Market Potential and Impacts of Alternative Fuel Use in Light-Duty Vehicles: A 2000/2010 Analysis

Section 502(a) of the Energy Policy Act of 1992 (EPACT) requires the Secretary of Energy to establish a program to promote the development and use in light duty vehicles (LDVs) of domestic replacement fuels. Section 502(b) of the Act requires the Secretary, under the program established by section 502(a) to determine, among other things, the feasibility of producing sufficient replacement fuels to replace 10 percent of light-duty motor fuel use by year 2000 and 30 percent by 2010, with at least half of such replacement fuels being domestic fuels. The year 2000 analysis focuses on the effects of existing programs and assumes no additional market-based use of alternative fuels. The 2000 case results indicate that the interim goal of 10% motor fuel replacement is likely to be met through the use of oxygenates and by including other non-petroleum gasoline components in the calculation. Alternative fuel use in AFVs contributes less than 1% of the 10% goal.

For the year 2010, a long-run equilibrium analysis was performed using DOE's Alternative Fuels Trade Model (AFTM). The AFTM determines prices and quantities that balance the interrelated world oil and gas markets, given assumptions about supply, demand, and costs. This study compares several alternative fuel scenarios with a year 2010 base case scenario that restricts the availability of alternative fuels and AFVs to those required under existing programs. The model estimates changes that may result from widespread availability and a well-developed infrastructure for alternative fuels to: fuel prices, fuel volumes used, fuel imports, international trade flows, greenhouse gas emissions, and other variables of interest. The model also estimates the costs and benefits of alternative fuel use, compared with the base case. In long-run equilibrium, making alternative fuels and alternative fuel vehicles available would provide a net annual economic benefit of up to $10.3 billion in 2010. This level of gain would be achievable in the reference case with tax neutrality. Much of this benefit ($4.2 billion) consists of an increase in consumer satisfaction from the availability of new classes of vehicles and less expensive fuels; the remaining $6.1 billion reflects dollar cost savings from alternative fuel use, mainly through reduced cost of fuel imports. The analysis suggests that there could be significant environmental benefits: up to $3.7 billion per year.

There could be significant transition costs that must be weighed against these gains. Transition costs are not included in this analysis. Such costs include potentially higher fuel production, fuel distribution, and vehicle costs, etc., which will likely exist in the years when AFVs begin to penetrate the LDV market. DOE is now undertaking a follow-up analysis that focuses on the transition period, its likely costs, and various policies for reaching the steady state conditions characterized by the equilibrium analysis.