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

cost comparisons incorporating infrastructure. 21% in carbon monoxide.E. varying by type of fuel used. and 47% in total hydrocarbon emissions. and particulate matter than diesel engines. engine replacement. While the market for cleaner burning renewable fuels is becoming increasingly important.. In general. and maintenance costs. reduces diesel engine air pollution. and maintenance costs – can be misleading and can result in erroneous conclusions. as regulated by the Environmental Protection Agency ŽEPA. 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. Comparing these . equipment replacement. For a comprehensive comparison of these alternative fuels.. and maintenance costs. A comparison of just the fuel cost per mile – without consideration of infrastructure. biodiesel.B. the National Soydiesel Development Board reported that biodiesel used in a 20r80 blend with petroleum diesel. other tangible costs such as infrastructure. Given this potential of improving air quality. With the addition of engine and fuel system modification costs for alternativefueled buses. M. Introduction Current regulatory policies place the alternative fuel industry at a critical junction. A small policy change by government or product promotion by industry may determine which alternative fuels will be widely adopted. are important factors in energy policy issues. there is a significant gap in the literature comparing these alternative fuels.C. and low-sulfur diesel fuel. firms and governmental agencies promoting a particular alternative fuel for urban bus transit have an opportunity for significantly influencing its adoption. methanol. along with reliability. the primary focus of this study is to provide a complete cost comparison for operating a transit bus fleet on compressed natural gas ŽCNG.. based on the assumption that an optimal maintenance strategy is adopted for each type of alternatively fueled bus. including unobservable intangible costs. however. including an economic evaluation on the relative comparative costs of operating an urban bus transit fleet on alternative fuels. For example. along with a catalytic converter. as well as intangible costs associated with bus reliability. for different fuel types. 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. Differences in maintenance costs among these alternative-fueled buses are estimated with Rust’s nested fixed point maximum likelihood estimation algorithm. Reductions include 31% in particulate matter. However. carbon monoxide. such promotion requires a comprehensive analysis. estimates of the total costs are required Žboth tangible and intangible. Wetzsteinr Resource and Energy Economics 20 (1997) 1–15 1. Fuel is a major cost. 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. engine replacement. Emissions from alternative-fueled bus engines consistently indicate lower emissions of reactive hydrocarbons. also vary by fuel type.2 N. Ahouissoussi. The Rust algorithm estimates bus maintenance costs. Thus.

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

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

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

Infrastructure cost per lane: Building cost.89.95. employs the initial consistent estimate of u computed in Stages 1 and 2 to produce efficient maximum estimates of u using Lf . Fuel usage per bus Ž$rgal. and a third laborer refuels the buses. d Labor Žper hr.C. .. which results in $19.6 N.. bus engine plus fuel systemf Units Total cost Ž$. Ahouissoussi.04 478. $r1000 ft 2 per lane a Tankage.B. Most experiments on alternative fuels were conTable 1 Diesel bus cost summary Item Unit cost Ž$. size b Total infrastructure cost Total infrastructure cost per bus Refueling cost: Labor costs per lane per day c Supervisor Žper hr.84 0.298 0.000 Source: Colorado Institute for Fuel and High Altitude Engine Research. Five-day work week. Actual hourly rate is then $16wŽ2080r1824. 4.89 19.q 0. a Three lanes can service 360 buses at full capacity. Diesel tank is an FTP-3. data on monthly mileage and time of rebuilds for alternativefueled buses are very limited. b Tank is $10 600 plus 1. 20 000-gallon tank with dimensions of 11 ft diameter by 28 ft tall. Annual miles driven Žper bus. 20 000-gal. The final estimation ŽStage 3.5 times the tank size. f The diesel engine and fuel system are the base.80 1620 3240 6963 10 905 0. e Hourly rate is $13.29x s$22. Wetzsteinr Resource and Energy Economics 20 (1997) 1–15 initial starting values.95 539. and eight paid sick leave days Ž64 hours. eight hours per day yields 2080 hours per year.. c Refueling labor includes one supervisor per three lanes and three laborers per one lane. Data Unfortunately. Service life for the building is 30 years. Two laborers drive the buses to the lane. The Denver Regional Transport District refuels approximately 280 buses per night in a three-lane refueling system. A tank capacity of 26 666 gallons is required per lane. 36 578 92 000 40 600 3 4 300 22. nine paid holidays Ž72 hours. Fifteen days of paid vacation Ž120 hours.E.rmonth. M. e Labor costs per day for 3 lanes Overhead multiplier Total labor costs per bus per year Ž365 days. d Hourly rate is $16 plus benefits of 29%. yields an annual loss of 256 hours. gal. Annual refueling cost per bus Cost per mile Bus capital data: Incremental first cost. so the incremental cost is the additional cost of methanol or CNG fuel engine and fuel system.67 1r3 3 3 2 3942 866 276 000 162 400 438 400 1461 61.95 actual hourly labor cost based on the same formula used for supervisor’s rate.

ryear. Five dual CNGrdiesel buses Ždiesel buses converted so they can also use CNG.080r1. and eight paid sick leave days Ž64 hours.5 laborers per one lane. $r1000 ft 2 per lane a Tankage. 20 000-gal. resulting in short time intervals and little if any data collection.59 15. Infrastructure cost per lane: Building cost.89 19. e Hourly rate is $13. Regional Transportation District. f Annual refueling cost per bus Cost per mile Bus capital data: Incremental first cost. which lasted from June 1989 through December 1993. Ahouissoussi. Annual miles driven Žper bus. were added in 1991. d Hourly rate is $16 plus benefits of 29%. Summary assumes 2. b Tankage is based on 2. so the incremental cost is the additional cost of methanol fuel engine and fuel system. q0. size b Total infrastructure cost Total infrastructure cost per bus Refueling cost: Labor costs per lane per day c Supervisor Žper hr. bus engine plus fuel system g Units Total cost Ž$.C. which results in $19. .080 hours per year.5 3 2 9185 19 867 12. M. The Denver Regional Transport District refuels approximately 280 buses per night in a three-lane refueling system.95 actual hourly labor cost based on the same formula used for supervisor’s rate. Fifteen days of paid vacation Ž120 hours. initially included five diesel buses which could use both diesel and biodiesel fuel.42 276 000 2 681 480 2 957 480 9858 61. f Lubrizol is added at 6.95.. a Three lanes can service 360 buses at full capacity.20 3775 7550 11 722 195 21 102 0. c Refueling labor includes one supervisor per three lanes and 7. given that methanol buses require on average 2. Wetzsteinr Resource and Energy Economics 20 (1997) 1–15 7 ducted for demonstration purposes only.824. Service life for the building is 30 years. d Labor Žper hr.000 gallons of methanol. yields an annual loss of 256 hours. Lubrizol Ž$rgal.5 times as much fuel.E.. The 15 Table 2 Methanol bus cost summary Item Unit cost Ž$.25 gallons per 10. g The diesel engine and fuel system are the base.95 1258.5 additional labor hours for fueling based on 2. Five-day work week. and five methanol buses. nine paid holidays Ž72 hours. Actual hourly rate is then $16wŽ2. gal. 29 801 92 000 268 148 3 10 300 22.B. Fuel usageper bus Ž$rgal. Colorado.69 1r3 7.5 times diesel tankage. gal.ryear. One exception is an experiment by the Denver.708 29 900 Source: Colorado Institute for Fuel and High Altitude Engine Research.89. e Labor costs per day for 3 lanes Overhead multiplier Total labor costs per bus per year Ž365 days..04 1197.. That experiment.N. eight hours per day yields 2.5 times more fuel than diesel.29x s$22.24 0.

29x s $22. 5% for development and permitting.89 19. Fuel usage per bus Ž$rgal. and passenger loading. g The CNGrdiesel bus engine is the same as the diesel bus. Five-day work week.. Ahouissoussi. 10% for engineering. d Labor Žper hr.431 35 000 Source: Colorado Institute for Fuel and High Altitude Engine Research.. 34 691 92 000 8 300 22. c Refueling labor includes one supervisor per three lanes and three laborers per one lane. a Eight lanes can service 300 buses at full capacity. b Estimated installed cost is $1 700 000 plus 10% for contractor’s markup. yields a loss of 256 hours. The three fleets of buses were exposed to similar operating conditions such as scheduled speeds. Fifteen days of paid vacation Ž120 hours.. Service life for the building is 30 years.40 1r8 3 8 2 9767 10 764 1.28 365 736 000 2 320 000 3 056 500 10 188 22.89 478. Annual miles driven Žper bus. and eight paid sick leave days Ž64 hours.q0. and a third laborer refuels the buses. bus engine plus fuel system g Units Total cost Ž$. and 10% installed cost. Two laborers drive the buses to the lane. so the incremental cost is the conversion cost of a diesel bus to CNG and additional cost of the fuel system. engineering plus development and permitting for contingency. combined with the application of Rust’s Table 3 CNGrdiesel dual bus cost summary Item Unit cost Ž$.ryear.C. $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. e Hourly rate is $13.8 N.80 4014 8028 4306 400 467 14 940 0. M. Wetzsteinr Resource and Energy Economics 20 (1997) 1–15 buses Žthree fleets comprised of five buses each. The buses were fueled on site.77 0. which results in $19. resulted in 146 monthly observations for the analysis. Actual hourly rate is then $16wŽ2080r1824. . traffic conditions. gal. This unique data set.95 501. They were maintained under the same preventive maintenance program.95.B.95 actual hourly labor cost based on the same formula used for supervisor’s rate. 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.E. d Hourly rate is $16 plus benefits of 29%.89. eight hours per day yields 2080 hours per year. nine paid holidays Ž72 hours. e Labor costs per day for 8 lanes Overhead multiplier Total labor costs per bus per year Ž365 days. Infrastructure cost per lane: Building cost. stops per mile. f Fuel usage is in equivalent gallons.

using the nested fixed point algorithm.x. Further. and in-service failure costs for the total operational life of the transit buses. Summary statistics indicate a large variation in mileage at time of engine rebuild. Methanol buses require 2. and 0. M. However. particularly for diesel and methanol buses. methanol tanks are over six times more expensive than those used for diesel fuels. 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. compared with $6963 and $11 722 for diesel and methanol buses.C. methanol. Total infrastructure cost per bus is only $1461 for diesel and biodiesel ŽTable 1. Maximum likelihood results Estimates of the unknown parameters Ž r. Bus capital costs are the additional fuel system and engine conversion costs required for methanol and CNGrdiesel bus conversion. respectively. resulting in larger tankage. associated with operating costs are computed by maximizing the full likelihood function. but also on maintenance. Wetzsteinr Resource and Energy Economics 20 (1997) 1–15 9 algorithm. and CNGrdiesel. thus. methanol. Although this assumption may favor diesel and biodiesel. 0. and CNGrdiesel alternative fuels are presented in Table 4. The costs of alternativefueled buses are based on the assumption that a regional transportation district already has diesel bus refueling and maintenance facilities. repair. CNGrdiesel buses are rebuilt at approximately half the time and mileage intervals of diesel and methanol buses. compared with approximately $10 000 per bus for both methanol and CNGrdiesel buses ŽTables 2 and 3. Ahouissoussi. Annual refueling cost per bus is $21 102 for methanol buses. The coefficients of variation for mileage at rebuild are 0.522. the 2. the actual cost of fuel is lowest for CNGrdiesel buses at $4306.N. Model results for diesel. All operating cost coefficients are significantly different from zero at the 1% significance level. fixed costs for alternative fuel facilities are incremental to diesel facility fixed costs.220 for diesel. u 1 . and to storing pressurized fuel. Lf wEq. respectively.5 factor increase in fuel consumption for methanol buses relative to diesel requires 4.E. The additional six refueling lanes for CNGrdiesel buses primarily explain that alternative’s 37% higher annual refueling cost per bus compared with diesel buses.506. this higher cost is potentially offset by the considerably lower coefficient of variation for the CNGrdiesel bus. resulting in higher CNGrdiesel maintenance costs. This lower coefficient of variation implies less uncertainty regarding timing of rebuilds.. 5. Again. allows a cost comparison of alternative fuels based not only on fuel cost and usage.B. it is possible that CNGrdiesel buses may have lower costs due to fewer unexpected required rebuilds. Therefore. engine-rebuild. Ž3. The coefficients .5 additional laborers for bus refueling. it is realistic given current transit operations. However.5 times more fuel. which is approximately twice the refueling cost for diesel buses.

$128. c Marginal cost s 0.06 Ž1.E.38 Ž2. Lacking information on the exact proportions of these explicit costs that represent some base level of maintenance.40. respectively. methanol.34 for diesel. divided by the rebuild cost coefficient Ž r . $419. 5%.74 6500 2025 1. 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. Assuming this base level of maintenance is the same for all alternative-fueled buses. M. ) ) y45. This is the change from a base level of initial maintenance cost which is composed of routine maintenance. b Scale parameter is the actual rebuild cost Ž RC .10 N. and $71. This wide variation in mileage at rebuild implies higher marginal cost associated with determining optimal preventive maintenance. 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. r Log-likelihood Rebuild costs. s Marginal cost Žper 5000 miles. 0. then total monthly maintenance cost is incremented every 5000 miles by the estimates in Table 4.90 for diesel and biodiesel. methanol. methanol. and triple asterisks Ž ) . including such items as brake adjustment and replacement or repair of individual components. starting with zero as the base level. for diesel. respectively.84 for methanol and $4. and 30% significance levels. and 0.55 Ž7. a Operating costs include maintenance costs. Maintenance marginal cost is only $1.16.01 levels. Wetzsteinr Resource and Energy Economics 20 (1997) 1–15 Table 4 Marginal cost estimation results for diesel and biodiesel. 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. y22.C. which will provide .21 Ž0.59 for CNGrdiesel buses. for diesel and biodiesel. associated with rebuild costs are significantly different from zero at the 10%.38 for methanol. Single. respectively. u 1 Rebuild costs. and $5. insurance costs.64 Ž0.34 15. c Diesel and biodiesel Methanol CNGrdiesel 3.80.64. and CNGrdiesel-fueled buses.84 0.32. and CNGrdiesel buses.49 9500 2047 31.94.80 for CNGrdiesel compared with $31.80 Notes: Numbers in parentheses are standard errors of estimates. This results in an average monthly maintenance cost of $28.28 6500 1284 4.10. denote significance at the 0.05.. ) ) ) 4.62.89 Ž1.001u 1 s . Ahouissoussi. ) ) ) 3.32. double.B. and cngrdiesel buses Summary statistics Structural coefficients: Operating costs a . and loss of ridership and goodwill costs due to unexpected breakdowns. ) ) ) 5. RC Scale parameter b . the proportion of this maintenance can be increased from zero. ) y29. Marginal cost is the incremental change in total monthly maintenance cost.40.

cS . 60%.2812. 0.9916. Ahouissoussi. Present value analysis A complete comparison of cost differentials among the alternative fuels requires consideration of all costs..1406. the fuel costs are the same as for diesel. For example. CNGrdiesel-fueled buses offer the lowest cost per mile. M. for biodiesel were considered. the fuel efficiency estimates of biodiesel blend fuels compared with diesel Žas estimated by the Colorado Institute for Fuel and High Altitude Engine Research. Fuel costs for diesel. however. per equivalent gallon for CNGrdiesel were considered. minus infrastructure cost for diesel Ž$1461. as the current thin market for biodiesel may not reflect the long-run equilibrium price. an equivalent gallon costs $0. The interval between engine rebuilds for methanol is in close association with diesel..B. 0. however. These additional costs above diesel base costs are accrued every ten years over the life of a bus. at a price of one dollar per million BTUs of CNG. Three prices per gallon Ž$1. represent a major component of the overall total. c I .50.9766. total infrastructure cost per bus for methanol Ž$9858. $0.. are 0. include fuel system costs and engine conversion costs. the equivalent gallon of CNG in one million BTUs of CNG is 7.75. 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 operating costs. but the methanol’s rebuild cost is approximately 46% higher than the rebuild cost for the diesel. with diesel and methanol a distant second and third. Denver. plus methanol’s bus capital cost Ž$29 900. thus.1406.4218. These costs are comprised of incremental refueling infrastructure costs and incremental bus capital costs ŽTables 1–3.C. 21. 35%. An equivalent gallon is the number of BTUs in a gallon of diesel fuel. and CNGrdiesel-fueled buses. Rebuild costs Žlisted in Table 4. It is assumed that a2 diesel has a heat content value of 140. Based on this gross heating value. and $0. For biodiesel. equals startup costs of $38. and 10 months for diesel. methanol. The rebuild costs for CNGrdiesel are equivalent to those for diesel.E. Three alternative fuel prices Ž$0.9297. Incremental bus capital costs.8887 for 20%.N. respectively. and $3. $2. and 100% biodiesel blend. rebuild.600 BTUs per gallon. including startup. respectively. Monthly maintenance cost is based on mileage per month.1123. Considering only the fuel cost. are $38 296 and $43 727 for methanol and CNGrdiesel buses. respectively ŽTable . Operating cost is composed of both maintenance and fuel costs. considering cost changes every 5000 miles Žgiven estimates of marginal cost detailed in Table 4. Startup costs. and CNGrdiesel buses are the mileage per month times the cost per mile Žfrom Tables 1–3. 6. the interval between CNGrdiesel rebuilds is only half of that for diesel. respectively. and 0.00. methanol. given that the engines are rebuilt on average every 20.296 for methanol.

513 0. Blends 20% 35% 60% 100% $2.445 0.383 0.454 0.355 0.289 0.380 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 0.334 0.354 0. refueling.297 0. However. Blends 20% 35% 60% 100% Explicit cost Double mileage 0. Opportunity costs are lost ridership and goodwill due to unexpected breakdowns.394 0.2812rgal.12 N.321 0.562 0.423 0.365 0.492 0.437 0.569 0.390 0.396 0.4218rgal.484 0. Estimated total cost is fuel cost plus an estimate of maintenance and opportunity costs.568 0.841 0.326 0.369 0.406 0.131 0. $0.316 0.319 0.417 0.365 0.439 0.75rgal.435 0.214 Methanol 0.441 0. The parameter r estimates the difference between . At the end of 30 years.292 0. the infrastructure salvage value is assumed to be zero.329 0. Present value is calculated over a 30-year Ž360 months.454 0.447 0. engine and fuel system.401 0.044 0.E.374 0.664 1. life cycle of the refueling infrastructure.389 0.393 CNGrdiesel $0.312 0.418 0.588 0.366 0.381 0.429 0.216 0.652 a Explicit operating cost is the sum of maintenance and fuel costs. Biodiesel $1. and maintenance costs associated with alternative-fueled bus transit systems.449 0.315 0. Ahouissoussi.655 0.603 0.323 0.573 0.00rgal. Blends 20% 35% 60% 100% $3. otherwise it is the highest priced fuel per mile.384 0. M.200 0.310 0.087 0.008 0.653 0.50rgal. 5.288 0.325 0.B.213 0.314 0.578 0.436 0.267 0.487 0. Biodiesel at only a 20% blend is competitive with methanol.318 0.342 0.446 0. this fuel cost does not consider the differences in infrastructure.1406rgal.660 0.606 0. Results from accounting for these other costs in a present value analysis are listed in the last four columns of Table 5.413 0.217 0..483 0.357 0. $0.372 0.571 0.C.312 0. The salvage value of the engine is implicit in the replacement parameter r. b Estimated cost is based on baseline maintenance costs of zero and 50% of actual explicit maintenance costs.

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

50. the cost per mile increases to around $0. methanol-fueled buses experience a reduction of approximately 9%.75 per gallon. The results presented in Table 5 would support a significantly broadened pilot project involving a larger number of buses over a longer time duration. converting a fleet of buses to methanol or CNG fuel requires substantial investment costs relative to diesel and biodiesel. thus.B. one of the engines required a rebuild at only 12 150 miles. it is still over 70% more expensive than diesel. Such an expanded project would diminish problems associated with a small sample. it is still within 7% of the cost per mile for a methanol-fueled bus. This competitiveness is underscored by the low infrastructure cost and lack of enginerfuel system cost of biodiesel relative to methanol and CNGrdiesel. Ahouissoussi. in the sample of diesel bus engines. This produced a lower than expected mean value of mileage at rebuild and months between rebuilds. CNGrdiesel has a significantly lower cost per mile compared with methanol. and around a 35% blend at $3. nevertheless. The threshold at which biodiesel is competitive with CNGrdiesel on a cost-per-mile basis is between a 60–100% blend at $1.5% difference. potentially resulting in a large loss if the technology does not meet expectations. These higher costs are predominantly irreversible once incurred. . a 35–60% blend at $2. per mile costs for diesel and biodiesel-fueled buses experience relatively minimal reductions in per mile costs Žless than a 0.65.00. Assuming a 35% blend. In contrast. 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. As expected.C.00 per gallon are competitive with the other alternative fuels. Especially for methanol. For example. the higher fixed costs do result in a lower per mile cost as utilization increases.. In all of these scenarios it is not surprising that diesel buses reflect the lowest cost per mile. which is over three times the base diesel price. biodiesel fuel can comply with regulatory emission standards. Wetzsteinr Resource and Energy Economics 20 (1997) 1–15 month increases. thereby possibly inflating the cost per mile of diesel and biodiesel buses compared with the alternatives. Thus. However. Conversely. 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. M.E. biodiesel fuels at prices as high as $3. As diesel is blended with biodiesel and the cost of biodiesel rises. For example. This results in per mile cost estimates listed in the last column of Table 5. As indicated in Tables 1–3.14 N. cost associated with the risk of technology failure is potentially minimized with biodiesel. consider doubling the average monthly mileage under the assumption of zero baseline maintenance costs. Such an expanded project would increase the accuracy in any comparative fuel cost differences. Biodiesel does not require additional infrastructure over current diesel facilities. However. whereas CNGrdiesel buses experience a more modest decline of approximately 3%. biodiesel requires no additional infrastructure over current diesel facilities and only minor modifications in engine tuning.

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

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