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

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

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

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

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

80 1620 3240 6963 10 905 0. and eight paid sick leave days Ž64 hours. 4.. Annual refueling cost per bus Cost per mile Bus capital data: Incremental first cost. and a third laborer refuels the buses.. e Labor costs per day for 3 lanes Overhead multiplier Total labor costs per bus per year Ž365 days.. A tank capacity of 26 666 gallons is required per lane. Service life for the building is 30 years.C. 20 000-gal. data on monthly mileage and time of rebuilds for alternativefueled buses are very limited. $r1000 ft 2 per lane a Tankage. Annual miles driven Žper bus.000 Source: Colorado Institute for Fuel and High Altitude Engine Research.B. bus engine plus fuel systemf Units Total cost Ž$. Wetzsteinr Resource and Energy Economics 20 (1997) 1–15 initial starting values. employs the initial consistent estimate of u computed in Stages 1 and 2 to produce efficient maximum estimates of u using Lf .E. Two laborers drive the buses to the lane. gal. d Hourly rate is $16 plus benefits of 29%. size b Total infrastructure cost Total infrastructure cost per bus Refueling cost: Labor costs per lane per day c Supervisor Žper hr. Fuel usage per bus Ž$rgal. which results in $19.67 1r3 3 3 2 3942 866 276 000 162 400 438 400 1461 61.rmonth.89. 36 578 92 000 40 600 3 4 300 22. yields an annual loss of 256 hours. c Refueling labor includes one supervisor per three lanes and three laborers per one lane. Ahouissoussi.q 0. Infrastructure cost per lane: Building cost. eight hours per day yields 2080 hours per year.6 N.89 19. d Labor Žper hr. Fifteen days of paid vacation Ž120 hours. b Tank is $10 600 plus 1. .298 0. a Three lanes can service 360 buses at full capacity.95 actual hourly labor cost based on the same formula used for supervisor’s rate. e Hourly rate is $13. Data Unfortunately.29x s$22.95. The Denver Regional Transport District refuels approximately 280 buses per night in a three-lane refueling system. The final estimation ŽStage 3.84 0. nine paid holidays Ž72 hours. Actual hourly rate is then $16wŽ2080r1824.95 539.04 478. Diesel tank is an FTP-3. M. so the incremental cost is the additional cost of methanol or CNG fuel engine and fuel system. Most experiments on alternative fuels were conTable 1 Diesel bus cost summary Item Unit cost Ž$. 20 000-gallon tank with dimensions of 11 ft diameter by 28 ft tall. f The diesel engine and fuel system are the base. Five-day work week.5 times the tank size.

d Hourly rate is $16 plus benefits of 29%. resulting in short time intervals and little if any data collection. initially included five diesel buses which could use both diesel and biodiesel fuel. gal. and eight paid sick leave days Ž64 hours. size b Total infrastructure cost Total infrastructure cost per bus Refueling cost: Labor costs per lane per day c Supervisor Žper hr. b Tankage is based on 2.5 times more fuel than diesel. Colorado.5 laborers per one lane. were added in 1991. 20 000-gal. e Hourly rate is $13.5 additional labor hours for fueling based on 2.5 times diesel tankage. which results in $19.24 0. Actual hourly rate is then $16wŽ2.. Service life for the building is 30 years. and five methanol buses.C.ryear. That experiment.20 3775 7550 11 722 195 21 102 0.. q0.89. M. f Lubrizol is added at 6. Fuel usageper bus Ž$rgal. Wetzsteinr Resource and Energy Economics 20 (1997) 1–15 7 ducted for demonstration purposes only.. gal. Five dual CNGrdiesel buses Ždiesel buses converted so they can also use CNG. d Labor Žper hr.95. which lasted from June 1989 through December 1993.42 276 000 2 681 480 2 957 480 9858 61. Annual miles driven Žper bus. bus engine plus fuel system g Units Total cost Ž$.95 1258. so the incremental cost is the additional cost of methanol fuel engine and fuel system.5 times as much fuel. Regional Transportation District. Five-day work week.080r1. The 15 Table 2 Methanol bus cost summary Item Unit cost Ž$. eight hours per day yields 2.N.ryear. 29 801 92 000 268 148 3 10 300 22. g The diesel engine and fuel system are the base.E. .04 1197. nine paid holidays Ž72 hours.69 1r3 7.708 29 900 Source: Colorado Institute for Fuel and High Altitude Engine Research.000 gallons of methanol. $r1000 ft 2 per lane a Tankage.25 gallons per 10.5 3 2 9185 19 867 12.. The Denver Regional Transport District refuels approximately 280 buses per night in a three-lane refueling system. e Labor costs per day for 3 lanes Overhead multiplier Total labor costs per bus per year Ž365 days. Infrastructure cost per lane: Building cost.29x s$22. Fifteen days of paid vacation Ž120 hours.95 actual hourly labor cost based on the same formula used for supervisor’s rate.89 19.080 hours per year. c Refueling labor includes one supervisor per three lanes and 7.B. a Three lanes can service 360 buses at full capacity. given that methanol buses require on average 2.824.59 15. f Annual refueling cost per bus Cost per mile Bus capital data: Incremental first cost. Lubrizol Ž$rgal. One exception is an experiment by the Denver. Ahouissoussi. Summary assumes 2. yields an annual loss of 256 hours.

Two laborers drive the buses to the lane.95 501. e Labor costs per day for 8 lanes Overhead multiplier Total labor costs per bus per year Ž365 days. g The CNGrdiesel bus engine is the same as the diesel bus. and eight paid sick leave days Ž64 hours. Actual hourly rate is then $16wŽ2080r1824.E. nine paid holidays Ž72 hours.B.89. d Hourly rate is $16 plus benefits of 29%. gal.95.ryear. f Fuel usage is in equivalent gallons. and 10% installed cost. a Eight lanes can service 300 buses at full capacity.C. c Refueling labor includes one supervisor per three lanes and three laborers per one lane. combined with the application of Rust’s Table 3 CNGrdiesel dual bus cost summary Item Unit cost Ž$. eight hours per day yields 2080 hours per year.95 actual hourly labor cost based on the same formula used for supervisor’s rate.29x s $22. Five-day work week. 5% for development and permitting. M.40 1r8 3 8 2 9767 10 764 1. This unique data set. and a third laborer refuels the buses. stops per mile.28 365 736 000 2 320 000 3 056 500 10 188 22. .80 4014 8028 4306 400 467 14 940 0. and passenger loading. traffic conditions. Fifteen days of paid vacation Ž120 hours. Fuel usage per bus Ž$rgal. Annual miles driven Žper bus.89 19.89 478.q0. 34 691 92 000 8 300 22.8 N. Ahouissoussi.. $r1000 ft 2 per lane a Fueling facility b Total infrastructure cost Total infrastructure costrbus Refueling cost: Labor costs per lane per day c Supervisor Žper hr. so the incremental cost is the conversion cost of a diesel bus to CNG and additional cost of the fuel system. Service life for the building is 30 years. bus engine plus fuel system g Units Total cost Ž$. Wetzsteinr Resource and Energy Economics 20 (1997) 1–15 buses Žthree fleets comprised of five buses each. engineering plus development and permitting for contingency. The buses were fueled on site. yields a loss of 256 hours. d Labor Žper hr.77 0. b Estimated installed cost is $1 700 000 plus 10% for contractor’s markup... resulted in 146 monthly observations for the analysis. Infrastructure cost per lane: Building cost. The three fleets of buses were exposed to similar operating conditions such as scheduled speeds. which results in $19. 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.431 35 000 Source: Colorado Institute for Fuel and High Altitude Engine Research. e Hourly rate is $13. They were maintained under the same preventive maintenance program. 10% for engineering.

compared with $6963 and $11 722 for diesel and methanol buses. resulting in higher CNGrdiesel maintenance costs. using the nested fixed point algorithm.. Ahouissoussi. and 0. However. the actual cost of fuel is lowest for CNGrdiesel buses at $4306. The additional six refueling lanes for CNGrdiesel buses primarily explain that alternative’s 37% higher annual refueling cost per bus compared with diesel buses. The costs of alternativefueled buses are based on the assumption that a regional transportation district already has diesel bus refueling and maintenance facilities. respectively. Therefore. Annual refueling cost per bus is $21 102 for methanol buses. and CNGrdiesel. associated with operating costs are computed by maximizing the full likelihood function. M. compared with approximately $10 000 per bus for both methanol and CNGrdiesel buses ŽTables 2 and 3.5 times more fuel. 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.N. the 2. particularly for diesel and methanol buses.522. repair. it is realistic given current transit operations. resulting in larger tankage. methanol. Wetzsteinr Resource and Energy Economics 20 (1997) 1–15 9 algorithm.E. 5. Although this assumption may favor diesel and biodiesel. respectively. but also on maintenance. and CNGrdiesel alternative fuels are presented in Table 4.5 additional laborers for bus refueling. this higher cost is potentially offset by the considerably lower coefficient of variation for the CNGrdiesel bus. Ž3.506. CNGrdiesel buses are rebuilt at approximately half the time and mileage intervals of diesel and methanol buses.x. Again.5 factor increase in fuel consumption for methanol buses relative to diesel requires 4. Model results for diesel. allows a cost comparison of alternative fuels based not only on fuel cost and usage. 0. However. u 1 . Bus capital costs are the additional fuel system and engine conversion costs required for methanol and CNGrdiesel bus conversion.B. it is possible that CNGrdiesel buses may have lower costs due to fewer unexpected required rebuilds.C. thus. Lf wEq.220 for diesel. 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. The coefficients . 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. and to storing pressurized fuel. engine-rebuild. Total infrastructure cost per bus is only $1461 for diesel and biodiesel ŽTable 1. This lower coefficient of variation implies less uncertainty regarding timing of rebuilds. methanol tanks are over six times more expensive than those used for diesel fuels. which is approximately twice the refueling cost for diesel buses. methanol. Maximum likelihood results Estimates of the unknown parameters Ž r. Further. The coefficients of variation for mileage at rebuild are 0.

for diesel.89 Ž1. the proportion of this maintenance can be increased from zero. This wide variation in mileage at rebuild implies higher marginal cost associated with determining optimal preventive maintenance. This is the change from a base level of initial maintenance cost which is composed of routine maintenance.10. divided by the rebuild cost coefficient Ž r . for diesel and biodiesel.34 15.55 Ž7. 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. and triple asterisks Ž ) .001u 1 s .01 levels. $128. a Operating costs include maintenance costs. b Scale parameter is the actual rebuild cost Ž RC .40.64 Ž0. 0. Lacking information on the exact proportions of these explicit costs that represent some base level of maintenance. ) ) ) 3.84 0. respectively. ) ) ) 4. then total monthly maintenance cost is incremented every 5000 miles by the estimates in Table 4. associated with rebuild costs are significantly different from zero at the 10%. ) ) ) 5.28 6500 1284 4. methanol. and CNGrdiesel-fueled buses.64. ) ) y45. Assuming this base level of maintenance is the same for all alternative-fueled buses. s Marginal cost Žper 5000 miles.05.80 for CNGrdiesel compared with $31.16.94. methanol. 5%.21 Ž0.80 Notes: Numbers in parentheses are standard errors of estimates. starting with zero as the base level. 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.49 9500 2047 31.C.B. and CNGrdiesel buses. and loss of ridership and goodwill costs due to unexpected breakdowns.E. which will provide . r Log-likelihood Rebuild costs. respectively. and $71. This results in an average monthly maintenance cost of $28.84 for methanol and $4.90 for diesel and biodiesel. c Diesel and biodiesel Methanol CNGrdiesel 3.62. and 0. y22. including such items as brake adjustment and replacement or repair of individual components. Single. Marginal cost is the incremental change in total monthly maintenance cost. methanol.38 Ž2.38 for methanol. and cngrdiesel buses Summary statistics Structural coefficients: Operating costs a .06 Ž1. insurance costs.74 6500 2025 1..32. These average costs are considerably lower than the data obtained from the Denver Regional Transportation District on explicit average maintenance costs per month of $41.32. double. u 1 Rebuild costs. Wetzsteinr Resource and Energy Economics 20 (1997) 1–15 Table 4 Marginal cost estimation results for diesel and biodiesel. and 30% significance levels.10 N.34 for diesel. denote significance at the 0. respectively. M.80. ) y29.59 for CNGrdiesel buses. $419. RC Scale parameter b . c Marginal cost s 0. Maintenance marginal cost is only $1.40. and $5. Ahouissoussi.

Based on this gross heating value. rebuild. Denver. and 10 months for diesel. are $38 296 and $43 727 for methanol and CNGrdiesel buses. Three alternative fuel prices Ž$0.50. thus. Incremental bus capital costs. Considering only the fuel cost. For biodiesel. 6. Monthly maintenance cost is based on mileage per month. plus methanol’s bus capital cost Ž$29 900. An equivalent gallon is the number of BTUs in a gallon of diesel fuel. the fuel costs are the same as for diesel. including startup. 60%. methanol.. c I . 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. Three prices per gallon Ž$1. Operating cost is composed of both maintenance and fuel costs.C. 0.9766. Startup costs. These additional costs above diesel base costs are accrued every ten years over the life of a bus.. The interval between engine rebuilds for methanol is in close association with diesel. Rebuild costs Žlisted in Table 4. cS . for biodiesel were considered. and $3.B. at a price of one dollar per million BTUs of CNG. and CNGrdiesel-fueled buses.E. an equivalent gallon costs $0. the equivalent gallon of CNG in one million BTUs of CNG is 7. $0. For example. the fuel efficiency estimates of biodiesel blend fuels compared with diesel Žas estimated by the Colorado Institute for Fuel and High Altitude Engine Research. respectively. Fuel costs for diesel. and 0. given that the engines are rebuilt on average every 20. however.75. 35%. Present value analysis A complete comparison of cost differentials among the alternative fuels requires consideration of all costs. and CNGrdiesel buses are the mileage per month times the cost per mile Žfrom Tables 1–3.00.9916.9297. and 100% biodiesel blend. Ahouissoussi. as the current thin market for biodiesel may not reflect the long-run equilibrium price. These costs are comprised of incremental refueling infrastructure costs and incremental bus capital costs ŽTables 1–3.N.1406. respectively.8887 for 20%. respectively ŽTable . and $0. equals startup costs of $38..1123. per equivalent gallon for CNGrdiesel were considered. 21.2812. and operating costs. methanol.296 for methanol. total infrastructure cost per bus for methanol Ž$9858. M.1406. represent a major component of the overall total.4218. however. $2. the interval between CNGrdiesel rebuilds is only half of that for diesel. 0. include fuel system costs and engine conversion costs. are 0.600 BTUs per gallon. It is assumed that a2 diesel has a heat content value of 140. CNGrdiesel-fueled buses offer the lowest cost per mile. respectively. minus infrastructure cost for diesel Ž$1461. 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. The rebuild costs for CNGrdiesel are equivalent to those for diesel. considering cost changes every 5000 miles Žgiven estimates of marginal cost detailed in Table 4.

Estimated total cost is fuel cost plus an estimate of maintenance and opportunity costs.1406rgal.00rgal.288 0.200 0.357 0.664 1.423 0.325 0.365 0.445 0.441 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 0.365 0.513 0.396 0.C. $0.418 0.487 0.841 0.447 0.366 0. b Estimated cost is based on baseline maintenance costs of zero and 50% of actual explicit maintenance costs.383 0.2812rgal.568 0.569 0. this fuel cost does not consider the differences in infrastructure.389 0.321 0.372 0. refueling.439 0. 5.318 0.354 0.571 0.316 0.310 0.213 0.50rgal.326 0.652 a Explicit operating cost is the sum of maintenance and fuel costs. otherwise it is the highest priced fuel per mile.342 0.B.653 0.406 0.087 0.75rgal.319 0.297 0.289 0.436 0. Blends 20% 35% 60% 100% $2.312 0.216 0.380 0.437 0.292 0. Present value is calculated over a 30-year Ž360 months.454 0. Ahouissoussi.044 0.214 Methanol 0.429 0.315 0.393 CNGrdiesel $0.413 0. Results from accounting for these other costs in a present value analysis are listed in the last four columns of Table 5.355 0.446 0.394 0.374 0.606 0. and maintenance costs associated with alternative-fueled bus transit systems. $0.417 0. At the end of 30 years.454 0.131 0.369 0.384 0. However. Biodiesel at only a 20% blend is competitive with methanol.660 0.334 0.483 0.381 0. life cycle of the refueling infrastructure.12 N.655 0.4218rgal.449 0.008 0.573 0.603 0.312 0.435 0. Biodiesel $1. Blends 20% 35% 60% 100% $3.484 0.588 0.390 0.267 0.401 0.323 0.E.492 0.329 0. The salvage value of the engine is implicit in the replacement parameter r. Opportunity costs are lost ridership and goodwill due to unexpected breakdowns. M.217 0. the infrastructure salvage value is assumed to be zero. The parameter r estimates the difference between . engine and fuel system.562 0. Blends 20% 35% 60% 100% Explicit cost Double mileage 0.578 0.314 0..

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

The threshold at which biodiesel is competitive with CNGrdiesel on a cost-per-mile basis is between a 60–100% blend at $1. thus. This produced a lower than expected mean value of mileage at rebuild and months between rebuilds.00 per gallon are competitive with the other alternative fuels. This competitiveness is underscored by the low infrastructure cost and lack of enginerfuel system cost of biodiesel relative to methanol and CNGrdiesel. Such an expanded project would increase the accuracy in any comparative fuel cost differences. 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. Especially for methanol.14 N. thereby possibly inflating the cost per mile of diesel and biodiesel buses compared with the alternatives. biodiesel fuels at prices as high as $3. cost associated with the risk of technology failure is potentially minimized with biodiesel. For example. The results presented in Table 5 would support a significantly broadened pilot project involving a larger number of buses over a longer time duration. potentially resulting in a large loss if the technology does not meet expectations. Ahouissoussi. This results in per mile cost estimates listed in the last column of Table 5. Wetzsteinr Resource and Energy Economics 20 (1997) 1–15 month increases. Such an expanded project would diminish problems associated with a small sample. Conversely. whereas CNGrdiesel buses experience a more modest decline of approximately 3%.E.75 per gallon.00. one of the engines required a rebuild at only 12 150 miles. consider doubling the average monthly mileage under the assumption of zero baseline maintenance costs. However. per mile costs for diesel and biodiesel-fueled buses experience relatively minimal reductions in per mile costs Žless than a 0.50. For example. the higher fixed costs do result in a lower per mile cost as utilization increases. the cost per mile increases to around $0. As indicated in Tables 1–3. M.C. it is still within 7% of the cost per mile for a methanol-fueled bus. However. and around a 35% blend at $3. As expected. In all of these scenarios it is not surprising that diesel buses reflect the lowest cost per mile. biodiesel requires no additional infrastructure over current diesel facilities and only minor modifications in engine tuning.B. methanol-fueled buses experience a reduction of approximately 9%. converting a fleet of buses to methanol or CNG fuel requires substantial investment costs relative to diesel and biodiesel.. it is still over 70% more expensive than diesel. Biodiesel does not require additional infrastructure over current diesel facilities. biodiesel fuel can comply with regulatory emission standards. Assuming a 35% blend. In contrast. nevertheless. CNGrdiesel has a significantly lower cost per mile compared with methanol. Thus. 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. .65.5% difference. in the sample of diesel bus engines. These higher costs are predominantly irreversible once incurred. a 35–60% blend at $2. As diesel is blended with biodiesel and the cost of biodiesel rises. which is over three times the base diesel price.

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

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