Substitutional fuel

Externalities of Conventional Fuels

Conventional fuels include fossil fuels such as coal, oil (including fuel oil, diesel fuel, and gasoline), and natural gas. Fossil fuels have many negative externalities, most notably air pollution and contributing to climate change. Both the extraction and combustion of conventional fuels have negative externalities.

Negative

Sources:

• global warming due to the release of greenhouse gases
• ecosystem loss and degradation
• health problems such as respiratory issues, cancer, reduced life expectancy, and congestive heart failure due to the release of particulates
• degradation and soiling of buildings due to the release of particulates
• reduced crop yields due to the release of particulates
• oil spills
  • environmental damage
  • cleanup costs (private or government)
  • damage to company reputation (for example, the 2010 BP oil spill)
• volatile market prices negatively impact economy
• mining accidents during coal extraction

Positive

Source:

• increased employment & business activity
• increased productivity in many industries
• means of globalization (increased trade between countries)

Externalities of Substitutional Fuels

Source:

Negative

• air pollution (but less so than conventional fuels)
• may require more energy to produce than conventional fuels
• may be more costly than conventional fuels

Positive

Source:

• more stable energy supply
• less volatile fuel prices
• less ecosystem damage
• fewer health problems due to air pollution

The Changing Market

Substitutional fuel has been gaining popularity along with renewable energy in the United States over the past several decades. The Energy Independence and Security Act of 2007 requires that U.S. transportation fuels contain 36 billion gallons of renewable fuels.

"A market failure can arise in the transport fuels market if the potential differences in emissions from petroleum based fuels and those from biofuels are not taken into account in the decisions of fuel producers and consumers...Policy intervention through an emissions tax or a subsidy for avoided emissions could be justified to address this market failure."

Demand for substitutional fuel is also dependent on the availability of alternative energy vehicles, since 29% of energy consumption in the U.S. is from transportation. In 2017, biofuels composed about 5% of transportation fuels. Biofuels are currently a leading substitutional fuel. The U.S. Energy Information Administration forecasts a stable biofuel market through 2020. Due to relatively stable domestic motor gasoline consumption in recent years, the industry is not likely to see large growth in the near future without government support.

The above table shows the proportions of energy consumption by source in the U.S. from 2000 to 2017 using data from the Energy Information Administration. Fossil fuel consumption has declined overall, although natural gas consumption has increased. Both biomass and general renewable energy consumption has increased.

References

References

1. Cuevas-Cubria, Clara. (11 February 2009). "Assessing the environmental externalities from biofuels in Australia".
2. (18 February 2019). "Fossil fuel phase-out".
3. "External costs of coal".
4. Larkin, Sherry. (August 2013). "Negative Externalities and Oil Spills". Journal of Agricultural and Applied Economics.
5. Vedenov, Dmitry. (2006). "Entry of Alternative Fuels in a Volatile U.S. Gasoline Market". Journal of Agricultural and Resource Economics.
6. Dudovskiy, John. (1 December 2012). "Externalities involved in the fuel market".
7. "Petroleum and Alternative Fuels".
8. (23 May 2018). "Use of Energy in the United States Explained: Energy Use for Transportation".
9. (1 March 2019). "The EIA expects stable U.S. biofuels production, consumption, and trade through 2020".
10. (February 2019). "Primary Energy Consumption by Source". U.S. Energy Information Administration.