Resource and Energy Economics 20 Ž1997.

1–15

A comparative cost analysis of biodiesel,
compressed natural gas, methanol, and diesel for
transit bus systems
Nicolas B.C. Ahouissoussi a , Michael E. Wetzstein
b

b,)

a
World Bank Resident Mission, Cotonou, Benin
Department of Agricultural and Applied Economics, UniÕersity of Georgia, Athens, GA 30602, USA

Abstract
A comparison of operating costs for buses used in a transit system are investigated
considering four alternative fuels: biodiesel, compressed natural gas, methanol, and diesel.
Rust’s ‘nested fixed point’ maximum likelihood estimation algorithm is used in this
comparison. The algorithm considers both tangible costs such as fuel, maintenance, and
infrastructure, and intangible costs associated with different levels of bus engine operating
reliability under alternative fuels. Using data on actual monthly mileage and time of engine
rebuilds under the four alternative fuels, the Rust algorithm is employed assuming that an
optimal maintenance strategy is adopted for each alternative fuel type. Results indicate that
although biodiesel and biodiesel blends have higher total costs than diesel fuel, they have
the potential of competing with CNG and methanol as fuels for urban transit buses.q 1997
Elsevier Science B.V.
JEL classification: Q40; Q42; Q48
Keywords: Biodiesel; Natural gas; Methanol; Diesel; Buses; Alternative fuels

)
Corresponding author. Department of Agricultural and Applied Economics, University of Georgia,
Athens, GA 30602, USA. Tel.: Ž 706 . 542-0758; fax: Ž 706 . 542-0739; e-mail:
mwetzstein@agecon.uga.edu

0928-7655r97r$17.00 q 1997 Elsevier Science B.V. All rights reserved.
PII S 0 9 2 8 - 7 6 5 5 Ž 9 6 . 0 0 0 1 5 - 2

and maintenance costs.2 N. including an economic evaluation on the relative comparative costs of operating an urban bus transit fleet on alternative fuels. M. and 47% in total hydrocarbon emissions. other tangible costs such as infrastructure. For example. A small policy change by government or product promotion by industry may determine which alternative fuels will be widely adopted. cost comparisons incorporating infrastructure. biodiesel. While the market for cleaner burning renewable fuels is becoming increasingly important. Given this potential of improving air quality. are important factors in energy policy issues. along with reliability.C.. and particulate matter than diesel engines. Reductions include 31% in particulate matter. however. reduces diesel engine air pollution. along with a catalytic converter. and low-sulfur diesel fuel. engine replacement. carbon monoxide. equipment replacement. Thus. Emissions from alternative-fueled bus engines consistently indicate lower emissions of reactive hydrocarbons. such promotion requires a comprehensive analysis. A comparison of just the fuel cost per mile – without consideration of infrastructure. For a comprehensive comparison of these alternative fuels. Ahouissoussi. Differences in maintenance costs among these alternative-fueled buses are estimated with Rust’s nested fixed point maximum likelihood estimation algorithm.. methanol. With the addition of engine and fuel system modification costs for alternativefueled buses. for different fuel types. A specific objective is the development of a dynamic model of bus engine replacement for determining the present value of total fleet operating costs for these alternative fuels. and maintenance costs – can be misleading and can result in erroneous conclusions. estimates of the total costs are required Žboth tangible and intangible. the primary focus of this study is to provide a complete cost comparison for operating a transit bus fleet on compressed natural gas ŽCNG.E. there is a significant gap in the literature comparing these alternative fuels.B. Wetzsteinr Resource and Energy Economics 20 (1997) 1–15 1. a cost comparison among the fuels may be determined by considering the present value of the total fleet operating cost over the fleet’s life cycle. also vary by fuel type.. Comparing these . 21% in carbon monoxide. based on the assumption that an optimal maintenance strategy is adopted for each type of alternatively fueled bus. In general. engine replacement. the National Soydiesel Development Board reported that biodiesel used in a 20r80 blend with petroleum diesel. Fuel is a major cost. and maintenance costs. as regulated by the Environmental Protection Agency ŽEPA. as well as intangible costs associated with bus reliability. including unobservable intangible costs. Introduction Current regulatory policies place the alternative fuel industry at a critical junction. However. A review of the literature found no previous empirical work that has examined the issue of economic competitiveness of alternative vehicle fuels based on total life-cycle costs. The Rust algorithm estimates bus maintenance costs. varying by type of fuel used. firms and governmental agencies promoting a particular alternative fuel for urban bus transit have an opportunity for significantly influencing its adoption.

particularly in urban areas.. Petroleum-derived diesel is used as the base fuel in this study. From an environmental standpoint. biodiesel often is blended with diesel at a ratio of 20r80. a number of other alternative fuels. and particulate matter ŽPM-10. nitrogen oxide ŽNOx. 2. Ahouissoussi. The majority of the methanol produced in the United States is from natural gas resources. 1984. These nonpetroleum diesel fuel substitutes can be obtained from oilseed crops such as soybean.. and rapeseed. Extracted from underground reservoirs. more recent research has emphasized the potential of plant oils as diesel fuel extenders or replacements ŽGavett. and helium. 1993. will encourage the adoption and use of alternativefueled vehicles and associated technologies. Interest in using natural gas as a transportation fuel has increased in recent years. carbon monoxide. because it offers the potential for reducing exhaust emissions. One alternative is biodiesel fuel.. Alternative fuels Federal regulatory policies resulting from the implementation of the National Energy Policy Act ŽNEPA. nitrogen. Although extensive research interest during the past decade centered upon ethanol and methanol processing technologies and policies. Recent EPA regulatory activities are aimed at reducing emissions of volatile organic compounds ŽVOC. This is particularly true for the urban bus market. biodegradable. Fuels produced via chemical and thermal processes are referred to as biodiesel fuels. CNG is another fuel with the potential of meeting tighter vehicle-emission requirements. renewable. 1993. McIntosh et al. 1993. and biomass. This model identifies the potential competitiveness of biodiesel compared with CNG and methanol under alternative prices.. including CNG and methanol. as a means of controlling urban ozone. M.. For economic and engine-compatibility reasons. . however. Wetzsteinr Resource and Energy Economics 20 (1997) 1–15 3 maintenance cost estimates with actual observed costs reveals the sensitivity of total cost to changes in maintenance costs. biodiesel blended with diesel can significantly reduce emissions of particulates. along with other hydrocarbons including ethane. Biodiesel is a clean-burning.. propane. sunflower. and butane. form as a diesel substitute or potentially blended with diesel. Clark and Wagner. and inert gas such as carbon dioxide. residual oil. petroleum refining was controlled primarily for gasoline yield and quality. natural gas is a fossil fuel composed primarily of methane. It can be used in neat Ž100%. thus. 1980. Methanol is yet another alternative fuel produced from both fossil and renewable domestic resources.B.C. nontoxic.N. will be competing with biodiesel fuel. Methyl and ethyl esters derived from soybean and rapeseed have properties much closer to conventional diesel fuel ŽZiejewski et al. Other sources for methanol production include coal. In the past.E.. and domestically produced fuel that can be used neat or in blend with petroleumderived diesel ŽHolmberg et al.. and unburned hydrocarbons.

if a particular engine component fails when an engine has relatively high mileage. If a particular component fails when a bus has relatively low mileage. for a bus with relatively high mileage. the optimal solution may be to rebuild the entire engine. Bus failures on the road are expensive in terms of both tangible costs such as towing.B.E. Diesel fuel now faces significant fuel-quality and engine-emissions requirements. where i t s 1 if rebuild occurs at time t. q e t Ž i t . differ by fuel type. Basically. Wetzsteinr Resource and Energy Economics 20 (1997) 1–15 the quality of diesel fuel varied widely depending on the demand for gasoline ŽNational Biodiesel Board. the stochastic process is shown as  i t . . and the optimal preventive maintenance cost for each alternative-fueled bus will depend on the tradeoff between the value of unused life and the cost of failure. u 1 . along with engine rebuild costs. and t s 1. if i t s 1 yc Ž x t .i t . An optimal maintenance model for bus engines Generally. . The differences in miles between rebuilds and rebuild costs across alternative-fueled buses suggest that the stream of maintenance costs varies by fuel type. q e t Ž 0 . the expected per period maintenance cost. u 1 . . fuel system costs and miles between rebuilds. x t 4 .C. Application of the Rust algorithm ŽRust.4 N. then the probability of other parts failing increases. then it may be optimal to replace or repair just this failed component.. provides a consistent method for determining the differences in maintenance cost among these alternative-fueled buses. x t denotes mileage since the last rebuild at month t. 3. where u is a parameter to be estimated. this method assumes that transit authorities have developed a procedure for optimally determining when a bus should be rebuilt. 1987. each of which has its own stochastic failure as a function of accumulated use. . For a determination of this maintenance cost. q e t Ž 1 . Thus. Applying Rust’s algorithm. a bus engine can be regarded as a portfolio of individual components. In contrast. Given an objective of minimizing unexpected engine failure. This has changed over the last few years. Current EPA regulations set a maximum limit of 0. a policy of preventive periodical engine rebuilding is cost effective. . the cost of engines is comparable among the alternative fuels considered in this analysis. u 1 . . e t Ž1. Ahouissoussi. Unobserved state variables are incorporated by assuming that unobserved costs  e t Ž0. and i t s 0 otherwise. M.05% by weight on the sulfur content and a minimum cetane index of 40 for diesel fuel used in on-road vehicles. . 1994. Letting r denote the expected cost of a rebuilt bus engine and cŽ x t . the model estimates what the marginal maintenance cost per month must be to obtain this optimal timing. u 1 . the utility function is u Ž x t . and so it might be optimal to rebuild the engine. T. if i t s 0 Ž 1.4 follow a specific stochastic process. However. Given this optimal timing.. s ½ yr y c Ž 0. and intangible costs that include loss of time for the bus driver and passengers.

is chosen because of its computational tractability. . so cŽ x t . L1 and L2 are partial likelihood functions. should be interpreted as an unobserved component of cost associated with rebuilding the bus engine. . In Stage 2.i ty1 . . Ž3. Data required consist of  i tm . The approach is to estimate the unknown parameters.E. .. u s Ž u 1 . r . . because neither the location nor the scale of these observed costs is identifiable without further information. u . s ½ g Ž x tq1 . i T < x 0 . e t Ž1. if i t s 1 g Ž x tq1 .C.i t . Ž4. m s 1. implies a transition density of the form p Ž x tq1 < x t . u 2 . It is hypothesized that the unobservable state variables  e t Ž0. u 1 . and its satisfactory fit with the data. u . x T . ts1 Ž 3. shown by Eq. Lf . the distribution g reduces to a multinomial distribution corresponding to monthly mileage. ts1 T L2 Ž x 1 . This involves discretizing the state variable x t Žmileage. with maximum likelihood using the nested fixed point algorithm. L2 . Tm . and e t Ž1. Ahouissoussi. u 2 . . . u 1 . u 2 . . . x T . . have a subjective parametric density function.i ty1 . Ž 5. . . . Wetzsteinr Resource and Energy Economics 20 (1997) 1–15 5 Letting monthly mileage Ž x tq1 y x t . and x is the mileage since the last rebuild of bus m in month t.i 1 . the remaining structural parameters Ž u 1 . are calculated using L2 and the estimates of u 2 as . . r. Also. u 2 . u 2 . should be interpreted as an unobserved component of maintenance costs for the bus in period t. can be normalized by setting cŽ0. ts1 The first stage is to estimate the parameters u 2 of the transition probability P Ž x tq1 < x t . u 2 . . . The specification does not include a constant term because subtracting a constant term from the utility function Ž1. . u .: T L1 Ž x 1 . . . s Ł P Ž x t < x ty1 . The full likelihood. . i T < x 0 . and Ž5. .i 1 .B. . . where i tm is the engine rebuild decision in month t for bus m. if i t s 0 Ž 2. . M . u .i 0 . .4 obey an independently and identically distributed bivariate process. x T . with normalized mean and variance. g. A linear functional form for cŽ x t . The estimation procedure consists of three stages corresponding to each of the likelihood functions: L1 . ease of interpretation. Using the discretized mileage data.i 0 . u 2 . .i 1 . s Ł P Ž i t < x t . i T < u . . will not affect the choice probabilities. using the likelihood function L1.: T Lf Ž x 1 . Notice that e t Ž0.N. it is implicitly assumed that the stochastic process  x ti . s Ł P Ž x t < x ty1 . is shown by Eq. into a certain number of intervals Žsay n. . x tm 4 Ž t s 1. The most that can be identified is the value of change in maintenance costs as a function of mileage. . M. . Ž 4. s 0. . . . i t . .0.. x t .. e ti 4 is independently distributed across buses. of a specified length. P Ž i t < x t . u 1 . and Lf .

95. Service life for the building is 30 years. and a third laborer refuels the buses. Diesel tank is an FTP-3. e Labor costs per day for 3 lanes Overhead multiplier Total labor costs per bus per year Ž365 days.04 478. bus engine plus fuel systemf Units Total cost Ž$.80 1620 3240 6963 10 905 0. Wetzsteinr Resource and Energy Economics 20 (1997) 1–15 initial starting values.B.. Ahouissoussi. Two laborers drive the buses to the lane. $r1000 ft 2 per lane a Tankage. which results in $19.67 1r3 3 3 2 3942 866 276 000 162 400 438 400 1461 61. Annual refueling cost per bus Cost per mile Bus capital data: Incremental first cost. eight hours per day yields 2080 hours per year. yields an annual loss of 256 hours.6 N.29x s$22. c Refueling labor includes one supervisor per three lanes and three laborers per one lane. . Data Unfortunately. employs the initial consistent estimate of u computed in Stages 1 and 2 to produce efficient maximum estimates of u using Lf .95 actual hourly labor cost based on the same formula used for supervisor’s rate. Infrastructure cost per lane: Building cost. so the incremental cost is the additional cost of methanol or CNG fuel engine and fuel system. Five-day work week. The Denver Regional Transport District refuels approximately 280 buses per night in a three-lane refueling system. d Hourly rate is $16 plus benefits of 29%.84 0.E. size b Total infrastructure cost Total infrastructure cost per bus Refueling cost: Labor costs per lane per day c Supervisor Žper hr. Fifteen days of paid vacation Ž120 hours. Fuel usage per bus Ž$rgal.89 19. 20 000-gallon tank with dimensions of 11 ft diameter by 28 ft tall. gal..298 0. data on monthly mileage and time of rebuilds for alternativefueled buses are very limited. 4. e Hourly rate is $13.rmonth. M. A tank capacity of 26 666 gallons is required per lane. b Tank is $10 600 plus 1. nine paid holidays Ž72 hours. The final estimation ŽStage 3. 20 000-gal. d Labor Žper hr. and eight paid sick leave days Ž64 hours. 36 578 92 000 40 600 3 4 300 22.C. Annual miles driven Žper bus.000 Source: Colorado Institute for Fuel and High Altitude Engine Research. Actual hourly rate is then $16wŽ2080r1824. Most experiments on alternative fuels were conTable 1 Diesel bus cost summary Item Unit cost Ž$.q 0.95 539. a Three lanes can service 360 buses at full capacity.89. f The diesel engine and fuel system are the base.5 times the tank size..

resulting in short time intervals and little if any data collection. One exception is an experiment by the Denver. Lubrizol Ž$rgal. Infrastructure cost per lane: Building cost.080r1. which results in $19. 20 000-gal. Wetzsteinr Resource and Energy Economics 20 (1997) 1–15 7 ducted for demonstration purposes only. d Hourly rate is $16 plus benefits of 29%.69 1r3 7.000 gallons of methanol.29x s$22. Service life for the building is 30 years.89.59 15.5 times more fuel than diesel.89 19. size b Total infrastructure cost Total infrastructure cost per bus Refueling cost: Labor costs per lane per day c Supervisor Žper hr.42 276 000 2 681 480 2 957 480 9858 61.B.080 hours per year.N. bus engine plus fuel system g Units Total cost Ž$. The Denver Regional Transport District refuels approximately 280 buses per night in a three-lane refueling system. d Labor Žper hr.24 0. Fifteen days of paid vacation Ž120 hours. Five dual CNGrdiesel buses Ždiesel buses converted so they can also use CNG.ryear.95. f Lubrizol is added at 6. That experiment. f Annual refueling cost per bus Cost per mile Bus capital data: Incremental first cost.04 1197. given that methanol buses require on average 2.. gal. Five-day work week. and five methanol buses. .5 laborers per one lane. were added in 1991.E. gal. eight hours per day yields 2. and eight paid sick leave days Ž64 hours. e Hourly rate is $13.. g The diesel engine and fuel system are the base. which lasted from June 1989 through December 1993.C. Annual miles driven Žper bus.824. q0. Ahouissoussi.708 29 900 Source: Colorado Institute for Fuel and High Altitude Engine Research. Summary assumes 2. e Labor costs per day for 3 lanes Overhead multiplier Total labor costs per bus per year Ž365 days. Colorado. initially included five diesel buses which could use both diesel and biodiesel fuel.5 additional labor hours for fueling based on 2.ryear.5 3 2 9185 19 867 12.25 gallons per 10..95 1258.5 times as much fuel. nine paid holidays Ž72 hours. so the incremental cost is the additional cost of methanol fuel engine and fuel system. Regional Transportation District. 29 801 92 000 268 148 3 10 300 22.. M. b Tankage is based on 2. The 15 Table 2 Methanol bus cost summary Item Unit cost Ž$.95 actual hourly labor cost based on the same formula used for supervisor’s rate. Actual hourly rate is then $16wŽ2. a Three lanes can service 360 buses at full capacity.5 times diesel tankage. Fuel usageper bus Ž$rgal. c Refueling labor includes one supervisor per three lanes and 7.20 3775 7550 11 722 195 21 102 0. yields an annual loss of 256 hours. $r1000 ft 2 per lane a Tankage.

Actual hourly rate is then $16wŽ2080r1824. yields a loss of 256 hours. so the incremental cost is the conversion cost of a diesel bus to CNG and additional cost of the fuel system. Two laborers drive the buses to the lane. resulted in 146 monthly observations for the analysis.8 N. Ahouissoussi. e Labor costs per day for 8 lanes Overhead multiplier Total labor costs per bus per year Ž365 days. and a third laborer refuels the buses. f Maintenance costs per bus per year Energy cost of compressors per bus per year Annual refueling cost per bus Cost per mile Bus capital data: Incremental first cost.q0. stops per mile.E. This unique data set.95. combined with the application of Rust’s Table 3 CNGrdiesel dual bus cost summary Item Unit cost Ž$. a Eight lanes can service 300 buses at full capacity.. The buses were fueled on site.. The three fleets of buses were exposed to similar operating conditions such as scheduled speeds. eight hours per day yields 2080 hours per year. b Estimated installed cost is $1 700 000 plus 10% for contractor’s markup.28 365 736 000 2 320 000 3 056 500 10 188 22. bus engine plus fuel system g Units Total cost Ž$. f Fuel usage is in equivalent gallons. Wetzsteinr Resource and Energy Economics 20 (1997) 1–15 buses Žthree fleets comprised of five buses each.29x s $22. M. d Hourly rate is $16 plus benefits of 29%. c Refueling labor includes one supervisor per three lanes and three laborers per one lane. .C. e Hourly rate is $13. d Labor Žper hr. 5% for development and permitting.80 4014 8028 4306 400 467 14 940 0.B.89 478. g The CNGrdiesel bus engine is the same as the diesel bus. Annual miles driven Žper bus. They were maintained under the same preventive maintenance program. gal. 10% for engineering. engineering plus development and permitting for contingency. $r1000 ft 2 per lane a Fueling facility b Total infrastructure cost Total infrastructure costrbus Refueling cost: Labor costs per lane per day c Supervisor Žper hr.431 35 000 Source: Colorado Institute for Fuel and High Altitude Engine Research.77 0.95 actual hourly labor cost based on the same formula used for supervisor’s rate. Service life for the building is 30 years. which results in $19.. 34 691 92 000 8 300 22. traffic conditions.89 19.89.ryear. Five-day work week. and passenger loading. Infrastructure cost per lane: Building cost.40 1r8 3 8 2 9767 10 764 1. nine paid holidays Ž72 hours. Fifteen days of paid vacation Ž120 hours. and 10% installed cost.95 501. and eight paid sick leave days Ž64 hours. Fuel usage per bus Ž$rgal.

Again.506. 5.x. The coefficients . and to storing pressurized fuel. using the nested fixed point algorithm. and in-service failure costs for the total operational life of the transit buses. repair. Wetzsteinr Resource and Energy Economics 20 (1997) 1–15 9 algorithm. Ahouissoussi. u 1 . compared with approximately $10 000 per bus for both methanol and CNGrdiesel buses ŽTables 2 and 3. Further. M.N. the 2. allows a cost comparison of alternative fuels based not only on fuel cost and usage. Ž3. the actual cost of fuel is lowest for CNGrdiesel buses at $4306. thus. this higher cost is potentially offset by the considerably lower coefficient of variation for the CNGrdiesel bus. methanol tanks are over six times more expensive than those used for diesel fuels.5 factor increase in fuel consumption for methanol buses relative to diesel requires 4. and CNGrdiesel. which is approximately twice the refueling cost for diesel buses. Model results for diesel. Bus capital costs are the additional fuel system and engine conversion costs required for methanol and CNGrdiesel bus conversion. All operating cost coefficients are significantly different from zero at the 1% significance level.. it is realistic given current transit operations. compared with $6963 and $11 722 for diesel and methanol buses. it is possible that CNGrdiesel buses may have lower costs due to fewer unexpected required rebuilds.C. However. and 0. and CNGrdiesel alternative fuels are presented in Table 4. Methanol buses require 2. Although this assumption may favor diesel and biodiesel. Lf wEq. resulting in larger tankage. This lower coefficient of variation implies less uncertainty regarding timing of rebuilds. Therefore. methanol.522. Maximum likelihood results Estimates of the unknown parameters Ž r. but also on maintenance. Summary statistics indicate a large variation in mileage at time of engine rebuild. Annual refueling cost per bus is $21 102 for methanol buses. However.220 for diesel.5 additional laborers for bus refueling. engine-rebuild. respectively. The costs of alternativefueled buses are based on the assumption that a regional transportation district already has diesel bus refueling and maintenance facilities. resulting in higher CNGrdiesel maintenance costs. The coefficients of variation for mileage at rebuild are 0. Total infrastructure cost per bus is only $1461 for diesel and biodiesel ŽTable 1. particularly for diesel and methanol buses.5 times more fuel. The significantly higher infrastructure costs for CNGrdiesel buses as compared with those for diesel are due to the requirement of eight refueling lanes instead of three. CNGrdiesel buses are rebuilt at approximately half the time and mileage intervals of diesel and methanol buses. fixed costs for alternative fuel facilities are incremental to diesel facility fixed costs.B. The additional six refueling lanes for CNGrdiesel buses primarily explain that alternative’s 37% higher annual refueling cost per bus compared with diesel buses. 0.E. methanol. respectively. associated with operating costs are computed by maximizing the full likelihood function.

M. Single. a Operating costs include maintenance costs. $128. and loss of ridership and goodwill costs due to unexpected breakdowns.06 Ž1.40.90 for diesel and biodiesel. and 0. associated with rebuild costs are significantly different from zero at the 10%. ) ) y45. which will provide .38 Ž2. methanol. and $5. Assuming this base level of maintenance is the same for all alternative-fueled buses.89 Ž1.49 9500 2047 31. Marginal cost is the incremental change in total monthly maintenance cost.94. respectively.001u 1 s . 5%. insurance costs. the proportion of this maintenance can be increased from zero. RC Scale parameter b .80 Notes: Numbers in parentheses are standard errors of estimates. starting with zero as the base level.84 for methanol and $4. b Scale parameter is the actual rebuild cost Ž RC . Lacking information on the exact proportions of these explicit costs that represent some base level of maintenance. 0.B. and triple asterisks Ž ) . divided by the rebuild cost coefficient Ž r . This results in an average monthly maintenance cost of $28. for diesel.64.80. methanol. double. and 30% significance levels. $419. The large variation in marginal cost can be explained by the relatively large rebuild cost and variation in mileage at rebuild of methanol compared with CNGrdiesel buses. Ahouissoussi. u 1 Rebuild costs. ) ) ) 5.E. ) ) ) 4.55 Ž7. c Marginal cost s 0.16. and $71.01 levels. y22. r Log-likelihood Rebuild costs. ) y29. respectively.32.40. denote significance at the 0.32. and CNGrdiesel buses.80 for CNGrdiesel compared with $31.10. This is the change from a base level of initial maintenance cost which is composed of routine maintenance.05.38 for methanol..84 0. These marginal cost estimates indicate that the Denver Regional Transportation District perceives average monthly maintenance costs to increase for every 5000 accumulated miles on the buses. ) ) ) 3. methanol.21 Ž0. respectively. and CNGrdiesel-fueled buses. Maintenance marginal cost is only $1. for diesel and biodiesel.74 6500 2025 1. then total monthly maintenance cost is incremented every 5000 miles by the estimates in Table 4.28 6500 1284 4. c Diesel and biodiesel Methanol CNGrdiesel 3.C. including such items as brake adjustment and replacement or repair of individual components. This wide variation in mileage at rebuild implies higher marginal cost associated with determining optimal preventive maintenance. s Marginal cost Žper 5000 miles.10 N.59 for CNGrdiesel buses.34 15. Wetzsteinr Resource and Energy Economics 20 (1997) 1–15 Table 4 Marginal cost estimation results for diesel and biodiesel. and cngrdiesel buses Summary statistics Structural coefficients: Operating costs a .34 for diesel. These average costs are considerably lower than the data obtained from the Denver Regional Transportation District on explicit average maintenance costs per month of $41.62.64 Ž0.

C.1406. and 10 months for diesel. are $38 296 and $43 727 for methanol and CNGrdiesel buses.600 BTUs per gallon. Rebuild costs Žlisted in Table 4. thus. respectively. are 0. and CNGrdiesel-fueled buses.75. It is assumed that a2 diesel has a heat content value of 140. 60%. These additional costs above diesel base costs are accrued every ten years over the life of a bus. an equivalent gallon costs $0. and CNGrdiesel buses are the mileage per month times the cost per mile Žfrom Tables 1–3. however. and $3. 0.4218. given that the engines are rebuilt on average every 20. cS .. with diesel and methanol a distant second and third. Based on this gross heating value. Present value analysis A complete comparison of cost differentials among the alternative fuels requires consideration of all costs. rebuild. and 100% biodiesel blend. total infrastructure cost per bus for methanol Ž$9858.50. 0. Operating cost is composed of both maintenance and fuel costs. methanol. including startup. for biodiesel were considered. The interval between engine rebuilds for methanol is in close association with diesel. at a price of one dollar per million BTUs of CNG.1406. For example. equals startup costs of $38..B. but the methanol’s rebuild cost is approximately 46% higher than the rebuild cost for the diesel. and operating costs. $2. plus methanol’s bus capital cost Ž$29 900.9916.8887 for 20%.N. the equivalent gallon of CNG in one million BTUs of CNG is 7. per equivalent gallon for CNGrdiesel were considered. M. respectively.00. CNGrdiesel-fueled buses offer the lowest cost per mile. Three alternative fuel prices Ž$0.296 for methanol.. however.9766. as the current thin market for biodiesel may not reflect the long-run equilibrium price. Ahouissoussi. minus infrastructure cost for diesel Ž$1461. Monthly maintenance cost is based on mileage per month. the interval between CNGrdiesel rebuilds is only half of that for diesel. Considering only the fuel cost. These costs are comprised of incremental refueling infrastructure costs and incremental bus capital costs ŽTables 1–3. methanol.9297. the fuel efficiency estimates of biodiesel blend fuels compared with diesel Žas estimated by the Colorado Institute for Fuel and High Altitude Engine Research. Wetzsteinr Resource and Energy Economics 20 (1997) 1–15 11 information on the sensitivity of the total cost of alternative fuels to changes in this base level of maintenance. and 0. Fuel costs for diesel. include fuel system costs and engine conversion costs. For biodiesel. respectively. the fuel costs are the same as for diesel.1123.E. $0. Three prices per gallon Ž$1. 35%. 21. Incremental bus capital costs. respectively ŽTable . 6. The rebuild costs for CNGrdiesel are equivalent to those for diesel. c I . Startup costs. considering cost changes every 5000 miles Žgiven estimates of marginal cost detailed in Table 4. and $0.2812. represent a major component of the overall total. Denver. An equivalent gallon is the number of BTUs in a gallon of diesel fuel.

5.216 0. Blends 20% 35% 60% 100% Explicit cost Double mileage 0.454 0.383 0.664 1.131 0. However.319 0.310 0. Blends 20% 35% 60% 100% $2.342 0.562 0.396 0. Present value is calculated over a 30-year Ž360 months.380 0.390 0. M.435 0.449 0. Biodiesel at only a 20% blend is competitive with methanol. b Estimated cost is based on baseline maintenance costs of zero and 50% of actual explicit maintenance costs.578 0.381 0.483 0.569 0.365 0.355 0.655 0. Estimated total cost is fuel cost plus an estimate of maintenance and opportunity costs.439 0.318 0.406 0.087 0.315 0.568 0.75rgal.B. Biodiesel $1.288 0.394 0.214 Methanol 0.660 0.413 0. this fuel cost does not consider the differences in infrastructure. and maintenance costs associated with alternative-fueled bus transit systems. $0.1406rgal.354 0.50rgal.418 0.044 0.008 0.588 0.487 0.603 0.200 0.389 0.454 0.401 0. $0.429 0.217 0.289 0. Blends 20% 35% 60% 100% $3. otherwise it is the highest priced fuel per mile. Ahouissoussi.606 0.441 0.652 a Explicit operating cost is the sum of maintenance and fuel costs.423 0.841 0.292 0.417 0.213 0.2812rgal.E.437 0. the infrastructure salvage value is assumed to be zero. life cycle of the refueling infrastructure.446 0.334 0.326 0.325 0. refueling.369 0.571 0.436 0.393 CNGrdiesel $0.445 0.372 0.365 0. The parameter r estimates the difference between .316 0.312 0.323 0.267 0.366 0.314 0.312 0.4218rgal.492 0. Wetzsteinr Resource and Energy Economics 20 (1997) 1–15 Table 5 Fuel cost and present value per mile of estimated total costs and actual explicit operating costs over a 30-year life cycle with an annual 5% discount rate a Estimated cost b Alternative fuel Fuel cost Zero 50% Diesel 0. Results from accounting for these other costs in a present value analysis are listed in the last four columns of Table 5.329 0.357 0.374 0.00rgal.513 0.384 0.484 0. Opportunity costs are lost ridership and goodwill due to unexpected breakdowns.447 0.653 0.573 0..12 N.297 0.321 0. engine and fuel system. At the end of 30 years.C. The salvage value of the engine is implicit in the replacement parameter r.

resulting from the relatively high level of explicit maintenance costs for methanol. Limited model sensitivity from this variation in maintenance costs is evident. there is generally less than a 3% difference in per mile costs for all of the alternative-fueled buses. and R is 17. 21. iqj R q Ý isRMqMq1 1 120 q Ž1qd . These per mile cost figures can be misleading because they do not consider variation in the intensity of bus utilization. and CNGrdiesel. Specifically. Based on Eq.E. and 35 rebuilds. Again. methanol and CNGrdiesel-fueled buses have higher fixed costs relative to diesel buses. respectively. Wetzsteinr Resource and Energy Economics 20 (1997) 1–15 13 the scrap value and the cost of installing a new engine or rebuilding the existing one. where c i j denotes monthly operating cost in the ith month after rebuild for the jth rebuild. represents the methanol trajectory off the rebuild cycle. limited model sensitivity is apparent when varying maintenance costs. For diesel and biodiesel. calculations of the present value per mile of estimated total costs with a 5% annual discount rate are presented in Table 5. An exception is methanol-fueled buses. M is 20. 1 Ž1qd . where the difference is approximately 7%. Their rebuild cycles of 20 and 10 are factors of 360. i Ž 6. is calculated and contrasted with the present value of total operating cost estimated solely on monthly mileage and time of rebuild. and CNGrdiesel. Ž6. is only around 1%. Monthly discount rate is denoted as d . and 350 for diesel and biodiesel. this trajectory does not exist. however. 357. at month 360. For comparison. Thus. the difference in cost per mile Žcolumns four and five in Table 5..C. For diesel and biodiesel. methanol’s rebuild cycle of 21 is not. The term RM q M q 1 represents the start of a trajectory off the rebuild cycle. respectively. When comparing these two levels of baseline maintenance cost. the present value of estimated total costs Ž PVC . respectively. a comparison of baseline maintenance costs of zero and 50% of actual explicit maintenance costs is provided in columns three and four of Table 5. and thus their overall per mile costs should decline relative to diesel as the mileage per . and CNGrdiesel.B. the third term on the right-hand side of Ž6. starting at 358 Ž RM q M q 1. 16. is 340. is calculated as M PVC s cS q Ý R is1 js0 q cI 360 ci j Ý Ž1qd . methanol. Variables M and R represent the number of months in an engine rebuild cycle and number of rebuilds. M. As an illustration of the sensitivity of operating costs. Thus. all alternative-fueled buses are at the relatively same point of requiring another rebuild. and 10 months.N. As indicated in Tables 1–3. and ending at 360 months. Note that the last rebuild month Ž R = M . the present value per mile of actual explicit operating costs Žcolumn five in Table 5. Ahouissoussi. methanol. Even in the case where estimated maintenance cost for CNGrdiesel is less than 8% of its associated explicit cost. 240 ci Ž1qd .

75 per gallon. which is over three times the base diesel price. These higher costs are predominantly irreversible once incurred. The threshold at which biodiesel is competitive with CNGrdiesel on a cost-per-mile basis is between a 60–100% blend at $1. per mile costs for diesel and biodiesel-fueled buses experience relatively minimal reductions in per mile costs Žless than a 0. . However. restrictions in undertaking a project with a larger number of buses would primarily be concerned with the fuel cost differential between petroleum diesel and biodiesel fuels.5% difference. biodiesel fuel can comply with regulatory emission standards. This produced a lower than expected mean value of mileage at rebuild and months between rebuilds.E. This results in per mile cost estimates listed in the last column of Table 5.. thereby possibly inflating the cost per mile of diesel and biodiesel buses compared with the alternatives. The results presented in Table 5 would support a significantly broadened pilot project involving a larger number of buses over a longer time duration. the irreversible sunk cost associated with both CNGrdiesel and methanol-fueled buses restricts the expansion of these fuel systems from relatively small pilot projects resembling the Colorado project used for this analysis. nevertheless. it is still over 70% more expensive than diesel. As indicated in Tables 1–3. Thus. CNGrdiesel has a significantly lower cost per mile compared with methanol. one of the engines required a rebuild at only 12 150 miles.65. Ahouissoussi. As diesel is blended with biodiesel and the cost of biodiesel rises. biodiesel fuels at prices as high as $3. For example. This competitiveness is underscored by the low infrastructure cost and lack of enginerfuel system cost of biodiesel relative to methanol and CNGrdiesel. cost associated with the risk of technology failure is potentially minimized with biodiesel.14 N. the cost per mile increases to around $0. converting a fleet of buses to methanol or CNG fuel requires substantial investment costs relative to diesel and biodiesel. Assuming a 35% blend. biodiesel requires no additional infrastructure over current diesel facilities and only minor modifications in engine tuning. Especially for methanol. methanol-fueled buses experience a reduction of approximately 9%. the higher fixed costs do result in a lower per mile cost as utilization increases. a 35–60% blend at $2.00. Biodiesel does not require additional infrastructure over current diesel facilities. it is still within 7% of the cost per mile for a methanol-fueled bus. Such an expanded project would increase the accuracy in any comparative fuel cost differences. For example. whereas CNGrdiesel buses experience a more modest decline of approximately 3%.00 per gallon are competitive with the other alternative fuels. potentially resulting in a large loss if the technology does not meet expectations. thus. consider doubling the average monthly mileage under the assumption of zero baseline maintenance costs. M. In contrast. Conversely. In all of these scenarios it is not surprising that diesel buses reflect the lowest cost per mile.B. Such an expanded project would diminish problems associated with a small sample. However. Wetzsteinr Resource and Energy Economics 20 (1997) 1–15 month increases. As expected.C. and around a 35% blend at $3.50. in the sample of diesel bus engines.

1993. biodiesel is less competitive compared with petroleum diesel fuel. Peoria ŽUS Department of Agriculture. ethyl. Gavett. National Biodiesel Board. M. Biodiesel represents one of the best alternatives as a renewable fuel for diesel engines from economic. P.. G. J. 1980. and environmental protection perspectives. National Soydiesel Development Board standards for biodiesel ŽAmerican Biofuels Association. MO.. biodiesel is a fuel that does not contribute to the greenhouse effect. 999–1033.... ARM-NC-28. Holmberg. Wetzsteinr Resource and Energy Economics 20 (1997) 1–15 15 7. Kaufman. Thus.N. Optimal replacement of GMC bus engines: An empirical model of Harold Zurcher. and the National Biodiesel Board. S. C. Jefferson City.J..S. As suggested by the results of this study. Washington. Overview of energy consumption in U. Agricultural Research Service.. Biodiesel alert ŽNBB. energy. Rust. agriculture. Missouri. Withers.C.S.R. Merrill. Gavett. and thus making any alternative fuel more competitive in the commercial marketplace. DC.Z. Washington. Incentives will be necessary for further industry development. McIntosh... Biodiesel recycles carbon rather than pumping it from petroleum wells. Paper presented at the ASAE National Energy Symposium.E.. . S. compelling environmental or socioeconomic benefits must exist to warrant incentives for promoting alternative fuels. Implications The findings of this analysis show that biodiesel is competitive with CNGrdiesel and methanol fuels. and butyl soybean esters as a renewable fuel for diesel engines. Jefferson City. Seminar III. 1987. DC. Kansas City. References Clark.L. Seminar III.. W. K. 1994.B... Wagner. Smith.E. 1993.C. Energy balance of on-farm production and extraction of vegetable oil for fuel in the United States’ Island Northwest.V. Ziejewski. R. Agricultural Research Service. 1984. M..N.. In the present situation of liquid fuel supply and at current crude oil prices. Methyl. Econometrica 55. Washington. leading to economies of size. However. Due to its structural nature.. Peoria ŽUS Department of Agriculture. 1993. biodiesel may also be very cost competitive compared with the methanol and CNG alternative fuels. Vegetable Oil As A Diesel Fuel. there is no great incentive to find replacements for liquid fossil fuels. ARM-NC-28. Energy in Agriculture 3. Ahouissoussi. L. 155–166.M. Alternative fuels for direct injection diesel engines. Vegetable Oil As A Diesel Fuel.E. E. E. Pratt. Acknowledgements This research was partially funded by the USDA Office of Energy and New Uses. DC. MO..

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