Energy

The Great Pickup Stick-Up

Alternative fuel follies

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When a friend phoned last year to say that the state of Arizona was about to buy him a brand new pickup truck loaded with all the luxury options, I took it with a grain of salt. I've known the government to do some stupid things, but buying new trucks for my successful banker friends just wasn't one of them.

Or so I thought.

But Arizona, in what may go down in stupid government lore as the Great Pickup Stick-Up, did in fact buy my friend a truck, or at least most of a truck, by offering rebates and tax breaks that slashed its $35,000 price tag by more than half. And it did the same for thousands of other Arizonans, turning what was supposed to be a modest $3 million initiative to encourage the use of alternative-fuel vehicles (AFVs) into a half-billion-dollar boondoggle that nearly bankrupted the state and earned it national belly laughs.

Before being shut down in mid-December, a mere seven months after becoming law, Arizona's AFV program had become what Republican Gov. Jane Hull called a "cancer" on the state's budget, costing its primary political champion his career and leading to at least one criminal probe. Bolstered along the way was the state's reputation as a petri dish for political chicanery.

The program backfired for many reasons: It was poorly conceived, it lacked safeguards against abuse, and the governor and her staff ignored early warnings that it was being exploited, as Arizonans rushed to game the system.

Compounding those structural and systemic shortcomings was the initiative's undeniable taint of cronyism. Its main political sponsor—former State House Speaker Jeff Groscost, who purchased two new trucks of his own through the program—reportedly was a close associate of a top provider of alternative-fuel conversion kits, gave alt-fuel interests a direct hand in writing the legislation, and had once earned tens of thousands of dollars consulting for the program's potential beneficiaries in the natural gas industry.

The incentives and subsidy levels were generous to a fault, with little understanding of their fiscal implications until too late. The state offered participants like my banker friend a lump-sum rebate of up to 40 percent of the price of a vehicle, which, when combined with federal and state tax breaks and a waiver of license plate and emission-testing fees, could easily slash a new truck's cost by as much as half. Yet another incentive that has rankled some Arizonans is allowing participants to use High Occupancy Vehicle lanes, even if they rode alone.

As word of the subsidies spread, Arizonans were quick to take full advantage. Car dealers reportedly jacked up prices on popular truck models as demand rose; participants added on expensive accessories, knowing taxpayers were paying for them; the cost of conversion kits jumped 30 percent; and regional corporations seized the opportunity to purchase fleets of work trucks or rental cars at half the usual cost.

Yet no guarantees existed to ensure that participants actually used alternative fuels. They needed only to pledge to burn 100 gallons of propane or condensed natural gas annually (which, in my friend's case, amounted to only two and a half refills of the 40 gallon propane tank mounted in the bed of his pickup). And even that was done on the honor system. News accounts indicate that many Arizonans disconnected their alternative-fuel systems immediately after having them installed, with little fear of penalties.

Because large, gas-gulping pickup trucks were the most logical candidates for conversion, they naturally became the vehicles most frequently used in the program. So in the end, thanks to loopholes and perverse incentives, an initiative meant to reduce air pollution and fuel consumption probably increased both.

In addition to missing clear signs that the program was out of control, Gov. Hull and her staff were criticized for not freezing the program immediately after the debacle became news, thus allowing a last-minute rush that heaped even more potential liabilities on the taxpayers. Meanwhile, with her popularity sinking, Hull turned on her erstwhile ally Groscost, accusing him of "betrayal" and suggesting he resign. She needn't have bothered: Groscost went down to a resounding defeat in November, thanks to the scandal.

In mid-December, the Arizona legislature met in an emergency session and narrowly passed a plan to halt the hemorrhage by shutting out 10,000 to 15,000 would-be participants. That may have saved the state $400 million. "This is one [bill signing] that's not a celebration of victory, but the beginning of an ending to a process that should never have happened," Gov. Hull said, bringing Arizona's alternative fuel program to an inglorious end.

But that too will probably come with a price. Some of the angry shutouts have filed a class action lawsuit demanding that Arizona abide by the original bargain, in spite of Hull's plea that participants voluntarily withdraw their claims against the program "for the good of the state."

Arizona isn't alone. Governments great and small have been relentlessly pushing alternative-fuel and low-emissions vehicle programs on a reluctant public, trying to bring new technologies and new markets into being through sheer political willpower. Typically, there's far too little appreciation for the technical challenges and costs involved. California is likely headed for a crack-up of its own AFV program, which requires that automakers, beginning in 2003, sell a set quota of zero-emission vehicles (ZEVs) and extremely low-emission vehicles in the state, whether or not the cars actually catch on with the motoring public. (See "Suing for Relief," below.)

The idea was born at the 1990 Los Angeles Auto Show, when then-General Motors Chairman Roger Smith, in a moment of bravado his industry has come to regret, boasted that his company could and would mass-produce the futuristic, battery-powered concept car there on display.

It was a boast that environmentalists took to heart and California lawmakers took too seriously. The result is a law that tries to dictate the tempo of technological innovation. But the battery technology required to fuel California's ZEV revolution has evolved much more slowly, and been much more expensive, than the law writers anticipated, in spite of massive public- and private-sector investment in the research effort. (See "Electric Go-Karts," page 46.)

This has led to repeated rollbacks of the law's unrealistic deadlines and quotas—most recently, the 2003 sales quota target for ZEVs has been reduced from 10 percent to 2 percent, though automakers will now be required to sell an additional 8 percent of extremely low-emission vehicles that same year. Those requirements, though an improvement over earlier mandates, have nonetheless brought a lawsuit from GM, which argues that the law imposes an unreasonable burden on industry to achieve a negligible improvement in air quality.

However, technological limitations aren't the only hurdle blocking the government's alternative-fuel fantasies. Despite continuous predictions that the era of "green" vehicles is upon us, alternative-fuel cars have consistently failed to catch on with the general public, for some stubbornly practical reasons. The vehicles might not exist at all were it not for heavy government mandates and costly taxpayer subsidies.

Buyers of cutting-edge low-emission cars tend to be novelty-seekers, gizmo geeks, or affluent environmental activists—Ed Begley Jr. types, for instance—willing to pay far more for a car that can do considerably less, usually in order to prove some larger point. "It's not easy selling someone a vehicle that costs twice the price and has half the utility," says one auto industry insider. "When you drive an electric car, all you're thinking about is how you're going to get there, where you will refuel when you do, and whether or not you'll make it back," he says. "And all for $20,000 to $30,000 more than a conventional car."

General Motors might have been able to fulfill Roger Smith's auto show boast were it the only company in the zero-emissions game, but California's across-the-board mandate, applying as it does to all automakers, means that every large manufacturer is after a major share of a tiny market, making it highly unlikely that any one of them will ever meet the state's mandates. "Political correctness has overtaken common sense," says one official at GM, "and no one wants to admit to the environmental community that this is a dead end road."

Meanwhile, New York state is blithely following California into the same cul-de-sac, with its recent requirement that by 2004, 10 percent of cars, light trucks, and SUVs sold in the state use alternative fuels. And Massachusetts and Vermont are set to follow suit, too.

The federal government has been trying to spur on alt-fuel technologies, and forcibly create a mass market for them, since the Energy Policy Act of 1992 led to massive taxpayer support for research and development projects like the Partnership for a Next Generation Vehicle and grants to help cities acquire alternative-fuel buses and autos. It also attempts to create an artificial market where no natural market exists, by requiring federal- and state-owned vehicle fleets to include an incrementally greater percentage of AFVs over time. By 2010, the feds hope, fleet mandates will help reduce conventional gasoline use by 30 percent. Billions of dollars have been spent—critics would say wasted—in the process.

Yet even as those 1992 targets retreated farther from the realm of possibility—some federal fleet managers, in spite of the mandates, continued purchasing cheaper, more reliable conventional vehicles in the name of economy and efficiency—the Clinton White House chased harder after them. Executive orders in 1993, in 1996, and on Earth Day last year further reinforced the administration's commitment to federal fleet mandates and artificial markets.

Even if those Energy Policy Act goals could be met, however, the total amount of alternative fuels used would only replace less than 1 percent of projected U.S. gasoline consumption in 2010, according to the government's own estimates. And if similar fleet acquisition mandates were imposed on local governments and the private sector—in a move now being considered by the Environmental Protection Agency—that total would only double, according to Department of Energy projections, replacing just 2 percent of projected conventional fuel consumption in 2010.

As of 1998 taxpayers had purchased outright about 30 percent of the AFVs in use, and subsidized many of those that were ostensibly "bought" by the private sector, at an unknown, but undoubtedly, staggering cost. According to the General Accounting Office, many of these vehicles are not being used as designed and intended, reducing their potential environmental benefits, because fleet managers find that doing so is both expensive and inconvenient. This suggests that thousands of vehicles counted in the alt-fuel category are actually burning conventional fuels, making their purchase pointless.

In spite of the government's best efforts on behalf of alternative fuels, it has been mapping a route the public is reluctant to follow. The Department of Energy estimates that about 1 million AFVs were on the road in 1999, less than half of 1 percent of all vehicles. Alternative fuels replaced about 334 million gallons of conventional gasoline in 1999, according to government figures, or about 0.3 percent of all the gasoline used. To date, fewer than 4,000 electric vehicles are believed to be operating in the U.S. Most are bought or leased as novelty items or sincerity trophies by the most committed alt-fuel advocates.

Such statistics indicate not only that the Energy Policy Act has been a flop, but that most Americans—unless they're being handed the vehicles for nothing or having them heavily subsidized by fellow citizens, as in the Arizona case—just don't share the government's fascination with AFVs. And they lack that interest for what turn out to be very practical reasons.

"The goals [of the Energy Policy Act] are not being met principally because alternative fuel vehicles have significant economic disadvantages compared to conventional gasoline vehicles," according to the General Accounting Office. The prospects for AFVs will remain bleak until these cost and performance disadvantages are addressed and reversed, the GAO report adds, and they aren't likely to improve without a huge increase in the pump price of conventional fuels or even more dramatic government intervention into the marketplace.

Among the greatest impediments to a wider acceptance of such vehicles is a lack of refueling facilities and infrastructure, performance and refueling problems, and the higher costs of AFVs. Without some kind of subsidy or rebate, a cutting-edge, battery-powered auto will cost about $20,000 more than its conventionally powered cousin, according to one analyst at General Motors. Cars that burn compressed natural gas can cost $3,000 to $5,000 more than their conventional counterparts. And for that price, consumers will usually be getting transportation that is difficult, less reliable, or inconvenient to refuel—and limited in range.

In Albuquerque, New Mexico, for instance, the police department's 15 natural gas-powered squad cars—each purchased with a $25,000 grant from the federal government—have proven a major disappointment. The autos have only about half the range of conventional patrol cars, they perform sluggishly, and they can be refueled at only one location in town. This greatly reduces their utility for patrol officers, so they've been assigned to detectives instead.

"We didn't get the rose garden we were promised," the department's fleet coordinator told an Albuquerque newspaper. But the city went ahead with the experiment, he said, "because we couldn't turn down what was basically a free car."

"We couldn't turn down what was basically a free car." The New Mexican's refrain is becoming familiar in Arizona as well, as citizen explains to citizen why he or she was tempted into gaming the system. But what seems obvious after nearly a decade of government intervention on behalf of alternative fuels is that—as has long been understood with regard to lunches—there's no such thing as a "free" alternative-fuel vehicle.