to

manufacture than S1 engines. Like turbines, ceramic

components will be needed to achieve the best possible efficiencies in Stirling-cycle powerplants–here the

most immediate needs are probably in the heater head

and preheater. Seals have also been a persistent block

to practical Stirling-cycle powerplants.

Both gas turbine and Stirling engines–because combustion is continuous–have intrinsic advantages in

emissions control, and can burn a wide range of fuels.

But intermittent-combustion engines (e.g., S1 and Cl)

have thus far demonstrated levels of emissions control adequate to meet regulations. Broad fuel tolerance

is again not unique to gas turbine and Stirling engines.

These advantages are probably not enough to overcome the drawbacks of such engines, at least over the

next 20 years.

Transmissions

Table 5A-1 lists a pair of developmental paths for

automatic transmissions. (Manual transmissions are

not explicitly included in the table; although more

42’’ Alternate Powerplants Revisited, ” Automotive Engineering,

February 1980, p. 55.

American purchasers are now choosing manual transmissions as small cars take a greater share of the market, automatics still predominate.) Geared automatic

transmissions with lockup torque converters are already available in some cars; these are straightforward

extensions of current technology, in contrast to continuously variable transmissions (CVTs). In principle, an

engine on-off feature—in which the powerplant can

be automatically shut off when not needed–could be

implemented with either system (or with manual transmissions). Placing the engine drive shaft parallel to

wheel axles would also yield a small improvement in

fuel economy–because crossed axis gears could be

replaced by more efficient parallel axis gears, or

chains.

Geared automatic transmissions with either three or

four speeds and a lockup torque converter-or with

a split power path, an alternate method for m minimizing converter slip and the consequent losses—are

already on the market. A fourth gear ratio gives a better match between engine operating characteristics

and road load demands. The fourth speed, for example, may function as an “overdrive” to keep engine

load and efficiency high at highway driving speeds.

Neither development—bypassing the torque converter

when possible, or adding a fourth speed to an automatic transmission—is new, but the added costs of

such designs are now more likely to be judged worthwhile. Many manual transmissions incorporate five

rather than four speeds for similar reasons—the added

gear benefiting fuel economy, as well as performance

at low power-to-weight ratios.

Although the efficiencies of manual transmissions

are greater than for automatics—that is, less of the

power passing through the transmission is dissipated–

the fuel economy achieved by many drivers may be

as high or higher in cars equipped with an automatic

transmission. By relying on the logic designed into the

transmission to chose the appropriate gear ratio for

given conditions, wasteful driving habits–e.g., using

high engine speeds in intermediate gears–can often

be avoided.

Further improvements in the control systems for

automatic transmissions, as well as other changes such

as variable displacement hydraulic pumps, will help

to counterbalance their inherently lower efficiencies.

In the past, automatic transmissions have depended

on hydromechanical control systems—just as engines

have. Hydromechanical control–although well developed and effective— limits the number of parameters

that can be sensed, as well as the logic that can be

employed. In the past, automatic transmissions have

generally decided when to shift by measuring engine

speed, road speed, and throttle position. By moving

to fully electronic control systems, a greater number
146 • Increased Automobile Fuel Efficiency and Synthetic Fuel: Alternatives for Reducing Oil /reports

of engine parameters can be measured, and more

sophisticated control algorithms implemented—enabling the transmission to be “smarter” in selecting

among the available speeds. Electronics might also be

used with manual or semiautomatic transmissions to

help the driver be “smarter.”

As pointed out above, increasing the number of

speeds in an automatic or manual transmission—from

three to four or five–can help fuel economy. Although

trucks often have many more speeds (for reasons beyond fuel economy), mechanical complexity (in automatics) and the demands on the driver (for manual

transmissions)—as well as rapidly diminishing returns

when still more speeds are added—will probably continue to limit the number of discrete gear ratios in

passenger-car transmissions to four or five. if, however, discrete gearing steps can be replaced by a stepIess CVT, then the engine could operate at the speed

and throttle opening (or fuel flow for a diesel) that

would maximize its efficiency for any road-load demand—i.e., engine speed would be largely independent of vehicle speed. 43 If otherwise practical, such a

transmission could give markedly better fuel economy

than other automatic transmissions–provided the CVT

itself was reasonably efficient. Smooth, shiftless operation is another potential advantage of CVTs.

Continuously variable speed ratios can be accomplished in a variety of ways—e.g., the hydrostatic transmissions sometimes used in farm and construction

equipment. A series hybrid electric vehicle—in which

the engine drives a generator, with the wheels

powered by an electric motor, typically drawing from

batteries as well as the generator–in effect uses the

motor-generator set as a CVT. Hydrostatic or electric

CVTs are expensive and inefficient. CVTs used in past

applications to passenger cars have generally been allmechanical—e.g., based on friction drives, or belts.

Typically, such designs have been limited in power

capacity and life by wear and other durability/reliability problems.

At present, the most promising CVT designs are

those based on chains or belts. Continuing development may well overcome or reduce the significance

of their drawbacks relative to the fuel savings possible. These fuel economy improvements could be of

the order of 10 percent compared with a conventional

automatic transmission—again, depending on the efficiency of the CVT. Fuel economy better than that of

a properly driven car with a manual transmission

would be more difficult to achieve. Although the CVT

43f3. C. chri~tenson, A. A. Frank, and N. H. Beachley, “The FuelSaving Potential of Cars With Continuously Variable Transmissions

and an Optimal Control Algorithm, ” American Society of Mechanical Engineers Paper 75-WAIAut-20, 1975.

would permit the engine to operate more efficiently,

poorer transmission efficiency would counterbalance

at least some of the savings. One reason that CVTs

are expected to have lower efficiencies is the need

for a startup device, such as a torque converter, in addition to the CVT mechanism itself. Given that the production costs of a CVT would also be higher than

those of a manual design—in part because of the startup device—CVTs appear most likely to find a place

as replacements for conventional automatic transmissions.

The third transmission technology listed in table

5A-1, engine on-off, has been placed in this section

only for convenience—it could just as well appear in

the engine category. “Engine on-off” systems, by

which the powerplant can be automatically shut off

during coasting or when stopped at signal lights or in

traffic, are in principle easy to implement. Indeed,

when current engines are equipped with electronic

fuel injection the fuel flow is sometimes cut off when

coasting above a predetermined speed. For an engine

on-off design to be practical (and safe), the engine

must restart quickly and reliably, and the operation

of the system should not otherwise affect driveability—

i.e., it should be operator-invisible, primarily a matter of control system design. Engine on-off systems are

under development, and presumably will be implemented if the production costs prove reasonable compared with the expected fuel savings.

Vehicle Weight

The final group of technologies in table 5A-1–vehicle systems—includes several means of reducing power demand, hence the fuel consumed in moving the

car. As discussed in the body of this chapter, the single

most important means of reducing fuel consumption

is by reducing the weight of the vehicle; a 1 -percent

decrease in weight typically cuts fuel consumption by

0.7 to 0.8 percent, provided engine size is reduced

proportionately. Fuel consumption can also be lessened by reducing air drag, frictional, and parasitic

losses–such as accessory demands.

The easiest way to decrease the weight of an automobile is to make it smaller. In most newly designed

cars, front-wheel drive is adopted to preserve interior

volume, while considerable attention has been given

to maximizing space utilization and removing unneeded weight. For cars of a given size, materials with

higher strength-to-weight ratios can be used where

cost effective, provided they meet requirements for

corrosion resistance and stiffness. Progress has also

been made by specifying less conservative margins of

safety for structural design. Many of the steps taken

to reduce vehicle weight interact—i.e., taking weight
Ch. 5—Increased Automobile Fuel Efficiency ● 147

out of one part of the car, perhaps by replacing 5-mph

bumpers with 2-mph bumpers, allows secondary

weight savings elsewhere in the body and chassis.

In the future, big gains will be harder to achieve.

Most of the waste space has already been taken out

of newly designed American cars. Overhangs for styling purposes are being reduced or eliminated, door

thicknesses decreased, space utilization in passenger

compartments and trunks more carefully planned.

Considerable progress can still be made through careful detail design, but the easiest steps are being taken.

In the future, tradeoffs between space for passengers

and luggage and the weight of the vehicle will be more

difficult to manage.

The two basic approaches to reducing weight are:

1 ) to use materials which provide comparable performance characteristics but weigh less; and 2) to

design each component and subsystem with minimum

weight as a primary objective—the latter more important now than in the past, when the costs associated

with extra testing and analysis were harder to justify

through savings in materials and fuel. The first path

also tends to raise the manufacturer’s costs because

substitute materials usually cost more.

Material characteristics most critical in automobile

structures are cost, strength, stiffness, and corrosion

resistance. Costs—of the material itself, and of the fabrication processes that the choice of material entails—

are in the end the controlling factors, as for most mass

produced products. Nonstructural parts carry different

demands but often less opportunity for saving weight

(e.g., upholstery and trim, typically already plastics).

Iron and steel have been the materials of choice for

building cars and trucks–as for other mechanical systems—because of their combination of good mechanical properties and low cost. Iron castings have been

widely used in engines and powertrain components,

steel stampings and forgings in chassis members,

bodies, and frames (now often unitized). Highly

loaded parts are generally made from heat treated alloy steels–e.g., some internal engine components, as

well as gears, bearings, shafts. But elsewhere mild steel

has been chosen because it is cheap and easy to fabricate; it can be easily formed and spot welded, gives

a good surface finish, and takes paint well. Greater

quantities of high-strength, low-alloy steels are now

being specified–particularly for bumpers and more

critical structural applications such as door guard

beams; some new cars contain 200 lb of high-strength

steel, triple the amounts of a decade ago. 44 Thinner

44H. E. Chandler, “Useage Update: Light, Longer Lasting Sheet

Steels for Autos, ” Meta/ Progress, October 1981, p. 24.

body parts with good corrosion resistance can be

made from galvanized or aluminized sheet steel.

The strength-to-weight ratio of inexpensive, lowstrength steels can also be equaled or exceeded by

alloys of aluminum and magnesium, as well as by nonmetallic materials such as reinforced plastics. Aluminum usage, now 115 to 120 lb per car, is expected

to reach 200 lb per car by 1990—mostly in the form

of castings .45 Aluminum can substitute for iron and

steel in engines and transmissions—cylinder heads as

well as simpler, less critical components such as housings, covers, and brackets. Magnesium and reinforced

plastics are other candidates for some of these applications (use of magnesium is currently limited by high

costs, but these may come down in the future). However, aluminum sheet for body parts and structural

members has been limited not only by high costs but

by difficulty in spot welding–a problem that new alloy

compositions are helping overcome.

A variety of plastics and fiber-reinforced composites

–ABS, glass-reinforced polyester sheet molding compound, reaction-injection molded polymers with or

without reinforcement—are being specified for production parts; some have been used for years. While

more of these materials will be used in the future,

GM’s Corvette–a high-priced specialty vehicle made

in quantities small compared with most other domestic vehicles—remains the only mass-produced American car with a glass-reinforced plastic body. Introduced nearly 30 years ago but never emulated, this

illustrates the continuing advantages of metals, particularly at high production levels.

In the past, plastics have generally been applied to

nonstructural parts. Polymer-matrix composites are

now candidates for some structural applications—one

1981 car had a fiberglass rear spring weighing 8 lb,

compared with 41 lb for the steel spring it replaced. 46

Examples of related applications, none yet in production, are driveshafts and wheels. Other types of composites—i,e., laminates consisting of two metal layers,

probably steel, sandwiching a plastic such as polypropylene–may have potential as body materials. The

thickness of the laminate makes it more rigid in bending for a given weight, and the plastic dampens noise

and vibration; such laminates, like many other composite materials, are now too costly for widespread

use. 47

4SH E chandler, “A Look Ahead at Auto Materials and f% OCeSSW

in the 80’s,” Meta/ Progress, May 1980, p. 24.

4GI bid,

47H. S. Hsia, “Weight Reduction for Light Duty Vehicles, 1980

Summary Source Document” (draft), Department of Transportation, Transportation Systems Center, March 1981, p. 8-31.
148 ● Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

Improvements in steels and their applications still

offer the greatest scope for near-term weight savings

in passenger cars—one reason is that the designer’s

job becomes more difficult when materials are

changed. But the manufacturing problems mentioned

above for aluminum as a body material—difficulty in

spot welding, forming characteristics that call for

changes in die design—at least remain within the

realm of conventional, mass production metalworking techniques. Plastics and composites demand processing quite different from that used for metals—and

high volume production of structural parts made from

such materials is new, not only for the automakers,

but for virtually all industries. Furthermore, unconventional materials may need additional engineering analysis and testing–e.g., they are often susceptible to different failure modes (such as environment-induced

embrittlement, or discoloring). In fact, the second

avenue for weight reduction is precisely an improvement in design methods.

With better methods for analyzing and controlling

the stress and deflection in the vehicle structure,

weight can be reduced without sacrificing structural

integrity. Through better understanding of the failure

modes of the materials used, as well as service loadings, margins of safety can be reduced. Both analysis

and testing are important to these objectives. The

greatest strides have come from widespread adoption

by the automobile industry of finite-element methods

for structural analysis, Not only can body and chassis

structures be designed with more precise control over

stresses and deflections—eliminating unnecessary material—but finite-element techniques can also help reduce the weights of engines and other powertrain

components; section sizes of engine blocks can be

decreased, for example.

The weight reductions, hence fuel economy gains,

that are possible through materials substitution are

limited primarily by costs–both material cost and

manufacturing cost. Graphite reinforcements for polymers perform better than glass, for example, but are

considerably more expensive; at the highest strength

levels, aluminum alloys, in addition to being expensive and difficult to form, cannot be welded. If the

costs justify the benefits in terms of fuel economy and

other performance advantages—e.g., corrosion resistance—then automobile designers will choose new materials. In some cases, costs will come down as production volume increases, but there will always be a

point of diminishing returns. Nonetheless, continued

attention to detail design with conventional materials

—with which the automakers have engineering and

production experience–and improved methods of

structural analysis, can give substantial reductions in

weight, as table 5A-1 indicates. Even though downsizing and weight reduction will have proceeded considerably by 1985, improvements will continue—often

rather gradually, as manufacturers gain confidence in,

and experience with, new materials and improved design methods.

Safety poses a further constraint on the selection of

structural materials for automobiles. The tradeoffs between vehicle size and occupant safety are discussed

in chapters 5 and 10. For a vehicle of a given size,

the mechanical properties of the structural materials

are one of the factors on which passenger protection

depends. Because the structure needs to be able to

absorb large amounts of energy in a collision, the

materials should be capable of extensive plastic deformation, or else able to absorb energy by some alternative process such as microfracturing while being

crushed. This may limit applications of higher strength

materials—both metals and nonmetals—because capacity for plastic deformation is inversely proportional

to strength; it may also pose difficult design problems

for some composite materials.

Aerodynamic Drag

A lighter automobile needs less power for acceleration and for constant speed travel and therefore consumes less fuel. A car with less aerodynamic drag

burns less fuel at any given speed, but the power

needed for acceleration is not directly affected.

Because drag caused by air resistance is proportional

to frontal area and to speed squared, drag reduction

helps most at higher speeds–i.e., during highway driving.

Smaller cars have less frontal area, hence less drag.

But drag can also be reduced by making a car more

“streamlined. ” This characteristic is quantified by the

drag coefficient-which has a value of 1.2 for a flat

plate pushed through the air, but only 0.1 for a teardrop shape. For complex geometries such as airplanes

or automobiles, drag coefficients can be precisely

determined only by experiment. Extensive–and expensive—wind tunnel testing is the basic technique

for minimizing the drag coefficient of an automobile.

Theoretical aspects of the aerodynamics of ground

vehicles are poorly understood, particularly for shapes

as complex as automobile bodies. Interactions between the stationary roadway and the moving car are

a particular problem. Drag reductions are sensitive not

only to overall vehicle shape—e.g., the sloped frontends now common on passenger cars—but to relatively subtle details–such as integration of the bumpers

into the front-end design, and the flow of air through
Ch. 5—increased Automobile Fuel Efficiency ● 149

the radiator. Testing and experiment are required before the final form can be chosen.

While typical cars of the early 1970’s had drag coefficients in the range of 0.50 to 0.60, many current

models have values closer to 0.45, or less; the 1982

Pontiac 6000 has a claimed drag coefficient of 0.37. 48

Reductions to values of less than 0.35 are possible,

but eventually limited by practical compromises involving the utility of the vehicle (passenger and luggage space can suffer, as well as accessibility for repairs), safety (a streamlined design may compromise

visibility for the driver), and manufacturing costs

(curved side glass can cut drag but is more expensive).’

Even so, by 1990 drag coefficients may average 0.35

or less. 49

Nonetheless, as table 5A-1 indicates, improvements

in fuel economy in the years past 1985 from continuing reductions in aerodynamic drag will be relatively

small. The reasons are, first, that considerable progress

has already been made, and more can be expected

between now and 1985–and the returns from drag

reduction rapidly diminish (frontal areas are constrained by the need to fit people into the car; no practical vehicle could approach the lower limit drag coefficient of the teardrop shape) —and, second, that

drag reduction has the greatest benefits at high speeds,

whereas most driving is done at lower speeds. In general, a 10-percent reduction in drag will yield an improvement in driving-cycle fuel economy of perhaps

2 percent. 50

Rolling Resistance

Even in the absence of air resistance, some fuel

would be burned in pushing a car at a constant speed.

This rolling resistance depends on tire characteristics,

4BJ. Burton, “82 Pontiac 6000: A Step Further, ” Autoweek, Nov.

30, 1981, p. 10.

49D. Scott, “Double LOOp cuts Wind Tunnel Size and Cost, ” Automotive Engineering, May 1981, p. 69.

SoAutomotive Fue/ Economy Program: Fitih Annual Report to the

Congress (Washington, D. C.: Department of Transportation, January

1981), p. 119.

and on friction and drag in moving parts such as axle

bearings. It also depends on the road surface (concrete offers slightly less rolling resistance than asphalt).

Most of the resistance is caused by deformation in the

tires. Carcass design, tread pattern, and inflation

pressure all affect resistance. Radial tires decrease resistance compared with bias-ply carcasses, with fueleconomy improvements of 2 to 5 percent possible; 51 

more aggressive tread patterns—e.g., snow tires—increase resistance; higher inflation pressures decrease

resistance.

Improved lubricants and bearing designs can also

cut resistance slightly, as can brakes with minimal

drag. However, more scope for fuel-economy improvements through better lubricants exists elsewhere

in the vehicle—particularly in engines, but also in

transmissions and rear axles—where more “slippery”

oils, as well as design changes that minimize churning and oil spray, can reduce viscous drag. Although

decreases in friction and rolling resistance benefit fuel

economy at low speeds almost as much as at high,

many of the possible gains have already been

achieved, or are in sight—thus, further improvements

after 1985 will be small (table 5A-1).

Accessories

Some of the power produced by the engine is used,

not to move the car or to overcome the engine’s internal friction, but in driving pumps, fans, and accessories. To produce this power, fuel must be burned.

Among the specific parasitic losses that automobile

designers strive to minimize are those associated with

cooling fans, air-conditioning compressors, powersteering pumps, and electrical loads supplied by the

alternator. Decreases are possible in many of these,

as table 5A-1 indicates, though often at somewhat

greater cost. In some cases, downsizing the vehicle

helps to reduce or eliminate parasitic Iosses–e.g.,

power steering may not be needed.

51 Ibid.

APPENDIX B.–OIL DISPLACEMENT

POTENTIAL OF ELECTRIC VEHICLES

Electric Vehicles and Electric Utilities petroleum-based electricity for vehicle recharging and

the fuel consumption of the car the EV replaces. BeThe extent to which electric vehicle (EV) technology cause of the limited performance of EVs, they would

can contribute to the national goal of reducing oil im- most likely be substitutes for relatively fuel-efficient

ports will depend on the availability and use of non- small cars. Also, because of the limited range and
150 ● Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

hauling capacity of EVs, it is assumed that they can

replace only 80 percent of the (10,000 miles per year)

normal travel in a gasoline car. The remaining 2,000

miles per year would have to be accomplished with

a possibly rented gasoline-fueled car, which might be

less fuel efficient than the small car that the EV replaced. This latter complication was ignored, however, so the results shown here are slightly more favorable in terms of net oil displacement than might be

the case in practice.

Figure 59-1 shows the consequences of introducing EVs in terms of either increased petroleum use,

or net petroleum savings, for alternative assumptions

about automotive fuel economy. For example, referring to the figure, if the fuel economy of the car replaced by an EV is 60 mpg (case A), then one could

save as much as 133 gal per year or increase petroleum consumption by 123 gal (of gasoline equivalent)

per year depending on whether, respectively, all or

none of the recharge electricity is petroleum-based. *

As long as the fraction of petroleum used for generating recharge energy for EVs in this case is less than

about 50 percent, the introduction of EVs will result

in net petroleum savings. In case B, where a car that

achieves 40 mpg is replaced by an EV, the fraction

of petroleum used for generating recharge energy

must be less than about 80 percent to result in net

petroleum savings.

Utilities plan their capacity and operations to ensure that the maximum instantaneous demand on the

system, typically occurring at midday, can be met. This

*Assumes that electric vehicle recharge energy is 0.4 kWh/mile.

Figure 5B-1.-

implies that peakloads are satisfied with generating

capacity that is idle at other times. A utility will thus

respond to demand fluctuations by using the most efficient (“baseload” as well as “intermediate”) plants

as much as possible and progressively adding other

“peaking” plants as loads increase. Baseload plants,

which often cannot be adjusted rapidly (i.e., under

2 hours) to respond to demand fluctuations, are either

nuclear, hydro, geothermal, or steam (oil, coal, or gas).

Peaking plants can be operated for short-term response and are gas turbines fueled by oil or natural

gas and pumped-storage hydro. The ability of utilities

to handle the additional load created by EVs will depend on such factors as total generation potential, the

equipment and fuel mix, and the time pattern of demands. These characteristics generally vary by region

(fig. 59-2) as illustrated in table 59-1,

Figure 59-3 shows a peak summer demand curve

and equipment mix for an individual, representative

utility. Also shown are the likely changes in the load

profile that would occur with the addition of EV loads

under the following conditions: 1) recharging occurs

over 12 hours during the night when demands on the

system are the smallest, 2) recharging occurs uniformly

during the day, and 3) recharging occurs during 2

hours at midday. As long as the additional EV load

occurs either at night or evenly throughout the day,

this load could be accommodated by increasing baseIoad output. Recharging over 2 hours during the day

would be satisfied with peaking plants.

Assuming that the available oil-fueled baseload

capacity used for recharging EVs is proportional to the

amount of oil-fueled baseload in the system, figure

‘Relationship Between the Net Fuel Savings From the Use o

and the Fuel Used for Electric Generation

f EVs

I
Ch. 5—Increased Automobile Fuel Efficiency Ž 151

Figure 5B-2.— Regional Electric Reliability Council Areas

Council -

SOURCE: Department of Energy, Energy Information Administration, April 1978

5B-4 can be used to determine the fuel efficiency that

would be required of a small automobile if the overaIl

oil consumption of the small automobile is to be

equivalent to an EV in each region. For example, at

one extreme, the Texas region uses not oil in its baseIoad, so an EV always consumes less oil, and at the

other extreme, in the northeast a gasoline-fueled car

would have to get about 50 mpg if it were to consume

an equivalent amount of oil as an EV. In terms of premium fuel, * the extreme points are several hundred

mpg in the midcontinent area and about 40 mpg in

the Texas region to achieve a fuel-use equivalence between a small car and an EV.

The electricity requirements and oil/premium fuel

savings for an EV fleet which constitutes 20 percent*

of the total vehicle fleet are shown in table 5B-2. As

can be seen, as long as the EV fleet can be recharged

using baseload capacity, regions should be able to

meet the additional load with existing available baseIoad capacity. In general, the Northeast, West, and

Southeast regions would utilize the greatest absolute

amounts of oil-fueled baseload capacity if EVs were

*A 20-percent market penetration is considered to be the upper

*Oil + natural gas = premium fuel. bound on EV use through 2010,

~ B -291 ‘J - E 2 - 11 : ; 1, 3
152 . Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

Table 5B-1.—Utility Capabilities by Region (contiguous United States) a

Percent of baseload

Installed capacity Net capability Available baseload Available peaking that is fueled by:

Region b

(x1O 3 MW) ( x 1 O

3 MW)C capacity (x10 3 M W)

d capacity (x 1O 3 M W)e

Oil Gas

ECAR . . . . . . . . . . 84.9 79.1 19.6 1.3 6.7 0.2

MAAC . . . . . . . . . . 44.0 40.6 7.1 2.2 35.3 0.0

MAIN . . . . . . . . . . 43.1 39.9 7.6 0.6 12.7 1.1

MARCA . . . . . . . . 25.4 24.4 5.1 0.8 2.5 0.9

NPCC . . . . . . . . . . 50.9 49.8 11.4 2.3 60.4 0.0

SERC . . . . . . . . . . 113.7 103.1 17.5 2.6 17.9 0.2

SWPP . . . . . . . . . . 48.9 46.1 6.8 0.4 21.6 42.8

ERCOT . . . . . . . . . 40.9 39.9 9.7 0,0 0.0 75.7

WSCC . . . . . . . . . . 94.6 93.3 22.0 1.4 26.9 2.3

Total . . . . . . . . . 546.4 516.2 106.8 11.6 20,9 10.8

%nless otherwlee indicated, data are taken from the 19M Summary, National Electric Reiiebility Council, Juiy 19S0.

bSW att=h~ map in fia. 5B”2.

cNet cap~ility is calculated based on the ratio of Net Capability to Installed Capacity as reportad in the Electrlc paver A40rrtlr/Y, U.S. Department of l%erw, Emmy

Information Administration, August 19S0.

dCalculation9 eggume that the total avaiiable capacity is atlocated between baseload and peaking capacity according to the ratio of peaking to baseioad CaPacltY within

the system. Total availabie capacity - (net capability) – (peakload).

SOURCE: Office of Technology Assessment.

Figure 5B=3.— Illustrative Load Profile With and Without Electric Vehicles

SOURCE: Office of Technology Assessmen\
Ch. 5—increased Automobile Fuel Efficiency ● 153

Figure 5B-4.— Dependence of Net Oil (premium fuel)

Consumption on Efficiency of Gasoline Car

Replaced and Fuel Used in Baseload Electric

Generation

Petroleum savings accruing from the substitution of

EVs (as opposed to 60-mpg gasoline-fueled vehicles)

for 20 percent of the total vehicle fleet would be approximately 0.1 MMB/D of oil and 0.07 MMB/D of

Gasoline-fueled car consumes

less oil (premium fuel) than EV

est amount of oil savings would occur in the Texas,

Southwest, and midcontinent regions; substituting EVs

for small cars in the Northeast would actually increase

oil usage. The greatest premium fuel savings accruing from the substitution of small cars would occur

in the East-Central, Southeast, and West regions. Increased premium fuel use would occur in Texas, the

Northeast, and the Southwest. In the future, however,

both oil and premium fuel savings with EVs will increase as utilities switch away from the use of these

fuels for electric generation.

Analyses conducted at the national and regional levels cannot be used to assess the attractiveness of EVs

for individual cities or utilities. For example, individual

utilities may experience significant increments to their

loading, and hence, require a change in baseload capacity and/or mix of fuel use, depending on the time

pattern of recharging assumed, the percentage of

market penetration, and the technical characteristics

of the battery and charging system (e. g., amperage,

voltage, and efficiency profiles).

Table 5B.2.—Electricity Requirements and Oil Savings With an Electric Vehicle Fleet With 20= Percent Penetration

Fuel saved by replacing

Electricity capacity required 20°A of small cars

if 20°/0 penetration by EVs b

Fuel consumed with EVs h

as percent of available Case A

f baseload capacity by fleet of Premium

Total vehicles baseload (percent) that would be fueled by: small cars g Oil saved fuel saved

Region 1979 a (x 106

) Case Ac Case Bd Case C e Oil (MW) Premium (MW) (MMB/DOE) (MMB/DOE) (MMB/DOE)

ECAR 19.9 0.15 0.07 0.87 194 200 0.191 0.027 0.027

MAIN 9.2 0.19 0.09 1.14 474 474 0.088 0.011 0.010

MAAC 10.9 0.21 0.11 1.26 203 220 0.105 0.005 0.005

MARCA 5.8 0.16 0.08 0.99 21 29 0.056 0.009 0.008

NPCC 14.7 0.19 0.09 1.13 1296 1296 0.141 –0.004 –0.004

SERC 21.2 0.18 0.09 1.06 554 560 0.203 0.021 0.021

SWPP 9.0 0.19 0.10 1.16 284 846 0.087 0.008 –0.003

ERCOT 6.5 0.10 0.05 0.59 0 716 0.063 0.010 –0.005

WSCC 22.6 ——0.15 0.07 0.90 887 962 0.217 0.017 0.015

Total 119.8 0.16 0.08 0.98 3913 5303 1.151 0.104 0.074

a~~r~)~ A~~O~O~j~e ~ear~~ IgSO, For eacfl state sewed by more than one council, vehicles are distributed among the WJiOnS according to the percentage Of the

State’s residential consumers served by each council as estimated by the State’s public utility commission.

bEVs require 0.4 kWh/mile and are driven 8,000 miles Per Year.

cRec~arg/~g occurs over 12 hours during the night (1 Year = 8,7W hours).

dRecharg~ng occurs evenly throughout the day.

ef+echarging occurs over 2 hours at midday

fAssumes that th e fuel u5ed t. generate electricity for Evs is in the same percentage as used for baseload generation (See table 5B-1).

gsmall automobile Gets ~ mpg and drives 10,000 miles per year

hEV replaces ~ percent of the miles driven by 20 percent of the cars, Negative sign indicates fuel use increaSes rather than decreases

SOURCE: Office of Technology Assessment.
Chapter 6

Synthetic Fuels
Page

Introduction . . . . . . . . . . . . . . . . . . . . . . . . 157

Petroleum Refining . . . . . . . . . . . . . . . . . 157

Process Descriptions . . . . . . . . . . . . . . . . . 160

Synfuels From Coal . . . . . . . . . . . . . . . . 161

Shale Oil . . . . . . . . . . . . . . . . . . . . . . . . . 165

Synthetic Fuels From Biomass . . . . . . . . 167

Cost of Synthetic Fuels . . . . . . . . . . . . . . . 168

Uncertainties. . . . . . . . . . . . . . . . . . . . . . 168

Investment Cost . . . . . . . . . . . . . . . . . . . 170

Consumer Cost. . . . . . . . . . . . . . . . . . . . 173

Developing a Synfuels Industry . . . . . . . . 175

Constraints . . . . . . . . . . . . . . . . . . . . . . . 176

Development Scenarios . . . . . . . . . . . . . 177

TABLES

Table No. Page

40.

41.

42.

43.

44.

45.

Analysis of Potential for Upgrading

Domestic Refining Capacity . . . . . . . . 159

Principal Synfuels Products . . . . . . . . . 160

Average Cost Overruns for

Various Types of Large Construction

Projects . . . . . . . . . . . . . . . . . . . . . . . . . 169

Selected Synfuels Processes and

Products and Their Efficiencies . . . . . . 171

Best Available Capital and operating

Cost Estimates for Synfuel Plants

Producing 50,000 bbl/d Oil

Equivalent of Fuel to End Users . . . . . 172

Estimates of Cost Escalation in First

Generation Synfuels Plants . . . . . . . . . 172

Table No. Page

46.

47.

48.

494

50.

Consumer Cost of Various Synthetic

Transportation Fuels . . . . . . . . . . . . . . 173

Assumptions . . . . . . . . . . . . . . . . . . . . . 174

Effect of Varying Financial Parameters

and Assumptions on Synfuels’ Costs . 174

Fossil Synthetic Fuels Development

Scenarios . . . . . . . . . . . . . . . . . . . . . . . 177

Biomass Synthetic Fuels Development

Scenarios . . . . . . . . . . . . . . . . . . . . . . . 180

FIGURES

Figure No. Page

13. Schematic Diagrams of Processes

14.

15

16

for Producing Various Synfuels

From Coal . . . . . . . . . . . . . . . . . . . . . . 162

Cost Growth in Pioneer Energy

Process Plants . . . . . . . . . . . . . . . . . . . 169

Consumer Cost of Selected Synfuels

With Various After tax Rates of

Return on Investment . . . . . . . . . . . . . 174

Comparison of Fossil Synthetic

Fuel Production Estimates . . . . . . . . . . 178

17. Synthetic Fuel Development

D.

Scenarios . . . . . . . . . . . . . . . . . . . . . . . 180

BOX

Page

Definitions of Demonstration and

Commercial-Scale Plants . . . . . . . . . . . 179
Chapter 6

Synthetic Fuels

INTRODUCTION

Synthetic fuels, or “synfuels,” in the broadest

sense can include any fuels made by breaking

complex compounds into simpler forms or by

building simple compounds into others more

complex. Both of these types of processes are carried out extensively in many existing oil refineries.

Current technical usage, however, tends to restrict the term to liquid and gaseous fuels produced from coal, oil shale, or biomass. This usage

will be followed in this report.

Synfuels production is a logical extension of

current trends in oil refining. As sources of the

most easily refined crude oils are being depleted,

refiners are turning to heavier oils and tar sands.

Oil shale and coal, as starting materials for liquid

hydrocarbon production, are extreme cases of

this trend to heavier feedstocks.

Although synfuels production involves several

processes not used in crude oil refining, many

current oil refining techniques will be applied at

various stages of synfuels processing. In order to

indicate the range of currently used hydrocarbon

processing techniques and to provide definitions

of certain terms used later in describing some synfuels processes, a brief description of commonly used oil refining processes is given below. Following this are descriptions of coal, oil shale, and

biomass synfuels processes; an evaluation of synfuel economics; and a presentation of two plausible development scenarios for a U.S. synfuels

production capacity.

Petroleum Refining

A petroleum refinery is normally designed to

process a specific crude oil (or a limited selection of crudes) and to produce a “slate” of products appropriate to the markets being supplied.

Refineries vary greatly in size and complexity. At

one extreme are small “topping” plants with

product outputs essentially limited to the components of the crude being processed. At the

other extreme are very large, complex refineries

with extensive conversion and treating facilities

and a corresponding ability to produce a range

of products specifically tailored to changing market needs.

Refining processes include:

●

●

●

Atmospheric Distillation. –The “crude unit”

is the start of the refining process. Oil under

slight pressure is heated in a furnace and

boiled into a column containing trays or

packing which serve to separate the various

components of the crude oil according to

their boiling temperatures. Distillation (“fractionation”) is carried out continuously over

the height of the column. At several points

along the column hydrocarbon streams of

specific boiling ranges are withdrawn for further processing.

Vacuum Distillation. –Some crude oil components have boiling points that are too high,

or they are too heat-sensitive, to permit distillation at atmospheric pressure. In such

cases the so-called “topped crude” (bottoms

from the atmospheric column) is further distilled in a column operating under a vacuum.

This lowers the boiling temperature of the

material and thereby allows distillation without excessive decomposition.

Desulfurization. –Sulfur occurs in crude oil

in various amounts, and in forms ranging

from the simple compound hydrogen sulfide

and mercaptans to complex ring compounds. The sulfur content of crude oil fractions increases with boiling point. Thus,

although sulfur compounds in fractions with

low boiling points can readily be removed

or rendered unobjectionable, removal becomes progressively more difficult and expensive with fractions of higher boiling

points. With these materials, sulfur is removed by processing with hydrogen in the

presence of special catalysts at elevated temperatures and pressures. The “hydrofining,”

“hydrodesulfurization,” “residuum hydrotreating, ” and “hydrodemetallation” processes are examples. Nitrogen compounds

157
158 • Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

and other undesirable components are also

removed in many of these hydrotreating

processes.

Therma/ Cracking Processes, –Prior to the

development of fluid catalytic cracking (see

below), the products of distillation that were

heavier than gasoline were commonly

“cracked” under high temperature and pressure to break down these large, heavy molecules into smaller, more volatile ones and

thereby improve gasoline yields. Although

the original process is no longer applied for

this purpose, two other thermal cracking

processes are being increasingly used. In visbreaking, highly viscous residues from crude

oils are mildly cracked to produce fuel oils

of lower viscosity. In delayed coking, crude

unit residues are heated to high temperatures

in large drums and severely cracked to drive

off the remaining high-boiling materials for

recovery and further processing; the porous

mass of coke left in the drums is used as a

solid fuel or to produce electric furnace electrodes.

Fluid Catalytic Cracking.—This process in its

various forms is one of the most widely used

of all refinery conversion techniques. It is

also undergoing constant development.

Charge stocks (which can be a range of distillates and heavier petroleum fractions) are

entrained in a hot, moving catalyst and converted to lighter products, including highoctane gasoline. The catalyst is separated

and regenerated, while the reaction products

are separated into their various components

by distillation.

Hydrocracking. —This process converts a

wide range of hydrocarbons to lighter, cleaner, and more valuable products. By catalytically adding hydrogen under very high pressure, the process increases the ratio of hydrogen to carbon in the feed and produces lowboiling material. Under some conditions

hydrocracking maybe competitive with fluid

catalytic cracking.

Catalytic Reforming. –Reforming is a catalytic process that takes low-octane “straightrun” materials and raises the octane number

to approximately 100. Although several

chemical reactions take place, the predominant reaction is the removal of hydrogen

from naphthenes (hydrogen-saturated ringIike compounds) and their conversion to aromatics (benzene-ring compounds). In addition to markedly increasing octane number,

the process produces hydrogen that can be

used in desulfurization units.

Isomerization, Catalytic Polymerization, and

Alkylation. -These are specialized processes

that increase refinery yields of high-octane

gasoline blending components from selected

straight-chain liquids and certain refinery

gases.

Historically, the U.S. refining industry has dealt

primarily with light, low-sulfur crudes. Using

processes described above, the industry achieved

a balance between refinery output and markets.

Adjustments have been made to meet the increasing demand for lead-free gasolines and to

the mandated reduction of lead in other gasolines. The heavy residual fuels, considerably higher in sulfur content than treated distillate fuels,

have continued to find a market as ships’ boilers

and as fuels for utility plants that have not converted to coal. (In the latter market, it has sometimes been necessary to blend in desulfurized fuel

oils to meet maximum fuel sulfur specifications.)

In addition, large volumes of residual fuel oils

have continued to be imported, largely from Venezuela and the Caribbean.

Now, however, the picture is changing. Due

to the limited availability of light crude oils, refineries are being forced to run increasing volumes

of heavy crudes that are higher in sulfur and other

contaminants. With traditional processing methods, these crudes produce fewer light products

and more heavy fuel oils of high sulfur content.

On the other hand, fuel switching and conservation in stationary uses will shift market demand

increasingly toward transportation fuels—gasoIine, diesel, and jet–plus petrochemical feedstock.

Refiners are responding to this situation by

making major additions to processing facilities.

Although they differ in detail, the additions are

intended to reduce greatly the production of

heavy fuel oil and to maximize the conversion

and recovery of light liquids. For a typical major
Ch. 6—Synthetic Fuels . 159

refinery, the additions could include: 1 ) vacuum

distillation facilities, 2) high-severity hydroprocessing, such as residuum desulfurization, together

with hydrogen manufacturing capacity, 3) delayed coking, along with processes to recover and

treat the high-boiling vapor fractions driven off,

and 4) perhaps visbreaking, catalytic cracker expansions, and other modifications to accommodate the changed product slate. It should also be

noted that none of these additions increases the

crude-processing capacity of a refinery; they

merely adapt it to changed supply and marketing

conditions.

Purvin and Gurtz1 have estimated the costs of

upgrading domestic refining capacity to make

such changes. Their results are shown in table

40. Although, as indicated in note d of the table,

the investments shown do not include all applicable costs, upgrading existing refineries is, in most

cases, less expensive than building synfuels plants

to produce the same products; and there are regular reports that investments are being made in

oil refineries to upgrade residual oil and change

the product slate. *2

I Purvin & Gertz, Inc., “An Analysis of Potential for Upgrading

Domestic Refining Capacity, ” prepared for American Gas Association, Arlington, Va., undated.

*Another issue related to refining and oil consumption is the low

yield of lubrication and specialty oils from certain types of crude

oils (paraffinic crudes) and the redefining or reuse of these oils. There

For a discussion of other issues related to oil

refineries, the reader is referred to a Congressional Research Service report on “U.S. Refineries: A Background Study. ”3

appears to be no technical problem with increasing the yield of

lubrication and specialty oils from the paraffinic crudes (0;/ and

Gas journal, “Gulf’s Port Arthur Refinery Due More Upgrading,”

Sept. 8, 1980, p. 36.) or the redefining of lubrication oils. However,

heat transfer, hydraulic, capacitor, and transformer fluids often

become contaminated with PCBS (polychlorinated biphenyls)

leached from certain plastics such as electrical insulating materials.

Because of the health hazard, EPA regulations limit the allowable

level of PCBS in enclosed systems to 50 ppm (parts per million).

The contaminated oils pose a waste disposal problem and could

damage refinery equipment (through the formation of corrosive

hydrogen chloride and possible catalyst poisoning) if rerefined

without treatment. Recently, however, two processes (Chernica/

and Engineering News, “Goodyear Develops PCB Removal

Method, ” Sept. 1, 1980, p. 9; Chemical and Engineering News,

“More PCB Destruction Methods Developed, ” Sept. 22, 1980, p.

6.) have been announced that enable the removal of most of the

PCBS, thereby enabling reuse directly or redefining if necessary; and

one of these processes has been demonstrated with a prototype

commercial unit. Consequently, there do not appear to be significant technical problems with decontamination and reuse of PC Bcontaminated oils. Due to the limits of this study, however, OTA

was unable to perform an economic analysis of oil production from

paraffinic crudes, redefining of lubrication oils, or decontamination

of specialty oils.

ZFor example, 0;/ and Gas ]ourna( Aug. 25, 1980, p. 69; Oil and

Gas )ournal, Sept. 8, 1980, p. 36; Oil and Gas Journa/, Nov. 10,

1980, p. 150; Oi/ and Gas journal Jan. 19, 1981, p. 85.

3Congressional Research Service, “U.S. Refineries: A Background

Study, ’’prepared at the request of the Subcommittee on Energy and

Power of the House Committee on Interstate and Foreign Commerce, U.S. House of Representatives, July 1980.

Table 40.—Analysis of Potential for Upgrading Domestic Refining Capacity

Topping refineries Total U.S. refineries

Case 1a a Case 1b b Case 2 C

Total investment d . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2.3 billion

Reduction in total U.S. residual fuel production, bbl/d . 217,000-301,000

Percent total pool . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-18

Increase in motor gasoline production, bbl/d . . . . . . . . . 134,000-200,000

Percent total pool . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-3

Increase in diesel/No. 2 fuel production, bbl/d . . . . . . . . 105,000-135,000

Percent total pool . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.5-4.5

Increase in low-Btu gas, MM Btu/D . . . . . . . . . . . . . . . . . . —

Implementation period, years . . . . . . . . . . . . . . . . . . . . . . .

Investment per unit capacity . . . . . . . . . . . . . . . . . . . . . . . $6,800-9,600

per bbl/d

$4.7 billion

418,000-501,000

25-30

167,000-234,000

2.5-3.5

150,000-180,000

5-6

233

$11,300-14,000

per bbl/d

$18.0 billion

1,587,000-1,670,000

95-1oo

467,000-534,000

7-8

540,000-600,000

18-20

1,320

4-1o

$15,800-17,900

per bbl/d

avacuum distillation, catalytic cradking, vlsbreakirw.

bvacuum distillation, catalytic cracking, coking PIUS gasification.

Ccase I b PIUS coking and gasification and downstream upgrading at remainin9 us. refineries.

dFirst.quafier 19&3 investment, No provision for escalation, contingency or interest during construction.

SOURCE: Purvin & Gertz, Inc., “An Analysis of Potential for Upgrading Domestic Refining Capacity,” prepared for American Gas Association, 19S0.
160 . Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

PROCESS DESCRIPTIONS

A variety of synthetic fuels processes are currently being planned or are under development.

Those considered here involve the chemical synthesis of liquid or gaseous fuels from solid materials. As mentioned above, the impetus for synthesizing fluid fuels is to provide fuels that can easily be transported, stored, and handled so as to

facilitate their substitution for imported oil and,

to a lesser extent, imported natural gas.

The major products of various synfuels processes are summarized in table 41. Depending on

the processes chosen, the products of synfuels

from coal include methanol (a high-octane gasoline substitute) and most of the fuels derived from

oil* and natural gas. The principal products from

upgrading and refining shale oil are similar to

those obtained from conventional crude-oil refining. The principal biomass synfuels are either

methanol or a low- to medium-energy fuel gas.

Smaller amounts of ethanol (an octane-boosting

additive to gasoline or a high-octane substitute

*As with natural crude oil, however, refining to produce large

gasoline fractions usually requires more refining energy and expense

than producing less refined products such as fuel oil.

for gasoline) and biogas can also be produced.

Each of these fuels can be synthesized further into

any of the other products, but these are the most

easily produced from each source and thus probably the most economic.

In the following section, the technologies for

producing synfuels from coal, oil shale, and biomass are briefly described. Indirect and direct

coal liquefaction and coal gasification are presented first. Shale oil processes are described second, followed by various biomass synfuels. Hydrogen and acetylene production are not included because a preliminary analysis indicated

they are likely to be more expensive and less convenient transportation fuels than are the synthetic

Iiquids.4

4For a more detailed description of various pf’OCeSSeS, see:

Engineering Societies Commission on Energy, Inc., “Coal Conversion Comparison, ” July 1979, Washington, D. C.; An Assessment

of Oil Shale Technologies (Washington, D, C.: U.S. Congress, Office of Technology Assessment, June 1980), OTA-M-1 18; Energy

From Bio/ogica/ Processes (Washington, D, C.: U.S. Congress, Office of Technology Assessment, July 1980), vol. 1, OTA-E-124; and

Energy From Biological Processes, Volume I/–Technical and Environmenta/ Ana/yses (Washington, D. C.: U.S. Congress, Office of

,Technology Assessment, September 1980), OTA-E-1 28.

Table 41 .—Principal Synfuels Products

Process Fuel production

Oil shale Gasoline, diesel and jet fuel,

fuel oil, liquefied

petroleum gases (LPG)

Fischer-Tropsch Gasoline, synthetic natural

gas (SNG), diesel fuel, and

LPG

Coal to methanol, Mobil Gasoline and LPG

methanol to gasoline

(MTG)

Coal to methanol Methanol

Wood or plant herbage to

methanol

Direct coal liquefaction

Grain or sugar to ethanol

SNG

Coal to medium- or

low-energy gas

Wood or plant herbate

gasification

Anaerobic digestion

Methanol

Gasoline blending stock, fuel

oil or jet fuel, and LPG

Ethanol

SNG

Medium- or low-energy fuel

gas

Medium- or low-energy fuel

gas

Biogas (carbon dioxide and

methane] and SNG

Comments

Shale oil is the synfuel most nearly like natural crude.

Process details can be modified to produce principally

gasoline, but at lower efficiency.

LPG can be further processed to gasoline. Some processes

would also produced considerable SNG.

Depending on gasifier, SNG may be a byproduct. Methanol

most useful as high-octane gasoline substitute or gas

turbine fuel, but can also be used as gasoline octane

booster (with cosolvents), boiler fuel, process heat fuel,

and diesel fuel supplement. Methanol can also be

converted to gasoline via the Mobil MTG process.

Product same as above.

Depending on extent of refining, product can be 90 volume

percent gasoline.

Product most useful as octane-boosting additive to

gasoline, but can serve same uses as methanol.

Product is essentially indistinguishable from natural gas.

Most common product likely to be close to synthesis gas.

Fuel gas likely to be synthesized at place where it is used.

Most products likely to be used onsite where produced.

SOURCE: Off Ice of Technology Assessment.
Ch. 6—Synthetic Fuels ● 161

Synfuels From Coal

Liquid and gaseous fuels can be synthesized

by chemically combining coal with varying

amounts of hydrogen and oxygen, * as described

below. The coal liquefaction processes are generally categorized according to whether liquids

are produced from the products of coal gasification (indirect processes) or by reacting hydrogen

with solid coal (direct processes). The fuel gases

*Some liquid and gaseous fuel can be obtained simply by heating

coal, due to coal’s small natural hydrogen content, but the yield

is low.

from coal considered here are medium-Btu gas

and a synthetic natural gas (SNG or high-Btu gas).

Each of these three categories is considered

below and shown schematically in figure 13.

Indirect Liquefaction

The first step in the indirect liquefaction processes is to produce a synthesis gas consisting of

carbon monoxide and hydrogen and smaller

quantities of various other compounds by reacting coal with oxygen and steam in a reaction vessel called a gasifier. The liquid fuels are produced

Photo credit: Fluor Corp

Synthesis gas is converted to liquid hydrocarbons in

Fischer-Tropsch type reactors
162 . Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

Figure 13.—Schematic Diagrams of Processes for Producing Various Synfuels From Coal

SOURCE: Office of Technology Assessment.
Ch. 6—Synthetic Fuels Ž 163

by cleaning the gas, adjusting the ratio of carbon

monoxide to hydrogen in the gas, and pressurizing it in the presence of a catalyst. Depending

on the catalyst, the principal product can be

gasoline (as in the Fischer-Tropsch process) or

methanol. The methanol can be used as a fuel

or further reacted in the Mobil methanol-togasoline (MTG) process (with a zeolite catalyst)

to produce Mobil MTG gasoline. The composition of the gasoline and the quantities of other

products produced in the Fischer-Tropsch process can also be adjusted by varying the temperature and pressure to which the synthesis gas is

subjected when liquefied.

With commercially available gasifiers, part of

the synthesis gas is methane, which can be purified and sold as a byproduct of the methanol or

gasoline synthesis. * However, the presence of

methane in the synthesis gas increases the energy

needed to produce the liquid fuels, because it

must be pressurized together with the synthesis

gas but does not react to form liquid products.

Alternatively, rather than recycling purge gas

(containing increasing concentrations of methane) to the methanol synthesis unit, it can be sent

to a methane synthesis unit and its carbon monoxide and hydrogen content converted to SNG.

With “second generation” gasifiers (see below),

little methane would be produced and the methanol or gasoline synthesis would result in relatively

few byproducts.

There are three large-scale gasifiers with commercially proven operation: Lurgi, KoppersTotzek, and Winkler. Contrary to some reports

in the literature, all of these gasifiers can utilize

a wide range of both Eastern and Western

coals, * * although Lurgi has not been commercial-

*For example, the synthesis gas might typically contain 13 percent methane. Following methanol synthesis, the exiting gases might

contain 60 percent methane, which is sufficiently concentrated for

economic recovery.

* ● For example, Sharman (R. B. Sharman, “The British Gas/Lurgi

Slagging Gasifier–What It Can Do,” presented at Coal Technology

’80, Houston, Tex., Nov. 18-20, 1980) states: “h has been claimed

that the fixed bed gasifiers do not work well with swelling coals.

Statements such as this can still be seen in the literature and are

not true. In postwar years Lurgi has given much attention to the

problem of stirrer design which has much benefited the Westfield

Slagging Gasifier, Substantial quantities of strongly caking and swelling coals such as Pittsburgh 8 and Ohio 9, as well as the equivalent

strongly caking British coals have been gasified. No appreciable

performance difference has been noted between weakly caking

and strongly caking high volatile bituminous coals. ”

Iy proven with Eastern coals. In all cases, the

physical properties of the feed coal will influence

the exact design and operating conditions

chosen * for a gasifier. For example, the coal

swelling index, ease of pulverization (friability),

and water content are particularly important parameters to the operation of Lurgi gasifiers, and

the Koppers-Totzek gasifier requires that the ash

in the coal melt for proper operation, as do the

Shell and Texaco “second generation” designs.,

it is expected that the developing pressurized,

entrained-flow Texaco and Shell gasifiers will be

superior to existing commercial gasifiers in their

ability to handle strongly caking Eastern coals

with a rapid throughput. This is achieved by rapid

reaction at high temperatures (above the ash

melting point). These temperatures, however, are

achieved at the cost of reduced thermal efficiency

and increased carbon dioxide production.

The Fischer-Tropsch process is commercial in

South Africa, using a Lurgi gasifier, but the United

States lacks the operating experience of South

Africa and it is unclear whether this will pose

problems for commercial operation of this process in the United States. The methanol synthesis

from synthesis gas is commercial in the United

States, but a risk is involved with putting together

a modern coal gasifier with the methanol synthesis, since these units have not previously been

operated together. Somewhat more risk is involved with the Mobil MTG process, since it has

only been demonstrated at a pilot plant level.

Nevertheless, since the Mobil MTG process involves only fluid streams* * the process can probably be brought to commercial-scale operation

with little technical difficulty.

Direct Liquefaction

The direct liquefaction processes produce a liquid hydrocarbon by reacting hydrogen directly

with coal, rather than from a coal-derived synthesis gas. However, the hydrogen probably will be

produced by reacting part of the coal with steam

to produce a hydrogen-rich synthesis gas, so

these processes do not eliminate the need for coal

*Including steam and oxygen requirements.

**The physical behavior of fluids is fairly well understood, and

processes involving only fluid streams can be scaled up much more

rapidly with minimum risk than processes involving solids.
164 ● Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

gasification. The major differences between the

processes are the methods used to transfer the

hydrogen to the coal, while maximizing catalyst

life and avoiding the flow problems associated

with bringing solid coal into contact with a solid

catalyst, but the hydrocarbon products are likely to be quite similar. The three major direct liquefaction processes are described briefly below,

followed by a discussion of the liquid product and

the state of the technologies’ development.

The solvent-refined coal (SRC I) process was

originally developed to convert high-sulfur, highash coals into low-sulfur and low-ash solid fuels.

Modifications in the process resulted in SRC II,

which produces primarily a liquid product. The

coal is slurried with part of the liquid hydrocarbon product and reacted with hydrogen at about

850° F and a pressure of 2,000 per square inch

(psi). 5 AS it now stands, however, feed coal for

this process is limited to coals containing pyritic

minerals which act as catalysts for the chemical

reactions.

The H-coal process involves slurrying the feed

coal with part of the product hydrocarbon and

reacting it with hydrogen at about 650° to 700°

F and about 3,000 psi pressure in the presence

of a cobalt molybdenum catalyst.6 A novel aspect

of this process is the so-called “ebullated” bed

reactor, in which the slurry’s upward flow

through the reactor maintains the catalyst particles in a fluidized state. This enables contact between the coal, hydrogen, and catalyst with a relatively small risk of clogging.

The third major direct liquefaction method is

the EXXON Donor Solvent (EDS) process. In this

process, hydrogen is chemically added to a solvent in the presence of a catalyst. The solvent is

then circulated to the coal at about 800° F and

1,500 to 2,000 psi pressure.7 The solvent then,

in chemical jargon, chemically donates the

hydrogen atoms to the coal; and the solvent is

recycled for further addition of hydrogen. This

process circumvents the problems of rapid catalyst deactivation and excessive hydrogen consumption.

5Erlgineering societies Commission on Energy, Inc.) oP. cit.

Wameron Engineering, Inc., “Synthetic Fuels Data Handbook,”

2d cd., compiled by G. L. Baughman, 1978.

‘Ibid.

In all three processes, the product is removed

by distilling it from the slurry, so there is no residual oil* fraction in these “syncrudes. ” Because

of the chemical structure of coal, the product is

high in aromatic content. The initial product is

unstable and requires further treatment to produce a stable fuel. Refining** the “syncrude”

consists of further hydrogenation or coking (to

increase hydrogen content and remove impurities), cracking, and reforming; and current indications are that the most economically attractive

product slate consists of gasoline blending stock

and fuel oil,8 but it is possible, with somewhat

higher processing costs, to produce products that

vary from 27 percent gasoline and 61 percent jet

fuel up to 91 percent gasoline and no jet fuel.9

The gasoline blending stock is high in aromatics, which makes it suitable for blending with

lower octane gasoline to produce a high-octane

gasoline. Indications are that the jet fuel can be

made to meet all of the refinery specifications for

petroleum-derived jet fuel.10 However, since the

methods used to characterize crude oils and the

products of oil refining do not uniquely determine

their chemical composition, the refined products

from syncrudes will have to be tested in various

end uses to determine their compatibility with

existing uses. Because of the chemistry involved,

these syncrudes appear economically less suitable for the production of diesel fuel.***

*ResiduaI oil is the fraction that does not vaporize under distillation conditions. Since this syncrude is itself the byproduct of distillation, all of the fractions vaporize under distillation conditions.

● *At present, it is not clear whether existing refineries will be

modified to accept coal syncrudes or refineries dedicated to this

feedstock will be built. Local economics may dictate a combination of these two strategies. Refining difficulty is sometimes compared to that of refining sour Middle East crude when no high-sulfur

residual fuel oil product is produced (i.e., refining completely to

middle distillates and gasoline) (see footnote 8). This is moderately difficult but well within current technical capabilities. One of the

principal differences between refining syncrudes and natural crude

oil, however, is the need to deal with different types of metallic

impurities in the feedstock.

BUC)p, Inc., and System Development Corp., “Crude oil VS. Coal

Oil Processing Compassion Study,” DOE/ET/031 17, TR-80/009-001,

November 1979.

gChevron, “Refining and Upgrading of Synfuels From Coal and

Oil Shales by Ad~anced Catalytic Processes, Third Interim Report:

Processing of SRC II Syncrude,” FE-21 35-47, under DOE contract

No. EF-76-C-01-2315, Apr. 30, 1981.

‘oIbid.

* * *Th e product is hydrogenated and cracked to form saturated,

single-ring compounds, and to saturated diolefins (which would

tend to form char at high temperatures). The reforming step pro-
Ch. 6—Synthetic Fuels Ž 165

None of the direct liquefaction processes has

been tested in a commercial-scale plant. All involve the handling of coal slurries, which are

highly abrasive and have flow properties that cannot be predicted adequately with existing theories

and experience. Consequently, engineers cannot

predict accurately the design requirements of a

commercial-scale plant and the scale-up must go

through several steps with probable process design changes at each step. As a result, the direct

liquefaction processes are not likely to make a

significant contribution to synfuels production before the 1990’s. At this stage there would be a

substantial risk in attempting to commercialize

the direct liquefaction processes without additional testing and demonstration.

Gasification

The same type of gasifiers used for the liquefaction processes can be used for the production of

synthetic fuel gases. The first step is the production of a synthesis gas (300 to 350 Btu/SCF). *

The synthesis gas can be used as a boiler fuel or

for process heat with minor modifications in enduse equipment, and it also can be used as a

chemical feedstock. Because of its relatively low

energy density and consequent high transport

costs, synthesis gas probably will not be transported (in pipelines) more than 100 to 200 miles.

There is very little technical risk in this process,

however, since commercial gasifiers could be

used.

The synthesis gas can also be used to synthesize

methane (the principal component of natural gas

having a heat content of about 1,000 Btu/SCF).

This substitute or synthetic natural gas (SNG) can

be fed directly into existing natural gas pipelines

and is essentially identical to natural gas. There

is some technical risk with this process, since the

methane synthesis has not been demonstrated at

a commercial scale. However, since it only involves fluid streams, it probably can be scaled

duces aromatics from the saturated rings. The rings can also be

broken to form paraffins, but the resultant molecules and other paraffins in the “oil” are too small to have a high cetane rating (the

cetane rating of one such diesel was 39 (see footnote 9), while

petroleum diesels generally have a centane of 45 or more (E. M.

Shelton, “Diesel Fuel Oils, 1980, ” DOE/BETC/PPS-80/5, 1980)).

Polymerization of the short chains into longer ones to produce a

high-cetane diesel fuel is probably too expensive.

**Assuming the gas consists primarily of carbon monoxide and

hydrogen.

up to commercial-scale operations without serious technical difficulties.

As mentioned under “Indirect Liquefaction, ”

there are several commercial gasifiers capable of

producing the synthesis gas. The principal technical problems in commercial SNG projects are

likely to center around integration of the gasifier

and methane synthesis process.

Shale Oil

Oil shale consists of a porous sandstone that

is embedded with a heavy hydrocarbon (known

as kerogen). Because the kerogen already contains hydrogen, a liquid shale oil can be produced

from the oil shale simply by heating the shale to

break (crack) the kerogen down into smaller molecules. This can be accomplished either with a

surface reactor, a modified in situ process, or a

so-called true in situ process.

In the surface retorting method, oil shale is

mined and placed in a metal reactor where it is

heated to produce the oil. In the “modified in

situ” process, an underground cavern is excavated and an explosive charge detonated to fill

the cavern with broken shale “rubble.” Part of

the shale is ignited to produce the heat needed

to crack the kerogen. Liquid shale oil flows to the

bottom of the cavern and is pumped to the surface. In the “true in situ” process, holes are bored

into the shale and explosive charges ignited in

a particular sequence to break up the shale. The

“rubble” is then ignited underground, producing the heat needed to convert the kerogens to

shale oil.

The surface retort method is best suited to thick

shale seams near the surface. The modified in situ

is used where there are thick shale seams deep

underground. And the true in situ method is

best suited to thin shale seams near the surface.

The surface retorting method requires the mining and disposal of larger volumes of shale than

the modified in situ method and the true in situ

method requires only negligible mining. It is more

difficult, using the latter two processes, however,

to achieve high oil yields of a relatively uniform

quality, primarily because of difficulties related

to controlling the underground combustion and
166 • Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

Photo credit: Department of Energy

Synthane pilot plant near Pittsburgh, Pa., converts coal to synthetic natural gas
Ch. 6—Synthetic Fuels ● 167

ensuring that the resultant heat is efficiently transferred to the shale. It is likely, however, that these

problems can be overcome with further development work.

The shale oil must be hydrogenated under conditions similar to coal hydrogenation (800° F,

2,000 psi)11 to remove its tightly bound nitrogen,

which, if present, would poison refinery catalysts.

The resultant upgraded shale oil is often compared to Wyoming sweet crude oil in terms of

its refining characteristics and is more easily refined than many types of higher sulfur crude oils

currently being refined in the United States. Refining shale oil naturally produces a high fraction

of diesel fuel, jet fuel, and other middle distillates.

The products, however, are not identical to the

fuels from conventional crude oil, so they must

be tested for the various end uses.

Shale oil production is currently moving to

commercial-scale operation, and commercial facilities are likely to be in operation by the mid

to late 1980’s. Because of completed and ongoing development work, the risks associated with

moving to commercial-scale operation at this time

are probably manageable, although risks are never negligible when commercializing processes for

handling solid feedstocks.

Synthetic Fuels From Biomass

The major sources of biomass energy are wood

and plant herbage, from which both liquid and

gaseous fuels can be synthesized. These syntheses

and the production of some other synfuels from

less abundant biomass sources are described

briefly below.

Liquid Fuels

The two liquid fuels from biomass considered

here are methanol (“wood alcohol”) and ethanol

(“grain alcohol”). Other liquid fuels from biomass

such as oil-bearing crops must be considered as

speculative at this time.12

‘ ‘Chevron, “Refining and Upgrading of Synfuels From Coal and

Oil Shales by Advanced Catalytic Processes, First Interim Report:

Paraho Shale Oil, ’’Report HCP/T23 15-25 UC90D, Department of

Energy, July 1978, 12Errergy From Biological processes, of). cit.

Methanol can be synthesized from wood and

plant herbage in essentially the same way as it

is produced from coal. One partially oxidizes or

simply heats (pyrolyzes) the biomass to produce

a synthesis gas. The gas is cleaned, the ratio of

carbon monoxide to hydrogen adjusted, and the

resultant gas pressurized in the presence of a catalyst to form methanol. As with the indirect coal

processes, the synthesis gas could also be converted to a Fischer-Tropsch gasoline or the methanol converted to Mobil MTG gasoline.

Methanol probably can be produced from

wood with existing technology, but methanolfrom-grass processes need to be demonstrated.

Several biomass gasifiers are currently under development to improve efficiency and reliability

and reduce tar and oil formation. Particularly notable are pyrolysis gasifiers which could significantly increase the yield of methanol per ton of

biomass feedstock. Also mass production of small

(5 million to 10 million gal/y r), prefabricated

methanol plants may reduce costs significantly.

With adequate development support, advanced

gasifiers and possibly prefabricated methanol

plants could be commercially available by the

mid to late 1980’s.

Ethanol production from grains and sugar crops

is commercial technology in the United States.

The starch fractions of the grains are reduced to

sugar or the sugar in sugar crops is used directly. The sugar is then fermented to ethanol and

the ethanol removed from the fermentation broth

by distillation.

The sugar used for ethanol fermentation can

also be derived from the cellulosic fractions of

wood and plant herbage. Commercial processes

for doing this use acid hydrolysis technology, but

are considerably more expensive than grainbased processes. Several processes using enzymatic hydrolysis and advanced pretreatments of

wood and plant herbage are currently under development and could produce processes which

synthesize ethanol at costs comparable to those

of ethanol derived from grain, but there are still

significant economic uncertainties.13 

131bid
168 Ž Increased Automobile Fuel Efficiency and synthetic Fuels: Alternatives for Reducing Oil Imports

Fuel Gases

By 2000, the principal fuel gases from biomass

are likely to be a low-energy gas from airblown

gasifiers and biogas from manure. Other sources

may include methane (SNG) from the anaerobic

digestion of municipal solid waste and possibly

kelp.

A relatively low-energy fuel gas (about 200 Btu/

SCF) can be produced by partially burning wood

or plant herbage with air in an airblown gasifier.

The resultant gas can be used to fuel retrofitted

oil- or gas-fired boilers or for process heat needs.

Because its low energy content economically prohibits long-distance transportation of the gas,

most users will operate the gasifier at the place

where the fuel gas is used. Several airblown biomass gasifiers are under development, and commercial units could be available within 5 years.

Biogas (a mixture of carbon dioxide and methane) is produced when animal manure or some

types of plant matter are exposed to the appropriate bacteria in an anaerobic digester (a tank

sealed from the air). Some of this gas (e.g., from

the manure produced at large feedlots) may be

purified, by removing the carbon dioxide, and

introduced into natural gas pipelines, but most

of it is likely to be used to generate electricity and

provide heat at farms where manure is produced.

The total quantity of electricity produced this way

would be small and, to an increasing extent,

would be used to displace nuclear- and coal-generated electricity. A part of the waste heat from

the electric generation can be used for hot water

and space heating in buildings on the farm, however.14 A small part of the biogas (perhaps 15 percent corresponding to the amount occurring on

large feedlots) could be purified to SNG and introduced into natural gas pipelines.

Biogas can also be produced by anaerobic digestion of municipal solid waste in landfills and

kelps. Any gas so produced is likely to be purified

and introduced into natural gas pipelines.

Manure digesters for cattle manure are commercially available. Digesters utilizing other

manures require additional development, but

could be commercially available within 5 years.

The technology for anaerobic digestion of municipal solid waste was not analyzed, but one system

is being demonstrated in Florida.15 In addition,

if ocean kelp farms prove to be technically and

economically feasible, there may be a small contribution by 2000 from the anaerobic digestion

of kelp to produce methane (SNG),16 but this

source should be considered speculative at present.

14TRW, “Achievin g a production Goal of 1 Million B/D of coal

Liquids by 1990,” March 1980.

’51. E., Associates, “Biological Production of Gas,” contractor report to OTA, April 1979, available in Energy From Biologica/Processes, Vol ///: Appendixes, Part C, September 1980,

16Energy From Biological prOCeSSeS, OP. cit.

COST OF SYNTHETIC FUELS

There is a great deal of uncertainty in estimating charges can vary by more than a factor of 2. In

costs for synthetic fuels plants. A number of fac- many cases, differences in product cost estimates

tors, which can be predicted with varying degrees can be explained solely on the basis of these difof accuracy, contribute to this uncertainty. Some ferences. For most of the biomass fuels, the cost

of the more important are considered below, fol- of the biomass feedstock is also highly variable,

lowed by estimates for the costs of various syn- and this has a strong influence on the product

fuels. cost.

Uncertainties The cost of synfuels projects, and particularly

the very large fossil fuel ones, is also affected by:

For most of the synfuels, fixed charges are a 1) construction delays, 2) real construction cost

large part of the product costs. Depending on increases (corrected for general inflation) during

assumptions about financing, interest rates, and construction, and 3) delays in reaching full prothe required rate of return on investment, these duction capacity after construction is completed,
Ch. 6—Synthetic Fuels Ž 169

due to technical difficulties. These factors are usually not included in cost estimates, but they are

likely to affect the product cost.

Another factor that should be considered is the

state of development of the technology on which

the investment and operating cost estimates are

based, As technology development proceeds,

problems are discovered and solved at a cost, and

the engineer’s original concept of the plant is

gradually replaced with a closer and closer approximation of how the plant actually will look.

Consequently, calculations based on less developed technologies are less accurate. This usualIy means that early estimates understate the true

costs by larger margins than those based on more

developed and well-defined technologies. This

is particularly true of processes using solid feedstocks because of the inherent difficulty with scaling-up process streams involving solids. Figure 14

illustrates cost escalations that can occur, by summarizing the increases in cost estimates for various energy projects as technology development

proceeded. Table 42 also illustrates this point by

showing average cost overruns that have occurred in various types of large construction

projects.

It should be noted, however, that the period

of time in which most of the project evaluations

Table 42.-Average Cost Overruns for Various

Types of Large Construction Projects

Actual cost divided

System type by estimated cost

Weapons systems. . . . . . . . . . . . . . . 1.40-1.89

Public works . . . . . . . . . . . . . . . . . . . 1.26-2.14

Major construction . . . . . . . . . . . . . . 2.18

Energy process plants . . . . . . . . . . . 2.53

SOURCES: Rand Corp., “A Review of Cost Estimates In New Technologies: lmplicationa for Energy Process Piants,” prepared for U.S. Department

of Energy, July 1979; Hufschmidt and Gerin, “Systematic Errors In

Cost Estimates for Public Investment Projects,” in The Ana/ys/s of

Pub//c Output, Columbia University Press, 1970; and R. Perry, et al.,

“Systems Acqulsitlon Strategies,” Rand Corp., 1970.

Figure 14.—Cost Growth in Pioneer Energy Process Plants (constant dollars)

Initial Preliminary Budget Definitive Actual Add-on

Type of estimate

SOURCE: “A Review of Cost Estimation in New Technologies: Implications for Energy Process Plants,” Rand Corp. R-2481- DOE, July 1979,
170 ● Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

in table 42 were made had high escalation rates

for capital investment relative to general economic inflation. Historically this has not been the case;

and if future inflation in plant construction more

nearly follows general inflation, the expected synfuels investment increases from preliminary design to actual construction would be lower than

is indicated in figure 14 and table 42.

When judging the future costs and economic

competitiveness of synfuels, one must therefore

also consider the long-term inflation in construction costs. To a very large extent, the ability to

produce synfuels at costs below those of petroleum products will depend on the relative inflation rates of crude oil prices and construction

costs.

Although economies of scale are important for

synfuels plants, there are also certain diseconomies of scale—factors which tend to increase

construction costs (per unit of plant capacity) for

very large facilities as compared with small ones.

First, the logistics of coordinating construction

workers and the timely delivery of construction

materials become increasingly difficult as the construction project increases in size and complexity. Second, construction labor costs are higher

in large projects due to overtime, travel, and subsistence payments. Third, as synfuels plants increase in size, more and more of the equipment

must be field-erected rather than prefabricated

in a factory. This can increase the cost of equipment, although in some cases components may

be “mass-produced” on site, thereby equaling

the cost savings due to prefabrications. Some of

these problems causing diseconomies of scale

can be aggravated if a large number of synfuels

projects are undertaken simultaneously.

Many of the above factors would tend to increase costs, but once several full-scale plants

have been built, the experience gained may help

reduce production costs for future generations

of plants. Delays in reaching full production capacity can be minimized, and process innovations that reduce costs can be introduced. in addition, very large plants that fully utilize the available economies of scale can be built with confidence. Consequently, the first generation units

produced are likely to be the most expensive, if

adjustments are made for inflation in construction and operating costs.

An example of this can be found in the chemical industry, where capital productivity (output

per unit capital investment) for the entire industry

has increased by about 1.4 percent per year since

1949.17 In some sectors, such as methanol synthesis, productivity has increased by more than

4 percent per year for over 20 years.18 Much of

this improvement is attributable to increased

plant size and the resultant economies of scale:

Because the proposed synfuels plants are already

relatively large, cost decreases for synfuels pIants

may not be as large and consistent as those experienced in the chemical industry in recent

years; however, because of the newness of the

industry, some decreases are expected.

Investment Cost

For purposes of cost calculations, previous OTA

estimates 19 20 were used for oil shale and biomass

synfuels (adjusted, in the case of oil shale, to 1980

dollars) and the best available cost estimates in

the public literature were used for coal-derived

synfuels. These latter estimates were compared21

to the results of an earlier Engineering Societies’

Commission on Energy (ESCOE) study22 of coalderived synfuels, which used preliminary engineering data. Since the best available cost estimates correspond roughly to definitive engineering estimates, the ESCOE numbers were increased by 50 percent, the amount by which engineering estimates typically increase when going from preliminary to definitive estimates.

When these adjustments were made and the

costs expressed in 1980 dollars, the two sources

of cost estimates for coal-based synfuels produced

roughly comparable results. *s

Table 43 shows the processes and product

slates used for the cost calculations. As described

above, a variety of alternative product slates are

possible, but these were chosen to emphasize the

production of transportation fuels. Table 44 gives

the best available investment and operating costs

“E. J. Bentz & Associates, Inc., “Selected Technical and Economic

Comparisons of Synfuel Options, ” contractor report to OTA, 1981.

lalbid.

lgAn Assessment of Oil shale Technologies, op. cit.

2oEnergy From Biological /%XeSSt%, OP. cit.

ZI E. J. Bentz & Associates, Inc., op. cit.

zzEnglneering societies Commission on Energy, InC., OP. cit.

Z3E. J. Bentz & Associates, Inc., Op. cit.
Ch. 6—Synthetic Fuels ● 171

Table 43.—Selected Synfuels Processes and Products and Their Efficiencies

Energy efficiency (percent)

Fuel products Tranportation fuel products

Fuel products (percent of input coal (percent of input coal

Process (percent of output) and external power) and external power)

Oil shale Gasoline (19) b N.A. C N.A. C

Jet fuel (22)

Diesel fuel (59)

Methanol/synthetic natural gas (SNG) from coal Methanol (48) d

65 33

SNG (49)

Other (3)

Methanol from coal Methanol (lOO) ef 55g

55g

Coal to methanol/SNG, Mobil methanol Gasoline (40) d

63 27

to gasoline SNG (52)

Other (8)

Coal to methanol, Mobil methanol to gasoline Gasoline (87) d

47 41

Other (13)

Fischer-Tropsch/SNG from coal Gasoline (33) d

56 17

SNG (65)

Other (2)

Direct coal liquefaction Gasoline (33) fh 57 47

Jet fuel (49)

Other (18)

SNG from coal SNG (lOO) f 59 0

Methanol from wood Methanol (lOO) i

47f

47h

Ethanol from grain Ethanol (lOO) i N.A. C N.A. C

“Higher heating value of products divided by higher heating value Of the coal Plus impor’ted ener9Y.

bFf. F. Sullivan, et al., “Refinhrg and Upgrading of Synfuels From Coal and Oil Shales by Actvanced Catalytic Processes, ” first interim report, prepared by Chevron for

Department of Energy, April 1978, NTIS No FE-2315-25.

cNot applicable

dMM Schreiner, ,, Research Guidance Studies to Assess Gasoline From Coal to Methanol-to-Gasoline and Sasol-Type Fischer. Tropsch Technologies,” prepared by Mobil

R&D Co. for the Department of Energy, August 1978, NTIS No. FE-2447-13.

eDHR, InC,, ,,phase 1 Methanol use options study,” prepared for the Deparfrnent of Energy under contract No, DE-AC01-79PE-70027, Dec. 23, 1980,

‘K. A. Rogers, “Coal Conversion Comparisons,” Engineering Societies Commission on Energy, Washington, DC., prepared for the Department of Energy, July 1979,

No, FE-2488-51.

gsullivant and Frumking (footnote h) give 57 percent, DHR (footnote e) gives 52 percent.

hR, F, Sullivan and H. A. Frumkin, “Refining and Upgrading of Synfuels by Advanced Catalytic Processes,” third interim report, prepared by Chevron for the Department

of Energy, Apr. 30, 1980, NTIS, No. FE-2315,47 Products shown are for H-Coal. It is assumed that same product slate results from refined EDS liquids.

iOTA, Energy from Sio/oQ/ca/ processes, Vo/ume //, September lg~, GpO stock No. 052-003-00782-7.

SOURCE Office of Technology Assessment

(excluding coal costs) in 1980 dollars for the

various processes, with all results normalized to

the production of 50,000 barrels per day (bbl/d)

oil equivalent of product to the end user (i.e., including refining losses). Only a generic direct liquefaction process is included because current

estimation errors appear likely to be greater than

any differences between the various direct liquefaction processes.

Based on the history of cost escalation in the

construction of chemical plants, one can be nearly certain that final costs of the first generation

of these synfuels plants will exceed those shown

in table 44 (with the exception of ethanol which

is already commercial), Using a methodology developed to estimate this cost escalation, Rand

Corp. has examined several synfuels processes

and derived cost growth factors, or estimates of

how much the capital investment in the synfuels

plant is likely to exceed the best available engineering estimates. Some of the results of the Rand

study are shown in table 45. Also shown is the

expected performance of each plant if it were

built today, expressed as the percentage of designed fuel production that the plant is likely to

achieve.

The figures reflect Rand’s judgment that direct

liquefaction processes require further development before construction of a commercial-scale

plant should be attempted; but the calculations

also indicate that even the first generation of nearcommercial processes are likely to be more ex-
172 ● Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

Table 44.—Best Available Capital and Operating Cost Estimates for Synfuels

Plants Producing 50,000 bbl/d Oil Equivalent of Fuel to End Users

Annual operating costs

Capital investment (exclusive of coal costs)

Process (billion 1980 dollars) (million 1980 dollars)

Oil shale a. ... , . . . . . . . . . . . . . . . . . . . . . . . . $2,2 $250

Methanol/SNG from coal b. . . . . . . . . . . . . . . 2.1 150

Methanol from coal c . . . . . . . . . . . . . . . . . . . 2.8 200

Coal to methanol/SNG, Mobil methanol

to gasoline b. . . . . . . . . . . . . . . . . . . . . . . . . 2.4 170

Coal to methanol, Mobil methanol

to gasoline b. . . . . . . . . . . . . . . . . . . . . . . . . 3.3 230

Fischer-Tropsch/SNG from coal b. . . . . . . . . 2.5 190

Direct coal Iiquefaction d . . . . . . . . . . . . . . . . 3.0 250

SNG e 

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2..2 150

Methanol from wood f. . . . . . . . . . . . . . . . . . . 2.9 610

(wood at $30/dry ton)

(wood at $45/dry ton)

860

Ethanol f 

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.8 ($3/bu. corn)

1,112

($4.50/bu. corn)

aofflce of Technology Assessment, An Aggg~ment of 0// Shale Techno/og/es, June 1980, $1.7 billion Investment in 1979 dollars

becomes $1.9 bllllon In 1980 dollars for 50,000 bbl/d of ahale oH. Aasuming 88 percent refining efficiency, one needs 57,000

bbl/d of shale 011 to produce 50,000 bbl/d 011 equivalent of products, at an investment of $1.9 billion/O.88 -$2.2 billion.

b~rived from R. M. Wham, et al., “Liquefaction Technology Assessment-Phase 1: Indirect Liquefaction of cod to Mettranol

and Gasollne Using Available Technology,” Oak Ridge National Laboratory, ORNL-5884, February 1981.

cFrom DHR, Inc., “Phase I Methanol Use Optlona Study,” prepared for the Department of Energy under contract No.

DE-AC01-79PE-70027, Dec. 23, 1980, one finds that the ratio of investment cost of a methanol to a Mobil methanol-to-gasollne

plant is 0.85. Assuming this ratio and the value for a methanol-to-gasoline plant from footnote b, one arrives at the investment cost shown. The operating cost was increased in proportion to investment coat. Thia adjustment is necessary to put

the costs on a common baais. These vaiuea are 50 percent more than the estlmatea given by DHR (reference above) and

Badger (Badger Plants, Inc., “Conceptual Design of a coal to Methanol Commercial Plant,” prepared for the Department of

Energy, February 1978, NTIS No. FE-2416-24). In order to compare Badger with this eatimate, It was necessary to scale down

the Badger plant (ualng a 0.7 scaling factor) and inflate the result to 1980 dollars (increase by 39 percent from 1977).

d~xon Research and Engineering ~., “EDS Coal Liquefaction Process Development, Phaae V,” prepared for the Department

of Energy under cooperative agreement DE-FCO1-77ETIOO89, March 1981. Investment and operating cost assumes an energy

efficiency of 82.5 percent for the refining procesa. Refinery Investment of up to S700 million Is not included in the capital

investment.

‘Rand Corp., “Cost and Performance Expectations for Pioneer Synthetic Fuels Plants,” report No. R-2571-DOE, 1981.

f Office of Technology Assessment, Energy From Biological Processes, Volume //, SePternbSr 1980, Gpo stock No.

052-003-00782-7; i.e., 40 million gatlons per year methanol plant costing S88 million, 50 million gallons per year ethanol plant

costing $75 million,

SOURCE: Office of Technology Assessment.

Table 45.—Estimates of Cost Escalation in First Generation Synfuels Plants

Cost growth factor

derived by Rand a

Expected performance for 90

for 90 percent Revised investment cost percent confidence interval b

Process confidence interval b

(billion 1980 dollars) (percent of plant design)

Oil shale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.04-1.39 2.3-3.1 57-85

Coal to methanol to gasoline (Mobil, no

SNG byproduct). ., . . . . . . . . . . . . . . . . . . . 1.06-1.43 3.5-4.7 65-93

Direct coal liquefaction (H-Coal) . . . . . . . . . 1.52-2.38a 4.0-6 .3a 25-53

SNG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.95-1.23 2.1-2.7 69-97

aEaaed on Rand @@ in which best estimate for H-Coal is $2.2 billion for 50,000 bbl/d of Product syncrude. With 82.5 Percent refining efficiency, this becomes $2.7

billion for 50,000 bblld of product to end user.

bln other words, go percent probability that actual cost growth factor or Performance wiit fall in the inte~al.

SOURCE: Office of Technology Assessment; adapted from Rand Corp., “Cost and Performance Expectations for Pioneer Synthetic Fuels Plants,” R-2571-DOE, 1981.
Ch. 6—Synthetic Fuels Ž 173

pensive and less reliable than the best conventional engineering estimates would indicate. This

analysis indicates that it is quite reasonable to expect first generation coal liquefaction plants of

this size to cost $3 billion to $5 billion or more

each in 1980 dollars.

Consumer Cost

The consumer costs of the various synfuels are

shown in table 46. These consumer costs are

based on the estimates in table 44 and the economic assumptions listed in table 47. The effect

on the calculated product cost of varying some

of the economic assumptions is then shown in

table 48.

With these economic assumptions, delivered

liquid fossil synfuels costs (1980 dollars) range

from $1.25 to $1.85 per gallon of gasoline equivalent (gge) for 100 percent equity financing and

$0.80 to $1.25/gge with 75 percent debt financing at 5 percent real interest (i. e., relative to inflation), In 1981 dollars, these estimates become

$1.40 to 2.10/gge and $0.90 to $1.40/gge, respectively. This compares with a reference cost

of gasoline from $32/bbl crude oil of $1.20/gal

(plus $0.1 7/gal taxes).

Extreme caution should be exercised when interpreting these figures, however. They represent

the best current estimates of what fossil synfuels

will cost after technical uncertainties have been

resolved through commercial demonstration.

They do not include any significant cost increases

that may occur from design changes, hyperinflation in construction costs, or construction delays.

They most likely represent a lower limit for the

synfuels costs.

Table 46.—Consumer Cost of Various Synthetic Transportation Fuels

1000/0 equity financing, IO% real return on investment

25°/0 equity/75% debt financing,

10% real return on investment

Plant or refinery

gate product cost Delivered consumer cost of fuel a

1960 dollars 1960 dollars

per barrel per gallon

oil equivalent gasoline equivalent

Process (5.9 MMBtu/B) (125 k Btu/gal) 1980 $/MMBtu

Plant or refinery

gate product cost Delivered consumer cost of fuel a

1980 dollars 1960 dollars

per barrel per gallon

oil equivalent gasoline equivalent

(5.9 MMBtu/B) (125 k Btu/gal) 1980 $/MMBtu

Reference cost of gasoline

from $32/bbl crude oil . . 47 1.20 9.50 1.20 9.50

Oil shale. . . . . . . . . . . . . . . . 52b1.30 10.40 3 3

b

0.90 7.20

Methanol/SNG from coal . . 43 1.30 c d 10.60 c

25 0.95 C d 7.50c

Methanol from coal . . . . . . 58 1.60 d

13.00 33 1.10 d

8.60

Coal to methanol/SNG,

Mobil methanol to

gasoline . . . . . . . . . . . . . . 49e

1.25C d10.00 c29e0.80 C d 6.40 C

Coal to methanol, Mobil

methanol to gasoline . . . 67e

1.60 d12.90 38e 1.00 d

8.10

Fischer-Tropsch/SNG

from coal . . . . . . . . . . . . . 52e1 .30c10.40 C3oe0.85 C

6.70 C

Direct coal liquefaction . . . 77f1.85 14.60 5 1

f

1.25 10.20

SNG from coal . . . . . . . . . . 1.15 g9.10g0.75g 5.90 g

Methanol from wood . . . . . 68 (79) h1.65 (2.05) h14.70 (16.60)h 49 (60) h1.45 (1.70) h11.60 (13.40) h

Ethanol from grain . . . . . . . 71 (87)’ 1.60 (2.15)’ 14.50 (17.10)’ 60 (75)’ 1.55 (1.90)’ 12.60 (15.10)’

aA9~uming ~.~pfryaical gatlon delivery charge and mark-uP; fttei tties not inciuded.

blnclude~ $e/bbl refining ~o~t. Derived from R. F. Sulllvm, et al., “Refining and IJpgr~ing of Syfrfueis From (hal and 011 Shaies by Advanced htdytiC processes,”

first interim report by Chevron Research Corp. to the Department of Energy, April 1978, by increasing cost of S4.541!bbl by 22 percent to reflect 19S0 dollars and adjusting for 88 percent refinery efficiency.

cAssumes copr~uct SNG selling for same pdce per MMBtu at the Plant 9ate ss the iiquid Pr~uct.

dAlthough the plant or refiney gate cost of methanol iS lower than MTG gasoline, the deilvered consumer CO$t Of methanoi is I’rlgher due to the higher cost of dellvedn9

a given amount of energy in the form of methanol aa compared with gasoline, because of the lower energy content per gallon of the former.

eAii necessa~ refining is included in the COflvW8iOfl Plant.

f Inciudes $l~bbi refining cost from R F. suliiv~ and H. A. F~mkin, “Refining ~d Upgrading of Synfuels From cOd and Oil Shales by Advanced cddytiC prOC9SSeS,

Third Interim Report,” report to the Department of Energy, Apr. 30, 19S0, NTIS No. FE-2315-47. Refining coats fOr EDS and H-Coal are assumed to be the same as

SRC Il. Note, however, that reflnlng costs drop to $10/bbl for production of heating oil and gasollne and Increase to S16.Wbbl for production of easo)he CW+.

g$l.@IMMBtu delivery charge and markup, Wh[ch corresponds to the 19s0 difference between the welihead and residential price of natural gas. Energy Information

Administration, U.S. Department of Energy, “19S0 Annual Report to Congress,” vol. 2, DOE/EIA-0173 (S0)/2, pp. 117 and 119.

hAss ume s ~dy ton wood. Number in parentheses corresponds to S@dv ton wood.

i Assumes $3/bu corn Number In parentheses corresponds to ti.~lbu. corn.

SOURCE: Office of Technology Assessment.
174 . Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

Table 47.—Assumptions Figure 15.—Consumer Cost of Selected Synfuels

With Various Aftertax Rates of Return on Investment

1, Project life—25 years following 5-year construction period

for fossil synfuels and 2-year construction period for

biomass synfuels.

2.10 year straight-line depreciation.

3. Local taxes and property insurance as in K. K. Rogers,

“coal Conversion Comparisons,” ESCOE, prepared for U.S.

Department of Energy under contract No. EF-77-C-01-2468,

July 1979.

4.10 percent real rate of return on equity investment with:

1) 100 percent equity financing, and 2) 75 percent debt/25

percent equity financing with 5 percent real interest rate.

5.90 percent capacity or “onstream factor.”

6. Coal costs $30/ton delivered to synfuels plant (1980 dollars).

7.46 percent Federal and 9 percent State tax.

8. Working capital = 10 percent of capital investment.

SOURCE: Office of Technology Assessment.

Table 48.—Effect of Varying Financial Parameters

and Assumptions on Synfuels’ Costs

Change Effect on synfuels cost

Plant operates at a 50 percent

on stream factor rather than

90 percent . . . . . . . . . . . . . . . . . Increase 60-70%

Increase capital investment by

50 percent . . . . . . . . . . . . . . . . . Increase 15-35%

8-year construction rather than

5-year . . . . . . . . . . . . . . . . . . . . . Increase 5-20%

Increase coal price by $15/ton . . Increase $5-7/bbl

SOURCE: Office of Technology Assessment.

Because cost overruns and poor plant performance lower the return on investment, investors

in the first round of synfuels plants are likely to

require a high calculated rate of return on investment to ensure against these eventualities. Put

another way, anticipated cost increases (table 45)

would lead investors to require higher product

prices than those in table 46 before investing in

synfuels.

The effects on product costs of various rates

of return on investment are shown in figure 15

for selected processes, and the effect of changes

in various other economic parameters is shown

in table 48. As can be seen, product costs could

vary by more than a factor of 2 depending on the

technical, economic, and financial conditions

that pertain.

Nevertheless, it can be concluded that factors

which reduce the equity investment and the required return on that investment and those which

help to ensure reliable plant performance are the

0 5 10 15 20 25

Real return on investment (o/o)

a5% real interest rate on debt.

SOURCE: Office of Technology Assessment

most significant in holding synfuels costs down.

These factors do not always act unambiguously,

however. Inflation during construction, for example, increases cost overruns, but inflation after

construction increases the real (deflated) return

on investment. The net effect is that the synfuels

cost more than expected when plant production

first starts, but continued inflation causes the

prices of competing fuels to rise and consequently

allows synfuels prices—and returns on investment

—to rise as well. Similarly, easing of environmental control requirements can reduce the time and

investment required to construct a plant, but inadequate controls or knowledge of the environmental impacts may lead to costly retrofits which

may perform less reliably than alternative, less

polluting plant designs.

Another important factor influencing the cost

of some synthetic transportation fuels is the price

of coproduct SNG. In table 46 it was assumed

that any coproduct SNG would sell for the same

price per million Btu (MMBtu) at the plant gate

as the liquid fuel products, or from $4 to $9/
Ch. 6—Synthetic Fuels Ž 175

MMBtu, which compares with current well head

prices of up to $9/MM Btu24 for some decontrolled

gas. (These prices are averaged with much larger

quantities of cheaper gas, so average consumer

prices are currently about $3 to $5/MMBtu.)

However, the highest wellhead prices may not

be sustainable in the future as their “cushion”

of cheaper gas gets smaller, causing averge consumer prices to rise. This is because consumer

prices are limited by competition between gas

and competing fuels—e.g., residual oil—and

probably cannot go much higher without causing many industrial gas users to switch fuels. Large

quantities of unconventional natural gas might

be produced at well head prices of about $10 to

$1 l/MMBtu,25 so SNG coproduct prices are unlikely to exceed this latter value in the next two

decades. If the SNG coproduct can be sold for

only $4/MMBtu or less, synfuels plants that do

not produce significant quantities of SNG will

likely be favored. However, for the single-product indirect liquefaction processes, advanced

high-temperature gasifiers, rather than the commercially proven Lurgi gasifier assumed for these

estimates, may be used. This adds some additional uncertainty to product costs.

Despite the inability to make reliable absolute

cost estimates, some comparisons based on technical arguments are possible. First, oil shale probably will be one of the lower cost synfuels

because of the relative technical simplicity of the

process: one simply heats the shale to produce

a liquid syncrude which is then hydrogenated to

produce a high-quality substitute for natural

crude oil. However, handling the large volumes

of shale may be more difficult than anticipated;

and, since the high-quality shale resources are

located in a single region and there is only a

ZAProcesS GaS Consumer Group, Process Gas Consumers Repofi,

Washington, D. C., June 1981.

25J. F. Bookout, Chairman, Committee on Unconventional Gas

Sources, “Unconventional Gas Sources,” National Petroleum Council, December 1980.

limited ability to disperse plants as an environmental measure, large production volumes

could necessitate particularly stringent and

therefore expensive pollution control equipment

or increase waste disposal costs.

Second, regarding the indirect transportation

liquids from coal, the relative consumer cost (cost

per miles driven) of methanol v. synthetic gasoline will depend critically on automotive technology. Although methanol plants are somewhat less

complex than coal-to-gasoline plants, the cost difference is overcome by the higher cost of terminalling and transporting methanol to a service station, due to the latter’s lower energy content per

gallon. With specially designed engines, however, the methanol could be used with about 10

to 20 percent higher efficiency than gasoline. This

would reduce the apparent cost of methanol,

making it slightly less expensive (cost per mile)

than synthetic gasoline. * Successful development

of direct injected stratified-charge engines would

eliminate this advantage, while successful development of advanced techniques for using methanol as an engine fuel could increase methanol’s

advantage. * *

This analysis shows that there is much uncertainty in these types of cost estimates, and they

should be treated with due skepticism. The estimates are useful as a general indication of the

likely cost of synfuels, but these and any other

cost estimates available at this time are inadequate to serve as a principal basis for policy decisions that require accurate cost predictions with

consequences 10 to 20 years in the future.

*lf gasoline has a $0.10/gge advantage in delivered fuel price

for synfuels costing $1 .50/gge, methanol would have an overall

$0.20/gge advantage when used with a specially designed engine.

This could pay for the added cost of a methanol engine in 2 to 4

years (assuming 250/gge consumed per year).

**For example, engine waste heat can be used to decompose

the methanol into carbon monoxide and hydrogen before the fuel

is burned. The carbon monoxide/hydrogen mixture contains 20 percent more energy than the methanol from which it came, with the

energy difference coming from what would otherwise be waste heat.

DEVELOPING A SYNFUELS INDUSTRY

Development of a U.S. synfuels industry can and proven and commercial-scale operation esbe roughly divided into three general stages. Dur- tablished. The second phase consists of expanding the first phase, processes will be developed ing the industrial capability to build synfuels
176 ● Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

plants. in the third stage, ynfuels production is

brought to a level sufficient for domestic needs

and possibly export. Current indications are that

the first two stages could take 7 to 10 years each.

Some of the constraints on this development are

considered next, followed by a description of two

synfuels development scenarios.

Constraints

A number of factors could constrain the rate

at which a synfuels industry develops. Those

mentioned most often include:

●

●

●

Other Construction Projects. –Construction

of, for example, a $20 billion to $25 billion

Alaskan natural gas pipeline or a $335 billion

Saudi Arabian refinery and petrochemical industry, if carried out, would use the same

international construction companies, technically skilled labor, and internationally marketed equipment as will be required for U.S.

synfuel plant construction.26 

Equipment. –Building enough plants to produce 3 million barrels per day (MMB/D) of

fossil synfuels by 2000 will require significant

fractions of the current U.S. capacity for producing pumps, heat exchangers, compressors and turbines, pressure vessels and reactors, alloy and stainless steel valves, draglines, air separation (oxygen) equipment, and

distillation towers.27 28 29 30

critical Materials. -Materials critical to the

synfuels program include cobalt, nickel,

molybdenum, and chromium. Two independent analyses concluded that only chromium is a potential constraint.31 32 (Currently, 90 percent of the chromium used in the

United States is imported.) However, development of 3 MMB/D of fossil synfuels production capacity by 2000 would require only

Zbgusiness Week, Sept. 29, 1980, P. 83.

Zzjbido

zBBechtel International, Inc., “Production of Synthetic Liquids

From Coal: 1980-2000, A Preliminary Study of Potential impediments,” final report, December 1979.

Z9TRW, op. cit.

JoMechanical Technology, Inc., “An Assessment of Commercial

Coal Liquefaction Processes Equipment Performance and Supply,”

January 1980.

31 [bid.

JzBechtel International, InC., op. cit.

●

●

●

●

●

●

7 percent of current U.S. chromium consumption .33

Technological Uncertainties. -The proposed

synfuels processes must be demonstrated

and shown to be economic on a commercial scale before large numbers of plants can

be built.

Transportation. — If large quantities of coal

are to be transported, rail lines, docks, and

other facilities will have to be upgraded.34

New pipelines for syncrudes and products

will have to be built.

Manpower.–A significant increase in the

number of chemical engineers and project

managers will be needed. For example,

achieving 3 MMB/D of fossil synfuels capacity by 2000 will require 1,300 new chemical

engineers by 1986, representing a 35-percent

increase in the process engineering work

force in the United States.35 More of other

types of engineers, pipefitters, welders, electricians, carpenters, ironworkers, and others

will also be needed.

Environment, Health, and Safety. -Delays in

issuing permits; uncertainty about standards,

needed controls, and equipment performance; and court challenges can cause delays

during planning and construction (see ch.

10). Conflicts over water availability could

further delay projects, particularly in the

West (see ch. 11).

Siting. –Some synfuels plants will be built in

remote areas that lack the needed technical

and social infrastructure for plant construction. Such siting factors could, for example,

increase construction time and cost.

Financial Concerns. –Most large synfuels

projects require capital investments that are

large relative to the total capital stock of the

company developing the project. Consequently, most investors will be extremely

cautious with these large investments and

banks may be reluctant to loan the capital

without extensive guarantees.

JJlbid.

JdThe Direct Use of Coal: Prospects and Problems of Production

and Combustion, OTA-E-86 (Washington, D. C.: U.S. Congress, Office of Technology Assessment, April 1979).

JsBechtel International, Inc., Op. cit.
Ch. 6—Synthetic Fuels . 177

None of these factors can be identified as an

overriding constraint for coal-derived synfuels,

although the need for commercial demonstration

and the availability of experienced engineers and

project managers appear to be the most important. There is still disagreement about how important individual factors like equipment availability actually will be in practice. However, the

more rapidly a synfuels industry develops, the

more likely development will cause significant inflation in secondary sectors, supply disruptions,

and other externalities and controversies. But the

exact response of each of the factors in synfuels

development is not known. For oil shale, on the

other hand, the factor (other than commercial

demonstration) that is most likely to limit the rate

of growth is the rate at which communities in the

oil shale regions can develop the social infrastructure needed to accommodate the large influx of

people to the region.36

The major impacts of developing a large synfuels industry are discussed in chapters 8 through

10, while two plausible synfuels development

scenarios are described below.

Development Scenarios

Based on previous OTA reports37 38 estimates

of the importance of the various constraints discussed above, and interviews with Government

and industry officials, two development scenarios

were constructed for synthetic fuels production.

It should be emphasized that these are not projections, but rather plausible development scenarios under different sets of conditions. Fossil

synthetics are considered first, followed by biomass synfuels; and the two are combined in the

final section.

Fossil Synfuels

The two scenarios for fossil synthetics are

shown in table 49 and compared with other estimates in figure 16. It can be seen that OTA sce-

—.—— .

jbAn Assessment of Oil shale Technologies, Op. cit.

Jzlbici.

j8Energy From 6io/ogica/ f%m?Sses, Op. C It.

Table 49.—Fossil Synthetic Fuels

Development Scenarios (MMB /DOE)

Year

Fuel 1980 1985 1990 1995 2000

Low estimate

Shale oil . . . . . . . . . . . . . — O 0.2 0.4 0.5

Coal liquids . . . . . . . . . . — — 0.1 0.3 0.8

Coal gases . . . . . . . . . . . — 0.09 0.1 0.3 0,8

Total . . . . . . . . . . . . . . — 0.1 0.4 1.0 2.1

High estimate

Shale oil . . . . . . . . . . . . . — O 0.4 0.9 0.9

Coal liquids . . . . . . . . . . — — 0.2 0.7 2.4

Coal gases . . . . . . . . . . . — 0.09 0.2 0.7 2.4

Total . . . . . . . . . . . . . . — 0.1 0.8 2.3 5.7

SOURCE: Office of Technology Assessment

narios are reasonably consistent with the other

projections, given the rather speculative nature

of this type of estimate.

In both scenarios, the 1985 production of fossil

synthetic fuels consists solely of coal gasification

plants, the only fossil synfuels projects that are

sufficiently advanced to be producing by that

date. For the high estimate it is assumed that eight

oil shale, four coal indirect liquefaction, and three

additional coal gasification plants have been built

and are operating by 1988-90. If no major technical problems have been uncovered, a second

round of construction could proceed at this time.

Assuming that eight additional 50,000-bbl/d

plants are under construction by 1988 and that

construction starts on eight more plants in 1988

and the number of starts increases by 10 percent

per year thereafter, one would obtain the quantities of synfuels shown for the high estimate. Tenpercent annual growth in construction starts was

chosen as a high but probably manageable rate

of increase once the processes are proven.

Oil shale is assumed to be limited to 0.9 MMB/

D because of environmental constraints and, possibly, political decisions related to water availability. Some industry experts believe that neither of

these constraints would materialize because, at

this level of production, it would be feasible to

build aqueducts to transport water to the region,

and additional control technology could limit
178 . Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

Figure 16.—Comparison of Fossil Synthetic Fuel Production Estimates

plant emissions to an acceptable level. If this is

done and salt leaching into the Colorado River

does not materialize as a constraint, perhaps

more of the available capital, equipment, and

labor would go to oil shale and less to the alternatives.

The low estimate was derived by assuming that

project delays and poor performance of the first

round of plants limit the output by 1990 to about

0.4 MMB/D. These initial problems limit investment in new plants between 1988-95 to about

the level assumed during the 1981-88 period, but

the second round of plants performs satisfactorialIy. This would add 0.6 MMB/D, assuming that the

first round operated at 60 percent of capacity,

on the average, while the second round operated

at 90 percent of capacity (i.e., at full capacity 90

percent of the time). Following the second round,

new construction starts increase as in the high

estimate.

In both estimates, it is assumed that about half

of the coal synfuels are gases and half are liquids.
Ch. 6—Synthetic Fuels . 179

This could occur through a combination of plants

that produce only liquids, only gases, or liquid/gas

coproducts. Depending on markets for the fuels,

the available resources (capital, engineering firms,

equipment, etc.) could be used to construct facilities for producing more synthetic liquids and less

synthetic gas without affecting the synfuels total

significantly.

When interpreting the development scenarios,

however, it should be emphasized that there is

no guarantee that even the low estimate will be

achieved. Actual development will depend critically on decisions made by potential investors

within the next 2 years. I n addition to businesses’

estimates of future oil prices, these decisions are

likely to be strongly influenced by availability of

Federal support for commercialization, in which

commercial-scale process units are tested and

proven. Unless several more commercial projects

than industry has currently announced are initiated in the next year or two, it is unlikely that

even the low estimate for 1990 can be achieved.

Biomass Synfuels

Estimating the quantities of synfuels from biomass is difficult because of

Box D.-Definitions of

and Commercial-Scale

the lack of data on

Demonstration

Plants

. After laboratory experiments and bench-scale

testing show a process to be promising, a

demonstration plant may be built to futher test

and “demonstrate” the process, This plant is not

intended to be a moneymaker and generally has

a capacity of several hundred to a few thousand

barrels per day. The next step may be various

stages of scale up to commercial scale, in which

commercial-scale process units are used and

proven, although the plant output is less than

would be the case for a commercial operation.

For synfuels, the typical output of a commercial

unit may be about 10,000 bbl/d. A commercial

plant would then consist of several units operating in parallel with common coal or shale

handling and product storage and terminal facilities.

the number of potential users, technical uncertainties, and uncertainties about future cropland

needs for food production and the extent to

which good forest management will actually be

practiced. OTA has estimated that from 6 to 17

quadrillion Btu per year (Quads/yr) of biomass

could be available to be used for energy by 2000,

depending on these and other factors.39g At the

lower limit, most of the biomass would be used

for direct combustion applications, but there

would be small amounts of methanol, biogas, ethanol from grain, and gasification as well.

Assuming that 5 Quads/yr of wood and plant

herbage, over and above the lower figure for bioenergy, is used for energy by 2000 and that 1

Quad/yr of this is used for direct combustion,

then about 4 Quads/yr would be converted to

synfuels. If half of this biomass is used in airblown

gasifiers for a low-Btu gas and half for methanol

synthesis (60 percent efficiency), this would result

in 0.9 million barrels per day oil equivalent

(MMB/DOE) of low-Btu gas and 0.6 MMB/DOE

of methanol (19 billion gal/yr). *

The 0.9 MMB/DOE of synthetic gas is about 5

percent of the energy consumption in the residential/commercial and industrial sectors, or 9

percent of total industrial energy consumption.

Depending on the actual number of small energy

users located near biomass supplies, this figure

may be conservative for the market penetration

of airblown gasifiers. Furthermore, the estimated

quantity of methanol is contingent on: 1) development of advanced gasifiers and, possibly, prefabricated methanol plants that reduce costs to the

point of being competitive with coal-derived

methanol and 2) market penetration of coalderived methanol so that the supply infrastructure and end-use markets for methanol are readily

available. OTA’s analysis indicates that both assumptions are plausible.

In addition to these synfuels, about 0.08 to 0.16

MMB/DOE (2 billion to 4 billion gal/yr) of ethanol* * could be produced from grain and sugar

JglbidO

*If advanced biomass gasifiers methanol can be produced with

an overall efficiency of 70 percent for converting biomass to methanol, this figure will be raised to 0.7 MMB/DOE or 22 billion gal/yr.

**Caution should be exercised when interpreting the ethano( {evels, however, since achieving this level will depend on a complex

balance of various forces, including Government subsidies, market

demand for gasohol, and gasohol’s inflationary impact on food

prices.
180 . Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

crops, and perhaps 0.1 MMB/DOE of biogas and

SNG from anaerobic digestion. * Taking these

contributions together with the other contributions from biomass synfuels results in the high and

low estimates given in table 50.

Summary

Combining the contributions from fossil and

biomass synfuels results in the two development

*The total potential from manure is about 0.14 MMB/DOE, but

the net quantitity that may be used to replace oil and natural gas

is probably no more than so percent of this amount. In addition,

there may be small contributions from municipal solid waste and,

possibly, kelp.

Table 50.—Biomass Synthetic Fuels

Development Scenarios (MMB /DOE)

Year

Fuel 1980 1985 1990 1995 2000

Low estimate

Methanol ab

. . . . . . . . . . . – (e) (e) (e) 0.1

Ethanol c 

. . . . . . . . . . . . . (e) (e) (e) (e) (e)

Low- and

medium-energy

fuel gas a 

. . . . . . . . . . . (e) (e) (e) 0.1 0. 1

Biogas and methane d 

. . (e) (e) (e) (e)

Total . . . . . . . . . . . . . . (e) (e) (e) 0.2 0.3

High estimate

Methanol ab

. . . . . . . . . . . – (e) 0.1 0.3 0. 6

Ethanol c 

. . . . . . . . . . . . . (e) (e) 0.1 . .

Low- and

medium-energy

fuel gas. . . . . . . . . . . . (e) 0.1 0.3 0.7 0. 9

Biogas and methane d 

. . (e) (e) 0.1 0.2 0. 2

Total . . . . . . . . . . . . . . (e) 0.1 0.6 1.3 1.8

aFr~rn ~OOd and plant herbage and possibly municiPal solid waste.

bEthanol could also be produced from wood and plant herbage, but methanol

Is likely to be a less expensive liquid fuel from these sources.

cFrom grains and sugar croPs.

dFrom an{mal msnure, municipal solid waste, and, possibly, kelp.

eLess than 0,1 MMB/DOE.

SOURCE: Office of Technology Assessment.

scenarios shown in figure 17. Coal-derived synfuels provide the largest potential. Ultimately,

production of fossil synfuels is likely to be limited

by the demand for the various synfuel products,

the emissions from synfuels plants, and the cost

of reducing these emissions to levels required by

law. Beyond 2000, on the other hand, synfuels

from biomass may be limited by the resource

availability; however, development of energy

crops capable of being grown on land unsuitable

for food crops, ocean kelp farms, and other speculative sources of biomass could expand the resource base somewhat.

1980 1985 1990 1995 2000

Year

SOURCE: Office of Technology Assessment.
Chapter 7

Stationary Uses of Petroleum
Contents

Page

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183

Current Situation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183

Future Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 184

Fuel Switching . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185

Conservation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .., O........ 188

Discussion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191

TABLES

Table No. Page

51. U.S. Petroleum Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 184

52. 1980 Petroleum Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 184

53.1990 EIA Petroleum Demand Forecast for Stationary Fuel Uses . . . . . . . . . 184

54. Summary of Energy Requirements for Displacing 1990 Fuel 0il . . . . . . . . . 186

55. Annual Replacement Energy Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . 188

56. Investment Costs For Fuel Oil Replacement Energy . . . . . . . . . . . . . . . . . . . 188

57. Energy Made Available by Conservation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189
Chapter 7

Stationary Uses of Petroleum

INTRODUCTION

Stationary users–buildings, industry, and electric utilities—consumed about 8.1 million barrels

per day (MMB/D) of petroleum products in 1980.

While the potential for reducing oil use by these

sectors is well recognized, it has not received as

much attention as oil reduction opportunities in

transportation. Indeed, U.S. energy policies in the

1970’s implicitly encouraged increased oil use for

stationary purposes. Lately, however, policy objectives have been set to encourage reduction in

oil use by fuel switching and conservation. These

objectives include conservation goals and incentives to increase energy use efficiency by buildings and industry, and fuel-switching goals to convert utility and large industrial boilers from oil and

natural gas to coal.

This section examines the current mix of petroleum products used in the stationary sector and

recent trends. A Department of Energy forecast

of stationary demand on petroleum products was

selected to serve as a baseline. This will be used

to provide estimates of the volume of fuel oil that

can be saved by either conservation or conversion to new natural gas and electricity. Readers

should note that these estimates only describe

reductions in oil use that are technically and economically plausible. Whether the estimated reductions are actually realized depends on how

numerous energy users and producers react to

Photo credit: Department of Energy

Cracks and very narrow spaces, such as those around

window framing are insulated to increase

energy use efficiency

economic incentives and other factors affecting

their choices. Some of these factors are discussed

at the end of this section.

CURRENT SITUATION

Table 51 shows petroleum use by the stationary

and transportation sectors since 1965.

Stationary sectors have accounted for 45 to 48

percent of total petroleum demand over this period. Demand growth has occurred in industry and

electric utilities as a result of natural-gas curtailments during the 1970’s, environmental restrictions on coal, and the rapid increase in electricity demand since about 1973. The type of petroleum product used is also important, since we

are primarily concerned with products most readily converted to transportation fuels. Table 52

shows the distribution of major petroleum products for 1980 among the stationary and transportation sectors.

As fuel, the stationary sectors consume principally middle distillates and residual oil. The

major components of the other category includes

petrochemical feedstocks, asphalt, petroleum

coke, and refinery still gas. These are unlikely

183

98-281 0 - 82 - 13 : ~IL 3
184 Ž Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

Table 51 .–U.S. Petroleum Demand (MMB/D)

Stationary Transportation

Year Industry Buildings Utilities Total Total

1965 2.2 3.0 0.3 5.5 6.0

1970 2.5 3.5 0.9 6.9 7.8

1975 2.8 3.2 1.4 7.4 8.9

1980 3.6 2.9 1.6 8.1 8.7

SOURCE: Department of Energy, Energy Information Administration, fWAmrua/

Report to Congress, vol. Il.

candidates for conversion to transportation fuels

because modifications to refineries would be required far beyond those needed to convert residual fuel oil. ’ Further, some of these products,

such as the petrochemical feedstocks and asphalt,

could only be replaced by synthetic liquids. The

liquefied petroleum gases (LPGs) can be used directly as a transportation fuel, as is the case with

cars and trucks that have been modified to run

1 Refining Flexibility (Washington, D. C.: National Petroleum Council, 1980).

on propane. Widespread adoption will depend

principally on the relative cost of propane compared with gasoline, diesel fuel, and methanol

when the cost of motor vehicle conversion is included.

Since the current price of natural gas liquids–

the major source of propane–is and is likely to

remain as high as the price of domestic crude oil,

a significant shift to propane-powered vehicles

is not likely. Therefore, LPG was not considered

in this analysis of stationary fuel use. The major

target of fuel switching and conservation, then,

is the 4.4 MMB/D of distillate and residual fuel

oil in current use. They can be used as a transportation fuel, although it will be necessary to upgrade residual fuel to gasoline and middle distillates by modifying the refinery process. Such

modification is under way but will require considerable time and investment.2

20il and Gas Journa[ Jan. 5, 1981, p. 43.

Table 52.—1980 Petroleum Demand (MMBD )

a

Stationary Transportation

Product Buildings Industry Electricity Total Total

Gasoline. . . . . . . . . . . . . . . . 0 0 0 0 6.3

Distillate. . . . . . . . . . . . . . . . 1.0 0.7 0.2 1.9 0.95

Residual . . . . . . . . . . . . . . . . 0.5 0.65 1.3 2.45 0.4

Jet . . . . . . . . . . . . . . . . . . . . . o 0 0 0 1.1

LPG . . . . . . . . . . . . . . . . . . . . 0.3 0.7 0 1.0 0

Other. . . . . . . . . . . . . . . . . . . 0.7 2.0 0 2.7 0.2

%iven in terms of product equivalent–5.5 million Btu per Barrel.

SOURCE: Department of Energy, Energy Information Administration, 1980 Annua/ Report to Congress, vol. Il.

Over the next decade some of this 4.4 MMB/D

will be eliminated by fuel switching and conservation as the price of oil rises. Indeed, a decline

of 1.1 MMB/D took place between 1979 and

1980.3 How much more is possible by 1990 depends on future oil prices, the costs of alternatives, the ability to finance these alternatives, and

environmental and regulatory factors. The 1980

Energy Information Administration (EIA) estimate

of 1990 demand is shown in table 53. This foreTable 53.—1990 EIA Petroleum a Demand Forecast for

Stationary Fuel Uses (MMB /D)

b

Product Buildings Industry Electricity Total

Distillate. . . . . . . . 0.9 0.1 0.15 1.4

Residual . . . . . . . . 0.3 0.2 0.9 1.15

Total . . . . . . . . . . . 1.2 0.3 1.05 2.55

aThe “other” and LpG category of stationary petroleum demand is fOrecSSt to

remain at its 1980 level of 3.8 MMB/D. This category, however, would then increase from 48 percent of all stationary uses in 1980 to 60 percent In 1990. It

has proven to be much less eiastlc to fuel price increases since 1973 than the

distillate–residuai fuel categow.

bBarrei of product—5.5 MMBtu Per barrel.

J 1980 Annua/ Repoti to Congress, VOI. 2, DOEIEIA-01 73(80)/2

(Washington, D. C.: U.S. Department of Energy, Energy information Administration, 1980).

SOURCE: Department of Energy, Energy Information Administration, Arrnua/

Report to Congress, vol. Ill.
Ch. 7—Stationary Uses of Petroleum • 185

cast is based on a 1990 oil price of $45 per barrel (bbl) (in 1980 dollars).

The forecast reduction of 1.8 MM B/D over the

next 10 years (from 4.4 MMB/D in 1980 to 2.6

MMB/D in 1990) would be accomplished by

more efficient use, and by conversion to coal,

electricity, and natural gas. Beyond 1990, continued reduction can be expected, particularly

in the electric utility sector, if the economic advantages of alternate fuels and conservation continue.

For the purpose of this study, OTA determined

the technology (alternate fuels, conservation) and

investment necessary to eliminate this 2.6-

MMB/D usage during the 1990’s. This is about

the same level of reduction that can be achieved

by going from a new-car fleet average of 30 miles

per gallon (mpg) in 1985 to an average of 65 mpg

in 1995, * and is close to the target synthetic fuels

production level by 1992 set forth in the Energy

Security Act.4 Therefore, it provides a good com-

*See ch. 5, p. 127.

4

42 USC 8701, Energy Security Act, June 30, 1980.

parison for the remainder of the study. The rest

of this chapter describes how this elimination

might be achieved and what it might cost.

First, fuel switching alone is considered, and

second, conservation. OTA did not attempt to

estimate a timetable other than to assume that

the reductions take place throughout the 1990’s.

This is consistent with the time needed to introduce similar savings from increased auto efficiency or from synthetic fuels production. * Where

possible, serious time constraints that may appear are mentioned. The focus, however, is on

investment costs and resource requirements. It

is important to emphasize that because OTA’s

calculations were based on the EIA 1990 forecast,

costs of fuel switching and conservation necessary to go from the 1980 to 1990 levels of fuel

oil consumption were not counted. This somewhat arbitrary decision will bias against conservation and fuel switching, since the least costly

steps are expected to be taken first, during the

1980’s.

*See ch. 5, p, 127; ch. 6, p. 177.

FUEL SWITCHING

The prime candidates for eliminating this 2.6

MMB/D of fuel oil by fuel switching are natural

gas, coal, and electricity from coal and natural

gas. Indeed, a considerable amount of the oil

now used by industry (about 20 percent) is a

result of converting from natural gas to oil during the mid-l970’s.5 This was partially a result of

the Federal curtailment policy for natural gas that

gave low priority in many industrial applications

(primarily boilers). Further, the uncertainty of

supply that existed during that same period

caused industry to switch other applications from

natural gas to oil as well. In the buildings sector,

“scarcity” of natural gas during the 1970’s, combined with the rapid rise in its price, caused a

temporary halt in the growth rate of natural gas

5

1980 Annual Report to Congress, Vol. 2, op. cit., pp. 65 and

107. This claim is inferred from these two tables which show a drop

in natural gas consumption by industry between 1974 to 1979 of

over 20 percent and a corresponding increase in industrial oil consu mption.

use. There was no corresponding growth in petroleum use, however, unlike the case with industry, since electricity was the primary replacement energy.

Complete replacement of fuel oil in buildings

by natural gas alone would require about 2.4 trillion cubic feet per year (TCF/yr), assuming current end-use efficiency. If only electricity were

used, 425 billion kWh/yr of delivered electric

energy would be needed assuming an end-use

efficiency increase of 67 percent. * By 1990, most

of the industrial processes that can use coal (primarily large boilers) will have been converted because of the large difference in coal and oil prices

that currently exists.6 If all the remaining fuel oil ——-. —

*Assuming heat pumps (water and space) with a seasonal performance factor of 1.25 compared to oil furnaces with a seasonal

performance factor of 0.75.

bcost and Qua/@ of Fuels for Electric Utility Plants, FebruaT 1981,

DOE/EIA-0075(81 /02) (Washington, D. C.: U.S. Department of

Energy, Energy Information Administration, 1981), p. 3.
186 ● Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

used by industry were displaced by natural gas

alone, 0.6 TCF/yr would be required, assuming

no change in end-use efficiency. If electricity

alone were used, about 120 billion kWh/yr of delivered electric energy would be needed, assuming a 50-percent increase in end-use efficiency. *

For electric utilities, residual fuel oil is primarily

used in baseload steam plants, while distillate oil

is used for peaking turbines. To replace the former by coal would require 135 million tons, and

to replace the latter by natural gas would require

0.3 TCF/yr. ** Table 54 summarizes the amount

of energy needed to replace oil in each sector,

assuming that each substitute energy source is

used exclusively.

The first question to ask is whether these substitute resources will be available. Forecasts for domestic natural gas production during the 1990’s

by Exxon and EIA are about 14 to 16 TCF/yr.7

Of this, about 70 percent will come from existing

reserves, while the remaining will come from new

reserves including so-called unconventional gas;

i.e., gas from tight sands, geopressured brine, coal

seams, and Devonian shale. These latter resources are of particular interest since they are

the likely source of any domestic natural gas,

above that now forecast, that would be needed

to replace stationary fuel oil during the 1990’s.

*Assuming an end-use efficiency of 100 percent for electric heat,

compared with 67 percent for oil-fired units. If combustion turbines

are replaced by electric motors for mechanical drive a similar increase will occur.

**It was assumed that there would be no change in conversion

efficiency upon replacing the residual and distillate oil generation

by coal and natural gas generation.

TEnergy Out/ook 19802&X.1 (Houston, Tex.: Exxon CO., U. S. A.,

December 1980), p. 10; 1980 Anrwa/ Report to Congress, Vo/. 3,

DOE/EIA 01 73(80)/3 (Washington, D. C.: U.S. Department of Energy,

Energy Information Administration, 1980), p. 87.

EIA currently forecasts unconventional gas production increasing from 1.3 TCF in 1990 to 4.4

TCF in 2000 at a production cost of about $5.50

to $6.50/MCF (in 1980 dollars). 8 EIA predicts,

however, that additional volumes of unconventional gas will become available in the 1990’s if

natural gas reaches what would then be the world

price of oil (about $56/bbl in 1980 dollars). The

National Petroleum Council recently made a similar claim, predicting as much as an additional

10 TCF/yr becoming available by 2000.9 Therefore, it appears that production of an additional

3.3 TCF/yr (relative to that now forecast by EIA

and Exxon) could be possible by the mid-l990’s

at gas production prices equivalent to about

$56/bbl of oil (1980 dollars).

These cost estimates are subject to a great deal

of uncertainty, however, and the actual cost of

this unconventional gas could be considerably

higher. There is less uncertainty about the ability

to produce this gas increment from unconventional sources—particularly tight sands–but other

alternatives, including synthetic natural gas from

coal, may be cheaper.

Next, consider electricity. Current generation

capacity in the United States is 600,000 MW (including 100,000 MW using oil) operating at an

overall capacity factor of 45 percent.10 Although

increasing the capacity factor to 65 percent while

concurrently converting all oil units to coal would

provide the quantity of electricity needed (see

table 54), that path may not be practical. The pro-

‘i bid., p. 88.

qUnconventiona/ Gas %urces, boecutive Summary, Washington,

D. C.: National Petroleum Council, December 1980), p. 5.

IOE/~trjc Power Supp/y and Demand, 1981- 19W (Princeton, N. J.:

National Electric Reliability Council, July 1981).

Table 54.-Summary of Energy Requirements for Displacing 1990 Fuel Oil

Replacement energy sources

1990 petroleum forecast Natural gas Electricity Coal

(EIA) (MMB/D) (TCF) (billion kWh) (million tons)

Buildings. . . . . . . . . . 1.2 2.4 425 —

Industry. . . . . . . . . . . 0.3 0.6 120 —

Utilities . . . . . . . . . . . 0.9 (residual) — — 135

0.15 (distillate) 0.3 — —

Total . . . . . . . . . . . 2.55 3.3 545 135

SOURCE: Office of Technology Assessment.
Ch. 7—Stationary Uses of Petroleum • 187

file describing the fuel oil load of buildings for

heating peaks rather sharply during the winter,

and nearly all of the electric energy required to

replace fuel oil would need to be generated during the 5 months of the heating season. Since the

load profile is the primary determinant of the capacity factor, conversion to electric space and

water heating will likely do little to increase the

overall capacity factor. Therefore, as much as

120,000 MW of new capacity may be needed.*,

The ease with which this much capacity could

be added depends on the growth rate for electricity for the remainder of the century in the absence of this oil-to-electricity conversion (underlying rate), and the financial health of the electric utility industry. These two points are obviously related because an industry which has difficulty

raising capital, as is now the case,11 will have difficulty meeting new generation requirements of

any kind. Currently forecasts of the electric demand growth rate range from near zero (by the

Solar Energy Research Institute (SERl))12 to about

3.8 percent per year (by the National Electric Reliability Council).13

In the latter case, capacity additions become

so great during the 1990’s that the full increment

of capacity needed for fuel oil replacement

(120,000 MW) could be met if the underlying rate

dropped to 3.2 percent per year but the utilities

continued building at 3.8 percent per year. If

growth of electricity demand in the absence of

our hypothetical fuel switching dropped to 2 percent per year, a capacity addition rate of 3 percent per year would meet both underlying demand and the fuel-switching demand. Under

these conditions, annual capital requirements

would be approximately $25 billion to $35 billion

(1980 dollars) and annual capacity addition

would average about 27,000 MW. These are values below those attained by the utility industry

*This is the capacity required to produce 54s billion kWh operating at the current coal-fired average capacity factor of 52 percent.

11 “The Current Financial Condition of the Investor-Owned Electric Utility Industry and Possible Federal Actions to Improve It, ”

Edison Electric Institute before the Federal Energy Regulatory Commission, Mar. 6, 1981.

IZ~u;/~;ng a S~sta;na~/e Future, Vo/. Z, prepared by the Solar

Energy Research Institute, Committee on Energy and Commerce,

U.S. House of Representatives, Washington, D. C., April 1981, p.

837.

13E/ectric power supply and Demand, 1981-1990, op. cit.

during the early 1970’s.14 This is manageable provided the current financial problems are solved.

If not, providing the replacement electricity from

new capacity is unlikely.

Finally, there is the question of conversion of

the electric powerplants that will still be burning oil in 1990 to other fuels (primarily coal).

There should be little difficulty producing the extra coal for conversion of the plants burning residual fuel oil.15 Further, as seen above, the natural

gas could be available as a fuel in those plants

burning distillate. There are barriers to converting existing plants including environmental problems of coal, the technical problems in actually

converting many of these powerplants, and difficulties in financing the conversion projects. In

many cases it may be less costly to build a new

powerplant at a different site and retire the existing oil-fired plant.

Considering the physical requirements alone,

however, there could be adequate supplies, during the 1990’s, to replace 2.6 MMB/D of distillate

and residual fuel oil by some combination of natural gas and electricity along with coal (or possibly nuclear) to replace the oil-fired electric utility

boilers.

Although the cost of this process is difficult to

calculate, it is possible to make an estimate by

making several arbitrary, but plausible assumptions based on the above analysis and current

operating conditions. First, it is assumed that

natural gas replaces all of the fuel oil used by industry and utility combustion turbines, and half

the heating oil used by buildings. Second, it is

assumed that electricity is used to replace the

other half of the heating oil used by buildings.

Finally, all electric powerplants using residual fuel

oil are replaced by coal conversions or new coalfired powerplants. Table 55 summarizes the

replacement energy requirements for this scenario.

To estimate the costs of eliminating this 2.6

MMB/D of fuel oil by fuel switching, the following costs (in 1980 dollars) for the replacement

energy were used:

ldE/ectrjca/ World, Sept. 15, 1980, P. 69.

I SThe Direct Use of Coa[ OTA-E-86 (Washington, D. C.: U.S. congress, Office of Technology Assessment, April 1979).
188 ● Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil /reports

Table 55.—Annual Replacement

Energy Requirements a

Electric

Buildings Industry utilities Total

Natural gas (TCF) . . . 1.2 0.6 0.3 2.1

Electricity (billion

kWh) . . . . . . . . . . . . 225 b 

– — 225

Coal (million tons) . . – – 135 C135

aA99umes an increase in end-use efficiency of 67 percent when switching from

fuel oil to electdcity for space or water heating and no change when switching

from fuel oil to natural gee in any of the three sectors.

bRequ}re9 50,000 MW operating at a 50 percent capacity factor.

c Assumes the l= oil-fired capacity, which is now forecast to OPerate at a 35

percent capacity factor (N ERC), can be replaced by 55,000 MW of coal-fired

capacity operating at 57.5 percent capacity factor.

SOURCE: Off Ice of Technology Assessment.

1. New coal-fired electric powerplants cost

$900/kW, including all necessary environmental controls.16

2. Investment costs for natural gas from unconventional sources (tight sands) are approximately $16,500/MCF per day. ” Operating

costs, including transmission and distribution, are about $1.30/MCF.

18

3. The investment cost for new coal surface

mines is approximately $9,000/ton of coal

per day. Operating costs are about $6.50/

ton.19

4. The cost to convert oil fired capacity to coal

is estimated at $600/kW.20

All of these costs are in 1980 dollars. Therefore,

they will underestimate the actual costs of conIG~ec~~;Cal ASSeSS~e~t Guide, EPRI PS-1 201 -SR (Palo Alto, Calif.:

Electric Power Research Institute, July 1979), pp. 8-11.

I TUnconventjona/ Gas Sources, Tight Gas Reservoirs, Part 1, op.

cit., pp. E-1 15.

l

a

’’ Natural Gas Issues” (Arlington, Va.: American Gas Association, May 1981), p. 8.

19’’Comparative Analysis of Mining Synfuels” (Los Angeles, Calif.:

Fluor Corp., 1981).

20’’The Regional Economic Impacts on Electricity Supply of the

Powerplant and Industrial Fuel Use Act and Proposed Amendments” (Washington, D. C.: Edison Electric Institute, April 1980),

p. 37.

version in the 1990’s to the extent there are real

increases in these costs between new and the

mid-1990’s. Cost estimates are also needed for

the end-use equipment. This was simplified by

assuming no change is needed for industry and

combustion turbines in converting from distillate

to natural gas. For buildings, heat pumps are used

when electricity is the new energy source, and

new gas furnaces are used for natural gas. Based

on current retail estimates these costs are $2,000

and $1,200, respectively (1980 dollars), for units

capable of delivering 100 million Btu of heat per

heating season, and having the capacity to meet

the peak-hour heating Ioad.21 Table 56 summarizes the investment costs per barrel per day replaced for each sector.

The total investment, obtained by multiplying

the per unit investment (table 56) by the amount

of oil replaced (table 55), is about $230 billion

(1980 dollars). These estimates include production of the energy resource (electric generating

plants, natural gas, and coal mines) and end-use

equipment when needed. They do not include

costs to construct new transmission and distribution facilities that might be needed. This omission will be discussed below.

zlAcademy Airconditioning Co., Rockville, Md., private communication.

Table 56.—investment Costs For

Fuel Oil Replacement Energy a b

Buildings Industry Utilities

Natural gas . . . . . . . . . . . . 121,000 100,000 90,000

Electricity. . . . . . . . . . . . . . 110,000 – –

Coal. . . . . . . . . . . . . . . . . . . – – 54,000

aDollars per barrel of oil replaced per day.

b Includes investment cost necessary to upgrade the replaced residual fuel oil

to gasoline and diesel where applicable. Cost is $14,000/bbi of residual per day

on the average, Purvin and Gertz, Inc., An Analysis of Potential for Upgradhrg

Oomest/c Refkrk!g Capacity, prepared for the American Gas Association, ArIlngton, Va., March 1960.

SOURCE: Office of Technology Assessment.

CONSERVATION

The other major alternative for reducing oil use enough natural gas and electricity to substitute

in the stationary sectors is conservation. Conser- for the remaining fuel oil. There have been nuvation cannot completely eliminate fuel oil use merous estimates of conservation potential for

by itself–but it can reduce it, and possibly free buildings and industry in the past several years.
Ch. 7—Stationary Uses of Petroleum • 189

The most detailed analysis is that recently completed by SERI.22

The SERI estimates are used to examine the

possibility of and potential costs for eliminating

stationary uses of fuel oil over the period

1990-2000. OTA has used the SERI analysis of

conservation measures in the buildings sector to

obtain an approximation of the costs of eliminating the remaining stationary uses of fuel oil in all

sectors in the 1990-2000 period. These conservation measures reduce the use of fuel oil, electricity, and natural gas. The electricity and natural

gas saved is used to replace the fuel oil remaining after the conservation. In table 57, the SERI

projection for 2000 is given, by fuel, along with

the savings obtained relative to the 1990 baseline

demand (EIA forecast). The savings are the difference between the SERI 2000 projection and the

EIA 1990 forecast. * As shown in table 57, conservation could eliminate 67 percent of the fuel oil

used by buildings and provide more than enough

llBUllding-l Sustainable Future, op. cit., pp. s and 6.

*By using the 1990 EIA forecast rather than the 1990 SERI projection as the starting point, we have compressed some of the savings calculated by SE RI. They assumed that much of the savings

would occur between 1980 and 1990 with a result that their 1990

projection of fuel oil use is considerably below the EIA forecast.

Our calculation does not change the net savings but only the period

in which they could occur.

natural gas to eliminate the remaining fuel oil

used in both buildings and industry, as well as

distillate used by electric utilities. Finally, enough

electricity would be saved to replace the electricity produced by oil-fired generation (see table

54). The amount of natural gas and electricity

needed to do this are given in the last column

of table 57. About 65 percent of the SERI estimated savings for the buildings sector alone will

achieve the goal.

The SERI study estimated an investment cost

of $335 billion (in 1980 dollars) to achieve their

savings goals for 2000. * 23 If we arbitrarily allocate

these costs to the portion of the savings needed

solely for fuel oil elimination, the cost investment

for the scenario is about $215 billion (65 percent

of total). In addition, investment is needed in converting end-use equipment from fuel oil to natural

gas in buildings for oil not eliminated by conservation. Using the procedure described in the previous section, this amounts to about $10 billion.

The total investment for these measures is $225

billion–equivalent to $88,000/bbl of oil replaced

per day.

*Adjusted to reflect savings not accounted for by OTA’S choice

of base case.

Zjlbld.

Table 57.—Energy Made Available by Conservation

SERI demand EIA demand Savings Savings used for

Energy source estimate (2000) estimate (1990) by 2000 oil substitution

Fuel oil (MMB/D) . . . . . . . . . 0.4 1.2 0.8 —

Natural gas (TCF/yr). . . . . . . 4.5 7.8 3.3 1.7

Electricity (billion kWh/yr). . 1140 1580 440 250

SOURCE” Office of Technology Assessment.

DISCUSSION

The analysis described gives a plausible estimate of the technical and investment requirements of eliminating stationary uses of oil between 1990 and 2000. These requirements are

not forecasts, as mentioned above, but only describe what is technically and economically within reason. There are several items, however, that

were not considered in the calculation that will

affect these costs somewhat. In this section some

of the more important points are briefly discussed.

In calculating the costs of conversion to natural

gas and electricity the possibility was ignored that

new transmission and distribution equipment

would be needed. This also holds for the conservation case, since natural gas freed by conservation would need to be delivered to sites formerly
190 Ž Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

using fuel oil, and it is likely that new transmission and distribution facilities would be needed

for some of those locations. A transmission and

distribution operating cost for all the natural gas

conversions was included but this is not likely to

cover new construction where it is needed.

Similarly, the electricity made available by conservation may not be able to substitute for oilfired capacity without the construction of new

transmission lines. In a previous OTA study on

solar energy,24 the construction and operation

costs of both electric and natural gas transmission and distribution systems were calculated.

Using those values updated to 1980,25 it was

found in the worst case–electricity used to

replace oil for heat in buildings—that the cost of

oil replaced should be increased by about 20 percent. In all other cases the adjustment is less than

10 percent under the unlikely assumption that

all the replacement energy requires new transmission and distribution facilities.

Another point concerns the choice of conservation estimates. The SERI study is the most optimistic of several analyses which attempt to calculate

the potential for conservation under least cost

conditions. The calculations in the SERI study,

particularly for buildings, are based on the most

complete analysis to date of the thermal characteristics of buildings, and include extensive experimental data. Therefore, these engineering

and cost estimates can be considered as attainable.

Though the SERI calculations were used, it is

not explicitly or implicitly claimed that SERI conservation targets will be reached. In an OTA study

on building energy conservation recently completed it is estimated that only about 40 percent

of the targets will be reached under current

conditions.26 A number of economic constraints

and choices—including restrictive financial conditions, uncertainty of results, and high owner discount rates—will reduce the probability that these

zdApp/iCation of solar Technology to Today’s Ener~ Needs, VOI.

1, OTA-E-66 (Washington, D. C.: U.S. Congress, Office of Technology Assessment, june 1978), p. 140.

zSOi/ and Gas ]ourna~ Aug. 10, 1981, p. 76.

zbThe Energy Efficiency of Buildings in Cities, OTA-E-168 (Washington, D. C.: U.S. Congress, Office of Technology Assessment,

March 1982).

goals can be met. Even though it was not necessary to use the entire SERI estimate of savings to

achieve OTA’s hypothetical goal of eliminating

stationary fuel oil use, more than two-thirds was

still required. Therefore, while it is technically

possible to eliminate all stationary fuel oil use

through conservation, this is not likely to happen

under current conditions.

The final point concerns conversion of oil-fired

electric generation capacity to coal. Although the

high end of the range of estimates for conversion

costs was used, in some instances even this will

be insufficient. There will be sites where conversion is impossible because of lack of coal storage

facilities or inadequate coal transportation, or

where excessive derating of the boiler would be

necessary. In such cases, it will make more sense

to retire the plant and replace it with new capacity built elsewhere. For these cases, the replacement cost will equal the cost of new capacity,

including any needed transmission costs. It

should be expected, however, that new coal or

nuclear generation will have a much higher capacity factor than current oil generation because

of the former’s lower cost of producing energy.

it should be remembered, however, that the

load profile will dictate the capacity factor to a

great extent. With the large amount of capacity

under discussion, it can be expected that there

will be sufficient load diversity so that power

transfers between regions will allow for an increase in capacity factor to a level that now exists for coal-fired powerplants (about 57 percent).

The possibility of power transfers was assumed

and accounted for in the calculation by assuming the 57-percent capacity factor. The result is

that less capacity is needed to replace the electricity produced by the oil-fired generation that

is expected to be on-line in 1990. To some degree

this capacity reduction will take care of some of

the site-specific problems described above.

Another point to be considered is whether coalfired electricity will be less expensive than that

generated from residual fuel oil in the 1990’s. Because of the continuing decline in crude oil quality27—i.e., lower gravity—it will be increasingly

zTOil and Gas Journa[ Apr. 20, 1981, p. 27.
Ch. 7—Stationary Uses of Petroleum ● 191

more costly to refine this oil up to the point where

no residual oil remains. Currently, the average

cost of converting residual fuel oil to middle

distillates and gasoline is about $10,000 to

$14,000/bbl/d. 28 The marginal cost, however, is

much higher and will grow as more and more

residual oil is transformed and as the crude oil

feed becomes heavier.

——

ZeAn Ana/yS;~ of potentja/ for Upgrading Domestic Refining

Capacity, op. cit.

Consequently, it is possible that it would be

cheaper to use the residual oil directly in boilers,

as it is used now, and produce the lighter fuels

from oil shale or by way of methanol from coal.

To reach that point, residual fuel oil would have

to be priced below coal as a boiler fuel because

the residual oil would have no other market. No

attempt was made to determine when or to what

extent this may occur.

SUMMARY

Elimination of fuel oil use in the stationary sectors (buildings, industry, electric utilities) appears

to be technically plausible by 2000. The cost for

either the conservation or fuel-switching scenario

would be high. As shown, the total cost for the

1990-2000 period would be about $225 billion

to $230 billion to eliminate the 2.6 MM B/D forecast still to be in use by 1990. These costs are consistent with estimates for synthetic fuels production and automobile efficiency improvement that

would produce about the same amount of oil. *

In addition, reduction from current use of 4.4

MMB/D to the 1990 level will also require several

tens of billions of dollars. As noted earlier, the

1980-90 costs were not taken into account in the

calculations.

Uncertainties about these estimates for stationary fuel oil elimination by conversion arise from

changes in powerplant construction costs, in coal

prices, in the cost of producing natural gas from

tight sands, and in the discovery rate of new

*See ch. 5, p. 139; ch. 6, p. 172.

natural gas. All or any of these couId cause significant swings in the cost of displacing oil, most likely upward. In the absence of information about

these uncertainties, the estimates given here,

which represent the best analyses to date, can

be considered as reasonable. Similarly, for conservation, uncertainties about the conservation

potential of buildings exist which can only be

cleared up as more and more buildings are actually retrofit. Preliminary audits of buildings

already retrofitted have indicated a range of energy savings from 80 percent less than predicted

to 50 percent more.29 The sample for this measurement was small, but it does indicate the level

of uncertainty.

The estimates that were derived are plausible

targets. They are not forecasts or even necessarily

desirable goals. That will have to be decided within the context of all the economic choices possible and within the country’s policy objectives

about oil imports.

ZgEnergy Effjc/ency of Buildings in Cities, op. cit.
Chapter 8

Regional and National Economic Impacts
Page

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195

Economic impacts of Automotive Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195

Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195

Manufacturing Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 196

Manufacturer Conduct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197

Other Firms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 198

Economic lmpacts of Synfuels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203

The Emerging Industrial Structure of Synfuels. . . . . . . . . . . . . . . . . . . . . . . . . . 204

Potential Resource Bottlenecks and Inflation . . . . . . . . . . . . . . . . . . . . . . . . . . 209

Finance Capital and Inflation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 214

Final Comments About inflation and Synfuels . . . . . . . . . . . . . . . . . . . . . . . . . 215

TABLES

Table No. Page

58. GM’s Major Materials Usage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 198

59. 1980 Motor Vehicles (MVs) and Parts Supplier Trade . . . . . . . . . . . . . . . . . . 199

60. Examples of Supplier Changes and Associated New Capacity Investment . 201

61. 1980 Auto Repair Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 201

62. Potentially Critical Materials and Equipment for Coal Liquids

Development. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 212

63. Peak Requirements and Present Manufacturing Capacity for Heat

Exchangers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 213

FIGURES

Figure No. Page

18. Tire Industry Trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200

19. Time Series Comparison: Construction Costs and Consumer Prices . . . . . . 216
Chapter 8

Regional and National Ecomomic Impacts

INTRODUCTION

This chapter examines the types, timing, and

distribution of economic impacts associated with

both development of a synthetic fuels industry

using national coal and oil shale resources, and

improved automobile fuel efficiency. identifying

and assessing these impacts are difficult because:

impacts are not distributed evenly in time or

across regions, so that people may not receive

benefits in proportion to the adverse consequences they experience; impacts are not translatable into directly comparable terms (e.g., dollars); the evaluation of impacts is subjective,

based on perceptions of the uncertain benefits

cumulative and may be difficuIt to monitor or attribute solely to a particular technology choice.

This chapter assesses the broad economic impacts of synfuels and changes in auto technology.

Chapter 9 further analyzes employment effects

and discusses other social impacts of these technological developments. Decisions about synfuels

and making cars more efficient will require tradeoffs in terms of energy use, economic growth, and

social welfare and equity. There will be both beneficial and adverse social consequences for the

Nation as it moves towards energy independand costs of new technologies;

ECONOMIC

Overview

and impacts are ence.

IMPACTS OF AUTOMOTIVE CHANGE

The economic impacts of improving automotive technology result primarily from two factors:

the large investments that will be required for

associated capacity, and changes in the goods

and services purchased by the auto manufacturers. Large investments increase financial risk, exhaust profits, and influence the ability of firms to

raise outside capital. Changes in goods and services used by manufacturers affect suppliers and,

in turn, local economies. As automotive fuel

economy increases, the structure and conduct

of the auto industry and the relationship of the

domestic auto industry to the general economy

change. Radical increases in demand for fuel

economy, induced either by changes in consumer preferences or by Government mandates,

would lead to greater industry change, most likely

in the form of acceleration or exacerbation of current trends.

Changes in the auto industry stem from both

technological developments and new market

trends, including strong competition from foreign

manufacturers. Large increases in demand for fuel

economy, and for small cars relative to large cars,

encourage the industry to improve the fuel economy of all car classes and to invest in the production of small cars. These activities help domestic manufacturers to satisfy relatively new demands, but at the cost of diminished profits during at least the short term. Profits can fall when

manufacturers prematurely write off large-car and

other capacity investments and change their pricing strategies to replace large-car profits with

small-car profits.

Meanwhile, manufacturers lose money when

sales of their least efficient models decline. High

fixed costs and scale economies make their profitability vulnerable to sales declines of even a few

percent. Profits would therefore also fall if

domestic manufacturers lost market share to foreign firms. Future opportunities to gain market

share and profits will be limited by slowing market growth. *

*Th e u s auto market is nearly saturated (there were 0.73 cars

for every licensed driver in 1979, accordin g to the Motor Vehicle

Manufacturers Association) and the U.S. population is growing slowly. Therefore, auto sales will grow at lower rates than in past decades, probably averaging 1 to 1.5 percent per year.

195
—

196 Ž Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

Manufacturing Structure

The U.S. automotive industry includes three

major manufacturers—General Motors (GM),

Ford, and Chrysler-plus a smaller manufacturer,

AMC (now almost half-owned by Renault, a

French firm) and some very small specialty car

manufacturers. The three major manufacturers

have historically been characterized by moderate

levels of vertical integration and broad product

lines that include trucks and other vehicles as well

as automobiles. During the past few decades,

GM’s operations have been the most extensive

both vertically and horizontally; Chrysler’s have

been the least extensive.

Because of the high costs of production

change, U.S. auto manufacturers are becoming

less vertically integrated, relying increasingly on

suppliers to. make components and other vehicle parts. For example, the Department of Transportation (DOT) reported that in late 1980 alone,

domestic manufacturers announced purchasing

agreements with foreign suppliers for over 4

million 4-cylinder gasoline engines plus several

hundred thousand units of other engines and

parts. Reliance on outside suppliers, referred to

as “outsourcing,” relieves short-term spending

pressures on manufacturers. By spending less initially to buy parts rather than new plants and

equipment (in which to make parts), manufacturers can afford to make more production

changes while exposing less cash to the risk of

financial loss due to limited or volatile consumer demands.

On the other hand, outsourcing may cause

manufacturers to lose control over product quality. Also, manufacturers may incur higher vehicle manufacturing costs in the longer term because the price of purchased items includes supplier profits as well as production costs. Because

of more severe financial constraints, Ford and

Chrysler tend to rely on suppliers more than GM.

In the future, all domestic manufacturers may

outsource more from domestic suppliers, foreign

firms, or foreign facilities owned by domestic

manufacturers as a means of reducing capital investments and thus short-term costs.

Manufacturers are consolidating their operations across product lines and engaging in joint

ventures, primarily with foreign manufacturers.

While there appears to be no up-to-date source

of data aggregating these changes, trade journals

and the business press report that American firms

are sharing production and research activities

with foreign subsidiaries, with foreign firms i n

which they have equity (Ford with Toyo Kogyo,

GM with Isuzu and Suzuki, Chrysler with Mitsubishi and Peugeot, AMC with Renault), and with

other foreign firms. Joint ventures are also increasingly common between non-American firms,

which have historically been highly interconnected.

Cooperative activity among auto firms worldwide is likely to grow. Many firms will be unable

to remain competitive alone, because of the

growing costs and risks of improving automotive

technology and increasing competition in markets around the world. The quickest way for U.S.

manufacturers to respond to a mandated or demand-induced fuel economy increase would be

to use foreign automotive concepts directly, by

licensing designs, assembling foreign-made automobile kits, or marketing imported cars under

their own names. GM and Ford, for example, assemble Japanese-designed cars in Australia and

AMC sells Renaults in the United States.

Domestic companies can make profits by merely selling foreign-designed cars. They can gain additional manufacturing profits without risking additional capital if they sell cars made by companies in which they have equity. Cooperative

activity (and, in the extreme, mergers and acquisitions) allows firms to pool resources, afford large

investments in research and development (R&D)

or in plant and equipment, gain scale economies,

and spread large financial risks. It is consistent

with the reduction in the number of autonomous

auto producers widely predicted by industry analysts.

Although the number of automotive manufacturing entities is declining worldwide, there may

be continued growth in the number of firms producing and selling in the United States. Already,

Volkswagen produces cars in Pennsylvania and

is building a plant in Michigan; Honda is planning to build cars in Ohio; and Nissan is building

a light truck plant in Tennessee. There are now

about 23 different makes of foreign cars sold in
Ch. 8—Regional and National Economic Impacts ● 197

the United States, excluding “captive imports”

sold under domestic manufacturers’ nameplates

(e.g., the Plymouth Colt, which is made by Mitsubishi).’ Manufacturers of captive imports, including Isuzu and Mitsubishi, are already preparing

to enter the U.S. market directly.

Manufacturer Conduct

U.S. auto manufacturers are fundamentally altering their product, production, and sales strategies as automobile technology and consumer

demand change. Several changes in product policy include the following.

First, the number and variety of models is falling. The highest number of models offered by domestic manufacturers was 375 in 1970; 255 were

offered in 1980.2 Manufacturers might sharply

reduce the number of available models to increase fuel economy quickly, by producing relatively efficient models on overtime and ceasing

production of relatively inefficient models.

Second, while cars of all size classes are shrinking in number, small cars are becoming more

prominent in number, share of capacity, and contribution to revenues relative to large cars. Recent changes in price strategy have led to smaller

profit differentials by vehicle size and higher absolute and relative small-car prices. As individual

models become more alike in size, manufacturers

will differentiate models by visible options and

design.

Third, manufacturers may introduce new, oilconserving products such as very small “mini”

cars (e.g., GM’s P-car and Ford’s Optim projects)

and vehicles powered by electricity as well as alternating fuels.

Cost-reducing alterations to the physical and

financial characteristics of individual firms–wideIy reported in trade journals, the business press,

and company publications—help manufacturers

adjust to declines in sales and profits and growing investment requirements. Cost-cutting efforts

‘Automotive News, /98 1 Market Data nook (Detroit, Crain Communications, Inc., Apr. 29, 1981 ).

2Maryann N. Keller, “Status Report: Automobile Monthly Vehicle Market Review” (New York: Paine, Webber, Mitchell, Hutchins,

Inc., February 1981).

include reductions in white-collar employment

and elimination of relatively inefficient or unneeded capacity. During the last couple of years

GM, Ford, and Chrysler have sold or announced

plans to sell several manufacturing and office

facilities. One investment analyst estimates that

sales of assets may have provided over $600 million to GM and Ford during 1981.3

Efforts to reduce long-term costs focus on measures to improve productivity and reduce labor

costs per unit. To improve productivity, manufacturers (and suppliers) are already investigating and

beginning to use new types of equipment, plant

designs, and systems for materials handling, quality control, and inventory management. Industry

analysts and firms also expect that improved coordination between management and labor, vendors, and Government will be important means

for improving productivity and competitiveness.

Finally, manufacturers maintain that reductions

in hourly labor costs (wages and/or benefits) are

essential for making U.S. cars competitive with

Japanese cars. Whether, when, and how much

labor costs are lowered depends on negotiations

between manufacturers and the United Auto

Workers union.

Another cost-cutting measure is reduction in

planned capital spending, Spending cutbacks affect firms differently, depending on their context.

For example, Chrysler reduced 1980 planned

capital spendings by $2 billion, halting a diesel

engine project and others.4 GM has announced

cutbacks that take the form of spending deferrals and cancellations of planned projects (with

little effect on immediate cash flow, however).

Another factor which complicates the evaluation of cutbacks is that U.S. projects abroad are,

and could be, used to supply the U.S. market.

Foreign projects are relatively cheap where foreign partners or foreign governments share in or

subsidize investments. Cost-cutting efforts are

consistent with growth in the share of U.S. auto

investment and production abroad, because facilities in Central and South America, Asia, and in

parts of Europe generally produce at lower costs

3MarYann N. Keller, personal communication, 1981.

4Ward’s Automotive Reports, June 15, 1981.
198 Ž Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

and sell in home markets that are more profitable

than the U.S. market.

Some analysts believe that if extreme pressures

were placed on U.S. manufacturers to make sizable investment in brief periods of time, Ford and

GM (at least) would reduce U.S. production in

favor of foreign production (Chrysler has divested

foreign facilities to obtain cash). U.S. manufacturers and suppliers are already operating with

high fixed costs, large investment requirements,

weak demand, and labor costs higher than foreign competitors. If there are sharp increases in

fuel economy demand, or if there are other

sources of growth in perceived investment requirements–without offsetting changes in manufacturing and demand/market share–these developments might give auto firms additional incentives to curb, if not abandon, auto production in

the United States. If U.S. production were curtailed, it would affect production of new, very

efficient small cars while U.S. production of larger

and specialty cars would probably continue.

Large and specialty cars are characterized by consumer demand that is relatively insensitive to

price and in many cases limited to U.S. car

buyers.

Other Firms

Suppliers

Automobile suppliers manufacture a wide variety of products, including textiles, paints, tires,

glass, plastics, castings and other metal products,

machinery, electrical/electronic items, and others. Changes in the volumes of different materials

used to produce cars and the ways in which cars

are produced are changing the demands on suppliers. In the near term, for example, GM predicts

that the average curb weight of its cars will fall

21 percent, from 3,300 lb in 1980 to about 2,600

lb in 1985, with up to 67 percent more aluminum,

48 percent more plastics, and 30 percent less iron

and steel, by weight. Rubber use will also fall.

GM predicts that steel will comprise a relatively

constant proportion of car weight, while the proportion of iron will fall and aluminum and plastics proportions may even double by 19855 (see

table 58).

Changes in demands for materials and other

supplies create pressures on traditional suppliers

to close excess capacity and invest to develop

or expand capacity for new or increasingly important products. They also create new business opportunities for firms whose products become

newly important to auto manufacturers, such as

semiconductor and silicone producers. The degree of hardship on individual traditional suppliers depends on how much of their business is

automotive and on their resources for change.

Like the auto manufacturers, suppliers operate

in the context of a cyclical market which can

cause their cash flow to be unstable. Table 59

indicates the dependence of different supplier

groups on automotive business as of 1980.

The steel and rubber industries have already

been adversely affected by changing auto demands together with stronger import competition. Tire manufacturers have suffered with the

rise in popularity of radial tires (which are replaced less frequently than bias ply tires and require different production techniques) and the

fall in rubber use per vehicle. Between 1975 and

1980, over 20 tire plants (about one-third of the

domestic total) were closed, one major tire manu5“GM Sees Big Gain for Aluminum, Plastics in ‘Typical’ 1985,”

Ward’s Automotive Reports, Apr. 27, 1981.

Table 58.—GM’s Major Materials Usage

(per typical car, 1980 v. 1985)

1980 1965

Percent Percent

Materials Pounds total Pounds total

Iron. . . . . . . . . . . . . 500 15%0 250-300 10-12%

Steel. . . . . . . . . . . . 1,900 58 1,450 58

Aluminum . . . . . . . 120 4 145-200 6-8

Glass . . . . . . . . . . . 92 3 60

Plastics . . . . . . . . . 203 6 220-300 8-12

Rubber. . . . . . . . . . 86 3 88a

3

a

Other . . . . . . . . . . . 377 11 277 11

Total . . . . . . . . . . 3,300 100% 2,600 100%

%M projects actual rubber use to be less than SS lb in 19S5.

SOURCE: General Motors Corp., reported in Wards Automotke Reports, Apr. 27,

1981.
Ch. 8—Regional and National Economic Impacts ● 199

Table 59.—1980 Motor Vehicles (MVs) and Parts Supplier Trade

Percent of industry output Value of output

Industry for MVs and parts for MVs and parts

Textiles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 + $4 billion+

Wood products . . . . . . . . . . . . . . . . . . . . . . . . . 2 + 618 million +

Nonhousehold furniture . . . . . . . . . . . . . . . . . 2.4 260 million

Paper and allied products. . . . . . . . . . . . . . . . 3 2.5 billion +

Chemical . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 – 15 billion+

Plastics, synthetic rubber, and synthetics. . 6 – 4 billion+

Paints and allied products . . . . . . . . . . . . . . . 8 + 900 million +

Tire and rubber products (OEM) . . . . . . . . . . 13 4 billion+

Glass . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11– 1.3 billion

Steel furnaces, foundries, and forgings . . . . 21– 24.6 billion

Aluminum and aluminum products . . . . . . . . 14.6 4 billion+

Copper and other nonferrous metal

products . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11– 6 billion+

Metal products and machine shop products 13– 22 billion

Metalworkings and industrial machinery . . . 5.6 8 billion+

Service industry machinery . . . . . . . . . . . . . . 12 3 billion

Electrical and electronic equipment . . . . . . . 5.2 8 billion

Scientific and controlling instrument . . . . . . 7.5 900 million

NOTES: “’+” means “greater than” and “–” means “less than.” 4’ OEM” stands for “original equipment manufacturer. ”

SOURCE: The Automotive Materials Industry Council of the United States.

facturer (Mansfield) declared bankruptcy, and another (Uniroyal) suffered severe financial problems (see fig. 18). Several steel plants were closed

during the same period. In both industries, additional plant closings and continued import competition are likely in the 1980’s, although the

elimination of excess and inefficient capacity is

expected by Government and private analysts to

leave these industries financially healthier.6

Machinery and parts suppliers also face import

competition and product demand changes. A recent Delphi survey of auto suppliers conducted

by Arthur Andersen & Co. and the Michigan Manufacturers Association (hereafter referred to as

A&M) predicted that these suppliers will be investing together at least $2 billion per year in the

1980’s, especially for new equipment (about 60

percent of total investment). z Machinery investments are needed both to make new types of supplied products and to help suppliers adapt to a

shortage of skilled machinists. A recent study prepared for DOT by Booz-Allen & Hamilton describes the types and levels of investments associW .S. Department of Commerce, 1981 U.S. /nclustria/Out/ook

(Washington, D.C: U.S. Government Printing Office, 1981).

7Arthur Andersen & Co. and the Michigan Manufacturers’ Association, “Worldwide Competitiveness of the U.S. Automotive Industry

and Its Parts Suppliers During the 1980s” (Detroit: February 1981 ).

ated with different types of auto activities on a

new-plant basis (see table 60).8

Analyses by A&M, Government agencies, and

industry analysts suggest that both appreciation

of the types of supplier changes needed and ability to make those changes are greater among larger supplier firms than among smaller ones. Most

supplier firms are small- and medium-sized, although a few large firms have large shares of the

auto supply business. Among GM’s total 32,000

suppliers in the United States, for example, only

4 percent have at least 500 employees while 52

percent have at most 25.9

Auto product change and market volatility are

leading large suppliers, in particular, to diversify

into nonautomotive products. For example, between 1978 and mid-1981 Eaton Corp., a major

supplier, spent about $470 million to buy companies producing electronics, machinery, electrical parts, hydraulic systems, and other hightechnology goods.10 Large suppliers are also

aBooz.Allen & Hamilton, Inc., Automotive Manufacturing prOcesses (Washington, D.C: U.S. Department of Transportation, National Highway Traffic Safety Administration, February 1981).

9“Supplier Conference, Ford/Europe Interview Underscore

Threat, ” Ward’s Automotive Repor?s, june 15, 1981.

1°’’Eaton: Poised for Profits From Its Shift to High Technology,”

Business Week, June 8, 1981.

98-281 0 - 82 - 14 : (/L, 3
200 Ž Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

260

240

220

200

Figure 18.—Tire Industry Trends

Consumption patterns for automotive tires

Year

80

20

Major tire manufacturer earnings fall,

July 1979 to June 1980, as the table below shows:

Company

Armstrong. . . .

Cooper . . . . . .

Dunlop . . . . . .

Firestone . . . .

General . . . . . .

Goodrich . . . . .

Goodyear . . . .

Mohawk . . . . .

Uniroyal . . . . .

SOURCE: U.S. Department of Commerce, Bureau of Industrial Economics

strengthening their international operations,

diversifying away from the U.S. market. Smalland medium-size firms are likely to follow auto

manufacturers in undertaking joint R&D and production ventures, while mergers and acquisitions

and even closings or bankruptcies are likely. * The

A&M survey predicted that decline in the numbers of suppliers will lead to increased vertical

integration among suppliers, while strong import

Change in earnings

1981 U.S Industrial Outlook January 1981.

competition and other market changes will motivate increases in supplier productivity.

Sales and Service

Other segments of the auto industry include

dealers and replacement part and service firms.

The latter group, which serves consumers after

they buy their cars, is called the automotive aftermarket.

*According to Dun & Bradstreet, transportation equipment firms,

primarily including auto suppliers, suffered financial failure at a rate

of 101 per 10,000 in 1960, as compared with a rate of 42 per 10,000

for all manufacturers.

Dealer sales activities are not necessarily affected by changing auto technology per se. Sales

depend on consumer income and general eco-
Ch. 8—Regional and National Economic Impacts • 201

Table 60.—Examples of Supplier Changes and Associated New Capacity Investment a

Approximate capital requirements for

Characteristics property, plant, and equipment

Foundries

90 percent of auto castings use iron, 92 percent of which

are sand cast, and auto manufacturers operate about 20

percent of U.S. sand casting capacity

Downsizing and production of smaller parts generates

excess capacity

Materials substitution reduces sand casting with iron and

increases die casting with aluminum

Metal stamping

Autos have had up to 3,000 stampings and auto

manufacturers produce about 60 percent of all stampings

by weight

Materials substitution decreases carbon steel, increases

high-strength steel and aluminum for stampings

Plastics processing

Injection molding

Compression molding

Reaction injection molding

$21 million (typical independent die cast foundry

producing 15,000 tons/year)

$67 million (typical captive plant producing stampings

for 175,000 cars/year; independent plants are

smaller and cheaper)

$31 million (typical plant producing 65 million lb

parts/year)

$43 million (typical plant producing 60 million lb

compound/year

$19 million (typical plant producing 30 million lb

parts/year)

aFi~u~~~ for completely new fdities.

SOURCE: Booz-Allen & Hamilton, Inc.. Automotive Marrufactudna Processes, meDared for the Department of TransDotiation, National Hiahwav -. Traffic Safetv Administration, February 1961.

nomic conditions (including the availability of

credit), demographic conditions (including

household size), the price of fuel, and vehicle

price and quality attributes. Although consumers

have responded to recent gasoline price increases

by demanding relatively fuel-efficient cars, the experience of the recent recession illustrates that

overall sales levels in a given year are primarily

determined by consumer finances and not by vehicular technology.

There are about 300,000 automobile repair facilities in the United States11 (see table 61). New

automobile technology affects them because

automobile design and content are changing. For

example, problems in new, computer-controlled

components will be diagnosed with computerized equipment, and plastic parts will be repaired

with adhesives rather than welding. Components

are more likely to be replaced than repaired on

the vehicle or even at the repair shop. While

automobile service firms will have to invest in

new equipment and skills to service new cars,

continued service needs of older cars may ease

the transition,

11 “Auto Repair Facilities Total 300,000, ” Warcl’s Automotive Reports, Apr. 6, 1981.

Table 61 .—1980 Auto Repair Facilities

Type of facility Quantity

Dealers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,000

Auto repair shops (independent and franchised) 170,000

Tire—battery-accessory outlets . . . . . . . . . . . . . 18,850

Other auto and home supply stores . . . . . . . . . . 1,860

Gasoline stations . . . . . . . . . . . . . . . . . . . . . . . . . . 70,000

General merchandise stores . . . . . . . . . . . . . . . . . 3,500

All others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,430

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 292,240

Total including facilities selling only parts,

accessories . . . . . . . . . . . . . . . . . . . . . . . . . . . 331,090

SOURCE: Wards Autornotlve Reports, Apr. 6, 1981.

However, the concurrent operation of very different types of cars requires firms to double their

parts inventories to service both types. The dollar

value of parts and the frequency of repairs are

also likely to differ between new and old car

types. Manufacturers are attempting to curb service cost growth by designing cars for easy servicing. For example, the Ford Escort and Lynx and

the Chrysler K and Omni/Horizon cars were designed so that servicing during the first 50,000

miles would cost less than $150.12

— -. —

‘

z

Francis j. Gaveronski, “Ford’s New Escort, Lynx Designed for

Easy Service,” Automotive News, May 19, 1980, and “Chrysler Kcar to Stress Ease of Diagnosis, Repair, ” Automotive News, June

16, 1980.
202 Ž Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

The effects of new repair and service practices

on the structure of the aftermarket are uncertain.

During the past decade, repair and service activity shifted from dealers to service centers run by

general retailers (e.g., Sears) and tire retailers

(e.g., Firestone) and to specialized franchised centers for tune-ups, body work, or component service (e.g., AAMCO Transmissions and Midas Muffler). Both of these trends help to moderate service cost increases because of scale economies in

planning and management. However, the intimate and advance knowledge of new technologies held by manufacturers is likely to help dealers

regain repair and service business. While dealers

now perform about 20 percent of auto repairs,

they are expected to gain a greater share by the

mid-1980’s. Meanwhile, scale economies in advertising and inventory management may promote consolidation among parts firms.13

Prospects

Further financial strain on the domestic auto

industry is not likely to lead to financial failure

of major manufacturer and supplier firms (except

perhaps Chrysler, but Government intervention

makes its future hard to predict). However, the

continued viability of many smaller auto suppliers

is becoming especially uncertain because automotive technology changes make products and

capacity obsolete. While the industry may continue to contract, “collapse” of its leading firms

is not likely because major and even intermediate-sized firms can make at least partial adjustments to automotive market changes; adjustments are already under way. Reduction in the

U.S. activities of domestic firms and failure or

contraction of smaller firms would, nevertheless,

severely affect employment and local economies.

In contemplating the future of the industry it

is important to appreciate what financial failure

means. In a technical sense, businesses fail when

they are unable to make scheduled payments.

If this inability is temporary, firms can usually

negotiate with creditors or seek protection from

bankruptcy courts to relieve immediate creditor

13M~Vann N. Keller, “Status Report: Auto Parts Industry Automotive Aftermarket Quarterly Review” (New York: Paine, Webber,

Mitchell, Hutchins, Inc., July 29, 1980).

demands. In many cases, bankrupt firms are successfully reorganized, structurally as well as financially. However, some firms find that the stigma

of bankruptcy makes producing and selling especially difficult. * If selling a firm’s assets generates

more value than using them for production by

the firm, the firm is fundamentally unviable, and

there are financial and economic grounds for

liquidating it.

Barring Government support or merger, Chrysler is the large automotive firm most likely to fail

if viability in the U.S. market entails large investments that it cannot afford. AMC has been at least

temporarily rescued by the French Governmentbacked Renault. Because Chrysler’s financial

weakness has been known for years, the magnitude of the potential social and economic effects

of its failure has been diminishing as Chrysler has

cut back its operations and suppliers have reduced their dependence on Chrysler as a customer.

In mid-1979, when Data Resources, Inc., prepared for the U.S. Department of the Treasury

a simulation of the macroeconomic effects of a

Chrysler bankruptcy and liquidation, it found that

only temporary macroeconomic instability was

likely to result, although 200,000 people might

be permanently unemployed. Dependence of

workers and businesses on Chrysler has diminished since that simulation was done, although

small firms for which Chrysler is a primary customer remain vulnerable. If Chrysler were to liquidate, its exit from the U.S. market would provide opportunities to domestic and foreign manufacturers to expand market share and purchase

plant and equipment at relatively low cost. This

could relieve financial pressures on Ford and GM.

While contraction of the U.S. auto industry may

result in fewer, healthier firms, employment and

local economies will suffer.** Loss of jobs will re-

*When Lockheed and Chrysler appealed for Government aid,

they both argued that their customers would not buy from firms

in bankruptcy. This is more likely to be a problem for automobile

(or aircraft) manufacturers than for their suppliers, given the difference in size of customer purchase and producer liability.

**Also, change in the amount of U.S manufacturer operations

in Canada (not considered “foreign”) could imply violation of our

obligations under the Automotive Products Trade Act agreements

with Canada.
Ch. 8—Regional and National Economic Impacts . 203

suit predominantly from supplier-firm difficuIties.

Unemployment of auto industry workers may

also affect the performance of the national economy. Unemployment causes a more than proportionate decline in aggregate production,

because slack demand reduces average hours per

worker, output per worker, and entry into the

labor force, The reduction in disposable personal

income (DPI) because of unemployment reduces

personal consumption spending. Reduced personal consumption (and business fixed investment) spending reduces gross national product

(GNP), causing DPI to fall, and so forth. Both personal and corporate tax revenues decline, while

transfer payments to unemployed workers and

economically depressed communities rise.

The national economy can better adjust to auto

industry trauma than local and regional economies because the national economy is more diversified, and because, over time, national economic sensitivity to auto industry problems has

been diminishing. Since World War II, manufacturing employment in the Midwest (and Northeast) has been declining as a percent of national

manufacturing employment; it has declined in absolute volume since 1970 because job opportunities have not been growing, foreign and domestic firms have located facilities in other regions,

and other industries primarily located elsewhere

have been growing in their importance to the

economy. * In this context of structural change,

the 1975 recession seems to have been a turning point for traditional Midwest manufacturing,

accelerating a trend of decline that was further

aggravated by the 1979-80 oil crisis and recession.

*Electronics, computing equipment, chemicals and plastics, aerospace equipment, and scientific instruments have been the leading

growth industries in the postwar period. These industries are both

outlets for diversification by auto-related firms and competitors to

traditional auto-related firms in automotive supply.

ECONOMIC IMPACTS OF SYNFUELS

Because large blocks

synfuels projects, they

economic activity even

of capital are required for

will be visible centers of

from a national viewpoint

and, in fact, for’ people outside of the synfuels

industry, the economic costs and benefits of synfuels may be more easily understood in terms of

regional and national impacts.

Despite the absence of commercial experience,

an outline of the synfuels industry emerges with

comparisons to coal mining, conventional oil and

gas production, chemicals processing, and electric power generation. By itself, this new industrial

organization is an important economic impact,

as it changes the way economic decisions are

made regarding the supply of premium fuels. Furthermore, along with the technologically determined menu of resource requirements, industrial

organization determines the major regional and

national economic impacts of synfuels deployment.

potential regional and national economic impacts are then explored through comparisons of

aggregate resource demands and supplies. Since

plans call for very large mines and processing

plants, and perhaps many construction projects

in progress at once, the emphasis is on potential

bottlenecks which could delay deployment

schedules and drive up project costs. If severe

resource bottlenecks do occur, the resulting inflation in the prices of these resources will spread

through the economy, driving up prices and costs

for a broad range of goods and services.

These resource costs add up in the next section of this chapter to financial requirements for

projects and for the industry as a whole. To the

extent that the Federal Government does not intervene, individual firms must compete in financial markets with all other products and all other

firms for limited supplies of debt and equity capital. With the important exception of methanol

and ethanol from biomass, * the large scale and

long Ieadtimes of synfuels projects may make it

difficult to raise capital, especially during the next

*Ethanol from biomass is not included in this discussion because

with current technology its potential production is limited by the

availability and price of feed-grain feedstocks. However, if economic

processes for converting Iigno-cellulose into ethanol are developed,

ethanol could compete with methanol as a premium fuel from

biomass.
204 • Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil /reports

decade, when important technological uncertainties are likely to remain. Federal subsidies or loan

guarantees will speed synfuels deployment–but

only by reducing capital available to other types

of investments, by reducing other Federal programs, by increasing taxes, or by increasing the

Federal deficit. Depending on general economic

conditions, each of these different market interventions may be inflationary.

Each of these areas of regional and national

economic impacts—industrial structure, potential resource bottlenecks, finance capital, and inflation as related to synfuels development–is discussed below.

The Emerging Industrial

Structure of Synfuels

Synfuels are fundamentally different from conventional oil and gas because they are manufactured from solid feedstocks and because synfuels

economics may lead to the replacement of conventional fuels by methanol and low- or mediumBtu gas in the future. Liquids from coal and oil

shale, the feedstocks with a natural resource base

sufficient to fully displace petroleum in the long

run, involve economies of scale which encourage

ownership concentration. The methanol option,

however, provides offsetting opportunities for

large chemical firms to enter the liquid fuel business and, based on biomass feedstocks, it may

also allow many small producers to supply local

markets throughout the Nation.

The following discussion is broken down into

the four stages of synfuels production. While this

breakdown is convenient, it should be understood that several stages of production may be

performed on the same site in order to minimize

handling, transportation, and management costs.

Mining Coal and Shale

Mining for synfuels will closely resemble mining for any other purpose except that the mines

dedicated to synfuels production will be relatively

large .14 It takes approximately 2.4 million tons of

IQFOr an extensive discussion of mining techniques and costs, see

The Direct Use of Coal: Prospects and Problems of Production and

Combustion, OTA-E-86, (Washington, D. C.: U.S. Congress, Office

of Technology Assessment, June 1979), chs. Ill and IV.

coal per year to fire an 800 MWe generator and

about three times that much to feed a 50,000 barrels of oil equivalent per day (BOE/D) coal synfuels plant, and about four to eight times as much

oil shale (by weight) for the same output of liquid

fuel produced by surface retorting. *

Capital costs for development of a coal mine

depend primarily on the depth and thickness of

the coal seam. Average investment cost data can

be misleading, since each mine is unique, but it

takes about $60 of investment per annual ton of

coal mined underground (1981 dollars). With

coal preparation and loading facilities, investments at the mine site may approach $100 per

annual ton, or about $750 million for capacity

sufficient to supply a 50,000 bbl/d synfuels plant.

Western surface mining may in certain cases be

substantially less expensive. * * Furthermore, substantial synfuels production may be achieved on

the basis of existing excess mining capacity.***

In the absence of commercial experience, investment cost estimates are unavailable for shale

mining. It is clear, however, that they can be

either larger or smaller than for coal, depending

on two opposing factors. First, investments costs

could be much higher because of the low energy

density of shale. Hence, much more material

must be mined per barrel of oil equivalent. Second, shale investment costs could be lower because major shale resources lie in very thick

*This range is determined by the Btu content of coal and shale

and by the efficiencies of converting a Btu of solids into a Btu of

finished liquid fuels. If we just compare shale oil and methanol (the

two liquid synfuel options which are best understood and probably

of least cost), conversion efficiencies are comparable, so the difference in feedstock rates is entirely a matter of the energy density

of the feedstock. Coal has 16 to 30 MMBtu/T with Western coal

typically on the lower end of the range. Shale, which is presently

considered suitable for retorting, has 3.6 to 5.2 MM Btu/T. Hence,

the ratio of shale to coal inputs can be as low as 4.2 and as high

as 8.3.

**Investment cost data were obtained from National Coal Association. Federal surface mine regulations have increased investment

requirements in increasing the equipment required to operate a

mine and to reclaim land after coal has been removed, by increasing the amount of premining construction and equipment required

to establish baseline data, and by extending the required development period.

* * *Th e National Coal Association estimates excess CiipaCity at

100 million to 150 million tons per year. The low end of the range

is calculated on the basis of the number of mines closed and the

number of workers working short weeks. The high end of the range

is calculated by comparing peak weekly production to average annual output per week.
Ch. 8—Regional and National Economic Impacts ● 205

seams (in some areas over 1,000 ft thick) and

often relatively near the surface. Estimates for the

first commercial shale project indicate that mining investments for a 50,000 bbl/d project may

be substantially below $750 million. * Furthermore, if in situ retorting techniques fulfill optimistic expectations, shale mining could become relatively inexpensive as mining and retorting operations are accomplished together underground.

Mine investment is important in project planning, but its share in total investment is still usually

less than a third. (Notice that in the estimated investment costs for coal-based synthetics in ch.

8, the cost of the mine was not included. It is included in ch. 4 in the discussion of total investment costs. ) Beyond actual costs, the activity of

mining itself is important in the synthetic fuel

cycle because of its previous absence in the U.S.

oil and gas industry. I n fact, the entire sequence

of economic events associated with extraction of

coal and shale contrasts sharply with the extraction of conventional petroleum and natural gas.

The key difference is that oil and gas reserves

must be discovered, with potentially large rewards for the discoverer, whiIe the location and

morphology of coal and shale resources have

been known for a long time.

A wildcat driller, looking for an oil or gas

deposit, can rent and operate a drilling rig with

a relatively small initial investment. Since the most

promising prospects have already been drilled in

this country, exploration typically is a high-risk

gamble and, although investment is small compared with development of resources, it can still

require large sums of money in frontier areas such

as deep water or the Arctic. The uncertainty is

a deterrent to investment, but potentially large

payoffs and special Federal tax incentives con-

“The Denver office of Tosco Corp. estimates that mine costs for

the Colony project, which is the first shale project to proceed with

commercial development, could be as low as $250 million. That

particular site has the advantage that large-scale open pit mining

equipment can be used in an underground mine, since the seam

is horizontal and the mine can be entered via portals opened in

a canyon wall. This means that the reclamation costs of a surface

mine can be avoided as well as the costly mine shaft of a conventional underground mine. Furthermore, the site is propitious because there is virtually no methane trapped in the shale, so safety

measures are minimal. In the future, mine costs as well as conversion costs may be held down by in situ liquefaction, but this technology remains unproven.

tinue to attract large numbers of investors and

large sums of capital.15 Furthermore, the wildcatted can induce cooperation from landowners,

local government officials, and any other powerful local interests by promising royalty payments,

or at least a rapid expansion of local business activity, without serious environmental impacts.

Only after a substantial reservoir has been discovered is it necessary to make relatively large

investments in development wells, processing

equipment, and pipelines.

In mining, there is nothing comparable to the

opportunity and uncertainty of discovery wells.

Most of the business parameters of a potential

mine site are evident to the landowner and to

all potential mining companies, which means that

profit margins are generally limited by competitive bidding.

As discussed below, mines also typically employ more labor per million Btu of premium fuel

produced than oil and gasfields16 and they have

many more adverse environmental impacts (e.g.,

acid drainage, subsidence, etc). For both reasons,

interests external to the firm are more likely to

oppose and perhaps interrupt mining operations.

Investors realize such contingencies and see them

as risks for which they expect compensation.

This discussion of relative payoffs and risks is

by no means complete or conclusive, but it does

suggest that private investors may exploit min151 n 1979, approximately $12.5 billion was invested in exploration for oil and gas in the United States. That includes (in billions),

$5.4 for lease acquisition, !$4.5 for drilling, $2.3 for geological and

geophysical activity, and $0.3 for lease rentals. (See Capita/ /investments of the World Petro/eum /ndustry, 1979, Chase Manhatten

Bank, p. 20, and Basic Petro/eum Data Book, American Petroleum

Institute, vol. 1, No. 2, sec. Ill, table 8a). $12.5 billion is about 3

percent of total gross domestic investment ($387 billion). (See 1980

Statistical Abstract, p. 449.)

The oil and gas industry receives special tax treatment mainly

in terms of expensing intangible expenditures of exploration, even

though they are surely treated as capital expenses in corporate

accounts.

IGA[though oil and gas has been closing steadily, in 1979 it took

approximately 14,500 workers (miners and associated workers) to

produce a Quad of coal and about 11,500 workers to produce a

Quad of oil and gas. However, the labor intensity of mining for

synfuels is actually 160 to 200 percent greater than for coal alone,

since only about 50 to 60 percent of the energy in coal feedstock

remains in the finished synfuel product. See 1980 Statistical Abstract,

p. 415, for employment data and 1980 Annual Report to Congress,

Energy Information Administration, p. 5, for production data. See

note 2, ch. 9 for further discussion of labor productivity.
206 • Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

ing prospects for synfuels much more slowly than

prospects for conventional oil and gas, or that investors will accept much greater risks with conventional oil and gas prospects because of the

offsetting chances of striking it rich. Synfuels

capacity could still expand rapidly, but probably

not without very high profit incentives to reorient

investors who have traditionally been in oil and

gas exploration.

Conversion Into Liquids and Gases

During the second stage of production, solid

feedstocks are converted into various liquids and

gases. Current synfuels project plans indicate that

coal or shale conversion plants will resemble

coal-fired electric power stations in the sense that

both convert a large volume of solid feedstock

into a premium form of energy. They will resemble chemical processing (in products such as ammonia, ethylene, and methanol from residual oil

or natural gas) and petroleum refining facilities

in their use of equipment for chemical conversions at high temperatures and pressures. *

Of the $2 billion to $3 billion (1981 dollars) required overall for a 50,000 BOE/D shale project,

between one-third and one-half goes into surface

retorts which decompose and boil liquid kerogen

out of the shale rock. A larger fraction of total

project costs is required to obtain methanol from

coal, but with subsequent avoidance of the upgrading and refining costs.** In general (but with

the exception of in situ mining shale), the conversion step alone requires investments comparable to a nuclear or coal power station of 1 GWe

capacity or to outlays for a 200 to 400,000 bbl/d

petroleum refinery .17

Factors other than economy of scale dominate

the economics of syngas production, as demon-

*Refineries typically use lower pressures than chemical plants and

lower than what is expected for synfuels conversion.

* * For a breakdown of methanol costs, see ch. 8.

I ZAS discussed in ch. 8, a[l synfuek capital cost e5timates are very

uncertain because none of these technologies has been used commercially. Furthermore, engineering cost estimates available to OTA

typically do not clearly differentiate costs by stages of production.

Nevertheless, the conversion step, going from a solid feedstock to

a gas or a liquid product, is undoubtedly the most expensive single

step in synfuels production. For presentation of costs for electric

power stations see Technica/Assessment Guide, Electric Power Research Institute, July 1979.

strated by the existence of many small gasification plants across the country.18 Two factors account for this. First, gasification is only the first

stage in the production of either methane or

methanol, so costs of the second stage can be

avoided and system engineering problems are

less complex and more within the technical capabilities of smaller users. Airblown gasifiers involve the least engineering, since they do not require the production of oxygen, but only certain

onsite end users such as brick kilns can use the

low-Btu gas. The second reason involves transportation and end-use economics.

In many industrial applications, natural gas

(methane) has been the preferred fuel or feedstock, but medium-Btu gas is an effective substitute in existing installations because it requires

relatively minor equipment changes. Either lowor medium-Btu gas may be used in new installations, depending on the industrial process and

site-specific variables. However, since these

methane substitutes cannot be transported over

long distances economically, conversion facilities

must be located near the end users.

The size of the conversion facility is therefore

determined by the number and size of gas consumers within a given area, and this often dictates conversion plants that are small in comparison with a 50,000 bbl/d liquid synfuels plant.

Consequently, industrial gas users may choose

to locate near coalfields in order to produce and

transport their own gas or to contract from dedicated sources. Either approach assures security

of supply and availability over many years.

Upgrading and Refining of Liquids

As discussed in chapter 6, raw syncrudes from

oil shale and direct liquefaction must be upgraded and refined to produce useful products.

Technically, these activities are quite similar to

petroleum refining, and this affords a competitive

advantage to large firms already operating major,

integrated refineries. This bias toward large, established firms is reinforced in the case of direct

Iasee National Coal Association, “Coal Synfuel Facility Survey,”

August 1980, for a listing and discussion of between 15 to 20 lowBtu gas facilities coupled with kilns, small boilers, and chemical

furnaces.
Ch. 8—Regional and National Economic Impacts ● 207

coal liquids by the apparent cost reduction if upgrading and refining are fully integrated with conversion, thus making it difficult for smaller firms

to specialize in refining as some do today. Upgraded shale oil, on the other hand, is a highgrade refinery feedstock that can be used by most

refineries.

Downstream Activities: Transportation,

Wholesaling, and Retailing

As long as synthetic products closely resemble

conventional fuels, downstream activities will be

relatively unaffected. However, medium- or lowBtu gas and methanol are sufficiently different to

require equipment modifications, and they may

be sufficiently attractive as alternative fuels to induce changes in location of business and structure of competition.

Depending.on the market penetration strategy,

methanol may be mixed with gasoline or handled and used as a stand-alone motor fuel. As a

mixture, equipment modifications will involve installation of corrosion-resistant materials in the

fuel storage and delivery system. As a stand-alone

fuel, methanol may have its own dedicated pipeline and trucking capacity and its own pump at

retail outlets, and auto engines may eventually

be redesigned to obtain as much as 20 percent

added fuel economy, primarily by increasing

compression ratios and by using leaner air-fuel

mixtures when less power is required. *

If firms currently producing methanol for chemical feedstocks should enter fuel markets,19 drivers

stand to gain from the increased competition

among the resulting larger number of major fuelproducing companies and by competition between methanol and conventional fuel. Furthermore, with coal-based methanol providing a critical mass of potential supply, drivers across the

Nation may be able to purchase fuel from small

local producers (using biomass feedstocks), a situation which has not obtained since the demise

of the steam engine.

*See ch. 9 for further information about methanol vehicles.

lgAt the present time, approximately 1.2 x 109 gal barrels of methanol (1 1 x 1 @ BOE) are produced domestically, primarily from

natural gas, and used almost exclusively as a chemical feedstock.

See Chemical and Engineering News, )an. 26, 1981.

Medium- or low-Btu gases are effective substitutes for high-Btu gas (methane) but, as discussed

above, their relatively low energy density prohibits mixing in existing pipelines and generally

restricts the economical distance between producer and consumer (the lower the Btu content

the shorter the distance). Hence, deployment of

these unconventional gases will require dedicated

pipelines, relocation of industrial users closer to

coalfields, or coal transport to industrial gas-users.

Conclusion and Final Comment

Massive financial and technical requirements

for synthetic liquids from oil shale and coal encourage ownership that is more concentrated

than has been typical in conventional oil and gas

production. Large firms, already established in

petroleum or chemicals, have three major advantages.

First, they can support a large in-house technical staff capable of developing superior technology and capable of planning and managing very

large projects. Second, they can generate large

amounts of investment capital internally, which

is especially important during the current period

of high inflation (inflation drives up interest on

borrowed capital, making it much more expensive for smaller firms who must supplement their

more limited internal funds).

Third, such firms already have powerful product-market positions where synthetic liquids must

compete, so entry by new firms involves a greater

risk that synthetic products cannot be sold at a

profit. * The second and third advantages may be

*Predicting investment behavior is always difficult, but barring

Federal policy to the contrary, the most likely group of potential

investors are the 26 petroleum and chemical firms, each with 1981

assets of $5 billion or more (see list below). Seven chemical firms

were included in this list primarily because they may be in a strong

position to produce and market fuel methanol, based on their experience with methanol as a chemical feedstock.

Foffune, May 4, 1981, presents a listing of the 26 largest (in terms

of total assets) petroleum and chemical firms: Exxon, Mobil, Texaco, Standard Oil of California, Gulf Oil, Standard Oil of Indiana,

Atlantic Richfield, Shell Oil, Conoco, E. 1. du Pent de Nemours, *

Phillips Petroleum, Tenneco, * Sun, Occidental Petroleum, Standard Oil of Ohio, Dow Chemical, * Getty Oil, Union Carbide, * Union

Oil of California, Marathon Oil, Ashland Oil, Amerado Hess, Cities

Service, Monsanto, * W. R. Grace, * and Allied Chemical. * Asterisk

indicates firm primarily in the chemicals industry.

This conclusion about the dominance of larger companies holds

despite the fact that current synfuels projects planned or under study

(continued on next page)
208 . Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

nullified if several smaller firms can effectively

band together into consortia, but it maybe much

more difficult for a consortium to build a technical staff which can develop superior technology

and manage large projects during the next decade, when there will be many technical risks.

Ownership concentration is an important aspect of industrial organization in an economy organized on classical economic principles of anonymous competition, market discipline, and consumer sovereignty. Very large synfuels projects

owned by very large energy corporations and

consortia of smaller firms would not be anonymous, even from the viewpoint of the national

economy, and they would have leverage to dictate terms in their input and output markets.

Conversely, once companies have made very

large investments in new synfuels projects, they

become visible targets for political action which

might significantly raise costs or reduce output.

Visible producers may not in fact allocate resources much differently than if there were only

anonymous competitors, but at least the opportunity to manipulate markets exists where it

would not otherwise—and just the appearance

of doubt about the existence of consumer sovereignty can raise serious political questions.

The capital intensity of synfuels will also change

the financial structure of the domestic liquid and

gaseous fuel industry. Compared with investments in conventional oil and gas during the last

20 years, investment in synfuels per barrel of oil

equivalent of productive capacity (barrels of oil

per day) will increase by a factor of 3 to 5.20 While

involve many relatively small firms. For example, three of the four

major parties in the Great Plains Gasification Project are primarily

involved with either gas-distribution or transmission: American Natural Resources Co., Peoples Energy Corp., and Transco Cos, Inc.

American Natural Resources is associated with gas-distribution firms

operating in Michigan and Wisconsin; Peoples Energy Corp. is associated with Northern Natural Gas, a major distributor in the Midwest; and Transco is the parent company of Transcontinental Gas

Pipeline Co., a major operator of transmission lines. The fourth partner, Tenneco, is also a major transmission company, but it was included in the group of top 26 firms listed above because of its chemical processing business. Undoubtedly, all four firms’ participation

is predicated upon the existence of Government subsidies and loan

guarantees, but that is especially true for the three smaller firms.

z~omparison based on data for total costs of oil and gas wells,

plus estimated costs for predrilling activities over the period from

1959-80. Capital outlays per barrel oil equivalent of reserves over

all such calculations are of necessity very imprecise, the order of magnitude is confirmed by data

contained in the 1980 Annual Report of Exxon

Corp. As of 1980, Exxon’s capitalized assets in

U.S. production of oil and gas totaled $11.5 billion, and its average daily production rate (of

crude oil and natural gas) was about 1.4 million

BOE; so its ratio of capital investment to daily output was $8,200.21 A 50,000 BOE/D synfuels plant

at $2.2 billion implies a ratio more than five times

larger ($44,000/BOE/D).

In other words, switching from conventional

to synthetic liquids and gases amounts to a substitution of financial capital (and the labor and

durable goods it buys) for a depleting stock of

superior natural resources. A parallel substitution

of investment capital for natural resources is occurring as conventional resources are increasingly

hard or expensive to find and develop because

of the depletion of the finite stockpile of natural

resources.

As long as the United States could keep discovering and producing new oil and gas at relatively low cost, energy supplies did not impose serious inflexibilities on our economy. When we

needed more we could get it without making

much of a sacrifice. With synfuels, it is necessary

to plan ahead, making sure that capital resources

are indeed available to supply synfuels projects,

and that product demand is also going to be available at least a decade into the future so that large

synfuels investments can be amortized.

The current financial situation of many electric utilities in the United States illustrates the risks

entailed when plans depend on long-term price

and quantity predictions which may prove to be

wrong. It was not long ago that utility investments

were considered almost risk-free, and the industry

had for decades raised all the debt it wished at

low rates. Needless to say, the utility situation has

now dramatically reversed as the result of sharply

rising costs embodied in new, long-lived generthe past 20 years averaged about $1.60. Depending on the synfuels option, a synfuels plant would have a comparable ratio of $5.4o

to $7.00/BOE of “reserves.” Well-drilling and other exploration costs

were obtained from Society of Exploration Geophysicists, Annual

Reports and from joint Association Survey of the U.S. Oil and Gas

Producing Industry.

ZISee 1980 Annua/ Report of Exxon cOtpOrdtiOn, pp. 34, 44, 51.
Ch. 8–Regional and National Economic Impacts ● 209

ating capacity. while it may be premature to

draw an analogy with synfuels, it is clear that synfuels will tie up capital in considerably larger

blocks and for considerably longer periods than

was true for conventional oil and gas reserves

over the last 30 years.

Compared with synthetic petroleum, methanol

presents two opportunities to partially offset the

tendency toward industrial concentration. First,

as indicated above, its present use as a major

chemical feedstock provides an opportunity for

large chemical firms to enter the liquid fuel

business. Second, since methanol can be produced from wood and other solid biomass, smallscale conversion plants (approximately $1 O-million investments) operated by relatively small entrepreneurs may be able to take advantage of

local conditions across the country. * Assuming

cost competitiveness, having a mixture of smalland large-scale methanol producers may reinforce the attractiveness of downstream equipment investments (e. g., retail pumps and engine

improvements), thus making it more likely that

drivers will indeed have an attractive methanol

opt ion.

Besides methanol, synthetic gases may attract

additional large and small firms from outside the

petroleum and chemical industries. Depending

on the deregulated “well head” price of natural

gas (relative to fuel liquids) and depending on

regulatory policy regarding utility pricing, synthetic natural gas and synthetic medium-Btu gas

may become profitable investments for gas utilities. Indeed, the first synthetic gas project to

reach the final planning stage has substantial gas

utility ownership, * * Syngas may become attractive as a methanol coproduct or as a primary

product, in either case taking advantage of capital

savings and higher conversion efficiencies than

if methanol or gasoline is the sole product of indirect liquefaction.

*One domestic company, International Harvester, is presently

developing technology to mass-produce this equipment and transport it to the purchaser’s location in easily assembled modules.

* *This compares with total private domestic investment in 1980

of about $395 billion, and out of that total about $294 billion went

for nonfarm investments in new plant and equipment. Also in 1980,

two large blocs of energy investments were $34 billion for oil and

gas exploration and production and $35 billion for gas and electric utilities.

A final comment can be made about the location of the synfuels industry. Shale oil production will be concentrated in Colorado and Utah,

since that is where superior shale resources exist and since unprocessed shale cannot be

shipped as a crushed rock without driving up

costs prohibitively, Coal-based synfuels offer the

possibility of spreading liquid fuel production

over a wider cross section of the Nation. This is

especially important for the Northeast and North

Central section of the United States, where there

remain substantial coal deposits in Pennsylvania,

Ohio, and Illinois, States which have by this time

depleted most of their original petroleum reserves.

Unlike their shale counterparts, coal-conversion facilities and subsequent upgrading and

refining plants need not be immediately adjacent

to the mine mouth, since coal’s shipping costs

per Btu are less than for shale. Location of

facilities and, hence, their regional impacts will

depend on site-specific factors and the available

modes of transportation. Location of facilities to

convert biomass into methanol will be determined primarily by local availability and cost of

biomass feedstocks. This restriction is imposed

by the dispersed location of plant material, rather

than by differences in energy density (biomass

feedstocks such as wood have an energy density only marginally lower than some Western

coals).

Potential Resource Bottlenecks

and Inflation

Technology, ownership concentration, and (in

certain important cases) regional concentration,

all combine to impose heavy demands on labor,

material, and financial resources relative to current and potential new supplies of the same resources. If deployment plans fail to account for

supply limitations, long project delays and large

cost overruns can occur.

Anytime a capital-intensive industry attempts

to start up quickly, temporary factor input shortages can be expected—if not more extreme “bottlenecks” or chronic shortages which generally

disrupt construction schedules. Ideally, shortages

and, certainly, bottlenecks can be avoided by ad-
210 ● Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil imports

vanced planning and giving suppliers purchase

contracts years in advance if necessary to ensure

availability. However, while such planning and

long-term commitments minimize shortage risks,

they also increase risks of loss should plans be

technically ill-conceived and commitments are

made to projects with actual costs much larger

than planned. These two sets of risks must be

weighed against each other, but at the present

time technical risks clearly are more significant.

In order to predict resource bottlenecks and

their impacts, the full array of supplier market

dynamics must be understood. In this limited discussion, one can only begin to compare potential demands and supplies for key synfuels resources.

As a final introductory remark, it should be

clear that factor price inflation drives up costs in

many industries, not just for builders of synfuels

plants. Industries that appear most vulnerable to

inflation resulting from synfuels deployment will

be identified. However, in general, a much larger

study would be necessary to trace inflationary

pressures through complex interindustry transactions.

Experienced Project Planners,

Engineers, and Managers

As planned, the construction of oil shale and

coal liquids projects requires the mobilization of

thousands of skilled workers and massive quantities of equipment and materials. Of all these synfuels investment resources, the supplies of skilled

engineers and project managers are the most difficult to measure, and in the final analysis, it is left

up to the large investing firms to decide for each

project when a critical mass of talent has been

assembled. While individual firms may have excellent engineering departments, the possibility

of supply bottlenecks for chemical engineering

services, across the full spectrum of chemical

processing industries, must be of concern because of the potential financial risks due to design

errors and because of the length of time required

to educate and train new people. *

● Well-trained engineers and project planners can still make major

mistakes, but risks due to miscalculations and design errors are controlled by careful training and building up experience increment the present time, only one of the country’s

10 major architectural and engineering (A&E)

firms22 has actually built a synfuels plant. * No

commercial-scale plant has been built. Given this

general inexperience, and making the reasonable

assumption that A&E firms will not be short of

work worldwide, it seems highly unlikely that synfuels construction contracts for the first round of

a rapid deployment scheme will be able to hold

builders to binding cost targets and completion

dates. Consequently, those who would actually

take investment risks may be extremely skeptical

of builders’ qualifications and judgment, and this

may severely limit the apparent supply of qualified engineers and engineering firms.

Furthermore, if synfuels projects proceed ahead

at a rapid pace despite the technical uncertainties and commercial inexperience, it could drive

up the A&E costs for other large, new processing facilities which rely on the same limited group

of A&E firms and the same pool of skilled workers.

Of all synfuels resource markets, the possibilities

tally. Commonly accepted periods for obtaining a bachelor’s degree

and subsequent on-the-job training range from 6 to 10 years.

Several recent examples illustrate that errors in the design of large

mining and chemical processing plants do occur and can cause

severe cost overruns and project delays. Perhaps the most extreme

case was the Midwest (nuclear) Fuel Reprocessing Plant built for

General Electric. Construction started in 1968, with completion

planned for 1970 at an estimated cost of $36 million. Unfortunately, expected time for major technical component failure in the new

pIant was less than the time required to achieve stable operating

conditions. The project was abandoned and the company estimated

that an additional expenditure of between $9o million and $130

million would have been required to redesign and rebuild.

Additional examples include a municipal solid waste gasifier in

Baltimore begun in 1973 which never achieved its major goal of

commercial steam production, an oil sands project in Canada which

undetwent extensive retrofit when the teeth of its large mining shovels were worn away in a matter of weeks by frozen oil sands, and

so on. Clearly, major design errors have happened in the past and

are likely in the future, with the number and severity of such errors

increasing if a shortage of experienced design engineers develops,

For further information about these and other examples of design

errors, see Edward Merrow, Stephen Chapel, and Christopher

Worthing, A Review of Cost Estimation in New Technologies: Implk

cation for Energy Process Plants and Corporations, july 1979.

ZZACCOrding to Business Wee/q Sept. 29, 1980, p. w, the 10 major

A&E firms, in order of their largest projects to date, are: Fluor, Parsons, Bechtel, Foster Wheeler, C-E Lummus, Brown and Root,

Pullman Kellog, Stone and Webster, CF Braun, and Badger.

*The Fluor Corp. built Sasol I and II in South Africa and will undoubtedly sell this technology and its unique experience in the

United States. However, different resource endowments can cause

very different engineering economics in different countries, and

thus this existing technical base may have to be adapted to the

United States by investing in significant additional engineering.
Ch. 8—Regional and National Economic Impacts ● 217

for propagation of inflation from synfuels into the

rest of the economy is greatest here. Petrochemicals, oil refining, and electric power generation

are all industries which depend on the same engineering resources in order to build new facilities.

in 1979, these three industries accounted for

more than 25 percent of the total investment in

new plant and equipment.23

Mining and Processing Equipment,

Including Critical Metals for Steel Alloys

The construction of massive and complex synfuels plants will require equally massive and diverse supplies of processing equipment and construction materials. Some of this equipment must

meet high performance standards for engineering, metals fabrication, component casting, and

final product assembly because it must withstand

corrosive and abrasive materials under high pressure and temperature.

Potential supply problems can be identified first

by comparing projected peak annual equipment

demand (for each deployment scenario) to current annual domestic production. While projections were not done specifically for OTA’s low

and high scenarios, useful information can be extrapolated from an earlier projection for the deployment of coal Iiquids.24 In that analysis, which

postulated 3 million barrels per day (MMB/D) of

synfuels by 2000, 7 of 18 input categories were

identified as questionable because projected synfuels demands account for a significant fraction

of domestic production. * Supply problems for

zJFor data see Statistical Abstract, 1980, p. 652.

ZdData obtainedfrom “A Preliminary Study of Potential impediments,” by Bechtel National, Inc., which is one part of a threepart compendium, Achieving a Production Goal of 1 Million BID

of Coal Liquids by 1990, TRW, March 1980. We can extrapolate

from coal liquids to all other synfuels because subsequent research

(by E. 1. Bentz & Associates, OTA contractor) indicates that shale

oil, coal liquids, and coal gases are all quite similar in their total

use of processing equipment per unit output (measured in dollars)

and in their mix of processing equipment. Furthermore, the Bechtel

study remains useful, despite its age, since subsequent increments

in synfuels plant costs do not add items to this list or significantly

increase demand requirements for the group of seven critical items.

In other words, recent escalations in plant costs are primarily related

to increases in the expected prices of components and to increasing demands for certain components which are insignificant when

compared with productive capacity nationwide.

*Significance in this case means that projected synfuels demand

exceeds 1 to 2 percent of domestic production. Since this is a

relatively low threshold, this list should stay about the same for both

scenarios.

chromium, the one item in this group of seven

which is not a manufactured piece of equipment,

would not be caused by synfuels deployment,

since synfuels requirements would amount to less

than 3 percent of domestic consumption, but

supplies may nevertheless be difficult to obtain

because U.S. supply is imported, much of it from

politically unstable southern Africa.25

For the six types of equipment identified, the

actual occurrence of bottlenecks will depend on

the ability of domestic industry to expand with

synfuels demand. In all cases, including draglines

and heat exchangers—where coal synfuels requirements exceed 75 percent of current domestic production even in the low scenario—there

appear to be no technical or institutional reasons

why, if given notice during the required project

planning period, supplies should not expand to

meet demand with relatively small price incentives.

In general, this optimistic conclusion is based

on the fact that Ieadtimes for expanding capacity to produce synfuels equipment are shorter ~

than the Ieadtimes required to definitely plan and

then build a synfuels plant.26 The fact that many

plants would be built at the same time does not

nullify this basic comparison as long as all synfuels construction projects are visible to supplier

industries, as they should be. Furthermore, foreign equipment suppliers can be expected to

make up for deficiencies in domestic supply if not

actually displace domestic competitors.

For example, consider the case of heat exchangers. As indicated in table 62, coal synfuels

zSThe chief use of chromium is to form alloys with iron, nickel

or cobalt. In the United States, deposits of chromite ore are found

on the west coast and in Montana. However, domestic production costs are much higher than in certain key foreign countries.

In 1977, South Africa produced about 34 percent of total world

production, with the U.S.S.R. and Albania producing another 34

percent. Other major producers are Turkey, the Phillipines, and

Zimbabwe. See Minerals in the U.S. Economy: Ten-Year SupplyDemand Profiles for Nonfuel Mineral Commodities (1968-77),

Bureau of Mines, U.S. Department of Interior, 1979.

Zbone can never be certain about how well industrial systems

will adapt to rapidly expanding demand for a limited number of

highly engineered types of equipment which must be produced

with stringent quality control, However, informal surveys of equipment manufacturers have not revealed substantial reasons why

equipment supplies should not be responsive to moderate price

incentives. See Frost and Su Ilivan, Coa/ Liquefaction and Gasification: Plant and Equipment Markets 1980 Z(X?0, August 1979.
212 ● Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

Table 62.—Potentially Critical Materials and Equipment for Coal Liquids Development

(A) (B)

Category Units Peak annual requirements U.S. production capacity (A)/(B) (percent)

1. Chromium . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2. Valves, alloys, and stainless . . . . . . . . . . . .

3. Draglines. . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4. Pumps and drivers (less than 1,000 hp). . .

5. Centrifugal compressors (less than

10,000 hp. . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6. Heat exchangers . . . . . . . . . . . . . . . . . . . . . .

7. Pressure vessels (1.5 to 4 inch walls) . . . .

8. Pressure vessels (greater than

4 inch walls) . . . . . . . . . . . . . . . . . . . . . . . . . .

tons

tons

yd

hp

hp

ft 2

tons

tons

10,400

5,900

2,200

830,000

1,990,000

36,800,000

82,500

30,800

0

70,000

2,500

20,000,000

11,000,000

50,000,000

671,000

240,000

—

8

88

4

18

74

12

13

SOURCE: Achieving a Production Goal of f Million S/0 of Coal Liquids by 19%), draft prepared for the Department of Energy by TRW, Inc. and Bechtel National, Inc.,

March 1980, pp. 4-28. Although these projections apply to the achievement of 3 MM B/D of coal liquids, and not specifically to the low and high production

scenarios Postulated in this reDort, they nevertheless Indicate rouah orders of maanitude for eaui Dment demand. See footnote 16 of this chaDter for further

discussion of alternative synfuels projmtlons.

requirements for the low scenario could account

for about 75 percent of current domestic U.S.

production. Extrapolation from table 62 indicates

that requirements for the high scenario could

amount to 150 percent of current production

and, as data in table 63 indicate, even in the low

scenario, synfuels demand could exceed current

U.S. production for “fin type” heat exchangers.

However, productive capacity can expand as rapidly as machine operators and welders can be

trained, which for an individual worker is measured in terms of weeks and months. Additional

heat-treated steel and aluminum inputs will also

be required, as well as manufacturing equipment,

but in all cases supplies of these inputs should

expand with demand .27

This generally optimistic assessment does not

mean that temporary shortages could not occur

and temporarily drive up equipment prices if

prospects for synfuels deployment should imZTcOrnpared With the full range of heat exchangers used in industrial and utility applications, those likely to be used in synfuels plants

will operate at relatively low temperatures. Low-temperature units

are made primarily out of carbon steel, low-alloy steel, and enamel

steel, all of which are readily available in commodity markets where

demand for heat exchangers is a small fraction of the total. Hence,

material inputs are unlikely to restrain expansion of heat exchanger

supplies.

It is also unlikely that skilled labor or manufacturing plant and

equipment will limit supplies, because the required welding and

machine operator skills can be learned in a period of weeks if necessary, and manufacturing facilities are not highly specialized. Background information about the heat exchanger industry, and synfuels technology in particular, was obtained by private communication with James Cronin, Manager of Projects, Air Preheater Division, Combustion Engineering, Wellsville, N.Y.

prove dramatically.28 However, as orders for new

equipment skyrocket, new capacity should become available in time so that extremely high

equipment prices can be avoided if project managers are willing to accept relatively brief (measured in months) delays in delivery.

Skilled Mining and Construction Labor

Construction workers and their families can

move with employment opportunities, but moving is costly and especially burdensome if jobs

in an area last for only a period of months. In

order to induce essential migration, synfuels projects must incur high labor costs in the form of

travel and subsistence payments as well as

28A commonly cited example of a temporary inflationary spurt,

caused by a construction boom, occurred in the U.S. petrochemicals industry in 1973-75. Over the period from the mid-1 960’s to

mid-1 970’s, the following three price indices show a distinctive pattern for chemical process equipment:

Chemical process All machinery

Year equlpmenta Producer goodsb and Equipment

1967 .. . 100 100 100

197 0 81 110 111

1971 . 86 119 118

197 2 74 135 122

197 3 91 160 139

197 4 139 175 161

1975 . . . . 167 183 171

1976 . . . . . . 188 194 182

1977 ., . . . 154 209 206

‘Data obtained from Annual Survey of Manufacturers, Bureau of Census, U S. Depanment of Commerce, SIC No. 35591 (xJ5, as reported In ASM-2.

bData obtalrlecj from U S, Statistical Abstract, 1979, PP 477-79.

In words, chemical process equipment prices reversed a decline

in 1973, increased by more than 150 percent through 1976, and

then tapered off again in 1977. This compares with a steady upward trend from both producer goods and all machinery and equipment .
Ch. 8—Regional and National Economic Impacts ● 213

Table 63.—Peak Requirements and Present

Manufacturing Capacity for Heat

Exchangers (Million Square Feet)

Peak

requirements

for 3 MMB/D

of coal liquids U.S. manufacturing

(1985)” capacity

1. Process shells

and tubes. . . . . . . . 22.0 27

2. Fin type . . . . . . . . . 9.2 8

3. Condensers . . . . . . 4.4 15

36.8 50

apeak requirements indicate maximum CapaCity requirements If synfuets Proj -

ects are to maintain production schedules.

SOURCE: Achieving a Production Goal of 1 Million B/Do fCoal Liquids by 19$X),

draft prepared for the Department of Energy by TRW, Inc. and Bechtet

National, Inc., March 1980, pp. 4-28.

“scheduled overtime. ” * However, while the influx of people and the relatively high payments

to workers may cause severe local inflation, regional and national impacts should not be significant. Confidence in this conclusion is based primarily on the fact that training in construction

skills can be obtained in the period of weeks and

months and that, if anything, there is an oversupply of people willing to enter these trades.29

Miners will be expected to move into a new

area and stay permanently. Although it would

seem reasonable to suppose that workers would

—

*Apparently, it is important for major employers to emphasize

that they do not pay premium wages and salaries for large construction projects, but instead there are various special considerations.

Whatever it is called, total worker remuneration appears to provide an abnormally large incentive.

zgBechtel’s experience at nuclear powerplant sites in Michigan,

Pennsylvania, and Arizona has demonstrated that a person with

limited welding experience can be upgraded to “nuclear quality”

in 6 to 12 weeks of intensive training. See Bechtel, “Production

of Synthetic Liquids, ” pp. 4-23. Actual training periods are influenced by various institutional factors. For further discussion of labor

productivity see K. C. Kusterer, Labor Productivity in Heavy Construction: Impact on Synfuels Program Employment, Argonne National Laboratory, ANL/AA-24, U.S. Department of Energy.

The supply of people willing to work on large construction projects seems to be very price-elastic. In other words, large numbers

of skilled or “able-and-willing-to-learn” workers will migrate to even

remote construction sites if wage incentives exceed going rates elsewhere in the Nation by 20-30 percent. Although it is difficult to

confirm this conclusion in published literature, it appears to be commonly held among university-based experts as well as in the construction industry, Information was obtained from private communications with j. D. Borcherding, Department of Civil Engineering, University of Texas in Austin; Richard Larew, Department of

Civil Engineering, Ohio State University; John Racz{ Synfuels Project Manager, Exxon USA in Houston; and Dan Mundy, Building

Construction Trades Department, AFL-CIO, in Washington, D.C.

be reluctant to mine underground, where working conditions can be unpleasant and hazardous,

historical experience suggests otherwise. In the

Eastern mines, with present wages about 140 percent of the national average in manufacturing,

labor shortages have not been a serious problem.30

Basic Construction Materials

Among all synfuels resources, basic construction materials (primarily steel and concrete) are

least likely to cause serious bottlenecks. The more

rapid the pace of deployment, the more likely

a premium price must be paid for steel and cement, but supplies of both should be highly responsive to price incentives.

Mineral resources for the manufacture of Portland cement (the class of hydrolic cement used

for construction) are widely distributed across all

regions of the Nation. The same is true for the

sand and gravel that are mixed with cement and

water to make concrete. The only constraint on

supplies of cement or concrete is the time required to construct new capacity, which takes

at most 3 years for a new cement plant and much

less than that for a concrete mixing facility.31 Since

these times are short relative to the construction

period for a synfuels project, cement shortages

should not be a serious problem.

Steel supplies, on the other hand, may be insufficient in certain regions because required resources such as iron ore, scrap, and coking coal

are not widely distributed. However, steel can

be shipped long distances without dramatically

raising costs. For example, unfabricated structural

shapes and plates (e.g., 1 beams) are valued today

at approximately $25 per hundred pounds FOB

mAs prescribed in the new United Mine Workers/Bituminous OPerators Association contract, dated june 6, 1981, underground

miners presently earn $10 to $11.76 per hour and surface miners

$11.15 to $12.53. This compares with the national average wage

in manufacturing of $7.80 and the average wage in construction

of $9.90, both calculated for March 1981. See Monthly Labor

Review, May 1981, p. 84, for additional wage data. The generalization, that labor supply has not been a serious problem, is a conclusion reached but stated only implicitly in an OTA report, The

Direct Use of Coa[ op. cit.

31 Information abut the resource base and construction leadtirnes

obtained by private communication with Richard Whitaker, Director

of Marketing and Economic Research, Portland Cement Association, Skokie, III,
214 . Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

(freight on board at the factory) and they are commonly shipped from Bethlehem, Pa., to Salt Lake

City, Utah, for another $4 per hundred pounds.

In other words, even if local production is insufficient to meet the needs of synfuels deployment,

vast additional supplies from a national network

of suppliers can be shipped into the area without

driving up costs excessively .32

Final Comments

Despite OTA’s conclusions that resource shortages other than engineering skills need not obstruct synfuels deployment, it does not follow that

rapid synfuels deployment would not be inflationary for a broad range of resource inputs. Disregarding the prospect of Federal intervention to

speed up deployment or to alleviate impacts, rapid deployment could cause bursts of inflation in

an economy where certain suppliers have dominant market positions at least within regions,

where skilled workers are reasonably well organized, and where people have grown accustomed to inflation. In such circumstances, it

would be surprising if those with power to negotiate their revenues and incomes did not exercise

it to their advantage when demand for their product and services is rapidly expanding.

Another caveat should also be made concerning the importation of processing equipment. If

foreign suppliers compete successfully and become major suppliers of synfuels equipment, as

they have already demonstrated in the Great

Plains Gasification Project, rapid deployment

could result in substantial foreign payments.33

Depending on the general balance of payments

picture, this could devalue the dollar in foreign

JZData obtain~ from American Meta/Market, June 16, 1981, and

from Bethlehem Steel, Washington Office. It should be noted that

fabricated steel or steel which has been tailored to specific applications can cost as much as $75 Wr hundred pounds and hence ship

ping costs may add much less to delivered costs (on a percentage

basis).

JJln this first major synfuels project, the japanese IOW bid was

substantially below apparent costs. Among other things, this indicates the competitive determination of at least one foreign supplier to capitalize on synfuels deployment. For related comments

by U.S. Steel firms, see Meta/s Dai/y, Sept. 4, 1980; and the Chicago

Tribune, Aug. 30, 1980. For a general analysis of the U.S. steel industry and its competition from abroad, see Technology and5tee/

/ndustry Competitiveness, OTA-M-122 (Washington, D. C.: U.S.

Congress, Office of Technology Assessment, June 1980).

exchange markets and thus increase the price of

all imports into the United States. Perhaps offsetting this concern about balance of payments, the

success of equipment imports may have a salutary

effect on domestic producers by inducing them

to improve their products and lower their costs.

Finance Capital and Inflation

In addition to potential shortages among resource inputs, the deployment of synfuels capacity may be restrained by the limited availability

of financial capital. Such a limit has already been

mentioned for small companies which cannot

raise $2 billion to $3 billion and for any company

trying to borrow at presently inflated interest

rates.

Limits may also be imposed by financial markets that compare synfuels against all other types

of investments. If synfuels projects are indeed unprofitable, the number of projects funded may

be small or, if they are profitable, the number may

be large. In this sense, a market-based synfuels

deployment scenario should be self-correcting,

with the lure of profits attracting new investment

when expansion is warranted and the pain of

losses driving investors away and thus curtailing

deployment. Any of the previously discussed

shortage possibilities, should they arise, will be

perceived sooner or later by investors and the

number of projects reduced as a result.

Whether or not deployment is by market incentives or Government policy, the adjustment and

possible disruption of financial markets required

by synfuels deployment can be discussed in terms

of gross investment data. Assume that on the average, during its 5-year construction period, a

$2.5-billion synfuels project requires $500 million

in outlays annually. This compares with total private domestic investment in 1980 of about $395

billion, of which total about $294 billion went for

nonfarm investments in new plant and equipment. Also in 1980, two large blocs of energy investments were $34 bilion for oil and gas exploration and production and $35 billion for gas and

electric utilities.34

J4AII investment data except for oil and gas were obtained from

the Survey of Current Business, Bureau of Economic Analysis, U.S.

Department of Commerce, September 1981, pp. 9, S1. Oil and gas
Ch. 8—Regional and National Economic Impacts ● 215

In other words, 12 fossil synfuels plants under

construction at the same time would account for

about 18 percent of the 1980 investments for the

production of petroleum and natural gas, about

17 percent of 1980 investments by electric utilities, or about 5 percent of the total investment

in manufacturing. At this pace, assuming 5-year

construction periods, approximately 2 MMB/D

capacity could be installed over the next 20 years

(the low scenario). Almost three times this many

plants on the average must be under construction at one time, and about three times as much

capital must be committed to achieve the goal

of just under 6 MM B/D by 2000 (high scenario).

In either case, this average would be achieved

by means of a relatively gradual startup, as technologies are proven and experience is gained in

construction, followed by a rapid buildup as all

systems become routine.

The question remains: Can funding be reasonably expected for scenarios presented in this

report? The answer depends on the future growth

of GN P and the future value of liquid fuels relative

to other fuels and to all other commodities. Without trying to predict the future, the question may

be partially answered by showing that such a diversion of funds to energy applications has precedents in recent history.

From 1970 to 1978, investments in oil and gas

grew at a rate of about 7.5 percent per year and

investments in electric utilities grew at about 5

percent per year, both in constant dollars.35 A

glance back at synfuels requirements as fractions

of existing energy investments shows that it would

take only about 2.5 years of 7.5 percent growth

in oil and gas investments or about 3.5 years of

5 percent growth in electric utility investments

to provide sufficient incremental funds to support

the low scenario, and about three times as many

years of growth in each case to fund the high scenario.

investment data were obtained from Petro/eurn /rrc/ustry hwestrnents

in the 80’s, Chase Manhatten Bank, October 1981. The total of $34

billion is broken down into $22 billion for service equipment, $6.3

billion for lease bonuses, and $3.1 billion for geological and

geophysical data gathering.

35 Energy investment growth data obtained from 1978 Annual

Report to Congress, Energy Information Administration, p. 128.

In other words, another 5-year period of expansion in energy investments, similar to their growth

in 1970-78 with oil and gas and electricity added

together, could provide more than enough funds

annually to reach the goal of about 6 MMB/D of

synfuels by 2000 (high scenario), assuming that

this higher level of investment were sustained for

the next 20 years. Furthermore, if such rapid deployment were economically justified (i.e., other

costs were rising sufficiently to make synfuels relatively low-cost options) there would be an economic incentive to divert funds to synfuels which

had been devoted to conventional fuels.

Final Comments About

Inflation and Synfuels

In an inflating economy, all price increments

tend to be viewed as inflationary. However, this

appearance obscures the fact that some price increases are necessary adjustments in relative

prices in order to reduce consumption and to increase production. The latter will be true if synfuels place large, long-term, new demands on

scarce human and material resources.

On the other hand, construction costs have

grown faster than the general rate of inflation

since the mid-1960’s.36 (See fig. 19.) Recently, the

reverse has been true but there is reason to be

concerned that rapid synfuels deployment could

exacerbate what has been a serious inflationary

problem. In any case, rising real costs of construction has been one of the major reasons why “current” estimates of synfuels costs have more or

less kept pace with rising oil prices. (See ch. 6

for more detailed discussion.)

Finally, although most of this discussion has explored how synfuels deployment may aggravate

inflation, the cause and effect couId be reversed

if deployment of first generation plants is too

slow. That is, if the promise of synfuels remains

JbcOrlSUrner price Index obtained from 1980 U.S. Statistic/

Abstract, p. 476. Construction Cost Index obtained from Engineering

News Record, McGraw Hill, Dec. 4, 1981, Market Trends Section.

The actual data series published in this journal has been converted

from a base year of 1916 to a base year of 1977. There are several

construction cost indices published by reputable sources, but only

the ENR was reproduced here because the data available to OTA

suggest that all such series reflect more or less the same trends.

98-281 0 - 82 - 15 : c L 3
216 • Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

Figure 19.—Time Series Comparison: Construction in the distant future and conservation attempts

Costs and Consumer Prices

_ Construction cost index of Engineering I

News Record

--- Consumer Price Index

/

are clearly insufficient to balance oil supply and

demand worldwide, there will be no market-imposed lid on the price of oil and no reason to expect that sharp oil import price increases will not

continue to destabilize domestic prices. In that

case, the inflationary impacts of rapid deployment

may appear to be much more acceptable.

SOURCE: U.S. Bureau of Labor Statistics, “Monthly Labor Review and Handbook

of Labor Statistics,” annual, and “BM and ID Investment Manual,” /nvestrnent Enghwedng, sec. 1, part 6, item 614, pg. 1, Apr. 16, 1961.
Chapter 9

Social Effects and Impacts
Page

Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219

Social impacts of Changing Automotive Technology. . . . . . . . . . . . . . . . . . . . . . 219

Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219

Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220

occupational and Regional Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223

Social Impacts of Synfuels Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225

Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225

Manpower Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. ..:... 226

Population Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227

private Sector Impacts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 230

Public Sector Impacts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 231

Managing Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233

TABLES

Table No. Page

64. Initial and Lifecycle Costs of Representative Four-Passenger Electric Cars.. 220

65. Auto Industry Employment Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 221

66. Factors to Consider in Locating Parts-Supplier Plants . . . . . . . . . . . . . . . . . . 224

67. Manpower Requirements for a 50,000 bbl/d Generic Synfuels Plant . . . . . . 227

68. Estimates of Regional Population Growth Associated With Fossil

Synfuels Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228

69. Population Growth in SeIected Communities, 1970-80 . . . . . . . . . . . . . . . . . 229

70. Statewide Population Estimates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 230

FIGURES

Figure No. Page

20. Auto, Steel and Tire Plant Changes, 1975-80 . . . . . . . . . . . . . . . . . . . . . . . . 224

21. Census Regions and Geographic Divisions of the United States . . . . . . . . . 229
Chapter 9

Social Effects and Impacts

INTRODUCTION

Increased automotive fuel efficiency and pro- producing synthetic fuels will be felt primarily in

duction of synthetic fuels will both give rise to communities which experience rapid surges and

a variety of social impacts. The impacts of increas- declines in population as plants are built and

ing fuel efficiency will occur primarily as changes begin to operate.

in employment conditions, while the impacts of

SOCIAL IMPACTS OF CHANGING

AUTOMOTIVE TECHNOLOGY

Overview

The characteristics and uses of automobiles

sold in the United States indicate that historically Americans have valued automobiles not only

for personal transportation but also as objects of

style, comfort, convenience, and power. Substantial increases in the costs of owning and operating

automobiles that occurred during the 1970’s, and

that are expected in the future, are motivating

consumers to change their attitudes and behavior

in order to reduce spending on personal transportation. Some have purchased smaller, more fuelefficient vehicles. Others have chosen to keep

their present vehicles longer. Large numbers are

simply driving less. Since January 1979, the combined subcompact and compact share of total

sales has climbed from 44 to 61 percent, and gasoline consumption has declined 12 percent.

About one-half to three-quarters of these fuel savings can be attributed to increased fuel efficiency of the automobile fleet.

Although about 12 percent of personal consumption expenditures has historically gone to

automobile ownership and operation, rising costs

may ultimately induce consumers to spend a

smaller share of their budgets on automobiles or

—at least—not to let that share increase. Recent

increases in the small-car proportion of new-car

sales suggest that consumers are prepared to

trade cargo space and towing capability for high

fuel economy and the prospect of relatively low

operating costs. in the future, instead of buying

vehicles designed for their most demanding transportation needs, people may buy small vehicles

for daily use and rent larger vehicles for infrequent trips with several passengers, bulky or

heavy cargo, or towing. The movement toward

small cars is slowed by the tendency for people

to retain cars longer than before. * Purchases of

fuel-efficient vehicles and ownership of several

vehicles, each suited for different transportation

needs, would be facilitated by improved economic conditions.

Ridesharing and mass transit use have become

more common and could increase further. Since

the 1973-74 oil embargo public transit ridership

has increased 25 percent.1 Ridesharing and transit

use are limited by the dispersion of residences

and jobs, and, for transit, by the adequacy and

availability of facilities. Mass transit capacity is

limited during peak commuting periods and often

is unavailable or scheduled infrequently in areas

outside of central cities.

It should be noted that low-income people are

likely to have the fewest options for adjusting to

rising automobile costs. People with low incomes

already tend to own fewer vehicles, have relatively old vehicles (which were typically bought

used), travel less, and share rides or use public

transit more than the affluent.

Consumers are likely to respond differently to

electric vehicles (EVs) and small conventionally

*Thirty-five percent of private vehicles were over 5 years old in

1969, 51 percent were over 5 years old in 1978.

‘American Public Transit Association.

219
220 ● Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

powered cars (using internal combustion engines)

because of different cost, range, and refueling

attributes (see table 64). The conventionally

powered car would have two significant advantages over an EV: unlimited range (with refueling) and substantially lower first cost. The EV, on

the other hand, would offer the advantage of

being powered by a secure source of energy

(electricity) and therefore assure mobility in the

event of disruption of gasoline supplies. It is not

clear how the consumer would weigh these two

options, although the degree to which EV manufacturers can reduce the cost differential is certain to be very important.

Employment

In 1980, the Bureau of Labor Statistics estimated

that there were fewer than 800,000 people employed in primary automobile manufacturing and

automotive parts and accessories manufacturing.

This compares with employment levels over

900,000 during the peak automobile production

period, 1978-79.2 These figures, however, present an incomplete picture of employment. Although the Bureau of the Census counts employees in industries producing various primary prod2Bureau of Labor Statistics, Current Employment Statistics Program data.

ucts, it does not identify how many workers contribute to intermediate products used in automobiles or other finished goods. Thousands of

automotive people perform work in support of

automobile manufacturing within industries

otherwise classified—producing, for example,

glass vehicular lighting, ignition systems, storage

batteries, and valves. Thus, the Department of

Transportation estimated that during 1978 to 1979

about 1.4 million people were employed by auto

suppliers overall.3

Historically, the growing but cyclical nature of

the auto market resulted in a pattern of periodic

growth and decline in auto-related employment

(see table 65). Current and projected trends for

strong import sales, decline in the growth rate

of the U.S. auto market, increased use of foreign

suppliers and production facilities, and adoption

of more capital-intensive production processes

and more efficient management by auto manufacturers and suppliers will contribute to a general

decline in auto industry employment.

Specific changes in employment will depend

on the number of plants closed or operating un3U. S. Department of Transportation, The U.S. Autorrrobi/e /ndustry, 1980: Repori to the President from the Secretary of Transportation (Washington, D.C: Department of Transportation, January

1981 ).

Table 64.—initial and Lifecycle Costs of Representative Four-Passenger Electric Cars

Near term Advanced

Pb-Acid Ni-Fe Ni-Zn Zn-CL2

(ICE) Zn-CL2 Li-MS (ICE)

Initial cost, dollars . . . . . . . . . . . . . . . . . . . . . . . . . 8,520

Vehicle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,660

Battery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,860

Lifecycle cost, cents per mile . . . . . . . . . . . . . . . 23.9

Vehicle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.0

Battery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.0

Repairs and maintenance . . . . . . . . . . . . . . . . . 1.5

Replacement tires . . . . . . . . . . . . . . . . . . . . . . . 0.6

Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2

Garaging, parking, tolls, etc.. . . . . . . . . . . . . . . 3.1

Title, license, registration, etc.. . . . . . . . . . . . . 0.7

Electricity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3

Fuel and oil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —

Cost of capital . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5

8,400

5,950

2,450

24.9

4.5

4.8

1.5

0.5

2.2

3.1

0.6

2.2

—

5.5

8,130

5,720

2,410

26.6

4.3

7.0

1.5

0.5

2.2

3.1

0.6

2.0

—

5.4

8,120

5,540

2,580

22.0

4.2

2.3

1.5

0.5

2.2

3.1

0.6

2.2

—

5.4

4,740

4,740 —

21.4

4.3

—

3.9

0.4

2.2

3.1

0.6—

4.0

3.0

7,050

5,410

1,640

19.4

4.1

1.4

1.5

0.4

2.2

3.1

0.5

1.7—

4.5

6,810

5,180

1,630

20.1

3.9

2.6

1.5

0.4

2.2

3.1

0.5

1.5

—

4.4

5,140

5,140 —

21.8

4.7

—

3.9

0.4

2.2

3.1

0.5

—

3.7

3.3

NOTE: All costs are In mid-19S0 dollars. Annual travel 10,000 miles

Assumptions: Car end battery salvage value 10 percent

Electrlclty price S0.03 per kilowatt-hour Cost of capital

Gasoline price $1.25 per gallon

10 percent per year

Car and battery purchases are 100 percent financed over their useful lives.

Electrlc vehicle life 12 years Electricity cost includes a road use tax equal to that paid by typical gasoline

Internal combustion engines vehicles of equal weight vla State and Federal geso[lne taxes.

vehicle life 10 years

SOURCE: General Research Corp. Cost categories and many entries, such as tire% Insurance, 9araOin0, etc., are based on periodic cost analyses by the Department

of Transportation (see footnote 13). All costs shown were computed by the Electric Vehicle Weight and Cost Model (EVWAC) (see footnote 14).
Ch. 9—Social Effects and Impacts . 221

Table 65.—Auto Industry Employment Data

(2)

(1) Average annual

Average annual employment in primary

unemployment rate in auto manufacturing and

the motor vehicle parts and accessories

industry SIC 371 manufacturing, SIC

Year (percent) 3711 and SIC 3714 (000)

1970. . . . 7.0 733.4

1971 . . . . 5.1 781.3

1972 . . . . 4.4 798.2

1973. . . . 2.4 891.5

1974 . . . . 9.3 818.9

1975. . . . 16.0 727.8

1976. . . . 6.0 814.9

1977 . . . . 3.9 869.5

1978. . . . 4.1 921.7

1979. . . . 7.4 908.6

1980 . . . . 20.3 775.6

SOURCE Column 1 data are from the Bureau of Labor Statistics, household sample survey Column 2 data are from the Bureau of Labor Statistics

establishment survey, Data in the two columns are not directly comparable. “SIC” refers to “Standard Industrial Classification.”

der capacity, the capacity of the plants, and the

degree to which production at affected plants is

labor-intensive. The long-term effects on workers

depend on personal characteristics such as skills

(many production workers have few transferable

skills), the levels of local and national unemployment, information about job opportunities, and

personal mobility (greatest for the young, the

skilled, and those with some money).

The Department of Transportation estimates

that each unemployed autoworker costs Federal

and State Governments almost $15,000 per year

in transfer payments and lost tax revenues. This

estimate implies, for example, that if 100,000 to

500,000 manufacturer and supplier workers are

unemployed for a year their cost to government

is about $1.5 billion to $7.5 billion. During 1980,

payments to unemployed workers of General

Motors (GM), Ford, and Chrysler in Michigan included about $380 million in unemployment insurance, $100 million in extended benefits, and

$800 million in “trade adjustment assistance”

(provided by a program established in the Trade

Expansion Act of 1962 and modified by the Trade

Act of 1974).4

Growing use of labor-saving machinery by auto

manufacturers and major suppliers to implement

4Michigan Employment Security Commission, personal communication.

complex technologies, cut costs, and improve

product quality is reducing job opportunities in

the auto industry. GM, for example, expects to

invest almost $1 billion by 1990 for 13,000 new

robots for automobile assembly and painting and

parts handling. A new robotic clamping and

welding system developed by GM and Robogate

Systems, Inc., will enable GM to reduce labor

costs for welding by about 70 percent, improve

welding consistency, and reduce vibration and

rattling in finished automobiles. s

MacLennan and O’Donnell, analysts at DOT,

have calculated that today’s new and refurbished

plants can assemble 70 cars/hour with an average

employment level of 4,500, while older plants

typically produce 45 to 60 cars/hour using about

5,400 workers. Such plant modernization implies

that three fewer assembly plants and 23,000 fewer workers are needed to assemble 2 million cars

annually. 6 The United Auto Workers estimates

that labor requirements in auto assembly, which

has been a relatively labor-intensive aspect of

auto manufacture, will be reduced by up to 50

percent by 1990 through the use of robots and

other forms of automation. ’

Foreign-designed automobiles manufactured in

the United States also provide jobs. Current and

anticipated local production by foreign firms (only

Volkswagen (VW) to date) largely involves vehicle assembly, using primarily imported components and parts. VW’s Pennsylvania plant employs 7,500 workers to assemble over 200,000

cars and contributes to about 15,000 domestic

supplier jobs; 8 a comparably sized domestic--

owned plant would support a total of about

35,000 domestic jobs. New U.S. manufacturing

and supplier jobs will grow with local production and purchasing from U.S. suppliers by foreign firms in proportion to the amount of local

production content in the automobiles. The

planned increase in local content for Rabbits

made here by VW—from 70 percent in model

5“GM’s Ambitious Plans to Employ Robots, ” Business Week, Mar.

16, 1981.

‘Carol MacLennan and ]ohn O’ Donnell, “The Effects of the Automotive Transition on Employment: A Plant and Community Study”

(Washington, D.C: U.S. Department of Transportation, December

1980).

7Business Week, op. cit.

8Department of Transportation, op. cit.
year 1981 to 74 percent in model year 1983–

implies more work in the United States.9

The Departments of Labor and Transportation

estimate that there are between one and two supplier jobs overall for each primary auto manufacturing job.10 Change in supplier employment associated with declining manufacturing employment is uncertain, and will depend on the nature

of the supplied product, how it is made, and the

amount that auto manufacturers buy. While some

supplier jobs, like auto manufacturing jobs, de9“VW Projects Increases in U.S. Content,” Ward’s Automotive

Reports, May 27, 1981.

IOMac Lennan and O’Donnell, Op. cit.

penal on production volume, other supplier jobs

(e.g., in machine tool manufacture and plastics

processing) are tied to the implementation of new

technology. Trends toward foreign sourcing and

vehicle production and automation among suppliers suggest that supplier employment overall

will decline.

Steel and rubber industry jobs are especially

vulnerable to automotive weight and volume reductions. Many of these supplier jobs have already been lost with automotive weight reductions during the 1970’s. For example, MacLennan and O’ Donnell estimate that reduced automotive use of iron and steel in 1975 to 1980 led

to a permanent loss of 20,000 jobs, a loss only
Ch. 9–Social Effects and Impacts Ž 223

partially offset by a gain of 8,000 jobs in processing plastics and aluminum for automotive use. 11

During the same period, employment in the tire

and rubber industry declined at a compound annual rate of 4.1 percent. 12

Jobs with parts and component manufacturers

are also relatively vulnerable, although, again,

many have already been lost. Mac Lennan and

O’Donnell estimate that the closing of almost 100

materials, parts, and component plants in 1979

to 1980 eliminated over 80,000 supplier jobs. 13

Because of the predominance of small firms

among auto suppliers, near-term supplier job

losses may occur incrementally.

Automobile importation supports some domestic jobs and results in the loss of others. There

are over 125,000 people employed by importers,

primarily in dealerships. 14 Growth in import-related employment stems from increases in the

number and market shares of importers, in the

number of dealerships per importer, and in employment per dealership. On the other hand, imports cause loss of industrial jobs. DOT estimates

that loss of 100,000 vehicle sales to imports results

in the loss of about 8,500 primary manufacturing and 13,000 to 16,000 supplier jobs. ’ 5 This implies, for example, that the almost 400,000-unit

increase in import sales in 1978 to 1980 caused

a loss of 34,000 jobs i n automobile manufacturing and up to 64,000 supplier jobs.

Employment in automotive services, including

repair, parking, renting and leasing, washing, and

other services (Standard Industrial Classification

75) grew at a compound annual rate of 5.7 percent in 1975 to 1980 to a total level of almost

540,000 people, according to the Department of

Commerce.16 Employment in these areas is expected to continue to grow.

I 1 Ibid.

1 ZU ,S. Depaflment of commerce, 1981 U.S. /ftdu5tria/ OUt/00~

(Washington, D.C: Department of Commerce, 1981).

1 jMac Len nan and O’ Donnell, Op. cit.

1

4 Patricia Hinsberg, “Study Finds Imports Create U.S. jobs,” Auto

motive News, Aug. 20, 1979.

15Depaflment of Transportation, oP. cit.

IGDepaflment of COmmerce, oP. cit.

Occupational and Regional Issues

Improvements in automotive technology cause

changes in the skills required for production jobs.

Major design and technology changes increase

demands for engineers, who have been in short

supply, while cost-cutting strategies eliminate

other white-collar positions. GM, for example,

eliminated about 10,000 white-collar jobs beginning in 1980 to save about $300 million, and may

eliminate up to 20,000 more. ’ 7 Automation reduces the number of routine and hazardous

tasks, while increasing equipment maintenance

and service tasks. GM, for example, plans to have

equal numbers of skilled and unskilled workers

by the 1990’s, although it presently has one

skilled worker for each five to six unskilled

workers.18 

Auto production jobs are concentrated in

Michigan, Ohio, Indiana, New York, and Illinois

(see fig. 20). The geographic distribution of autorelated jobs is likely to change somewhat for several reasons. First, some nontraditional auto suppliers are located away from traditional areas of

auto production. Major plastics-producing States,

for example, include California, New Jersey, and

Texas as well as Ohio and Illinois. Furthermore,

many of today’s suppliers are located abroad and

many U.S. suppliers are opening plants abroad.

Second, foreign or domestic firms may establish

production facilities outside of the East-North

Central area to gain lower labor and utility costs,

For example, Nissan chose to build a plant in Tennessee. Third, domestic firms are closing inefficient and unneeded plants. Table 66 summarizes

the factors considered in locating parts-supplier

plants.

Automotive plant closings primarily affect employment in the East-North Central region, because automobile production is concentrated

there. Ongoing and future losses of automobilerelated employment in this region are largely a

reflection of the structural changes in the auto

industry described earlier in this chapter, although there will continue to be cyclical changes

17”GM May Chop Another 19,000 Salaried jobs, ” Automotive

News, Mar. 2, 1981.

lsWa// Street Journa/, January 1981.
224 ● Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

Figure 20.–Auto, Steel, and Tire Plant Changes, 1975=80

SOURCE: U.S. Department of Transportation, “The U.S. Automobile industry, 1980,” DOT-P-1 O-81-O2, p. xviii, January 1981.

Table 66.—Factors to Consider in

Locating Parts-Supplier Plants

Relative ranking

Factor 1970’s 1980’s

Availability and cost of skilled labor . . . .

Availability and cost of energy . . . . . . . . . 2;

State and local taxes, incentives . . . . . . . 3

Availability and cost of raw materials . . . 2

Work ethic of area . . . . . . . . . . . . . . . . . . . 4

State and local permits, regulations . . . . 5

Worker’s compensation insurance . . . . . . 7

Availability and cost of capital . . . . . . . . . 7

Right-to-work state (union relations) . . . . 6

Freight costs . . . . . . . . . . . . . . . . . . . . . . . . 10

Quality of living environment . . . . . . . . . . 8

Community attitude ., . . . . . . . . . . . . . . . . 9

Customer service . . . . . . . . . . . . . . . . . . . . 12

Available land . . . . . . . . . . . . . . . . . . . . . . . 11

1

2

3

4

5

6

7

8

9

10

11

11

11

12

SOURCE: Arthur Andersen & Co. and the Michigan Manufacturer Association,

Woddwlde Corrrpetltlveness of the U.S. Automotive Industry and Its

Parts Suppliers During the 1930s, Februa~ 1981.

in automobile-related employment. Because of

local and regional employment dependence on

one industry—motor vehicles—other businesses

(such as retail and service establishments) and

their employment also suffer as employment in

the local population declines.

Unemployment and out-migration will jeopardize other businesses and strain local tax bases,

and Michigan will be especially vulnerable. Loss

of employment, population, and business recently induced Moody’s Investers Service, Inc., to

lower bond ratings for Akron, Ohio, which has

depended on the tire and rubber industry for its

economic vitality; bond ratings for other autodependent cities have also been lowered.
Ch. 9—Social Effects and Impacts ● 225

Photo credit: Michigan Employment Security Commission

Shifts in plant location associated with investments in fuel efficiency may create unemployment problems in

traditional manufacturing centers

SOCIAL IMPACTS OF SYNFUELS DEVELOPMENT

Overview

The principal social consequences of developing a synthetic fuels industry arise from large

and rapid population increases and fluctuations

caused by the changing needs of industry for employees during a facility’s useful life. Such population changes disproportionately affect small, rural

communities that have limited capacity to absorb

and manage the scale of growth involved; these

types of communities characterize the locations

where oil shale and many coal deposits are

found.

In general, whether the consequences of

growth from synfuels development will be

beneficial or adverse will depend on the ability

of communities to manage the stresses which accompany rapid change. Although impacts can be

generally characterized, the extent and nature of

their occurrence will be site-specific depending

on both community factors (size, location, tax

base) and technology-related factors (the location, size, number, and type of synfuels facilities;

the rate and timing of development; and associated labor requirements).

Growth will tend to concentrate in established

communities where services are already available, if they are within commuting distance to synfuels facilities. New towns may be established to
226 . Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

accommodate growth in some areas. Large towns

will serve as regional service centers. Isolated

communities will more likely experience greater

impacts than areas where well-linked communities can share the population influx. Energy conversion facilities which are sited near mines will

result in the greatest concentration of local impacts.

Most synfuels production from oil shale in the

Nation will be concentrated in four Western

counties, affecting about a dozen communities

in sparsely populated areas of northwestern Colorado and northeastern Utah, and eventually

southwestern Wyoming. These communities are

widely separated, are connected by a skeletal

transportation network, and have had historically

small populations. Oil shale cannot be economically transported offsite because of the large quantities of shale involved per barrel of product.

Coal presents a more flexible set of options than

oil shale with respect to the location of conversion facilities in relation to mines. The coal used

for synfuels production will most likely be dispersed among all the Nation’s major coal regions.

In the West, coal sites will be in the oil shale

States (Colorado, Utah, and Wyoming) as well

as in Montana, North Dakota, and New Mexico.

Most of the increase in Western coal production

for synfuels will be in Wyoming and Montana.19

Midwestern sites will most likely be in Illinois,

western Kentucky, and Indiana. The coal counties to be most severely affected in Appalachia

will be in rural parts of southwestern Pennsylvania, southern West Virginia, and eastern Kentucky. Parts of Illinois will also be affected. In central Appalachia, communities are typically small,

congested, and in rural mountain valleys.

The major differences between the Eastern and

Western coalfields, in general, are that in the

West, counties are larger, towns are smaller and

more scattered, the economic base is more diversified, more land is under Federal jurisdiction,

water is relatively more scarce, and the terrain

is less rugged and variable. To the extent that coal

lgE. j. Bentz & Associates, Inc., “Selected Technical and Economic

Comparisons of Synfuel Options,” contractor report to OTA, April

1981.

is transported, there could be additional environmental and safety hazards, noise, and disruption

or fragmentation of communities, farms, and

ranch lands.

The social consequences of producing synthetic fuels from biomass are discussed in detail in

a previous OTA report, Energy From Biological

Processes. Unlike the social consequences associated with fossil fuels, the social impacts of biomass arise from production rather than processing. For example, 90 percent of the employment

impacts from biomass are expected from cultivation and harvesting (mostly forestry).

Manpower Requirements

Manpower requirements for synfuels production are generally of two types: 1) labor is required for the construction of energy facilities and

supporting service infrastructures, and 2) workers

are needed for the operation and maintenance

of facilities. As discussed in chapter 8, the ability

to attract and retain an adequate labor force—

particularly experienced chemical engineers and

skilled craftsmen, who are already in short supply

—could become a constraint on synfuels development.

Construction manpower requirements for single projects lead to large, rapid, yet temporary,

increases in the local population. The construction phase usually lasts 4 to 6 years, peaking over

a 2- to 4-year period as construction activities

near completion.20 The shorter the scheduled

construction period, the higher the peak labor

force. 21 Labor requirements will change significantly during the construction phase, in terms of

both size and occupational mix. Labor requirements for the daily, routine operation and maintenance of a plant are relatively stable during the

useful life of the facility; scheduled yearly and major maintenance work would cause only brief increases in the operations labor force.

Estimates of manpower requirements for generic 50,000 barrel per day (bbl/d) synthetic fuel

Zolbid.

21 peter D. Miller, “stability, Diversity, and Equity: A Comparison

of Coal, Oil Shale, and Synfuels,” in Supporting Paper 5: Sociopolitical Effects of Energy Use and Policy, CONAES, Washington,

D. C., 1979.
Ch. 9—Social Effects and Impacts • 227

plants are shown in table 67. They are highly uncertain, in large part because of the lack of experience with commercial-size plants. In addition,

major components of uncertainty in the construction manpower estimates include such unpredictable situations as regulatory delays, lawsuits, delays in the receipt of materials, labor unrest, and

the weather; and major components of uncertainty in the estimates of operations manpower relate

to the age of the plant, maturity of the technology, and novelty of the plant design.

Even for well-known technologies such as coalfueled electric powerplants, initial estimates of

the peak construction labor force required for selected rural-sited plants have varied from about

50 to 270 percent of the actual peak levels.22 This

range of uncertainty may be applicable to the estimates of construction manpower requirements

for synfuels plants in general, but should prove

to be overly broad when considering a specific

technology. The uncertainty surrounding requirements for operational manpower is expected to

be narrower, perhaps on the order of + 25 percent. 23

The estimates shown in table 67 are plant-gate

employment requirements; other synfuels-related

activities such as mining, beneficiation, and transportation are not included unless indicated. The

manpower requirements for these additional ac-

———

tivities will be site-specific and could alter the relZzjohn S. Gilmore, “Socioeconomic Impact Management: Are

Impact Assessments Good Enough to Help?” paper presented at

the Conference on Computer ModeIs and Forecasting Impacts of

Growth and Development, University of Alberta, jasper Park Lodge,

Alberta, Apr. 21, 1980 (revised June 1980).

23 George Wang, Bechtel Group, Inc., PfXSOnal Communication.

ative ordering of alternative technologies. For example, on the national average, production per

miner per day is approximately three times greater in surface mines than in underground mines.

This ratio can be expected to vary, depending

on many factors including types of methods and

equipment used and geology for underground

mining, and geology and environmental considerations for surface mining.24

Population Growth

Local population will grow where synfuels are

produced because workers directly employed at

the synfuels plants, employees in secondary industries and services, and accompanying families

will move into these areas. Population growth

rates will depend on the nature of the area where

the plant is located and on the phase of plant development.

Estimates of population growth due to synfuels

development usually assume that for each new

worker entering an area, the population increases

between three and five persons.25 The demand

zdThe average national production per miner per day was 8.38

tons in underground mines and 25.78 tons in surface mines for

bituminous and lignite in 1978. Nationwide, productivity varied:

for underground mining, from approximately 2 to 15 average tons

per miner per day and, for surface mining, from approximately 7

to 98 average tons per miner per day. (Depatiment of Energy, Energy

Information Administration, Bituminous Coa/ and Lignite Production and Mine Operations— 1978, Energy Data RepoR, June 16,

1980.)

25AS an example, White, et al., use a population/employment multiplier of 3.0 for the construction phase and 4.0 for the operation

phase (Energy From the West, Science and Public Policy Program,

University of Oklahoma, prepared for the Environmental Protection Agency, March 1979). Miller uses a uniform “conservative”

popuIation/employ merit multiplier of 5.o (see footnote 21 above).

Table 67.—Manpower Requirements for a 50,000 bbl/d Generic Synfuels Plant

Liquefaction

Direct Indirect Coal gases Oil shale

Total construction (person-years). . . . . . . . . . 11,000 20,000 11,000 11,000 a

Peak construction (persons) . . . . . . . . . . . . . . 3,500 6,800 b3,800 3,500a

Operations and maintenance (persons) . . . . . 360 C

360 C360 C

2,300 d

3,800d

1 ,200d 2,000e

asurf~e reto~lng WiII generally have higher construction manpower requirements than modified in-Situ Processes.

bManpower requirements of 17,000 persons have been projected by Fluor Corp. based on a SASOL tYPe coal conversion Plant

(“A Fluor Perspective on Synthetic Liquids: Their Potential and Problems”).

cDaily, routine O&M requlrments (E. J. Bentz & Associates, Inc., “Selected Technical and Economic Comparisons of Synfuels

Options,” April 19S1).

dAnnual aggregation of scheduled yearly and major maintenance work. Technology SpeCifiC (Bechtel NationaJ, inc., “production

of Synthetic Liquids From Coal: 19S0-2000,” December 1979).

coil shale requirements include mining, Modified in.situ (MIS) processes will generally have higher O&M requiret?leflk than

suriace retorting (e.g., MIS Involves an ongoing mining process).

SOURCE: Office of Technology Assessment
228 ● Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

for support services in nearby communities increases with the absolute size of the work force

during the peak construction period. The larger

the work force required during peak construction relative to that required for operations and

maintenance, the greater the likelihood that nearby communities will experience large population

fluctuations.

In general, if several facilities are located in the

same area, the impacts from population growth

and fluctuation could be disproportionately large

unless construction and operation activities are

coordinated; on the other hand, population

growth associated with construction can be stabilized if an indigenous construction work force

develops. *

Estimates of population increases associated

with the fossil synfuels development scenarios

presented in chapter 6 are shown in table 68. On

a regional basis, population growth associated

with oil shale will be concentrated in only several

counties in the Mountain Region (see fig. 21).

population increases associated with coal-based

synfuels will be dispersed throughout the Nation,

with the East North Central experiencing the biggest population increases and the West South

Central experiencing the smallest population increases.

Table 69 shows energy-related population

growth during the last decade in selected communities. In small communities, and in sparsely

populated counties and States, energy-related

population growth could represent a significant

proportion of future population growth. For example, official population projections by the Colorado West Area Council of Governments

(CWACOG) show increases by 1985, relative to

1977, of up to 400 percent in Rio Blanco County

(1977 special census population was 5,100) and

300 percent in Garfield County (1 977 special census population was 18,800), assuming the industry develops according to the 1979 plans of companies active in the area.

*A succession of projects in an area should lead to an indigenous

and more stable construction manpower work force, depending

on whether workers perceive a permanence of industrial expansion in the area. Some proportion of the construction work force

may also be employed in operations and maintenance activities

once construction is completed.

Table 68.—Estimates of Regional Population

Growth Associated With Fossil Synfuels

Development a (thousands)

1990 1995 2000

Low estimate:

South Atlantic . . . . . . . . . . . 4-6 12-20 30-51

East North Central . . . . . . . 14-24 46-76 115-192

East South Central . . . . . . . 5-9 17-28 42-71

West North Central . . . . . . . 5-9 17-28 42-71

West South Central. . . . . . . 2-3 6-10 15-25

Mountain:

Coal . . . . . . . . . . . . . . . . . . 7-12 23-38 58-96

Shale . . . . . . . . . . . . . . . . . 66-110 90-150 81-135

Total . . . . . . . . . . . . . . . . . 103-173 211-350 383-641

High estimate:

South Atlantic.. . . . . . . . . . . 11-18 33-55 86-144

East North Central . . . . . . . 33-56 105-174 275-458

East South Central . . . . . . . 11-18 33-55 86-144

West North Central . . . . . . . 17-29 54-90 141-235

West South Central. . . . . . . 5-8 15-25 39-65

Mountain:

Coal . . . . . . . . . . . . . . . . . . 19-32 60-100 122-203

Shale . . . . . . . . . . . . . . . . . 132-220 213-355 108-180

Total . . . . . . . . . . . . . . . . . 228-381 513-854 857-1,429

aEstimate are relative to 1985 (for plants coming online in the Year shown) and

are based on OTA’s development scenarios presented in ch. 8. Population

multipliers of 3 and 5 were applied to develop the ranges shown. Aggregated

estimates should not be extrapolated to determine the ability of any State or

locality to absorb this population.

bproduction iS distributed among the regions, according to the low and high

scenario distributions used In the Bechtel report for, respectively, the low and

high scenarios developed herein (Bechtel National, Inc., December 1979). It is

further assumed that direct and indirect iiquids wiil be representad equally. Only

dally, routine O&M requirements are included.

Regional estimates are for coal processes unless other wise indicated.

SOURCE: Office of Technology Assessment.

Under CWACOG’s high-growth scenario

(500,000 bbl/d in 1990 and 750,000 bbl/d in 1995

and 2000), increases of up to 800 percent in Rio

Blanco County and 350 percent in Garfield County are projected.26 In three counties in Kentucky

where the construction of four major synfuels

plants had recently been planned to commence

(H-Coal, SRC-1, W. R. Grace, and Texas Eastern),

the expected maximum number of synfuels workers (excluding accompanying family members)

was projected to increase 1980 population levels

by about 3 percent in Daviess County (1 980 census population was 86,000) to over 30 percent

in Breckinridge County (1980 census population

was 17,000) and over 50 percent in Henderson

County (1980 census population was 41 ,000);

population increases during the operation phase

ZbAn Assessment of oil Shale Technologies, OTA-M-1 18

(Washington, D. C.: U.S. Congress, Office of Technology Assessment, June 1980).
Ch. 9—Social Effects and Impacts . 229

Figure 21 .—Census Regions and Geographic Divisions of the United States

- .

.

0

H

SOURCE: U.S. Department of Commerce, Bureau of the Census.

Table 69.–Population Growth in Selected Communities, 1970-80

Percent increase

Population b

Average annual

State City Energy resource impact a

1970 1980 Total (compounded)

West Virginia

Kentucky

Utah

Wyoming

North Dakota

Montana

Colorado

Buckhannon, Upshur County

(Union District)

Caseyville, Union County

Huntington, Emergy County

Orangeville, Emery County

Helper, Carbon County

Douglas, Converse County

Gillette, Campbell County

Rocksprings, Sweetwater County

Washburn, McLean County

Beulah, Mercer County

Forsyth, Rosebud County

Hardin, Big Horn County

Colstrip, Rosebud County c

Craig, Moffat County

Rifle, Garfield County

Hayden, Routt County

coal

coal

coal, powerplant

coal, powerplant

coal

coal, uranium, oil, gas

coal

coal, oil, gas, trona,

powerplant, uranium

coal, powerplant

coal, powerplant

coal, powerplant

coal

coal, powerplant

coal, powerplant

oil shale, minerals, coal

coal, powerplant

248 587 136.7

87.0

857 2,316 170.2

511 1,309 156.2

1,964 2,724 38.7

2,677 6,030 125.3

7,194 12,134 68.7

11,657 19,458 66.9

804

1,344

1,873

2,733

<200

4,205

2,150

763

1,767 119.8

2,878 114.1

2,553 36.3

3,300 20.7

3,500 1,650.0

8,133 93.4

3,215 49.5

1,720 125.4

9.0

6.5

10.5

9.9

3.3

8.5

5.4

5.3

8.2

7.9

3.2

1.9

33.1

6.8

4.1

8.5

aldentified by the Department of community Development within the respective States.

bBureau of the Census, 19s0 Cansus of Population and Housing, Advance RepOffs.

CEStirnates by sunllght Development, Inc.

SOURCE: Office of Technology Assessment.
230 ● Increased Automobile Fuel Efficiency and Synthetic Fuel Alternatives for Reducing Oil Imports

were projected to be respectively 0.4, 4, and 15

percent (excluding accompanying family members). 27 Table 70 shows statewide population estimates, based on an extrapolation of only demographic trends, for some of the States that are

most likely to experience population increases

from synfuels development.

Small rural communities (under 10,000 residents) that experience high population growth

rates are vulnerable to institutional breakdowns.

Such breakdowns could occur in the labor market, housing market, local business activities, public services, and systems for planning and financing public facilities. Symptoms of social stress

(such as crime, divorce, child abuse, alcoholism,

and suicide) can be expected to increase.

The term “modern boomtown” has been used

to describe communities that experience strains

on their social and institutional structure from

sudden increases and fluctuations in the population. Communities are also concerned about the

possibility of a subsequent “bust.” Large fluctuations in population size could lead to a situation

where a community expands services at one

point in time only to have such services underutilized in the future if demands fail to materialize

or be sustained.

ZZC. Gilmore Dutton, “Synfuel Plants and Local Government Fiscal

Issues, ” memorandum to the Interim Joint Committee on Appropriations and Revenue, Frankfort, Ky., Dec. 18, 1980.

Private Sector Impacts

The principal social gains from synfuels development in the private sector are increased wages

and profits; direct and secondary employment

opportunities will be created and expanded; disposable income will increase; profits from energy

investments should be realized; and local trade

and service sectors will be stimulated. The ability of the private sector to absorb growth will depend, in large part, on the degree of economic

diversification already present. Western communities, in general, have more diversified economies and broader service bases than those in the

East, where many communities (as in central Appalachia) have historically been economically

dependent on coal.

Many private sector benefits, however, will not

be distributed to local communities, at least during the early periods of rapid growth. For example, synfuels development would be located in

areas where the required manpower skills are

already scarce; unemployment in local communities may thus not be significantly lowered unless

local populations can be suitably trained. Where

synfuels development competes with other sectors for scarce labor, fuel and material inputs, and

capital resources, traditional activities may be curtailed and the price of the scarce resources inflated. Local retail trade and service industries

may experience difficulties in providing and expanding services to keep pace with demands, reTable 70.—Statewide Population Estimates

Total State Statewide population percent Projected State

population 1980 a increase 1970-80 population 2000 b

State (millions) Total Annual compounded 1990 2000

Kentucky . . . . . . . . . 3.66 13.7 1.3 4.08 4.43

West Virginia. . . . . . 1.95 11.8 1.1 2.08 2.20

Colorado . . . . . . . . . 2.89 30.7 2.7 3.50 4.00

Montana. . . . . . . . . . 0.79 13.3 1.3 0.90 0.98

North Dakota. . . . . . 0.65 5.6 0.5 0.70 0.73

Wyoming . . . . . . . . . 0.47 41.6 3.5 0.54 0.60

Utah . . . . . . . . . . . . . 1.46 37.9 3.3 1,73 1.95

aeureau of the Census, 1980 census of Population and Housing, Advanced Reports.

beureau of the census, ///ustrat/ve Projections of State Populations by Age, Race, and Sex: 1975 fO ~. Projected estimates

are from Series II-B which assumes a continuation from 1975 through 2000 of the civilian non-college interstate migration

patterns by age, race, and sex observed for the 1970-75 period. Has been corrected by the percent difference between the

1980 projections and the 19S0 census. Note that these projections are extensions of recent trends with respect to demographic

factors only.

SOURCE: Office of Technology Assessment.
Ch. 9—Social Effects and Impacts ● 231

cruiting and retaining employees, and competing

with out-of-State concerns. Both the Eastern and

western sites for synfuels development have generally depended on imported capital, and profits to and reinvestments of the energy companies

are likely to be distributed to locations remote

from plant sites.

High local inflation rates often accompany rapid growth, due to both excess demand for goods

and services and high industrial wage rates. Local

inflation penalizes those whose wages are independent of energy development and those on

fixed incomes.28

Housing can be a major problem for the private

sector in areas that grow rapidly from synfuels

development: the existing housing stock is usually

already in short supply and often of poor quality; local builders often lack the experience and

capability to undertake projects of the large scale

required; shortages of construction financing and

mortgage money are common; and land may not

be available for new construction because of terrain, land prices, or overall patterns of ownership. Housing shortages have already led to dramatic price increases in the Western oil shale

areas. The need for temporary housing for construction workers aggravates housing supply

problems, and mobile homes are often used by

both temporary and permanent workers.

Public Sector Impacts

Communities experiencing rapid growth are

vulnerable to the overloading of public facilities

and services, due both to large front-end capital

costs and to constraints which limit a community’s ability to make the necessary investments in

a timely fashion. * Ability of a community to absorb and provide for a growing population will

be community-specific and depend on many factors—such as the size of the predevelopment tax

base, availability of developable land, existing

ZoAn Assessment of Oil Shale Technologies, Op. Cit.

*investments in the public sector can be constrained by, as examples, existing tax bases, debt limitations, bonding capacity, and

the 2- to 5-year Ieadtime typically required for planning and implementing services. In addition, ceilings are often established on the

rate of expansion of local government budgets, and there is a tendency either not to tax or to undervalue undeveloped mineral wealth.

social and institutional structure, extent and rate

of growth of demand for public services, local

planning capabilities and management skills, and

political attitudes.

In the long run, local governments should benefit from expanded tax bases arising from the capital intensity of energy facilities and the establishment of associated economic activity. In the aggregate, sufficient additional tax revenue should

be produced to pay for the upgrading and expansion of public facilities and services as required

for the growing population.29 In the short run,

however, raising local revenues under conditions

of rapid growth is often made difficult because

of the unequal distribution of incurred costs and

revenue-generating capacity among different levels of government.

For example, energy development activities are

typically sited outside municipal boundaries, with

the result that revenues go to the county, school

district, and/or State. However, the population

growth accompanying this energy development,

and hence the need for services, typically occurs

within cities and towns that do not receive additional revenues from the new industry. The separation between taxing authority and public service responsibility can also occur across State lines.

In addition, the availability of local tax revenues

can lag behind the need for services, because industrial taxes are often based on assessed property values and are not received until full plant

operation. * Note also that the total tax burden

on the mineral industry and the proportion of

State taxes distributed to localities vary from State

to State.

There is no clear consensus on the cost of providing additional new public facilities and services

in communities affected by energy development.

The economics of the decision to expand from

an existing service base, or to build a new town,

will depend on such factors as the availability of

land, accessibility to employment, extent and

ZgManagement of Fue/ and Nonfuel Minerals in Federal Lands,

OTA-M-88 (Washington, D. C.: U.S. Congress, Office of Techrrcdogy

Assessment, April 1979).

*Note that mobile homes generate little, if any, property taxes;

and local governments have had difficulty in providing services to

such sites.

98-281 0 - 82 - 16 : QL 3
232 . Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

Synfuels development will require the creation of new communities in sparsely populated areas
Ch. 9—Social Effects and Impacts ● 233

recovery or other funding/revenue mechanisms

have been applied.

Health care is particularly vulnerable to overloading from rapid growth because rural communities often have inadequate health services prior

to development and experience difficulties in attracting and retaining physicians. Synfuels development will change the health care needs of local

communities because of the influx of young families, the increase in sources of social stress, and

new occupational environments that will give rise

to special health care needs. Hospital facilities

as well as health, mental health, and social services will be required. Educational facilities are also

likely to be overloaded. Both Eastern coal communities and Western oil shale communities are

presently having difficulty in attracting and retaining personnel and in funding the provision and

expansion of facilities and programs,

Public sector dislocations caused by synfuels

development on Indian lands could be more severe than on other rural areas. Tribes have limited

ability to generate revenues, there will be large

cultural differences between tribal members and

workers who immigrate to an area to work on

a project, and land has religious significance to

some tribes and individual landownership is commonly prohibited (so that, for example, conventional patterns of housing development may not

be possible).

Most reservations are also sparsely populated,

with few towns, and public services and facilities

are severely inadequate and overburdened. Significant amounts of coal are owned by Indians

in New Mexico and Arizona, lesser amounts in

Montana, North and South Dakota, and Colorado. Although in the aggregate current coal

leases represent only a fraction of the total coal

under lease, Indian leases are important because

of their size and coherence. About 8 percent of

the oil-shale mineral rights in the Uinta Basin are

owned by Indians, but most of the associated

deposits are of low grade.32

Managing Growth

Unmanaged growth, although not well understood, appears nevertheless to be a leading

source of conflict and stress associated with energy development. All involved parties-the Federal, State, and local governments; industry; and

the public—have an interest in and are contributing in varying degrees to growth management by

providing planning, technical, and financial assistance to communities experiencing the effects of

synfuels development. These mechanisms, which

vary among States in terms of their scope, detail,

and development, are discussed in detail in previous OTA reports.33 3435 I n general, the effectiveness of existing mechanisms has yet to be tested

in the face of rapid and sustained industrial expansion. Major issues to be resolved include who

will bear the costs of and responsibilities for both

anticipating and managing social impacts, and

how up-front capital will be made available when

needed to finance public services.

32u .s. Geological survey, Synthetic Fuels Development, EarthScience Considerations, 1979.

JJAn Assessment of Oil Shale Technologies, Op. cit.

JaManagernent of Fue/ and Nonfuel Minerals in Federal Lands,

op. cit.

M The Direct Use of coal: Prospects and Problems of Production

and Combustion, OTA-E-86 (Washington, D. C.: U.S. Congress, Office of Technology Assessment, April 1979).
Chapter 10

Environment, Health, and Safety

Effects and Impacts
Contents

Page

Introduction . . . . . . . . . . . . . . . . . . . . . . . . 237

Auto Fuel Conservation. . . . . . . . . . . . . . . 237

Motor Vehicle Safety . . . . . . . . . . . . . . . 237

Mining and Processing New Materials . 243

Air Quality . . . . . . . . . . . . . . . . . . . . . . . 244

Electric Vehicles. . . . . . . . . . . . . . . . . . . . . 245

Power Generation . . . . . . . . . . . . . . . . . 245

Resource Requirements . . . . . . . . . . . . . 246

Noise . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247

Safety . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247

Occupational and Public Concerns . . . 247

Synthetic Fuels From Coal . . . . . . . . . . . . 248

Mining . . . . . . . . . . . . . . . . . . . . . . . . . . . 250

Liquefaction . . . . . . . . . . . . . . . . . . . . . . 253

Conventional Impacts . . . . . . . . . . . . . . . 253

Environmental Management . . . . . . . . . 261

Transport and Use . . . . . . . . . . . . . . . . . 264

Oil Shale . . . . . . . . . . . . . . . . . . . . . . . . . . . 266

Biomass Fuels . . . . . . . . . . . . . . . . . . . . . . . 268

Obtaining the Resource . . . . . . . . . . . . . 268

Conversion . . . . . . . . . . . . . . . . . . . . . . . 269

Appendix 10A. —Detailed Descriptions

of Waste Streams, Residuals of

Concern, and Proposed Control

Systems for Generic indirect and

Direct Coal Liquefaction Systems . . . 271

TABLES

Table No. Page

71 . Material Substitutions for Vehicle

Weight Reductions . . . . . . . . . . . . . . . 243

72.

73.

74.

75.

76.

77.

78.

79.

Emissions Characteristics of

Page

Alternative Engines . . . . . . . . . . . . . . . 245

Increase in U.S. Use of Key Materials

for 20 Percent Electrification of

Light-Duty Travel . . . . . . . . . . . . . . . . . 247

Major Environmental Issues for

Coal Synfuels . . . . . . . . . . . . . . . . . . . . 249

Fatality and Injury Occurrence

for Selected Industries, 1979 . . . . . . . 252

Two Comparisons of the

Environmental impacts of Coal-Based

Synfuels Production and Coal-Fired

Electric Generation . . . . . . . . . . . . . . . 257

Potential Occupational Exposures

in Coal Gasification . . . . . . . . . . . . . . . 258

Occupational Health Effects of

Constituents of indirect Liquefaction

Process Streams . . . . . . . . . . . . . . . . . . 259

Reported Known Differences in

Chemical, Combustion, and Health

Effects Characteristics of Synfuels

Products and Their Petroleum

Analogs . . . . . . . . . . . . . . . . . . . . . . . . . 265

FIGURES

Figure No. Page

22.

23.

Passenger-Car Occupant Death

per 10,000 Registered Cars by Car

Size and Crash Type; Cars 1 to 5

Years Old in Calendar Year 1980 . . . 238

Size Ranges of New Coal-Fired

Powerplants With Hourly Emissions

Equal to 50,000 bbl/day Synfuels

Plants . . . . . . . . . . . . . . . . . . . . . . . . . . 254
Chapter 10

Environment, Health, and Safety Effects and Impacts

INTRODUCTION

There are major differences in the risks to public health and the environment associated with

the alternative approaches to reducing the dependence of the U.S. transportation sector on foreign oil. Depending on the level of development,

the production and use of synthetic fuels imply

massive increases in mining (and agriculture and

forestry for biomass), construction and operation

of large conversion plants producing substantial

quantities of waste products (some of which are

toxic), and fuel products that may be different

from the fuels now in commerce and that may

thus represent different risks in handling and use.

Electrification of autos would require large increases in electric power production, which in

turn imply major increases in powerplant fuel use

and emissions. Also, the use of electric cars would

decrease the use of conventional vehicles and

thus yield reductions in vehicular emissions as

well as changes in vehicle materials and operating

characteristics.

Increased automotive fuel efficiency would involve changes in vehicle size, materials, operating

characteristics, and emissions. All the strategies

would reduce the use of petroleum that would

otherwise have been imported, and adverse effects associated with the strategies should be partially offset by the resulting environmental benefit

of reductions of oil spills and other hazards.

This section identifies potential effects on the

environment and human health of these three alternative (or complementary) approaches to reducing or eliminating oil imports. Because of significant uncertainties in the precise characteristics

of the technologies to be deployed, their potential emissions and the control levels possible, and

future environmental regulations and other important predictive factors, the approach of this

evaluation is relatively informal and qualitative.

We attempt to put the alternatives into reasonable perspective by identifying both a range of

potential effects and, given the availability of controls and incentives to use them, the most likely

environmental problems of deployment. The major emphasis in the discussion of synthetic fuels

is on coal-based technologies. OTA has recently

published reports on biomass energy1 and oil

shale, 2 both of which contain environmental

assessments.

‘Energy From Biological Processes, OTA-E-124 (Washington, D. C.:

U.S, Congress, Office of Technology Assessment, July 1980).

2An Assessment of Oil Shale Technologies, OTA-M- 118

(Washington, D. C.: U.S. Congress, Office of Technology Assessment, June 1980).

AUTO FUEL CONSERVATION

Some measures taken to improve the fuel economy of light-duty vehicles might have significant

effects on automobile safety and the environment. Major potential effects include changes in

vehicle crashworthiness due to downsizing and

weight reduction, environmental effects from

changes in materials and consequent changes in

mining and processing, and possible air-quality

effects from the use of substitutes for the sparkignition engine,

Motor Vehicle Safety

The shift to smaller, lighter, more fuel-efficient

cars has led to heightened concern about a possible increase in traffic injuries and fatalities. Part

of this concern stems from evidence that occupants of smaller cars have been injured and killed

at rates considerably higher than the rates associated with larger cars. The National Highway

Traffic Safety Administration (N HTSA) has recent237
238 • Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

Iy estimated that a continuing shift to smaller

vehicles could result in an additional 10,000 traffic deaths per year (with total annual road fatalities of 70,000) by 1990 unless compensating

measures are taken.

In light of these concerns, OTA examined available evidence on the relationship between vehicle size and occupant safety in today’s auto fleet,

and reviewed some attempts—including the

NHTSA estimate—to extrapolate this evidence to

a future, downsized fleet.

Occupant Safety and Vehicle

Size in Today% Fleet

Much of the current concern about the safety

of small cars is based on statistical analysis of national data from the Fatal Accident Reporting System (FARS), which contains information on fatal

motor vehicle accidents occurring in the United

States. For example, an analysis of FARS data on

automobile occupant deaths conducted by the

Insurance Institute for Highway Safety (IIHS) (fig.

22) shows that deaths per registered vehicle increase substantially as vehicle size (measured by

length of wheelbase) decreases.4 Furthermore,

this trend occurs for both single- and multiple3National Highway Traffic Safety Administration, Traft7c Safety

Trends and Forecasts, DOT-HS-805-998, October 1981.

Zlnsurance Institute for Highway Safety, Status Report, vol. 17,

No. 1, Jan. 5, 1982.

Photo credit: National Highway Traffic Safety Administration

Crash tests sponsored by the National Highway Traffic Safety

Administration are an important source of information for

understanding the mechanics of crashes and

evaluating auto safety features

vehicle crashes. The trend is so strong that the

annual occupant deaths per registered small subcompact are more than twice as high as the rate

for full-size cars–3.5 per 10,000 cars compared

with 1.6 per 10,000.

The relationships illustrated in figure 22 tempt

one to conclude that small cars are much less safe

than large cars in virtually all situations. For a variety of reasons, however, the information in the

figure must be interpreted with care. First, the recent crash tests sponsored by NHTSA5 (new cars

were crashed head-on into a fixed barrier at 35

miles per hour) seemed to indicate that the differ5The crash tests are described in several references. A useful, clear

reference is “Which Cars Do Best in Crashes?” in the Apdl 1981

issue of Consumer Reports. Also see M. Brownlee, et al., “implications of the New Car Assessment Program for Small Car Safety, ”

in proceedings of the Eighth International Technical Conference

on Experimental Safety Vehicles, Wolfsburg, Germany, Oct. 21-

24, 1980, NHTSA report.

Figure 22.—Passenger-Car Occupant Death per

10,000 Registered Cars by Car Size and Crash Type:

Cars 1 to 5 Years Old in Calendar Year 1980-

2

1

0

Subcompact Intermediate

Small Compact Full-size

subcompact

SOURCE: Insurance Institute for Highway Safety.
Ch. 10—Environment, Health, and Safety Effects and Impacts ● 239

ences in expected occupant injuries between vehicles in the same size class–i.e., differences

caused by factors other than size—can be greater

than any differences between the size classes. importantly, the results imply that relatively minor

changes in engineering and design, such as inexpensive improvements in the steering column

and changes in the seatbelt mechanisms, can produce improvements in vehicle crashworthiness

that may overwhelm some of the differences

caused by size alone. The results of the tests can

be applied only to occupants wearing seatbelts

(11 percent of total occupants), however, and

only to new cars in collisions with fixed objects.

Another reason to be cautious is that the IIHS

analysis may be overlooking the effect of variables

other than car size. For example, the age of drivers and occupants is a critical determinant of fatality rates. Younger drivers tend to get into more

serious accidents,7 and younger occupants are

less likely than older ones to be killed or seriously

injured in otherwise identical crashes.8 Because

the average age of drivers and occupants is not

uniform across car size classes—it is believed that

smaller cars tend to have younger drivers and

occupants—the observed differences in fatality

rates may be functions not only of the physical

characteristics of the cars but also of differences

in the people in those cars.

Other variables that should be considered in

interpreting injury and fatality statistics include

safety belt usage (drivers of subcompact cars have

been reported to use seatbelts at a significantly

higher rate than drivers of intermediate and large

cars9

), the average number of occupants per car,

and differences in maneuverability and braking

capacity (i. e., crash avoidance capability) between big and small cars. *

‘R. H. Stephenson and M. M. Finkelstein, “U.S. Government

Status Report,” in proceedings of the Eighth International Technical

Conference on Experimental Safety Vehicles, op. cit.

7H. M. Bunch, “smaller Cars and Safety: The Effect of Downsizing on Crash Fatalities in 1995, ” HSRI Research Review (University

of Michigan), vol. 9, No. 3, November-December 1978.

elbid.

%tephenson and Finkelstein, op. cit.

*The effect of improved crash avoidance capability and other

safety factors may be perverse. To the extent that drivers may take

more chances in reaction to their perception of increased safety,

they can negate the effectiveness of safety improvements. The tendency of drivers of large cars to use seatbelts at a lower rate than

drivers of small cars may be an indicator of such a reaction.

Several analyses have tried to account for the

effect of some of these variables.10 However,

these analyses use different data bases (e.g., State

data such as that available from North Carolina,

and other national data bases such as the National Accident Sampling System and the National

Crash Severity Study), different measures of vehicle size (wheelbase, the Environmental Protection Agency (EPA) interior volume, weight, etc.),

different formulations of safety (e.g., deaths per

100,000 registered vehicles, deaths per vehiclemile driven, deaths per crash), and in addition

their data reflect different time frames. Few analyses correct for the same variables. Consequently,

it is extremely difficult to compare these analyses

and draw general conclusions.

Also, credible data on total accident rates for

all classes of cars, and more detailed data on accident severity, are not widely available. This type

of data would allow researchers to distinguish between the effects of differences in crashworthiness and differences in accident avoidance capability in causing the variations in fatalities measured in the FARS data base. For example, studies

of accident rates in North Carolina indicate that

subcompacts are involved in many more accidents than large cars.11 Consequently, the relationship between fatalities per registered vehicle

and car size, and that between fatalities per crash

and car size could be significantly different for

this data set, with the latter relationship indicating

less dependence between safety and vehicle size

than appears to be the case in the former. Unfortunately, such data are available only in a few

jurisdictions and cannot be used to draw nationwide conclusions.

Finally, the existing data base reflects only current experience with small cars. In particular, the

data reflect no experience with the class of extremely small sub-subcompacts that currently are

sold in Japan and Europe but not in the United

States. it is conceivable that widespread introduction of such cars into the U.S. fleet, triggered by

ICIA variety of these are described in j. R. Stewart and J. C. Stutts,

“A Categorical Analysis of the Relationship Between Vehicle Weight

and Driver Injury in Automobile Accidents, ” NHTSA report

DOT-HS-4-O0897, May 1978.

llj. R. Stewart and C. L. Carroll, “Annual Mileage Comparisons

and Accident and Injury Rates by Make, Model, ” University of

North Carolina Highway Safety Research Center.
240 . Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

their lower sales prices or by renewed oil price

increases, could have severe safety consequences. NHTSA engineers are concerned that

occupants of sub-subcompacts might be endangered not only by the increased deceleration

forces that are the inevitable danger to the smaller

vehicle in multicar crashes, but also by problems

of managing crash forces and maintaining passenger-compartment integrity that are encountered

in designing and building cars this small.12

Despite these problems, some conclusions

about the relationship between vehicle size and

safety can be drawn. For example, the strong positive relationship between vehicle size and safety in a//accidents combined and in car-to-car collisions has been confirmed in virtually all analyses.13 However, the size/safety relationship does

not appear to be as “robust” for single-car collisions, which accounted for about half of all passenger-car occupant fatalities in 1980. Although

several studies conclude that there is a strong positive relationship between car size and safety in

this class of accidents,14 l Q and the IIHS analyses

show a very strong relationship,15 some studies

have concluded that this positive relationship disappears among some size classes when the data

are corrected for driver age and other variables.16

However, even these studies show that subcompacts fare worse than all other size classes in

single-vehicle accidents. ”

Forecasting Future Trends in Auto Safety

Attempts to forecast the effects on traffic safety of a smaller, more fuel-efficient fleet—a result

of further downsizing within each size class as

well as a continued market shift to smaller size

classes—are confronted with severe analytical difficulties. First, if the forecast is to account for the

effects of important vehicle and driver-related

“J. Kanianthra, Integrated Vehicle Research Division, NHTSA,

personal communication, March 1982.

llstewa~ and Stutts, OP. cit.

IAFor example, several studies cited in Stewart and St@tS, op, cit.;

also, j. H. Engel, Chief, Math Analysis Division, NHTSA, “An investigation of Possible Incompatibility Between Highway and Vehicle

Safety Standards Using Accident Data,” staff report, April 1981; also,

J. O’Day, University of Michigan Highway Safety Research Institute,

personal communication, March 1982.

‘

S IIHS, op. cit.

lbstewart and Stutts, Op. cit.

17 bid.

variables, the forecasters must predict how these

variables will change in the future—e.g., for each

size class, forecasters must predict future values

of average driver age, vehicle miles driven, occupancy rates, seatbelt usage, etc. And they must

either estimate future size dimensions in each car

class and the number of vehicles in each class

in the fleet, or else postulate these values. Second, forecasters must construct a credible model that describes the relationship between traffic

safety (e.g., injury and fatality rates) and key vehicle and driver-related variables in such a way that

the model will remain valid over the time period

of the forecast.

The models used by NHTSA18 and others19 to

project future safety trends generally use simple

statistical representations of the relative risk of accidents or injuries and fatalities. The traffic fatality

projections examined by OTA all relied on accident data that included older design automobiles

even though few such vehicles are likely to remain in the fleet when the date of the projection

arrives.

In particular, NHTSA’s widely disseminated estimate of 10,000 additional annual traffic deaths

by 199020 assumed that exposure to fatality risk

is a function only of vehicle weight and the number of registered vehicles in each weight class.

No account is taken of the effect of recent vehicle design changes, age and behavior of drivers,

differences in crash avoidance capabilities, differences in annual vehicle-miles driven and vehicle occupancy rate between various automobile

size classes, and other variables. Similar shortcomings exist in the other projections. The resulting projections of future changes in traffic injuries

and fatalities should be considered as only rough,

first-order estimates.

—

ILWHEA, op. cit. The model briefly described in this report appears to be similar to the forecasting model used in j. N. Kanianthra

and W. A. Boehly, “Safety Consequences of the Current Trends

in the U.S. Vehicle Population, ” in proceedings of the Eighth international Technical Conference on Experimental Safety Vehicles,

op.cit.

19W. Dreyer, et al., “Handling, Braking, and Crash Compatibility Aspects of Small Front-Wheel Drive Vehicles, ” Society of Automotive Engineers Technical Paper Series 810792, ]une 1981. Also,

Bunch, op. cit. Also, j. Hedlund, “Small Cars and Fatalities–Comments on Volkswagen’s SAE Paper, ” internal NHTSA memorandum, Feb. 4, 1982.

2

0 NHTSA, op. cit.
Ch. 10—Enviromnent, Health, and Safety Effects and Impacts • 241

Because of the weaknesses in available quantitative projections of future fatality rates, OTA examined current injury/fatality data and other

sources for further evidence of whether or r-tot

downsizing and a mix shift to smaller size classes

would have a significant effect on safety. In particular, the following observations are important

to answering this question:

1.

2.

A safety differential between occupants of

small and large cars in multiple-car collisions

does not necessarily imply that reducing the

size of all cars will result in more deaths in

this class of accidents. Although available

data clearly imply that reducing a vehicle’s

size will tend to increase the vulnerability

of that vehicle’s occupants in a car-to-car

collision, the size reduction also will make

the vehicle less dangerous to the vehicle it

collides with. Under some formulations of

accident exposure and fatality risk, these two

factors may cancel each other out. For example, Volkswagen has calculated the effect

of increasing the proportion of subcompacts

in today’s fleet. Using FARS data and forecasting assumptions that are well within the

plausible range, Volkswagen concluded that

an increase in subcompacts would actually

lead to a decrease in traffic fatalities in carto-car collisions.21 Other models using different formulations and data bases might come

to different conclusions. For example, models using traffic safety data from North

Carolina probably would arrive at a different

result. In this historical data set, subcompacts

colliding with subcompacts have been found

to have a considerably greater probability of

causing a fatality than collisions between two

full-size cars.22 Presumably, models using

this data set would be likely to forecast that

a trend toward more subcompacts would

lead to an increase in car-to-car crash fatalities.

If small cars are less safe than large cars in

single-car accidents, then a decrease in the

average size of cars in the fleet with no com21 Dreyer, et al., Op. Cit.

2

*K. Digges, “Panel Member Statement,” Panel on ESV/RSV Program, in proceedings of the Eighth International Technical Conference on Experimental Safety Vehicles, op. cit.

pensatory improvements in crashworthiness

clearly should imply an increase in injuries

and fatalities in this class of accidents. As just

discussed, some studies suggest that a consistent relationship between size and safety

does not exist for compact, midsize, and fullsize cars in single-car accidents.23 On the

other hand, subcompacts do fare worse than

the other classes in these studies.24 Consequently, if these studies are correct, a general

downsizing of the fleet might have only a

small effect on fatalities in single-car accidents, while a drastic shift to very small cars

could cause a large increase in such fatalities.

The results of these studies may not be

widely applicable. Other studies observe a

definite size/safety relationship across all size

classes. 25 And some factors tend to favor this

alternative conclusion. For example, the

higher seatbelt usage in smaller cars should

tend to make small cars appear safer in the

raw injury data, and thus tend to hide or

weaken a positive size/safety relationship.

Taking differences in seatbelt usage into account might expose or strengthen such a relationship.26 Also, analysis of FARS data that

includes only vehicles up to 5 years old produces a stronger size/safety relationship than

analysis of the whole fleet.27 Most studies use

the whole fleet, but the more limited data

set might prove to be better for a projection

of the future because it reflects only newerdesign automobiles. Finally, as discussed in

chapter 5, the larger crush space and passenger compartment volume available to the

larger cars should give them, at least theoretically, a strong advantage in the great majority of accidents. On the other hand, an opposing factor favoring those studies showing less dependence between vehicle size

and crashworthiness is the limited evidence

of increasing accident rates with decreasing

car sizes. 28 This offers a reason other than

ZJStewa~ and Stutts, op. cit.

Wbid.

25 Supra 14, ZGstephenSOn arid Finkelstein, Op. Clt,

27 Based on a comparison of II HS’S analysis, op. cit., and Engel’s

analysis, op. cit.

za’jtewa~ and Carroll, op. `cit.
242 . Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

3.

4.

(or in addition to) differences in crashworthiness for the differences in fatalities among

the various auto size classes.

Although most arguments about downsizing

and traffic safety have focused on vehicle occupants, the inclusion of pedestrian fatalities

will affect the overall argument. About 8,000

pedestrians were killed by motor vehicles in

1980,29 and analysis of FARS data indicates

that pedestrian fatalities per 100,000 registered cars increase as car size increases30—

i.e., reducing the average size of cars in the

fleet might decrease pedestrian fatalities because of the reduced “aggressiveness” of

smaller cars towards pedestrians. If policy

concern is for total fatalities, this effect

should lessen any overall adverse safety effect of downsizing the fleet.

Much of the available data implies that traffic fatalities will rise if the number of collisions between vehicles of greatly different

weights increases. This points to three dangers from a downsized fleet. First, for a Iimited period of time, the number of collisions

of this sort might increase because of the

large number of older, full-size cars left in

the fleet. This problem should disappear

within a decade or two when the great majority of these older cars will have been

scrapped. Second, a more permanent increase in fatalities could occur if large numbers of very small sub-subcompacts–cars

not currently sold in the U.S. market—were

added to the passenger vehicles fleet. The

potential for successful large-scale sales of

such vehicles will depend on their prices—

they may be significantly less expensive than

current subcompacts—as well as future oil

prices and public perceptions of gasoline

availability. Third, car-truck collisions, which

today represent a significant fraction of occupant fatalities (car-to-other-vehicle accidents

account for about 25 percent of total occupant fatalities31), may cause more fatalities

unless the truck fleet is downsized as well.

Subcompacts fare particularly poorly in car29 NWSA,Fatal Accident Reporting System 1980.

JoBased on an analysis of data presented in Engel, OP. cit.

31 NHTSA, op. cit.

truck collisions, and a large increase in the

number of vehicles in this size class could

create substantial problems.

The available statistical and physical evidence

on auto safety suggest that a marked decrease in

the average vehicle size in the automobile fleet

may have as a plausible outcome an increase in

vehicle-occupant fatalities of a few thousand per

year or more. This outcome seems especially likely during the period when many older, heavier

vehicles are still on the road. Also, such an outcome seems more likely if the reduction in average size comes mainly from a large increase in

the number of very small cars in the fleet, rather

than from a more general downsizing across the

various size categories in the fleet.

The evidence is sufficiently ambiguous,

however, to leave open the possibility that only

a minor effect might occur. And, as discussed in

the next section, improvements in the safety

design of new small vehicles (possibly excluding

very small sub-subcompacts) probably could

compensate for some or all of the adverse safety

effect associated with smaller size alone. Some

automobile analysts feel that significant safety improvements are virtually inevitable, even without

additional Government pressures. For example,

representatives of Japanese automobile companies have stated32 that the present poor record

of Japanese cars in comparison with American

small cars is unacceptable and will not be allowed to continue. Major improvements in Japanese auto safety would seem likely to force a

response from the American companies. Also,

General Motors has begun to advertise the safety differentials between its cars and Japanese

models, an indication that American manufacturers may have decided that safety can sell. On

the other hand, because of its severe financial difficulties, the industry may be reluctant to pursue

safety improvements that involve considerable

capital expenditures.

Safer Design

Increases in traffic injuries and fatalities need

not occur as the vehicle fleet is made smaller in

JzRepOrted in the April 1981 Consumer Reporfs, OP. cit.

IJlbid., and IIHS, op. cit.
Ch. 10—Enviromnent, Health, and Safety Effects and Impacts Ž 243

size. Numerous design opportunities exist to improve vehicle safety, and some relatively simple

measures could go a long way towards compensating for adverse effects of downsizing and shifts

to smaller size classes.

Increased use of occupant restraint systems

would substantially reduce injuries and fatalities.

NHTSA analysis indicates that the use of air bags

and automatic belts could reduce the risk of moderate and serious injuries and fatalities by about

30 to 50 percent. 34

Simple design changes in vehicles may substantially improve occupant protection. As noted in

evaluations of NHTSA crash tests, design changes

that are essentially cost-free (changing the location of restraint system attachment) or extremely low cost (steering column improvements to facilitate collapse, seatbelt retractor modifications

to prevent excessive forward movement) 35 appear

to be capable of radically decreasing the crash

forces on passenger-car occupants.

A variety of further design modifications to improve vehicle safety are available. As demonstrated in the NHTSA tests,36 there are substantial safety differences among existing cars of equal

weight. One important feature of the safer cars,

for example, is above-average length of exterior

structure to provide crush space. Also, the Research Safety Vehicle Program sponsored by the

Department of Transportation shows that small

vehicles with safety features such as air bags, special energy-absorbing structural members, anti laceration windshields, improved bumpers, doors

designed to stay shut in accidents, and other features can provide crash protection considerably

superior to that provided by much larger cars.

Two forms of new automotive technology introduced for reasons of fuel economy could also

have important effects on vehicle safety. First, the

incorporation of new lightweight, high-strength

materials may offer the automobile designer new

possibilities for increasing the crashworthiness of

MR . ). Hitchcock and C. E. Nash, “Protection of Children and

Adults in Crashes of Cars With Automatic Restraints, “ in Eighth international Technical Conference on Experimental Safety Vehicles,

op. cit.

jSBrownlee, et al., Op. cit.

3blbid.

the vehicle. Because some of the plastics and

composite materials currently have problems resisting certain kinds of transient stresses, however,

their use conceivably could degrade vehicle safety unless safety remains a primary consideration

in the design process. Second, the use of electronic microprocessors and sensors, which is expected to become universal by 1985 to 1990 to

control engine operation and related drivetrain

functions, could eventually lead to safety devices

designed to avoid collisions or to augment driver

performance in hazardous situations.

Modifications to roadways can also play a significant role in improving the safety of smaller vehicles. For example, concrete barriers and roadway posts and lamps designed to protect larger

vehicles have proven to be hazards to subcompacts37 in single-vehicle crashes, and redesign and

replacement of this equipment could lower future

injury and fatality rates.

Mining and Processing New Materials

Aside from the beneficial effects of downsizing

on the environmental impacts of mining—by reducing the volume of material required–vehicle

designers will use new materials to reduce weight

or to increase vehicle safety. Table 71 shows four

candidates for increased structural use in automobiles and the amount of weight saved for every

100 lb of steel being replaced.

It appears unlikely that widespread use of these

materials would lead to severe adverse impacts.

Magnesium, for example, is obtained mostly from

seawater, and the process probably has fewer

pollution problems than an equivalent amount

of iron and steel processing, Most new aluminum

3711HS, op. cit.

Table 71 .—Material Substitutions

for Vehicle Weight Reductions

Weight saved/100 lb

Structural material steel replaced

Magnesium . . . . . . . . . . . . . . . . . . . . . . 75

Fiberglass-reinforced composites. . . 35-50

Aluminum . . . . . . . . . . . . . . . . . . . . . . . 50-60

High-strength low-alloy steel . . . . . . . 15-30

SOURCE: M. C. Flemming and G. B. Kenney, “Materials Substitution and

Development for the Light-Weight, Energy-Efficient Automobile,” OTA

contractor report, February 1980
244 • Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

probably would be obtained by importing bauxite

ore or even processed aluminum, rather than expanding domestic production. if kaolin-type clays

are used for domestic production, waste disposal

problems could be significant; however, the cost

of producing aluminum from this source currently

is too high to make it economically worthwhile.

Use of high-strength low-alloy steel will likely

lead to slightly lowered iron and steel production because of the higher strength of this material, with a positive environmental benefit. Finally, the use of plastics and reinforced composites

would substitute petrochemical-type processing

for iron and steel manufacture, with an uncertain environmental tradeoff.

Air Quality

Regulation of automobile emissions under the

Clean Air Act of 1970 (Public Law 91-614) and

subsequent amendments has sharply reduced the

amount of pollutants from automobile exhaust

in the atmosphere. Assuming that present standards and proposed reductions in permissible levels of hydrocarbons (HC), carbon monoxide

(CO), and nitrogen oxides (NOX are met, the aggregate of automobile emissions by 1985 will be

roughly half of what they were in 1975 despite

an increase of 25 percent in the number of cars

on the road and a corresponding rise in total

miles of vehicle travel. * By 2000, if the 1985

standards have been maintained and complied

with, the aggregate of automobile emissions of

HC, CO, and NOX will be 33, 32, and 63 percent

of today’s levels, respectively. Particulate emissions would be about one-half of today’s levels—

and possibly much lower, depending on the

progress in control of particulate emissions from

diesels.

The reductions expected by 1985 will have

been brought about by a combination of two basic forms of emission control technology—methods of limiting the formation of pollutants through

control of fuel-air mixture, spark timing, and other

*These projections, based on an earlier study by OTA38 have been

adjusted to account for more recent data on automobile use and

the lower projected growth rates used in this study.

38changeS in the Future Use and Characteristics of the Automobile

Transpofiation System, OTA-T-83 (Washington, D. C.: U.S. Congress,

Office of Technology Assessment, February 1979).

conditions of combustion in the engine, and systems to remove pollutants from the exhaust before it is discharged into the atmosphere. The effectiveness of both techniques has been greatly

enhanced by the advent of electronic engine controls in recent years.

By 1985, when electronic engine controls will

be virtually universal in passenger cars, the mandated levels of 3.4 grams per mile (gpm) CO, 0.41

gpm HC, and 1.0 gpm NOX can probably be met

by spark-ignition engines with little or no penalty

in fuel economy beyond that associated with the

lower engine compression ratios dictated by (lowoctane) lead-free gasoline. * And although this

fuel penalty may be charged to the control of CO,

HC, and NOX emissions because lead-free gasoline is required to protect catalytic converters, the

reduction in lead additives to gasoline may also

be justified on the basis of its beneficial effect in

reducing lead emissions and, consequently, the

level of lead in human tissue. Assuming that reducing lead in gasoline is desirable even without

the catalytic converter requirement, the muchargued tradeoff between fuel economy and emissions that seemed so compelling in the 1970’s is

unlikely to remain a major issue with the sparkignition engine by the last half of the 1980’s.

A shift to still smaller vehicles and the introduction of new engines (and substantial increases in

the use of current diesel technology) may affect

the tradeoff between air quality and control costs.

Because lower vehicle weights and lesser performance requirements will allow substantially

smaller engines, the grams per mile emission

standards should be easier to meet for most

engine types. And, although manufacturers can

be expected to respond to this opportunity by

cutting back on emission controls, there will be

an enhanced potential for eventually lowering

emissions still further. On the other hand, some

of the engines—e.g., the gas turbines and diesels

—may pose some control problems, with NOX

and particulate especially.

*Although high-octane lead-free gasoline can be, and is, manufactured, the fuel savings it might allow from higher compression

engines may be counterbalanced by additional energy required for

refining. The exact energy required to produce higher octane leadfree gasoline will be very specific to the refinery, feedstock, and

refinery volumes.
Ch. 10—Environment, Health, and Safety Effects and Impacts ● 245

Table 72 briefly describes some of the emissions

characteristic of current and new engines for

light-duty vehicles. The potential emission problem with diesels appears to be the major shortterm problem facing auto manufacturers today

in meeting vehicle emission standards. There appears to be substantial doubt that diesels can

comply with both NO X and particulates standards

without some technological breakthrough, because NO X control, already a problem in diesels,

conflicts with particulate control. This problem

is especially significant because diesel particulate

are small enough to be inhaled into the lungs and

contain quantities of potentially harmful organic

compounds.

The effect on human health of a substantial increase in diesel particulate emissions is uncertain,

because clear epidemiologic evidence of adverse

effects does not exist and because there is doubt

about the extent to which the harmful organics

in the emissions will become biologically available—i.e., free to act on human tissue *—after

inhalation.39 However, a sharp increase in the

number of diesel automobiles to perhaps 25 per-

*Initially, the organics adhere to particulate matter in the exhaust.

In order for them to be harmful, they must first be freed from this

matter. In tissue tests outside the human body (“in vitro” tests),

they were not freed, i.e., they did not become biologically active.

This may be a poor indicator of their activity inside the body,

however.

JgHealth Effects Panel of the Diesel Impacts Study Committee

(H. E. Griffin, et al.), National Research Council, /-/ea/th .Effects of

Exposure to Diesel Exhaust, National Academy of Sciences, Washington, D. C., 1980.

Table 72.—Emissions Characteristics

of Alternative Engines

Current spark ignition. — Meets currently defined 1983 standards.

Current (indirect injection) diesel.—Can meet CO and HC

standards, but NO X remains a problem. NO X control conflicts with HC and particulate control. Future particulate

standards could be a severe problem.

Direct-injection diesel. —Meets strictest standards proposed

for HC and CO. NO X limit 1 to 2 g/mile depending on vehicle and engine size. Possible future problems with particuIates, odor, and perhaps other currently unregulated

emissions.

Direct-injection stratified-charge.— Needs conventional

spark-ignition engine emission control technology to meet

strict HC/CO/NO x standards. Better NO X control than

diesel. In some versions particulate likely to be problem.

Gas turbine-free shaft.—Attainment of 0.4 g/mile NO X limit

a continuing problem, appears solvable, maybe with

variable geometry. Other emissions (HC, CO) no problem,

Sing/e shaft. —Same basic characteristics as comparable free

shaft. Better fuel economy may help lower NO X emissions.

Sing/e shaft (advanced). – N OX emissions aggravated

because of higher operating temperatures.

Stirling engine (first generation).—Early designs have had

some NO X problems, but should meet tightest proposed

standards on gasoline, durability probably no problem,

emissions when run on other fuels not known.

SOURCE: Adapted from: J. B. Heywood, “Alternative Automotive Engines and

Fuels: A Status Review and Discussion of R&D Issues,” contractor

report to OTA, November 1979.

cent of the market share, which appears possible by the mid-1990’s, probably should be considered to represent a significant risk of adverse

health effects unless improved particulate controls are incorporated or unless further research

provides firmer evidence that diesel particulate

produce no special hazard to human health.

ELECTRIC VEHICLES

The substitution of electric vehicles (EVs) for

a high percentage of U.S. automobiles and light

trucks may have a number of environmental effects. The reduction in vehicle-miles traveled by

conventional gasoline- and diesel-powered vehicles will reduce automotive air pollution, whereas

the additional requirements for electricity will increase emissions and other impacts of power generation. Changes in materials use may have environmental consequences in both the extractive

and vehicle manufacturing industries. The use of

large numbers of batteries containing toxic chemicals may affect driver and public health and safety. The different noise characteristics of electric

and internal combustion engines imply a reduction in urban noise levels, while differences in

size and performance may adversely affect driving safety. Finally, there may be a variety of lesser

effects, for example, safety hazards caused by installation and use of large numbers of charging

outlets.

Power Generation

As discussed in chapter S, utilities should have

adequate reserve capacitv to accommodate high
246 ● Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil /reports

levels of vehicle electrification without adding

new powerplants. For example, if the utilities

could use load control and reduced offpeak

prices to confine battery recharging to offpeak

hours, half of all light-duty vehicular traffic could

be electrified today without adding new capacity. Given the probable constraints on EVs, however, a 20-percent share probably is a more reasonable target for analysis. *

The effects on emissions of a 20-percent electrification of vehicular travel are mixed but generally

positive. If present schedules for automotive pollution control are met and utilities successfully

restrict most recharging to offpeak hours, this level of electrification would, by the year 2010, lead

to the following changes in emissions** compared with a future based on a conventional fossil

fuel-powered transportation system:

less than a l-percent increase in sulfur dioxides (SO2

),

about a 2-percent decrease in NOX,

about a 2-percent decrease in HC,

about a 6-percent decrease in CO, and

little change in particulates.40

The positive effects on air quality may in reality be more important than these emission figures

imply. The addition of emissions due to electricity

production occurs outside of urban areas, and

the pollution is widely dispersed, while the vehicle emissions that are eliminated occur at ground

level and are quite likely to take place in dense

urban areas. Thus, the reduction in vehicular

emissions should have a considerably greater effect on human exposure to pollution than the

small increase in generation-related emissions.

Also, any relaxation of auto emissions standards

will increase the emissions reductions and air

quality benefits associated with “replacement”

of the (more polluting) conventional autos. On

the other hand, future improvements in automobile emission controls–certainly plausible given

*As noted elsewhere, however, this is still an extremely optimistic

market share even for the long term, unless battery costs are sharply

reduced and longevity increased, or gasoline availability decreases.

**Assuming existing emission regulations for powerplants.

40W. M. Carriere, et al., The Future Potentia/of E/ectric and Hybrid

Vehic/es, contractor report by General Research Corp. to OTA,

forthcoming.

progress during the past decade–might decrease

the air quality benefits of electrification. *

Other effects of increased electricity demand

must also be considered. Most importantly, a 20-

percent electrification of cars will lead to substantial increases in utility fuel use, especially for coal.

Although the extent of increased coal use will depend on the distribution of EVs, if the vehicles

were distributed uniformly according to population, coal would supply about two-thirds of the

additional power necessary in 2010,41 requiring

the mining of about 38 million additional tons per

year. ** If the EVs replaced gasoline-powered cars

getting 55 mpg, the gasoline savings obtained by

the coal-fired electricity—about 36 billion gal/yr–

could also have been obtained by turning the

same amount of coal into synthetic gasoline.***

Resource Requirements

EVs will use many of the same materials, in similar quantities, as conventionally powered vehicles, but there will be some differences which

may create environmental effects. EVs, for exam

pie, will require more structural material than

their conventional counterparts because of the

substantial weight of the batteries (at least with

existing technology). More importantly, the batteries themselves will require some materials in

quantities that may strain present supply. Table

73 shows the increase in U.S. demand for battery materials for 20-percent electrification of

light-duty vehicular travel by 2000.

The effect on the environment of increases in

materials demand is difficult to project because

the increased demand can be accommodated in

a number of ways. In several cases, although U.S.

“It is equally reasonable to speculate about future improvements

in powerplant emission controls. For example, more stringent controls on new pIants as well as efforts to decrease SOZ emissions from

existing plants in order to control acid rain damages could increase

the benefits of electrification.

41 Ibid.

**Assumptions: 12,000 Btu/lb coal; vehicle energy required =

0.4 kWh/mile at the outlet; total 2010 vehicle miles = 1.55 trillion

miles, 20 percent electric; electrical distribution efficiency = 90

percent; generation efficiency = 34 percent.

***Assuming a synfuels conversion efficiency of coal into gasoline

of 50 percent.
Ch. 10—Enviroment, Health, and Safety Effects and Impacts . 247

Table 73.—increase in U.S. Use of Key Materials

for 20 Percent Electrification of Light-Duty

Travel (year 2000)

Percent

Battery type Material increase a

Lead-acid . . . . . . . . . . . . . . . . . . . . . . Lead

Nickel-iron . . . . . . . . . . . . . . . . . . . . . Cobalt

Lithium

Nickel

Nickel-zinc . . . . . . . . . . . . . . . . . . . . . Cobalt

Nickel

Zinc-chloride . . . . . . . . . . . . . . . . . . . Graphite

Lithium metal sulfide . . . . . . . . . . . . Lithium

31.2

18.2

14.3

21.3

31.8

34.3

50.0

103.6

aAssuming l(Jopercent of the batteries are of the category shown ... the parcent

increases thus are rrot additive for the same materials.

SOURCE: W. M. Carrier, et al,, The Future Potential of Electric and Hybrid

Vehicles, contractor report to OTA by General Research Corp., forthcoming.

and world identified reserves currently are insufficient, increased demand probably will be met

by identifying and exploiting new reserves. The

environmental effects would then be those of expanding mining and processing in the United

States or abroad. In other cases, mining of seabed mineral nodules or exploitation of lower

quality or alternative ores (e.g., kaolin-type clays

instead of bauxite to produce aluminum) could

occur. Supplies of some materials may be made

available for cars by substituting other materials

for nonautomotive demands.

In general, the potential for finding additional

resources and the long-range potential for recycling indicate that major strains on resources—

and, consequently, environmental impacts of unusual concern—appear to be unlikely with levels

of electrification around 20 or 30 percent. Local

areas subject to substantially increased mining activity could, however, experience significant impacts.

Noise

EVs are generally expected to be quieter than

combustion-engine vehicles, and electrification

should lower urban noise. The effect may not,

however, be large. Although automobiles account for more than 90 percent of all urban traffic, they contribute only a little more than half

of total urban traffic noise and a lesser percentage of total urban noise. A recent calculation of

the effect on noise levels of 100-percent conversion of the automobile fleet to electric vehicles

predicts a reduction in total traffic noise of only

13 to 17 percent.42

Safety

EVs will affect automotive safety because of

their lower performance capabilities and different

structural and material configuration. Lower acceleration and cruising speed, for example, could

pose a safety problem because it could increase

the average velocity differential among highway

vehicles and make merging more difficult. Many

EVs will be quite small and, as discussed in the

section on auto fuel conservation, this may degrade safety. On the other hand, compensating

changes in driver behavior or redesign of roads

in response to EVs could yield a net positive

effect.

Similarly, the net effect of materials differences

is uncertain. The strong positive effect of removing a gas tank containing highly flammable gasoline or diesel fuel will be somewhat offset by the

addition of the battery packs, which contain

acids, chlorine, and other potentially hazardous

chemicals. Collisions involving EVs may result in

the generation of toxic or explosive gases or the

spillage of toxic liquids (e.g., release of nickel carbonyl from nickel-based batteries). Finally, the

necessity to charge many of the vehicles in locations that are exposed to the weather creates a

strong concern about consumer safety from electrical shock.

Occupational and Public

Health Concerns

In addition to the potential danger to drivers

(and bystanders) from release of battery chemicals after collisions, there are some concerns

about the effects of routine manufacture, use, and

disposal of the batteries. Manufacture of nickelbased batteries, for example, may pose problems

for women workers because several nickel compounds that may be encountered in the manufacturing process are teratogens (producers of birth

defects). Also, because many potential battery

materials (lead, nickel, zinc, antimony) are per4ZW M. Carriere, General Research Corp., perSOnal communication, June 19, 1981.

98-281 0 - 82 - 17 : QL 3
248 . Increased Automobile Fuel Efficiency and Synthetic Fuel Alternatives for Reducing Oil Imports

sistent, cumulative environmental poisons, the

prevention of significant discharges during manufacture as well as proper disposal (preferably by

recycling) must be assured. Finally, routine venting of gases during normal vehicle operations

may cause air-quality problems in congested

areas.

These risks do not appear to pose difficult technological problems (most have been rated as

“low risk” in the Department of Energy’s (DOE)

Environmental Readiness Document for EVS

43)

and existing regulations such as the Resource

Conservation and Recovery Act provide an opportunity for strict controls, but institutional problems such as resistance to further Government

controls on industry obviously could increase the

level of risk. Recycling could pose a particular

problem unless regulations or scale incentives restrict small-scale operations, which are often difficult to monitor and regulate.

43u.s. Department Of Energy, Etw;mmnental Readiness fkKw

ment, Electric and Hybrid Vehicles, Commercialization Phase III

P/arming DOE/ERD-0004, September 1978.

SYNTHETIC FUELS FROM COAL

Development of a synthetic fuels industry will

inevitably create the possibility of substantial effects on human health and the environment from

a variety of causes. A 2 million barrels per day

(MMB/D) coal-based synthetic liquid fuels industry will consume roughly 400 million tons of coal

each year, * an amount equal to roughly half of

the coal mined in the United States in 1980. The

several dozen liquefaction plants required to produce this amount of fuel will operate like large

chemical factories and refineries, handling multiple process and waste streams containing highly

toxic materials and requiring major inputs of

water and other valuable materials and labor.

Transportation and distribution of the manufactured fuels not only require major new infrastructure but are complicated by possible new dangers

in handling and using the fuels. Table 74 lists

some of the major environmental concerns associated with coal-based synfuels. Note that the

severity of these concerns is sharp/y dependent

on the level of environmental control and management exerted by Government and industry.

*This corresponds to an average process efficiency of about 55

percent and coal heat content of about 20 x 10 6 Btu/ton. The actual tonnage depends on the energy content of the coals, the conversion processes used and the product mixes chosen. Process efficiencies will vary over a range of 45 to 65 percent (higher if large

quantities of synthetic natural gas are acceptable in the product

stream), and coal heat contents may vary from 12 million to 28

million Btu/ton.

The health and environmental effects of the

synfuels fuel cycle can be better understood by

dividing the impacts into two kinds. Some of the

impacts are essentially identical in kind (though

not in extent) to those associated with more conventional combustion-related fuel cycles such as

coal-fired electric power generation. These “conventional” impacts include the mining impacts,

most of the conversion plant construction impacts, the effects associated with population increases, the water consumption, and any impacts

associated with the emissions of environmental

residuals such as SO2 and NOX that are normally associated with conventional combustion of

fossil fuels.

Another set of impacts more closely resembles

some of the impacts of chemical plants and oil

refineries. These include the effects of fugitive HC

emissions and the large number of waste and

process streams containing quantities of trace

metals, dangerous aromatic HCs, and other toxic compounds. These are referred to as “nonconventional” impacts in this section.

This distinction between “conventional” and

“nonconventional" impacts is continued

throughout this discussion. In particular, for the

conventional impacts, synfuels plants are explicitly compared with coal-fired powerplants. A further understanding of the scale of coal-fired powerplants should allow this comparison to better
Ch. 10—Environment, Health, and Safety Effects and Impacts ● 249

Table 74.—Major Environmental Issues for Coal Synfuels

Land use and

water quality Air quality Ecosystems Safety and health Other

Mining

Short- and long-term Fugitive dust

land use changes, (especially in the

erosion, and West)

uncertainty of

reclamation in arid

West

Aquifer disturbance

and pollution

Nonpoint source water

pollution (acid mine

drainage—East;

sedimentation—

West)

Subsidence

Llquefaction and refining

Potential surface and Emission of “criteria

ground water pollutants” (i.e.,

pollution from NOX

, SO2,

holding ponds particulate, etc.

Wastewater discharges Fugitive emission of

(East) carcinogenic

Disposal of large substances

amounts of solid Possible release of

wastes trace elements

Local land use Releases during

changes “upset” conditions

Construction on flood Possible localized odor

plains problems

Product transport and end-use

Product spills from Changed automotive

trains, pipelines, and exhaust emissions

storage (increase in some

pollutants, decrease

in others)

Increased evaporative

emissions from

methanol fuels

Toxic product

vaporization

Disruption of wildlife

habitat and changed

productivity of the

land

Siltation of streams

Habitat fragmentation

from primary and

secondary

population growth

Air pollution damage

to plants

Contributions to acid

rain

Wildlife habitat

fragmentation from

population increases

Contribution to the

“greenhouse” effect

Acute and chronic

damages from spills

Mining accidents Increased water use

Occupational diseases for reclamation

in underground Coal transportation

mining (e.g., black impacts on road

lung) traffic and noise

Occupational safety Water availability

and health risks issues (especially in

from accidents and the West)

toxic chemicals

Carcinogens in direct

process

intermediates and

fuel products

Exposure to spills Potential change in

Uncertain effects of fuel economy

trace elements and Methanol corrosion

HCs and reduction of

existing engine

longevity

SOURCE: M. A. Chartock, et al., Environmental Issues of Synthetic Transportation Fuels From Coal, OTA contractor report, forthcoming

serve the reader. A 1,000-MWe plant, for example, serves all the electrical needs (including requirements for industry) of about 400,000 people. A plant of this size would be large but not

excessively so for a new facility, because many

currently planned coal-fired plants are larger than

600 MWe, and the nationwide average capacity

of planned units is 433 MWe.44 Existing plants are,

on the whole, much smaller than these new

plants, with an average capacity of only 57

AAR. W. Gilmer, et ai., “Rethinking the Scale of Coal-Fired Electric Generation: Technological and Institutional Considerations, ”

in Office of Technology Assessment, The Direct Use of Coal, Vo/-

ume 11, Part A, 1979.

MWe.45 Some existing plants, however, are very

large: Arizona Public Service Co.’s Four Corners

plant in New Mexico, for example, has a capacity

of 2,212 MWe.46

This comparison is intended to place the environmental and health impacts of a synfuels plant

side by side with the impacts of a technology that

may be more familiar to readers. We stress, however, that this comparison is not relevant to a

comparison of coal liquids and coal-based electricity as competing alternatives.

451bid.

.% Federal Energy Regulatory commission, Steam-E/ectric P/ant Air

and Water Quality Control Data, Summary Report, October 1979.
250 ● Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

Such a comparison can be made only by carefully considering the end uses for the competing

energy forms, which we have not done. For use

in automobile travel, however, a synthetic fuel

may prove to be as efficient in its utilization of

coal energy as a powerplant producing electricity

for EVs (see “Electric Vehicles, Power Generation” in this chapter), In this case, to the extent

that a synfuels production facility produces fewer

(or more) impacts than a powerplant processing

the same amount of coal, the impact of the energy-production stage of the “synfuels to motor

fuel” fuel cycle may be considered to be environmentally superior (or inferior) to the same

stage of the “electric auto” fuel cycle.

It is also stressed that the “nonconventional”

effects associated with the toxic waste streams

produced by synfuels plants are essentially impossible to quantify at this time, because of significant uncertainties associated with the type and

quantity of toxic chemicals produced, the rate

at which these chemicals might escape, the effectiveness of control systems, the fate of any escaping chemicals in the environment, and finally, the

health and ecological impacts of various exposures to the chemicals.

Because of these uncertainties, there may be

a temptation to judge synfuels production mainly on the basis of its “conventional,” and more

quantifiable, impacts. In OTA’s opinion, this is

a mistake, because the toxic wastes pose difficult

environmental questions and also because the

magnitudes of several of the more conventional

impacts are themselves quite uncertain.

Mining

A large coal-based synfuels industry will consume a significant portion of U.S. coal output.

Although actual coal-production growth during

the remainder of this century is uncertain, several

sources agree that total production on the order

of 2 billion tons per year is possible by 2000.47

At this level a 2 MMB/D coal synfuels capacity

would require roughly 20 percent of total U.S.

production in 2000.

dTThp Direct use of Coal: Prospects and Problems of Production

and Combustion, OTA-E-86 (Washington, D. C.: U.S. Congress, Office of Technology Assessment, April 1979). Also available from

Ballinger Publishers in a March 1981 edition.

The impacts of a mine dedicated to synfuels

production should be essentially the same as

those from other large mines dedicated to power

production and other uses, and thus these impacts fit into the “conventional” category. Although the coal requirement for a unit plant with

a 50,000 barrel per day (bbl/d) output capacity—

at Ieast 5 million tons per year*—is high by today’s standards, mines are already tending towards this size range where it is feasible (e.g.,

eight mines in the Powder River Basin produced

more than 5 million tons of coal each in 198048).

On the other hand, it is not clear that the geographic distribution (and thus the distribution of

impacts) of synfuels coal production and production for other uses will be similar. Because it is

difficult to predict where a future synfuels industry

will be located, the nature of any differences between mining for synfuels and mining for other

uses is uncertain.

As discussed in another OTA report,49 although

many of coal mining’s adverse impacts have been

mitigated under State and Federal laws, important environmental and health concerns remain.

The major concerns are likely to be /and reclamation failure, acid mine drainage, subsidence of

the land above underground mines, aquifer disruption, and occupational disease and injury.

Mining for synfuels conversion will experience

all of these impacts, although not at all sites.

The folIowing discussion of mining impacts relies primarily on the OTA report:

Reclamation.– The use of new mining methods

that integrate reclamation into the mining process and enforcement of the Surface Mine Control and Reclamation Act (SMCRA) should reduce

the importance of reclamation as a critical national issue. However, concern remains that a combination of development pressures and inadequate

knowledge may lead to damage in particularly

*The potential range is about 5 million to 18 million tons per year.

The 5-million-ton extreme represents a 65-percent efficient process

(not truly a Iique faction process because half of its output is syngas;

the upper limit of efficiency for processes producing primarily liquids is about 60 percent) using very-high-value (28 million Btu/ton)

Appalachian coal. The 18-million-ton extreme represents a 45-percent efficient process using low-energy (12 million Btu/ton) lignite. d8An Assessment of the Development Potential and Production

Prospects of Federa/ Coa/ Leases, OTA-M-1 50 (Washington, D. C.:

U.S. Congress, Office of Technology Assessment, December 1981).

@The Direct Use of C’oa[ Op. cit.
Ch. 10—Environment, Health, and Safety Effects and Impacts • 251

vulnerable areas—arid lands and alluvial valley

floors in the West, prime farmland in the Midwest, and hardwood forests, steep slope areas,

and flood-prone basins in Appalachia. Although

most of these areas are afforded special protection under SMCRA, the extent of any damage will

depend on the adequacy of the regulations and

the stringency of their enforcement. Recent attempts in the Congress to change SMCRA and

administration actions to reduce the Office of Surface Mining’s field staff and to transfer enforcement responsibilities to State agencies have raised

concerns about the future effectiveness of this legislation.

Acid Mine Drainage.Acid mine drainage, if not

controlled, is a particularly severe byproduct of

mining in those regions—Appalachia and parts

of the interior mining region (indiana, Illinois,

Western Kentucky) —where the coal seams are

rich in pyrite. The acid, and heavy metals leached

into the drainage water by the acid, are directly

toxic to aquatic life and can render water unfit

for domestic and industrial use. Zinc, nickel, and

other metals found in the drainage can become

concentrated in the food chain and cause chronic

damage to higher animals. An additional impact

in severe cases is the smothering of stream bottom-dwelling organisms by precipitated iron salts.

Acid drainage is likely to be a significant problem only with underground mines, and only after

these mines cease operating. Assuming strong enforcement of SMCRA, acid drainage from active

surface and underground mines should be collected and neutralized with few problems. only

a very small percentage of inactive surface mines

may suffer from acid seepage. Underground

mines, however, are extremely difficult to seal

off from air and water, the causal agents of acid

drainage. Some mining situations do not allow

adequate permanent control once active mining
252 • Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

and water treatment cease. A significant percentage of the mines that are active at present or that

will be opened in this century will present acid

drainage problems on closure.

In a balancing of costs and benefits, it may not

be appropriate to assign to synfuels development

the full acid damage associated with synfuels

mines, even though these mines will have acid

drainage problems. This is because drainage

problems may taper off as shallower reserves are

exhausted and new mines begin to exploit coal

seams that are deeper than the water table. Many

of these later mines will be flooded, reducing the

oxidation that creates the acid drainage. It is

possible that many or most acid drainage-prone

mines dedicated to a synfuels plant would have

been exploited with or without synfuels development.

Subsidence.–Another impact of underground

mining that will not be fully controlled is subsidence of the land above the mine workings. Subsidence can severely damage roads, water and

gas lines, and buildings; change natural drainage

patterns and river flows; and disrupt aquifers. Unfortunately, there are no credible estimates of

potential subsidence damage from future underground mining. However, a 2 MMB/D industry

could undermine about a hundred square miles

of land area (about one-tenth the area of Rhode

Island) each year, * most of which would be a

potential victim of eventual subsidence.

Subsidence, like acid drainage, is a long-term

problem. However, SMCRA does not hold developers responsible for sufficient time periods to

ensure elimination of the problem, nor does it

specifically hold the developer responsible to the

surface owner for subsidence damage. The major

“control” for subsidence is to leave a large part

of the coal resources—up to 50 percent or more

—in place to act as a roof support. There is obviously a conflict between subsidence prevention

and removal of the maximum amount of coal.

Moreover, the supports can erode and the roof

collapse over a long period of time. The resulting

intermittent subsidence can destroy the value of

the land for development. An alternative mining

*Assuming half of the coal is produced by eastern and central

underground mining, 18,000 acres undermined per 10 15 Btu of coal.

technique called Iongwall mining deals with some

of these problems by actually promoting subsidence, but in a swifter and more uniform fashion.

Longwall mining is widely practiced in Europe

but is in limited use in the United States. It is not

suitable for all situations.

Aquifer Disruption.–Although all types of

mining have the potential to severely affect

ground water quantity and quality by physical disruption of aquifers and by leaching or seepage

into them, this problem is imperfectly understood. The shift of production to the West, where

ground water is a particularly critical resource,

will focus increased attention on this impact. As

with other sensitive areas, SMCRA affords special

protection to ground water resources, but the

adequacy of this protection is uncertain because

of difficulties in monitoring damages and enforcing regulations and by gaps in the knowledge of

aquifer/mining interactions,

Occupational Hazards.–Occupational hazards associated with mining are a very visible concern of synfuels production, because coal workers are likely to continue to suffer from occupational disease, injury, and death at a rate well

above other occupations (see table 75), and the

total magnitude of these impacts will grow along

with the growth in coal production.

The mineworker health issue that has received

the most attention is black lung disease, the nonTable 75.—Fatality and Injury Occurrence

for Selected Industries, 1979

Fatalities Nonfatal injuries

Number Rate

a Number Ratea

Underground

bituminous. . . . . . . 105 0.09 14,131 12.30

Surface bituminous . 15 0.02 2,333 3.47

All bituminous coal c

(and lignite) . . . . . . . 137 0.064 16,464 10,20

Other surface mining b

(metal, nonmetal,

stone, etc.). . . . . . . . 97 0.07 8,121 5.82

Petroleum refining c 

. . 20 0.0011 8,799 5.30

Chemical and allied

products c 

. . . . . . . . . 55 0.0025 78,700 7.20

All industries . . . . . . . 4,950 0.0086 5,956,000 9.20

aRate per 200,000 worker-howa (100 workef-yeara).

bFor all companies.

CFOr companies with 11 or more workers; fatallty data Include deaths due to

job-related accident and Illness.

SOURCE: Bureau of Labor Statlstlcs, personal communication, 19S1; and Staff,

Mine Safety end Health Administration, personal communlcatlon, 19S1.
Ch. 10—Environment, Health, and Safety Effects and Impacts ● 253

clinical name for a variety of respiratory illnesses

affecting underground miners of which coal

workers’ pneumoconiosis (CWP) is the most

prominent. Ten percent or more of working coal

miners today show X-ray evidence of CWP, and

perhaps twice that number show other black lung

illnesses—including bronchitis, emphysema, and

other impairments. so

To prevent CWP from disabling miners in the

future, Congress mandated a 2-mg/m3 standard

for respirable dust (the small particles that cause

pneumoconiosis). However, critics now question

the inherent safeness of this standard and the

soundness of the research on which it is based.

Furthermore, other coal mine dust constituents—

the large dust particles (that affect the upper respiratory tract) and trace elements–as well as

fumes from diesel equipment also represent continued potential hazards to miners.

Mine safety–as distinct from mine health–has

shown a mixed record of improvement since the

1969 Federal Coal Mine Health and Safety Act

establishing the Mining Enforcement and Safety

Administration was passed. The frequency of

mining fatalities has decreased for both surface

and underground mines, but no consistent improvement has been seen in the frequency of disabling injuries, Coal worker fatalities numbered

139 in 1977, and disabling injuries approached

15,000.51 Each disabling injury resulted in an average of 2 months or more of lost time. The number

of disabling injuries has been increasing as more

workers are drawn to mining and accident frequency remains constant.

As shown in table 75, surface mining is several

times safer than underground mining. But some

underground mines show safety records equal to

or better than some surface mines. Generally,

western surface mines are safer than eastern surface mines. As western surface-mine production

assumes increasing prominence, accident frequency industrywide is likely to decline when exSONational I r-rstitute for Occupational Safety and Health, National

Study of Coa/ Workers’ F%eurnoconiosis, unpublished reports on

second round of examinations, 1975. Cited in The Direct Use of

Coal op. cit.

StMine !jafety and Health Administration, “1 njury Experience at

All coal Mines in the United States, by General Work Location,

1977, ” 1978. Cited in The Direct Use of Coa[ op. cit.

pressed as accidents per ton of output. But this

statistical trend may conceal a lack of improvement in safety in deep mines.

Liquefaction

Coal liquefaction plants transform a solid fuel,

high in polluting compounds and mineral matter, into liquid fuels containing low levels of sulfur, nitrogen, trace elements, and other pollutants. In these processes, large volumes of gaseous, liquid, and solid process streams must be

continuously and reliably handled and separated

into end-products and waste streams. Simultaneously, large quantities of fuel must be burned to

provide necessary heat and steam to the process,

and large amounts of water are consumed for

cooling and, in direct liquefaction processes, as

raw material for hydrogen production. These

processes, coupled with the general physical

presence of the plants and their use of a large

construction (up to 7,000 men at the peak for a

single 50,000 bbl/d plant) and operating force (up

to 1,000 workers per plant), lead to a variety of

potential pathways for environmental damage.

As noted previously, the following discussion

divides impacts into “conventional” and “nonconventional” according to the extent to which

the effects resemble those of conventional combustion systems. The discussion does not consider the various waste streams in detail because of

their complexity. Appendix 10-A lists the gaseous,

liquid, and solid waste streams, the residuals of

concern, and the proposed control systems for

generic indirect and direct liquefaction systems.

DOE’s Energy Technologies and the Environment

handbook, 52 from which appendix 1O-A is derived, describes these streams in more detail.

Conventional Impacts

An examination of the expected “conventional” impacts reveals that, with a few exceptions,

they are significant mainly because the individual

plants are very large and national synfuels development conceivably could grow very rapidly—

5ZU. S. Depafirnent of Energy, Energy Technologies and the Environment, Enviromnenta/ Information Handbook DOE/EV/74010-l,

December 1980.
254 ● Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

not because the impacts per unit of production

are particularly large.

Air Quality.– Emissions of criteria air pollutants* from synfuels generally are expected to be

lower than similar emissions from a new coalfired powerplant processing the same amount of

coal. 53 A 50,000 bbl/d synfuels plant processes

about as much coal as a 3,000 MWe powerplant,** but (as shown in fig. 23) emits SO2 and

NOX in quantities similar to those of a plant of only

a few hundred megawatts or less. For particulate,

synfuels plant emissions may range as high as

those from a 2,200-MWe plant, but emissions for

most synfuels plants should be much lower.

In any case, particulate standards for new plants

are quite stringent, so even a 2,200-MWe plant

(or a “worst case” synfuels plant) will not have

high particulate emissions. CO emissions from

synfuels plants are expected to be extremely low,

and are likely to be overwhelmed by a variety

of other sources such as urban concentrations of

automobiles. HC emissions, on the other hand,

conceivably could create a problem if fugitive

emissions—from valves, gaskets, and sources other than smokestacks—are not carefully controlled. Although the level of fugitive HC emissions is highly uncertain, emissions from a 50,000

bbl/d SRC II plant could be as high as 14 tons/

day–equivalent to the emissions from several

large coal-fired plants–if the plant’s valves and

other equipment leaked at the same rate as

equipment in existing refineries.54

The broad emission ranges shown in figure 23

reflect very substantial differences in emission

projections from developers of the various proc-

*“Criteria air pollutants” are pollutants that are explicitly regulated

by National Ambient Air Quality Standards under the Clean Air Act.

Currently, there are seven criteria pollutants: SOl, CO, NO,, photochemical oxidants measured as ozone (Oj), nonmethane HC, and

lead.

53M. A. Chaflock, et al., Environment/ /sSues of Synthetic

Transportation Fue/s From Coa& Background Report, University of

Oklahoma Science and Public Policy Program, report to OTA,

forthcoming.

**The actual range is about 2,500 to 3,600 MW for synfuels process efficiencies of 45 to 65 percent, powerplant efficiency of 35 percent, synfuels load factor of 0.9, powerplant load factor of 0.7.

Sdoak Estimate of Fugitive Hydrocarbon Emissions for SRC II Demonstration P/ant, for U.S. Department

of Energy, September 1980. Based on “unmitigated” fugitive

emissions.

Figure 23.-Size Ranges of New Coal-Fired

Powerplants With Hourly Emissions Equal to

50,000 bbl/day Synfuels Plants

2200

2000

 600

400 -

200 -

Sox NOX Particulate

SOURCE: M. A. Chartock, et al., “Environment Issues of Synthetic Tranportatlon Fuels From Coal,” contractor report to OTA, table revieed by OTA.

esses. OTA’s examination of the basis for these

projections leads us to believe that the differences

are due less to any inherent differences among

the technologies and more to differences in developer control decisions, assumptions about the

effectiveness of controls, and coal characteristics.

The current absence of definitive environmental standards for synfuels plants will tend to aggravate these differences in emission projections,

because developers have no emissions targets or

approved control devices to aim at. EPA has been

working on a series of Pollution Control Guidance

Documents (PCGDs) for the several synfuels technologies in order to alleviate this problem. The

proposed PCGDs will describe the control systems available for each waste stream and the level
Ch. 10—Enviroment, Health, and Safety Effects and Impacts ● 255

of control judged to be attainable. However, the

PCGDs became embroiled in internal and interagency arguments and apparently may not be

completed and published in the foreseeable

future.

The air quality effects of synfuels plants on their

surrounding terrain vary because of differences

in local conditions—terrain and meteorology—

as well as the considerable range of possible emission rates. Some tentative generalizations can,

however, be drawn from the variety of site-specific analyses available in the literature. One important conclusion from these analyses is that individual plants generally should be able to meet

prevention of significant deterioration (PSD) Class

II limits* for particulate and SO2 with planned

emission controls, although in some cases (e.g.,

the SRC II commercial-scale facility once planned

for West Virginia) a major portion of the limit

could be used up.55 In addition, NOX and CO

emissions are unlikely to be a problem for individual pIants in most areas, while regulated HC

emissions should remain within ambient air quality guidelines if fugitive HC emissions are minimized. 56

Restrictions will exist, however, near PSD Class

I areas in the Rocky Mountain States and nonattainment areas in the eastern and interior coal

regions. Several of the major coal-producing

areas of Kentucky and Tennessee are currently

in nonattainment status, and siting of synfuels

plants in those areas is virtually impossible without changes in current regulations or future air

quality improvement.57 Finally, failure to control

fugitive HC emissions conceivably could lead to

violations of the Federal shot-t-term ambient

standards near the plant because, as noted above,

the potential emission rate is quite high and

*PSD regulations limit the increases in pollution concentrations

allowed in areas whose air quality exceeds national ambient standards. Class I areas, generally national parks and other areas where

pristine air quality is valued very highly, are allowed only minimal

increases. Class III areas are areas designated for industrial development and allowed substantial increases. Most parts of the country

presently are designated Class II areas and allowed moderate increases in concentrations. PSD limits are under intense scrutiny by

Congress and appear to be primary candidates for change under

the Clean Air Act reauthorization.

sscha~ock, et al., op. cit.

561 bid.

571 bid.

because the emissions are released near ground

level and will have a disproportionately large effect on local air quality .58

Some potential restrictions on siting maybe obscured in current analyses by the failure to consider the short-term air quality effects of upsets

in the conversion processes. For example, under

extreme upset conditions, the proposed (but now

canceled) Morgantown SRC II plant would have

emitted as much S02 in 2 hours as it would have

emitted during 4 to 10 days of normal operation.59 Unfortunately, most environmental analyses of synfuels development have tacitly assumed

that control devices always work properly and

pIant operating conditions always are normal.

These assumptions may be inappropriate, especially for the first generation of plants and particularly for the first few years of operating experience.

On a wider geographic scale, most analyses

show that the emissions impact of a synfuels industry will be moderate compared with total

emissions from all sources. For example, DOE has

estimated 1995 emissions from all major sources

for particulate, SO2, and NOX. Its calculations

show that a 1.3 MM B/D synfuels industry (combining gasification, liquefaction, and oil shale)

would represent less than 1 percent of national

emissions for all three pollutants.60 A more intensive development—a 1 MM B/D liquefaction industry concentrated in Wyoming, Montana, and

North Dakota—would represent a 7.7 percent

(particulate), 9.8 percent (SO2

), 32 percent

(Nox

), and 1,7 percent (HC) increase over 1975

emissions in a region where existing development—and thus the existing level of emissions—is

quite Iow.61 These additional emissions are not

insignificant, and there has been speculation that

high levels of development could cause some

acid rain problems in the West, especially from

Sal. L. white, et al., Energy From the West, Impact Analysis Report

Volume /, /introduction arrd Summary, U.S. Environmental Protection Agency report EPA-600/7-79-082a, March 1979.

59u .s, @partrnent of Energy, Drafi Appendix C of Fjna/ Environmental Impact Statement: SRC-11 Demonstration Plant, Plant Design

and Characterization of Effluents, 1980.

60U.S, Department of Energy, Synthetic Fuels and the Environment, An Envkonmentaland Regulatory Impacts Analysis, DOE/EV0087, june 1980.

Glchafiock, et al., op. Cit.
256 . Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

NOX. * Nevertheless, if control systems work as

planned and facility siting is done intelligently,

coal-based synfuels plants do not appear to represent a severe threat to air quality.

Water Use. -Water consumption has also been

singled out as a significant impact of a large-scale

synfuels industry, especially in the arid West. Synfuels plants are, however, less intensive consumers of water than powerplants consuming similar

amounts of coal. A 3,000-MWe plant—which

processes about as much coal annually as a

50,000 bbl/d facility–will consume about 25,000

acre-feet of water per year (AFY), whereas the

synfuels facility is unlikely to consume more than

10,000 AFY and may consume considerably less

than this if designed with water conservation in

mind. According to current industry estimates,

a standard 50,000 bbl/d facility will consume

about as much water as a 640 to 1,300-MWe

plant. Using stricter water conservation designs,

the facility may consume as much water as a 400-

to 700-MWe plant.62 Achieving an annual synfuels production of 2 MMB/D might require 0.3

million AFY, or only about 0.2 percent of the projected national freshwater consumptive use of

151 million AFY in 2000.63

Environmental impacts associated with synfuels

water requirements are caused by the water consumption itself and by the wells, pipelines, dams,

and other facilities required to divert, store, and

transport the necessary water.

The impacts associated with consumption depend on whether that consumption displaces other offstream uses for the water (e.g., the developer may buy a farmer’s water rights) or is additive to existing uses. In the former case, the impact is caused by eliminating the offstream use;

*Current understanding of the transformation of NO X emissions

into nitrates and into acid rain is not sufficient to allow a firm judgment to be made about the likelihood of encountering an acid rain

problem under these conditions.

6ZH. Gold, et al., Water Requirements for Stearn-~/ectriC power

Generation and Synthetic Fuel Plants in the Western United States,

U.S. Environmental Protection Agency report EPA-600/7-77-037,

April 1977. Assumes powerplant load factor of 70 percent, synfuels

load factor 90 percent. Synthoil is used as a baseline liquid fuels

plant.

63U, S. Water Resources Council, ~ond Nat;ona/ Water Assessment, The Nation’s Water Resources 1975-2MXI, Volume 11,

December 1978.

in displacing farming, for example, the impact

may be a reduction in soil salinization that was

being caused by irrigation as well as a reduction

in water contamination caused by runoff of fertilizers and pesticides. Any calculation of impacts

is complicated, however, by the probability that

large reductions in economic activities (such as

farming) in one area will result in compensating

increases elsewhere as the market reacts to decreases in production.

if the water consumption is additive to existing

uses, it will reduce downstream flows. In surface

streams or tributary ground waters connected to

these streams, the consumption may have adverse effects on the ability of the stream to dilute

wastes and to support recreation, fishing, and

other instream uses downstream of the withdrawal. Also, consumption of ground water, if excessive, may lead to land subsidence and saltwater

intrusion into aquifers.

The impacts associated with wells, dams, and

other infrastructure may also be significant. improperly drilled wells, for example, can lead to

contamination of drinking water aquifers. Dams

and other storage facilities will increase evaporative and other losses (e.g., Lake Powell is underlaid with porous rock and “loses” large amounts

of water to deep aquifers). In many cases, the

lands submerged by reservoirs have been valuable recreational or scenic areas. In addition, in

some circumstances dams can have substantial

impacts, including drastic changes in the nature

of the stream, destruction of fish species, etc. On

the other hand, the ability of dams to regulate

downstream flow may help avoid both flooding

and extreme low-flow conditions and thus improve instream uses such as recreation and

fishing.

Although consumptive water use by synfuels

will be small on a national basis, local and even

regional effects may be significant. Prediction of

these effects is made difficult, however, by a number of factors, including substantial uncertainties

in water availability assessments, levels of disaggregation in many assessments that are insufficient to allow a prediction of local and subregional effects, and the variety of alternative supply options available to developers. Water availability
Ch. 10—Environment, Health, and Safety Effects and Impacts ● 257

considerations for the five major river basins

where synfuels development is most likely to occur are discussed in chapter 11.

Work Force and Population Impacts.-The

size of the synfuels work force will be large compared with power generation; for a 50,000 bbl/d

plant, it is equivalent to the work force that would

be needed for powerplants totaling 4,000 to 8,000

Mw (during peak construction) and to plants totaling at least 2,500 MW (during operation)64 (see

ch. 8 for detailed discussion). These high work

force values are particularly important for western

locations, because significant population increases caused by energy development place

considerable stress on semiarid ecosystems

through hunting and recreational pressures, inadequate municipal wastewater treatment systems, and limited land use planning.

W. L. white, @ al., Energy From the West, Energy Resource @ve/-

opment Systems Reporf, Vo/urne //: Coa/, U.S. EPA report EPA-600/

7-79 -060b, March 1979. Used for powerplant work force only (for

a 3,000-MWe plant, construction peak is 2,545, operating force is

436),

Summary of Conventional Impact Parameters.

–Table 76 provides a capsule comparison of the

conventional environmental impacts of synfuels

plants and coal-fired plants.

Nonconventional Impacts

The remaining, “nonconventional” impacts of

synthetic fuel plants represent substantially different environmental and health risks than do coalfired plants and other combustion facilities. The

conversion of coal to liquid fuels differs from coal

combustion in several environmentally important

ways. Most importantly, the chemistries of the

two processes are considerably different. Liquefaction is accomplished in a reducing (oxygen

poor) environment, whereas combustion occurs

in an oxidizing environment. Furthermore, the

liquefaction reactions generally occur at lower

temperatures and usually higher pressures than

conventional combustion.

One major result of these chemical and physical differences is that the heavier HCs originally

Table 76.—Two Comparisons of the Environmental Impacts of Coal-Based

Synfuels Production and Coal-Fired Electric Generation e

A. Coal-fired generating capacity B. Side-by-side Comparison of

that would produce the same environmental impact parameters

impact as a 50,000 bbl/d 3,000 MWe 50,000 bbl/d

Type of impact coal-based synfuels plant, MWe generator synfuels Units

Annual coal use . . . . . . . . . . . . . . . . . . . . 2,500-3,600 b6.4-15.0 5.3-17.9 million tons/yr

Annual solid waste . . . . . . . . . . . . . . . . . (2,500-3,600)± c

0.9-2.0+ 0.6-1 .8+ million tons/yr

Annual water use: acre feet/yr

Current industry estimates. . . . . . . . . 640-1,300 25,000 5,400-10,800

Conservation case . . . . . . . . . . . . . . . . 400-700 3,400-5,900

Annual emissions: tons/yr

Particulate. . . . . . . . . . . . . . . . . . . . . . 120-2,800 2,700 100-2,500

Sulfur oxides . . . . . . . . . . . . . . . . . . . . 90-500 27,000-108,000 1,600-9,900

Nitrogen oxides . . . . . . . . . . . . . . . . . . 70-400 63,000 1,600-7,800

Hourly emissions: Ib/hr

Particulate. . . . . . . . . . . . . . . . . . . . . . 90-2,200 30-800

Sulfur oxides . . . . . . . . . . . . . . . . . . . . 70-40 8,800-35,200 500-3,200

Nitrogen oxides . . . . . . . . . . . . . . . . . . 60-300 20,500 500-2,500

Peak labor. . . . . . . . . . . . . . . . . . . . . . . . . 4,100-8,000 2,550 3,500-6,800 persons

Operating labor . . . . . . . . . . . . . . . . . . . . 2,500 440 360 persons

aln ~xamPle-A, the ~werP~ant “~e~ the same coal as the Syntue}s plant, New source performance Standards (NSPS) apply, SOX emissions assumed to be 0.6 lb/10 9

Btu. In B, NSPS also apply but Sox emissions can range from 0.3 to 1.2 lbHOC Btu. In both cases, the sYnfuels Plant Parameters rePresent a ran9e of technologies,

with a capacity factor of 90 percent and an efficiency range of 45 to 65 percent; the powerplant is a baseload plant, with a capacity factor of 70 percent, efficiency

of 35 percent.

bln other words, the amount of coal—and thus the amount of mining—needed to fuel a 50,000 bbl/d synfuels plant is the same as that required fOr a 2,500 to 3,600

MWe powerplant.

cA synfue[s plant will have about as much ash to dispose of as a coal-fired powerplant using the same amount of coal. It may have leSS scrubber slud9e, but it maY

have to dispose of spent catalyst material that has no analog in the powerplant . . . thus the +.

SOURCE: M. A. Chartock, et al., .5n4romrrerrtal Issues of Synthetic Transportation Fuels From Coal, Background Report, University of Oklahoma Science and Public

Policy Program, contractor report to OTA, July 1981,
258 . Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

in the coal or formed during the reactions are not

broken down as effectively in the liquefaction

process as in combustion processes, and thus

they appear in the process and waste streams.

The direct processes (see ch. 6 for a brief description of the various coal liquefaction processes)

and those indirect processes using the lower temperature Lurgi gasifier are the major producers

of these HCs; indirect processes using high-temperature gasifiers (e.g., Koppers-Totzek, Shell,

Texaco) are relatively free of them.

The liquefaction conditions also favor the formation of metal carbonyls and hydrogen cyanide,

which are hazardous and difficuIt to remove.

Trace elements are less likely to totally volatilize

and may be more likely to combine with or dissolve in the ash. The solids formed under these

conditions will have different mineralogical and

chemical form than coal combustion ash, and the

volubility of the trace elements, which generally

is low in combustion ash, is likely to be different.

Consequently, solid waste disposal is complicated

by the possibility that the wastes may be more

hazardous than those associated with conventional combustion.

Finally, the high pressure of the processes, their

multiplicity of valves and other vulnerable components, and, for the direct processes, their need

to handle liquid streams containing large amounts

of abrasive solids all increase the risk of accidents

and fugitive emissions.

The major concerns from the “nonconventional” waste streams are occupational hazards from

leaks of toxic materials, accidents, and handling

of process intermediates, and ground and surface

water contamination (and subsequent health and

ecological damage) from inadequate solid waste

disposal, effluent discharges, and leaks and spills.

Occupational Hazards.–Coal synthetic fuel

plants pose a range of occupational hazards from

both normal operations and upset conditions.

Aside from risks associated with most heavy industry, including exposure to noise, dusts, and

heat, and falls from elevated areas, synfuels workers will be exposed to gaseous and liquid fugitive

emissions of carcinogenic and other toxic materials. During upset conditions, contact with hot gas

and liquid streams and exposure to fire and explosion is possible. Table 77 lists some of the potential exposures from coal gasification plants

documented by the National Institute for Occupational Safety and Health. Table 78 lists the

potential occupational health effects associated

with the constituents of indirect liquefaction process streams. Similar exposure and health-effect

potentials would exist for any coal liquefaction

process.

Although the precise design and operation of

the individual plant is a critical factor in determining occupational hazards, there are certain generic differences in direct and indirect technologies

that appear to give indirect technologies some

advantages in controlling health and safety risks.

The advantages of indirect technologies include

the need to separate only gases and liquids (the

solids are eliminated in the very first gasification

step) in contrast with the gas/liquid/solid phase

separation requirements of direct processes; fewer sites for fugitive emissions than the direct processes; lower processing requirements for the

process liquids produced (direct process liquids

require additional hydrogenation); the abrasive

Table 77.—Potential Occupational

Exposures in Coal Gasification

Coal handling, feeding, and preparation.—Coal dust, noise,

gaseous toxicants, asphyxia, and fire

Gasifier/reactor operation. —Coal dust, high-pressure hot gas,

high-pressure oxygen, high-pressure steam and liquids, fire,

and noise

Ash removal, —Heat stress, high-pressure steam, hot ash, and

dust

Catalytic conversion. —High-pressure hot gases and liquids,

fire, catalyst, and heat stress

Gas/liquids cooling. —High-pressure hot raw gas and liquid

hot tar, hot tar oil, hot gas-liquor, fire, heat stress, and noise

Gas purification. —Sulfur-containing gases, methanol,

naphtha, cryogenic temperature, high-pressure steam, and

noise

Methanol formation.—Catalyst dust, fire, and noise

Sulfur removal — Hydrogen sulfide, molten sulfur, and sulfur

oxides

Gas-liquor separation. —Tar oil, tar, gas-liquor with high concentrations of phenols, ammonia, hydrogen cyanide,

hydrogen sulfide, carbon dioxide, trace elements, and noise

Phenol and ammonia recovery. -Phenols, ammonia, acid

gases, ammonia recovery solvent, and fire

Byproduct storage. —Tar, oils, phenols, ammonia, methanol,

phenol recovery solvent and fire

SOURCE: Adapted from U.S. Department of Health, Education and Welfare, “Criteria for a Recommended Standard . . . Occupational Exposures In coal

Gaslficatlon Plants” (Clncinnatl: National Institute of Occupational

Safety and Health, Center for Disease Control, 19S43).
Ch. 10—Environment, Health, and Safety Effects and Impacts Ž 259

Table 78.—Occupational Health Effects of Constituents of Indirect Liquefaction Process Streams

Constituents Toxic effects Stream or area

Inorganic

Ammonia

Carbon disulfide

Carbon monoxide

Carbonyl sulfide

Hydrogen sulfide

Hydrogen cyanide

Mineral dust and ash

Nickel carbonyl

Trace elements: arsenic, beryllium,

cadmium, lead, manganese, mercury,

selenium, vanadium

Sulfur oxides

Organic

Aliphatic hydrocarbons

Aromatic amines

Single-ring aromatics

Aromatic nitrogen heterocyclics

Phenols

Polycyclic aromatic hydrocarbons (PAH)

Acute: respiratory edema, asphyxia,

death

Chronic: no evidence of harm from

chronic subirritant levels

Acute: nausea, vomiting, convulsions

Chronic: psychological disturbances,

mania with hallucinations

Acute: headache, dizziness, weakness,

vomiting, collapse, death

Chronic: low-level chronic effects not

established

Little data on human toxicity

Acute: collapse, coma, and death may

occur within a few seconds.

Insidious, may not be detected by

smell

Chronic: possible cocarcinogen

Acute: headache, vertigo, nausea,

paralysis, coma, convulsions, death

Chronic: fatigue, weakness

Chronic: possible vehicle for polycyclic

aromatic hydrocarbons and

cocarcinogens

Acute: highly toxic, irritation, lung

edema

Chronic: carcinogen to lungs and

sinuses

(Complex)

Acute: intense irritation of respiratory

tract

Chronic: possible cocarcinogen

Most not toxic. N-Dodecane potentates

skin tumors

Acute: cyanosis, methemoglobinemia,

vertigo, headache, confusion

Chronic: anemia, skin lesions (aniline)

Benzidine and beta-naphthylamine are

powerful carcinogens

Acute: irritation, vomiting, convulsions

Chronic: bone-marrow depression,

aplasia

Acute: skin and lung irritants

Chronic: possible cocarcinogens

Chronic: possible carcinogens, skin

and lungs

Chronic: skin carcinogens, possible

respiratory carcinogens

Gas liquor

Concentrated acid gas

Coal-lockhopper vent gas

Raw gas from gasifier

Concentrated acid gas

Coal-lockhopper vent gas

Raw gas from gasifier

Concentrated acid gas

Catalyst regeneration off-gas

Concentrated acid gas

Coal-lockhopper vent gas

Ash or slag

Catalyst regeneration off-gas

Bottom ash

Fly ash

Gasifier ash

Solid waste disposal

Combustion flue gases

Evaporative emissions from product

storage

Coal-lockhopper vent gas

Gas liquor

Coal-lockhopper vent gas

Gas liquor

Gas liquor

Coal-lockhopper vent gas

Gas liquor

Gas liquor

Coal-lockhopper vent gas

Raw gas

SOURCE: US. Department of Energy, Energy Technologies and the Environment. Environmental Information Handbook DOE/EV/74O1O-1, December 1980.

nature of the direct process stream (which con- streams. Lurgi gasifiers, however, produce a

tains entrained solids); and fewer dangerous aro- wider range of organic compounds than the highmatic compounds, including polynuclear aromat- er temperature gasifiers and as a result are more

ics and aromatic amines, than in direct process comparable in health risk to direct processes.
260 • Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

In sum, however, the indirect processes appear

to have a lower potential for occupational health

and safety problems than the direct processes.

In actual practice other factors—such as differences in the selection of control equipment and

in plant design, maintenance procedures, and

worker training—conceivably could outweigh

these differences. In fact, developers of liquefaction processes appear to be aware of the potential hazards and are taking preventive action such

as providing special clothing and providing frequent medical checkups. Nevertheless, the occupational health risk associated with synthetic fuel

plants must be considered a major concern.

Ground and Surface Water Contamination.–

A portion of the solid waste produced by liquefaction plants is ash-bottoms, fly ash, and scrubber

sludge from the coal-fired boilers—materials that

are routinely handled in all coal-fired powerplants

today. Much of the waste, however, is ash or slag

from the gasifiers producing synthesis gas or hydrogen and chars or “bottoms” from the direct

processes (although much of the latter material

is expected to be recycled to the gasifies), As

noted previously, this material is produced in a

reducing atmosphere and thus contains organic

compounds as well as trace elements whose solubility may be different from that produced in the

boiler.

Other solid wastes that may create disposal

problems more severe than those of powerplant

waste include spent catalysts and sludges from

water treatment. Total solid wastes from a 50,000

bbl/d plant range from 1,800 to 5,000 or more

tons per day.65 At these rates, a 2 MM B/D industry

would have to dispose of between 26 million and

72 million tons of wastes per year. The major concern from these materials is that water percolating

through landfill disposal areas may leach the toxic

organic compounds and trace elements out of

the wastes and into the ground water. Currently, the extent of this risk is uncertain, although

tests of EDS66 and SRC-II67liquefaction reactor

bscha~ock, et al., op. Cit.

66R. C. Green, “Environmental Controls for the Exxon Donor SOlvent Liquefaction Process, ” Second DOE Environmental Control

Symposium, Reston, Va., Mar. 19, 1981.

b7Supra 59.

wastes and gasifier ash from several gasifiersba

yielded Ieachates that would not have been rated

as “hazardous” under Resources Conservation

and Recovery Act criteria. *

One major problem with permanent landfill

disposal, however, is that damage to ground water may occur at any future time when the landfill liner may be breached–many of the toxic materials in the wastes are either not degradable or

will degrade very slowly, and may last longer than

the design life of the liner.

Liquid effluent streams from liquefaction plants

also pose potential water pollution problems. Although there are a number of wastewater sources

that are essentially conventional in character—

cooling tower and boiler blowdown, coal storage

pile runoff, etc.—the major effluent streams, from

the scrubbing of the gases from the gasifiers and

from the water separation streams in the direct

processes, contain a variety of organics and trace

metals that will pose difficult removal problems.

The direct processes are expected to have the

dirtiest effluent streams, the indirect systems

based on Lurgi gasifiers will also pose some problems because of their high production of organics,

and the systems based on high-temperature gasifiers should have only moderate treatment requirements. 69

Although total recycle of water is theoretically

possible, in practice this is unlikely and “zero discharge” will only be achieved by using evaporation ponds. Aside from the obvious danger of

breakdown of the pond liner and subsequent

ground water contamination (or overflows from

flooding), evaporation ponds may pose environmental problems through the formation of toxic

gases or evaporation of volatile liquids. The complex mixture of active compounds in such a pond

creates a particular hazard of unforeseen reactions occurring.

ba/nside EPA, Sept. 26, 1980. As reported, researchers from TRW

and Radian Corps. have tested ash from Lurgi, Wellman-Galusha,

and Texaco gasifiers.

*Wastes are rated as “hazardous” and will require more secure

(and more expensive) disposal if concentrations of pollutants in the

Ieachates are greater than 100 times the drinking water standard.

‘9H. Gold, et al., “Fuel Conversion and Its Environmental Effects,”

Chemical Engineering Progress, August 1979.
Ch. 10—Environment, Health, and Safety Effects and Impacts ● 261

Although the use of ponds to achieve zero discharge is practical in the West because of the low

rainfall and rapid evaporation rates, zero discharge may be impractical at eastern sites without artificial evaporation, which is expensive and

energy-intensive. Consequently, it appears probable that continuous or intermittent effluent

discharges will occur at eastern plants, with

added risks from control system failures as one

resuIt.

Environmental Management

The likelihood of these very serious potential

environmental and health risks turning into actual

impacts depends on a variety of factors, and particularly on the effectiveness and reliability of the

proposed environmental controls for the plants,

the effectiveness of environmental regulations

and scientists’ ability to detect damages and ascertain their cause.

In general, synfuels promoters appear to be

confident that the control systems proposed for

their processes will work effectively and reliably.

They tend to view synfuels processes as variations

of current chemical and refinery operations, albeit variations that will require careful design and

handling. Consequently, the environmental controls planned for synthetic fuels plants are largely based on present engineering practices in the

petroleum refining, petrochemical, coal-tar processing, and power generation industries.

There are reasons to be concerned about control system effectiveness and reliability, however,

especially for the first generation of commercial

plants. First, few of the wastewater effluents from

either direct or indirect processes have been sent

through a complete environmental control system such as those designed for commercial units.

Process waste streams from several U.S. pilot

plants have been subjected only to laboratory and

bench-scale cleanup tests or else have been combined with waste streams from neighboring refineries and treated, with a poorly understood level

of success, in the refinery control systems.

Second, scaling up from small-scale operations

is particuIarly difficult for the direct processes,

because of the entrainment of solids in the liquid

process streams. Engineering theory for the scale

up of solids and mixed solids/liquids processes

is not well advanced. For the most part, the problem of handling liquid streams containing large

amounts of entrained solids under high-temperature and pressure conditions is outside of current

industrial experience.

Third, currently available refinery and petrochemical controls are not designed to capture the

full range of pollutants that will be present in synfuels process and waste streams. Several of the

trace elements as well as the polycyclic aromatic

hydrocarbons (PAHs) are included in this group,

although techniques such as hydrocracking are

expected to help eliminate PAHs when they appear in process streams. (As noted previously,

problems with the trace organics generally are

focused on the direct and on low-temperature

indirect processes, because high-temperature gasifiers should effectively destroy most of these

compounds.)

Fourth, in some cases, compounds that generally are readily controlled when separately encountered appear in synfuels process and waste

streams in combinations that complicate control.

For example, current processes for removing hydrogen sulfide, carbonyl sulfide, and combustibles tend to work against each other when these

compounds appear in the same gas stream,70 as

they do in synfuels plants. Also, the high level

of toxics that appear in the waste streams may

create reliability problems for the biological control systems.

Fifth, as noted earlier, the high pressures, multiplicity of valves and gaskets, and (for the direct

processes) the erosive process streams appear to

create high risks of fugitive emissions. plans for

control of these emissions generally depend on

“directed maintenance” programs that stress frequent monitoring and inspection of vulnerable

components. Although it appears reasonable to

expect that a directed maintenance program can

significantly reduce fugitive emissions, rigorous

specifications for such a program have not been

published,71 and some doubts have been raised

Zocongressional ReSearCh Service, Synfue/s From COa/ and the

National Synfuels Production Program: Technical Environmental

and Economic Aspects, December 1980 (Committee Print 11-74

No. 97-3, january 1981, U.S. Congress).

TI u .S. @panrnent of Energy, Fina/ Environrnenta/ /rnpaCt S~atement: Solvent Refined Coal-n Demonstration Project, Fort Martin,

Monongalia County, W, Va., 2 VOIS., 1981.
262 . Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

about the adequacy of proposed monitoring for

pioneer plants.

The significance of these technological concerns is uncertain. As noted previously, industry

representatives generally have dismissed the concerns as unimportant, at least with regard to the

extent to which pollution control needs might be

compromised. Government researchers at EPA

and DOE72 have expressed some important reservations, however. On the one hand, they are confident that each of the synfuels waste streams is

amenable to control, usually with approaches

that are not far different from existing approaches

to control of refinery and chemical process

wastes. On the other hand, they have reservations about whether or not the industry’s control program, as it is currently constituted, will

achieve the high levels of control possible. Potential problem areas (some of which are related)

include wastewater treatment, ’J control system

reliability, and pollution control during process

upsets.

Virtually all of the Government researchers

OTA contacted were concerned that the industry

programs were not addressing currently unregulated pollutants but instead were focusing almost

exclusively on meeting immediate regulatory requirements. Several expressed special concern

about the failure of some developers to exploit

all available opportunities to test integrated control systems; they expected these integrated systems to behave differently from the way the individual devices behave in tests.

The above concerns, if well founded, imply that

environmental control problems could have serious impacts on the operational schedules of the

first generation of commercial plants. These impacts could range from extentions in the normal

plant shakedown periods to extensive delays for

redesign and retrofit of pollution controls.74 BeZzpersonal Communications with headquarters and field personnel, EPA and DOE.

zJThe draft of EPA’s Pollution Control Guidance Document on

indirect liquefaction also expressed strong concerns about wastewater treatment. /nside EPA, Sept. 12, 1980, “Indirect Liquids Draft

Sees Zero Wastewater Discharge, Laments Data Gap.”

z4Some of the architectural and engineering firms submitting synfuels plant designs have incorporated certain control system flexibilities as well as extra physical space in their control systems designs.

These features presumably would reduce schedule problems.

Frederick Witmer, Department of Energy, Washington, D. C., personal communication.

cause of the large capital costs of the plants, there

will likely be severe pressure on regulators to

minimize delays and allow full-scale production

to proceed. The outcome of any future conflicts

between regulatory requirements and plant

schedules will depend strongly on the public

pressures exerted on the industry and Federal and

State Governments.

There are reasons to believe that a great deal

of public interest will be focused on the synfuels

industry and its potential effects. For one, when

plant upsets do occur, the results can be visually spectacular–for example, purging an SRC-ll

reactor vessel and flaring its contents can produce

a flame up to 100 ft wide and 600 ft Iong.75 It also

seems likely that odor problems will accompany

these first plants, and in fact the sensitivity of

human smell may render it impossible to ever

completely eliminate this problem. Malodorous

compounds such as hydrogen sulfide, phenols,

organic nitrogen compounds, mercaptans, and

other substances that are present in the process

and waste streams can be perceived at very low

concentrations, sometimes below 1 part per

billion.76

In addition, the presence of highly carcinogenic

materials in the process and waste streams appears likely to sensitize the public to any problems with these plants. This combination of potential hazards and perceptual problems, coupled

with the industry strategy of locating at least some

of these plants quite close to populated areas

(e.g., SRC-ll near Morgantown, W. Va., now canceled, and the Tri-State Synthetic Fuels Project

near Henderson, Ky.), appears likely to guarantee

lively public interest.

The nature of the industry’s response to unexpected environmental problems as well as its general environmental performance also will depend

on the degree of regulatory surveillance and control exerted by Federal and State environmental

agencies. Although the degree of surveillance and

control will in turn depend largely on the environmental philosophy of the Federal and State

Governments at various stages in the lifetime of

the industry-a factor that is unpredictable-it will

also depend on the legal framework of environ75 Supra 59.

7%upra 58.
Ch. 10—Environment, Health, and Safety Effects and Impacts ● 263

mental regulations, the scientific groundwork that

is now being laid by the environmental agencies,

and the nature of the scientific problems facing

the regulatory system.

Existing Federal environmental legislation gives

the Occupational Safety and Health Administration (OSHA) and EPA a powerful set of tools for

dealing with the potential impacts of synfuels development. OSHA has the power to set occupational exposure standards and define safety procedures for all identified hazardous chemicals in

the workplace environment. EPA has a wide variety of legal powers to deal with synfuels impacts,

including:

●

●

●

●

●

●

●

setting National Emission Standards for Hazardous Air Pollutants (N ES HAPS) under the

Clean Air Act;

setting New Source Performance Standards,

also under the Clean Air Act;

setting effluent standards for toxic pollutants

(which, when ingested, cause “death, disease, cancer, genetic mutations, physiological malfunctions or physical deformations”)

under the Clean Water Act;

setting water quality standards, also under

the Clean Water Act;

defining acceptable disposal methods for

hazardous wastes under the Resource Conservation and Recovery Act;

defining underground injection guidelines

under the Safe Drinking Water Act; and

a variety of other powers under the mentioned acts and several others.77

The regulatory machinery gives the Federal environmental agencies a strong potential means

of controlling synfuels plants’ hazardous emissions and effluents. In general, however, the machinery is immature. Because there are no operating commercial-scale synthetic fuels plants in the

United States, EPA has not had the opportunity

to collect the data necessary to set any technology-specific emission and effluent limitations for

synfuels plants. Aside from this inevitable probTTSee table 4.1, synthetic Fue/s and the Environment: An Environment/ and Regulatory /mpacts Ana/ysis, Office of Technology impacts, U.S. Department of Energy, DOE/EV-0087, june 1980. Also,

see ch. 5, The /rnpacts of Synthetic Fue/s Development, D. C.

Masselli, and N. L. Dean, jr., National Wildlife Federation, September 1981.

Iem, the environmental agencies have not fully

utilized some of their existing opportunities for

environmental protection. For example, EPA has

allowed its authority to define standards for hazardous air pollutants to go virtually unused. In

addition, in some areas, such as setting effluent

guidelines and New Source Performance Standards for air emissions, EPA has a substantial backlog of existing industries yet to be dealt with.

The environmental research programs conducted by various Federal agencies will lay the

groundwork for EPA’s and OSHA’s regulation of

the synfuels industry. The key programs are those

of EPA and OSHA themselves and those of DOE.

DOE’s programs appear likely to be essentially

eliminated if current plans to dismantle DOE are

successful. EPA and OSHA research budgets have

both been reduced. In particular, EPA has essentially eliminated research activities aimed at developing control systems for synfuels waste

streams, on the basis that such development is

the appropriate responsibility of industry. As mentioned before, Federal researchers familiar with

the industry’s current environmental research

programs perceive that the industry has little interest in developing control measures for potential impacts that are not currently regulated, and

they believe that industry is unlikely to expand

its programs to compensate for EPA’s reductions.78

With or without budget cuts, EPA and OSHA

face substantial scientific problems in setting appropriate standards for hazardous materials from

synfuels technologies. Probably the worst of these

problems is that current air pollution and occupational exposure regulations focus on a relatively

small number of compounds and treat each one

individually or in well-defined groups, whereas

synfuels plants may emit dozens or even hundreds of dangerous compounds with an extremely wide range of toxicity (i.e., the threshhold of

harm may range from a few parts per billion to

several parts per thousand or higher) and a variety

of effects.

The problem is further complicated by the expected wide variations in the amounts and types

78 Supra 72,
2641 . Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil /reports

of pollutants produced. The synfuels waste

streams are dependent on the type of technology,

the control systems used, the product mix chosen

by the operator (which determines the operating

conditions), and the coal characteristics. The implication is that uniform emission and worker exposure standards, such as a “pounds per hour”

emission limit on total fugitive HC emissions or

a “milligrams per cubic meter” limit on HC exposures, are unlikely to be practical because they

would have to be extraordinarily stringent to provide adequate protection against all components

of the emission streams. Consequently, EPA and

OSHA may not be able to avoid the extremely

difficult task of setting multiple separate standards

for toxic substances.

The regulatory problem represented by the toxic discharges is compounded by difficulties in detecting damages and tracing their cause. Because

low-level fugitive emissions from process streams

and discharges or leaks from waste disposal operations probably are inevitable, regulatory requirements on the stringency of mitigation measures

will depend on our knowledge of the effects of

low-level chronic exposures to the chemical components of these effluents. Aside from the problems of monitoring for the actual presence of pollution, problems may arise both from the long

lag times associated with some critical potential

damages (e.g., 5 to 10 years for some skin cancers, longer for many soft-tissue cancers) and

from the complex mixture of pollutants that

would be present in any emission.

Transport and Use

As synthetic liquids are distributed and used

throughout the economy, careful control of exposure to hazardous constituents becomes less and

less feasible. This is especially true for liquid fuels

because of the multitude of small users and the

general lack of careful handling that is endemic

to the petroleum distribution system. Consequently, the toxicity of synfuels final products

may be critical to the environmental acceptability

of the entire synfuel “fuel cycle.”

The pathways of exposure to hazardous substances associated with synfuels distribution and

use include accidental spills and fugitive emissions from pipelines, trucks, and other transport

modes and storage tanks; skin contact and fume

inhalation by motorists and distributors; and public worker exposure to waste products associated

with combustion (including direct emissions and

collected wastes from control systems).

Evaluation of the relative danger of these exposure pathways and comparisons of synfuels to

their petroleum analogs are extremely difficult at

this time. Most environmental and health effects

data on synfuels apply to process intermediates–

“syncrudes”- rather than finished fuels. Combustion tests have generally been limited to fuel oils

in boilers rather than gasolines in automobiles. ’g

The tests that have been conducted focus more

on general combustion characteristics than on

emissions, and those emission characterizations

that have been done measure mainly particulate

and SOX and NOX rather than the more dangerous organics.80 Adding to the difficulty of determining the relative dangers of synfuels use is a

series of surprising gaps in health effects data on

analogous petroleum products. Apparently, many

of these widely distributed products are assumed

to be benign, and monitoring of their effects has

been limited.81

Table 79 presents a summary of the known differences in chemical, combustion, and health effects characteristics of various synfuels products

and their petroleum analogs. The major characteristics of coal-derived liquid fuels are:

● The major concern about synthetic fuels

products is their potential to cause cancer,

mutations, or birth defects in exposed persons or wildlife. (Petroleum-based products

also are hazardous, but usually to a lesser

extent than their synfuels counterparts.)82 In

general, the heavier (high boiling point) liquids—especially heavy fuel oils—are the most

dangerous, whereas most of the lighter products are expected to be relatively free of

these effects. This distribution of effects may

be considered fortunate because the lighter

T9M. Ghassemi and R. Iyer, Environmental Aspects of SYnfue/

Utilization, U.S. Environmental Protection Agency report EPA-600/

7-81-025, March 1981.

~lbid.

81 Ibid.

Szlbid.
Ch. IO—Environment, Health, and Safety Effects and Impacts • 265

Table 79.—Reported Known Differences in Chemical, Combustion, and Health Effects

Characteristics of Synfuels Products and Their Petroleum Analogs

Product Chemical characteristics Combustion characteristics Health effects characteristics

Shale 011

Crude . . . . . . . . . . . . . . . . . . . . Higher aromatics, FBN, As, Higher emissions of NO x

particulate and (possibly)

certain trace elements

Slightly higher NO X and

smoke emissions

Slightly higher NO x and

smoke emissions

More mutagenic, tumorigenic,

Hg, Mn cytotoxic

Higher aromatics

Higher aromatics

Higher aromatics

Higher aromatics

Higher aromatics

nitrogen

Higher aromatics

nitrogen

and

and

Gasoline . . . . . . . . . . . . . . . . .

Jet fuels . . . . . . . . . . . . . . . . . Eye/skin irritation, skin

sensitization same as for

petroleum fuel

Eye/skin irritation, skin

sensitization same as for

petroleum fuel

—

Slightly higher NO x and

smoke emissions

DFM . . . . . . . . . . . . . . . . . . . . .

Residuals. . . . . . . . . . . . . . . . .

Direct Iiquefaction

Syncrude (H-Coal, SRC ll,

EDS) . . . . . . . . . . . . . . . . . . .

SRC II fuel oil . . . . . . . . . . . . . Higher NO X emissions Middle distillates:

nonmutagenic; cytotoxicity

similar to but toxicity

greater than No. 2 diesel

fuel; burns skin.

Heavy distillate: considerable

skin carcinogenicity,

cytotoxicity, mutagenicity,

and cell transformation

Severely hydrotreated:

nonmutagenic,

nontumorigenic; low

cytotoxicity

—

Nonmutagenic, extremely low

tumorigenicity cytotoxicity

and fetotoxicity

Non mutagenic

H-Coal fuel oil . . . . . . . . . . . . Higher nitrogen content Higher NO X emissions

EDS fuel oil. . . . . . . . . . . . . . .

SRC II naphtha. . . . . . . . . . . .

Higher NO X emissions

Higher nitrogen, aromatics —

H-Coal naphtha. . . . . . . . . . . .

EDS naphtha. . . . . . . . . . . . . .

SRC II gasoline . . . . . . . . . . .

H-Coal gasoline . . . . . . . . . . .

EDS gasoline . . . . . . . . . . . . .

Indirect liquefact/on

FT gasoline . . . . . . . . . . . . . . .

FT byproduct chemical . . . . .

Mobil-M gasoline. . . . . . . . . .

Higher nitrogen, aromatics

Higher nitrogen, aromatics

Higher aromatics

Higher aromatics

Higher aromatics

Lower aromatics; N and S nil

—

(Gross characteristics similar

to petroleum gasoline)

—

Noncarcinogenic

N/A —

Methanol . . . . . . . . . . . . . . . . .

Gasification

SNG . . . . . . . . . . . . . . . . . . . . .

Higher aldehyde emissions Affects optic nerve

Traces of metal carbonyls

and higher CO

(Composition varies with

coal type and gasifier

design/operation)

Low/medium-Btu gas. . . . . . . (Emissions of a wide range

of trace and minor

elements and heterocyclic

organics)

—

Nonmutagenic, moderately

cytotoxic

Gasifier tars, oils, phenols . . (Composition varies with

coal and gasifier types;

highly aromatic materials) .

SOURCE: M. Ghasseml and R. Iyer, Environmental Aspects of Synfuel Utilization, EPA-600/7-81-025, March 1981.
266 . Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

●

●

products–such as gasoline–are more likely to be widely distributed.

Products from direct liquefaction processes

appear more likely to be cancer hazards than

do indirect process products, because of the

higher levels of dangerous organic compounds produced in the direct processes.

Coal-derived methanol fuel appears to be

similar to the methanol currently being used, although there are potentials for contamination that must be carefully examined.

Methanol is rated as a “moderate hazard”

(“may involve both irreversible and reversible changes not severe enough to cause

death or permanent injury’’ )83 under chronic

–long-term, low-level–exposure, although

the effects of multi-year exposures to very

low levels (as might occur to the public with

widespread use as a fuel) are not known.

Methanol has been assigned a hazard rating

for acute exposures similar to that for

gasoline,84 but no comparison can be made

BJN. 1. sax, Dangerous properties of Industrial Materials, Fourth

Edition, Van Nostrand Reinhold Co., 1975.

BJlbid,

●

for chronic exposures because data for

gasoline exposure is inadequate.85 86 In

automobiles, methanol use increases emissions of formaldehyde sufficiently to cause

concern, but lowers emissions of nitrogen

oxides and polynuclear aromatics.87 Depending on the potential health effects of low

levels of formaldehyde, which are not now

sufficiently understood, and the emission

controls on automobiles, methanol use in

automobiles conceivably may provide a significant net pollution benefit to areas suffering from auto-related air pollution problems.

Many of the dangerous organics that are the

source of carcinogenic/mutagenic/teratogenic properties in synfuels should be controllable by appropriate hydrotreating. Tradeoffs

between environmental/health concerns and

hydrotreating cost, energy consumption, and

effects on other product characteristics currently are not known.

OIL SHALE

OaAn Assessment of Oil Shale Technologies, Op. Cit.

851 bid,

BsGhassemi and Iyer, Op. Cit.

87Energy From Biological processes, OP. cit.

Production and use of synthetic oil from shale

raises many of the same concerns about limited

water resources, toxic waste streams and massive

population impacts as coal-derived liquid fuels,

but there are sufficient differences to demand

separate analysis and discussion, OTA has recently published an extensive evaluation of oil shale;88

the discussion here primarily summarizes the key

environmental findings of that study.

U.S. deposits of high-quality oil shale (greater

than 25 gal of oil yield per ton) generally are concentrated in the Green River formation in northwestern Colorado (Piceance Basin) and northeastern Utah (Uinta Basin), The geographic concentration of these economically viable reserves to

an arid, sparsely populated area with complex

terrain and relatively pristine air quality, and the

impossibility of transporting the shale (because

of its extremely low energy density) lead to a

potential concentration of impacts that is (at least

in theory) easier to avoid with coal-derived synfuels. Thus, compliance with prevention of significant deterioration regulations for SO2 and particuIates may constrain total oil shale development

to a million barrels per day or less unless current

standards are changed or better control technologies are developed.

Also, the lack of existing socioeconomic infrastructure implies that environmental impacts associated with general development pressures

could be significant without massive mitigation

programs. Although coal development shares

these concerns (especially in the West) and has

water and labor requirements as well as air emissions that are not dissimilar on a per-plant basis,

it is unlikely to be necessary to concentrate coal

development to the same extent as with oil shale.

Thus, coal development should have fewer se-
Ch. 10—Environment, Health, and Safety Effects and Impacts ● 267

vere physical limitations on its total level of development.

The geographic concentration of oil shale development should not automatically be interpreted as environmentally inferior to a more dispersed pattern of development, however. Although impacts will certainly be more severe in

the developed areas as a resuIt of this concentration, these impacts must be balanced against the

smaller area affected, the resulting pressure on

the developers to improve environmental controls to allow higher levels of development, and

the possibility of being able to focus a major monitoring and enforcement effort on this development. Also, the major oil shale areas generally

are not near large population centers, whereas

several proposed coal conversion plants are within a few miles of such centers and may consequently pose higher risks to the public.

The volume of the material processed and discarded by an oiI shale plant is a significant factor in comparing oil shale with coal-derived fuels.

A 50,000 bbl/d oil shale plant using aboveground

retorting (AGR) requires about 30 million tons per

year of raw shale* versus about 6 million to 18

million tons of coal (the higher values apply only

to low-quality Iignites converted in a relatively

inefficient process) for a similarly sized coal liquefaction plant. A modified in-situ (MIS) plant requires about the same tonnage of feedstock as

does the coal plant, Consequently, although the

underground mining of shale thus far has had a

much better worker safety record than coal mining, underground mining of coal may be safer

than shale mining for an AGR plant on a “fuel

output” basis, especially when full-scale shale

mining begins. Mining for an MIS plant, on the

other hand, will be safer than that for the coal

plant unless previous shale experience proves to

be misleading.

The very large amount of spent shale represents

a difficult disposal problem. An AGR plant must

dispose of about 27 million tons/yr of spent shale,

at least five times as much solid waste as that produced by a similarly sized coal synfuels plant (MIS

plants may dispose of about 6 million tons/yr of

spent shale, one to three times the disposal reassuming 25 gal of oil per ton of shale.

quirements of a coal plant). At this rate, a 1

MMB/D industry using AGRs will have to dispose

of approximately 10 billion cubic feet of compacted shale each year.

This material cannot be fully returned to the

mines because it has expanded during processing, and it is a difficuIt material to stabilize and

secure from leaching dangerous compounds—

cadmium, arsenic, and lead, as well as organics

from some retorts (for example TOSCO II and

Parajo Indirect)—into surface and ground waters.

It also may cause a serious fugitive dust problem,

especially with processes like TOSCO II that produce a very fine waste. Even with secure disposal,

it will fill scenic canyons and represents an esthetic and ecosystem loss. Current research on small

plots indicates that short-term (a few decades)

stability of spent shale piles appears likely if sufficient topsoil is applied, but the long-term stability and the self-sustaining character of the vegetation is unknown. For these reasons, solid waste

disposal may be oil shale’s major environmental

concern.

As with coal liquefaction processes, the “reducing environment” in the retorts produces both

reduced sulfur compounds and dangerous organics that represent a potential occupational hazard

for workers from fugitive emissions and fuel handling. Crude shale oil appears to be more mutagenic, carcinogenic, and teratogenic than natural

crude.

On the other hand, the refined products are

less likely to be significantly different in effect

from their counterparts produced from natural

crude, and shale syncrude is less carcinogenic

or mutagenic than syncrudes from direct coal

liquefaction. Although comparisons of relative

risk must necessarily be tentative at this early

stage of development, it appears that the risks

from these toxic substances–excluding problems

with spent shale—probably are somewhat comparable to those of the cleanest coal-based liquefaction processes (indirect liquefaction with hightemperature gasifies).

Other oil shale environmental effects of particular concern include:

● The mining of oil shale generates large

amounts of silica dust that is implicated in

various disabling lung diseases in miners.
268 . Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

● Aside from the reduced sulfur compounds

and organics, the crude shale oil contains relatively high levels of arsenic, and somewhat

higher levels of fuel bound nitrogen than

most natural crude does. These pollutants

as well as the organics can be reduced in the

refining operation.

● In-situ production leaves large quantities of

spent shale underground and thus creates

a substantial potential for leaching out toxic materials into valuable aquifers. Control

of such leaching has not been demonstrated.

● Although oil shale developers are proposing

to use zero discharge of point-source water

effluents, it may be desirable in the future

to treat water and discharge it. The state of

water pollution control in oil shale development is essentially the same as in coal-derived synfuels, however. Many of the controls proposed have not been tested with actual oil shale wastewaters, and none have

been tested in complete wastewater control

systems.

BIOMASS

Production of liquid fuels from biomass will

have substantially different impacts from those

of coal liquefaction and oil shale production.

These are described in detail in OTA’s Energy

From Biological Processes 89 and summarized

briefly here.

The liquid fuel that appears to have the most

potential for large-scale production is methanol

produced from wood, perennial grasses and legumes, and crop residues. Ethanol from grains has

been vigorously promoted in the United States,

but appears likely to be limited by problems of

food/fuel competition to moderate production

levels (a few billion gallons per year).

Obtaining the Resource

Environmental concerns associated with alcohol fuel production focus on feedstock acquisition to a greater extent than with coal liquefacagEnergy From Biological processes, OP. cit.

MIS production—whereby a moderate

amount of mining is done to provide space

with which to blast the shale into rubble and

then retort it underground—may present a

special occupational hazard to workers from

explosions, fire, and toxic gases as well as

a potential danger to the public if toxic fumes

escape from the mine to the surface.

To summarize, the environmental concerns of

oil shale production appear to be quite similar

to those of coal-based synfuels production, but

with two important differences. First, the geographic concentration of oil shale production will

tend to concentrate and intensify its environmental and socioeconomic impacts to a greater extent than is likely to be experienced by coal development. Second, the problems of disposing

of the huge quantities of spent shale associated

with the AGR system appear to be substantially

greater than those of coal wastes.

FUELS

tion. All of the credible alcohol fuel cycles require

various degrees of ecological alteration, replacement, or disruption on vast land areas. Taking

into account the expenditure of premium fuels

needed to obtain and convert the biomass into

usable fuels, replacing about 10 billion gal/yr of

gasoline with biomass substitutes would require

adding intensive cropping to a minimum of about

25 million acres with a combination of sugar/

starch crops (for ethanol) and grasses (for methanol).

If this savings were attempted strictly by the use

of ethanol made from corn, the land requirement

probably would be at least 40 million acres. If

methanol from wood were the major source,

much of the gasoline displacement theoretically

could be obtained by collecting the logging residues that are now left in the forest or burned.

To replace 10 billion gal over and above the

amount available from residues would involve increasing the scale and intensity of management

(more acreage under intensive management,
Ch. 10—Environment, Health, and Safety Effects and Impacts . 269

shorter times between thinnings, more complete

removal of biomass, more conversion of lowquality stands) on upwards of so million acres of

commercial forest. It might involve an increased

harvest of forestland with lower productive potential—so-called “marginal Iands’’—and it will

almost certainly mean that lands not now subject to logging will be logged. Despite these difficulties, however, wood is the most likely source

of large-scale biomass production.

If handled with care, a “wood-for-methanol”

strategy could have a number of benefits. These

include upgrading of poorly managed forests, better forest fire and pest control through slash

removal, and reduced pressure on the few remaining unprotected stands of scenic, old-growth

timber because of the added yields of high-quality

timber that are expected in the long run from increased management.

Nevertheless, there is substantial potential for

damage to the forests if they are mismanaged.

High rates of biomass removal coupled with short

rotations could cause a depletion of nutrients and

organic matter from the more vulnerable forest

soils. The impacts of poor logging practices—erosion, degraded water quality, esthetic damage,

and damage to valuable ecosystems—may be aggravated by the lessening of recovery time (because of the shorter rotations) and any lingering

effects of soil depletion on the forests’ ability to

rebound. The intensified management may further degrade ecological values if it incorporates

widespread use of mechanical and chemical

brush controls, very large area clearcuts and elimination of “undesirable” tree species, and if it

neglects to spare large pockets of forest to maintain diversity.

Finally, the incentive to “mine” wood from

marginal lands with nutrient deficiencies, thin

soils, and poor climatic conditions risks the destruction of forests that, although “poor” from

the standpoint of commercial productivity, are

rich in esthetic, recreational, and ecological values. Because the economic and regulatory incentives for good management are powerful in some

circumstances but weak in others, a strong increase in wood energy use is likely to yield a very

mixed pattern of benefits and damages unless the

existing incentives are strengthened.

The potential effects of obtaining other feedstocks for methanol or ethanol production may

also be significant. Obtaining crop residues, for

example, must be handled with extreme care to

avoid removing those residues that are critical to

soil erosion protection. Large-scale production

of corn or other grains for ethanol is likely to occur on land that is, on the average, 20 percent

more erosive than present cropland. Aside from

creating substantial increases in erosion, corn

production will require large amounts of agricultural chemicals, which along with sediment from

erosion can pollute the water, and will displace

present ecosystems.

Equivalent production levels of perennial

grasses and legumes, on the other hand, could

be relatively benign because of these crops’ resistance to erosion as well as their potential to be

obtained by improving the productivity of present grasslands rather than displacing other ecosystems. Although large quantities of agricultural

chemicals would be used, the potential for damage will be reduced by the low levels of runoff

from grasslands.

Conversion

Production of alcohol fuels will pose a variety

of air and water pollution problems. Methanol

synthesis plants, for example, are small indirect

liquefaction plants that may have problems similar to those of coal plants discussed previously.

The gasification process will generate a variety

of toxic compounds including hydrogen sulfide

and cyanide, carbonyl sulfide, a multitude of oxygenated organic compounds (organic acids, aldehydes, ketones, etc.), phenols, and particulate

matter. As with coal plants, raw gas leakage or

improper handling of tars and oils would pose

a significant hazard to plant personnel, and good

plant housekeeping will be essential. Because of

low levels of sulfur and other pollutants in biomass, however, these problems may be somewhat less severe than in an equivalent-size coal

plant.

Ethanol distilleries use substantial amounts of

fuel–and therefore can create air pollution problems. An efficient 50-million-gal/yr distillery will

consume slightly more fuel than a 30-Mw power-
270 . Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

plant. There are no Federal emissions standards

for these plants, and the prevailing local standards

may be weak in some cases, especially for small

onfarm operations.

The plants also produce large amounts of

sludge wastes, called stillage, that are high in biological and chemical oxygen demand and must

be kept out of surface waters. Although the stillage from grains is a valuable animal feed product

and will presumably be recovered without the

need for any further incentives, the stillage from

sugar crops is less valuable and will require strict

regulation to avoid damage to aquatic ecosystems, EPA has had a history of pollution control

problems with rum and other distilleries, and ethanol plants will be similar to these.
Ch. 10—Environment, Health, and Safety Effects and Impacts . 271

APPENDIX 10A.– DETAILED DESCRIPTIONS OF WASTE STREAMS,

RESIDUALS OF CONCERN, AND PROPOSED CONTROL SYSTEMS

FOR GENERIC INDIRECT AND DIRECT COAL LIQUEFACTION SYSTEMS

Table 10A-1 .-Gaseous Emissions and Controls (indirect liquefaction)

Stream components

Gaseous stream Source of concern Controls Comments

Fugitive emissions

Vent gases

Coal-lockhopper

vent gas

Ash-lockhopper

vent gas

Concentrated

acid gas

Off-gases from

catalyst

regeneration

Evaporative

emissions

from stored

products

Auxillary plant

Flue gases

Coal gasification Carbon monoxide,

hydrogen sulfide, tars,

oils, naphtha, cyanide,

carbon disulfide

Coal gasification Particulate, trace elements

Gas purification Hydrogen sulfide, carbonyl

sulfide, carbon disulfide,

hydrogen cyanide, carbon

monoxide, carbon dioxide,

light hydrocarbons,

mercaptans

Catalytic synthesis Nickel and other metal

carbonyls, carbon

monoxide, sulfur

compounds, organics

Product storage Aromatic hydrocarbons,

C5

- C12 aliphatic

hydrocarbons, ammonia

emissions

Cooling-tower drift

and evaporation

Treated waste

gases

Power/steam Sulfur and nitrogen oxides,

generation particulate trace

elements, coal fines

Power/steam Ammonia, sodium, calcium,

generation, sulfides/sulfates,

process cooling chlorine, phenols,

fluorine, trace elements,

water treatment

chemicals

Gaseous emission Hydrogen sulfide, carbonyl

controls (e.g., sulfide, carbon disulfide,

sulfur recovery hydrogen cyanide, carbon

monoxide, carbon dioxide,

light hydrocarbons

Compression and recycle

of pressurization gas,

incineration of waste gas

Scrubber

Stretford or ADIP/Claus

processes followed by a

sulfur recovery tail gas

process, e.g., Beavon,

and incineration of the

Beavon off-gas in a boiler

Incineration in a flare,

incinerator, or controlled

combustion

Vapor recovery systems,

use of floating roof

storage tanks,

conservation vents.

Incinerate

Electrostatic precipitators,

fabric filters, flue-gas

desulfurization systems,

combustion modification

Proper design and siting

can mitigate impacts

Essentially the same as for

the concentrated acid gas

The need for and the effectiveness of

incineration/particulate control have

not been defined

The acid gases will be concentrated by

the gas purification process. The

control choice is dependent on the

sulfur content of the gases; a

combination of Stretford and ADIP/

Claus may have the lowest overall

costs.

Other control technology requirements

not established

Control technologies used in petroleum

refinery and other industries should be

applicable to Lurgi plants; standards

promulgated for the petroleum refining

industry would probably be extended

to cover the synthetic fuel industry.

Controls applicable to utility and

industrial boilers would generally be

applicable. Established emissions

regulations would cover boilers at

Lurgi plants

Recycled process water is used for

cooling-tower makeup. If cooling-tower

drift becomes a problem then the

recycled water will receive additional

treatment or makeup water will come

from another source.

—

SOURCE’ U.S. Department of Energy, Energy Technologies and the Environment, Environmenfa/ Information Handbook, DOEIEVI74O1O-1, December 1980
272 ● Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil /reports

Table 10A-2.—Liquid Waste Stream Sources, Components, and Controls (indirect liquefaction)

Liquid waste Stream components

stream Source of concern Controls Comments

Ash quench water Gasification Dissolved and suspended Gravity settling of solids: the See table 10A-3 

Gas Iiquor

Boiler blowdown

Spent reagents

and sorbents

Acid wastewater

Leachates

Treated aqueous

wastes

solids, trace elements, overflow from the settling

sulfides, thiocyanate, basin is recycled back to

ammonia, dissolved organics, the ash quenching operation

phenols, cyanides

Gas purification Sulfides, thiocyanate, ammonia, Lurgi tar/oil separator

cyanides, mono- and

polycyclic organics, trace

metals, mercaptans

Phenosolvan process

Phosam W or Chemi-Linz

Power/steam Dissolved and suspended

generation solids

Gaseous emission Sulfides, sulfates, trace

controls, wastewater elements, dissolved and

treatment suspended solids, ammonia,

phenols, tar oils, hydrogen

sulfide, carbon dioxide

Product separation Dissolved organics,

and purification thiocyanate, trace elements

Gasifier ash, boiler Trace elements, organics

ash, FGD sludge,

biosludge, spent

catalysts

Wastewater treatment Dissolved and suspended

solids, trace elements

Bio-oxidation and reverse

osmosis

Use as cooling-tower makeup

or as ash quench water

makeup

Recovery of reagents from air

pollution control processes,

addition to ash quench

slurry

Oxidation, use as cooling-tower

or quench water makeup

Landfill should have

impervious clay liner and a

Ieachate collection system.

If buried in the mine, the

mine should be dry and of

impervious rock or clay.

Streams, for final disposition

of ash solids. Capabilities of

technology in terms of

clarified ash slurry water not

known

Capabilities of tar/oil

separation, Phenosolvan,

and ammonia recovery well

established in terms of

removal of major constituents.

Capabilities for removal of

minor constituents not

established. Limited cost

data available on processes.

Removes dissolved phenols

from water

Removes dissolved ammonia,

produces saleable anhydrous

ammonia.

Removes dissolved organics

and inorganic.

Impacts on the quench system

and subsequent treatment

of clarified water not

established.

Applicable controls (e.g.,

resource recovery disposal

in lined pond, dissolved

solids removal, etc. are

waste- and site-specific; cost

and performance data should

be developed on a caseby-case basis.

—

—

Forced or natural evaporation The effectiveness and costs of

various applicable controls

(e.g., solar or forced

evaporation, physicalchemical treatment for water

reuse, etc.) not determined.

SOURCE: U.S. Department of Energy, Energy Technologies and the Environment, Emdronrnental Information Handbook, DCN2EVI7401O-1, December 1980.
Ch. IO—Environment, Health, and Safety Effects and Impacts . 273

Table 10A-3.—Solid Waste Stream Sources, Components, and Controls (Indirect liquefaction)

Stream components

Solid waste stream Source of major concern Controls Comments

Ash or slag Gasification

Scrubber sludge Power/steam

generation

Boiler ash Power/steam

generation

Sludge Waste treatment

Spent catalysts Gas shift

conversion,

catalytic

Trace elements, sulfides,

thiocyanate, ammonia,

organics, phenols,

cyanides, minerals

Calcium sulfate, calcium

sulfite, trace metals,

limestone, alkali metal

carbonates/sulfates

Trace elements, minerals

Trace elements,

polycyclic aromatic

hydrocarbons

Metalic compounds,

organics, sulfur

compounds

synthesis, sulfur

recovery

(gaseous

emission centrol)

Tarry and oily sludges Product/byproduct Mono- and polycyclic

Combined with boiler

ash and flue gas

desulfurization sludge

and disposed of in a

lined landfill or pond,

or buried in the mine

Disposed of with the

gasifier ash

Disposed of with the

gasifier ash

Combined with gasifier

ash, boiler ash and

flue gas desulfurization

sludge and disposed

of in a lined landfiii or

buried in the mine.

May also be incinerated

Process for material

recovery, or fixation/

encapsulation and

disposal in landiil or

mine

injection into the gasifier,

separation aromatic hydrocarbons, disposal in a secure

trace elements landfiil, return to the

mine for burial,

incineration

Ash is more than 90

percent of the solid

wastes generated at a

Lurgi plant. The choice

and design of disposal

system depend on the

ash content of coal

and plant/mine site

characteristics.

—

Because of lack of data

on waste quantities

and characteristics,

optimum control(s)

cannot be established.

The technical and

economic feasibility of

resource recovery have

not been established

Because of lack of data

on waste quantities

and characteristics,

optimum control(s)

cannot be established

SOURCE: U.S. Department of Energy, Energy Technologies and the Env)ronrnent, Environmental Information Handbook, DOI3EVI74O1O1, December 19S0.
274 ● Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

Table 10A-4.—Gaseous Streams, Components, and Controls (direct liquefaction)

Operation/auxiliary process Air emissions discharged Components of concern Control methods

Coal storage and pretreatment

Liquefaction

Separation:

Gas separation

Solids/liquids separation

Purification and upgrading:

Fractionation

Hydrotreating

Water cooling

Steam and power generation

Hydrogen generation

Acid gas removal

Sulfur recovery

Hydrogen/hydrocarbon recovery

Product/byproduct storage

Coal dust

Particulate-laden flue

from coal dryers

Preheater flue gas

gas

Pressure letdown releases

Pressure letdown releases

Preheater flue gas

Particulate-laden vapors

from residue cooling

(SRC-ll)

Pressure letdown releases

Preheater flue gas

Particulate-laden vapors

from product cooling

(SRC-l)

Pressure letdown releases

Preheater flue gas

Pressure letdown releases

Drift and evaporation

Boiler flue gas

Preheater flue gas

Pressure letdown releases

Flue gas

Low-sulfur effluent gas b

Pressure letdown releases

SRC dust (SRC-l)

Sulfur dust

Hydrocarbon vapors

Respirable dust, particulate, trace Spray storage piles with water or

elements

Respirable dust, particulate, trace

metals, sulfur and nitrogen oxides

Particulate, sulfur and nitrogen

oxides

Hydrocarbons, hydrogen sulfide,

hydrogen cyanide, ammonia, PAH,

hydrogen, phenols, cresylics

Same as for liquefaction letdown

releases

Same as the liquefaction preheater

Particulate, hydrocarbons, trace

elements

Same as for liquefaction letdown

releases

Same as for liquefaction preheater

Same as for SRCll residue cooling

Same as for liquefaction letdown

releases

Same as for liquefaction preheater

Same as for liquefaction letdown

releases

Ammonia, sodium, calcium

sulfides/sulfates, chlorine, phenols,

fluorine, trace elements, water

treatment chemicals

Sulfur and nitrogen oxides,

particulate

Same as for liquefaction preheater

Hydrogen sulfide, hydrogen cyanide,

carbon oxides, light hydrocarbons

Same as for liquefaction preheater

Hydrogen sulfide, hydrogen cyanide,

sulfur dioxide

Hydrogen, hydrocarbons

Respirable dust, particulate

Elemental sulfur

Phenols, cresylics, hydrocarbons,

PAH

polymer. cyclones and baghouse

filters for control of dust due to

coal sizing.

Cyclones and baghouse filters. Wet

scrubbers such as venturi.

If other than clean gas, scrub for

sulfur, nitrogen, and particulate

components.

Flaringa

Flaringa

If other than clean gas, scrub for

sulfur, nitrogen, and particulate

components.

Cyclone and baghouse filter. Wet

scrubbers.

Flaringa

If other than clean gas, scrub for

sulfur, nitrogen, and particulate

components.

Cyclone and baghouse filter. Wet

scrubbers

Flaringa

If other than clean gas, scrub for

sulfur, nitrogen and particulate

components.

Flaringa

No controls available—good design

of water management system can

minimize losses.

Sulfur dioxide scrubbing, combustion

modifications.

If other than clean gas, scrub for

sulfur, nitrogen, and particulate

components.

Flaringa

If other than clean gas, scrub for

sulfur, nitrogen, and particulate

components.

Carbon absorption. Direct-flame

incineration. Secondary sulfur

recovery (Beavon).

Direct-fired afterburner

Spray storage piles with water.

Store in enclosed area.

Spills/leaks prevention.

%ollection, recovery of useful products and incineration may be more appropriate.

bA seconda~ sulfur recovev process may be necessary to meet specified air emission standards.

SOURCE: U.S. Department of Energy, Energy Technologies and the Environment, Environmental Information Handbook, DOE/EV174010-1, December 1980.
Ch. IO—Environment, Health, and Safety Effects and Impacts ● 275

Table 10A-5.—Liquid Stream Sources, Components, and Controls (direct liquefaction)

Operation/auxiliary process Wake effluents discharged Components of concern Control methods

Coal pretreatment Coal pile runoff Particulate, trace metals Route to sedimentation pond.

Thickener underflow Same as above Route to sedimentation pond.

Water cooling Cooling tower blowdown Dissolved and suspended solids Sidestream treatment

(electrodialysis, ion exchange

or reverse osmosis) permits

discharge to receiving waters.

Hydrogen generation Process wastewater Sour and foul wastewater; Route to wastewater treatment

spent amine scrubbing facility.

solution

Acid gas removal Process wastewater Dissolved hydrogen sulfides, Route to wastewater treatment

hydrogen cyanide, phenols, facility.

cresylics

Ammonia recovery Process wastewater Dissolved ammonia Route to wastewater treatment

facility.

Phenol recovery Process wastewater Dissolved phenols, cresylics Route to wastewater treatment

facility.

SOURCE: U.S. Department of Energy, Energy Technologies and the Environment, Environmental Information Handbook, DOEiEV174010-1, December 1980.

Table 10A.6.—Soiid Waste Sources, Components, and Controls (direct liquefaction)

Operation/auxiliary process Solid waste discharged Components of concern Control methods

Coal pretreatment Refuse

Solids/liquids separation Excess residue

or filter cake

Hydrotreating Spent catalyst

Steam and power generation Ash

Hydrogen generation Ash or slag

Mineral matter, trace elements

(SRC-ll) Mineral matter, trace elements,

(SRC-l) absorbed heavy hydrocarbons

Metallic compounds, absorbed

heavy organics, sulfur

compounds

Trace elements, mineral matter

Trace elements, sulfides,

ammonia, organics, phenols,

mineral matter

Landfill, minefill

Gasification to recover energy

content followed by disposal

(landfill or minefill

Return to manufacturer for

regeneration

Landfill, minefill

Landfill, minefill

SOURCE: U.S. Department of Energy, Energy Technologies and the Errvironment, Environmental Information Handbook, DOEIEVI74O1O-1, December 1980
Chapter 11

Water Availability for Synthetic

Fuels Development
Contents

Page

Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 279

Water Requirements for Synfuels Plants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 280

lmpacts of Synfuels Development on Water Availability . . . . . . . . . . . . . . . . . . . 281

Water Availability at the Regional Level . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 283

Eastern River Basins . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 283

The Western River Basins. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 285

TABLES

Table No. Page

80. Estimates of Net Consumptive Use Requirements of Generic

Synfuels Plants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 280

81. Regional Streamflow Characteristics 1975 . . . . . . . . . . . . . . . . . . . . . . . . . . . 281

82. Preliminary Quantification of Uncertainties With Respect to Water

Availability in the Upper Colorado River Basin . . . . . . . . . . . . . . . . . . . . . . . 288

FIGURES

Figure No. Page

24. Water Resources Regions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 279

25.The Nation’s Surface Water Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 284

26.The Nation’s Ground Water Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 284

27. Streamflows and Projected Increased Incremental Water Depletions,

Yellowstone River at Sidney, Mont. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 286
Chapter 11

Water Availability for Synthetic Fuels Development

INTRODUCTION

Operation of a synthetic fuels plant requires a

steady supply of water throughout the year for

both plant and site activities. Availability of water

will be determined not only by hydrology and

physical development potential, but also by institutional, legal, political, and economic factors

which govern and/or constrain water allocations

and use among all sectors. This chapter expands

the environmental discussion of the role of water

Figure 24.—Water

in synfuels development and examines the major issues that will determine both water availability for synfuels and the impacts of procuring water

supplies for synfuels on other water users. There

are five river basin areas where oil shale and coal

resources are principally located: in the eastern

basins of the Ohio, Tennessee and the Upper

Mississippi, and in

per Colorado and

Resources Regions

the western basins of the Upthe Missouri (see fig. 24).

y

California

Region

/ 0,.,---

Souris. Red-Rainy

Pacific Northwest

Great Lakes

Regio n

I Upper MISSISSI PPI A

Region Texas-Gulf Region

Hawaii

Region

i

c

Alaska

Region

Caribbean Region

SOURCE: U.S. Water Resources Council, The fVatIon’S Water Resources 197S2000, vol. 2, pt. 1, p. 3,

279

98-281 0 - 82 - 19 : QL 3
280 . Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil /reports

WATER REQUIREMENTS FOR SYNFUELS PLANTS

Estimates of the consumptive use requirements

of generic synthetic fuels plants producing 50,000

barrels per day oil equivalent (B/DOE) of product

are shown in table 80. In general, the actual

amount of water consumed will vary according

to the nature of the products produced, process

methods, plant design, and site conditions. In

coal conversion, the largest single component of

total water consumption is typically for cooling, *

with other major components being for hydrogen

production, waste disposal, and revegetation. In

producing synfuels from oil shale, retorting and

upgrading require the most water; other major

uses are for the handling and disposal of spent

shale, and for revegetation.

*The amount of water consumed in cooling will depend on many

factors, includifig the degree to which evaporative or “wet” cooling, or dry cooling, are used. Air or “dry” cooling is an alternative

to wet cooling but is less efficient and generally more expensive.

Table 80.—Estimates of Net Consumptive Use

Requirements of Generic Synfuels Plants

(50,000 B/DOE)A

Barrels wate/

Acre-feet/year barrel product

Gasification . . . . . . . . . . . . . 4,500-8,000 1.9-3.4

Liquefaction. . . . . . . . . . . . . 5,500-12,000 2.3-5.1

Oil shale. . . . . . . . . . . . . . . . 5,000-12,000 2.1-5.1

aAVall~le estimates me baaed on theoretical Calculations, conceptual desirms,

small-scale experimental facllltles, etc. A range is shown for each generic procesa In order to reflect differences among process technologies (e.g., Indirect

liquefaction will generally consume more water than direct liquefaction; modlfled-in-situ will generally consume less water than aboveground 011 shale processes), plant design options (e.g., alternative methods of water reuse, conservation, and cooling), and sites. Estimates also vary with the level of detail

and state of development of the engineering designs. There are also at least

two major elements of uncertainty surrounding these estimates. Firat, both the

refinement and optimization of operational requirements are Ilmlted by the lack

of commercial experience. Secondly, eatlmates commonly assume zero

wastewater discharge, which Is to be achieved vla the treatment and reuse of

plant wastewater for cooling water makeup and boiler feed; however, the treatment processes to be used genereJly have yet to be demonstrated on a commer.

clal scale. Although the estimates shown In table 80 may thus not be represen.

tative of actual consumptive use requirements In specific cases, the magnitude

of the other uncertainties concerning water availability in general, as discussed [n this chapter, will likely overshadow the question of how much water will

be required for expected synfuels development. The following references provide additional details:

1. Office of Technology Assessment, An Assessment of 0!1 Shale Technologies,

June 1980, ch. 9.

2. Ronald F. Probsteln and Harris Gold, Water In Synthetic Fuel F’roducflorr,

MIT Press, Cambridge, Mess., 1978.

3. R. M. Wham, et al., Llquefactlon Technology Assessment—Phase 1: Indirect

Llquefection of Coal to Methanol and Gasoline Using Availabie Technology,

Oak Ridge National Laborato~, Oak Ridge, Term., February 1981.

4. Exxon Research and Engineering Co., EDS Coal Liquefaction Process

IX?velopment, phase V, VOIS. 1, 11, and Ill, March 1881.

5. Harris Gold and David J. Goldstein, “Water Requirements for Synthetic Fuel

Plants;” and Harris Gold, J. A. Nardella, and C. A. Vogel (ads.), “Fuel Conversion and Its Environmental Effects,” Chemical Engineering Progress, August

1979, pp. 58-84.

SOURCE: Office of Technology Assessment.

Synfuels plants will also generally require water

for other process-related activities such as environmental control (e.g., dust control) and for associated growth in population, commerce, and

industry (e.g., for water supply and sewerage).

Plant activities will not all require water of similar

qualities. As examples, high-quality water is required for processing; intermediate-quality water

is required for cooling; mining, materials preparation, and disposal activities are the least sensitive

to water quality characteristics.

Procuring water supplies for synfuels plants will

represent a small fraction of total plant investment

and operations costs (typically less than 1 percent). * * Thus, assuming that the overall economic feasibility of the plant has been established, the

more critical industrial considerations in selecting a water source will be the ease of acquiring

water of appropriate quality and the certainty of

the yield. Major water sources for synfuels would

include the direct diversion of surface water, the

purchase or transferring of existing water rights,

the use of existing or the construction of new

storage, the use of tributary and nontributary

ground water,*** savings from improved efficiency, reuse, and conservation by all users, and interbasin diversions.

The feasibility and attractiveness of sources will

vary among sites according to environmental,

social, legal, political, and economic criteria, and

**Obtaining reliable and comparable cost data on the procurement of water to the synfuels industry is difficult because of variation in the conditions surrounding each sale (e.g. water rights vary

according to their seniority, historic use, point of diversion, etc.).

As examples, annual costs per acre-foot of consumption vary between $50 to $300; water rights have sold for as high as $2,000/

acre-foot (in perpetuity). Assuming a cost of $2,000/acre-foot, water

rights costs would still represent a maximum of only 0.8 percent

of the cost of a $2 billion plant with an average annual consumption of 8,000 acre-feet. Note that what is bought is the right to use

water, not the water per se.

Costs are, nevertheless, important industrial criteria for evaluating

alternative sources of water supply. Costs will also be important

for water resources planning efforts, as they will help to determine

the nature and extent of impacts on other water users from synfuels development.

***The development of deep, nontributary ground water, which

is hydrologically unconnected to the surface flow, can be considered

as an “additional” source of water. Development of tributary

ground water, which is hydrologically connected to streamflow,

does not represent an increase in supply and may alter the surface

flow regime,
Ch. 1 l—Water Availability for Synthetic Fuels Development . 281

it is therefore difficult a priori to predict how and

which water “packages” will be assembled. Evidence suggests that the industry is conservative

in planning for a plant’s water resource needs in

order to ensure (both hydrologically and legally) that the plant obtains its minimum operating

requirements. As examples, developers can secure several different sources of supplies; estimates of resource needs will include a margin of

safety; and sources can be “guaranteed” by obtaining agreements not only with rights holders

but also with upstream appropriators and/or potential downstream claimants. Synfuels technology modifications should also be forthcoming

from the industry, if needed to reduce water

needs.

IMPACTS OF SYNFUELS DEVELOPMENT ON WATER AVAILABILITY

In the aggregate, water consumption requirements for synfuels development are small.

Achieving a synfuels production capability of 2

MMB/DOE would require on the order of 0.3 million acre-feet/year (AFY), which will be distributed

among all of the Nation’s major oil shale and coal

regions. This compares with an estimated (1975)

total national freshwater consumptive use of119

million AFY, of which about 83 percent is for

agriculture. ’ Table 81 shows the general hydrologic characteristics of the principal river basins

to be affected.

Although in the aggregate synfuels water requirements are small, each synfuels pIant, nevertheless, is individually a relatively large water consumer. Depending on both the water supply

sources chosen for a synfuels plant and the size

and timing of water demands from other users,

synfuels development could create conflicts

among users for an increasingly scarce water sup1 U.S. Water Resources Council, The Nation Water Resources—

1975-2000, December 1978. The assessment projects a total national freshwater consumption of 151 million AFY in 2000, of which

about 70 percent would be for agriculture.

ply or exacerbate conflicts in areas where water

is already limited or fully allocated. Sectors that

will be competing for water will vary among the

regions and will include both offstream uses (e.g.,

agriculture, industry, municipalities) and instream

uses (e.g., navigation, recreation, water quality

control, fish and wildlife, hydropower). Because

energy developers can afford to pay a relatively

high price for water, nonenergy sectors are not

likely to be able to compete economically against

synfuels for water. However, it is speculative to

identify which sectors may be the most vulnerable to synfuels development.

Public reactions to proposed water use change

and nonmarket mechanisms can be used to allocate and protect water for use by certain sectors

depending on the region and State. Examples of

nonmarket mechanisms include the assertion of

Federal reserved water rights, water quality legislation, and State water allocation laws. While

such mechanisms may prevent developers from

always obtaining all the water they need, the synfuels industry is expected to obtain the major portion of its water requirements.

Table 81 .—Regional Streamflow Characteristics 1975 a (millions acre-feet/year)

Consumption c

Mean annual streamflow b1975 2000 Low flow ratio d Low flow month

Ohio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199 2.0 4.9 0.15 September

Tennessee . . . . . . . . . . . . . . . . . . . . . . . . . 46 0.5 1.2 0.38 September

Upper Mississippi. . . . . . . . . . . . . . . . . . . 136 1.3 3.0 0.23 January

Upper Colorado. . . . . . . . . . . . . . . . . . . . . 11 2.7 3.6 0.12 July

Missouri . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 17.3 22.3 0.19 January

au,s, water ROSOUrCOS council (wRc), The P&Won Water ROSOUrCOS— 1975-.

%RC, table IV-1. Note that all these outflows are inflows to a downstream river basin.

CWRCj table 111.3,

dRatio of the annual flow of a Vew dw year (that flow which will be exceeded with a 95-percent probability in any Year) to the mean annual flow. WRC, table ‘V-2

SOURCE: US. Water Resources Council as tabulated by OTA.
282 ● Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

Photo credit: Office of Technology Assessment

Competing uses will increase pressures on the Nation’s water resources, especially in the arid West

The nature and extent of the impacts of synfuels development on water availability in general, and on competing water users, are controversial. The controversy arises in large part because

of the many hydrologic, institutional, legal, and

political constraints and uncertainties that will ultimately determine when, how, and if users will

be able to obtain the water they need. Furthermore, analyzing these constraints and uncertainties is difficult because of many additional complex factors: the lack of dependable and consistent data, limitations of demand-forecasting methods, time and budget constraints, and the unpredictability of future administrative decisions and

legal interpretations. In some cases, the uncertainties about water availability in general appear

to be so large that they overshadow the question

of how much water will be required for synfuels

development.

OTA’s study2 found that there was considerable

variation in the quality, detail, and scope of the

water availability assessments that have been

completed related to synfuels development. Few

studies take into account all of the issues that will

determine resource allocations and use; and studies rarely try to address the likely, cumulative

water resource impacts of alternative decisions

on reducing uncertainties and resolving conflict

among competing water users. Decision makers

need to be better informed about the assumpZwright Water Engineers, Inc., “Water Availability for Synthetic

Fuels,” prepared for the Office of Technology Assessment, June

1981.
Ch. n-Water Availability for Synthetic Fuels Development ● 2 8 3

tions and uncertainties upon which reports are

predicated, so that estimates can be properly interpreted and tradeoffs can be evaluated.

Some of the major uncertainties about water

availability for synfuels are discussed below. More

informed decisions on water availability questions, however, can only partially be achieved

by “improving” studies themselves; more informed decisions also depend on greatly improved water planning practices in general in the

Nation. The present fragmentation of responsibilities for water policy, planning, and management

effectively prevents an assessment of the cumulative impacts of water resource use on an ongoing

and comprehensive basis. *

*The fragmentation of water-related responsibilities among agencies, States, and levels of governments arises in large part because

river system boundaries rarely coincide with political boundaries.

As a result, there can be major inconsistencies in water management practices across the country (e. g., inconsistent criteria for

evaluation; the lack of integrated planning—including data

management—for ground and surface waters, water quality and

quantity, and instream and offstream uses).

WATER AVAILABILITY AT THE REGIONAL LEVEL

Eastern River Basins

In the principal eastern basins where energy

resources are located (i.e. Ohio, Tennessee, and

the Upper Mississippi), water should be adequate

on the mainstems and larger tributaries, without

new storage, to support planned synfuel development.3 However, localized water scarcity problems could arise during abnormally dry periods

or due to conflicts in use on smaller tributaries.

The severity and extent of local problems cannot be fully ascertained from existing data and

have not yet been examined comprehensively, *

but, with appropriate water planning and management, these problems should be reduced if

not eliminated.

There are, nevertheless, various uncertainties

in the eastern basins that will influence water

availability for synfuels development, and difficult

local situations could arise.4 For example, 7-day,

10-year minimum low flows are used to estimate water availability. * * These estimates are

essentially based on recorded streamflow data

— .

3 —

1 bid.

“For example, available reports related to ynfuels for the Tennessee River Basin generally deal with specific project sites; the sparsity of comprehensive information with respect to cumulative impacts and possible water use conflicts is presumably because of

the large quantities of water available at the regional level. The Ohio

River Basin Commission study focuses on water availability for plants

located on the mainstem, even though there are facilities being proposed for tributaries.

* *The use of the 7-day, 10-year minimum flow in the East is also

the basis for water quality regulations and for estimating critical conditions for navigation in rivers with limited storage.

which can be of varying quality. Furthermore, by

using historical streamflow records directly,

reports on water availability in the eastern basins

characteristically underestimate the frequency of

future critical low flows; i.e., as flow depletions

increase in the future, the critical flow associated

with the 7-day, 10-year frequency will actually

occur more often in the future than the historical

data would indicate.

The political, institutional, and legal factors that

will determine water availability for synfuels in

the eastern basins differ in type and complexity

from those in the western basins. For example,

the East and West have different regional hydrologic characteristics, with the East being relatively

humid. There are also varying legal and administrative structures as shown in figures 25 and 26:

riparian water law is generally applied in the East

whereby riparian landowners are entitled to an

equal, “reasonable” use of adjacent streamflow;

the prior appropriation doctrine is generally applied in the West whereby water rights are based

on “beneficial” use with priorities assigned according to “first in time, first in right. ” Furthermore, in the East there is a general lack of treaties

and compacts, and there are no major Federal

(including Indian) reserved water rights questions.

Although water may thus appear to be more

readily available for synfuels development in the

East (e.g., through the transfer of ownership of

riparian land), eastern water law can result in

significant uncertainty concerning the dependability of the supply: because all users have equal
284 . Increased Automobile Fuel Efficiency and Synthetic fuels: Alternatives for Reducing Oil Imports

Figure 25.– The Nation’s Surface Water Laws

“Riparian only applies to lakes: Washington

““Riparian with permit system: Delaware

I

Arkansas

Texas

—

Louisiana

~/ 

Florlda

Combination

appropriation/riparian

Riparian with permit system

Appropriation doctrine

Riparian doctrine

SOURCE: U.S. Water Resources Council, (The Ncrtiorr’s Water Resources 7975-2000, vol. 2, pt. iv, P. 118).

Figure 26.— The Nation’s Ground Water Laws

Nebraska

SOURCE: U.S. Water Resources Council, (The Afafiort’s Water Resources 197%?000, vol. 2, pt. iv, p. 118).
Ch. n-Water Availability for Synthetic Fuels Development Ž 285

rights under riparian law, the law does not protect given users against upstream diversions or

against pumping by adjacent wells. * Uncertainty also arises because eastern water law has not

been as well advanced through court tests as in

the West. There are also questions in the East

concerning the availability of water from Federal storage (i.e., in the Ohio River Basin) because

of uncertainties regarding who has responsibility

for marketing and reservoir operation.

The Western River Basins

Competition for water in the West already exists and is expected to intensify with or without

synfuels development. There are potential

sources of supply in both the Upper Colorado

and the Missouri River basins that could support

synfuels development. However, the issues determining whether and the extent to which these

sources will be available for use differ between

the two basins. These issues concern complex

State water allocation laws, compacts and treaties, Federal including Indian reserved water rights

claims, and the use of Federal storage. In addition, the use of “mean annual virgin flows” in

both regions to characterize the hydrology results

in the masking of important elements of hydrologic uncertainty.** However, and in contrast

with the situation in the East, although the complex water setting in the West will probably make

*For example, Federal storage has not yet been utilized in Illinois

because delivery of the water from the reservoirs (e.g., to the synfuels plants) cannot be guaranteed along the river; riparian landowners along the way could intercept the released water. Energy

companies are thus faced with having to build private pipelines.

**The accuracy of mean annual virgin flows is uncertain due to

possible inaccuracies in the underlying data both on streamflows

and on depletions. (Depletions are usually not measured directly

for practical reasons.) Furthermore, virgin flow estimates are treated

as both deterministic and stationary, rather than as time-varying,

which prevents the variability of streamflows from being addressed

accurately in areas lacking sufficient storage. Estimates of the mean

annual virgin flow for the Colorado River at Lees Ferry vary from

12.5 million to 15.2 million acre-feet depending on the assumptions (in this case, the period of the historical record) used.

In general, the use of aggregated data, in the form of regional

and basinwide averages, will mask the local and cumulative downstream effects of development on water availability. Such data do

not provide information about either the seasonal variability of

streamflows and demands or the relative positioning and hence

interrelationships among users. These factors are important for identifying potential competition for water, especially in areas where

water is scarce and subject to development pressures, as will often

characterize locations for synfuels development.

obtaining water difficult, the user will be more

assured of a certain supply once a right is obtained. s

Missouri River Basin

The magnitude of the institutional, legal, political, and economic uncertainties in the Missouri

River Basin, together with the need for major new

water storage projects to average-out seasonal

and yearly streamflow variations, preclude an unqualified conclusion as to the availability of surface water resources for synfuels development.b

Ground water resources are not well understood

in the basin, but are not likely to be a primary

source of water for synfuels.

Major coal deposits for synfuels development

in the Missouri River Basin lie within and adjacent to the Yellowstone River subbasin. The availability of water for synfuels from the Yellowstone

subbasin, however, could be constrained by the

provisions of interstate compacts, i.e., the

Yellowstone River Compact. For example, at

present all signatory States must approve any

water exports from the basin (e.g., to the coalrich Belle Fourche/Gillette area where water is

scarce). Although export approval procedures are

now being challenged in court and States have

begun to modify approval procedures, such approvals are likely to take some time. Furthermore,

additional storage would likely be required to

develop fully the compact allocations.

Federal reserved water rights are often senior

rights and have the potential of preempting current and future uses. These rights, however, have

yet to be quantified and are a major source of

uncertainty for water planning. The largest single

component of Federal reserved rights are Indian

water rights. There is a general lack of quantitative

data concerning Indian water rights because of

political controversy over which jurisdictions

should be adjudicating the claims, varying interpretations of the purposes for which water rights

reservations can be applied, and ongoing litigation.7

‘Ibid.

61~id.

The only “official” Government estimates of Indian reserved water rights project depletions (i.e. requirements) of 1.9 million acre-

(continued on next page)
286 . Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

Other major uncertainties that could effect the

availability of water for synfuels concern State water allocation laws. For example, Montana has

established instream flow reservations in the

lower-Yellowstone River of 5.5 million AFY to

protect future water quality and wildlife. Over

500,000 AFY have also been reserved in the basin

for future municipal and irrigation use. Additional

storage would be required to meet these reservations during years of low flow, but Montana State

officials generally do not advocate the construction of new mainstem storage, even if instream

flow shortages were to occur otherwise, as this

would interfere with the free-flowing nature of

the river.8 9 No determination has yet been made

as to how these instream flow reservations would

be accommodated under the Yellowstone Compact.

The transferring of water rights from existing

(e.g., agricultural) to new (e.g., synfuels) uses in

Montana is subject to administrative restrictions

under primarily the 1973 Water Use Act, and

State environmental and facility siting acts.10 Because of these restrictions, water rights are not

freely transferable from existing users, and, in effect, there is presently no economic market for

rights transfers.

State water laws and statutory provisions in

other Upper Basin States similarly could constrain

water rights transfers to synfuels.11 As examples,

water for irrigation takes precedence in these

States over water for energy development, and

the “public interest” is to be explicitly considered

feet for the year 2020 in the Yellowstone. (U.S. Department of interior, Water for Energy Management Team, Report on Water for

Energy in the Northern Great Plains With Emphasis on the

Ye//owstone River Basin, January 1975.) A lower estimated value

of 0.5 million acre-feet appeared in a 1960 background paper (for

a larger framework study of the Missouri River Basin) by the Bureau

of Reclamation. For a detailed discussion of Indian reserved water

rights, the reader is referred to Constance M. Boris and John V.

Krutilla, Water Rights and Energy Development in the Yellowstone

River Basin, Resources for the Future, 1980.

BWright Water Engineers, Inc., op. cit.

9Personal communications, Department of Natural Resources and

Conservation, State of Montana.

IOFor a detailed discussion of State water allocation laws See Grant

Gould, State Water Law in the West: /mp/ications for Energy DeveL

opment, Los Alamos Scientific Laboratory, Los Alamos, N. Mex.,

January 1979.

I I Ibid.

in approving water allocations. Alternatively,

other laws could work to the disadvantage of

nonenergy sectors, such as navigation in the Missouri region under the Federal Flood Control Act

of 1944 (33 USC 701 -(b)).

Many of the water availability issues in the Missouri River Basin cannot be adequately evaluated

because of a lack of supporting data and case law

interpretations. Figure 27 illustrates the possible

magnitude of uncertainty by superimposing the

major projected consumptive uses (excluding

synfuels) onto the availability of water in the

Yellowstone River. As can be seen, assuming a

low total estimated demand growth scenario, demands would not be met in a dry year without

additional storage. Assuming a high-growth scenario, not only would demands not be met in a

dry year without storage, but they would also exceed the average annual flow with additional

storage.

Upper Colorado River Basin

Although water may not be available in certain

tributaries and at specific sites, sources of water

Figure 27.–Streamflows and Projected Increased

Incremental Water Depletions, Yellowstone River

at Sidney, Mont.

1975 1985 2000

Year

SOURCE: “WaterAvailability for Synthetic Fuels,” Wright Water Engineers, Inc.,

contractor report to OTA, June 5, 1981.
Ch. n-Water Availability for Synthetic Fuels Development . 287

generally exist in the Upper Colorado River Basin

that could be made available to support OTA’s

low and high estimates of oil shale development

through at least 1990. * However, the institutional, political, and legal uncertainties in the basin

make it difficuIt to determine which sources

would be used, the actual amount of water that

wouId in fact be made available from any source

to support synfuels development, and thus the

water resource impacts of using any source for

synfuels on other water users. Until major components of these uncertainties are analyzed quantitatively and start to become resolved, the extent to which synfuels production can be expanded beyond a level of several hundred thousand barrels/day (i. e., about 125,000 AFY) cannot be estimated with confidence.12

One potential source of water supply for synfuels is storage from Federal reservoirs. For example, approximately 100,000 AFY could be made

available for synfuels from two Federal reservoirs

on the western slope of Colorado (Ruedi and

Green Mountain). However, the amount of water

available is uncertain because of questions regarding firm yields, contract terms for water sales,

which purposes are to be served by the reservoirs, competing demands, the marketing agent,

and operating policy.

Under State water laws, water rights throughout

the basin—in Colorado, Utah, and Wyoming—

can generally be transferred (e. g., from agriculture) via the marketplace (i. e., sold) to synfuels

developers who can afford to pay a relatively high

price for water.13 The degree to which developers

rely on such transfers will determine the subsequent economic and social impacts on the users

being displaced and, in turn, on the region. * The

transfer process, however, is time-consuming and

*The low estimate for shale oil production in 1990 (see ch. 6)

implies a range of annual water use of 20,000 to 48,000 acre-feet;

the high estimate implies a range of 40,000 to 96,000 acre-feet. By

2000, annual water requirements would be, respectively, 50,000

to 120,000 acre-feet, and 90,000 to 216,000 acre-feet.

I Zwright Water Engineers, ! nc., OP. cit.

‘JGould, op. cit.

“irrigation requirements are determined by many factors, including climate, crop, irrigation methods, etc. Assuming that agriculture

consumes 1.5 to 2.5 acre-feet/acre in the Rocky Mountain area,

an average oil shale plant consuming 8,500 AFY would need to

acquire water rights applicable to about 3,4oo to 5,7oo irrigated

areas.

legally cumbersome, is constrained under State

water law by the nature of the original right, and

is subject to political and legal challenge.

Some provisions of the laws and compacts governing water availability to the States within the

basin will not be tested and interpreted until

water rights in the basin are fully developed. For

example, procedures and priorities have not yet

been developed for limiting diversions among the

Upper Basin States when downstream commitments to the Lower Basin, under the Colorado

River Basin Compact, cannot otherwise be met.

There is also controversy about whether the Upper Basin States as a whole will be responsible

for providing any of the 1.5 million AFY commitment to Mexico under the Mexican Water Treaty of 1944-45. Individual States within the basin,

such as Colorado, have generally not yet developed procedures and priorities for internally administering their downstream delivery commitments for when the basin becomes fully

developed; thus, the impacts of a State’s allocation of available water to individual subbasins and

users within that State, such as synfuels, cannot

yet be determined. State water law also generally evolves through individual court cases, so that

the cumulative effects of development are not

known.

There are generally no institutional or financial

mechanisms for obtaining water for synfuels, either through conservation or through increased

efficiency in water use in other sectors, as in other

parts of the country. In Colorado, for example,

changes in agricultural practices to increase water

efficiency are likely to be challenged legally, since

downstream water rights appropriators are entitled to return flows resulting from existing albeit

inefficient practices. It has been reported that

basin exports for municipal uses could be reduced by as much as 200,000 to 300,000 AFY

with improved water use efficiency .14

Other uncertainties that affect water availability

for synfuels in the area include: Federal reserved

water rights (e. g., for the Naval Oil Shale Reserve

IAoffice of the Executive Director, Colorado Department of Natural Resources, The Availability of Water for Oil Shale and Coal Gasification Development in the Upper Colorado River Basin, Upper

Colorado River Basin 13(a) Assessment, October 1979.
288 . Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

at Anvil Points, Colo.) have not yet been quantified; storage would have to be provided in the

White River Basin (where the Uinta and Piceance

Creek oil shale reserves are located) but prime

reservoir sites are located in designated wilderness areas; there is as yet no compact between

Colorado and Utah apportioning the flows of the

White River; and in Colorado, in order to develop

much of the deep ground water in the Piceance

Basin, oil shale developers must prove that the

ground water is nontributary, for which data are

often lacking and difficult to obtain. The resolution of the uncertainties in the Upper Colorado

could limit large-scale synfuels growth as illustrated in table 82, but “even at these highly aggregated levels for the entire Upper Colorado

River Basin, the confidence limits or ranges that

are placed on estimates of water availability are

so broad that they tend to (overshadow) the

amount of water needed for synfuels

development.” 15

Wright Water Engineers, Inc., op. cit., p. IV-38.

Table 82.—Preliminary Quantification of

Uncertainties With Respect to Water Availability

in the Upper Colorado River Basin

Annual amount available for consumption

(millIons of acre-feet) a

12.5 -15.2

Subtract 7.5

5.0 -7.7

Subtract 0.75

4,25-6.95

Subtract .65

Estimates of mean annual flow

of the Colorado River at

Lees Ferry

Required delivery to the Lower

Basin

Estimate of the Upper Basin’s

Mexican Treaty obligation

Estimated annual reservoir

evaporation from Flaming

Gorge, Lake Powell, and the

Curecanti Unit Reservoirs

Total 3.60-6.30

Annual projected consumptive demands

(millions of acre-feet) In 2000 b

Total 4.10-4.78 (excluding synfuels)

Total 4.15-4.90 (including OTA low estimates for oil

shale c

)

Total 4.19-5.00 (including OTA high estimates for oil

shale c

)

ams not nl~e ~lowmces for the quantlflcatlon of Federal reserved water rights

cleims (the Naval Oil Shale Reserve at Anvil Points has claimed, for exempie,

200,01Xl AFM. the effect of Dotentlai environmental constraints (e.ci.. saiinity

coniroi, prot~tion of endangered species), or the availability of F~er~’storage.

bEstlmates ~ for 2ocm and exclude synfuels development (@iorado @Partment

of Natural Resources, Section 13(a) Assessment of the Upper Coiorado River

Basin; 1975 estimate = 3.12 maf). instream uses are not inciuded.

cThe low estimate for shale oil production in 1990 (see ch. 6) imPlies a ran9e

of annuai water use of 20,000 to 48,000 acre-feet; the high estimate implies a

range of 40,000 to 98,tXXl acre-feet. By 2000, annual water requirements wouid

be, respectively, 50,000 to 120,000 acre-feet, and S,000 to 216,000 acre-feet.

SOURCE: OTA based on Wright Water Engineers, Inc.
Index
Index

Aamco Transmissions, 202

alcohols, 99, 269-270

American Motors (AMC), 107, 202

Arizona Public Service Co., 249

Arthur Anderson & Co., 199

asphalt, 78

automobile industry

auto repair facilities (table), 201

capital intensiveness of, 42, 48, 60

conduct of manufacturers, 197-198

economic impacts of change in, 195-203

employment in, 220-223

financing of capital programs in, 130-131

links to foreign companies, 196-197

location of parts-supplier plants (table), 224

manufacturing structure of, 196-197

occupational and regional issues in, 223-225

problems of, 40-41

prospects for, 202-203

rate of change in, 133

sales and service segment of, 200-202

structural readjustments in, 7, 40

suppliers for, 198-200

vertical integration in, 133

Booz-Allen & Hamilton, 199

Brayton engine, 144-145

Bureau of Labor Statistics, 220

Bureau of the Census, 220

CAFE (see Corporate Average Fuel Efficiency)

Carter administration, 50

Chrysler Corp., 12, 53, 130, 196, 197, 198, 202, 221

coal

acid drainage from mining, 251-252

aquifer disruption from mining, 252

direct liquefaction of, 163-165

indirect liquefaction of, 161-163

mining for synfuels, 204-205

occupational hazards of mining, 252-253

subsidence from mining, 252

Colony Oil Shale Project, 232

Colorado Department of Local Affairs, 232

Colorado River Basin Compact, 287

Colorado West Area Council of Governments, 228

Congress

acts of (see legislation)

Congressional Budget Office (CBO), 140

Congressional Research Service (CRS), 63, 159

policy options for (see policy options)

proposals on environmental and safety regulation, 56

Senate Committee on Commerce, Science, and Transportation, 31

water resources and, 58

conservation, 83, 184, 188-198

Corporate Average Fuel Efficiency (CAFE), 3 ( 9, 13, 30, 31,

36, 41, 50, 55-56, 60, 61, 105 { 106, 120

Data Resources, Inc., 202

Delphi survey, 199

Department of Commerce, 223

Department of Energy (DOE), 4, 9, 10, 43, 44, 54, 57, 58,

96, 183, 253, 255, 262, 263

Department of Housing and Urban Development (HUD),

59, 62

Department of Labor, 222

Department of Transportation, 129, 135, 196, 199, 220, 221

222, 223, 243

Department of the Treasury, 43

Eaton Corp., 199

Economic Development Administration, 59

electricity, 186

electric vehicles, 3, 41, 71, 74, 219, 250

battery-electric and hybrid, 117-120

cost compared to synfuels (table), 77

cost to consumers, 5, 141-142

effects on fuel consumption, 128-129, 150, 153

and electric utilities, 149-153, 245-246

environmental effects of, 7, 24, 84, 85, 245-248

impact on oil imports, 5

occupational and public health risks of, 247-248

prospects for, 24, 94-95

resources requirements for, 246-247

safety of, 24-25, 247

Energy information Administration (EIA), 22, 30, 37,69, 73,

184, 185, 186, 189

Energy Mobilization Board, 57

Engineering Societies’ Commission on Energy (ESCOE), 170

Environmental Protection Agency (EPA), 10,41, 57, 58,93,

96, 121, 124, 239, 254, 262, 263, 264, 270

environment, health, and safety, 58, 60, 84

air quality, 244-245, 254-256

coal liquefaction and, 253-261

effects of auto fuel conservation on, 237-245

effects of diesel fuel on, 84

effects of energy alternatives on, 84-85

effect of fuel efficiency on, 15

effect of policy options on, 56-58

electric vehicles and, 7, 24, 84, 85, 247-248

emissions characteristics of alternative engines (table), 245

future trends in auto safety, 240-242

gaseous emissions and controls (table), 271

gaseous streams, components, and controls (table), 274

impacts of fuel efficiency and synfuels compared, 83-85

liquid stream sources, components, and controls (table),

275

liquid waste stream sources, components, and controls

(table), 272

small v. large cars, 7, 92-93, 237-242

solid waste sources, components, and controls (table), 275

solid waste stream sources, components, and controls

(table), synfuels and, 7, 248-270

environment (see environment, health, and safety)

EPA (see Environmental Protection Agency)

291
292 . Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports

ESA (see legislation, Energy Security Act)

ethanol, 179, 263-269

EVs (see electric vehicles)

Exxon, 30, 186, 208

Exxon Donor-Solvent (EDS) process, 20, 164

Fatal Accident Reporting System (FARS), 238, 241, 242

Fischer-Tropsch process, 163

Ford administration, 46

Ford Motors, 12, 15, 130, 132, 196, 197, 202, 221

fuel consumption

estimates for 1985-2000, 126-130

of passenger cars, 126-128

of vehicles other than passenger cars, 129-130

fuel efficiency

accessories and, 149

advantages of, 60

aerodynamic drag and, 148-149

automobile technologies and, 108-120

by car class size, 93, 123-126

costs to consumers, 79-80, 139-141

costs of improving, 12-14, 75-77, 130-142

demand for, 93-94

economic impacts of, 14-15, 71, 87-89

effects on communities, 86

effects on employment, 86, 87-88

effects on environment, health, and safety, 15

features of, 38-40

Federal role in, 37-38

growth of, 9, 10, 11-12, 36, 40-41, 105-107, 120-126,

142-149

and health of the auto industry, 89-90

investments in, 131-135

policy background of, 41-42

potential in 1995 (table), 56

potential for a 75-mpg car, 90-91

rolling resistance and, 149

social impacts of, 15, 86, 219-225

stimulation of, 3

tradeoffs with safety and emissions, 113-115

vehicle weight and, 146-148

fuel gases

from biomass, 168

fuel switching, 83, 184, 185-188

cost estimates of (table), 78

gasifiers, 163

gasoline

from methanol, 163

taxes on, 47

gas turbine, 144-145, 244

General Agreement on Tariffs and Trade (GATT), 49, 51

General Motors, 12, 15, 90, 130, 133, 139, 196, 197, 198,

199, 202, 221, 223, 242

hazards (see environment, health, and safety)

health (see environment, health, and safety)

Honda, 53

Insurance Institute for Highway Safety (IIHS), 238, 239,240

legislation

Clean Air Act, 58, 244, 263

Clean Water Act, 263

Economic Recovery Tax Act, 131

Energy Policy and Conservation Act, 30, 35,41, 105, 106,

108

Energy Security Act, 31, 35, 42, 53

EPCA (see Energy Policy and Conservation Act)

Federal Coal Mine Health and Safety Act, 253

Federal Flood Control Act, 286

Federal Nonnuclear Research and Development Act, 43

Fuel Efficiency Act, 41

Fuel Use Act, 35, 62

National Energy Act, 42

Powerplant and Industrial Fuel Use Act, 30-31

Resources Conservation and Recovery Act, 260, 263

Safe Drinking Water Act, 263

Surface Mine Control and Reclamation Act (SMCRA), 250,

251, 252

Trade Act, 59, 221

Trade Expansion Act, 221

Water Use Act, 286

liquefied petroleum gas (LPG), 78

methanol, 163, 179, 209, 269

Mexican Water Treaty, 287

Michigan Manufacturers Association, 199

Midas Muffler, 202

Middle East War, 67

Moody’s Investors Service, Inc., 224

National Accident Sampling System, 239

National Crash Severity Study, 239

National Electric Reliability Council, 187

National Highway Traffic Safety Administration (NHTSA),

15, 41, 84, 92, 237, 238, 240, 243

National Petroleum Council, 186

national security, 37

National Synfuels Production Program (NSPP), 42, 43, 56

New England Electric Co., 62

Nissan Motors, 223

NSPP (see National Synfuels Production Program), 42

Occupational Safety and Health Administration (OSHA), 10,

41, 97, 263, 264

Office of Surface Mining, 10

Office of Technology Assessment (OTA), 3, 4, 5, 6, 8, 35,

36, 37, 42, 43, 45, 47, 53, 60, 69, 70, 71, 74, 75, 77,

78, 88, 94,98, 113, 121, 122, 123, 124, 131, 136, 140,

170, 179, 185, 189, 190, 233, 237, 238, 240, 241, 250,

254, 262, 266, 268, 282, 287

oil

cost of reducing consumption of, 23-24, 74-79

decline in U.S. production of, 30, 35

depletion of reserves of, 67

displacement of imported, 8-10, 35-37, 44-61

and foreign policy, 69
Index . 293

imported, 3, 5, 67-69

import levels in absence of synfuels and fuel-efficiency

increases (table), 70

and military outlays, 69

production of gas and, 74-75

quotas on imported, 49-50

reductions in consumption of (table), 70

refining capacity (table), 159

refining processes, 157-158

from shale, 99, 209

stationary uses of, 5, 22-24, 78, 183-191

supply interruptions, 68-69

taxes on imported, 46-47

in transportation (table), 184

Organization of Petroleum Exporting Countries (OPEC), 46

OTA (see Office of Technology Assessment)

petrochemicals, 78

petroleum (see oil)

policy options, 35-63

bounties for higher fuel economy, 51

conservation, 62

dimensions of, 44-45

economywide, 45, 48-49

effect on environment, health, and safety, 56-58

fuel conversion, 62

general, 62

loan guarantees and grants, 53-54

methanol promotion, 52, 54-55

purchase and price guarantees, 54

purchase taxes and subsidies, 50-51

registration taxes on automobiles, 51-52

regulation, 55-56

research and development, 48-49

sector-specific, 45-46

social costs and benefits of, 8, 58-60

subsidies and guarantees, 52-53

taxation of fuels, 8, 46-48

trade protection, 49-50

Rand Corp., 171

research and development, 48-49, 130-131, 137, 139, 144,

200

costs in 1980, 130

Robogate Systems, Inc., 221

safety (see environment, health, and safety)

SFC (see Synthetic Fuels Corp.)

shale, 165-167, 204-205, 266-268

Solar and Conservation Bank, 62

Solar Energy Research Institute (SERI), 187, 189, 190

still gas, 78

Stirling engine, 144-145

synfuels

advantages of, 60

alcohols, 99

from biomass, 85, 167-168, 179-180, 268-270

capital intensiveness of, 42, 48, 57, 60

characteristics of (table), 265

from coal, 99-100, 161-165, 204-205

commercial-scale process units (CSPUs), 43, 44

compatibility with existing end uses, 99-101

constraints on development of, 42, 176-177, 209-216

costs of, 17-18, 81-83, 168-175

definition of, 157

demonstration projects, 43-44

development of an industry for, 175-180

economic impacts of, 7, 18-19, 87-89, 203-216

effects on communities, 86

and employment, 86, 87-88, 226-227, 257

environment, health, and safety effects, 19-21, 85, 95-98,

254-256, 258-261

environmental management of, 261-264

ethanol, 167, 268-269

from fossil sources, 177-179

fuel gases, 165

growth management, 233

impacts on the private sector, 230-231

impacts on the public sector, 231-233

industrial structure of, 204-205

investment costs, 77-78

and local population growth, 227-230, 257

manufacturing processes, 16, 160-168

methanol, 115-117, 142, 167, 269

oil import reductions and, 4-s

from oil shale, 165-167, 266-268

policy background of, 42-44

principal products (table), 160

production rate, 9, 16-17, 36-40, 42

projects on Indian lands, 233

project types, 43-44

regional distribution of income from, 89

social impacts of, 7, 19, 86, 225-233

transportation, wholesaling, and retailing, 207

water for, 7, 31, 58, 98-99, 256-257, 279-288

Synthetic Fuels Corp. (SFC), 3, 8, 18, 31, 43, 44, 53, 58

synthetic fuels (see synfuels)

tax credits, 48

transmissions, 145

United Auto Workers, 221

Volkswagen of America, 53, 107, 221, 241

water availability, 21-22, 31

Eastern river basins, 22, 283-285

Indian water rights, 285

Missouri River Basin, 22, 285-286

Upper Colorado River Basin, 22, 286-288

Western river basins, 285

Yellowstone River Compact, 285, 286

U . S , GOVERNMENT PRINTING OFFICE : 1982 0 - 98-281 : QL 3