Cost-Effectiveness of Methanol Vehicles

The inability of many U.S. cities to attain national ambient air quality standards has prompted policymakers to suggest new, more drastic, controls on certain pollutants. One of these is ozone, the major component of urban smog. It is a particularly difficult pollutant to control because it is not emitted but formed in the air when reactive hydrocarbons (or volatile organic compounds, VOCs) are mixed with nitrogen oxides (NOx) in the presence of sunlight. As a major source of VOCs and NOx—accounting for about 40 percent of VOC emissions and 90 percent of NOx emissions in urban areas—motor vehicles have been targeted in ozone reduction efforts.

Although cars and trucks are considerably cleaner than they were ten or fifteen years ago, some areas of the country still do not achieve national ambient air quality standards. California, for example, has the tightest motor emissions standards and vehicle inspection programs in the country, yet much of the state violates the ozone standard several days a year. (The Los Angeles area violates the standard more than 150 days a year.) Measures that would reduce the number of miles driven—such as a gasoline tax, a second-car tax, an increase in parking fees, mandatory alternate driving days, and a four-day work week (all of which have been proposed for Los Angeles)—may be somewhat effective in reducing VOC and NOx emissions, but whether they could be implemented nationwide is very much an open question.

Thus attention has turned toward cleaner transportation fuels. Last year, for example, the South Coast Air Quality Management District (SCAQMD) recommended that electric vehicles and vehicles that would run on methanol be introduced in the Los Angeles area. President Bush's June 1989 proposal to revise the Clean Air Act included mandatory use of alternative fuels in nine cities with the worst ozone problems. Both houses of Congress have proposed amendments to the Clean Air Act that include alternative fuels provisions for cities with severe ozone problems.

Among the various gasoline substitutes under consideration, methanol, ethanol, natural gas, and propane are the most feasible in the short run; electricity and hydrogen may be possible alternatives in the long run. In addition, the oil industry has recently begun reformulating gasoline, replacing aromatics—the chemicals used to boost octane in gas—with cleaner alcohols such as methanol and ethanol or other additives.

Although it is not the cleanest of the alternative fuels and it is unlikely to be the cheapest, methanol has been the alternative fuel frontrunner. Its appeal results from a combination of factors. First, vehicles that can run either on gasoline or any mixture of gasoline and methanol, such as M85 (a blend of 85 percent methanol and 15 percent gasoline), are currently available. Second, the U.S. Environmental Protection Agency (EPA), in its investigation of alternative fuels, has found methanol to be a clean and relatively inexpensive substitute for gasoline. And third, methanol presents fewer obstacles to use in private automobiles than other alternative fuels. For example, compressed natural gas can only be used in vehicles equipped with a heavy compression tank, and vehicles that use it must be refueled slowly. Ethanol made from corn or other grain products is very costly, although it is marketed at a competitive price because sellers receive a government subsidy. Propane (liquified petroleum gas) is in limited supply.

The largest constituent of methanol vehicle emissions is unburned methanol, a relatively benign hydrocarbon compound. While methanol vehicles emit fewer of the less benign, non-methane hydrocarbons—including toxic chemicals such as benzene and 1,3 butadiene, and ozone-forming hydrocarbon compounds—than do gasoline vehicles, they release more formaldehyde emissions, which are toxic and highly reactive in forming ozone. Methanol vehicles also emit nitrogen oxides and carbon monoxide, as do gasoline vehicles.

The RFF study focused only on the potential to form ozone—or the reactivity—of methanol, hydrocarbon, and formaldehyde emissions expected from methanol vehicles after being driven 50,000 miles. The reactivity of these emissions was then compared to that of hydrocarbon and formaldehyde emissions from gasoline vehicles driven 50,000 miles. The study incorporated information supplied in eleven different investigations of gasoline vehicles, flexible-fuel vehicles (FFVs), dedicated M85 vehicles (vehicles designed to run on 85 percent methanol and 15 percent gasoline), and dedicated M100 vehicles (vehicles designed to use 100 percent methanol) conducted by academic researchers, industry, and the government (including the EPA). These investigations considered emissions from late-model gasoline vehicles in general use, late-model methanol vehicles used in government and private sector fleets, and prototypes of both gasoline and methanol vehicles. In addition, a database furnished by the American Petroleum Institute (API) provided further emissions information on methanol fleet vehicles. This database contained information on 55 methanol vehicles of 15 different model types, covering eight model years between 1978 and 1988. In all, RFF researchers examined 471 emissions test results.

To estimate the cost of methanol fuel, the RFF study analyzed methanol production costs (capital costs, as well as feedstock and non-feedstock operating costs), transportation costs if the methanol were to be produced overseas, and distribution and marketing costs. Particular attention was paid to the most contentious issue associated with methanol: the feedstock, or raw material, cost. Methanol is most economically produced from a natural gas feedstock, and the largest reserves of natural gas are in countries that currently make very little use of it. This has led some observers to assume that this gas has a zero opportunity cost, and thus is available at the cost only of gathering and transporting it to the methanol plant. RFF researchers believe this to be a flawed assumption. They discovered that the price of this gas is dependent on the prices of alternative energy sources, particularly crude oil, and will become increasingly dependent on those prices in the future. As a result, the RFF study assumed that natural gas used to produce methanol would have a positive and rising opportunity cost.

To estimate the cost-effectiveness of methanol vehicles in the years 2000 and 2010, the RFF study combined emissions reduction and cost estimates to arrive at the dollar cost per ton of emissions reduced (see table 1). According to these calculations, flexible-fuel vehicles would be less cost-effective than dedicated M85 and M100 vehicles. RFF researchers estimated that the replacement of gasoline vehicles by FFVs would likely yield reductions of reactive hydrocarbon emissions at a cost of $66,000 per ton. If dedicated M85 vehicles are operating, emissions reductions would likely be $31,000 per ton. In these scenarios, methanol production plants are as large as the largest existing methanol plants, producing about 2,500 metric tons of methanol per day, and dedicated M85 vehicles are more fuel efficient than their FFV counterparts. The cost-effectiveness estimates above were calculated using the emissions reduction estimates culled from the investigations conducted by academic researchers, industry, and government agencies. If emissions estimates from the API database are used, both FFVs and dedicated M85 vehicles are significantly less cost-effective.

According to the RFF study, in 2010, M100 vehicles would achieve emissions reductions at a likely cost of $51,000 per ton—a figure higher than the estimate for dedicated M85 vehicles in the year 2000. This is the case even though M100 vehicles produce fewer emissions of reactive hydrocarbons than M85 vehicles, and methanol fuel costs are relatively constant between 2000 and 2010. (Although the feedstock costs of methanol rise between 2000 and 2010, capital costs fall because larger methanol plants—which produce fuel more cheaply, on a per gallon basis, than smaller ones—are assumed to be in operation.) The estimated higher cost of emissions reduction from M100 vehicles arises from the assumption that gasoline vehicles would achieve greater emissions reduction in 2010 than in the year 2000.

Cost-effectiveness is a relative measure. The only way to evaluate whether the use of methanol vehicles is cost-effective is to compare the costs of that strategy with those of other alternative emissions reduction strategies. Two of the most recent and notable studies that have considered the cost-effectiveness of various VOC reduction strategies were performed by the congressional Office of Technology Assessment (OTA) and by the South Coast Air Quality Management District. Both studies indicate that the cost-effectiveness of various strategies differs enormously. They also note that many options exist for reducing VOC emissions at a cost of less than $10,000 per ton. The OTA identified ten classes of these lower-cost strategies. The agency found that, in the year 2004, VOC emissions could be reduced at a cost of under $6,000 per ton, even in areas of the United States where the ozone standard is violated. The most cost-effective measure OTA cited was reducing gasoline volatility, which reduces evaporative VOC emissions, at a cost of $500 per ton.

In 1989, SCAQMD identified 120 options for the first stage of its multistage plan to make the city of Los Angeles meet national air quality standards. The average cost-effectiveness of 68 measures proposed was $12,250 per ton of VOCs reduced. Again, lowering fuel volatility was one of the lowest-cost strategies at $4,800 per ton of VOC emissions reduced. (Since California already has a lower fuel volatility limit than the rest of the country, further reductions would presumably be more costly there than in the rest of the United States.) The costs of other measures ranged from $0 for changes in aerospace operations to $467,000 for controls on marine vessel operations. Lowering motor vehicle VOC emissions standards was found to cost $1,600 per ton.

Although RFF estimates show methanol vehicles to be a costly strategy for reducing VOC emissions, might a more optimistic case be made for their cost-effectiveness? The RFF study estimated that the cost per ton of emissions reduced could be as low as $13,000 for M85 vehicles in the year 2000. But reaching this lower number required making two very optimistic assumptions: that M85 vehicles currently in use would achieve the emissions reductions assumed for the best of the prototype methanol vehicles, and that methanol would be produced in plants that are much larger than the largest plants currently in operation.

It is possible that cost-effectiveness could be further improved if methanol vehicles could be manufactured more cheaply than future gasoline vehicles, or if the non-fuel operating costs of methanol vehicles could be lowered below those of gasoline vehicles, or both. At the present time, these events seem unlikely. Future methanol vehicles may be able to run on smaller and thus less expensive engines than gasoline vehicles. On the other hand, M100 vehicles have difficulty starting in cold weather, and the maintenance record for methanol vehicles currently in use has not been good. These two problems can be solved, but at a cost.

In the final analysis, relatively unexamined approaches to lowering motor vehicle emissions are likely to be more cost-effective than methanol. Other types of alternate fuels, particularly compressed natural gas and reformulated gasoline—the latter is currently being pushed in the debate over the Clean Air Act—may reduce emissions at a lower cost. Advances in catalytic converter technologies, such as an electrically heated catalyst that controls emissions from a car while it is warming up, are expected to cost very little. Early test results show VOC and other emissions at near zero in gasoline and methanol vehicles equipped with such catalysts. Programs to purchase and retire 15 percent of the most polluting cars and trucks could reduce VOC emissions by 30 percent, and programs to help enforce vehicle exhaust standards through the automatic measurement of vehicle emissions at expressway entrances, and subsequent prosecution of violators, might also be cost-effective. Finally, a growing number of atmospheric chemists believe that measures focusing on reducing nitrogen oxides instead of VOCs may be a more productive means of reducing ambient ozone levels in some cities.

Ultimately, comprehensive cost-effectiveness analyses are needed to identify whether the national ambient ozone standard can be met at lower costs than by substituting methanol vehicles for gasoline vehicles. While the results of the RFF study indicate that using methanol vehicles is more costly than other approaches to ozone reduction, a comprehensive analysis of a number of relatively unexplored strategies could suggest more cost-effective ways to meet the ozone standard.