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AUTOGAS INCENTIVE POLICIES
A Country-by-Country Analysis of Why & How Governments Promote Autogas & What Works

menecon
CONSULTING

Copyright
© 2005 World LP Gas Association and Menecon Limited. All rights reserved. Neither this publication nor any part of it may be reproduced, stored in any retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publishers. All information in this report is veriﬁed to the best of the authors’ and publishers’ ability. They do not guarantee the accuracy of the data contained in the report and accept no responsibility for any consequence of their use.

Distribution/Orders
This publication is distributed by World LP Gas Communication SARL, a subsidiary of the World LP Gas Association. Copies of this publication can be ordered directly from: World LP Gas Association SARL 9, rue Anatole de la Forge 75017 Paris France Tel: +331 5805 2800 Fax: +331 5805 2801 Email: [email protected] Web site: www.worldlpgas.com

Contacts for Information
Inquiries about the study should be addressed to: Trevor Morgan Managing Director Menecon (Consulting) Ltd 20, rue Georgette Agutte 75018 Paris France Tel: +331 4263 8824 Fax : +44 870 131 8013 Email : [email protected] Web site : www.menecon.com Ben Muirheid Director, Market Development WLPGA 9, rue Anatole de la Forge 75017 Paris France Tel: +331 5805 2803 Fax: +331 5805 2801 Email: [email protected] Web site: www.worldlpgas.com

2 AUTOGAS INCENTIVE POLICIES WORLD LP GAS ASSOCIATION / MENECON CONSULTING

CONTENTS
Executive Summary Introduction Objectives of the Study Approach and Scope of Work Structure of this Report Acknowledgements PART A: MAIN FINDINGS 1. 1.1 1.2
1.2.1 1.2.2 1.2.3

6 9 9 9 10 10 11

2. 2.1 2.2
2.2.1 2.2.2 2.2.3

2.3 3. 3.1 3.2
3.2.1 3.2.2 3.2.3

4. 4.1
4.1.1 4.1.2

4.2 4.3 5. 5.1 5.2 5.3 5.4 6. 6.1 6.2 6.3

12 12 14 Alternative Automotive Fuel Policies 14 Practical Considerations 16 Cost Factors 17 Comparative Environmental Performance 18 Environmental Beneﬁts of Autogas 18 Light Duty Vehicle Emissions 18 Regulated Pollutant Emissions 18 Non-regulated Pollutant Emissions 22 Greenhouse Gas Emissions 22 Heavy Duty Vehicles 24 Government Policies to Promote Alternative Fuels 25 Principles of Automotive Fuel Policy 25 Typology of Policies to Promote Alternative Fuels 26 Financial Incentives 26 Regulatory Policies and Measures 28 Other Measures 28 International Comparison of Autogas Incentive Policies 29 Fuel Taxation and Pricing 29 Comparative Taxation of Autogas 29 Comparative Pricing of Autogas 31 Autogas Vehicle Subsidies 35 Other Incentives 35 Effectiveness of Autogas Incentive Policies 38 Autogas Share of the Automotive Fuel Market 38 Comparative Competitiveness of Autogas 39 Impact of Autogas Competitiveness on Fuel-Market Penetration 42 Impact of Non-Financial Incentives 43 Lessons for Policymakers 45 The Rationale for Promoting Autogas 45 Critical Success Factors for Autogas Market Development 45 Formulating an Effective Autogas Strategy 47

The Global Autogas Market Market Trends Drivers of Autogas Use

AUTOGAS INCENTIVE POLICIES · CONTENTS 3 WORLD LP GAS ASSOCIATION / MENECON CONSULTING

PART B: COUNTRY SURVEYS 1. 1.1 1.2 1.3 2. 2.1 2.2 2.3 3. 3.1 3.2 3.3 4. 4.1 4.2 4.3 5. 5.1 5.2 5.3 6. 6.1 6.2 6.3 7. 7.1 7.2 7.3 8. 8.1 8.2 8.3 9. 9.1 9.2 9.3 10. 10.1 10.2 10.3 11. 11.1 11.2 11.3 Algeria Autogas Market Trends Government Autogas Incentive Policies Competitiveness of Autogas Against Other Fuels Australia Autogas Market Trends Government Autogas Incentive Policies Competitiveness of Autogas Against Other Fuels Belgium Autogas Market Trends Government Autogas Incentive Policies Competitiveness of Autogas Against Other Fuels Bulgaria Autogas Market Trends Government Autogas Incentive Policies Competitiveness of Autogas Against Other Fuels Canada Autogas Market Trends Government Autogas Incentive Policies Competitiveness of Autogas Against Other Fuels China Autogas Market Trends Government Autogas Incentive Policies Competitiveness of Autogas Against Other Fuels Czech Republic Autogas Market Trends Government Autogas Incentive Policies Competitiveness of Autogas Against Other Fuels France Autogas Market Trends Government Autogas Incentive Policies Competitiveness of Autogas Against Other Fuels Italy Autogas Market Trends Government Autogas Incentive Policies Competitiveness of Autogas Against Other Fuels Japan Autogas Market Trends Government Autogas Incentive Policies Competitiveness of Autogas Against Other Fuels Korea Market Trends Government Autogas Incentive Policies Competitiveness of Autogas Against Other Fuels

49 50 50 50 51 53 53 54 56 57 57 57 58 60 60 60 61 62 62 63 64 66 66 66 68 69 69 69 70 72 72 72 74 75 75 75 77 78 78 78 80 81 81 83 85

4 AUTOGAS INCENTIVE POLICIES · CONTENTS WORLD LP GAS ASSOCIATION / MENECON CONSULTING

12. 12.1 12.2 12.3 13. 13.1 13.2 13.3 14. 14.1 14.2 14.3 15. 15.1 15.2 15.3 16. 16.1 16.2 16.3 17. 17.1 17.2 17.3 18. 18.1 18.2 18.3 19. 19.1 19.2 19.3 20. 20.1 20.2

Lithuania Autogas Market Trends Government Autogas Incentive Policies Competitiveness of Autogas Against Other Fuels Mexico Autogas Market Trends Government Autogas Incentive Policies Competitiveness of Autogas Against Other Fuels Netherlands Autogas Market Trends Government Autogas Incentive Policies Competitiveness of Autogas Against Other Fuels Poland Autogas Market Trends Government Autogas Incentive Policies Competitiveness of Autogas Against Other Fuels Russia Autogas Market Trends Government Autogas Incentive Policies Competitiveness of Autogas Against Other Fuels Thailand Autogas Market Trends Government Autogas Incentive Policies Competitiveness of Autogas Against Other Fuels Turkey Autogas Market Trends Government Autogas Incentive Policies Competitiveness of Autogas Against Other Fuels United Kingdom Autogas Market Trends Government Autogas Incentive Policies Competitiveness of Autogas Against Other Fuels United States Autogas Market Trends Government Autogas Incentive Policies

20.2.1 Fuel-Tax Differentials 20.2.2 Federal Clean-Fuel Vehicle Incentives and Mandates 20.2.3 State Programmes

20.3

Competitiveness of Autogas Against Other Fuels

86 86 86 87 89 89 89 91 92 92 92 94 95 95 96 97 98 98 98 99 101 101 101 103 104 104 105 106 107 107 107 109 110 110 111 111 111 112 113 114 116 118

Annex 1: Global Autogas Market Data Annex 2: References Annex 3: Note on Data Sources

AUTOGAS INCENTIVE POLICIES · CONTENTS 5 WORLD LP GAS ASSOCIATION / MENECON CONSULTING

Executive Summary
Autogas – LP Gas used as a transport fuel – is by far the most widely used and accepted alternative automotive fuel in use in the world today. Global consumption of autogas reached an estimated 17.1 million tonnes in 2004, and is increasing rapidly. Today, there are close to 10 million autogas vehicles in use around the world. Yet autogas use is still concentrated in a small number of countries: ﬁve countries – Korea, Japan, Poland, Turkey and Australia – together account for more than half of global autogas consumption. The twenty countries surveyed in this report account for 94%. The share of autogas in total automotive-fuel consumption also varies widely among those countries, ranging from a mere 0.1% in the United States to 16% in Poland. The only countries other than Poland where autogas accounts for more than 10% of the automotive-fuel market are Korea, Bulgaria, Turkey and Lithuania. The enormous disparity in the success of autogas in competing against the conventional automotive fuels, gasoline and diesel, is largely because of differences in government incentive policies. In most countries, the government encourages the use of autogas and other alternative fuels for environmental reasons. But the strength of actual policies and measures deployed does not always fully reﬂect the true environmental beneﬁts of switching to autogas from conventional automotive fuels. Autogas outperforms gasoline and diesel as well as most alternative fuels in the majority of studies comparing environmental performance that have been conducted around the world. Autogas emissions are especially low with respect to noxious pollutants. With respect to greenhouse-gas emissions, autogas performs better than gasoline and, according to some studies, outperforms diesel, when emissions are measured on a full fuel-cycle basis and when the LP Gas is sourced mainly from natural gas processing plants. Some countries promote autogas for economic reasons too, notably to provide an outlet for surplus indigenous production of LP Gas. The most effective autogas incentive policies are those that help to make the fuel more competitive against gasoline and diesel and give a strong ﬁnancial incentive for an end user to switch to autogas. In practice, the ﬁnancial attractiveness of autogas over other fuels depends on the net cost of converting an existing gasoline vehicle (or the cost of a factory-built autogas vehicle compared with an equivalent gasoline or diesel vehicle) and the pump price of autogas relative to diesel and gasoline. Since converting a vehicle to run on autogas involves upfront capital expenditure and some minor inconvenience, the owner needs to be compensated through lower running costs, of which fuel is the most important. The time it takes for the savings in running costs to offset the capital cost – the payback period – depends on the usage of the vehicle, i.e. the average distance travelled monthly or annually. The payback period usually has to be less than two to three years to encourage commercial vehicle owners to switch; private individuals often demand a quicker return on their investment.

6 AUTOGAS INCENTIVE POLICIES · EXECUTIVE SUMMARY WORLD LP GAS ASSOCIATION / MENECON CONSULTING

The payback period is very sensitive to the extent to which government incentives lower fuel costs relative to the other fuels and lower the upfront expenditure on the vehicle. Taxes on autogas must be low enough relative to those on gasoline and diesel to compensate for the lower mileage of autogas per litre (due its lower energy-content-to-volume ratio). In some cases, lower taxes also have to offset the higher pre-tax price of autogas at the pump. The wide variation in actual autogas pump prices among the countries surveyed, both in absolute terms and relative to the prices of other fuels, mainly reﬂects differences in the way automotive fuels are taxed. In ﬁve countries, there are no excise taxes on autogas at all. In all countries except the United States, excise taxes are less than half of those on gasoline on a volume basis. Financial incentives aimed at the vehicle, in the form of grants or tax credits, can also be effective in offsetting part or all of the cost of conversion or the incremental cost of buying an autogas vehicle. Six countries currently make available such subsidies for either gasoline or diesel conversions. Vehicle incentives are particularly important where fuel taxes generally are low, limiting the scope for savings on running costs. The market penetration of autogas is strongly correlated with the competitiveness of autogas vis-à-vis gasoline and diesel. We have estimated, for each country, the distance at which an autogas light-duty vehicle becomes competitive against gasoline and diesel in each country, based on the latest available data on pump prices and vehicle costs. The results show that autogas use and rates of market growth are generally highest in countries where the break-even distance is lowest, especially against gasoline. For example, Bulgaria, Korea, Lithuania, Turkey and Poland have the highest rates of autogas penetration and among the lowest break-even distances. At the other extreme, autogas is least competitive in Canada and the United States, where autogas accounts for a very small share of total automotive-fuel consumption. But the competitiveness of autogas is not the only factor driving autogas demand. For example, Belgium’s break-even distance for autogas against gasoline is slightly lower than that of Korea, yet the penetration of autogas in Belgium is much lower – even though autogas is always competitive against diesel in Belgium, regardless of distance. And the penetration of autogas is exceptionally low in France, where autogas is extremely competitive. Several factors explain these divergences:

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Government policy commitment: The autogas market has tended to develop more quickly where the government has shown a strong, long-term policy commitment in favour of autogas. For example, a proposal to impose an excise duty on autogas in Australia in 2003 quickly led to a sharp drop in conversions and fuel sales. Non-ﬁnancial policies and measures: In some cases, the use of nonﬁnancial incentives or other measures have either helped to boost or to hinder autogas use. Public awareness and education campaigns to promote autogas have certainly made a signiﬁcant contribution to market growth in several countries, including the United Kingdom. Mandates and public transport ﬂeet conversion programmes have

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AUTOGAS INCENTIVE POLICIES · EXECUTIVE SUMMARY 7 WORLD LP GAS ASSOCIATION / MENECON CONSULTING

also been very successful in several countries, including China and the United States.

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Restrictions on diesel vehicles: Local and central government

environmental restrictions on the use of diesel vehicles have been an important factor behind the success of autogas in Korea and Japan. Availability of vehicles and fuel: Autogas has struggled to penetrate the fuel market in some countries, where car makers have been reluctant to market OEM models or where there is a limited number of refuelling sites selling autogas. Public attitudes to autogas safety: Worries about the safety and reliability of autogas have clearly affected demand in several countries.

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In countries where autogas remains small, the role of the government in giving an initial strong impetus to kick-start the simultaneous development of demand and supply infrastructure is vital. Even where strong ﬁnancial incentives exist, autogas use will not necessarily take off until critical market mass is achieved. The market needs to be large enough to demonstrate to potential autogas users and fuel providers that the fuel is a safe, reliable and cost-effective alternative to conventional fuels. Autogas must be widely available. And the market must be big enough to support a viable network or properly-trained mechanics to convert and maintain autogas vehicles and ensure the availability of spare parts and equipment. In practice, achieving critical mass requires a concerted effort on the part of all stakeholders, vehicle manufacturers and converters, autogas suppliers and the government to promote the development of the market. The most effective approach to designing and implementing autogas incentive policies depends on national circumstances. These include budgetary considerations, which might limit available funds for subsidies, the seriousness of local pollution problems, fuel-supply and cost issues, the stage of development of the autogas market and the prevailing barriers to fuel switching, including restrictive regulations and the local cost of vehicle conversions. Whatever the circumstances, however, experience in the countries surveyed in this study has clearly shown that the single most important measure – and a necessary condition – for making autogas an attractive fuel to vehicle owners is favourable fuel-tax treatment vis-à-vis conventional fuels. Policy stability and a strong, long-term commitment by the government to achieving environmental-policy objectives are vital to the success of policies to promote the development of alternative-fuel markets. Stakeholders need to be given clear advance warning of any major shift in policy. Without policy stability, coherence and consistency, neither fuel suppliers, nor equipment manufacturers, nor consumers can be conﬁdent that they will be able to make a reasonable return on the investments required to switch fuels.

8 AUTOGAS INCENTIVE POLICIES · EXECUTIVE SUMMARY WORLD LP GAS ASSOCIATION / MENECON CONSULTING

Introduction
Objectives of the Study
Autogas – LP Gas used as a transport fuel – is the most widely used and accepted alternative to the conventional oil-based fuels, gasoline and diesel, in the world today. Sales of autogas are growing quickly in many countries, thanks to its inherent environmental, practical and cost advantages over other alternative fuels and effective government policies to encourage its availability and use. Today, there are close to 10 million vehicles running on autogas around the world. Total autogas consumption reached 17.1 million tonnes in 2004, according to preliminary data. But in some countries, autogas-market development is being held back by ineffective or poorlydesigned policies, such as unfavourable tax rates and regulations, that fail to account fully for the social beneﬁts of switching to autogas. This study, published jointly by the World LP Gas Association and Menecon Consulting, seeks to explain why governments encourage switching to autogas and how they go about doing so based on a in-depth survey of the world’s largest autogas markets. It assesses what types of policies are most effective and why.

Approach and Scope
The study involved a detailed survey of autogas taxation and other incentive programmes covering twenty of the world’s largest autogas markets: Algeria, Australia, Belgium, Bulgaria, Canada, China, Czech Republic, Lithuania, France, Italy, Japan, Korea, Mexico, the Netherlands, Poland, Russia, Thailand, Turkey, the United Kingdom and the United States. Almost all of these have annual sales of more than 100 000 tonnes. Historical data was compiled on pump prices, excise duties and sales taxes for autogas and the conventional fuels, gasoline (95 RON unleaded) and diesel. In addition, we collated data on road-fuel consumption, vehicles ﬂeets and current tax and non-tax policies with regard to conventional and alternative fuels. In most cases, these data cover the period 2000 to 2004. The information on autogas prices and taxes was used to analyse quantitatively the competitiveness of autogas vis-à-vis gasoline and diesel in all twenty national autogas markets. This analysis takes account of fuel prices at the pump, differences in mileage per litre (due to differences in energy content per litre and vehicle-engine technology among the three fuels) and the relative costs of acquiring each type of vehicle and converting conventionally-fuelled vehicles to autogas. It also takes into account local market conditions and regulations. The results were then compared to the current penetration of autogas in the overall automotive fuel market and recent rates of autogas-market growth. The study also reviewed recent studies of the comparative environmental performance of autogas in order to examine the rationale for promoting use of the fuel.

AUTOGAS INCENTIVE POLICIES · INTRODUCTION 9 WORLD LP GAS ASSOCIATION / MENECON CONSULTING

Structure of this Report
Part A of this report presents the main ﬁndings of the study:

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Section 1 provides an overview of current global autogas market trends and the main drivers of autogas demand. Section 2 assesses the environmental performance of autogas compared with conventional fuels and other alternative fuels. Section 3 sets out the principles of government policies and the different approaches available to policy-makers to promote alternative fuels generally. Section 4 summarises and compares current autogas incentive policies across the countries surveyed in the study, focusing on differences in taxes and subsidies. Section 5 analyses the impact of differences in policies on the competitiveness of autogas vis-à-vis conventional fuels and autogas’ penetration of the overall market for automotive fuels. Section 6 assesses the implications of this analysis and the lessons that can be drawn for policymaking.

Part B presents the detailed results of the survey and analysis of autogas competitiveness by country. Summary tables, references and a note on data sources are included in the annexes.

Acknowledgements
The principal author of this report is Trevor Morgan, President of Menecon Consulting. Ben Muirheid, Director of Market Development, at the World LP Gas Association, co-managed the project. Helpful comments and suggestions were provided by James Rockall, WLPGA Managing Director, and Bruno de Calan, WLPGA Technical Director. Johanna Wickstrom, WLPGA Project Manager, assisted with the preparation of the ﬁnal report. Franck Seiller was responsible for layout and design.

10 AUTOGAS INCENTIVE POLICIES · INTRODUCTION WORLD LP GAS ASSOCIATION / MENECON CONSULTING

PART A: MAIN FINDINGS

1. The Global Autogas Market
1.2 Market Trends

Autogas is the most widely used and accepted alternative to the conventional oil-based transport fuels, gasoline and diesel. A number of countries today have well-developed autogas markets. Global consumption of autogas reached 17.1 million tonnes in 2004, according to preliminary data (Table A1.1), and is increasing rapidly. Demand jumped by more than 5.6 million tonnes, or almost half, in the ﬁve years to 2004, mainly due to rapid growth in emerging markets and despite a levelling-off since 2000 in the two largest markets – Korea and Japan (Figure A1.1). The twenty countries surveyed in this report account for 94% of all the autogas consumed worldwide. Today, there are just under 10 million autogas vehicles in use around the world and almost 40 000 refuelling sites. Their numbers are growing rapidly, especially in the developing world. A detailed breakdown of the global market and recent trends in consumption, numbers of vehicles and refuelling sites can be found in Annex 1.

Box A1.1: Autogas Characteristics
Autogas is the abridged name for automotive liqueﬁed petroleum gas (LP Gas, or LPG) – that is, LP Gas used as an automotive transport fuel. LP Gas is the generic name for mixtures of hydrocarbons that change from a gaseous to liquid state when compressed at moderate pressure or chilled. The chemical composition of LP Gas can vary, but is usually made up of predominantly propane and butane (normal butane and iso-butane). Autogas generally ranges from a 30% to 99% propane mix. In some countries, the propane content varies according to the season as the physical characteristics of the two gases differ slightly according to ambient temperatures. LP Gas is derived either as a product from crude-oil reﬁning or from natural-gas or oil production. At present, more than 60% of global LP Gas supply comes from natural gas processing plants, but the share varies markedly among regions and countries. With both processes, LP Gas must be separated out from the oilproduct or natural-gas streams. LP Gas is generally refrigerated for large-scale bulk storage and seaborne transportation as a liquid, but it is transported and stored locally in pressurised tanks or bottles. LP Gas has high energy content per tonne compared to most other oil products and burns readily in the presence of air. These characteristics have made LP Gas a popular fuel for domestic heating and cooking, for industrial processes, including as a feedstock in the petrochemical industry, and increasingly as an alternative automotive fuel.

12 AUTOGAS INCENTIVE POLICIES · THE GLOBAL AUTOGAS MARKET WORLD LP GAS ASSOCIATION / MENECON CONSULTING

Table A1.1: Largest Autogas Markets, 2003
Consumption (thousand tonnes) 3 740 1 528 1 260 1 213 1 202 1 200 1 070 780 730 500 3 722 16 445 Vehicles (thousands) 1 723 290 1 000 492 1 220 450 1 100 550 190 115 2 401 9 416

Country Korea Japan Turkey Australia Italy Mexico Poland Russia United States China Rest of the World World Source WLPGA (2004).

Refuelling sites 1 242 1 900 4 000 3 240 2 150 1 400 4 500 470 4 300 285 16 439 39 641

Figure A1.1: Global Autogas Consumption, 1999-2004
18000 16000 14000 thousand tonnes 12000 10000 8000 6000 4000 2000
0

1999
Other Turkey

2000
Japan

2001
Australia

2002
Poland Korea

2003

2004*

* Preliminary data. Source: WLPGA (2004).

AUTOGAS INCENTIVE POLICIES · THE GLOBAL AUTOGAS MARKET 13 WORLD LP GAS ASSOCIATION / MENECON CONSULTING

Autogas accounts for less than 8% of global consumption of LP Gas, but this share varies considerably across countries. Among the countries surveyed, the share is highest in Bulgaria, where it is 86%, and is lowest in the United States at 1%. Consumption of autogas worldwide grew at an average rate of about 5% in the ten years to 2004, about twice the rate of growth in total LP Gas use. The highest rates of growth – and the largest increases in absolute terms – were recorded in Turkey, Poland and Korea. The make-up of the autogas vehicle ﬂeet by vehicle type differs by country, reﬂecting mainly differences in government policies. In the two largest markets – Korea and Japan – taxis and other light-duty ﬂeet vehicles account for a large share of autogas consumption. In both countries, the overwhelming majority of taxis run on autogas as a result of a combination of incentives and government mandates requiring the use of alternative fuels. In Europe, private cars comprise the main market. In most countries, vehicles that run on autogas are gasoline-powered vehicles that have been converted to use either autogas or gasoline. Most gasoline vehicles can be converted at moderate cost (see section 1.2.2). Korea, where most vehicles are Original Equipment Manufactured (OEM) vehicles, is the main exception. At present, there are relatively few heavy-duty vehicles that run on autogas, since costly alterations to the diesel engine are needed. Most heavyduty autogas vehicles in operation today are dedicated OEM buses. The municipal bus company in Vienna, which has 550 autogas buses, has the longest and most extensive experience of operating heavy-duty autogas vehicles. The largest autogas-bus ﬂeets today are to be found in China. Some delivery trucks fuelled by autogas are operating in some major cities in Australia. Conversion technology is less advanced for diesel vehicles than for gasoline vehicles and diesel conversions are rarely competitive.

1.2

Drivers of Autogas Use

The emergence of autogas as an alternative to gasoline and diesel is the direct result of government policies to address energy-security and/or environmental concerns. Autogas has been far more successful than any other alternative automotive fuel because of its practical and cost advantages over other fuels.

1.2.1

Alternative Automotive Fuel Policies

The oil-price shocks of the 1970s provided the initial impetus for the development of alternative automotive fuels, as countries sought to reduce their dependence on imports of crude oil and reﬁned products. Environmental concerns have since overtaken energy security as the principal driver of government policies to promote such fuels, as they are generally less polluting. The initial focus of policy action was air pollution in major cities, which is caused mainly by automotive fuels. Since the 1990s, attention has shifted to the threat of global climate change due to rising concentrations of greenhouse gases in the atmosphere resulting primarily from the burning of fossil fuels. As a result, governments are looking to fuels that emit less

14 AUTOGAS INCENTIVE POLICIES · THE GLOBAL AUTOGAS MARKET WORLD LP GAS ASSOCIATION / MENECON CONSULTING

carbon dioxide (CO2), methane (CH4 ) and NO2 – the main energy-related greenhouse gases. Research and development of alternative automotive-fuel technology in recent years has focused on oil- and natural gas-based fuels, bio-fuels derived from vegetable matter such as ethanol or bio-diesel, electricpowered vehicles and hydrogen-based fuel cells. The development of electric batteries and fuel cells is advancing, but both technologies are still some way from widespread commercialisation due to their high cost and technical constraints. The production of ethanol and bio-diesel has risen sharply in recent years, but both fuels are usually blended with conventional gasoline and diesel for sale to end users. The main non-blended alternative fuels in use in the world today are autogas (LP Gas), compressed natural gas (CNG) and methanol. Autogas has established itself in many countries as by far the most important of these fuels, because of its favourable mix of inherent practical and cost advantages and environmental beneﬁts compared to gasoline, diesel and other alternative automotive fuels. Air-borne emissions of regulated and unregulated toxic gases from autogas use are among the lowest of all the automotive fuels commercially available today. In addition, greenhousegas emissions from autogas are lower than those from gasoline, diesel and some alternative fuels according to some studies. The comparative environmental performance of autogas is discussed in more detail in the next section. From an energy-security perspective, autogas has advantages over conventional fuels. There is an abundant supply of LP Gas from many sources around the world. In addition to proven reserves in oil and gas ﬁelds, the ﬂexibility of modern reﬁning processes offers considerable potential for expanding supply to meet demand from the transport sector. LP Gas supply is expected to rise briskly in the next few years with growing natural-gas production and associated liquids extraction – already the primary source of LP Gas worldwide. And ﬁeld and reﬁnery supplies will also increase as wasteful ﬂaring and venting practices, which are still common in many parts of the world, are eradicated. In addition, there is considerable scope for diverting supplies from relatively low-value petrochemical uses, where LP Gas can easily be replaced by other feedstocks such as naphtha, ethane and distillate. The use of gaseous automotive fuels may also enhance energy security in the long term, by paving the way for a hydrogen economy, where lessons learned in the handling and use of gas, storage, transportation and safety will be critically important. Autogas use has generally responded much better to government policies to promote alternative fuels than CNG, methanol or electric vehicles for practical and cost reasons. Despite some environmental advantages over conventional fuels, the development of CNG has been slow because of cost and practical considerations associated with the fuelling infrastructure. Methanol also has appealing environmental attributes, especially if produced from renewable biomass, but is no longer widely used as a motor fuel, largely because of technical problems associated with its corrosiveness. In contrast, the technology for installing autogas systems in vehicles or converting existing conventional-fuel vehicles is proven,

AUTOGAS INCENTIVE POLICIES · THE GLOBAL AUTOGAS MARKET 15 WORLD LP GAS ASSOCIATION / MENECON CONSULTING

greatly reducing the ﬁnancial risks to investors. The costs of establishing the distribution infrastructure and converting vehicles to run on autogas are generally much less than for other alternative fuels.

1.2.2 Practical Considerations
In most cases, an existing conventional-fuel vehicle is converted to run on autogas by installing a separate fuel system that allows the vehicle to switch between both fuels. For mainly technical reasons, most lightduty vehicle conversions involve gasoline-powered engines, which are particularly well-suited to run on autogas. Specialist companies, using standardised kits involving a parallel fuel system and tank, typically carry out conversions. The tank is usually installed in the boot/trunk. Some large, multinational OEM vehicle manufacturers have become involved in the development, design and manufacture of autogas systems. Several OEMs are now producing and marketing dedicated autogas vehicles with underﬂoor fuel tanks. For example, Volvo markets fully factory-assembled bi-fuel cars in Europe. All four carmakers in Australia – Ford, Holden, Mitsubishi and Toyota – offer bi-fuelled autogas/gasoline models. In the United States, Ford markets a bi-fuelled pickup truck. Mitsubishi offers autogas cars in Japan, where they are primarily used as taxis. The performance and operational characteristics of autogas vehicles compare favourably with other fuels. Autogas has a higher octane rating than gasoline, so converted gasoline-powered spark-ignition engines tend to run more smoothly. This reduces engine wear and maintenance requirements, including less frequent spark plug and oil changes. Autogas exhibits less soot formation than both gasoline and diesel, reducing abrasion and chemical degradation of the engine oil. In addition, autogas does not dilute the lubricating ﬁlm on the cylinder wall, which is a particular problem with gasoline engines in cold starts. The higher octane of autogas also allows higher compression ratios, which can deliver increased enginepower output and better thermal efﬁciency, reducing fuel consumption and emissions. Acceleration and top speed using the latest generation of autogas-fuel systems are comparable to gasoline or diesel. Autogas has a lower energy density than gasoline and diesel. Although this has no effect on engine performance, it does mean that a larger volume of fuel and a bigger tank are required to achieve the same overall driving range. In practice, however, converting a vehicle to be able to run on autogas involves some operational inconveniences. The most important of these are the loss of boot/trunk space to accommodate the fuel tank and, in some cases (depending on the equipment installed), the marginal loss in acceleration and speed mainly due to the extra weight of the tank. This is also a problem for CNG vehicles. The development of new technologies, including ringtanks and lightweight composite tanks, has helped to alleviate these problems. This inconvenience is offset to some extent by the lower weight of autogas fuel compared to gasoline and the increased ﬂexibility provided by the dual-fuel capability of converted vehicles. Practical experience has shown that vehicle owners are often willing to convert their vehicles to autogas if the savings in running costs are sufﬁciently attractive. Safety concerns with regard to the handling and on-board storage of autogas are a barrier to conversion in some cases. Yet many years of

16 AUTOGAS INCENTIVE POLICIES · THE GLOBAL AUTOGAS MARKET WORLD LP GAS ASSOCIATION / MENECON CONSULTING

operation worldwide have amply demonstrated the integrity and safety of bulk LP Gas/autogas transportation and storage containment systems, as well as on-board vehicle tanks. In fact, the safety record of autogas use in practice is at least as good as, if not better than, gasoline or diesel. Autogas is fully contained under pressure in solid tanks, which limits the danger of leakage. Being stored in liquid form, gasoline is prone to leaks or vapour escapes. A risk assessment study carried out by TNO, a Dutch research Institute, in 1998 concluded that the safety of modern autogas vehicles was actually better than for gasoline vehicles. Nonetheless, widely-publicised accidents, often resulting from poor installation, the absence of a safety valve on the fuel-tank or the illegal use or cylinder gas, have undermined the safety image of autogas in some countries.

1.2.3 Cost Factors
The cost of autogas supply and infrastructure is generally lower than for other alternative fuels. On an energy-content basis, the cost of bulk LP Gas delivered to service stations is roughly comparable to gasoline (Section 4.1.2). Rising demand for autogas is not expected to raise signiﬁcantly the cost of LP Gas on the international spot market relative to gasoline given abundant supplies. The costs incurred in establishing or expanding an autogas distribution network essentially relate to investments in service-station storage and dispensing facilities. The plants and equipment that already exist to handle the importation, production, storage and bulk distribution of LP Gas for traditional uses are exactly the same as for autogas, although some additional investment may be needed to cope with higher throughput. Since autogas generally makes use of the existing service-station infrastructure for distribution of conventional fuels, additional costs for autogas dispensing are low relative to some other alternative fuels. For example, the cost of installing a standard tank, pump and metering equipment for autogas alongside existing gasoline and diesel facilities is typically around a third that of installing dispensing facilities for CNG with the same capacity. This is because of the added cost of dedicated supply pipelines, high-pressure compression, storage cylinders and special dispensers for CNG. In addition, the fuelling rate for CNG is much lower than for autogas. Vehicle-conversion costs vary considerably from one country to another, depending on the sophistication and quality of the equipment installed and local labour costs. Conversion costs for older cars with less sophisticated engines tend to be much lower. Worldwide, costs vary from about $500 in developing countries to $3 000 in the United States. The premium for an OEM vehicle is typically at least $1 000 for a light-duty vehicle. Despite the favourable environmental attributes of autogas compared to other alternative fuels, the rate of switching to autogas and overall consumption is highly dependent on the ﬁnancial beneﬁts to end users. A publicly-owned bus company may take account of the local environmental beneﬁts as well as relative costs of different fuel options in deciding whether to switch to autogas. But for most private ﬂeet operators, truckers and individual motorists, the sole factor is cost. As a result, private vehicle owners must be given an adequate ﬁnancial incentive to switch to autogas.

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2. Comparative Environmental Performance
2.1 Environmental Beneﬁts of Autogas
Road-transport vehicles are an important source of both air pollutants and climate-destabilising greenhouse gases. There is clear evidence of the harmful impact on human health of exposure to vehicle pollutants. As a result, local air quality has become a major policy issue in almost all countries. Most industrialised countries have made substantial progress in reducing pollution caused by cars and trucks through improvements in fuel economy, fuel quality and the installation of emission-control equipment in vehicles. However, rising road trafﬁc has offset in many cases at least part of the improvements in vehicle-emissions performance. Less progress has been made in developing countries, where local pollution in many major cities and towns has reached catastrophic proportions. Governments are also looking increasingly at ways of encouraging a shift in fuel use to alternative fuels that can yield a reduction in emissions of greenhouse gases at least cost. Globally, road transport has become the main source of emissions of carbon dioxide – the leading greenhouse gas. Autogas outperforms gasoline and diesel and most alternative fuels in the majority of studies comparing the environmental performance of conventional and alternative fuels that have been conducted around the world in recent years. Autogas emissions are especially low with respect to noxious pollutants. With regard to greenhouse-gas emissions, autogas performs better than gasoline and, according to some studies, outperforms diesel, when emissions are measured on a full fuel-cycle basis and when the LP Gas is sourced mainly from natural gas processing plants (see below). The results of these studies vary to some degree, according to the types of vehicles selected, the quality of the fuel, the types of emissions measured and the conditions under which they were carried out vary: actual vehicle emissions are highly dependent on vehicle technology and driving behaviour. The rest of this section summarises the results of the main studies, according to the main categories of emissions for lightduty vehicles (essentially passenger cars and vans, in most cases with a maximum gross weight of less than 3.5 tonnes) and heavy-duty vehicles (trucks and buses).

2.2 2.2.1

Light Duty Vehicle Emissions Regulated Pollutant Emissions

Most industrialised countries and a growing number of developing countries with serious urban pollution problems now regulate noxious emissions from vehicles through mandatory emission standards, as well as through fuel-quality standards and trafﬁc controls. The most commonly regulated emissions are the following:

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> > > >

Nitrogen oxides (NO and NO2, or NOx). Particulate matter (PM). Hydrocarbons (HC), measured as total hydrocarbons (THC) or nonmethane hydrocarbons (NMHC). Carbon monoxide (CO).

CO, NOx and HC emissions contribute to the creation of ground-level ozone and photochemical smog, while PM is a known carcinogen and contributor to respiratory problems. NOx also impairs the lung function in humans, increasing the incidence of asthma attacks. Because these emissions are detrimental to local or regional air quality, most studies of this type of vehicle emissions have focused on tail-pipe emissions. Autogas performs well in comparison with gasoline and diesel with respect to regulated emissions because propane and butane are chemically simpler and purer forms of hydrocarbons that mix easily with air, allowing almost complete combustion. NOx emissions from light-duty vehicles (LDVs) are much lower for autogas vehicles, particularly when compared with diesel. Autogas emissions are comparatively even lower for cold starts, since gasoline needs to be enriched when the engine is cold due to its poor vaporisation characteristics at low temperatures. PM emissions are negligible for both autogas and gasoline vehicles, but remain a major problem for diesel vehicles – despite recent advances in ﬁlter technology. In the European Emissions Test Programme (EETP), the most recent major comparative study of LDV emissions (Box A2.1), emissions of NOx – the most important of the regulated toxic gases – from autogas were found to be many orders of magnitude lower than diesel and less than half the level of gasoline (Figure A2.1). Although autogas performs less well than diesel and gasoline with respect to CO and HC emissions, the levels of these emissions for all three fuels were found to be much lower than from older vehicles and the differences (on a full fuel-cycle, or well-to-wheel basis) do not inﬂuence signiﬁcantly the overall comparison of the environmental impact of the different fuels. The Dutch testing centre, TNO, has published the results of its part of the EETP, which also tested emissions from compressed natural gas (CNG). Contrary to assertions that the latest gasoline and diesel vehicles, which incorporate advanced emission-control technology, are cleaner than autogas models, the results demonstrate that autogas continues to outperform gasoline and diesel and compares favourably with CNG across a range of regulated and non-regulated emissions. In particular, autogas PM and NOx emissions are much lower than for diesel, while regulated emissions are comparable to or better than for gasoline (Table A2.1). The report concludes that autogas and CNG show the best overall results (TNO, 2003).

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Box A2.1: The European Emissions Test Programme (EETP)

In 2003, several major oil companies in Europe commissioned an exhaustive test programme to compare the emissions from currently available new vehicles operating on gasoline, diesel and autogas. The tests were carried out at four leading independent emission-testing laboratories: Millbrook (United Kingdom), TNO (Netherlands), the Institut de Petrole (France) and TUV (Germany). The test programme covered 26 vehicles – 20 cars and 6 vans. The vehicles were selected on the basis of the most up-to-date emissions-control technology as of early 2003 (meeting at a minimum Euro-3 emission standards). Comparable diesel vehicles were selected according to the nearest equivalent power to the autogas version. Where more than one option was available, the lowest power vehicle diesel vehicle was chosen. On average, the power of the diesel vehicles was lower than for the autogas equivalent vehicles. As a result, the results tend to understate diesel emissions for a given power of vehicle. All vehicles were tested according to the standard European Driving Cycle (EDC) and the so-called Artemis Cycle (CADC), which is intended to simulate actual driving conditions. Euro-3 regulated emissions (PM, NOx, HC and CO) were tested, in addition to carbon dioxide (CO2) and a number of unregulated air toxics. Tailpipe emissions were adjusted to yield full fuel-cycle results. The ﬁnal report of the full programme has not been published. However, a summary of partial results covering regulated and CO2 emissions was released by the UK LPG association. TNO also published a report on the results of its segment of the programme in December 2003.

Figure A2.1: NOx Tailpipe Emissions by Fuel – EETP Results

grammes / km Source: www.lpga.co.uk.
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Table A2.1: Potential for Reducing Regulated Emissions by Fuel – TNO Results
Relevance NO2 Overall PM Smog potential (photochem. ozone) Smog potential (tropospheric ozone) Acidiﬁcation potential Euthropiﬁcation Symbols: -o + ++ Very high impact (highest impact potential of all cases for the effect under consideration; a case means a combination of fuel and driver proﬁle). High impact potential (relative to case with highest impact potential). Average impact potential. Low impact potential. Very low impact potential. High High High High Medium High Gasoline ++ + -- -+ + Diesel -- --- -++ -- --- --- -Autogas ++ + + + CNG ++ + + o + +

Results are for an average driver (business and local). Source:TNO (2003).

These results are broadly in line with those of earlier studies of regulated emissions from pre-Euro-3 models, which still make up the majority of vehicles in use in Europe and the rest of the world today. A number of studies cited in WLPGA (2002) and ALPGA (2003a) demonstrate that autogas generally yields lower CO, HC and NOx emissions compared with gasoline and, in some cases, diesel, and much lower emissions of PM. Table A2.2 summarises the results of two studies of the emissions performance of a range of conventional and alternative fuels from Euro-2 standard lightduty vehicles based on the EDC test cycle.

Table A2.2: Regulated Emissions by Fuel (g/km)
THC Gasoline Diesel Diesel with PM ﬁlter CNG Methanol (M85) Autogas 0.08 0.06 0.01 0.15 0.05 0.05 NMHC 0.07 0.06 0.01 0.30 n.a. n.a. CO 0.60 0.50 0.01 0.30 0.60 0.30 NOx 0.03-0.08 0.30-0.50 0.30-0.50 0.03-0.06 0.03-0.08 0.05-0.08 PM 0.001 0.040 0.002 <0.001 <0.001 <0.001

VOC = volatile organic compounds, including THC, aldehydes, methane and ethane. CURE is the Cancer Units Risk Estimate, relative to benzene (CARB method). Source: Argonne (2000a).

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2.2.2 Non-Regulated Pollutant Emissions
The environmental advantages of autogas over conventional and other alternative fuels are even greater with respect to non-regulated emissions. These include air toxics such as benzene, acetaldehyde, formaldehyde and 1,3 butadiene. As the hazards at different concentrations of these pollutants in the air are not yet fully understood, their emissions are not yet regulated. Table A2.3 summarises the results of a major study of non-regulated toxic emissions carried out by the US Argonne National Laboratory (Argonne, 2000a). Tailpipe emissions for diesel, autogas and other alternative fuels covered by the study are expressed as a percentage of those for conventional gasoline. Autogas emissions are lower than for all of the conventional and alternative fuels, with the exception of CNG which yields lower benzene and butadiene emissions but higher emissions of acetaldehyde and much higher emissions of formaldehyde and methanol. Autogas emissions of benzene, linked with various cancers, and butadiene are particularly low compared with gasoline and diesel. Evaporative and fugitive emissions of hydrocarbons from motor vehicles and refuelling facilities are known to make a substantial contribution to total HC emissions. This is a particular problem with gasoline, due to its volatility. Because they have completely sealed fuel systems, autogas vehicles and pumps have virtually zero evaporative emissions and fugitive emissions are normally limited to the small release of gas when the fuelling coupling is attached and removed.

Table A2.3: Non-Regulated Tailpipe Emissions – Argonne Results (% of conventional gasoline)
VOC Formaldehyde Acetaldehyde 1,3 Butadiene Benzene CURE

Diesel CNG Methanol (M85) Ethanol (E85) Autogas

125 40 84 84 80

103 200 613 355 76

108 37 37 2 237 58

110 2 13 19 10

68 1 13 13 4

98 15 52 50 13

VOC = volatile organic compounds, including THC, aldehydes, methane and ethane. CURE is the Cancer Units Risk Estimate, relative to benzene (CARB method). Source: Argonne (2000a).

2.2.3 Greenhouse Gas Emissions
Greenhouse-gas emissions for any given fuel are almost directly proportional to the amount of fuel consumed. Thus the main factors affecting emissions are the energy and carbon content of the fuel. Autogas has an intrinsic

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advantage over gasoline and diesel with respect to CO2 emissions – the main greenhouse gas – because of its lower carbon content, although this is largely offset by the higher fuel consumption of autogas vehicles. Several studies compare emissions of CO2 and other greenhouse gases from different fuels and vehicles over the full life cycle, including emissions incurred during the production and supply of the fuel. In general, these studies show that autogas yields lower emissions compared with gasoline and similar emissions to diesel. Results vary somewhat among the various studies that have been conducted, partly because of differences in assumptions about the source of LP Gas: emissions from LP Gas production from natural gas processing plants are considerably lower than from reﬁneries. Results for CO2 emissions from the 2003 EETP study are shown in Figure A2.. Autogas emissions are lower than diesel and gasoline in the EDC cycle, but are marginally higher than diesel in the EDC cycle.

Figure A2.2: CO2 Fuel-Cycle Emissions by Fuel – EETP Results
250 200
Grammes / km

EDC CADC

150 100 50

0

Diesel

Gasoline

Autogas

Source: UK LPG Association.

Earlier studies point to slightly higher greenhouse-gas emissions compared with diesel, although autogas emissions are always lower than those for gasoline. For example, a major study by the Argonne National Laboratory carried out in 2000 using the Greenhouse Gas and Regulated Emissions from Transportation (GREET) model, shows 13-14% lower autogas emissions compared to gasoline; CNG emissions are 11% lower and diesel emissions 26% lower than for gasoline (Argonne, 200b). CNG emissions are lower than autogas emissions in some other studies (for example, Institut de Petrole, 2001), mainly because they do not take account of leaks of methane, which has a very high global-warming potential, in the production and distribution of the fuel.

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2.3

Heavy Duty Vehicles

Almost all heavy-duty vehicles (HDVs) in use today around the world are diesel-fuelled. The main environmental advantage of autogas over diesel for HDVs relates to emissions of PM, which are several orders of magnitude lower for autogas, and NOx. Various studies have shown that autogas can also offer lower CO and HC emissions compared to diesel and CNG. Tests on London buses carried out at Millbrook in the United Kingdom under typical real-life driving conditions show that autogas yields 90% lower emissions of NOx, PM and CO, and 20% lower emissions of HC compared with low-sulphur diesel (WLPGA, 2002). A study carried out in 2003 by CSIRO on behalf of the Australian Greenhouse Ofﬁce provides further evidence of the emissions gains from dedicated autogas HDVs compared with conventional and ultra-low sulphur diesel and bio-diesel (Table A2.4). CNG also yielded favourable results.

Table A2.4: Life-Cycle Emissions from Heavy-Duty Vehicles
Greenhouse gases Ultra-low sulphur diesel Bio-diesel (canola, soybean and rape) CNG Autogas o +++ +++ ++ PM ++ + +++ +++ NOx ++ +++ +++ THC ++ o +++ +++

Symbols: +++ ++ + o Signiﬁcantly better (lower) Better Slightly better Much the same Worse

Source: CSIRO (2003).

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3. Government Policies to Promote Alternative Fuels

3.1

Principles of Alternative Fuel Policies

Environmental improvement is the main justiﬁcation for governments to promote the use of autogas and other alternative fuels. Pollution and global warming caused by rising concentrations of greenhouse gases in the atmosphere are prime examples of market failure, since the market fails to put a ﬁnancial value or penalty on the cost of emissions generated by individuals or organisations. Air quality and the climate are, in economists’ parlance, public goods, from which everyone beneﬁts. Damage done to the environment is known as an external cost or externality. Governments have a responsibility to correct these failures, to discourage activities that emit noxious or greenhouse gases and to make sure that each polluter pays for the harm he causes to public goods. Levying charges on polluting activities is effectively a way of internalising these environmental externalities, although placing an exact ﬁnancial value on them is extremely difﬁcult and inevitably involves a large degree of judgment. A large number of studies have attempted to assess the health and economic costs of different types of emissions, including greenhouse gases. Estimates vary widely according to the assumptions made and methodological approaches used (ALPGA, 2003b). A study carried out by the Allen Consulting Group in 2002 on behalf of the Australian Environment Ministry cites a value of A$40 (US$30) per tonne of carbon dioxide emitted, and A$29 000 (US$22 000) per tonne for PM emissions. In principle, the most economically efﬁcient approach to internalising external costs is one that relies mainly on ﬁnancial incentives, i.e. a marketbased approach. In other words, the effective market price of the activity that gives rise to an environmental externality should be adjusted through the application of a tax and/or subsidy large enough to reﬂect the value or cost of that externality. Once an appropriate ﬁscal framework is in place, consumers and producers should be free to make informed economic choices according to their own preferences. In the case of road transport, that involves taxing or subsidising transportation in such a way that the ﬁnancial costs to end users of the different fuel and vehicle options reﬂect their associated environmental costs. In practice, however, developing effective transport and energy policies that take account of environmental externalities is extremely complex – even if reliable quantitative estimates of external costs can be obtained. It is impractical to apply taxes and subsidies exactly according to actual vehicle usage and the actual emissions produced during use. Financial

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1 The UK government is considering introducing a national road-pricing scheme based on satellite technology to reduce the country’s chronic congestion problems. Singapore and Stockholm already operate similar roadpricing schemes.

incentives have, thus, generally focused on fuel-based taxes, as they are simpler and politically less sensitive than measures that impact vehicle use directly, such as road pricing – even though evidence suggests that pricing vehicle use can be very effective.1 The earliest wide-spread experience of differential taxation to support environmental goals was the introduction of unleaded gasoline, where lower taxes relative to leaded fuel were extremely effective in accelerating its uptake. More recently, similar incentives have been focused on encouraging the use of low-sulphur diesel and alternative fuels. A recent report (ECMT, 2001) concludes that the case for lower fuel taxes for to achieve environmental objectives is well established, though they may have to be signiﬁcantly lower and their introduction needs to be well-timed to be effective. In principle, economic efﬁciency demands that the excise taxes levied on any given fuel should be applied at the same rate to all users, commercial and non-commercial. Most governments deploy other complementary approaches that target vehicle use and modal choices rather than just the prices of transport fuels, as such broader approaches tend to be more effective in practice in reducing emissions – especially of greenhouse gases – from road vehicles (OECD, 2003). Such approaches seek to internalise implicitly the external environmental costs of road transportation. They may be aimed speciﬁcally at encouraging the use of clean fuels, including autogas and other alternative fuels, or discouraging the use of more polluting fuels.

3.2

Typology of Policies to Promote Alternative Fuels

In practice, there is wide range of options at the disposal of policymakers within the normal policy-toolbox to promote the supply and use of alternative fuels, including autogas. The main approaches that governments could or do deploy are ﬁnancial incentives and regulatory measures. Other measures include support for technology development and public awareness programmes. These are summarised in Table A3.1 and are discussed below.

3.2.1

Financial Incentives

Financial incentives can be directed at the fuels themselves or vehicles that are able to use them. Fuel incentives – the main measure that the countries surveyed in this report use to promote autogas – can take the form of a lower rate of excise duty (and/or sales tax) or its complete exemption. In some cases, commercial vehicles may enjoy a rebate on fuel taxes. These measures directly reduce the cost of running an alternative fuel vehicle (AFV) vis-à-vis gasoline and diesel vehicles and shorten the payback period on converting or acquiring the AFV. Since differences in excise duty show up in prices at the pump, the measure is also highly visible, raising public awareness of the potential cost savings from using alternative fuels. The lower the rates of duties and taxes relative to other fuels, the bigger the ﬁnancial incentive to switch.

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Table A3.1: Typology of Government Policies and Measures to Promote Alternative Fuels
Fiscal/ﬁnancial Excise-duty exemption or rebate Road/registration-tax exemption or rebate Vehicle sales-tax exemption or income/proﬁt tax credit (purchasers and OEMs) Tax credits for investment in distribution infrastructure and R&D Grants/tax credits for AFV conversion/acquisition. Rapid depreciation for commercial purchasers of autogas vehicles and owners of distribution infrastructure Exemption from parking/road-use charges Regulatory Mandatory sales/purchase requirements for public and/or private ﬂeets (with enforcement) Standards to harmonise refuelling facilities Vehicle conversion standards Coherent and appropriate health and safety regulations Exemptions from city-driving restrictions Other

Government own-use of AFVs Information dissemination and public awareness campaigns Voluntary agreements with OEMs to develop and market AFV technologies Direct funding for research, development, demonstration and deployment of AFVs

Source: Based on WLPGA (2001).

The main way of providing incentives for AFV themselves is to subsidise the higher cost of buying an OEM vehicle or the cost of converting an existing conventional fuel vehicle. Subsidies are most easily provided through grants or tax credits. Eligibility can be made dependent on the emission performance of the vehicle being converted. Governments can also encourage AFV purchases or conversions directly through partial or complete sales or consumption-tax exemptions. Favourable rates or exemptions from vehicle registration and/or annual road taxes are another approach. Such incentives may be restricted to a pre-determined number of years to limit the loss of tax revenue and the free-rider problem (where the ﬁnancial beneﬁt to some end users from the tax incentive is greater than is necessary for them to switch to using an alternative fuel). The measures cited above are demand-side ﬁscal incentive measures aimed directly at reducing the cost to the end user of switching to an alternative fuel. Supply-side ﬁscal measures that reduce the tax liability of fuel providers and/or AFV manufacturers can also help to lower these costs in an indirect way. For example, proﬁt-tax credits can be used to encourage OEMs to develop and market dedicated AFVs, or to encourage fuel providers to invest in distribution infrastructure.

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3.2.2 Regulatory Policies and Measures
Governments can strongly inﬂuence how quickly alternative fuels and technologies are adopted through the design of the regulatory framework. There is a wide range of policies and measures that governments currently employ to promote the use of alternative fuels. The most direct form of regulatory measure involves the use of legal mandates on public or private organisations to sell or purchase a ﬁxed number of AFVs. Trafﬁc-control regulations can be also be used to favour such vehicles. For example, AFVs may be granted exemptions from city or highway-driving restrictions, such as those imposed on peak-pollution days. They may also be exempt from on-street parking charges and road-pricing schemes. Government can also facilitate the development of coherent standards, in partnership with industry, covering vehicle conversions, refuelling facilities and health and safety aspects of alternative fuel supply and use.

3.2.3 Other Measures
Governments can support the research, development, demonstration and deployment of alternative-fuel technology either through voluntary agreements with OEMs and fuel providers or through direct funding of such activities. Voluntary agreements or collaborative partnerships with industry are usually seen as an alternative to stringent, mandatory regulations and punitive ﬁscal measures. Other measures include the use of voluntary agreements and programmes between government and fuel providers and ﬂeet operators. The aim is to advance public understanding and awareness of the beneﬁts of switching away from conventional fuels and of the various incentives available to them. The deployment of AFVs by the government itself can also expand the market for alternative fuels and set an example to other end users. Information dissemination and education can also form a key element of government-incentive programmes for alternative fuels. They may take the form of regular communications, such as websites or newsletters, to inform the public of market and technology developments and to indicate how to apply for subsidies if available.

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4. International Comparison of Autogas Incentive Policies
4.1 4.1.1 Fuel Taxation and Pricing Comparative Taxation of Autogas

Rates of excise taxes and duties on road-transport fuels vary markedly across countries, both in nominal terms and relative to each other. In no country among those surveyed in this report is the same rate of excise duty applied uniformly across all fuels either on a mass or volume basis. Rates of value-added tax (VAT) or sales taxes also vary substantially, ranging from 5% in Japan and some US states to 22% in the Czech Republic and Poland. And the rules governing the recovery of VAT, consumption and sales tax by commercial users also vary. In practice, the absolute level of tax on autogas matters less than how high it is relative to conventional fuels.

Figure A4.1: Autogas Excise Taxes as % of Taxes on Gasoline per Litre, 2004

On a per-litre basis, autogas taxes are usually lower than for both diesel and gasoline, but the extent of the tax advantage varies signiﬁcantly. Autogas is totally exempt from excise taxes in Australia, Belgium, China, Mexico and Russia (Figure A4.1). The ratio of autogas taxes to gasoline taxes is highest in the United States and Turkey. In all the countries surveyed except the United States, excise taxes on autogas are less than 50% of those on gasoline. The arithmetic average ratio across all the countries surveyed is 21%.

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Excise taxes on diesel are lower than on gasoline in all countries except the United Kingdom, where they are the same. As a result, autogas enjoys a much smaller tax advantage over diesel than gasoline. The ratio of excisetax rates on autogas to diesel is highest in Algeria at 160%. In fact, Algeria is the only country where autogas is taxed more than diesel (Figure A4.2). Autogas taxes as a proportion of diesel taxes average 34% for all twenty countries.

Figure A4.2: Autogas Excise Taxes as % of Taxes on Diesel per Litre, 2004

Because the caloriﬁc value of each fuel varies, the tax advantage of autogas is in reality smaller – especially over diesel, which has the highest caloriﬁc value per litre. If all three fuels were taxed equally on an energy-content basis, taxes per litre would on average be 28% higher for gasoline and 40% higher for diesel compared to autogas. There is no environmental justiﬁcation for taxing diesel less than gasoline – even less autogas – either on a volume or energy-content basis (see Section A3). The favourable treatment given to diesel vis-à-vis gasoline reﬂects lobbying by road hauliers and industry generally to minimise commercial fuel costs, especially in countries where trucks can easily refuel in a neighbouring country where duties and therefore pump prices are lower. Many European countries come into this category. It is impractical as well as economically inefﬁcient to levy different rates of duty on different categories of end users: of the countries surveyed here, only Mexico differentiates excise duties between consumer categories. No country currently reimburses excise duties on diesel to commercial users.

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Most governments have traditionally used fuel taxes to raise money for the exchequer. Nonetheless, there are limits to how much governments can tax conventional fuels. In 2000 and 2001, several European governments were forced to lower duties on gasoline in the face of strong public protests at higher gasoline prices, caused by a surge in international market prices.

4.1.2 Comparative Pricing of Autogas Retail or pump prices of autogas also vary considerably across the countries surveyed both in absolute terms and relative to the prices of other fuels. This is largely because of differences in the way automotive fuels are taxed. But differences in the bulk price (import, ex-reﬁnery or ex-processing plant) of LP Gas and the distribution and retail mark-up (including costs and proﬁt margins) also contribute to price differences at the pump. Margins differ among countries and regions according to the degree of competition between distributors and, in some cases, government margin or price controls. Autogas prices are controlled in Algeria, China, Mexico and Thailand. In all the other countries surveyed, the government is no longer directly involved in setting wholesale or retail prices.
In 2004, pre-tax pump prices converted to US dollars were on average lowest in Algeria and highest in the United Kingdom (Figure A4.3). In part, these differences reﬂect recent movements in exchange rates. Autogas prices were lower than both diesel and gasoline in all countries except France, Japan, Mexico and the United Kingdom. In those countries, the reverse is true. In the United States, the pre-tax price of autogas is higher than that of diesel but lower than that of gasoline. Pre-tax prices change over time in line with ﬂuctuations in international prices (Box 4.1).

Figure A4.3: Pre-Tax Pump Price of Autogas, 2004 (US$/litre)

Netherlands

Czech Rep.

Note: Prices are converted to US dollars at average 2004 exchange rates.

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Box A4.1: International LP Gas Pricing
Propane and butane are traded internationally and within the large North American market on a spot basis (cargo by cargo) and under term contracts that cover a speciﬁed number of cargoes over a speciﬁed period. Contract prices are typically indexed to published spot-price quotations for LP Gas and other oil products. Spot prices and the base prices in term contracts are determined by market conditions at the time the deal is struck. The primary determinants of propane and butane prices are crude oil, natural gas and naphtha prices, the local supply and demand balance, the proximity of the market to supply sources and the types of uses to which LP Gas are put. Because of the large share of petrochemical demand in total world LP Gas demand and because of the volatility of demand from this sector, LP Gas prices tend to ﬂuctuate more sharply in the short term than those of oil or natural gas. In particular, LP Gas prices tend to increase in the summer in the northern hemisphere, when petrochemical and reﬁnery demand is highest because of increased demand for gasoline. Propane and butane replace naphtha as feedstock in ethylene plants, as larger volumes of naphtha are diverted to gasoline production in reﬁneries. However, over the longer term, the bulk prices of LP Gas, crude oil and naphtha tend to move closely in line with each other. Propane and butane prices are usually very close and also move very closely in parallel.

The per-litre pump price of autogas for non-commercial users (including all taxes) is lower than that of both conventional fuels in all countries except the United States, where autogas costs slightly more than diesel. In more than half the countries surveyed, autogas pump prices per litre in 2004 were less than half those of gasoline. The price of autogas as a proportion of that of gasoline ranged from 31% in Belgium to 93% in the United States, averaging 52% across all countries (Figure A4.4). Because diesel is taxed less than gasoline everywhere except the United Kingdom, the pump-price differential between autogas and diesel is signiﬁcantly lower than that between autogas and gasoline. The price of autogas was on average 63% that of diesel in 2004. The ratio was highest in the United States and Mexico, and lowest in Belgium (Figure A4.5). The share of total taxes in the per-litre pump price of each fuel and the ratio of autogas pump prices including all taxes to those of diesel and gasoline are detailed in Table A4.1.

32 AUTOGAS INCENTIVE POLICIES · INTERNATIONAL COMPARISON OF AUTOGAS POLICIES WORLD LP GAS ASSOCIATION / MENECON CONSULTING

Figure A4.4: Autogas Pump Price including all Taxes as % of Gasoline Price per Litre, 2004

Czech Rep.

Figure A4.5: Autogas Pump Price including all Taxes as % of Diesel Price per Litre, 2004

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Table A4.1: Automotive-Fuel Taxes and Prices, 2004
Autogas pump price as % prices of other fuels (including all taxes) Diesel 61.3% 42.0% 40.5% 65.3% 74.5% 66.8% 54.7% 63.8% 57.5% 73.8% 74.2% 52.9% 85.9% 52.4% 54.3% 67.8% 63.2% 66.1% 47.0% 105.8% Gasoline 32.4% 40.2% 31.3% 56.6% 69.2% 59.9% 51.0% 53.2% 47.9% 57.8% 49.3% 49.2% 64.8% 37.2% 46.0% 54.8% 47.4% 51.9% 48.0% 92.9%

Share of total taxes in price Autogas Algeria Australia Belgium Bulgaria Canada China Czech Republic France Italy Japan Korea Lithuania Mexico Netherlands Poland Russia Thailand Turkey United Kingdom United States 48.9% 9.1% 18.8% 41.1% 18.6% 11.5% 32.3% 27.0% 45.7% 19.4% 46.1% 33.1% 15.0% 27.7% 40.2% 16.6% 21.5% 50.8% 27.2% 19.7% Diesel 20.1% 47.2% 54.8% 50.1% 30.0% 17.6% 56.5% 63.5% 59.6% 39.5% 49.4% 50.3% 40.1% 57.3% 52.8% 28.4% 24.9% 62.3% 72.4% 25.1% Gasoline 52.8% 47.8% 66.0% 53.1% 37.5% 20.2% 60.8% 71.9% 66.3% 52.7% 63.6% 53.5% 55.2% 69.2% 59.9% 42.0% 28.2% 68.4% 73.6% 18.9%

Note: Percentages are calculated on a volume basis.

Effective pump prices can also differ between commercial and noncommercial. In most countries, commercial (business) users are able to recover VAT but usually not excise duties. Consequently, the prices for commercial users shown in the country sections in Part B exclude VAT for all fuels in most cases. The exceptions are Canada, Korea, Thailand and the United States, where all commercial prices include sales taxes. In most cases, the rules governing VAT refunds are the same for all fuels and all types of vehicles. Where this is the case, the relative competitiveness of the different fuels is not affected, although the absolute savings on running costs from switching to cheaper fuel/vehicle options differ between commercial and non-commercial users. In two countries, the rules on VAT refunds differ according the fuel. In France, VAT can be recovered on

34 AUTOGAS INCENTIVE POLICIES · INTERNATIONAL COMPARISON OF AUTOGAS POLICIES WORLD LP GAS ASSOCIATION / MENECON CONSULTING

commercial purchases of diesel and, solely in the case of taxis, on autogas too (up to a ceiling), but never for gasoline. Taxis can also recover the excise duty on autogas. In Japan, VAT can be recovered for diesel and gasoline, but not for autogas.

4.2

Autogas Vehicle Subsidies

The most effective measure other than favourable fuel taxation in encouraging switching to autogas is subsidies to the vehicle itself. They take the form of grants or tax credits for converting gasoline vehicles to run on autogas or for purchasing OEM autogas vehicles. Among the countries surveyed, the central government and/or local authorities subsidised gasoline-vehicle conversions or OEM purchases in Australia, France, Italy, the United Kingdom and the United States in 2004. Subsidies effectively cover the entire cost of conversion in France and part of the cost in the other countries. In early 2005, the UK government withdrew funding for its grant scheme. The Japanese government makes available diesel-engine conversion grants, but there has been little interest in taking up these grants because of the high cost of diesel conversions. The Korean government also makes available grants to convert public diesel trucks and buses in Seoul, Incheon and Gyeonggi-do. Discounts on annual road taxes and initial vehicle registration taxes compared to those levied on gasoline or diesel vehicles are less common. Australia, the Netherlands and the United Kingdom currently use this approach. The incentive is largest in the Netherlands, where both the special car sales tax and the annual road tax is much higher for diesel vehicles than for autogas or gasoline vehicles.

4.3

Other Incentives

Supply-side ﬁscal or subsidy measures that reduce the tax liability, investment cost or running costs of fuel providers and/or vehicle converters or OEMs are used in only two countries. Some US states have introduced proﬁt-tax credits, including Connecticut where such a credit is available for 50% of the construction cost of refuelling stations or improvements to existing stations so they can provide autogas or other alternative fuels. The Japanese government has also established a programme to promote autogas distribution, through grants covering 50% of both the cost of building and the cost of running autogas refuelling stations up to a ﬁxed ceiling. Fleet-vehicle purchase mandates or autogas-fuelled public transport programmes are used in ﬁve countries: Australia, China, France, Italy, Mexico and the United States. In addition, federal legislation in Canada provides for mandatory purchases of alternative fuel vehicles, including autogas, for public ﬂeets. Guangzhou in China currently has one of the biggest programes, where 700 buses will be converted to autogas by the end of 2005. In addition, 17 000 taxis will be converted by the end of 2006. A large proportion of buses in Beijing and some other big cities already run on autogas.

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Mandates for AFVs, including those using autogas, have been most widely used in the United States. The Clean Fuels programme, set up under the 1990 Clean Air Act Amendments, mandates clean-vehicle purchases for ﬂeet operators in the 22 most polluted US cities. The 1992 Federal Energy Policy Act also laid down mandatory purchases of AFVs (which can include autogas vehicles) in speciﬁc incremental percentages for federal and state LDV ﬂeets as well as those operated by fuel providers. Under these mandates, alternative fuels must power 75% of new vehicle acquisitions by federal bodies from 1999. The same requirement has been in place for state organisations since 2000. These mandates are intended to demonstrate the viability of alternative fuel technologies and, along with various ﬁscal incentives, catalyse OEMs and fuel providers into making vehicles and refuelling facilities more widely available. In California, there is a requirement on car manufacturers to sell a minimum number of low or zero-emission vehicles as a percentage of their total sales. Autogas vehicles – along with other with other clean AFVs – enjoy exemptions from city or highway-driving restrictions imposed on peakpollution days in several European cities, including Rome, Athens and Paris. In some US cities, autogas vehicles are given access to dedicated lanes. In the United Kingdom, autogas vehicles are exempt from the London congestion charge. Most industrialised countries directly fund and manage transportation and automotive fuel R&D programmes. In most cases, however, autogas technology has not been considered a priority, despite autogas’ environmental and economic advantages over other alternative fuels. There is a particular need at present to improve the performance of dedicated autogas-powered HDV engines, given the potential for reducing noxious emissions – especially particulates – by replacing diesel with autogas. A positive step was taken by the US Congress in 1996, with the creation of the national Propane Education Research Council (PERC) to conduct technical R&D, demonstration, training and educational programmes. PERC is funded by a small levy on all LP Gas sales. The LPG Center of Japan performs a similar role. Other measures that have been or are being used by governments to promote autogas use include the use of voluntary agreements and programmes between governments and fuel providers and ﬂeet operators. For example, the US Clean Cities Program, run by the Federal Department of Energy, is aimed at helping city authorities seek voluntary commitments from fuel providers to expand the distribution network and ﬂeet operators to increase their purchases of alternative fuel vehicles. This involves advancing public understanding and awareness of the beneﬁts of switching away from conventional fuels and of the various federal and state incentives available to them. The deployment of autogas vehicles by the government itself is also used to expand the market for autogas and set an example to other end users. Information dissemination and education programmes for autogas and other alternative fuels are used in several other countries. In the United

36 AUTOGAS INCENTIVE POLICIES · INTERNATIONAL COMPARISON OF AUTOGAS POLICIES WORLD LP GAS ASSOCIATION / MENECON CONSULTING

Kingdom, for example, TransportEnergy, a non-proﬁt company established by the government, produces regular publications to inform the public of autogas market and technology developments and the beneﬁts of switching to autogas and other alternative fuels. In addition, the Department of Trade and Industry Automotive Unit has set up a campaign, called BoostLPG, to improve the availability of information and to promote the beneﬁts and opportunities associated with using LPG-fuelled vehicles. The campaign is run by the LP Gas Association. Table A4.2 provides a summary of the principal measures deployed in the countries surveyed in this report. The most commonly used measure to support autogas is a tax exemption or large rebate relative to conventional fuels.

Table A4.2: Summary of Autogas Incentive Policies in Countries Surveyed, 2004
Fuel tax exemption or large rebate1 Algeria Australia Belgium Bulgaria Canada China Czech Republic France Italy Japan Korea Lithuania Mexico Netherlands Poland Russia Thailand Turkey United Kingdom United States
1

Vehicle tax exemption or rebate2

Grants/tax credits for conversions or OEM purchases3

Autogas ﬂeet vehicle purchase mandates3

¸4 ¸ ¸ ¸ ¸ ¸ ¸ ¸ ¸ ¸ ¸ ¸ ¸ ¸ ¸ ¸ ¸ ¸ ¸ ¸ ¸ ¸ ¸ ¸ ¸6 ¸6 ¸ ¸ ¸5 ¸ ¸ ¸ ¸

¸

Excise duty less than half that levied on diesel and gasoline, calculated on a per litre equivalent basis. 2 Compared to gasoline. Includes taxes on vehicle conversion/acqusition and annual road/registration charges. 3 Central and state governments. Includes public transport. 4 Implicit tax advantage through a low regulated wholesale price. 5 Programme covers all AFVs. 6 Diesel-vehicle conversions only. 7 Ended in 2005.

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5. Effectiveness of Autogas Incentive Policies
5.1 Autogas Share of the Automotive Fuel Market
The effectiveness of autogas incentive policies varies considerably among the countries surveyed in this report. The share of autogas in total automotive-fuel consumption ranges from a mere 0.1% in the United States to 16% in Poland (Figure A5.1). The only countries other than Poland where autogas accounts for more than 10% of the fuel market are Korea, Bulgaria, Turkey and Lithuania. The share is only slightly higher in the United Kingdom than in the United States, but it has been rising quickly, reaching almost 0.5% in 2004 according to preliminary data – up from 0.3% in 2003.

Figure A5.1: Share of Autogas in Total Automotive-Fuel Consumption and LDV Fleet, 2003 (%)

35%

40%

45%

Note: The timeliness of data on road-fuel consumption and vehicles differs among countries. Shares were calculated using the most up-to-date number for both variables (2003 for autogas use and vehicles; and 2002 or 2003 for total fuels consumption and vehicle numbers).

The share of autogas vehicles in the total number of passenger vehicles is, unsurprisingly, closely correlated with the share of autogas in total automotive-fuel consumption (Figure A5.2). In Turkey and Lithuania, the share of autogas vehicles is disproportionately high. This probably reﬂects the recent rapid growth in the number of autogas vehicles in 2003 (the data is for end-year) and the fact that a signiﬁcant proportion of autogas vehicles regularly switch back to using gasoline – possibly due to a lack of availability of autogas in certain parts of the country.
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Figure A5.2: Share of Autogas in Total Automotive-Fuel Consumption versus LDV Fleet, 2003

0%

Note: Log scale.

5.2

Comparative Competitiveness of Autogas

The market penetration of autogas depends largely on how competitive the fuel is against gasoline and diesel – in other words, how ﬁnancially attractive it is for an end user to switch to autogas. This largely depends on the cost of converting the vehicle (or the cost of a dedicated OEM vehicle compared to a gasoline or diesel vehicle) and the pump price of autogas relative to diesel and gasoline. Since converting a vehicle to run on autogas involves upfront capital expenditure and some minor inconvenience, the owner needs to be compensated through lower running costs, of which fuel is the most important. The time it takes for the savings in running costs to offset the capital cost – the payback period – depends on the usage of the vehicle, i.e. the average distance travelled monthly or annually. The extent to which government incentives lower the initial expenditure and fuel costs are critical to the payback period. In practice, the payback period generally has to be less than two to three years to encourage commercial vehicle owners to switch; private individuals often demand a quicker return on their investment. We have estimated, for all the countries surveyed, the distances over which a typical LDV of recent vintage would need to travel before it becomes competitive with similar gasoline and diesel vehicles. The methodology and assumptions used for this analysis are described in Box 5.1. The results are shown in Table A5.1.

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Box A5.1: Methodology for Calculating the Comparative Competitiveness of Autogas
In order to analyse the role inter-fuel competition plays in autogas demand, we have calculated indicative break-even distances for autogas vehicles compared with both gasoline and diesel vehicles for all 20 countries surveyed. This involved compiling information on current pump prices and effective differences in actual vehicle conversion and acquisition costs for autogas and diesel relative to gasoline vehicles, taking account of any grants or tax rebates currently available. To allow cross-country comparisons, uniform assumptions about fuel and vehicle types were adopted. For all countries, a typical passenger car of recent vintage was assumed (a ﬁve-door salon or hatchback) with the same power rating for each fuel. Mileage differences due to the lower per litre energy content of autogas and engine performance were also taken into account. The diesel vehicle was assumed to consume 22% less fuel per kilometre on a volume basis than the gasoline vehicle, while the autogas vehicle was assumed to consume 25% more per kilometre than the gasoline vehicle. No differences in fuel speciﬁcations and operating characteristics between countries were taken into account, because of the difﬁculty in obtaining reliable information for each country (notably the propane-butane mix of autogas, which varies in practice across seasons and countries). Break-even distances were calculated for both commercial and non-commercial users. As the results were very similar, only those for non-commercial users have been used to measure the overall competitiveness of autogas relative to gasoline and diesel.

There is considerable variation in the competitiveness of autogas against each of the other fuels among the countries surveyed. Converted vehicles eventually break even with gasoline vehicles in all countries, except the United States. The break-even distance is nonetheless above 100 000 km in Canada, Japan and Mexico. Autogas is most competitive in France, where a converted autogas vehicles is always the lowest cost fuel/vehicle option, regardless of distance travelled. This is because government grants currently cover the entire conversion cost and because per kilometre fuel costs are lower than those of gasoline (and diesel), even allowing for its lower mileage. In nine countries, the break-even distance against gasoline is under 50 000 km – or about three years of driving for an average private car owner. The equivalent break-even distance for OEM autogas cars is always higher than for converted vehicles, because the extra cost of buying and OEM is always more than the cost of converting a gasoline car. The picture is less straightforward when autogas is compared with diesel. Converted autogas vehicles are always competitive against diesel in seven countries, where both per-kilometre fuel costs and autogas-conversion costs net of grants compared to the higher cost of a diesel vehicle are lower. But in several countries, the running costs of diesel are lower than

40 AUTOGAS INCENTIVE POLICIES · EFFECTIVENESS OF AUTOGAS POLICIES WORLD LP GAS ASSOCIATION / MENECON CONSULTING

for autogas, so diesel eventually breaks even against autogas. This is the case in Canada, Mexico, Turkey and the United States. In Turkey, however, diesel only becomes competitive against autogas at 120 000 km. In the United States, the equivalent distance is only 20 000 km. Japan is the only country where autogas is never competitive against diesel.

Table A5.1: Break-Even Distance for a Non-Commercial Autogas LDV, 2004 (thousand km)
Autogas conversion against diesel Algeria Australia Belgium Bulgaria Canada China Czech Republic France Italy Japan Korea Lithuania Mexico Netherlands Poland Russia Thailand Turkey UK US 0 13 29 0-131 0-83 0-92 62 0 0 NC n.a. 0 0-112 0 0 0-104 0 0-120 36 0-20 gasoline 41 35 28 31 124 51 57 0 33 117 n.a. 20 103 35 16 49 42 14 41 NC Autogas OEM against diesel n.a. 21 57 n.a. NC n.a. 124 NC 151 NC 0-28 n.a. NC 0 n.a. n.a. n.a. n.a. 60 NC gasoline n.a. 40 38 n.a. >200 n.a. 78 17 55 161 29 n.a. >200 47 n.a. n.a. n.a. n.a. 53 NC

Note: Zero indicates that autogas is always competitive up to at least 100 000 km. A range indicates the distances over which autogas is competitve before the competing fuel becomes more economic. NC indicates that autogas is never competitive up to 100 000 km. n.a. is not applicable.

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5.3

Impact of Autogas Competitiveness on Automotive-Fuel Market Penetration

There is a very clear correlation between how competitive autogas is against other fuels and how successful autogas has been in penetrating the automotive-fuel market. Figure A5.4 plots the market penetration of autogas against the competitiveness of autogas (based on a converted gasoline car) vis-à-vis gasoline and diesel for all countries. Autogas use is generally higher in countries where the break-even distance is low, especially against gasoline. For example, Bulgaria, Korea, Lithuania, Turkey and Poland have the highest rates of autogas penetration and among the lowest break-even distances. At the other extreme, autogas is least competitive in Canada and the United States, where autogas accounts for a small share of total automotive-fuel consumption. The correlation for diesel is weaker, largely because autogas is always competitive against that fuel in a third of the countries.

Figure A5.3: Autogas Break-Even Distance against Gasoline (thousand km)

Lithuania

Czech Rep.

Note: The break-even distance is for a converted non-commercial autogas LDV based on 2004 fuel and vehicle costs (OEM vehicle for Korea). United States is not shown, as autogas is never competitive against gasoline.

Focusing solely on market penetration fails to capture market dynamics and policy changes. Some countries have recently changed their policies either to support autogas use or, as in Poland and Turkey, to curb demand growth.

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In the United Kingdom, for example, the adoption of a policy to promote autogas use in 1999 led to rapid rates of growth in demand, but autogas as yet still accounts for only a small share of total road-fuel consumption. The removal of conversion grants in 2005 has pushed up the break-even distance for autogas vehicles and threatens to rein back market growth. Strong autogas-tax incentives and restrictions on diesel vehicles resulted in the rapid growth in autogas use in Korea through to the start of the current decade, but those incentives have since been drastically reduced resulting in an increase in the break-even distance of autogas against gasoline.

Figure A5.4: Autogas Share of Automotive-Fuel Consumption versus Break-Even Distance Against Gasoline
Canada Japan Mexico

120

Break- even distance (thousand km)

Gasoline Diesel

100

80

Gasoline trend
Diesel trend

60

40

UK

Czech Rep. China Russia Thailand Belgium

Netherlands Italy

Algeria Australia Lithuania

Bulgaria Korea Turkey Poland

20

0

France

0%

2%

4%

6%

8%

10%

12%

14%

16%

Share of autogas in total road-fuel consumption

Note: Break-even distance is for a converted non-commercial autogas LDV(OEM in Korea) based on 2004 fuel and vehicle costs. The share of autogas in total automotive-fuel consumption is based data for the latest year available, usually 2003. Country names refer to gasoline only.

5.4

Impact of Non-Financial Incentives

The competitiveness of autogas is the most important factor, though not the only factor, in explaining the actual market penetration of autogas and recent rates of market growth. For example, Belgium’s break-even distance for autogas against gasoline is slightly lower than that of Korea, yet the penetration of autogas in Belgium is much lower – even though autogas is always competitive against diesel. And the penetration of autogas is exceptionally low in France, where autogas is extremely competitive. Several factors explain these divergences:

AUTOGAS INCENTIVE POLICIES · EFFECTIVENESS OF AUTOGAS POLICIES 43 WORLD LP GAS ASSOCIATION / MENECON CONSULTING

>

Government policy commitment: The autogas market has tended to develop more quickly where the government has shown a strong, long-term policy commitment in favour autogas. Frequent changes of policy, including shifts in taxation, deter end users, equipment manufacturers and fuel providers from investing in autogas. For example, a proposal to impose an excise duty on autogas in Australia in 2003 quickly led to a sharp drop in conversions and fuel sales. Non-ﬁnancial policies and measures: In some cases, the use of nonﬁnancial incentives or other measures have either helped to boost or to hinder autogas use. Public awareness and education campaigns to promote autogas have certainly made a signiﬁcant contribution to market growth in several countries, including the United Kingdom and the United States. Mandates and public transport ﬂeet conversion programmes have also helped to sustain autogas use in several countries, including China and the United States. In other cases, regulations restricting autogas use, including bans on underground parking (a problem in several European countries), have been a barrier to market development. Restrictions on diesel vehicles: Local and central government environmental restrictions on the use of diesel vehicles have been an important factor behind the success of autogas in Korea and Japan. Availability of equipment and fuel: Autogas has struggled to penetrate the fuel market in some countries, where car makers have been reluctant to market OEM models or where there is a limited number of refuelling sites selling autogas. A lack of OEM vehicle availability has been a major barrier to market development in the United States, where only one such vehicle is currently marketed. Limited availability of fuel at service stations has deterred end users from switching to autogas in several countries, notably China, where there are only 285 sites outside of Hong Kong. Public attitudes to autogas safety: Worries about the safety and reliability of autogas have clearly affected demand in several countries. In France, some widely publicised incidents involving autogas vehicles, including an explosion caused by arson in an underground car park in 1999, has severely dampened consumer interest in autogas. The introduction of legislation making compulsory the installation of a safety valve on all autogas tanks has so far had little impact.

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6. Lessons for Policymakers
6.1 The Rationale for Promoting Autogas

For environmental and economic reasons, autogas remains the most attractive alternative automotive fuel for countries looking to tackle urban air pollution and to curb rising emissions of greenhouse gases. In most parts of the world, these problems are getting worse as demand for mobility – whether for transporting people or goods – grows inexorably with increasing economic activity and prosperity. Urgent action is needed in many places, especially in Asia. Draconian measures to curb mobility are politically and socially unacceptable. Breakthrough fuel technologies under development today, such as hydrogen-powered fuel cells, hold out the prospect of much lower or even zero emissions, but their commercialisation is still many years away. As a result, the most practical approach in the short-term to reducing emissions is by encouraging people and businesses to switch to cleaner-burning fuels that are already commercially available. Autogas outperforms conventional fuels and most other alternative automotive fuels for local and regional environmental beneﬁts. It can also play an important role in mitigating climate-destabilising greenhouse gas emissions until such time as ultra-low or zero-emission vehicle technologies are commercialised on a large scale. The development of autogasdistribution infrastructure could also later provide the basis for on-board hydrogen production for fuel cells using autogas as the primary input. Autogas makes economic as well as environmental sense because its raw material costs are competitive and installing the distribution infrastructure costs less than for other alternative fuels. Most gasoline-powered LDVs, including commercial vans and taxis, are highly amenable to conversion to autogas. OEM autogas buses have operated for many years in a number of cities around the world. Yet there are obstacles to market take-off and development. In practice, autogas can only be successful if there is a concerted effort on the part of all stakeholders � vehicle manufacturers and converters, autogas suppliers and governments � to make switching attractive to end users. The loss of revenue from lower taxation of autogas fuels or vehicle sales may be used by the government as an excuse for not providing ﬁscal incentives – especially in countries where fuel-tax revenues make up a large share of the overall government budget. In practice, however, any reduction in taxes from automotive-fuel sales can be easily offset by marginal increases in taxes on gasoline and diesel.

6.2

Critical Success Factors for Autogas Market Development

In designing autogas incentives, policymakers need to take account of the critical success factors behind the development of a sustainable autogas

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market. The analysis of the preceding two chapters demonstrates clearly that the most important factors are the ﬁnancial attraction of switching to potential autogas-vehicle owners, i.e. the speed of payback on the initial investment, and the achievement of critical market mass. Fuel taxes and vehicle grants are the primary determinants of the ﬁnancial beneﬁt to vehicle owners of switching to autogas. In practice, the crucial variable to vehicle owners and operators in their choice of fuel is the speed of payback on the initial additional cost of converting a gasoline vehicle to run on autogas or the higher price of an OEM vehicle relative that of a new gasoline or diesel vehicle. The payback period has to be sufﬁciently short to justify the investment and to compensate for the inconvenience associated with autogas, notably the loss of space in the boot/trunk and the more limited availability of refuelling stations in some countries and regions. Even where reasonably strong ﬁnancial incentives exist, autogas use will not necessarily take off until critical market mass is achieved:

>

The market needs to be large enough to demonstrate to potential autogas users and fuel providers that the fuel is safe, reliable and costeffective alternative to conventional fuels. The more autogas vehicles there are on the road, the more conﬁdence other vehicle owners will have to switch fuels. Autogas must be widely available. Lack of refuelling stations is a major impediment to persuading vehicle owners to switch to autogas, even where there is a strong ﬁnancial incentive. The autogas market must be big enough to support a viable network or properly-trained mechanics to convert and maintain autogas vehicles and ensure the availability of spare parts and equipment.

> >

The role of the government in giving an initial strong impetus to the simultaneous development of demand and supply infrastructure in collaboration with all stakeholders is vital. Favourable taxation of autogas vis-à-vis gasoline and diesel is a necessary but not always a sufﬁcient condition for establishing and sustaining an autogas market. Other government incentives may be necessary where the market has not yet reached critical mass. Government grants for vehicle conversions for private individuals and ﬂeets have been particularly successful in kickstarting autogas markets in some instances. Road and vehicle registration and purchases taxes that favour autogas vehicles can also be an effective policy, with relatively low implementation costs and few negative sideeffects. Conversion of public vehicle ﬂeets to autogas is also an effective way of demonstrating the beneﬁts of autogas and driving the development of distribution infrastructure. Technical and safety standards are another important area of responsibility for governments in partnership with LP Gas suppliers, vehicle converters and OEMs. It is essential for the authorities to lay down and enforce harmonised operating standards for aspects of both autogas distribution

46 AUTOGAS INCENTIVE POLICIES · LESSONS FOR POLICYMAKERS WORLD LP GAS ASSOCIATION / MENECON CONSULTING

and vehicle equipment, including installation. Poor-quality conversions can undermine engine and emission performance and jeopardise sustainable development of the market. The European Union has addressed this concern with the adoption of ECE Regulation 67.01. Another issue concerns refuelling nozzles at service stations, which must be compatible with the vehicle connector. Differences between and even within countries were initially a signiﬁcant barrier to the development of the European autogas market. The development of a new standardised ﬁlling system designed by autogas providers and the major OEMs is helping to resolve this problem and support the development of the market. Safety should be an overriding concern for policymakers everywhere. Fuel providers and end users need to be reassured that the transportation, handling and storage of autogas pose no safety risks. But the drafting and implementation of safety regulations speciﬁc to autogas need to be based on an objective assessment of risk. In many countries, regulations still limit unnecessarily access and parking of autogas vehicles, the siting of refuelling stations and the on-site location of dispensers. Studies have shown that many of these restrictions are unjustiﬁed. For example, some countries do not allow the positioning of autogas dispensers next to gasoline and diesel pumps. This raises the station’s capital and operating costs and undermines the customers’ conﬁdence in the safety of autogas refuelling. Experience in countries where this is permitted, such as France, the Netherlands and the United Kingdom, shows that there is little risk if good equipment and appropriate procedures are in place. In most cases, there is no need for policymakers to draw up technical and safety standards and regulations from scratch, since several countries have developed effective frameworks based on many years of experience of autogas use. For example, the European Standards Organisation, CEN, has drawn up detailed minimum safety requirements for autogas vehicles, fuel and storage systems and installation procedures as well as fuel distribution. The European autogas industry is working to harmonise technical and safety standards through EU regulations.

6.3

Formulating an Effective Autogas Strategy

There is no single model or approach to formulating and implementing a government programme of incentives to promote the development of a sustainable autogas market. The appropriate strategy for each country depends on speciﬁc national circumstances. These include budgetary considerations, which might limit available funds for subsidies, the seriousness of local pollution problems, fuel-supply and cost issues, the stage of development of the autogas market and the prevailing barriers to fuel switching, including restrictive regulations and the local cost of vehicle conversions. Whatever the circumstances, however, experience in the countries surveyed in this study has clearly shown that the single most important measure to making autogas an attractive fuel to vehicle owners is favourable fuel-tax treatment vis-à-vis conventional fuels. At a minimum, taxes should be set

AUTOGAS INCENTIVE POLICIES · LESSONS FOR POLICYMAKERS

47

WORLD LP GAS ASSOCIATION / MENECON CONSULTING

on an energy-content basis and should take account of the environmental beneﬁts of encouraging switching to autogas. But this is not always sufﬁcient. Complementary policy initiatives, including grants and tax credits to lower the cost of vehicle conversions, and regulatory measures may also be needed – especially during the early stages of market development. Vehicle incentives are particularly important where fuel taxes generally are low, limiting the scope for savings on running costs. Policy stability and a strong, long-term commitment by the government to achieving environmental-policy objectives are vital to the success of policies to promote the development of alternative-fuel markets. Stakeholders need to be given clear advance warning of any major shift in policy. Without policy stability, coherence and consistency, neither fuel suppliers, nor OEMs nor consumers will be conﬁdent that they will be able to make a reasonable return on the investments required to switch fuels.

48 AUTOGAS INCENTIVE POLICIES · LESSONS FOR POLICYMAKERS WORLD LP GAS ASSOCIATION / MENECON CONSULTING

PART B: COUNTRY SURVEYS

1. Algeria
1.1 Autogas Market Trends
The Algerian government has pursued a policy of promoting autogas since the 1980s, to take advantage of its large production of LP Gas from reﬁning and natural-gas processing and to tackle urban pollution. Autogas consumption has grown rapidly in recent years, reaching 271 000 tonnes in 2003 – an increase of half since 1999 (Figure B1.1). Autogas currently accounts for 15% of total national consumption of LP Gas and just over 6% of total automotive-fuel use. At end-2003, there were 120 000 autogas vehicles and almost 300 refuelling stations in Algeria, accounting for 14% of the national fuel-retailing network. More than 80% of the country’s LP Gas production of 9.6 million tonnes in 2003 was exported.

Figure B1.1: Autogas Consumption and Vehicle Fleet – Algeria
300
Consumption Vehicles

140

250

120

Thousand tonnes

200 80 150 60 100 40 50

20

0 1999 2000 2001 2002 2003

0

1.2

Government Autogas Incentive Policies

The Algerian government promotes the use of autogas through a substantial tax and price differential to gasoline and diesel, and price and distributionmargin controls. The government ﬁxes both the wholesale and retail prices of all automotive fuels. Pump prices and excise taxes on autogas and diesel have not altered for several years, with the autogas price (including 17% VAT) set at only 61% of that of diesel. A higher excise duty on autogas than on diesel is more than outweighed by a much lower ex-reﬁnery price. Gasoline taxes and retail prices were increased in 2002, leaving the price of autogas at only 32% of that of super gasoline – the lowest ratio of any country in the world (Table B1.1). The government plans to liberalise the downstream oil market, but has signalled its intention to maintain a strong price incentive for consumers to use autogas through favourable taxation.

50 AUTOGAS INCENTIVE POLICIES · ALGERIA WORLD LP GAS ASSOCIATION / MENECON CONSULTING

Thousand vehicles

100

Table B1.1: Automotive-Fuel Prices and Taxes – Algeria (centime Algerian dinar/litre)
2000
Pump prices

2001

2002

2003

2004

Autogas – commercial Autogas - non-commercial Diesel – commercial Diesel - non-commercial Gasoline - commercial Gasoline - non-commercial Total taxes Autogas - commercial Autogas - non-commercial Diesel - commercial Diesel - non-commercial Gasoline - commercial Gasoline - non-commercial Excise duty Autogas Diesel Gasoline Pre-tax price Autogas Diesel Gasoline

628.5 720.0 1 102.4 1 175.0 1 827.2 2 125.0

628.5 720.0 1 102.4 1 175.0 1 827.2 2 125.0

628.5 720.0 1 102.4 1 175.0 1 927.2 2 225.0

628.5 720.0 1 102.4 1 175.0 1 927.2 2 225.0

628.5 720.0 1 102.4 1 175.0 1 927.2 2 225.0

260.8 352.3 163.8 236.4 777.5 1 075.4

260.8 352.3 163.8 236.4 777.5 1 075.4

260.8 352.3 163.8 236.4 877.5 1 175.4

260.8 352.3 163.8 236.4 877.5 1 175.4

260.8 352.3 163.8 236.4 877.5 1 175.4

260.8 163.8 777.5

260.8 163.8 777.5

260.8 163.8 877.5

260.8 163.8 877.5

260.8 163.8 877.5

367.7 938.6 1 049.6

367.7 938.6 1 049.6

367.7 938.6 1 049.6

367.7 938.6 1 049.6

367.7 938.6 1 049.6

The government does not subsidise conversions of gasoline vehicles to run on autogas. However, conversion costs are relatively low due to low labour costs and the type of cars that are converted, averaging about 4 500 dinars (US$600). There are no vehicle manufacturers in Algeria, and OEM autogas vehicles are not actively marketed in the country. Most imported cars are second-hand.

1.3

Competitiveness of Autogas Against Other Fuels

For a private LDV, autogas breaks even with gasoline at just over 40 000 km – equivalent to a little over two years of driving for a typical user (Figure B1.2). Diesel breaks even with gasoline at a higher distance of 66 000 km, assuming that a diesel car costs 8,500 dinars more than a gasoline car. As running costs are slightly higher than for autogas, diesel is never competitive with autogas.

AUTOGAS INCENTIVE POLICIES · ALGERIA 51 WORLD LP GAS ASSOCIATION / MENECON CONSULTING

Figure B1.2: Running Costs of a Non-Commercial LDV, 2004 – Algeria

20000000 18000000

Autogas - conversion
Diesel Gasoline
Diesel breaks even against gasoline

Cost (centimes algerian dinar)

16000000 14000000 12000000 10000000 8000000 6000000 4000000 2000000
0

Autogas conversion breaks even against gasoline

0

10

20

30

40

50

60

70

80

90

100

Distance travelled (thousand km)

52 AUTOGAS INCENTIVE POLICIES · ALGERIA WORLD LP GAS ASSOCIATION / MENECON CONSULTING

2. Australia
2.1 Autogas Market Trends
Australia has a long history of autogas use. It has the ﬁfth largest autogas market in the world and the most extensive retail distribution networks, with around 3 500 refuelling sites throughout the country serving around half a million cars at end-2004. Around half of all service stations in Australia sell autogas. Autogas accounts for about 60% of the country’s LP Gas consumption. The Commonwealth government has encouraged autogas use since 1981 for reasons of energy security – the country is a large producer and exporter of LP Gas – and air quality. Industry and consumers have invested more than A$3.2 billion in distribution infrastructure, fuel production, vehicles and related services (ALPGA, 2003c). Nonetheless, the market contracted between 2000 and 2003, due mainly to the introduction of a goods and services tax (GST) that raised the cost of conversions and, more recently, to the uncertainty generated by a government proposal in 2003 to introduce an excise tax on autogas. Sales dropped from a peak of just under 1.5 million tonnes in 2000 to 1.2 million tonnes in 2003 (Figure B2.1) – equal to 5.5% of total road-fuel consumption. Victoria accounts for an estimated 44% of national autogas use. The autogas-vehicle ﬂeet also shrank in 2002, but levelled out at about 500 000 vehicles in 2003. After intensive lobbying by the autogas industry, the government agreed in 2004 to delay the introduction of an excise tax until 2011 and to phase in the full tax over ﬁve years.

Figure B2.1: Autogas Consumption and Vehicle Fleet – Australia
1600 1400 1200
Thousand tonnes

Consumption Vehicles

600

500
Thousand vehicles

1000 800 600

400

300

200 400 200 0 1999 2000 2001 2002 2003 100

0

AUTOGAS INCENTIVE POLICIES · AUSTRALIA 53 WORLD LP GAS ASSOCIATION / MENECON CONSULTING

2.2

Government Autogas Incentive Policies

Autogas and other alternative fuels (including ethanol and CNG) currently beneﬁt from a complete exemption from excise duties. Duties amount to 38.1 Australian cents/litre on diesel and 40.5 cents/litre on premium gasoline. Non-commercial users of all types of transport fuels are obliged to pay a 10% Goods and Services Tax (GST) that was introduced in 2000; the tax is refunded for commercial users. The pump price of autogas including GST is currently around 40% that of gasoline and 42% that of diesel (Table B2.1). The price differentials in absolute terms increased in 2004 because of large increases in pre-tax gasoline and diesel prices.

Table B2.1: Automotive-Fuel Prices and Taxes – Australia (A$/litre)
2000
Pump prices

2001

2002

2003

2004

Autogas – commercial Autogas - non-commercial Diesel – commercial Diesel - non-commercial Gasoline - commercial Gasoline - non-commercial
Total taxes

0.424 0.445 0.851 0.895 0.870 0.914

0.423 0.465 0.822 0.904 0.819 0.901

0.387 0.426 0.784 0.863 0.807 0.887

0.386 0.425 0.828 0.911 0.843 0.927

0.382 0.420 0.909 1.000 0.950 1.045

Autogas - commercial Autogas - non-commercial Diesel - commercial Diesel - non-commercial Gasoline - commercial Gasoline - non-commercial
Excise duty

0.000 0.021 0.411 0.455 0.434 0.478

0.000 0.042 0.381 0.463 0.405 0.487

0.000 0.039 0.381 0.460 0.405 0.486

0.000 0.039 0.381 0.464 0.405 0.489

0.000 0.038 0.381 0.472 0.405 0.500

Autogas Diesel Gasoline
Pre-tax price

0.000 0.411 0.434

0.000 0.381 0.405

0.000 0.381 0.405

0.000 0.381 0.405

0.000 0.381 0.405

Autogas Diesel Gasoline

0.424 0.440 0.436

0.423 0.441 0.414

0.387 0.403 0.402

0.386 0.446 0.438

0.382 0.528 0.545

54 AUTOGAS INCENTIVE POLICIES · AUSTRALIA WORLD LP GAS ASSOCIATION / MENECON CONSULTING

The Commonwealth government offers rebates for the costs of diesel, autogas and other alternative fuels for some categories of commercial users under the Energy Grants Credit Scheme. The current rebate is 18.5 cents/litre for diesel and 11.9 cents for autogas. In addition, the Commonwealth government offers grants covering up to 50% of the cost of conversion or the additional purchase cost of buses and other heavy-duty commercial vehicles (weighing more than 3.5 tonnes) to run on autogas or CNG. In all cases, a minimum reduction of 5% in greenhouse gas emissions must be demonstrated and the vehicle must continue to meet current emission limits for noxious gases. These grants are available until end-June 2008. Several states have also adopted policies to promote autogas. These include the following:

>

Western Australia offers grants of A$500 for private autogas conversions or OEM vehicle purchases. Demand for grants in 2004 was the highest since the scheme was introduced in 2000. The stateowned utility, Western Power, also plans to replace up to 200 of its commercial diesel LDVs with autogas vehicles if an on-going pilot programme is successful. The government of Victoria mandates that a proportion of new highusage government-ﬂeet passenger six-cylinder vehicles must be able to run on autogas. The New South Wales government has also recently adopted a policy of increasing the share of autogas vehicles in its public ﬂeet, based on CO2-emission performance. In February 2004, the NSW police force began a programme to replace up to half of its 1 600 passenger vehicles with OEM autogas vehicles. The ACT government provides a rebate of 20% on the annual vehicleregistration fee for private autogas vehicles.

> >

>

The future of the Australian autogas industry was thrown into doubt in May 2003 when the government announced that it was planning to end the fuel’s exemption from excise duties from 2008. The initial proposal was to apply a duty of 29 Australian cents/litre, which would have wiped out almost all the effective price advantage over gasoline and all the advantage over diesel taking differences in kilometres per litre into account. But in December 2003, the government ﬁnally announced that the initial duty would amount to only 2.5 cents in 2008, rising in incremental annual steps of 2.5 cents/ year to a ceiling of 12.5 cents. The government subsequently decided to postpone the introduction of the duty until 1 July 2011, so that the ceiling will not be reached until 1 July 2015. The government also announced that it will make available grants of A$1 000 for each autogas conversion or OEM purchase from 1 July 2011 through to 30 June 2014 to compensate for the reduction in the fuel-tax incentive.

AUTOGAS INCENTIVE POLICIES · AUSTRALIA 55 WORLD LP GAS ASSOCIATION / MENECON CONSULTING

On 1 March 2004, the Commonwealth government implemented national fuel-quality standards for autogas under the Fuel Quality Standards Act 2000.

2.3

Competitiveness of Autogas Against Other Fuels

Thanks to the excise-duty exemption and state subsidies, autogas breaks even with gasoline at about 35 000 km for converted gasoline vehicles (Figure B2.2) – equal to about half a year for taxis and around two years for typical private owners. OEM vehicles break even with gasoline at around 40 000 km. The average cost of converting a gasoline-fuelled LDV to run on autogas is currently around A$1 980 (including GST) and the incremental cost of dual-fuelled OEM dual-fuelled vehicle about A$2 200. For the purposes of this analysis, these costs are assumed to be partially offset by an average subsidy from state programmes of 25%. This reduces the break-even distance by around 10 000 km. The break-even distance should fall signiﬁcantly with the introduction in 2011 of an additional A$1 000 grant for conversions and OEM purchases. Diesel currently breaks even with gasoline at less than 60 000 km, but is competitive with a converted autogas LDV only up to 13 000 km and OEM autogas LDV up to 21 000 km. Break-even distances are even lower for dedicated OEM autogas vehicles, which typically retail for only A$1 400 more than an equivalent gasoline model.

Figure B2.2: Running Costs of a Non-Commercial LDV, 2004 – Australia
9000 8000 7000

Autogas - conversion
Autogas - OEM Diesel

Gasoline

Cost (Australian dollars)

6000 5000 4000 3000 2000 1000 0 0 10 20 30 40 50 60 70 80 90 100 Distance travelled (thousand km)

Autogas conversion breaks even against diesel Autogas OEM breaks even against gasoline
Autogas conversion breaks even against gasoline

56 AUTOGAS INCENTIVE POLICIES · AUSTRALIA WORLD LP GAS ASSOCIATION / MENECON CONSULTING

3. Belgium
3.1 Autogas Market Trends

Autogas has held a fairly constant share of the overall automotive-fuel market in Belgium in recent years, averaging a little over 1% of total fuel use. Autogas consumption has ﬂuctuated between 90 000 and 100 000 tonnes per year since 1999 (Figure B3.1). The market continues to enjoy support from a relatively large tax differential relative to gasoline and diesel, although grants for new autogas conversions were stopped in 2003. At end-2003, there were an estimated 93 000 autogas vehicles and 600 refuelling stations in Belgium. Autogas accounts for just under a quarter of all the LP Gas consumed in the country. Belgium is a small net exporter of LP Gas.

Figure B3.1: Autogas Consumption and Vehicle Fleet – Belgium*
120
Consumption Vehicles

120

100

100

80 Thousand tonnes

80 Thousand vehicles

60

60

40

40

20

20

0 1999 2000 2001 2002 2003

0

* Including Luxembourg.

3.2

Government Autogas Incentive Policies

Autogas has been completely exempt from excise duties since 1982. Diesel sales currently carry a duty of 33 euro cents/litre and gasoline 55.7 cents/ litre. As a result, autogas prices at the pump are now less than a third those of gasoline and half those of diesel (Table B3.1). The price difference has widened in recent years as gasoline and diesel duties have been raised. The government recently made a commitment not to apply any excise duty on autogas at least until end-2006.

AUTOGAS INCENTIVE POLICIES · BELGIUM 57 WORLD LP GAS ASSOCIATION / MENECON CONSULTING

Table B3.1: Automotive-Fuel Prices and Taxes – Belgium (euros/litre)
2000
Pump prices

2001

2002

2003

2004

Autogas – commercial Autogas - non-commercial Diesel – commercial Diesel - non-commercial Gasoline - commercial Gasoline - non-commercial
Total taxes

0.325 0.393 0.670 0.810 0.864 1.046

0.297 0.359 0.645 0.781 0.833 1.007

0.288 0.348 0.599 0.725 0.809 0.979

0.292 0.353 0.625 0.756 0.841 1.018

0.318 0.357 0.728 0.881 0.943 1.141

Autogas - commercial Autogas - non-commercial Diesel - commercial Diesel - non-commercial Gasoline - commercial Gasoline - non-commercial
Excise duty

0.000 0.068 0.290 0.431 0.507 0.689

0.000 0.062 0.290 0.425 0.507 0.682

0.000 0.060 0.305 0.430 0.507 0.677

0.000 0.061 0.294 0.425 0.507 0.684

0.000 0.067 0.330 0.483 0.555 0.753

Autogas Diesel Gasoline
Pre-tax price

0.000 0.290 0.507

0.000 0.290 0.507

0.000 0.305 0.507

0.000 0.294 0.507

0.000 0.330 0.555

Autogas Diesel Gasoline

0.325 0.380 0.357

0.297 0.355 0.326

0.288 0.295 0.302

0.292 0.331 0.334

0.318 0.398 0.388

In 2001, the Belgian federal government introduced grants for autogas conversions of 508 euros – equal to around a third of the total cost of conversion. These grants were stopped in 2003. Autogas vehicles are subject to an additional annual road tax over and above that paid by all vehicles, amounting to 89 euros.

3.3

Competitiveness of Autogas Against Other Fuels

Thanks to the excise-duty exemption, which more than offsets the higher road tax on autogas vehicles, autogas breaks even with gasoline at around 28 000 km – equivalent to less than two years of driving for a typical private user. Diesel breaks even with gasoline at almost the same distance, but running costs are higher than for autogas at higher distances (Figure B3.2). OEM autogas vehicles break even with diesel at around 57 000 km.

58 AUTOGAS INCENTIVE POLICIES · BELGIUM WORLD LP GAS ASSOCIATION / MENECON CONSULTING

Figure B3.2: Running Costs of a Non-Commercial LDV, 2004 – Belgium
10000 9000 8000 7000 Cost (euros) 6000 5000 4000 3000 2000 1000 0 0 10 20 30 40 50 60 70 80 90 100

Autogas - conversion
Autogas - OEM Diesel

Gasoline

Autogas OEM breaks even against diesel
Autogas conversion breaks even against gasoline

Distance travelled (thousand km)

AUTOGAS INCENTIVE POLICIES · BELGIUM 59 WORLD LP GAS ASSOCIATION / MENECON CONSULTING

4. Bulgaria
4.1 Autogas Market Trends
The Bulgarian autogas market has grown strongly in recent years, although the pace of expansion has slowed since 2002 due to the introduction of an excise duty and road tax. Autogas consumption reached almost 260 000 tonnes in 2003, equal to 14% of the total automotive-fuel market. Autogas use has tripled since 1999, thanks largely to a strong fuel-price incentive and relatively low vehicle-conversion costs (Figure B3.1). At end-2003, there were an estimated 195 000 autogas vehicles and 1 500 refuelling stations in Bulgaria. An estimated 90% of all taxis and mini-buses and about half of all private cars (most of which are imported second-hand models) are able to run on autogas. Virtually all autogas vehicles are converted, as OEM vehicles are not actively marketed in the country. Autogas accounts for 86% of all the LP Gas consumed in the country, almost two-thirds, or 190 000 tonnes, of which is imported.

Figure B4.1: Autogas Consumption and Vehicle Fleet – Bulgaria
300 250

Consumption Vehicles
250
Thousand tonnes

200
Thousand vehicles

200 150 150 100 100 50

50

0 1999 2000 2001 2002 2003

0

4.2

Government Autogas Incentive Policies

An excise duty on autogas was introduced in 2003, despite public protests. The current duty, at 0.19 leva/litre, is nonetheless well below that on diesel (0.395 leva) and gasoline (0.495 leva). As a result, autogas has retained a strong price advantage at the pump (Table B4.1). The pump price of autogas in 2004 was only 57% of that of gasoline and 65% of that of diesel. Oil prices were liberalised in the 1990s and competition in the retail and

60 AUTOGAS INCENTIVE POLICIES · BULGARIA WORLD LP GAS ASSOCIATION / MENECON CONSULTING

wholesale markets is reported to be strong. The government introduced a 140 leva road toll on autogas at the beginning of this year. There are no grants available to cover part of the cost of vehicle conversions.

Table B4.1: Automotive-Fuel Prices and Taxes, 2004 – Bulgaria (leva/litre)
Gasoline Pre-tax price Excise duty (consumption tax) VAT (at 20%)* Total taxes Pump price * Refundable for commercial users. 0.64 0.49 0.23 0.72 1.36 Diesel 0.59 0.39 0.20 0.59 3.18 Autogas 0.45 0.19 0.13 0.32 0.77

4.3

Competitiveness of Autogas Against Other Fuels

The large fuel-tax advantage, low pre-tax price and low conversions cost results in a break-even distance for autogas against gasoline of only 31 000 km – equivalent to less than two years of driving for a typical private user (Figure B4.2). This assumes a conversion cost of just under 1 000 levas (500 euros). Diesel vehicle running costs are marginally lower than for autogas, but diesel only breaks even against autogas at well over 100 000 km.

Figure B4.2: Running Costs of a Non-Commercial LDV, 2004 – Bulgaria
12000

Autogas - conversion
Diesel
10000

Gasoline

8000 Cost (levas)

6000 Diesel breaks against gasoline Autogas conversion breaks even against gasoline

4000

2000

0 0 10 20 30 40 50 60 70 80 90 100 Distance travelled (thousand km)

AUTOGAS INCENTIVE POLICIES · BULGARIA 61 WORLD LP GAS ASSOCIATION / MENECON CONSULTING

5. Canada
5.1 Autogas Market Trends
Until recently, autogas was a Canadian LP Gas industry success story. From virtually nothing in 1980, autogas sales soared to over 700 000 tonnes in 1992, becoming Canada’s leading alternative fuel by a wide margin. Market expansion was helped by the introduction in the early 1980s by the federal government of a grant programme for conversions of gasoline vehicles to run on alternative fuels in response to national energy-security concerns. The industry subsequently developed a network of refuelling stations, reaching over 5 000 sites across Canada to fuel the growing autogas-vehicle ﬂeet. Energy-security concerns were supplemented by environmental concerns and the federal government, and to a lesser extent the provincial governments, continued to provide a favourable fuel tax status for alternative fuels, including autogas.

Figure B5.1: Autogas Consumption and Vehicle Fleet – Canada
500
Consumption

120
Vehicles

450 400 350 Thousand tonnes 300 250 200 150 100 50 0 1999 2000 2001 2002

100

60

40

20

0 2003

The autogas market went into decline in the early 1990s. In total, autogas use has fallen by more than a half since it peaked in 1992, to 310 000 tonnes in 2003 (Figure B5.1) – equal to 0.8% of total automotive-fuel use. The slump in autogas use is a direct result of the declining number of autogas conversions in ﬂeets, primarily due to increased conversion equipment costs and the removal of federal conversion grants. This has led many ﬂeet users to switch from autogas to diesel fuel or CNG to realise fuel-cost savings. Additionally, autogas conversion equipment technology lagged the improvements in gasoline-engine technology. Another problem has been the limited availability of factory-produced autogas vehicles.

62 AUTOGAS INCENTIVE POLICIES · CANADA WORLD LP GAS ASSOCIATION / MENECON CONSULTING

Thousand vehicles

80

The majority of the estimated 92 000 autogas vehicles in use in Canada today are commercial high-mileage vehicles. Roughly two-thirds of autogas vehicles are commercial and the rest private. Converted vans dominate the commercial ﬂeet (77%), followed by taxis (12%) and school buses (9%). Alberta, Ontario and British Columbia have the largest autogas markets with a 31%, 27% and 25% share, respectively, of the total autogas market. By end-2003, there were still about 3 000 autogas ﬁlling stations across Canada. Canada is a large producer and exporter of LP Gas. Most of the 5.4 million tonnes of LP Gas exported in 2003 went to the United States. Only half of the country’s 10 million tonnes of production was consumed in the domestic market.

5.2

Government Autogas Incentive Policies

Autogas enjoys a signiﬁcant per-litre tax advantage over gasoline and diesel. However, because fuel taxes across the board are relatively low in Canada, differences in prices at the pump are not very large. The autogas tax differential (including sales taxes) is currently 12 Canadian cents/litre compared to diesel and 20 cents/litre compared to gasoline (Table B5.1). Taxes have not changed since 1997. The average pump price of autogas in 2004 was about 26% lower than that of diesel and 31% lower than that of gasoline. The Alternative Fuels Act 1995 requires that a proportion of vehicles purchased by the federal government be capable of operating on one of a range of alternative fuels, including autogas, where it is cost-effective and operationally feasible. The Act requires a gradual adoption of new AFVs using the following schedule: 50% of new vehicles in 1997-98; 60% in 1998-99; and 75% from 1999. The Canadian government also makes available, through Natural Resources Canada, incentives for natural gas OEM vehicles and conversions, but not for autogas vehicles. The federal government increasingly favours ethanol through government grants for building refuelling stations. In Ontario, the provincial sales tax is refundable up to a limit of CA$750 on autogas vehicles, and up to a limit of CA$1 000 on vehicles powered by alternative fuels other than propane. In addition, the fuel-conservation tax paid on new passenger cars or sport utility vehicles (bought or leased) may be refunded if the vehicles operate, or are converted to operate, exclusively on an alternative fuel. A refund of this tax is not available if a vehicle can operate as a dual-powered vehicle.

AUTOGAS INCENTIVE POLICIES · CANADA 63 WORLD LP GAS ASSOCIATION / MENECON CONSULTING

Table B5.1: Automotive-Fuel Prices and Taxes – Canada (CA$/litre)
2000
Pump prices

2001

2002

2003

2004

Autogas – commercial Autogas - non-commercial Diesel – commercial Diesel - non-commercial Gasoline - commercial Gasoline - non-commercial
Total taxes

n.a. n.a. 0.681 0.681 0.728 0.728

n.a. n.a. 0.689 0.689 0.704 0.704

n.a. n.a. 0.637 0.637 0.703 0.703

0.565 0.565 0.690 0.690 0.737 0.737

0.563 0.563 0.756 0.756 0.814 0.814

Autogas - commercial Autogas - non-commercial Diesel - commercial Diesel - non-commercial Gasoline - commercial Gasoline - non-commercial
Excise duty*

n.a. n.a. 0.223 0.223 0.300 0.300

n.a. n.a. 0.223 0.223 0.298 0.298

n.a. n.a. 0.220 0.220 0.298 0.298

0.105 0.105 0.223 0.223 0.300 0.300

0.105 0.105 0.227 0.227 0.305 0.305

Autogas Diesel Gasoline
Pre-tax price

0.068 0.178 0.252

0.068 0.178 0.252

0.068 0.178 0.252

0.068 0.178 0.252

0.068 0.178 0.252

Autogas Diesel Gasoline

n.a. 0.458 0.428

n.a. 0.466 0.406

n.a. 0.417 0.405

0.460 0.467 0.437

0.458 0.529 0.509

* Includes provincial taxes. Note: Commercial and non-commercial prices are the same, as federal and pronvincial goods and services taxes are generally not refundable.

5.3

Competitiveness of Autogas Against Other Fuels

Current tax differentials and conversion subsidies are insufﬁcient to make autogas a ﬁnancially-attractive alternative to either diesel or gasoline, which explains the recent stagnation in autogas use in Canada. Converted autogas vehicles in Ontario are only competitive with diesel up to a distance of 83 000 km, after which diesel becomes more competitive. Autogas is competitive with gasoline only after 124 000 km for a converted vehicle (Figure B5.2). This analysis takes account of the tax rebates available in Ontario. In other provinces, where such tax incentives are not available, the break-even distances are even higher.

64 AUTOGAS INCENTIVE POLICIES · CANADA WORLD LP GAS ASSOCIATION / MENECON CONSULTING

Figure B5.2: Running Costs of a Non-Commercial LDV, 2004 – Canada (Ontario)

9000 8000 7000 Cost (Canadian dollars) 6000 5000 4000 3000 2000 1000 0 0 10

Autogas - conversion
Autogas - OEM Diesel

Gasoline

Diesel breaks even against autogas conversion

20

30

40

50

60

70

80

90

100

Distance travelled (thousand km)

Note: assumes an average conversion tax credit of CA$750.

AUTOGAS INCENTIVE POLICIES ·CANADA 65 WORLD LP GAS ASSOCIATION / MENECON CONSULTING

6. China
6.1 Autogas Market Trends
In keeping with the overall LP Gas market in China, autogas sales in the country grew strongly until early in the current decade, but there are signs that demand may be levelling off. According to preliminary data, autogas consumption in the country (including Hong Kong) reached about 700 000 tonnes in 2004 – more than three times the level of 1999 but unchanged from 2003 (Figure B6.1). Hong Kong alone accounts for more than a quarter of total autogas use. Despite the expansion in sales in recent years, autogas accounts for little more than 1% of total automotive-fuel use in China. At end-2003, there were an estimated 134 000 autogas vehicles – mostly taxis and buses – and close to 300 refuelling sites. Autogas accounted for less than 3% of total Chinese LP Gas consumption in 2003, a third of which is imported.

Figure B6.1: Autogas Consumption and Vehicle Fleet – China
800
Consumption

160
Vehicles

700 600
Thousand tonnes

140 120 100 80 60 40 20 0
Thousand vehicles

500 400 300 200 100 0 1999 2000 2001 2002 2003 2004*

* Preliminary data.

6.2

Government Autogas Incentive Policies

The Chinese government promotes the use of autogas through a fuel-tax incentive and public-transport conversion programmes. There is no excise (consumption) tax on autogas, while a tax of 0.21 yuan/litre is levied on gasoline and 0.10 yuan on diesel. In addition, VAT is levied at a rate of 17% on gasoline and diesel, but only 13% on autogas. The government also controls wholesale and retail prices, though there is some ﬂexibility for retailers to adjust prices. As a result, the pump price of autogas was only

66 AUTOGAS INCENTIVE POLICIES · CHINA WORLD LP GAS ASSOCIATION / MENECON CONSULTING

60% of that of gasoline and 67% of that of diesel in 2004 (Table B6.1). The central government does not provide any grants or tax credits for autogas vehicle purchases or conversions.

Table B6.1: Automotive Fuel Prices and Taxes – China, 2004 (yuan/litre)
Gasoline Pre-tax price Excise duty (consumption tax) VAT* Total taxes Pump price 2.89 0.21 0.53 0.73 3.62 Diesel 2.70 0.10 0.47 0.57 3.25 Autogas 1.92 0.00 0.25 0.25 2.17

* 13% for autogas and 17% for diesel and gasoline. Note: Diesel and gasoline prices are national averages; autogas prices are for Shanghai.

The government launched a clean-air scheme in 1998 to deal with worsening urban-pollution problems. As part of this scheme, a programme to promote alternative fuels – including autogas – in 14 major cities was adopted. Guangzhou, the capital of the Guandong province, currently has one of the biggest programmes, where almost half of the city’s 6 800 buses will be converted to autogas by the end of 2005. Almost 2 400 buses were already equipped to use autogas by end-2004. In addition, 17 000 taxis will be converted by the end of 2006. Harbin, the capital of the Heilongjiang province in northeast China, has already converted around 5 000 taxis and buses to autogas. A large proportion of buses in Beijing and some other big cities also run on autogas. More buses are being converted in Beijing, as part of a programme of improving air quality in the run up to the 2008 Olympic Games. Of the estimated 19 000 buses already using autogas in China (excluding Hong Kong), half are in Beijing and Shanghai. Several cities have also mandated the conversion of public taxis to alternative fuels. Almost of the taxis in Shanghai, for example, have been converted to autogas. In Hong Kong, all the city’s 20 000 taxis now run on autogas, as a result of a conversion programme launched in 1997. Diesel taxis are now banned. That programme involved a subsidy of HK40 000 per vehicle. More than 30% of public buses also use autogas. Recently, the Hong Kong Government announced an incentive scheme for minibus operators to switch to autogas. Many of the 20 million vehicles on the road in China are reportedly still at Euro-1 emission standards, producing as much as three times as much carbon monoxide and four times as much hydrocarbon and nitrogen oxides as Euro-4 standard cars that are becoming available in Europe. Converting gasoline vehicles to autogas, therefore, brings disproportionately large emission beneﬁts in China.

AUTOGAS INCENTIVE POLICIES · CHINA 67 WORLD LP GAS ASSOCIATION / MENECON CONSULTING

6.3

Competitiveness of Autogas Against Other Fuels

In Shanghai, a converted non-commercial autogas LDV vehicles breaks even with gasoline at just over 50 000 km, based on an autogas conversion cost of 3 700 yuan (350 euros). However, diesel breaks even with autogas at a distance of 92 000 km (Figure B6.2). For this reason, autogas is only competitive for high-mileage vehicles, such as taxis, where the use of diesel is banned or where there is a subsidy for autogas conversions.

Figure B6.2: Running Costs of a Non-Commercial LDV, 2004 – China (Shanghai)
35000
Autogas - conversion Diesel

30000 25000 Cost (yuan) 20000

Gasoline

15000 10000 5000 Diesel breaks even against autogas conversion

Autogas conversion breaks even against gasoline

0 0 10 20 30 40 50 60 70 80 90 100 Distance travelled (thousand km)

68 AUTOGAS INCENTIVE POLICIES · CHINA WORLD LP GAS ASSOCIATION / MENECON CONSULTING

7. Czech Republic
7.1 Autogas Market Trends

Autogas sales in the Czech Republic have been edging higher in recent years, as a result of rising demand for automotive fuels generally and substantial fuel-tax incentives vis-à-vis gasoline and diesel. Autogas consumption peaked at 70 000 tonnes in 2001, dropping back slightly in 2002 and 2003 (Figure B7.1). Autogas currently accounts for 1.3% of total automotive fuel use by mass. At end-2003, there were an estimated 145 000 autogas vehicles and 350 refuelling stations in the Czech Republic. Autogas accounted for 28% of total Czech consumption of LP Gas in 2003. Net imports accounted for a similar share of national consumption.

Figure B7.1: Autogas Consumption and Vehicle Fleet – Czech Republic
80 70 60 50 40 30 20 10 0 1999 2000 2001 2002 2003

Consumption Vehicles

160 140 120 Thousand vehicles 100 80 60 40 20 0

Thousand tonnes

7.2

Government Autogas Incentive Policies

The Czech government encourages autogas use through a much lower excise duty compared with conventional fuels. (Table B7.1). The differential in 2004 was 7.8 crowns/litre against diesel and 9.7 crowns/litre against gasoline. The price of autogas at the pump (including VAT) is currently just over half that of gasoline and less than 55% those of diesel. There are no grants or tax credits available for autogas vehicle purchases or conversions.

AUTOGAS INCENTIVE POLICIES · CZECH REPUBLIC 69 WORLD LP GAS ASSOCIATION / MENECON CONSULTING

Table B7.1: Automotive-Fuel Prices and Taxes – Czech Republic (crowns/litre)
2000
Pump prices

2001

2002

2003

2004

Autogas – commercial Autogas - non-commercial Diesel – commercial Diesel - non-commercial Gasoline - commercial Gasoline - non-commercial
Total taxes

n.a. n.a. 20.25 24.70 23.53 28.70

10.43 12.72 19.76 24.10 22.40 27.33

9.09 11.08 17.81 21.73 20.16 24.59

9.63 11.75 17.95 21.90 20.33 24.80

11.37 13.61 20.78 24.88 22.29 26.69

Autogas - commercial Autogas - non-commercial Diesel - commercial Diesel - non-commercial Gasoline - commercial Gasoline - non-commercial
Excise duty

n.a. n.a. 8.15 12.61 10.84 16.02

1.57 3.86 8.15 12.50 10.84 15.77

1.57 3.57 8.15 12.07 10.84 15.28

1.57 3.69 8.15 12.10 10.84 15.31

2.16 4.40 9.95 14.05 11.84 16.24

Autogas Diesel Gasoline
Pre-tax price

n.a. 8.15 10.84

1.57 8.15 10.84

1.57 8.15 10.84

1.57 8.15 10.84

2.16 9.95 11.84

Autogas Diesel Gasoline

n.a. 12.10 12.69

8.85 11.61 11.56

7.52 9.66 9.32

8.06 9.80 9.49

9.21 10.83 10.45

7.3

Competitiveness of Autogas Against Other Fuels

A converted private autogas LDV breaks even against gasoline at about 57 000 km and diesel at 62 000 km, based on an autogas conversion cost of 45 000 crowns (Figure B7.2). OEM autogas vehicles are only competitive with gasoline at 78 000 km and break even with diesel only at a distance of well over 100 000 km.

70 AUTOGAS INCENTIVE POLICIES · CZECH REPUBLIC WORLD LP GAS ASSOCIATION / MENECON CONSULTING

Figure B7.2: Running Costs of a Non-Commercial LDV, 2004 Czech Republic
250000

Autogas - conversion
Autogas - OEM Diesel

200000

Gasoline

Cost (crowns)

150000

100000

Autogas conversion breaks even against diesel

50000

Autogas conversion breaks even against gasoline
0 0 10 20 30 40 50 60 70 80 90 100 Distance travelled (thousand km)

AUTOGAS INCENTIVE POLICIES · CZECH REPUBLIC 71 WORLD LP GAS ASSOCIATION / MENECON CONSULTING

8. France
8.1 Autogas Market Trends

Until the beginning of the current decade, France had one of the fastest growing autogas markets in Europe, thanks to strong policy incentives. Consumption climbed steadily from only 45 000 tonnes in 1996 to almost 220 000 tonnes in 2001, but then fell back sharply to an estimated 151 000 tonnes in 2004 (Figure B8.1). Autogas currently accounts for around 0.4% of total automotive-fuel use by mass. At end-2003, there were an estimated 190 000 autogas vehicles in use and almost 1 900 refuelling stations. Autogas accounts for less than 5% of total LP Gas use in France, which is a small net importer.

Figure B8.1: Autogas Consumption and Vehicle Fleet – France
250
Consumption
Vehicles

220 210

200 200 190 180 100 170 160 50 150 0 1999 2000 2001 2002 2003 2004* 140
Thousand vehicles Thousand tonnes

150

* Preliminary data.

8.2

Government Autogas Incentive Policies

The French government has had a policy of strongly encouraging autogas (and compressed natural gas) use since 1996, when it reduced sharply the excise duty on autogas and introduced a range of other ﬁscal and regulatory measures. The duty has been constant since 1999 at 6 euro cents/litre, while duties on gasoline and diesel have gradually increased (Table B8.1). The differential currently stands at 36 cents/litre for diesel and 53 cents/litre for gasoline. In addition, taxis and buses are able to reclaim all the excise duty on autogas purchases up to a ceiling of 9 000 litres per year. The price of autogas at the pump is currently just under two-thirds that of diesel and 53% of that of gasoline.
72 AUTOGAS INCENTIVE POLICIES · FRANCE WORLD LP GAS ASSOCIATION / MENECON CONSULTING

Table B8.1: Automotive-Fuel Prices and Taxes – France (euros/litre)
2000
Pump prices

2001

2002

2003

2004

Autogas – commercial Autogas - non-commercial Diesel – commercial Diesel - non-commercial Gasoline - commercial Gasoline - non-commercial
Total taxes*

0.436 0.522 0.705 0.845 1.090 1.090

0.425 0.508 0.667 0.798 1.037 1.037

0.415 0.496 0.645 0.771 1.014 1.014

0.450 0.538 0.663 0.793 1.017 1.017

0.472 0.564 0.740 0.885 1.061 1.061

Autogas - commercial Autogas - non-commercial Diesel - commercial Diesel - non-commercial Gasoline - commercial Gasoline - non-commercial
Excise duty

0.060 0.146 0.384 0.524 0.761 0.761

0.060 0.143 0.375 0.506 0.742 0.742

0.060 0.141 0.383 0.509 0.747 0.747

0.060 0.148 0.392 0.522 0.756 0.756

0.060 0.152 0.417 0.562 0.763 0.763

Autogas Diesel Gasoline
Pre-tax price

0.060 0.384 0.581

0.060 0.375 0.572

0.060 0.383 0.581

0.060 0.392 0.589

0.060 0.417 0.589

Autogas Diesel Gasoline

0.376 0.321 0.329

0.365 0.293 0.294

0.355 0.262 0.267

0.390 0.271 0.261

0.412 0.323 0.298

* Certain categories of commercial users can recover VAT on diesel. VAT on autogas is only recoverable for tourist vehicles. VAT on gasoline is never recoverable.

At the beginning of 2001, the government introduced a tax credit of 1 525 euros for the purchase of OEM autogas vehicles or the conversion of gasoline-fuelled vehicles of less than three years old that meet Euro3 emission standards. The credit is increased to 2 300 euros where the purchase or conversion is accompanied by the scrapping of an old vehicle (registered before 1992). This programme is due to terminate at the end of 2005. Conversion grants for taxis were phased out at the end of 2003. Other tax measures include a rebate of between 50% and 100% on the annual road tax on commercial vehicles and the initial vehicle-registration tax for autogas vehicles in a number of departments. Autogas vehicles are also exempt from the national annual tax on tourist vehicles. Tourist-related businesses can also recover the VAT on autogas purchases. In addition, investments in new autogas or converted vehicles and refuelling facilities can be fully depreciated in the ﬁrst year.

AUTOGAS INCENTIVE POLICIES · FRANCE 73 WORLD LP GAS ASSOCIATION / MENECON CONSULTING

Autogas is also promoted through regulatory measures. Public ﬂeets, including municipal bus operators, have been obliged since 1999 to replace at least 20% of retired vehicles of more than 3.5 tonnes with autogas or CNG vehicles. Autogas vehicles are exempt from driving restrictions imposed in major cities during periods of high pollution.

8.3

Competitiveness of Autogas Against Other Fuels

The large tax credit on autogas conversions for private individuals, which typically cover the entire cost, means that autogas always has the lowest running costs regardless of the distance travelled (Figure B8.2). France, together with Italy from 2005, is the only country in the world where this is the case. The total saving in fuel costs for a non-commercial converted autogas vehicle compared to a gasoline vehicle for 100 000 km driven is 2 840 euros based on average 2004 pump prices. OEM autogas vehicles break even with gasoline at only about 17 000 km – equivalent to around one year for a typical private owner. Diesel breaks even with gasoline at a signiﬁcantly higher distance.

Figure B8.2: Running Costs of a Non-Commercial LDV, 2004 – France
9000 8000 7000 Cost (euros) 6000 5000 4000 3000 2000 1000 0 0 10 20 30 40 50 60 70 80 90 100 Autogas OEM breaks even against gasoline

Autogas - conversion
Autogas - OEM Diesel

Gasoline

Diesel breaks even against gasoline

Distance travelled (thousand km)

The stagnation of autogas demand in recent years is surprising, in view of the extraordinarily large competitive advantage of autogas over both diesel and gasoline, and appears to have resulted from four main factors: a poor public perception of autogas following a some widely publicised incidents involving autogas vehicles, including an explosion caused by arson in an underground car park in 1999; the relatively small gap in competitiveness between autogas and diesel; difﬁculties in establishing a network of reliable autogas-vehicle converters; and the limited availability of OEM vehicles due to a lack of support from the dealer network. Only 6 700 OEM autogas cars were sold in France in 2004, though this was a quarter higher than in 2003.

74 AUTOGAS INCENTIVE POLICIES · FRANCE WORLD LP GAS ASSOCIATION / MENECON CONSULTING

9. Italy
9.1 Autogas Market Trends

Italy has the second-largest autogas market in the European Union after Poland. It was one of the ﬁrst countries to introduce the fuel, in the 1950s. Annual consumption ﬂuctuated around 1.3 million tonnes at the turn of the century, but dipped sharply in 2003 and 2004 to around 1.1 Mt (Figure B9.1). Autogas accounts for a third of total LP Gas consumption in Italy and 3.3% of total automotive-fuel demand. The number of autogas vehicles in use has risen gradually, reaching 1.35 million at end-2002, but fell back slightly in 2003. Most autogas vehicles are converted old gasoline-fuelled vehicles. The number of refuelling sites has grown to 2 150 – about 10% of all service stations in Italy. In the past, the Italian government promoted the use of autogas through ﬁscal incentives to provide an outlet for surplus volumes of LP Gas from the large domestic reﬁning industry. Italy has since become an importer of LP Gas: net imports met 26% of demand in 2003. In recent years, environmental concerns have been the main driving force behind autogas policies.

Figure B9.1: Autogas Consumption and Vehicle Fleet – Italy
1600 1400 1200
Thousand tonnes

Consumption Vehicles

1400 1350 1300 1250 1200 1150 1100 1050 1000
Thousand vehicles

1000 800 600 400 200 0 1999 2000 2001 2002 2003 2004*

* Preliminary estimates.

9.2

Government Autogas Incentive Policies

The Italian government and local authorities encourage autogas use through a mixture of policies, including favourable fuel-taxes, subsidies for conversions of old gasoline vehicles and trafﬁc regulations. Autogas

AUTOGAS INCENTIVE POLICIES · ITALY 75 WORLD LP GAS ASSOCIATION / MENECON CONSULTING

currently enjoys a substantial excise-tax advantage of 40 euro cents/litre over gasoline and 25 cents/litre over diesel. This results in a pump price for autogas of less than 48% that of gasoline and 57% that of diesel (Table B5.1).

Table B9.1: Automotive-Fuel Prices and Taxes – Italy (euros/litre)
2000
Pump prices

2001

2002

2003

2004

Autogas – commercial Autogas - non-commercial Diesel – commercial Diesel - non-commercial Gasoline - commercial Gasoline - non-commercial
Total taxes

0.452 0.542 0.743 0.891 0.901 1.082

0.500 0.539 0.724 0.869 0.877 1.052

0.434 0.521 0.713 0.856 0.874 1.048

0.449 0.540 0.731 0.877 0.883 1.060

0.450 0.539 0.782 0.938 0.938 1.126

Autogas - commercial Autogas - non-commercial Diesel - commercial Diesel - non-commercial Gasoline - commercial Gasoline - non-commercial
Excise duty

0.146 0.236 0.383 0.532 0.521 0.701

0.147 0.237 0.385 0.530 0.524 0.699

0.157 0.243 0.403 0.546 0.542 0.717

0.157 0.247 0.403 0.549 0.542 0.719

0.157 0.247 0.403 0.559 0.559 0.747

Autogas Diesel Gasoline
Pre-tax price

0.146 0.383 0.521

0.147 0.385 0.524

0.157 0.403 0.542

0.157 0.403 0.542

0.157 0.403 0.559

Autogas Diesel Gasoline

0.306 0.360 0.380

0.353 0.339 0.354

0.277 0.310 0.331

0.292 0.328 0.341

0.293 0.379 0.379

Under a 2000 law, grants of 310 euros were made available for the conversion to autogas or compressed natural gas of taxis and private gasoline-fuelled cars brought into use before 1992, or for vehicles less than one year old. Larger subsidies were available for bus conversions. Funding for the three years to 2004 was set at 4.5 million euros. At the end of 2004, the government announced that a further 4.5 million euros per year would be set aside to ﬁnance a new grant scheme for autogas and CNG vehicles. There are doubts, however, about whether funding will, in fact, be forthcoming. Under the new scheme, subsidies will now be made available for private vehicles up to three years old. Businesses and public transport

76 AUTOGAS INCENTIVE POLICIES · ITALY WORLD LP GAS ASSOCIATION / MENECON CONSULTING

operators are not eligible for now, but the government is considering making them so. The size of the subsidy has been increased to up to 1 500 euros for converting a brand-new vehicles. Older vehicles qualify for a subsidy of up to 650 euros to cover the cost of conversion. The subsidies are given to the companies that install conversion kits, by allowing them to recover the full cost of installation through a tax credit. The government also abolished road tax on gas-fuelled vehicles in 2001. In addition, a number of cities have mandated the conversion of bus ﬂeets for environmental reasons and have adopted trafﬁc regulations that exempt autogas vehicles from driving restrictions imposed on gasoline and diesel vehicles during periods of acute pollution. In several Italian cities, autogas vehicles are also exempt from car tax.

9.3

Competitiveness of Autogas Against Other Fuels

The large fuel-tax advantage over gasoline resulted in a break-even distance for old vehicles converted to autogas (with the conversion grant of 310 euros) of around 33 000 km in 2004. The break-even distance for diesel against gasoline was around 40 000 km (Figure B9.2). OEM autogas cars were competitive with gasoline at a distance of over 50 000 km, but were only competitive with diesel at over 150 000 km. With the increase in the conversion subsidy in 2005, converted autogas vehicles will always be competitive with gasoline and diesel, regardless of distance (assuming no change in pump-price differentials).

Figure B9.2: Running Costs of a Non-Commercial LDV, 2004 – Italy
10000 9000 8000 7000
Cost (euros)

Autogas - conversion
Autogas - OEM Diesel

Gasoline

6000 5000 4000 3000 2000 1000 0 0 10 20 30 40 50 60 70 80 90 100 Distance travelled (thousand km)
Autogas conversion breaks even against gasoline

Diesel breaks even against gasoline

AUTOGAS INCENTIVE POLICIES · ITALY

77

WORLD LP GAS ASSOCIATION / MENECON CONSULTING

10. Japan
10.1 Autogas Market Trends

Japan has the second largest autogas market in the world after Korea. Consumption amounted to just over 1.6 million tonnes in 2004, equal to 2.2% of total road-transport fuel consumption. The market contracted for several years through to the start of the current decade, but has stabilised in the last three years (Figure B10.1). Preliminary data point to a rebound in demand in 2004. Autogas accounts for about 8% of total Japanese LP Gas consumption. The country imports about 78% of its LP Gas needs. The Ministry of Economy, Trade and Industry projects autogas demand to contract by 2% between 2004 and 2009, due to improved fuel-efﬁciency.

Figure B10.1: Autogas Consumption and Vehicle Fleet – Japan
1750
Consumption Vehicles

300
298

1700 296 Thousand tonnes 1650 294 292 290 1550 288 286 284 1450 282 280 1999 2000 2001 2002 2003 2004* Thousand vehicles

1600

1500

1400

* Preliminary estimates.

Taxis account for most autogas use, and commercial ﬂeet LDVs for almost all the rest. The number of autogas vehicles in use has been broadly ﬂat in recent years, at 290 000, but increased to almost 300 000 in 2004 – the second highest in the world after Korea. The two largest OEMs, Nissan and Toyota, produce dedicated mono-fuel taxis for the national market. Sales have been running at around 45 000 vehicles per year. There are 1 900 refuelling sites, equal to just under 4% of service stations.

10.2

Government Autogas Incentive Policies

The Japanese government has maintained low excise duties on autogas relative to diesel and gasoline for many years. The duty on autogas is less than a third the level of that on diesel and less than a ﬁfth of that on

78 AUTOGAS INCENTIVE POLICIES · JAPAN WORLD LP GAS ASSOCIATION / MENECON CONSULTING

gasoline. Duties on automotive fuels have not changed since the late 1990s. However, lower autogas taxes are partially offset by the higher pre-tax retail price of autogas relative to diesel and gasoline, despite the fact that no import duties are levied on LP Gas for social reasons (it is widely used for household cooking and heating). The pump price of autogas is currently 74% of that of diesel and 58% of that of gasoline.

Table B10.1: Transport Fuel Prices and Taxes – Japan (yen/litre)
2000
Pump prices

2001

2002

2003

2004

Autogas – commercial Autogas - non-commercial Diesel – commercial Diesel - non-commercial Gasoline - commercial Gasoline - non-commercial
Total taxes

64.16 64.16 62.29 81.27 n.a. 103.85

64.20 64.20 64.20 84.47 n.a. 104.90

63.44 63.44 62.97 82.77 n.a. 104.16

65.10 65.10 65.15 84.51 n.a. 106.31

64.95 64.95 70.14 88.06 n.a. 112.32

Autogas - commercial Autogas - non-commercial Diesel - commercial Diesel - non-commercial Gasoline - commercial Gasoline - non-commercial
Excise duty

12.86 12.86 33.54 34.44 n.a. 56.20

12.86 12.86 33.63 34.59 n.a. 56.20

12.63 12.63 33.57 34.51 n.a. 58.76

12.73 12.73 33.60 34.60 n.a. 58.86

12.63 12.63 33.91 34.76 n.a. 59.15

Autogas Diesel Gasoline
Pre-tax price

9.80 32.10 53.80

9.80 32.10 53.80

9.80 32.10 53.80

9.80 32.10 58.86

9.80 32.10 59.15

Autogas Diesel Gasoline

51.30 28.75 47.70

51.34 30.58 48.70

50.81 29.40 45.40

52.20 31.55 47.45

52.05 36.23 53.17

The Japanese government, under a programme managed by the Japan LP Gas Association, provides grants covering either the cost of the difference in purchase price between a diesel car and an autogas OEM car, or the cost of converting a diesel car to run on autogas. Since April 2003, the grant is set at 50% of the incremental cost. The grant is capped at 200 000 yen (US$1 900) for a light-duty van, small truck or station wagon and 250 000 yen (US$2 350) for a normal truck or bus. This programme has attracted limited interest as the cost of converting diesel vehicles is very high. A lower rate of local sales tax (1.1% compared to the usual rate of 3%)

AUTOGAS INCENTIVE POLICIES · JAPAN 79 WORLD LP GAS ASSOCIATION / MENECON CONSULTING

is also applied to OEM autogas vehicle purchases when accompanied by the scrapping of a diesel vehicle. The government has also established a programme to promote autogas distribution, which is also managed by the Japan LP Gas Association, through grants covering 50% of both the cost of building and the cost of running autogas refuelling stations. The construction subsidy is capped at 30 000 000 yen per station (US$280 000) and 1 986 000 yen per station per year (US$18 700). In December 2004, the government approved a 125 million yen (US$1.2 million) research and development study of autogas fuel quality and a 250 million yen (US$2.4 million) project to develop nonsulphur autogas odorant. Stringent regulations governing noxious emissions in designated urban areas restrict the use of diesel vehicles, thereby favouring autogas. In addition to the lower fuel cost (see below), this is why most operators of high-mileage commercial LDVs generally opt for autogas over diesel.

10.3

Competitiveness of Autogas Against Other Fuels

Autogas breaks even against gasoline only at distances in excess of 100 000 km for both converted and OEM vehicles (Figure B10.2). This is because of the high cost of conversion (just under ¥300 000) and OEM vehicle purchases (around ¥500 000 more than an equivalent gasoline car). Diesel is always competitive against autogas and is competitive against gasoline at distances of more than 57 000 km. This analysis demonstrates why autogas is largely conﬁned to taxis and public ﬂeets.

Figure B10.2: Running Costs of a Non-Commercial LDV, 2004 – Japan
1200000

Autogas - conversion
Autogas - OEM Diesel

1000000

Gasoline
800000 Cost (yen)

600000

400000

Diesel breaks even against gasoline

200000

0 0 10 20 30 40 50 60 70 80 90 100 Distance travelled (thousand km)

80 AUTOGAS INCENTIVE POLICIES · JAPAN WORLD LP GAS ASSOCIATION / MENECON CONSULTING

11. Korea
11.1 Market Trends

The Republic of Korea was one of the ﬁrst countries to promote the widespread use of autogas and now has the largest autogas market in the world. Demand surged in the 1990s in response to strong government support for the fuel’s use in taxis and public buses, including a large fuel-tax advantage. Environmental restrictions on diesel vehicles helped encourage autogas use by high-mileage vehicles. The relaxation of a restriction on autogas use in private vehicles in 2000, allowing vans and minibuses and any type of vehicle owned by handicapped people to use the fuel, gave a further boost to demand. The phenomenal growth in autogas demand began to slow at the beginning of the current decade, due to saturation of demand and, more importantly, to a sudden change in government policy towards autogas use. This was motivated by the perceived improvement in emissions performance of new diesel and gasoline vehicles relative to autogas vehicles, and the objective of boosting revenues from automotive-fuel taxes. Excise duties on autogas were raised in step-wise fashion with the aim of realigning the pump prices of autogas with those of diesel and gasoline (see below). As a result, the growth in autogas use has slowed to a halt. Consumption reached a peak of 3.7 Mt in 2003 and then dipped to 3.6 Mt in 2004, equal to just over half of total Korean LP Gas use (Figure B11.1) and about 15% of total road-transport fuel consumption. Korea imports 56% of its LP Gas needs.

Figure B11.1: Autogas Consumption and Vehicle Fleet – Korea
4000
Consumption

2000
Vehicles

3500 3000

1800 1600

Thousand tonnes

2500 2000 1500 1000

1200 1000 800 600 400

500 0 1999 2000 2001 2002 2003 2004*

200 0

* Preliminary estimates.

AUTOGAS INCENTIVE POLICIES ·KOREA 81 WORLD LP GAS ASSOCIATION / MENECON CONSULTING

Thousand vehicles

1400

The growth in the number of autogas vehicles has also slowed. There were around 1.76 million registered autogas vehicles at the end of 2004, of which about half were private passenger cars and a quarter private minibuses. That represents an increase of 135 000 vehicles compared to end-2002, but monthly registrations slowed from 10 000 to 15 000 a month in early 2003 to only 5 000 in 2004. Diesel-vehicle registrations, in contrast, have remained strong, with the total ﬂeet reaching more than 5 million at end-2003 – an increase of around 350 000 compared with end-2002. The autogas ﬂeet is equal to about 12% of the country’s total vehicle ﬂeet. Two thirds of the country’s ﬂeet are passenger vehicles. Most autogas vehicles are OEMs manufactured locally.

Table B11.1: Automotive-Fuel Prices and Taxes in Korea (won/litre)
2000 Pump prices Autogas – commercial Autogas - non-commercial Diesel – commercial Diesel - non-commercial Gasoline - commercial Gasoline - non-commercial Total taxes Autogas - commercial Autogas - non-commercial Diesel - commercial Diesel - non-commercial Gasoline - commercial Gasoline - non-commercial Excise duty Autogas Diesel Gasoline Pre-tax price Autogas Diesel Gasoline 295.3 377.4 396.1 344.5 377.4 419.4 296.5 347.9 409.6 331.7 389.9 433.2 363.0 459.5 497.3 23.4 179.7 738.8 55.5 208.6 744.2 119.6 268.2 744.1 184.1 316.9 743.8 249.3 365.5 743.7 55.2 55.2 235.4 235.4 852.2 852.2 95.5 95.5 267.2 267.2 860.6 860.6 161.2 161.2 329.8 329.8 859.4 859.4 235.7 235.7 387.6 387.6 861.5 861.5 310.5 310.5 448.0 448.0 867.8 867.8 350.6 350.6 612.8 612.8 1 248.4 1 248.4 440.0 440.0 644.6 644.6 1 280.0 1 280.0 457.7 457.7 677.7 677.7 1 269.1 1 269.1 567.4 567.4 777.5 777.5 1 294.7 1 294.7 673.5 673.5 907.5 907.5 1 365.1 1 365.1 2001 2002 2003 2004

82 AUTOGAS INCENTIVE POLICIES · KOREA WORLD LP GAS ASSOCIATION / MENECON CONSULTING

11.2

Government Autogas Incentive Policies

Autogas is taxed less than the conventional fuels, but tax differentials have narrowed signiﬁcantly since 2000 (Table B11.1). Since July 2004, autogas has been subject to a total excise duty of 282 won/litre, compared to 392 won for diesel and 744 won for gasoline. Both commercial and non-commercial users also pay value-add tax (VAT) of 10% – the same rate as for the other fuels. In 2004, the average price of autogas at the pump was only 49% that of gasoline and about 74% that of diesel. Pre-tax prices include a 5% import duty on LP Gas and a 8% duty on gasoline and diesel. An additional import surcharge of 40 won/litre is currently applied to gasoline and diesel but not LP Gas. The government adopted a plan in 2000 to progressively adjust the excise duties on transport fuels to make autogas relatively more expensive over the period 2001-2006 (Table B11.2). Diesel taxes are also being raised, but less than autogas taxes. By 2006, autogas was targeted to cost 40% less than gasoline on a volume basis and 20% less than diesel. However, on a caloriﬁc-value basis, autogas would cost only 28% less than gasoline and 24% more than diesel. The implementation of the plan has already resulted in a signiﬁcant narrowing of the per litre retail-price differential between gasoline and autogas, from an average of 910 won/litre in 1999 to 692 won in 2004 (Figure B11.2).

Table B11.2: Korean Transport Fuel Ewxcise Duty Plan, 2001-2006
Autogas excise duty Effective date Won/kg July 2001 July 2002 July 2003 July 2004 July 2005 July 2006 Source: Korean LPG Association. 150 260 371 483 592 704 Won/litre 88 152 217 282 346 411 Target price ratios (gasoline: diesel: autogas) Per litre basis 100 : 52 : 32 100 : 56 : 38 100 : 61 : 43 100 : 66 : 49 100 : 70 : 54 100 : 75 : 60 Caloriﬁc value basis 100 : 40 : 39 100 : 43 : 46 100 : 47 : 52 100 : 51 : 59 100 : 54 : 65 100 : 58 : 72

In addition to reforming road-fuel taxes, the government also decided to lift environmental restrictions on diesel under pressure from the automakers, Hyundai and Kia. These restrictions, effectively limiting diesel passenger car sales to four-wheel drive recreational (sports utility) vehicles, had originally been introduced on environmental grounds. Sales of ordinary diesel passenger vehicles were to have been permitted since January 2005, as a result of a relaxation of emission standards. Sales of diesel cars are now expected to be authorised later in 2005. Diesel vehicles will initially only need to comply with Euro-3 emission standards, but the tougher Euro-4 standards will apply from the start of 2006.

AUTOGAS INCENTIVE POLICIES · KOREA 83 WORLD LP GAS ASSOCIATION / MENECON CONSULTING

Figure B11.2: Autogas Pump-Price Differentials against Gasoline and Diesel in Korea
1000 900 800 700 600
won / litre

Gasoline - autogas Diesel - autogas

500 400 300 200 100 0 1999 2000 2001 2002 2003 2004

1 A 2004 report by Menecon Consulting to the World LP Gas Association and the Korean LP Gas association concluded that the full implementation of the 2000 tax plan threatened to sharply reverse the expansion of the Korean autogas market, entailing signiﬁcant economic and environmental costs.

In response to intensive lobbying by the autogas industry and environmental groups, the government announced its intention in late 2004 to revise the tax-reform plan, with a view to giving autogas more favourable treatment.1 The proposal, which has yet to be passed into law, would establish target price ratios of 100 (gasoline) to 85 (diesel) and 50 (autogas) from 2007. Thus, the price of autogas will increase slightly relative to gasoline but will fall signiﬁcantly relative to diesel, from an average of 73% in 2004 to 59% in 2007. The Korean government does not make available any grants or tax credits for conversions of light-duty gasoline vehicles to run on autogas or for OEM purchases. However, the Environment Ministry announced in 2003 a programme to convert about 2 000 public diesel vehicles in Seoul, Incheon and Gyeonggi-do to run on autogas. Grants of 3 million won for vehicles over 1 tonne and of 4.5 million won for trucks and buses over 2.5 tonnes are offered. Funding for 2004 was 4.4 billion won. Compressed natural gas (CNG) is given favourable tax treatment over autogas. At present, CNG is taxed at only 40 won/kg, while grants are offered for purchases of dedicated CNG buses, which are exempt from VAT and registration (road) tax. The Ministry of Environment has targeted 20 000 CNG buses by 2007, but this is unlikely to met on current trends – mainly because CNG buses are more expensive to operate than autogas buses.

84 AUTOGAS INCENTIVE POLICIES · KOREA WORLD LP GAS ASSOCIATION / MENECON CONSULTING

11.3

Competitiveness of Autogas Against Other Fuels

At present, autogas remains competitive with gasoline, despite a narrowing of fuel prices since 1999. OEM autogas vehicles were estimated to break even with gasoline passenger vehicles at around 28 000 km in 2004, assuming a higher autogas vehicle acquisition cost of 1.2 million won (Figure B11.3). But diesel also breaks even with gasoline – and also becomes more competitive than autogas – at about the same distance, assuming a diesel car costs 1.5 million won more to buy than a gasoline car.

Figure B11.3: Running Costs of Light Duty Non-commercial Vehicles, 2004 – Korea
12000000

Autogas - OEM Diesel

10000000

Gasoline

Cost (won)

8000000

6000000

4000000

2000000

OEM autogas and diesel both break even against gasoline, while diesel breaks even against autogas

0 0 10 20 30 40 50 60 70 80 90 100 Distance travelled (thousand km)

This analysis demonstrates that, at the existing price ratios, consumers would no longer have a ﬁnancial incentive to opt for autogas vehicles, once it is possible for them to buy diesel vehicles. The government’s proposed change in fuel taxes will, however, restore the competitiveness of autogas against diesel and should ensure the continued development of the autogas market in Korea.

AUTOGAS INCENTIVE POLICIES · KOREA 85 WORLD LP GAS ASSOCIATION / MENECON CONSULTING

12. Lithuania

12.1

Autogas Market Trends

Lithuania has a large autogas market relative to the size of the country. Sales reached an estimated 137 000 tonnes in 2003 – almost double the level of 1999 – before falling back to 120 000 tonnes in 2003. That ﬁgure was equal to almost 12% of total automotive-fuel consumption, and 40% of total LP Gas consumption. Demand is thought to have increased sharply in 2004. The number of autogas vehicles has continued to increased, reaching almost 125 000 at the end of 2003 (Figure B12.1). There are an estimated 400 refuelling sites throughout the country.

Figure B12.1: Autogas Consumption and Vehicle Fleet – Lithuania
160
Consumption

140
Vehicles

140 120
Thousand tonnes

120

100 80 80 60 60 40 20 0 1999 2000 2001 2002 2003 40

20

0

12.2

Government Autogas Incentive Policies

Autogas use is encouraged solely through a strong fuel-tax incentive. The excise duty on autogas, at 0.23 litas/litre, is less than a quarter of that on gasoline and just over a quarter of that on diesel. The tax-differential has increased slightly in absolute terms against gasoline since the start of the current decade, but has risen much more against diesel. As a result,the pump price of autogas has fallen relative to both conventional fuel, strengthening the incentive for high-mileage vehicle owners to switch to autogas. In 2004, autogas cost only 49% as much as gaoisline and 53% as much as diesel. (Table B12.1).

86 AUTOGAS INCENTIVE POLICIES · LITHUANIA WORLD LP GAS ASSOCIATION / MENECON CONSULTING

Thousand vehicles

100

Table B12.1: Automotive-Fuel Prices and Taxes – Lithuania (lita/litre)
2000 Pump prices Autogas – commercial Autogas - non-commercial Diesel – commercial Diesel - non-commercial Gasoline - commercial Gasoline - non-commercial Total taxes Autogas - commercial Autogas - non-commercial Diesel - commercial Diesel - non-commercial Gasoline - commercial Gasoline - non-commercial Excise duty Autogas Diesel Gasoline Pre-tax price Autogas Diesel Gasoline n.a. 1.250 1.243 0.898 1.149 1.115 0.775 1.069 1.062 0.868 1.111 1.085 0.856 1.202 1.208 0.000 0.470 0.910 0.170 0.470 0.910 0.200 0.600 0.930 0.200 0.720 0.940 0.229 0.849 0.995 0.000 n.a. 0.470 0.780 0.910 1.297 0.170 0.362 0.470 0.761 0.910 1.275 0.200 0.375 0.600 0.901 0.930 1.288 0.200 0.392 0.720 1.049 0.940 1.305 0.229 0.424 0.849 1.218 0.995 1.392 n.a. n.a. 1.720 2.030 2.153 2.540 1.068 1.260 1.619 1.910 2.025 2.390 0.975 1.150 1.669 1.970 1.992 2.350 1.068 1.260 1.831 2.160 2.025 2.390 1.085 1.280 2.051 2.420 2.203 2.600 2001 2002 2003 2004

12.3

Competitiveness of Autogas Against Other Fuels

The break-even distance for autogas against gasoline is estimated at around 20 000 km for converted vehicles (Figure B13.2). This assumes an average conversion cost of about 1 600 litas (US$600) and average 2004 prices. Autogas is always competitive against diesel, both because running costs are lower and because the autogas conversion cost is less than he higher vehicle-acquisition of diesel. The net ﬁnancial savings to the owner of a converted autogas vehicle for a distance of 100 000 km are well over 6 000 litas ($2 000).

AUTOGAS INCENTIVE POLICIES · LITHUANIA 87 WORLD LP GAS ASSOCIATION / MENECON CONSULTING

Figure B12.2: Running Costs of a Non-Commercial LDV, 2004 – Lithuania

25000
Autogas - conversion

Diesel

20000

Gasoline

Cost (lita)

15000

10000

5000

Autogas conversion breaks even against gasoline

0 0 10 20 30 40 50 60 70 80 90 100

Distance travelled (thousand km)

88 AUTOGAS INCENTIVE POLICIES · LITHUANIA WORLD LP GAS ASSOCIATION / MENECON CONSULTING

13. Mexico
13.1 Autogas Market Trends

Mexico has one of the largest autogas markets in the world, thanks to fueltax incentives and the relatively low cost of vehicle conversions. Sales reached an estimated 1.26 million tonnes in 2002, almost double the level of ﬁve years before. Sales dropped slightly to 1.20 million tonnes in 2003, equal to 3.3% of total automotive-fuel consumption. Yet autogas accounts for less than 12% of total Mexican consumption of LP Gas, roughly a quarter of which is imported. The number of autogas vehicles has continued to rise steadily, to around 450 000 at the end of 2003 (Figure B13.1). Most vehicles are converted gasoline cars, using conventional IMPCO fuel systems. Conversions reached 110 000 in 1999, but have slowed since due to higher costs. General Motors and Ford, which has an assembly-plant near Mexico City, both sell OEM autogas pick-up trucks, though sales have weakened in recently. Refuelling infrastructure is extensive, with almost 1 900 sites around the country.

Figure B13.1: Autogas Consumption and Vehicle Fleet – Mexico
1400
Consumption Vehicles

500 450 400

1200

Thousand tonnes

350 300 250

800

600

200 150 100

400

200

50 0 1999 2000 2001 2002 2003

0

13.2

Government Autogas Incentive Policies

There are no excise duties on autogas, while duties on diesel amounted to 1.4 pesos/litre for private users and 3.6 pesos for commercial users in 2004. Duties on gasoline are estimated to have amounted to 2.8 pesos. The higher rate of excise duty levied on commercial diesel users – the exception for OECD countries – makes diesel more expensive for them than gasoline at

AUTOGAS INCENTIVE POLICIES · MEXICO 89 WORLD LP GAS ASSOCIATION / MENECON CONSULTING

Thousand vehicles

1000

the pump. Pump autogas prices for non-commercial users are 86% of those of diesel and 65% those of gasoline (Table B13.1). The government has so far resisted pressure from Pemex to introduce an excise tax on autogas. Pemex want to discourage switching away from gasoline on which it makes a bigger margin. However, the government has raised autogas prices through direct price controls. The pre-tax price of autogas is signiﬁcantly higher than that of gasoline or diesel. In most countries, autogas is cheaper.

Table B13.1: Transport Fuel Prices and Taxes – Mexico (pesos/litre)
2000 Pump prices Autogas – commercial Autogas - non-commercial Diesel – commercial Diesel - non-commercial Gasoline - commercial Gasoline - non-commercial Total taxes Autogas - commercial Autogas - non-commercial Diesel - commercial Diesel - non-commercial Gasoline - commercial Gasoline - non-commercial Excise duty Autogas Diesel** Gasoline Pre-tax price Autogas Diesel Gasoline 2.669 2.344 2.344 2.312 2.182 2.182 2.958 2.080 2.080 3.154 2.750 2.750 3.723 3.032 3.032 n.a. 1.285 2.535 n.a. 1.750 3.141 0.000 2.074 3.529 0.000 1.545 3.062 0.000 1.379 2.849 0.000 0.471 1.513 1.829 2.535 3.267 0.000 0.408 1.917 2.340 3.141 3.940 0.000 0.522 2.460 2.697 3.529 4.370 0.000 0.557 3.252 2.190 3.062 3.934 0.000 0.657 3.613 2.043 2.849 3.731 2.669 3.140 3.857 4.173 4.879 5.611 2.312 2.720 4.099 4.522 5.323 6.122 2.958 3.480 4.540 4.777 5.609 6.451 3.154 3.710 6.002 4.940 5.812 6.684 3.723 4.380 6.668 5.099 5.881 6.763 2001 2002 2003 2004*

* Average of ﬁrst three quarters. ** For non-commercial users. A higher rate of excise duty is levied on commercial users.

There are no subsidies for vehicle owners to convert to autogas or purchase OEM vehicles. However, some autogas vehicles are exempted from driving restrictions in Mexico City for anti-pollution reasons.

90 AUTOGAS INCENTIVE POLICIES · MEXICO WORLD LP GAS ASSOCIATION / MENECON CONSULTING

13.3

Competitiveness of Autogas Against Other Fuels

Autogas becomes competitive with gasoline at just over 100 000 km for converted vehicles (Figure B13.2), assuming an average conversion cost for a relatively old vehicle of about 11 000 pesos (US$1 000) and average 2004 prices. The conversion cost for newer vehicles using more sophisticated fuel systems is estimated at over 20 000 pesos and as much as 30 000 pesos for some vehicles. The higher vehicle-acquisition and running costs of diesel mean that autogas is more competitive than diesel up to about 110 000 km. The break-even distance of autogas has increased substantially in the last two years: in 2003, it was an estimated 70 000 km. This explains the recent fall in autogas conversions and fuel sales.

Figure B13.2: Running Costs of a Non-Commercial LDV, 2004 – Mexico

80000 70000 60000
Cost (pesos)

Autogas - conversion

Autogas - OEM

Diesel Gasoline

50000 40000 30000 20000 10000 0 0 10 20 30 40 50 60 70 80 90 100 Distance travelled (thousand km)
Gasoline is the cheapest fuel option up to just over 100 000 km

AUTOGAS INCENTIVE POLICIES · MEXICO 91 WORLD LP GAS ASSOCIATION / MENECON CONSULTING

14. Netherlands

14.1

Autogas Market Trends

The Netherlands has the third largest autogas market in the European Union after Italy and Poland, with consumption in 2004 running at an estimated 378 000 tonnes – equal to 3.6% of total road fuel use (Figure B14.1). At end-2002, there were about 300 000 autogas vehicles in use and 2 140 refuelling stations. Autogas consumption has declined in recent years, despite some strengthening of ﬁscal incentives at the beginning of this decade (see below). Preliminary data point to a drop of 13% in 2004. The Dutch government has encouraged the use of autogas and LP Gas generally for many years because the country, with a large reﬁning industry, used to be a major producer and exporter of the fuel. The country is now a net importer of LP Gas, to the tune of 27% of total consumption in 2004. Autogas accounts for 23% of total LP Gas use in the Netherlands. The rationale for encouraging autogas now is purely environmental.

Figure B14.1: Autogas Consumption and Vehicle Fleet – Netherlands
700
Consumption Vehicles

400 350 300 250

600

500

Thousand tonnes

400 200 300 150 200 100 50 0 1999 2000 2001 2002 2003 2004*

100

0

* Preliminary data.

14.2

Government Autogas Incentive Policies

The Dutch government has maintained a policy of strongly encouraging autogas through fuel and vehicle tax incentives for many years. The excise duty on autogas was reduced in 2002 and 2003, and currently stands at

92 AUTOGAS INCENTIVE POLICIES · NETHERLANDS WORLD LP GAS ASSOCIATION / MENECON CONSULTING

Thousand vehicles

only 5.5 euro cents/litre, while duties on gasoline and diesel have gradually increased (Table B14.1). The differential currently stands at 31 cents/litre for diesel and 61 cents/litre for gasoline. Autogas prices at the pump are currently a little over half those of diesel and only 37% those of gasoline.

Table B14.1: Automotive-Fuel Prices and Taxes – Netherlands (euros/litre)
2000 Pump prices Autogas – commercial Autogas - non-commercial Diesel – commercial Diesel - non-commercial Gasoline - commercial Gasoline - non-commercial Total taxes Autogas - commercial Autogas - non-commercial Diesel - commercial Diesel - non-commercial Gasoline - commercial Gasoline - non-commercial Excise duty Autogas Diesel Gasoline Pre-tax price Autogas Diesel Gasoline 0.321 0.368 0.390 0.295 0.346 0.358 0.297 0.320 0.333 0.309 0.324 0.336 0.337 0.380 0.385 0.064 0.352 0.599 0.067 0.342 0.611 0.065 0.344 0.628 0.055 0.344 0.638 0.055 0.367 0.667 0.064 0.131 0.352 0.477 0.599 0.772 0.067 0.136 0.342 0.474 0.611 0.795 0.065 0.133 0.344 0.470 0.628 0.811 0.055 0.124 0.344 0.471 0.638 0.823 0.055 0.129 0.367 0.509 0.667 0.867 0.385 0.453 0.720 0.845 0.989 1.162 0.362 0.43 0.689 0.820 0.969 1.153 0.362 0.43 0.664 0.790 0.962 1.144 0.364 0.432 0.668 0.795 0.974 1.159 0.392 0.466 0.747 0.889 1.052 1.252 2001 2002 2003 2004

Although there are no grants or tax credits available for autogas conversions or OEM purchases, vehicle-purchase taxes are signiﬁcantly lower than for diesel cars (and the same as for gasoline cars). At present, the full retail price of a standard diesel car is more than 3 000 euros more than for a gasoline model, and more than 500 euros more than an OEM autogas model. In addition, annual vehicle (road) tax, known as the holdership tax, is signiﬁcantly higher for diesel. For autogas cars that meet euro-3 emissions standards, the holdership tax is the same as for gasoline vehicles.

AUTOGAS INCENTIVE POLICIES · NETHERLANDS 93 WORLD LP GAS ASSOCIATION / MENECON CONSULTING

14.3

Competitiveness of Autogas Against Other Fuels

The large excise tax differential with gasoline results in a relatively low break-even distance for autogas against gasoline, of around 35 000 km for converted vehicles and 47 000 km for OEM vehicles (Figure B14.2). The higher vehicle-acquisition and running costs of diesel mean that autogas is always more competitive than diesel, regardless of the distance travelled.

Figure B14.2: Running Costs of a Non-Commercial LDV, 2004 Netherlands
12000

Autogas - conversion
10000

Autogas - OEM Diesel

Gasoline
Cost (euros)
8000

6000

4000

Autogas OEM breaks even against gasoline
Autogas conversion breaks even against gasoline 0 10 20 30 40 50 60 70 80 90 100

2000

0 Distance travelled (thousand km)

Note: the diesel cost does not take into account higher annual vehicle (holdership) and provincial taxes.

94 AUTOGAS INCENTIVE POLICIES · NETHERLANDS WORLD LP GAS ASSOCIATION / MENECON CONSULTING

15. Poland
15.1 Autogas Market Trends

Poland has a large and rapidly growing autogas market, mainly due to a substantial ﬁscal advantage over conventional fuels. Consumption more than tripled between 1999 and 2004, reaching 1.44 million tonnes – the second largest in the European Union after Italy. Autogas use is equal to 15.4% of total road-fuel use (Figure B15.1). Part of these sales is thought to be accounted for by illegal ﬁlling of car tanks with gas from cylinders, on which there is no excise duty. Autogas now accounts for around two-thirds of total LP Gas consumption in Poland.

Figure B15.1: Autogas Consumption and Vehicle Fleet – Poland
1600 1400 1200 1000 800 600 400 200 0 1999 2000 2001 2002 2003 2004* 1600 1400 Thousand vehicles 1200 1000 800 600 400 200 0

Consumption Vehicles

Thousand tonnes

* Preliminary estimates

At end-2004, there were an estimated 1.45 million autogas vehicles in use, or 13% of the total vehicle ﬂeet. Most vehicles are LDVs for private and commercial use, but 85 autogas-fuelled buses have also been brought into service. About 80% of the country’s taxis have been converted to autogas. The number of conversions to autogas was boosted in 2004 by a surge in imported second-hand gasoline cars following Poland’s entry into the European Union. Around half of the 820 000 cars, mostly imported from Germany, are thought to have been converted to autogas. Conversion costs are very low compared to Western European countries.

AUTOGAS INCENTIVE POLICIES · POLAND 95 WORLD LP GAS ASSOCIATION / MENECON CONSULTING

Some 1 600 new retail outlets were established in 2002 and 2003. Another 1 500 outlets are thought to have been added in 2004, bringing the total number by the end of the year to 4 500. Most are small, family-run stations, although more large service stations are installing autogas pumps. The consumption of autogas is expected to slow in the coming years as most old cars, which are cheap to convert, already run on autogas. The cost of new-car conversions is much higher.

15.2

Government Autogas Incentive Policies

Booming autogas sales have resulted from a large tax differential between autogas on the one hand and gasoline and diesel on the other. The excise duty on autogas has more than trebled since 2000, including a jump from 0.31 to 0.41zlotys/litre in May 2004, but is still well below those levied on the other fuels. Autogas enjoys an excise-duty advantage of 1.18 zlotys over gasoline and 0.72 zlotys over diesel (Table B15.1). As a result, the pump price of autogas is 46% that of gasoline and 54% that of diesel.

Table B15.1: Automotive-Fuel Prices and Taxes – Poland (zlotys/litre)
2000 Pump prices Autogas – commercial Autogas - non-commercial Diesel – commercial Diesel - non-commercial Gasoline - commercial Gasoline - non-commercial Total taxes Autogas - commercial Autogas - non-commercial Diesel - commercial Diesel - non-commercial Gasoline - commercial Gasoline - non-commercial Excise duty Autogas Diesel Gasoline Pre-tax price Autogas Diesel Gasoline n.a. 1.202 1.347 n.a. 1.159 1.191 n.a. 1.135 1.152 0.928 1.321 1.250 1.029 1.494 1.500 0.120 0.893 1.224 n.a. 0.933 1.393 n.a. 0.980 1.464 0.253 1.003 1.498 0.381 1.103 1.562 n.a. n.a. 0.893 1.354 1.224 1.790 n.a. n.a. 0.933 1.393 1.393 1.962 n.a. n.a. 0.980 1.445 1.464 2.040 0.253 0.513 1.003 1.514 1.498 2.103 0.381 0.691 1.103 1.674 1.498 2.236 n.a. 1.200 2.095 2.555 2.571 3.137 n.a. n.a. 2.092 2.552 2.584 3.152 n.a. n.a. 2.115 2.580 2.616 3.192 1.181 1.441 2.324 2.835 2.748 3.353 1.410 1.719 2.597 3.168 3.062 3.736 2001 2002 2003 2004

96 AUTOGAS INCENTIVE POLICIES · POLAND WORLD LP GAS ASSOCIATION / MENECON CONSULTING

The Polish government is expected to narrow tax differentials further in the next few years to curb the growth in autogas sales and bolster tax revenues. There are no grants or other kinds of subsidy for vehicle conversions.

15.3

Competitiveness of Autogas Against Other Fuels

The break-even distance for autogas against gasoline vehicles is extremely low in Poland, both because of the big tax advantage on the fuel itself and the relatively low costs of vehicle conversions. The latter factor is partly due to the poor quality of conversions, which has raised concerns about safety. Labour costs are also signiﬁcantly lower than in Western Europe. The cost of converting an old-model gasoline car is around 1 500 zlotys (400 euros), compared to up to 4 000 zlotys (nearly 1 000 euros) for a new Euro-3 standard vehicle. Assuming an average cost of 2 000 zlotys yields a break-even distance of about 16 000 km – about one year of driving for a private car owner (Figure B15.2). Even at a conversion cost of 4 000 zlotys, the break-even distance is little more than 30 000 km. The higher vehicleacquisition and running costs of diesel mean that autogas is always more competitive with diesel, regardless of the distance travelled.

Figure B15.2: Running Costs of a Non-Commercial LDV, 2004 – Poland
35000 30000 25000
Cost (zlotys)

Autogas - conversion (old model)

Autogas - conversion (new model)
Diesel Gasoline

20000

15000 10000 5000 0 0 10 20 30 40
Autogas conversion (new model) breaks even against gasoline

Autogas conversion (old model) breaks even against gasoline

50

60

70

80

90

100

Distance travelled (thousand km)

AUTOGAS INCENTIVE POLICIES · POLAND 97 WORLD LP GAS ASSOCIATION / MENECON CONSULTING

16. Russia

16.1

Autogas Market Trends

Russia has the world’s eighth-largest autogas market. Demand reached almost 800 000 tonnes in 2003, 180 000 tonnes higher than in 2000 (Figure B16.1). Autogas currently accounts for 2.2% of road-fuel consumption and 13% of total LP Gas consumption. At end-2003, there were an estimated 550 000 autogas vehicles and 470 refuelling stations in Russia. Of production of 7.2 million tonnes in 2003, Russia exported 1.2 Mt.

Figure B16.1: Autogas Consumption and Vehicle Fleet – Russia
900
Consumption

600
Vehicles

800 700 Thousand tonnes 600 500

500 Thousand vehicles

400

300 400 300 200 100 100 0 2000 2001 2002 2003 0 200

16.2

Government Autogas Incentive Policies

The main government incentive for autogas in Russia is the exemption from excise duty, which – together with a relatively low pre-tax price – results in a large pump-price differential vis-à-vis gasoline and, to a lesser extent, diesel (Table B16.1). The prices of LPG sold as autogas, as well as the prices of gasoline and diesel are deregulated in Russia, but the wholesale and retail prices of LPG sold in cylinders to households are still controlled. Regulated wholesale prices are roughly half the true market level, which tends to depress deregulated wholesale prices. The government plans to

98 AUTOGAS INCENTIVE POLICIES · RUSSIA WORLD LP GAS ASSOCIATION / MENECON CONSULTING

lift these remaining price controls by 2008. In 2004, the average pump price of autogas in Russia was 55% of the price of gasoline and 68% of that of diesel. There are no other ﬁscal or regulatory incentives.

Table B16.1: Automotive-Fuel Prices and Taxes – Russia (rubles/litre)
2000 Pump prices Autogas – commercial Autogas - non-commercial Diesel – commercial Diesel - non-commercial Gasoline - commercial Gasoline - non-commercial Total taxes Autogas - commercial Autogas - non-commercial Diesel - commercial Diesel - non-commercial Gasoline - commercial Gasoline - non-commercial Excise duty Autogas Diesel Gasoline Pre-tax price Autogas Diesel Gasoline n.a. 3.59 n.a. n.a. 4.43 3.84 n.a. 3.98 4.30 4.00 5.16 5.08 6.56 8.30 8.33 n.a. n.a. n.a. n.a. 0.46 1.37 n.a. 0.52 1.54 0.00 0.75 2.23 0.00 1.36 3.64 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 0.46 1.44 1.37 2.42 n.a. n.a. 0.52 1.42 1.54 2.71 0.00 0.80 0.75 1.93 2.23 3.69 0.00 1.31 1.36 3.30 3.64 6.04 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 4.89 5.88 5.21 6.25 n.a. n.a. 4.50 5.40 5.84 7.01 4.00 4.80 5.91 7.09 7.31 8.77 6.56 7.87 9.66 11.60 11.97 14.37 2001 2002 2003 2004

16.3

Competitiveness of Autogas Against Other Fuels

Autogas in a converted LDV is competitive with gasoline at a distance of around 50 000 km, based on a conversion cost of about 18 000 rubles (500 euros). Autogas is competitive against a new diesel LDV, but only up to a distance of just over 100 000 km as running costs for diesel are slightly lower than for autogas (Figure B16.2).

AUTOGAS INCENTIVE POLICIES ·RUSSIA 99 WORLD LP GAS ASSOCIATION / MENECON CONSULTING

Figure B16.2: Running Costs of a Non-Commercial LDV, 2004 – Russia

140000

Autogas - conversion
120000 100000 80000

Diesel Gasoline

Cost (rubles)

60000 40000 20000

Autogas conversion breaks even against gasoline

0 0 10 20 30 40 50 60 70 80 90 100 Distance travelled (thousand km)

100 AUTOGAS INCENTIVE POLICIES · RUSSIA WORLD LP GAS ASSOCIATION / MENECON CONSULTING

17. Thailand

17.1

Autogas Market Trends

The fortunes of Thailand’s autogas market have ﬂuctuated in recent years, as a spell of rapid growth in the early part of the current decade was followed by a downturn since 2002. Autogas sales were boosted initially by favourable taxation, a measure aimed at encouraging a switch away from more polluting diesel and gasoline in major urban centres. But government policy has recently shifted towards support for compressed natural gas, although the ﬁscal incentive to use autogas remains strong. Autogas demand peaked at almost 250 000 tonnes in 2002, falling to 210 000 tonnes in 2003 (Figure B17.1). That level represented a little over 1% of total roadtransport fuel sales and about 8% of total LP Gas use in Thailand. The number of vehicles has also begun to decline. At end-2003, there were an estimated 46 000 autogas vehicles – almost exclusively taxis and motorised rickshaws – and 56 refuelling stations. Almost half of Thailand’s LP Gas needs are imported.

Figure B17.1: Autogas Consumption and Vehicle Fleet – Thailand
300 60

Consumption Vehicles
250 50

150

30

100

20

50

10

0 1999 2000 2001 2002 2003

0

17.2

Government Autogas Incentive Policies

Autogas carries a duty of 1.3 baht per litre – roughly half that on diesel and a third that on gasoline. Duties have not changed since the 1990s. The government controls the pump price of autogas through a ﬁxed distribution

AUTOGAS INCENTIVE POLICIES · THAILAND 101 WORLD LP GAS ASSOCIATION / MENECON CONSULTING

Thousand vehicles

Thousand tonnes

200

40

margin. As a result, the pre-tax price is signiﬁcantly lower than that of the other fuels. In 2004, the average pump price of autogas including VAT was 47% of that of gasoline and 61% of that of diesel (Table B3.1). The price difference in absolute terms has widened in recent years as gasoline and diesel prices have increased more rapidly than autogas prices. Pump prices are the same for commercial and private consumers, as commercial users cannot recover sales taxes.

Table B17.1: Automotive-Fuel Prices and Taxes – Thailand (bhat/litre)*
2000 Pump prices Autogas – commercial Autogas - non-commercial Diesel – commercial Diesel - non-commercial Gasoline - commercial Gasoline - non-commercial Total taxes Autogas - commercial Autogas - non-commercial Diesel - commercial Diesel - non-commercial Gasoline - commercial Gasoline - non-commercial Excise duty
* In Bangkok.

2001

2002

2003

2004

5.710 5.710 12.935 12.935 14.619 14.619

6.460 6.460 13.455 13.455 15.579 15.579

7.550 7.550 13.145 13.145 15.292 15.292

8.050 8.050 14.044 14.044 16.617 16.617

8.870 8.870 14.590 14.590 18.720 18.720

1.700 1.700 3.381 3.381 5.074 5.074

1.749 1.749 3.419 3.419 5.073 5.073

1.820 1.820 3.396 3.396 5.041 5.041

1.853 1.853 3.455 3.455 5.141 5.141

1.906 1.906 3.490 3.490 5.279 5.279

Autogas Diesel

1.326 2.536 4.054

1.326 2.536 4.054

1.326 2.536 4.054

1.326 2.536 4.054

1.326 2.536 4.054

Gasoline Pre-tax price Autogas Diesel Gasoline
* In Bangkok.

4.010 5.999 9.545

4.711 9.554 10.506

5.730 10.036 10.251

6.197 9.749 11.476

6.964 10.589 13.441

There are no subsidies for the conversion of gasoline vehicles to autogas. Moreover, the government has adopted a policy of favouring compressed natural gas over autogas, in order to make use of the country’s indigenous gas resources.

102 AUTOGAS INCENTIVE POLICIES · THAILAND WORLD LP GAS ASSOCIATION / MENECON CONSULTING

17.3

Competitiveness of Autogas Against Other Fuels

The relatively low level of prices results in a break-even distance for a typical passenger car converted to run on autogas against gasoline of just over 40 000 km (Figure B17.2). This analysis assumes a conversion cost of 25 000 baht (US$600) and a premium of 60 000 (US$1 200) for a diesel car over a gasoline car. Diesel breaks even with gasoline at a distance of more than 80 000 km. As marginal running costs for diesel cars are similar to those of autogas cars, autogas is always more competitive.

Figure B17.2: Running Costs of a Non-Commercial LDV, 2004 – Thailand

160000
Autogas - conversion

140000 120000
Cost (bhat)

Diesel Gasoline

100000 80000 60000 40000 20000 0 0 10 20 30 40 50 60 70 80 90 100 Distance travelled (thousand km)
Autogas conversion breaks even against gasoline

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18. Turkey
18.1 Autogas Market Trends

The Turkish autogas market boomed at the end of the 1990s, as consumers took advantage of the much lower rate of duty on autogas compared with gasoline to convert their cars following the lifting of a ban on autogas vehicles. Consumption almost doubled in 2000, reaching almost 1.3 million tonnes. It fell back in 2001 and 2002, as the government hiked the duty on autogas to rein back demand and discourage illegal conversions that failed to meet safety standards (Figure B18.1). It rebounded again in 2003 to almost 1.3 million tonnes and to an estimated 1.39 million tonnes in 2004, with a widening of the autogas price differential with gasoline helped by a cut in the excise duty on autogas at the end of 2003. Autogas accounted for 13.6% of total automotive-fuel consumption in Turkey by mass in 2004 – the highest share of any country in the world after Korea and Poland. Autogas accounts for 36% of Turkey’s total LP Gas consumption, more than threequarters of which is met by imports.

Figure B18.1: Autogas Consumption and Vehicle Fleet – Turkey
1600 1400 1200 Thousand tonnes 1000 800 800 600 600 400 200 0 1999 2000 2001 2002 2003 2004* 400
Consumption Vehicles

1400

1200

200

0

* Preliminary estimates.

The number of vehicles able to run on autogas has continued to rise, reaching 1.2 million at end-2004, or more than one-quarter of the country’s total vehicle ﬂeet. Most vehicles that use autogas are converted old gasoline cars. An estimated 200 000 gasoline cars were converted in 2004. Conversion costs are low in Turkey, in part due to poor quality. Almost all taxis operate on autogas. There are an estimated 4 000 refuelling sites – equal to a third of all service stations. The safety of refuelling operations has become a major issue, following a series of accidents.

104 AUTOGAS INCENTIVE POLICIES · TURKEY WORLD LP GAS ASSOCIATION / MENECON CONSULTING

Thousand vehicles

1000

18.2

Government Autogas Incentive Policies

The boom in autogas use in Turkey came about more as a result of a social policy of low taxation of LP Gas as a household fuel than a deliberate policy of promoting alternative fuels. In the 1990s, the government levied an excise duty on autogas only slightly higher than that on cylinder gas. The surge in autogas use eventually persuaded the government to raise the excise duty and apply the special 40% rate of VAT on autogas sales at the start of 2000, as well as increasing the annual inspection charge for converted autogas vehicles.

Table B18.1: Transport Fuel Prices and Taxes – (liras/litre)
2000 Pump prices Autogas – commercial Autogas - non-commercial Diesel – commercial Diesel - non-commercial Gasoline - commercial Gasoline - non-commercial Total taxes Autogas - commercial Autogas - non-commercial Diesel - commercial Diesel - non-commercial Gasoline - commercial Gasoline - non-commercial Excise duty Autogas Diesel Gasoline Pre-tax price Autogas Diesel Gasoline n.a. 0.180 0.223 n.a. 0.338 0.369 0.370 0.520 0.441 0.426 0.480 0.520 0.501 0.580 0.620 n.a. 0.192 0.277 n.a. 0.285 0.474 0.267 0.425 0.810 0.411 0.700 1.010 0.362 0.730 1.040 n.a. n.a. 0.192 0.255 0.277 0.361 n.a. n.a. 0.285 0.396 0.474 0.623 0.267 0.447 0.425 0.595 0.810 1.035 0.411 0.562 0.700 0.910 1.010 1.280 0.362 0.517 0.730 0.960 1.040 1.340 n.a. n.a. 0.372 0.435 0.499 0.583 n.a. n.a. 0.623 0.733 0.842 0.992 0.636 0.816 0.945 1.116 1.251 1.476 0.837 0.988 1.180 1.390 1.530 1.800 0.863 1.018 1.310 1.540 1.660 1.960 2001 2002 2003 2004

The standard VAT rate of 18% was restored in the second half of 2002, following a ruling by the Supreme court, but excise duties were raised further to compensate. But duties were lowered again in the second half of 2003 and at the beginning of 2004 to reduce the differential with LP Gas

AUTOGAS INCENTIVE POLICIES · TURKEY 105 WORLD LP GAS ASSOCIATION / MENECON CONSULTING

sold in cylinders, which had encouraged many independent retailers to illegally sell the fuel for autogas use (Table B18.1). The tax reform involved an increase in the excise tax on cylinder LP Gas and a cut in the tax on autogas. The excise duty was cut further to 0.28 lira/litre in late 2004. The Turkish LP Gas market was deregulated at the beginning of 2005, allowing retailers to set prices freely. But the government continues to exert inﬂuence over pricing through control of the ex-reﬁnery price. Including VAT, taxes in 2004 accounted for just over half the pump price of autogas on average. Autogas prices were 52% those of gasoline and 66% those of diesel. The government is seeking to improve the enforcement of safety regulations, following a series of accidents involving poorly converted vehicles and illegal ﬁlling of autogas tanks at service stations with fuel destined for sale in cylinders. There is already a legal requirement for converted vehicles to undergo compulsory bi-annual inspections. The European Autogas Quality Standard EN 589 became mandatory at the start of 2004, which has helped to reduce problems caused by poor fuel quality.

18.3

Competitiveness of Autogas Against Other Fuels

The low cost of conversions in Turkey, due to low labour costs and relatively unsophisticated technology, results in relatively low break-even distances for autogas. For a typical conversion, the distance is only 14 000 km against gasoline (Figure B18.2). Diesel breaks even against gasoline only at 25 000 km, and is only competitive against autogas at distances of more than 120 000 km. This analysis does not take account of mandatory inspection charges for autogas vehicles, which are thought to amount to over 200 liras (US$150). However, diesel servicing costs are marginally higher than for autogas. Annual fuel costs are marginally lower for diesel than autogas.

Figure B18.2: Running Costs of a Non-Commercial LDV, 2004 – Turkey
18000

Autogas - conversion
16000 14000 12000
Cost (lira)

Diesel Gasoline

10000 8000 6000 4000 2000 0 0 10 20 30 40 50 60 70 80 90 100 Distance travelled (thousand km)
Autogas conversion breaks even against gasoline

106 AUTOGAS INCENTIVE POLICIES · TURKEY WORLD LP GAS ASSOCIATION / MENECON CONSULTING

19. United Kingdom

19.1

Autogas Market Trends

The UK autogas market has seen spectacular growth in the last ﬁve years. Until the end of the 1990s, autogas use was minimal. Consumption started to pick up in 1999, and increased rapidly to just under 100 000 tonnes in 2004, thanks to strong tax incentives and vehicle subsidies (Figure B19.1). Yet autogas still accounts for only 0.3% of total transport fuels use by mass. By end-2003, there were 105 000 autogas vehicles in use and 1 272 refuelling stations. The number of vehicles is thought to have increased to around 130 000 by early 2005.

Figure B19.1: Autogas Consumption and Vehicle Fleet – United Kingdom
120

Consumption

140

Vehicles

100

120

Thousand tonnes

80 80 60 60 40 40 20

20

0 1999 2000 2001 2002 2003 2004*

0

* Preliminary estimates.

19.2

Government Autogas Incentive Policies

The recent emergence of an autogas market in the United Kingdom resulted from strong ﬁscal incentives, including the establishment of a large exciseduty differential between autogas and gasoline and diesel, which the government introduced in 1999. In that year’s March budget, the government cut the rate of duty on autogas by 29%, while raising duties on the other fuels by 8%. The autogas duty was further reduced in 2000 and 2001, and

AUTOGAS INCENTIVE POLICIES · UNITED KINGDOM 107 WORLD LP GAS ASSOCIATION / MENECON CONSULTING

Thousand vehicles

100

has remained constant since then at under 5 pence/litre, equivalent to 10% of the current duty on both gasoline and diesel (Table B19.1). As a result, autogas prices at the pump are currently just under half those of gasoline and diesel.

Table B19.1: Automotive-Fuel Prices and Taxes – United Kingdom (pounds/litre)
2000 Pump prices Autogas – commercial Autogas - non-commercial Diesel – commercial Diesel - non-commercial Gasoline - commercial Gasoline - non-commercial Total taxes Autogas - commercial Autogas - non-commercial Diesel - commercial Diesel - non-commercial Gasoline - commercial Gasoline - non-commercial Excise duty Autogas Diesel Gasoline Pre-tax price Autogas Diesel Gasoline n.a 0.208 0.196 n.a 0.200 0.181 0.270 0.184 0.165 0.283 0.202 0.186 0.281 0.226 0.212 0.055 0.484 0.484 0.047 0.463 0.464 0.047 0.458 0.458 0.047 0.461 0.461 0.047 0.471 0.471 n.a n.a. 0.484 0.605 0.484 0.603 n.a n.a. 0.463 0.579 0.464 0.577 0.047 0.103 0.458 0.571 0.458 0.567 0.047 0.105 0.461 0.577 0.461 0.574 0.047 0.105 0.471 0.593 0.471 0.591 n.a n.a. 0.692 0.813 0.680 0.799 n.a n.a. 0.663 0.779 0.645 0.758 0.317 0.373 0.642 0.755 0.623 0.732 0.330 0.388 0.663 0.779 0.647 0.760 0.328 0.385 0.697 0.819 0.683 0.803 2001 2002 2003 2004

The government announced in March 2005 that it would reduce the excisetax differential between autogas on the one hand and diesel and gasoline by 1p/litre each year to 2008. The duty on autogas was duly raised by 2p/litre to 6.7 p/litre from May 2005, while gasoline and diesel duties were raised by 1p/litre. But the government also announced that autogas vehicles will beneﬁt from an increase to 2% in the discount on the annual company-car tax from April 2006, while the 3% discount currently applied to Euro-4 diesel vehicles will be removed in January 2006.

108 AUTOGAS INCENTIVE POLICIES · UNITED KINGDOM WORLD LP GAS ASSOCIATION / MENECON CONSULTING

Up to March 2005, the government made available grants through the PowerShift programme to cover a large part of the cost of converting gasoline vehicles to autogas and some other alternative fuels, as well as the difference in price between a bi-fuelled autogas vehicle and that of its gasoline or diesel equivalent. PowerShift, which is run by the independent Energy Savings Trust, was set up to promote the use of cleaner fuels and kick-start the market. Grants amounted to £700 for passenger cars and £800 for vans and minibuses. These grants are no longer available, following a removal of funding for the scheme. Autogas vehicles are exempt from the London congestion charge, which was introduced in 2003. Autogas vehicles also beneﬁt from a £10 discount on the annual road (vehicle registration) tax over gasoline vehicles and a £20 discount over diesel vehicles. In addition, the Department of Trade and Industry Automotive Unit has set up a campaign, called BoostLPG, to improve the availability of information and to promote the beneﬁts and opportunities associated with using LPGfuelled vehicles. The campaign is run by the LP Gas Association.

19.3

Competitiveness of Autogas Against Other Fuels

The large tax differential and government grants for autogas LDVs resulted in a breakeven distance of around 41 000 km against gasoline and 36 000 km against diesel for non-commercial users in 2004 (Figure B11.2). The break-even distance for diesel against gasoline was slightly higher, because higher fuel costs than autogas offset the low purchase-price

Figure B19.2: Running Costs of a Non-Commercial LDV, 2004 – United Kingdom
7000

Autogas - conversion
Autogas - OEM Diesel

6000 5000

Gasoline

Cost (pounds)

4000

3000 2000 1000

Autogas conversion breaks even against diesel
Autogas conversion breaks even against gasoline
0 10 20 30 40 50 60 70 80 90 100

0 Distance travelled (thousand km)

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20. United States
20.1 Autogas Market Trends

Despite federal and state efforts to encourage vehicle conversions and additions to refuelling stations, the US autogas (propane) market has been ﬂat in recent years at around 750 000 tonnes, although there has been a modest increase in the total autogas-vehicle ﬂeet (Figure B20.1). Autogas accounts for only 13% of total US LP Gas consumption. High pump prices of autogas relative to conventional fuels is the main reason for the low penetration of autogas in the US road-transport fuel market. The main support for autogas sales now comes from federal AFV mandates. There are currently an estimated 190 000 vehicles, mostly ﬂeet vehicles and fork-lift trucks, operating on autogas. There are 4 300 refuelling stations across the country.

Figure B20.1: Autogas Consumption and Vehicle Fleet – United States
800

Consumption

200 190 180 170 160

Vehicles
750

700

650

150 140

600

130 120 110

550

500 1999 2000 2001 2002 2003

100

Fuel suppliers have become less and less interested in the potential of increasing autogas sales in traditional transportation markets, and are increasingly concentrating on off-road markets such as forklift trucks and tractors. Several vehicle manufacturers have also abandoned the autogas market and only one OEM vehicle, a Ford pickup truck, is currently available in the United States. The planned phase-out of federal subsidies is a major contributory factor in the dwindling interest in OEM sales (see below). The Department of Energy projects sales of light-duty autogas vehicle to decline during over the next decade from 46 300 in 2001 to 35 900 in 2010 (DOE/EIA, 2004).

110 AUTOGAS INCENTIVE POLICIES · UNITED STATES WORLD LP GAS ASSOCIATION / MENECON CONSULTING

Thousand vehicles

Thousand tonnes

20.2

Government Autogas Incentive Policies

20.2.1 Fuel-Tax Differentials
Federal fuel taxes give no incentive for gasoline vehicle users to switch to autogas. At present, the excise duty on autogas, at 3.6 US cents/litre, is lower than that on gasoline (4.9 cents/litre) and on diesel (6.4 cents/litre). But pre-tax autogas prices are higher than those of conventional fuels. As a result, the average price of autogas at the pump is only 4 cents/litre lower than that of gasoline and 3 cents/litre higher than that of diesel, including state taxes (Table B20.1). On a caloriﬁc-value basis, autogas prices are higher than those of both fuels. Autogas prices to public ﬂeets are thought to be lower, as they are exempted from some state duties and sales taxes. The United States is the only country in this survey where autogas for noncommercial users is more expensive on a per litre basis than gasoline.

20.2.2 Federal Clean-Fuel Vehicle Incentives and Mandates
The 1992 Energy Policy Act (EPAct) has been the main thrust of federal efforts to promote alternative fuels in recent years. EPAct established a goal of replacing 10% of oil-based motor fuels in the United States by the year 2000 and 30% by the year 2010. EPAct provides two principal instruments to promote the use of autogas vehicles:

> >

Tax credits and deductions for the purchase of AFVs or conversion of existing conventional vehicles to run on alternative fuels and for the development of supply infrastructure. Mandates on federal, state, and private “alternative fuel provider” ﬂeets to purchase AFVs.

The owner of a dedicated or converted autogas car is entitled to a oneoff federal income-tax deduction of up to $2 000 per vehicle, to cover the incremental cost of converting a vehicle to run on autogas or purchasing an OEWM vehicle. The incentive will be reduced to a maximum of $500 in 2006 and will be phased out at the end of that year. A larger incentive for buses and trucks of up to $50 000 is currently available. A tax deduction of up to $100 000 is also available for certain assets used for refuelling autogas vehicles. EPAct requires all federal ﬂeets consisting of at least 20 or more LDVs operating in a “metropolitan statistical area” to purchase a speciﬁc minimum percentage of AFVs. In addition, the State and Alternative Fuel Provider Fleets Program requires all state and alternative fuel provider ﬂeets to purchase a minimum number of such vehicles as a proportion of their annual LDV acquisitions. Fleets earn credits for each vehicle purchased and those credits earned in excess of their requirements can be banked or traded with other ﬂeets. This gives ﬂeets ﬂexibility in meeting their requirements. However, the Department of Energy issued a ﬁnal rule in 2004 rejecting the imposition of AFV mandates on private and local ﬂeets – as required by EPAct – on the grounds that the move would have little impact on fuel use.

AUTOGAS INCENTIVE POLICIES · UNITED STATES 111 WORLD LP GAS ASSOCIATION / MENECON CONSULTING

Table B20.1: Automotive-Fuel Prices and Taxes – United States ($/litre)
2000 Pump prices Autogas – commercial Autogas - non-commercial Diesel – commercial Diesel - non-commercial Gasoline - commercial Gasoline - non-commercial Total taxes* Autogas - commercial Autogas - non-commercial Diesel - commercial Diesel - non-commercial Gasoline - commercial Gasoline - non-commercial Excise duty** Autogas Diesel Gasoline Pre-tax price Autogas Diesel Gasoline n.a. 0.277 0.347 n.a. 0.253 0.337 n.a. 0.230 0.312 0.320 0.279 0.367 0.407 0.359 0.443 0.036 0.064 0.049 0.036 0.064 0.049 0.036 0.064 0.049 0.036 0.064 0.049 0.036 0.064 0.049 n.a. n.a. 0.117 0.117 0.101 0.101 n.a. n.a. 0.118 0.118 0.101 0.101 n.a. n.a. 0.118 0.118 0.102 0.102 0.100 0.100 0.119 0.119 0.102 0.102 0.100 0.100 0.120 0.120 0.103 0.103 0.307 0.307 0.395 0.395 0.448 0.448 0.376 0.376 0.371 0.371 0.438 0.438 0.343 0.343 0.348 0.348 0.414 0.414 0.420 0.420 0.398 0.398 0.469 0.469 0.507 0.507 0.479 0.479 0.546 0.546 2001 2002 2003 2004

* Average across states. ** Federal excise duties only.

20.2.3 State Programmes
Most US states make available additional ﬁscal incentives to support the autogas market. Current programmes include the following:

> > >

The Colorado Department of Revenue offers a tax credit for the purchase of new AFVs and for the conversion of vehicles to alternative fuels. In Connecticut, the incremental cost of purchasing a new vehicle exclusively fuelled by CNG, LNG, autogas or electricity is eligible for a 10% corporate-tax credit. Georgia offers a tax credit towards the purchase, lease, or conversion of a vehicle that operates solely on an alternative fuel and is certiﬁed as a low emissions vehicle.

112 AUTOGAS INCENTIVE POLICIES · UNITED STATES WORLD LP GAS ASSOCIATION / MENECON CONSULTING

>

The Louisiana Department of Natural Resources offers a state incometax credit worth 20% of the cost of converting a vehicle to operate on an alternative fuel, 20% of the incremental cost of purchasing an OEM AFV and 20% of the cost of constructing an alternative fuel refuelling station. The Utah Clean Fuels Grant and Loan Program provides grants worth up to 50% of the cost of converting a vehicle to run on a clean fuel ($2 500 maximum) and/or up to 50% of the incremental cost of purchasing an OEM vehicle ($3 000 maximum).

>

20.3

Competitiveness of Autogas Against Other Fuels

The higher federal excise duty on autogas means that autogas is never competitive with gasoline, regardless of distance travelled, and is only competitive with diesel up to a distance of about 20 000 km. Figure B13.2 compares the running costs of autogas vehicles against gasoline and diesel vehicles, taking into account an assumed average tax deduction on the vehicle purchase or conversion cost of $1 000.

Figure B20.2: Running Costs of a Non-Commercial LDV, 2004 – United States
14000

Autogas - conversion
Autogas - OEM Diesel

12000 10000 8000

Gasoline
Cost (US dollars)

6000 4000 2000

Diesel breaks even with autogas conversion

0 0 10 20 30 40 50 60 70 80 90 100 Distance travelled (thousand km)

These incentives are not enough to offset the relative high cost of converting gasoline cars to autogas, due to stringent safety standards and high labour charges. Our analysis assumes a conversion cost of $3 000, but actual costs can be considerably higher for some types of vehicle. The per-km running cost of autogas is much higher than that of both diesel and gasoline because of the lower number of kilometres per litre. Mandates for public ﬂeet vehicle purchases are the main reason why autogas continues to be used in the United States.

AUTOGAS INCENTIVE POLICIES · UNITED STATES 113 WORLD LP GAS ASSOCIATION / MENECON CONSULTING

Annex 1: Global Autogas Market Data
Autogas Consumption, 2000-2003 (thousand tonnes)
2000
Algeria Australia Azerbaijan Belgium Bulgaria Canada China Czech Republic Dominican Republic France Germany Hungary Iran Italy Japan Korea Lithuania Mexico Netherlands New Zealand Pakistan Poland Portugal Russia Spain Sri Lanka Thailand Tunisia Turkey Ukraine United Kingdom United States World 182 1 484 31 89 120 380 341 65 62 217 10 22 211 1 141 1 603 3 025 108 860 570 22 17 605 21 600 32 9 162 23 1 282 40 19 720 14 363

2001
217 1 370 36 100 215 350 501 70 84 210 14 39 300 1 394 1 538 3 326 114 1 042 521 25 30 800 20 700 28 14 248 24 1 230 44 50 750 15 415

2002
254 1 232 50 93 250 320 638 68 120 188 15 41 318 1 326 1 543 3 360 137 1 260 494 25 44 960 18 750 24 16 229 15 1 176 45 73 740 15 978

2003
271 1 213 52 94 258 310 694 68 125 166 19 40 320 1 202 1 528 3 740 120 1 200 435 25 40 1 070 20 780 18 21 210 20 1 260 50 93 730 16 445

Average annual growth (%)
14.3% -6.4% 19.7% 2.1% 32.9% -6.5% 27.7% 1.6% 27.5% -8.5% 24.6% 26.7% 16.3% 2.6% -1.6% 7.4% 4.4% 12.4% -8.6% 4.5% 38.0% 21.2% -1.2% 9.3% -17.3% 33.7% 12.4% 0.1% -0.4% 7.8% 78.9% 0.5% 4.6%

Source: WLPGA (2004); IEA (2005); Menecon Consulting estimates.

114 AUTOGAS INCENTIVE POLICIES · GLOBAL AUTOGAS MARKET DATA WORLD LP GAS ASSOCIATION / MENECON CONSULTING

Autogas Vehicles in Use, 2000-2003 (thousands)
2000
Algeria Australia Azerbaijan Belgium Bulgaria Canada China Czech Republic Dominican Republic France Germany Hungary Iran Italy Japan Korea Lithuania Mexico Netherlands New Zealand Pakistan Poland Portugal Russia Spain Sri Lanka Thailand Tunisia Turkey Ukraine United Kingdom United States World 70 590 30 85 120 95 65 150 12 200 8 60 75 1 234 290 1 214 100 350 323 10 25 470 37 400 8 15 40 6 950 22 39 180 7 505

2001
78 600 40 90 165 93 99 150 15 210 10 90 75 1 250 288 1 428 110 400 360 10 65 700 37 500 7 18 50 6 975 25 65 185 8 429

2002
85 508 50 100 185 92 127 145 21 190 12 100 75 1 350 289 1 625 120 430 330 10 77 900 33 530 5 19 50 6 1 000 26 89 188 9 009

2003
120 492 50 93 195 92 134 145 22 180 15 75 75 1 220 290 1 723 125 450 290 10 75 1 100 35 550 4 20 46 7 1 000 28 120 190 9 416

Average annual growth (%)
20.5% -5.6% 19.4% 3.3% 18.3% -1.1% 28.7% -1.1% 23.3% -3.3% 23.3% 12.0% 0.0% -0.1% 0.0% 12.5% 7.8% 8.8% -3.0% 0.0% 58.6% 33.2% -1.6% 11.6% -20.4% 10.3% 5.7% 5.6% 1.7% 8.4% 46.1% 1.8% 7.9%

Source: WLPGA (2004); IEA (2005); Menecon Consulting estimates.

AUTOGAS INCENTIVE POLICIES · GLOBAL AUTOGAS MARKET DATA 115 WORLD LP GAS ASSOCIATION / MENECON CONSULTING

Annex 2: References
Allen Consulting Group (2002), Fuel Quality Standards LPG: Cost-Beneﬁt Analysis of Options for Standard and Implementation. Australian Liqueﬁed Petroleum Gas Association (ALPGA) (2003a), LPG – The Clean Transport Alternative. Australian Liqueﬁed Petroleum Gas Association (ALPGA) (2003b), The Indirect Taxation of LPG in Australia: Quantifying the Costs and Beneﬁts of the Current Differentiated Treatment . Australian Liqueﬁed Petroleum Gas Association (ALPGA) (2003c), The Autogas Dimension: Strategy and Policy. Argonne National Laboratory Center for Transportation Research, United States (2000a), Fuel-Cycle Emissions for Conventional and Alternative Fuel Vehicles: An Assessment of Air Toxics. Argonne National Laboratory Center for Transportation Research, United States (2000b), Greenhouse Gases and Regulated Emissions from Transportation (GREET) 1.5a – Transportation Fuel-Cycle Model. CSIRO Atmospheric Research Report to Australian Greenhouse Ofﬁce (2003), Life-Cycle Emissions Analysis of Alternative Fuels for Heavy Vehicles (Stage 2 Study). Department of Energy/Energy Information Administration (DOE/EIA) (2004), Annual Energy Outlook . Energy Futures, Inc., The Clean Fuels and Electric Vehicles Report (monthly newsletter, various issues). European Council of Ministers of Transport (ECMT) (2001), Vehicle Emissions Reduction. International Energy Agency (IEA) (2005), Energy Prices and Taxes, 2nd quarter 2005 . Kfrafthardt-Bundesamt (2001), Fuel Composition and Emissions, Type Approval Data of MY 2001 Light Duty Vehicles , Publication 11.

116 AUTOGAS INCENTIVE POLICIES · REFERENCES WORLD LP GAS ASSOCIATION / MENECON CONSULTING

OECD (2003), Can Cars Come Clean? Strategies for Low-emission Vehicles. Petroleum Argus, LPG World (twice-monthly newsletter, various issues). Ricardo Consulting Engineers (2001), Particulate Research Programme 1998-2001: Summary Report. TNO (2003), Evaluation of the Environmental Impact of Modern Passenger Cars on Petrol, Diesel, Automotive LP and CNG. TNO (1998), The Alternative Fuels Directory. World LP Gas Association (2001), Developing a Sustainable Autogas Market: Guidelines for Policymakers . World LP Gas Association (2002), Clearing the Air: A Technical Guide on Autogas. World LP Gas Association (2004), Statistical Review of Global LP Gas 2004.

AUTOGAS INCENTIVE POLICIES · REFERENCES 117 WORLD LP GAS ASSOCIATION / MENECON CONSULTING

Annex 3: Note on Data Sources
Data on automotive-fuel prices and taxes were compiled from a range of sources. For most countries, Energy Prices and Taxes, a quarterly report published by the International Energy Agency (IEA), was the source for historical price and tax data for diesel and gasoline (unleaded 95 RON). The EU Oil Bulletin, published weekly and monthly by the European Commission, was the primary source of historical data for autogas for most European countries. The IEA made available unpublished autogas price and tax data for several countries from its in-house databases compiled from national submissions. For other countries, autogas prices were obtained from national sources, including national LP Gas associations, government agencies and fuel providers. Estimates of autogas vehicle conversion costs and the incremental cost of OEM vehicles and diesel vehicles were compiled from industry sources, including car and equipment manufacturers. Where country-speciﬁc information was not available, generic cost estimates were used. Most data on autogas consumption, vehicles and refuelling sites are from the WLPGA’s annual publication, Statistical Review of Global LP Gas. For several countries, data for 2004 was obtained from the European LPG Association and from national sources. Data on total road-vehicle ﬂeets are from International Road Statistics 2004, published by the International Roads Federation.

118 AUTOGAS INCENTIVE POLICIES · NOTE ON DATA SOURCES WORLD LP GAS ASSOCIATION / MENECON CONSULTING

Autogas_Incentive_Policies-Country-by-Country

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