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Climate, Air Quality and Security:

The Policy Push for Alternative Fuels in Transportation

Rosa Dominquez-Faus
Post-Graduate Fellow,
Institute of Transportation Studies
University of California, Davis
Amy Myers Jaffe
Executive Director, Energy & Sustainability
Graduate Shool of Management &
Institute of Transportation Studies
University of California, Davis


High global oil prices have encouraged innovation and conservation in many key use sectors, and environmental and security drivers are also driving rapid acceptance of new technologies. This trend is now gaining momentum globally in the transportation sector. Governments are under increasing pressure from many directions, including climate change, air quality, rising urbanization, and national security, to consider policies and directives to hasten the pace of penetration of new more efficient vehicles and adoption of alternative fuels. The period of historic instability across the oil producing regions of the Middle East gives added impetus to programs aimed to diversify national transport fuel sources, especially in the face of increasing demand for mobility among rising middle classes in the developing world.

Oil’s current dominance in the transportation sector is unquestionable. Roughly 93 percent of all fuel used in the transport sector globally is petroleum-based. The International Energy Agency forecasts that almost all of the net growth for oil will come in the next two decades from the transport sector in emerging economies. Road transport for freight and personal mobility will be responsible for 75% of future oil in transportation use, according to the IEA. With the global passenger vehicle fleet expected to double in the coming decades to 1.7 billion by 2035, governments and companies alike are looking for new opportunities to meet some of this demand in alternative ways. Still, in their annual energy projections, the U.S. Energy Information Administration (EIA, 2013) as well as ExxonMobil (ExxonMobil, 2013) and BP (BP, 2013), expect the transportation sector to be dominated by petroleum fuels well into the future.  However, increasingly, governments are beginning to look at ways to accelerate fuel source diversification and greater efficiency in transportation, especially in the vehicles arena.


Climate change

Climate change goals are one key driver.  The United Nation’s International Panel on Climate Change (IPCC) estimates that to avoid dangerous consequences of global warning, society needs to reign in cumulative accumulations of greenhouse gas emissions to limit the increase in average global temperatures to 2C degrees increase above the preindustrial period (1861-1890) (IPCC, 2013). The IPCC now projects that the world’s 2000-2050 carbon budget (i.e., the carbon that we can emit to have a fifty percent chance at limiting average global warming to 2C) is just 1,210 GtC (4,440 GtCO2). Already, 515 GtC (1,890 GtCO2), has been emitted as of 2011 (IPCC, 2013), and thus there is an urgency to shift to lower carbon sources of transportation fuel. Globally, transportation accounts for 14% of total greenhouse gas (GHG) emissions and 22% of CO2 emissions (IEA, 2012). Thus, reductions in carbon intensity of transportation fuels are an important part to efforts to respond to climate challenges.


Urbanization and Air pollution

Rising urbanization also dictates that business as usual strategies for transportation will pose major challenges for air quality and personal mobility. Between 1990 and 2010, the global urban population increased by about 1.1 billion people, whereas the world’s rural population only increased by 150 million. By 2050, the world’s population will add 2.3 billion people but a larger number, 2.6 billion people, will be added to urban areas (UN, 2011). This will mean that in 2050 the world’s urban population will be the same size as the entire world’s population of 2002.

Emissions of air pollutants are a problem, especially in major cities in the developing world. Global sulfur dioxide (SO2) emissions have fallen between 1990 and 2010 but grew in Asia, with China contributing about one third of the global SO2 emissions in 2010, and India contributing about one ninth. Global nitrogen oxides (NOx) emissions have remained relatively flat between 1990-2010 due to a compensation of the sharp increase in Asia by a decline in North America and Europe. Global black carbon (BC) and organic carbon (OC) emissions also grew significantly in the same period, with Asia contributing to more than half of global emissions (Amann, 2013). Transportation was the main contributor to NOx emissions, and a significant contributor to BC, OC and SOx (Amann, 2013). Even though overall air quality has improved in many American cities as a result of increased fuel efficiencies and pollution control mechanism, cities with notorious traffic might still experience periods of unhealthy air, such is the case of Houston, which incurred in 40 Ozone exceedance days in 2012 (HRM, 2012).


Congestion and fuel waste

One problem facing cities is congestion, which is thwarting cities from reaching air quality goals while at the same time, hindering fuel conservation which can be an important part of supply security and carbon emissions solutions. For example, the annual Urban Mobility Report (UMR), published by the Texas A&M Transportation Institute (TTI) show Americans burned 2.9 billion gallons of gasoline while sitting in congestion (or 19 gallons per commuter), which cost $121 billion in wasted time and fuel (or $818 per U.S. commuter), and emitted 56 billion pounds (25.4 million metric tonnes) of additional carbon dioxide (378 lbs per commuter). The same TTI research also shows that congestion contributes to total economic costs of about $27 billion worth of wasted time and wasted diesel fuel from long haul trucks (Schrank, 2012).

To address these issues, governments are increasingly trying to create a regulatory environment that will propel fuel providers and consumers to switch to alternative fuels with lower carbon emissions.


California’s Low Carbon Fuel Standard

In one innovative example, the state of California passed a new set of standards for fuel quality to assist the state with air quality and carbon emission goals. The low carbon fuel standard (LCFS) was signed into a law in 2009 and requires oil producers, importers and other fuel providers to gradually reduce the carbon intensity (CI) of their transportation fuels to 10 percent with respect to baseline CI of 95.61 and 94.47 gCO2eq/MJ for gasoline and diesel respectively, by 2020 (Sperling 2010). The program is backloaded, meaning initial targets are modest (i.e., a 0.25% reduction in 2011, 0.5% reduction in 2012Q1, and so on until reaching the 2020 goal of 10% reduction) (Yeh, 2009).

Companies can either invest in low-carbon fuel technologies (e.g., biofuels from waste and plant materials, natural gas transportation fuels such as compressed natural gas (CNG) or liquefied natural gas (LNG), electricity used in plug-in vehicles, and hydrogen used in fuel cell vehicles) or buy carbon credits from other companies that produce lower intensity transportation fuels. Companies that innovate in low carbon fuel technologies have an opportunity to recoup their investments by selling the credits gained. In that sense, the LCFS is incentivizing innovation through the carbon credit market. Companies achieve compliance when credits equal deficits, and excess credits generated at a given point can be sold or kept to help the company meet more stringent CI reduction requirements in later years (Yeh 2009).

Since implementation in April 2011 and until end of 2012, the LCFS has eliminated 2.8 million metric tons of CO2eq emissions, the equivalent to removing half million road vehicles, according to ITS-UC Davis estimates (Yeh, 2012). From the 2.8 million, a 9% (258 thousand metric tonnes) are attributable to CNG vehicles and a 1.6% (44 thousand metric tonnes) to LNG vehicles. The majority of the remaining credits were generated using biofuels, 87% (2.5 million tonnes), and less than 1% were generated using electricity (28 thousand metric tonnes) (Yeh 2012). So far, regulated parties have exceeded the requirements in 2011 and 2012Q1 and about half of what is needed to cover the policy’s target for 2013 (1.3 million metric tons of carbon dioxide) can be met with these accumulated excess credits. The average compliance cost in August 2012 was $13 per equivalent metric ton of carbon, or an extra tenth of a penny in production costs per gallon of gasoline (Yeh 2012).


Alternative fuels and alternative vehicles

Over time, laws like California’s low carbon fuel standard and other air quality and climate measures in the United States, China and elsewhere, are expected to bring even more incentives for the adoption of natural gas vehicles, especially in the heavy-duty sector. Economic incentives already exist to encourage fuel switching away from diesel to natural gas.  In the United States, the current and projected gap between natural gas and petroleum prices makes LNG an attractive alternative to diesel for the long haul trucking industry. It is estimated that if LNG can be offered for $1.5 per gallon of diesel equivalent ($/gde) less than diesel, a trucking company can save $93,000/truck over the 800,000 mile lifetime of the truck (Citi, 2013 pp 25).  At present, premium costs for NGV trucks range from $50,000 to $120,000 per vehicle, and the current price gap between natural gas prices and petroleum is $1.76- $1.91/gde, leaving plenty of margin for the providers of LNG.  A number of big players are moving toward taking advantage of this opportunity, and environmental drivers may prove even more compelling to increase the rate of adoption of LNG trucks and ships.

The costs of expanding fueling infrastructure for natural gas fuels are one of the lowest among alternative fuels according to National Petroleum Council (NPC, 2012), and research at UC Davis Institute of Transportation Studies sees overall lower social costs in natural gas adoption with respect to other alternatives (Sharpe, 2013). NGVs provide benefits for air pollution. CNG and LNG emit less particulate matter and sulfur components than conventional diesel. This contaminants concentrate along heavy traffic corridors and urban areas. Regions with heavy use of diesel and bunker fuel (marine ECAS, ports, industrial sites, and roads with dense heavy-truck traffic or other non-attainment areas where diesel is heavily used) could experience substantial air quality improvements by switching to LNG fuel. Natural gas fuels in the form of CNG or LNG provide overall lifecycle GHG reductions of 2-18% (as estimated by CA-GREET, the lifecycle emissions model used by the LCFS) (LCFS lookup tables, 2013), and 20-25% less exhaust CO2 emissions (Zhao, 2013), with respect to diesel vehicles. Research shows that a shift to LNG fuel can contribute a significant reduction in SOx emissions (of up to 50% on an energy content adjusted basis compared to diesel fuel) as well as a sizable reduction in fine particulate matter (roughly a 25% benefit).

To date, NGVs are not very common in the US, with few vehicle options in all sectors, but NGVs are already popular in some parts of the world such as Pakistan, Iran, India, Brazil, Argentina and China, where multiple manufacturers offer natural gas technologies (IANGV, 2013).

In a given country, the abundance of NGVs is due to either abundance of natural gas resources or government incentives or a combination of both.  Driven mostly by air quality concerns, and abundance of conventional natural gas in some provinces, China has more than 1.5 million NGV vehicles on the road (or 1.5 % of its vehicle stocks) (IANGV, 2013) (NBS, 2013) and is considering the adoption of new policies to accelerate natural gas use for heavy trucks. As a comparison, the United States has 118,000 NGVs on its roads (IANGV, 2013), mostly relegated to urban and transit fleets that can leverage their fueling infrastructure.

Marine transportation can also see a shift to natural gas fuel as the International Marine Organization (IMO), a United Nations institution, creates Special SOx Emission Control Areas (SECAs), which limit sulfur content on shipping fuels along busy shipping corridors (Citi, 2013)

Globally, Tony Yuen of Citi and coauthors in the “Energy 2020: Trucks, Trains and Automobiles” report are now projecting that 2.6 to 4.5 million b/d of oil could be replaced in the heavy duty transport sector, affecting mostly trucks (2.3-3.6 mbd) but also rail and marine to an extent, by natural gas by 2030, corresponding to nearly 6 and 10% of current demand for oil for transport (Citi, 2013). Citibank estimates that natural gas substitution could be as high as 9 million b/d of diesel oil by the early 2020s and 3 million b/d of marine bunker fuel oil demand.

In Latin America, successful adoption of bioethanol fuel in Brazil is a well-known example of alternative fuels strategy.  The Brazilian government introduced the ethanol program Proalcool in 1975 in the aftermath of the 1973 oil crisis. Brazil mandated increased percentages of ethanol in gasoline starting initially at 10% and rising to 25% by 1980. Following the 1979 oil price shock the government mandated Brazil's state-owned oil company Petrobras to supply ethanol to filling stations. The government also provided loans for the construction of ethanol plants and guaranteed a competitive price of ethanol. Subsidies were provided for automakers to manufacture E100 vehicles (vehicles that run 100% on ethanol). The oil price collapse of the 1980s impacted the market for E100 vehicles, but the market for ethanol vehicles rebounded again in the 2000s with the introduction of flex-fuel vehicles (FFVs) that can operate using either ethanol or gasoline (Jaffe et al., 2010). In 2012, Brazil produced 5.8 billion gallons of ethanol, from which roughly 5.3 billion where consumed domestically and 0.5 billion were exported (GAIN, 2013).


Rapid Bus Systems

Brazil, Mexico and other Latin American countries such as Colombia and Guatemala, are also looking at the benefits of Rapid Bus Systems (RBS) to reduce fuel use, congestion and improve air quality.

Among RBS buses many features, they operate within a fully dedicated right of way (i.e., the Busway), which is typically situated in the center of the road to avoid curb-side delays. They can carry as many passengers as many of the world’s busiest metros (e.g. 46,000 passengers per hour per direction) but can be implemented at one-tenth to one-half of the time and cost. (EMBARQ, 2013)

The first modern RBS was implemented in Brazil in the 1970s and by 2010, more than 120 cities operated RBS systems serving 27 million passengers per weekday. Some of the most emblematic examples are México City, México; Guangzhou, China; and Bogotá, Colombia.

The Breakthrough Technologies Institute report “Energy and Environmental Impacts of BRT in APEC Economies” estimates that Mexico City could achieve 40% reductions in CO2 from the widespread adoption of BRT, from 762,452 to 460,654 tCO2eq over a seven-year period. In Bogota, Colombia CO2 reductions as high as 63 percent from 2.79 to 1.065 million tCO2eq over a 6 year period (BTI, 2012)

Ongoing projects are being developed in in Chongqing and Zhengzhou, China, in Seoul, South Korea, in Guadalajara, Mexico City, Valle de Mexico and Toluca in Mexico, Barranquilla, Bogota, Cartagena de Indias, and Medellin in Colombia. Guatemala City, Guatemala, and Indore, India. Cumulatively, these projects have the potential to reduce more than 12.2 million tons CO2eq, a 40 percent reduction over a 7-10 year period (BTI, 2012)

In Bogota, Colombia, it is estimated that 6,700 tons of PM, 53,00 tons of NOx, and 800 tons of SOx could be eliminated (92%, 85%, and 51% reductions respectively), over seven years through the BRT system program, among other benefits such as travel time savings of 136,750 hours per day in its Phase 1, a 79% reduction in traffic collisions, and savings of 407.4 million liter of diesel (50%) (BTI, 2012)  

As the World Resources Institute (WRI) report concludes in its report “Lessons learned from major bus improvements in Latin America and Asia. Modernizing Public Transportation” “corridors in the selected bus systems exhibit very high usage levels (1,780-43,000 passengers/hour/direction), with comparatively low capital investments  (US$1.4-12.5 million/km), and little or no operational subsidies” (WRI, 2010).



Rapid urbanization, rising urban air pollution, and climate change are key drivers accelerating the adoption of alternative transportation technologies. The North American boom in unconventional natural gas may provide additional impetus to efforts to shift to alternatives to traditional oil-based fuels by lowering the costs to shifting to natural gas fuel either directly or indirectly through electricity or hydrogen. A survey of research on alternative fuels and transportation covering analysis of policy initiatives in California, China and Latin America reveals that substantial air quality improvements and greenhouse gas emissions reductions can be achieved through the use of alternative fuels and rapid bus systems. As urban migration expands in the coming decades, alternative fuels will play an increasing role in the transportation system as a key policy tool to mitigate the air quality and greenhouse gas emission consequences of the higher demand for transportation services in urban settings.


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B.R. Sharpe (2013) Examining the Costs and Benefits of Technology Pathways for Reducing Fuel Use and Emissions from On-road Heavy-duty Vehicles in California. PhD Dissertation. University of California, Davis.

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