GAO CONCLUDES ALTERNATIVE FUEL USE IN 2010 WILL BE ONLY 3.4 PERCENT

A September 1998 report from the United States General Accounting Office (GAO) analyzes the impact that would be created by designating propane as an alternative fuel under the Energy Policy Act of 1992 (EPACT). According to the report (GAO/RCED-98-260) the transportation sector is projected to consume about 70 percent of the petroleum to be used by the US in 2010, up from about 66 percent in 1996, according to estimates by the Department of Energy’s (DOE) Energy Information Administration (EIA). Furthermore, EIA projects that imports will supply 60 percent of the total US oil consumption in 2010, up from about 46 percent in 1996. In part, to help reduce the nation’s oil dependence and oil imports, the Congress passed the EPACT. Title V of EPACT requires the Secretary of Energy to establish a program to promote the development and use of domestically produced replacement fuels in light-duty vehicles. A major goal of EPACT is to replace a portion of the motor fuel (conventional fuel) used by light-duty vehicles in the US with what are termed replacement fuels. The Act also stipulates that at least half of the replacement fuels should be produced in the US. Included among the fuels defined by EPACT as alternative or replacement fuels is liquefied petroleum gas, or propane.

Propane is widely used for other purposes. The petrochemical industry, for example, by far the largest propane consumer, uses propane in its manufacturing processes, and the residential sector uses propane for heating and other household purposes. Some of these traditional users of propane have expressed concern that the achievement of EPACT’s fuel-replacement goal could lead to rapid future growth in the demand for propane, resulting in higher propane prices. The GAO report responds to a Congressional request that the GAO determine whether and how including propane as an alternative fuel under EPACT will affect existing propane consumers as well as the supply and price.

To help meet its goal of replacing a portion of the conventional fuel used by light-duty vehicles in the US with replacement fuels, EPACT established mandates, to be implemented by the Secretary of Energy, that require certain fleet operators to include Alternative-Fueled Vehicles (AFV) in their fleets. Specifically, EPACT required that federal fleets acquire AFVs beginning in fiscal-year 1993 and that state fleets and alternative fuel providers acquire AFVs beginning in model-year 1996. The federal AFV fleet program went into effect in 1993, but the mandates for state and alternative fuel provider fleets were delayed until 1997 because the Department did not issue the rulemaking early enough for the mandates to take effect in 1996. Also, under EPACT, the Secretary of Energy may require municipal and private (business) fleets to purchase an increasing percentage of AFVs to help meet the fuel-replacement goal. Under EPACT, DOE published an advance notice of proposed rulemaking in April 1998 and held public hearings in May and June 1998 to determine whether the establishment of the municipal and private fleet mandate is necessary and whether such a mandate will help attain EPACT’s fuel-replacement goal. EPACT does not require that the goal be achieved and authorizes the Secretary of Energy to modify the goal or the target years if he or she determines that they are not achievable. Table 1 presents a summary of EPACT’s AFV acquisition mandates for the fleets covered by the Act.

Table 1

The goal of EPACT to replace 10 percent of the conventional fuel consumed by light-duty vehicles by 2000 and 30 percent by 2010 with replacement fuels is unlikely to be achieved, says GAO. On the basis of EIA’s modeling analysis, GAO estimates that alternative fuels will account for less than 1 percent of the total fuel to be consumed by light-duty vehicles in 2000 and about 3.4 percent in 2010, even after accounting for EPACT’s provisions mandating that fleets acquire AFVs. Previous studies by DOE have also concluded that EPACT’s goal is unlikely to be achieved after implementing the fleet acquisition mandates.

Industry and DOE officials interviewed by GAO gave several reasons why the consumption of alternative fuels by light-duty vehicles will fall short of EPACT’s replacement goal. First, EPACT mandates that fleets acquire AFVs but does not explicitly require that those vehicles use alternative fuels. Consequently some fleets meet their AFV requirements by purchasing vehicles capable of using both gasoline and an alternative fuel, but these vehicles are usually run on gasoline.

Moreover, both DOE and industry officials believe that achieving EPACT’s goal will require greater use of alternative fuels by vehicles beyond those in the fleets covered by the Act, a development they believe is unlikely. For one thing, the high price of AFVs discourages their use. For example, according to one industry official, converting a conventional vehicle to run on propane can cost over $3,500, while a manufacturer’s AFV that runs on propane can cost about $6,000 more than a conventional gasoline-powered vehicle. In addition, the lower price of gasoline discourages increased use of the higher-priced alternative fuels.

Both DOE and industry officials said that the price of gasoline is simply too low for the transportation sector to purchase significant quantities of alternative fuels. Finally, the infrastructure needed to keep AFVs refueled is currently inadequate to support the wide-scale use of AFVs that are not operated as centrally fueled fleet vehicles. Industry officials told GAO that the consumption of alternative fuels for transportation is too small to justify any large-scale investment in this infrastructure.