Impacts on Home Heating Costs of Incentives for Alternative Fuel Vehicles

Abstract

Regulatory incentives for increased usage of alternative fuels in motor vehicles could have an impact on home heating costs, potentially increasing the price of natural gas and liquefied petroleum gas (LPG, or propane) while decreasing the price of home heating oil. The Alternative Fuels Trade Model (AFTM) is used to estimate these end-use cost impacts by comparing price results from two scenarios: a base case and an unconstrained case. The AFTM is a macroeconomic simulation model for determining prices and quantities that balance the interrelated world oil and gas markets given assumptions about supply, demand, and costs. Under the base case, alternative fuel usage is set at 5.5 percent of total light-duty motor vehicle fuel usage, while under the unconstrained case, alternative fuel-usage levels increase to 32 percent. All prices and expenditures are estimated for the year 2010 and are expressed in 1992 dollars. Increased usage of compressed natural gas (CNG) and LPG by alternative fuel vehicles as a result of either regulatory incentives or market forces will tend to increase annual natural gas and LPG home heating costs, while reducing distillate fuel-oil home heating costs. Per household, natural gas and LPG annual home heating costs are predicted to increase by $4.14 and $20.65, respectively, while annual distillate fuel-oil home heating costs are predicted to decrease by $3.17. The increase for LPG amounts to a 3.7 percent increase over the base case expenditures. These cost impacts are estimated at the national and regional levels and by income classification.