A Comparison of the Economic and Energy-Security Benefits of Natural Gas and Electrified Vehicles

Abstract:     
We compare the financial benefits of displacing oil using three alternative-vehicle technologies: natural gas (NGVs), battery-electric (BEVs), and plug-in hybrid electric vehicles (PHEVs). On a cost-per-barrel basis, NGVs would be the least expensive way to displace oil, while PHEVs would be the most expensive. BEVs would displace the most oil. Furthermore, though the BEV case has the highest upfront cost, its payback rate is almost two-times faster than the NGV case. At current energy prices and without considering environmental costs, none of these technologies make financial sense. However, given historical relationships between oil, natural gas and electricity prices, each alternative would make financial sense if oil prices increased to at least $150 per barrel, and BEVs would offer the fastest payback. Finally, though electricity prices are the most volatile, the financial cost of fuel-price uncertainty is lowest for the BEV case. Moreover, the cost of uncertainty is unimportant for all cases, including gasoline-powered vehicles, and should not be an important part of this debate.

Number of Pages in PDF File: 18

Keywords: Natural Gas Vehicle, Electric Vehicle, Pickens Plan, Energy Security

JEL Classification: N70, Q42, L91

working papers series