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January / February 2003

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Alternative Energy Fueling Debate

Alternative Energy Fueling Debate
UMaine national policy analyst Jonathan Rubin is studying the obstacles to adopting advanced-technology vehicles in America for the sake of economic security and the environment

About the Photo: Based upon his research, Jonathan Rubin does not forsee this country transitioning to hybrid cars or any other advanced technology vehicles any time soon.

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In 1973, a few days after the outbreak of the fourth Arab-Israeli war, most of the oil-producing Arab countries imposed an embargo on petroleum exports to the United States.

To cope with the shortages, some gas stations limited the number of gallons each customer could buy. Others opened late and closed early. In some towns, people were only allowed to buy gas on certain days of the week, depending on whether their license plate ended in an odd or even number.

For consumers, anxiety levels rose as their gas gauges fell. The less gas there was, the more desperately people sought it, sometimes waiting in line for hours to top off their tanks. During the five-month embargo, millions of Americans came to understand how much their lifestyles and, in many cases, their livelihoods depended on oil. They were shocked to learn how vulnerable the U.S. was to interruptions in the flow of foreign oil. Everyone agreed that something had to be done.

The Nixon administration responded with Project Independence, a seven-point plan to make the country energy self-sufficient. America would produce and conserve more energy. We would get serious about developing alternative-energy vehicles to make us less dependent on oil. But a quarter-century later, despite the introduction of two hybrid electric-gas cars, we still don't have all those advanced-technology vehicles we were supposed to be driving by now. And more important, there are still obstacles to manufacturing them, bringing them to market and getting people to buy them.

The stalemate is the subject of intensive study nationwide, and one of the leading researchers in the field is Jonathan Rubin, interim director of the Margaret Chase Smith Center for Public Policy and associate professor of resource economics and policy at the University of Maine. Rubin and colleagues at the Oak Ridge National Laboratory in Tennessee have created a model for analyzing the barriers to transitioning to alternative-fuel vehicles or hybrid vehicles. Alternative fuels include ethanol, methanol, propane, compressed natural gas and electricity. Hybrid cars might run on a combination of gasoline and electricity.

Interest in advanced-technology vehicles is driven by the desire for both energy security and lower air emissions, says Rubin. The two types of emissions associated with gasoline engines are greenhouse gases, mainly carbon dioxide, and pollutants like oxides of nitrogen (NOX) and volatile hydrocarbons that are responsible for ground-level ozone and smog.

The different types of advance-technology cars those on the drawing board and in various stages of development offer significant energy-security and air-quality benefits. Some technical problems remain to be solved, but most of them are minor compared to the social and economic barriers to bringing any of these new cars to market, Rubin says.

"In transitioning to these technologies, we face huge economies of scale. It is very expensive to produce just a few of a new type of car. The question is: If you can get past that scale barrier, can these vehicles be cost effective in the marketplace?"

Rubin says other important obstacles are, ironically, the low cost of petroleum energy in America and the high cost of building a nationwide network of retail stations for alternative fuels. However, this would not be an issue with hybrid vehicles that run on a combination of gasoline and electricity.

The model that Rubin co-developed for analyzing these barriers the Transitional Alternative Fuels and Vehicles Model simulates the use and cost of non-petroleum fuels under various conditions. "We build the cost barriers into the model and then test the effectiveness of various government policies in overcoming them," Rubin explains. "We can do all kinds of experiments with it. For example, we can throw in an oil price shock (a sudden, steep rise in price) and see if that changes the relative benefits of different technologies." To date, his analysis shows that an oil price shock lasting five years or less would not be effective, by itself, in making alternative-fuel vehicles feasible.

"That is largely because vehicles last a long time," he says. "An average car is a $20,000 capital investment with a 12-year life span. So a five-year price shock is not sufficient to induce a fundamental change in vehicle purchases."

The long-talked-about switch to advanced-technology vehicles would be unlike most other big technology transitions in history. Cars replaced horses because they offered benefits to the individual. The personal advantages of speed and convenience also ensured the popularity of cell phones, microwave ovens, personal computers and hundreds of other new technologies. But alternative-fuel and hybrid vehicles are different. Their benefits accrue largely to society as a whole rather than to individual consumers, making them a much harder sell. While some people would pay a little more to promote the common good, most car buyers put their personal interests first. People will keep driving SUVs unless they are forced or offered incentive to change.

"Since energy security and better air quality are public benefits, I think there is an important role for government to play in transitioning to advanced-technology vehicles," says Rubin, who serves on both the Alternative Fuels Committee and Transportation Energy Committee of the National Transportation Research Board.

"Government has to determine how important these benefits are and then appropriately adjust market prices through subsidies and tax incentives. A number of bills were introduced in the last session of Congress to provide significant subsidies to alternative fuel, fuel cell and advanced-hybrid vehicles," he says. All of the alternative technologies have their advocates. For example, ethanol, which is made from corn, has strong support in farming states, especially in the Midwest.

The federal government has been subsidizing research and development related to advanced-technology vehicles for years. The Clinton administration began the Partnership for New Generation Vehicles Program. In 2002, the Bush administration announced the FreedomCAR Partnership with DaimlerChrysler, Ford and General Motors. The partnership says its long-term vision is "to free the nation's personal transportation system from petroleum dependence and from harmful vehicle emissions." FreedomCAR's major R&D focus is on "technologies to enable mass production of affordable hydrogen-powered fuel cell vehicles."

Of all the advanced-technology alternatives being explored, the hydrogen-based fuel cell system seems, to many, to be the best candidate for large-scale production and marketing. "A lot of people are holding it up as the Holy Grail," Rubin says, "but I'm skeptical of it happening, even in the next 20 years, because the cost would be so high. (Even now) people complain when the gas tax goes up a few cents."

How much are we willing to pay for energy security? How much to reduce greenhouse gas emissions and global warming? Even if those questions could be answered, there is still no consensus on which alternative technology will work the best and cost the least.

"The magnitude of the uncertainties is large," Rubin says. "One of the main things that government policymakers worry about is how to avoid locking into the wrong technology."

Rubin's alternative vehicles analysis model is one of the tools being used to help evaluate the costs and feasibility of adopting the various technologies.

Based on his research, Rubin does not foresee the U.S. transitioning to hybrid cars or any other advanced- technology vehicles anytime soon. He believes the costs are simply too high. The best short-term solution, he says, might be to further increase fuel-efficiency standards for gasoline-powered vehicles. "A lot of economists don't like higher fuel efficiency standards because of the costs they impose," he says. "But I think we could achieve substantial energy gains as well as some greenhouse gas reduction benefits."

Then, perhaps in two or three decades, the country might be ready to move in a big way to one of the new technologies. In the meantime, trying to get a handle on what it will take to accomplish that move is incredibly complex work.

"It's interesting and challenging being at the interface between social science, engineering and policy," Rubin says. "My work is applied research, trying to find answers to real, practical problems."

by Dick Broom
January-February, 2003

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