4.7 Government Policies

The research team concluded that:
“Propane as a transportation fuel, is most widely in use in countries where governments at all levels have introduced stable long-term policies and programs aimed at introducing and establishing propane as a mainstream competitor against conventional transportation fuels.”

4.7.1 Governmental policies can positively or negatively affect the adoption of transportation fuel alternatives

The fundamental factors affecting fuel choice for public and private fleet operators are as follows:

• Life-cycle operating costs;
• Environmental impacts;
• Security of fuel supply;
• Fuel price stability; and
• Refuelling infrastructure.

Government policies can affect these fundamentals, and can, therefore, positively or negatively affect the speed and magnitude of adoption of alternatives to gasoline and diesel fuel. Governments will develop positions and approaches based upon public goals such as national energy security, GHG performance, and air quality performance.

There are many examples around the world of both the positive and the negative effects of governmental influence in the marketplace via programs that adjust the net life-cycle cost performance for the vehicle owner. These programs have been proven to have significant influence in countries such as Australia⁹², New Zealand⁹³, Germany⁹⁴, and India⁹⁵.

4.7.1.1 Case Study: Australia
The Australian Government introduced a program to encourage the public to convert vehicles to automotive propane. The LPG Vehicle Scheme introduced on August 14th, 2006 enjoyed an exceptional response and after one year over 70,000 vehicles were converted. The Program runs for eight years and is uncapped so all eligible persons will be able to receive the grant.⁹⁶ It is expected that incremental conversions in Australia will exceed 240,000 vehicles by 2010.

The Program was dramatically successful; combining Program longevity with governmental incentives that dramatically improved the payback for the conversion technology investment for each vehicle. The Program pays a rebate of A$2,000 toward the cost of converting any vehicle.⁹⁷ With an average cost of A$2,500 per vehicle, the net cost to the consumer is A$500. Australia also has fuel taxes that favour propane by 60% over gasoline. Consequently, the conversion costs for a vehicle traveling only 15,000 kms per year can be recouped in less than 20 weeks.

The Program has also created additional benefits for Australia as under hood technology is exported to Southeast Asia, the United States and other countries around the world. Australia has a well-developed infrastructure of fuelling stations and the dispenser and nozzle technology is amongst the best in the world (with exports to propane-consuming nations including Canada). A robust propane technology industry has been created in Australia, and propane research and development activities have spread to other sectors including agriculture.

As an additional observation, net conversion is more expensive in Canada and takes much longer to pay back due to the fact that Australian automotive propane enjoys twice the pump price advantage over gasoline than is present in the Canadian scenario. The very high number of kilometres required to recoup the conversion costs in Canada make switching from gasoline to propane uneconomical unless the vehicles are high fuel consumption vehicles like police fleets, taxis and package delivery fleets. Table 7 shows a comparison of the net conversion costs, fuel savings and adoption rates in Ontario and Australia.

TABLE 7

Ontario and Australia Net conversion costs, Fuel savings and Adoption rates

4.7.1.2 Case Study: India LPG
India’s experience illustrates the potential of government to influence the availability of alternative fuels technology. India reduced its fuel excise tax from 24% to 8% for propane and natural gas used in small vehicles. As a result, India’s largest automobile manufacturer, Maruti Udyog Ltd. has announced plans to expand production of propane-powered vehicles. Toyota and GM have also announced plans to introduce similar models.⁹⁸

4.7.1.3 Case Study: Germany
Germany’s experience demonstrates that the market will adjust to its impression of the stability of the government programs that are in place. Legislation was introduced in the German Bundestag in July 2006, aimed at extending (from a termination date of 2009) the favourable excise treatment of propane to 2018. The reactions in the industry were immediate. Conversions went up within 30 days and the 1,700 filling stations across the Country were expected to grow to over 6,000 by 2010.⁹⁹

4.7.1.4 Case Study: New Zealand
New Zealand’s experience proves that any government-sponsored adjustment to the marketplace dynamics should be adjusted with care. New Zealand introduced a series of policies commencing in the 1980’s aimed at encouraging the use of propane and CNG as transportation fuels. Propane use in transportation flourished and a healthy infrastructure grew. In the early 1990’s the Government of New Zealand reversed itself, imposing excise taxes on propane and CNG. The results are outlined in an open Letter to the Secretary of the Treasury, New Zealand Federal Government, from Origin Energy Ltd. regarding the Fuel Taxation Inquiry, dated March 22, 2002, as follows:

“We would like to draw the Inquiry's attention to the impact that an absolute tax excise had on the consumption of LPG and CNG in New Zealand when introduced in the 1990's.

New Zealand in the late 1980's had approximately 100,000 CNG and 50,000 LPG vehicles. An excise tax (currently 10.4cpl) was introduced in the early 1990's. The impact has been a severe reduction in the consumption of CNG and LPG; such that the fleet of CNG vehicles is today below 1,000 and LPG powered vehicles number around 18,000 to 19,000 vehicles.

In understanding this dramatic reduction in consumption it is worth noting the own and the cross-price elasticity of LPG and CNG relative to alternatives. The experience in New Zealand strongly suggests the ownprice elasticity of LPG and CNG is both positive and high. The 10.4cpl excise on LPG and CNG altered the relative prices of traditional motor spirit to alternative fuels. The support of these fuels collapsed, though the bulk of the distribution infrastructure remains in place and operable today.”¹⁰⁰

New Zealand is currently embarking on another 1980’s style policy direction aimed at encouraging propane use in transportation. Unfortunately, most senior managers in industry today were around during the 1980’s and 1990’s and the Government is being greeted with “here we go again” scepticism.

4.7.1.5 Miscellaneous Incentives
Many cities are experimenting with the restriction of certain gasoline and diesel powered vehicles in densely populated areas. Cities in Japan, Korea, Italy, Germany, and India have, or are still experimenting with, restrictions on certain vehicles and are simultaneously increasing incentives for alternative fuels used in the same areas. These initiatives, combined with strict enforcement of idle time limits are all aimed at improving air quality in the cities. Some jurisdictions allow alternative highways.

4.7.2 The Canadian Scenario
Governments in Canada currently face a number of realities that may influence their approach to alternative fuels. A few of these considerations include:

• Greenhouse Gas emissions reductions are a subject of much concern for Canadians, and can be significantly curtailed by the creative adoption of various energy alternatives to gasoline and diesel.
• Municipal, Provincial and Federal budgetary pressures that exist could be reduced through the application of energy alternatives that yield significant operating cost reductions.
• North American gasoline and diesel refinery capacity is nearing 100% utilization and will take a number of years to rectify.
• Refinery Capacity issues will create supply disruptions, supply insecurity, and severe price fluctuations which will impact the Canadian motoring public as well as fleet users.
• Canada’s propane resources are significantly under-utilized at present, and can be deployed to mitigate some of the pressures created by the refinery utilization situation.
• Approximately 70% (8.6 Billion Litres) of Canada’s annual production of propane is exported due to lack of domestic demand.
• Utilization of excess propane supply could reduce gasoline demand by up to 20%, easing the refinery capacity issues, and contributing to petroleum price stability for all Canadians.
• The Canadian public are looking to the Government to lead by example, with initiatives to address budgetary concerns (fiscal responsibility) and to improve environmental performance.
• • Canadian companies have developed innovative technologies for under hood propane applications and for the dispensing of propane to vehicles. These technologies and innovations can be expanded to world markets.

The experience worldwide demonstrates that government policy and programs have the ability to dramatically influence the adoption of alternative fuels. Similarly, Government’s have the ability to significantly adjust the viability of one alternative over another. As world experience has shown, significant adjustments to one fuel without corresponding adjustments to others can quickly re-adjust the marketplace equilibrium.

All levels of Government within Canada have another tool that can quickly be utilized to support and encourage the adoption of alternative fuels. The implementation of alternative fuel technologies within the government controlled fleets positively signals the marketplace and effectively demonstrates the viabilities of the various choices, reducing perceived risk to other adopters, and encouraging adoption by the private sector.