Adoption of Alternative Fuel Vehicles - A Consumer Perspective

Table of Contents

1. Introduction

2. Conventional Fuels at a Glance
2.1 Petroleum Spirit (Petrol/Gasoline)
2.2 Diesel

3. Particular AFV Potentials and Progression of Consumer Adoption
3.1 LPG and Natural Gas
3.1.1 Liquefied petroleum gas (LPG)
3.1.2 Compressed natural gas (CNG)
3.2 Biofuels
3.3 Electric Vehicles
3.3.1 Electricity from batteries
3.3.2 Electricity from hydrogen fuel cells
3.4 Other Fuels and Technologies

4. General Factors of Consumer Adoption
4.1 Cost Effectiveness
4.2 Infrastructure
4.3 Car Attributes
4.4 Impression
4.5 Policy
4.6 Ideology
4.7 Demography

5. Literature Coverage

Literature

1. Introduction

When discussing the future of the automotive industry, there is probably just one thing politicians, corporations, and customers agree on: That there is a need to develop and establish alternative fuel^[1] vehicles (APV) in the future. There are multiple reasons to reject the conventional, petroleum-based fuels. While nobody can surely say when peak oil is reached, we cannot rely on oil forever. This and the dangerous dependency on a few oil-exporting rogue states, coerce us to look for alternatives for fuelling cars and other vehicles. The motivation for consumers to buy an alternative fuel vehicle can be economic (e. g. rising petrol prices) or ideological (e. g. energy sustainability^[2], pollution reduction, climate change^[3] ) (Byrne & Polonsky, 2012, p. 1535). This literature review will outline present findings regarding which alternative fuels possess the most potential and which factors drive consumer adoption of AFVs in general.

2. Conventional Fuels at a Glance

2.1 Petroleum Spirit (Petrol/Gasoline)

Petrol is by far the most used fuel for cars. 43% of global petrol consumption occurs in the United States (U.S. Energy Information Administration, 2008)^[4]. In Germany, petrol-fuelled cars had a market share of 72% in 2012 (KBA, 2012), down from 75% in 2008^[5] (KBA, 2008, p. 5). In terms of technology, fossil fuel combustion engines are the most advanced and allow for the longest ranges and best performances. Most of the energy present in petrol is wasted as heat, though, leading to an engine efficiency of merely around 20-35% (Wikipedia, 2012, Fuel Efficiency of Vehicles section, ¶8). Nevertheless, there is still potential to develop more efficient petrol vehicles (Auto Motor und Sport, 2010); however, more efficient engine technology just incites consumers to buy cars with high-performance engines (Cortez, Griffin, Scaramucci, Scandiffio, & Braunbeck, 2003, p. 509).

The price of petrol varies with the price for crude oil and is thus very apt to fluctuate severely. Between countries, prices differ extremely, mostly because of government policies^[6] (CNN, 2005). 59% of American consumers say they consider switching to an AFV because of the petrol prices (“Maritz Automotive Research”, 2011). Because of rising prices, more efficient cars, and political incentives for APVs, John Eichberger from the National Association of Convenience Stores predicts a 3-5% decline in conventional fuels sold in the US, beginning in 2016 (Lofstock, 2012, p. 22). The end of conventional fuels is not near, though, it seems: Consumers still have no coequal alternatives and because of improved drilling technology and recently found oil reserves they will still remain affordable (Lofstock, pp. 22-23). Jerry Thompson, chief operating officer at CITGO Petroleum Corp., predicts that “gasoline will be around for the next 25 years” (qtd. in “Despite Alternative-Fuel Vehicles”, 2004).

2.2 Diesel

Diesel is the second-most popular fuel worldwide with a German market share for diesel cars of 28% in 2012 (KBA, 2012), up from 24% in 2008 (KBA, 2008, p. 5). In 2007, more than 53% of new cars sold in Western Europe were saving money^[7] by running on diesel (Ciferri, 2008). In the US, diesel cars are less popular with a growing market share of 2-3% of new cars (Buss, 2010, Urea Heaps section, ¶4), because diesel enjoys no tax privilege and petrol is cheaper than in Europe (Webster, 2009, ¶1). Still, a US market share of 20% is projected for 2020 (Ciferri). In China, diesel cars only account for less than 1% of the market (Ciferri). Many experts see a bridge technology in diesel-fuelled cars: Diesel could substitute petrol until AFVs are on par technologically and regarding infrastructure.

3. Particular AFV Potentials and Progression of Consumer Adoption

Consumer preferences for fuel types are very heterogeneous (Brownstone, Bunch, & Train, 2000, p. 377). The first impediment to consumer adoption is the high purchasing price, as AFVs are not affordable for many people (Mechnich, 2012a). Moreover, Zhang, Gensler, and Garcia (2011) notice a “prisoner’s dilemma” (p. 154), as no manufacturer is willing to be the first to commit to a new technology; the same network problem applies on refuelling and maintenance infrastructure. In general, eco-innovations have long start-up periods (Golder & Tellis, 2004) and diffusion discontinuities (Christensen, 1997). In the short-term, hybrid vehicles are more likely to be adopted by consumers than completely disruptive innovations, because they require less changes in infrastructure and consumer behaviour, and can thus serve as a bridge technology (Byrne & Polonsky, 2012; Dagsvike, Wetterwald, Wennemo, & Aaberge, 2002; Mokhtarian & Cao, 2003).

3.1 LPG and Natural Gas

3.1.1 Liquefied petroleum gas (LPG).

LPG, also called autogas, is the third most popular automotive fuel^[8]. It is a mixture of butane and propane and is derived from crude oil or natural gas. Almost all LPG cars possess two separate tank systems, allowing them to switch to petrol (or diesel) if necessary. The most important argument for autogas is the favourable pricing^[9] due to financial incentives in many countries such as lower excise taxes compared to conventional fuels (WLPGA, 2012, p. 35). Another argument for autogas is that it is more environment-friendly than petrol because it emits less pollution, which is also the main reason for the government incentives (WLPGA, p. 21). Only some cars can run out-of-the-box on LPG; most models require an upgrade which only amortizes after a long mileage and occupies space in the boot. In some countries, such as Belgium and the Netherlands, LPG could not make the breakthrough because of a perceived danger (cf. Viehmann, 2012b), although autogas is in fact very safe (WLPGA, pp. 8, 17-18). LPG distribution can easily be integrated into existing filling stations; therefore an adequate infrastructure can be established with comparatively low costs (WLPGA, 2012, p. 18). Comprehensive LPG station networks exist in many countries, including Germany with nearly 6500 stations (Neumann, 2012). Worldwide, there are over 57,000 stations (WLPGA, p. 14).

3.1.2 Compressed natural gas (CNG).

Natural gas vehicles can be fuelled by CNG (compressed natural gas) or the uncommon LNG (liquefied natural gas). Currently, there are 14.8 million natural gas vehicles worldwide, with most of them located in Iran, Pakistan, Argentina, Brazil, and India (NGV Journal, 2012)^[10]. The majority are dual-fuel vehicles that can also run on petrol. As with LPG, some cars can run on natural gas out-of-the-box, while most models would require an upgrade. The main advantage of natural gas is the travelling costs, which are even lower than those of LPG (Haschek, 2012). Still, an upgrade only pays off for extensive drivers (Wiley & Hunt, 2011, p. 1). Environmentalists and governments^[11] cherish natural gas because it emits less pollution than petrol and diesel (Wiley & Hunt, p. 1). Regarding safety, it performs better than the conventional fuels (Clean Vehicle Education Foundation, 1999/2010, p. 3).

As with most alternative fuels, the main impediment to consumer adoption is the inferior refuelling infrastructure^[12]. There are more than 20,000 natural gas stations worldwide (NGV Journal, 2012), thereof ca. 900 in Germany (Neumann, 2012). While there are many countries with satisfactory or just barely sufficient gas station networks, there are plenty blank areas, for example Africa. McLeroy (2009) terms the present situation a “chicken-and-egg problem”: A critical mass of cars is required for the supply network to become sufficiently dense, but purchasing a CNG vehicle remains unattractive without enough filling stations. Yeh (2007) examined leading CNG markets and assessed that none of them will be self-sustaining if governments policies are abolished (pp. 5870-5871). Nevertheless, there is a strong growth in the number of vehicles and stations (IANGV, 2010), and 30% of American consumers are “definitely interested” in CNG-fuelled cars (Haldis, 2008).

3.2 Biofuels

Biofuels are produced from biological matter^[13] and thus are a renewable source of energy. Compared to fossil fuels, emissions of greenhouse gases are reduced (Cortez et al., 2003, p. 509), yet all things considered they are more ecologically harmful than other renewable energies^[14] (Müller-Jung, 2012).

Depending on climate, bioethanol can be produced at a very low cost, for example in Brazil, where neat ethanol (E100) costs half as much as petrol, without subsidies (Cortez et al., 2003, p. 511)^[15]. Ethanol-petrol mixes are globally successful, for example E24 in Brazil, E85 in Sweden, or E10 in the USA and Germany, and many countries aim to blend renewable fuels with gasoline (Cortez et al., 2003, pp. 512-515). The main problem with biofuels is that the acreage needed to supply all vehicles would be too big with current technology^[16] (e. g. the area needed for biodiesel production for all German vehicles would be as big as Germany herself), and would not be price-competitive without subsidies ("Biodiesel", 2012). Furthermore, Cortez et al. (2003) see barriers to the erection of an international market, as some countries are more cost-competitive in producing biofuel, and local farmers oppose importation (pp. 516-517). This leads to the conclusion that without appropriate technology, biofuels will not be able to replace conventional fuels on a large scale. Still, it could serve as a short- and medium-term alternative for a minority of drivers (Cortez et al., p. 509).

3.3 Electric Vehicles

3.3.1 Electricity from batteries.

The 2012 market share of hybrid-electric cars in Germany is 0.11%, while all-electric vehicles just account for about 4000 cars. Hidrue et al. (2011) found out that all-electric cars compete with hybrid-electrics more than with conventional vehicles (p. 695). Generally, all-electric vehicles failed in the market (Mechnich, 2012b). Nevertheless, a Roland Berger study predicts that half of new cars in 2025 will be hybrid-electric (40%) or all-electric (10%) (Roland Berger Strategy Consultants, 2011, p. 3).

Advantages of electro-cars are the flexibility concerning the primary energy source, no direct emissions (though possibly at the power plant), and lower fuelling prices^[17]. Disadvantages include the inferior driving ranges (especially at low temperatures) and long recharging times needed (30 minutes with high voltage, else several hours) (Mechnich, 2012b; Mechnich, 2012c). Furthermore, electric vehicles are very expensive, and their eco-friendliness is disputable, as producing and disposing the batteries burdens the environment, and total greenhouse gas emissions and energy efficiency rely on how the electricity is produced^[18] (Nitsche, 2012; Raupach, 2009; “Wirbel um Studie”, 2012). In many countries there are government incentives like bonuses and tax rebates (Höltmann, 2012). The Obama and Merkel administrations aim at one million electric cars in their countries by 2015 and 2020, respectively (Mortsiefer, 2012). However, demand studies^[19] have shown consistently that electric vehicles have a low probability of market penetration, mainly because of limited driving range, long recharging time, high purchasing price, and low market share associated with poor recharging infrastructure. Kurani et al. (1996) found out that for many households electric vehicles are attractive as a second car in addition to a conventional vehicle (mainly because the reduced range is less important then), and consider a 7-18% share of light duty vehicle sales in California possible.

[...]

^[1] I. e. not fuelled by petrol or diesel.

^[2] Mazraati and Shelbi (2011) calculated that the USA could safe 1.8% of all oil needed for transportation in 2030, if they would have a 4% market share of AFVs by then.

^[3] Transportation fuels contribute significantly to anthropogenic greenhouse gas emissions (Achtnicht, 2009, p. 21; Nitsche, 2012; PBLNEAA, 2010; Rohde, 2006). The thesis itself that there is a man-made climate change is highly controversial, though (Ederer, 2011; Morano, 2010).

^[4] The Obama administration aims to reduce the dependence on foreign oil, as the US imports most of its raw oil. The major automakers agreed to double their average fleet efficiency and reach an average fleet fuel consumption of 4.36 L/100km (54.5 mpg) by 2025 (Liggett, 2011). Although engine efficiency has been increased by 35% during the last 30 years (“Das E-Auto”, 2012), Dan Gilligan, president of the Petroleum Marketers Association of America deems the intended figure unachievable and regards Obama as “merely politicking with the environmental community” (qtd. in Lofstock, 2012, p. 21).

^[5] It should be noted that in the same time diesel cars gained four percentage points, though, meaning so-called alternative fuels are still insignificant.

^[6] Europe and Japan have very high prices (up to 2 €/L) due to very high taxes. In the USA, the price is less than half the European one, with taxes differing between states. On the other hand, there are countries such as Venezuela, Saudi-Arabia, and Mexico that subsidize petrol.

^[7] This trend towards diesel-fuelled cars is due to on the one hand lower fuel prices in many countries because of tax privileging and on the other hand the superior energy efficiency of diesel engines (they have an up to 40% better mileage and also produce 30% less greenhouse gas emissions than petrol engines) (Buss, 2010, ¶4).

^[8] Worldwide, there are 17 million LPG-fuelled cars, but half of all autogas consumption comes from the frontrunner countries South Korea, Turkey, Russia, Poland, and Italy (WLPGA, 2012, p. 6). The market share of LPG-fuelled cars in Germany was 1.07% in 2012 (KBA, 2012), up from 0.4% in 2008 (KBA, 2008, p. 5). The US market share of LPG fuel is a mere 0.1% (WLPGA, p. 108), while the highest market share is in Turkey with 18% (WLPGA, p. 100). Worldwide demand increased by 59% from 2000 to 2010 (WLPGA, p. 13).

^[9] While autogas combustion results in more consumption than petrol or diesel, it is still more economic than petrol (with some notable exceptions such as Canada, the USA, and Russia) (WLPGA, 2012, p. 42).

^[10] The highest market penetration is 17% in Argentina (Yeh, 2007, p. 5866). In Germany, the market share of CNG vehicles is 0.18% (KBA, 2012).

^[11] Many countries, especially those who possess natural gas reserves (Dondero & Goldemberg, 2005), promote natural gas vehicles, for example through government subsidies for CNG fuelling stations and vehicles in the US (Wiley & Hunt, 2011, p. 2), a lower excise tax levied on natural gas fuel in Germany, or lower vehicle excise duties in the UK and Brazil.

^[12] Whereas natural gas is liquefied (to LNG) for long-distance transports, fuelling stations need to be supplied via underground pipelines (which at least makes it also technically possible to refuel at home).

^[13] Types of biofuels include bioalcohols, biodiesel, vegetable oil, bioethers, biogas, syngas, liquefied biomass, wood gas, algae fuel, and many more.

^[14] For example, production of biofuels can lead to wood clearing for the creation of new crop areas, and furthermore, some of the plants used for fuel production could also serve as food (e. g. corn, rape, cane).

^[15] In Brazil, bioethanol as a fuel was initiated by the military regime, but because of an ethanol supply crisis in 1989, the market share of neat ethanol vehicles dropped to 2%, and consumers remain sceptical.

^[16] A solution to the space problem could be algae-based fuels.

^[17] Although Efler (2012) points out that this is only due to current heavier taxation of conventional fuels and electricity would in fact be more expensive without government intervention.

^[18] The source of electricity is crucial for eco-friendliness: China would consume more oil than what is produced worldwide if it had as many cars per capita as the USA, making the success of electric cars there a global issue; yet 70% of its electricity is produced in coal-fired power plants (Voigt, 2012).

^[19] Beggs, Cardell, & Hausman, 1981; Brownstone, Bunch, Golob, & Ren, 1996; Brownstone et al. 2000; Brownstone & Train, 1999; Bunch, Bradley, Golob, Kitamura, & Occhiuzzo, 1993; Calfee, 1985; Dagsvike et al., 2002; Ewing & Sarigöllü, 2000; Hidrue, Parsons, Kempton, & Gardner, 2011; Kurani, Turrentine, & Sperling, 1996; Mokhtarian & Cao, 2003; Tompkins et al., 1998