Executive Summary

This report responds to a request from Senator Jeff Sessions for an analysis of the environmental and energy efficiency attributes of light-duty diesel vehicles.¹ Specifically, the inquiry asked for a comparison of the characteristics of diesel-fueled vehicles with those of similar gasoline-fueled, E85-fueled,². and hybrid vehicles, as well as a discussion of any technical, economic, regulatory, or other obstacles to increasing the use of diesel-fueled vehicles in the United States.

Energy Efficiency

Diesel-fueled vehicles generally are more fuel-efficient than comparable gasoline-fueled vehicles. In fuel economy (miles per gallon) ratings published by the U.S. Environmental Protection Agency (EPA), diesel vehicles show a fuel economy advantage of 20 to 40 percent over gasoline vehicles, depending on the size and duty requirements of the vehicles. The EPA fuel economy ratings also suggest that diesel vehicles are somewhat less fuel-efficient than the most comparable gasoline-powered hybrid-electric vehicles; however, comparisons are difficult, because differences in performance characteristics, such as torque, may force consumers to balance fuel economy against other desired performance attributes. Additionally, on-road driving experience appears to suggest that, under some circumstances, diesel vehicles can achieve higher fuel efficiencies than comparable gasoline-powered hybrids.

For flex-fuel vehicles (FFVs)—which use slightly modified versions of the engines in gasoline vehicles and are capable of burning mixtures of gasoline and ethanol up to E85—fuel economies are lower when they use E85 fuel than when they use gasoline. The difference largely reflects the lower energy content of ethanol than of gasoline. For flex-fuel engines that incorporate advanced technologies, however, E85 fuel efficiency can be improved by as much as 18 percent.

In comparison with conventional gasoline vehicles, diesel vehicles are inherently more efficient for two reasons:

• Diesel engines operate at higher compression ratios than do spark-ignited gasoline engines, creating higher in-cylinder temperatures, more complete combustion, and higher thermal efficiency.

• The energy content of diesel fuel per gallon is 11 percent greater than the energy content of gasoline.

Greenhouse Gas Emissions

On a “well-to-wheels” basis, which incorporates emissions associated with direct activities from the start of the fuel cycle to fuel combustion, greenhouse gas (GHG) emissions from diesel vehicles using diesel fuel are estimated to be 15 percent lower than emissions from comparable vehicles using gasoline but still 20 to 25 percent higher than emissions from gasoline- or diesel-powered hybrid electric vehicles (HEVs). GHG emissions from gasoline- or diesel-powered plug-in hybrid electric vehicles (PHEVs), which use power from the electricity grid for a portion of their propulsion, are 16 to 32 percent lower than emissions from diesel vehicles using diesel fuel.

For vehicles that use E85, B20,³ and other biofuels, comparisons of GHG emissions are less clear for three reasons:

• First, total GHG emissions vary according to the feedstock and production process used to make the biofuels. For example, ethanol produced from cellulosic materials is expected to have significantly lower life-cycle GHG emissions than corn-based ethanol.

• Second, comparisons are sensitive to the treatment of the “indirect emissions” that result from adjustments in land use (such as the clearing of forest from land in developing countries that is used to cultivate energy crops for increased production of biofuels in response to rising prices). Indirect emissions are a complex and contentious issue, and they were not included in the model that was used to provide the well-to-wheels calculations for this study.

• Third, diesel vehicles can use a variety of biofuels. In addition to B20, a fuel that is available now, EIA projects that high-quality biomass-to-liquids (BTL) diesel fuels, using technologies that have been demonstrated successfully in gas-to-liquids (GTL) and coal-to-liquids (CTL) applications, ultimately will meet a portion of the mandate for cellulosic biofuels included in the Energy Independence and Security Act of 2007 (EISA2007). The use of BTL in efficient diesel engines would result in very low GHG emissions.

With those important caveats in mind, however, some comparisons can be made.

• For diesel vehicles using B20, GHG emissions are 18 percent lower than for diesel vehicles using diesel fuel and 30 percent lower than for vehicles using gasoline (see Chapter 2, Table 2.1).

• Excluding consideration of indirect emissions, direct emissions of GHGs from diesel vehicles using diesel fuel are 4 to 137 percent higher than for FFVs using E85, depending on whether the ethanol is produced from corn or cellulosic material.

• Direct emissions of GHGs from diesel vehicles using B20 are 95 percent higher than for FFVs using cellulosic ethanol but 14 percent lower than for FFVs using corn-based ethanol.

• For HEVs that use conventional engines, E85 in flex-fuel engines, or B20 in diesel engines, GHG emissions are 20 to 71 percent lower than for diesel vehicles using diesel fuel and 4 to 65 percent lower than for diesel vehicles using B20.

• For PHEVs, GHG emissions are 16 to 63 percent lower than for diesel vehicles using diesel fuel but may be higher than for diesel vehicles using B20, depending on the energy source used to generate the electricity, the engine type, and the type of fuel used by the vehicle.

U.S. and European Markets for Light-Duty Diesel Vehicles

Light-duty diesel vehicles have been offered in the U.S. market for several decades. In 2007, they accounted for 1.7 percent of all U.S. sales of new light-duty vehicles. The vast majority of U.S. diesel sales are light trucks, although some manufacturers based in Europe offer diesel-powered cars in U.S. markets. In the early 1980s, U.S. automakers developed and marketed several diesel-powered car models. U.S. sales of light-duty diesel vehicles peaked at 5.5 percent of light-duty vehicle sales in 1981, but the cars were plagued by poor performance, fuel quality problems, declining fuel prices, and severe reliability problems. As a result, consumers rapidly lost interest, and in 1988 new diesel car sales had declined rapidly to only a 0.2-percent share of new car sales.

Since 1988, diesel vehicles have accounted for less than 1 percent of all new car sales.⁴ In contrast, the diesel engines offered in light trucks have proven to be very reliable, and they continue to be favored in a niche market.

Diesel-fueled vehicles have had much greater success in Western European markets. Over the past decade, sales of diesel vehicles in Western Europe have climbed from 28.4 percent of total light-duty vehicle sales to 52.2 percent. Belgium, France, and Spain have aggressively promoted light-duty diesel vehicles, and as a result sales shares in those countries currently exceed 70 percent.

In Western Europe, policy decisions on the taxation of fuels and vehicles, along with emissions standards, have had a significant role in increasing the use of diesel vehicles. Policy decisions have been instrumental in raising fuel economy to reduce oil consumption, and although the initial impetus appears to have been energy security, fuel economy increasingly is viewed in the context of reducing GHG emissions. Three main policy factors have contributed to the market success of diesel vehicles in Western Europe:

• Higher retail fuel prices, mostly as a result of taxes, cause consumers to seek out vehicles with high fuel economy ratings, favoring diesel over gasoline engines because of their substantial fuel economy advantage over gasoline vehicles of similar power.

• In many countries, taxation policies favor diesel vehicles, with lower vehicle taxes and registration fees for diesel vehicles than for comparable gasoline vehicles.⁵

• European standards for emissions of nitrogen oxides (NOx) accommodate the use of diesel vehicles to a much greater extent than do U.S. standards.

In the United States, in contrast, there are several impediments to the market success of diesel vehicles. They include more stringent Federal and State standards for vehicle emissions, cost premiums for diesel vehicles, limited availability of light-duty diesel vehicles, and higher retail prices for diesel fuel than for conventional gasoline.

U.S. standards for tailpipe emissions of NOx, which have been tightened over time, pose a particular challenge for diesel vehicles. Effective with the 2009 model year, Federal Tier 2 vehicle emission standards require that the vehicle fleet produced by each manufacturer meet an average NOx emissions level of 0.07 grams per mile. California standards, which also are applicable in 10 other States, require the same NOx emissions limit to be met by each individual vehicle. For marketing reasons, U.S. manufacturers are selling only light-duty diesel vehicles that comply with the California standard and thus can be sold in all 50 States.

The effective NOx standard of 0.07 grams per mile required for light-duty diesel vehicles to be compliant in all 50 U.S. States is significantly more stringent than the standard applicable to light-duty diesel vehicles in Western Europe. The Euro 5 NOx vehicle emission standard, which will take effect in September 2009, is 0.18 grams per kilometer (0.29 grams per mile). The current Euro 4 NOx vehicle emission standard is equivalent to 0.4 grams per mile.

Compliance with the tighter U.S. requirements, where feasible, generally involves additional emissions control equipment and higher costs. Thus, depending on the manufacturer, the incremental cost of diesel vehicles over gasoline vehicles in the U.S. market ranges from $1,000 to $7,195. In addition, the emissions control systems often use chemicals that require careful handling and periodic refilling, both of which can reduce the attractiveness of diesel vehicles to consumers.

The wide range of incremental costs for diesel vehicles over gasoline vehicles in the U.S. market reflects the pricing strategies of automobile manufacturers and the costs of other included equipment. The cost of vehicles that can meet U.S. and California emissions standards may be offset somewhat, however, by the recent extension (in the Emergency Economic Stabilization Act of 2008) of eligibility for the Alternative Motor Vehicle Credit to qualifying diesel vehicles,⁶ allowing tax credits of $900 to $1,800 for model year 2009 vehicles. The full credit is provided for the first 60,000 vehicles sold by a manufacturer, after which the amount is reduced by 50 percent for the following two calendar quarters and to 25 percent of the original credit for the next two calendar quarters, after which no credit is allowed.

For consumers interested in purchasing a new light-duty diesel vehicle, there are very few vehicles available for consideration. In addition, Honda, Chrysler, Hyundai, and Toyota have canceled or delayed their planned offerings of diesel products, citing high incremental costs for diesel fuel, the costs of emission control equipment, and limited consumer interest as reasons for their decisions.⁷

Exclusive of general trends in crude oil prices, the price of diesel fuel in the United States has increased by more than the price of gasoline in recent years. As a result, the operating cost advantage of diesel vehicles over gasoline vehicles has been reduced or, in extreme cases, eliminated. From 1994 to 2004, on an annual average basis, the retail price of gasoline was 5 cents per gallon (4 percent) higher than the price of diesel fuel.⁸ During that period, diesel was typically more expensive than gasoline during the winter months but cheaper during the summer months. From 2005 to 2007, however, the price pattern was reversed, with diesel being 7 cents per gallon (3 percent) more expensive than gasoline. The difference grew larger in 2008, when the diesel price was, on average, 50 cents per gallon (15 percent) higher than the price of gasoline.

The increasing price premium for diesel relative to gasoline is attributable to a variety of factors, including the transition to ultra-low-sulfur diesel (ULSD) that began in mid-2006, the availability of extra gasoline supplies from Western European countries as a result of their transition to diesel, reductions in U.S. demand for petroleum-based gasoline components that resulted from increased use of ethanol in gasoline, and the growing importance of developing countries, whose demand is heavily oriented toward diesel, in world oil markets.

Although the U.S. price premium for diesel relative to gasoline is expected to shrink from its 2008 level, the continued growth of demand for diesel fuel in developing countries, along with environmental policies that favor increased use of diesel as a substitute for fuel oil—including efforts to reduce the sulfur content of marine bunker fuels used in domestic and international commerce—suggest that diesel fuel may continue to be priced at a premium relative to gasoline in the United States.

Taken together, increased vehicle costs and higher prices for diesel fuel currently provide an economic disincentive for purchases of diesel vehicles by U.S. consumers. For those who do purchase diesel vehicles, other vehicle attributes, including durability, longevity, and power output, are likely to be important considerations. Finally, in addition to the issues raised above, there are other consumer preference factors at work in the U.S. vehicle market. For example, unsatisfactory consumer experience with domestic diesel cars during the early 1980s may have reduced the number of people who would consider purchasing a diesel-powered car today (although the impact of the 1980s experience on consumer acceptance is likely to attenuate over time).

A U.S. policy that could incentivize sales of diesel vehicles is EISA2007, which significantly raised fuel economy standards. In order to meet those standards while also meeting consumers’ expectations for vehicle performance, manufacturers are likely to incorporate a wide range of advanced drive trains in their new vehicles over the coming years. Diesel is one of those technologies. In EIA’s Annual Energy Outlook 2009 reference case,^{9 the diesel share of total light-duty vehicle sales is projected to grow from 1.7 percent in 2007 to 10 percent in 2030. In addition, a variety of other advanced technology vehicles are projected to increase in market share. As a result, the total market share for all hybrid vehicles is projected to increase from 2.3 percent in 2007 to 39 percent in 2030.}

Notes