The economy of alternative fuels when including the cost of air pollution

In this study, the costs involved in the use of petrol, diesel, natural gas, biogas, and methanol (produced from natural gas and biomass) in cars and heavy trucks are compared. The cost includes fuel cost, extra capital cost for vehicles using alternative fuels, and the environmental cost of VOC, NO_x, particulate and CO₂ emission based on actual 1996 and estimated 2015 emission factors. The costs have been calculated separately for rural, urban and city-centre traffic. A complete macroeconomic assessment of the effect of introducing alternative fuels is not, however, included in the study. The study shows that no alternative fuel can compete with petrol and diesel in rural traffic when the economic valuation of CO₂ emission is taken as current Swedish CO₂ taxes ($200/tonne C). In cities with a natural gas network, natural gas is the fuel with the lowest cost for both cars and heavy trucks, based on 1996 emission factors. Methanol from natural gas and biogas from waste products can also compete with diesel in urban traffic. With predicted improvements in technology and subsequent emission reductions, no alternative fuel can compete with petrol in any of the traffic situations studied by 2015, and only in city-centre traffic will alternative fuels be less costly than diesel in heavy vehicles. Of the biomass-based fuels studied, low-cost biogas from waste products is the most competitive one and is, already at current CO₂ taxes, the fuel with lowest cost for heavy trucks in urban traffic in areas where natural gas networks do not exist. To enable the more widespread use of biomass-based fuels, i.e. using feedstocks such as energy crops or logging residues that are available in larger amounts, the economic valuation of CO₂ emission has to be 2–2.5 times higher than current Swedish CO₂ tax level.