By Elizabeth Hilbourn and John Auers
The 1966 song by Johnny Rivers, “Secret Agent Man” is a lot like the U.S. alternative fuels market in that whether they will live to see tomorrow depends on the support of the government. Certainly the major part of that support comes through the Renewable Fuel Standard (RFS) program which has mandated that ever increasing volumes of ethanol and biodiesel be included in the overall gasoline and diesel pools in the U.S. We’ve discussed this program in multiple blogs, especially over the past year as potential modifications to the RFS program have become the subject of intense debate in Washington DC. Today we discuss a different way in which the Federal Government is supporting alternative fuel usage – the direct use of compressed natural gas (CNG), liquefied natural gas (LNG), liquid petroleum gas (LPG), electricity and even hydrogen in vehicles owned and utilized by various Federal agencies and affiliates. We also bring into this discussion the usage of these alternative fuels by state, local and regional governments, including mass transit authorities.
There’s an alternative fuel (man) who leads a life of danger
The majority of the governmental fleet vehicles designed for alternative fuel use are indeed owned and operated by Federal agencies and affiliates. State entities come in a close second with a smaller number operated by transit authorities. The Federal and State portions include a variety of both light and heavy duty vehicles using a variety of alternatives, while the transit fleets primarily consist of heavy-duty buses for mass transit in metropolitan areas and are primarily fueled by natural gas (LNG or CNG).
The figure below shows the federal agencies with the most amount of natural gas or propane fueled vehicles. The U.S. Postal Service tops the list with 500 vehicles followed by the Department of the Interior at just under 200. The rest of the federal agencies each have close to 100 or less natural gas or propane fueled vehicles. The U.S. Postal Service is visible with its mail trucks. In September of 2016, it awarded $37.4 million in contracts to six vendors to provide 50 prototypes of a next-generation delivery vehicle. AM General, Karsan, Mahindra, Oshkosh, Utilimaster, and VT Hackney had one year to develop and produce their prototypes which now have been narrowed down to five. The prototypes have been seen as they were tested and include variations from electric vehicles to gasoline designs with increased fuel efficiency. One prototype will be selected soon to replace as many as 180,000 aging vehicles.
The figure below shows the federal agencies with the most amount of electricity fueled vehicles. The Department of the Navy tops the list with just over 1,000 vehicles followed by the United States Marine Corps at 800 and the Department of the Army at 450. The rest of the federal agencies each have 300 or less electricity fueled vehicles. Since 2015, NAVFAC Southwest has led the Department of Navy’s transition to electric vehicles (EVs) to reduce fuel consumption, increase energy independence, and reduce greenhouse gas levels. This initiative, in partnership with the state of California through the California Energy Commission, California Air Resources Board, and California Public Utilities Commission, started a transition of the Department of Navy’s California vehicle fleet to zero emission vehicles.
The figure below shows the federal agencies with the most amount of flex fueled vehicles. The U.S. Postal Service tops the list 47,000 vehicles followed by the Department of the Army at 26,000 and the Department of Homeland Security at 20,000. 
“Odds are you won’t live to see tomorrow” (unless there is incentive)
State agencies utilize almost the same number of alternative fuel vehicles as federal agencies, or 75% to be precise. Much of the impetus behind the state programs is actually a federal regulation (EPAct 1992) directing a federal agency (DOE) to regulate and guide the states. The State and Alternative Fuel Provider Fleet Program requires covered fleets to acquire alternative fuel vehicles (AFVs) as a percentage of their annual light-duty vehicle acquisitions or to employ other petroleum-reduction methods in lieu of acquiring AFVs. The U.S. Department of Energy (DOE) established these requirements through 10 CFR Part 490. Most states follow the standard compliance which requires covered fleets to acquire a percentage of AFVs each year based on the number of light-duty vehicles they acquire. The alternative compliance is less used and requires a waiver and proof of petroleum-reduction measures.
The Energy Policy Act of 1992 has defined alternative fuels. Fuels can be added to the definition after a final rule is made following a petition process. Biodiesel is one fuel with a history of the petition process. In its March 1996 final rule establishing the Alternative Fuel Transportation Program regulations, the U.S. Department of Energy concluded that neat/pure biodiesel (B100) is derived from biological materials and, therefore, is an “alternative fuel.” In January 2001, the Biodiesel Final Rule made it possible for fleets to earn EPAct credits for using biodiesel blends of at least 20%. This rule does not make B20 (a blend containing 20% pure biodiesel and 80% conventional diesel) an alternative fuel but gives one credit for every 450 gallons of pure biodiesel used in biodiesel blends of B20 or higher.
Of course, additional state specific regulation incentivizes additional alternative vehicle use. It is no surprise that California, with all the greenhouse gas regulation under AB32 stands as the lead state with the most alternative fuel vehicles. Other states show various incentives. New York and Washington come in behind California as the states with the second and third most electric vehicles. New York has one-third the number of electric vehicles as California and has a history of incentivizing electric vehicles. In early 2017, the governor of New York launched a $70 million electric vehicle rebate program. $55 million goes to the Drive Clean Initiative funds to provide rebates of up to $2,000 toward the purchase of electric cars. There is a federal tax credit for electric vehicles which phases out after 2019; however, 13 states offer various incentives such as tax credits, rebates, sales tax exemptions excise tax exemptions, reduced rates for electric vehicle charging and car pool lane access. The waiving of the sales taxes on electric car purchases is soon to expire in Washington yet is just starting in Oregon. Oregon also has an active LCFS regulation while one is still being pushed through Washington as House Bill 2338. Texas is the state with the most number of LPG vehicles and has incentives under the Liquefied Petroleum Gas Vehicle and Incentive up to $7,500 per vehicle. The Propane Council of Texas offers the incentive to private, nonprofit, local government, state and school fleets.
“To everyone he meets he stays a stranger”
It turns out the alternative fuels utilized by the U.S. and mentioned in this blog comprise a miniscule amount of the fuel usage in the world; however, in some countries, these alternative fuels are quite prevalent. In Asia-Pacific and Latin America, natural gas fueled vehicles are widely utilized. China is the home to over 20% of the natural gas fueled vehicles in the world. Over 15% of the total automotive fuel consumption is from LPG in Turkey and South Korea. Total consumption of electricity in the transportation sector worldwide is quite insignificant at less than 0.1% of transportation fuel.
This subject is discussed in greater detail in the release of our 2018 Mid-Year Crude and Refined Products Outlook (C&RPO) this week. These developments play an important role in our overall analysis of alternative fuels. TM&C studies and forecasts the U.S. and the world usage of alternative fuels in its supply and demand balances and its effect on petroleum balances in the U.S. and across the world. These alternative fuel forecasts are included in the C&RPO. For more information on this report or on any of our other analyses or consulting capabilities, please send us an email or give us a call.