Study Finds Diesel and Hybrid Vehicles Can Provide More Societal and Private Benefits than Gasoline and E85 Vehicles

RAND Study Finds Diesel and Hybrid Vehicles Can Provide More Societal and Private Benefits than Gasoline and E85 Vehicles

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Rising fuel costs, as expressed in the cost of the energy security externality, significantly change the outcome for E85-powered vehicles. Click to enlarge.

Cars and light trucks powered by advanced diesel technology or hybrid technology can provide larger private (consumer) and societal benefits than traditional gasoline-powered automobiles, according to a RAND Corporation working paper presented today.

The paper by RAND, “The Benefits and Costs of New Fuels and Engines for Cars and Light Trucks”, also found that cars and light trucks continuously fueled by a mixture of E85 compare unfavorably with the other two alternatives. That finding, however, changes dramatically if the cost of fuel rises sharply.

Rising oil prices coupled with concerns about global climate change are driving debate about which fuels and engines should be used to power the 17 million new cars and trucks sold each year. Advanced diesel and hybrid technologies show very well in this study, in terms of benefits to the individual and society overall. E85 simply doesn’t provide the same benefits.

—John Graham, senior author and dean of the Pardee RAND Graduate School

Graham presented the results of the research at the annual meeting of the Association for Public Policy Analysis and Management in Washington, DC.

The research examines the benefits and costs of three alternatives to the gasoline-powered internal combustion engine for the 2010-2020 period: gasoline-electric hybrid technology (as found in the Toyota Prius or the Ford Escape SUV Hybrid), advanced diesel technology (such as the Mercedes-Benz E320 sedan), and dual-fuel vehicles that are powered continuously by E85, where the ethanol is produced from corn.

Each technology is compared to a gasoline-powered vehicle (with otherwise comparable features) from both a consumer and societal perspective, with results expressed on a per-vehicle basis for a new mid-sized car, a midsized sport utility vehicle (SUV), and a large pickup truck. The key numeric output of the analysis is the net present value (NPV) of a technology expressed in 2005 dollars.

Each alternative has the technological potential for significant market penetration in the near term, the research finds. Based on the assumptions used in the study, the results placed advanced diesel technology first, followed by hybrid technology, the gasoline engine and E85 technology.

The consumer perspective accounted for technology cost, fuel savings, mobility and performance. The societal perspective also included tailpipe pollutants, greenhouse gas emissions and “energy security costs” for the fuels—the costs to society as a whole from greater dependence on expensive and unstable foreign oil supplies.

Fuel taxes are excluded in the societal case, which is typical of benefit-cost analysis. And the costs are estimations that illustrate relative performance.

The results assume fuel prices of $2.50 per gallon for gasoline, $2.59 per gallon for diesel fuel, and $2.04 per gallon for E85 (including tax credit). The report also examines scenarios where fuel costs are much higher and much lower.

Among the key findings from the consumer perspective:

  • For all three vehicle types, the advanced diesel offers the highest savings over the life of the vehicle among the options considered. These savings increase with the size and fuel use of the vehicle: $460 for the car, $1,249 for the SUV and $2,289 for the large pick-up truck.
  • The hybrid option has smaller but still considerable savings for SUV applications ($1,066), moderate savings for pick-up applications ($505) but minimal savings over the life of the vehicle for car owners ($198).
  • The vehicles operating on E85 cost all three owners more over the vehicle life, with a greater net cost burden for larger vehicles and increased fuel consumption: (-$1,034 for cars, -$1,332 for SUVs, -$1,632 for pick-ups).

Both the hybrid and diesel vehicles are more fuel efficient than their gasoline-powered counterparts: 25 to 40% better for hybrid and 20 to 30% for diesel, depending on the vehicle.

While it is assumed that the hybrid vehicle will save more fuel than the advanced diesel, the overall advantage goes to the diesel because of its lower technology costs and better performance such as increased torque. For E85, it is the cost of producing the fuel, not vehicular changes, that drives the negative results.

—John Graham

The key findings from the societal perspective are similar to those of the consumer perspective, including:

  • The advanced diesel again shows the most promise, particularly for the larger vehicles: $289 for cars, $1,094 for SUVs and $2,199 for large trucks.
  • The net benefits for hybrids are somewhat less positive, with moderate-to-small values of $481 for SUVs and $132 for light trucks, and an increased cost for cars (-$317) over the life of the vehicle.
  • Results for E85 remain uniformly negative, even more so for larger than smaller vehicles: -$1,046 for cars, -$1,500 for SUVs and -$2,049 for light trucks.

While the net benefit of E85 is generally unfavorable compared to hybrid and advanced diesel technology, the diesel’s edge over the hybrid is not as significant. If the cost of hybrid technology falls significantly, the benefits of the hybrid could equal or exceed the diesel.

Hybrid and diesel technology are close, but diesels have the advantage for the typical motorist, and provide a strong edge for drivers who require towing, hauling and rugged capabilities such as those offered in pick-ups. Hybrids have a competitive edge for urban consumers who experience more stop-and-go city traffic.

—John Graham

The report finds that E85 does not generate net societal benefits unless a breakthrough reduces ethanol production costs or gas prices stay near their current high levels for a sustained period of time.

Graham said it is unlikely that market forces alone will result in widespread use of any of the three technologies, noting that federal consumer tax credits improve the benefit-cost estimates of the advanced diesel and hybrid technologies.

The research was funded through philanthropic support for the Pardee RAND Graduate School, including contributions by DaimlerChrysler, The Dow Chemical Company, DuPont, Ford Motor Company, General Electric, General Motors and Toyota.

Other authors include Ryan Keefe and Jay Griffin, doctoral fellows at Pardee RAND Graduate School in Santa Monica, Calif.

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