ANALYSIS OF THE EFFECTS ON ENERGY CONSERVATION AND THE ENVIRONMENT

Conducting an assessment of the energy and environmental impacts of the alternative fuel vehicle credit incentive is complicated by uncertainty regarding automobile manufacturers' behavior. While the use of alternative fuels can reduce petroleum consumption and greenhouse gas emissions, the energy consumption and environmental impacts cannot be determined with any reasonable amount of certainty because we cannot predict what manufacturers would have done in the absence of the credit incentive.

Although we cannot predict what vehicle manufacturers would do in the absence of the credit incentive, we undertook an analysis of what the possible effects would be if manufacturers took advantage of the incentive to relax the effect of the CAFE standard on the rest of their fleet. This assumption yields an "upper bound" estimate of the increase in petroleum consumption and greenhouse gas emissions.

This analysis considered two cases:

Baseline

All light vehicles operate exclusively on conventional fuel, including FFVs. There are no CAFE credits claimed from the production and sale of FFVs.

Since the baseline case assumes that all vehicles operate on gasoline, total motor fuel consumption is simply the product of the number of vehicles sold and their expected VMT⁽¹²⁾ divided by their city-highway in-use fuel economy when operating on gasoline. However, a complicating factor in this analysis is the need to reflect that, in the absence of CAFE credits, the average fuel economy of manufacturer fleets could be higher and the aggregate gasoline consumption could otherwise be lower. Thus, under the AMFA case, there are three components to the calculation:

AMFA

1 percent of the fuel used by FFVs is alternative fuel (E85). Note that for purposes of this analysis, a 1% usage rate for the alternative fuel is assumed. The actual usage rate is somewhat less than 1%.

99 percent of the fuel used by FFVs is conventional fuel

Light vehicles operate with an average fuel economy less than they otherwise would have in the absence of the AMFA credit. The size of this component is equal to the difference in the amount of fuel used because of the credit.⁽¹³⁾

For each case, estimates were made of both conventional and alternative fuel use, total petroleum⁽¹⁴⁾ consumption, and greenhouse gas emissions using DOE's GREET 1.5a Transportation Fuel-Cycle Model (1999).⁽¹⁵⁾

Table V-2 shows the fuel consumption and GHG emissions for vehicles sold in the CAFE categories for which manufacturers claimed AMFA credit through that model year under the baseline case.

Table V-2
FUEL CONSUMPTION AND GHG EMISSIONS FOR VEHICLES SOLD IN THE
CAFE CATEGORIES FOR WHICH MANUFACTURERS CLAIMED AMFA CREDIT IN THE BASELINE CASE

• an increase in alternative fuel use (a substantial increase in E85 use compared to the pre-1996 period);
  
  
• a total increase in petroleum consumption of about 772 million gallons (about a one percent increase in highway use petroleum consumption over the five year period); and
  
  
• a total increase in greenhouse gas emissions of about 2.4 MMTCE (well less than a one percent increase in total passenger car and light truck GHG emissions over the five year period).

The CAFE credit cases assume that manufacturers currently producing FFVs (Daimler-Chrysler, Ford, and GM) increase their production of their FFVs to capture either 0.9 mpg or 1.2 mpg credit beginning with the 2001 model year.⁽¹⁷⁾, ⁽¹⁸⁾

The FFV fuel use cases shown in Table V-5 assume either that:

4. FFVs continue to use the same low percentage of E85 that they have used in the recent past, or

5. FFVs increase their use of E85 from the current low rate of approximately 1 percent to 50 percent in 2008. This is represented in the model by assuming that on average 25 percent of the fuel FFVs use during 2001 - 2008 is alternative fuel.

Table V-5
ANNUAL SALES 2001 - 2008

Flexible-fuel vehicle sales are assumed to increase to the number necessary in order for each manufacturer producing FFVs in 2000 to capture either 0.9 mpg or 1.2 mpg CAFE credit. Total annual light vehicle sales in the 2001 - 2008 period are assumed to equal the total number of light duty vehicles each manufacturer is expected to produce in 2000 in the same CAFE categories the manufacturer is currently producing FFVs.

As before, fuel consumption is the product of the number of vehicles sold and their expected VMT⁽¹⁹⁾ divided by their city-highway in-use fuel economy.

Table V-6
NET EFFECT OF AMFA PROGRAM (AMFA - BASELINE DIFFERENCE
FLEXIBLE-FUELED VEHICLES USE ALTERNATIVE FUEL AT A RATE OF 1%

Low E85 Use

Table V-6 above shows the net effect of the AMFA program for vehicles sold in the corresponding model year.

Thus, if manufacturers produce enough FFVs to garner 0.9 mpg CAFE credit and all FFVs continue to use E85 at the current low rate that they have used in the recent past, then from 2001 -2008, we expect that there will be:

• an additional increase in alternative fuel use of about 0.5 billion gallons;
• an additional increase in petroleum consumption of about 14 billion gallons; and
• an additional increase in greenhouse gas emissions of about 42 MMTCE.⁽²⁰⁾

^{On the other hand, if manufacturers produce enough FFVs to garner 1.2 mpg CAFE credit and all FFVs continue to use E85 at the current rate, then we expect that there will be:}

• ^{an additional increase in alternative fuel use of about 0.6 billion gallons;}
• ^{an additional increase in petroleum consumption of about 17 billion gallons; and}
• ^{an additional increase in greenhouse gas emissions of about 53 MMTCE.(21)}

^{Table V-7
NET EFFECT OF AMFA PROGRAM (AMFA - BASELINE DIFFERENCE)
FLEXIBLE-FUELED VEHICLES USE ALTERNATIVE FUEL AT AN AVERAGE RATE OF 25%}

High E85 Use

If FFVs increase their use of alternative fuel from the current rate of approximately 1 percent in 2000 to 50 percent in 2008, the average rate of alternative fuel will be roughly 25% over the time period analyzed.

Table V-7 shows the net effect of the AMFA program for vehicles sold in the corresponding model year.

Thus, if manufacturers produce enough FFVs to garner 0.9 mpg CAFE credit and on average 25 percent of the fuel FFVs used during 2001 - 2008 is alternative fuel, then during that period we expect that there will be:

• an additional increase in alternative fuel use of about 12 billion gallons;
• an additional increase in petroleum consumption of about 7 billion gallons; and
• an additional increase in greenhouse gas emissions of about 36 MMTCE.⁽²²⁾

On the other hand, if manufacturers produce enough FFVs to garner 1.2 mpg CAFE credit and on average 25 percent of the fuel FFVs used during 2001 - 2008 is alternative fuel, then we expect that there will be:

• an increase in alternative fuel use of about 15 billion gallons;
• an increase in petroleum consumption of about 9 billion gallons; and
• an increase in greenhouse gas emissions of about 45 MMTCE.(23)

In all cases, the amount of petroleum used and the amount of greenhouse gases produced increases when the credit is extended to 2008.

Sensitivity Cases

In addition to the four cases discussed above, we considered the case that FFVs would use E85 an average of 50 percent the time, as assumed in the Act, and the case that FFVs would use E85 all the time (100 percent). This analysis is shown on Table V-8 below.

In the 50 percent case, petroleum consumption remains unchanged, if the credit is extended to 2008. However, the amount of greenhouse gases produced still increases if the credit is extended compared to the option of allowing the program to expire in 2004. If FFVs use E85 100 percent of time, petroleum consumption declines, although greenhouse gases still increase.

Table V-8
NET EFFECT OF AMFA PROGRAM (AMFA - BASELINE DIFFERENCE)
MANUFACTURERS PRODUCE FLEXIBLE-FUELED VEHICLES TO GARNER 0.9 MPG CAFE CREDIT

This apparent paradox is explained by the fact that, in the case of petroleum consumption, 85 percent of E85 fuel used by FFVs offsets the increase in gasoline use that results from the lower fuel economy associated with the credit. However, in the case of greenhouse gas emissions, the offset is only about 25 percent, since FFVs burning E85 still generate some greenhouse gas emissions.

Summary

Conducting an assessment of the energy and environmental impacts of the dual-fuel vehicle credit incentive is complicated by behavioral uncertainty. While the use of alternative fuels can reduce petroleum consumption and greenhouse gas emissions, the energy consumption and environmental impacts cannot be assessed with any reasonable amount of certainty because we cannot determine what manufacturers would have done in the absence of the credit incentive. If vehicle manufacturers took advantage of the incentive to relax the effect of the CAFE standard on the rest of their fleet, then the credit incentive has resulted in an increase in alternative fuel use (almost all E85), and some slight increase in petroleum consumption (about one percent) and greenhouse gas emissions (well less than one percent). The effects beyond 2000 will depend almost entirely on the amount of E85 fuel used by FFVs. Unless actions are taken to significantly expand the availability and use of alternative fuels, the CAFE credit incentive program will not result in any reduced petroleum consumption or greenhouse gas emissions in the future.

It is also possible that manufacturers might have responded to strong consumer demand for performance and utility and produced the same vehicles without the provision as they did with it. In this case, manufacturers would have chosen to pay civil penalties rather than meet the CAFE standard. Under this scenario, the main effect of the program has been to greatly expand the population of vehicles that have the potential to use alternative fuels.

In light of recent events, both in the U.S. and abroad, it is important to be increasing alternative fuel capability throughout the fleet for several reasons. Introducing mass quantities of alternative fuel vehicles - specifically ethanol flexible-fuel vehicles - could potentially contribute to the future transition away from petroleum consumption, could facilitate an expansion of the alternative fuels infrastructure, and provide consumers with an alternative if there are gas shortages, if gas prices increase significantly, or if a future energy crisis occurs. Ethanol is not only an alternative fuel, but it is a domestic fuel. Thus, its increased use would decrease our petroleum use and our reliance on foreign oil. The existence of large number of E85 flex-fuel vehicles should make a possible "emergency" switch to alternative fuels much easier in the future. Because these vehicles are manufactured with the capability to operate on E85, there would be no need to convert these vehicles to allow them to utilize ethanol.

In view of the nation's energy security interests, it is important to be increasing alternative fuel capability throughout the fleet. The need to ensure the nation's long-term energy security is of such vital concern that it takes precedent over possible short-term petroleum consumption and environmental impacts.

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^{6. GM produced the Isuzu vehicles.}

^{7. Total OEM sales of passenger cars and light trucks sold by manufacturers making FFVs. This is a pairwise comparison by manufacturer and CAFE category (domestic LDV, import LDV, and LDT). Thus, if a manufacturer made an FFV domestic car but neither an import car nor an FFV truck, only the domestic car sales would be added to the yearly total shown in this column. Note: the CAFE requirements apply separately to each of the three categories: domestic car, import car, and light truck.}

^{8. OEM light duty sales for all manufacturers in that model year, including those that did not produce FFVs.}

^{9. Projected FFV sales consistent with the CAFE credit anticipated by manufacturers in their Pre-Model Year Report to NHTSA.}

^{10. Projected sales.}

^{11. Model year 2000 sales are assumed to equal 1999 sales.}

^{12. MOBILE6 first year mileage accumulation rates were used. Passenger cars are expected to travel an average of 14,871 miles in their first year, while light trucks are expected to travel an average of 19,445 miles. Although vehicles tend to travel fewer miles the older they become, in analyzing the historical data, all model year vehicles were assumed to travel at their first year rates, since there were very few FFVs produced in the early years of the AMFA program.}

^{13. This difference is calculated as the product of the number of light vehicles sold and their expected VMT divided by the in-use fuel economy of those vehicles with the credit less the product of the number of light vehicles sold and their expected VMT divided by the in-use fuel economy of those vehicles without the credit.}

^{14. Since most FFVs are designed to use E85 as their alternative fuel, the change in total petroleum used as a result of AMFA is equal to the fleetwide increase in the amount of conventional fuel used because of the lower fuel economy associated with the CAFE credit plus 15% of the amount of alternative fuel used, since E85 is composed of 15% gasoline and 85% ethanol.}

^{15. GREET is a full fuel life cycle model. It attempts to estimate emissions associated with particular fuels from all sources; from extraction, through production and distribution, to use; including CH₄ and N₂O trace gas effects (using 100-year time horizon weights). According to GREET's computerized model 1.5a, light vehicles produce 498 grams per mile CO₂ equivalent emissions while operating on gasoline and 374 grams per mile CO₂ equivalent emissions while operating on E85. Both estimates are expressed as gasoline equivalents; i.e., in terms of a constant heating unit equal to the energy in a gallon of gasoline. The primary reason that E85 GHG emissions are lower than gasoline GHG emissions is that the corn feedstock used to make the ethanol sequesters CO₂ during the growing process. GREET assumes a gasoline fuel economy of 22.4 miles per gallon and E85 and M85 fuel economies of 23.5 miles per gallon for passenger cars and light trucks. For this report, we converted GREET's CO₂ equivalent emissions rates to carbon equivalent rates expressed in terms of the actual fuel used. Thus, according to GREET 1.5a, E85 has a gasoline equivalent CO₂ equivalent emission factor of 374 grams per mile which is equal to an E85 equivalent CO₂ equivalent emission factor of 6,217 grams per gallon of E85 ( = 374 grams CO₂ equivalent emissions/mile * 23.5 miles/gallon E85 * 81,630 Btu/gallon E85 / 115,400 Btu/gallon gasoline).}

Fuel	Fuel Economy (miles/gallon)	CO2 Equivalent Emissions (grams/mile)	Energy (Btu/gallon)	CO2 Equivalent Emissions (grams/gallon)
Gasoline	22.4	498	115,400	11,155
Neat EtOH			75,670
E85	23.5	374	81,630	6,217

^{16. Million Metric Tons Carbon Equivalent}

^{17. AMFA currently allows manufacturers to claim up to 1.2 mpg credit towards CAFE through 2004. The proposed extension reduces the amount of credit allowed to 0.9 mpg for 2005 - 2008. Manufacturers could, for internal business reasons, decide not to produce more FFVs in the 2001-2004 time frame than necessary to capture 0.9 mpg credit, even though they are allowed to capture 1.2 mpg credit by producing more of such vehicles. On the other hand, on the premise that Congress will pass H.R. 4270 extending the 1.2 mpg credit to 2008. manufacturers could decide to produce enough FFVs to capture the entire 1.2 mpg credit throughout the 2001-2008 period with the knowledge that they will be able to carry forward these credits for three years.}

^{18. If all manufacturers found themselves constrained by CAFE and elected to produce FFVs as a way of helping them achieve the standard, then the estimates of FFV sales, gasoline consumption, ethanol supply requirements, and greenhouse gas emissions produced as a result of AMFA would double since, currently, only for only about one half of all gasoline light vehicles produced are flexible-fuel vehicles produced in the same CAFE category.}

^{19. VMT for the projection years was estimated by applying the DOE Oakridge National Laboratory's survival rates to EPA's MOBILE6 mileage accumulation rates for the first eight years of the vehicles' life and averaging. Passenger cars are expected to travel 96,109 miles in their first eight years, while light trucks are expected to travel 121,304 miles. Although vehicles tend to travel more miles when new and fewer miles the older they become, in making the projections, all model year vehicles are assumed to travel at the average rate at which they were expected to accrue miles over the period of evaluation. Thus, for each year, 2001 - 2008, passenger cars are assumed to travel 12,014 miles, while light trucks are assumed to travel 15,163 miles.}

^{20. For vehicles produced through the 2008 model year, this corresponds to an additional total lifetime GHG emissions of 82 MMTCE.}

^{21. The corresponding additional total lifetime GHG emissions are 111 MMTCE.}

^{22. The corresponding additional total lifetime GHG emissions are 70.1 MMTCE.}

^{23. The corresponding additional total lifetime GHG emissions are 95.2 MMTCE.}