Replacing Gasoline: Alternative Fuels for

Light-Duty Vehicles

September 1990

OTA-E-364

NTIS order #PB91-104901
Recommended Citation:

U.S. Congress, Office of Technology Assessment, Replacing Gasoline: Alternative Fuels for

Light-Duty Vehicles, OTA-E-364 (Washington, DC: U.S. Government Printing Office,

September 1990).

For sale by the Superintendent of Documents

U.S. Government Printing Office, Washington, DC 20402-9325

(order form can be found in the back of this report)
Foreword

Among the several major issues that Congress has addressed in the process of

reauthorizing the Clean Air Act, the future role of alternative highway transportation fuels in

reducing urban smog is one of the more prone to argument. Past attempts to reduce pollution

levels from highway vehicles have focused primarily on the vehicles themselves; adjustments

to fuels were considered mainly when these were necessary to allow vehicular controls to work

(eliminating lead from gasoline was necessary to avoid poisoning the catalytic converters on

the vehicles). As vehicular emissions control efficiencies rose past 90 percent and further

improvements became more difficult, however, attention turned to the idea that some

alternatives to gasoline have combustion and/or other physical and chemical properties that

might allow the achievement of ultra-low emissions levels. The fuels of interest include

methanol (wood alcohol), ethanol (grain alcohol), natural gas, electricity, and hydrogen.

In this report, requested by the House Committee on Energy and Commerce and the

Senate Committee on Energy and Natural Resources, which is part of OTA’s ongoing

assessment of Technological Risks and Opportunities in Future U.S. Energy Supply and

Demand, OTA gives a broad overview of the qualities of the competing fuels and examines

in depth some of the most contentious issues associated with the wisdom of active Federal

support for introducing the fuels. Areas of uncertainty that affect the debate on Federal support

include fuel cost (including costs of building new infrastructure and modifying vehicles); the

air quality effects of the new fuels; effects on energy security; other environmental impacts

of the fuels; and consumer acceptance of the changes in vehicle performance, refueling

procedures, costs, and other facets of the transportation system that would follow a large-scale

introduction of any of the fuels. The report singles out for special examination the arguments

concerning the costs, energy security implications, and air quality impacts of introducing

methanol fuels into the fleet. However, the other fuels have similar levels of uncertainty and

contentiousness.

As this report goes to press, the oil-driven crisis in the Middle East mounts daily and

could erupt at any time into major conflict. Alternative fuels will play a minor-to-negligible

role in near-term responses to that situation, because the time required to make fundamental

changes in our energy supply and demand require years, if not decades. In the longer term,

however, if the United States desires to take advantage of the opportunities with alternative

fuels to reduce the likelihood and impacts of future such events of armed conflict or to

capitalize on the potential substantial environmental advantages inherent in these fuels, we

must adopt a sensible, long-term national investment commitment to effect those changes.

w Directo r
Replacing Gasoline: Alternative Fuels for Light-Duty Vehicles—

Advisory Panel

John Sampson Toll, Chairman

University of Maryland

James H. Caldwell, Jr.

ARCO Solar, Inc.

Daniel A. Dreyfus

Gas Research Institute

Frederick J. Ellert

General Electric Co.

David R. Johns

David R. Johns Real Estate Group

David Lee Kulp

Ford Motor Co.

Jessica Mathews

World Resources Institute

Edward H. Mergens

Shell Oil Co.

Nathan Rosenberg

Stanford University

Edwin Rothschild

Citizen/Labor Energy Coalition

Milton Russell

University of Tennessee

Maxine Savitz

Garrett Ceramic

Charles A. Berg

Northeastern University

Robert Wallace

Peabody Holding Co.

Jack W. Wilkinson

sun co., Inc.

Robert Williams

Princeton University

Mason Willrich

Pacific Gas and Electric Co.

NOTE: OTA appreciates and is grateful for the valuable assistance and thoughtful critiques provided by the advisory panel members.

The panel does not, however, necessarily approve, disapprove, or endorse this report. OTA assumes full responsibility for the

report and the accuracy of its contents.

iv
OTA Project Staff—Replacing Gasoline: Alternative Fuels for

Light-Duty Vehicles

Lionel S. Johns, Assistant Director, OTA

Energy, Materials, and International Security Division

Peter D. Blair, Energy and Materials Program Manager

Project Staff

Steven E. Plotkin, Project Director

Administrative Staff

Tina Brumfield Lillian Chapman Linda Long

Contributors

Rosina Bierbaum, OTA Oceans and Environment Program

Robert M. Friedman, OTA Oceans and Environment Program

Jana B. Milford, University of Connecticut

Contractor

Energy & Environmental Analysis, Inc., Arlington, VA
Reviewers

David Greene

Oak Ridge National Laboratory

Mark DeLuchi

University of California, Davis

Daniel Sperling

University of California, Davis

James Mackenzie

World Resources Institute

Edward H. Mergens

Shell Oil Co.

David Lee Kulp

Ford Motor Co.

Eugene Eklund

12907 Asbury Drive

Dave Gushee

Library of Congress

Daniel J. Townsend

ARCO Products Co.

Michael Jackson

Acurex Corp.

Carl Moyer

Acurex Corp.

William J. Schumacher

SRI International

Dixon Smith

Chevron U.S.A. Inc.

Bruce Beyaert

Chevron U.S.A. Inc.

Paul Holtberg

Gas Research Institute

Charles L. Gray, Jr.

U.S. Environmental Protection Agency

Phil Lorang

U.S. Environmental Protection Agency

Julie Hayden

U.S. Environmental Protection Agency

Robert Bruetsch

U.S. Environmental Protection Agency

J. Dillard Murrell

U.S. Environmental Protection Agency

David Bartus

U.S. Environmental Protection Agency

Jerrold L. Levine

Amoco oil co.

Terry Reuner

Amoco oil co.

Thomas J. Lareau

American Petroleum Institute

Alan C. Lloyd

South Coast Air Quality Management District

Michael Kelly

Jensen Associates, Inc.

Christopher Flavin

Worldwatch Institute

Nicholas Lenssen

Worldwatch Institute

John Young

Worldwatch Institute

Harry Schwochert

General Motors Corp.

Margaret A. Walls

Resources for the Future

Robert Williams

Princeton University

Joan Ogden

Princeton University

Brad Holloman

New York State Energy Research and Development

Authority

Eric Vaughan

Renewable Fuel Association

Gordon Allardyce

Chrysler Motors

Barbara Goodman

Solar Energy Research Institute

Tom Cackette

California Air Resources Board

Jana Milford

University of Connecticut

K.G. Duleep

Energy and Environmental Analysis, Inc.

Thomas Bull

Food and Drug Administration

Glyn Short

ICI General Chemicals

Robert P. Howell

19 Elkin Court

vi
Contents

Page

Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

OVERVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Meeting Society’s Goals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Other Key Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

SUMMARY AND CONCLUSIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Perceived Benefits of Alternative Fuels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Introducing Alternative Fuels Into the Light Duty Fleet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Chapter I. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....**

Chapter 2. Why Support Alternative Fuels? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

OZONE CONTROL IN PERSPECTIVE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Why Control Ozone? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Ozone and Its Precursors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Controlling Volatile Organic Compounds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Controlling Nitrogen Oxides . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Role of Alternative Fuels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ENERGY SECURITY IN PERSPECTIVE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Should Energy Security Be a Major Concern for U.S. Policymakers? . . . . . . . . . . . . . . . . . . . . . . . . .

Energy Security Effects of Alternative Fuels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

THE GREENHOUSE EFFECT IN PERSPECTIVE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

Key Uncertainties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Benchmarkarming: The Effect of Doubled Cob . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Reducing C02 Emissions in the Near-Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Transportation Sector and Global Warming . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

U.S. Transportation Energy Use and CO2 Emissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1

1

3

4

4

6

11

23

31

31

32

33

34

40

40

42

42

48

49

49

50

53

53

54

55

Alternative Fuels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

Chapter 3. Substituting Methanol for Gasoline in the Automobile Fleet . . . . . . . . . . . . . . . . . . . . . . .

EFFECTS 0N AIR QUALITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Organic Compounds and Ozone Reduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Nitrogen Oxides (NOX) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Carbon Monoxide . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Toxic Emissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Greenhouse Emissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . .

OTHER ENVIRONMENTAL/SAFETY EFFECTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

COST COMPETITIVENESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

INFRASTRUCTURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ENERGY SECURITY IMPLICATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

METHANOL OUTLOOK AND TIMING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

APPENDIX 3A: FACTORS AFFECTING METHANOLCOSTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Feedstock Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Production Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Capital Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . .

Long-Distance Shipping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . .

Distribution Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Retail Markup . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Methanol/Gasoline Conversion Factor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Chapter 4. Natural Gas as a Vehicle Fuel . . . . . . . . ......*** ....****. . . . . . . . . . ● . . . . . . . . . . . . . . . .

VEHICLES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

EFFECTS ON AIR QUALITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

SAFETY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

COST COMPETITIVENESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

SOURCES OF SUPPLY AND STRATEGIC CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . .

REFUELING AND INFRASTRUCTURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

NATURAL GAS OUTLOOK AND TIMING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Chapter 5. Ethanol as a Gasoline Blending Agent or Neat Fuel in Highway Vehicles . . . . . . . . . . .

EFFECTS ON AIR QUALITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

59

60

61

69

69

70

71

72

73

79

80

83

84

84

87

88

92

92

93

93

97

97

99

101

101

102

103

104

107

107

vii
COST COMPETITIVENESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108

ENERGY AND ENVIRONMENT’ EFFECTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111

DEMAND LIMITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114

ETHANOL OUTLOOK AND TIMING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114

Chapter 6. Electric Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ● .0...... . . . . . . . . . ● . 117

VEHICLE CHARACTERISTICS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117

ADVANCED TECHNOLOGY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118

MARKET COMPETITIVENESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119

HYBRID VEHICLES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120

INFRASTRUCTURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122

EFFECTS ON EMISSIONS AND AIR QUALITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123

ELECTRICITY OUTLOOK AND TIMING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124

Chapter 7. Hydrogen as a Vehicle Fuel ● ... .,... . . . . . . . . . ... ... . 127

FUEL SOURCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127

VEHICLES AND FUEL STORAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127

EMISSIONS AND PERFORMANCE ATTRIBUTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128

SAFETY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128

DEVELOPMENT REQUIREMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128

COST COMPETITIVENESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129

HYDROGEN OUTLOOK AND TIMING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130

Chapter 8. Reformulated Gasoline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131

ARCO’S "EMISSION CONTROL 1"GASOLINE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132

REFORMULATION POTENTIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132

COSTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134

SECONDARY IMPACTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136

ADDITION OF OXYGENATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136

Boxes

Box Page

A. Alternative Transportation Fuels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

l-A. Comparing Vehicles Fueled With Gasoline and Alternative Fuels . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

2-A. Greenhouse Gases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

3-A. How Does EPA Arrive at Its Estimates for the Ozone-Reduction Impact of

Methanol Vehicles? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62

6-A. GM’s Impact: A Niche Vehicle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121

8-A. What Is Reformulated Gasoline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149

Figures

Figure Page

l. Volatile Organic Compound (VOC) Emissions in Nonattainment Cities in 1994,

by Source Category, After All Additional Control Methods Are Applied . . . . . . . . . . . . . . . . . . . . . .

2. EIA Projections of Petroleum Supply, Consumption, and Import Requirements to 2010,

Base Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3. World Exportable Gas Surplus as of Dec. 31, 1987 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4. Technical Differences Between Flexible-Fuel and Conventional Automobiles . . . . . . . . . . . . . . . . . .

5. Potential Low-Cost Suppliers of Methanol . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6. Converting Methane to Methanol . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

7. Effect of Electricity Source on Greenhouse Impact of Electric Vehicles . . . . . . . . . . . . . . . . . . . . . . .

2-1. Acute Effects of Ozone Exposure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2-2. Areas Classified as Nonattainment for Ozone Based on 1983-85 Data . . . . . . . . . . . . . . . . . . . . . . . . .

2-3. VOC Emissions in Nonattainment Cities, by Source Category, in 1985 . . . . . . . . . . . . . . . . . . . . . . .

24. VOC Emissions Reductions in 1994 Compared to 1985 Emissions, by Control Method . . . . . . . . .

2-5. Summary of Estimated Nationwide Nitrogen Oxides (NOX)Emissions by Source Category,

by Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2-6. EIA Projections of Petroleum Supply, Consumption, and Import Requirements to 2010,

Base Case..... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2-7. Distribution of World Oil Reserves, 1988 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . Vlll

7

8

9

12

14

17

21

33

35

36

37

41

42

44
2-8. Current Contribution to Global Warming . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

2-9. Contribution of the Transportation Sector to CO2 Emissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

3-I. “Relative Reactivity” (Ozone-Forming Capability) of Emissions From M85-Fueled Vehicles v.

Gasoline-Fueled Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

3-2. Sensitivity of Relative Reactivities of M85 Emissions to Formaldehyde Emissions Levels . . . . . . . 67

3-3. Year 2000 Reductions in Peak l-Hour Ozone Concentrations From M85 Use . . . . . . . . . . . . . . . . . . 68

3A-1. Comparison of Discounted Cash Flow Rates of ReturnWith Capital Charges Based on a

Percentage of Total Fixed Investment Plus Working Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89

5-1. Process Diagram for th e production of Fuel Ethanol From Grain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111

6-1. Effect of Electricity Source on Greenhouse Impact of Electric Vehicles . . . . . . . . . . . . . . . . . . . . . . . 130

Tables

Table Page

l. Pros and Cons of Alternative Fuels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

2. Two Scenarios for Methanol Costs, $/Gallon ... ... .. o..... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

3. Environmental Impacts of Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

l-l. Major Users of Alternative Fuels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

2-l. Options for Amending the Clean Air Act: Currently Available Control Methods . . . . . . . . . . . . . . . 38

2-2. Options for Amending the Clean Air Act: New Directions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

3-1. Organic Emissions Levels for Gasoline and Methanol-Fueled Vehicles . . . . . . . . . . . . . . . . . . . . . . . . 64

3-2. Component and Total Methanol Supply Costs During a Transition Phase . . . . . . . . . . . . . . . . . . . . . . 75

3-3. Component and Total Methanol Supply Costs in unestablished Market Environment ..., . . 76

3-4. Market Shares of Oil and Gas Production and Reserves by Region in 1985 . . . . . . . . . . . . . . . . . . . . 81

3-5. Proved Gas Reserves and Exportable Surpluses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82

3A-l. Estimated 1987 Gas Costs and prices . . . . . . . . . . . . . .. .. .. .. .., .. .. ... ... ...... . . . . . . . . . . . 86

5-l. Environmental Impacts of Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111

5-2. Potential Environmental Effects of Logging and Forestry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114

ix
Related OTA Reports

. Catching Our Breath: Next Steps for Reducing Urban Ozone. Focuses on the

health-based air quality standards for ozone; addresses the problem of regional

oxidants; evaluates the cost-effectiveness of controlling various sources of hydrocarbon emissions for lowering ozone levels. 0-412, 7/89; 252 p.

GPO stock #052-003-01158-l; $10.00

NTIS order #PB 90-130 451/AS

. U.S. Oil Production: The Effect of Low Oil Prices--Special Report. Examines

issues that influence the future direction of U.S. oil production. These issues include:

the expected profitability of new investments in drilling; the potential of new oil

exploration, development, and production technologies; the nature of the remaining oil

resource base; and structural changes in the oil industry. E-348, 9/87; 144 p.

NTIS order #PB 88-142484

. U.S. Natural Gas Availability: Gas Supply Through the Year 2000. Analyzes the

key technical and physical parameters that deter-n-ine the resource base, production

rates, and costs of all categories of below-ground natural gas; critically reviews current

estimates of the resource base, estimates the potential production rates of natural gas,

and the uncertainties in these estimates; and assesses future technology trends and

R&D needs that may accelerate these trends. E-245, 2/85; 260 p.

NTIS order #PB 86-109 162/AS

. U.S. Vulnerability to an Oil Import Curtailment: The Oil Replacement Capability.

Provides an analysis of the technical potential for replacing large quantities of oil in

the United States over a 5-year period by fuel substitution and conservation in the event

of an extended oil supply shortfall and price rise; analyzes the macro-economic

consequences of the shortfall and various rates of oil replacement by the technologies.

E-243, 9/84; 160 p.

NTIS order #PB 85-127 785/AS

NOTE: Reports are available from the U.S. Government Printing Office, Superintendent of Documents,

Washington, DC 20402-9325 (202) 783-3238; and the National Technical Information Service, 5285 Port

Royal Road, Springfield, VA 22161-0001 (703) 487-4650.
Executive Summary

OVERVIEW

Recent interest in alternative fuels for light-duty

highway vehicles (automobiles and light trucks) is

based on their potential to address three important

societal problems: unhealthy levels of ozone in

major urban areas; growing U.S. dependence on

imported petroleum; and rising emissions of carbon

dioxide and other greenhouse gases. This assessment examines the following alternative fuels:

methanol, ethanol, natural gas (in either compressed

(CNG) or liquid (LNG) form), electricity (to drive

electric vehicles (EVs)), hydrogen, and reformulated

gasoline.

Substituting another fuel for gasoline affects the

entire fuel cycle, with impacts not only on vehicular

performance but on fuel handling and safety, materials requirements, feedstock requirements, and so

forth. The variety of effects, coupled with the

existence of the three separate “policy drivers” for

introducing alternative fuels, create a complex set of

trade-offs for policymakers to weigh. Further, there

are temporal trade-offs: decisions made now about

promoting short-term fuel options will affect the

range of options open to future policymakers, e.g.,

by emplacing new infrastructure that is more or less

adaptable to future fuel options, or by easing

pressure on oil markets and reducing pressure for

development of nonfossil alternative fuels. Table 1

presents some of the trade-offs among the alternative

fuels relative to gasoline.

Much is known about these fuels from their use in

commerce and some vehicular experience. Much

remains to be learned, however, especially about

Photo credtt General Motors Corp.

GM’s Impact electric vehicle, though a prototype requiring much additional testing and development, represents a promising

direction for alternative fuel vehicles: a “ground up,” innovative design focused on the unique requirements of the fuel sources,

in this case electricity.

–l–
2 ● Replacing Gasoline: Alternative Fuels for Light-Duty Vehicles

Table l—Pros and Cons of Alternative Fuels

Advantages Disadvantages

Methanol . . . . . . . .

Ethanol . . . . . . . . . .

Natural Gas . . . . . .

Electric . . . . . . . . . .

Hydrogen . . . . . . . .

Reformulated

Gasoline . . . . . .

Familiar liquid fuel

Vehicle development relatively advanced

Organic emissions (ozone precursors) will have lower

reactivity than gasoline emissions

Lower emissions of toxic pollutants, except formaldehyde

Engine efficiency should be greater

Abundant natural gas feedstock

Less flammable than gasoline

Can be made from coal or wood (as can gasoline), though

at higher cost

Flexfuel “transition” vehicle available

Familiar liquid fuel

Organic emissions will have lower reactivity than gasoline emissions (but higher than methanol)

Lower emissions of toxic pollutants

Engine efficiency should be greater

Produced from domestic sources

Flexfuel “transition” vehicle available

Lower CO with gasohol (1 O percent ethanol blend)

Enzyme-based production from wood being developed

Though imported, likely North American source for

moderate supply (1 mmbd or more gasoline displaced)

Excellent emission characteristics except for potential of

somewhat higher NOX emissions

Gas is abundant worldwide

Modest greenhouse advantage

Can be made from coal

Fuel is domestically produced and widely available

Minimal vehicular emissions

Fuel capacity available (for nighttime recharging)

Big greenhouse advantage if powered by nuclear or solar

Wide variety of feedstocks in regular commercial use

Excellent emission characteristics-minimal hydrocarbons

Would be domestically produced

Big greenhouse advantage if derived from photovoltaic

energy

Possible fuel cell use

No infrastructure chanqe except refineries

Probable small to moderate emission reduction

Engine modifications not required

May be available for use by entire fleet, not just new

vehicles

Range as much as 1/2 less, or larger fuel tanks

Would likely be imported from overseas

Formaldehyde emissions a potential problem, esp. at

higher mileage, requires improved controls

More toxic than gasoline

Ml 00 has non-visible flame, explosive in enclosed tanks

Costs likely somewhat higher than gasoline, esp. during

transition period

Cold starts a problem for Ml 00

Greenhouse problem if made from coal

Much higher cost than gasoline

Food/fuel competition at high production levels

Supply is limited, esp. if made from corn

Range as much as 1/3 less, or larger fuel tanks

Cold starts a problem for E1OO

Dedicated vehicles have remaining development needs

Retail fuel distribution system must be built

Range quite limited, need large fuel tanks w/added costs,

reduced space (LNG range not as limited, comparable to methanol)

Dual fuel “transition” vehicle has moderate performance,

space penalties

Slower refueling

Greenhouse problem if made from coal

Range, power very limited

Much battery development required

Slow refueling

Batteries are heavy, bulky, have high replacement costs

Vehicle space conditioning difficult

Potential battery disposal problem

Emissions for power generation can be significant

Range very limited, need heavy, bulky fuel storage

Vehicle and total costs high

Extensive research and development effort required

Needs new infrastructure

Emission benefits remain highly uncertain

Costs uncertain, but will be significant

No energy security or greenhouse advantage

SOURCE: Office of Technology Assessment, 1990.

what a large-scale supply system would cost and ●

how it would perform relative to the gasoline

system. Key sources of uncertainty are:

●

●

rapidly changing vehicle and fuel supply system technology;

for most of the fuels, limited experience with ●

transportation use, often confined to laboratory

or prototype systems that don’t reflect consensitivity of costs and performance to numerous (and difficult to predict) future decisions

about regulating, manufacturing, financing,

and marketing the fuel systems—for example,

design decisions trading off vehicle performance and fuel efficiency; and

continuing evolution of the competing gasolinebased system, for example, further improvements in catalytic controls.

straints imposed by mass production require- In particular, most of the fuels have substantial

ments or ‘‘real world” maintenance problems; potential for long-term technology advances that
Executive Summary ● 3

could drastically alter costs and impacts: advanced

batteries for EVs, enzyme hydrolysis processes for

producing ethanol from lignocellulose materials,

and so forth.

Given these uncertainties and potentialities, projections of the costs and benefits of alternative fuels

rely on a series of assumptions about technology

successes, capital charges, feedstock costs, vehicle

efficiencies, shipping methods, and so forth that are

single points in a range of possible values. Changing

these assumptions to other still-plausible values will

change the cost and benefits results, sometimes

drastically.

Meeting Society’s Goals

Air Quality Effects

All of the fuels offer some potential to reduce

urban ozone and toxic emissions. Hydrogen, electricity, and natural gas offer large and quite certain

per vehicle reductions (though emissions from

power generation must be considered in evaluating

electricity’s net impact on air quality). Methanol and

ethanol (as M85 and E85, mixtures of the alcohols

with 15 percent gasoline to improve cold starting),

offer smaller and, at this time, less quantifiable but

probably still significant reductions. For methanol,

improved control of formaldehyde is critical to its

emissions benefits. The potential for reformulated

gasoline is speculative, because the makeup of this

fuel is not yet known. For most of the fuels, insuring

that the potential benefits are actually obtained

requires vehicle emission standards that properly

account for the differences in chemical composition

(and ozone-forming potential) between alternative

fuel-related emissions and gasoline-related emissions.

The areawide ozone-reduction benefits of all

fuels are limited by projected reductions in the

emissions “target’ for the fuels-the share of urban

ozone precursor emissions attributable to light duty

vehicles. This share is expected to decrease from 45

to 50 percent during the mid to late 1980s to 25 to 30

percent by 2000.

Energy Security

The most likely near-term alternative fuels—

reformulated gasoline, methanol, and CNG--do not

offer the kinds of energy security advantages expected from options such as coal-derived liquid

fuels, which rely on a domestic feedstock. Moderate

quantities of CNG--enough to replace at least a few

hundred thousand barrels per day of gasoline,

perhaps somewhat more-could come from domestic and other North American sources; the rest would

be imported by ship, as LNG, from distant sources.

Most likely, virtually all methanol will be imported

by ship. And reformulated gasoline, which merely

reshapes gasoline rather than replacing it, should

have little effect beyond that caused by the addition

of oxygenates that may be made from natural gas or

biomass. Nevertheless, use of methanol and CNG

still can enhance energy security by reducing

pressure on oil markets and diversifying to an energy

feedstock (natural gas) whose resource base is less

fully developed than oil’s, and thus has a greater

potential for new sources of supply—and a less

easily manipulated market. The degree of additional

security may be enhanced if the United States

supports the development of secure methanol or

LNG supply sources and if investors insist that

supplier nations be large equity holders (and thus,

risk-sharers) in the capital-intensive supply system.

The longer term options, e.g., hydrogen and

electric vehicles, and ethanol or methanol from

lignocellulosic materials, offer excellent energy

security benefits if their costs are competitive with

alternatives.

Global Warming

The potential of alternative fuels to affect greenhouse gas emissions is primarily a long-term potential. Those fuels and technological systems most

likely to be used in the next few decades should not

have a large impact, either positive or negative, on

net emissions. For example, combustion of methanol or natural gas produces less CO2 per unit of

energy output than gasoline; however, producing

and transporting these fuels will, in most cases, be

more energy intensive than producing and transporting gasoline. Their net emissions of CO2 and other

gases, weighted by their relative warming impact

and added over the entire fuel cycle, are likely to be

only slightly smaller than the emissions generated

by gasoline. Ethanol’s net greenhouse emissions

gain some benefit from the regrowth of the feedstock

corn, but most or all of this benefit will be

counteracted by other energy losses in the farming

and fuel production system. Electricity for recharging EVs, if generated with today’s power system,

will rely heavily on coal-fired powerplants and

cannot reduce greenhouse emissions significantly.
4 ● Replacing Gasoline: Alternative Fuels for Light-Duty Vehicles

And reformulated gasoline is most likely to have

slightly higher greenhouse emissions, assuming that

refining energy will increase somewhat.

All of these fuels, and hydrogen as well, have the

long-term potential to generate much lower levels of

greenhouse gases if they turn to renewable, lowchemical-input biomass feedstocks or solar or nucleargenerated electricity. For example, both ethanol and

methanol can be produced from wood and other

lignocellulose material, methanol by gasification,

ethanol by enzyme hydrolysis. Though neither

process currently is economically competitive with

standard alcohol production methods, further development of both processes should reduce costs.

Electric and hydrogen-powered vehicles (the latter

using hydrogen produced by electrolyzing water)

can use electricity produced essentially without CO2

emissions from nuclear or solar sources or biomass

materials. Even gasoline can be produced by gasifying lignocellulose materials, with strong net greenhouse benefits. Also, for all the fuels, there are

numerous shorter term efficiency improvements and

process changes that can produce small reductions in

net greenhouse emissions.

Other Key Issues

costs

Estimates of the likely cost of alternative fuels at

the pump may plausibly vary over a wide range

because of their dependence on assumptions about

the relative success of solutions to existing technical

problems, feedstock sources and prices, manufacturer design decisions, and other uncertain factors.

OTA’s examination of the potential costs of methanol, for example, reveals a range from below

gasoline costs to 50 percent above gasoline costs. In

a transition period when it is being introduced,

however, methanol should be significantly more

expensive than gasoline unless oil prices escalate

during this period. Over time, costs could come

down because of economies of scale realized as the

system gets larger, better technology, and lower

demanded returns as the supply system is stabilized

and risk is reduced; on the other hand, at some point

the natural gas feedstock costs will rise with

increasing demand. The midpoint of the long-term

cost range is somewhat higher than gasoline cost.

Similar wide ranges of potential costs apply to all

of the fuels (except reformulated gasoline, which is

expected to be perhaps $0.10 to $0.30/gallon more

expensive than gasoline), though the ranges may be

shifted upwards or downwards from methanol’s

range. Ironically, the cost to society of introducing

alternative fuels will rise if gasoline conservation

programs succeed in stopping the growth of gasoline

demand, because the cost of new infrastructure for

the fuels would not then be offset by a reduced need

for new gasoline infrastructure.

Commercialization Hurdles

Commercialization of alternative fuels is made

difficult by gasoline’s entrenchment in the lightduty fuels market. Gasoline has the advantages of

very large investments in existing supply infrastructure; long years of consumer acceptance and familiarity; and a regulatory structure for fuels handling

and use designed specifically for that particular fuel.

For example: with the exception of reformulated

gasoline, which can be considered simply an additional, more expensive grade of gasoline rather than

a true alternative, none of the alternative fuels will

permit a vehicle to travel as far as would an equal

volume of gasoline. For hydrogen, electricity, and

CNG, the decrease in range is at least fourfold; for

methanol, ethanol, and LNG, the difference is two to

one or less. Other differences that can affect

consumer acceptance include, for some but not all

fuels, slower refueling, different handling requirements, and lower availability for several years after

introduction. Consumer response to any of these

differences, or to the design changes necessary to

overcome them (for example, larger fuel tanks to

overcome reduced range), is uncertain.
Executive Summary ● 5

SUMMARY AND CONCLUSIONS alternative fuels that do not rely on fossil fuel

feedstocks or that can otherwise offer a net reduction

During the oil crises of the 1970s, Federal in greenhouse emissions.

policymakers initiated a variety of programs designed to enhance U.S. energy security, mainly by

supplementing or replacing gasoline with alternative

fuels produced from domestic coal and oil shale.

These programs generally were not viewed as

successful, and they were largely abandoned with

the perceived end of the oil crisis in the early 1980s.

During the past year, the debate on reauthorizing

the Clean Air Act caused a resurgence of interest in

alternative transportation fuels as an option for

reducing ozone levels in urban areas that cannot

otherwise meet air quality standards. In addition, the

original concerns about energy security and the

mounting trade deficit have reemerged as oil imports

have grown rapidly over the past few years and as

petroleum-driven conflict louves in the Middle East.

A third concern—the possibility of greenhouse

climate change—has increased interest in those

The alternative fuels of primary interest for the

U.S. fleet of automobiles and light trucks are:

●

●

●

●

●

the alcohols methanol and ethanol, either alone

or blended with gasoline;

compressed or liquefied natural gas (CNG or

LNG);

liquefied petroleum gas (LPG) and propane;

hydrogen; and

electricity.

In addition, gasoline that has been reblended to

reduce emissions, so-called ‘‘reformulated gasoline,’ is a recent addition to the list of new fuels. The

fuels and their basic characteristics are described in

box A.

This report provides abroad overview of the costs

and benefits of introducing methanol, ethanol,

natural gas, electricity, hydrogen, and reformulated

Box A—Alternative Transportation Fuels

gasoline-a motor vehicle fuel that is a complex blend of hydrocarbons and additives, produced primarily from

the products of petroleum and natural gas. Typical octane (R+M/21) level is 89.

methanol--commonly known as wood alcohol (CH3OH), a light, volatile, flammable alcohol commonly

made from natural gas. Volumetric energy content is about half that of gasoline (implies range for the same fuel

volume is about half that for gasoline, unless higher efficiency is obtained), Octane level of 101.5, which allows

use in a high compression engine. Much lower vapor pressure than gasoline (low evaporative emissions, but poor

starting at low temperatures).

natural gas-a gas formed naturally from buried organic material, composed of a mixture of hydrocarbons,

with methane (CHd) being the dominant component. Octane level of 120 to 130. Volumetric energy content at 3,000

psi is about one-quarter that of gasoline.

liquid petroleum gas, LPG--a fuel consisting mostly of propane, derived from the liquid components of

natural gas stripped out before the gas enters the pipeline, and the lightest hydrocarbons produced during petroleum

refining.

ethanol—grain alcohol (C25OH), generally produced by fermenting starch or sugar crops. Volumetric energy

content is about two-thirds of gasoline. Octane level is 101.5. Much lower vapor pressure than gasoline.

hydrogen—H 2, the lightest gas. Very low energy density even as a cryogenic liquid, less than that of

compressed natural gas. Combustion will produce no pollution except NOX. Can be used in a fuel cell, as well as

in an internal combustion engine.

electricity-would be used to run electric motors, with batteries as a storage medium. Currently available

batteries do not attain a high energy density, creating range problems.

reformulated gasoline-gasoline that has been reblended specifically to reduce exhaust and evaporative

emissions and/m to reduce the photochemical reactivity of these emissions (to avoid smog formation). Lower vapor

pressure than standard gasoline (which reduces evaporative emissions), obtained by reducing quantities of the more

volatile hydrocarbon components of gasoline. Addition of oxygenates to reduce carbon monoxide levels.

l~e ave~e of rese~ch octane (R) and motor octane (M), which is the value found m tie reti P~P.
6 ● Replacing Gasoline: Alternative Fuels for Light-Duty Vehicles

gasoline1 into the U.S. light-duty fleet, and additionally provides more detailed analysis of a few

particularly contentious issues such as the air quality

impacts and costs of methanol use. This report is an

interim product of an ongoing OTA assessment of

Technological Risks and Opportunities for Future

U.S. Energy Supply and Demand. The focus of the

assessment and this report is the next 25 years in the

U.S. energy system. While 25 years seems a long

time period for projection purposes, it is short in

terms of major transitions in energy sources, greenhouse warming strategies, and other similar concerns. Consequently, some of the longer term

greenhouse options, such as using wood and other

lignocellulose materials to produce methanol or

ethanol, and the longer term greenhouse concerns

such as the potential for an eventual turn to coal as

a liquid fuel feedstock, are not addressed in detail in

the report. However, policymakers addressing decisions for the short-term should recognize that

decisions ranging from establishing research priorities to constructing new fuel infrastructures affect

prospects for the longer term options.

A recent report from the National Research

Council, Fuels to Drive Our Future,2 discusses in

detail the potential for producing motor fuels from

domestic sources such as coal, oil shale, and

biomass. Similarly, hydrogen as a potential motor

fuel is addressed in a recent World Resources

Institute report entitled Solar Hydrogen: Moving

Beyond Fossil Fuels.3

The Perceived Benefits of Alternative Fuels

Ozone Control

Ozone control has become a primary driving force

behind the push to alternative fuels because, 15 years

after the passage of the original Clean Air Act, ozone

pollution remains a serious national concern. About

100 cities, housing about half of the American

population, do not meet the standard for ozone, the

principal component of urban smog. At concentrations above the standard, ozone can cause coughing,

painful breathing, and temporary loss of some lung

function in healthy children and adults after exercising for about an hour or two. Medical concern

centers as much-or even more-on possible chronic

damage from long-term exposure as on short-term

effects, although research on chronic risks is limited

and inconclusive.

Ozone is produced when volatile organic compounds (VOCs) and nitrogen oxides (NO,) combine

in sunlight. VOCs, a broad class of air pollutants that

includes hundreds of specific compounds, come

primarily from such manmade sources as automobile and truck exhaust, evaporation of solvents and

gasoline, chemical manufacturing and petroleum

refining (in some rural areas, however, natural

emissions sources can dominate). NOX arises from

fossil fuel combustion. Major sources of NOX

include highway vehicles and utility and industrial

boilers.

In a recent OTA study, Catching Our Breath,4 we

concluded that much of the Nation will still not be

able to meet the goals of the Clean Air Act even by

2000. Over the next 5 to 7 years, available technology can lower summertime manmade VOC emissions by 35 percent (3.8 million tons/yr) compared

to 1985 levels, bringing into compliance about half

of all areas that now fail to attain the standard for

ozone. Existing control methods can substantially

improve the air quality of the other half of the areas,

but meeting the ozone standard in these areas will

require new, innovative, and nontraditional control

methods.

The Nation has already failed several times to

meet the deadlines set by Congress--first in 1975

and again in 1982 and 1987. In Catching Our

Breath, we stated that when amending the Act,

Congress must include both measures to achieve

near-term emissions reductions using today’s control methods and measures to insure that the Nation

can continue to make progress after 2000. We view

alternative fuels as one of several promising longer

term measures.

IL~ is not ~d&m~ed ~-.au~e its supply limitatio~ prevent it from pla~g a major long.te~ energy s~ty role. Wem dtarlative fllek USe tO

be confiied to the primary ozone nonattainment cities, LPG would be a viable option.

~ommittee on Production Technologies for Liquid Transportation Fuels, National Research Council, Fuels to Dive Our Future (WashingtoxL DC:

National Academy Press, 1990).

3J.M. Ogden and R*H, wil~5, solar Hydrogen: &foving BeyondFossi/Fuels ~as~to~ DC: world Resources Institute, October 1989).

4u.s. Conue5s, Offlce of Te~~o]oW As5e55men~ catching Our Breath: N- steps in Reducing urban ozone, OTA-O-412 (wmh@to~ DC: U.S.

Government Printing Office, July 1989).
Executive Summary ● 7

Figure l—Volatile Organic Compound (VOC)

Emissions in Nonattainment Cities in 1994,

by Source Category, After All Additional

Control Methods Are Applied

Percent of 1994 VOC emissions

o% 10“/0 20 ”/0 30% 40 ”/0

Highway vehicles Air, rail, marine

Mobile sources

Organic solvent evap

Surface coating

Petroleum industry

Gasoline marketing

TSDFs

Other industries

Chemical manufact.

Solid waste disposal

Nonresid. fuel comb.

Miscellaneous

Source size

I Large

w small

Total = 7.5 million tons/year

Stationary sources that emit more than 50 tons per year of VOC

are included in the “Large” categories. (See figure 2-3 for 1985

emissions in nonattainment cities before additional controls

applied.)

SOURCE: Office of Technology Assessment, 1989.

Ozone control efforts have traditionally focused

on reducing VOC emissions. As shown in figure 1,

about 25 to 30 percent of VOC emissions remaining

after today’s controls are applied will come from

cars and trucks. Programs to introduce cleaner,

alternatively fueled vehicles by using, for example,

methanol or compressed natural gas (CNG) instead

of gasoline, should lower emissions further, as

would measures to reduce the Nation’s use of cars.

Another quarter of the remaining VOC emissions

will come from solvents used in a wide variety of

industrial, commercial, and home uses, from painting and cleaning heavy equipment to washing

paintbrushes. Further control of these sources is

possible. And for some areas, controlling NO,

emissions in addition to VOCs maybe an important

ozone control measure, both locally and in areas

upwind of certain nonattainment cities.

How do alternative fuels fit into the Nation’s

ozone control requirements? All of the fuels discussed here have the potential to reduce either (or

both) the mass emissions of VOCs from highway

vehicles or the reactivity of the VOCs, that is, their

likely contribution to ozone formation per gram of

gas emitted. The attractiveness of using alternative

fuels as an ozone control measure clearly depends on

the costs and effectiveness of such use relative to the

costs and effectiveness of competing measures. As

discussed below, the costs of alternative fuel use are

as yet quite uncertain, while the effectiveness is

reasonably well known only for some of the fuels.

An additional uncertainty is the extent to which

further improvements maybe achieved in emission

controls for gasoline-fueled vehicles. If highway

vehicles’ share of urban VOC emissions is reduced

even below the projected 25 to 30 percent level

representing the frost round of emission requirements expected from the new Clean Air Act, the

emissions reduction benefits of moving to the

alternative fuels will be reduced.

Aside from controlling ozone, alternative fuels

should help to reduce the emissions of toxic

pollutants associated with gasoline use. These include benzene, gasoline vapors, l,3-butadiene, and

polycyclic organic matter. With the exception of

methanol vehicles’ increased emissions of formaldehyde, use of the alternative fuels is not likely to

produce any counterbalancing emissions of similar

toxicity. And with methanol vehicles, their higher

direct emissions of formaldehyde are partly offset in

the ambient air by the shift in VOC emissions

associated with methanol use. Some of the VOCs are

chemically transformed in the atmosphere into

formaldehyde, and a methanol vehicle is a smaller

“indirect” source of formaldehyde than a comparable gasoline vehicle.

Energy Security

After a few years of quiescence, energy security

has again become a major U.S. concern. The key

statistic driving that concern is the annual level of

net U.S. oil imports, which had dropped to 27

percent of requirements by 1985 but rose to 46

percent in 1989, and continues to rise steadily as

U.S. oil production drops. As illustrated by figure 2,

which displays the Energy Information Administration’s latest forecast, U.S. oil imports are expected

to grow rapidly over the next few decades, to nearly

61 percent of demand by 2010 in the base cases The

United States paid $44.7 billion for its 1989 oil

imports, representing nearly half of its merchandise

trade deficit of$111 billion, and expenditures would

5Ener~ Momtion Administratio~ AnnuuZEnergy Outlook 1990, DOWJ-A-0383(90), Janw 1~.
8 ● Replacing Gasoline: Alternative Fuels for Light-Duty Vehicles

Figure 2—EIA Projections of Petroleum

Supply, Consumption, and Import Requirements

to 2010, Base Case

Cumulative million barrels per day . -

2 5

20

15

10

5

0

History Forecast

I 20.3

12.3

Net imports

Lower 48 A

10.0 8.0

Natural gas liquids

& other T \

I

I 1 I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I

1970 1980 1990 2000 2010

SOURCE: Energy Information Administration, Annua/ Energy Out/ook,

1990.

rise with expected increases in import volumes and

oil price. As in the 1970s, four basic elements

underlie the concern: the near-total dependence of

the U.S. transportation sector on petroleum; the

United States’ limited potential to increase oil

production; the preponderance of oil reserves in the

Middle East/Persian Gulf area; and the political

instability and hostility to the United States existing

in parts of that area.

In some ways, the first two of these elements have

grown more severe since the energy crises of the

1970s. During the past 10 years, the share of total

U.S. petroleum use by the transportation sector—

whose prospects for fuel switching in an emergency

are virtually zero-has grown from 54 to 64 percent.

In addition, the prospects for a rapid rebound of U.S.

petroleum production in the event of a price rise

seem weaker than in the 1970s. The boom and bust

oil price cycle of the post-boycott period, and

especially the price drop of 1985-86, has created a

wariness in the oil industry that would substantially

delay any major boost in drilling activity in response

to another price surge. And, with the passage of time,

the industry’s infrastructure, including skilled labor,

that would be needed for a drilling rebound is

eroding.

Despite these problems, OTA concludes that, on

balance, the United States’ energy supply is somewhat more secure today than in the 1970s. Shifts in

the oil market that we consider to be supportive of

increased short- to medium-term energy security

include:

●

●

●

●

●

●

●

the existence of the Strategic Petroleum Reserve and increased levels of strategic storage

in Europe and Japan;

increased diversification of world oil production since the 1970s, with OPEC losing 17

percentage points of world market share from

1979-89;

the end of U.S. price controls on oil and most

natural gas, allowing quicker market adjustment to price and supply swings;

the increasing role of the spot market, adding

flexibility to oil trade;

the major investments of OPEC producers in

the economies of the Western oil-importing

nations, especially in their oil-refining and

marketing sectors;

the lessening importance of the Strait of Hormuz as a potential bottleneck due to the

construction of new pipelines out of the Persian

Gulf; and

the recent political changes in the Eastern Bloc

nations and lowering of East-West tensions.

Nevertheless, energy security concerns remain an

important policy driver, and their importance could

grow over time if current trends in U.S. oil supply

and production continue and, as expected by many

analysts, OPEC market power continues to grow.

Futher, important and unsettling shifts in military

power balances in the Middle East, in particular the

greatly increased military capability of Iraq, introduce an important uncertainty into energy security

assessments.

The development of alternative transportation

fuels can have a positive effect on energy security,

by:

●

●

diversifying fuel supply sources and/or getting

supplies from domestic or more secure foreign

sources,

easing pressure on oil supplies through reduced

demand for gasoline, and
Executive Summary ● 9

. reducing the impact of an oil price shock.

The magnitude of the effect will depend on such

factors as the feedstock used for the fuel and

strategic arrangements for obtaining the feedstock or

fuel, the volume of alternative fuel use, and the

selection of dedicated vehicles or flexible fuel

vehicles. The effect on energy security could be

negative, however, if any Federal subsidies of the

price of “secure” energy sources are too high, or

regulatory requirements for their use too costly. The

availability of ample foreign exchange is a powerful

weapon in an energy emergency, so that the financial

impact of an alternative fuels program that had a

large negative net impact on the overall U.S. trade

balance and/or on the Federal deficit conceivably

could outweigh the positive value of reduced oil

imports.

Although the security benefits of some fuels are

indisputable, analysts disagree about others. Fuels

such as electricity, hydrogen, and ethanol are likely

to be domestically produced and thus unambiguously

advantageous to energy security (if they can be

produced cheaply enough). Corn-based ethanol’s

dependence on intensive agriculture, which may

suffer on occasion from drought, may make it less

secure than the others, however. Methanol or natural

gas, on the other hand, will be imported from

countries with large gas reserves (though a moderate

level of natural gas vehicle use, perhaps up to several

hundred thousand barrels per day of oil substitution,

could be supported using North American gas

sources), and their effect on energy security will

depend on which countries enter the market, the type

of financial arrangements made between producers

and suppliers (the large capital requirements of a

methanol or LNG supply system could enhance the

stability of supply, but only if the producer nations

are large equity holders), the worldwide price

relationship between natural gas and oil (that is, will

a large oil price rise automatically raise gas—and

methanol-prices?), and other factors. Because

two-thirds of the world’s gas reserves, and a higher

estimated share of the world’s exportable gas

surpluses (figure 3), reside in the Middle East and

Eastern Bloc, some analysts deny that the United

States would receive any security benefit from

turning to natural gas-based methanol. OTA concludes that the Nation can derive a security benefit

because large-scale methanol use will reduce pressures on world oil supplies; also, strategies such as

Figure 3--World Exportable Gas Surplus as of

Dec. 31,1987

U. S.S.R

Iran

Abu I

ll,Other

Iia

Qatar Norwa y

- -‘ -

SOURCE: Jensen Associates, Inc., Natural Gas Supp/y, Demand, and

Price, February 1989.

establishing long-term trade pacts with secure methanol sources could enhance the potential benefits.

Another way to enhance energy security maybe

to produce alternative fuels from domestic coal-an

option not explored in this report. Problems with the

use of coal include its adverse impact on greenhouse

warming (unless the CO2 produced can be captured

and stored, which seems unlikely) and its high costs,

though these may be lowered over time. Similarly,

alternative fuels can be made from wood and other

lignocellulosic materials, with substantial greenhouse benefits if the use of agricultural chemicals is

minimized and the feedstock is managed in a truly

renewable fashion.

The availability of a domestic feedstock is not

confined to the alternative fuels; gasoline can be

made from coal and wood. In fact, gasoline can be

made from natural gas as well. Clearly, the energy

security benefits associated with a particular fuel

have little to do with that fuel’s chemical makeup,

and much to do with its feedstock materials.

Global Warming

The potential need to slow and reverse the growth

of worldwide emissions of carbon dioxide (C02

) and

other greenhouse gases has altered thinking about

energy supply sources, enhancing the perceived

value of sources that do not use fossil fuels or that

use fuels low in carbon.
10 ● Replacing Gasoline: Alternative Fuels for Light-Duty Vehicles

The greenhouse effect is a warming of the Earth

and atmosphere as the result of the thermal trapping

of incoming solar radiating by CO2, water vapor,

methane, nitrous oxide, chlorofluorocarbons, and

other gases, both natural and manmade. Past and

ongoing increases in energy use and other anthropogenic (man-caused) emissions sources are pushing

up atmospheric concentrations of these gases; C02

concentrations, for example, have increased by

about 25 percent since the mid- 1800s. Scientists

believe that these growing concentrations will lead

to significant global temperature increases: a global

average of 3 to 8 ‘F (1.5 to 4.5 ‘C) from a doubling

of CO2 concentrations or the equivalent. 7 Other

effects of the warming include an expected rise in

sea level, drastic changes in rainfall patterns, and

increased incidence and severity of major storms.

Despite a substantial scientific consensus about

the likely long-term change in average global

temperatures, there is much disagreement and uncertainty associated with the rapidity of the changes, the

effects of various temperature feedback mechanisms

such as clouds, the role of the ocean, the relative

greenhouse effect of the various gases, regional

impacts, and other factors. These uncertainties affect

arguments about the value of alternative fuels; for

example, uncertainties about the differential role of

the various greenhouse gases complicate analyses of

the relative impact on warming of the various fuels,

because each fuel emits, over its fuel cycle, a

different mix of gases.

To what extent are the potential users of alternative fuels-in this case, light-duty vehicles-a

major source of greenhouse gases, and thus a good

target for action to reduce emissions? The U.S.

light-duty fleet accounts for about 63 percent of U.S.

transport emissions of CO2, 3 percent of world CO2

emissions, and about 1.5 percent of the total

greenhouse problem. This latter value has been

variously interpreted as being a significant percentage of the greenhouse problem, or as proving that

focusing on the U.S. fleet to gain significant

greenhouse benefits is a mistake. In OTA’s view,

few if any sectors of the U.S. economy are large

enough, by themselves, to significantly alter the

course of greenhouse warming; ignoring all emissions sources as small as the light-duty fleet would

eliminate most options to curb the greenhouse effect.

Further, U.S. adoption of alternative fuels will

increase the likelihood that other nations will do the

same. The U.S. fleet’s emissions thus understate the

potential benefit of U.S. action. 8 To successfully

combat global warming, nations must be prepared to

take actions that will have an important effect only

over the course of decades and in concert with

similar actions taken on a global scale.

Alternative fuels for light-duty vehicles are of

concern for global warming for the following

reasons:

1.

2.

The fuels generate, over their fuel cycle,

different amounts and mixes of greenhouse

gases than does gasoline. In general, however,

the fuels and feedstock choices most likely for

the near term-in particular, methanol from

natural gas and natural gas itself-have the

potential for only modest benefits over gasoline in their overall greenhouse effect; and

reformulated gasoline would offer no benefits.

Methanol and ethanol made from wood, which

might become practical with further development of gasifiers (methanol) and enzymebased conversion processes (ethanol), would

yield significant greenhouse benefits. The

longer term choices, e.g., hydrogen and electricity based on nonfossil sources, can yield

very significant benefits. In contrast, fuels

derived from coal-including gasoline-fromcoal-would yield substantial increases in

greenhouse gases over ordinary gasoline.

Current choices about alternative fuels may

influence future fuel choices with significant

greenhouse effects. For example, turning to

natural gas as a feedstock for transportation

fuels might conceivably have the effect of

delaying a transition to nonfossil fuels, by

holding down oil prices, providing additional

fossil supplies, and, perhaps, by being more

attractive than gasoline in some regards. As

%t is, the incoming solar energy is reradiated by the Earth as heat (thermal energy) and then absorbed or ‘trapped” in the atmosphere rather than

radiating out to space.

7~t is, other gases have a W arming effect that is some multiple of C02’S effect so a combination of increases of various gases can be translated

into an effective C02 increase by appropriately weighting the increased concentration of each gas.

80~~s ocMm ~d Env~o~ent ~ogr~ ~ently is conductfig a study On policy optio~ to Cmb I-J.s. greenhouse emissions, Czil?liZte change:

Ozone Depletion and the Greenhouse Effect.
Executive Summary . 11

another example, building an EV system will

generate electricity load growth that, by flattening the daily demand curve, could encourage utilities to consider nuclear plants (with

zero CO2 emissions) for their new generation

capacity, since nuclear is most economical

serving this type of demand pattern. Further,

building of new infrastructures for near-term

alternative fuels may affect our ability to move

to longer term fuels, e.g., a natural gas system

might possibly ease the way for hydrogen,

another gaseous fuel, whereas the construction

of a new infrastructure for methanol may

hinder the later adoption of a system using

gaseous fuels. And finally, premature introduction of any technology can have sharply

negative effects on future consumer acceptance of that technology. The importance of

these effects is extremely sensitive to the

timing of technology development and other

uncertain factors and, as shown by the example

of natural gas, there may be plausible greenhouse arguments both for promoting the commercialization of a particular fuel, and for

opposing such commercialization.

Introducing Alternative Fuels Into

the Light-Duty Fleet

Although the physical characteristics of the alternative fuels are in some ways superior to that of

gasoline, there are substantial barriers to introducing

such fuels into transportation markets. Aside from

the potential that the alternative fuels will cost more

to produce than gasoline, these fuels have limited or

no established transportation markets or infrastructure, whereas gasoline has both. The physical system

for producing, storing, and distributing gasoline is in

place and operating smoothly; massive amounts of

capital and engineering time have been invested in

engine modifications to optimize performance for

gasoline; the regulatory system for controlling the

safety and environmental impacts of light-duty

vehicles is designed specifically for gasoline; and

most consumers have a close familiarity with and

acceptance of gasoline and its capabilities and

dangers. In contrast, important facets of the infrastructure for the alternative fuels will have to be built

virtually from scratch, the fuels will alter vehicle

performance, in some ways for the worse (particularly with regard to range), and they will introduce

new dangers, though possibly easing old ones

associated with gasoline. It is difficult to predict how

consumers will react to these differences in fuel

characteristics.

With a few exceptions (electric and CNG vehicles

designed to be recharged at home), the fuel distribution network will be severely limited geographically

in the early years of an alternative fuels program.

Consequently, early vehicles will either be limited in

operation to those areas with available fuel supplies

or, more likely, will be designed to operate as

multifuel vehicles. For example, prototype flexible

fuel vehicles (FFVs) can operate on any blend of

gasoline and either methanol or ethanol up to about

85 percent alcohol (at higher concentrations, cold

starting is a problem). As shown in figure 4, several

vehicle systems must be modified to allow the

vehicle to operate in this mode. Commercially

available dual-fuel vehicles can operate on either

gasoline or natural gas by the flip of a switch. And

hybrid electric vehicles (EVs) would combine a

battery/electric motor combination with a fuel tank

and either a small internal combustion engine or a

fuel cell.

To gain increased travel flexibility over singlefuel vehicles, multifuel vehicles must sacrifice some

potential advantages afforded by the alternative

fuels’ special characteristics. For example, methanol, ethanol, and natural gas are high octane fuels; a

vehicle dedicated to their use, which did not have to

operate well on gasoline, could use a high compression engine with improved efficiency and power. To

retain operability with gasoline, engines in multifuel

vehicles must stay at lower compression levels.

Consequently, as fuel availability for the alternative

fuels improves over time, manufacturers are likely to

shift their production lines towards vehicles dedicated to these fuels, with significantly improved

performance and efficiency.

The large barrier to commercialization of alternative fuels caused by gasoline’s entrenchment in the

market, coupled with the likelihood that, at least in

the beginning, alternative fuels will be more costly

than gasoline, implies that alternative fuels may get

a decent chance for market share only if government

gives them a strong push. The primary dilemma for

government policymakers is, then, is it worthwhile

to do so? The alternative fuels certainly do have

some intriguing potential, as discussed below, but

they also have disadvantages and risks. A reasoned

decision concerning government incentives for these
12 ● Replacing Gasoline: Alternative Fuels for Light-Duty Vehicles

Figure 4—Technical Difference Between Flexible-Fuel and Conventional Automobiles

Signal from

on-board computer Fuel system .

(Adjusts spark timing materials

and fuel flow) /

\ /

On-board computer Ethanol of

with revised strategy methanol Gasoline

~ m m

{

II \ I I I \ 1 / K \ / 1

‘ \

Sequential

fuel. injected engine Oxygen sensor

(larger flow injectors)

exhaust gas

SOURCE: Ford Motor Co.

fuels requires a dispassionate analysis of these fuels’

pros and cons relative to gasoline.

Conclusions about the costs, problems, and likely

performance of the alternative fuels are based on a

variety of evidence. First, their long use in nonvehicular applications has yielded considerable experience with distributing and handling the fuels.

Second, many of the fuels have been used in vehicles

for years, and although these vehicles perform less

well than advanced vehicles are expected to, much

of this experience still is relevant to projections of

future, wider use. Third, limited testing of advanced

vehicle prototypes has begun to clarify the potential

of the fuels, as well as their problems. And fourth,

unlike gasoline, which is a complex and nonuniform

blend of hydrocarbons, most of the suggested

alternative fuels have simple chemical structures

and are relatively uniform in quality, which should

help improve the accuracy of performance projections.

Despite this evidence, participants in the alternative fuels debate disagree sharply about virtually all

aspects of fuel performance and cost. Part of these

disagreements undoubtedly are due to the usual

hyperbole associated with strong and opposing

commercial interests and environmental values.

There also are strong technical reasons, however,

why the disagreements exist. In particular:

1. Changing technology. The technology for

producing alternative fuels is still developing

I I C Y

I ~ Fuel syste m

Optical sensor materials

(provides signal to

on-board computer)

2.

3.

and changing, with the outcome of development and problem-solving programs highly

uncertain. For example, full success of ongoing research on low-cost manufacture of ethanol from lignocellulose materials (e.g., wood

waste) would radically improve ethanol’s environmental and economic attractiveness. Similarly, successful development of catalysts that

can reliably control exhaust formaldehyde

levels over a vehicle lifetime would enhance

significantly the standing of methanol as an

option for ozone control.

Moving from lab to marketplace. The transition from successful research project to commercial, mass-produced product is a complex

process involving massive scaleups and design

and performance trade-offs. The unpredictability of this process limits the reliability of

projections based only on laboratory or vehicle

prototype testing. In particular, consumer reactions to differences in vehicle and fuel distribution characteristics (shorter range or less

luggage space, slow refueling, less or more

power, etc.) will profoundly influence system

design, yet these reactions will become clear

only as the fuels are introduced, and they might

still change over time.

Effects of program size. The scale of alternative fuels development is a key determinant of

the costs and characteristics of fuel supply

systems and vehicles, yet there is little possi-
Executive Summary ● 13

4.

bility of predicting how large a program would

be, or if it were likely to spread worldwide. For

example, domestic gas sources or pipeline

imports from Canada or Mexico could supply

a moderate-sized program of natural gas vehicles, but larger scale development would

require LNG imports from abroad—with different costs and energy security implications.

Continued evolution of the gasoline system.

The relative benefits of any new alternative

fuel depend on its comparison with the gasoline system, and this system may change

markedly within the next decade. For example,

there is some evidence that improved catalytic

converters will reduce the photochemical reactivity of exhaust emissions from gasolinefueled vehicles and thus reduce ozone formation from these vehicles. If confirmed, this

would reduce the relative benefits of alternative fuels.

Although it may be impossible to rank the

alternative fuels in a reamer that is relatively

impervious to shifting assumptions and conditions,

it is possible to describe the major advantages and

disadvantages of the alternatives and to show the

kinds of conditions that would tend to favor or

discourage them.

Methanol’s major advantages in vehicular use are

that it is a convenient, familiar liquid fuel that can

readily be produced from natural gas using wellproven technology; and as a blend of 85 percent

methanol/15 percent gasoline (M85), it is a fuel for

which vehicle manufacturers can, with relative ease,

design either a dedicated or flexible fuel vehicle

(FFV) that will outperform an equivalent gasoline

vehicle and obtain an advantage in some combination of emissions reduction and efficiency improvement. The availability of a ‘‘transition vehicle”--

the M85 FFV--with few drawbacks from, and some

advantages over, a gasoline-fueled vehicle is particularly important because it greatly eases the difficulties of introducing methanol into the fleet. Another

important advantage of methanol is that world

resources of natural gas, its primary feedstock, are

plentiful.

Methanol can also be made from coal, though at

higher costs and environmental impacts than from

natural gas. As noted earlier, this does not represent

an advantage over gasoline because gasoline too can

be made from coal. Methanol also can be made from

wood and other lignocellulose materials, though at

still higher costs with current technology. Substantial improvements in wood gasifiers appear likely

with further research.

Major disadvantages of methanol are the likelihood that it will cost more than gasoline, especially

during the early years of a methanol fuels program;

loss of as much as half of the driving range without

a larger fuel tank; the loss of some of the air pollution

benefits if FFV users frequently select gasoline

instead of M85; and the need for a separate fuel

delivery infrastructure. Methanol is more toxic than

gasoline, and there is concern that accidental poisonings could increase with development of methanol

fuels programs. However, methanol’s lower flammability would likely lead to substantial reductions

in injuries and fatalities from vehicle frees, probably

more than offsetting any rise in poisonings.

The use of methanol made from natural gas is

unlikely to provide a large greenhouse benefit, no

more than a 10 percent reduction in net emissions

with quite optimistic assumptions. Methanol from

coal would be a large net greenhouse loser without

some way of disposing of the CO2

; methanol

produced from woody biomass could be a strong

greenhouse net winner, though it would introduce

other environmental concerns.9

Although methanol would likely be imported,10 it

could play a positive security role because of the

nature of the suppliers or differences between the oil

and methanol markets. There are enough potential

suppliers of methanol in relatively secure areas that

a concerted effort at promoting specific preferred

supply sources-through trade agreements or other

means

ll--could bring the United States significant

benefits over dependence on Middle Eastern oil.

Several South American nations as well as Trinidad

and Australia have sufficient reserves and locational

advantages to be viable methanol suppliers (figure 5

shows the locations of gas-rich areas that could

%specially about the long-term renewability of the wood feedstock.

lo~e Nofi Slope of Alaska does contain enough reserves of mtural gas to be a technically viable methanol supplier to the lower48 Sta% but Nofi

Slope methanol would not be competitive economically with methanol from other sources. However, the United States does, of course, retain the option

of subsidizing North Slope methanol production (or forcing industry to subsidize it via legislative mandate) for energy security purposes.

ll~ere my, however, be ~lc~ties ~~ f~ &ade aWeement5 were tie United States to attempt to es~blish ~ch a CIOSd fiel ma.rketrelatiomhip.
14 ● Replacing Gasoline: Alternative Fuels for Light-Duty Vehicles
Executive Summary ● 15

become low-cost suppliers of methano112). And

because natural gas development is decades behind

oil development, with a much greater proportion of

gas reserves still undeveloped, entry into the market

of new suppliers is much easier for methanol than it

is for oil-adding to market stability. And finally,

the high capital investments necessary to develop

methanol supplies bring further stability to markets,

by increasing the financial costs to the supplier of a

trade cutoff.

Under certain circumstances, the energy security

of developing methanol as a transportation fuel

might last only for a few decades. After a period of

rapid resource development, if large new reserves of

natural gas are not found, market power could

evolve towards the holders of the largest blocks of

resources-the Middle Eastern OPEC countries and

the Eastern Bloc. At this time, security advantages

of these alternative fuels could fade. Of course, if the

current positive shift in the strategic relationship

between the West and the Eastern Bloc continues,

reliance on these nations might seem quite acceptable from a security standpoint.

Proposals for introducing methanol into ozone

nonattainment areas have been extremely controversial, because competing claims about its expected

costs and air quality benefits have varied over an

unusually wide range.

Claims for the “per vehicle” reduction in ozone

forming potential available by substituting M85 for

gasoline range from 30 percent or higher (Environmental Protection Agency, California Air Resources

Board) to little or none (some industry and consultant studies). Although considerable effort has been

expended to estimate the ozone impacts of introducing M85 vehicles, especially for the Los Angeles

Basin, a number of factors confound the estimates

and lead OTA to conclude that M85 has significant

but poorly quantified and highly variable potential

to reduce urban ozone. In particular, there have been

few tests of M85 vehicles that have measured the

individual compounds in their emissions, even

though such ‘‘speciation’ of emissions is important

in accurately determining their photochemical reactivity. Other confounding factors include the essentially prototype nature of available methanol vehicles, potential future changes in the reactivity of

gasoline exhausts (altering the trade-off between

methanol and gasoline), and uncertainty about future

progress in controlling formaldehyde emissions.

And whatever net emissions changes are caused by

using methanol vehicles, the effect of these changes

on levels of urban ozone will vary with location and

meteorological conditions. Ozone benefits from

reduced organic emissions will occur only in urban

areas where ambient concentrations of volatile

organic compounds are low enough, relative to NOX

concentrations, that reducing organic emissions is an

effective ozone strategy. In a few urban areas—

Atlanta, for example-and in many rural areas,

controlling NOx

, is a more promising ozone control

strategy, and methanol use would provide little or no

ozone benefits. To conclude, we do not reject the 30

percent reduction as a possible average effect, but

some of the available data suggest smaller benefits,

and whatever the average effect, the actual outcome

would vary widely around that average.

Claims about the expected costs of methanol

similarly have ranged from “competitive with and

possibly below gasoline costs” to “much higher

than gasoline. ” Much of the range can be accounted

for by legitimate differences in assumptions about

the scale of a methanol program, likely gas feedstock

sources, capital risk factors, and so forth. The

extremes of the range, however, tend to assemble

several low probability assumptions (either all

optimistic or all pessimistic) together at once, and in

a few instances choose values for key parameters

that seem unlikely. OTA concludes that methanol

will most likely be more expensive than gasoline (at

current prices) in the early stages of an alternative

fuels program. There may, however, be a few

countries willing to subsidize some methanol production to obtain hard currency or for other reasons,

making available a modest supply at low cost.

Without government guarantees, the methanol’s

gasoline-equivalent price is likely to be at least

$1.50/gallon during this period; government guarantees could bring it down as low as $1.20 if natural gas

feedstock costs were very low. If the program were

to grow quite large over time and were perceived to

be stable, scale economies and lower costs of capital

would significantly lower methanol costs relative to

gasoline, with the lower end of the range dipping

below $1.00/equivalent gallon. However, the uncertainty of the costs, and their sensitivity to various

government decisions and other factors, remains

12some ~ew, ~Speci~y he A~~n Nofi Slope and Canadian frontier, wo~d rqu~e tec~ological advances to become IOw-cost Supphers.
16 ● Replacing Gasoline: Alternative Fuels for Light-Duty Vehicles

Table 2—Two Scenarios of Methanol Costs, $/Gallon

(Base Cases: $l.OO/mmBtua natural gas cost)

Scenario

Transition period, Established market,

free market scenario some government

few guarantees, guarantees,

flex fuel vehicles dedicated vehicles

Part of fuel cycle (cost, $/gallon) (cost,$/gallon)

Production . . . . . . . . . . . . . . . . . . . . .

Shipping . . . . . . . . . . . . . . . . . . . . . . .

Distribution . . . . . . . . . . . . . . . . . . . . .

Markup . . . . . . . . . . . . . . . . . . . . . . . .

Taxes . . . . . . . . . . . . . . . . . . . . . . . . .

Retail price . . . . . . . . . . . . . . . . . . . .

Midrange price . . . . . . . . . . . . . . . . .

Efficiency factor . . . . . . . . . . . . . . . .

Gasoline equivalent price . . . . .

0.55-0.65

0.03-0.08

0.03

0.09-0.12

0.12-0.13

0.82-1.01

0.85-0.95

1.9

1.61-1.81

Gasoline equivalent prices if natural gas costs change

$0.50/mmBtu gas . . . . . . . . . . . . . . 1.51-1.71

$1.50/mmBtu gas . . . . . . . . . . . . . . 1.71-1.81

0.28-0.30

0.02-0.03

0.05-0.06

0.06-0.09

0.12

0.53-0.60

0.53-0.60

1.67-1.82

0.89-1.09

0.81-1.06

0.96-1.15

a mmBtu = millions of British thermal units

SOURCE: Office of Technology Assessment.

very high. Table 2 illustrates the components to two

cost ‘‘scenarios” that represent relative extremes in

methanol/gasoline competitiveness.

Methanol prospects for market success would

benefit from the following:

●

●

●

●

●

commercialization of direct oxidation methods

of methanol production from natural gas (see

figure 6),

development of a world trade in methanol

produced from remote sources of natural gas,

freer evidence of major air quality benefits,

particularly in cities other than Los Angeles,

development of practical cold-starting methods

for M1OO, and

development of improved controls for formaldehyde emissions. -

Ethanol is, like methanol, a familiar liquid fuel

that can be quite readily used, with few problems, in

vehicles competitive in performance with gasolinefueled vehicles. Important advantages are its ease of

use as a fuel component of gasoline suitable for

existing vehicles and its attractiveness as a stimulus

to the farm economy, since its primary feedstock is

corn.

Ethanol made from food crops appears to be the

most expensive of the major alternative fuels.

Current ethanol production is profitable only because of a $0.60/gallon subsidy provided by the

Federal Government through exemption of “gasohol,” a 10 percent blend of ethanol with gasoline,

from $0.06/gallon of Federal gasoline taxes. Some

farm States allow gasohol a further exemption from

State taxes.

Under certain grain market conditions, ethanol

production may generate reductions in required

Federal crop subsidies and other significant secondary economic benefits to the Nation (aside from the

benefits generated by any reduction in oil use).

Under other conditions, however, it may generate

large secondary costs. In particular, a major expansion of ethanol use might raise the Nation’s food bill

by billions of dollars.

The environmental effects of increasing corn

production for ethanol manufacture are a matter of

concern, because corn is an energy-intensive, agricultural-chemical-intensive, and erosive crop (see

table 3). The net environmental impacts of ethanol

use will be highly dependent on the overall adjustment of the agricultural system to large-scale

ethanol production. The stillage byproduct of ethanol production is a high protein cattle feed that can

displace soybean production. As long as this displacement occurs, the net agricultural impacts such

as soil erosion and pesticide use are reduced; if

byproduct markets become saturated, net environmental impacts may increase sharply. The level of

ethanol production that would saturate the byproduct market is uncertain.

An important claim made for crop-based ethanol

is that it will generate significant greenhouse bene-
Executive Summary ● 17

Figure 6-Converting Methane to Methanol

Making methanol from methane with today’s technology generally involves a two-step process. The

methane is first reacted with water and heat to form carbon monoxide and hydrogen—together called synthesis gas. The synthesis gas is then catalytically converted to methanol. The second reaction unleashes a

lot of heat, which must be removed from the reactor to preserve the activity of the temperature-sensitive

catalyst. Efforts to improve methanol synthesis technology focus on sustaining catalyst life and increasing

reactor productivity.

Step 1

?r:-~ ~

Synthesis Gas

,..:.. Methane . .“ .“ ::’.”. ., 0 ;., ‘. “. .“. . .. . .,.,,. :.,...

& t: ”

+gg ~

, “:>~:;~~$, —1 % Carbon Monoxide Hydrogen

w

Step 2

Heat Pressure

J-Pressure Heat \\ I \ /\ z

t

In a novel alternative to the two-step method, chemical catalysts are being developed that mimic the biological conversion of methane by enzymes. The iron-based catalyst captures a methane molecule, adds oxygen to it, and ejects it as a molecule of methanol. If this type of conversion could be performed on a

commercial scale, it would eliminate the need to first reform methane into synthesis gas, a costly, energyintensive step.

SOURCE: EPRI Journal, “Methanol: A Fuel for the Future?” October/November 1989.
18 ● Replacing Gasoline: Alternative Fuels for Light-Duty Vehicles

Table 3-Environmental Impacts of Agriculture

Water

Water use (irrigated only) that can conflict with other uses or

cause ground water mining.

Leaching of salts and nutrients into surface and ground waters,

(and runoff into surface waters) which can cause pollution of

drinking water supplies for animals and humans, excessive

algae growth in streams and ponds, damage to aquatic

habitats, and odors.

Flow of sediments into surface waters, causing increased

turbidity, obstruction of streams, filling of reservoirs, destruction

of aquatic habitat, increase of flood potential.

Flow of pesticides into surface and ground waters, potential

buildup in food chain causing both aquatic and terrestrial

effects such as thinning of egg shells of birds.

Thermal pollution of streams caused by land clearing on stream

banks, loss of shade, and thus greater solar heating.

Air

. Dust from decreased cover on land, operation of heavy farm

machinery.

● Pesticides from aerial spraying or as a component of dust.

. Changed pollen count, human health effects.

● Exhaust emissions from farm machinery.

Land

. Erosion and loss of topsoil decreased cover, plowing, increased

water flow because of lower retention; degrading of productivity.

. Displacement of alternative land uses-wilderness, wildlife,

esthetics, etc.

. Change in water retention capabilities of land, increased

flooding potential.

● Buildup of pesticide residues in soil, potential damage to soil

microbial populations.

● Increase in soil salinity (especially from irrigated agriculture),

degrading of soil productivity.

. Depletion of nutrients and organic matter from soil.

Other

● Promotion of plant diseases by monoculture cropping practices.

. Occupational health and safety problems associated with

operation of heavy machinery, close contact with pesticide

residues and involvement in spraying operations.

SOURCE: Office of Technology Assessment, 1990.

fits, with the regrowth of its feedstock corn crop

compensating for much of the CO2 produced by its

combustion in vehicles. As with its other environmental impacts, the greenhouse impact also depends

on factors such as avoidance of byproduct market

saturation. Even under the best circumstances,

however, substantial amounts of CO2 will be produced by corn growing and harvesting, ethanol

distillation, and other parts of the ethanol fuel cycle.

OTA concludes that it is unlikely that ethanol

production and use with current technology and fuel

use patterns will create any significant greenhouse

benefits.

for ethanol production from wood and lignocellulosic materials materials are substantially reduced in

cost—a goal of current research programs at the

Solar Energy Research Institute and elsewhere. In

particular, ethanol from these sources should provide a significant greenhouse benefit in addition to

the elimination of the food/fuel competition problem

inherent in a corn-to-ethanol production system.

Ethanol’s likely contribution to improved air

quality has been another area of some contention.

Recent testing and air quality modeling indicate that

use of gasohol, a 10 percent ethanol blend in

gasoline, reduces carbon monoxide emissions even

in newer vehicles (previously it was thought that

newer vehicles would not benefit). Also, although

addition of ethanol to gasoline increases its vapor

pressure and thus its evaporative emissions, this

negative effect is compensated for by the emissions’

lower photochemical reactivity and a reduction in

ozone formation caused by the lower CO emissions.

Thus, the use of blends is unlikely to increase ozone

concentrations even if fuel vapor pressure is not

adjusted back to the original level.

The ability of high concentration ethanol fuels to

reduce ozone levels is essentially untested with

modern U.S. vehicles, and this potential remains a

source of contention. Assumming that emissions o f

acetaldehydes (which are high for ethanol fuels, low

for gasoline) can be satisfactorily controlled, it

seems likely that ethanol use will offer an ozone

reduction benefit, given ethanol’s physical characteristics—but this remains untested. Recent testing should offer needed evidence on this potential.

Introduction of ethanol as a transportation fuel

would benefit from:

●

●

●

●

●

Both ethanol costs and environmental consequences would improve significantly if technologies

testing of its emissions performance as a neat

fuel in catalyst-equipped vehicles;

development of low-cost production systems

using woody biomass as a feedstock;

indications that other markets for American

corn will remain depressed for the long term;

improvements in distillation technology, or

commercialization of membrane or other advanced separation technologies; and

development of an international market in the

fermentation byproducts from ethanol production.

lq~e to~ Consma cost may be higher once vehicle costs are factored in.
Executive Summary ● 19

Natural gas may be cheaper as a fuel than

gasoline13; the net cost to the consumer depends on

the precise parameters of the distribution system. It

can fuel a dedicated vehicle of equal performance to

gasoline-powered vehicles, with generally lower

emissions (except for potentially higher NOX emissions) and equal or higher efficiency. In particular,

natural gas’ ability to yield large ozone benefits is

much clearer than is the case with M85. Other

important advantages include the availability of the

United States’ extensive pipeline network and extensive U.S. experience in gas handling. The use of

natural gas may also confer some moderate greenhouse benefits, because of natural gas’ low carbon/

hydrogen ratio (yielding low CO2 emissions per unit

of energy), but the effect is highly sensitive to

several system variables that can vary over a wide

range. Because methane, the principal constituent of

natural gas, is itself a powerful greenhouse gas, high

tailpipe methane emissions coupled with distribution system leakage conceivably could cause a net

greenhouse loss.

The use of natural gas could confer energy

security benefits, though these will depend on the

nature of the market structure. Suppliers of natural

gas will not necessarily be the same as supplers of

methanol; methanol’s natural gas feedstock must be

very low in cost to be competitive, whereas natural

gas suppliers can use a higher priced feedstock so

long as transportation costs to market are not too

high. If a natural gas program were to grow very

large, however, eventually the marginal suppliers

would be the same countries that could serve as

methanol suppliers.

Potential natural gas suppliers for a U.S. transportation market are, in order of probability, Canada,

Mexico, and then a variety of nations shipping gas

in the form of LNG. According to the Department of

Energy, likely LNG suppliers for the United States

are Algeria, Norway, Nigeria, and Indonesia, which

may be viewed as a group as reliable suppliers. And,

as with methanol, factors such as high capital costs

of the supply system, the early stage of development

of world gas resources, and ongoing changes in

U.S./Eastern Bloc relationships are all positive

factors for improved energy security.

Natural gas in the form currently used in vehicles—

as compressed natural gas, CNG—has some important drawbacks as a transportation fuel, primarily

limited range (CNG at 3,000 psi has one-fourth the

volumetric energy density of gasoline), higher

vehicle cost, slow refueling, and a limited base of

technology development for gas-powered vehicles.

Also, the transition vehicles that must establish the

market would likely be dual-fueled vehicles, which

have high first costs and some performance penalties

when using gas.

14 Some of these disadvantages,

particularly the range limitations, may be ameliorated by using gas in its denser liquefied form, LNG.

New storage technology for LNG, which must be

kept at –258 ‘F, appears to offer the potential for

practical vehicular use.

Electricity as a vehicular “fuel” has the important advantages of having an available supply

infrastructure (except for home charging stations15 or

an alternative recharging mechanism) that is adequate now—if refueling takes place at night—to fuel

several tens of million vehicles, and of generating no

vehicular air emissions. The latter attribute is

particularly attractive to cities with severe ozone

problems. Also, with the exception of some imports

from Canada, the electricity needed to run a fleet of

electric vehicles would be domestically produced.

Recent improvements in ac converters have improved the prospects for successful electric vehicles.

Because current commercial batteries simply cannot

compete in range and performance with gasolinepowered vehicles, however, the primary determinant

of the future of EV’s is the success of ongoing

battery research and engineering development, and/

or the willingness of the driving public to accept

substantial changes in vehicle performance and

refueling characteristics. The outlook for significant

improvement in commercial battery technology—

especially regarding energy density and power—

now appears promising, but there remain substantial

uncertainties about the costs and, in most cases, the

durability of advanced batteries, and previous confident predictions about imminent breakthroughs in

battery technology have repeatedly proved incorrect. The market prospects are further limited by the

cost and difficulty of rapid recharge.

IdHowever, ~ese pe~ties need not be as substantial as might appear from the performance of most current dual-fueled vehicles, Wtich do not

incorporate timing and other adjustments that will improve performance with gas.

W the ve~cle IMS an onbomd charger, the recharging station will be simply an electric socket (probably with 220volt capacity) witi gmwd-fatit

protection. Adding this type of socket to an existing house can cost several hundred dollars, however.
20 ● Replacing Gasoline: Alternative Fuels for Light-Duty Vehicles

Despite virtually zero vehicular emissions, EVs

will have air emissions impacts because of the

emissions from the electricity production needed for

their recharging. Although EV fleets in different

parts of the country would be recharged from quite

different mixes of powerplants, in general, for at

least the next decade or two, much of the power

would likely come from coal-fired baseload steamelectric plants. Although nuclear and hydroelectric

sources would be more desirable as recharging

sources from the perspective of air emissions

(including greenhouse emissions), they are less

likely than coal-fired plants to be cycled down at

night and to have excess capacity to contribute.

Consequently, the use of EVs to replace gasoline

vehicles trades off a reduction in urban hydrocarbon,

carbon monoxide, and NOX emissions (from the

removal of the gasoline vehicles) against an increase

in regional emissions and long range transport of

NOX and S0x

, (from the increase in power generation). The quantitative trade-off depends on the fuel

burned and controls used; uncontrolled coal-fried

powerplants burning high sulfur coal (typical of

plants in the Ohio River Basin) can easily produce

10 or 20 times more SOX than a modern plant with

scrubbers burning low or medium sulfur coal. New

Clean Air Act regulations governing acid rain

emissions will likely narrow the environmental

trade-offs among powerplants by imposing new

emission controls on the worst polluters.

Some recent EV designs, in particular the General

Motors Impact, may overcome some of the shortcomings generally associated with electric vehicles.

The Impact achieves a substantial boost in range by

attaining extremely high levels of vehicle efficiency,

incorporating an extraordinarily effective aerodynamic design (drag coefficient of 0.19 v. 0.29 for the

most efficient commercial gasoline vehicle) and

ultra-low-friction tires among other measures. (Achieving high vehicle efficiencies is an important strategy

for all alternative fuels because of their low energy

content per unit volume. It is particularly critical for

EVs and hydrogen powered vehicles, with the

lowest densities of all the fuels.) However, the

Impact and other vehicles remain much more

expensive to operate than gasoline-powered vehicles, primarily because of the need for frequent

battery replacement, and they have critical development needs that must be met before they can be

successfully commercialized.

EVs, along with hydrogen vehicles, are often

characterized as a primary means of reducing

greenhouse emissions because nonfossil means of

generating large quantities of electricity (e.g., nuclear, hydro) are in common use, while nonfossil

means of creating large quantities of liquid and

gaseous fuels are not. The greenhouse potential of

EVs is obviously quite real, and could be realized

with a resurgence in nuclear power and/or the

large-scale commercialization of other nonfossil

technologies. For generating plants based on renewable energy, plants using biomass are more likely to

be used for recharging EVs than those using direct

solar energy, because the latter are more suitable for

providing daytime peak power. Development of new

electricity storage systems would, of course, broaden

the potential uses of solar electric powerplants.

In the near future, the greenhouse impact of an EV

system is most likely to be small. The impact will

depend on the mix of power generation facilities

available to recharge the vehicles and the efficiency

of both the EVs and the vehicles they replace. As

noted above, except in the few areas where excess

nuclear or hydro capacity is available, EV recharging will come from fossil-fueled plants, primarily

coal-powered, with negative greenhouse implications. Also, the net impact depends on the vehicles

actually replaced, not on some ‘‘average’ vehicle.

The modest performance of likely EVs most resembles that characteristic of highly fuel-efficient vehicles; if the most efficient vehicles in the gasoline

fleet are those being replaced, the net greenhouse

advantage will be smaller than generally estimated.

One analysis by researchers at the University of

California at Davis of the net effect of using

coal-fired power to charge EVs calculates that

greenhouse emissions would increase 3 to 10 percent

over gasoline vehicles. If new, efficient gas-fueled

combined cycle powerplants can be used to recharge

EVs over the next few decades, however, such a

system would gain significant greenhouse benefits,

up to 50 percent where such powerplants were the

sole electricity source. Figure 7 illustrates the effect

on net greenhouse emissions of changing the electricity recharging source.

Hydrogen’s primary appeal is its cleanliness-its

use in vehicles will generate very low emissions of

hydrocarbons and particulate (from lubricating oil

consumption), virtually no emissions of sulfur

oxides, carbon dioxide, or carbon monoxide, and

only moderate emissions of NOX. Primary draw-
Executive Summary ● 21

Figure 7—Effect of Electricity Source on

Greenhouse Impact of Electric Vehicles

(Total fuel cycle considered except construction materials manufacture)

3

Coal 10

-1’a

Year 2000 mix -23 ~

Conventional gas -30 -

Comb. Cycle gas -49

Nuclear - -91

Solar - -100

Decrease 4 b

Increase

Gree nhouse

Im pact

r —T— –

r

—

-

–—– I ‘ v l — - !

-120 -100 -8 0 -60 -40 -20 0 20 40

Percent increase from gasoline vehicle

Vehicle: EV powered by sodium sulfur batteries, ac powertrain,

150-mile range, 650-pound weight penalty v. competing gasoline

car.

SOURCE: D. Sperling and M.A. DeLuchi, Transportation Fuels and Air

Po//utjon, prepared for Environment Directorate, OECD, March

1990, draft.

backs are high cost fuel, limited range (liquid

hydrogen has one-sixth the energy density of gasoline), and difficult and expensive onboard storage--

either in heavy and bulky hydride systems that will

adversely affect range and performance, or in bulky

cryogenic systems that will reduce available space

onboard the vehicle. In several ways, hydrogen

vehicles share many pollution and performance

characteristics with EVs, but with the potential for

rapid refueling, countered by more difficult fuel

handling. As noted above, the development of

vehicle efficiency technology is critically important

for successful introduction of hydrogen vehicles (as

it is for EVs) because of hydrogen’s extremely low

energy density.

At the moment, the least expensive source of large

quantities of hydrogen (but still at substantially

higher system costs than gasoline) is from fossil

fuels, either from natural gas reforming or coal

gasification, the latter of which would exacerbate

problems with greenhouse gas emissions. Production of hydrogen from photovoltaic (PV) systems

(using the electricity to electrolyte water) would

yield an overall fuel supply system that generated

virtually no greenhouse gases, but costs will be

prohibitively high without major success in cost

reductions such as those associated with improvements in PV module efficiency and longevity. Even

the most optimistic projections about cost reductions have photovoltaic hydrogen systems competing with gasoline only when gasoline prices rise by

about 50 percent. Many might consider this added

cost to be quite acceptable, however, given hydrogen’s potential value to reducing urban ozone and

greenhouse emissions.

Reformulated gasoline is especially appealing as

a potential fuel because it requires no vehicle

adjustments (though these might be desirable under

some circumstances to maximize performance) or

new infrastructure, aside from modifications to

existing refineries. Of particular value is the potential to use reformulated gasoline to reduce emissions

from existing vehicles; market penetration-and the

air quality benefits associated with such penetration—

require only providing adequate fuel supplies, unlike

the other fuels that must wait for fleet turnover.

However, with the exception of a small quantity of

supply available in southern California and a few

other cities, reformulated gasoline is primarily a

concept; formulas for fuel constitution, and likely

costs, await the results of a just-started testing

program being sponsored by the oil and automobile

industries, and the ultimate ability of reformulated

gasoline to lower emissions is unclear at this time.

Further, it is impossible at this time to predict how

much reformulated gasoline the petroleum industry

will be capable of producing. And reformulated

gasoline offers lesser benefits in energy security

(except, possibly, to the extent that its use prevents

refinery closures from competition with alternative,

imported fuels) or greenhouse emissions. than other

fuels, because it is primarily oil-based and may

increase refinery energy use somewhat. The oxygenate component of reformulated gasoline may offer

some energy security benefits since it will likely be

produced from natural gas-based methanol or domestically produced ethanol.
Chapter 1

Introduction

Substituting alternative fuels for gasoline in

highway vehicles is being promoted by the U.S.

Environmental Protection Agency, the California

Energy Commission, and others as a way to combat

urban air pollution as well as a means of slowing the

growth of oil imports to the United States and—for

some of the longer term alternatives---of delaying

global climate change. The primary suggested alternative fuels include the alcohols ethanol and methanol, either ‘neat’ (alone) or as blends with gasoline;

compressed or liquefied natural gas (CNG or LNG);

liquefied petroleum gas (LPG), which is largely

propane; hydrogen; and electricity. Each of the

suggested liquid and gaseous fuels has one or more

features-high octane, wide flammability limits,

and so forth-that imply some important advantage

over gasoline in powering highway vehicles. Electric vehicles (EVs) may be particularly attractive to

urban areas because they operate virtually without

air emissions. (However, the emissions from the

powerplants providing the electricity are an important concern, even though these plants may be

separated geographically from the area of vehicular

use.) Similarly, hydrogen-fueled vehicles would

emit only NOX in significant quantities, and even the

NOX emissions could be eliminated if the hydrogen

was used in a fuel-cell-powered EV.l

Not surprisingly, each of the suggested fuels has

disadvantageous as well as advantageous features.

Methanol is more toxic than gasoline, for example,

and natural gas engines may have difficulty in

achieving hoped-for large reductions in vehicular

nitrogen oxides emissions; ethanol production may

require crop expansion onto vulnerable, erosive

lands; and so forth. Decisions about promoting the

introduction of alternative fuels should carefully

consider the full range of effects likely to accompany

such an action.

Some experience has already been gained with

each of the fuels. Hundreds of thousands of CNGfueled vehicles operate worldwide, particularly in

Italy, Australia, and New Zealand; about 30,000

CNG vehicles operate in the United States. Over

300,000 vehicles in the United States, primarily in

fleets, are fueled by LPG. Nearly a billion gallons/

year of ethanol are used in the U.S. fleet today in

‘‘gasohol, ’ a 10 percent blend with gasoline.

Methanol serves as the feedstock for methyl tertiary

butyl ether (MTBE), a widely used octaneenhancing agent for gasoline. Currently, about 25

percent of the United States’ total annual methanol

use of 1.7 billion gallons is devoted to MTBE

manufacture, and about a billion gallons/year of

ethanol are blended with gasoline. Brazil (and

related auto manufacturers, including the U.S. “Big

Three”) has extensive experience with ethanolfueled vehicles. And experience has been and

continues to be gained with several small fleets of

methanol-powered vehicles built for test purposes.

Commercial (as well as experimental) electricitydriven light-duty vehicles exist today, both in the

United States and overseas, and experimental hydrogen-fueled vehicles have been developed in Germany and Japan. Table 1-1 displays the volumes of

alternative fuels used in several countries.

Other than fuel cost, the major barrier that most

alternative fuels must overcome is the need to

compete with the highly developed technology and

massive infrastructure’ that exists to support the

production, distribution, and use of gasoline as the

primary fleet fuel. Any new fuel must compete with

the ready availability of gasoline throughout the

country, the massive amounts of capital and engineering time that have been invested in continuing

engine modifications to optimize performance for

gasoline, and consumers’ lifetime acceptance of

gasoline. This competition will be an especially

formidable problem if the fuel requires a totally new

production and/or distribution network or if it

significantly reduces vehicle performance and/or

range.

In particular, the introduction of vehicles using

alternative fuels creates a difficult transition problem because fuel availability is likely to be limited

geographically during the first years following

introduction of the fuel. This problem will likely be

l~e ~ag~~de of ~ ~fi~~ion~ and other ~nvfioment~ impacts of producing the hydrogen depend on the t&hnology used. At OIM2 ~t,COd

gasification would generate relatively large impacts; at the other, electrolytic production from water using solar energy as a power source would generate

relatively low impacts aside from land coverage.

–23–
24 ● Replacing Gasoline: Alternative Fuels for Light-Duty Vehicles

Table l-l—Major Users of Alternative Fuels (thousands of barrels/day of

gasoline equivalent-estimated)

Synthetic

Country Total LPG Ethanol CNG gasoline Methanol Electricity

Brazil . . . . . . . . . . . . . 110 — 110 — — — —

Japan . . . . . . . . . . . . . 79 79 — — — — —

United States . . . . . . 62 18 34 1 — 9 —

Italy . . . . . . . . . . . . . . 57 42 — 15 — — —

New Zealand . . . . . . 45 3 — 9 33 — —

Holland . . . . . . . . . . . 27 27 — — — — —

Europe . . . . . . . . . . . 18 9—— — 9 —

Canada . . . . . . . . . . . 8 7 — 1 — — —

U. K. . . . . . . . . . . . . . . . 2 — — — — — 2

Australia . . . . . . . . . . 2 2—— — — —

All others . . . . . . . . . . 37 15 8 14 — — —

Total . . . . . . . . . . . 447 202 152 40 33 18 2

World gasoline -15,700 thousand bbl/day (for comparison)

U.S. gasoline -6,800 thousand bbl/day (for comparison)

Ethanol and Methanol estimates are based on fuel production data. All others are based on the simplified assumption

that vehicles use the equivalent of 800 gallons of gasoline per year.

SOURCE: U.S. Department of Energy, Assessment of Costs & Benefits of F/exib/e and Alternative Fuel Use in the US

Transportation Sector Progress Report Two: The International Experience, DOWPE-0085, August 1988.

aggravated by the limited range of alternative fuel

vehicles, caused by the low volumetric energy

density (compared to gasoline) of the alternative

fuels (or of the batteries in EVs). To counter this

problem, some plans for the introduction of alternative fuels call for vehicles capable of using both

gasoline and alternative fuels either one-at-a-time

(“dual-fueled vehicles”) or mixed together in varying proportions (flexible-fueled vehicles, or FFVs);

for EVs, the equivalent is a so-called hybrid vehicle

combining electric motors with small internal combustion engines or fuel cells to allow extended range.

Unfortunately, the multifuel vehicles generally will

be more costly than dedicated vehicles and inferior

to them in fuel efficiency, emission characteristics,

and performance,2 reducing the benefits for which

the alternative fuels are being vigorously promoted.

Other measures for coping with range problems

include a strong emphasis on vehicle fuel efficiency; 3 introduction of higher pressure storage

tanks and cryogenic or hydride storage for gaseous

fuels; and accepting the weight and space penalties

associated with larger storage tanks.

The barriers to introduction and acceptance are

not identical for the different, competing alternative

fuels. For ethanol and methanol, the major barriers

are potentially high fuel costs and the lack of

pipelines, filling stations, and other pieces of a

supply infrastructure; some nagging problems with

vehicle performance need to be solved, but these

seem likely to be of lesser importance than the cost

and infrastructure problems. In contrast, aside from

the need to establish large numbers of home

charging stations, fuel cost and the fuel supply

infrastructure do not appear to represent major

barriers to electric vehicles; instead, the primary

barriers are the high first costs, short battery life (of

current batteries) and inferior range, performance,

and refueling capabilities of EVs compared to

existing gasoline-powered vehicles (though hybrid

vehicles combining electric and gasoline propulsion

and energy storage systems can overcome the range

and performance barriers, at additional cost).

For vehicles powered by compressed natural gas,

range is an important barrier, as is the lack of a retail

sales infrastructure; on the other hand, long-range

distribution, a problem for ethanol and methanol, is

not a problem for gas because gas services currently

can reach 90 percent of the U.S. population through

its extensive pipeline network.4 (Given the extensive

?I.n particular, the need to operate on gasoline compromises the ability to redesign engines to take advantage of the favorable properties of the

alternative fuels.

3For exwple, Genti~ Motors> proto~e “~pact” elec~c vehicle ~s an ~usu~ylowaerodynamic&agcoefficient of ().19 and high preSSUre

tires that eut rolling resistance in half. SOURCE: General Motors Technical Center, ‘‘Impact Tecbnical HighLights, press release of Jan. 3,1990, WarrerL

Mr.

4u.s. ~q~ent of Ener=, A~~e~~mnt of co~t~ and B~nefits of Flexible ad A[ter~tive Fuel use in the Us. Transportation Sector, Technical

Report Five, Vehicle and Fuel Dism”bution Requirements, January 1990, Draft.
Chapter 1--Introduction ● 25

Photo cmo’it: Ford Motor Co.

This Ford Flexible Fuel vehicle, an adaptation from a regular production Taurus, will operate on methanol, ethanol, gasoline, or any

combination of those fuels. Similar prototypes or limited production vehicles have been introduced by a number of other vehicle

manufacturers.

use of gas in residential applications, use of home refueling and with losses in thermal efficiency

compressors might help overcome the retail infra- during liquefaction.

structure barrier-though at considerable cost.) In

addition, CNG/gasoline dual-fueled vehicles are

expensive and of somewhat lower power than

competing gasoline vehicles, which may make the

transition to dedicated vehicles somewhat harder

than for some competing fuels. For hydrogenpowered vehicles, the comparative lack of technology development, high fuel costs, lack of a supply

infrastructure, and high vehicle cost, low range, and

high fuel storage space requirements are major

Introducing alternative fuels will likely require

large capital investments, government interference

in markets, increased consumer expenditures on

transportation, and, for most fuels, some decrease in

consumer satisfaction. Undertaking such an introduction is justified only if the rewards, in terms of

reduced pollution or increased energy security, are

valued very highly and if other, less expensive

measures are not available to achieve the same ends.

Given the substantial differences in the importance

barriers. For natural gas, use of liquefied rather than that various policymakers attach to the potential

compressed gas would help to overcome range benefits, and differences in their willingness to

problems, although at the loss of the option for home impose monetary and convenience costs, there
26 ● Replacing Gasoline: Alternative Fuels for Light-Duty Vehicles

would be substantial disagreement about the urgency of introducing alternative fuels, the appropriate policy measures to accomplish this introduction,

and the appropriate ranking of fuels even if the many

uncertainties about fuel costs, pollution effects, and

other characteristics were resolved.

This report makes it clear that there are substantial

uncertainties and remaining concerns about all

aspects of the fuels; that costs will be high, especially

during the transition from gasoline to the alternatives; and, for most of the fuels, that consumers

would have to make substantial adjustments to allow

successful entry of the fuels into the marketplace.

The report also makes clear that alternative fuels can

provide substantial levels of transportation service at

costs to consumers that are similar to or lower than

costs already being paid in Europe,s that some of the

fuels have long-term potential to drastically reduce

greenhouse gas emissions, and that there are ample

supplies of natural gas and other nonrenewable

feedstocks to provide at least several additional

decades of fuel supply as a bridge to renewable

sources of transportation fuel.

Existing analyses of the costs and benefits of the

alternative fuels are based on a variety of evidence.

As noted above, many of the fuels have been used in

vehicles for years, and much of this experience is

relevant to projections of future, wider use. Also,

aside from their vehicular use, most of the fuels have

been in commerce for decades, and the experience

with producing and handling the fuels will also aid

the projections. Finally, unlike gasoline, which is a

complex and nonuniform blend of hydrocarbons,

most of the suggested alternative fuels have simple

chemical structures and are relatively uniform in

quality-which should improve the accuracy of

extrapolations of their performance in vehicles.

Nevertheless, evaluation of the costs and benefits

of the various alternative fuels relative to gasoline

and to each other is an exercise handicapped by four

primary areas of uncertainty. First, the technology

for producing and using alternative fuels is still

developing and changing. Ongoing research programs are attempting to overcome or ameliorate the

technical problems listed above and reduce the

overall system costs for the competing alternative

fuels. The short-term problems associating with

bringing the first generation of alternative fuel

vehicles to market are, for most of the fuels,

relatively minor, and solving the remaining problems for these vehicles introduces only moderate

uncertainty into projections of cost, performance,

and system characteristics. For the longer term,

though, bringing to market advanced technology,

optimized vehicles, perhaps dedicated to a single

fuel (and perhaps with a neat fuel rather than a

blend), with a fuel supply obtained from large-scale,

advanced-technology production plants, involves

major uncertainties. The outcome of development

programs for these technologies is essentially unpredictable, but the fact that most of the fuels are in an

early stage of development for transportation use6

makes it likely that at least some of the characteristics of future technologies available for supply and

vehicle systems—and conclusions about their relative costs and benefits-will be considerably different from the characteristics of the technologies

available today. For example, ethanol currently is

one of the most expensive of the alternative highway

fuels, and the fact that its primary source of

feedstock materials in the United States is corn (it is

sugar cane in Brazil) creates some potential problems for any attempt to greatly increase ethanol

production. Ongoing research on manufacturing

ethanol cheaply from wood conceivably could

drastically improve ethanol’s attractiveness as a

transportation fuel, by lowering costs and by reducing or eliminating the potential for competition

between society’s food and fuel requirements. Similar “technological breakthrough” potential exists

for the other fuels. Analysts and policymakers

should be wary, however, of confident predictions

that the potential benefits of such breakthroughs will

actually occur-there are few guarantees in the

research and development process.

Second, uncertainty is introduced by the vagaries

of the transition from successful research project to

real world system. The process of moving from

promising laboratory experiments and technology

prototypes to establishment of large vehicle fleets

and an elaborate supply infrastructure involves

5Al~oughtoday’s fiel-cost differenti~betw~n the United States and Europe is in the form of taxes, which benefits government services, as oPPos~

to differential costs in raw materials, processing, and the other factors of production.

6Na~~gaS is ~exwptiom S~ce hm&edS of thou~mds of vehicles me in use worldwide. ~esevehicles are mtrofitfromgasoline vehicles, however,

and do not attain the performance likely to be required to break out of niche markets in the United States. Similarly, ethanol is widely used in Brazil,

but the Brazilian experience is not encouraging for U.S. ethanol use.
Chapter 1-Introduction ● 27

massive scaleups, design trade-offs (and, often,

acceptance of lower performance in exchange for

cost reductions or improved marketability) to allow

for mass production and practical vehicle maintenance, improvements in design as information is

gained, and other factors that diminish the value of

preliminary estimates of costs and performance. At

the current time, without much actual experience to

temper judgments, analysts with optimistic views

see primarily the numerous potential opportunities

for reducing emissions, increasing efficiency and

power, and lowering costs associated with the

alternative fuels; and analysts with pessimistic

views instead see primarily the numerous problems—

higher emissions of aldehydes with alcohol fuels,

materials problems, and so forth-associated with

the same fuels. Although the growing experience

with small fleets of alternative fuel vehicles-for

example, the highway fleet of several hundred

methanol-fueled vehicles—will settle some of the

ongoing controversies, others may remain until mass

production places many thousands of such vehicles

on the road and several years of driving experience

are amassed. T

Third, it is difficult to predict in advance what the

scale of alternative fuels development will be

(though the scale of development will, of course,

depend strongly on government policy), and whether

such development in the United States would stimulate similar development in other countries . . . yet

the scale of development of the fuels will affect the

costs and characteristics of their supply systems. For

example, a moderate-sized shift to natural gas

vehicles7 could readily be supplied by domestic gas

sources or pipeline imports from North America, but

larger scale development would require LNG imports from overseas, at different costs and implications for national security. Similarly, vehicular

methanol development, especially if it were confined to the United States, might first be accommodated by methanol produced from gas found in

remote areas, which may be cheap and, by providing

some additional diversity to transportation fuel

supply sources, could be beneficial to national

security concerns about OPEC dominance of the

liquid fuels market. A large worldwide shift to

methanol might, however, have distinctly different

costs and security implications, because the geographical preponderance of world gas reserves and

resources in the Middle East and Eastern Bloc

nations could become important in such a scenario.

The security implications of a major Eastern Bloc

role in methanol production—and, indeed, the

overall significance of energy security concerns—

may, of course, need to be rethought in light of recent

political developments in that part of the world.

The scale of a U.S. Government-backed alternative fuels program will depend on whether the

program is principally an air quality control measure

aimed at the few nonattainment areas that canno t

satisfy ozone standards by conventional means, or

instead is an energy security measure, which would

demand a much larger market share for the fuels. The

Federal Government might also envision the program as two-phased, with the first phase a smaller

program aimed principally at air quality and designed as well to work out ‘‘bugs’ in the system,

with a follow-on phase designed more for energy

security and aimed at spreading fuel use throughout

the country.

Fourth, the gasoline-based system that alternative

fuels will be judged against is a moving and movable

target. The prospects for conversion to alternative

fuels are putting enormous pressure on the petroleum industry to devise petroleum-based solutions

to the problems alternative fuels are designed to

address. Although revisions to gasoline composition

and modifications to gasoline-fueled vehicles are

unlikely to address the problem of growing oil

imports, it is air pollution more than oil import

growth that is driving the current push towards

alternative fuels--and further changes to fuels and

vehicles can reduce air pollution. ARCO’s August

1989 announcement of a reformulated, pollutionreducing gasoline as an alternative to leaded gasoline in the California market8 is likely only the

opening salvo in an industry effort to defuse current

interest in alternative fuels. Furthermore, State and

Federal recognition of the potential for improving

air quality by changing gasoline composition—

stimulated by the ARCO announcement-is likely

to lead to increased regulatory pressures towards

reformulation. Similarly, Federal and some State

governments are likely to exert continuing pressure

T~e U.S. light-duty highway fleet consumed nearly 7 million barrels per day (rnrnbd) of gasoline in 1989 (U.S. Energy Infomtion ~“ “stration

data). If 5 percent of this demand were shifted to natural gas, this would add about 0.7 trillion cubic feet per year to U.S. gas consumption.

8M.L. Wa.ld, ‘CARCO Offem New Gasohe to Cut Up to 15% of Old Cars’ PollutiorL” New York Times, Aug. 16, 19W.
28 ● Replacing Gasoline: Alternative Fuels for Light-Duty Vehicles

on vehicle manufacturers to improve gasoline-based

emissions control systems.

The remaining questions about performance and

costs of the alternative fuels create a policy dilemma

for Congress. First and foremost, Congress must

decide whether or not to support alternative fuels in

the face of substantial uncertainty and controversy.

Although alternative fuels are likely to have some

important advantages over gasoline, these advantages are not easily quantified and must be balanced

against significant but similarly uncertain costs (as

well as some disadvantages).

Second, if Congress does wish to promote alternative fuels, it must choose between selecting one or

two fuels and providing specific incentives for these,

or providing more general market and/or regulatory

incentives that do not favor one fuel but rather focus

on air quality or other goals. Selecting one or two

fuels-or selecting particular fuels for different

market niches—may provide higher market certainty and larger scale, both of which are important

cost determinants.9 On the other hand, early selection of “winners” increases technological risk and

opens up the very real possibility that the “best”

fuel will not be selected. Providing a more general

incentive reduces some of these risks, but may force

higher costs because market uncertainty will lead to

higher required capital return rates and higher

markups, and smaller volumes of each fuel will tend

to lower the economies of scale otherwise available.

A critical corollary to this decision is the need to

consider whether to incorporate longer term goals

into any alternative fuel program designed initially

to meet short-term problems. In making decisions

about alternative fuels, Congress must recognize

that it maybe launching this Nation down a path that

will have long-term consequences for the U.S.

energy system—including, by building a new and

expensive infrastructure, the enhancement or discouragement of the future adoption of certain energy

technologies or fuels not currently economic or

practical. Those concerned about global warming

are concerned, in particular, about the likelihood that

a turn to fuels such as methanol might lead

inexorably to a dependence on coal as a feedstock—

with potentially strong negative consequences for

attempts to reduce emissions of CO2 and other

greenhouse gases (since gasoline can itself be made

from coal, a no change strategy may have the same

consequences). Others believe that even methanol

produced only from natural gas is harmful to

greenhouse control strategies because its use—by

reducing stress on oil markets, keeping oil prices

lower, and reducing strategic concerns—will reduce

pressures on the industrial nations to move away

from fossil fuels. And some scientists believe that a

turn to natural gas could have the effect of paving the

way for hydrogen produced from renewable sources.

Because the short-term options for alternative fuels—

methanol, ethanol, and natural gas—are unlikely to

have a strong effect on greenhouse emissions, there

may be a temptation for policymakers to ignore

greenhouse problems in dealing with these fuels.

Third, Congress must choose a timetable for a

program that finds an appropriate balance between

testing and experimentation, and moving forward

with mass production of vehicles and fuels. In

deciding to act now or wait, Congress must judge

whether the new information likely from a test

program will add sufficiently to the selection process to offset the benefits lost by waiting.

In this report, OTA reviews the major factors

affecting the commercial and societal acceptability

of methanol, ethanol, CNG and LNG, electricity,

and hydrogen,

10 as compared to gasoline and to each

other (see box 1-A for a brief discussion of a key

problem involved in making the alternative fuels/

gasoline comparison). In many of the discussions,

especially in those involving energy security, we

focus on the issues and effects of alternative fuel

programs of a large-scale, nationwide nature. Programs restricted to helping solve the air quality

problems of a limited group of ozone nonattainment

areas would create much lesser impacts and have

different costs. Where feasible, we try to separate the

effects of the two program scales. We identify key

%Iighermarket certainty reduces the capital return rates demanded by developers, and larger scale allows scale economies to be realized. On the other

hand, artificially stimulating higher demand for a single fuel can raise some costs by forcing reliance on more expensive sources of feedstock material,

or by eliminating some incentives for cost reduction that would come with competition from other fuels.

lo~opae ~d LPG were not addressed ~ this study. Use of tiese fuels should have W quality benefits similw to those obbble with na~~ g=;

in particular, effective hydrocarbon emissions (taking into account both changes in mass rates and changes in the reactivity of the emissions) should be

cut substantially, providing ozone reductions in areas where hydrocarbon emissions area controlling factor in ozone concentrations. Enough supply of

these fuels should be available for gasoline replacement in a few million vehicles, stilcient for an air-quality-based strategy aimed at critical ozone

non-attainment areas.
Chapter 1--Introduction ● 29

Box I-A-Comparing Vehicles Fueled With Gasoline and Alternative Fuels

A source of confusion in examining the results of various studies of alternative fuels is a divergence in the nature of

the gasoline/alternative fuels comparisons that are made. In particular, different studies may choose different baseline

vehicles from which to compare vehicles fueled with alternative fuels.

It has been our experience that many studies choose a kind of “average” gasoline vehicle from which to compare

vehicles powered by alternative fuels. This vehicle will have range, performance, and efficiency characteristics that are

representative of the automobile fleet as a whole, or the new car fleet, during the time period in question-for example,

350 mile range, 2,500 to 3,000 pound curb weight, 30 to 35 mpg fuel economy, O to 60 mph time of 11 seconds, and so

forth. Generally, these studies demand that the alternatively fueled vehicles satisfy minimum performance requirements,

e.g. 200 mile range, though these requirements may be inferior to the baseline characteristics.

Using a baseline vehicle of this sort is the same as asking the question, “Is it possible to market an alternatively fueled

vehicle that can compete economically (or in another critical characteristic) with a gasoline-fueled vehicle, even if it may

be inferior in one or more other characteristics?” From a policy standpoint, framing the question this way implicitly

assumes that the policymakers will be ready to force the market entry of alternative fuel vehicles as long as they are an

effective way of achieving a policy goal (e.g., improving air quality), don’t cost too much, and don’t perform insufferably

badly.

A manufacturing organization that is not counting on a government-mandated market will compare gasoline and

alternative fuels differently. They will either demand that the alternative fuel vehicle perform up to the standards of the

gasoline vehicle--e.g., by using very large fuel tanks to increase range--or they will select a baseline gasoline vehicle that

matches some of the performance inferiority of the alternative fuel vehicle, trading off this loss by lowering costs and/or

improving fuel economy. For example, the organization may consider that, if there is a market (e.g., as a commuter car)

for an electric vehicle with limited cargo space, range, and performance, there may also be a market for a competing

gasoline vehicle with similar characteristics but with the low cost and extremely high fuel economy made possible by

accepting these characteristics. If such a vehicle could undercut the market for EVs, then it maybe too risky to build an

EV even if the EV could compete economically with an “average” car.

Selecting different baselines will drastically alter the results of a “side-by-side comparison” of gasoline and

alternative fuel vehicles. Properly interpreting the results of such comparisons demands an understandingof what baselines

were chosen, and thus, what policy question is being addressed.

SOURCE: Office of Technology Assessment, 1990.

uncertainties and place the fuels in a time context, ity of the fuels are different for each fuel, and

that is, identify how long they might take to become

practical alternatives to gasoline. We also discuss

the option of reformulating gasoline to reduce

emissions, because reformulation is a likely strategy

to be adopted by the oil industry to hold market share

in the transportation fuels supply market.

Because available studies of the costs and benefits

of the alternative fuels often have widely diverging

results and conclusions, we have attempted to

present and explain the source of the more important

of these differences. In several instances, we could

not resolve conflicting conclusions or even narrow

significantly the range of appropriate views, partly

because further testing and development is required,

and partly because we could not evaluate each issue

to the extent necessary to accomplish this. And

because methanol has attracted the most policy

interest, we discuss it in more detail than the other

fuels. The discussions are not strictly parallel in

structure because the issues affecting the acceptabilbecause the states of knowledge for each fuel are not

identical.

A final note: Although this report focuses on

alternative fuel use in light-duty vehicles, readers

should be aware that these fuels are suitable for

heavy-duty vehicles, and in some cases their benefits

are greater and liabilities less in these applications.

In particular, heavy-duty vehicles have fewer space

constraints than light-duty vehicles, and generally

can accommodate more fuel storage, reducing the

range constraint of alternative fuels. Also, many

heavy-duty vehicle fleets, particularly bus fleets, are

centrally fueled and maintained, greatly reducing

infrastructure constraints. Finally, heavy-duty vehicles often use diesel engines that create difficult

pollution problems in urban areas. These engines

can be adapted to run on methanol, ethanol, or

natural gas instead of diesel, with a corresponding

improvement in emissions of particulate and other

harmful pollutants.
Chapter 2

Why Support Alternative Fuels?

During the oil crises of the 1970s, support for

alternative highway fuels focused primarily on the

issue of energy security and the United States’

growing dependence on imported crude oil and

petroleum products. Recent support for alternative

fuels has centered around efforts to attain urban air

quality goals and the automobile’s central role as a

source of air emissions. Achievement of air quality

goals have been frustrated by steadily growing

demand for travel and the increasing difficulty of

squeezing further emission reductions from gasoline

vehicles already subject to stringent controls. Environmental officials and legislators—lead especially

by State and local organizations in California and

recently joined by the Bush Administration-view

the use of ‘clean fuels’ as a promising way to begin

a new cycle of atmospheric cleanup. They also

foresee a secondary benefit from potential reductions in toxic air emissions from fuel production and

distribution.

In addition, the old concerns about energy security are still with us and are increasing, and a new

problem—global warming from increases in atmospheric concentrations of so-called “greenhouse

gases” —has surged to the front of concern for the

environment. Concern about both of these problems

has played a role in the debate over alternative fuels.

This chapter reviews briefly each of these three

concerns, to lay the foundation for judging the need

for alternative fuels and the attractiveness of a strong

government role in introducing these fuels. Readers

familiar with these concerns may wish to skip this

chapter and move to the chapters on the individual

fuels.

OZONE CONTROL IN

PERSPECTIVE

Within the next year, Congress must reauthorize--

and, some believe, rethink-the Clean Air Act. The

mechanism established in 1970 to assure the Nation’s air quality has failed notably to reach healthbased standards for a major pollutant, ozone, in

much of the country. Today, almost two decades

after the Act’s original passage, about 70 to 100

urban areas (depending on weather conditions) still

violate the ozone standard; indeed, the intense heat

of summer 1988 added an estimated 28 new names

to the list of “nonattainment” cities. Currently

available control methods are not adequate to bring

all of these cities into compliance. This third attempt

to craft an ozone control program thus raises several

controversial issues: how great a threat ozone poses

to human health, agricultural production, and environmental welfare; what technical measures to take

against this hard-to-control pollutant; how to alter

deadlines, sanctions, and planning mechanisms;

how to deal with the cities that cannot meet the

standard with any existing or near-term means; and

finally, how to encourage development of new

control methods so that continued progress can be

made.

Since 1970, a Federal-State partnership has been

in place to handle ozone control, with the Environmental Protection Agency (EPA) setting nationally

uniform ambient air quality standards and the States,

with the Agency’s help and approval, working to

meet them. Based on ozone’s known health effects,

the standard is currently set at a peak, l-hour average

ozone concentration of 0.12 parts per million (ppm).

Any area experiencing concentrations exceeding the

standard more than once per year, on average, is

declared a nonattainment area. EPA updates the

nonattainment list annually, as data become available. The list in 1988 included cities housing well

over half of the American population.

One suggested strategy for reducing urban ozone

is the substitution of alternative fuels for gasoline in

the highway vehicle fleet. Each of the suggested

alternative fuels--methanol, ethanol, natural gas,

hydrogen, electricity, and reformulated gasoline--

have, to a differing degree, the potential to reduce

either the emissions of the volatile organic compounds that are the precursors of ozone, or the

reactivity of these emissions (that is, their likely

contribution to ozone formation per unit of mass).

The Administration’s ozone control strategy relies

heavily on alternative fuel use by highway vehicles,

1~~ section is adapted from tie SumW c~pter, IJ.s. Congress, Office of Technology Assessment, Catching OurBreath: Next StePs in Reducing

Urban Ozone, OTA-O-412 (Washingto~ DC: U.S. Government Printing Office, July 1989).

–31–
32 . Replacing Gasoline: Alternative Fuels for Light-Duty Vehicles

and the State of California, whose ozone problems

are the United States’ most severe, also supports

alternative fuels, though its latest control strategy

does so indirectly by mandating the sale of ultra-lowemission vehicles. Under the Administration’s proposal, EPA must promulgate performance standards

for alternatively fueled vehicles 18 months after

enactment. EPA has stated that the initial standards

are likely to be equivalent to the benefits achieved by

flexibly fueled vehicles burning M852 (according to

EPA, their benefit is equivalent in ozone forming

potential to a 30 percent reduction in hydrocarbon

emissions from vehicles meeting proposed hydrocarbon standards and operating on low volatility

gasoline, with Reid Vapor Pressure of 9.03). EPA

anticipates that performance standards by the year

2000 or so can be set equivalent to the benefits

achieved by dedicated M1004 vehicles (which EPA

believes are equivalent to about an 80 percent

reduction in passenger car hydrocarbon emissions,

relative to the proposed standards and low volatility

gasoline). The proposal requires that 8.75 million

alternatively fueled vehicles must be sold in the nine

worst nonattainment areas (those with peak ozone

concentrations of 0.18 ppm or higher) between 1995

and 2004. The proposal also gives EPA the authority

to mandate adequate supplies of fuel to operate the

vehicles and requires that the State make the sale of

the fuel “economic.” In California, both the South

Coast Air Quality Management District (covering

the Los Angeles area) and the California Air

Resources Board have stated their intent to adopt an

emissions control program likely to force large-scale

use of alternatively fueled vehicles. The purpose of

this section is to place these proposed measures into

perspective, by describing ozone’s impact on U.S.

air quality and the available range of options for

reducing ozone concentrations.

Why Control Ozone?

The 0.12 ppm national standard for ozone derives

from solid evidence of the health effects of shortterm exposure above that level, as illustrated in

figure 2-1. Excessive ozone is harmful to people.

Some healthy adults and children experience coughing, painful breathing, and temporary loss of some

lung function after about an hour or two of exercise

at the peak concentrations found in nonattainment

cities.

Does the current standard adequately protect

people who are exposed for long periods or at high

exercise levels? Experts are unsure. Several studies

over the past 5 years have shown temporary loss of

some lung function after an hour or two of exposure

at concentrations between 0.12 and 0.16 ppm,

among moderately to heavily exercising children

and adults. And despite the current standard’s

emphasis on a l-hour peak, real-life exposures to

near daily maximum levels can last much longer;

ozone levels can stay high from mid-morning

through late afternoon. With exposure during 6

hours of heavy exercise, temporary loss of some

lung function can appear with ozone levels as low as

0.08 ppm.

Potentially more troubling and less wellunderstood are the effects of long-term, chronic

exposure to summertime ozone concentrations found

in many cities. Regular out-of-doors work or play

during the hot, sunny summer months in the most

polluted cities might, some medical experts believe,

cause biochemical and structural changes in the

lung, paving the way for chronic respiratory diseases. To date, though, evidence of a possible

connection between irreversible lung damage and

repeated exposure to summertime ozone levels

remains inconclusive.

Clear evidence shows that ozone damages economically, ecologically, and aesthetically important

plants. When exposed to ozone, major annual crops

produce reduced yields. Some tree species suffer

injury to needles or leaves, lowered productivity,

and in severe cases, individual trees can die.

Important tree species are seriously affected in large

areas of the country. In the most heavily affected

forested areas, such as the San Bernardino National

Forest in California, ozone has begun altering the

natural ecological balance of species.

Whether or not the current standard is adequate,

many areas of the country have failed to meet it.

About half of all Americans live in areas that exceed

2M85: a ~~e of 85 percent methanol and 15 percent gasoline.

3u.s. Environmen~ ~tection Agency, Analysis Of fk Economic and Environmental Effects of Methanol as an Automon”ve Fut% Special Repoti,

OffIce of Mobile Sources, September 1989.

4M1W: 100 percent metht_tIIOl fuel.

Slbid.
Chapter 2—Why Support Alternative Fuels? ● 33

Figure 2-l—Acute Effects of Ozone Exposure

Increased airway resistance

Increased airway reactivity

Exercise performance decline

> 10% drop in mean FEV1

I

1-3 hr acute

ozone exposure I

Increased symptoms

> 10% drop in individual FEV1

“ - =

Ozone (ppm)

0.08 0.10 0.20 0.30 0.40 0.50

0.08 0.12

> 10% drop in individual FEV1

*

EEEl

Increased symptoms

> 10% drop in mean FEV1

increased airway reactivity

>

Lung cellular injury

in animals

*

Effects above the ozone concentration line are from 1 to 3 hour exposures to ozone. Effects below the line are from 4 to 8 hour exposures.

FEV, (forced expiatory volume in 1 second) is a measure of lung function. The bolder arrows indicate the range of concentrations at which

effects occur from exposure while exercising heavily; the lighter arrows indicate the concentrations at which effects occur while exercising

moderately. Effects begin at the concentration indicated by the tail (left side) of the arrow.

SOURCE: Office of Technology Assessment, 1989.

the standard at least once a year. About 100

" nonattainment areas" dot the country from coast to

coast, with ‘‘design values” —a measure of peak

ozone concentrations-ranging from 0.13 ppm to as

high as 0.36 ppm. Half the areas are fairly close to

attainment, with design values up to 0.14 or 0.15

ppm; for these areas, reaching the standard is

probably feasible with existing technologies. However, the remaining areas, including the Nation’s

worst violator, Los Angeles, present much more

serious and challenging problems, with design

values in excess of 0.16 ppm. Sixty of the 317 urban

and rural areas for which we have data had at least

6 days/year between 1983 and 1985 with ozone

levels exceeding 0.12 ppm for 1 or more hours. A

number of areas topped the standard for 20 or more

days, with the worst—Los Angeles-averaging 275

days per year.

Ozone in a city’s air, however, does not necessarily equal ozone in people’s lungs. Concentrations

vary with time of day and exact location. People vary

in the amount of time they spend indoors, where

concentrations are lower. And the more actively

someone exercises, the more ozone he or she inhales.

Each year, nationwide, an estimated 34 million

people are actually exposed to ozone above 0.12

ppm at low exercise levels, and about 21 million are

exposed during moderate exercise, on average about

9 hours per year. About 13 million people are

exposed to ozone above 0.12 ppm during heavy

exercise, each of them for about 6 hours each year,

on average. At each exercise level, one-quarter of

these people live in the Los Angeles area.

Ozone and Its Precursors

Ozone is produced when its precursors, volatile

organic compounds (VOCs) and nitrogen oxides

(NOx

), react in the presence of sunlight. VOCs, a

broad class of pollutants encompassing hundreds of

specific compounds, come from manmade sources
34 ● Replacing Gasoline: Alternative Fuels for Light-Duty Vehicles

including automobile and truck exhaust, evaporation

of solvents and gasoline, chemical manufacturing,

and petroleum refining. In most urban areas, such

manmade sources account for the great majority of

VOC emissions, but in the summer in some regions,

natural vegetation may produce an almost equal

quantity. NOX arises primarily from fossil fuel

combustion. Major sources include highway vehicles, and utility and industrial boilers.

Ozone control efforts have traditionally focused

on reducing local VOC emissions, partly because the

relevant technologies were thought to be cheaper

and more readily available. In addition, under some

conditions at some locations, reducing NOX can

have the counterproductive impact of increasing

ozone concentrations above what they would be if

VOCs were controlled alone.6

Local controls on VOC emissions cannot completely solve the Nation’s ozone problem, however.

In many places, even those with good control of their

local emissions, reducing ozone is complicated by

the ‘transport’ of pollutants, as ozone or precursors

originating elsewhere are carried in by the wind.

“Plumes’ of elevated ozone have been tracked 100

miles or more downwind of some cities: the Greater

New York area’s plume, for example, can extend all

the way to Boston. Over half of the metropolitan

areas that failed to attain the ozone standard between

1983 and 1985 lie within 100 miles downwind of

other nonattainment cities. In such cases, VOC (and

sometimes NOX) reductions in the upwind cities

could probably improve air quality in their downwind neighbors. Indeed, reductions in certain areas

that are themselves already meeting the standard

might also aid certain downwind nonattainment

areas.

The significance of transported pollutants varies

substantially from region to region and day to day.

During severe pollution episodes lasting for several

days, for example, industrial or urban NOX, or ozone

pollution can contribute to high ozone levels hundreds of miles away. In certain heavily populated

parts of the country, pollution transport is a significant and very complex problem. The northeast

corridor, from Maine to Virginia, contains 21

nonattainment areas in close proximity; California,

8; the gulf coast of Texas and Louisiana, 7; and the

Lake Michigan area, 5. Figure 2-2 shows the

location of nonattainment areas.

Aside from pollution transport, the balance of

VOCs and NOX in the atmosphere is another

complicating factor in controlling urban ozone

levels. The precise local balance of VOCs and NOX

varies from place to place, even within the same

metropolitan area, and from day to day. Where the

concentration of NOX is high relative to VOCs, for

example, in urban or industrial centers with high

NOX emissions, reducing VOC emissions can effectively cut ozone because production is limited by the

quantity of available VOCs. In these cases, focusing

primarily on control of VOC emissions is the correct

strategy for reducing ozone concentrations.

On the other hand, where the relative concentration of VOCs is high and the level of ozone is thus

“NOX

-limited,” NOX reductions must be a critical

part of an ozone reduction strategy. NOX

-limited

conditions occur in some cities and in most rural

areas. As an air mass moves away from industrial

districts and out over suburban or rural areas

downwind of pollutant emission centers, conditions

tend to become more NOX-limited because NOX

disappears from the air through chemical and

physical processes more rapidly than do VOCs.

Controlling Volatile Organic Compounds

Since 1970, reducing VOC emissions has been the

backbone of our national ozone control strategy, and

the Nation has made substantial progress, at least in

slowing further degradation from preexisting conditions. According to EPA estimates, while VOC

emissions have remained relatively constant over

the last decade, they are about 40 percent lower than

they would have been without existing controls.

Despite this progress, however, large areas of the

country have missed each of several 5- and 10-year

deadlines set by Congress-first the original deadline of 1975, and again in 1982 and 1987.

Additional progress is still possible in this area.

Total manmade VOC emissions, according to OTA

estimates, will remain about the same for about a

decade. Substantially lower emissions from cars and

trucks should offset sizable increases from stationary sources. But total emissions will begin rising

again by around 1995 to 2000, assuming that State

and EPA regulations remain unchanged.

6Al~ough IWx i5 ~ ozone precmsor, it also can destroy ozone when NOJWC ratios are figh.
Chapter 2—Why Support Alternative Fuels? ● 35

Figure 2-2—Areas Classified as Nonattainment for Ozone Based on 1983-85 Data

.

) ’

{

. I J [U U. 14 ~~111

.

Design value I F

O.” ”0.13 ton 4 A ppm

0.15 to 0.17 ppm

0.18 to 0.36 ppm

The shading indicates the fourth highest daily maximum 1-hour average ozone concentration, or “design value,” for each area.

SOURCE: Office of Technology Assessment, 1989.

Today, as shown in figure 2-3, emissions from

mobile sources, surface coating such as paints, and

other organic solvent evaporation together account

for about two-thirds of all manmade VOCs. Highway vehicles alone contribute about 40 to 45 percent

of the total. The next largest category of emissions,

evaporation of organic solvents, involves such

diverse activities as decreasing metal parts and

drycleaning, and products such as insecticides. Next

come surface coatings, which include inks, paints,

and various similar materials used in painting cars,

finishing furniture, and other products. These sources

vary in size from huge industrial installations to a

person painting a chair. About 45 percent of all

manmade VOC emissions originate in small stationary sources producing less than 50 tons per year;

they include vapors from solvents and paints,

gasoline evaporating while being pumped, emissions from printing shops and autobody repair shops,

and the like.

All of the alternative fuels examined in this report

have the potential to lower effective VOC emissions

(either by lowering mass emissions or by producing

less reactive emissions) from mobile sources by a

substantial degree-on a “per vehicle basis,’ some

can eliminate all or virtually all of these emissions

(though there may be VOC emissions from fuel

production and delivery). Of course, the actual

reductions in urban emissions will take place slowly,

as new, alternative fuel vehicles gradually replace

gasoline-fueled vehicles. Because introducing these

fuels is expected to be expensive, policymakers

should judge the potential costs and benefits of these

fuels as compared to the potential costs and benefits

of alternative methods of reducing VOC emissions.
36 ● Replacing Gasoline: Alternative Fuels for Light-Duty Vehicles

Figure 2-3—VOC Emissions in Nonattainment

Cities, by Source Category, in 1985

Percent of total VOC emissions

0% 10% 20 % 30% 40°/0 5 0 %

t

Highway vehicles Air, rail, marine

Mobile sources

Organic solvent evap

Surface coating

Petroleum industry

Gas marketing

TSDFs

Other industries

Chemical manufact.

Solid waste disposal

Nonresid. fuel comb.

Miscellaneous

@l Source size

F

1

Large /

a smal l

Total emissions = 11 million tons/year

Stationary sources that emit more than 50 tons per year of VOC

are included in the “Large” categories.

SOURCE: Office of Technology Assessment, 1989.

In its recent study Catching Our Breath: Next

Steps for Controlling Urban Ozone, OTA analyzed

about 60 currently available control methods that

together deal with sources producing about 85

percent of current manmade VOC emissions (included among these methods is methanol in fleet

use; methanol in general use and the other fuels

examined in this report were not considered ‘‘currently available” in Catching Our Breath). We

believe that the potential exists, using these various

controls, to lowe rsummertime manmade VOC

emissions in nonattainment cities in the year 1994 by

about 35 percent compared to the 1985 level. A

reduction of this size would equal approximately

two-thirds of all the reductions needed, on average,

to allow nonattainment cities to meet the standard.

According to our analysis, if all currently available

controls are applied, total VOC emissions in the

nonattainment cities will fall by about 3.8 million

tons per year by 1994; the exact figure could be as

low as 1.5 million tons or as high as 5.0 million tons,

depending on the accuracy of our assumptions.

All cities, however, would not benefit equally

from these reductions. If those with current design

values (peak ozone concentrations) of 0.14 ppm

were to implement all the VOC control methods we

analyzed, most could achieve ozone levels at, or

even below the standard. Cities with current design

values of 0.16 ppm or higher would likely fall short,

and in some cases far short, of the needed reductions.

Each of the 60 control methods analyzed contributes to the 35-percent reduction from 1985 levels

that we foresee happening in nonattainment cities, as

shown in figure 2-4. The most productive method,

yielding 12 percent in reductions (about one-third of

the total) on a hotsummer day, requires reducing the

volatility of the Nation’s motor fuels. Less volatile

gasoline 7 would curtail evaporation emissions (including so-called ‘‘running losses’ while the vehicle is moving) and would lower exhaust emissions.

An additional 6 percent in reductions could come

from stricter controls on facilities that store, treat,

and dispose of hazardous wastes. Another 4 percent

could come from applying all ‘reasonably available

control technology’ (RACT-level) controls now

found in any State’s ozone control plan to all

nonattainment areas’ sources larger than 25 tons.

About 40 types of sources, such as petroleum

refineries, chemical manufacturers, print shops, and

drycleaners, would be included.

A 2-percent reduction would come from enhanced

programs to inspect cars and trucks and require

maintenance of faulty pollution controls. This is

over and above the reductions achieved by the

inspection and maintenance programs in operation

today. Modifying the nozzles of gas station pumps

to trap escaping vapors (installing ‘Stage II gasoline

vapor recovery systems”) would yield another

2-percent reduction. Installing devices to do the

same job on individual vehicles as they fuel up

(“onboard technology”) would produce about the

same reductions 8 to 10 years later, as newer cars

that have the devices replace older ones that do not.

(The two methods together would yield only slightly

greater reductions than either method alone.) Adopting new ‘‘control technique guidelines’ for smaller

(but still larger than 25 tons) categories of stationary

sources not already controlled in some ozone control

plans, such as autobody refinishing and wood

furniture coating shops, coke oven byproduct plants,

bakeries, and the like, would account for an additional 1 percent. Another 0.5-percent reduction can

be had in the worst nonattainment areas by requiring

businesses that operate fleets of 10 or more vehicles

% our analysis, we assume that gasoline volatility is reduced to 9 pounds per square inch (psi) Reid Vapor Pressure (RVP), mtionwide, during the

5-months ummertime period when ozone concentrations most often exceed the standard.
Chapter 2—Why Support Alternative Fuels? ● 37

Figure 2-4—VOC Emissions Reductions in 1994 Compared to 1985 Emissions, by Control Method

● Gas o I i n e volat i I i t y

TSDFs

RACT

Enhanced l/M

Stage II

New

+ M et ha no

CTG's

fue

● Architect. coatings

s s

On board

New mobile std’s.

Not effective in 1994

o% 2% 4% 6% 8% 1 o% 1 2% 1 4%

Percent reductions from 1985 emissions

● Emissions reductions also achieved in attainment areas.

+ Percent reductions on I y i n t hose c i ties i n w h i c h i t is adopted.

Strategv Descriptions

Gasoline volatility controls which limit the rate of gasoline evaporation.

TSDF = controls on hazardous waste treatment, storage, and disposal facilities.

RACT = “Reasonable Available Control Technology” on all existing stationary sources that emit more than 25 tons per year of VOC.

Enhanced inspection and maintenance (i/M) programs for cars and light-duty trucks.

Stage ii control devices on gas pumps to capture gasoline vapor during motor vehicle refueling.

New CTGs = new Control Technique Guidelines for several categories of existing stationary sources for which no current regulations exist.

Methanol fuels as a substitute for gasoline as a motor vehicle fuel.

Federal Controls on architectural surface coatings.

Onboard controls on motor vehicles to capture gasoline vapor during refueling.

New highway-vehicle emission standards for passenger cars and light-duty gasoline trucks.

SOURCE: Office of Technology Assessment, 1989.

in those areas to substitute methanol for gasoline. by 0.5 percent. Finally, more stringent standards for

Limits on the solvent content in architectural coat- tailpipe emissions from gasoline-powered cars and

ings such as paints and stains would lower emissions light-duty trucks8 would lower emissions by 1.5

s~e ~ssion standards used in our analysis are as fOHOWS:

(in grams of pollutant emitted per mile traveled (g/mile) for non-methane hydrocarbons (NMHC) and NOX)

Passenger cars-NMHC: 0.25 gjmile; NOX: 0.4 @mile

Light-duty gasoline trucks (by truck weight>

(up to 3,750 lbs) NMHC: 0.34 g/mile; NOX: 0.46 #mile

(3,751 to 6,000 lbs) NMHC: 0.43 g/mile; NOX: 0.80 g/mile

(6,001 to 8,500 lbs) NMHC: 0.55 g/mile; NOX: 1.15 @mile

We assume that these standards can be met during 50,000 miles of controlled test driving (certification testing) for passenger cars, and 120,000 miles

for light-duty trucks; however, VOC emission rates after 50,000 miles (for cars) and 120,000 miles (for trucks) of actual use by vehicle owners would

likely exceed these standards. We assume that new standards go into effect in 1994 for both passenger cars and light-duty trucks.
38 ● Replacing Gasoline: Alternative Fuels for Light-Duty Vehicles

percent by 2004 as new cars and trucks enter the

Nation’s vehicle fleet. Some of these and the other

options can be implemented by the States in

nonattainment areas alone, others are better suited to

Federal implementation nationwide. Table 2-1 summarizes the options for implementing currently

available control methods that may be most appropriately considered by Congress.

We can estimate the cost of applying all these

controls in all nonattainment cities, bringing about

half of the cities into compliance and substantially

improving the air quality of the rest: between $4.3

and $7.2 billion per year in 1994 and between $6.6

and $10 billion annually by 2004, assuming th e

current state of technology. Because some controls

would apply nationwide, rather than just in nonattainment areas, the national price tag would total

about $8.8 to $13 billion in 2004.

Some of these controls simultaneously reduce

other air pollutants in addition to VOCs. Enhanced

motor vehicle inspection and maintenance programs

also reduce nitrogen oxides and carbon monoxide.

More stringent highway vehicle standards apply to

nitrogen oxides, too. About $2.5 billion of the total

cost in 2004 can be assigned to nitrogen oxide

control, the benefit of which will be discussed later.

About $1.5 billion per year can be assigned to

control of carbon monoxide.

Depending on the method used, the cost of

eliminating a ton of VOC emissions varies considerably. By far the cheapest is limiting fuel volatility,

at about $120 to $750 per ton of VOC reduction;

replacing gasoline with methanol or some other

alternative fuel could be far more expensive than

this, but the potential to lower fuel costs in the long

term might eventually bring the “per ton” costs

down to a range competitive with the other methods.

The cheaper methods of reducing VOCs can provide

reductions equal to about 25 to 30 percent of the

1985 emissions levels at total costs of $2 to $3

billion. As more reductions are required, though,

more and more expensive methods must come into

play, and the cost of additional reductions rises

steeply.

Most of the control methods we analyzed cost

between $1,000 and $5,000 per ton of VOC reductions obtained. We estimate that in 1994, if controls

costing more than $5,000 per ton of reductions were

excluded from consideration, total annual costs for

the nonattainment areas would drop to about $2.7 to

Table 2-l—Options for Amending the Clean Air Act:

Currently Available Control Methods

Federally implemented, nationwide control requirements:

. Option 1: Limits on gasoline votality.

. Option 2: More stringent tailpipe exhaust standards for cars and

trucks.

. Option 3: “Onboard” technology for cars and trucks to control

refueling emissions.

● Option 4: Federal solvent regulations for example, for architectural coatings.

Control requirements to be implemented by States in

nonattainment areas:

● Option 1: Lowered source-size cutoff for requiring “reasonably

available control technology” (RACT).

. Option 2: Require EPA to define RACT for additional source

categories.

● Option 3: More stringent requirements for motor vehicle

inspection and maintenance programs.

. Option 4: Required use of alternative fuels by centrally owned

fleets.

. Option 5: Transportation control measures.

● Option 6: Tax on gasoline.

Managing growth:

. Option 1: Lower the cutoff for new source control requirements

. Option 2: Eliminate “netting” out of new source control

requirements.

. Option 3: Areawide emission ceilings.

SOURCE: Office of Technology Assessment, 1989.

$5.1 billion per year, a drop of about 30 to 35

percent. There would be a corresponding loss in

reductions of about 2 percent of 1985 emissions.

All of the above costs could change if engineering

advances reduce the costs of applying existing

technologies, or if alternative methods and new

technologies can achieve the same reductions using

alternative, less costly means.

To summarize, if we are willing to use and pay for

currently available technology, we can make significant advances over the next 5 to 10 years, achieving

about two-thirds of the emissions reductions in

nonattainment areas that we need. This should bring

about half of the current nonattainment areas into

compliance. But we cannot, by the year 2000, get the

entire Nation to the goal that Congress established in

1970. In the worst areas, even the most costly and

stringent of available measures will not lower

emission levels sufficiently to meet the standard.

Achieving that goal is a long-range project, well

beyond the 5- and 10-year horizons of existing law.

It will require both new technologies and lifestyle

changes in the most affected communities, including

changes in transportation, work, and housing patterns. In other, less polluted nonattainment areas, the

standard can be met with less cost and disruption.
Chapter 2—Why Support Alternative Fuels? ● 39

To meet the ozone standards in all cities, we must

turn to new, nontraditional controls, with uncertain

costs. With application of all of the traditional

controls discussed above, by 1994, about 60 percent

of the remaining manmade VOC emissions will

come from small stationary sources that individually

emit less than 25 tons per year. Over half of this latter

category will come from surface coatings and other

organic solvent evaporation.9 In addition, between

25 and 30 percent of the remaining emissions will

come from highway vehicles. Efforts to further

reduce VOC emissions must focus on these sources.

Table 2-2 summarizes the nontraditional VOC

controls as well as other new options for controlling

levels of urban ozone.

Regulators will face difficult problems in trying to

control emissions from these sources. For example,

to further reduce solvent emissions, regulators face

the challenge of encouraging development of an

enormous variety of new products, manufacturing

processes, and control methods. One possible approach is applying existing controls to smaller sized

commercial and industrial sources. This is no easy

task for regulators, however, because hundreds of

thousands of firms in nonattainment areas individually use small quantities of solvents. Another

approach is to place limits on the permissible VOC

content of certain products and processes; those that

exceed the limit after a specified date would be

banned from sale. These two strategies are variations

on established ‘engineering’ techniques of regulating users. Also, market-based approaches could be

used. For example, emission fees or marketable

emission permits could be established to discourage

use of products high in VOCs by making it more

profitable to use substitutes. And in areas where

consumer environmental interest and activism is

strong, product labeling designed to identify “low

emission” products could be a useful strategy.

Cutting the use of motor vehicles, especially

private cars, is another way to lower VOC emissions.

Although technologically simple, it is politically

difficult. The 1977 Amendments to the Clean Air

Act required urban areas to implement transportation control measures (TCMs) necessary to meet

ozone and carbon monoxide standards. Experience

Table 2-2—Options for Amending the Clean Air Act:

New Directions

Controls on emissions of nitrogen oxides

in nonattainment areas:

● Option 1: Congressionally mandated NOX controls.

. Option 2: Presumptive NOX controls on stationary sources, with

EPA authority to exempt areas under specified situations.

. Option 3: Requirements to analyze NOX controls under certain

situations.

Long-term control VOC strategies:

. Option 1: Lowering emissions from solvents, either through

traditional “engineering” approaches or through market-based

mechanisms.

. Option 2: Transportation control measures.

. Option 3: Requirements for widespread use of alternative fuels

in nonattainment areas that are far from meeting the standard.

Controls in upwind areas:

● Option 1: Enlarge nonattainment areas to include the entire

extended metropolitan area.

● Option 2: Congressionally specified NOX controls in designated

“transport regions” or nationwide.

● Option 3: Strengthen the interstate transport provisions of the

Clean Air Act.

● Option 4: Provide EPA with clear authority to develop regional

control strategies based on regional-scale modeling.

Reducing ozone in attainment (rural) areas:

● Option 1. Specify a deadline for EPA reconsideration of the

ozone secondary standard and a schedule for options by the

States.

● Option 2. Congressionally specified NOX controls.

Research:

Decision 1: What areas of research deserve increased funding?

. Improving the planning process, developing new control methods, and further evaluating the risks from ozone.

Decision 2: Who pays for the research?

● Option 1: General revenues.

● Option 2: User fees.

SOURCE: Office of Technology Assessment, 1989.

shows, though, that TCMs require considerable

local initiative and political will because they aim to

change the everyday habits and private decisions of

hundreds of thousands of people. Involuntary TCMs

have proven politically infeasible and voluntary

programs difficult to sustain. Success requires long

lead times, high priority in urban transportation and

land-use planning, a high degree of public support

and participation and, in some cases such as mass

transit development, major capital expenditures.

Possible tactics include requiring staggered work

hours; encouraging carpools through inducements

like priority parking places, dedicated highway lanes

and reduced tolls; constructing attractive and economical mass transit systems; limiting available

gsolvents we USed inawide varie~ of industrial, commercial, and home uses, from cleaning and decreasing heavy equipment to Wastig pfitbmshes

and removing spots from garments. They appear in thousands of commercial and consumer products such as personal-care products, adhesives, paints,

and cleaners used daily throughout the country. They are used by manufacturers to paint or otherwise coat cars, appliances, furniture, and many other

products in facilities that range from the huge to the tiny.
40 ● Replacing Gasoline: Alternative Fuels for Light-Duty Vehicles

parking places; and encouraging employers to locate

closer to residential areas, which would cut distances

workers have to travel.

Controlling Nitrogen Oxides

Historically, ozone control efforts have concentrated on VOC emission reductions both because

methods were thought to be cheaper and more

available and because in some cases reducing NOX

may actually be counterproductive. As mentioned

earlier, however, many areas of the country, especially rural areas but some cities as well, have

mixtures of high atmospheric levels of VOCs in

relation to NOX levels, creating conditions where

ozone concentrations are limited by NOX rather than

VOC. In these areas, successful reduction in ozone

concentrations requires control of NOX emissions

beyond current requirements.

Two types of sources, highway vehicles and

electric utility boilers, account for two-thirds of NOX

emissions. Highway vehicles contribute about a

third of the national total, led by passenger cars with

17 percent and heavy-duty diesel trucks with 9

percent. In the southern California cities with design

values above 0.26, highway vehicles account for

about two-thirds of local NOX emissions; in most

nonattainment cities, they contribute about 30 to 45

percent.

Under current regulations, total NOX emissions

will increase steadily between 1985 and 2004, rising

by about 5 percent by 1994 and by about 25 percent

by 2004. (See figure 2-5.) As newer, cleaner cars

replace older ones, highway emissions will decline

until the mid- 1990s, only to rise again as miles

traveled increase. Stationary sources, however, will

increase their emissions steadily.

The impacts of controlling NOX emissions in

nonattainment areas will vary from city to city.

preliminary analyses indicate that in most southern

cities (from Texas east), NOX reductions would help

reduce ozone concentrations; in most isolated Midwestern cities, however, they might have the opposite effect. Recent results from EPA’s Regional

Oxidant Model (ROM) simulating ozone formation

and transport throughout the Northeast over a

2-week period, indicate that in this region, results

will be mixed. Overall, a one-third cut in NOX

emissions on top of a 50-percent reduction in

regionwide VOC emissions resulted in modest

ozone benefits for most nonattainment cities, compared to a case where VOC emissions were controlled alone. A detailed examination, however,

shows considerable variation among cities. Adding

NOX controls increased population exposure to

ozone at concentrations above the standard in some

cities (e.g., Pittsburgh), decreased population exposure in some (e.g., Hartford), and resulted in

negligible changes in others (e.g., New York).

Further regional and city-by-city modeling is necessary to verify these conclusions.

NOX emissions affect more than just nonattainment area ozone concentrations, complicating the

decision about whether to mandate controls. NOX

emissions contribute to acid deposition and are a

major determinant of elevated ozone concentrations

in agricultural and forested regions. Though NOX

reductions can have either a beneficial or detrimental

effect on peak ozone concentrations in nonattainment areas,10 they will most likely lower both acid

deposition and regional ozone concentrations.

The Role of Alternative Fuels

Recent promotion of alternative fuels has been

based on their potential to reduce urban ozone,

through reductions in “effective” VOC emissions,

that is, reductions in actual VOC emissions by

weight and/or reductions in the reactivity of the

VOCs that are emitted. In addition, EPA and others

view a major benefit of alternative fuels to be their

elimination or reduction of toxic emissions of

benzene, gasoline refueling vapors, 1,3-butadiene,

and polycyclic organic matter.11 All of the fuels

examined in this report have, to differing degrees,

some potential to yield reductions in effective

emissions of VOCs if used appropriately, and all

should reduce toxic emissions (except for aldehydes) as well. On the other hand, most of the fuels

do not automatically yield reductions in NOX

, and

some may add to NOX emissions under certain

conditions. The emissions characteristics of the fuels

are examined in the chapters that follow.

l~e de~ental effect occws at certain conditions with high atmospheric ratios of Nox to VOCS.

llEnvho~en~~otection Agency , AMlySiS Of th~ECOnOrniC Q&EnVirOnrnentalEffeCtS of~ethanolas anAUtO~tiVeFUel, Special Repor$ OffICX

of Mobile Sources, September 1989.
Chapter 2—Why Support Alternative Fuels? ● 41

Figure 2-5-Summary of Estimated Nationwide Nitrogen Oxides (NOX) Emissions

by Source Category, by Year

Emissions (miIIion tons/yr)

A

10.0

8 . 0

6 . 0

4 . 0

2 . 0

i

0.0 lzz

,, /

8 . 0

I

6 . 0

8 . 6

/

J6 . 2

9 . 3

(’

-L6 . 8

Othe r

/

/

Utility 

/

Highway vehicles

the r large stat ion

i

- /

SmalI stationary

mobiIe sources

Iboilers

es

198 5 1994 199 9 200 4

Year

The numbers directly above the boxes are the total emissions within the source category. For example, emissions from highway vehicles

in 1994 are 6.0 million tons per year, nationwide. Assumes no new laws or regulations.

SOURCE: Office of Technology Assessment, based on work by E.H. Pechan and Associates.

The complexity of the relationship between urban In areas with high background levels of VOC and

ozone, local VOC concentrations, local NOX concen- lower NOX levels, reductions in effective VOC

trations, and long-range transport of ozone froms emissions will be less successful in reducing ozone

other areas implies that the use of alternative fuels concentrations. In cities such as Houston and

will have substantially different impacts on urban Chicago, and in most rural areas, the widespread use

ozone concentrations from city to city and area to of alternative fuels is likely to have far less effect on

area. In cities such as Los Angeles, with high NO=

ozone levels than similar use would have in VOClimited areas. In fact, under some circumstances, concentrations and ozone levels limited primarily by

VOC levels, the reduction in effective VOC levels attempts to gain maximum efficiency from vehicles

using alcohol fuels or natural gas might interfere

likely to accompany large-scale use of alternative with stringent control of NOX emissions from these

fuels should yield a significant reduction in ozone vehicles, and ozone reduction efforts actually might

levels. suffer slightly from use of such fuels.
42 ● Replacing Gasoline: Alternative Fuels for Light-Duty Vehicles

ENERGY SECURITY IN

PERSPECTIVE

Many supporters of alternative fuels programs

argue that introduction of such fuels to the highway

fleet would provide substantial positive benefits to

U.S. energy security, breaking oil’s monopoly on

highway transportation and providing an expandable new source of fuel in case of an oil supply

disruption. Whether energy security benefits provide a powerful motive for government support of

alternative fuels depends on the security risks

actually faced by the United States, and the ability of

alternative fuels to combat these risks.

Should Energy Security Be a Major Concern

for U.S. Policymakers?

To the extent that projections of continued reductions in domestic oil production and continued

increases in U.S. and worldwide oil demand are

correct-and we believe they are correct 12--the

United States has already resumed relatively high

levels of oil imports from politically insecure

sources (figure 2-6 shows the Energy Information

Administration projections for future U.S. oil import

levels). Congress clearly viewed the high levels of

oil imports of the 1970s as a threat and responded

with extensive legislation, including programs to

promote synfuels development, tax incentives for

energy conservation and alternative energy sources,

an extensive energy R&D program, and the establishment of the Strategic Petroleum Reserve (SPR).

In addition, Congress appropriated funds to establish

military forces specifically designed to deal with

threats far from established U.S. military bases, and,

in particular, the Middle Eastern oilfields.

Industry supporters of congressional measures to

fight increases in U.S. oil imports-such as opening

environmentally sensitive areas to oil development,

establishing tax incentives for increased domestic

production, shifting from gasoline to nonpetroleum

fuels, and so forth-have portrayed the potential

increases in precisely the same manner, i.e., as a

serious threat to the security and long-term economic interests of the United States. These supportFigure 2-6--EIA Projections of Petroleum

Supply, Consumption, and Import Requirements

to 2010, Base Case

Cumulative million barrels per day

25

1

2 0 -

1 5 -

1 0 -

5 -

0

History

Net imports

~ .

Lower 48

— —

Natural gas liquids

I & other

I I I I I I I 1 I I I I I I I I

Forecast

20.3

12.3

7.2

/

10.0 8.0

—

—

\ I 1

I I I I I I I I I I I I I I I I I I

1970 1980 1990 2000 2010

SOURCE: Energy Information Administration, Annua/ Energy Outlook,

1990.

ers have pointed to the United States’ large expenditures during the Iran/Iraq war in protecting U.S.

flagged tankers in the Persian Gulf as one cost of

growing U.S. oil import dependency. The fact that

the United States is now deeply embroiled in a

mideast conflict is another ‘‘cost’ that can be

attributed to the United States’ import dependency.

It is important to recognize, however, that there

are important differences between oil dependency

and oil vulnerability. Dependence is simply the

portion of total U.S. oil supplies that must be

imported. Vulnerability, on the other hand, is not

nearly so well-defined, but clearly is associated with

the kind of damage that the United States would

incur in the event of an oil shortage or price shock,

and the risk of such an event.13 The United States is

vulnerable to economic and military disruptions

IZwe do believe, however, that there are available policy measures that could slow, but not stop, the oil production decline and reverse tie wend of

increasing U.S. oil demand.

lsSee R.L. Bambergdand C.E. Behrens, “World oil and tie ANWRPotential,’ Congressiorud Research Service Report 87-438 ENR, May21, 1987,

for more discussion on this theme. Also, OTA bas evaluated the U.S. oil replacement capability in the event of an oil supply shortfall of indefinite

duratiou see U.S. Congress, Office of Technology Assessment, U.S. Vulnerability to an Oil Import Curtailment; The Oil Replacement Capability,

OTA-E-243 (Springfield, VA: National Technica3 Information Service, September 1984).
Chapter 2—Why Support Alternative Fuels? ● 43

associated with Persian Gulf instability whether it is

importing 30 percent of its oil or 70 percent, because

any price increases attributable to that instability

will affect all world oil supplies simultaneously and

because U.S. agreements with its allies require

sharing the effects of any widespread shortages.

This is not to say that the two import levels are

identical in their implications. In particular, lower

imports would reduce pressures on worldwide oil

supply, lowering the probability of a disruption in

supplies and/or a rapid price increase. Also, higher

oil prices would likely damage a U.S. economy

importing 70 percent of its oil more than the

economy importing 30 percent, because more of the

added energy expenditures would remain inside U.S.

borders in the latter case. And if a percentage of U.S.

highway travel relied on fuels whose prices were

somewhat buffered from world oil prices-which is

possible under certain circumstances14--the economic impact of an oil price shock would be still

less.

Policymakers should also avoid attributing to

U.S. oil vulnerability all costs of actions such as

those of the United States in the Persian Gulf.

Clearly, other geopolitical considerations were at

stake here, including a desire to avoid allowing the

Soviet Union the primary role in defending Kuwaiti

shipping interests.

Furthermore, the United States’ balance between

domestic and imported energy is enviable compared

to most of the developed world. Whereas U.S. oil

imports for 1989 were about 46 percent of oil

consumption (and less than 20 percent of total

energy consumption), the European Organization

for Economic Cooperation and Development (OECD)

nations import about two-thirds of their oil, and

Japan imports all of its oil and most of its energy.

However, this difference might be interpreted in the

opposite fashion: that it illustrates further the United

States’ dilemma, because of our close economic and

military ties to the OECD nations.

Regardless of these arguments, what direct economic costs would the United States incur in the

event of another oil price ‘‘shock”? There appears

to be a general consensus among U.S. energy policy

analysts that the costs the United States actually

incurred as a result of the earlier oil disruptions of

1973 and 1979 were very large, in terms of both

inflationary impacts and the recessions that followed, and that these costs were caused by the rapid

oil price rises that accompanied the disruptions.

Although we are not prepared to dispute this point,

we note that studies at Resources for the Future

(RfF) of the relationship between the oil price

shocks of the 1970s and the recessions that followed

concluded that the shocks themselves had essentially no important adverse effects on output and

employment in the United States and other industrial

countries, and that the most likely cause of the

worldwide recessions that followed the shocks were

the very monetary and fiscal policies adopted to

fight the effects of the shocks.15 Because this

alternative view of the danger of future price shocks

leads to drastically different conclusions about

energy policy than implied by the more conventional

view, we hope that the RfF report will generate a

vigorous, open-minded debate about the vulnerability of the U.S. economy.

If we, for prudence’s sake, take the more conventional view of the danger of future oil price shocks,

there is little doubt that an oil security threat to the

United States still exists. The four basic elements to

this threat-the dependence of the U.S. transportation sector on petroleum; the United States’ limited

potential to increase oil production; the preponderance of oil reserves in the Middle East/Persian Gulf

(see figure 2-7); and the basic political instability

and considerable hostility to the United States

existing there-are as true today as they were in the

early 1970s at the time of the Arab oil boycott.

In fact, in some ways these elements have grown

more severe. For example, during the past 10 years,

the transportation sector’s share of total U.S. petroleum use has grown from 54 to 64 percent.l6 This is

particularly important because the sector’s prospects

for fuel switching in an emergency are virtually zero.

In addition, the boom and bust oil price cycle of the

post-boycott period, and especially the price drop of

1985-86, may have created a wariness in the oil

14FOre~p1e, if feedstoc~ for producing the fuel had few other competitive uses, and if the vehicles using tbis fuelwerededicated rather tin flexible

fuel.

MD.R. J30h.i, Energy Price shocks and~acroeconomic Pe~ormunce (Wshingto% DC: Resources for tie Fume, 1989).

16Ener= ~omtion AtiS&ation, Annul Energy ReVi~ lg&f, DOE~M.oqg@5), May 1$)8(5, and AnnWl Energy Outlook 1990,

DOE/EIA-0383(90), January 1990.
44 ● Replacing Gasoline: Alternative Fuels for Light-Duty Vehicles

Figure 2-7—Distribution of World Oil Reserves, 1988

Iran

14%

CPE

9%

ther free world

15%

Saudi Ara

25%

UAE

15%

SOURCE: Arthur Anderson & Co./Cambridge Energy Research Associates.

industry that would substantially delay any major

boost in drilling activity in response to another price

surge. And, with the passage of time, the industry’s

infrastructure, including skilled labor, that would be

needed for a drilling rebound is being eroded.17

Thus, if the United States is moving towards an

energy situation similar to the one it faced in the

1970s, it may be facing severe economic risks.

Therefore, an examination of any differences between the U.S. and world energy situation in the ’70s

and the situation today is an important element of

evaluating U.S. vulnerability. There are several

areas in which important differences may exist.l8

Petroleum Stocks

First, the United States now has a Strategic

Petroleum Reserve containing in excess of 580

million barrels of crude oil,l9 the equivalent of about

81 days of oil imports at 1989 levels.20 Similarly,

Europe and Japan have also added to their strategic

storage; the International Energy Agency countries,

excluding the United States, had accumulated government owned and controlled stocks of about 360

million barrels by 1986.

Private stocks are also important. Currently,

private stock levels in the United States are similar

to levels in the early 1970s—a bit over 1 billion

barrels. 21 Because stock levels were higher in the

middle to late 1970s, averaging over 1.3 billion

barrels in 1977, 10-year comparisons imply that

private stocks have declined, nullifying some of the

benefit of the SPR. Oil company analysts claim that

the stock “decline” is due to the rationalizations of

refining capacity and markets that have occurred

during this time period, and that the minimum

working stock needed in the supply system has

declined. This explanation appears logical; however, a detailed analysis of private petroleum stock

changes during the past decade and a half might be

useful.

The value of substantial oil stockpiles in mediating the adverse effects of an oil disruption will be

determined by the actual strategy used during a

crisis. Ideally, stockholders will gradually release

lvF~r ~ di~~u~si~n of tie Problem fa~~ by tie U.S. oil indus&y fi tie fa~ of low world ofl prices, and tie effects on pmductio~ .!@? U.S. cOIlgESS,

Office of Technology Assessment. U.S. Oil Production: The Effect offow Oil Prices-Special Report, OTA-E-348 (Washington DC: U.S. Government

Printing Office, September 1987).

18For ~ more det~led dismssion of s~ts ~ world oil ~kets, we recommend tie Gener~ Accouting OffIce’s report Energy security: An (h?lVk?W

of Changes in the World Oil Market, August 1988.

19580.2 ~ion barrels as of Janu~ 1990. En~gy ~ormationA&S@atio~ Weekly petrokwm status Report, &itzI for week ended Jan. 26, 1990,

DOE/EIA-0208(9M6).

20~e average fipo~ rate for tie fKst 11 mon~ of 1989 WaS 7.16 mmbd. Ibid.

21~idc
Chapter 2—Why Support Alternative Fuels? ● 45

their holdings to the market-ruse the stored oil as

their supply source-in the aftermath of a decline in

general oil availability. However, some stockholders may act to hold their stored oil-or even to

increase the level of storage—if they perceive that

oil prices will rise in the future. If hoarding is a

widespread behavior, any adverse effects of an oil

supply disruption will be magnified.

Diversification of Oil Production

Second, world oil production has become substantially more diversified since the ‘70s, with

OPEC’s share of the world oil export sales declining

from 82 percent in 1979 to approximately 61 percent

today,22 and its share of total production dropping

from 49 percent to 32 percent in the same time

period. 23 For several years, at least, no single country

or cohesive group of countries can control as large

a share of the world market as was possible

previously. Furthermore, there are new doubts about

earlier assumptions that low oil prices would lead to

contracting world oil supplies. In some of the higher

cost oil producing areas, eased government taxes

and royalties and extensive industry cost-cutting

efforts have greatly reduced oil development costs,

offsetting much of the damage to oilfield development prospects caused by falling prices.24Also,

many analysts had previously assumed that the

OPEC nations would not further expand their

production capacities. It is now more widely recognized that the maintenance of excess capacity is

important to retaining power within the OPEC

organization, and OPEC nations may be likely to

expand capacity rather than relinquish control. In

addition, the cessation of hostilities between Iran

and Iraq have given these countries the breathing

space necessary to expand their production capabilities, with Iran having no outside source of income

for rebuilding and thus turning to potential oil

revenues as its primary source of capital, and both

Iran and Iraq having added substantially to their

reported proved reserves, which, combined, now

rival those of Saudi Arabia.25 If total OPEC production capacity grows rather than contracts, assumptions about the ‘ ‘using up” of OPEC’s excess

production capacity and the return of market power

to the Middle East—the centerpiece of “conventional wisdom’ warnings about future price increases—may be inaccurate.

Published projections of short-term trends in

world crude production capacity support this view.

The Energy Information Administration (EIA), for

example, expects non-OPEC crude production to

grow by about 600,000 barrels/day in 1990 and

remain steady through the early 1990s despite

slippage in the United States’ capacity. 26 EIA

expects OPEC production capacity to grow by over

1 million barrels per day (mmbd) in 1990 and then

continue to grow for the indefinite future.27

In counterpoint to this view is the expectation that

the oil production rates of both the Soviet Union and

Great Britain, in addition to the United States, will

soon be in serious decline. In the early 1970s,

prospects for these important regions were positive,

in contrast. In addition, the number of areas that

remain unexplored and unexploited is much lower

now than it was in the early 1970s. This is a critical

factor, because it implies that a future price increase

would be less likely to stimulate new supplies than

previously.

Reversibility of Demand

Third, there have been changes—both positive

and negative—in the ability of the economies of

both the United States and the remainder of the Free

World to reverse a portion of any increase in oil

consumption. On the negative side, as noted previously, the U.S. transportation sector’s share of total

oil use increased from 54 to 64 percent over the past

10 years. Because transportation fuel use is essentially locked into petroleum for all but the long term,

this shift has hurt the economy’s ability to switch

from oil. On the positive side, in the U.S. industrial

~~e Middle East’s share of world trade was 58 and 42 percentj respectively.

~tiw ~dersen & CO. and Qi.mbridge Energy Research Associates, World Oil Trends, 1988-1989 Edition, table 16.

~Areas whe~ Oilfield development originally thought to require $25/bbl oil has continued at prices well below $20/bbl include seved North Sea

fields and a number of development projects on the North Slope of Alaska.

~~mrd~g t. World Oil Trends, J989.~990 Edition , op. cit., foo~ote 23, table 21, fian ad ~aq essent~y doubled their reported ON RSeIVeS

between 1987 and 1988, from a combined 95.9 billion barrels to 192.9 billion barrels. By compariso~ Saudi Arabia had 169.6 billion barrels of reserves

in 1988, though it revised its estimated reserves upwards in January 1989, to 255.0 billion barrels (Energy Information Administration InternutionaZ

Energy Annuul 1988, DOE/EIA-0219(88), November 1989).

26Enera ~omation Ahs&atio% znrerna~onaz Energy outlook ~99~, DOE/EIA.0484(90), Mmch 1990, table A2.

zTIbid., table B3.
46 ● Replacing Gasoline: Alternative Fuels for Light-Duty Vehicles

sector, shifts to oil for a boiler fuel can be readily

reversed with a shift back to coal or natural gas.

During the past decade, industry has made a

vigorous effort to insure that its boiler capacity has

rapid fuel-switching capability. Similarly, in the

electric utility sector, a portion of increased oil use

has involved the use of existing oil-fired generating

capacity—removed from baseload service when oil

prices rose in the 1970s—in place of coal, gas, or

even nuclear plants. As long as the industry retains

excess generating capacity, this use can also be

reversed. The steady decline of the utility sector’s

excess capacity is diminishing the potential for

reversal, however.

Another threat to reversibility is the potential for

inadequate supplies of natural gas resulting from the

same drilling slowdown acting to reduce oil production. A gas supply shortage is a realistic possibility

only in the United States, as world gas reserves have

expanded substantially and, generally, adequate

supply seems assured. There is considerable controversy about U.S. gas supply adequacy for the future.

Some analysts are projecting an imminent market

tightening if gas prices stay low, followed by supply

problems as domestic production capability continues to decline. Others claim, however, that significant gas shortages (excepting short-term seasonal

shortages) are extremely unlikely, because additional large volumes of gas can be made available

rapidly if markets tighten, by increasing import

levels and by developing reserves now kept out of

the market by low demand and inadequate price.

Furthermore, even at reduced drilling rates, trends in

gas reserve additions have rebounded this year, and

continued progress in recovery of unconventional

gas (such as coal-bed methane) is encouraging to

long-term resource availability. OTA agrees that

prospects for ample natural gas supplies, although

still somewhat uncertain, have improved greatly

during the past decade.

Experience

Fourth, the United States and its allies have

undergone two major price shocks in the recent past,

and this additional experience, as well as a series of

international agreements on oil sharing, may assist

them in a future supply crisis. Many oil experts are

skeptical about the usefulness of these agreements,

however. A special concern is the difficulty of

defining the market conditions that constitute an

actionable disruption; in particular, the relationship

between the magnitude of supply reductions and the

economic impact of those reductions has been

difficult to specify.28

Balance of Trade

Fifth, in the 1970s some of the economic effects

of oil imports, specifically those associated with the

U.S. balance of trade, were offset by large trade

surpluses in other sectors. The current absence of

large balancing trade surpluses-in 1989, the United

States ran a merchandise trade of $111 billion and

paid $44.7 billion for its oil imports29--may change

the relative importance of oil imports to the U.S.

economy and may weaken the ability of the economy to absorb the effects of a large jump in the dollar

value of imports, which would occur if oil prices

were to rise rapidly.

Price Decontrol

Sixth, U.S. oil prices are no longer controlled as

they were during the 1970s. For years following

increases in world oil prices, the price of oil products

were held artificially low in the U.S. market. The

result was that the potential market responses—

increased production activity and decreased oil

demand—were stifled. In the event of a new increase

in world oil price, the market forces that act to reduce

demand and increase supply will be felt in full

( assuming price controls are not resumed). Similarly, the wide recognition that the Federal Government’s attempts to allocate gasoline during the

earlier crises were counterproductive may help

prevent misguided regulatory distortions in future

crises.

Market Shifts

Seventh, most of the world’s oil trade now

operates on the spot market, in contrast to the

long-term contracts of the 1970s (a spot market is a

short-term market where prospective buyers can

obtain bids for immediate shipment and timely

delivery of crude and petroleum products). Coupled

with an active futures market, this new oil trading

situation makes single country embargoes, which

could never be airtight even in the past, still less of

a threat. Also, because world refinery capacity is

~See D.R. Bohi, Evolution of the Oil Market and Energy Security Policy (WashingtOQj DC: Resources for tie Future, 1986).

zg~conomic Repo~ of the President (Washington DC: U.S. Government I’rMing Off@ Februav 1990).
Chapter 2-Why Support Alternative Fuels? ● 47

considerably more flexible in terms of the crudes

that can be expected, the ability of countries to

switch oil suppliers is greater than during the

1970s.30

Economic Limits on Producers

Eighth, the ambitious and very expensive internal

development programs of the OPEC nations and the

financial difficulties most have encountered in the

1980s reduce their ability to absorb a large drop in

their oil revenues, making oil boycotts less likely.

The OPEC countries’ current account balances,

which reached a high of nearly $100 billion in 1980,

have been negative between 1982-87.31 Furthermore, during the past decade and a half, several

OPEC countries have invested heavily in the economies of Western oil-importing nations, and particularly in their oil-refining and marketing sectors. For

example, Kuwait has established an extensive gasoline marketing network in Europe under the trade

name Q8, and Saudi Arabia has large investments in

the U.S. refining sector. An oil embargo could

severely damage these investments.

Flexibility of Oil Transportation

Ninth, the Strait of Hormuz has become less

important as a critical potential bottleneck of Persian

Gulf oil supply. The Iran Iraq war and its effects on

tanker traffic in the Persian Gulf stimulated the

diversification of oil transport routes out of the Gulf

nations. In particular, pipeline capacity capable of

taking Persian Gulf oil to ports outside of the Gulf

grew from less than 1 mmbd in the late 1970s to

between 4.5 and 4.8 mmbd in 1987.32 Although

pipelines are vulnerable to sabotage or direct attack,

damage to most pipeline segments can generally be

quickly repaired; the more difficult to repair pumping stations, being limited in number, are easier to

defend. Also, most of the pipeline lengths are

located in Saudi Arabia and Turkey. Conventional,

direct attacks within these countries would encounter serious problems, although such attacks certainly

cannot be ruled out.33

Changing Military Power Balance

Tenth, unsettling changes in military power have

occurred in the Middle East since the early 1970s.

Iraq, for example, has assembled military forces

large and effective enough to make outside intervention extremely costly for Western forces, should

such intervention become desirable. The rise in

power of the three States of Iran, Iraq, and Syria has

been disproportionate to that of the other Middle

Eastern OPEC nations. Furthermore, these States,

and in particular Iraq, now have access to chemical

arms and to long distance capability to deliver

munitions by missile, putting Israeli and Egyptian

civilian populations at risk. Consequently, the threat

to the weaker OPEC nations of blackmail or

invasion by Iraq or others has grown since the 1970s.

At the time of final editing of this report, Iraq had

just invaded Kuwait, with unpredictable consequences for oil supply and prices.

Natural Gas

Eleventh, intensive exploration programs during

the last decade and a half have uncovered very large

resources of natural gas, spread in a somewhat more

diversified reamer than oil resources. This gas

provides an alternative fuel to oil used in boilers in

many areas, and provides a potential longer term

source of fuel suitable for transportation use, as

methanol, synthetic gasoline, or LNG/CNG. Although the current world gas trade is small, and local

use requires capital-intensive pipeline systems, gas

use is growing and its potential provides a bargaining chip in dealings between oil users and suppliers.

This variety of changes in world oil markets can

be summarized as a general shift to more flexible and

responsive markets, with closer economic ties between oil producers and users, leading to lower risks

of market disruptions and improved capability for

effective short-term responses to such disruptions.

There is a major counterpoint to this general

improvement in worldwide and U.S. oil security: the

likely reduction in long-term oil production responses to significant market disruptions. In particuW.A. JohnsorL The JOFFREE Corp., ‘‘Oil: A Future Crisis in the Making?” testimony at hearings before the House Subcommittee on Energy and

Power, Committee on Energy and Commerce, MM. 23, 1987.

sl~w Andersen & CO. and Cambridge Energy Research Associates, op. cit., footnote 23.

SZR.L. Ba.mbergerand C.R. hfar~ “Disruption of oil Supply from the Persian Gulf: Near-Term U.S. Vulnerability (Winter 1987/88 ),’ Congressioti

Research Service Report 87-863 ENR, Nov. 1, 1987. Although an additional 2.4 to 2.7 mmbd of capacity are theoretically available in nonoperational

lines, it is unlikely that much of this capacity can be restored.

ssIbid.
48 ● Replacing Gasoline: Alternative Fuels for Light-Duty Vehicles

lar, prospects for finding large new sources of oil

supply appear to be considerably poorer than in the

1970s. In the United States, prospects for an oil

production response to a price shock seem poorer

than during the 1970s simply because many of the

opportunities have been pursued during the interim.

Although there have been improvements in oilfield

technology and methods for enhanced oil recovery

during the past decade and a half, few would argue

that these improvements will fully compensate for

the intensive oilfield development that has occurred

during the same period.

In OTA’s view, the overall effect of this complex

series of changes and adjustments since the early

1970s has been a net improvement in U.S. and world

energy security, at least for the short term. We

believe that a substantial disruption of oil markets is

now less likely than it was then, and that the

industrial nations are now better equipped to handle

a disruption were it to occur, especially over the

short-term. Further, the recent political changes in

the Soviet Union and its Eastern Bloc neighbors may

redefine basic perceptions about the nature of U.S.

national security problems. Nevertheless, it remains

true now, as it did then, that the lion’s share of the

world’s oil reserves lies in the Persian Gulf nations,

that these nations have most of the world’s excess oil

production capacity, and that they remain politically

shaky. As long as this is true, and as long as a sharp

price shock would be disruptive to the U.S. economy—

which it would, though the magnitude of the

disruption is in dispute--policymakers must still

count effects on energy security as an important

factor in judging proposed energy policy measures.

However, the relegation of energy security from the

‘‘number one energy issue’ status that it held in the

1970s, to the somewhat lower status that it has today,

seems to be a reasonable response to both a reduced

security risk and an elevation of concern about

environmental issues.

Energy Security Effects of Alternative Fuels

Development of alternative fueled systems—

vehicles, supply sources, and distribution networks—

is viewed by supporters as both a means to reduce

dependence on oil, lowering the economic and

national security impact of a disruption and/or price

rise, and as leverage against oil suppliers-’ ‘raise

the price too high, or disrupt supply, and we will

rapidly expand our use of competing fuels. ’ OTA

concludes that the use of alternative fuels does offer

the potential to significantly enhance U.S. energy

security, but the effect depends greatly on the fuel

chosen, the scale of the program, and the specific

circumstances of the supply and vehicle system

used.

At a large enough scale, an alternative fuels

program could reduce the United States’ overall

demand for oil and its level of oil import dependence. If the price of the fuels were not tied too tightly

to world oil prices—a possibility under limited

circumstances-use of alternatives could reduce the

primary economic impact of an oil disruption, since

any price rise associated with such a disruption

would apply to a lower volume of oil. Even if

alternative fuel prices were tied to world oil prices,

a large-scale worldwide program would reduce

pressures on world oil supplies, reduce OPEC

market dominance, and lessen the potential for

future market disruptions. Also, the threat of rapid

expansion of the program would be far more credible

after the basic distribution infrastructure was widely

emplaced and economies of scale achieved.

On the other hand, unless it were simply “phase

1“ of a larger program, a small-scale program—

either a true experimental program, or one aimed

only at ozone reduction in a limited number of

cities—would likely have very small security benefits, though at moderate cost and risk. A limited

program can serve as a laboratory to develop and

free-tune technologies and marketing strategies,

putting the United States a few years up the learning

curve if it had to respond to a long-term crisis in oil

supply. Given the slow turnover of the fleet and the

significant infrastructure requirements for emplacing

an alternative fuels system, however, this benefit,

though useful, probably should be considered minor.

A small-scale program could also serve as a symbol

to OPEC, a reminder that an attempt to use their oil

power as a weapon could backfire. However, current

OPEC governments appear quite aware of the

availability of longer term substitutes for oil, and

future crises seem more likely to be created by

radical governments that will not be readily swayed

by considerations such as these. Finally, a smallscale program can serve as a first phase of a larger

program, designed to work the “bugs” out of the

technology and system design and to avoid large,

expensive mistakes. In this role, a small program can

have substantial advantages, though these must be

traded off against the delay in emplacing a system

large enough to affect energy security.
Chapter 2—Why Support Alternative Fuels? ● 49

The efficacy of an alternative fuel program in

providing security benefits, especially in the short

term, will depend on whether the vehicles are

dedicated to a single fuel or else are able to use

multiple fuels. If the program relied on flexibly

fueled vehicles (FFVs), this would allow the United

States to play off the suppliers of oil against

suppliers of alternative fuels, and would avoid the

potential problem—inherent in a strategy favoring

dedicated vehicles-of giving up one security problem (OPEC instability) for another (instability in

whichever group of countries becomes our supplier

of alternative fuels). However, a fleet of flexibly

fueled vehicles attains important leverage against

energy blackmail only if the supply and delivery

infrastructure is available to allow them to be fueled

exclusively with the alternative fuel, if this becomes

necessary. FFVs don’t require widespread availability of an alternative fuel supply network to be

practical during normal times, so adoption of an

FFV-based strategy will not guarantee full infrastructure development unless there are regulatory

requirements for such development. In fact, because

dedicated vehicles are likely to have performance

and emissions advantages over FFVs, policymakers

may view FFVs as only a stopgap measure on the

way to a dedicated fleet.

Having a fuel be domestically available clearly is

a net benefit for short-term energy security considerations,34 but the necessity of importing the fuel does

not negate all security benefits from an alternative

fuel. If the potential supply sources are different

from the primary suppliers of crude oil, or even if the

supply markets are simply more open to competitive

pressures, a turn to alternative fuels would have

advantages to national security. As discussed in the

chapters on individual fuels, there are wide differences in the likely supply sources for the various

fuels.

There are also clear security differences between

fuels that are “unique”—not used elsewhere in the

economy—and those that are widely used. There are

substantial energy security advantages in having

vehicles powered by fuels-such as natural gas and

electricity-that also power other important segments of the U.S. economy. In the event of a crisis,

emergency measures to reduce demand for these

energy sources throughout the economy might free

up fuel supplies for the transportation sector. With

the greatly reduced use of oil in the nontransportation segments of the economy, and with much of the

remaining use in the form of residual oil-not easily

transformed into transportation fuels (exception:

production of electricity for electric vehicles or

electrified mass transit systems)---there are few

remaining opportunities to free up oil for transportation.

As a final point, we have assumed in our

discussions that the marginal barrel of oil eliminated

by an equivalent volume of alternative fuel used in

the United States will be an imported barrel. This

view has been disputed by some analysts,35 who

claim that alternative fuels will eliminate the higher

cost supplies, e.g., domestic oil production. We note

that it is the high price of imported oil, not its low

cost, that is relevant to which barrel is eliminated.

However, if a large alternative fuel program results

in keeping world oil prices (and thus domestic oil

prices) well below what they would have been

without such a program, domestic oil production

could decrease. This decrease would certainly not be

on a one-to-one basis with alternative fuel use, but

it would temper the energy security advantage of a

given volume of fuel substitution. We note that this

theoretical “disadvantage” of an alternative fuels

program applies equally well to any measures,

including energy conservation, that would reduce

pressure on world oil supplies. We do not believe

that this potential is a serious concern.

THE GREENHOUSE EFFECT IN

PERSPECTIVE

Introduction

The “greenhouse” effect—a warming of the

Earth and the atmosphere—is the result of certain

atmospheric gases absorbing the thermal radiation

given off by Earth’s surface, and trapping some of

~~y ~ ~eenv~men~com~w hve raised questio~ about the wisdom of ‘drtig America fhst, ‘‘ which makes the issue of the long-term

benefits and costs of increasing domestic oil and gas production somewhat more contentious. Discussions of this issue can quickly degenerate into

ideological argument, and we have not presented an analysis and discussion here.

ssFor example, see M.A. DeLuchi, R,A. Johnsto% and D. Spertig, “Methanol vs. Natural Gas Vehicles: A Comparison of Resource Supply,

Performance, Emissions, Fuel Storage, Safety, Costs, and Transitions,” Society of Automotive Engineers Technical Paper Series, #881656, 1988.
so ● Replacing Gasoline: Alternative Fuels for Light-Duty Vehicles

this radiation in the atmosphere.36 The Earth’s

natural greenhouse effect is due primarily to water

vapor, clouds, and carbon dioxide (CO2

), with small

contributions from other trace gases that have

natural sources, such as methane (CH4

) and nitrous

oxide (N2O). Without its natural atmospheric heat

trap, Earth’s surface temperatures would be about 60

OF cooler. than at preSent .

3 7

The “heat trapping” property of greenhouse

gases is essentially undisputed. What is in question

is how the Earth’s climate will respond to the

accumulation of man-made emissions, and the

resulting increase in heat trapping, over the last

century and into the next. Carbon dioxide, chlorofluorocarbons, methane, and nitrous oxide are

known to be increasing annually in the atmosphere

due to man’s activities (see box 2-A). The effect of

the increases in concentrations of carbon dioxide

(CO2

), methane (CH4), nitrous oxide (N2O), chlorofluorocarbons (CFCs), and other gases since the

late 1800s is extra heat trapping equivalent to about

a 1.4 ‘F (0.8 ‘C) equilibrium warming in global

average surface temperatures.38

This “direct” heat trapping effect, or “radiative

forcing’ ’39 as it is often called, is the amount of

warming expected to eventually occur at the Earth’s

surface if potential climate feedbacks—processes

that amplify or diminish warming—are ignored.

However, scientists expect that some climate feedbacks will operate; thus, actual warming cannot be

neatly predicted.

In addition, while the human-induced component

of the greenhouse effect increases in magnitude,

other causes of climate changes remain important

and make predicting future climate difficult. These

include changes in the amount of energy emitted by

the sun, changes in the atmospheric composition due

to volcanic eruptions and man-made aerosols, incidences of El Ninos, and other unpredictable events.

Some regions of the globe will experience more

than the average warming, and some regions less

warming or even cooling, due to shifts in atmospheric and oceanic circulation patterns. Changes

expected to accompany warming include arise in sea

level and a more vigorous hydrological cycle, i.e.,

more precipitation and evaporation. Other predicted

but less certain consequences include more drought

in some regions; and more frequent and intense

tropical storms. Scientists remain uncertain about

the details of these impacts: what their magnitude

will be; how fast they will develop; and which

regions of the world they will affect.

Key Uncertainties

Most scientists agree that some warming wil l

occur in the next century; instead, the controversy

involves the geographical distribution of temperature changes—"where?”; the timing and rate of

such changes—’ ‘when?’ and the magnitude of the

changes—’ ‘how much?

The frost issue—”where? ’’—is likely to remain

unresolved for many years. Scientists have significantly less confidence in temperature change predictions for specific regions than for global averages,

beyond the general expectation that the greatest

warming will occur at high latitudes in the Northern

Hemisphere. Climate models are not expected to

provide reliable guidance on regional variations in

temperature and rainfall patterns due to increasing

greenhouse gases for some time-research on the

order of a decade may be needed before such

refinement will be possible.

The second question-’when? ‘-depends a great

deal on the role the ocean plays in temperature

sGGreetiouse gases emit as well as absorb thermal radiatioq but the net effect is absorptio% because greenhouse gases absorb relatively ~teme

radiation from the warmer Earth, and emit relatively weakly, at cooler atmospheric temperatures. Thermal radiation declines as the temperature of the

emitting object declines.

s7Differencesinthe concentrations of C02in the atmospheres of Ear@ Mars, and Venus help to explain the contrast in the average Stiacetemperaties

of the three planets-from roughly -600 F (–500 C) on Mars to 750° F (W@ C) on Venus, compared to a global, amual average of about 600 F (15°

C) on Earth.

3SV. R~M~~ R.J. Cicerone, H.B. Sing& and J.T Kiehl, “Trace Gas Trends and Their Potential Role in Climate Change,” J. Geophysical

Research vol. 90, pp. 5547-5566, 1985; and R.E. Cicerone, “Future Global Warming from Atmospheric Trace Gases,” Narure vol. 319, pp. 109-115,

1986.

s~adiative forc~g or heat ~appfig is c~culated with models of the energy balance of the Earth/atmosphere sYstCm. These models c~c~ate surface

temperature adjustments to increased greenhouse gas concentrations from information about the radiative absorption characteristics of the gas molecules,

and globally averaged profiles of gas concentration versus height in the atmosphere. The models also require informatiori about preexisting conditions,

such as atmospheric temperature profiles; the amount of solar energy entering the atmosphere and the amount reflected from Earth’s surface and from

atmospheric aerosols and gases; and the rate at which heat is redistributed through mechanical mixing processes.
Chapter 2—Why Support Alternative Fuels? ● 51

Box 2-A-Greenhouse Gases

Carbon dioxide (CO2) concentrations in the atmosphere are estimated to have increased by about 25 percent since

the mid-1800s, from around 280parts per million then to about 350 parts Per million now. Carbon dioxide concentrations

have been measured at Mauna Loa since 1958; the record shows a steady increase from year-to-year superimposed on a

clear seasonal cycle. The seasonal variation reflects winter-to-summer changes in photosynthesis (C02 storage) and

respiration (C02 release) in live plants. Most of the increase is attributable to growth in fossil fuel use in the 20th centuryl

unless current trends change, C02 concentrations in 2030 are typically projected to be about 450 Ppm, about 60 percent

higher than preindustrial levels.2 Carbon dioxide concentrations in air bubbles trapped in Antarctic ice indicate that present

CO2 levels are already higher than at arty time in the past 160,000 years. Over that period, C02 concentrations were

correlated with temperature, and ranged from roughly 200 parts per million during glacial episodes to 270 parts per million

during interglacial periods.3 Currently, CO2 contributes about 50 percent of the greenhouse effect.

Methane (CH4

) measurements made since 1978 indicate a steady rise of about 1 percent per year, from about 1.5

ppm in 1978 to about 1.7 ppm in 1987.4 Primarily from its domestic animals, natural gas and coal production, and landfills,

the United States apparently contributes about 10 percent of the methane emissions due to human activity? Per molecule,

methane is about 25 times more effective in trapping heat than C02.

6 Currently, CH4 contributes about 18 percent of the

greenhouse effect.

Nitrous oxide (N20) concentrations apparently began to rise rapidly in the 1940s, and increased about 0.2 to 0.3

percent per year during the mid-1980s. Sources of N20 are primarily associated with soil nitrification and denitrification.

N20 is also produced during biomass and fossil fuel combustion; the magnitude of emissions from fossil fuel combustion

is currently highly uncertain due to errors in sampling for N20.7 Per molecule, the w arming effect of nitrous oxide is about

200 times greater than that of C02.

8 Currently, N20 contributes about 6 percent of the greenhouse effect.

Concentrations of the most widely used chlorofluorocarbons (CFCs), CFC-1 1 and CFC-12, were 0.2 and 0.4 parts

per trillion, respectively, in 1986, increasing at a rate of about 4 percent per year.9 Increases in CFC concentrations are

unambiguously due to human activity, as they are synthetic chemicals that do not occur naturally. U.S. Environmental

Protection Agency10 projects that the rate of increase will be curtailed by the Montreal Protocol on Substances that Deplete

the Ozone Layer, which was signed in September 1987; but that nevertheless, by 2030, concentrations of CFCs 11 and

12 will increase to 0.5 and 1.0 parts per billion, respectively. Use of CFC 11 in this country is dominated by production

of synthetic foams for cushioning and insulation. The largest use of CFC 12 is in motor vehicle air conditioners. Outside

of the United States, both CFCs 11 and 12 are commonly used in aerosol sprays. The warming effect of CFCs is on the

order of 10,000 times greater, per molecule, than that of C02

.

11 Currently, CFCs contribute about 15 percent of the

greenhouse effect.

lc.D, Kw~g, ‘i~dus~ production of Carbon Dioxide From Fossil Fuels and Limestone,” Teks, vol. 28, pp. 174-198, 1973; R.M.

Rotty and C.D. Masters, “CarbonDioxide From Fossil Fuel Combustion: Trends, Resources, and Technological Implications,” in J.R. Trabalka

(cd.), Atmospheric Carbon Dioxide and the Global Carbon Cycle, DOE/ER-0239 (Washingto~ DC: U.S. Department of Energy, December

1985); and A.M. Solomon, J.R. Trabalka, D.E. Reich.le, and L.D. Voorhees, “The Global Cycle of Carbom’ in J.R. Trabalka (cd.), Atmosphen”c

Carbon Dioxide and the Global Carbon CycZe, U.S. Department of Energy, DOE/ER-0239, Washington DC, December 1985.

2u.s. Environmen~ prot~tion Agency, 0fi3ce of Policy, Planning and Evaluatio% PoZicy Optionsfor SrabiZi’zing GZobaZ Cziwte, tit

report to Congress, D.A. Lashof and D.A. Tirpak (eds.) (Washington DC: Febrwuy 1989); V. Ramanathan, L.E. Callis, Jr., R.D. Cess, J.E.

Hanseu I.S.A. Isaksen, W.R. Ku@ A. Lacis, F.M. Luther, J.D. hlabhna~ R.A. RtxlL and M.E. Schlesinger, “Trace Gas Effects on Climate,”

in Atmospheric Ozone 1985, Global Ozone Research and Monitoring Project Report No, 16, World Meteorological Organization, National

Aeromutics and Space Administration Washington DC, 1985; and J. Hanseu I. Fung, A. Lacis, S. hbedeff, D. Rind, R. Ruedy, G. Russell,

and P. Stone, “Global Climate changes as Forecast by the Goddard Institute for Space Studies Three-Dimensional Mode~” Journal of

Geophysical Research, vol. 93, pp. 9341-9364, 1988.

3J.M. B~Oh D. Raynaud, Y.S. Korotkevich, and C. Mrius, “Vostok Ice Core Provides 160,000-year Record of Atmosphdc C02,”

Nature, vol. 329, pp. 408414.

4SW D.R. Bl~e and S.F. Rowl~d, “continuing Worldwide Increase in Tropospheric Methane, 1978 to 1987,” science, VOL 239, PP.

1129-1131, 1988.

5T.J.s. J3nvi.ronmerl@ Protection Agency, 1989, op. cit., footnote 2.

61bid.

7L.J. M~io ~d J.C. Kratnlich, “M Artifact in the Measurement of N20 From Combustion Sources,” GeophysicaZResearch Ufler$,

VO1. 15, pp. 1369-1372, 1988.

81J.s. EnviroMen@ Protection Agency, 1989, op. cit., footnote 2.

91bid.

loIbid.

1lV. Ramanathan et al., 1985, op. cit., footnote 2.

SOURCE: OffIce of Technology Assessmen4 1990.
52 ● Replacing Gasoline: Alternative Fuels for Light-Duty Vehicles

regulation, which is only partially understood and

incorporated into current models. Oceans play

important roles in the climatic response to changed

temperatures because they emit and absorb both heat

and CO2 and because changing ocean circulation can

change the distribution of energy throughout the

entire climate system. The upper ocean (50 to 100 m)

appears to respond relatively rapidly to temperature

changes; if interactions with the deep ocean are

important, time lags up to 100 years for equilibration

with the atmosphere may be required. Such lags

would greatly slow down the “appearance’ of

global warming. On the other hand, as oceans warm,

they may absorb a smaller fraction of CO2 put into

the atmosphere each year, which would accelerate

the warming. 40

The third issue—‘‘how much?’ ‘-depends on the

role of climate feedbacks. Feedbacks can either

enhance (positive feedback) or diminish (negative

feedback) the warming effect expected from simply

increasing concentrations of the greenhouse gases.

Physical feedback mechanisms include water vapor,

snow and ice, and clouds. When the climate warms,

the atmosphere can hold more water vapor. This

enhances warming because water vapor itself is a

greenhouse gas. Despite some recent controversy41

,

most scientists believe the positive effect of water

vapor on temperature dominates any regional negative feedbacks from water vapor (e.g., increased

cloud cover near the equator).

When climate warms, snow and ice will melt,

reducing the reflectivity of the Earth and increasing

its absorbance of heat. The insulating property of the

ice is also lost, allowing a transfer of heat to the

atmosphere from the ocean. Thus, in general, snow

and ice feedbacks also appear to increase warming.

However, nine new studies presented at the American Geophysical Union’s meeting last fall suggest

the south polar ice sheet may actually get bigger due

to a warmer atmosphere carrying more moisture and

depositing more snow on Antarctica. This outcome

has reduced estimates of projected sea level rise to

about 14 inches (ranging from a drop in 2 inches to

arise of 30 inches) from the earlier (1987) National

Academy of Sciences estimate of 20 to 59 inches.42

The projected net change in sea level is still positive

because the melting of Greenland’s ice sheet and

expansion of ocean water as it warms up will

outweigh the effect of the enlargement of the

Antarctic ice cap.

Important uncertainties about cloud formation

limit our understanding of how climate will respond

to greenhouse forcing. Clouds play a dual role in

Earth’s energy balance: depending on their shape,

altitude, and location, their dominant effect can

either be to reflect solar radiation or absorb thermal

radiation. Satellite data have recently been used to

demonstrate that the dominant effect of clouds at

present is to reflect solar radiation and hence help

cool the earth.43 However, as conditions change,

whether cloud feedbacks will amplify or reduce

greenhouse warming depends on whether the cooling effects of clouds increase compared to their

warming effects, or vice versa. If all types of clouds

simply increase in area, they will reflect more

sunlight back into space and cool the earth. If, as

some new research suggests, taller narrower clouds

form, or thin cirrus clouds form, they will actually

exacerbate the warming effect. Sensitivity analyses

conducted recently on the current models suggest

they are extremely sensitive to assumptions about

cloud cover. A comparison of 14 General Circulation Models concluded that clouds can have either a

strongly positive or strongly negative feedback 44 They can halve the effect on global warming.

expected warmin 45 or double it.46

~. Lashof, “TheDynamic Greenhouse: Feedback Processes that May Influence Future Concentrations of Greenhouse Gases and Climate,’ Climatic

Change, in press, 1989.

QIR. Lin~e~ unpublished paper, Massachusetts Institute Of Technology, 1990.

42Natio~ Amdemy of Scienms, Re~po~ing t. c~nge~ in Sea ~vel: Engineering Imp[iCations (was~gto~ Dc: Natioti Academy of Sciences,

1987),

4SV. ~am~n,R@D. Cess, E-F, ~s~~ p. Minnis, B*R. B~kstrom, E. -d, andD. H~ “Cloud-Radiative Forcing and Climate: Results

From the Earth Radiation Budget Experiment” Science, vol. 243, pp. 57-63, 1989.

~R. Cess, Stite univmsi~ of New York Stony Brook, as quoted by Richard Kerr, Science, VOL 243, PP. 28-29, 1989.

MJ.F+B. Mitcheu, The Equi[ibn”um Response to Doubling C02 in Greenhouse-Gas-Induced Climatic Change: A Cn”tical Appraisal of simulations

and Observations, Michael E. Schlesinger (cd.), (Elsevier) in press.

46v+ ~=~u ~ ~~e ~ee~ouse~eov of Cbte Ctinge: A Test By ~~dvertent Glob~ Experiment, ’ Science, VO1. 240, pp. 293-299, 1988.
Chapter 2—Why Support Alternative Fuels? ● 53

Benchmark Warming—The Effect of

Doubled CO2

Predictions of future warming due to greenhouse

gases are highly uncertain, largely because of the

uncertainties inherent in both the climate models

themselves and in the forces driving climate to

change. Future emissions will be tied to future

population and economic growth, technological

developments, and government policies, all of

which are notoriously difficult to project. In order to

avoid the pitfalls and complexity of trying to

estimate future emissions, and to provide a common

basis for comparing different models or assumptions, standard practice on the part of climate

modelers has been to perform sensitivity analyses.

Typically, this entails examining equilibrium climates associated with preindustrial C02 levels, and

then comparing them to equilibrium climates associated with doubled atmospheric C02 concentrations.

Although such calculations are unrealistic in that

they instantaneously double CO2 concentrations,

rather than increasing them gradually over time, they

provide a useful “benchmark” of the sensitivity of

climate to rising greenhouse gas concentrations.

Reviews of doubled-C02 calculations generally

agree on a range of 3 to 8 ‘F (1.5 to 4.5 ‘C) as

bounding the equilibrium warming responses given

by a wide variety of current models.47 The uncertainty in this benchmark warming is primarily due to

uncertainty about feedbacks. The lower end of the

range roughly corresponds to the direct impact of

heat trapping associated with doubled C02

, with

little amplification from feedbacks. At the upper end

of the range, feedback processes more than double

the direct heat trapping effect. Some scientists

believe that even more than an 8 ‘F warming could

occur, due to hypothesized geochemical feedbacks

that would release extra methane and C02 into the

atmosphere, but which are not presently included in

any models.48

It is important to realize that the3to8‘F warming

cited above only caps model predictions of warming

in response to doubled CO2; higher CO2 concentrations or a combination of greenhouse gas levels

equivalent to more than a doubling of C02 could

lead to greater warming. U.S. EPA49 has projected

that in the absence of policies to slow emissions

growth, an ‘effective’ C02 doubling (i.e., accounting for increases in other trace gases as well as CO2

)

could occur as early as 2030, assuming hig h

population and economic growth, or be delayed for

about a decade, if low growth prevails. Beyond that,

still higher trace gas concentrations and correspondingly more climate change would occur.

Reducing CO2 Emissions in the Near-Term

C02 is responsible for about 50 percent of current

warming in this decade, with CFCs, methane, and

nitrous oxide combined, contributing the other 50

percent (see figure 2-8). With anticipated controls on

CFC emissions due to the Montreal Protocol,

however, carbon dioxide’s comparative contribution

is expected to increase in the future. A recent EPA

analysis (1989) suggests that to stabilize atmospheric concentrations of the greenhouse gases at

current levels would require world-wide emission

reductions from today’s levels of 50 to 80 percent for

CO2, 10 to 20 percent for CH4, 80 to 85 percent for

N20, and 75 to 100 percent for CFCs, and a freeze

on carbon monoxide and NOX

. If the less developed

countries are to grow in energy use at all, the

developed world would have to virtually phase-out

fossil fuels to achieve such a goal. In lieu of such a

possibility, the world will continue to increase

emissions of greenhouse gases and will most likely

experience some warming over the next few decades.

The United States is responsible for about 21

percent of current greenhouse warming. In the

United States, fossil fuel C02 emissions are distributed roughly equally across the industrial, transportation, and buildings sectors. (See figure 2-9.) Per

unit of energy produced, C02 emissions from coal

combustion are highest, followed by oil and then

natural gas. Oil and coal combustion each account

for roughly 40 percent of U.S. emissions, with

natural gas contributing the other 20 percent. The

dTNatio~ Academy of Sciences, Changing Climate (Washington DC: National Academy Press, 1983); and M.C. McCracken and F.M. Luther,

Projecting the Climatic Effects of Increasing Carbon Dioxide, DOE/ER-0237, December 1985.

~Lashof, 1989, op. cit., foo~ote w.

4~.s. Envhomen@ ~otection Agency, Office of poli~, pla~g and Eva,luatio~ Policy ~pfion~ for Stabilizing GIOba/ Ch%late, draft repOll tO

Congress, D.A. Lashof and D.A. Tirpak (eds.) (M%shingtou DC: February 1989).
54 ● Replacing Gasoline: Alternative Fuels for L.ight-Duty Vehicles

Figure 2-8-Current Contribution to Global Warming (percent)

By Trace Gas

N20

SOURCE: U.S. Environmental Protection Agency.

U.S. Environmental Protection Agency5o projects

that annual world CO2 emissions will increase from

about 6 billion metric tons of carbon in 1985 to 9 to

12 billion metric tons of carbon in 2025, without new

initiatives to reduce them. The U.S. contribution in

2025 is projected to be larger in absolute terms but

smaller as a fraction of the world’s total than at

present.

In 1988, at the now famous “Toronto Conference,’ scientists and policymakers from 47 countries called for a 20 percent reduction in carbon

dioxide emissions from today’s levels by early in the

next century. Several groups are attempting to

calculate the potential for such reductions on a

country by country basis51. Preliminary results

suggest that substantial emissions reductions can be

attained by efficiency improvements in all sectors of

the economy (buildings, transportation, industry,

energy supply, and agriculture). However, achieving

a 20 percent reduction from current levels would not

be possible by that time from efficiency changes

alone. Pursuing such a goal would require changes

in energy usage patterns and fuels consumed as well.

By Sector

CFCs

Other industri

3%

t ry

Energy

57%

These would probably require extensive government

intervention to accomplish. In the transportation

sector, VMT (vehicle miles traveled) are expected to

grow at 2 to 3 percent per year, and efficiency

improvements to grow at a slower rate (if current

trends continue); thus, CO2 emissions will continue

to grow. Emissions are expected to increase about 25

percent between now and 2010 despite the appearance of new, more-efficient cars, trucks, and planes.

To achieve a 20 percent reduction from 1987 levels

in this sector therefore, would require both offsetting

expected growth and decreasing emissions by an

additional 20 percent.

The Transportation Sector and

Global Warming

Transportation’s impact on global warming comes

principally from the CO2 released by burning fuel.

There are other contributions-refinery emissions

and methane from tailpipes, for example-but these

are much smaller than the warming contribution

from CO2

.

52 Consequently, to a close approximation, studying transport’s contribution to global

~.S. Environmental Protection Agency, 1989, op. cit., footnote 49.

SIFOUU.S. stidies ~e~d~ay: by t.he U.S. Department of Energy, the U.S. Environmental Protection Agency, the Con9essioti Rese~h Smice.

and the Offke of Technology Assessment.

szHwe comid~u.s. Mghway vehicles, for example, DeLuchi et al. (M.A. DeLuchi, R.A. Johnstom and D. Sperling, “TransportationF uels ~d tie

Greenhouse Effect,” UniversityWide Energy Research Group, University of California, UER-180, December 1987, p. 15) estimate the following shares

of contribution to greenhouse emissions: 85 percent C02 from vehicle tailpipes, 11 percent COZ from production and nonhighway distribution of fuels,

3 percent from flaring and venting of natural gas, and 0.2 percent from tailpipe methane emissions.
Chapter 2—Why Support Alternative Fuels? ● 55

Figure 2-9-Contribution of the Transportation Sector to C02 Emissions

Industry ------

---- --

31% ---------

----------

~ A Transport at ion

\\ ) 33 ’

0

buildings& yz-----

37%

Percent of total by sector

Total = 1.4 billion tons/year

SOURCE: Oak Ridge National Laboratory.

warming is the same as studying transport energy

consumption. The actual ‘‘ warming contribution,”

expressed as mass of carbon emitted, is calculated by

multiplying energy consumption by an emission

coefficient that is roughly constant for all petroleumbased transport.

There are three important exceptions to this rough

equivalence of greenhouse emissions and energy

consumption, though. First, chlorofluorocarbons

(CFCs), used in transport as air conditioning working fluids and, in smaller quantities, as foam padding

and insulation, will not vary proportionally with

energy consumption. Second, if other fuels replace

petroleum as the principal source of transport

energy, then the constant of proportionality between

CO2 emissions and energy use will change. Finally,

the secondary effects of other tailpipe emissions

such as carbon monoxide and reactive hydrocarbons

may be large, for they both contribute to the

formation of tropospheric ozone (also a greenhouse

gas) and reduce concentrations of the hydroxyl

radical (OH), which scavenges many trace gases

from the atmosphere.

Short of capturing and storing the CO2 produced

by fossil fuel combustion-a remote possibility—

the only way to reduce CO2 emissions is to consume

less fossil fuel. This can be accomplished by burning

the fuel more efficiently (e.g., higher mpg cars),

Non oil-based 2%

Rail marine 7%

Aircraft 14%

Heavy trucks 14%

Light trucks 20%

Automobiles 43%

Emissions from transportation,

by category

Total ■ 0.46 billion tons/year

reducing demand for transportation services (driving

less, carpooling), or actually changing fuels. Emissions of CO2 per passenger mile depend on the kind

of fuel efficiency technology in a car, but also on

how big and powerful the car is, how fast it is driven,

road and signal design, and how many people are in

the car.

U.S. Transportation Energy

CO2 Emissions

Use and

The carbon emitted from the transport sector

represents about 30 percent of total U.S. fossil fuel

carbon emissions, and, as noted, the United States

contributed 23 percent of world fossil fuel carbon

emissions. Worldwide, fossil fuel combustion was

about 75 to 80 percent of total carbon emissions (the

rest came mostly from deforestation), and CO2

represents about half of total current contributions to

the greenhouse problem. Multiplying all these

shares together indicates that the American transport

sector contributes about 5 percent of total world CO2

emissions, or about 2.5 percent of the total greenhouse problem. As figure 2 shows, the U.S. lightduty fleet-cars and light trucks-accounts for

about 63 percent of U.S. transport emissions, or 3

percent of world CO2 emissions, or 1.5 percent of the

total greenhouse problem.
56 . Replacing Gasoline: Alternative Fuels for Light-Duty Vehicles

Future trends in transport greenhouse emissions

will be determined by three factors: population

growth, travel per person, and greenhouse emissions

per unit of travel. Travel per person, and mode of

travel, are determined by economic choices, many of

which are constrained in the short run by existing

patterns of settlement and available transportation

infrastructure. Greenhouse emissions per unit of

travel are largely determined by vehicle efficiency

technology, including such market-determined factors as the average size and power of vehicles in the

fleet. These factors are also constrained in the short

run, due to the remaining lifetime of existing

vehicles and the lead times required for introduction

of substantial innovations in new vehicles.

Cars and light trucks are likely to continue to

dominate U.S. transport. Consequently, the single

most important factor determining future transport

energy use and greenhouse emissions will be the rate

of light vehicle efficiency gains. Although today’s

best production models and prototypes, surpass 50

mpg and 80 mpg respectively, fleet increases in

efficiency to this level are unlikely. Consumer

preference for larger and more powerful vehicles

suggest that, under current conditions, efficiencies

this high cannot be translated into production fleet

performance.

Alternative Fuels

New transport fuels may also change the rate of

greenhouse emissions per unit of travel. Fuels under

development include methanol derived from natural

gas or coal, ethanol derived from fermented plant

feedstocks, natural gas in compressed (CNG) or

liquefied (LNG) form, and hydrogen derived from

electrolysis of water. Electric vehicles that run on

rechargeable batteries are also being developed

aggressively. To assess the greenhouse effects of

new fuels, you must look beyond the tailpipe. In the

present petroleum-based system, emissions of CO2

from vehicles represent about 85 percent of total

transport-associated greenhouse emissions; the other

15 percent comes from the production, refining, and

transmission of the fuel, and venting and flaring of

natural gas found with the petroleum. Changes in

vehicle efficiency or travel patterns alone, without

changes in the sources of transport fuel, will keep

this relationship unchanged; if CO2 from vehicles

declined by 25 percent, greenhouse emissions from

the transport system would decline by 25 percent.

But new fuels will change the relationship, because

their sources and manufacture will be different.

Consequently, it is necessary to add up total

greenhouse emissions from extraction, production,

distribution, and use of new fuels to assess their net

impact on emissions.

While other fuels could reduce greenhouse emissions, large movement to new transport fuels is

blocked by two categories of obstacles: technical

problems of cost, vehicle performance and fuel

storage; and threshold problems related to fuel

distribution and repair systems. The new power

sources that offer the largest reductions in greenhouse emissions-hydrogen or electricity from nonfossil sources-are the furthest from large-scale

technical viability, and the most difficult to move to

from a gasoline system.

As discussed in the chapters that follow, although

there are serious disagreements about details, there

is a substantial consensus that those alternative fuels

that are most ready for the marketplace will not

substantially alter the effective volume of greenhouse gases produced by the transportation sector—

assuming that feedstocks are selected based on

market prices rather than national security considerations or global warming considerations (so that

natural gas is likely to be the primary feedstock,

rather than coal or biomass). This conclusion is

reached not only because no new fuel, except

possibly reformulated gasoline, will penetrate deeply

into the marketplace by the end of this century, but

also because the fuels most likely to begin to

penetrate don’t offer a substantial advantage over

gasoline in their net greenhouse emissions.

Methanol and compressed or liquefied natural

gas will rely, at least at first, on geologic deposits of

natural gas as their primary feedstock. Although

methane, the key constituent of natural gas, generates less CO2 per unit of energy on combustion than

does gasoline, methane is itself a potent greenhouse

gas and will be a major component of the emissions

from natural gas-fueled vehicles. This, coupled with

certain energy inefficiencies in transporting and/or

transforming the natural gas, approximately compensate for methane’s advantage in combustion CO2

emissions. Reformulated gasoline may gain or lose

greenhouse emissions “advantages” by adding or

subtracting various components of gasoline, but the

net effect is highly uncertain (because the actual

makeup of reformulated gasoline is highly uncertain) and unlikely to be large. We would guess that
Chapter 2—Why Support Alternative Fuels? ● 57

reformulated gasoline will create a small net increase in greenhouse emissions. And ethanol is

theoretically attractive because its primary feedstocks, sugar and starch crops, are renewable, with

plant growth reabsorbing the CO2 lost to combustion. However, with current agricultural and fuel

production technology, the energy used to grow the

feedstocks and convert them to ethanol produces

enough C02 to roughly negate the advantage gained

by crop regrowth; without changes in the production

system, ethanol use will generate about as much CO2

as gasoline use.

Electricity and hydrogen are often cited as fuels

that could yield substantially reduced greenhouse

emissions. However, these reductions can be achieved

only by using energy feedstocks—probably nuclear

in the case of electricity, solar for hydrogen-that at

present are either not available in large quantities or

not economic. Both of these “fuels” probably are

longer term alternatives, not likely to be the fuel of

choice for any program seeking to put millions of

vehicles on the road before the year 2000.

If the near-term options will not greatly affect

greenhouse emissions, should we then not consider

global warming implications in making decisions

about promoting alternative fuels? Environmentalists are making the following arguments for the

proposition that decisions about alternative fuels are

a key factor in global warming strategies:

● Some decisions about alternative fuels will

foreclose future options. Introducing particular

alternative fuels may open or foreclose future

fuel options that do have profound greenhouse

implications. For example, introducing natural

gas as an alternative may open the way for

future use of hydrogen, by making gaseous

fuels more familiar and by developing a gasoriented infrastructure that is more convertible

to hydrogen use than would be an infrastructure

based on liquids. Alternatively, introducing

new liquid fuels may make it far more difficult

to switch to hydrogen later on, given the large

investment made in new, liquids-oriented infrastructure.

As a corollary to the above argument,

introducing any new fuel using fossil materials,

e.g., natural gas, will simply prolong the age of

fossil-based transportation fuels and delay entry

of renewable fuels. To fight global warming,

we must begin to make a transition from fossil

●

●

fuels as soon as possible. Moving from one

fossil fuel (petroleum) to another (natural gas)

is basically defeatist. We should instead move

as quickly as possible to solar or biomass-based

fuels.

Introduction of some fuels will lead inexorably

to more coal use. Introducing fuels that are

dependent on fossil materials as feedstocks will

inevitably lead to a dependence on coal as the

feedstock. Such a dependence will have a

profound greenhouse impact, so that consideration of the long-term feedstock sources for the

alternative fuels must take place before setting

us on a particular path.

Current estimates of greenhouse emissions

don’t consider future technology improvements. The fact that several of the alternative

fuels can match gasoline in greenhouse emissions should be viewed as encouraging rather

than disappointing, given the current rudimentary state-of-the-art of much of the fuel cycle

for the various alternatives. It is inevitable that

commercial development of these fuels will

stimulate substantial improvements to efficiency in production and utilization, and consequent reductions in greenhouse emissions.

Although the current gasoline-based system

can improve as well, it has less opportunity

because of its maturity.

OTA agrees with some of these concerns, with

caveats. We do believe that the near-term fuel

choices will affect the potential for introducing other

fuels in the future; we do not believe that these

effects are necessarily very straightforward, however (as in the argument that introduction of

near-term gaseous fuels will assist longer term

hydrogen fuel development), nor necessarily so

predictable that this concern should play a key role

in selecting fuels. We agree that moving to methanol

or natural gas will increase the chances of our

eventually moving to coal as a transportation feedstock, and may even prolong our use of fossil

transportation fuels, but only because these fuels are

in some ways more attractive than gasoline and may

make a fossil-based system more congenial. If we

ran out of oil and had not turned to methanol or

natural gas, this would not necessarily push us

towards renewable, however; like methanol and

natural gas, gasoline can also be made from coal (or

natural gas).
58 ● Replacing Gasoline: Alternative Fuels for Light-Duty Vehicles

Finally, we agree that technology improvements fuel cycle greenhouse emissions conducted by Mark

will improve the future net greenhouse balance of DeLuchi, Daniel Sperling, and colleagues at the

the alternative fuels, although resource depletion University of California at Davis. These analyses are

might eventually work in the other direction. comprehensive and superbly documented.

In the chapters on the individual fuels that follow,

we have relied in large measure on the analyses of
Chapter 3

Substituting Methanol for Gasoline in the Automobile Fleet

Much recent attention has been focused on the

potential for using methanol as a primary vehicle

fuel, either neat (100 percent methanol, or M1OO) or

mixed with up to 15 percent gasoline (M85). Among

its advantages as an automotive fuel are its familiar

liquid form, its ease of manufacture from natural gas,

and the availability of processes allowing its manufacture from coal and biomass,l its high octane level

allowing higher engine power (at constant displacement), and its potential as a cleaner burning fuel than

gasoline. The technology to use M85 as an automotive fuel has been demonstrated and could be

commercially available within a few years, and

development programs in the United States, Japan,

Germany, and elsewhere are working to improve the

efficiency, driveability, and emission characteristics

of methanol-burning engines and to allow operation

with M1OO (cold-starting is a problem with this

fuel). Cities and States with vehicular air quality

problems have expressed particular interest in methanol use, and California has had an active program

to stimulate the development of a fleet of methanolPhoto credit: General Motors Corp.

Chevrolet Lumina Flexfuel auto can use straight gasoline, M85, or any combination in between.

IG~o~e can alSO be produc~ from these feedstdcs as well.

–59–
60 ● Replacing Gasoline: Alternative Fuels for Light-Duty Vehicles

capable vehicles since 1978.2 Also, Congress has

passed measures to stimulate development and sales

of methanol-capable vehicles, and is actively considering legislation to develop alternative-fuel fleets

in cities suffering from ozone problems. The Alternative Motor Fuels Act of 1988, Public Law

100-494, allows manufacturers to use dedicated and

flexible fuel vehicles to help meet Corporate Average Fuel Economy (CAFE) standards. The law

allows the manufacturers to calculate fuel mileage

by including only the petroleum portion of fuel

usage with the vehicles operating with petroleum

use at its minimum level.3

If Federal, State, or local governments restrict

gasoline use in urban areas, methanol is in a good

position to compete for a significant share of the

highway vehicle fuel market. Without restrictions on

gasoline sales, however, methanol must overcome a

number of obstacles to compete successfully. These

include a potentially high price in relation to current

gasoline prices (particularly in the early years of a

methanol program), lack of incentives to establish a

supply and distribution infrastructure, and possible

strategic problems associated with potential supply

sources. Also, because methanol’s potential air

quality benefits have become a critical factor in its

support, questions about the magnitude and nature of

these benefits must be satisfactorily resolved.

EFFECTS ON AIR QUALITY

Support for measures to promote methanol has

focused primarily on its potential to reduce urban

ozone in areas with significant smog problems, e.g.,

Los Angeles and the Northeast corridor. Methanol’s

potential energy security benefits as well as its

potential for improvements in automotive emissions

of toxic pollutants and in fuel efficiency and performance are also important. Methanol has been

presented as superior to gasoline as a vehicle fuel

because of several favorable physical and chemical

characteristics: the low photochemical reactivity of

methanol vapors emitted in vehicle exhaust or fuel

evaporation; high octane level; wide flammability

limits; high flame speed; low volatility; and low

combustion temperature. Methanol’s low reactivity

means that emissions of unburned methanol, the

primary constituent of methanol vehicle exhaust and

fuel evaporative emissions,

4 have less smog-forming

potential than an equal weight of organic emissions

from gasoline-fueled vehicles and infrastructure5

(however, other, more reactive constituents of methanol vehicle emissions complicate the analysis of the

overall smog benefit). The octane and flammability

characteristics allow a methanol engine to be operated at higher (leaner) air-fuel ratios than similar

gasoline vehicles, promoting higher fuel efficiency

and lower carbon monoxide and exhaust organic

emissions than with gasoline, though causing a

potential problem with NOX control. The low

volatility should reduce evaporative emissions if the

effectiveness of evaporative emissions controls is

not compromised. The high octane level allows

higher engine compression ratios to be used, promoting efficiency and power. 6 And methanol’s

relatively low combustion temperature should reduce “engine out” NOX emissions (that is, emissions prior to the exhaust stream entering the

catalytic converter) compared to emissions from

gasoline engines, other things equal.

In general, then, the substitution of methanol

vehicles for gasoline vehicles will affect emissions

of smog-forming organic compounds and nitrogen

oxides, toxics, and carbon monoxide. This section

discusses each of these emissions, with the primary

focus on organic compounds because their reduction

California is now also evaluating the use of propane, compressed natural gas, and electricity as altermtive fuels.

W a dedi~t~ me~ol vehicle uses M85, which is 85 percent methanol and 15 percent gasoline, the law allows the vehicle fUel economy to be

calculated as if the 15 percent gasoline usage were its total fuel consumption. A flexible fuel vehicle would receive half the CAFE credit available to

dedicated vehicles, based on the assumption that such vehicles will use methanol fuels 50 percent of the time. Each manufacturer is limited in the total

alternative fuel credit it can claim to 1.2 mpg.

4J. Milford, “Relative Reactivities of M85 Versus Gasoline-Fueled Vehicle Emissions,” contractor report prepared for OffIce of Technology

Assessment, Jan. 18, 1990. In tests of M85 cars, methanol accounted for approximately 70 percent of total vehicle emissions by weight.

5J.A. AISOW J.M. Adler, and T.M. Baines, ‘‘Motor Vehicle Emission Characteristics and Air Quality Impacts of Methanol and Compressed Naturat

Gas,” D. Sperling (cd.), Alternative Transportation Fuels: An Energy and.?hvironrnental Solution (Westport, CT: Quorum Books, Greenwood Press,

1989), pp. 109-144.

6SpecificWy, me~nol’s res~choct~e n~ber of 112, compared to 91 for regular gasoline, should allow the engine compression ratio to be raised

from 8.5/9.0 in today’s gasoline engines to over 10. There is dispute about how high a compression ratio can be reached. Energy and Environmental

Analysis estimates the capability to reach 12.0 for an M1OO vehicle, with a potential 12 percent fuel benefit (Energy and Environmental Analysis, Inc.,

Methanol’ sPotential as aFueZfor Highway Vehicles, contractor report prepared for the Office of Technology Assessmen4 October 1988). Ford Motors,

however, projects an increase to only 10.5 to 11.1 (D.L. Kulp, Ford Motor Co., personal communication, Feb. 1, 1990).
Chapter 3-Substituting Methanol for Gasoline in the Automobile Fleet ● 61

is both the centerpiece of efforts to promote methanol use and one of the most controversial technical

aspects of the debate over methanol use.

Organic Compounds and Ozone Reduction

Conclusions

There has been substantial controversy about how

effective methanol fuels will be in reducing ozone

levels. In OTA’s view, although considerable effort

has been expended to estimate the ozone impacts of

introducing methanol vehicles, especially for the

Los Angeles Basin, a number of factors confound

the estimates and lead us to conclude that methanol

has significant but poorly quantified and highly

variable potential to reduce urban ozone. In particular, there are few examples of emissions tests of

methanol vehicles that have measured the individual

compounds in their emissions, even though such

‘‘speciation’ of emissions is important inaccurately

determining their photochemical reactivity. Other

confounding factors include the essentially prototype nature of available methanol vehicles, potential

future changes in the reactivity of gasoline exhausts

(altering the trade-off between methanol and gasoline), and uncertainty about future progress in

controlling formaldehyde emissions. And whatever

net emissions changes are caused by using methanol

vehicles, the effect of these changes on levels of

urban ozone will vary with location and meteorological conditions. Ozone benefits from reducing organic emissions will occur only in urban areas where

ambient concentrations of volatile organic compounds are low enough, relative to NOX concentrations, that reducing organic emissions is an effective

ozone strategy. In some urban areas-Atlanta, for

example-and in most rural areas, controlling NOX

is a more promising ozone control strategy, and

methanol use will provide little or no ozone benefits.

Some of the more favorable data imply that use of

M85 vehicles could yield an “effective” reduction

in organic emissions (that is, taking into account

both changes in the mass of organic emissions and

changes in the reactivity of these emissions) in the

range of 20 to 40 percent, assuming that formaldehyde is reasonably well controlled (e.g., in the

vicinity of 30 mg/mile or so). On the other hand,

some of the less favorable data imply a much lower

benefit: no higher than about a 20 to 25 percent

reduction even in the most favorable areas (e.g., the

Northeast corridor) with good formaldehyde control,

much less of a reduction and possibly even an

increase in some areas such as the Los Angeles

basin. And if formaldehyde control efforts are not

successful, some of the benefits would be lost,

particularly when vehicles age and catalyst effectiveness diminishes.

The prognosis for M1OO dedicated vehicles is

more uncertain in some ways, given the scarcity of

data and, for M1OO vehicles, the uncertainty associated with cold starting problems. However, the

physical characteristics of a 100 percent methanol

fuel, if not altered too radically by additives to aid

cold starting and to provide taste and flame luminescence, do appear very promising for substantial

ozone benefits. In particular, the absence of reactive

hydrocarbon species in the fuel guarantees their

absence from evaporative emissions and, further,

should lead to low levels (compared to gasoline) of

such species in the exhaust-reducing the reactivity

of these emissions; and methanol’s low vapor

pressure, low molecular weight, and high boiling

point should keep evaporative emissions, including

running losses and refueling emissions, at much

lower levels than for gasoline. The available emissions tests of M1OO vehicles, though few in number,

appear to bolster these expectations.

Discussion

The range of claims about methanol’s effectiveness as a means of reducing urban ozone is

extremely wide. For example, the Environmental

Protection Agency (EPA) claims that methanol

vehicles operating with M85 and current engine

technology can achieve reductions in “ozoneforming potential"—the net effect of changes in

either or both mass emission rates and reactivity of

the emissions of volatile organic compounds that are

ozone precursors-of about 30 percent from future

gasoline-fueled vehicles meeting the Administration’s proposed emission standards and fueled with

low volatility (9 psi) gasoline.7 With optimized M85

vehicles—achieving reduced levels of hydrocarbons, methanol, and formaldehyde in their exhausts—

the net emission benefit claimed is about 40

7u.s. E~vir~~~r@ ~otection Agenq, An@~iS of the Economic ad Environmental Effects of Methanol as an Automotive Fuel, Special Report,

Office of Mobile Sources, September 1989.
62 ● Replacing Gasoline: Alternative Fuels for Light-Duty Vehicles

Box 3-A—How Does EPA Arrive at Its Estimates for the Ozone-Reduction Impact of

Methanol Vehicles?l

EPA has concluded that an “interim” M85 flexible fuel vehicle can obtain a 30 percent reduction in “gasoline

VOC-equivalent”’ emissions (or about a 40 percent reduction for a fully optimized vehicle), and that an optimized

M1OO vehicle can obtain an 80 percent reduction compared to a gasoline vehicle satisfying the Administration’s

Clean Air Act proposal for hydrocarbons and operating on low volatility, 9 psi gasoline. EPA arrived at these values

by the following method:

For M85 interim vehicle:

1. Evaporative emissions were assumed to equal gasoline emissions on a mass basis; emissions composition

was calculated by basing the ratio of hydrocarbons to methanol on EPA test data.

2. Exhaust emissions were assumed to equal gasoline emissions on a carbon basis (the current standard for

methanol vehicles demands that their exhaust emissions be no higher on an equivalent carbon basis than

the standard for gasoline). Emissions were assumed to consist only of methanol, formaldehyde, and HC

emissions, the latter identical in composition to gasoline emissions. The emissions breakdown was based

on ‘ ‘manufacturer’s views. Formaldehyde emissions were assumed to be 60 mg/mile.z

3. Assigning the HC component of the emissions a relative reactivity of 1.00, reactivity factors were derived

for methanol and formaldehyde using an air quality model. EPA calculated methanol’s relative reactivity

to be 0.19, and formaldehyde’s to be 2.2, on a mass basis.

4. The gasoline VOC-equivalent emissions were calculating by multiplying the mass of each component of

the emissions by its reactivity factor, and totaling the results. The calculated VOC-equivalent emissions

were 0.95 for gasoline vehicles complying with the Administration’s proposed standards, and 0.66 for the

M85 vehicles, or a 30 percent reduction.

For M85 optimized vehicles:

1. EPA assumed that evaporative emissions would be unchanged from the interim vehicle, but that exhaust

NMHC emissions would drop by 20 percent, methanol emissions by nearly 30 percent, and formaldehyde

emissions by 40 percent (to 35 mg/mi) in an optimized vehicle. Multiplying each new component by the

same reactivity factors, EPA found that equivalent organic emissions fell by 43 percent from the baseline

gasoline vehicle.

For M1OO optimized vehicles:

1. EPA assumed that M1OO vehicles would emit extremely low levels of non-methane hydrocarbons (.05

grams/mile versus 0.31 grams/mile for the optimized M85 vehicle) and formaldehyde (15 mg/mile, the

California standard), with a moderate reduction in methanol emissions from the M85 vehicles. These

emissions levels are in line with the small number of M1OO emissions tests available. Multiplying the

emissions components by their respective reactivity factors gives a gasoline VOC-equivalent emissions rate

of 0.19, or an 80 percent reduction from the baseline gasoline vehicle.

l~e de~ription of EPA’s methodology is based on U.S. Environmental Protection Agency, Office of Mobile Souces SPeCkd RePrt,

Analysis of the Economic and Environmental Effects of Methanol as an Automotive Fuel, September 1989.

21bid., p. 50.

percent.8 And with advanced vehicles using M1OO, In examining and attempting to understand and

EPA claims reductions of 80 percent. 9 EPA’s evaluate the alternative claims, we examined the

estimates are explained in more detail in box 3-A. literature and data on the emissions and air quality

Critics have questioned the accuracy of the EPA effects of methanol-fueled vehicles, and analyzed

claims; some have estimated that M85 will yield no some existing emissions data for their ozonenet ozone advantage.10 producing implications.

sIbid.

-id.

losiema Res~c~ IUc., Potential Emissions and Air Quality Effects of Alternative Fuel&inal Report, SR89-03-04, Mx. 28, 1989. ~so, C.S.

Weaver, T.C. Aust@ and G.S. Rubenste@ Sierra Research Inc., Ozone Benefi”ts of Alternative Fuels: A Reevaluation Based on Actual Emissions Data

and Updated Reactivity Factors, Apr. 13, 1990, Sacramento, CA.
Chapter 3-Substituting Methanol for Gasoline in the Automobile Fleet ● 63

The available literature shows a bewildering array

of conclusions about methanol’s potential as an

ozone control measure. A wide range of numerical

results and conclusions arises due to differences in:

●

●

●

●

●

assumptions about the penetration of methanolfueled vehicles into the fleet;

assumptions about the rate and composition of

vehicle emissions (including assumptions about

the success of formaldehyde controls);

choices about what to compare methanol to

(e.g., current gasoline vehicles, future gasoline

vehicles with advanced controls and low volatility gasoline, and so forth);

assumptions about how effective future controls on gasoline emissions might be; and

choices of geographical areas and types of

meteorological episodes to examine.

These factors, and their implications for the potential

effects of a methanol fuels program, are examined

below.

In our separate analyses of available emissions

data, we applied calculations of the incremental

contributions of various organic compounds to

ozone formationll to data on emissions of each

compound from gasoline and M85-fueled vehicles.

Estimates of the relative contributions of various

organic compounds were available for seven sets of

meteorologic conditions and initial pollution levels,

which simulated different geographic areas and

types of pollution episodes.

Across a range of pollution episode conditions,

and differing estimates of the composition and

magnitude of organic emissions from both M85 and

gasoline vehicles, our analysis suggests that M85

use could yield as much as a 40 percent advantage

over gasoline or, at the negative extreme, as much as

a 20 percent increase in ozone potential over

gasoline. We conclude that EPA’s claim for M85

vehicles—a 30 percent reduction in per-vehicle

“ozone-forming potential’ ‘—is plausible for many

situations but, even for these, is but a point in a range

of possible outcomes.

The 30 percent claim fits well with some of the

available vehicle emissions data (EPA’s own test

data, in particular), though even for these data the

claim is applicable only to certain meteorological

conditions and geographical areas for which controlling hydrocarbon emissions is an effective means of

ozone control (in some areas, it is not). For other

emissions test data (tests conducted by the California Air Resources Board, in particular), the 30

percent value appears too high even in the areas

where methanol use is expected to be most beneficial. The results are sensitive to the level of

formaldehyde in the exhaust, a factor that has been

quite variable in tests and which could be affected

significantly by ongoing development of catalytic

controls. In other words, the existing data seem to

support a wide range of possible outcomes.

The ozone benefits of optimized M85 and M1OO

vehicles—according to EPA, about 40 and 80

percent reductions in ozone-forming potential, respectively— are even more uncertain than the benefits of

current M85 vehicles because the former vehicles

exist only in early prototypes. In all likelihood, these

vehicles will achieve improvements in ozone reduction capability over current M85 vehicles, though

cold starting problems with M1OO vehicles must be

solved before such vehicles can be marketed.

The following discussion reviews the factors that

affect methanol’s ozone benefit relative to gasoline

use, focusing in turn on methanol vehicle emissions,

gasoline vehicle emissions, geographical area and

type of episode, and other concerns. The discussion

focuses primarily on M85, with a brief discussion of

M1OO.

Methanol Vehicle Emissions—The air quality

effects of using methanol vehicles depend on both

the magnitude and the composition of the vehicle

emissions compared to the gasoline vehicles they

replace. Each of these factors has shown wide

divergences among the various studies of air quality

effects.

Emissions Magnitude-Analysts have used a

range of assumptions about the relative magnitude

of M85 emissions. Current EPA emissions standards

for methanol-fueled vehicles demand that the total

mass of carbon in their exhaust emissions be no

higher than the total mass of carbon allowed from

gasoline vehicles’ exhaust.12 Because M85 emissions consist in large part of methanol, which has a

llw,p.L. C~erandRo A~~~ ( ‘cOrnpUterMO&ling s~dy of ~c~men~Hy&ocfionReactivi~, ‘‘ Environmental Science and Technology, VOL

23, pp. 864-880, 1989.

lz’’stand~ds for Emissions From Methanol-Fueled Motor VehiCle Engines, “ Final Rulemaking, Federal Register 54, FR14426, Apr. 11, 1989.
64 ● Replacing Gasoline: Alternative Fuels for Light-Duty Vehicles

high oxygen

Table 3-l—Organic Emissions Levels for Gasoline and Methanol-Fueled Vehicles

Exhaust Evaporative Total

Emission Methanol TNMHC HCHO Methanol TNMHC TNMOC

Test (mg/mi) (mg/mi) (mg/mi) (mg/mi) (mg/mi) (mg/mi)

CARB: 0.0 330 7.7 0 45 380

gasoline

M85 160 65 22 55 36 340

Gabele:

gasoline o 320 4.8 0 47 370

M85 290 80 27 19 20 440

Williams et al.:

gasoline 1 230 7.2 0 120 360

M85 220 51 37 85 25 420

KEY:

HCHO=formaldehyde

TNMHC=total non-methane hydrocarbons

NOTE: does not include running losses.

SOURCE: J. Milford, “Relative Reactivities of M85 Versus Gasoline-Fueled Vehicle Emissions,” contractor report

prepared for the Office of Technology Assessment, Jan. 18, 1990.

content and thus a lower carbon/mass

ratio than most hydrocarbons, this standard allows

M85 emissions of carbon-based compounds (methanol, hydrocarbons, and formaldehyde) to be significantly higher than gasoline emissions on a total mass

basis. With the likelihood that manufacturers of both

M85 and gasoline vehicles will tailor their control

systems to Federal standards, some analysts have

assumed that M85 and gasoline vehicles will have

equivalent emissions on a carbon basis.13 However,

in emission tests of current vehicles, M85 vehicles

tend to have lower organic emissions on a carbon

basis than the gasoline vehicles. As shown in table

3-1, emissions tests of flexfuel vehicles operating on

M85 and gasoline conducted by the California Air

Resources Board (CARB), Environmental Protection Agency, and General Motors reported exhaust

plus evaporative nonmethane organic emissions

rates (excluding running losses, which were not

measured) for M85 equal to 89, 119, and 117 percent

by total mass of the gasoline emissions,14 well below

gasoline carbon equivalent rates.15 These and other

measured emission rates suggest that it might be

reasonable to assume that M85 emissions may range

as low as a total mass equivalence with gasoline

emissions. EPA has chosen a midpoint between

these assumptions-exhaust emissions equivalent

on a carbon basis (reflecting the standard), evaporative emissions equivalent on a mass basis—which

seems reasonably consistent with at least some of the

available emissions data. Given the substantial

difference in actual emission rates between mass

equivalence and carbon equivalence (for the balance

of individual emissions components measured in the

EPA emissions tests, “carbon equivalent” total

M85 emissions would be about 80 percent higher

than “mass equivalent” emissions), the range between the two represents a wide range of consequences with respect to ozone reduction.

Emissions Reactivity-The primary basis for

most claims of M85's and M 100’s ozone reduction

capability is the low photochemical reactivity of

methanol, itself-that is, its low propensity to form

ozone in the atmosphere--compared to gasoline

emissions. However, emissions from M85 (and

M1OO, as well) consist of more than just methanol;

formaldehyde and a range of hydrocarbons similar to

those produced by gasoline-fueled vehicles are also

present. In particular, methanol vehicles produce

highly reactive formaldehyde in larger quantities

1sFor e~ple, this is the assumption used in T.Y. Chang et ~., ‘‘Impact of Methanol Vehicles on Ozone Air Quality, ” Atmospheric Erzvironnwnt,

vol. 23, No, 8, pp. 1629-1644, 1989.

14C~iforfia & Resoumes Bo~d, Mobile so~~es Divi~io@ “Definition of a ~w-Emission Motor Veticle fi compli~~ Wth the Mandates Of

Health and Safety Code Section 39037 .05,’ May 1989; P.A. Gabele, “Characterization of Emissions from a Variable Gasoline/Methanol Fueled Car,”

personal communicatio~ October 1989; and R.L. Williams, F. Lipari, and R.A. Potter, ‘‘Formaldehyde, Methanol, and Hydrocarbon Emissions from

Methanol-Fueled Cars,” General Motors Advanced Engineering Staff, Warren MI, 1989; J. Milford, op. cit., footnote 4.

15rf the M85 and gaso~e vehicles ~d c~bon quiv~ent emission rates, the M85 ve~cles wotid typic~y have mass emisSiOn mteS We~ OVer 150

percent of the gasoline rates. J. Milford, op. cit., footnote 4.
Chapter 3--Substituting Methanol for Gasoline in the Automobile Fleet ● 65

than gasoline vehicles do.16 The balance of the

various reactive emissions compounds determines

the overall reactivity of the emissions, and thus

determines the effectiveness of methanol in reducing

ozone levels.

Accurate estimates of M85 emissions reactivity

require emissions measurements that are speciated,

i.e., measure the amounts of each reactive compound

in the emissions. Unfortunately, most emissions

tests of methanol vehicles provide, at best, only

limited breakdowns of organic compounds, e.g.,

unburned methanol, formaldehyde, and nonmethane

hydrocarbons. Although such breakdowns are useful

in gauging rough reactivity differences, they are of

limited use in establishing reliable measures of

ozone reduction potential. OTA identi.tied only three

tests of methanol vehicle emissions, involving four

vehicles, in which the data had been speciated in

detail. 17 Using the data from these tests, we estimated the incremental contribution to ozone formation that each compound found in the emissions

would make (i.e., the compound’s “incremental

reactivity’ using results from a computer modeling

study .18 We then combined these estimates with

assumptions about the total mass of each type of

emissions to estimate the relative reactivities of the

M85 emissions compared to gasoline emissions.

The most significant finding of our analysis is that

the test-to-test variability of the composition of

exhaust nonmethane hydrocarbons from both M85

and gasoline and thus their reactivity is quite high.

Particularly striking is the difference in composition

and reactivity between the EPA and CARB tests,

because both use the same fuel—indolene--yet the

reactivity of the exhaust NMHC generated in the

EPA tests is over 50 percent higher than the exhaust

NMHC in the CARB tests. This difference in NMHC

reactivity drastically affects the estimated ozone

benefits achievable by M85; using EPA’s estimates

of total mass emissions, we arrive at much more

favorable (M85) results using the EPA test data

than we do using the CARB data. Figure 3-1 displays

the relative reactivities of emissions from M85

versus gasoline-fueled vehicles using the EPA and

CARB data. As shown, the EPA-based M85 ozone

benefits range from 6 to 34 percent (that is, the M85

relative reactivities range from 0.94 to 0.66) for the

7 episode cases simulated, whereas the CARB-based

benefits range from –20 (that is, an estimated

increase in ozone formation)to+21 percent (reactivities range from 1.20 to 0.79).

An important source of controversy about the

overall reactivity of both M85 and M1OO emissions

is the likelihood of achieving long-term, effective

control of formaldehyde. If formaldehyde emissions

of the methanol vehicles increase from assumed

levels, e.g., with catalyst aging, the reactivity

benefits of shifting to methanol will decrease as

well. For example, formaldehyde emissions for the

emissions tests included in OTA’s reactivity analysis ranged from 22 to 37 mg/mile, compared to about

5 to 8 mg/mile with straight gasoline.19 These levels

are low compared to other studies, which have

reported formaldehyde emissions ranging to in

excess of 100 mg/mi,20 but higher than the proposed

California standard of 15 mg/mile. It is possible that

the low levels of formaldehyde were due to the

relatively low miles accumulated by the vehicles:

the CARB vehicles, for example, had 11,000 and

22,000 miles,2l for example. As shown in figure 3-2,

at formaldehyde emissions rates of 100 mg/mile, the

reactivity benefits of M85 are largely lost when

compared to advanced technology gasoline vehicles,

and are reduced substantially compared to current

technology vehicles.22 Because catalyst aging does

reduce formaldehyde control effectiveness with

currently available catalyst technology, the potential

loss of benefits is a real concern, and will remain so

until improved catalysts are developed.

A final point here is that existing M85 (and the

few M1OO) vehicles are prototypes, not production

vehicles, and policymakers should be wary of

16EnvfiOm~n@~O&.tiOn Ag~ncY, (jfflc.~ of Mobfle Sowces, op. Cit., footnote 7. EPA’s fo~dehydereactivity factor is 2.2 (compared tO gaSOliIle

hydrocarbons) on an equal mass basis; its methanol reactivity factor is 0.19.

IT~ese ~ tie CARJ3, EPA, and GM tests discussed above, J. Milford, op. cit., footnote 4.

ISW+P.L. Ctier and R. Atlcinsou op. cit., footnote 11.

19J. M.ilford, op. cit., footnote 4.

~. Snowet al., “Characterizationof Emissions fromaMethanolFueled Motor Vehicle, ’’JournaZof theAirPoZZution ControlAssociation (JAPCA),

vol. 39, pp. 48-54, 1989.

Zlcaliforfi Air Resources Board, May 1989, op. cit., foo~ote 14.

~rbid.
66 ● Replacing Gasoline: Alternative Fuels for Light-Duty Vehicles

Figure 3-l—”Relative Reactivity” (Ozone-Forming Capability) of Emissions From M85-Fueled Vehicles

1.4

1.2

1

0.8

0.6

0.4

0.2

0

Episode:

ROG/NO x :

Day:

v. Gasoline-Fueled Vehicles

Relative reactivity

M85 emissions will 1 form more ozone

than gasoline emissions

Single-day, low dilution Single-day, high dilution Two-day, low dilution

4 10 16 4 10 10 10

1 1 1 1 1 1 2

M85 emissions will

form less ozone

than gasoline emissions

NMHC reactivities based on:

~ EPA test data m CARB test data

Assumptions: 1. gasoline NMHC emissions rate based on proposed standards.

2. M85 mass emissions rate and breakdown into NMHC, formaldehyde, and methanol based on EPA analysis. Assumes M85

and gasoline exhaust emissions equal on a carbon basis, evaporative emissions equal on a mass basis.

SOURCE: J. Milford, “Relative Reactivities of M85 Versus Gasoline-Fueled Vehicle Emissions,” contractor report prepared for the Office of Technology

Assessment, 1990.

extrapolations from their tested performance to the

expected performance of a commercial fleet. Most of

the vehicles have relatively low mileage and thus

low degradation of catalysts and other equipment23

.

Further, in the process of moving from prototypes to

mass-produced vehicles designed to satisfy consumers for at least 10 years, vehicle manufacturers will

make important trade-offs among emissions, efficiency, durability, and performance; some methanol

advantages could diminish in the process unless

prevented by regulation. For example, though vehicle designers may be capable of holding total

organic emissions well below those of gasoline

vehicles on a carbon basis, they may choose not do

so in order to reduce cost or enhance performance.

On the other hand, most of the existing vehicles have

engines and pollution control systems that are

relatively minor adaptations of gasoline-fueled systems and not representative of systems optimized for

methanol. Also, most vehicles were not designed or

set up to attain minimum emissions levels, and most

are multifueled rather than dedicated vehicles. Thus,

existing vehicles cannot take full advantage of

methanol’s physical properties and do not perform

as well as methanol proponents expect an optimized

methanol vehicle would.

Gasoline Vehicle Emissions-Gauging the relative benefits of introducing methanol fuels involves

comparing the emissions and air quality impacts of

adding a number of methanol vehicles to the impacts

of adding the same number of gasoline vehicles.

Since the methanol vehicles would be added at some

time in the future, analysts should compare them to

future, not current, gasoline vehicles and fuel

quality. The problem here is that we cannot predict

with accuracy how well either a future methanol or

a future gasoline vehicle is going to perform, or how

~~cord~g to Sierra Res~ch (1989, op. cit., footnote 10), fwst generation M85-fueled methanol vehicles have experienced severe deterioration of

emissions eonfrol equipment with increasing mileage. Aeurex Corp., contractor to the State of California Advisory Board on Air Quality and Fuels, did

not find this type of deterioration in their evaluation for the Board. Personal communication Michael Jackso~ Aeurex Corp.
Chapter 3--Substituting Methanol for Gasoline in the Automobile Fleet ● 67

Figure 3-2—Sensitivity of Relative

Reactivities of M85 Emissions to Formaldehyde

Emissions Levels

Relative reactivity 1.4-

1.2-

1-

0.8 -

0.6 -

0.4 -

0.2

0-

15 mg/mi 22 mg/mi 100 mg/mi

ROG/NOx -

n 4

Ez3 10

- 1 6

Formaldehyde emissions rate

NOTES: M85 reactivitv is compared to future gasoline vehicles; M85

vehicle as tested by California Air Resources Board.

SOURCE: J. Milford, “Relative Reactivities of M85 Versus Gasoline-Fueled

Vehicle Emissions,” contractor report prepared for the Office of

Technology Assessment, 1990.

changes in gasoline composition may affect emission levels or reactivity.

Future gasoline vehicles will likely have lower

mass emissions of hydrocarbons (and NOX

, another

ozone precursor) than today’s vehicles, in response

to more stringent emissions standards. The magnitude of the standards for the next few years are not

certain at this time, and it is not known whether a

second, more stringent round of standards will be

required in the future. And the effect of uncertainty

about the magnitude of future gasoline emissions is

compounded by uncertainty about the reactivity of

these emissions. Because catalytic converters will

tend to work best on the most reactive substances,

future increases in catalyst effectiveness might tend

to reduce exhaust reactivity by selectively removing

the most reactive substances left in the exhaust. In

support of this hypothesis, available tests of the

reactivity of the emissions from gasoline-fueled

vehicles, conducted by General Motors, have shown

reductions in reactivity in moving from current

models to models with advanced catalytic converters.

24 If future gasoline-fueled vehicles have exhaust

emissions that are lower in reactivity than today’s

vehicles, then the level of ozone produced by future

vehicles will be lower than projected by existing

modeling studies,25 and this will reduce the relative

benefits of methanol substitution.

Unfortunately, the cause of the reactivity changes

observed in the GM tests is obscured by differences

in vehicle mileages and in the gasolines used in the

‘‘current’ and ‘‘advanced’ vehicles tested. For

example, the current vehicles were fueled with

regular gasoline that may have had a higher fraction

of extremely reactive alkenes and lower fraction of

less reactive alkanes than the indolene used in the

advanced vehicles; conceivably, this may explain

part of the differential reactivities.26 If the fuel

differences, rather than differences in catalyst efficiency, were the primary cause of the differences in

reactivity, then the results of these tests suggest a

strong future role for gasoline reformulation as a

strategy for reducing urban ozone. With such a

strategy, however, the relative benefits of methanol

substitution would be reduced. Further tests of

gasoline and methanol-fueled vehicles, with better

controls on fuel quality and vehicle mileage, are

needed to clarify the effects on exhaust emission

reactivity of improved emission controls and altered

fuel composition.27

Geographical Area and Type of Episode—The

effectiveness of methanol fuels as an ozone control

measure will vary considerably from area to area,

with some areas benefiting significantly and some

not benefiting at all. In particular, methanol’s

effectiveness will tend to be high in areas that

characteristically have low ratios of reactive organic

gas (ROG) levels to NOX levels, such as Baltimore

or Philadelphia, and will tend to be low in areas with

high ratios, such as Houston.28 Other area variables

affecting methanol effectiveness include average

temperatures and mixing heights of the atmosphere.

Low mixing heights (low dilution) are most characteristic of ozone episodes in California cities; high

24A*M0 D~m, ~ ~~e Relative R~ctivity of Efissiom ~m Methanol Fueled ad G~otie-Fueled Vehicles in Forming ozone,” General Motors

Research Laboratories, Warren MI, 1989.

~~esesti~e~ ~ic~y ~ccomtfor lower per-vehicle ~s e~ssiom infi~e yews but assume tit tie hydrocarbon component of vehicle exhausts

is identical in composition to that of current vehicles.

~Ibid.

zT~es_bly, the rese~ch pro~~ on alternative fuels begun by the auto and oil indus~e~s~ ch. 8 discussion on reformulated gaSOliIlfiWill

add significantly to the database.

2$J. ~tiord, op. cit., footnote 4.
68 ● Replacing Gasoline: Alternative Fuels for Light-Duty Vehicles

mixing heights (high dilution) are characteristic of

summertime conditions in the Eastern United

States. 29 In our analyses, methanol was more effective in the high dilution cases.30 Figure 3-3, based on

a Ford Motor Co. analysis, shows the strong differences among various cities in changes to peak

l-hour ozone concentrations caused by the introduction of large numbers of M85 vehicles. City -specific

changes in ozone range from an 0.5 percent increase

in peak l-hour concentrations to a 2.7 percent

decrease. 31 The changes in ozone concentration

shown in figure 3-3 are small because, by the year

2000, automobiles will produce less than a quarter of

total urban organic emissions (see ch. 2), so even a

total elimination of vehicles would not cause a

massive reduction in ozone concentrations in most

cities. Also, the Ford analysis assumes that total

gasoline and methanol emissions will be the same on

a carbon basis, an assumption that will tend to

minimize the estimated ozone benefit of methanol.

Methanol effectiveness will also tend to diminish

in the later days of multiday episodes, which are

common in the Los Angeles area and Northeast. The

cause of this effect is a shift towards higher

ROG/NOX ratios, and lower methanol effectiveness,

over the course of the episode, because NOX is

shorter lived in the atmosphere than most ROG

species and thus tends to become depleted overtime.

Finally, methanol’s effect on organic emissions

will likely yield little or no benefit in many rural

areas, because ozone production in these areas tends

to be NOX-limited, i.e., there is an excess of organic

gases in the atmosphere and reducing them somewhat does little good.32

Other Ozone Concerns—Although flexible fuel

M85 vehicles allay some worries about fuel supply

and vehicle resale value,33 they raise concerns about

the effect of methanol/gasoline mixtures other than

M85. Unless government regulations require methanol use in ozone nonattainment areas, flexible fue l

vehicles allow vehicle owners to shift back and forth

from M85 to gasoline depending on fuel price and

Figure 3-3—Year 2000 Reductions in Peak

l-Hour Ozone Concentrations From M85 Use

Atlanta, GA

Boston, MA

Cleveland, OH

Dallas, TX

Houston, TX

Indianapolis, IN

Miami, FL

Philadelphla, PA

Washington, DC

- 1 -0.5 0 0.5 1 1.5 2 2.5 3 3.5

Percentage reduction

SOURCE: T.Y. Chang, S.J. Rudy, G. Kuutasal, and R.A. Gorse, Jr.,

“lmpact of Methanol Vehicles on Ozone Air Quality,” Atmospheric Environment, vol. 23, No. 8, pp. 1629-1644, 1989.

availability, mixing the two fuels in their tanks and

diluting or negating potential air quality benefits

associated with methanol use. In fact, significant use

of gasoline in flexible fuel vehicles could potentially

yield an increase in ozone-causing emissions because gasoline/methanol mixes that are preponderantly gasoline, aside from offering little benefit in

exhaust emissions, have higher volatility than

straight gasoline, and thus higher evaporative emissions.

M1OO Vehicles and Organic Emissions— Quantitative predictions of the ozone reduction benefit

obtainable from M1OO seem somewhat premature,

given the limited data and remaining uncertainty

about the nature of additives and cold starting

characteristics. There are few M1OO vehicles in

existence and sparse emissions data. However, these

data are less variable than existing M85 data,34

perhaps implying that the absence of a gasoline

component in the fuel makes the emissions benefits

more robust than with M85. EPA believes that M1OO

will produce very low evaporative emissions based

on their experience with an M1OO Toyota Carina and

2~id.

-id.

31T.Y. Chang et al., op. cit., footnote 13.

32s. s~n ad p.J. sm~o% ~ ‘~pactof Methanol Fuel~ Vehicla onRur~ andurbanozone Concentration During a Region-wide Ozone Episode

in the Midwest” conference on Methanol as an Alternative Fuel Choice: An Assessment, Johns Hopkins University, Dec. 4-5, 1989, Washington DC.

m~t is, they ~n be used, and thUS sold, in areas where an extensive fuel supply network ~ not Yet been b~t.

Xp.A. ~r~g, ‘Emissio~ From Gasoline-Fueled and Methanol Vehicles,’ Conference on Methanol as an Alternative Fuel Choice: An Assessment

Johns Hopkins Foreign Policy Institute, Washington DC, Dec. 4-5, 1989, Draft.
Chapter 3--Substituting Methanol for Gasoline in the Automobile Fleet ● 69

their evaluation of the effects of M1OO’s physical

characteristics, and about two-thirds lower exhaust

NMHCs than even optimized M85 vehicles.35 The

expectations for lower evaporative emissions—

including running losses and refueling emissions—

appear reasonable given M1OO’s low volatility and

molecular weight and high boiling point. Similarly,

because unburned fuel provides much of the organic

emissions in vehicle exhausts, M1OO’s chemical

makeup is consistent with low exhaust NMHCs.

However, mass emissions rates can increase substantially if the vehicles experience cold start

problems. Also, assumptions of low mass emissions

rates presume that the use of additives, to assist cold

starting and add flame luminescence and taste to the

fuel, will not affect evaporation rates and engine-out

emissions, and that M1OO use will not affect control

system effectiveness. These assumptions cannot be

tested with available data. Reliable emissions estimates must await considerable testing for confirmation.

EPA also believes that the reactivity of M1OO

emissions will be much lower than M85 reactivity

because, as noted above, they expect M1OO’s

emissions of reactive NMHC emissions to be

substantially lower than M85 levels, and formaldehyde levels to be better controlled.36 Although it is

certain that formaldehyde control levels will improve from today’s capabilities, it is not possible to

predict how successful current efforts will be.

However, given the certainty that the evaporative

emissions will have substantially lower reactivity

than gasoline evaporative emissions (since the

M1OO emissions consist only of methanol vapors),

and the high probability that the M1OO vehicles will

have fewer reactive NMHCs than M85 vehicles, the

expectation of lower overall ozone-forming potential seems quite reasonable.

OTA concludes from the available evidence that

there is good reason to consider methanol as offering

likely long-term improvements to urban air quality,

but less justification for confident predictions of up

to 90 percent reductions in (effective) ozone precursor emissions. The quantitative effect on air quality,

and specifically on levels of urban ozone, of shifting

to methanol vehicles is uncertain, because of remaining questions about the magnitude, composition, and reactivity of organic emissions from

optimized vehicles. Also, the effect will depend on

the fuel chosen (pure methanol or a methanol/

gasoline mix) and on whether the vehicles are

flexible fuel or dedicated to a single fuel, as noted

above. Finally, the effect will be dependent on the

atmospheric conditions in the area. For example, in

areas where the atmosphere contains a high ratio of

reactive hydrocarbons to nitrogen oxides (for example, Atlanta), ozone formation will be limited by

NOX rather than by hydrocarbon concentrations;

under these conditions, hydrocarbon reductions

obtained from methanol may yield little reduction in

ozone.

If current assumptions about methanol vehicles’

organic emission characteristics-that is, a 30 percent reduction (compared to low volatility gasoline

in current vehicles) in effective emissions 37 with

M85 and current technology, an upper bound of 90

percent reduction with M1OO and advanced technology—prove correct, moderate but important reductions in total area-wide emissions of volatile organic

compounds can be achieved if significant numbers

of vehicles are converted. OTA estimates that if 25

percent of the light-duty vehicles in the 38 worst

ozone nonattainment areas (areas with design valu e s

38 of 0.15 ppm or higher) are switched to

methanol by 2004, the areas will achieve average

reductions in effective emissions of volatile organic

compounds of 1.3 percent for M85/current technology vehicles and up to 4.1 percent for M1OO/

advanced technology vehicles.39 The reason these

reductions are small is that, by the year 2004,

light-duty vehicles will produce less than one-fifth

of the organic emissions in most urban areas; in

other words, complete elimination of the light-duty

fleet could not eliminate more than one-fifth of the

organic emissions.

35u.s. Environmen~ Protection Agency, op. Cit., fOOtnOte 7.

sGIbid.

s7~t is, measmed in terms of the emissions’ actual OZOne-fOtig pOtenthd.

38~e desigv~ue is fie fo~~ghe~tof ~lof tie ~ype~ l-homozoneconcen~tiom observed Mm tie area CWm the most recent 3-year period.

390ffice of Tec~olo~ Assessment, catching Our Breat~: Next Step~~~r Reducing Urban Ozone, OTA-O-412 (Washington DC: U.S. Government

Printing Office, July 1989), table 7-10.
70 ● Replacing Gasoline: Alternative Fuels for Light-Duty Vehicles

Nitrogen Oxides (NOX)

Another concern about the potential ozone benefits of methanol use is methanol’s effect on NOX

,

emissions. NOX is a crucial ozone precursor, so that

any changes in its emissions can have consequences

on ozone levels. Methanol’s physical characteristics

work in both directions with respect to NOX emissions: for example, the higher compression ratio

(compared to that possible in gasoline engines)

made possible with methanol use tends to increase

NOX

, emissions, the lower flame temperature and

latent heat of vaporization tend to decrease emissions. Available tests of M85 vehicles have found

NOX emissions levels to be uniformly lower with

M85 than with gasoline for dual-fuel vehicles,40

probably because these vehicles do not have increased compression ratios; on the other hand, tests

with dedicated vehicles show a mixed performance

(some had higher NOX emissions, some lower) with

regard to comparable gasoline vehicles,41 

presumably because of the higher compression ratios in

methanol vehicles. It appears reasonable to assume

that methanol vehicles using three-way catalysts

will be able to achieve the same levels of NO=

emissions, on average, as comparable gasolinefueled vehicles. However, some economic analyses

favorable to methanol have assumed that methanol

engines will achieve high efficiency by operating

lean, i.e, by increasing the air/fuel ratio.42 In this,

designers may face a conflict between maximizing

fuel efficiency and minimizing NOX

. Increasing the

air/fuel ratio-operating lean—would likely reduce

engine-out NO= levels (because the excess air keeps

engine temperatures down) but would interfere with

use of NOX reduction catalysts, potentially increasing controlled levels of NOX

.

43 In some areas, an

increase in NOX emissions could have a significant

deleterious impact on ozone concentrations.

Carbon Monoxide

Aside from organic emissions and NOX, methanol

use will affect emissions of carbon monoxide (CO).

If the engines are run with high air/fuel ratios to

maximize efficiency, they should produce lower CO

than comparable gasoline vehicles if they can start

well; because much of gasoline CO emissions are

produced during cold start, starting problems could

increase methanol CO emissions. If the vehicles are

run with air/fuel ratios at stochiometric levels, as

with gasoline, CO emissions should be similar to

levels achieved by comparable gasoline vehicles,

and perhaps a bit higher.44

Toxic Emissions

Methanol use will also reduce significantly (or

nearly eliminate, for M1OO) emissions of some toxic

substances, primarily benzene, 1,3-butadiene, polycyclic organic material, and gasoline fumes. This

reduction has been cited by supporters of methanol

as a critical benefit of methanol use.45 Methanol use

will, however, increase direct emissions of formaldehyde, a highly toxic substance, and this has raised

concerns. Whereas gasoline engines generally emit

formaldehyde at rates considerably less than 10

mg/mile,46 methanol vehicles typically emit formaldehyde at rates several times this much.47 As noted

above, the M85 vehicles considered in our analysis48

emitted 22 to 37 mg/mi of formaldehyde, and these

rates were comparatively low compared to other

tests. On the other hand, EPA has measured much

lower formaldehyde rates, but for relatively new

vehicles.49 Automakers have expressed concern that

long-term catalytic control of formaldehyde, over a

@M.A. DeLuc~et. al., ‘Me&~olvs, Natural Gas Vehicles: A Comparison of Resource Supply, Performance, Emissions, Fuel StOmge, Safety, COSW

and Transitio~” Society of Automotive Engineers Technical Paper 881656, October 1988.

411bid.

Qu.s. Env~o~en~ Protection Agency, op. cit., footnote 7.

asR~uction cat~ysts r~uire stoictiome~c (or richer) mixtures of air and fuel (a stochiometric mixture has just enough air to my burn tie fuel)

to operate properly. They cannot operate with signitlcant levels of excess oxygen, which would occur with “lean’ ‘-excess air-air/fuel mixtures.

44DeLuc~, op. cit., footnote 37.

45u.s. Enviro~en~ Protection Agency, op. Cit., footnote 7.

%1 tie bee sets of tests reported in J. Milford, op. cit., footnote 4, the highest rate was 7.7 mg/~e.

47M0 DeLuc@ op. cit., foo~ote 37, repo~ tit EPA estimates tit ~.use me~nol ve~cles emit about 106 Ing/rde Over heir hftl

4SJ0 ~~ord, op. cit., footnote 4.

4~os. Enviromen@ ~tection Agen~, op. cit., foo~ote 7, and M. DeLucti, op. cit., fOObMe 37.
Chapter 3--Substituting Methanol for Gasoline in the Automobile Fleet . 71

vehicle lifetime, represents a serious challenge to the

industry .50

Formaldehyde emissions are a concern in enclosed places such as parking garages and tunnels (or

areas where diffusion is restricted, e.g., urban

“canyons”), where levels of any pollutant can rise

to much higher levels than in ambient air, as well as

in ambient air, where the primary concern is longer

term exposure of large populations. The former

situation is definitely an important concern, especially with occasional malfunctioning vehicles, but

similar concerns about gasoline emissions may be

equally important. Concerns about ambient exposures to formaldehyde are made ambiguous by the

substantial quantities of ambient formaldehyde

caused by emissions of hydrocarbon precursors—

more than half of atmospheric formaldehyde appears

to be due to this “indirect” source. 51 Because

methanol use will cause a decrease in emissions of

some formaldehyde precursors, the net effect of

methanol on ambient formaldehyde may actually be

a reduction in concentrations.52 Studies by Carnegie

Mellon University estimated an increase in peak

formaldehyde but little change in average levels

with methanol substitution.53 However, this and

other estimates are extremely sensitive to assumptions about formaldehyde emission rates, and these

remain uncertain.

Greenhouse Emissions

Methanol use is expected to provide, at best, only

a small greenhouse gas benefit over gasoline, and

then only if the vehicles are significantly more

efficient than gasoline vehicles. According to Sperling and DeLuchi,54 use of flexible fuel vehicles with

M85 will yield essentially no benefit, assumin g a 5

percent efficiency increase and current methanol

production technology. At the optimistic extreme,

use of M 100 with a 25 percent efficiency gain (in our

view, an unrealistically high value) and advanced

methanol conversion technology will yield a 12

percent gain.55 The primary uncertain factors in the

‘‘net greenhouse gas emission’ calculation are

vehicle efficiency, methanol production efficiency,

the effect of increased methanol production on

natural gas leakage and on venting and flaring, and

the potential for use of coal as a methanol feedstock.

Production efficiency is somewhat uncertain primarily because some of the natural gas that might be

available for methanol production is cheap enough

to create interesting trade-offs between high efficiency/

high capital cost and lower efficiency/lower capital

cost facility designs.

As for venting and flaring, some proponents of

methanol as a transportation fuel have noted that

considerable amounts of natural gas are today either

vented to the atmosphere or flared, producing

greenhouse gases (both carbon dioxide and methane

itself are greenhouse gases, with methane by far the

more potent of the two) with no corresponding

energy benefit. To the extent that development of a

methanol economy would capture and convert this

gas, net greenhouse emissions would be reduced.

However, the extent of venting and flaring is likely

to be reduced with or without methanol demand

because of gas’ growing use as a chemical feedstock

and as a clean-burning combustion fuel. It seems

unrealistic to award methanol with this potential

environmental benefit. (There is further discussion

of this issue in app. 3A.)

Because coal may eventually become the raw

material source for a U.S. methanol-fueled highway

fleet, many in the environmental community have

concerns about the long term impact of methanol use

on emissions of greenhouse gases. Methanol from

coal will produce substantially higher emissions of

greenhouse gases than the current gasoline-based

system, primarily because coal has a high carbon-tohydrogen ratio and because the current processes of

producing methanol from coal are inefficient.

Although these concerns appear realistic, world

natural gas supplies appear capable of fueling even

~David K~p, ~Mger of Fuel Economy and Compliance, Ford Motor Co., personal COmmtiatiOn.

SIT. Russe~, c~negie Mellon University, presentation on Methanol Impacts on Urban Ozone and other Air Toxics, COtierence on Metiol ~ ~

Altermtive Fuel Choice, Johns Hopkins University, Washingto~ DC, Dec. 4-5, 1989.

Szrbid.

53J.N. tis, A.R. Russell, and J.B. Milford, “Air Quali& Implications of Methanol Fuel Utiizatkn,” Society of Automotive Engineers Technical

Paper 881198, 1988.

54D. Spertig ~d M.A. DeLuc~,AZter~~Ve~~eZ~ andAir F’o/hztion, draft report prepared for Environment Directorate, org~~tionfor E~nomic

Cooperation and Developmen~ March 1990.

551bid.
72 ● Replacing Gasoline: Alternative Fuels for Light-Duty Vehicles

a large methanol program for several decades at

least, and future process changes to improve coalbased production efficiency and to sequester the

CO2 produced during methanol conversion could

allay these concerns. On the other hand, if energy

security concerns become paramount-certainly a

possibility given recent history-producing methanol from domestic coal might suddenly appear much

more attractive. However, because gasoline can be

made from natural gas and coal, avoiding methanol

or other alternative fuels that can be manufactured

from coal in no way guarantees that coal will not

eventually become the feedstock source for our

transportation fuels.

OTHER ENVIRONMENTAL/

SAFETY EFFECTS56

Aside from air quality changes, a broad shift to

methanol vehicles will create environmental changes

because methanol’s characteristics are substantially

different from those of gasoline. From an overall

safety and human health perspective, methanol

represents some new dangers but probably not a net

increase in risk.

Both methanol and gasoline are harmful if inhaled, absorbed through the skin, or ingested.

Because minute quantities of methanol occur naturally in the body, ingestion or absorption of small

quantities—i.e., a few drops-would be relatively

harmless. However, methanol is more likely than

gasoline to be fatal if swallowed, and an amount

equal to only about 10 teaspoonful can be a fatal

dose to an adult (In contrast, a full mouthful of

gasoline will generally be less than a fatal dose). A

3-year-old child could be killed by a dose little more

than a tablespoon full.57 For this reason, and because

methanol is tasteless, some analysts are very concerned about the potential for accidental ingestion.

In all likelihood, a bad-tasting additive would be

used to guard against this danger. Further protection

could be offered by required antisiphoning screens

in methanol fuel tanks, and a ban on methanol use in

small engines.58 And, unlike gasoline, methanol is

not an effective solvent for oils and grease and will

not be stored in and around the house for such

purposes. This should decrease exposure considerably. Finally, remedies for methanol ingestion are

more effective in preventing damage than those for

gasoline.

Methanol is absorbed through the skin more

quickly than gasoline.59 Such absorption could be a

problem if methanol is handled as badly as gasoline

currently is handled, especially in self-service stations. Gasoline spills from overfilling of tanks, from

expansion when fuel is introduced into warm tanks

during the summer, and from improperly set fuel

cutoff valves are common,60 and would presumably

remain common with methanol if additional precautions are not taken. However, prolonged or frequent

contact are necessary for acute symptoms, and

methanol’s inadequacy as a solvent should help

reduce such contact.6l Also, straightforward technical solutions to this problem are available, including

tank redesign to reduce potential for spillage, cutoff

valves set to prevent continued filling after initial

cutoff, and so forth. Although technical solutions

can be overridden, they could still provide a

substantial reduction in methanol exposure risk.

Methanol should present less of an open-air fire

and explosion hazard than gasoline because it ignites

much less readily and, once ignited, burns with

considerably lower intensity. A methanol fire is

easier to fight because the methanol is soluble in

water and thus can be diluted, whereas gasoline will

float on top of water and continue to burn. M1OO’s

invisible flame (M85’s flame is visible) is an

important drawback, however; chemists are looking

for a trace additive that would make the flames

ssMatefi~ from p.A. Machiele, ‘‘Flyability and Toxicity Tradeoffs With Methanol Fuels,’ Society of Automotive Engineering Technical Series

872064, 1987, unless otherwise referenced.

5TT. ~tovitz, “Acute Exposure to Methanol in Fuels: A Prediction of Ingestion Incidence and Toxicity, ” National Capital Poison Center, Oct. 31,

1988.

sgFuel used for lawnmowers and other small engines often is stored in households, in small containers, with significant incidence of accidental

ingestion.

5%3. Bayeart et al., “An Overview of Methanol Fuel Environmental, Health and Safety Issues,” American Institute of Chemical Engineers 1989

summer Meeting, Symposium on Alternative Transportation Fuels for the 1990’s and Beyond, Aug. 22, 1989, Philadelphia PA.

t@Gasol~e spillage ~ ~ely be reduwd si~lc~fly when Stage ~ vapor recovery controls (with automtic fuel cutOffS) m adopted fOr gaSO~e

station pumps.

SIP.A. Mchiele, ‘Perspective ontheFlamma bility, Toxicity, and Environmental Safety Distinctions Between Methanol and Conventional Fuels,”

AIChE 1989 Summer National Meeting, Philadelphia, PA, Aug. 22, 1989.
Chapter 3-Substituting Methanol for Gasoline in the Automobile Fleet ● 73

visible. Nevertheless, the potential reduction in both

incidence and intensity of fires will be an important

safety issue, because gasoline fires associated with

vehicle accidents are a major cause of injury and

death in the United States.

A potential disadvantage of neat methanol, M1OO--

but not of M85—is that methanol vapors in an

enclosed space, such as a half-full gas tank, form a

combustible mixture and thus can present a fire or

explosion hazard. Bladder-type fuel tanks, which

avoid creating an air space as the tank empties, may

be necessary for M1OO vehicles.62 An alternative or

additional safety precaution would be flame arrestors at the mouth of the fuel tank. These could

serve double duty as anti-siphoning devices, to

prevent accidental ingestion. Flame arrestors are

now used in all flexible and variable fueled vehicles. 63

Methanol’s volubility also will greatly affect its

impacts in the event of a spill. In open waters,

methanol would disperse rapidly and decompose

rapidly as well. The major problem would be severe

toxicity in the immediate vicinity of a spill, with

large spills in enclosed harbors or similar areas being

a particular problem. If methanol were spilled on

land, its volubility and low viscosity would allow it

to penetrate porous ground and enter aquifers more

readily than gasoline. Methanol would be likely to

disperse rapidly throughout an aquifer, limited only

by the slow movement of the water. For shallow

aquifers with high oxygen contents, the methanol

would be decomposed by natural processes fairly

quickly; where oxygen contents were low, however,

decomposition would be slow. Toxicity problems in

drinking water aquifers would occur where the spill

was in close proximity to wells, where the water

flow in the aquifer moved ‘plumes” of methanol to

the wellbores, or simply where the volume of the

spill was large in comparison to the volume of the

aquifer. In contrast, a gasoline spill of similar

magnitude would disperse less quickly into and

through an aquifer, but its failure to degrade could

cause the aquifer water to become unpalatable and

remain so for years. If bad-tasting additives were

added to methanol (for consumer safety), however,

the potential for palatability problems from spills

would exist for methanol as well.

Methanol’s advantages over gasoline in a spill

situation might be partially nullified if chemicals are

added to methanol to provide taste (as a safety

precaution to reduce incidence of accidental ingestion), flame color, or improved cold starting capability. Selection of such chemicals should account for

the desirability of compounds that can be neutralized

easily or that are biodegradable to less harmful

components.

COST COMPETITIVENESS

The economic competitiveness of methanol used

as a gasoline substitute is a source of intense and

ongoing controversy, with alternative positions ranging from claims that methanol will eventually be less

expensive than gasoline, on a $/vehicle mile basis,

at current gasoline and world oil prices64 to claims

that methanol will remain noncompetitive until

gasoline prices reach $1.50/gallon (in 1989 dollars)

or even higher.65 Price estimates for neat methanol

delivered to the United States have ranged from as

low as $0.25/gallon to as high as $0.75/gallon for

methanol produced from natural gas, and higher for

methanol produced from coal (distribution costs,

service station markup, and taxes would be added to

these prices). This wide range stems from different

assumptions about natural gas prices, technological

selections, required rates of return, infrastructure

requirements, required chemical purity,66 and other

factors, and the substantial variability of plant costs

in remote locations. And estimates for the appropriate conversion factor between methanol and gasoline prices (that is, the multiplier of methanol price

to make it comparable to gasoline price), to account

for differences in energy content and efficiency

between the two fuels, range from 1.5 or 1.6

( assuming that methanol vehicles will be 25 to 30

62M.A. r)eLuchi et al., op. cit., footnote 37.

G3AIMI Lloyd, SOUth Coast Air Quatity Management Distric$ personal communication.

~office of Mobfie SOurceS, U.S. Environmental Protection Agency, “Analysis of the Economic and Environmental Effects of Methanol as an

Automotive Fuel,” September 1989.

6SW.J, s~hmcher, ‘t~e fionofics of Altemtive Fuels ~d Conventioti Fuels, ” SRI International presentation to the Economics Workshop,

California Advisory Board on Air Quality and Fuels, Feb. 2, 1989, San Francisco, CA,

tiMe~ol sold ~ to~y>s mwket gener~y is ‘ ‘ChemiC~ grade’ rne~nol, which is q~te p~e. It h~ been suggested tit a Iower pdty llldhllflOl,

producible with some cost savings, might be satisfactory as a motor fuel.
74 ● Replacing Gasoline: Alternative Fuels for Light-Duty Vehicles

percent more efficient than equivalent gasoline

vehicles) to 2.0 (assuming that methanol and gasoline vehicles will be equally efficient). Because the

extremes of the ranges imply such different prospects for methanol, it is important for policymakers

to understand the bases for the various positions and

to be able to judge their reliability.

One thing is quite certain about future methanol

prices—if methanol is to emerge as a major transportation fuel, expected prices must be high enough to

stimulate major new capacity additions. Although

some countries might be willing to build new

capacity to operate at a loss, to obtain foreign

exchange or to pursue social policy, only expectations of profit are likely to bring forth enough new

capacity to allow a significant shift to methanol for

transportation use. And although substantial shut-in

capacity exists today, perhaps as much as a billion

gallons/yr, it is a small fraction of the methanol

volume that would be necessary to fuel even a small

percentage of the U.S. auto fleet. For example: Were

10 percent of U.S. commercial fleet vehicles amenable to fueling from dedicated stations converted to

methanol, an additional methanol demand of 2.7

billion gallons per year would be created;67 and,

were California somehow to convert its automobile

fleet entirely to methanol, that State alone would

demand 25 billion gallons of methanol per year—

four times current world capacity .68

Assuming that natural gas-currently the most

economic feedstock for methanol-remains the

primary feedstock, we discuss in appendix 3A (See

end of chapter) the factors that are critical in

determining methanol’s cost and competitiveness

with gasoline. As noted in the appendix, various

analysts have selected a wide range of assumptions

about most of the factors. Aside from differences

that may arise from vested interests (oil industry

analysts may tend to prefer pessimistic assumptions,

analysts working for chemical plant manufacturers—

potential methanol producers—may tend to choose

optimistic assumptions), differences stem from technical uncertainties as well as uncertainties about

market reactions and government policies.

Given the large number of ‘optimistic/pessimistic’

selections possible, it is difficult to define a reasonable maximum/minimum range for methanol costs.

Nor can we readily define a‘ ‘most likely’ cost. We

can, however, attempt to put possible methanol costs

into perspective by examining a few scenarios and

defining cost ranges for them. In the scenarios that

follow, production and shipping costs are based on

the Department of Energy (DOE) analysis prepared

by Chem Systems, Inc.69 Rates of return (RORs) are

real (corrected for inflation), after tax rates.

1. Transition period. In the early years of a

methanol program, new plants will likely be of

moderate scale (2,500 metric tons per day, or

MTPD) and use standard technology (steam

reforming). Required rates of return will tend

to be high because of high market risk, though

somewhat restrained by low technical risk.

Likely RORs will be perhaps 15 to 20 percent

unless there are strong nonmarket guarantees

that methanol demand will keep growing; even

with such guarantees, plant developers must be

wary of overbuilding unless they can sign

long-term contracts with distributors. With

strong assurances, possibly including take-orpay contracts,70 required ROR might be as low

as 10 percent. Shipping will likely be in

tankers of about 40,000 dead weight tons

(DWT) scale, but larger tankers might be

feasible a few years into the program if

producers are given strong market guarantees71 and the lack of suitable ports can be

overcome 72 (presumably, this cannot occur for

several years). If the vehicles are fuel flexible

and if methanol supply is constrained at first to

port cities, distribution costs will be l0W;

73

6TD.A. Drefis and A.B. Ashby, “The prospec~ for Gas Fuels In International and Interfuel Competition%” International Energy Workshop, WSA

Luxemburg, Austria June 16-18, 1987. These fleet vehicles and equipment account for about 15 percent of U.S. gasoline demand.

6sEnergy and Environmental Analysis, op. Cit., fOOtllOte 6.

6~.s< Dep~ment of Ener~, Offlce of policy, p~~g, and ~ysis, Assess~nt Of costs andBen@S OfFl~”ble andAlternative Fuel Use in the

U.S. Transportation Sector. Technical Report Three: Methanol Production and Transportation Costs, DOEIPE-0093, November 1989.

i’oA ~e.or-pay con~act is one ~htie fiel buyers aw~ to pay for a f~ed vol~e of fiel each period whe~er hey amept tie fld Or l.10t. PRXiOUS

experience with such contracts in the mtural gas industry does no; however, offer much assurance to developers-these contracts were routinely broken.

71~lage tankersc~bereadily Convefled t. C- gmol~e oro~er produc~ and if~ere is a demand for mchvesseh, thefik associated Withbtilding

larger tankers may be reduced.

TzIt my ~so be possible t. simply @ansfer me me~nol to s~er ships offshore, ~OU@ ~ option maybe limited by W~~er COIlditiOIIS.

73~fiou@ dis~bution cosfi for gasoline sho~d be low as wetl, lowering me re~ prim wi~ which IIldhlOl pli~ IINISt be COIIlpWd.
Chapter .3-Substituting Methanol for Gasoline in the Automobile Fleet ● 75

Table 3-2—Component and Total Methanol Supply Costs During a Transition Phase

Part of fuel cycle Strong market guarantees Free market, few guarantees

Productiona . . . . . . . . . . . . . . . . . . . . 0.42

Shipping.................,...... 0.02-0.03 or 0.04-0.08b

Distribution . . . . . . . . . . . . . . . . . . . . . 0.03

Markup . . . . . . . . . . . . . . . . . . . . . . . . 0.06-0.09

Taxes . . . . . . . . . . . . . . . . . . . . . . . . . 0.12

0.55-0.65 d

0.03-0.08

0.03

0.09-0.12

0.12-0.13

Retail Price . . . . . . . . . . . . . . . . . . . . 0.65-0.69 or 0.67-0.74

Midrange Pricec . . . . . . . . . . . . . . . . 0.68-0.72

Efficiency Factor . . . . . . . . . . . . . . . 1.9

Gasoline Equivalent Price,

$/Gallon . . . . . . . . . . . . . . . . . . . . . 1.29-1.37

Low gas cost case (gas at $.50/MMBtu for many sites)

$/Gallon . . . . . . . . . . . . . . . . . . . . . 1.19-1.27

0.82-1.01

0.85-0.95

1.9

1.61-1.81

1.51-1.71

Higher cost gas cases: each increase of $O.50/MMBtu yields a methanol price increase of about $O.05/gallon of

methanol, or about $0.10/gallon increase in the gasoline equivalent price.

a Natural gas cost is $l.O0/MMBtu.

b Two to three Cents represents very large tankers shipping over moderate to long distances; 4 t0 8 cents represents

smaller tankers. Import duty for chemical-grade methanol assumed to be dropped.

c Range reduced to avoid extremes with Iittle probability.

d Range represents 15 to 20 percent required Rate of Return (ROR).

SOURCE: Office of Technology Assessment, 1990.

however, fuel flexibility and guaranteed markets may be incompatible unless methanol

prices are artificially maintained lower than

equivalent gasoline prices or flexible fuel

vehicles are required to refuel with methanol

within market areas around ozone nonattainment cities. Similarly, retail markups will be

high unless there are market guarantees or

government regulations requiring minimum

levels of methanol sales from each station.

Taxes would likely be based on methanol’s

energy content in a ‘‘market guarantees scenario," to promote methanol use; in a free

market scenario, taxes might instead be set to

reflect miles driven, to avoid a tax loss

(because of methanol’s potentially higher efficiency in use) and to require methanol vehicles

to pay their share of road services.74 Finally,

vehicles are most likely to be fuel flexible, and

would likely have a modest (e.g., 4 to 7

percent) efficiency gain over gasoline.

Table 3-2 presents the component and total costs

of methanol supplies during the transition period, for

both “market guarantees” and “free market” scenarios.

2. Established methanol supply and demand,

low shipping costs, dedicated vehicles. Assuming that methanol demand becomes strongly

established in the United States, eventually

producers should be willing to build larger,

advanced technology plants,75 and vehicle

manufacturers may move to dedicated vehicles

to achieve improved air quality benefits and

higher efficiencies. With a larger program, the

potential for equivalent programs in other

countries, and other worldwide increases in

gas use, there is an increased potential for

higher gas feedstock costs—unless continued

exploration turns up large new reserves, which

is quite possible. Average distribution costs

should increase because of greater distances

associated with wider distribution of methanol, including availability in many inland

areas. Whether the fleet moves from flexible

fuel to dedicated vehicles depends on government air quality regulations and security interests (flexible fuel vehicles have certain energy

security advantages over dedicated vehicles).

In this scenario, there should be a stronger

possibility that large, dedicated tankers (250,000

DWT) will become the primary methanol

741t my not be ~e.y mat ~ovemen~ ~~~d ~me~ol ~~ way, but ~g me&~ol stricfly on a Bf,u basis co~d be COm&U~ as a subsidy Of

methanol vehicle use.

75Ass~es use of ~a~ytic or ~onca~fic pfi~ oxi~tion for tie s~~esis gas generation section, at considerable Savings in Capital COStS.

Improvements are also assumed for the methanol synthesis section, e.g., Davy McKee mixed flow reactor, or Mitsubishi fluidized bed rector. U.S.

Department of Energy, op. cit., footnote 69.
76 ● Replacing Gasoline: Alternative Fuels for Light-Duty Vehicles

Table 3-3—Component and Total Methanol Supply Costs in an Established Market

Environment

Part of fuel cycle Some continued guarantees Free market, few guarantees

Productiona . . . . . . . . . . . . . . . . . . . . 0.28-0.30 o.34-o.39b

Shipping . . . . . . . . . . . . . . . . . . . . . . . 0.02-0.03 0.02-0.03

Distribution . . . . . . . . . . . . . . . . . . . . . 0.05-0.06 0.05-0.06

Markup . . . . . . . . . . . . . . . . . . . . . . . . 0.06-0.09 0.06-0.09

Taxes . . . . . . . . . . . . . . . . . . . . . . . . . 0.12 0.13-0.14

Retail price . . . . . . . . . . . . . . . . . . . . 0.53-0.60 0.60-0.71

Efficiency factor . . . . . . . . . . . . . . . . 1.67-1.82 1.67-1.82

Gasoline equivalent price,

$/Gallon . . . . . . . . . . . . . . . . . . . . . 0.89-1.09 1.02-1.27’

Low gas cost case (gas at $0.50/MMBtu for many sites)

$/Gallon . . . . . . . . . . . . . . . . . . . . . 0.81-1.06 0.91-1.24

Higher gas cost cases: Each increase of $0.50/MMBtu yields increased methanol costs of $0.04-$0.05/

gallon, or about $0.07-$0.1 O/gallon of gasoline equivalent.

Flex-fue/ case (all vehicles are flexibly fueled)

$/Gallon . . . . . . . . . . . . . . . . . . . . . 1.01-1.14 1.14-1.35

Higher capita/ cost case (required rate of return (ROR) without government guarantees assumed to be

20 percent)

$/Gallon . . . . . . . . . . . . . . . . . . . . . NA 1.08-1.42

a Natural gas cost is $1 .00/MMBtu

b Free market ROR is assumed to be 15 percent; market guarantee case assumes 10 percent.

c The factor of 1.67 is applied to 61 cents, not 60 cents, and the factor of 1.82 is applied to 70, not 71 cents, because

the 13 cent taxis appropriate only if the efficiency factor is 1.82, and the 14 cent tax applies only to the factor of 1.67.

SOURCE: Office of Technology Assessment, 1990.

transporters, significantly reducing shipment

costs. With lower risks, required rates of return

should be lower (in this scenario, we assume a

free market required rate of return of 15

percent; this may be considered low for many

sites, but capital should be available at such

rates in several Middle Eastern sites with large

gas reserves, assuming a stable political climate), and retail markups may come down

even without government sales requirements.

For the “market guarantees” case, the measures needed to keep RORs at 10 percent

presumably will not need to be as strong as

those required in the short term. If retailers

move to dedicated vehicles, methanol vehicles

could be significantly more efficient than

gasoline vehicles; a likely value for the efficiency increase is about 15 percent, but there

is a wide range of uncertainty. Note that a

move to dedicated vehicles is most likely if

distribution is wide; in that case, distribution

costs must go up.

Table 3-3 presents the component and total

methanol supply costs for this case.

These scenarios imply that on a cost basis

methanol will be difficult at the outset to introduce

as a gasoline substitute, but that its prospects for

economic competitiveness should improve substantially once a market is established and economies of

scale can be achieved. In the short term, high risks,

inability to achieve scale economies, and the need to

start out with proven, and nonoptimal technology is

likely to make methanol a rather expensive fuel

compared to gasoline. In the longer term, fuel and

other costs can come down and fuel use efficiencies

rise to lessen the economic gap between methanol

and gasoline. However, there remain significant

uncertainties and disagreements about just how

expensive methanol will be in the long term, with

key uncertainties associated with feedstock costs,

vehicle efficiency, shipping and distribution system

costs, financial risks and required rates of return, and

other factors. At the same time, there is some

uncertainty associated with the future price of

gasoline even at stable oil prices. Changing crude oil

quality, new government requirements to reduce

volatility and otherwise improve gasoline’s environmental performance, and refiner pressure for price

increases to correct historically low rates of return all

may work to raise prices.

How long will a “transition period” last? Neglecting development of natural gas feedstocks,

which will likely become more expensive with time,
Chapter 3---Substituting Methanol for Gasoline in the Automobile Fleet ● 77

we would guess that the methanol fuel cycle might

reach the lower cost, ‘‘stable market’ phase within

8 to 12 years from the beginning of commercial

production of fuel and vehicles.

We do not envision a well-defined period that

ends at a single point, with lower cost, larger scale

systems then taking over essentially all at once.

Instead, there will be a transition period associated

with high cost factors of production, followed by a

gradual shift of the various factors of production

towards lower cost, larger scale units, and eventually

a period of established, lower cost methanol supply.

For example, some higher “transition” costs, e.g.,

high service station markups, could be reduced

quickly, essentially as soon as it became clear that a

stable market for methanol fuel was developing and

capital improvements would be paid off with little

risk. On the other hand, planning, financing, and

building a fleet of large methanol-dedicated tankers

would not be likely to even begin for a few years, and

then would require a few more years before the first

tankers began to haul methanol. And building larger

scale production plants would also take a number of

years. Presumably, the first of these lower-unit-cost

factors of production would not affect market costs

until they controlled enough of the market to begin

competing among themselves (unless they were

overbuilt, with excess supply of that factor requiring

the new factors to bid low for market share). Until

then, their owners would obtain higher profits

because of the price structure established by the

predominant, smaller scale, higher cost tankers,

production plants, or other factors. In contrast to the

other factors of production, feedstock costs would

likely start at low costs because of the current

availability of sites with abundant gas reserves, low

development costs, and lack of alternative markets,

and eventually move to higher costs as methanol

demand outgrows the availability of the lower cost

reserves.

The scenarios apply to methanol manufactured in

locations that combine low natural gas prices with

moderate construction costs. Generally, locations

that offer low construction costs because of a

well-developed infrastructure also have prohibitively high natural gas costs; and locations with

virtually free gas (because they are so isolated that

the gas has no other possible markets) also have very

high construction costs because they lack infrastructure and have poor availability of both trained

workers and critical supplies. This implies that

essentially all methanol used for transportation in

the United States would be imported, probably from

areas that are at least partially developed at this time.

Despite the apparent economic advantages of

imported methanol, some support for a shift to

methanol has come from policymakers who desire to

see the United States supply more of its own

transportation fuel. One option for U.S.-produced

methanol is to manufacture it on the North Slope and

ship it to the lower 48, primarily because the North

Slope has gas reserves of at least 37 trillion cubic

feet (TCF) and no ready markets.76 North Slope

methanol may have difficulty competing with other

sources because of higher cost, however. The

California Energy Commission has estimated that

the delivered (wholesale) cost of North Slope

methanol to Los Angeles would be roughly $1.00/

gallon of methanol,77 as much as triple the cost of

competing sources. Similarly, a recent study by SRI

International estimated North Slope methanol production costs at about $0.40/gallon of methanol

assuming a $0.51/mmBtu gas price. Even with the

high transportation costs associated with transporting the fuel by pipeline to Valdez and shipping it to

the lower 48 States, the delivered cost would still be

under $ l.00/gallon of methanol.78 The level of

uncertainty associated with these estimates is high,

however, with delivered methanol cost dependent on

the “value” of the gas resource as reflected in its

price, the availability and practicality of the Trans

Alaskan Pipeline as part of the delivery system, and

capital costs of modular methanol plants delivered

and installed on the North Slope. Some analysts

believe the cost of methanol can be less than these

estimates.79 In particular, shipping costs may not be

76CWenfly, gm that is produc~ with North Slope oil is either reinfected tomaintain reservoir pressure or is used as part of enhanced oil recovery

operations in the Prudhoe Bay Field.

~c~iforfi Energy Commission AB234 Report: Cost and Availabiji~ of hw-Emission Motor Vehicles and Fuels. Volume H: Appetik August

1989. ‘llle price ranges from $0.90 to $1.1 I/gallon with natural gas costs ranging from $0.33 to $2.00/mmBtu.

78w.J. Schmacher, op. cit., footnote 65.

7~avid L. Ku@, Manager, Fuel ~onomY arming and Compliance, Ford Motor Co., personal communication. It is worth noting that the charge

for using the Alaskan pipeline is due to be reduced substantially; further, because oil throughput in the pipeline is expected to decline during the coming

decade, there is substantial incentive to give methanol an attractive rate if this will keep the pipeline operating at full capacity.
78 ● Replacing Gasoline: Alternative Fuels for Light-Duty Vehicles

high if, as expected, North Slope oil production

declines and substantial excess capacity is available

on the Trans Alaskan Pipeline System. Even with

low pipeline tariffs, however, it appears that North

Slope methanol would be priced, at retail, at least

$0.15 to $0.20 more per gasoline gallon equivalent

than low cost imported methanol. Of course, a

“premium” of this magnitude might seem a reasonable price to pay for a secure, domestic source of

transportation fuel if energy security concerns were

to escalate.

Methanol can also be made from coal, which the

United States has in abundance, but the total

production costs are likely to be considerably higher

than costs for gas-based methanol. Amoco reports

probable manufacturing costs for methanol from

coal as approximately $ 1.00/gallon.80 A recent

report by the National Research Council estimates

methanol-from-coal’s crude oil equivalent price to

be over $50/barrel.81 As with North Slope methanol,

the level of uncertainty associated with the cost

estimates is high and the potential exists to reduce

costs substantially with advanced technology. For

example, advocates of coal-based systems that

produce methanol in conjunction with electricity in

a gasification/combined cycle unit claim methanol

costs comparable to those of natural gas-based

systems. 82 DOE’s evaluation of this type of system

implies that it could achieve significant cost reductions from other coal-to-methanol processes, producing methanol at costs of about $0.58/gallon using

$35/ton midwestern coal and assuming a 10 percent

(real) rate of return.83 This is still significantly

higher than methanol produced from natural gas,

unless the latter proves to be a higher risk source and

requires a higher rate of return. Also, because

gasification/combined cycle plants of this type are

primarily power producers,84 the potential methanol

supply from this source would be limited by the

growth of electricity demand and by U.S. willingness to satisfy increased demand primarily with coal

plants.

Similarly, methanol can be made from wood and

other biomass materials, at highly uncertain costs

because of the extreme variability of the cost of the

biomass materials. The National Research Council’s

estimate for the crude oil equivalent price of

methanol produced from wood using demonstrated

(but not commercial) technology is over $70/

barrel. 85 Because biomass gasifiers suitable for

producing synthesis gas (these are either pyrolysis or

oxygen blown gasifiers) have not gotten the development attention that coal-fed gasifiers have, some

researchers believe that methanol produced from

biomass could eventually be competitive with coalbased methanol.86 Such an outcome would require

improvements in both conversion technology and in

all aspects of the growing and harvesting cycle for

biomass-to-methanol production.

If oil prices-and thus gasoline prices-rise, the

relationship between gasoline and methanol prices

may change, and methanol may become more

competitive. Under some circumstances, methanol

prices need not rise in lockstep with gasoline prices.

For example, if methanol producers were using

natural gas feedstocks that had few or no other

markets, gas prices in these areas might not be tied

closely to oil prices. For such a scenario, rising oil

prices probably would lead to improved methanol

competitiveness.87 Other causes of likely different

rates of gasoline/methanol price escalation include

the different proportion of feedstock conversion

costs embodied in each fuel, the differences in

current market conditions for natural gas and oil (gas

is in oversupply), and the differing role that shipping

costs play in oil and natural gas prices.

~J. ~vine, Amoco corp., persod communication.

81co~ttee on ~Oduc.on T~c~O@~~ for Li@d T~~pofitionFuels, Natio~ ReseWch Council, Fuels @ Drive Our Future ~aShiIlgtOn, DC:

Nationrd Academy Press), 1990.

82G.w. Rob-s, ~JMe~ol ~ an ~termtive Fu~.,>~ tes~ony before the Subcommittee on Energy Rese~ch and Development, COmmittee On

Energy and Natural Resources, United States Senate, June 8, 1989.

83u.s. Dep~mentof Energy, Office of Policy, pltig, and Analysis, op. cit., foomote 69, assuming 20percent capital recovery rate. In this analysis,

the derived methanol price is particularly sensitive to the assumed value of the electricity produced.

~Ibid.

8SCo~ttee on production Technologies for Liquid T~~portation Fuels, op. cit., footnote 81.

86T.E. B~l, “Liquid and Gaseous Fuels from Biomass,” D. Hafemeister et al. (eds.), Energy Sources: Conservation and RenewabZes, Amexkan

Institute of Physics, New York NY, 1985. Suitable gasillers would probably be small units that could be prefabricated in a factory and simply assembled

in the field.

87s*ly, the prices of cod ~d biomass shotid not rise as fast as oil prices, and methanol tlom these sources may eventily become competitive.
Chapter 3-Substituting Methanol for Gasoline in the Automobile Fleet ● 79

On the other hand, there are counterarguments to

the proposition that methanol and gasoline prices

need not be closely linked. In particular, if the fuels

are readily interchanged by the driver (that is, if

flexible fuel vehicles are used), gasoline and methanol prices would tend to be locked into an “equivalent price/mile” relationship. Also, feedstock costs

may be linked to world oil prices through liquefied

natural gas trade and competition between natural

gas and middle distillates for utility and other

markets.

Just as methanol competitiveness might improve

with rising oil prices, it might suffer if oil prices fall.

This leaves methanol-and any alternative to gasoline-vulnerable to Organization of Petroleum Exporting Countries (OPEC) production increases

designed to depress world oil prices and win back

lost market shares. Such a price drop would have

beneficial side effects, however, in particular the

economic stimulation provided by lower energy

prices, but the longevity of such effects would

depend on the willingness and ability of alternative

fuel suppliers to maintain a market presence. Of

course, the U.S. Government, if it wished, could

protect methanol market share with tariffs and other

mechanisms.

INFRASTRUCTURE

Transforming a significant portion of the vehicle

fleet to methanol use would be a major undertaking.

Aside from the obvious “chicken and egg” problem--

neither methanol suppliers nor vehicle manufacturers wish to take the first step without the other

segment of the market in place—methanol distribution is likely to require a substantial investment in

new equipment. Methanol is hydroscopic (it attracts

and absorbs water) and corrosive to some materials

now used in gasoline vehicles and distribution

systems. It may prove to be incompatible with

materials in much of the existing infrastructure-gas

station pumps and storage tanks, pipelines, tanker

trucks, ocean going tankers, etc.,88 and thus may

require significant quantities of equipment to be

duplicated or modified.8g It will require new vehicles, because conversion of existing vehicles will be

too expensive because of the materials compatibility

problems and the need for changes in onboard

computers and other components. And, because of

methanol’s low volumetric energy density, more

trucks, ships, and pipeline capacity will be needed to

move an amount of fuel equivalent to the gasoline

replaced.

In gauging infrastructure costs for a shift to

methanol or other alternative fuels, it is important to

factor in potential gasoline infrastructure investments that might be avoided if methanol or other

fuels absorb some of gasoline’s market share. This

potential exists because many analysts expect U.S.

gasoline consumption to grow significantly over the

next two decades; the Energy Information Administration, for example, projects a 0.6 percent/year

increase, from 7.34 mmbd in 1989 to 8.38 mmbd by

2010. 90 This growth, and interregional shifts in

gasoline consumption, are likely to require building

significant amounts of new pipeline capacity, truck

transport capacity, and other infrastructure elements

unless use of alternative fuels offsets the requirements.

The pace of introduction of the alternative fuels

will be a critical factor in determining the extent to

which infrastructure costs for the new fuels will be

offset by reductions in gasoline infrastructure requirements. Similarly, government actions to slow

the growth in fuel consumption, in response to air

pollution, global warming, and energy security

issues, can alter the potential for infrastructure

offsets. Congress currently is discussing the imposition of new fuel economy regulations for automobiles and light trucks, in response to global warming

and energy security concerns. And some of the

nonattainment areas where much new alternative

fuel infrastructure would be built have been experimenting with transportation control plans to hold

driving down below forecasted levels. Success for

either or both strategies could hold down the growth

in vehicle miles traveled and improve the efficiency

of travel, reducing gasoline demand and thus reducing the potential for infrastructure offsets. On the

88chemsy5tem, kc., ‘ ‘A BriefingPaperon Methanol Supply/Dernan dfortheUnited States andthe Impact of the Use of Methanol as a Transportation

Fuel,” prepared for the American Gas Association September 1987.

89seve~ ~Omp~eS ~ tie united s~tes ~ now Offering ~A.approved in situ kg technology so that existing gasoline storage tarl.ks CaIlbe made

methanol-compatible for about .$4,000/tank. G.D. Sho~ ICI Products, personal communicatio~ January 1990.

%nergy Information Adminislratioq AnnuuZ Energy Outlook 1990, DOE/EIA-0383(90), January 1990, table A.3.
80 ● Replacing Gasoline: Alternative Fuels for Light-Duty Vehicles

other hand, if gasoline demand stabilizes, there may

be some potential for modifying gasoline equipment, such as storage tanks, to accommodate methanol at lower cost than building new facilities.

Generally, the incremental costs of alternative fuels

infrastructure, over and above what would have been

spent anyway for gasoline infrastructure, will be

lower if alternative fuels reduce the growth in

gasoline demand rather than actually reducing

gasoline demand from current levels.

The Department of Energy has estimated the U.S.

infrastructure requirements (that is, excluding overseas production facilities and shipping infrastructure) for methanol displacement of 1 mmbd of

gasoline. The analysis assumes that a fleet of flexible

fuel vehicles (FFVs) using M85 will accomplish the

displacement. 91 DOE estimates that total costs for

storage tanks, loading and other equipment at

existing marine-based petroleum product terminals,

tank trucks, and approximately 91,000 service station conversions will be $4.8 billion, $4.1 billion of

which is used for the service stations.92 At a

$275/vehicle incremental cost for mass-producing

FFVs, the total additional cost for the vehicle fleet is

$16.6 billion. AS discussed above, distribution costs

would change somewhat if all new tankage and other

equipment were required (because of increasing

total fuels demand) rather than being able to convert

existing facilities from gasoline use to satisfy part of

the infrastructure demand. In its study, DOE implicitly assumed that gasoline demand would have been

stable without the introduction of alternative fuels,

in contrast to the Energy Information Administration projection. Also, the estimate for infrastructure

costs is extremely sensitive to the assumptions made

about vehicle costs. Unforeseen problems with

excess wear, formaldehyde control, and so forth

could easily push costs higher; cost savings obtained

from engine downsizing and associated vehicle

weight savings, if efficiency and power gains are at

the high end of the potential range, might just as

easily push costs downwards.

ENERGY SECURITY

IMPLICATIONS

With relatively generous worldwide reserves of

crude oil available, current interest in gasoline

substitutes is based not on the threat of actual

physical scarcity of oil but on the potential for

supply disruptions and large and sudden increases in

price. This concern is heightened by the concentration of oil reserves in the volatile Middle East and

the expectations of many analysts that OPEC will

regain its former large market power in the 1990s.

Development of alternative fueled systems—

vehicles, supply sources, and distribution networks—

is viewed as both a means to reduce dependence on

oil, lowering the economic impact of a disruption

and/or price rise, and as leverage against oil suppliers—

‘‘raise the price too high, or disrupt supply, and we

will rapidly expand our use of competing fuels. ”

Analysts have argued both for and against the

proposition that a U.S. turn to methanol would

provide an important strategic advantage. OTA

concludes that, under some circumstances, the

addition of methanol to the U.S. transportation fuel

inventory could improve U.S. energy security for at

least a few decades, even though most or all of the

methanol would be imported. (The major security

benefit would be to reduce U.S. exposure to economic damages from a future oil supply disruption

and/or price shock.) Longer term prospects depend

on the scale of worldwide natural gas demand and

the course of future gas discoveries. The degree of

security benefit will depend primarily on the scale of

the program and the nature of the vehicles, with

flexibly fueled vehicles coupled with an extensive

methanol distribution network offering maximum

benefits. The benefit may also depend on the extent

that the United States acts to promote the entry of

more secure suppliers into emerging methanol

markets. Because the transition to methanol fuels

will be expensive, and because methanol could

remain more expensive than gasoline for many

years, its energy security and other potential benefits, in relation to its costs, should be weighed

carefully against alternative means to achieve the

same benefits.

91u.se D~~@~@ of Ener~, A~~e~~~nt of Costs and Benefits Of Fl~-ble andA[ternatiVe Fuel use in the u.S. Transportation Sector. Technical

Report Five. Vehicle and Fuel Dism”bution Requirements (Draft), Office of Policy, P1 arming, and Analysis, January 1990.

~~id. me ~~ysis ~ssuestit all delivery is by tamer wck w~ch can se~ice 75 percent of the U.S. poptiation frOLIl the klTOhd s. Achieving

100 percent access to methanol would require pipeline transport and additional cost. Part of the infrastructure is converted from gasoline, part new—for

example, half of the tankage needed is assumed to be converted.
Chapter 3-Substituting Methanol for Gasoline in the Automobile Fleet ● 81

Table 3-4—Market Shares of Oil and Gas Production and Reserves by Region in 1985

(percent)

Total Total Total Total

natural gas natural gas oil oil

production reserves production reserves

Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2 2.9 3.1 1.0

United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26.1 5.7 18.9 3.8

OPEC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.6 31.6 29.2 67.9

Central/South America. . . . . . . . . . . . . . . . . . . . . . . 4.1 3.7 8.8 9.1

Western Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.1 6.5 7.4 3.1

Eastern Europe & U.S.S.R. . . . . . . . . . . . . . . . . . . . 34.1 43.5 20.8 8.7

Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.6 0.6 3.0 1.3

Far East & Oceania . . . . . . . . . . . . . . . . . . . . . . . . . . 4.4 4.8 7.8 4.7

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.8 0.6 0.9 0.9

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.0 100.0 100.0 100.0

SOURCE: U.S. Energy Information Administration, International Energy Annual 1986, DOE/EIA-0219(86), Oct. 13,

1987. ‘-

As discussed in chapter 2, the scale of a methanol

program is critical to its national security benefits

because the benefits of a small-scale program may

be correspondingly small-unless, of course, such a

program was merely a first phase in a larger effort.

At a larger scale, a methanol fuels program could

reduce the United States’ overall demand for oil and

its level of oil import dependence. Under certain

restricted circumstances,93 this could reduce the

primary economic impact of an oil disruption if the

prices of methanol did not rise in lockstep with oil

prices. Also, a large-scale methanol fuels program—

perhaps coupled with similar programs in other

countries--could reduce pressures on world oil

supplies, reduce OPEC market dominance, and

lessen the potential for future market disruptions.

Further, the threat of rapid expansion of the program

would be far more credible after the basic distribution infrastructure was widely emplaced and economies of scale achieved.

Even if it is used in large quantities, methanol is

strategically attractive as a gasoline substitute only

to the extent that the potential supply sources are

different from the primary suppliers of crude oil,

and/or to the extent that natural gas markets remain

more open than oil markets to competitive pressures.

Table 3-4 compares the market shares of oil and gas

production and reserves by region in 1985. The

primary difference between the distribution of oil

reserves and gas reserves is that Eastern Europe and

the Soviet Union hold a dominant position in gas but

-. . .

not in oil, and OPEC holds an important position in

gas but not nearly to the same extent as in oil. A

recent study of potential methanol supply sources

concludes that, assuming widespread methanol-forgasoline substitution, OPEC and the Eastern Bloc

nations would likely capture at least 75 percent of

the supply market.94

Table 3-5 shows the proven reserves and estimated exportable surplus gas95 of the nations

holding large gas reserves. This distribution of

potential methanol suppliers does imply a diversification of market share in liquid fuels away from

OPEC and the Middle East. However, policymakers

may be wary of the potential shift in market power

towards the Eastern Bloc. On the other hand, the

addition of new sources of transportation fuels, even

if they are not major market powers, would add

somewhat to the stability of the world market for

transportation fuels. Also, the changing political

status of Eastern Europe could radically alter the

U.S. strategic view of the effect of the development

of economic ties between the Eastern Bloc and

western energy markets, from sharply negative to

sharply positive. Finally, widespread use of methanol as a transportation fuel in Eastern Europe would

remove an important source of supply pressure on

world oil markets.

There is some question about how to interpret the

estimates in table 3-5. Even if the distribution of

methanol suppliers evolved in proportion to exportable surplus reserves, the market power associated

gJ~ebu&~f ~e~~l “e~cle~ ~ould~ve t. be dedicated ve~cles, creafigbasically a separate market for methanol, and feedstockgasprices wotdd

also have to be separated from oil prices. See the discussion in app, 3A.

~Chem Systems, Inc., op. Cit., fOOblOte 88.

QsEs~ates of expo~ble s~l~s accomt for commitmen~ to domestic markets, including existing and planned chemical phIltS.
82 ● Replacing Gasoline: Alternative Fuels for Light-Duty Vehicles

Table 3-5—Proved Gas Reserves and Exportable

Surpluses

As of Dec. 31, 1987

(Tcf)

Proved Exportable

reserves surplus

U.S.S.R. . . . . . . . . . . . . . . . . . . . . . . . . . . .

Iran . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

United States . . . . . . . . . . . . . . . . . . . . . .

Abu Dhabi . . . . . . . . . . . . . . . . . . . . . . . . .

Qatar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Saudi Arabia . . . . . . . . . . . . . . . . . . . . . . .

Algeria . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Canada . . . . . . . . . . . . . . . . . . . . . . . . . . .

Venezuela .. .. .. .. ... . ....=.... . . . .

Norway . . . . . . . . . . . . . . . . . . . . . . . . . . .

Nigeria . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Australia . . . . . . . . . . . . . . . . . . . . . . . . . . .

Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Indonesia . . . . . . . . . . . . . . . . . . . . . . . . . .

Netherlands . . . . . . . . . . . . . . . . . . . . . . .

Malaysia . . . . . . . . . . . . . . . . . . . . . . . . . .

Other Middle East . . . . . . . . . . . . . . . . . .

Other Asia Pacific . . . . . . . . . . . . . . . . . .

Other Europe . . . . . . . . . . . . . . . . . . . . . .

Other Latin America . . . . . . . . . . . . . . . .

Other Africa . . . . . . . . . . . . . . . . . . . . . . .

Total world . . . . . . . . . . . . . . . . . . . . .

1,450

489

187

184

157

140

106

95

95

89

84

79

76

73

64

52

122

113

77

61

56

3,849

809

158

0

155

152

0

40

12

14

56

67

53

0

46

10

29

0

25

3

31

6

1.666

SOURCE: Jensen Associates, Inc. National Gas Supply, Demand and

Price, February 1989.

with this distribution maybe considerably different

than in the oil market. Because the degree of

development of known resources is much lower for

gas than for oil,new gas production capacity may be

obtained from many more sources than can new oil

production capacity, at least for the next several

decades. For the foreseeable future, therefore, any

concerted effort on the part of a group of nations to

manipulate natural gas supplies and prices would

likely elicit a quick supply response from new

sources. This should weaken the market power of the

Middle Eastern and Eastern Bloc nations even

though they hold the preponderance of gas reserves.

Also, the substantial number of undeveloped

gasfields around the world gives the United States

the opportunity to promote development of secure

methanol sources by targeting investment to selected areas. Such a strategy would be a departure

from past trade policy but would respond to existing

national security concerns. Finally, because current

world natural gas reserves are largely the outcome of

oil exploration, it is quite possible that intensive

exploration aimed at locating natural gas would both

add substantially to total reserves and shift the

proportion of reserves away from the current imbalance illustrated in the table.96

An important factor in determining the national

security implications of a substantial shift to methanol use in transportation is the magnitude o f

worldwide development of gas resources. At moderate levels of development, there will always be

available potential sources of incremental supply to

block market manipulation; high levels of development might eventually tighten supplies, giving

market power to the remaining holders of large

reserves. The magnitude of development will in turn

depend on the scale of any shift to methanol in the

United States, the extent to which the shift becomes

a worldwide phenomenon, and the development of

other uses of natural gas in the world market. A

worldwide surge in natural gas development seems

quite possible given concerns about the greenhouse

effect and urban air pollution,97 growing recognition

that natural gas is a cleaner fuel than its fossil

competitors, and recent improvements in gas combustion technologies (for example, more efficient

gas turbines for electricity generation). Even if such

a surge accelerated a trend towards market tightening, however, this would not occur for several

decades at the earliest, and might not occur for far

longer if new gas production technologies open up

new, large gas resources to development.

The capital-intensive nature of methanol production will also play a role in the relative energy

security of methanol supplies (compared to gasoline). Because the country-of-origin must invest in

facilities similar to those required for crude oil

export (e.g., drilling pads, pipelines, docks) plus a

methanol production facility that may approach a

billion dollars in capital costs (for a 10,000 millionton-per-day (MTPD) facility),98 it will have a greater

%~e ~ote.ti~ for f~d~g lmge new gas resemes is a con~oversial issue. me gToup at me I_Jnited States &oIogicd Survey working on world oil

and gas resources generally does not believe that enough new giant gasfields will be found to greatly affect the current distribution of world gas reserves

and projected resources (Charles Masters, USGS, personal communication, Mar. 3, 1990).

97As noted elsewhere, combustion of Mmgas produces less c~bon diofide ~ competing fossfl fiek per unit Of energy. COIIS~UeIldy,

substituting mtural gas for coal or oil will tend to yield greenhouse benefits unless increased gas development creates significantly higher gas leakage

to the atmosphere. Because methane-the key constituent of natural gas—is a far more potent greenhouse gas than is COZ, increased leakage can null@

the combustion benefit.

98u.s. Dep@ment of Energy, op. cit., footnote 69.
Chapter 3--Substituting Methanol for Gasoline in the Automobile Fleet . 83

financial stake in maintaining stable fuel shipments

than a crude oil exporter. This possible advantage

must be tempered, however, by the growing tendency of oil suppliers to invest in refinery capacity

and ship petroleum products, including gasoline,

instead of lower value crude. To the extent that this

trend continues, there may be little difference in this

regard between gasoline and methanol. Also, the

security advantage offered by the increased financial

stake of the suppliers maybe offset somewhat by the

possibility that a methanol production facility or

refinery may be more vulnerable to terrorism or

internal disorder than a simpler crude oil supply

system. The trade-off between physical security

disadvantage versus financial security advantage is

not particularly obvious.

The potential advantage to supply security stemming from the capital intensity of the methanol

supply system can be weakened if methanol purchasers agree to financial arrangements that shift

plant ownership--and financial risk-to them. Although U.S. ownership of manufacturing facilities in

other countries may be attractive in other circumstance, this is not likely to be the case here. Because

a methanol plant will be tied to its local gas supply,

a supplier country does not have to control the

methanol plant to control methanol supply.

Aside from questions about methanol supply, the

nature of methanol fuel development in the United

States will decide methanol’s energy security benefits. For example, there are substantial security

differences between a strategy favoring dedicated

vehicles and one favoring flexibly fueled vehicles. A

commitment to FFVs would allow the United States

to play off the suppliers of oil against methanol

suppliers, and would avoid the potential problem—

inherent in a strategy favoring dedicated vehicles—

of trading, for a portion of the fleet, one security

problem (OPEC instability) for another (instability

in whichever group of countries becomes our

methanol suppliers). However, a fleet of FFV’s

attains important leverage against energy blackmail

only if the supply and delivery infrastructure is

available to allow them to be fueled exclusively with

methanol, if this becomes necessary. Because FFVs

don’t require widespread availability of an alternative fuel supply network to be practical during

normal times, adoption of an FFV-based strategy

may not include full infrastructure development

unless this is demanded by government edict. In fact,

because dedicated vehicles are likely to have performance and emissions advantages over FFVs,

most policymakers are likely to view FFVs as only

a stopgap measure on the way to a dedicated fleet.

Here, energy security considerations appear to

conflict with air quality goals.

If methanol is eventually produced from coal, the

energy security benefits would clearly be substantial—

assuming that production costs at that time were

reasonably competitive with methanol from natural

gas. The previous discussion on methanol cost

competitiveness concludes that coal-based methanol

would be substantially more expensive than gasbased methanol at current prices and technology. A

future shift to coal will depend on future natural gas

availability and prices as well as further development in methanol-from-coal production systems that

appear to offer substantial cost reductions. Unless

security pressures grow strong enough to compel

large government subsidization of methanol-fromcoal production, a shift to coal seems unlikely for

several decades at least.

METHANOL OUTLOOK AND

TIMING

The difficulties of providing an infrastructure and

the uncertain economics of methanol as a vehicle

fuel-especially in the early stages of its introduction when economies of scale cannot be achieved—

imply that its widespread use in the general vehicle

population is unlikely to progress without government promotion or substantial and lasting increases

in oil prices. There is now considerable interest in

methanol at the State and local level, primarily as a

means to cut urban air pollution, and methanol use

in certain dedicated fleets, especially in urban bus

transit systems, seems quite possible. At the Federal

level, Public Law 100-494 now allows vehicle

manufacturers to use methanol vehicles as a means

to reduce their measured fleet CAFE (corporate

average fuel economy), making it easier to comply

with Federal regulations. This would tend to promote the availability of methanol vehicles if manufacturers expect difficulty in complying with fuel

economy requirements. Also, recently announced

Administration policy towards urban air quality

problems favors use of alternative fuels.

Research programs in the United States and

elsewhere are working to improve the attractiveness

of methanol-fueled vehicles; progress in these programs will increase the likelihood of methanol
84 ● Replacing Gasoline: Alternative Fuels for Light-Duty Vehicles

introduction. And success in reducing the costs and

raising the efficiency of methanol production would

have important implications for its eventual commercial success (as well as its value as a component

of a strategy to lower the concentration of greenhouse gases). On the other hand, improvements in

fuel use efficiency and engine control in today’s

gasoline-fueled light-vehicle fleet, coupled with

indications that refiners can restructure the composition of gasoline to help reduce emissions, imply that

policymakers may be able to tighten vehicular

pollution standards somewhat. Such an action might

remove some of the pressure for an urban switch to

methanol-fueled vehicles.99 Also, as discussed above,

the magnitude of pollution benefits from a shift to

methanol are somewhat uncertain. For M85, the

most likely methanol fuel for the first generation of

vehicles, available data on organic emissions is

variable enough to support conclusions about the

fuel’s potential ozone benefits ranging from quite

optimistic (a 20 to 40 percent ‘per vehicle’ benefit)

to pessimistic (at best about a 20-percent benefit, to

possibly an ozone increase). Although M1OO--

straight methanol-would likely give clearer, and

larger, ozone benefits, remaining questions about

cold starting problems, formaldehyde controls, and

the nature of any additives that might be used must

be answered before benefits can be assured. Given

the uncertainties associated with methanol costs and

benefits and the advantage in existing infrastructure

held by gasoline, the near-term future of methanol

use in the U.S. vehicle fleet seems captive to

government policy.

If methanol were given a‘ ‘push’ by government

financial and/or regulatory incentives, it should be

able to begin to play a significant role in automobile

use within a decade. Methanol is among the most

‘‘ready’ of the alternative fuels because: methanol

for chemical use has been produced in quantity for

many decades, and thus the production technology

is well known; vehicular technology capable of

burning M85 is readily available, and could be

produced within a few years; methanol vehicles

should perform as well as or better than existing

gasoline vehicles, so market acceptance problems

should be mild-the sole drawback is range, and

larger but not excessive fuel tanks should solve this;

infrastructure necessary to operate a methanol system is considerable, but the technology is commercially available; enough of its primary feedstock,

natural gas, is readily available to support a major

methanol system; and methanol costs, though uncertain and probably considerably higher than gasoline

on a “per mile” basis (at least for the short term),

still appear to be more favorable with em-sting

technology than the other alternative fuel candidates

aside from natural gas. The major uncertainties

concerning methanol technology are the practicality

of vehicles optimized for pure methanol, especially

regarding their cold starting ability, and the prospects for long-term formaldehyde control. OTA’s

best guess is that these problems will not be ‘show

stoppers,” but we recognize that the size of the

roadblock represented by these remaining problems

is an area of vigorous dispute within the alternative

fuels community.

Over the long term--certainly beyond the year

2000, quite possibly considerably longer--methanolfrom-coal or methanol-from biomass systems may

become competitive. Given the interesting potential

of coal hybrid systems, producing both methanol

and electric power from one gasification unit, and of

advanced biomass gasifiers, research into these

areas appears well worth pursuing.

APPENDIX 3A:

FACTORS AFFECTING

METHANOL COSTS

The gasoline-equivalent costs of methanol at the

retail pump are affected by a variety of factors at

each stage of the fuel cycle, beginning with the

gathering and other costs of the natural gas feedstock

and ending with the efficiency of methanol-fueled

vehicles relative to their gasoline-fueled counterparts. This appendix discusses some of the key

factors affecting these costs, by stepping through the

methanol fuel cycle, and presents likely cost (or

performance) ranges for each factor. Costs at each

fuel cycle stage will be affected by government

policy, which affects risk and may affect other

critical factors such as vehicle design, available

subsidies, location of markets, and so forth; technological development and trade-offs made; timing

(technology costs should decrease over time; feed99~thou@~crea~ed ~~~t~ a~~~~iated wi~ such st~d~ds might improve me~nol’s economic competitiveness. hparticular, gaSOkle r@XllChll@

may cost $0.10/gallon or more, depending on the severity of the changes.
Chapter 3-Substituting Methanol for Gasoline in the Automobile Fleet ● 85

stock costs may increase); magnitude of development; and a variety of other factors.

Feedstock Costs

Natural gas feedstock costs are an important

component of methanol cost. For efficiencies typical

of steam reforming--one of the primary methods of

creating the synthesis gas from which methanol is

formed--every 10 cent/MMBtu of gas costs contributes about 1 cent/gallon to methanol cost at the

plantgate. Although advanced methanol production

technologies are more efficient than current commercial technologies, the efficiency increase is not

so strong as to markedly alter this relationship.

Consequently, assuming natural gas costs of

$1.00/MMBtu implies that the feedstock represents

about $0. 10/gallon in the cost of methanol. For each

increase (or decrease) in gas costs of $0.50/MMBtu,

methanol cost will rise (or fall) by $0.05/gallon.

Gas prices in the United States average about

$1.80/MMBtu at the wellhead and about $2.50/

MMBtu delivered to electric utilities,loo the sector

able to command the best prices. However, domestic

natural gas has been in surplus for several years,

holding down prices,.101 it is widely believed that

U.S. gas prices will rise substantially over the next

decade. Generally, lower 48 gas supplies are not

considered an economically viable feedstock for

significant increments of new methanol production.

Instead, most analysts believe that the most likely

suppliers of gas for methanol will be either ‘remote

gas” —gas that has no pipeline markets because of

its location---or the very large reserves of gas located

in several Middle Eastern nations, the Eastern Bloc,

and a few other sites.

Some supporters of methanol use as a transportation fuel have speculated that natural gas that

currently is flared or vented could serve as a

feedstock for methanol production. The claimed

advantages for using such gas are that it would be

extremely inexpensive, having no other use, and that

its diversion to methanol production would yield a

strong environmental benefit. Gas that is flared adds

to the atmosphere’s burden of carbon dioxide

without providing useful energy services; gas that is

vented adds to atmospheric concentrations of methane, a far more potent greenhouse gas than carbon

dioxide.

On further examination, it seems unlikely that

flared/vented gas can provide a viable feedstock

supply for methanol production. First, there is not a

great deal of such gas. The worldwide volume of

flared/vented gas in 1988 was about 3.3 trillion cubic

feet (TCF) spread out among dozens of countries and

hundreds of fields.102 A single 10,000 metric tons

per day (MTPD) methanol plant requires a gas

supply of 100 billion cubic feet (Bcf)/year, and only

a dozen countries exceeded that level in their entire

national production of flared/vented gas.103 Furthermore, there are ongoing efforts to drastically reduce

this volume of wasted gas, so that volumes available

in future years should be significantly smaller.

Second, a world-class methanol plant is highly

capital intensive l04 and will demand reliable, high

quality, long-lived gas reserves. Flared/vented gas—

which is associated with oil production-generally

is not highly reliable, nor is it particularly cheap.

Variations over time in oil production levels and in

gas/oil ratios can cause significant variations in gas

production levels. And gathering and compression

costs often are high.105 Current experience with

liquefied natural gas (LNG) facilities, of which only

1 of 11 is based solely on associated gas, confirm

that developers prefer more reliable nonassociated

gas supply for such projects.106

l~ne.g ~o~tion A_~atio~ Na~ra/ Gas Monthly, DOE/EIA-0130(89/OS), May 1989! ~ble 4.

lol~e United Stites does import substantial quantities of Canadian g~ver a TCF in 1989—but this was due largely to this gas’ price advantage

in certain regional markets, not to the unavailability of domestic supplies.

lozcedigm, Na~ral Gas in the World in 1988.

losrbid.

~~A~OIding to DOE (U.S. Department of Energy, Office Of policy, PI arming, and Analysis, Assessment of Costs and Benefits of Flexible and

Alternative Fuel Use in the U.S. Transportation Sector. Technical Report Three: Methanol Production and Transportation Costs, DOE/PE-0093,

November 1989), an advanced scheme, fuel grade, 10,000 metric ton per day methanol plant will cost from 588 to 1,323 million dollars (1987 dollars),

including infrastructure, depending on site location.

IOsJensen Associates, kc., “Natural Gas Supply, Demand and Price,” Economics Workshop, Advisory Board on Air Quality and Fuels, State of

California, February 1989.

106Jensen Associates, Inc., “Comment on the California Energy Commission Staff Draft 234 Report,” May 3, 1989.
86 ● Replacing Gasoline: Alternative Fuels for Light-Duty Vehicles

Assuming that either remote nonassociated gas or

gas in large, established fields in the Middle East or

Eastern Bloc will be the primary methanol feedstocks, what will be the likely price of such gas to the

methanol producer? The minimum price, over the

long term, will generally be the sum of the ‘‘cost of

service,” that is, the actual costs of producing and

gathering the gas, and some bonus to compensate for

resource depletion (although market vagaries can

temporarily force prices below this, eventually they

must rise to this price or supply will drop). The

actual price, however, will depend on negotiations

between the gas purchaser (the methanol producer)

and gas owner (generally the government). Some

governments will demand prices higher than the

minimum, to reflect the lack of competition (there

may be no competing supply sources with costs of

service this low or with a similar competitive

advantage, for example, easy access to markets or

availability of skilled labor for methanol plant

construction), high methanol or LNG prices that can

sustain higher-than-cost-based gas prices (in trade

jargon, the netbacks from product prices are higher

than gas production costs), higher gas costs elsewhere, or simply an attitude that the gas is a valuable

national treasure that should not be sold cheaply.

In this analysis, we seek to learn if methanol

prices can be low enough to compete with gasoline

or, if not, what the minimum subsidy would have to

be to provide the supply desired. We have little

interest in the outcome of negotiations about who

receives the added profits from methanol prices that

are higher than necessary to provide sufficient

supply. Also, we do not believe that gas pricing will

be based on “national treasure’ ’-type valuation by

governments. In the past, governments as varied as

Canada’s, Algeria’s, and Iran’s have demanded such

higher-than-market prices, but in each case they lost

market share as a result. Given this history and what

we perceive as a general worldwide movement

towards acceptance of market realities, we suspect

that gas supplies will be available at prices reflecting

either supply costs or netbacks from product prices.

Consequently, we believe that estimates of gas

supply costs, coupled with an examination o f

potential netback gas prices obtainable from high

LNG prices, provide an adequate measure of methanol feedstock costs for our analysis.

Based on available estimates of costs of service

for various sites around the world, we conclude that

gas prices of $1.00 to $1.50/MMBtu should be

Table 3A-l—Estimated 1987 Gas Costs and Prices

(1988 dollars)

cost of

investment servicea Price

$/MMBtu/yr $/MMBtu $/MMBtu

North America

Gulf Coast . . . . . . . . . . . . . . . . b

Alberta . . . . . . . . . . . . . . . . . . . b

Prudhoe Bay . . . . . . . . . . . . . b

Asia Pacific

Australia

NW Shelf . . . . . . . . . . . . . . . 4.34

Indonesia

Sumatra . . . . . . . . . . . . . . . . 3.01

Kalimantan . . . . . . . . . . . . . 2.00

Natuna . . . . . . . . . . . . . . . . . b

Malaysia

Sarawak . . . . . . . . . . . . . . . 3.87

Peninsula Offshore . . . . . 4.39

Thailand . . . . . . . . . . . . . . . . . . 5.94

Bangladesh . . . . . . . . . . . . . . . b

U.S.S.R.

Sakhalin/Yakutsk . . . . . . . b

Middle East

Qatar . . . . . . . . . . . . . . . . . . . . . 4.45

Abu Dhabi . . . . . . . . . . . . . . . . 2.85

Iran . . . . . . . . . . . . . . . . . . . . . . b

Latin America

Trinidad . . . . . . . . . . . . . . . . . . 4.40

Venezuela

Gulf of Paria . . . . . . . . . . . 6.52

Mexico

Chiapas/Tabasco . . . . . . . b

Argentina

Neuquen . . . . . . . . . . . . . . . b

Tierra Del Fuego . . . . . . . 2.75

Chile

Tierra Del Fuego . . . . . . . 3.30

Atlantic Basin

Norway

North Sea . . . . . . . . . . . . . . 6.91

Troms . . . . . . . . . . . . . . . . . . 7.24

Nigeria

Associated . . . . . . . . . . . . . b

Nonassociated . . . . . . . . . b

Cameroon . . . . . . . . . . . . . . . . b

Algeria . . . . . . . . . . . . . . . . . . . b

U.S.S.R.

W Siberia (in Europe) .,.. b

b

b

b

0.62

0.69

0.46b

0.84

1.01

1.37

.67

b

0.14

0.66b

1.01

1.50

b

b

0.27

0.40

1.33

1.30

0.89’

0.48C

1 .95C

b

1.42

0.95

0.33

0.94

0.93

0.93

0.93

1.17

1.17

1.67

.82

1.69

0.45

0.80

1.00

1.06

1.83

0.74

0.97

0.49

0.57

1.67

1.66

1.08

0.58

2.37

0.50

2.35

aExcluding tax

b No valid basis for estimate

World Bank estimate

SOURCE: Jensen Associates, Inc., Natural Gas Supply, Demand and

Price, February 1989.

sufficient to obtain large volumes of gas for methanol production. Table 3A-1 presents estimated cost

of service for a variety of sites. Some of the lower

estimates-in particular, the Qatar and Australian

NW Shelf estimates-reflect large credits for extracting natural gas liquids from the gas before sale.

These credits are limited to portions of fields with

particularly “wet” gas, and estimated cost of
Chapter 3-Substituting Methanol for Gasoline in the Automobile Fleet ● 87

service for future projects will generally be higher.

Additional cost-of-service estimates for 13 similar

sites show that 11 of the sites have costs between

$0.65 and $1.30/MMBtu (the other two are much

higher). 107

Although the amount of gas theoretically available at these prices is large, we do not know how large

a methanol market can be supplied by these lessexpensive gas sources. Aside from the sheer lack of

data about costs of gas service at more than a few

sites, it is not clear how much competition there may

be for the gas during the next few decades. If

developing nations’ economies grow substantially

during this period, some of the gas will be used

locally. Similarly, if world LNG trade grows rapidly,

LNG will compete with methanol for some of this

gas. The extent of this competition will depend not

only on the size of the LNG trade but also on the

value of the delivered gas, the value of the methanol,

and the costs of methanol production and shipping.

If the worldwide demand for methanol grows

large enough, and substantial quantities of low-cost

gas find local or export markets, methanol gas

supply sources will need to expand to higher cost

gas. This possibility is critical because minimum

methanol prices are likely to be set according to

production and shipping costs for the highest cost

marginal supplier rather than the average-cost supplier-at least when methanol is not in substantial

oversupply. 108 Consequently, analyses of methanol

costs for ‘‘typical” supply situations are relevant to

expected methanol prices only so long as the

demand for methanol does not force higher cost

methanol onto the market. When demand outstrips

low-cost production capacity, prices must rise to

allow higher cost suppliers to enter the market.

Production Costs

Aside from natural gas feedstock costs, key

factors affecting production costs are the production

technology, the size of the production facility, and

the nature of the site. Current methanol plants

produce chemical grade (highly purified) methanol

using technology whose basic design is about 20

years old.109 Large new fuel grade methanol plants

could achieve substantial savings because of the

economies of scale available if the size of the market

allows plants as large as 10,000 MTPD capacity to

be built, and because of the increased feedstock

utilization efficiency and lower capital costs of

advanced designs. The nature of the site is important

because it strongly affects the capital costs—

necessary infrastructure may or may not be available, labor and materials may have to be imported at

high cost, working conditions will affect schedules,

etc.—and affects the risk involved in building and

operating the plant, which in turn affects the cost of

capital (discussed below).

Although a 2,500 MTPD methanol plant is a large

plant indeed, most analyses of future methanol costs

focus on fuel grade methanol from plants sized at

10,000 MTPD. Increasing plant size gains modest

but important scale economies; for example, doubling plant size from 2,500 to 5,000 MTPD reduces

capital costs per unit of methanol produced by about

1O percent.110 However, a single 1O,OOO MTPDplant

produces over 3 million gallons of methanol each

day, or over a billion gallons per year-enough

methanol to fuel well over a million alternative fuel

vehicles, and over 10 percent of current world

methanol production capacity. Consequently, plants

this large can only be built if many millions of

methanol vehicles are in service or if there is an

assured market based on a prior trade agreement.

Aside from increasing plant size, methanol producers can reduce costs by shifting to advanced

technologies that cut capital costs, decrease total

energy use, and increase plant efficiency. A variety

of technologies are available that can reduce costs

both in the production of synthesis gas, the first step

of the methanol production process, and the catalytic

transformation of the synthesis gas into methanol.

The Department of Energy (DOE) has calculated

methanol production and delivered costs for large

(10,000 MTPD), “advanced scheme” plants producing fuel-grade methanol. For relatively remote

sites (e.g., Australia, Indonesia, Malaysia) with no or

only partial current infrastructure, and gas costs of

lo7~e es~tes are confidential.

108~ ~e~nol is ~ over~upp@+.g., if me~nol demad declines, Or me~nol production capaci~ is overbuilt-prices my drOp below tO@

production costs to the marginal costs of production, i.e., operating costs plus gas and shipping costs, with no allowance for capital recovery.

109G.D. Shofi, ICI Americas, personal communication September 1989.

11 OU.S. Dep~ment of l?~~gy, Offlce of policy, plx, and ~ysis, Assess~nt Of Costs urldBe@tS OfFle~”ble andAlternativeFuel Use in the

U.S. Transportation Sector. Technical Report Three: Methanol Production and Transportation Costs, DOE/PE-0093, November 1989.

21-541 - 90 - 4 : QL 3
88 ● Replacing Gasoline: Alternative Fuels for Light-Duty Vehicles

$1.00/MMBtu, methanol production costs range

from $0.33 to $0.41/gallon for a 20 percent capital

recovery rate (CRR). If some of the more developed

nations with large gas supplies, e.g., Saudi Arabia,

Algeria, and Iran, chose to price their gas equally

low, they could produce methanol at closer to

$0.30/gallon or even a bit lower for the same

CRR .

111

The advanced plant design selected for this

analysis achieves an estimated 25 percent reduction

in plant capital costs over a standard scheme plant of

the same capacity (10,000 MTPD),112 as well as a 10

percent savings in feedstock costs because of its

higher efficiency. Translated into costs per gallon of

methanol produced, moving from current to advanced technology saves $0.06 to $0.07/gallon at a

CRR of 20 percent, and $0.09 to $0.10/gallon at a 30

percent CRR.

The overall savings associated with building at a

very large scale, producing fuel-grade rather than

chemical grade methanol (this allows fewer distillation steps to be used), and using advanced technology are very substantial. According to the DOE

analysis, moving from a current technology, chemicalgrade, 2,500 MTPD facility to an advanced technology, fuel-grade, 10,000 MTPD facility saves $0.12

to $0.22 for each gallon of methanol produced,

depending on the site chosen, assuming 20 percent

CRR. This implies that production costs are likely to

drop sharply as a methanol fuel program matures—

as early plants using standard technology at 2,500

MTPD scale eventually give way to much larger

plants using advanced technology. The time frame

over which this process will occur depends on the

confidence of developers in the new technologies,

the rapidity of the movement of methanol vehicles

into the fleet, the vehicle technology (fuel flexible or

dedicated) chosen, and developer confidence in

continued growth of methanol demand.

Production costs could be further reduced over the

long term, though uncertainty is very high because

some of the most promising new processes have not

gone beyond bench-scale application. In particular,

current research in the field aims to catalytically

convert methane directly to methanol without producing an intermediate synthesis gas.113 Successful

development of such a process would likely reduce

production costs substantially, as well as raising the

conversion efficiency of the process—adding to

methanol’s attractiveness because improved efficiency would reduce the net production of C02 from

the methanol fuel cycle. Lawrence Berkeley Laboratory currently is exploring the use of catalysts that

mimic the enzyme produced by bacteria that ingest

methane and convert it to methanol. Thus far, the

researchers have managed only to produce methanol

in very small quantities.114

A less radical approach to improved methanol

production, under investigation at Brookhaven National Laboratory, uses a new catalyst suspended in

a liquid115 that will convert synthesis gas to methanol at low temperatures and pressures--lOO °C and

100 psi compared to 250‘C and 750 psi required by

conventional catalysts.

116 This catalyst also converts

a high percentage of the synthesis gas on the first

pass, reducing the need for recycling, and tolerates

normal catalyst poisons, reducing gas cleaning

requirements. 117 If perfected, the process should be

both cheaper and more energy efficient than current

production processes.

Significant uncertainty exists as well about production costs over the shorter term, even if uncertainties in feedstock costs and required capital

recovery rates are ignored. Two important sources of

uncertainty are, frost, the large variability in building

costs at remote sites, and, second, uncertainty about

the extent of savings that may be obtained by

moving to emerging production technologies such

as liquid-phase reactors.

lll~id, table 1.14. III is ~ysis, DOE chose different values than $1.00/MMBtu for feedstock costs, and we have adjusted t.heh production Cost

estimates to account for the difference in fiel costs.

ll%id, figure I-4.

1lSJ. Hagg@ “Altmmtive Fuels to Petrolem Gain Increased Attentio~” Chem”caZ and Engineering News, Aug. 14, 1989.

1loElec~c power Resemch ~ti~te, CtMe~ol: A Fuel for tie Fu~e,~~ Ep~JourM/, vol. 14, No. 7, O~t~ber/November 1989.

115so-mll~ ~cliq~d.p~~eca~ysts$ ~enotnew, and ~O~d likely be used in advanc~ scheme productionpl~ts built to satisfy anew transportation

market for methanol.

116Elec~c power Resemch Institute, Op. cit., foolllote 114.

llT~id.
Chapter 3-Substituting Methanol for Gasoline in the Automobile Fleet . 89

Capital Charges

Even if two competing analyses of methanol costs

assume identical capital costs for plants with identical production capacity and output, the role that

these costs play in total methanol costs—the capital

charge, expressed in $/gallon of methanol produced—

can still be quite different if the two analyses assume

different returns on investment. In fact, available

analyses of methanol costs have assumed substantially different rates of return, and these differences

play an important role in explaining why the range

of methanol costs appearing in the literature is so

wide.

The capital costs of a methanol production plant

can be translated into a capital charge assigned to

each gallon of methanol by breaking down the cost

into capital debt and investor equity, estimating the

amount of annual earnings needed to both service

the debt and provide a return on equity, and dividing

these earnings by the number of gallons produced

annually. Most analyses of methanol costs have

simplified this calculation by assuming a discounted

cash flow rate of return (ROR), which in turn defines

a capital recovery rate (CRR)--the percentage of

total capital costs, net of operating expenses, earned

back each year-and applying either parameter to

total capital costs. Figure 3A-1 provides a means of

translating RORs into CRRs and vice versa.118 As in

the rest of the discussion, the RORs in the figure are

real, after tax rates.

A number of studies have examined the sensitivity of methanol costs to assumptions about CRR and

ROR, and these studies illustrate clearly that the

costs are highly sensitive to these assumptions. For

example, Acurex has examined changes in capital

charges for methanol produced in 10,000 MTPD

plants with differing assumed ROR. For a Texasbased methanol plant, capital charges range from

$0.08/gallon for an assumed ROR of 10 percent, to

$0.14/gallon for a 17 percent ROR, to $0.25/gallon

for a 25 percent ROR.119 Similarly, the Department

of Energy has calculated that capital charges would

vary from $0. 17/gallon with a CRR of 20 percent to

Figure 3A-l—Comparison of Discounted Cash Flow

Rates of Return With Capital Charges Based on a

z

Percentage of Total Fixed lnvestment Plus

Working Capital

“ ~

20--

15--

lo- “

5--

0 10 20 30 40

Depreciation and return,

percent of total fixed investment

plus working capital

Basis: Natural gas reforming, site has well-developed infrastructure in an established industrial environment.

SOURCE: U.S. Department of Energy, Assessment of Costs and Benefits

of Flexible and Alternative Fuel Use in the U.S. Transportation

Sector. Technical Report thru: Methanol Production and Transportation Costs, DOE/PE-2093, November 1989.

$0.26/gallon for a CRR of 30 percent, for a 10,000

MTPD plant located in a developing nation with

only partial infrastructure available.120 For a lower

CRR of 16.2—which is the baseline assumption

used by the Environmental Protection Agency in

118u.s+ D~p~~nt of Energ, A~~e~~wnt of Co$ts ~~B~@tS Of Fl~ib[e a~A[&rnatiVe Fuel use in the U.S. Tra~pO~afi”On Sector. Technical

Report Three: Methanol Production and Transportation Costs, DOE/FE-0093, November 1989. The figure applies to a particular set of plant conditions:

3 years for construction 15 years of operation 37 percent income tax rate.

119S~te of c~ifo~ Advi~o~ Bored on ~Q~~ ~d Fuels, Econo~”cs Report: Vol- ~, report to California Advisory BO~d on Air ~~

and Fuels, Aug. 4, 1989 (Acurex Corp., primary contractor).

l~eptiment of Energy, Tectic~ Report TIu=, 1989, op. cit., foo~ote 110.
90 ● Replacing Gasoline: Alternative Fuels for Light-Duty Vehicles

recent presentations121--capital charges would be

$0.l4/gallon for this plant.

As noted above, alternative calculations of methanol prices have used an extremely wide range of

assumed CRRs and RORs for production plants at

the same or similar sites, and this has led to both

substantial divergence in estimated prices-as well as

confusion among policymakers. At least a portion of

this range can be traced to differences in technical

judgments about the most likely return to be attained

or demanded in specific circumstances. However,

more of the range is attributable to differences in the

basic assumptions underlying the price calculation.

Differences include:

Timeframe. Because the risks associated with

methanol production are likely to change with

time, the ROR or CRR required will change as

well. In a free market scenario, for example,

building a large methanol plant in the first

decade or two after a fuel methanol market is

established may be viewed by investors as quite

risky. A single plant would represent a significant percentage of world methanol production

capacity-as noted, a 10,000 MTPD plant

would represent well over 10 percent of current

world capacity—so that alternative markets for

the plant’s output would not be readily available, and overbuilding would be a significant

risk. Later, when millions of vehicles are

on-the-road and the overall market is much

larger and more mature, the risks associated

with a single plant might be greatly reduced.

For these reasons, early plants will likely be of

smaller capacity, i.e., 2,500 MTPD, and carry a

high required ROR unless governments provide strong guarantees. Methanol RORs and

capital charges will tend to go down with time,

if other factors do not change. Analyses of

methanol costs for the long term timeframe

must not ignore the problem associated with the

potentially expensive transition to a mature

market.

Is the analysis calculating a probable price

after the investment is made, or the price

necessary to encourage that investment? Some

price calculations seek the most likely price of

methanol assuming that some type of methanol-

●

●

fueled system has been established; other

calculations seek the price of methanol necessary to encourage investment in a methanol

system, for example, the wholesale price necessary to encourage investors to build production

plants. “What is the most likely price?” may

be the appropriate question to ask when examining a scenario where government has required methanol plants to be built; “What is the

necessary price?’ is more appropriate when the

analyst is questioning whether the plants will

be built at all.

Do the capital cost estimates already incorporate risk? Many business managers require

higher earnings on proposed investments than

seem justified by the underlying economics of

the investment. This may result from their

expectation that their engineers estimated project costs based on so-called “most likely

costs,’ that is, the costs that would occur most

often if many identical plants were built.

Managers demand high rates of return based on

these cost estimates because there is comparatively little chance of costs being very much

below the “most likely’ level (savings of 10 or

20 percent might be considered unusual),

whereas there are a number of circumstances—

in particular, long construction delays—that

could force costs to levels double or triple the

most likely value. . and investors will demand

higher returns to compensate for this risk. On

the other hand, some engineers already have

incorporated the risks in their estimate by

calculating an “expected value” for capital

costs, which averages the possible outcomes—

including the potential for large cost overruns—

and generally produces an estimate higher than

the most likely cost.

What policy scenario is assumed? The risks

associated with a capital project—and thus the

rate of return demanded--obviously depend on

the vision of the future assumed by the analyst.

An assumption of a free market without government interference might demand a high rate

of return to compensate for a high perceived

risk; however, there are free market situations

that manage risk well, e.g., an explicit contractual agreement to share risks with pricing

IZIC.L+ Gmy, D&~t~r, Emi~~i~n Conhol Te~~olo~ Divisio~ u-s, Enviro~en~ ~otection Agency, letter of Jwe 8, 1989 to R. Frie- ~lCe

of Tfxhnology Assessment. Also, U.S. Environmental Protection Agency, Analysis of the Economic and Environmental Effects of Methanol as an

Automotive Fuel, Office of Mobile Sources Special Repo~ September, 1989.
Chapter 3--Substituting Methanol for Gasoline in the Automobile Fleet . 91

formulas and other mechanisms. Government

requirements for methanol vehicles, on the

other hand, might lower risks by assuring the

existence of market demand—although investors have been burned before by shifts in

political support, and may be wary of assigning

a low risk to a project dependent on government

incentives or regulations. If government support is assumed, the nature of that support is

critical to risk—a government requirement for

dual-fueled vehicles without a requirement that

methanol actually be used might do little to

reduce risk; a trade agreement with price

guarantees for a plant’s output, on the other

hand, could reduce the required rate of return to

utility levels. Even with a trade guarantee,

however, developers may recall the poor experience of natural gas producers in enforcing

take-or-pay contracts with pipelines and still

demand high rates of return. Also, policymakers

should note that if the government provides

market guarantees or establishes regulatory

requirements for methanol use, the risk has not

really been reduced, but instead it has been

transferred, from producers to the government

itself, to consumers, or to the regulated indusQ .

. Where is the methanol assumed to be coming

from? As discussed earlier, a number of Countries, with differing physical, political, and

social conditions, are available to provide

methanol to U.S. markets. Factors such as the

potential for political instability or natural

disasters greatly affect capital risk.

Capital charges for methanol production can thus

legitimately vary over a wide range depending on

assumptions about the timing of the investment,

government policies, and other factors. For example,

in estimating the likely price of methanol after the

system is in place, analysts may examine historical

capital recovery rates of similar investments and

apply these to methanol CRRs. On the other hand,

for estimating the methanol price necessary to

encourage investment, analysts may instead examine the industry decisionmaking process to establish

the minimum ‘‘hurdle rate’ for ROR, that is, the

minimum estimated value of ROR necessary for

eliciting a positive investment decision. Surveys of

oil and chemical firms conducted by Bechtel Financing Services indicate that capital recovery rates and

rates of return required by investors for new

methanol plants will be much higher than historical

rates of return for the industry. In particular, building

such plants in developing countries would add

substantially to required returns: risk premiums

added to required aftertax rates of return for building

in developing countries would be in the range of

about 5 percent. Bechtel concluded that minimum

rates of return for the sites they surveyed (Texas,

Canada, Trinidad, Alaska, Saudi Arabia, and Australia) ranged from 14 to 19 percent.122 Also, the firms

indicated that assumptions of long project investment life, e.g., 20 years of full operations, are

unrealistic, with perhaps 10 years of full operations

being an acceptable assumption. Shortening assumed project lifetime has a major impact on

estimates of the product costs needed to support the

investment. 123 These rates and shortened plant

lifetimes imply capital recovery rates ranging from

30 percent for even low-risk sites (Texas, Canada,

Western Australia) to 40 percent or higher for the

highest risk sites (Trinidad and Saudi Arabia). These

rates seem astonishingly high compared to the 16.2

percent CRR assumed by EPA.

Changes in the perception of risk, and thus

changes in required CRR, may change the order of

preference for alternative sites. As capital risk

increases, sites with high feedstock costs and high

operating costs but low capital costs—in particular,

sites in developed areas with considerable available

infrastructure--become more attractive, and more

remote sites, with low gas costs but high capital

costs, become less attractive. Of course, estimates of

breakeven methanol costs are not the only factor

influencing site decisions. Plants with high capital

costs and low operating costs may be judged more

favorably than their breakeven costs seem to dictate,

because these plants can at least maintain a positive

cash flow if methanol prices plunge, whereas a less

capital intensive plant with high operating costs may

be forced to shut down in similar circumstances.

And to make things even more complicated, it is

122Ass~ptions of analysis: aftertax return on investrnen~ current dollars assuming 5 percemt inflation. William E. Stevenson Bechtel Financial

Services, Inc., letter of May 17, 1989 to Mr. Charles R. Imbrech4 Chairman, California Energy Commission. ROR values in the text are real, adjusted

for the assumed inflation. Nominal RORS were 20 to 25 percent.

lzsForemple, B~h@l ~omputedme~ol costs for apl~t ~ sau~ Arabia to be 24 percent~gher (36 cents V. 29 Cents/gallOn) whenassumedyears

of operations were shortened from 20 years to 3 years of partial and 10 years of full operations.
92 ● Replacing Gasoline: Alternative Fuels for Light-Duty Vehicles

highly unlikely that a site-by-site comparison of the

same technology will represent a true decision,

because plant designers will add capital cost to

maximize efficiency at sites with high gas costs, but

choose less efficient, but cheaper, designs at sites

with low gas costs.

A further, crucial point is that some of the areas

that may produce methanol are the same, or quite

similar to, the areas where new petroleum refineries

will be built to satisfy growing world demand for

gasoline and other petroleum products. Some of the

arguments for projecting high rates of return on new

methanol facilities may apply quite well to projections of the rates of return that may be required for

the new refineries. 124 If so, methanol priced high to

reflect high investment hurdle rates may be competing with gasoline whose price has also risen,

reflecting the same forces that drove up the methanol

prices. On the other hand, if volatility in oil prices is

considered a key source of uncertainty in future

energy markets, it is worth noting that refineries

have a built-in buffer from the effects of this

uncertainty, because a reduction in product prices—

e.g., gasoline prices--caused by a drop in oil prices

will be accompanied by a corresponding drop in

refinery feedstock costs; the methanol price drop

that would likely accompany an oil price drop

( assuming methanol were competing with gasoline

for market share) might not be accompanied by a

corresponding drop in natural gas feedstock costs.

The resulting volatility in methanol profit margins

may make anew methanol plant a riskier investment

than a new refinery.

Long-Distance Shipping

Long-distance shipping costs are dependent on

the type of carriers used. Although methanol currently is shipped at high cost in multicompartment

chemical tankers, a large-scale expansion of methanol production and shipping would require the use of

large, dedicated carriers. DOE calculates the costs of

long-range transport by large, 40,000 deadweight

ton (DWT) carriers to be about $0.06/gallon for a

6,000 mile (one-way) distance and about $0.09/gal

for a 9,000 mile distance.

Much larger tankers would be considerably more

economical-about a third as much per gallon for

250,000 DWT, according to DOE.l25 There are

questions about when such tankers could be deployed, however. Only one U.S. port (Louisiana) can

handle tankers this large, and only a few ports (none

currently on the East or Gulf coasts) can handle even

120,000 DWT tankers, Thus, either new port facilities would have to be built; or methanol could be

transported to smaller carriers at a nearby port,

perhaps in the Carribean (at additional cost), or at an

offshore terminal; or offshore docking facilities with

pipelines leading to onshore terminals would be

necessary. Also, 40,000 DWT tankers can use the

Suez and Panama Canals, and the larger tankers

cannot. Furthermore, the amount of methanol embodied by one tanker load of 200,000 DWT--about

68 million gallons, or about enough methanol to fuel

a fleet of 5 million vehicles for a week—implies that

tankers of this size will become practical only when

methanol demand has grown both large and stable--

perhaps implying dedicated rather than flexible fuel

vehicles (unless market stability is obtained by

government regulations requiring methanol purchase within nonattainment areas or, less likely, by

methanol prices consistently lower than gasoline

equivalent prices. Thus, assumptions of very low

long-distance shipping costs based on extremely

large carriers are problematic, at least for a considerable time after any transition to methanol transportation fuels has begun.

Distribution Costs

Both gasoline and methanol will have differential

distribution costs depending on location, and both

fuels will be more expensive when their distribution

costs are higher. Methanol has lower energy density

than gasoline, however, so that methanol should be

less competitive in areas with high “per gallon”

distribution costs.

l~~t is, me ~~ks ~~w~t~ ~~ me ~lanw me lmgely associat~ ~th thefi lwation ~ther ~wi~ the mm of their technology or the markets

for their products. Location-specific risks include risks of gas supply contract abrogation; force majeure events; exchange rate changes; currency

inconvertibility; unfavorable tax law changes; forced sale without full compensation and expropriation (W.E. Stevenson, Bechtel Financing Services,

Inc., “Capital Servicing Costs of Fuel Methanol Plants,” presentation to California Energy Commission, May 3, 1989).

l~Ontheotherhmd, Ener= ~dEnvironment~~ysis es~tes shipping costs for200,000to 300,000 DWTcarriersat $0.WtO $0.06/gMOn, about

twice DOE’s estimate. Energy and Environmental Analysis, Inc., Methanol’s PotentfaZ as a Fuelfor Highway Vehicles, contractor report prepared for

the Office of Technology Assessment October 1988.

1Z6U.S, Environmen~ Protection Agency, op. cit., footnote 121.
Chapter 3--Substituting Methanol for Gasoline in the Automobile Fleet .93

In its analysis of methanol costs, EPA has

assumed that distribution costs will be $0.03/

gallon ,

126 assuming that methanol will be delivered

primarily to cities with ozone control problems, and

these are primarily coastal port cities. EPA’s distribution costs appear reasonable for large port cities.

For inland cities with waterway access (e.g., St.

Louis, Detroit), costs might be somewhat higher. For

inland cities with no waterway access, distribution

costs could be considerably higher than EPA’s

estimates, conceivably $0.05/gallon or more higher.

With one exception (Chicago), the worst (top 10

in highest l-hour concentrations) ozone nonattainment cities are coastal, port cities. 127 If methanol

were used only in these cities, distribution costs

would be low. However, many cities currently in

nonattainment are inland, and some have no waterway access. Also, if methanol is introduced more

generally as part of a strategy to lower oil imports,

it will need to be available in areas with high fuel

distribution costs. Because of its low energy density,

methanol will be less competitive with gasoline in

such areas.

Retail Markup

Markups of $0.09 to $0.12/gallon are common for

gasoline.in If the financial risk in retailing methanol

is similar to that of retailing gasoline, methanol’s

‘‘per gallon” markups should be no higher than this,

and indeed may be lower, given the potential to

pump methanol more quickly than gasoline (because

of its low volatility), the possibility that methanol

vehicles will carry larger storage capacity than

gasoline vehicles (to compensate for methanol’s

lower energy density) and thus purchase more fuel

per fillup, and the significant portion of station costs

that are dependent on the number of fillups rather

than the actual pumping volume per fillup.129 Some

analyses (e.g., EPA’s) have assumed retail markups

for methanol as low as $0.05/gallon, which implies

that service stations’ operating costs, and thus their

markup, will depend more on energy content than on

actual fuel volume sold.

Under certain circumstances, however, methanol’s markup could be as high or higher than

gasolines. For example, if methanol vehicles do not

have additional storage, they will have shorter range

than gasoline vehicles and will buy fewer Btu’s of

fuel at each fillup. In that case, retail markups for

methanol would be expected to be similar to

gasoline markups even if the market risk in retailing

methanol is low. And if market risk is high, e.g.,

during the transition period when demand is growing, retailers are likely to demand a higher markup

for methanol to compensate for the higher risks

involved in installing methanol-compatible equipment and maintaining retail space during a time of

uncertain demand for methanol. If flexible fuel

vehicles are the primary users of methanol, unless

these vehicles are required to use methanol within

the service areas, both conditions—high market risk,

and methanol and gasoline vehicles buying about the

same volume of fuel per fillup--are likely, and retail

markups for methanol should be higher than gasoline’s $0.09 to $0.12/gallon. The original Administration plan for alternative fuels did contemplate a

methanol refueling requirement.

Another part of markup is the taxes charged to

methanol. Gasoline taxes average about $0.24/

gallon. If methanol is taxed strictly on a Btu basis,

taxes should be about $0.12/gallon. With higher

efficiency vehicles, this will reduce total tax revenues somewhat. If fuel tax revenues are viewed by

government as a user fee for highways and traffic

services, methanol taxes conceivably could be raised

to equalize taxes between methanol and gasoline on

a‘ ‘per mile’ basis. Given the likelihood that Federal

and State Governments will be actively promoting

methanol use, however, it seems likely that these

governments will adopt a “per million Btu” rather

than a “per mile” basis for taxation.

Methanol/Gasoline Conversion Factor

Gasoline and methanol are not compared directly

on a ‘‘gallon v. gallon’ basis, because a gallon of

methanol has only about half the energy content of

1zlJ.s. Consess, Mice of Teckology Assessment, Catching Our Breath: Next Steps for Reducing Urban Ozone, OTA-O-412 ~wtigto~ w:

U.S. Government Printing OffIce, July 1989), table 3-2.

IZSM.A. DeLucJ@R.A. Jolmsto~ and D. Sperlfig, “Metbanol vs. Natural Gas Vehicles: A Comparison of Resource SuPPly, Performance, Emi.sSions,

Fuel Storage, Safety, Costs, and Transitions,’ SAE TechnicalPaper # 881656, 1988.

129For emple, me she ~u~aent of & s~tion is dependent on he to~ tie ne~ed per ffllup. Even ifpumptig ties Io~er, the time needed to

park, remove and replace the filler cap, and pay for the fillup is independent of fuel volume.
94 ● Replacing Gasoline: Alternative Fuels for Light-Duty Vehicles

a gallon of gasoline.130 To compare the prices of the

two fuels, the methanol price must be multiplied by

a factor that reflects both the difference in energy

contents and any differences in the fuel efficiency of

equivalent gasoline and methanol vehicles.

Factors for converting an M1OO cost into a

‘‘gasoline equivalent’ cost range from about 1.5 to

2.0, the latter reflecting methanol’s actual volumetric energy content compared to gasoline’s, the

former reflecting a most optimistic view of the

efficiency potential of a mass-produced dedicated

M100 vehicle.131 The lower conversion factors are

based on the ability of methanol engines to run at a

higher compression ratio (because of methanol’s

high octane level) and higher (“leaner”) air/fuel

ratio (allowed by methanol’s higher combustion

flame speed and other attributes) than equivalent

gasoline engines, as well as on the cooling of the

air/fuel mixture caused by methanol’s high latent

heat of vaporization.132 The higher conversion

factors are based on an assumed methanol vehicle

weight penalty of up to 100 pounds for added fuel

and a larger fuel tank (causing a 2 to 4 percent fuel

economy penalty 133), and the need for manufacturers

to trade off fuel efficiency against other factors such

as emissions and performance.134 The emissions

trade-off is especially important because methanol is

being promoted largely as a means to reduce urban

air pollution.

Assuming that the focus on emissions reduction

will continue and that manufacturers will make

numerous design trade-offs in the process of moving

from laboratory and vehicle prototypes to mass

production, OTA believes that a reasonable range

for the methanol/gasoline conversion factor is about

1.67 to 1.82 (10 to 20 percent efficiency improvement) for the long term assuming optimized vehicles

dedicated to M100, with both extremes of the 1.5 to

2.0 range appearing to be much less likely. Vehicles

dedicated to M85 may have a range of conversion

factors shifted slightly higher, e.g., towards lower

efficiency, though the shift should be small. Flexible

fuel vehicles are likely to achieve still smaller

efficiency gains; a methanol/gasoline conversion

factor of about 1.9135 (equivalent to an M85/gasoline

conversion factor of 1.7) appears reasonable. There

is, however, some possibility that FFVs may attain

higher efficiency running on methanol, but this

would likely come at the expense of the vehicle’s

general performance running on gasoline; that is, the

vehicles could be designed to run optimally on M85

or M100, with the ability to run on gasoline

(although not as well as with a gasoline vehicle)

retained for an emergency.

The fairly wide ranges of ‘reasonable’ costs for

different segments of the fuel cycle, discussed

above, lead to a wider range of potential methanol

costs in comparison to gasoline costs, in equivalent

terms. However, the cost ranges derived in the body

of this report are actually narrower than the true

range of costs presented in the ongoing debate about

the wisdom of supporting methanol’s entry into the

transportation sector. It seems to us that some of the

differences in the cost estimates presented in this

debate—in particular, the tendency of some price

estimates to range up to very high values-stem

from a basic analytical misunderstanding exhibited

by some analysts. In surveying a variety of potential

plant sites, production technologies, and plant builders and operators, analysts have gathered a wide

range of expected plant capital and construction

costs, required investment hurdle rates, and other

factors affecting methanol costs. This range will, in

turn, lead to a very wide range of potential methanol

costs and prices. It is rarely appropriate to display

this full range as “the range of likely methanol costs

and prices.” In reality, those sites that lead to high

infrastructure or raw material costs, those companies

demanding very high hurdle rates, and those techlsOMetiol conti about 56,600Btu per gallon (lower heating value) versus 115,400 to 117,000 Btu pergtion (lowerheating v~ue) forg~~e.

Source: S.C. Davis et al, Transportation Energy Data Book: Edition 10, Oak Ridge National Laboratory report ORNL-6565, September 1989; and David

Kulp, Ford Motor Co., personal communication.

131A 1.5 conversion factor refl~~ a *eater ~30 ~r~nt fiprovaent in efficiency cornp~ed to the eftlciency achieved by a compmable

gasoline-powered vehicle. EPA has based its economic analysis of methanol on a 30 percent efficiency advantage (EPA, Office of Mobile Sources,

Analysis of the Economic and Environmental Effects of Methanol as an Automotive Fuel, September 1988).

lszfier= ad EnVironmen~ Analysis, Inc., op. cit., footnote 125.

133~i&

l~FOr e~ple, hi@ ~mpression en~es tend to produce more NOX, and ve~ lean air/fuel Wtur=, While reducing engine-out NOx levelS~ ~“

interfere with the performance of reduction catalysts designed to reduce tailpipe NOX emissions.

lss~dus~ ~~y~ts believe tit FFVS wi~ ~Ve a 4 to 7 percent efficiency ~V~@ge at ~~ perfo~nce, implying rnethanO1/g~OliIle COX.lVerSiO13

factors of 1.87 to 1.92.

●
Chapter 3--Substituting Methanol for Gasoline in the Automobile Fleet ● 95

nologies with high expected capital costs or operating costs will not play a role in a realistic methanol

supply scenario unless the sites, companies, and

technologies that will produce lower cost methanol

cannot produce enough supply to satisfy methanol

requirements. For example, the construction industry may require anywhere from 20 to 30 percent

hurdle rates for methanol investments. It is not

appropriate, however, to use 20 to 30 percent as the

appropriate hurdle rates in cost analysis (or 25

percent, the arithmetic average, or whatever the

weighted average is) unless the companies requiring

the lower end of the hurdle rates represent only a

small fraction of industry construction capacity. The

group of companies actually willing to bid on

methanol construction is likely to be restricted to

those that will accept perhaps 20 to 25 percent rates;

the “30-percenters” probably won’t bid.

This suggestion to ignore the high end of the cost

range applies only when the range reflects differences in known quantities-that is, different companies’ actual hurdle rates, or known differences in

construction costs between alternative technologies—

rather than differences due to uncertainty, e.g., a cost

range that reflects the lack of experience in building

a particular technology under untried circumstances.
Chapter 4

Natural Gas as a Vehicle Fuel

Although most attention has been directed to

methanol produced from natural gas, natural gas

itself, either compressed (CNG) or in liquid (low

temperature) form (LNG), also can serve as an

alternative fuel for vehicles, with the vehicles either

equipped to use both gasoline and natural gas or

optimized to serve in a single-fuel mode. There are

currently nearly 700,000 CNG-powered vehicles

worldwide, mostly in Italy (300,000), Australia

(over 100,000), and New Zealand (130,000), with

the United States (30,000) and Canada (15,000)

having moderate numbers as well.1 The primary

attraction of these vehicles outside of the United

States is their not using an oil-based fuel and, for

New Zealand, their use of a domestic fuel that may

otherwise have limited markets.

VEHICLES

Existing natural gas-powered vehicles generally

are gasoline vehicles modified by after-market

retrofitters and retain dual-fuel capability, i.e., they

are able to use either gasoline or gas. Despite the low

cost of the natural gas fuel, dual-fueled gasoline/gaspowered vehicles generally are not cost-competitive

with gasoline-powered vehicles at current energy

prices under most usage circumstances, and they

will likely remain noncompetitive unless gasoline

becomes heavily burdened with taxes or prices for

oil rise sharply while gas prices remain low.

Previous studies have shown that only heavily used

vehicles (e.g., commercial fleet vehicles) can save

enough money from lower fuel prices to compensate

for higher vehicle costs and the costs for a compressor station (a natural gas retrofit costs $ 1,600/vehicle

or more, and a factory built vehicle will cost $800 or

more extra, to pay for the extra fuel tank, gas-air

mixer, pressure regulators, and other components).

In addition, most currently available dual-fueled

vehicles have significantly less power and some

driveability problems under heavy load when operated on natural gas (and slightly less power when

operated on gasoline, because of the weight of the

extra fuel tanks), and lose much of their storage

space to fuel storage. Much of the power loss and

probably all of the drivability problems are due to

the design and/or installation of the retrofit packages; significant improvements in power and driveability can be realized with more-sophisticated

retrofit kits, or in factory-built, dual-fueled vehicles.3 Nevertheless, given the remaining problems,

dual-fueled vehicles will have a difficult time

competing with gasoline vehicles or vehicles fueled

with other, higher-energy-density fuels except in

high-mileage fleets or other specialized applications.

Single-fueled vehicles optimized for natural gas

use are likely to be considerably more attractive in

terms of performance, and somewhat more attractive

in terms of cost—though firm conclusions must

await considerable vehicle development and testing.

The cost of pressurized storage will make the

vehicles more expensive than a similar gasolinepowered vehicle, but probably by no more than $700

or $800,4 not the $750 to $1,600+ differential posed

by a dual-fuel vehicle. A natural gas-powered,

IU.!3. Depfiment Of Energy, As.res.rrnent Of Costs and Benefits of Flexible and Alternative Fuel Use in the U.S. Transportation Sector. Progress

Report One: Context and Analytical Framework, January 1988.

W.S. Department of Energy, Assessment of Costs and Benefits of Flexible and Alternative Fuel Use in the U.S. Transportation Sector. Technical

Report Five. Vehicle and Fuel Dism”bution Requirements (Draft), January, 1990.

q~e ~pmvemen~ me ob~ed P*Y ~m enrictig tie fiel mix during cold starts and during higb pOWer r~fiements, emfig driv~bifity

problems, and advancing spark timing during operation with gas, to increase power. Most current retrofit kits aim for low cost and are not designed for

speciilc vehicles, sacrif3cingpower and driveability for cost. K.G. Duleep, Energy and Environmental Analysis, Inc., personal communication Mar. 15,

1990.

4~t is tie appm~ate cost of CNG cy~ders storing about (),8 ~~ of gas. ~ the cyltiders kve a high salvage VdUe (bC!xXUSe they CCUl ht

for several vehicle lifetimes), their net cost will be lower. If the vehicle does not need an Nox reduction ca~ys~ its cost will be a few h~dred doll~

lower. M.A. DeLuchi, R.A. Johnstou and D. Sperling, “Methanol vs. Natural Gas Vehicles: A Comparison of Resource Supply, Performance,

Emissions, Fuel Storage, Safety, Costs, and Transitions,” Society of Automotive Engineers Techuical Paper 881656, 1988.

-97-
98 ● Replacing Gasoline: Alternative Fuels for Light-Dutv Vehicles

single-fuel vehicle should be capable of similar

power,

5 similar or higher efficiency, and substantially lower emissions (except for nitrogen oxides

(NOX

)) than an equivalent gasoline-powered vehicle. Such a vehicle would have a much shorter

driving range-due to the lower energy density of

CNG versus gasoline6

--unless the fuel tanks are

made quite large, which would then entail a further

penalty in weight, space, performance, and cost, and

which could increase greenhouse emissions as well.

Advanced storage containers made of fiberreinforced steel and aluminum, and of composites,

have been developed. These containers are lighter in

weight than existing steel containers and, because of

their greater strength, could reduce storage volume

somewhat because they allow increased storage

pressures. Fiberglass-wrapped aluminum is the most

affordable option among the newer materials; a tank

SDesig&g the engine SpeCKlcWy for natural gas allows increasing the compression ratio and advancing the spark timing, which will Wprotitely

compensate for the power-depressing effect of the greater displacement and lower flame speed of gas versus gasoline and the vehicle’s greater weight

though at some cost in higher NOX emissions. Source: De J.,uchi et d., op. cit., footnote 4. Because some tieropation of gasoline engineswill

likely occur during the period in which mtural gas engines could be perfecte~ speculation over the precise fti outcome of any gas vs. gasoline power

competition seems fruitless.

WNG at 3,000 psi occupies about 4 times more volume than gasoline of equal energy content,
Chapter 4--Natural Gas as a Vehicle Fuel ● 99

\

of this material would add about 150 pounds to the

vehicle (over a gasoline system), assuming 3,000 psi

tanks and 300-mile range.7 Another, longer term

option for storage may be the use of absorbents that

allow high density storage at lower pressure.

CNG vehicles’ range limitations would be eased

considerably if LNG were substituted as the fuel.

Rather than CNG’s 4:1 volume disadvantage (at

3,000 psi) with gasoline, LNG has only a 1.3:1

disadvantage. 8 Even with their required insulation,

and the added bulk it causes, advanced LNG fuel

tanks should be only about twice as bulky as

gasoline tanks holding the same energy,9 

and

possibly less than twice as bulky to achieve the same

range if the vehicle can attain an efficiency gain over

gasoline vehicles. Further, unlike CNG vehicles, the

added weight of the storage tanks should be modest.

And the extremely low temperature of the fuel can

add an additional power boost to that obtainable with

compression ratio and spark timing,10 so the LNG

vehicle will have a power advantage over a CNG

vehicle.

LNG storage tanks have been demonstrated that

allow vehicles to remain idle for a week without the

need to vent gas. 11 Retrofit costs to convert a gasoline

vehicle to LNG have been estimated at $2,780 per

vehicle; 12 a factory-built dedicated vehicle would

presumably have a considerably smaller cost penalty.

EFFECTS ON AIR QUALITY

The magnitude and character of emissions from

natural gas vehicles, like emissions from methanol

vehicles, will vary depending on trade-offs made

between performance, fuel efficiency, emissions,

and other factors. However, the physical makeup of

natural gas tends to make it a basically low emission

fuel. Natural gas contains virtually no nitrogen or

sulfur and does not mix with oil; thus, it will not foul

engine combustion chambers, engine oils, and spark

plugs as readily as gasoline, and may help to avoid

the deterioration of emissions control performance

common in gasoline-powered automobiles. Fuel

losses due to leaks will not add appreciably to ozone

formation because methane-natural gas’ key component—is not (photochemically) very reactive

(however, as discussed later, methane is a powerful

greenhouse gas, so leaks, as well as high concentrations of methane in vehicle exhausts, would be

harmful from the standpoint of global warming).

And because it is gaseous and does not require

vaporization before combustion, its use will lessen

the cold start problems—with the need to run ‘rich’

(air/fuel ratio lower than normal) before warmup is

achieved—responsible for much of the hydrocarbon

and carbon monoxide emissions of today’s gasoline

engines. With these advantages, natural gas is likely

to be considered at least as good as methanol as a

clean fuel so long as NOX

, emissions can be held

down. In fact, as far as ozone effects are concerned,

there is a general consensus that natural gas use will

provide a strongly beneficial effect, in contrast to the

controversy about methanol’s impact (see ch. 3).

A key determinant of emissions will be the

decision to run the vehicle either “lean” (with

excess air) or stoichiometric (with just enough air to

theoretically achieve complete combustion). However, no optimized, dedicated, natural gas vehicles

running stoichiometric, and very few running lean,

have ever been built or tested,13 so any discussion of

emissions effects must be based largely on theory

and extrapolation.

Running the engine lean will optimize efficiency

and lead to low engine-out levels of CO and

~eLuchi et al., op. cit., footnote 4.

8LNG’S lower heating v~ue is about 87,600 Btu/gallon versus gasoline’s 115,400. S.C. Davis et al., Transportation Energy Data Book: Edition ~0,

Oak Ridge National Laborato~ report ORNL-6565, September 1989, table B.1.

~eLuchi et al., op. cit., foomote 4.

l~eLuchi et ~., op. Cit., foomote 4.

I IF.L. Fischer, “rntroductionof acomrnercird System for Liquid Methane VehiCleS,” Nonpetroleum VehicularFuelsIII, Symposium Papers,lnstitute

of Gas Technology, Chicago, 1983, and R.J. Nichols, “Ford’s CNG Vehicle ResearcL” l(lth Energy Technology Conference, Washington DC, Mar.

1, 1983, both cited in M.A. DeLuchi, op. cit., footnote 4,

12R.E0 A-, ~~~~temative TrampOrtation Fuel—’’The Ln~ optioq” paper presented for Americm Gas Association September 1989, Ati

is the president of a firm that is marketing LNG systems.

13c.s. waver, ~~Na~ Gm Vehicles-A Review of the Stite of the ~“ Sociew of Automotive Engineers paper 892133, presented Sept. 25-28,

1989, SAE International Fuels and Lubricants Meeting and Expositio% Baltimore, MD.
100 ● Replacing Gasoline: Alternative Fuels for Light-Duty Vehicles

nonmethane hydrocarbons.14 Major drawbacks of

running lean include drivability problems and low

power, both of which would adversely affect consumer acceptance. Also, an NOX reduction catalyst

will be ineffective under excess air (lean) conditions,

and NOX tailpipe emissions may increase over

gasoline-based emissions with catalytic control.

Because NO= formation is dependent on the duration

of the fuel combustion process, some analysts hope

that so-called “fast burn” designs, probably coupled with high levels of exhaust gas recirculation,

will be capable of keeping NOX emissions down to

or below the levels of the best current gasoline

engines. 15

CO emissions under lean burn conditions should

be considerably lower than those of a competing

gasoline engine equipped with similar controls;

running the engine in a lean burn mode with an

oxidation catalyst could virtually eliminate CO

emissions .16 Because manufacturers may be able to

satisfy Federal CO standards without a catalyst,

however, theoretically they might choose to forego

catalytic control to reduce vehicle cost. In this event,

CO emissions would be comparable to those from

gasoline-fueled vehicles.

If gas engines are run stoichiometric (at significant loss in efficiency), the emissions result will be

somewhat different. CO emissions during most of

the driving cycle will generally be similar to

emissions from gasoline engines. However, the

reduction in cold start fuel enrichment allowed by

natural gas should reduce sharply the relative

emissions during the vehicle warmup period which,

for newer cars, is when the bulk of CO emissions are

produced. During the winter, when CO air quality

problems tend to occur, the warmup period is longer

and the emissions benefit more pronounced. Nonmethane hydrocarbon emissions will be higher than

with lean burn, but probably still lower than

gasoline-fueled engines, again because of gas’ low

cold-start emissions. Also, as with all gas-fueled

vehicles, much of the total exhaust hydrocarbons

will be methane, which is essentially nonreactive

and will not contribute to ozone formation (though

methane is a powerful greenhouse gas). Consequently, the overall ozone-producing impact of the

hydrocarbon emissions should remain very low even

without running the engine lean.

The ability to use a reduction catalyst under

stoichiometric conditions should allow NOX emissions to be kept low—to the level of the best gasoline

vehicles—for these engines,17 though perhaps not as

low as with similar methanol engines.18 Such

emissions probably could be made still lower by

using fast burn technology with exhaust gas recirculation, as with the lean burning engines.19 Unfortunately, this type of emission control strategy may

have driveability and low power/weight problems.

All natural gas vehicles will emit aldehydes,

primarily in the form of formaldehyde. Relatively

high formaldehyde emissions (compared to gasoline

engines) from methanol vehicles are considered a

key uncertainty in determining methanol’s net effect

on ozone formation. Limited testing of natural gas

vehicles indicates that uncontrolled aldehyde emissions may be considerably lower than those from

methanol vehicles, approximately comparable to

uncontrolled emissions from gasoline engines,20 and

should be of less concern than emissions from

methanol vehicles.

Natural gas vehicles are expected to produce

moderately lower net emissions (including all fuel

cycle emissions) of greenhouse gases than gasolinefueled vehicles, though the use of different but

plausible assumptions yields a range spanning about

a 25 percent decrease in greenhouse emissions to an

11 percent increase for domestic natural gas,21 and

lower benefits for overseas gas.22 The overall effect

ldMe@eoftenis not counted as part of hydrocarbon emissions because its atmospheric reactivity is so low that it playS little role b OZOne formation.

Its low reactivity also means that it is not efllciently controlled by catalytic converters, however, so that exhaust levels of methane maybe fairly higk

depending on engine operating conditions. DeLuchi et al., op. cit., footnote 4.

ISC.S. waver, op. cit., footnote 13.

IGDeLuc~ et al., op. Cit., footnote 4.

ITC+S. W=ver, op. cit., foomote 13.

lgDeLuc~ et al., op. Cit., footnote 4.

ls~id.

~DeLuc~ et al., op. cit., fOOtnOte 4.

ZID. Sperhg and MA+ DeLuc~, A/ter~tive Fuels a~Air Pollution, draft report prepared for Environment Dfi=torate, OECD* March 1990.

~overseas shipment as LNG extracts a si@fiCant energy penalty.
Chapter 4--Natural Gas as a Vehicle Fuel ● 101

is complicated by several factors, including methane’s potency as a greenhouse gas—it is many times

as effective as C02, pound for pound, though the

precise effect is in some dispute23—and the role that

CO plays in destroying hydroxyl radicals in the

atmosphere and possibly preventing these radicals

from scavenging methane out of the atmosphere.24

Of special concern is the amount of additional

methane that might leak into the atmosphere if a

significant shift to natural gas vehicles were to

occur; measurements of current leakage in the

natural gas production and distribution systems are

highly variable and of suspect accuracy. The greenhouse estimate is also sensitive to assumptions about

gas engine efficiency, methane emissions from the

tailpipe, and vehicle range. Sperling and DeLuchi’s

“base case,” which assumes the use of domestic

CNG with a 10 percent efficiency gain and an

assumed range equal to that of a gasoline vehicle,

estimates the greenhouse benefit to be 3 to 17 percent

depending on methane’s assumed potency as a

greenhouse gas.25

SAFETY

Natural gas should be a safer fuel than gasoline.

It is neither toxic, carcinogenic, nor caustic, whereas

gasoline is all three. A gas leak into an enclosed area

can be an extreme explosion hazard, implying the

need for strict control of refueling operations (particularly if home refueling becomes popular). However, a leak into open air will not detonate because

gas disperses quickly and the concentration in air

required for detonation is high, 5.3 percent (versus

1.1 percent for gasoline vapors, which can represent

a strong detonation hazard26). Also, the temperature

required for natural gas ignition is higher than

gasoline’s, about 1,000 ‘F versus 440 to 880‘F.27

An important safety concern associated with

natural gas vehicles has been the integrity of the

pressurized or cryogenic storage tanks carried onboard the vehicles. Because they are designed to

withstand high pressure, CNG pressurized tanks are

extremely strong and have no record of problems in

collisions despite extensive use on vehicles.28 LNG

tanks, while not as strong, do not carry material

under high pressure, and thus represent a situation

somewhat similar to gasoline tanks, though with less

fire and explosion hazard but with some danger of

frostbite were the tanks to rupture and the fuel

contact vehicle occupants or passersby.

COST COMPETITIVENESS

A fleet of natural gas-powered vehicles might be

competitive economically with gasoline-powered

vehicles, but there are significant uncertainties.

Most important are the uncertain future prices of

natural gas and gasoline, and the uncertain cost

penalty of the gas-powered vehicles. The latter

uncertainty is due to the relative lack of interest of

auto manufacturers in this fuel, and thus the limited

research and development effort that has been

devoted to single-fueled natural gas vehicles. A

recent analysis assumed that mass-produced, dedicated, optimized CNG-powered vehicles would cost

$700 to $8OO/vehicle more than comparable gasoline vehicles, with most of the cost difference

attributed to the high pressure storage, and would be

10 to 25 percent more thermally efficient29 (the

higher end of this efficiency range appears overly

optimistic). Assuming $7.50 to $9.00/mmBtu gas

delivered to the compression station, the analysis

concluded that a single-fueled CNG vehicle would

break even with a gasoline-fueled vehicle when

gasoline cost between $0.75 to $2.14/gallon. A

parallel analysis for LNG-fueled vehicles arrived at

a virtually identical gasoline breakeven cost range,

$0.75 to $2.23/gallon.30 Uncertainties in costs,

performance, engine lifetimes, etc. will widen this

range, but from a cost standpoint-as well as an

environmental standpoint-natural gas-powered vehicles appear to deserve further attention for at least

a portion of the vehicle fleet.

23 SWr~g ~d DeLuc~, ibid., def~e the range as 10 to 40 times more effeCtive tin Coz, pound for Pound.

MC.S. Wmver, op. cit., footnote 13.

25D. Spmtig and M.A. DeLuchi, Op. Cit., foo~ote 21.

~DeLuc~ et al., op. Cit., fOO~Ote 4.

Wbid.

2$~id.

z9Delucfi et al., op. cit., footnote 4.

%bid.
102 ● Replacing Gasoline: Alternative Fuels for Light-Duty Vehicles

SOURCES OF SUPPLY AND

STRATEGIC CONSIDERATIONS

As with methanol-powered vehicles, natural gas

vehicles have been promoted as a measure to

enhance national security by shifting to supposedly

more-secure natural gas. Unlike methanol, however,

natural gas needs no expensive processing to become a viable vehicle fuel, so that higher priced gas

can be a viable feedstock if transportation costs are

not too high. Consequently, although relatively

high-priced U.S. gas is not an economic feedstock

for methanol, it might be a viable feedstock for a

U.S. natural gas vehicle fleet if supplies hold out.

U.S. natural gas supply currently is in surplus, and

the United States has a substantial gas resource base,

which has caused some analysts to predict that

domestic gas production could fuel a major transportation shift to gas.31

This projection is correct for the short term-the

next few years-but probably incorrect for the

longer term. Although there is room for argument

about the size of the current surplus, it probably is in

excess of 1 trillion cubic feet (TCF) per year, which

is enough gas to power about 25 million automobiles. 32 However, gas demand is likely to be

increasing over the coming decade, while domestic

gas production is unlikely to keep pace. Much of the

new generating capacity expected to be added to the

U.S. electricity supply system during this time is

expected to be natural gas-fueled, and current acid

rain control strategies appear likely to increase gas

use in existing generating capacity as well. Essentially all major U.S. gas supply forecasts project

growing gas imports during the 1990s and beyond

without any movement of gas to vehicular use. And

although none of these forecasts fully incorporate

the potential increases in recoverable resources that

might be available with advanced technology, OTA

does not believe that such advances are likely to

provide enough increased supply to simultaneously

displace imports, power a growing segment of the

electric utility sector, and fuel a substantial portion

of the fleet.33 Thus, the natural gas necessary to

power a large U.S. fleet of gas-fueled vehicles is

likely to come from gas imports.

A second potential source of natural gas for U.S.

transportation needs is pipeline imports from Canada and Mexico. Although gas from these sources

also will not be cheap at the wellhead and thus, like

U.S. gas, is unlikely to be used to produce methanol,

pipeline access for the gas is relatively inexpensive,

except from the Canadian Arctic. Thus, a key to the

magnitude of potential national security advantages

from a shift to natural gas as a transportation fuel

may be the magnitude of gas imports that the United

States can obtain via pipeline from Canada and

Mexico. Current projections generally include steady

or rising imports from Canada, but little or no

imports from Mexico. There is potential for increased gas imports from both sources, but little

assurance that such imports can be obtained.

In 1988, the United States imported more than a

TCF of natural gas from Canada, with existing

pipelines close to maximurn capacity at peak gas

demand periods.34 Additional pipeline capacity, 1.2

TCF/yr if all proposed projects are built, could be

ready by the 1990s.35 Most U.S. supply projections

foresee steady or gradual growing Canadian gas

imports to the lower 48 during the next few decades,

and there is little doubt that Canada has the resources

to provide such imports-Canadian resources are

comparatively undeveloped, with recent National

Energy Board of Canada estimates of total recoverable resources at slightly above 400 TCF,36 with 100

TCF in proved reserves, but with total production

below 3 TCF/yr.

311bid.

szAs5umptions: Average Vehicle driven 10,000 miles/year, efficiency ~UiVd@ to 35 Iniks per gwon of J3m01ine.

33s~V~~ hw&~d ~d&tiO~ T~ Of g~ ~ av~~ble in tie unit~ Stites in tight s~ds, l)evo~ s~es, and CO~ sems. Commercial pKXhlCtiOIl

of these resources is possible with significant improvement in production technology, for example, with improved capability of fracturing tight (low

permeability) reservoirs. The potential for such improvements is high but uncertain. Research efforts are maintained by the Gas Research Institute, but

previous efforts by the Federal Government have been dropped or reduced, and current low prices are stifling private initiatives. The potential of

developing the United States’ unconventional resources is discussed in a previous OTA report, U.S. Natural Gas Availability: Gas Supply Through the

Year 2000, OZ4-E-245 (Washington DC: U.S. Government Printing Office, February 1985).

~~e pipe~e Capaciv efists t. sus~ a ~eoretic~ fIOW of over 1.8 TCF/yr if sales could be sustained at pew levels, but seaso~ c~nges ~ g~

demand prevents this. Source: Arthur Andersen & Co. and Cambridge Energy Research Associates, Natural Gas Trends, 1988 to 1989 Edition.

sjEnergy ~omation Aus@atio~ Annual Oudookfor OiZ and Gas 1989, DOE/EIA-0517 (89), June, 1989.

36Rqofied ~ J2ner~ Mode~g Fore, S@ord ufiversi~, North American Naruraz Gas Markets, EMF Report 9, VO1. 2, February 1989.
Chapter 4--Natural Gas as a Vehicle Fuel . 103

In the past, the magnitude of Canadian exports to

the United States was strongly constrained by the

Canadian Government. Although export policies

have been liberalized, future imports will still be

constrained by Canadian perception of the adequacy

of their resource base and their capacity to serve

growing domestic needs, as well as by the price

offered.

There also is little doubt that Mexico has the

physical resources to provide large quantities of

export gas for the U.S. market, but its recent energy

policies have focused on expanding domestic use of

gas and stressing oil development in its capital

spending plans. With a resource base of at least 200

TCF, reserves of 60 TCF, and annual production of

less than 1.0 TCF, Mexico could export substantial

quantities of gas, especially if it began to develop its

nonassociated resources.37 However, it is highly

uncertain whether it will do so without a substantial

rise in U.S. gas prices. Aside from the Mexican

Government’s desire to boost internal use of gas,

there is concern about public reaction to “cheap”

gas sales-that is, sales at price levels below the

$/Btu level of oil.

If imported LNG is the marginal supply source for

a gas-powered fleet, the national security advantages

of building a gas-fueled vehicle fleet probably will

resemble somewhat the security advantages of a

methanol fleet: probably still positive, but much less

clear than the advantages of domestic and North

American supplies. If a large worldwide gas trade

has placed the Middle East and Eastern Bloc into the

role of swing suppliers of LNG, the national security

advantage of a gasoline-to-natural-gas shift will be

reduced. However, because of the very large capital

requirements for both suppliers (liquefaction plants)

and buyers (expensive port and regasification facilities) in the LNG trade, LNG markets are more likely

than oil markets to be based on long-term contracts,

and the stability of the specific suppliers is likely to

be a more important factor in overall security

concerns in the LNG supply system than it is in the

oil supply system. According to the Department of

Energy, likely LNG suppliers for the United States

are Algeria, Norway, Nigeria, and Indonesia,38

which may be viewed as a group as reliable

suppliers. LNG shipments from these countries

earmarked for use as a transportation fuel thus may

provide to U.S. policymakers a welcome offset to oil

imports from the Persian Gulf.

LNG will have two major roadblocks to serving as

a supply source for gas-powered vehicles. First, for

imports greater than about 750 bcf/yr,39 new LNG

terminals would have to be built, and there is

substantial environmental opposition to such construction. Second, LNG is expensive. Liquefying the

gas costs between $1 and $3/mcf plus about 10

percent of the incoming gas stream (for energy and

losses) 40; transportation can add up to $1 or so per

mcf,41 and regasifying can add still more. All in all,

the delivered price of LNG to the United States

needs to be at least $2 or so per mcf plus the

wellhead price to make the operation profitable to

the exporting country.

REFUELING AND

INFRASTRUCTURE

Whatever their relative advantages or disadvantages in cost, performance, and emissions, the

outlook for any substantial shift to natural gas as a

vehicle fuel--especially for the general fleet-may

ultimately rest on consumer acceptance of a new and

different refueling system. For CNG vehicles used

only in low-mileage applications, refueling conceivably could occur at low compression systems that

would fill storage tanks overnight-in essence, the

fossil fuel equivalent of recharging the batteries of

an electric vehicle. Home systems currently are quite

expensive, however, costing upwards of $1,000.42

Providing “filling station"-type service may be a

more formidable barrier. Assuming dedicated CNG

qTNonmsociated gas resources are gas resources that are separate from oil resources and whose production generally is not tied to oil production.

sgEnerW ~ormation Administratio~ op. cit., footnote 35.

3%s is tie capaci~ of the United States’ four existing LNG t~, at Cove Point, MD; Elba Island, GA; Lake Charles, LA; and Evere~ ~

reported by the American Gas Association. Other sources (Arthur Anderseq the Energy Information Administration) report capacity at about 900 bcf/yr.

%.S. Department of Energy, Office of Policy, Planning, and Analysis, Assessment of Costs andBenejits ofFla”ble andAlternative Fuel Use in the

U.S. Transportation Sector. Technical Report Three: Methanol Production and Transportation Costs, DOE/PE-0093, November 1989.

dl~id. DoE es~ates ~~sw~ ~sts from Trini&d to san FranCiSCO at $().67/MCf, from B~~ to eimer 13altimOre Or sm FraIlciScO d lllOre ~

$1.oo/Mcf.

42DeLuc~ ~t~c, op. ~it, fw~ote 4. ~ent system coSt$2,~ ~d up (person~ cofiunicatio~ David Kulp, Ford MotOr CO.), but -s production

should lower costs.

21-541 - ~ - 5 : Q~ 3
104 . Replacing Gasoline: Alternative Fuels for Light-Duty Vehicles

Photo credit: Natural Gas Vehicle Coalition

Natural gas commuter vehicle being filled by

a home compressor.

vehicles, large numbers of such stations with rapid

fill capability will be needed to maintain a practical

system with large numbers of vehicles. Current rapid

fill systems, with gas stored at high pressures, allow

refilling times that are at least twice as long as

refilling gasoline tanks43--an inconvenience but

one that may be overcome by further equipment

development. A further problem, however, is that

the stations could share little else besides cashier and

maintenance facilities with the gasoline distribution

infrastructure. Otherwise they will need to be

constructed essentially from scratch, an important

hurdle in moving to a gas-based vehicle system. The

Department of Energy projects the cost for a

rapid-fill station designed to handle 300 vehicles/

day, with 8 minute fill time, peak capacity of 30

vehicles/hour, and four refilling stations, to be

$320,000 plus land acquisition costs.44 In the

scenario constructed by DOE, the capital cost of

sufficient public stations to displace 1 mmbd of

gasoline would be $7.6 billion.45

An additional $1 to $2 billion would be needed to

improve local gas distribution systems to accommodate the increased gas demand. DOE concluded that

no additional long-range transmission expenditures

would be required for the approximately 1.9 TCF/yr

required to displace 1 mmbd of gasoline.46

To our knowledge, there are no studies of

potential LNG distribution infrastructures similar to

the DOE CNG analysis. An LNG filling station can

be either purely a storage and dispensing facility,

with LNG delivered to the station by truck from

central liquefaction plants, or it can incorporate a

small onsite prefabricated liquefaction plant.47 Although there is some disagreement about whether or

not LNG dispensers can be as safe and easy to use as

gasoline pumps, firms marketing LNG dispensers

claim that their products are comparable to gasoline

pumps. 48 There is little reason to doubt that this type

of performance is attainable, though presumably

such dispensers would have to be maintained with

considerable rigor.

NATURAL GAS OUTLOOK

AND TIMING

A combination of factors will make natural gas a

more difficult fuel than methanol to move into the

automobile fleet. First, dual-fuel vehicles will not

perform quite as well as competing gasoline vehicles, so that the first generation of vehicle buyers

must be willing either to accept the limitations of

these vehicles or to accept the risks-and travel

limitations--of dedicated vehicles before an extensive infrastructure is built (Of course, operators of

vehicle fleets with certain characteristics, e.g., central refueling, limited mileage/day/vehicle, will have

an easier time accepting CNG vehicles). Second,

range limitations or, conversely, the need for very

bulky on-board fuel storage will continue to provide

an unattractive comparison with gasoline vehicle

characteristics. This is far more a problem with CNG

than with LNG, however; the latter’s range limitations are similar in scale to those of methanol. Third,

the vehicle manufacturers have done comparatively

little work on optimized light-duty natural gas

431bid.

~~.s. D~~at Of fiq, ASSeSS~nt of Costs and Benefits of Flas”ble and Alternative Fuel Use in the U.S. Transponation Sector. Technical

Report Five. Vehicle and Fuel Distn”butz”on Requirements (Draft), Ol%ce of Policy, Planning, and Analysis, January 1990.

~~e DOE ~e~o is not excl~ively one of light-duty vehicles and public filling stations. Two-tbirds of the Ofi displacement ti tie Smfio is

accomplished by light duty vehicles, one-third by heavyduty vehicles. The capital costs were adjusted to represent a displacement of 1 mmbd by

light-du~ vehicles only.

46u.s0 Dep~ent of Ene~, Technical Report Five, Op. cit., foo~ote 44.

ATSuch plmfi me offa~ by Cryogm Engin&@ Ltd. and Cryop~ cited in DeLuchi et al., op. cit., footnote 4.

41bid.
Chapter 4--Natural Gas as a Vehicle Fuel . 105

engines (though appreciable work is presently being

done on heavier duty engines), so that more time will

be needed to develop a market-ready engine capable

of competing with gasoline-fueled engines. And

fourth, although the infrastructure for long range

distribution of the fuel is in place, the infrastructure

for retail distribution will be more expensive than a

similar infrastructure for methanol fuels.

Despite these potential difficulties, natural gas is

an attractive fuel that deserves careful consideration

as an alternative to gasoline for the U.S. light-duty

fleet. It appears likely to be a cleaner fuel than

methanol, particularly so if M85 is the methanol fuel

alternative. Although domestic supplies are limited,

there is an excellent possibility that it can be

obtained from our North American neighbors, or

from quite secure sources as LNG (though building

ports to handle the LNG could be an important

hurdle) . . . in contrast to the possibility that a key

methanol source would be the Middle East. It offers

none of the toxicity and few of the explosion hazards

of methanol (or gasoline),49 and does not appear to

offer a substantial engineering challenge to engine

designers. And its short-term economics look good,

though it is unlikely that gas prices from the likely

sources could be uncoupled from oil prices the way

methanol prices theoretically could be—if the methanol came from remote gas sources.

Given these characteristics, it seems likely that an

effort to move natural gas into the light-duty fleet

would lag behind a similar effort for methanol a few

years, but could begin to play a significant role—

especially in niche applications-well in advance of

the other alternatives (aside from reformulated

gasoline).

@AI~ou@ fidoor refueling could pose some hazards.
Chapter 5

Ethanol as a Gasoline Blending Agent or

Neat Fuel in Highway Vehicles

Although methanol generally is acknowledged as

the least expensive of the alcohol fuels, ethanol

(ethyl alcohol) has gained support because of its

potential contribution to the U.S. agricultural economy. Proponents of ethanol usage either as a

blending agent or a neat fuel argue that its expanded

use as an automotive fuel will displace imported oil,

aid the farm economy by creating a stable new

market for its agricultural feedstocks, and improve

air quality by reducing emissions from vehicles

using it. Ethanol’s close tie to the U.S. agricultural

system separates it from the other potential alternative fuels.

As shown in figure 5-1, in making ethanol, the

distiller produces a sugar solution from the feedstock (in the United States, usually corn, sometimes

sugar crops), ferments the sugar to ethanol, and then

separates the ethanol from the water through distillation. In distillation, the water-ethanol solution is

boiled and the vapors pass through a column causing

numerous evaporation-condensation cycles, each

one of which further concentrates the ethanol.

Currently, nearly a billion gallons of ethanol per

year are added to U.S. gasoline stocks to create

‘‘gasohol, ’ a 90 percent gasoline/10 percent ethanol

blend. The U.S. Government and about a third of the

States subsidize ethanol use by partly exempting

gasohol from gasoline taxes. The subsidy is critical

to ethanol economics. For example, the exemption

from the Federal tax alone yields a subsidy of

$0.60/gallon of ethanol (at the pump, the tax

exemption for gasohol is $0.06/gallon, and 1 gallon

of ethanol is contained in 10 gallons of gasohol).

Each additional penny of State tax exemption for

gasohol is worth an additional $0.10/gallon subsidy

to ethanol.

EFFECTS ON AIR QUALITY

In looking to ethanol use as an aid to reducing

automotive air pollution, the sought-after benefits

are quite different for blends and neat ethanol use.

The addition of small quantities of ethanol to

gasoline-as in gasohol—is viewed primarily as a

means to reduce carbon monoxide emissions; use of

neat ethanol is viewed primarily as a means to

Figure 5-l—Process Diagram for the Production of

Fuel Ethanol From Grain

Grain Optional

- - — 7

-[ Germ I

‘ i

- J

Grind ~_. – T —T

I Press cake ! Oil I

Enzyme

t

L ———— J_ –J

production

I Convert to

> sugar

Ferment

Distill to Dried distillers

950/o ethanol Evaporate grain

i

Y

Distill to

dry ethanol

I

Storage I

SOURCE: Office of Technology Assessment, 1980.

reduce concentrations of urban ozone, by reducing

the reactivity of the organic component of vehicle

emissions.

The use of ethanol blends has been demonstrated

to reduce levels of carbon monoxide emissions from

existing automobiles. This effect originates from the

alcohol’s causing engines to effectively run more

“lean,” that is, the air/fuel mixture will contain

more oxygen (because the ethanol itself contains

oxygen), and the availability of the oxygen assists in

the combustion of CO to C02

. It had, until recently,

generally been thought that the extent of CO

reduction would differ according to the vehicle’s

ability to adjust to changes in air/fuel oxygen

content: for older vehicles that do not adjust at all,

the effect was known to be large; for the most

modern vehicles with systems that automatically

compensate for changing air/fuel ratios, the effect

was assumed to be small. Recent tests of vehicles

–l07–
108 ● Replacing Gasoline: Alternative Fuels for Light-Duty Vehicles

with so-called “adaptive learning” have cast doubt

on this assumption, however. The Environmental

Protection Agency (EPA) now considers vehicles

with adaptive learning to be likely to obtain average

CO benefits from the use of ethanol and other

oxygenated fuels “similar in magnitude to the

benefits of closed-loop vehicles in general.”l The

greatest benefits occur during cold start operation,

when vehicles produce the major part of total trip CO

emissions, but some benefit continues even after

warmup. 2 If these conclusions hold up, the use of

ethanol and other oxygenates in gasoline blends will

continue to be an effective strategy for CO reduction

even after the fleet consists primarily of vehicles

with modern pollution controls.

The effect of ethanol blends on ozone production

has been a controversial issue. Ethanol/gasoline

blends have higher volatility than the original

gasoline, yielding an increase in net evaporative

emissions of VOCs. Without counterbalancing changes,

this increase would lead to aggravation of urban

ozone problems. In fact, there has been substantial

debate about requiring gasoline volatility to be

adjusted downwards to compensate for the volatility

increase caused by addition of the ethanol. Previous

studies have concluded that use of ethanol blends

without a restriction on resulting fuel volatility

would likely yield an overall increase in ozone

concentrations.3

It now appears that volatility adjustment is not

necessary to prevent an increase in ozone formation

from ethanol blend use. Carbon monoxide also plays

a role in ozone formation, and the reduced carbon

monoxide emissions associated with ethanol blend

use will tend to reduce ozone formation. In addition,

the incremental evaporative emissions will be somewhat less reactive than evaporative emissions from

straight gasoline. Although the net effect of these

changes will vary with gasoline composition, atmospheric conditions, and vehicle emission control

equipment, recent government studies indicate that

future use of ethanol blends, assuming modern

vehicles, low volatility gasoline, and no volatility

corrections made for blending, will have negligible

impact on urban ozone levels.4

The net effect of using ethanol blends on the full

range of emissions is not as clear. For one thing, the

leaning effect, aside from reducing CO, will increase

engine-out emissions of NOX

.

The use of neat ethanol in light-duty vehicles

should have air quality effects similar to but milder

than those associated with methanol use; ethanol is

somewhat between methanol and gasoline in its

physical characteristics, for example, ethanol’s stoichiometric air/fuel ratio is about 9:1 compared to

methanol’s 6.4: 1 and gasoline’s 14.5:1. In general,

reactive hydrocarbon emissions should go down

substantially, but the effect on ozone may be

countered somewhat by higher emission levels of

acetaldehydes, and development of more effective

aldehyde controls will be a crucial factor in ethanol’s

overall air quality benefits. Assuming use of threeway catalysts with stoichiometric air/fuel ratios,

emissions of carbon monoxide should be at levels

similar to those of gasoline engines, and NOX

emissions may also be about the same.

COST COMPETITIVENESS

Few ethanol proponents have tried to argue that

the consumer costs of ethanol, without government

subsidies, could be competitive with gasoline. Recent work by the Department of Agriculture has

shown that, assuming the range of corn and byproduct prices that has occurred during the past decade,

the full cost of ethanol production from a new plant5

ranges from $0.85 to $1.50/gallon,6 compared to

wholesale gasoline prices of about $0.55/gallon,

with gasoline energy content nearly 50 percent

greater than an equal volume of ethanol.

IC.A. H~ey, Tec~c~ SUppOrt Staff, Emission Control Technology Divisio~ U.S. Environmental Protection Agency, draft memorandum to C.L.

Gray, Director, Emission Control Technology Divisio~ USEPA, September 1989.

%id.

sNatioti Advisory panel on the Cost-Effectiveness of Fuel Ethanol Production Fuel Ethanol Cost-1.?’activeness Study, FJowrnber 1987; ~SO, M.R.

Segal et al., AnaZysis of Possible Effects of HR. 2052, Legislation Mandating Use ofEthanol in Gasoline, Congressional Research Service report 87-819

SPR, Oct. 13, 1987.

4R. Scheffe, Five Cio UAM ~tudy summary Report, U.S. Environmental Protection Agency (Research Triangle Pmk NC, in Press).

sFor moderate ficr@ses ~ e~ol production capaci~, e~nol p~ts could be add~ to efisting wet dls at a substantial SaV@ h Cilpikd COSt.

However, any realistic large-scale use of ethanol, especially as a neat fuel, would require construction of new plants on a stand-alone basis.

6S.M+ fine and J.M. Refry, Econo~”cs ofEthano/Production in the Unitedstates, A@C~tur~&OnOr& Report No. 607, united States Department

of Agriculture, March 1989.
Chapter 5--Ethanol as a Gasoline Blending Agent or Neat Fuel in Highway Vehicles ● 109

In directly comparing ethanol production costs to

gasoline costs, the price of the corn feedstock is the

most volatile component. The net cost of the corn in

ethanol (full cost minus byproduct sales) ranged

from 10 cents to over 70 cents per gallon of ethanol

produced from 1980 to the present.7 Other costs will

vary depending on the technology selected, scale,

and whether or not the plant is added to an existing

corn milling operation or built as a new stand-alone

plant.

Although there are several wet milling plants of

sufficient scale to allow new, cost-competitive

ethanol plants to be added, any large-scale expansion of ethanol production will require building new

stand-alone plants. The Department of Agriculture

study estimates that capital charges for a new plant

would be $0.38 to $0.48/gallon of ethanol produced, 8 that is, the total production cost of each

gallon of ethanol includes $0.38 to $0.48 allocated

to plant capital payback.

Given these pessimistic comparisons of the direct

costs of ethanol and gasoline, the economic argument for ethanol has centered around the positive

economic impact its widespread use would have on

the American farm economy, and the large savings

that would accrue to the U.S. treasury because of

reductions in farm support payments. These benefits

are claimed to justify extension of the current

Federal subsidy ($0.60/gallon) granted to ethanol

use in gasohol, and the possible expansion of this

subsidy to neat ethanol use in vehicles.

The true long-term costs to the U.S. economy of

ethanol production and use are difficult to calculate.

One reason is that different interest groups disagree

about how to calculate these costs, or even whether

to classify certain items as costs at all; another is that

several of the cost components depend on the state

of agricultural markets, which can change radically

over time. For example, large-scale ethanol production is widely expected to increase the price of corn,

the most likely ethanol feedstock, and possibly other

crops and grain-fed livestock9 as well. Agricultural

interest groups consider this a positive benefit of

ethanol production, since it will raise farm income;

consumer interest groups consider higher food costs

a net cost of ethanol production. Furthermore, the net

change in food prices will depend on overall demand

for agricultural products. If the agricultural economy

is generally depressed, the price elasticity of corn

supply will be high and the net cost to consumers of

ethanol production will be low; if agriculture is

booming, the opposite will be true.

OTA has twice examined the net costs of largescale ethanol production and use, most recently in

1986.10 The studies concluded the following:

1. The size of the byproduct market. The costs of

ethanol production are highly dependent on

the markets for the byproduct of ethanol

distillation, corn stillage. The stillage is a high

protein substitute for soybean meal as livestock feed; when the stillage can be sold as a

protein substitute, net feedstock costs go down

substantially. If markets for the stillage as a

protein supplement became saturated, the stillage would have much lower value and might

even represent a cost (for disposal). Under

these circumstances, the net costs of ethanol

production from corn would change markedly

for the worse. Thus, the actual size of the

byproduct market and the potential for increasing it are important issues to the ethanol

debate. OTA concluded that the byproduct

market could saturate when ethanol production

reached a few billion gallons per year. At

production levels beyond this point, net ethanol production costs would become substantially higher than even the high ($0.85 to

$1.50/gallon) costs noted above. However,

development of overseas markets for the

byproduct could substantially increase the

level of production that could be attained

without saturating the market; the state of

international trade and foreign requirements

for high protein feeds add an important uncertainty to ethanol cost calculations.

-id.

81bid.

% is possible, however, that livestock prices may go do~ if the increased availability of distiller’s grains drives down the price of this feed.

IOOffice of Tec~oloW Assessmen~ ~ 4SW Memorand~ on tie Eff~ts of Replac~g had Wi& AI’omatic VerSUS Alcohol Wtilrle ~IICeI’S h

Gasoline,” Jan. 6, 1986; and earlier, Office of Technology Assessmen~ Energy From Biological Processes (Washington D.C.: National Technical

Information Service, July 1980). The more recent study examined the use of ethanol in blends only, whereas the earlier study exa.mined the full range

of potential ethanol uses.
110 . Replacing Gasoline: Alternative Fuels for Light-Duty Vehicles

2. Effects of different ‘‘states of the farm economy." For the type of farm economy of the late

1970s, e.g., expanding demand, high land

rents, etc., and with conservative (low) estimates of the magnitude of the byproduct

market, OTA calculated that with ethanol

production rates as low as 2 to 4 billion gallons

per year, further production could yield a

negative balance of oil and gas (that is, we

would use more energy from oil and gas to

produce the ethanol than the oil energy we

would save when the ethanol replaced gasoline) and a cost to consumers, in terms of

higher food prices, of $4 to $5 per additional

gallon of ethanol produced.11 On the other

hand, for markets more typical of recent

conditions, with a larger byproduct market and

lower agricultural demand, an ethanol production rate of 4 billion gallons per year could

yield a cost to consumers (in higher food

prices) of about $0.45 to $0.75 per additional

gallon produced and a net gain in oil and gas.

Ethanol is promoted as a means of raising

farm income. However, this is also the goal of

current farm programs. Although the costs of

both ethanol subsidies and conventional farm

support programs will fluctuate considerably

from year to year, OTA’s earlier analysis

concluded that the cost of government subsidies needed to sustain a large-scale ethanol

industry would most likely be higher than the

cost per year of achieving the same (farm

income) results with applicable parts of current

farm programs. Other studies have concluded

the opposite. For example, the General Accounting Office’s (GAO) econometric study

for the House Energy and Commerce Committee concluded that likely net revenues to the

Treasury from a moderate scale ethanol program would be positive.12 However, the GAO

study did not attempt to calculate potential

increases in ethanol prices, and states that

‘‘efforts to stimulate a large-scale (our emphasis) expansion could raise ethanol feedstock

production costs to a point that ethanol could

not compete with other fuels. ’ ’13

The Congressional Research Source, (CRS)

in a parallel analysis of ethanol blends,14 also

arrived at conclusions more optimistic than

OTA’s. This result occurs in part because CRS

believed that byproduct markets would not

saturate, or that such saturation could be

prevented. The analysis implies that a government subsidy to replace half of all gasoline

with gasohol would raise consumer food prices

by $6.6 billion/year, decrease farm subsidies

by $3 to $7 billion/year, and require additional

ethanol subsidies of about $1 to $3 billion/

year.

15 These results imply a ‘‘net cost" to the

consumer

16 of $0.6 to $6.6 billion/year, or a

subsidy of about $0.12 to $1.30 for each gallon

of gasoline replaced with ethanol. Other economic effects include an increase in farm

income of about $1 billion/year, a decrease in

oil imports of $1.1 to $2.4 billion/year (at 1987

oil prices), and a decrease in grain exports of

about $500 million.17

In any event, OTA is skeptical of the ability

of available econometric models—including

the ones used by GAO and CRS—to properly

account for the extensive crop switching that

would likely occur in a large expansion of corn

acreage for methanol production (e.g., a likely

switch from sorghum to corn in Nebraska, and

increased sorghum acreage in Texas), for

changes in farm energy consumption with

overall expansion of planted acreage, and

other complex factors.

lloffice of Technology Assessment, Energy From Biological Processes, op. cit., footnote 4; and office of Technology Assessmen4 Staff

Memorand~ 1986, op. cit., footnote 4. About 40 percent of the increased pnces—$1.60 to $2.00/gallon of ethanol-would go to farmers, based on

historical relationships.

IZJ. England.Josepk U.S. General Accounting Office, “Perspectives on Potential Agricultural and Budgetary Impacts from an Increased Use of

Ethanol Fuels,” testimony before the Committee on Ways and Means, U.S. House of Representatives, Feb. 1, 1990.

131bid.

IAAlthoughthe CRS repo~ex~ed tie eff=k of agovement requirement for e~ol use, the a~ysis can be appli~ to a direct subsidy of ethanol

production.

150TA es-ted ~~ rqufi~ subsidy using me cRs ~c~ation of additional production COStS associat~ with producing gasohol, and ZWMIdIl g that

the Federal subsidy would equalize gasoline and gasohol production costs.

lbAdding changes in consumer prices to changes in Federal expentihues, fisuming that consumers will eventually absorb the expenditure changes

in their tax payments.

ITSeg~ et al., op. cit,, footnote 3.
Chapter 5--Ethanol as a Gasoline Blending Agent or Neat Fuel in Highway Vehicles ● 111

In most cases, corn is the least expensive agricultural feedstock for ethanol production, especially

when the byproduct of the production process can be

sold. Wood and plant wastes are less expensive

inputs to the ethanol plant, but the costs of available

ethanol conversion processes for these materials are

higher, so that the net total cost of ethanol made from

wood and plant wastes is more expensive than

ethanol made from corn. Future improvements in

these conversion technologies could alter these

conclusions, however; the Solar Energy Research

Institute (SERI) currently is actively working towards improving wood-to-ethanol processes, and

they believe that achievement of economic competitiveness at $20/barrel oil-or ethanol costs below

$1.00/gallon-may be obtained by the year 2000

(The Tennessee Valley Authority, New York State

Energy Research and Development Authority, and

others are also pursuing this technology). A wood-toethanol process achieving this cost goal would need

to be capable of converting a very high percentage

of the feedstock to ethanol and other energy products

(primarily methyl aryl ethers, or MAE, high-octane

compounds that can be used as blending agents with

gasoline) at low temperature and pressure--most

likely involving enzymatic hydrolysis processes

combining simultaneous hydrolysis and fermentation, xylose fermentation (30 to 60 percent of the

sugars in wood are xylose), and lignin conversion.18

Important barriers remain to pulling output as high

as necessary and reducing costs sharply, including

problems such as ethanol inhibition of the hydrolysis

enzymes, prevention of enzyme degradation and

denaturation at higher temperatures, sterility and

contamination risks of enzyme recycling, and so

forth, as well as the overall problem of optimizing

the many process steps. Although we agree with

SERI that this work is worth pursuing-especially

because of the greenhouse benefits to be gained by

commercial success—we find it difficult to share

their strong optimism about the timing and eventual

outcome of the work.

Another potential means of reducing ethanol costs

is to substitute alternative separation technologies—

e.g., membrane filtration--for distillation in the

production process. Use of these technologies would

also reduce energy use in the production process and

reduce ethanol’s net fuel cycle emissions of greenhouse gases. OTA has not evaluated these technoloTable 5-l—Environmental Impacts of Agriculture

Water

Water use (irrigated only) that can conflict with other uses or

cause ground water mining.

Leaching of salts and nutrients into surface and ground waters,

(and runoff into surface waters) which can cause pollution of

drinking water supplies for animals and humans, excessive

algae growth in streams and ponds, damage to aquatic

habitats, and odors.

Flow of sediments into surface waters, causing increased

turbidity, obstruction of streams, filling of reservoirs, destruction

of aquatic habitat, increase of flood potential.

Flow of pesticides into surface and ground waters, potential

buildup in food chain causing both aquatic and terrestrial

effects such as thinning of egg shells of birds.

Thermal pollution of streams caused by land clearing on stream

banks, loss of shade, and thus greater solar heating.

Air

. Dust from decreased cover on land, operation of heavy farm

machinery.

● Pesticides from aerial spraying or as a component of dust.

. Changed pollen count, human health effects.

● Exhaust emissions from farm machinery.

Land

● Erosion and loss of topsoil decreased cover, plowing, increased

water flow because of lower retention; degrading of productivity.

● Displacement of alternative land uses-wilderness, wildlife,

esthetics, etc.

● Change in water retention capabilities of land, increased

flooding potential.

● Buildup of pesticide residues in soil, potential damage to soil

microbial populations.

. Increase in soil salinity (especially from irrigated agriculture),

degrading of soil productivity.

. Depletion of nutrients and organic matter from soil.

Other

● Promotion of plant diseases by monoculture cropping practices.

● Occupational health and safety problems associated with

operation of heavy machinery, close contact with pesticide

residues, and involvement in spraying operations.

SOURCE: Office of Technology Assessment, 1980.

gies, but they

for this use.

ENERGY

are not now commercially available

AND ENVIRONMENTAL

EFFECTS

Ethanol production’s energy balance and environmental effects depend primarily on the expansion of

corn production and the markets for ethanol production byproducts. Increased corn production will take

place on land that is more environmentally sensitive

and energy intensive than average cornland--or it

will displace other crops onto such land. Table 5-1

lists the environmental impacts of agriculture, many

of which could be particularly important if ethanol

IBJ.D. Wrighq “Etinol From Biomass by Enzymatic Hycbolysis, ” Chemical Engineering Progress, August 1988, pp. 62-74.
112 . Replacing Gasoline: Alternative Fuels for Light-Duty Vehicles

production is large enough to add significant amounts

of marginal land into intensive crop production.

The expansion of crop production onto new lands

will occur slowly as long as there is a market for the

corn stillage byproduct of ethanol distillation. Since

the stillage is a substitute for soybean meal, when the

stillage can be sold as a protein substitute, the energy

use and other negative environmental effects (erosion, pesticide and fertilizer use, etc.) of extra corn

production for ethanol are somewhat balanced by the

reduction in soybean cropping. For example, an

average of about 0.8 acres of soybeans are replaced

by the stillage associated with 1 acre of corn, so the

net effects on land use maybe only 20 percent of the

increased corn acreage. Similarly, the net increase in

farming energy use (corn use minus soybean savings) is about 30 to 40 percent of the energy content

of the resultant ethanol, compared to an increased

farming energy use of 160 percent or more of the

energy content of the resultant ethanol (leading to a

net energy loss) if there is no displacement of

soybean production.

The costs and energy savings of ethanol use are

also dependent on the energy savings associated

with ethanol’s ability to boost the octane level of

gasoline. Some refineries are able to use these

properties of ethanol to reduce their energy needs

slightly. Today’s refiners have made the necessary

investments to produce current high octane gasolines in a manner that is well integrated into their

overall operation. 19 Because addition of ethanol

generally was not factored into their investments, the

opportunities for obtaining energy savings by adding ethanol are limited today. As a result, the

marginal energy savings from each additional percent of ethanol addition drops rapidly after the first

percent or two. However, this conclusion may not

hold if refiners are forced to respond to requirements

to change gasoline makeup to reduce emissions,

adding new capital equipment and changing operating practices. Given the uncertainty associated with

the probable makeup of so-called “reformulated

gasolines” (see ch. 8), ethanol’s possible role, and

energy savings associated with that role, are difficult

to predict but worthy of reexamination as knowledge

about appropriate gasoline changes finally emerge

from ongoing research programs.

Ethanol use has also been promoted as a means of

reducing the C02 emissions associated with gasoline

usage. Achieving a net reduction in CO2 will be

difficult, however, because the sum of the increase

in farming energy (as noted above, 30 to 40 percent

of the energy in ethanol in the best case) and

distillery energy (assuming current technology)

would require about the same amount of fossil fuels

as found in the ethanol itself. Fuel cycle fossil fuel

use could be reduced if renewable were used to

power the distillery, substantial energy savings were

achieved by commercializing membrane filtration or

other alternative separation technologies to replace

distillation, or larger-than-expected efficiency gains

were achieved in ethanol use. On the other hand,

saturation of byproduct markets would increase

ethanol fuel cycle net energy use, with a net increase

in CO2 emissions, because the energy savings

associated with the byproduct’s substitution for

soybeans will be lost.

The CO2 issue has become quite controversial

because of the strong claims of ethanol proponents

and recent analyses which support the position that

ethanol use produces less net CO2 than gasoline.

Marland and Turhollow,20 for example, calculate net

C02 emissions from the ethanol fuel cycle at about

37 percent of gasoline emissions-implying a major

greenhouse benefit. However, Marland and ‘Ihrhol10W’S assessment uses a series of assumptions which

raise serious concerns for a large ethanol production

program:

1. The feedstock corn is grown on an average

acre producing 119 bushels. Yield projections

for additional corn crops are a critical source of

uncertainty for both energy use and economic

projections. For one thing, the land used will

not be ‘average’ land, it will be inferior to the

average. For a large ethanol program, corn

production will either move to marginal acreage or displace other production onto marginal

acreage. The net result is that the farming

energy that should be assigned to ethanol

production is considerably larger than the

‘‘average’ energy used here. The frost two

additional billion gallons of ethanol can be

produced using set-aside land—land which,

although cropped in past years, generally

190TA Stti Memormd~ op. cit., footnote 10.

~Go -land ~d A. ~hollow, f ‘C02 Emi~~iOm from production ~d Combustion of Fuel E~nol from Cor%’ Migdon Segd, Ethanol Fuel atld

Global Warming, Congressional Research Service report 89-164 SPR, Mar. 6, 1989.
Chapter 5--Ethanol as a Gasoline Blending Agent or Neat Fuel in Highway Vehicles . 113

represents each farmers’ least-productive, most

energy-intensive land. If production moves to

more marginal lands, energy use and environmental damages will increase further.

Tending to counteract these adverse land

quality effects, future crops may produce

greater yields through better plant breeding or

genetic engineering; also, high fertilizer and

pesticide prices and a growing awareness of

environmental problems caused by overuse of

agricultural chemicals may well lead to lower

overall use and, probably more efficient use of

these chemicals in the future. Finally, farmers

may try to substitute varieties of corn with

greater starch yields, to maximize ethanol

yield per acre. Higher starch yields would

likely trade off with lower protein byproduct

yields, so the use of this strategy would depend

on the state of the byproduct market.

While it is unlikely that average incremental

yields from a greatly expanded corn crop

would be as high as the national 10 year

average used in this analysis, we recognize that

the estimate can be, at best, an educated guess,

and there are factors pushing these yields in

both directions from the average.

As a final note, Marland and Turhollow’s

use of the 119 bushels/acre yield has been

criticized as representing only “successful”

acreage and ignoring planted acreage that was

not harvested.21 The 119 bushels/acre estimate

appears to be essentially correct, however.

Although there is a substantial difference

between reported plant acreage and harvested

acreage, the difference is primarily accounted

for by land planted for corn sileage (that is, for

the carbohydrate value of the plant material

rather than the protein value of the grain). This

land is counted in the estimate for planted corn

acreage but left out of the estimate for harvested corn acreage.

2. The “byproduct credit” to be subtracted from

the total energy use and C02 production is

proportional to the market value of the ethanol

and byproduct. This results in subtracting

nearly 50 percent from the total CO2 production, which is much too high. The energy

required to produce enough soybeans to replace the distillery byproducts is about 8,000

Btu/gallon of ethanol, or one-fifth the amount

subtracted.

3. All of the distillery byproducts will be consumed in their highest use. With the production of billions of gallons of ethanol, there is a

real possibility of saturating the byproduct

market. If this occurs, the byproduct credit

cannot be taken.

Ethanol distribution and use should be safer than

gasoline distribution and use. In a spill, ethanol in

high initial concentrations will be quite toxic to

marine life, but ethanol is highly soluble and will

disperse rapidly, it is readily biodegradable, and it

will evaporate quickly if spilled on land.22 Also,

centcontamination of “ drinking water supplies is less

troublesome than for gasoline or methanol because

ethanol is less toxic to humans in equal concentrations and has a recognizable taste (methanol does

not, although fuel methanol would likely contain a

taste additive for safety) .23 Ethanol has fire safety

implications similar to those of methanol: compared

to gasoline, it has lower volatility, higher flammability limit, lower vapor density, lower heat of combustion, and higher heat of vaporization, which means

an ethanol spill is less likely than gasoline to ignite

and, if it ignites, will burn more slowly and less

violently than a gasoline fire.24 And along with

methanol, special protection must be taken to

prevent fuel ignition inside storage tanks, and

additives will be necessary to impart flame visibility.25

The greenhouse balance of ethanol use would

likely be improved substantially, and the environmental impacts reduced, if processes for producing

ethanol from wood and wood waste were perfected

and costs substantially reduced. The overall greenhouse and environmental balance would depend

importantly on the energy balance of the wood

21s.P. HO, &OcO Ofl CO., c<GIOb~ w-g Impact of Ethanol versus Gasoline,” 1989 National Conference on Clean Air Issues and Amrica’s

Motor Fuel Business, Oct. 3-5, 1989, Washington D.C.

22U.S. ~viro~en~ protection Agency, A~lysis of the Economic andEnvironmentalE fleets ofEthanolas a MotorFuel, SpeCti report (dr@, Nov.

15, 1989.

%id.

~Ibid.

‘Ibid.
114 . Replacing Gasoline: Alternative Fuels for Light-Duty Vehicles

production system (minimum use of agricultural

chemicals, harvesting integrated into wood production for other uses), the sustainability of the system

(intensive harvesting of wood wastes can deplete

soils of critical minerals), and the avoidance of forest

management problems that have plagued U.S. forestry in the past. Table 5-2 lists key impacts of

logging and forestry that must be avoided or

mitigated if wood-to-ethanol (or methanol) systems

are to be environmentally sound. Systems based on

producing wood as a crop, e.g., coppicing fastgrowing species that will regenerate from stumps,

resemble agriculture more than forestry and will

need to deal with agricultural impacts.

DEMAND LIMITS

Ethanol production is theoretically limited by the

rate at which grain, sugar, and cellulosic feedstocks

can be supplied on a continuing basis, or up to

several tens of billions of gallons per year. In

principle, there is no limit to ethanol demand up to

total oil demand, as long as ethanol is used as a direct

substitute for gasoline or other oil products. However, market demand for ethanol as a blending agent

will likely be quite small without government

intervention.26 Ethanol must compete with methanol, methyl tertiary butyl ether (MTBE), and other

products for the oxygenate blend market. It must

compete with refinery isomerization, polymerization, alkylation, and reforming as a means of

boosting gasoline octane. In addition, the total

oxygenate content of gasoline in the United States

currently is limited by EPA regulations and by the

fuel capabilities of current automobiles. In the

longer term, ethanol also must compete with various

other synthetic fuels and with advanced procedures

for increasing octane.

ETHANOL OUTLOOK AND

TIMING

Ethanol is, in several ways, an attractive automobile fuel. It is likely to provide important emissions

benefits over gasoline, though the benefits of neat

ethanol, or ethanol blended with small amounts of

gasoline, must be considered uncertain because of a

lack of experience with vehicles equipped with

U.S.-type emission controls. It is basically a safer

fuel than gasoline to distribute and use, it has a

Table 5-2—Potential Environmental Effects of

Logging and Forestry

Water

● Increased flow of sediments into surfaoe waters from logging

erosion(especially from roads and skid trails.

. Clogging of streams from logging residue.

● Leaching of nutrients into surface and ground waters.

. Potential improvement of water quality and more even flow from

forestation of depleted or mined lands.

. Herbicide/pesticide pollution from runoff and aerial application

(from a small percentage of forested acreage).

● Warming of streams from loss of shading when vegetation

adjacent to streams is removed.

Air

● Fugitive dust, primarily from roads and skid trails.

● Emissions from harvesting and transport equipment.

● Effects on atmospheric C02 concentrations, especially if

forested land is permanently converted to cropland or other

(lower biomass) use or vice-versa.

● Air pollution from prescribed burning.

Land

●

●

b

●

●

●

●

●

●

Compaction of soils from roads and heavy equipment (leading

to following two impacts).

Surface erosion of forest soils from roads, skid trails, other

disturbances.

Loss of some long-term water storage capacity of forest,

increased flooding potential (or increased water availability

downstream) until revegetations occurs.

Changes in fire hazard, especially from debris.

Possible loss of forest to alternative use or to regenerative

failure.

Possible reduction in soil quality/nutrient and organic level from

short rotations and/or residue removal (inadequately understood).

Positive effects of reforestation-reduced erosion, increase in

water retention, rehabilitation of strip-mined land, drastically

improved esthetic quality, etc.

Slumps and landslides from loss of root support or improper

road design.

Temporary degrading of esthetic quality.

Ecological

● Changes in wildlife from transient effect of cutting and changes

in forest type.

. Temporary degradation of aquatic ecosystems.

● Change in forest type or improved forest from stand conversion.

SOURCE: Office of Technology Assessment, 1980.

convenient liquid form, and its volumetric energy

content is higher than the other leading alternative

fuel contenders, minimizing range problems.

The major roadblock to its introduction and use as

a major transportation fuel is fuel supply. Ethanol is

most cheaply produced from corn, and the energy,

environmental, and economic effects of a substantial

increase in ethanol use in the automotive fleet will

be highly dependent on the state of the agricultural

economy at the time and on the con.figuration of the

production system created to provide the ethanol.

26At me he ~~ ~epo~ ~m be~g ~repm~, cle~ fi ~t propos~s conce~g be req~ed oxygen content of g~olines being considered by the

Congress would, if approved, have the effect of stimulating ethanol use.
Chapter 5-Ethanol as a Gasoline Blending Agent or Neat Fuel in Highway Vehicles ● 115

Some studies have suggested that the U.S. treasury,

at least, would benefit from increased ethanol

production with the current $0.60/gallon subsidy

because of more-than-balancing reductions in farm

subsidies. OTA considers these results to be highly

uncertain, and we believe it is more likely that the

subsidy would outweigh the reduced farm supports

in the long run-especially if production were to

grow quite large. Also, because the demand for

agricultural products can shift directions quite rapidly (particularly because of the volatility of export

markets) whereas an ethanol infrastructure cannot, a

subsidy of ethanol production may prove to be a

cumbersome tool for agricultural policy. And a

strategy to increase ethanol use must recognize the

possibility that an ethanol production system, unless

specifically designed to minimize the use of oil plus

natural gas, may save little of these fuels when all

portions of the production system are accounted for.

Finally, policymakers must be aware that much of

the potential benefit to the farm economy from

ethanol production will arise from higher food

prices, and consumers will count this benefit as a

cost.

These policy concerns,

high direct costs, imply

coupled with ethanol’s

that prospects are not

favorable for substantial increases in ethanol use in

transportation relying on the current ethanol production system. Short-term improvements in the

current system-commercializing membrane separation for distillation, for example, assuming costs

can be reduced--could enhance ethanol’s costs and

energy balance somewhat, but seem unlikely to

provide the boost necessary for a major production

increase. For the long-term-beyond the year 2000--

ethanol may have better prospects given the potential for relatively inexpensive production from wood

and wastes. The enzymatic hydrolysis processes

needed are being actively pursued by the Solar

Energy Research Institute and others, and important

advances have been achieved, but the outcome of

current research must be considered uncertain.
Chapter 6

Electric Vehicles

Electric vehicles, or EVs, are an exciting concept

to policymakers because they combine excellent

urban pollution benefits-the vehicles emit virtually

no air pollutants, and the power generation facilities

that “fuel” them, while contributing to problems

associated with long-range pollution transport,l

often play only a minor role in urban air quality—

with an existing energy delivery infrastructure

(except for charging stations) and a capacity to use

a variety of domestic energy resources. Assuming

that vehicles would be recharged at night, when

electricity demand from most other uses2 is low,

existing electricity capacity could support a very

large fleet. Studies done a decade ago found that a

fleet of several tens of millions of vehicles could

easily be supported by the existing capacity without

the use of peaking units.3 This conclusion almost

certainly still holds. Also, EVs offer the potential to

reduce greenhouse emissions, particularly if the

generating capacity used to recharge the fleet is

nuclear or renewable-powered. For the next few

decades, with the slowdown in nuclear capacity

additions, the current baseload use of existing

nuclear plants,4 the limitations on new sites for

hydroelectric power facilities, and the lack of

availability of cost-competitive solar electric technology, the greenhouse potential is limited. Moderate improvements will be possible, however, if

efficient new powerplants fueled with natural gas

can become important sources of EV recharging

energy.

VEHICLE CHARACTERISTICS

Although EVs can operate successfully today in

certain restricted uses, it is safe to say that large

fleets of such vehicles will remain only a tantalizing

possibility unless there are either substantial improvements in battery technology, major changes in

consumer preferences, or a willingness on the part of

the Federal Government to intervene firmly in the

transportation market. With available battery technology, EVs will have limited range, performance,

and cargo- and passenger-carrying capacity, high

first costs (batteries included), and high operating

costs, because of low energy and power densities

and limited battery lifetimes (which create the need

for expensive battery replacements). Also, performance and range will be degraded during cold

weather, because of the loss of battery performance

as well as the need to heat the passenger compartment. Similarly, air-conditioning requirements during hot weather will degrade performance and range.

Even with today’s limited-capability batteries,

however, adequately performing vehicles can be

designed for certain urban niche markets. For these

markets, various performance characteristics can be

traded off+. g., higher accelerations and top speeds

can be obtained at the expense of range and/or

carrying capacity, or vice versa.

Unlike combustion engines, electric motors will

not continue running when the vehicle is stopped,

conserving energy in stop-and-go urban traffic.5

Consequently, electric propulsion can be effective

for urban delivery vehicles that travel less than 100

miles per day under heavy traffic. Several hundred

English-made Bedford electric vans, called the

Griffon in this country and marketed by General

Motors, have been used by U.S. utilities during the

past few years. 6 These vehicles have a top speed of

slightly over 50 mph and a range of 55 to 65 miles

1~ ~~c~, acid r~ and degradation of visibility.

2Space h~ting is the pti~ exception.

sGeneral Res.ewchCoT., proSpectSforElec&ic CarS, foru.s. Dep~ment of Energy, w~figto~ DC, 1978, reported in U.S. Department of Energy,

Assessment of Costs and Benejits of Flexible and Alternative Fuel Use in the U.S. Transportation Sector. Progress Report One: Context and Analytical

Framework, January 1988, DOE/PE-0080. Although inclusion of peaking power would theoretically increase the number of vehicles that could be

supported, this is impractical from the standpoint of both cost—peaking power is very expensive-and maintenance-most peaking units are designed

for limited operation only.

4U~ities use theh lowest-opemt~g.cost pl~t~which often ~ their nucle~ pl~~at as high a load factor as they ML so tit these phillts iUe

likely to be in use even during periods of low load; utilities cycle down their higher-operating-cost plants during these periods (subject to physical

limitations on cycling). With rising electricity demand and stagnant nuclear supply, little excess nuclear capacity will be available to charge EVS.

SAc~~ly, s~ctly spe~g, combustion engines cm be wed off when the vehicle is stopped and res~ed when necessary. Although vehicles ?Xive

been designed with this feature, manufacturers have not placed them on the market because of their doubts about consumer acceptance.

cElectric Power Research Institute, “Fleet Vans had the Way for Electric Vehicles, ” EPRIJournal, vol. 11, No. 5, July/August 1986.

–117–
118 ● Replacing Gasoline: Alternative Fuels for Light-Duty Vehicles

carrying a 1,900 pound payload. Battery life for the

$4,750 (in 1986) lead/acid battery is 4 years, so

battery replacement is a significant part of total

operating costs.7

Unless U.S. consumers can be convinced (or

coerced) to purchase limited-use/limited-performance vehicles, EVs will not make a substantial

impact on total travel until they can, at a minimum,

extend their range considerably (the ability to travel

further than 100 miles on a charge is sometimes cited

as a minimum) and perform adequately in a range of

traffic conditions, including highway traffic. And

although these performance requirements are probably a necessary condition for high market penetration, EVs would still face substantial barriers,

discussed later.

ADVANCED TECHNOLOGY

Developments during the 1980s in batteries and

powertrains indicate that the design conditions

necessary for successful EVs maybe moving within

reach with further engineering development. Advances in microelectronics have made it possible to

build lightweight dc-to-ac inverters, which allow the

use of ac motors rather than the heavier, more

expensive dc motors typical of previous EVS.

8 This

technology has important benefits for both vehicle

weight and cost, to the extent that an EV using this

technology is likely to be similar in cost, excluding

battery cost, to a comparable internal-combustion-enginepowered car. And advanced batteries, some apparently moving closer to commercialization, offer the

potential for substantial improvements in performance and durability over lead/acid batteries. Advanced battery types include nickel/iron, nickel/

cadmium, zinc/bromine, lithium/iron sulfide, sodium/

sulfur, and metal-air.

Because none of the advanced batteries is actually

commercially available, and all (with the possible

exception of the nickel-iron battery) need considerable engineering development, there are strong uncertainties about their eventual durability and cost, and

analysts disagree about their relative promise. For

example, some analysts view the nickel-iron battery

as an especially promising candidate for the next

generation of EVs and close to commercialization,

because it has convincingly demonstrated long cycle

life and ruggedness and somewhat higher energy

density than lead/acid technology.10 However, these

batteries produce substantial quantities of hydrogen

during recharge, have high water consumption, and

are relatively inefficient.11 They may also be quite

expensive, although cost estimates for all of the

noncommercial battery types are speculative. Finally, the supply of nickel could become a constraint

if similar batteries were adopted worldwide. Leading European battery developers apparently have

given up on development of nickel-iron batteries.12

However, Chrysler’s concept TEVan, an electric

minivan based on the Caravan/Voyager vans and

apparently under discussion for production in the

early -1990s timeframe, uses a nickel-iron battery

developed by Eagle Picher Industries.13

Although requiring more development work than

the nickel/iron battery, the high-temperature sodium/

sulfur battery is viewed as extremely promising if

cost and durability uncertainties can be resolved

favorably. This battery offers much higher energy

and power densities than its lead/acid and nickel/

iron counterparts, no water requirement, no gas

production when charging, very high charging

efficiencies, and cheap, abundant reactant materials.14 Important potential problems with the sodium/

sulfur battery include durability, associated with

corrosion problems from sodium compounds

TIbid.

8M,A. De]uchi, Q. Wang, and D. sper~g, “Electric Vehicles: Performance, Life-cycle Costs, Emissions, and Recharging Requirements,”

Transportation Research, vol. 23A, pp. 255-278.1989.

%V. HamiltoL Electric andHybnd Vehicles, paper prepared for the Department of Energy Flexible and Altermtive Fuels Study, May 26,1988, draft.

IODeLuchi et al., op. cit., footnote 8, table 3. Characteristics of EV storage batteries. The nickel-iron battery designed for Ch@er’s T’EVZIIL w~ch

Chxysler hopes to introduce by the 1990s, has a specific energy 65 percent greater than the lead-acid batteries in GMs G-Van. L.G. O’Connell, Electric

Power Research Institute, personal communication.

llDeLuchi et al., op. cit., footnote 8.

IZE. Eugene Eckhmd, Alternative Transportation Fuels Foundatio% personal cOmmticatiOn.

13El~~c power ReSezch~timte, “T’he ~Sler Elec~c TEvan. High pcrfo~~ce for the &o~g Mi.nivan Market, ” brochure EU.2022.6.89.

The brochure claims a payload of 1,200 pounds, range of 120 miles, top speed of 65 mph and O to 60 acceleration of 14.0 seconds. This level of

performance greatly exceeds existing commercial vehicles and would seem likely to make the vehicle quite attractive if Iifecycle costs are competitive.

l%id.
Chapter 6--Electric Vehicles ● 119

formed at the battery electrodes, and requirements

for heavy insulation to maintain high temperatures

inside the battery.

For the longer term-beyond the year 2000-the

metal-air batteries are intriguing because they combine high power density with mechanical rechargeability, that is, they can be recharged rapidly by

replacing the metal anodes, adding water, and

removing byproducts. These batteries are also farthest from commercial readiness, and their eventual

practicality is far from assured; important problems

remain concerning their cost, durability, the need for

practical CO2 scrubbers, and their complexity.

A common concern with the advanced batteries,

and for that matter with commercial lead-acid

batteries as well, is the environmental implication of

the large disposal and recycling requirement associated with battery production and for any major

market penetration of EVs.

MARKET COMPETITIVENESS

Despite the renewed optimism about EVs in some

circles, their eventual acceptance as a significant

portion of the vehicle market is highly uncertain.

First, total EV costs may be quite high, though

available cost estimates cover a wide range. As

noted above, the advanced batteries necessary for

EVs to make major inroads in the urban market are

too far away from mass production to allow reliable

cost estimates to be made. However, even conventional lead-acid batteries will add a few thousand

dollars to initial vehicle cost, and all of the advanced

batteries will be even more expensive. Consequently, it is virtually certain that EVs will be more

expensive than competing gasoline-fueled vehicles.

Taking into account the cost and performance

uncertainties associated with the batteries as well as

other uncertain variables such as electricity price,

cost evaluations can yield lifecycle costs that range

from extremely attractive to extremely unattractive.

For example, in a recent analysis, the “breakeven

price” of gasoline--the price for which an EV’s

lifecycle cost was the same as that of a similar

gasoline-powered vehicle—ranged from $0.04/

gallon assuming low nighttime charging rates ($0.05/

kWh) and very optimistic EV performance and

cost,15 to $3.90/gallon for a higher electricity cost

($0.09/kWh) and pessimistic EV performance and

cost. 16 In this analysis, the startlingly low ‘ ‘optimistic breakeven price” results in part from assumed

maintenance costs that are much lower than for the

gasoline vehicle, vehicle lifetimes twice as long

(which reduces the annual vehicle depreciation

costs, a substantial portion of vehicle ownership

costs), and a very high powertrain efficiency.

Although the minimum breakeven gasoline price

seems absurdly low, it can be put into better

perspective by remembering that fuel costs represent

less than one-sixth of total vehicle lifecycle costs

today, 17 and maybe even less of a factor in the future

as fuel economy increases.

In another analysis, the Department of Energy has

projected roughly equal lifecycle costs for competing EVs and gasoline vehicles for a 1995 EV using

nickel-iron batteries. The analysis assumes that

battery life will be 10 years and specific energy is

53.1 Watt-hours/kilogram, about a 50 percent increase over the best lead-acid technology available

today .18 The vehicle would have a 90 mile range and

quite slow acceleration (O to 50 mph in 16.4

seconds), with an initial cost nearly $6,000 higher

than for a competing gasoline vehicle. As with all

such analyses, the lifecycle cost estimates are

extremely sensitive to uncertain future costs of

gasoline and electricity; the near breakeven lifecycle

cost case assume 1995 gasoline costs of $1.34/

gallon and nighttime electricity charging rates of

$0.05/kWh (1987 dollars).19

Second, the EV is competing against conventional automobiles that essentially represent a moving target. Although high gasoline prices are not

absolutely necessary for successful market entry of

large numbers of EVs—the use of lightweight ac

IsVehicle cost exclu~g battery, $4.00 less tin comparable gasoline vehicle; lifetime twice as long; half the maintenance and repair costs; battery

cost of $4,000; high powertrain efficiency 6.1 times competing gasoline vehicle powertrain efficiency.

16DeLuchi et ~., op. cit., foo~ote g. me ~~ysis ~SSmeS a So&@S@ battery Systeu the equiv&nt gasoline-powered automobile is assumed

to achieve 30.5 mpg.

17s.c. Davi5 et ~., TranS.or~afion EnergY Data Book: E&~ion lo, ()& ~dge NatiO~ Laboratq report ON-6565, September 1989, table 2.23.

18wT. H~ton, /7/ec~ic ~~ HYbn”d ve~ic/eS (~~t), report to DOE, san~ B~&r~ CA, J~y 1989, cited in us. DOE, Assessment Of COStS and

Benefits of Flexible and Alternative Fuel Use in the U.S. Transportation Sector. Technical Report Five: Vehicle and Fuel Distribution Requirements,

draft, January 1990.

l%id.
120 . Replacing Gasoline: Alternative Fuels for Light-Duty Vehicles

drivetrains coupled with a high level of success in

battery performance and cost could allow lifecycle

cost competitiveness at moderate gasoline prices—

the most likely scenario for a major attempt at an EV

market breakthrough is one with high fuel prices.

These prices may also stimulate the entry of

ultra-efficient gasoline vehicles for the market niche

to be occupied by EVs. Several vehicle prototypes

have achieved fuel economies of nearly 100 mpg or

higher in practical configurations of relatively moderate power; in fact, these perform much like a

practical EV is likely to. These vehicles should

provide stronger competition than the baseline

vehicles typically assumed in cost analyses.20

The newly announced General Motors Impact is

an example of a promising EV prototype with design

features that, if incorporated in a gasoline-fueled

configuration, would produce a vehicle capable of

achieving ultra-high fuel efficiency. The Impact is

discussed in box 6-A.

Third, the difficulty of rapidly recharging EVs

represents an important, though uncertain, market

barrier. Even though EVs would be likely to be

important niche vehicles--eg., second or third cars

used primarily for commuting, delivery, or shopping—

many potential owners may wish the flexibility of

being able to use the vehicles for more extensive

trips. An inability to accommodate such trips might

prove an insurmountable barrier to many potential

EV buyers.

Except with metal-air batteries, which are unlikely to be available within the next few decades,

rapid recharging must involve either an actual

exchange of batteries or a high-current recharge.

Each has problems. Battery exchanges require a high

degree of battery uniformity and a leasing system,

since, with privately owned batteries, EV owners

would not be willing to exchange a relatively new

battery for an older one. High-current recharges

require expensive charging equipment and a special

battery capability that is far from assured technically; even then, it is unlikely that charging could be

accomplished in less than 20 minutes.21 If charging

stations would have to be highly utilized to be

profitable, EV operators could have to wait through

one or more charging cycles to gain access to a

charger. This may create an important barrier to wide

market acceptance of EVs.

HYBRID VEHICLES

An alternative to rapid recharging is to add a small

internal combustion (IC) engine (and fuel tank)

sufficiently powerful to maintain reasonable highway speeds.

22 This type of dual system could

substantially extend an electric vehicle’s useful

range. Such hybrid vehicles are being actively

pursued by the same Department of Energy program

supporting EV research and development.23 DOEsponsored analyses project that such vehicles may

be able to attain lifecycle costs similar to EVS.

24

An offshoot of the above hybrid vehicle concept

is to combine a small IC engine working at constant

speed as an electric generator (the engine would not

be needed for short trips) with a battery designed to

achieve high power density (most EV engines aim

primarily at high energy densities, to maximize

range, although power density is important as well).

It is hoped that such a combination could allow a

hybrid EV to combine adequate range with enough

power to compete evenly with gasoline-powered

vehicles in performance--an attractive prospect. To

achieve this goal, batteries with power densities of

600 to 1,000 watts/kilogram are necessary. Although battery developers have high hopes for being

able to achieve such levels in a commercial battery—

the sealed bipolar lead-acid battery is one contender—

success is uncertain and, at best, demands substantial further development.25

The primary criticism of hybrid vehicles using IC

engines is the pollution impact of the vehicle’s fuel

use. Advocates of the constant-speed IC generator

concept argue that it would attain the oil displacement and air quality benefits generally sought by EV

advocates by:

‘Typically, comparative analyses have electric vehicles competing against gasoline vehicles obtaining 35 mpg or so. See DeLuchi et al., op. cit.,

footnote 8.

211bid.

22For a stre~ined vehicle with an efficient drivetrain, maintenance of 60 mph speeds requires little power.

23UtS. Dep~entof Enm=, Office of Tmmpo~tionSystems, E/ectric a~HybridVehic[esP rogram: 12thAnnulReportto Congress for theFiscal

Year 1988, February 1989.

24H~to~ op. cit., footnote 9.

~pe~o~ communication, Kenneth Barber, U.S. Department of Energy.
Chapter 6-Electric Vehicles . 121

Box 6-A-GM’s Impact: A Niche Vehicle

As discussed previously, carefully designing a vehicle to fill an appropriate niche may allow EVs to compete

with gasoline-powered vehicles under special circumstances. The recently announced General Motors Impact, a

sporty two-seater, is an early example of a vehicle carefully designed from the ground up to compete in a limited

market. The vehicle attains an unusual combination (for an EV) of good performance (0 to 60 mph in 8 seconds)

and excellent EV range (124 miles on the Federal Urban Driving Cycle) by limiting carrying capacity (350 pounds

in a 2,200 pound curb weight vehicle) and introducing a number of design elements to achieve unusual vehicle

efficiency. Notable efficiency features include:

. drag coefficient of 0.19, compared to about 0.3 for conventional low-drag vehicles;

. 65 psi tires that achieve about half the rolling resistance of typical tires;

* regenerative braking

. heat pump-based space conditioning

. extremely lightweight dc/ac inverter coupled with high-efficiency induction motors (90 to 95 percent

efficient) and gearbox (94 to 98 percent efficient)l

Additional features that add to the vehicle’s market

attractiveness are a 2-hour recharge time and an

on-board battery charger, eliminating the need for

special charging equipment.2

Although the Impact is, at first look, a most

attractive vehicle, it has uncertain long-term economic

viability and remaining technical uncertainties. General Motors claims that its operating cost--electricity

plus battery replacement cost—is about twice that of a

gasoline-powered car in the Ins Angeles area, with

future increases in battery life reducing the operating

margin.3 However, the current expected battery life of

25,000 miles is only an estimate that awaits confirmation with further testing. Further, manufacturing costs

for the vehicle may be significantly higher than for a

comparable gasoline-powered vehicle (with much

greater range)--preliminary rough estimates are in the

range of $15,000 to $20,000.4 Other significant

uncertainties remain, including tire life and ride

acceptability, vehicle component longevity, cold weather

operating characteristics,5 and so forth.

@ene~ M~t~~ C~IP., “Impact Technical Highlights,”

General Motors Tedm.ical Center, Wane& MI, Jan. 3, 1990.

2fiid.

3Ge~~ Motors Technical Center press rehXe on the

Impact vehicle, Jan. 3, 1990. According to David Sloan at the

Technical Center, the gasoline vehicle was similar to a Pontiac

Fiero, a vehicle with similar accommodations and utility to the

Impact vehicle. However, the Fkro incorporates none of the

eiliciency improvements used in the Impact. In our view, it

would bepreftxable to compare Impact to a similar size/carrying

capacity vehicle incorporating similar efficiency measures,

espedallywith respect to drag and tire resistance. This comparison would yield a less attractive reiarive operating cost estimate

for the electric vehicle.

~Da~id sloa~ @n~~ Motors Techniti C@W ‘mm*

MI, personal communication% Feb. 23, 1990.

5Cold wea~er pr~en~ a dual problem tO the vehicl*loss

of battery capability, and, at extremes, inability of the heat pump

system to maintain acceptable passenger comfort.

Photo crelit: General Motors COrp.

The Impact’s battery pack, shown being installed, takes up

the center portion of the vehicle.

Photo credit: General Motors Corp.

General Motors’ prototype electric vehicle (EV), the Impact,

combines high performance (O to 60 mph in 8 seconds)

with high EV range (over 100 miles).
122 . Replacing Gasoline: Alternative Fuels for Light-Duty Vehicles

● operating battery-only on short trips

● displacing longer trips that could otherwise be

made only by petroleum-fueled vehicles, with

less oil usage and pollution because part of the

trip energy would be supplied by battery

storage, and the constant speed engine can be

both more efficient and less polluting than the

larger variable-power engine it would displace.

The counterpoint to this argument is that the very

attractiveness of the hybrid, concept might discourage development of, and compete in the marketplace

with, advanced battery-only vehicles with longer

range than today’s best vehicles and emissions

benefits superior to those of the hybrid. Also, a

battery-only vehicle will have a longer range “battery only” capacity-and thus can replace a higher

percentage of trips in a “zero vehicle emission”

mode—than the hybrid because it does not carry the

added weight and volume of the IC engine and fuel

tank, and can substitute additional battery capacity

in their place.

A third, possibly longer term alternative is to

forego battery storage entirely and generate electricity from a fuel cell fueled with hydrogen or

methanol. The advantage of such a system is that it

combines key benefits of EVs--essentially zero

vehicle emissions (including no emissions of CO2 if

hydrogen is the fuel) and high efficiency powertrain—

with fast refueling capability and longer range than

offered by currently available batteries of the same

weight and volume as the hydrogen or methanol

storage tanks plus fuel cell. It eliminates problems

with NOX and hydrocarbon emissions (the latter

from engine oil burning) from hydrogen vehicles

using IC engines (see next chapter on hydrogen), and

of course eliminates the stronger concerns associated with methanol IC emissions. DeLuchi estimates

that a high-efficiency vehicle based on hydrogen

(equivalent in design and performance to a 40-mpg

gasoline vehicle) with a 200 mile range would have

a hydrogen storage system displacing about 40

gallons-about 8 times the volume of a gasoline

tank yielding the same range—if the hydrogen was

stored as a 4,500 psi compressed gas.26 The hydrogen could also be stored as a cryogenic liquid or as

a hydride, though the former would be challenging

for general use because liquid hydrogen is extremely

cold, and the latter would add considerable weight

unless major improvements in storage capacity were

made to hydride systems. A methanol-fueled vehicle

should have range capability similar to that of a

gasoline vehicle with similar storage volume, because of the efficiency advantages of the fuel

cell/electric motor system.

Methanol would be cheaper than hydrogen and

would add substantial range, though it would require

the addition of a reformer to dissociate the methanol.

If the issue at stake were only to reduce oil use at

moderate cost, methanol would appear the superior

choice. However, hydrogen offers the potential of

essentially eliminating C02 emissions from the fuel

cycle, so that policymakers might choose to trade off

the added fuel cost for the reduction in CO2

. The fuel

cell itself would emit no CO2 if fueled with

hydrogen. Also, despite hydrogen’s current manufacture from fossil fuels, with consequent emissions

of C02, some analysts believe that the cost of

photovoltaically generated dc electricity-producing

zero CO2—will drop dramatically within a decade or

two and become a cost-competitive energy source

for generating hydrogen.

Aside from the options of focusing on either

methanol or hydrogen, an alternative strategy would

focus on both. Although considerable development

work will be necessary to construct a fuel cell

capable of meeting the requirements of general fleet

use, which include long life, low cost, and compactness, the fuel cell work should not take nearly as long

as the hydrogen work. Conceivably, if development

of a commercial vehicular fuel cell came first,

methanol could serve as a bridge fuel until a

PV-based hydrogen fuel supply could be developed.

INFRASTRUCTURE

Although additional generating capacity may

eventually be required to support a large EV system,

tens of millions of EVs can be recharged daily with

no additional capacity if the recharging is accomplished at night, following the evening demand

peak. Consequently, the fuel delivery infrastructure

required for an EV fleet consists of the charging

stations. Although rapid charge stations are technically possible, they are unlikely to be widely used

(see discussion above). Most recharging will likely

be accomplished at millions of home stations

offering overnight recharging. DOE estimates the

cost for a station to be $400 to $600, assuming a

ZCM. DeLuc~, letter to AHan Lloyd, South Coast Air Quality Mamgement District, California, Da. 14, 1989.
Chapter 6--Electric Vehicles ● 123

240-volt, 30-amp outlet, ground-fault circuit interruptor to guard against electrical shock, and a

time-of-use meter or other device to obtain reduced

nighttime charging rates.27 With 45 million EVs

needed to displace 1 mmbd of gasoline, the infrastructure costs—attributed solely to charging facilities-are $21.8 billion for this level of oil

displacement. 28

EFFECTS ON EMISSIONS AND

AIR QUALITY

Although EVs must surmount substantial market

difficulties, and may be unlikely to save much oil (if

the competing vehicles are highly fuel efficient),

they will have an important positive impact on urban

air pollution if they become a significant factor in

urban travel. The vehicles have virtually no emissions 29 and the emissions from the generating

facilities that would power an EV fleet are spread out

over a wide area and, in most cases, have only

moderate effect on any specific area such as a city.

Also, although not universally true, many urban

areas obtain their power from relatively distant

generating facilities, and an increase in their net

emissions will have little impact on the urban area’s

air quality.30

Trading local, low-level, small-source pollution

for centralized pollution sources with tall stacks is

not, of course, uniformly positive. As discussed

below, the types of pollutants change, but the change

of pollution distribution can have some negative

effects as well-especially the increased contribution to long-range transport of pollution to other

regions. Given the diversity of air-quality-related

parameters--powerplant location in relation to population centers, powerplant fuel and control effectiveness, urban meteorologic conditions and pollution mix, regional long-range transport characteristics, and so forth-gauging the air quality benefits

and costs of major shifts to electric vehicles requires

location-specific examinations.

The net effect on total emissions of a shift to EVs

will be mixed. Power for nighttime recharging of

EVs will come from baseload and intermediate

plants not needed to meet ordinary (low) nighttime

demand; depending on region, these will be primarily coal-fired steam electric generators (coal fueled

57 percent of all generation in 1987, and higher

percentages of baseload power31), natural gas-fired

steam electric plants, and hydroelectric plants; some

additional power will come from natural gas-fried

combined cycle plants (though most of these plants

are likely to be used as intermediate rather than

baseload plants). Although nuclear steam electric

generators provided 18 percent of baseload power in

1987, 32 they are rarely cycled down when load

declines and thus may not be available to supply

excess power to charge EVS.

33 Similarly, hydroelectric capacity may not be available in most cases

because these plants generally are the last to cycle

down.

Because utility electric generators emit few emissions of hydrocarbons and carbon monoxide, the net

effect of EVs on emissions of these pollutants will

be highly positive--emissions per mile of these

pollutants would be reduced over 90 percent.34 Older

coal and gas-fired baseload plants produce considerable emissions of NOX

, and the net effect on NO=

emissions of a large EV fleet will be negative,

especially for coal plants. More recent plants with

moderate controls will have a positive net effect, so

that overall, with a mix of older and newer plants, the

net effect on NOX emissions is likely to be small and,

in areas with considerable nuclear and hydro capacity or with stringent NOX controls, would be highly

positive. 35 Finally, because even stringently controlled coal plants emit more SOX than automobiles

on a comparative ‘‘per mile’ basis, market penetraZTDC)E Tec~cal Report Five, op. cit., foo~ote 18.

281bid.

zg~ereare fioremissiom from paint, adhesives, and so for@ and possibly release of some gases from the batteties, depending on heir type. ~so,

EVS used in cold climates may have fossil-fueled heatecs.

%owever, the net increase in powerplant emissions will affect air quality over a wide area and will also affect acid rain and visibility.

slEnergy ~ormation Administration Annual Energy Review 1987, DOE/EIA-0384(87), May, 1988, @ble 83.

szlbid.

ssAt tie present tie, some excess nucle~ power is av~lable t. some utilities at low cost for off@& use. me zong-te~ avtiability of such power

is problematic.

MQ+ Wang, M.A. DeLuchi, and D. SPerlirlg> ‘‘Emission Impacts of Electric Vehicles,’ Transportation Research Board Paper 890682, 1989.

s51bid.
124 ● Replacing Gasoline: Alternative Fuels for Light-Duty Vehicles

tion of EVs will increase sulfur emissions. The

actual effect will depend heavily on the timeframe (if

long enough, some of the older, dirtier powerplants

will retire), future controls placed on existing

powerplants, and future plant retirement programs

(plant life extension currently is an important part of

most utilities’ capacity planning programs).

The greenhouse impact of a significant shift to

EVs will be extremely sensitive to the mix of power

generation facilities used to power the vehicles, the

efficiency of the EVs themselves, and the efficiency

of the vehicles they replace. As discussed above, for

the immediate future, EV power generation is likely

to come from fossil fueled power plants (particularly

coal-freed plants), except in the few areas where

excess nuclear or hydro capacity is available. As

shown in figure 6-1, if coal is the dominant fuel

source for EV recharging, a switch to EVs will cause

greenhouse gas emissions to increase slightly even

with a high-efficiency vehicle. One source estimates

that the EV/coal fuel cycle generates about 3 to 10

percent higher greenhouse emissions than a similar

gasoline vehicle fuel cycle, with an EV system using

the projected year 2000 mix of power generation

yielding about 25 percent less greenhouse emissions

than the gasoline cycle.36 In the longer term,

nonfossil capacity availability for EV recharging is

likely to decrease, because no new nuclear plants

have been ordered for years and no large hydroelectric facilities are in progress or planned. On the other

hand, natural gas in efficient plant configurations

(e.g., combined cycle plants) may dominate new

plant capacity for the next few decades, and these

plants offer both increased efficiency and reduced

carbon emissions per unit of fuel burned. If these

plants figure heavily in EV recharging, the net

greenhouse effect will improve; an EV system based

on these plants is estimated to yield about a 50

percent reduction in greenhouse emissions compared to gasoline vehicles.37 The potential for

powering large numbers of EVs with nonfossil

electricity must wait for a revival of nuclear power

or the development and construction of economically competitive solar or biomass power generators. 38

Figure 6-l—Effect of Electricity Source on

Greenhouse Impact of Electric Vehicles

(Total fuel cycle considered except construction materials manufacture)

3

Coal ~ 1 0

-19

Year 2000 mix -23 ~

Conventional gas -30 ~

Comb. Cycle gas -49 ~

Nuclear -91

‘“’ar-’

ooz!!zkc’e

:

e

-120 -100 -80 -60 - 4 0 -20 0 20 40

Percent increase from gasoline vehicle

Vehicle: EV powered by sodium sulfur batteries, ac powertrain,

150-mile range, 650-pound weight penalty v. competing gasoline

car.

SOURCE: D. Sperling and M.A. DeLuchi, Transportation Fue/s and Air

Po//ution,, prepared for Environment Directorate, OECD, March

1990, draft.

For the light-duty fleet, EVs seem most likely to

replace vehicles with limited performance and

carrying capacity, since the EVs themselves are

likely to have these characteristics. Examples of

ultra-high-mileage automobiles often share these

characteristics. It is possible, therefore, that the

fossil fuel savings and greenhouse benefits of a shift

to EVs will be smaller than many analyses show,

because EVs could replace gasoline or diesel vehicles with very high fuel economy rather than

replacing ‘‘average” vehicles.

ELECTRICITY OUTLOOK AND

TIMING

Electric vehicles are extremely attractive in concept, because they produce no vehicular pollution,

would be fueled from domestic sources, and can rely

on existing power generation capacity so long as

charging is done at night. Recent important improvements in EV powertrains--lightweight dc-to-ac

converters coupled with small, efficient ac motors—

have moved EVs considerably closer to practicality

for mass application. Unfortunately, inadequate

36D, Sperhg ~d M*A. D&uc~, University of California at Davis, Alternative Transportation FueZs and Air pollution, report to the ~v~~ent

Directorate, Organization for Economic Cooperation and Development March 1990, draft. The postulated EV uses a sodium/sulfur battery.

371bid.

38At the present ~e, tie solm the- ~enemtom built by L~ ~ California and the wood waste-powered generators and Cogenerators Operated by

the paper and wood processing industry are the primary examples of such facilities.
Chapter 6--Electric Vehicles . 125

Photo credit: Ford Motor Co.

One potential niche market for electric vehicles is urban delivery by vans. The ETX-II Aerostar research vehicle, built by

Ford and General Electric, achieves a 65 mph top speed and 100-mile range with a sodium sulfur battery.

battery technology remains a major hurdle for EVs. basic R&D may be needed, with considerable

Without successful development of advanced batter- uncertainty about both time required and likelihood

ies with high power and energy densities, EVs will of eventual success. Certainly, the time frame

have limited range and power, restrained to niche suggested for alternative fuels programs in current

applications. Also, the environmental effects of legislative initiatives-manufacture of large numpower generation for EVs deserve careful attention. bers of vehicles starting in the mid-1990s--is too

Proponents of EV technology claim that commer- short for EVs to compete for a significant share of

cialization of advanced batteries awaits only engi- the programs. In the longer term, though, EVs

neering development, which, they assert, could be conceivably could play an important role in urban

accomplished within a reasonably well-defined time passenger travel if there are important successes in

frame given adequate resources. However, more battery development.
Chapter 7

Hydrogen as a Vehicle Fuel1

Using hydrogen as a vehicle fuel offers another

option for reducing oil use while addressing problems of urban air pollution and, possibly, global

warming as well. A hydrogen-fueled vehicle should

emit virtually no hydrocarbons, particulate, carbon

dioxide, or carbon monoxide;2 the only significant

air pollutant emitted would be NOX. And because

hydrogen can be produced through electrolysis of

water using nonfossil electricity-nuclear, biomass,

hydroelectric, or solar-a fleet powered by hydrogen conceivably could generate no net carbon

dioxide and only minor quantities of other greenhouse gases.

FUEL SOURCE

Hydrogen is available from a number of sources.

It can be produced from any hydrocarbons by several

processes. For example, combining natural gas and

steam (steam reforming) will produce hydrogen and

carbon monoxide, or natural gas can be heated in the

presence of a catalyst to be “cracked” into carbon

and hydrogen. Coal (or biomass) can be gasified by

combining it with steam under high pressure and

temperature, forming carbon dioxide and hydrogen.3

Or hydrogen can be obtained from water by applying

high temperatures, with or without other chemicals,

to decompose the water (thermal and thermochemical decomposition); by adding an electrolyte and

applying a current to the water (conventional electrolysis); by electrolyzing steam rather than water

(high-temperature steam electrolysis); or by using

light with a chlorophyl-type chemical to split out the

hydrogen (photolysis). At the moment, steam reforming of natural gas is the least expensive

production method. The near-term production system with the largest resource base-coal gasification—will create substantial negative impacts from

mining, from C02 emissions, and, with some

gasifiers, from waste disposal problems associated

with carcinogenic tars and other residues from the

gasification process. The latter problem can be

reduced or avoided by using higher temperature

gasifiers.

VEHICLES AND FUEL STORAGE

Although hydrogen can be carried onboard a

vehicle in a number of different ways, the two

methods that have received the most research

attention are as a liquid in cryogenic (ultra cold)

storage or as a gas bound with certain metals in a

hydride, and released gradually by heating the

hydride.

Both systems still have substantial limitations

compared to gasoline vehicles. Refueling should be

similar to refueling natural gas-powered vehicles:

refueling time with a hydride system should be

longer than required for gasoline vehicles and may

represent a market barrier; liquid hydrogen refueling

may be less of a problem. Existing hydride storage

systems must be very heavy and large, because they

can store only a few percent hydrogen by weight4;

hydrogen vehicles using such a storage system will

have limited range between refueling and reduced

storage space, performance, and efficiency compared to cryogenic systems. Ongoing research is

aimed at developing a hydride storage system that

can store a higher percentage of hydrogen by weight

than the 3.5 percent or so that is the current practical

maximum for such systems. A developer has recently made claims of a storage rate of about 7

percent using nickel-hydride in an amorphous form.5

This high a storage rate would make a hydride-based

system much more competitive. OTA is not aware of

independent confirmation of the claim, however.

Cryogenic systems will not be much heavier than

gasoline storage systems, so performance will not

suffer. However, cryogenic storage also has imporl~s section is based primarily on M.A. DeLuchi, “Hydrogen Vehicles: An Evaluation of Fuel Storage, Performance, Safety, Environmental

Impacts, and Cos~” Int. J. Hy&Oge~E~e~gy, vol. 14, No. 2, PergamonPress, 1989. Information from other references is cited in the footnotes following

this one.

z~e o~y sowce for ~ese efissionswill be the combustion of small quantities of engine oil, particularly in older vehicles.

sBiomass may hold an advantage here because some biomass gasiilers do not require oxygen.

dFor most ~ten~s, the weight of hydrogen Stored is o~y ().5 to 2.() percent of me to~ weight of the storage m, ~thou@ a Inagnesillm SyStem,

modified to account for the high temperature needed to maintain fuel flow from a pure magnesium systeq will store as much as 3.6 percent by weight.

5’ ‘Ovonic licenses Hydride Battery to V-,” The Hydrogen Letter, March 1989, vol. IV, No. 3.

–127–
128 . Replacing Gasoline: Alternative Fuels for Light-Duty Vehicles

tant problems. Its bulkiness will reduce vehicle

space; even accounting for improved vehicular

efficiency with hydrogen, such a storage system

must be five or six times bulkier than a gasoline tank

sized for the same range. Further, the fuel tanks’

generally spherical shape is difficult to integrate into

a vehicle design. Also, cryogenically stored hydrogen will begin to boil off if the vehicle is not used for

a few days, as heat seeps through the insulation. This

is a problem from both a safety and economic (fuel

loss) standpoint, though the former is probably more

important; if the vehicle is stored in an enclosed area,

the leaked hydrogen could form an explosive hazard.

Solutions to this problem could be either to burn off

the gas or vent it.

EMISSIONS AND PERFORMANCE

ATTRIBUTES

In addition to the differences in storage system

volume and weight, hydrogen-fueled vehicles will

differ from gasoline vehicles because of hydrogen’s

unique properties as a fuel. As with all other fuels,

engine efficiency, performance, and emissions from

a hydrogen-fueled engine are interdependent, and

maximizing one attribute may increase or decrease

the others. Nevertheless, the thermal efficiency of a

hydrogen engine should beat least 15 percent higher

than its gasoline counterpart, based on available

tests. 6 Power may be higher or lower, with a major

factor being the form in which the hydrogen is

injected into the cylinders. 7 And as with other fuels,

operating very lean will increase efficiency and

reduce uncontrolled NOX

8 at the expense of power

and driveability. In general, it should be possible to

keep Nox emissions at levels at or below those of a

catalyst-equipped gasoline vehicle, using only exhaust gas recirculation without exhaust treatment,

while maintaining adequate power and high efficiency. And, aside from minor emissions associated

with burning small quantities of engine oil, the

hydrogen vehicles should emit no other air pollutants. Consequently, with appropriate selection of the

remainder of the system, a hydrogen-based fleet

could have a significant positive effect on urban air

pollution.

SAFETY

In addition to the potential safety problem associated with boiling off of cryogenically stored hydrogen, such a hydrogen system has a few other safety

concerns. In particular, hydrogen is easily ignited

and, once ignited, will burn rapidly yet invisibly and

odorlessly—which could cause a detection problem.

Also, in an enclosed space, it is more likely to

explode than an equal concentration of methane or

gasoline vapors if contacted by a flame.9

Despite these potential problems, hydrogen is not

considered a particularly dangerous fuel. Any problems associated with its lack of odor or visible flame

should be solvable with additives. In some situations, its properties should add to safety, for

example, it will disperse or evaporate extremely

quickly in the event of a leak, in comparison to

gasoline, which evaporates more slowly and is likely

to remain a hazard until physically removed. Also,

it is nontoxic and noncarcinogenic. And in hydride

form, major leaks will not occur, and thus a hydride

fuel system should be quite safe.

DEVELOPMENT REQUIREMENTS

The components necessary to create a hydrogenfueled fleet-hydrogen storage and delivery systems, large-scale hydrogen production systems, and

hydrogen-fueled engines-are all at an early stage of

research or development. Coal gasification systems

may be the closest to becoming fully commercially;

the Cool Water integrated coal gasification combined cycle plant based on the Texaco gasifier has

performed extremely well from both an operational

and an environmental viewpoint, and the next

6Tested efllciencies range up to 50 percent higher than gasoline, though some analysts are extremely skeptical of the applicability of thehighervalues

to a practical commercial vehicle. Note that with a hydride Systeu vehicle efficiency will suffer because of the added weight of the fuel storage system.

TBecause hy&ogen in gaseous form has a low energy density, engine power using hydrogen in this form will be IOVVer ti~ its gmo~e co~~~.

To recapture some of this power loss, or possibly to attain an increase, the fuel can be injected either as liquid hydrogen (if cryogenic storage is used)

or at very high pressures. Liquid hydrogen injection systems are technically demanding, and high pressure systems have not yet been tested.

8But preclude tie use of a reduction ca~yst for additional NOX control, because these CaEdyStS ca~ot OWrate ~ a Ian (oxYgen rich) ~vkoment”

%Iydrogen has extremely wide flammability limits, 4 to 74 percent. Handbook of Chenu”stry and Physics, Forty Fourth Edition (Cleveland, OH:

Chemical Rubber Publishing Co., 1962), compared to, for example, methane with fl amiability limits of 5 to 15 percent. What this means is that virtually

any concentration of hydrogen in air, except one below 4 percent, can explode.

10~e L@ gasifier i5 flly comme~~-~d some o~~s me ~~bly comm~ci~-~ producers of sp~esis gm, a combination of hydrogen ad

carbon monoxide.
Chapter 7--Hydrogen as a Vehicle Fuel ● 129

generation technology is expected to achieve substantial improvements in cost and efficiency. The

Japanese and West Germans have strong vehicle

development efforts, but these have produced only

a small number of prototype vehicles, and major

uncertainties remain about the configuration and

performance of an optimum hydrogen engine. Current hydride storage systems impose a substantial

range and performance penalty because of their high

weight and volume, and a breakthrough in storage

technology may be needed to produce a marketable

vehicle. Work needs to be done on pipeline transport, because pure hydrogen will damage certain

steels, and inhibiting agents to be added to the

hydrogen must be found--or a separate pipeline

infrastructure must be built. And if the greenhouse

gas problem associated with coal as a hydrogen

source is to be avoided, substantial advances in

large-scale electrolysis systems, hopefully based on

solar energy, must be accomplished.

COST COMPETITIVENESS

With these uncertainties, the costs of a hydrogenbased system are speculative. One interesting cost

analysis that attempts to trace full lifecycle costs for

the entire hydrogen system calculates a range of

gasoline ‘‘break even’ prices-the price of gasoline

for which a hydrogen system would be fully

competitive, assuming the gasoline and hydrogen

vehicles were roughly equivalent in size.11 This

analysis estimates the break-even gasoline price for

a system based on coal gasification to range from

about $1.50 to $5.00/gallon in 1985 dollars. The

gasoline price computed for a system based on solar

photovoltaic-generated electricity and electrolysis

ranges from about $3.50 to $12-$ 14/gallon, with

even the higher value assuming electricity costs

substantially below that obtainable with current

solar technology.

Recent improvements in photovoltaic (PV) technology have convinced some analysts that hydrogen

can be generated at costs considerably below those

estimated above.12 Hydrogen delivered to vehicles

at gasoline-equivalent costs below $2.00/gallon may

be possible if substantial improvements can be made

in PV module cost and efficiency, e.g., module

production cost for amorphous silicon solar cells

reduced from the current $1.60/peak watt to $0.20 to

$0.40/peak watt, and module efficiency improved

from 5 percent to 12 to 18 percent.13

Given the high level of uncertainty, these cost

figures should be viewed cautiously. Of the alternative fuels considered here, hydrogen appears to be

the furthest from commercial availability. The

amount of development work remaining for all

phases of the fuel cycle essentially guarantees that a

commercial system will look very different from

current conceptual systems—with, presumably, quite

different actual costs than estimated here. Further,

the analysis compares vehicles that are not identical,

so that the direct cost comparisons, even if they were

accurate, could be misleading from a market attractiveness standpoint. For a vehicle with cryogenic

storage, performance and range could be comparable

to that of a gasoline vehicle of equal overall size, but

the hydrogen vehicle would have substantially less

storage space than the gasoline vehicle. For a vehicle

based on hydride storage, performance and range

would be substantially inferior to the gasoline

vehicle unless a substantial breakthrough were made

in hydrogen storage capacity and power was increased by using a larger engine or untested high

pressure gas injection.

Because hydrogen vehicles emit no C02

, they

may be viewed as especially attractive component of

a strategy to reduce global warming trends. Their

value as such a component depends on fuel production, however. Although the lowest cost coal-based

system would be competitive with gasoline at

llDeLucJ& op. cit., footnote 1.

IZJ.M. Ogden and R.H. Williams, The Prospects for the Production and Utilization of Hydrogen Produced Via Electrolysis Using Amorphous silicon

Solar Cells, draft report to the Office of Technology Assessmen~ December 1988; and same authors, Solar Hydrogen: Moving Beyond Fossil Fuels,

World Resources Institute, October 1989.

lsIbid. The cost reduction is obtained by gaining economies of scale by increasing output from 10 to 100 MWp/yr; increasing module efficiency to

12 to 18 percent, increasing the plant depreciation period horn 5 to 10 years, reducing materials costs from $27.6 to $13.2/square meter, and reducing

balance-of-system costs from $50 to $33/square meter. The authors compute PV electricity, in DC form, generated by these modules at $0.020 to

$0.035/kilowatt-hr, and PV hydrogen at a gasoline-equivalent cost of $1.11 to $1.70/gallon. The authors also use wilily accounting and assume purchase

of PV modules at COS4 predicated on the development of large remote electricity generating and hydrogen production sites by a utility-type organization

that purchases PV manufacturing facilities rather than individual assemblies. Further, the authors calculate costs of both hydrogen and alternative fuels

based on zero income and property taxes, to rid the comparison of PV hydrogen and alternative transportation fuels of a tax system bias against

capital-intensive projects. Inclusion of these taxes would raise the gasoline break-even prices somewhat.
130 . Replacing Gasoline: Alternative Fuels for Light-Duty Vehicles

$1.50/gallon, a price that is easily imaginable within

a few years, the coal-based system—which would

produce high levels of CO2 emissions during hydrogen production—would be extremely damaging to

efforts to reduce greenhouse gas emissions unless it

was designed only as a precursor to a system based

on renewable or nuclear energy, or unless the C02

generated in the fuel production could be sequestered rather than released to the atmosphere. PVbased or nuclear-based systems would produced

essentially no greenhouse gases, but they are likely

be more expensive than coal-based systems, at least

compared to the lower end of the coal range, even

with the sharp cost reductions discussed for PVs;

biomass-based systems might become cost-competitive with coal-based systems, however, if biomass gasifiers were improved.

HYDROGEN OUTLOOK AND

TIMING

In Summary , the

has strong appeal

point, and could

use of hydrogen as a vehicle fuel

from a pollution control standaid in efforts to slow global

warming if the hydrogen was produced from nonfossil sources. However, much development work

needs to be done before a hydrogen-based system

could be practical, and the likely cheapest system—a

fossil-based system—would have strong negative

implications for global warming and may have other

environmental shortcomings. On the other hand, if

PV-based electricity generation fulfills the hopes of

solar optimists, solar-based hydrogen could eventually be cost-competitive with coal-based hydrogen

and with gasoline priced at $2.00/gallon and below.

Aside from costs, hydrogen’s major roadblock

may be its bulkiness-hydrogen’s low energy density implies either very limited range between

refueling or very large, heavy fuel tanks. Unless

there is a major breakthrough in hydride storage or

in vehicle efficiency (which would ease the range

problem), hydrogen-fueled vehicles cannot provide

a close substitute to gasoline-powered vehicles.

Given the need for important scientific development

in several areas, hydrogen must be considered a

long-term prospect as an alternative transportation

fuel.
Chapter 8

Reformulated Gasoline

An examination of the potential for methanol and

other alternative transportation fuels to compete

with petroleum-based fuels should not assume that

the existing fuel supply network is a stationary

target. Current investors in this network may be

expected to compete vigorously for market share

with the new fuels, rather than see their existing

investment in gasoline supply lose value. And to the

extent that Federal and State support for alternative

fuels takes the form of requirements for lowemission vehicles or other requirements tied to

improving urban air quality, gasoline refiners can be

expected to reformulate their product (see box 8-A)

to obtain similar emissions benefits and avoid a

mandated switch to the new fuels.

Until recently, with the important exception of the

lead phasedown, there has been relatively little

incentive, and little effort, to improve gasoline’s

performance in terms of reducing vehicle emissions.

Governments had exerted limited pressure to improve this performance: on the Federal level, the past

pressure has on the whole been limited to requirements for lead reduction and elimination and, more

recently, to controls on fuel volatility to control

smog-causing evaporative emissions; at the State

and local levels, pressure has been limited to a few

areas requiring addition of oxygenates to reduce

carbon monoxide emission s

l and to California’s

requirement for a ceiling on gasoline volatility

(more stringent than the Federal requirements) and

sulfur content (and the South Coast Air Quality

Management District’s reduction in olefinicity).

With this limited pressure, the oil industry generally

has avoided changing the composition of gasoline to

reduce emissions, because such changes are expensive and unlikely to have market value. Instead, the

Box-8-A—What Is Reformulated Gasoline?

Unlike methanol or hydrogen, which are composed wholly of single chemical compounds, or even natural gas,

which is composed of several compounds but is predominantly methane, gasoline is a complex mixture of

flammable liquid hydrocarbons made from petroleum and natural gas. Some of these hydrocarbons are present in

the oil and gas and are obtained by separating them from the oil and gas using distillation and other separation

technologies. Others are created by a variety of physical and chemical transformation processes, often in the

presence of catalysts, in a modern refinery. For example, aromatics are obtained from catalytic reforming; olefins

from catalytic cracking or catalytic polymerization; and isoparaffins from distillation (separation) or by

isomerization of normal paraffins, or in the alkylation process.l

In order to be a practical fuel for a modern automobile, gasoline must satisfy a number of requirements

pertaining to its volatility, octane level, tendency to form engine deposits, and other characteristics. Refiners can

satisfy these requirements using a variety of different combinations of chemical components, with their selection

dependent on relative costs of the different components, market prices for other products, refinery capability, and

quality of the crude oil feedstocks available. The production of reformulated gasoline simply accentuates the

importance of a particular fuel characteristic—the fuel’s effect on emissions-in the selection of gasoline

components, and possibly also in the degree of purification applied to the fuel. For example, the addition of

oxygenates-ethanol, methanol, methyl tertiary butyl ether, and so forth-to the gasoline blend can reduce exhaust

carbon monoxide emissions and may serve to reduce the reactivity of exhaust hydrocarbon emissions, yielding a

net reduction in ambient ozone concentrations. Reducing the more volatile components of the fuel will reduce

overall volatility and yield lower evaporative emissions. Removing sulfur impurities will reduce emissions of sulfur

oxides and hydrogen sulfide. Because the gasoline components undergo radical chemical transformations inside the

engine, and then the exhaust emissions undergo still more transformations inside the catalytic converter, the precise

form that a reformulated gasoline must take can only be learned through extensive testing.

IBritish pe~ole~ Co., Our Zndustry Petroleum, 1%’T.

IDenva, ~buquer~ue, ~~ ~gele~, ~~ Vegas, phoe~, Reno, ~d ~cson r~fie g~o~e to COhti oxygemtes corresponding tO 2 p~ent

oxygen G.A. Mills, ‘‘High Performance Oxyfuels, ’ American Chemical Society, preprin~ April 1990.

–131–
132 ● Replacing Gasoline: Alternative Fuels for Light-Duty Vehicles

industry has focused its production and marketing

efforts on changes to achieve better vehicle performance and drivability and lower maintenance--

attributes that are valued by gasoline purchasers and

thus provide market advantage.

ARCO’S “EMISSION CONTROL 1“

GASOLINE

In August of 1989, Atlantic Richfield Oil Co.

(ARCO), fired the opening salvo in the new competition for the future light-duty fuel market by

introducing a so-called ‘‘reformulated gasoline’ to

replace leaded regular gasoline at its southern

California stations.2 This gasoline, named EC-1

(“Emission Control l“), contains one-third less

olefins and aromatics and 50 percent less benzene,3

no lead, and 80 percent less sulfur than regular

gasoline. 4 It has low volatility-its vapor pressure

(RVP) is 1 psi lower than the South Coast standard.

It contains methyl tertiary butyl ether, or MTBE, an

octane-raising additive derived from methanol that

raises the oxygen content of the fuel and provides

emission benefits, especially in reducing carbon

monoxide emissions, without the volatility increase--

and increase in evaporative emissions-normally

associated with adding oxygenates.

ARCO has claimed significant emissions reductions when EC-1 is used in place of regular leaded

gasoline in pre-1975 model-year cars5

:

evaporative emissions –21 percent

carbon monoxide -9 percent

nitrogen oxides –5 percent

hydrocarbons (exhaust) -4 percent

sulfur dioxides –80 percent

ARCO redirects the olefin and aromatic streams

removed from EC-1 into its unleaded grades, however, so there maybe some increase in emissions, or

in the reactivity of emissions, from vehicles using

these grades. Because the catalytic controls of the

vehicles using these fuel grades are designed to

handle such emissions, it is likely that any increase

will be relatively small-but they should be accounted for in an assessment of costs and benefits.

The emission benefits of EC-l-type gasolines can,

in theory, be gained immediately by a substantial

part of the fleet--ARCO claims that pre-1975

vehicles made up about 15 percent of the vehicles in

California’s South Coast air basin in 1989, and

emitted more than 30 percent of total vehicle

emissions.6

If environment-conscious drivers give ARCO

additional market share, or if California’s legislators

turn ARCO’s voluntary emission reduction into a

requirement, other refiners will follow ARCO’s

lead, probably within a short time. Reformulated

versions of unleaded gas for catalyst-equipped

vehicles are expected to appear as well, although not

until the early 1990s.

REFORMULATION POTENTIAL

Gasoline is made from crude oil by mixing natural

constituents of the crude with constituents formed

from the crude during the refining process, as well as

other nonpetroleum-based constituents such as alcohols or ethers made from alcohols. The four major

groups of petroleum-based constituents of gasoline

are:

●

●

●

olefins: high-octane chemicals produced from

crude during refining, and also occurring naturally in the crude in very low concentrations.

Many of the olefins are both highly volatile

(they evaporate easily) and highly reactive (in

the presence of sunlight, they react with nitrogen oxides and other atmospheric constituents

to form ozone);

aromatics: even higher octane constituents,

occurring naturally in crude in moderate to high

concentrations and also created by refining.

Aromatics are reactive, though not as much as

olefins;

paraffins: consisting of two groups, “highly

branched” paraffins that are both high in

octane and low in reactivity, and “straight

chain’ paraffins that also are low in reactivity

but are very low octane. Paraffins, like aromatics, are present in crude at moderate to high

concentrations, depending on crude type; and

ZM.L. JVald, “ARC() Offers New Gasoline to Cut Up to 1570 of Old Cars’ Pollutiow” New York Times, Aug. 16, 1989, section 1, page 1.

sole~ and some aromatics are significant smog-producers; benzene is CarCkOgeniC.

4

6

‘ARCO TO Market Low-Emission Regular Gasoline,’ Oil and Gas Journal, vol. 87, No. 34, Aug. 21, 1989, p. 31.

s~e.1975 cws do not have catalytic COnvtXterS.

@il ad Gas Journal, op. cit., footiote 4.
Chapter 8--Reformulated Gasoline ● 133

. naphthenes: between paraffins and olefins in

octane; present in crude in moderate to high

concentrations.

The combination of Federal emission control and

lead phaseout requirements, higher crude prices, and

the growing demand for gasoline have caused major

changes in the makeup of gasoline. These changes,

in turn, had some negative effects on gasoline

environmental quality. For example, refiners expanded cracking capacity and severity to increase

gasoline yields and octane, thereby increasing production of light olefins, which are highly reactive

and volatile. Refiners also channeled increasing

supplies of butane into gasoline to increase yields, at

the cost of higher vapor pressure and thus higher

evaporative emissions.7

Federal requirements to reduce and eliminate lead

content created a need for additional octane enhancement, because lead had been a key octaneraising constituent of gasoline. To replace lead,

refiners increased the conversion of paraffins and

napthenes into higher octane branched paraffins,

olefins, and aromatics. Ironically, these changes,

designed to allow the use of catalytic converters that

would reduce tailpipe mass emissions, increased the

reactivity of the fuels and presumably their emissions (thus increasing their impact per unit mass on

ozone formation) and, by increasing gasoline volatility, lessened the effectiveness of new controls on

evaporative emissions introduced at the same time.

Although the net effect of the vehicle and fuel

changes was a reduction in effective ozone-causing

emissions, the fuel reactivity and volatility increases

reduced the overall air quality benefit.

As a general rule, environmental reformulation of

gasoline will lower volatility, lower the concentrations of aromatics and volatile olefins, and add

oxygenates. A primary holdup in gasoline reformulation, however, is a significant lack of knowledge

about the precise role that each gasoline constituent

plays in vehicle emissions, and (to a lesser extent)

the role of the emissions in ozone formation. The

lack of understanding about vehicle emissions is

more severe with cars equipped with catalytic

controls, because sophisticated controls tend to

further complicate the relationship between gasoline

makeup and emissions, by destroying some hydrocarbons and converting others into new compounds

with different reactivities. Directionally, refiners

know that they need to reduce aromatic and olefin

content, but they can’t as yet quantify the effects of

these reductions, and emissions benefits may be

strongly nonlinear. Also, aromatics and olefins are

produced during combustion and in the catalyst, so

even elimination of these compounds in the fuel will

not eliminate their presence in the exhaust. Further,

refiners do not yet understand the potential emissions impact of switching the makeup of gasoline in

subtler ways, for example, in replacing certain

aromatics with other aromatics. And refiners will

have to figure out how to deal with excess aromatics

and olefins, since the option to move them to another

product pool will vanish as reformulation requirements expand to cover a larger share of the gasoline

pool.

The oil and automobile industries recently began

a joint research program to better define the impact

of changes in the major gasoline constituents on

emissions levels, as well as to examine alternatives

to gasoline.

The frost phase of the program, for completion by

1990, will test a variety of reformulated gasolines in

1989 vehicles and 1983-85 vehicles (the program

will test methanol fuels in flexible fuel vehicles, as

well). 8 The gasolines will be restricted to those

producible in volumes from existing refineries. A

critical aspect of the tests is that they will measure

specific chemical constituents of the emissions, and

then use the results in air quality models to estimate

urban ozone levels that would result from use of the

fuels. Collection of this type of speciated data has

been extremely limited thus far.

The second phase of the program will conduct

research on advanced technology gasoline and

alternative fuel vehicles. The reformulated gasoline

research will examine future gasolines including

those requiring significant refinery changes, and will

explore the potential to optimize the fuel-vehicle

system by simultaneously reformulating gasoline

and changing vehicle emission control parameters.9

W.J. Piel, ARCO Chemica3 Co., “The Role of Ethe~ in Low-Emission Gasoline,’ National Conference on Motor Fuels& Air Quality, Oct. 3-5,

1989, Washingto~ DC.

s~erican petroleum Institute and General Motors COrp., “Auto/Oil Air Quality Improvement Research Program,” news release of Oct. 17, 1989.

%id.
134 . Replacing Gasoline: Alternative Fuels for Light-Duty Vehicles

Given the general direction in which they must

move, however, refiners appear to have several

options. One important option is the use of ethers,

produced by combining various alcohols with olefins (examples: MTBE, made from methanol and

isobutylene; ETBE, made from ethanol and isobutylene, and TAME, made from methanol and isoamylenes) to displace light olefins (primarily the C4

olefins) and aromatics as octane boosters. Ethers

have the triple advantage of being oxygenates,

which tend to lean out engine combustion and

reduce carbon monoxide emissions (especially in

older vehicles, but recent test have shown they

reduce CO in new vehicles as well), of being high in

octane, and of having a low volatility effect. In

addition, ether manufacture, by providing an alternative use for C4 and possibly C5 olefins, will dilute the

concentration of these reactive compounds in gasoline.l0 Also, butane can be used to produce isobutylene, needed for MTBE or ETBE production,

potentially providing an alternative use for this

compound as well.11

Refiners may also be able to increase catalytic

cracking severities12 and selectively favor the formation of lighter constituents, e.g., isobutane and

butylenes, and then use alkylation or other polymerization processes to combine these into highly

branched paraffins. And refiners could increase the

removal of benzene from gasoline using solvent

extraction, 13 and hydrogenate the benzene to cyclohexane, which is less reactive but still moderate

octane. A key question here, as elsewhere, is the

expense of lowering benzene concentrations, or

concentrations of other aromatics such as xylenes.

There is also evidence that some aromatics are

less reactive for smog formation than others. With

proper identification of reactivity levels, refiners

will be able to convert highly reactive aromatics to

less reactive aromatics. Again, the presence of the

catalytic converter complicates these relationships.

Another option for some refiners is to increase

their use of deposit control additives to reduce

deterioration of vehicle exhaust emission control

systems. There is substantial evidence that differences between exhaust emissions levels in on-theroad vehicles and levels achieved during EPA

vehicle certification testing-the on-the-road levels

are significantly higher-are caused in part by

insufficient deposit control additives.14 A 1986

survey by Chevron concluded that only 16 percent of

California gasolines contained high concentrations

of such additives.15 Advertising campaigns by

several of the major oil companies state that they

have increased the level of detergents in their fuel

formulations, primarily due to complaints from

owners of cars with fuel-injected engines, so that the

remaining margin for improvement may have

shrunk considerably.16

We cannot overstress the uncertainty associated

with projecting the emissions-reduction potential of

reformulated gasoline. With the exception of EC-1

and perhaps one or two more recent market entries,

reformulated gasoline is a concept, not a reality. The

potential effect on newer, catalyst-equipped cars is

particularly uncertain. Although discussions of reformulated gasoline tend to presume that it would

likely be able to match M85 in emissions performance, but not M100, there appears to be little basis

for such assumptions.

COSTS

The long-term costs of gasoline reformulation

cannot be predicted accurately until the nature of the

reformulation is better defined. However, some

basic aspects of reformulation costs can be projected.

IOpiel, op. cit., footnote 7.

llrbid.

lzca~~ic cracking subjects the feedstock to high temperature in the presence of a catalyst producing lighter constituents by brea.k@g do~ h~vier

ones.

ls~ mmy M=S, bewene is already being extracted for sale as a chemical, but this market is limited.

ldSiema Researc~ ~c., “The Feasibility and Costs of More Stringent Mobile Source Emission Controls,” contract report prepared for the OffIce of

Technology Assessmen~ Jan. 20, 1988.

l%id.

16~e Jm~ 1990 i55ue of Consume Repo~S pre5ents the ~e5~ts of a s~ey of gasol& marketers. me s~ey tidicates that while 6 major brands

had passed a widely amepted test for deposit control for all 3 grades of their gasoline, 17 others had either not passed the test or had passed it for only

1 or 2 grades.
Chapter 8-Reformulated Gasoline . 135

EC-1 will cost ARCO an additional 2 cents per

gallon to manufacture. 17 These costs represent only

changes in operating costs (for example, refinery

energy costs are about 10 percent higher in producing EC-118), byproduct credits, and feedstock costs

rather than capital costs. ARCO’s existing Carson,

California refinery has the necessary equipment to

produce 36 million gallons/month of EC- 1, which is

more than the 23 million gallons/month of leaded

regular that ARCO previously sold in southern

California, 19 so ARCO did not incur significant

capital costs. Also, ARCO can use the aromatics

removed from EC-1 in its other unleaded gasolines

for catalyst-equipped vehicles, where the added

emissions potential of these components will be

controlled. However, with the current limited understanding of the relationship between fuel properties

and vehicle emissions, it is not clear how much

additional use ARCO can make of this fleet as a

‘‘sink’ for aromatics. The ability of refiners nationwide to repeat ARCO’s experience will depend on

the particular configurations and processing capabilities of their refineries. Refineries oriented to premium, high octane fuels with high aromatics contents may have a difficult time producing reformulated fuels without major processing reconfiguration

and capital investment.20 Many other refiners—

especially those with modern, complex refineries—

are likely to be able to repeat ARCO’s experience at

similar costs if the quantities of reformulated gasoline demanded are moderate—up to perhaps 20

percent of total production.21

Producing much larger quantities of EC-1 or other

gasoline reformulations will have significantly higher

costs. Manufacturers will need to revamp or replace

refinery equipment at substantial capital cost, because existing refineries will not have the necessary

capabilities. 22 Blending of byproducts such as aromatics will be market limited, and refiners will have

to convert excess aromatics and other byproducts to

more desirable components, at added energy and

cost. Supply limitations for key materials, e.g.,

isobutylene (needed for MTBE and ETBE production) must be overcome, presumably at added cost.

And with greater competition for crude feedstocks

most suited for producing “EC-1 ‘-type gasolines,

refiners will be forced to use less desirable feedstocks that require more processing.

ARCO estimates the added costs to manufacture

large quantities of EC-1 at 5 to 15 cents per gallon.23

These costs incorporate refinery capital charges,

higher feedstock costs or additional processing

requirements, and higher processing costs for byproduct conversion, in addition to the costs presently

being incurred for EC-1. This cost range should

serve as a first-order estimate for the costs of

large-scale gasoline reformulations aimed at newer

vehicles but similar in severity to the EC-1/leaded

regular reformulation. Higher severity reformulations may be more expensive; for example, the cost

of reducing aromatics to or below 20 to 25 percent

by volume may exceed 15 cents per gallon.24

The California Air Resources Board (ARB) has

been examining a number of gasoline qualitycontrol measures that would require changes in

gasoline composition that would likely be similar to

those selected as part of a reformulation program.

ARB’s cost estimates are as follows (these are not

necessarily additive):

●

●

●

●

Reducing Reid Vapor Pressure from 9 psi to 8

psi: $0.01 to $0.02/gallon25

Benzene content reductions from 2 to 0.8

percent: $0.025/gallon

Reduction of aromatics: $0.08 to $0.20/gallon

Oxygenate blending: $0.005 to $0.03/gallon

IWald, op. cit., footnote 2, and confirmed by personal communication, Dwayne Smith ARCO, Los Angeles, CA.

lgDwfie Smi@ ARCO, LOS Angeles, CA, personal communication.

Igoi[ ad Gas Jour~l, op. cit., footnote 4.

20D.B. Bwnes, office of ~~d Radiatio~ U.S. Envfionment~ ~otection Agency, memo to C.L. Gray,Director, Emission COn@Ol Technology

Divisiou USEPA, “Comments on Draft OTA Report Section on Reformulated Gasoline,” Jan. 31, 1990.

zlDaniel Townsend, ARCO Products Co., Anaheim, CA, personal commtication.

22~e Option of w~tig t. m~ecapit~ chmgesw~ capi~l ~moveris requ~edanyway is notav~ableherebe~use of the longevity of major refinery

components and the shift in building new refinery capacity to overseas.

zsDwaWe Smith, ARC(), personal communication.

~Bmnes, op. cit., footnote 20.

~Nationwide, R~ averages about 11 psi. California already IIX@X a S ummertime reduction to 9 psi.
136 ● Replacing Gasoline: Alternative Fuels for Light-Duty Vehicles

● Addition of gasoline detergents/additives: not

known 26

An additional cost for some gasolines will be that of

olefin reduction, not addressed in these estimates.

The potential availability of moderate quantities

of reformulated gasoline at low cost, and the sharp

escalation in costs when larger quantities are demanded, point to a possible strategy of promoting

sale of such gasolines only in urban areas with

significant air quality problems. This type of strategy can work well because the reformulations can be

aimed at achieving emission reductions without

vehicle modifications; vehicles can be used, unmodified, outside of the areas where reformulated

gasoline is sold, and emissions benefits can be

achieved for all or most vehicles in the fleet without

waiting for vehicle turnover.

SECONDARY IMPACTS

Given the uncertainty associated with the nature

of the changes that will be made to gasoline

formulations and to refining processes, it is premature to attempt quantitative assessments of the

impact of broad reformulation of the gasoline pool.

However, the following qualitative impacts are

plausible:

1.

2.

3.

4.

5.

increases in processing energy required to

produce gasoline, with some adverse consequences for emissions of greenhouse gases;

economic difficulties for some refiners, particularly the small independents;

changes in the import balance between crude

and gasoline, with the direction (more or less

product imports) and magnitude speculative;

changes in the relative desirability of different

crude oil feedstocks, with accompanying shifts

in the mix of supplier countries; and

changes in the ability of refiners to accept a

range of feedstocks, and thus changes in the

United States’ flexibility in shifting its sources

of supply (direction depends on the type of

refinery process shifts adopted).

Impacts 3 through 5 may involve changes in energy

security. Such changes, coupled with the substantial

economic impacts that widespread reformulation

may involve, demand careful analysis as research on

reformulation proceeds and as the likely physical

character of reformulation becomes clearer.

ADDITION OF OXYGENATES

Although it is not yet clear what perfected

reformulated gasolines will look like, they most

likely will contain significant quantities of oxygenates such as ethanol, ETBE, and MTBE. Concentrations as high as 15 percent are possible with some of

the oxygenates, so that the energy security and other

impacts of reformulated gasoline must account for

this presence of gasoline constituents that are

produced largely from non-oil components. For

example, a large increase in either ethanol or ETBE

use will affect energy security by simultaneously

increasing the percentage of gasoline volume produced from domestic components (e.g., domestic

corn), exposing this gasoline component to the

vagaries of crop production uncertainties, and changing the economics of gasoline production. With the

United States’ relatively secure system of crop

stockpiles, the risk of feedstock shortages should be

small until ethanol production becomes quite large--

but if all U.S. gasoline, or a large percentage of it, is

reformulated with a high ethanol or ETBE content,

this risk may become non-trivial. Similarly, largescale use of MTBE or methanol as oxygenates would

shift some supply risks from the oil supply system to

the methanol supply system, probably with positive

consequences as discussed in chapter 3.

26D. sfiero~ c~ef, Cnt~n~pOllU~t B~~~@ c~~~fi fiReSO~~ BO@ cited b ~~ex cow., ECOnO~”CS Report, VOZWWZV, Aug. 4, 1989,

report to California Advisory Board on Air Quality and Fuels.