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Picking Losers: Green Command Economy And The Electric Car Fiasco

Though nearly two times as many natural gas vehicles will be on the road at year’s end than plug-ins, the federal government is investing heavily in electric technology. Some experts wonder whether the U.S. chose the wrong technology to support.

Four years ago President Barack Obama unveiled his vision of 1 million plug-in vehicles on U.S. roads by 2015, pumping about $5 billion in federal funding into electric cars.

But then natural gas prices fell to roughly half the price of gasoline. Now a stodgy, undersubsidized horde of natural gas vehicles is catching on with everyday consumers despite a paucity of marketing or fueling infrastructure.

By year-end, 123,600 natural gas vehicles will be on U.S. roads, compared with 65,500 plug-in vehicles, Pike Research’s Smart Transportation practice estimates.

Some experts wonder whether the U.S. chose the wrong technology to support.

“Hindsight is always 20-20,” said Christopher Knittel, the William Barton Rogers Professor of Energy Economics at the Massachusetts Institute of Technology Sloan School of Management. “The drop in natural gas prices brings up an interesting issue, which is, which technology do we want to put our money behind?”

Right now, the money is behind electric vehicles, but that could change.

In February, the Obama administration proposed that the plug-in tax credit be increased to $10,000 from $7,500 and extended to other alternative fuel vehicles, including natural gas. It’s a change experts say could make natural gas-fueled cars far more price competitive. In response to demand from motorists, the Honda Civic Natural Gas car is being displayed in showrooms nationwide for the first time since it was introduced in 1998.

This month, the Department of Energy, a strong promoter of electric vehicles, awarded $30 million in research and development funding aimed at reducing the costs of making natural gas vehicles and building natural gas filling stations. Several companies, including Lisle-based Navistar Inc., have announced massive filling station buildouts along major truck routes that would be available to the public.

The interest in plug-ins traces to at least 2008, when gasoline prices seemed headed to $5 a gallon.

The following year the federal government earmarked $2 billion in Recovery Act dollars for makers of batteries and other components for plug-in vehicles and another $400 million to build a charging infrastructure. The Department of Energy pitched in with $2.4 billion in loans to Nissan, Tesla and Fisker to support plug-in manufacturing.

In addition, consumers were enticed into buying electrics with a tax credit of up to $7,500.

While there is no federal tax credit for natural gas vehicles, some states have offered incentives. In Illinois, for instance, buyers of natural gas vehicles receive a credit of up to $4,000. A Honda Civic Natural Gas is priced about $5,650 more than a gasoline-powered Civic EX. The vehicles are less expensive than electric vehicles. The Ford Focus Electric is priced $22,700 above the gasoline version.

“Natural gas vehicles just don’t have the cost challenges that electric vehicles do. You don’t need that same level of incentive,” said Dave Hurst, a senior research analyst at Pike Research, which studies the electric and natural gas vehicle markets. “I think the more interesting question is, why aren’t there more incentives on the infrastructure side for natural gas?”

So far, public fueling stations for natural gas vehicles have not received the same support as charging stations, although some dollars have flowed to companies vowing to provide public access.

“In some ways it’s pretty similar to the challenges we’re seeing on the electric vehicle front,” Hurst said. “Should infrastructure lead the vehicles, or should vehicles lead the infrastructure?”

To encourage sales of its new line of natural gas-powered heavy-duty trucks, Navistar is partnering with California-based Clean Energy Fuels, which will build 150 natural gas fueling stations, all of which will be available to the public.

Pike estimates 1,358 natural gas refueling stations will be available in the U.S. by the end of the year, about half of them private. That number is about 1 percent of the 100,000 charging stations that Pike estimates will be up and running at year-end.

Why the discrepancy in stations serving electric versus gas vehicles?

Natural gas vehicle makers for years have focused on business owners and fleet operators, not average consumers, said Hurst.

“Electric vehicles are more well-suited to the consumer market,” he said. “But when you start getting into these medium-duty and heavy-duty trucks, electric is never going to be a great solution for those. Those vehicles use a tremendous amount of fuel and (get) just a couple of miles per gallon.”

In addition, natural gas filling stations, which require expensive compressors and massive highly reinforced storage tanks, are costly to build, roughly $500,000 to $1.5 million, compared with $200,000 to $400,000 for a traditional gasoline station or $50,000 for the most expensive charging stations.

The hunger for natural gas vehicles has put Honda in an enviable position. It offers the only sedan that’s sold as a natural gas vehicle.

When it introduced its natural gas vehicle in 1998, 80 percent of sales were for fleet use, said Eric Rosenberg, assistant manager of sales and marketing for Civic Natural Gas. But when gasoline prices soared as natural gas prices fell, consumer interest perked up.

“When we passed $4, it was crazy,” Rosenberg said. “We were selling cars like packs of M&Ms.”

The car has never been featured in its own TV ad. But last year consumers accounted for 81 percent of sales. This year sales have been up an average of 30 to 40 percent each month from previous sales records.

“We’re waiting to be the country’s darling here,” said Rosenberg, who said he has a small marketing budget that allows him to produce brochures for dealers and trade shows.

Tony Lindsay, director of research and development for the Gas Technology Institute in Des Plaines, said it isn’t difficult to see why consumers are turning toward natural gas vehicles. New technology has opened up vast natural gas deposits in the U.S., and prices have fallen to around $2 to $3 per million British thermal units, a price that puts fueling costs at the pump at about two-thirds to half that of gasoline.

“It’s affordable, American and abundant,” Lindsay said. He added that natural gas is nontoxic, noncorrosive and noncarcinogenic. It also won’t seep into the ground and contaminate groundwater, as can be the case with liquid fuels.

So why haven’t natural gas vehicle sales been even more robust?

Rich Kolodziej, president of Natural Gas Vehicles for America, which promotes natural gas and biomethane as transportation fuels, said automakers produce what people want to buy or what they’re forced to make. He said a movement started in California doesn’t bode well for natural gas car sales.

Kolodziej said California will require that 15.4 percent of new vehicles sold there by model year 2025 have zero tailpipe emissions. Natural gas vehicles have significantly lower emissions than gasoline vehicles but would not meet California’s mandate.

Advocates argue that if the pollution caused by electricity production were added into the equation, natural gas would fare as a cleaner alternative to electricity. So far, however, 10 states and the District of Columbia have indicated they will follow California’s lead.

Chicago Tribune, 29 July 2012