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COMPRESSED NATURAL GAS VEHICLES FOR THE CITY OF MILWAUKEE'S DEPARTMENT OF PUBLIC WORKS: A COST BENEFIT ANALYSIS Erika Cheng, Lael Grigg Erika Jones, and Adam Smith May 9, 2011 Overview Project Scope – Erika Jones Cost-Benefit Analysis – Erika Cheng Model, Analysis and Results – Adam Smith Conclusions and Recommendations – Lael Grigg Problem Statement Challenges Cost-effective service delivery Fluctuating fuel costs Environmental emissions Opportunities CMAQ funding Green the Fleet while reducing costs Research Question Focus on Compressed Natural Gas (CNG) Cost-Benefit Analysis: What are the marginal costs associated with purchasing CNG fueled refuse packers? Natural Gas Natural gas most feasible, available option Lower carbon content, clean-burning Compressed versus liquefied natural gas DPW Fleet Services Vehicles In 2010: 705 on-road vehicles using diesel 966,700 gallons of fuel consumed $2.8 million spent on fuel Per vehicle, diesel vehicles are most costly DPW Refuse Packers Account for roughly 5 percent of fleet In 2010, 127 standard diesel refuse packers 30 percent more than ten years old Ideal vehicle life eleven years Assumptions Section maintains current fleet size Packers replaced after twelve year life Ten new packers purchased in 2012 Packers used until 2023 Cost-Benefit Analysis Compare costs of CNG and diesel packers between 2012 and 2023 Estimate Net Present Value of choosing CNG Factors Considered Included in Model Vehicle Purchase Price Fuel Costs and Fuel Economy Tax Credits, Incentives, and Reimbursements Environmental Emissions Health Impacts Not Included in Model Project Life and Salvage Value Energy Dependence Garage Facilities Fuel Safety Fueling Stations Labor and Training Maintenance and Operations Factors Included in Model Vehicle Purchase Price Fuel Costs and Fuel Economy Tax Credits, Incentives, and Reimbursements Alternative Fuel Infrastructure Tax Credit CNG and Diesel Fuel Excise Tax Credits Federal CNG Vehicle Tax Incentive Environmental Emissions and Health Impacts CO2 and PM10 Model Specifications and Analysis Model Specifications Incentives Not Renewed Notes Incentives Renewed Emissions Excluded 1 2 Emissions Included 3 4 Four specifications Results based on static point estimates Results based on parameter ranges, random sampling Results Based on Point Estimates Net Present Value of 2012 CNG Refuse Packer Purchases Incentives Not Renewed Incentives Renewed Emissions Excluded $34,000 $449,000 Emissions Included $47,000 $462,000 Notes 2010 dollars Positive net present values Large impacts of incentives 343 tons of avoided CO2 emissions Results Based on Parameter Ranges Mean Net Present Value of 2012 Refuse Packer Purchases Incentives Not Renewed Incentives Renewed Emissions Excluded $54,000 $455,000 Emissions Included $101,000 $501,000 Notes 2010 dollars Positive net present values Negative ranges Results, Continued Probability of Positive Net Benefits Incentives Not Renewed Probability of Net Loss Greater than $100,000 Incentives Renewed Incentives Not Renewed Incentives Renewed Emissions Excluded 71% 100% Emissions Excluded 4.6% 0% Emissions Included 85% 100% Emissions Included 1.7% 0% Conclusions Large impact of incentives Modest impact of environmental benefits Also found three very influential factors Vehicle purchase price Fuel cost Fuel economy Conclusions Relative CNG initial vehicle price will likely decrease Diesel The vehicle purchase price vehicle cost may increase difference in up front costs significantly impacts our Net Present Value estimates Conclusions Relative Fuel fuel cost costs are not stable Diesel prices change over time, sometimes from day to day CNG prices also fluctuate Conclusions Relative CNG fuel economy fuel economy for refuse packers may increase Recommendations Purchase ten CNG refuse packers in 2012 Monitor vehicle performance and fuel costs Continue pursuing grant opportunities and other incentives Special Thanks To the City of Milwaukee staff for their guidance and interest in alternative fuel vehicles. In particular, we thank Thomas Bell, Budget and Management Special Assistant; Michael O’Donnell, Quality Assurance Coordinator; Paul Klajbor, Administrative Services Manager; Jeffrey A. Tews, CPFP, Fleet Operations Manager. Professor Andrew Reschovsky The LaFollette faculty and staff Stephen Collins, Peter Dermody, Sarah Hurley, Emily Ley, and Ted Schuster Questions? Hydraulic Fracturing Process for recovering natural gas from shale Wastewater contains known carcinogens Exempt from Clean Water and Clean Air Acts 2009 bills (HR 2766 and S 1215) introduced to remove exemption and protect groundwater Alternative Fuel Additional Tax Credit Annual CNG Use (DGE) Annual Diesel Use (Gallons) Average Vehicle Miles Travelled* CNG CO2 Emissions CNG Fuel Excise Tax Credit CNG Maintenance Costs CNG PM10 Emissions Diesel CO2 Emissions Diesel Fuel Excise Tax Credit Diesel Maintenance Costs Diesel PM10 Emissions Discount Rate* Federal CNG Vehicle Tax Incentive Point Estimate (Range or Standard Deviation) 0.55 3648 3105 6,675 (6,475 to 6,875) 7773 0.202 2.03 0.015 9,966 0.244 2.03 0.24 0.035 (0.03 to 0.04) 0.80 up to $32,000 Fuel Economy CNG (mpDGE)** Fuel Economy Diesel (gallons)** Growth Rate for CNG** Growth Rate for Diesel** Additional Cost of CNG Packer* Price of CNG Price of Diesel Shadow Price Avoided CO2 ($/ton)* Shadow Price of Avoided PM10 ($/ton)* Total Vehicles Purchased in 2012 Useful Vehicle Life (years) 1.83 (0.0485) 2.15 (0.025) 0.002 (0.0106) 0.018 (0.011975) 37,000 (30,000 to 40,000) 1.68 2.96 3 (3 to 20) 1500 (1500 to 6700) 10 12 Parameter Name *Variables assume a uniform distribution; **Variables assume a normal distribution Source(s) U.S. DOE EERE, n.d.b. Average VMT/CNG Fuel Economy Average VMT/Diesel Fuel Economy DPW Data and Jeffrey Tews U.S. EPA, n.d.b. U.S. Internal Revenue Service, 2009 DPW Data, Johnson, 2010 Lyford-Pike, 2003 U.S. EPA, n.d.a. U.S. Internal Revenue Service, 2009 DPW Data Lyford-Pike, 2003 Thomas Bell Johnson, 2010 DPW Data and Jeffrey Tews, Authors DPW Data and Jeffrey Tews, Authors AEO 2011 estimate, Authors, NWC AEO 2011 estimate, Authors, NWC Jeffrey Tews AEO 2011 for year 2012 AEO 2011 for year 2012 Matthews and Lave, 2000 Matthews and Lave, 2000 Authors Jeffrey Tews