If natural gas is going to take advantage of its low price and other advantages it has over oil in the transportation sector, the playing field for alternative fuel transportation needs to be leveled, and a heavy dose of national legislative and regulatory policymaking can help get that done, according to Massachusetts Institute of Technology's (MIT) Christopher Knittel, an energy economics professor.

On Wednesday he previewed a discussion paper to be released next week (June 13).

"While policy has promoted ethanol and electric vehicles (EV) as the future substitute for petroleum-based vehicles, methanol compressed natural gas (CNG) vehicles offer similar, if not greater, benefits at a lower cost," Knittel said, regarding a paper prepared for the upcoming national energy forum, the Hamilton Project at the Brookings Institute at Stanford University. The examination of U.S. energy policy was spurred in large part by what the conference backers called "the unprecedented increases in North American supplies of gas and petroleum."

Knittel said his paper comes at a time when natural gas and oil prices in North America are at an "historic disconnect" -- six-to-one on a per-energy-unit basis -- despite recent drops in oil prices. For the U.S. economy to take advantage of this situation, natural gas vehicles (NGV) need to make significant inroads into the transportation sector, he said, outlining three principal ways this can be done:

What Knittel calls the private benefits -- costs of vehicles and fuel -- are favorable for CNG but not enough to allow it to compete with other alternatives, such as EVs and hybrids, according to the MIT economist's analysis. But many public benefits, or externalities, such as lower greenhouses gas emissions, dependence on foreign oil from unstable parts of the world, and lowering local pollution need to recognized in national legislative and regulatory policies.

In other words, Knittel contends that certain societal costs associated with continued use of foreign oil for transportation fuels could be lessened by increased use of natural gas, but those public NGV benefits need to be recognized in our energy policies.

"The private benefits from shifting from gasoline by themselves are not enough for public policy to intervene," Knittel said. "We typically think that if the private benefits are the only thing that exists, then consumers and firms will get it more or less right."

He thinks CNG and LNG as transportation fuels have some distinct public advantages. "NGV fuels have significantly lower unpriced social costs relative to their petroleum-based counterparts," said Knittel, noting that these are costs borne by society, but not by the consumers and players in the market. "That creates a disconnect, and even though society wants NGVs, they may not take off. In addition, petroleum-based vehicles have a huge advantage in have a huge fueling infrastructure."

Knittel lays out in his paper, which won't be released until the forum is held, a roadmap for how to "level the playing field" for natural gas. To do that he has seven policy recommendations -- three regarding fueling and four regarding NGVs themselves. They are heavily reliant on Congress and the Federal Energy Regulatory Commission spurring the national network of private-sector utilities to get further into the NGV sector.

As some questioners on a conference call indicated, there may be push back for the private-sector nonutility firms already in the business, and also to Knittel idea that "public policy can improve market outcome."

The paper's infrastructure recommendations focus on home fueling devices, utilities opening up all of their fueling stations to the general public and finally forming an industry-wide coalition to look at coordinating LNG fueling infrastructure.

Vehicle recommendations by Knittel call for use of methanol, national mandates for the numbers of NGVs that need to be able to burn gasoline, ethanol and methanol; subsidies for NGVs that recognize their external advantages; improved tax subsidies; and streamlining the NGV conversion technology.

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