Effectiveness and Efficiency of Policies to Promote Alternative Fuel Vehicles

Alternative motor fuels have been advocated in the name of energy security, regional air quality, greenhouse gas emission reduction, and even economic savings. The Energy Policy Act of 1992 (EPACT) sets a goal of replacing 30 percent of conventional fuel use with alternative fuels by 2010. Earlier analysis using a single-period equilibrium model demonstrated the feasibility of EPACT’s replacement goals. This earlier analysis, however, assumed mature markets with large-scale vehicle production and the widespread availability of alternative fuels at retail stations. These conditions are not currently attained. To better assess what may be necessary to achieve mature, large-scale alternative fuel and vehicle markets, the authors use the transitional alternative fuels and vehicles model and simulate market outcomes for the use and cost of alternative fuels and vehicles over the time period of 1996 to 2010, considering possible transitional barriers related to infrastructural needs and production scale. Prices and choices for fuels and vehicles are endogenous. The model accounts for dynamic linkages between investments and vehicle and fuel production capacity, tracks vehicle stock evolution, and represents the effects of increasing scale and expanding retail fuel availability on the effective costs to consumers. Various policy alternatives are evaluated, including fleet vehicle purchase mandates, fuel subsidies, and tax incentives for low-greenhouse-gas-emitting fuels.