Alternative Transportation Fuels and Vehicles: Energy, Environment, and Development Issues
Released: 2005-01-07T00:00:00

Introduction

Is there any practical replacement for gasoline and diesel fuel in automobiles? Since the oilcrises of the 1970s and the rise in the awareness of environmental and security issues, policy makershave often considered this question. For many reasons, the United States has searched foralternatives to petroleum fuels. These reasons include limiting dependence on imported petroleum,controlling the emissions of pollutants into the air, and limiting the emissions of greenhouse gases.

Several fuels are considered alternative transportation fuels by the federal government. These fuels are electricity, natural gas, propane (liquefied petroleum gas, or LPG), ethanol, methanol,biodiesel, and hydrogen. Some of these fuels are similar to conventional fuels, and can be used inconventional vehicles with little or no modification to the vehicle. However, some of these fuels aresignificantly different, and require the use of completely different engine, fuel, and drive systems. Consequently, cost as well as performance of the associated alternative fuel vehicles (AFVs) mustbe part of the discussion. Key factors in the ultimate success or failure of any alternative fuel includethe relative cost of the fuel, the ability to develop and expand fueling stations, and the performanceand safety of the fuel.

For various reasons -- notably cost, performance, and availability -- alternative fuels have yet to play a major transportation role in the United States. Many argue that the government must stepin. Congress, recent Administrations, and state governments have instituted some key programs topromote the use of alternative fuels. These programs include tax incentives for the purchase ofalternative fuels and alternative fuel vehicles (AFVs), purchase requirements for government andprivate fleets, and research grants for the study of alternative fuels. Despite these efforts, only about480 million gallons (1) of alternative fuels wereconsumed in 2004, just 0.3% of motor fuel demand(136 billion gallons of gasoline and 36 billion gallons of diesel). (2)

Legislative Background

The three most important statutes concerning alternative fuels are the Alternative Motor FuelsAct of 1988 (AMFA, P.L. 100-494 ), the Clean Air Act Amendments of 1990 (CAAA, P.L. 101-549 ),and the Energy Policy Act of 1992 (EPAct, P.L. 102-486 ). AMFA promoted federal governmentuse of alcohol- and natural gas-fueled vehicles. EPAct requires that federal and state agencies, aswell as private firms that distribute alternative fuels, must purchase for their fleets a certainproportion of vehicles that are capable of being fueled by specific non-petroleum fuels. Furthermore,EPAct grants the Department of Energy (DOE) the authority to make similar requirements of localgovernments and private fleets. In addition, EPAct provides tax incentives for private purchases(both individual and commercial) of AFVs. CAAA requires government and private fleets in citieswith significant air quality problems to use low-emission, "clean-fuel" vehicles.

In addition to these laws, recent executive orders have also shaped alternative fuels policy in the United States. These include E.O. 12844, which urged federal agencies to exceed EPActpurchase requirements; E.O. 13031, which required that federal agencies meet EPAct requirementsregardless of budget; and E.O. 13149, which aims to drastically reduce federal governmentpetroleum consumption through the use of AFVs and hybrid vehicles. The major alternative fuelslegislation and relevant Executive Orders are summarized in Table 1 and discussed further below.

Table 1. History of U.S. Alternative Fuel Vehicle Policies

The Alternative Motor Fuels Act of 1988

Beginning in FY1990, the Alternative Motor Fuels Act called for the federal government to acquire the "maximum practicable" number of light-duty alcohol and natural gas vehicles. Inaddition, AMFA established an Interagency Commission on Alternative Motor Fuels to develop anational alternative fuels policy. The act also established a commercial demonstration program tostudy the use of alcohol and natural gas in heavy duty trucks. Since 1991, DOE has supportedprojects in these areas, making the data publicly available through its Alternative Fuels Data Center(AFDC). (3)

The Clean Air Act Amendments of 1990

The Clean Air Act Amendments of 1990 established the Clean Fuel Fleet Program (CFFP). (4) This program requires cities with significant air quality problems to promote vehicles that meet cleanfuel emissions standards. In metropolitan areas in extreme, severe, or serious non-attainment forozone (5) or carbon monoxide, fleets of 10 light-dutyvehicles or more face purchase requirementssimilar to those for EPAct (discussed below). However, under CFFP, conventional vehicles areadmissible if they meet National Low Emission Vehicle (LEV) standards. Another key differencebetween the CFFP requirements and the EPAct requirements is that under CFFP, a vehicle mustalways be operated on the fuel for which it was certified. For example, if a dual-fuel ethanol vehicleis certified LEV using ethanol, but not using gasoline, the vehicle must be operated solely on ethanol. This provision avoids a perceived "loophole" in EPAct.

The Energy Policy Act of 1992

The Energy Policy Act of 1992 was enacted to promote energy efficiency and energy independence in the United States. It includes programs that require or promote alternative fuelvehicles, as well as commercial and domestic energy efficiency, natural gas imports, and nuclearpower. Two key programs concerning alternative fuels are the AFV purchase requirements forfederal, state, and alternative fuel provider (6) fleets,and the AFV tax incentives.

Fleet Requirements. EPAct (7) requires that acertain percentage of new light-duty vehicles (passenger cars and light trucks) purchased for certainfleets must be fueled by an alternative fuel. (8) Coveredfleets are those that operate 50 or more light-duty vehicles, of which at least 20 operate primarily in a metropolitanarea. Furthermore, the fleetsmust be capable of being fueled at a central location, such as the fleet motor pool. Law enforcementvehicles, emergency vehicles, combat vehicles, non-road vehicles, and vehicles used for testing areexempted from the requirement. Federal, state, and alternative fuel provider fleets are currentlyrequired to purchase AFVs. The purchase requirements were phased in between 1997 and 2001. (See Table 2 .) DOE was required to consider whether to include municipal and private fleets intheprogram, but recently determined that such a requirement would not significantly reduce energydependence. (9)

Table 2. Light-Duty Alternative Fuel Vehicle Purchase Requirements under the Energy Policy Act

Source: National Alternative Fuels Hotline, Department ofEnergy, September 1998.

DOE currently recognizes the following as alternative fuels: methanol and denatured ethanol as alcohol fuels (mixtures that contain at least 70% alcohol), natural gas (compressed or liquefied),liquefied petroleum gas (LPG), hydrogen, coal-derived liquid fuels, fuels derived from biologicalmaterials, and electricity. (10) Covered vehicles maybe dedicated (11) or dual fuel. (12)

There have been mixed results from the program. According to DOE, some federal and state agencies are exceeding their mandates, while others are far below their quota. As a whole, thefederal government is was compliance in 1998, mainly due to large purchases such as 10,000ethanol vehicles purchased by the U.S. Postal Service in that year. (13) However, according to acoalition of environmental groups, the government as a whole has failed to comply with EPAct sincethen. In a suit filed by Earthjustice (14) in SanFrancisco federal court, 18 federal agencies are accusedof failing to comply with the purchase requirements. (15) In July 2002, the court ruled that the federalgovernment had violated EPAct. Further, the court required the agencies to compile and makepublic, by January 31, 2003, reports on their non-compliance. Recently, the environmental groupsfiled a motion that the court find the agencies in contempt. Earthjustice argues that some agencieshave failed to submit reports entirely and that others have submitted unsubstantiated reports. (16) Inaddition, questions have been raised about the success of the program since other covered fleets,especially fuel provider fleets, have not reported their purchases to DOE. (17)

A key concern over the fleet requirements is whether they actually support the goals of EPAct. This is because EPAct does not require the use of alternative fuels, only the purchase of AFVs. Fleets can purchase dual-fuel vehicles, operate them solely on gasoline or diesel fuel, and still meetthe EPAct requirements. The fleet program has been criticized because this use of dual-fuel vehiclesis seen by some as a "loophole." This criticism is another element of the lawsuit filed byEarthjustice.

Tax Incentives. Another key provision of EPAct is a set of tax incentives for the purchase of new AFVs. (18) The act provides an electric vehicle (EV)tax credit of 10% of the purchase price, up to a maximum of $2,000 in 2005. In addition, it providesa Clean Fuel Vehicle (any alternative fuel) tax deduction of up to $1,000 in 2005 for light-dutyvehicles, with larger deductions for heavier vehicles. Vehicles are not eligible for both incentives,and vehicles purchased to meet mandated fleet requirements are ineligible for either incentive. TheEV tax credit and the Clean Fuel Vehicle tax deduction are being phased out, and are scheduled toreach zero after 2006.

Executive Orders

Three Executive Orders have also played a key role in developing alternative fuels policies. Executive Order 12844, issued on April 21, 1993, urged federal agencies to make every effort toexceed the mandatory purchase requirements set in EPAct. The order argued that the federalgovernment could provide impetus for the development and manufacture of alternative fuel vehicles,and the expansion of fueling stations and other infrastructure to support privately-owned AFVs.

Executive Order 13031, issued December 13, 1996, expanded the Administration's policy on EPAct fleets. The order required that federal agencies must comply with EPAct regardless of theirbudgets. The order also required that agencies must submit a yearly progress report to the Office ofManagement and Budget (OMB) along with their yearly budgets. Further, it established penaltiesfor failing to meet the EPAct requirements. If an agency reported to OMB that it did not meet itsEPAct requirements, that agency must submit a detailed plan for meeting the requirements the nextyear. The Order also established credits for the use of medium- and heavy-duty vehicles and EVsto meet the requirements.

Most recently, the Administration issued Executive Order 13149 on April 21, 2000. This order presents the goal of reducing the federal fleet's annual petroleum consumption by 20% below theFY1999 level by the end of FY2005. It suggests several strategies for attaining this goal, includingusing alternative fuel vehicles and high-efficiency hybrids. The order also requires that a majorityof EPACT vehicles must be fueled with alternative fuels by FY2005. This helps fix the "loophole"that allows dual-fuel EPACT vehicles to operate solely on conventional fuel.

Alternative Fuels

As noted above, several fuels are considered alternative fuels. This section will addressalternative fuels recognized by EPAct. Many technical and market factors affect the usability andultimate success of these fuels as alternatives to petroleum-based fuels. Since many of these fuelsrequire entirely new engines, or extensive modifications to conventional vehicles, the characteristicsof both alternative fuels and alternative fuel vehicles must be discussed together. Fuel cost andfueling infrastructure, vehicle cost, fuel and vehicle performance, and other factors for each fuel willbe addressed in turn in the discussion below. Table 3 presents a summary of the various alternativefuels.

Table 3. Summary of Alternative Fuels

Source: Department of Energy and California EnergyCommission.

Notes: All estimates are for 2004.

a GEG: Gasoline Equivalent Gallon. To compare variousfuels, an equivalency factor is used. In this case, it is theamount of energy in one gallon of gasoline.

b As of December 3, 2004.

c This does not include additional infrastructure/fuelingequipment costs or additional life-cycle vehicle costs (e.g.maintenance, resale).

d Since biodiesel can be blended with conventional diesel,separate refueling sites are not necessary.

e Biodiesel is used in conventional diesel engines.

f 1,813 million GEG including ethanol in blended gasoline.

g This does not include flexible fuel ethanol/gasoline vehiclesthat operate primarily or exclusively on gasoline. In 2002,there were approximately 4.1 million of these vehicles in the United States (Energy Information Administrationestimate).

Propane (LPG)

Liquefied petroleum gas (LPG) is produced as a by-product of natural gas processing and petroleum refining. (19) Because the componentsof LPG are gases at normal temperatures andpressures, the mixture must be liquefied for use in vehicles. In addition to vehicles, propane is alsoused in home heating as well as recreational activities. (20)

Consumption. LPG is the most commonly used alternative fuel. Domestic consumption was approximately 242 million gasoline equivalent gallons(GEG) (21) in 2004, or about 0.2% of gasolinedemand. (22) This is greater than all other alternativefuelscombined. (23) Propane is used in both light- andmedium-duty vehicles, and there were approximately194,000 LPG vehicles on the road in 2004, (24) orabout 0.1% of the roughly 230 million gasoline anddiesel-fueled vehicles. (25) In 2003, the federalgovernment operated about 360 vehicles. (26) LPGvehicles tend to be custom vehicles; in fact, the only light-duty production vehicles with an LPGoption are the Ford F150 pickup and the GM Express and Savanna vans (the latter two supplied byQuantum). (27)

Cost. On a GEG basis, fuel costs for LPG are approximately equal to those of gasoline, and tend to fluctuate with gasoline prices, although theycan fluctuate more dramatically in response to high heating costs or other factors. Between April2000 and October 2002, the price for LPG averaged approximately $1.16 to $1.95 (28) per GEG. Whilefuel costs are only slightly higher for LPG as compared to gasoline, there is an incremental purchasecost for an LPG vehicle, which ranges between $1,000 and $2,000. (29) This additional cost coversmodifications to the fuel system and the addition of a high-pressure fuel tank. Some of thisincremental cost currently may be defrayed by federal, state, local, or manufacturer incentives thatpromote the purchase of alternative fuel vehicles.

Infrastructure. Because of its many uses, (30) therefueling system for LPG is extensive. There are approximately 3,500 refueling sites in all 50states, (31) which corresponds to roughly 3% of theapproximately 124,000 gasoline stations in theUnited States. (32) Because of its wide use, if thedemand for LPG as an alternative fuel were toexpand, it is likely that the supply infrastructure could expand proportionally.

LPG is delivered to retailers through a pipeline and tanker truck system much like the gasoline delivery system. Therefore, an expansion of the LPG supply infrastructure would face few technicalbarriers. However, because the fuel must be kept under pressure, special equipment is required totransfer LPG to a vehicle. Addition of new refueling equipment would lead to additional capitalcosts for retailers.

Performance. In terms of environmental performance, LPG vehicles tend to produce significantly lower ozone-forming emissions, althoughit can be difficult to quantify the differences. According to the California Energy Commission, LPGvehicles emit up to 33% fewer volatile organic compounds (VOCs), 20% less nitrogen oxides (NO x ),and 60% less carbon monoxide. (33)

A key performance drawback to LPG is the somewhat decreased range as compared to gasoline. However, because LPG has the highest energy content (by volume) of the alternative fuels, this rangereduction is only about 26%. Further, larger LPG vehicles can carry a larger tank, and tend tomaintain a range of between 300 and 400 miles. However, to allow longer range, payload isdiminished due to the size and weight of the LPG tank. (34)

Safety. LPG has a higher ignition temperature than gasoline, making it safer in that respect. Furthermore, LPG must be present in greaterconcentrations than gasoline to ignite. (35) BecauseLPG is stored under pressure, it must be stored inheavy-duty tanks. In order to prevent failure of the fuel tank, LPG tanks must undergo rigoroustesting. Further, LPG is odorless, so an odorant is added to make it detectable in air. (36)

Other Issues. There are few major issues involving LPG fuels and vehicles other than those issues relevant to all alternative fuel vehicles, suchas the need to expand fueling infrastructure. However, because LPG is often derived from petroleumrefining, it may do little to diminish petroleum dependence.

Natural Gas

Natural gas is a fossil fuel produced from gas wells or as a by-product of petroleum production. Natural gas is composed of hydrocarbons, mainly methane. (37) It is used extensively in residences andby industry, and is therefore widely available. Because of its gaseous nature, natural gas must bestored onboard a vehicle either as compressed natural gas (CNG) or as liquefied natural gas (LNG). CNG is generally preferred for light-duty applications such as passenger cars, while both CNG andLNG are used in heavier applications, such as buses.

Consumption. Vehicles consumed 170 million GEG of natural gas in the United States in 2004 (mostly as CNG). (38) This was about 0.1% ofgasoline demand, although consumption has been rising steadily over the past ten years. Afterpropane, CNG is the second most widely used pure alternative fuel. (39)

Approximately 146,000 natural gas vehicles were in operation in the United States in 2004, and the number has been growing by approximately 20% per year. (40) These include CNG passenger carssuch as the Honda Civic, Toyota Camry, and Chevrolet Cavalier, as well CNG light trucks naturalgas transit buses. (41) In 2003, the federalgovernment operated approximately 18,000 CNG vehicles,and 50 LNG vehicles. (42) In fact, the federalgovernment consumes more CNG than all otheralternative fuels combined. Nearly 90% of the federal CNG vehicles are light duty vehiclespurchased to meet EPAct requirements; the rest are heavy trucks and buses.

Cost. Using natural gas can cut fuel costs significantly, since natural gas tends to be a relatively inexpensive fuel (43) . The median price for oneGEG of CNG ranged from $0.89 to $1.19, (44) between April 2000 and October 2002, and the price forLNG was comparable. In addition to the low cost of the fuel, natural gas is also subject to a muchlower federal excise tax rate (5.4 cents per GEG (45) )than the gasoline excise tax rate (18.3 cents pergallon). Depending on fuel prices, natural gas vehicles can reduce annual fuel costs significantly. (46)

While fuel costs tend to be lower for natural gas than for gasoline, equipment costs tend to be higher. Equipping a light-duty vehicle to operate on CNG typically costs between $4,000 and$6,000, though some of this incremental cost may be defrayed through federal and state incentives. In addition, although there are some public fueling stations, if in-home fueling is desired, a smallslow-fill unit can be installed for approximately $3,500. (47)

Infrastructure. Refueling infrastructure for CNG is more broadly available than for most alternative fuels. There are approximately 900 public CNGrefueling sites and 60 LNG refueling sites in 44 states. (48) Again, this number is small compared tothe number of gasoline refueling stations. However, with the extensive natural gas system in theUnited States, the CNG refueling network could be greatly expanded. Furthermore, since slow-fillrefueling systems are available for home installation, consumers could fuel their vehicles overnight,and would only need to access public stations on longer trips. However, because the technologydiffers significantly from a gasoline pump, vehicle users or station operators would need to betrained in the use of natural gas pumps.

Performance. Compared to gasoline vehicles, theenvironmental performance of natural gas vehicles is exceptional. Particulate emissions are virtuallyeliminated, carbon monoxide emissions are reduced by as much as 65% to 95%,VOC emissions arereduced by up to 80%, and nitrogen oxide (NOx) emissions by as much as 30%. (49) Furthermore,greenhouse gas emissions are also reduced compared with gasoline vehicles. (50)

The key performance drawback to natural gas vehicles is their significantly shorter range. Most natural gas passenger cars can only travel 100 to 200 miles on a full tank of fuel. (51) This issignificantly less than the range of 300 to 400 miles for most gasoline-powered passenger cars. (52) Forthis reason, natural gas vehicles have been popular for use as delivery trucks or other fleets thatoperate in cities or other localized areas.

Safety. Natural gas tends to be safer than gasoline for many reasons. First, the fuel is non-toxic, although in high gaseous concentrations it could leadto asphyxiation. Second, natural gas is more difficult to ignite than gasoline, and tends to dissipatefaster due to its lower density. However, since natural gas is colorless and odorless, like LPG, anodorant is added to the fuel to make it detectable in air. (53)

A key safety concern with natural gas has to do with on-board storage. Because CNG is compressed under such high pressures, the rupture of a fuel tank would be extremely dangerous. Forthis reason, CNG tanks must undergo "severe abuse" tests such as collisions, fires, and evengunfire. (54)

Other Issues. Besides the environmental benefits of natural gas, another benefit is the fact that over 80% of natural gas used in the United Statescomes from domestic sources. (55) Therefore, it hasbeen argued that natural gas vehicles can helppromote energy security in this country by lowering our reliance on imported fuel. However,because natural gas is used extensively in electricity production, significant increases in its use fortransportation could result in increased demand for other fuels for electricity.

Biodiesel

Biodiesel is a synthetic diesel fuel that is produced from fatty feedstocks such as soybean oil and recycled cooking oil. (56) Although moreexpensive than conventional diesel, it has someimportant advantages. The most notable advantage is that because biodiesel is very similar toconventional diesel, the fuel can be used in existing diesel engines. (57)

Consumption. Currently, U.S. consumption is about 37 million gallons per year, (58) as comparedto approximately 36 billion gallons per year ofconventional diesel. (59) Because biodiesel can beused in existing diesel engines, there are no vehiclesdesigned specifically for its use.

Cost. The most significant drawback to biodiesel is its increased cost as compared to conventional diesel. Diesel pump prices averaged between $1.15and $1.50 per gallon in 2003. (60) At the same time,median pump prices for B20 (a blend of 20%biodiesel in conventional diesel) ranged between $1.29 and $1.60. (61) This price difference(approximately 8 to 20 cents per gallon) implies that pure biodiesel costs as much as $1.00 more pergallon to produce. However, wholesale biodiesel prices have been dropping due to processimprovements and increases in production scale. Further, in some places, where recycled oil is used,wholesale prices of pure biodiesel may actually be lower than for conventional diesel.

Relative to other alternative fuels, there is one key cost advantage of biodiesel. It can be used in existing diesel vehicles with little or no modification. Therefore, covered EPAct fleets -- andothers interested in reducing their petroleum consumption and improving their environmentalperformance -- may use biodiesel without the capital investments necessary for other alternativefuels.

Infrastructure. Because biodiesel is chemically very similar to conventional diesel, it could be placed in the existing diesel distribution system withonly a few modifications. Most importantly, since biodiesel is a more effective solvent thanconventional diesel, it can cause deterioration of rubber and polyurethane materials (e.g. seals). Currently, most biodiesel supply involves purchase contracts by fleet owners, and delivery ofbiodiesel to fleet-owned dispensing sites. However, 177 biodiesel refueling stations have openedin 37 states in the past five years. (62)

Performance. Biodiesel is generally mixed with conventional diesel at the 20% level. The resulting fuel, B20, can be used in existing diesel engineswith few or no engine modifications. Higher concentrations can be used, however, especially withnewer equipment. The use of biodiesel (B20 or higher concentrations) leads to substantial reductionsin emissions of VOCs, carbon monoxide, and particulate matter. (63) However, NO x emissions tendto increase with the use of biodiesel.

Other than the changes in emissions, there seems to be little, if any, difference in performance between biodiesel and conventional diesel. Payload and range remain the same, and maintenancecosts may actually be decreased due to the lower sulfur content of the fuel. Some minormodifications may be necessary with concentrations above 20%, due to fact that biodiesel is a veryeffective solvent and can corrode engine seals. (64)

Safety. There seem to be few additional safety concerns for biodiesel. Its safety properties are consistent with conventional diesel. However, itdoes have one advantage over conventional diesel. Because biodiesel has a higher flash point (65) thanconventional diesel, it is more difficult to ignite, reducing the risk of fire. (66)

Other Issues. Biodiesel currently faces two key issues. The first has to do with the tax structure for biodiesel. Because biodiesel is a renewable fuel,there has been interest in creating a tax incentive similar to the ethanol tax incentive. This incentive,supporters argue, would allow biodiesel to compete and play a larger role in our fuel supply. In 2004Congress approved the American Jobs Creation Act ( P.L. 108-357 ). Among other provisions, theact established a tax credit of $1.00 per gallon for the production and use of biodiesel made fromagricultural products.

The second issue involves a 1998 amendment to EPAct. This amendment (67) grants credits toowners of covered fleets who purchase biodiesel. These credits count toward the purchaserequirements for alternative fuel vehicles. Every 450 gallons of biodiesel purchased earns one credit. This allows fleet owners to meet their EPAct requirements without purchasing new vehicles andwithout modifying their existing fueling infrastructure. Environmentalists have charged that becausethe fuel is then blended at the 20% level, there is little impact on oil consumption or vehicleemissions. (68)

Ethanol (69)

Ethanol, or ethyl alcohol, is an alcohol made by fermenting and distilling simple sugars. (70) Ethylalcohol is in alcoholic beverages, and it is denatured (made unfit for human consumption) when usedfor fuel or industrial purposes. Although the broadest current use of fuel ethanol in the United Statesis as an additive in gasoline, in purer forms it can also be used as an alternative to gasoline. It isproduced and consumed mostly in the Midwest, where corn -- the main feedstock for ethanolproduction -- is produced. When used as an alternative fuel, ethanol is usually blended withgasoline at a ratio of 85% ethanol to make E85. As with other alternative fuels, there are manybenefits but also drawbacks associated with its use.

Consumption. Ethanol is the most commonly used alternative fuel, although most of this is blended at the 10% level with 90% gasoline to makeE10, or "gasohol." Including its use in gasohol, 2004 ethanol consumption was approximately 3.1billion gallons, or 2.0 billion GEG. This corresponds to approximately 1% of annual gasolineconsumption. However, E10 is not recognized by EPAct as an alternative fuel because itswidespread use does not significantly diminish gasoline consumption. Consumption of E85 -- whichis recognized by EPAct -- is relatively low. Only about 22 million GEG of E85 were consumed in2004, although consumption has steadily increased since 1992. (71)

As of 2004, there were approximately 146,000 E85 vehicles being fueled primarily by ethanol in use in the United States. (72) This number hasbeen growing, but is still negligible against the totalnumber of conventional vehicles on the road. However, many E85 vehicles can be fueled with E85,gasoline, or any mixture of the two. There are many more of these flexible fuel vehicles (FFV) thandedicated ethanol vehicles. Models of some popular production vehicles, including the FordExplorer and Ford Taurus now have E85/gasoline flexible fuel capability standard. Other vehicleswith the option of FFV capability include the Dodge Caravan, the Chevrolet Silverado pickup, andthe Mercedes-Benz C240 sedan. (73) The EnergyInformation Administration estimates thatapproximately 4.1 million ethanol FFVs were on the road in 2003. It is expected that the vastmajority of these vehicles will be fueled with gasoline. However, it is possible that the greateravailability of FFVs will spur the market for ethanol fuel. In 2002, the federal government operatedapproximately 53,000 ethanol FFVs, although most of these are fueled with gasoline.

Cost. One of the key drawbacks to the use of ethanol is its cost. Per gallon, median E85 retail prices ranged from approximately $0.84 to $1.41 (74) between April 2000 and October 2002. In terms of GEG, ethanol costs ranged between $1.16 and$1.95. (75) When blended with gasoline, ethanolbenefits from an exemption to the motor fuels excisetax. (76) This benefit makes ethanol competitivewith gasoline as a blending agent. In fact, when usedto make E10, the exemption is a nominal 52 cents per gallon of pure ethanol. However, for neatfuels, the exemption is much less -- only a nominal 6.4 cents per gallon of pure ethanol for E85.

While fuel costs are higher for E85, there is little, if any, incremental vehicle cost. (77) Further,ownership and maintenance costs tend to be equal for ethanol and gasoline vehicles.

Infrastructure. Most of the current infrastructure for the delivery of ethanol is in the form of tanker trucks used to deliver ethanol to terminals forblending with gasoline. However, there were 205 E85 refueling sites nationally as of December2004, mostly in the Midwest, where ethanol is produced. (78) Since there is experience in storing anddelivering ethanol, and since the fueling systems are similar to gasoline, the refueling infrastructurecould expand to meet increased demand if the delivery costs were reduced.

Performance. Because of its lower energy content, the key performance drawback of ethanol is lower fuel economy. Fuel economy is reducedby approximately 29%, resulting in reduced range. However, this reduction in range can bemitigated somewhat by increasing fuel tank size (with the associated drawbacks of a larger tank). Another problem with ethanol is that in cold weather, an ethanol-powered vehicle may be difficultto start. For this reason, most ethanol that is used in purer forms is E85. The 15% gasoline allowsfor easier ignition under cold-start conditions. There are few other technical concerns over theperformance of ethanol because of the relatively few modifications necessary to operate a vehicleon ethanol.

There are key environmental advantages to ethanol, as well as some drawbacks. Ethanol-powered vehicles tend to emit 30 to 50 percent less ozone-forming compounds than similar gasoline-powered vehicles, includingsignificant reductions in carbon monoxide emissions. (79) In addition,ethanol tends to have a much lower content of toxic compounds such as benzene and toluene, leadingto lower emissions of most toxic compounds. However, ethanol-powered vehicles tend to emit moreformaldehyde and acetaldehyde, (80) although theseemissions can be largely controlled through the useof advanced catalytic converters. (81)

Another key environmental advantage with ethanol is its relatively low life-cycle greenhouse gas emissions. (82) Ethanol-powered vehicles tendto emit lower levels of greenhouse gases thangasoline vehicles. Also, the growth process of the ethanol feedstock results in uptake of carbondioxide, further reducing net greenhouse gas emissions. Conversely, when the raw materials andpractices used to produce the feedstock and the fuel are taken into account, emissions for both fuelsare increased. According to a study by Argonne National Laboratory, the use of E85 results in a 14%to 19% reduction in life-cycle greenhouse gas emissions, and with advances in technology, thisreduction could be as high as 70% to 90% by 2010. (83) However, other studies cite lower efficiencyin the ethanol fuel cycle, leading to smaller reductions in greenhouse gas emissions. (84)

Safety. Fuel ethanol tends to be safer than gasoline. At normal temperatures, E85 is less flammable than gasoline, and tends to dissipate morequickly. While an ethanol flame is less visible than a gasoline flame, it is still easily visible indaylight. (85)

Other Issues. The most significant issue surrounding ethanol is the exemption from the motor fuels excise tax. Because a few producerscontrol a majority of ethanol production capacity in the United States, the exemption has been called"corporate welfare" by its opponents. Proponents of the exemption argue that it helps supportfarmers (through increased demand for their product), and helps compensate for added economicvalue from benefits to the environment, and to energy security because ethanol is produced fromdomestic crops. (86)

Because of concerns over the fact that the exemption lowers receipts to the Highway Trust Fund, an income tax credit for ethanol blending was inserted into the American Jobs Creation Act( P.L. 108-357 ). The act replaces the existing exemption with a tax credit paid from the generaltreasury, as opposed to the Highway Trust Fund.

Another key issue is the possible development of a renewable fuels standard (RFS). An RFS would require the use of a set amount or percentage of renewable fuel in gasoline. Although thereare several potential fuels that could be used to meet the standard (including biodiesel), it is likelythat most of the requirement would be met with ethanol (blended at the 10% level or lower). It hasbeen argued that an RFS would promote agricultural production and lessen the need for importedoil. Critics argue that the standard would increase gasoline prices with little effect on oil imports. Legislative proposals on an RFS are discussed below in the section on "Congressional Action."

Methanol

Methanol, the simplest alcohol, is also called "wood alcohol." (87) It is usually derived fromnatural gas, but can also be derived from coal or biomass. As a fuel, methanol is most often usedas a blend with gasoline called M85 (85% methanol, 15% gasoline), although the fuel can also beused in an almost pure (neat) form called M100. In addition to general transportation, Indianapolis-type race carsuse methanol exclusively. As a motor fuel it has many benefits, but also manydrawbacks.

Consumption. Because of its drawbacks, methanol consumption is relatively low. In 2004, 0.3 million GEG of methanol were consumed. (88) This corresponds to roughly 1/1000th of 1% of the approximately 133 billion gallons of gasolinedemand. Methanol consumption peaked in 1996 and has decreased since.

There are few methanol-powered vehicles operating in the United States. Consistent with the decline in methanol consumption, after a peak in 1996, the number of M85 and M100 vehicles hasdeclined. There were approximately 4,600 methanol vehicles in 2004. The federal governmentoperated only 70 methanol-fueled vehicles in 2003. (89) The major automobile manufacturers have notsold methanol-powered production cars since model year 2001. (90)

Cost. A notable concern with methanol is its cost. Per GEG, methanol tends to be more expensive than gasoline. As of January 1, 2000, the price formethanol was between $0.95 and $1.20 per gallon. (91) However, due to the lower energy content ofmethanol, the fuel cost roughly $1.73 to $2.10 per GEG. (92)

In addition to the fuel cost, incremental vehicle cost is higher with the use of methanol. The incremental cost for the purchase of a methanol-fueled vehicle (or the conversion of an existinggasoline-fueled vehicle) can range from $500 to $2,000, though some of this incremental costcurrently may be defrayed by purchase incentives. The most notable part of the incremental cost isreplacing parts (such as certain seals) that may be corroded by alcohol.

Infrastructure. Another barrier to the wide use of methanol as a motor fuel is the lack of fueling infrastructure. While there were a few publicmethanol refueling stations, these stations have closed in recent years. Currently, the Departmentof Energy does not list any public refueling sites for methanol. (93) This lack of infrastructure makesit difficult for the methanol vehicle market to expand. In fact, due to lack of demand, methanolinfrastructure has declined in the past few years. However, existing gasoline tanks and pumpingequipment could be readily converted to store and deliver methanol, and vehicle users wouldexperience little difference between a methanol pump and a gasoline pump.

Because methanol can be produced from natural gas and petroleum, a raw material shortage would be unlikely if methanol consumption increased. However, in terms of delivery to stations,most methanol is transported by tanker truck from the methanol plant. (94) This delivery method tendsto be less flexible and more costly compared to the existing gasoline infrastructure, which reliesprimarily on pipeline delivery. Methanol cannot travel through pipelines due to its physicalproperties.

Performance. One of the key benefits of methanol vehicles is improved environmental performance over gasoline vehicles. M85 vehiclestend to emit 30% to 50% less ozone-forming compounds. And while formaldehyde emissions tendto be higher with methanol than gasoline, M85 vehicles would likely be able to meet new emissionsstandards. (95)

A key performance drawback with methanol vehicles is a reduction in vehicle range. Since it requires 1.77 gallons of methanol to equal the energy in 1 gallon of gasoline, range per gallon isdecreased by approximately 40%. By increasing the size of the fuel tank, the loss of range can besignificantly improved or even eliminated. However, a larger fuel tank would decrease fuel economyand cargo space.

Safety. On the whole, methanol fuel is safer than gasoline. Since methanol vapor is only slightly heavier than air, vapors disperse quickly comparedto gasoline. Furthermore, methanol vapors must be more concentrated than gasoline to ignite, andmethanol fires release less heat. Since methanol burns with a light blue flame, one key drawbackis that in bright daylight it may be difficult to see a methanol fire, although it may be possible to addcolorants to the fuel. (96)

Fuel Cells. Methanol has been touted as potential step from gasoline to hydrogen in fuel cell vehicles because the fueling infrastructure is similar togasoline, while the fuel is much cleaner. (97) Fuelcells are a type of power system that generateselectricity from hydrogen (or a hydrogen-bearing compound) without combustion. The chemicalprocess is highly efficient and drastically reduces vehicle emissions. (98) For more information on fuelcells, see CRS Report RL30484 , Advanced Vehicle Technologies: Energy, Environment, andDevelopment Issues.

Another potential advantage of methanol is that it can be derived from biomass waste products. Research is ongoing, and there have been a few, small-scale demonstration projects at landfills. Ifmethanol is produced instead from fossil fuel resources, it may be less likely to promote energyindependence.

Electricity (99)

An electric vehicle (EV) is powered by an electric motor, as opposed to an internal combustion engine. Energy is supplied to the motor by a set of rechargeable batteries. When the vehicle is notbeing used, these batteries are recharged.

Because no fuel is burned, there are no emissions from the vehicle, making it a zero emissions vehicle (ZEV). However, there are emissions from electricity production associated with electricvehicles. When the entire fuel cycle is considered, pollutant emissions from EVs are still lowrelative to gasoline vehicles. Like other AFVs, however, there are key cost and performancedrawbacks associated with these vehicles.

Consumption. Approximately 12 million GEG of electric fuel were consumed in the United States in 2004 by approximately 56,000 electricvehicles. (100) Most of these vehicles werelocated in California, and several models were availableexclusively in that state. One of the most popular EVs was the General Motors (GM) EV1, althoughGM has discontinued production of the vehicle and has recalled all of its leases, due to limitedconsumer acceptance of the vehicles. Other manufacturers have also discontinued production oftheir electric vehicles (101) The federalgovernment operated approximately 1,300 electric vehicles in2003. (102)

Cost. Electric fuel is considerably less expensive than using gasoline, about 2.5 to 3.3 cents per mile, as opposed to 4 to 6 cents per mile for a gasolinevehicle. (103) Despite the fuel cost advantages,a major drawback with EVs is the incremental vehiclepurchase cost, which can be as much as $20,000. Most of this cost is related to the batteries, whichare very expensive to produce. (104)

Infrastructure. There are very few electric recharging sites in the United States. Currently, there are about 700 recharging sites, mostly inCalifornia. (105) With the extensive nature of theelectricity infrastructure in the United States, thereare few technical barriers to expanding EV recharging sites. However, with existing technology,only a few vehicles can access a single charger in one day, as opposed to a gasoline pump which canserve a new vehicle every few minutes.

Performance. The environmental performance of EVs is very good. When the entire fuel cycle is considered, electric vehicles produce low overalllevels of toxic and ozone-forming pollutants. (106) Depending on the fuel mix for local electric powergeneration, overall emissions can be decreased by 90% or more as compared to gasoline vehicles. (107)

A major performance drawback of EVs is their relatively short range. On a full charge, an electric vehicle can travel between 50 and 130 miles, as opposed to a range of 300 to 400 miles witha conventional vehicle. (108) Another drawbackis that fueling an electric vehicle takes between 3 and8 hours, as opposed to a few minutes for a conventional vehicle. (109)

Safety. Few additional safety issues are associated with electric vehicles. Because no chemicals are transferred during fueling, there is norisk of spillage or inhalation, and with existing recharging systems, electric shocks are unlikely. Inthe event of an accident, there is no combustible fuel so there is no danger of fire or explosion. However, because of the acid contained in some types of batteries, there could be concern over acidleaks if batteries were to rupture in a collision. Further, because of the higher current in the electricalsystems, there is increased potential for shock to emergency responders in the case of a collision.

Fuel Cell and Hybrid Vehicles. While battery-powered electric vehicles tend to be very expensive, and have many other drawbacks, there isgrowing interest in fuel cell and hybrid electric vehicles. Research into batteries, electric drivetrains,and lightweight materials will play a key role in the development of EVs, as well as both hybrid andfuel cell vehicle technology. For a more detailed discussion of fuel cell and hybrid technologies, see CRS Report RL30484 , Advanced Vehicle Technologies: Energy, Environment, and DevelopmentIssues.

Fuel Cell Vehicles. Unlike a conventional vehicle, a fuel cell vehicle uses chemical reaction (as opposed to combustion) to produce electricity to poweran electric motor. Unlike a battery-powered EV, fuel cell vehicles have a fuel tank, eliminating thelong recharging time. These systems can be very efficient, although the technology is far fromcommercialization. A few auto manufacturers have offered a small number of fuel cell vehicles forlease in model year 2004, and several other manufacturers plan to introduce fuel cell vehicles in thenext few years. It is expected that these vehicles will be leased to corporations and that the leasecosts will be relatively high (compared to conventional vehicles).

Hybrid Electric Vehicles. A hybrid electric vehicle combines an electric motor with a gasoline or diesel engine. This combination leads to very highfuel efficiency and low emissions while avoiding some of the problems associated with pure electricvehicles. Most hybrids operate solely on conventional fuel, with the engine providing power to thewheels and to an electric generator simultaneously. Therefore, hybrids can be fueled as quickly andconveniently as conventional vehicles, while achieving even longer ranges.

A total of seven production vehicles are expected to be available by early 2005, and most of the major car companies plan to have hybrid models available in the next few years. (110) Although hybridelectric vehicles are not considered AFVs for compliance with EPAct requirements (because theyutilize conventional fuel), they do qualify for a Clean Fuel Vehicle Tax Deduction. Theenvironmental performance of hybrids has led to congressional interest in larger incentives topromote their commercialization. (111)

Hydrogen

Due to its presence in water, hydrogen is abundant, although it does not appear in pure form in any significant quantity. (112) The hydrogen inwater can be separated from oxygen through a processcalled hydrolysis. (113) Other key hydrogensources are fossil fuels and other hydrocarbons. Hydrogenfuel is of interest because it can be used in a zero-emission fuel cell. Because hydrogen fuel can bestored in sufficient quantity onboard the vehicle, fuel cell-powered electric vehicles do not face someof the range and fueling limitations as battery-powered electric vehicles.

Currently, no production vehicles are powered by pure hydrogen, although all of the major domestic and foreign automobile manufacturers are researching hydrogen fuel cells, and a few haveintroduced a limited number of hydrogen fuel cell vehicles for lease in model year 2004. However,it is possible that the first publicly available fuel cell vehicles will be operated on a liquid fuel suchas gasoline or methanol, because these fuels are much easier to deliver and are more readily availableat present (see above section on methanol).

In his January 28, 2003, State of the Union Address, President Bush announced a new five-year, $720 million research and development initiative for hydrogen fuel. This initiative is intended tocomplement the FreedomCAR initiative, which focuses on the development of fuel cell vehicles. The Administration's plan would dedicate a total of $1.8 billion over five years for hydrogen andfuel cells. Among other provisions, the conference committee report on H.R. 6 (thecomprehensive energy bill in the 108th Congress) would have authorized a total of $2.15 billion forthe initiatives. The Administration requested $257 million in FY2004 for these initiatives. However, while Congress approved an increase of $50 million over FY2003 levels, this was still $23million below the requested level. (114) ForFY2005, Congress appropriated $261 million, slightlybelow the Administration's request. (115)

Consumption. Currently, hydrogen fuel consumption is very low. In fact, the Energy Information Administration does not report U.S.hydrogen consumption in its Alternatives to Traditional Transportation Fuels.

Cost. Storage and delivery of hydrogen are complicated because at standard temperatures and pressures, hydrogen gas has a very low density. Therefore, the fuel must be compressed, stored in liquid form, or stored in some other manner (e.g.,bonded with other chemicals or stored in a container with complex geometry). Currently, each ofthese storage options has its drawbacks, which can include safety, cost, and the ability to storeenough hydrogen onboard the vehicle to provide acceptable range.

In addition to the increased cost of storing hydrogen fuel on a vehicle, other system componets are currently prohibitively expensive. It is estimated that a fuel cell for passenger car applicationsis roughly 10 times more expensive than a conventional engine at today's costs. However, it isexpected that with technological advances and the use of mass production the price of a fuel cellsystem will decrease in the future.

Currently, because hydrogen is produced in very low quantities for fuel use (it is used most as a process chemical in petroleum refining), it is considerably more expensive than gasoline at currentprices. Further, because the infrastructure to deliver hydrogen is vastly different from petroleuminfrastructure, expanding hydrogen delivery will also be complicated, and likely expensive.

Infrastructure. There is very little infrastructure to deliver hydrogen fuel, and most current facilities are in place to serve small demonstration andtest fleets. As was stated above, expanding hydrogen infrastructure will likely be expensive.

Performance. The potential environmental performance of hydrogen fuel could exceed all other alternative fuels. Fuel cells are significantlymore efficient than gasoline engines, and the only emissions from hydrogen fuel cells are heat andwater vapor. However, the fuel cycle emissions from the production of hydrogen fuel could diminishits environmental performance, depending on the primary fuel used. For example, if produced fromsolar energy, the total fuel cycle pollutant and greenhouse gas emissions could be very low or evenzero. But if fossil fuels are burned or reformed to generate hydrogen, depending on whetheremissions are captured, total emissions could equal or even exceed those of efficient gasoline anddiesel vehicles. Therefore, the ultimate feedstock for hydrogen production has become a significantpolicy concern.

Safety. There are some key safety concerns and some likely benefits from the use of hydrogen fuel. Because of its low density in air, hydrogen fuelis likely to dissipate quickly in an open area, reducing safety concerns. Further, hydrogen rises,which may make it less likely than other fuels to lead to asphyxiation if released in an enclosed area. However, when hydrogen does burn, the flame is transparent. Further, hydrogen is highly reactive,and in the presence of a leak the fuel can be ignited with a small spark of static electricity. Otherconcerns include the safety of high-pressure or low-temperature onboard fuel storage, the safety ofhydrogen stations in populated areas, and the need to train first responders about hydrogen safety.

Coal-Derived Liquid Fuels

Although EPAct recognizes coal-derived fuels as alternative fuels, these fuels have seen little commercial success. This is largely due to their high production costs and poor environmentalperformance. (116) However, research to reducecosts and improve environmental performance isongoing, mostly through support of the Department of Energy. (117) A potential advantage of coal-derived fuels is that the feedstock is an abundant domestic resource.

Conclusions

Alternative fuels have reached varying levels of commercial success, although currently none are able to compete with conventional fuels. LPG and natural gas fuels and vehicles have beensuccessfully commercialized, and are widely used in both private and public fleets. Ethanol is acommon additive in gasoline, but is used sparsely as an alternative fuel. Other fuels, such asmethanol and electricity have had less commercial success, but may play a key role in the future oftransportation.

The degree to which various alternative fuels have been used has been a result of economic factors, as well as government tax policies and regulatory mandates. Further, the performancecharacteristics of the fuels have also played a major role.

In general, there are potential energy security benefits to alternative fuels, as most alternative fuels can be derived from domestic sources. Further possible benefits include lower emissions oftoxic pollutants, ozone-forming pollutants, and greenhouse gases. However, performance and costare key barriers to consumer acceptance. Without considerable advances in alternative fuel andvehicle technology, or significant petroleum price increases, it is unlikely that any fuel or fuels willreplace petroleum-based fuels in the near future.

Congressional Action

Recent policy debate has focused on American energy security. Because of this, discussion hasturned to alternative fuels. Proponents argue that expanding alternative fuel tax credits and otherincentives would promote improved air quality and energy security. Opponents argue that alternativefuel programs could lead to "corporate welfare" and that there are less expensive ways to reducepollution and cut fuel consumption, such as efficiency improvements and conservation. Forexample, an increase in fuel economy of one mile per gallon across all passenger vehicles in theUnited States could cut petroleum consumption more than all alternative fuels and replacementfuels (118) combined. (119)

The Bush Administration's National Energy Policy (120) supports an increased role for alternativefuels, as did several bills in the 108th Congress. Provisions in various bills would have provided taxcredits for the purchase of alternative fuel and hybrid vehicles, and would have expanded the existingelectric vehicle tax credit. Further, some bills would have expanded the existing tax credits anddeductions for the installation of alternative fuel refueling infrastructure. Some bills also would haveprovided per-gallon tax credits for the retail sale of alternative fuels, and some bills would haveallowed states to exempt alternative fuel and/or hybrid vehicles from high occupancy vehicle (HOV)restrictions. Finally, some bills would have provided grants to schools, municipalities, and/or transitsystems for the purchase of alternative fuel vehicles, refueling infrastructure and/or fuel.

Most notably, the Energy Policy Act of 2003 ( H.R. 6 ) contained several provisions on alternative fuels. The conference report ( H.Rept. 108-375 ) would have required the use of 5.0billion gallons of renewable fuel in gasoline by 2012 (renewable fuels standard). Further, the billwould have authorized the $2.15 billion over five years for hydrogen and fuel cell research anddevelopment. The bill also would have provided a tax credit for the purchase of fuel cell vehicles. Finally, the bill would have modified the way vehicle purchase credits are generated under EPAct. The House approved the conference report on November 18, 2003. On November 21, 2003, acloture motion on the bill was rejected in the Senate. It is likely that a similar bill will be introducedin the 109th Congress.

Another key piece alternative fuel legislation in the 108th Congress was the CLEAR ACT ( H.R. 1054 and S. 505 ). These bills would have expanded the existing EVtax credit and infrastructure deduction, and created new credits for alternative fuel vehicles andhybrids. Further, the bills would have established a tax credit for the retail sale of alternative fuel. (121)

Most notably, on October 22, 2004, the American Jobs Creation Act was signed into law ( P.L. 108-357 , H.R. 4520 ). Among other provisions, this act replaced the existing taxexemption for ethanol-blended fuel with a tax credit. In addition, it established a tax credit for theproduction and sale of biodiesel fuel.