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

DEPARTMENT OF ENERGY

Office of Energy Efficiency and Renewable Energy

[Docket No. EE-NOA-97-506]

Proposed Technical and Policy Analysis on Replacement Fuels and

Alternative Fuel Vehicles

AGENCY: Office of Energy Efficiency and Renewable Energy, Department of

Energy (DOE).

ACTION: Notice of availability and request for comments.

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SUMMARY: The Department of Energy is today publishing this notice of

availability of a proposed analysis, as required by section 506 of the

Energy Policy Act of 1992, on issues relating to replacement fuels and

alternative fuel vehicles. The Department is requesting public comment

on the proposed analysis prior to submission of the final report to the

President and Congress. A short summary of the proposed analysis is

included in this notice.

DATES: Written comments (5 copies) must be received by the Department

by January 26, 1998.

ADDRESSES: Copies of the proposed Technical and Policy Analysis (which

is approximately 75 pages long, single-spaced) may be obtained from the

National Alternative Fuels Hotline, 9300 Lee Highway, Fairfax, Va.

22031-1207, (800) 423-1DOE, or electronically from the Office of Energy

Efficiency and Renewable Energy's Transportation Technologies website

at: http://www.ott.doe.gov, under the Rules and Legislation section

(http://www.ott.doe.gov/office.rules.html).

Written comments (5 copies) are to be submitted to the U.S.

Department of Energy, Office of Transportation Technologies, EE-34,

Docket No. EE-NOA-97-506, 1000 Independence, Avenue S.W., Washington,

D.C. 20585, telephone (202) 586-3012.

Commenters are requested to provide a supplemental electronic copy

of comments (1 copy), if possible, to facilitate the posting of

comments on the Department's website. These optional electronic

versions of comments should be stored in common text or word processor

formats, and saved on a pc-compatible 3.5'' diskette and mailed to the

address above; or emailed directly to afv-deployment @hq.doe.gov.

Electronic versions are considered supplemental only--the Department is

not able at this time to guarantee the inclusion in the docket of

comments provided only in electronic format.

FOR FURTHER INFORMATION CONTACT: Mr. Paul McArdle, Program Manager,

Office of Energy Efficiency and Renewable Energy (EE-34), U.S.

Department of Energy, 1000 Independence Avenue, S.W., Washington, DC

20585, email: [email protected], or phone (202) 586-9171.

SUPPLEMENTARY INFORMATION:

I. Purpose

II. Summary of Findings of Technical and Policy Analysis

III. Availability of Proposed Technical and Policy Analysis

IV. Public Comment Procedures

I. Purpose

Section 506(c) requires DOE to seek and consider public comments on

the draft Technical and Policy Analysis on issues relating to

replacement fuels and alternative fuel vehicles prior to its final

transmission to the President and Congress. DOE may revise the Analysis

prior to such final submission in light of comments received. DOE is

also required by section 506(c) to preserve all comments received on

the Analysis for use in required rulemaking proceedings under section

507, including rulemaking to consider alternative fuel vehicle

acquisition requirements for private and municipal fleets. In addition,

DOE is in the process of devising a Replacement Fuel Supply and Demand

Program under section 502. Comments received on the proposed Technical

and Policy Analysis could be very useful in designing this program.

II. Summary of Findings of Technical and Policy Analysis

Energy Security Concerns

The geopolitical context surrounding energy security has changed

enormously since the oil shocks of the 1970s, with the end of the Cold

War, the Organization of Petroleum Exporting Countries (OPEC) in

disarray, and the cementing of U.S. security ties to the most important

oil exporting nations. Unfortunately, these developments have

engendered a complacency on the part of the American public not unlike

that which preceded previous oil shocks. Historically, periods of low

prices have been followed by steep price spikes, a pattern that could

well be repeated in coming years.

[[Page 55623]]

In contrast to the current geo-strategic environment, economic

realities and trends seem to be recreating many of the preconditions

for a potential oil shock in the U.S. sometime in the future. Economic

growth in the Pacific rim is giving rise to a growth in world oil

demand which could well lead to a short-supply situation within the

next five to ten years. The world's oil resources are as concentrated

as ever in the OPEC nations, notably in the Persian Gulf. DOE's Energy

Information Agency (EIA) projects that by 2010, OPEC's market share is

likely to reach the levels of the 1970s, as its share of world exports

grows from 41 percent in 1993 to 53 percent in 2010.

The costs to the U.S. economy from a future oil price shock could

be enormous. Based on analyses of previous oil shocks, a number of

recent studies have estimated the macroeconomic impacts as reducing

U.S. economic activity by an average of over 2 percent per year for

three to four years or more, which translates into GNP reductions in

the range of six hundred billion dollars over three years, up to

possibly $3 trillion over fifteen years if the lost economic growth

were not subsequently made up.

Unlike other energy using sectors, which have introduced substitute

fuels and fuel switching flexibility since the oil shocks of the 70s

and 80s, the transportation sector remains overwhelmingly dependent on

petroleum based fuels (approximately 97.5 percent of transportation

energy coming from petroleum) and on technologies that provide

virtually no flexibility. The transportation sector currently accounts

for approximately two-thirds of all U.S. petroleum use and roughly one-

fourth of total U.S. energy consumption.

Substitution of petroleum-based transportation fuels (gasoline and

diesel) by non-petroleum-based fuels (``replacement fuels,'' including

alternative fuels such as electricity, ethanol, hydrogen, liquefied

petroleum gas, methanol, and natural gas) could be a key means of

reducing the vulnerability of the U.S. transportation sector to

disruptions of petroleum supply. Centrally-fueled fleets are probably

critical to the transportation sector's transition to alternative fuels

and vehicles. Early introduction of alternative fuels in these fleets

is more feasible since they generally refuel at a central facility and

operate within a fuel tank's driving range of that central facility.

Accordingly, fleets feature prominently in Title V of EPACT, which aims

to displace substantial amounts of petroleum based motor fuel with

alternative fuels.

Since EPACT was enacted in 1992, transportation petroleum

consumption has risen from 10.3 million barrels per day to 10.7 million

barrels per day in 1994. EIA projects this consumption to rise to 14.0

million barrels per day by 2010. U.S. dependence on imported petroleum

has also grown since EPACT enactment. In 1992, 41 percent of total U.S.

petroleum consumption was derived from foreign sources. By 1994,

imports had increased to 45 percent. EIA projects U.S. petroleum import

dependence to reach approximately 54 percent of consumption by 2000 and

57 percent of petroleum consumption by 2005.

In that dependence of U.S. autos and trucks on imported oil was one

of the major driving forces behind Congressional passage of EPACT, the

imperatives are even stronger now than at the time of passage.

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

Section 502(b)(2) of EPACT suggests tentative goals of displacing

10 percent of transportation fuel with replacement fuels by the year

2000 and displacing 30 percent by the year 2010. DOE is making steady

progress in carrying out the provisions of EPACT Title V and related

programs, which should yield measurable results in alternative fuel and

AFV usage in the future. DOE supports and coordinates the Federal Fleet

Program for acquisition of alternative fuel vehicles (AFVs), which had

put over 25,000 AFVs into the federal fleet by the end of fiscal year

1996. DOE's Clean Cities Program promotes voluntary commitments and

coordinated action by the key groups within participating city regions

for installation of alternative fuel infrastructure and acquisition of

vehicles. As of August 1997, 54 cities and over a thousand stakeholder

organizations were participating. DOE is also carrying out the

rulemaking and analytical activities prescribed by EPACT Title V,

including its assessment of the technical and economic feasibility of

reaching the 10 percent and 30 percent goals. The Research, Development

and Demonstration program has been instrumental in fostering technology

development in its two spheres, Advanced Vehicle Propulsion

Technologies and Alternative Fuels Research and Demonstration. The

latter is now turning its focus to alternative fuels infrastructure

technology. DOE is also involved with the Environmental Protection

Agency (EPA) in Clean Air Act programs that promote use of advanced

technology vehicles, including alternative fuel vehicles, for use in

ozone non-attainment areas. Many of the programs authorized by EPACT

have not been in place long enough to allow a credible assessment of

program impacts. The statutory requirement for this Technical and

Policy Analysis actually precedes the start of implementation for some

of the EPACT programs.

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

Imports

While DOE modeling suggests that the potential use of replacement

fuels in the U.S. is very high, by 1996 the transportation sector has

barely scratched the surface of this potential. The actual use of

replacement fuels in 1996 in the U.S. is estimated by EIA to be about

4.6 billion gallons gasoline equivalent (or 3.1 percent of total

highway transportation fuel). Of this, 4.2 billion equivalent gallons

was oxygenates blended into gasoline (2.9 percent of highway fuel) and

323 million equivalent gallons was alternative fuel use by AFVs (0.2

percent of highway fuel). The preliminary partial results of DOE's

study of the feasibility of reaching the goals suggested by sec. 502(b)

indicate that the potential use of replacement fuels sustainable by the

market could be as high as 30 to 38 percent in 2010 under various

scenarios and could ultimately be nearly double that.

In order to reach such levels of alternative fuel use, however,

major transitional impediments would have to be overcome, including

changes in relative fuel/vehicle prices to consumers. For example, the

EPACT suggested goals of displacing 10 percent of transportation fuels

in the year 2000 and 30 percent in the year 2010 would require that AFV

sales--

Grow to between 35 and 40 percent of total new light-duty

vehicle sales by 1999 to meet the 2000 goal; and

Stay in the range of 30 to 38 percent to build an AFV

population sufficiently large to meet the 2010 goal.

Even to meet a 30 percent goal for year 2020, AFV growth would have

to--

Double every year between 1995 and 2000, going from

approximately 30,000 to 500,000 sales per year;

Increase by 50 percent per year to 4,000,000 in the period

from 2001 through 2005; and

Remain at a constant 32 percent of total light-duty

vehicle (LDV) sales in the period of 2005 through 2010.

Under this scenario, the AFV population in 2020 (ten years later

than

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the EPACT 30 percent goal) would be large enough so that 30 percent of

LDV motor fuel would be replacement fuel (alternative fuels plus

oxygenates used in conventional vehicle fuel). This alternative

scenario is believed to be more representative of new vehicle

technology market introduction generally, than the growth paths

necessary to meet the unmodified EPACT goals but would still be

enormously ambitious.

Analysis indicates that currently authorized Federal, state and

local AFV programs could displace approximately 220,000 barrels per day

of motor fuel or roughly 3 percent of the LDV transportation fuel use

projected by EIA for 2010, while replacement fuels in the form of

oxygenates could contribute an additional 4.8-6.7 percent of LDV motor

fuel during this period. The gap between these volumes and those

necessary to reach or approach the EPACT sec. 502(b)(2)(B) goal of 30

percent fuel displacement by 2010 would have to be met by AFV use by

motorists not covered by these programs, that is, largely by the

general public.

Examination of international policy experience shows EPACT fleet

programs to be a unique approach. Nonetheless, experience of other

countries' programs does provide the following lessons:

Spillover into voluntary use of alternative fuels and AFVs

in non-mandated sectors is likely to be determined by the relative

economic costs and benefits during each stage of the transition,

including (at least for dedicated AFVs) some differential to compensate

for future uncertainty and for the operational disadvantages of

dedicated AFVs.

Merely putting in place novel and limited infrastructure

networks is likely to be insufficient in generating high levels of

spillover to non-mandated motorists, even in conjunction with

cognizance of societal benefits and potential future widespread

availability.

Applying these lessons to the U.S. environment suggests that

changes in the overall economics, access and convenience factors (or

the perception of such imminent changes) will be necessary

preconditions for AFV penetration in the general public. Such changes

could occur in various ways, including policy induced changes, cyclical

price swings or market disruptions.

Experience of other countries also suggests that the political will

to support alternative fuel programs is greatest when oil prices are at

peak levels. When incentives are most critical to sustaining

alternative fuel momentum, at the low end of the oil price cycle,

governments have often been least committed.

Actual and Potential Availability of Replacement Fuels and AFVs

Alternative fuel vehicle technologies are available for the

principal alternative fuels believed most likely to play major parts in

any transition to substantial alternative fuel use. Alcohol, liquefied

petroleum gas (LPG), and natural gas vehicle technologies are

sufficiently developed for such vehicles to be introduced into the

market on large scales. Electric vehicle technology per se is also

close to market-ready, but battery cost and range probably limit

penetration to select market niches for the next five to ten years.

Hybrid electric, fuel cell and hydrogen vehicle technologies are in

various stages of development and could play significant roles in the

future.

A number of types of vehicles are currently available for purchase

from original equipment manufacturers (OEMs) by the public and fleets,

but not the whole range of vehicles for each of the alternative fuels.

Passenger cars are available for use with 85 percent

alcohol/15 percent gasoline mixtures or any mixtures down to straight

gasoline, at the same price as the same conventional model.

A minivan will soon be available for 85 percent ethanol

use.

Pick-up trucks, vans and mini-vans are available from OEMs

for CNG use. A full sized sedan is available for dedicated CNG

operation and others may follow. Costs for dedicated CNG vehicles are

generally $3000-$5000 more than conventional models.

CNG vehicles (bi-fuel and dedicated) may also be obtained

by conversions of conventional vehicles by many small conversion firms.

Electric vehicles are now available, mostly sub-compact

and small pickup models.

Although alternative fuel refueling sites have been proliferating

in recent years, none of the alternative fuels are currently available

at retail for vehicle refueling in adequate networks to support

widespread use. Adequate refueling sites could be available as a

transition proceeds but would involve additional capital costs.

All of the major alternative fuels are available at national and

regional levels in volumes sufficient for transportation use at levels

significantly greater than the current levels. While this available

supply includes both domestic production and imports, domestic supply

will be adequate to serve AFV needs for coming years. If alternative

fuel use were to approach the levels suggested by the EPACT 30 percent

goal, market pressures could change the split between domestic and

import supply. Natural gas, ethanol and electricity have the greatest

potential for domestic production to meet large-scale transportation

use. LPG and methanol could be available in adequate quantities either

domestically or internationally.

Key Issues and Perspectives

While available evidence indicates that substantial spillover from

EPACT Title V programs into household AFV acquisitions is unlikely in

the absence of some economic incentive to households to make the shift,

such incentive might occur in any one of a number of ways. It would not

necessarily have to represent a government incentive program.

An oil price rise could well cause dramatic changes in relative

prices between gasoline and a number of alternative fuels, resulting in

natural fuel-switching if the conditions enabling motorists to switch

fuels are in place. Comparative historical movements in relative prices

for alternative fuels and their feedstocks show clear divergences in

price movements from crude oil and gasoline, particularly for

electricity, ethanol and methanol. There is probably no way of reliably

assessing the impact of a future oil price rise on the effectiveness of

EPACT programs until such an event occurs. On the other hand, it does

appear possible to infer from prior experience that a price spike is

unlikely to result in major fuel switching in the transportation sector

in the absence of certain preconditions relating to the availability of

AFVs and alternative fuel infrastructure, which EPACT Title V begins to

address. It should be noted that most of the fuel switching in Brazil

and the Netherlands, the two countries where AFV programs have been

most effective, occurred after an oil shock which had been preceded by

more modest programs promoting the alternative fuel to which the

country partly switched after the shock.

EPACT also provides incentives to restrain rising oil demand before

it leads to a run-up in oil prices of the nature of those discussed

above. EPACT programs could also reduce the likelihood or magnitude of

a future oil shock in another way. One potential benefit of developing

a fuel switching capability is the potential to alter the behavior of

primary fuel suppliers. If viable competing fuels are available, the

likelihood of a restriction of oil supplies could be diminished. EPACT

has the potential to shorten the time lag

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between an oil price shock and the oil use reductions following it and

to magnify such reductions in the key transportation sector, where

reductions have been small compared to other sectors. The perceived

potential of the U.S. to introduce alternatives in the event of an oil

price increase, may dampen the price increase sought by oil-exporting

countries in the event of a supply disruption.1

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\1\ While the U.S. share of world oil imports and its importance

in the world oil market are likely to be less in the next century

than in the 1970s and 80s, U.S. leadership in alternative

transportation fuel policy and technology development could well

catalyze similar developments in other importing countries.

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It is also possible that a well designed EPACT-initiated process of

fuel switching could avoid or reduce the magnitude of problems such as

inflation, involved with the relatively abrupt technological

transitions in transportation that historically follow major oil shocks

and which have also characterized historical fuel switches. Alternative

fuel transportation systems could be more fully ripe for widespread

deployment and the American public more amenable to fuel switching as a

result of EPACT fleet programs and DOE RD&D programs.

Despite the many uncertainties, it preliminarily appears that the

programs authorized by Congress in EPACT will fall substantially short

of the year 2010 goal of 30 percent. DOE may need to modify that goal

under EPACT sec. 504, possibly by rolling back the target dates. EPACT

provides ample flexibility for DOE to so scale back the ambitious

statutory goals rather than to adopt draconian policies. At the same

time, DOE understands that many are concerned over what is perceived as

EPACT's excessive reliance on mandates rather than economic incentives.

III. Availability of Proposed Technical and Policy Analysis

The Technical and Policy Analysis required by EPACT Section 506 is

available in a draft report for pubic review and comment. Copies of the

draft analysis, written comments, and any other docket material

received may be read and copied at the DOE Freedom of Information

Reading Room, U.S. Department of Energy, Room 1E-190, 1000 Independence

Ave., S.W., Washington, D.C. 20585, telephone 202-586-6020 between the

hours of 8:30 a.m. and 4:00 p.m. Monday through Friday except Federal

holidays. The docket file material will be filed under ``EE-NOA-97-506

''. An electronic version of the proposed Technical and Policy Analysis

and electronically compatible portions of the docket material will be

available from the Office of Transportation Technologies's website at:

http://www.ott.doe.gov, under the Rules and Legislation section (http:/

/www.ott.doe.gov/office.rules.html). Additional copies of the proposed

Technical and Policy Analysis may be obtained from the National

Alternative Fuels Hotline and Data Center, P.O. Box 12316, Arlington,

Va. 22209, (800) 423-1DOE, (703) 528-3500 (local), Fax: (703) 528-1953.

IV. Public Comment Procedures

The Department of Energy encourages the maximum level of public

participation in review and comment of the proposed Technical and

Policy Analysis. The Department has established a comment period of 90

days following publication of this notice for persons to provide

comment. The public comment period closes on January 26, 1998.

All public comments and other docket material will be available for

review in the DOE Freedom of Information Reading Room at the address

shown at the beginning of this notice. The docket material will be

filed under ``EE-NOA-97-506.''

Interested persons are invited to participate in this proceeding by

submitting written data, views or arguments with respect to the

subjects set forth in this notice. Instructions for submitting written

comments are set forth at the beginning of this notice and below.

Written comments (5 copies) should be labeled both on the envelope

and on the documents, ``Section 506 Technical and Policy Analysis

(Docket No. EE-NOA-97-506),'' and must be received by the date

specified at the beginning of this notice. All comments and other

relevant information received by the date specified at the beginning of

this notice will be considered by DOE.

In addition, commenters are requested to provide a supplemental

electronic copy of comments (1 copy), if possible, to facilitate the

posting of comments on the Department's website. These optional

electronic versions of comments should be stored in common text or word

processor formats and saved on a pc-compatible 3.5'' diskette and

mailed to the address above; or emailed directly to afv-deployment

@hq.doe.gov. Electronic versions are considered supplemental only--the

Department is not able at this time to guarantee the inclusion in the

docket of comments provided only in electronic format.

Pursuant to the provisions of 10 CFR 1004.11, any person submitting

information or data that is believed to be confidential and exempt by

law from public disclosure should submit one complete copy of the

document and 3 copies, if possible, from which the information believed

to be confidential has been deleted. The Department will make its own

determination with regard to the confidential status of the information

or data and treat it according to its determination.

Issued in Washington, DC, on September 2, 1997.

Brian T. Castelli,

Chief of Staff, Energy Efficiency and Renewable Energy.

[FR Doc. 97-28401 Filed 10-24-97; 8:45 am]

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