Energy Policy Act:

Including Propane as an Alternative Motor Fuel Will Have Little Impact on Propane Market

RCED-98-260: Published: Sep 24, 1998. Publicly Released: Sep 24, 1998.

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Pursuant to a congressional request, GAO determined whether and how including propane as an alternative fuel under the Energy Policy Act of 1992 (EPACT) will affect existing propane consumers as well as the supply and price, focusing on: (1) whether EPACT's goal of replacing at least 10 percent of the conventional fuel used in light-duty vehicles by 2000 and at least 30 percent by 2010 with replacement fuels will be achieved; (2) the extent to which the use of propane as a motor fuel will increase as a result of EPACT; (3) the impact the use of propane as a motor fuel under EPACT will have on the supply and price of propane; and (4) the impact the use of propane as a motor fuel under EPACT will have on existing users of propane.

GAO noted that: (1) it is unlikely that the goal of EPACT of replacing at least 10 percent of the conventional fuel used by light-duty vehicles in the United States by 2000 and at least 30 percent by 2010 with replacement fuels will be achieved; (2) GAO estimates, based on the Energy Information Administration's (EIA) modeling, that alternative fuels will account for less than 1 percent in 2000 and about 3.4 percent in 2010 of the total motor fuel projected to be consumed by light-duty vehicles; (3) the act's focus on the acquisition of alternative-fueled vehicles rather than on the use of alternative fuels, high alternative-fueled vehicle costs, low gasoline prices, and an inadequate refueling infrastructure for these vehicles are factors hindering the increased use of alternative fuels for transportation; (4) EPACT can be expected to lead to a small increase in the use of propane as an alternative fuel in the transportation sector; (5) GAO estimates that after the vehicle acquisition mandates in the act are factored in, consumption of propane as a motor fuel will account for about 1.5 percent of the total propane used in the United States in 2000 and about 5.1 percent in 2010; (6) the effects of EPACT on the supply and price of propane will be minimal; (7) incremental domestic production of propane as a result of the act will be about 7,000 barrels per day in 2000 and 85,000 in 2010; (8) according to the EIA, these levels of domestic production will satisfy most of the estimated additional propane demand caused by the act; (9) GAO estimates that the increase in the overall price of propane attributable to the act will be a negligible 0.17 cent per gallon in 2000 and 3.28 cents per gallon in 2010; (10) similarly, EPACT will have little impact on the existing consumers of propane because the price increases will be so small; (11) GAO estimates that propane prices paid by residential and industrial consumers will increase by an average of just 0.10 cent per gallon in 2000, while the prices paid by transportation consumers will increase by about 0.43 cent per gallon; and (12) GAO projects that in 2010, price increases due to the act will be, on average, 1.50 cents per gallon for the residential sector, 1.70 cents per gallon for the industrial sector, and 2.33 cents per gallon for the transportation sector.

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