Favorite fuel faces supply, price and environmental concerns

Diesel fuel prices have calmed down a bit this summer from their rocket ride upward during the previous year. But a look at futures prices suggests the relief is only temporary. Even a normally cold winter may create enough demand for heating oil to push diesel prices up again.

Looking further into the future provides even more cause for concern about where diesel prices and supply are headed. If public concern grows about global warming, diesel fuel is sure to be in the spotlight. EPA seems determined to set the sulfur-content standard for diesel fuel low enough that refining costs will rise, perhaps substantially. At the same time, the agency may finally convince its Clean Air Science Advisory Committee to let EPA publish a report concluding that diesel exhaust "may pose a chronic respiratory hazard to humans" and is a "likely" carcinogen.

FHWA has chimed in, too, releasing an addendum to the 1997 Federal Highway Cost Allocation Study (HCAS) Final Report. The HCAS calculated the taxes various vehicle categories pay and the costs they impose on the highway system. The 1997 study estimated that passenger vehicles (autos, pickups and vans, and buses) paid a little more than their share of highway costs, while single-unit and combination trucks both paid about 90% of their share. The addendum re-estimates these ratios based on changes in laws enacted in 1998 and finds that combination trucks are paying only about 80% of their cost responsibility. Single-unit trucks over 50,000 lb. and combinations over 80,000 lb. are estimated to pay only 50% or less of the costs they impose.

Although the new report does not make recommendations about changing the tax structure, it does say, "Any future increase in Federal fuel taxes without corresponding increases in taxes on the heaviest trucks will further exacerbate the underpayment of Federal user fees by heavy trucks."

The addendum goes on to estimate highway-related air pollution costs. Although the authors concede there is uncertainty about every aspect of the estimates, their best guess is that diesel trucks impose air pollution costs of 3.9 cents/mi. of travel, more than triple the costs imposed by autos. If Congress decided to capture those costs through a fuel tax on the assumption that trucks average 8 mi./gal., the diesel tax would rise by 31 cents.

If diesel production costs, taxes, regulations and supply uncertainties all point to higher prices, is compressed natural gas (CNG) a more attractive alternative, at least for fleets that are centrally fueled or shuttle between secure sources of CNG? A new report by the environmental research organization Inform argues that, for buses at least, CNG is rapidly becoming an economically viable and reliable option ("Bus Futures: New Technologies for Cleaner Cities," www.informic.org). The report argues that CNG fueling stations, while costly to install, will help fleets prepare for later conversion to pollution-free hydrogen-based power systems should they become feasible.

The bottom line: There are lots of reasons to expect diesel costs to go up over the next several years, sometimes sharply. There may also be times when the right diesel is hard to find, especially if EPA forces refiners to convert to ultralow-sulfur fuel before the production kinks are worked out. It may be time to take a closer look at CNG. But don't expect any alternative to be free of price bumps, regulatory threats or operational problems.