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A Case For Increasing Natural Gas in Transportation

By Ideas Lab Staff August 21, 2012

The increased use of natural gas for transportation needs presents challenges, but Christopher Knittel's discussion paper includes several proposals for leveling the playing field.

Most people feel the pain when they fill up their vehicles at the gas pump. Increases in oil prices, and technological advances in deep underground drilling continue to change the price of oil and natural gas in the United States. In a discussion paper for The Hamilton Project, Christopher Knittel argues that natural gas can replace oil in transportation in a number of ways, helping consumers save money in the long run.

The paper presents a pair of policy proposals designed to increase the nation’s energy security, decrease the susceptibility of the economy to recessions caused by oil-price shocks and reduce greenhouse gas emissions and other pollutants. For example, Knittel, an energy economics professor at the Massachusetts Institute of Technology, proposes improving natural gas fueling infrastructure in consumers’ homes, at local distribution companies and along long-haul trucking routes.

Knittel also outlines steps for promoting the use of natural gas vehicles and fuels, which he says will save consumers money over time. The challenge, however, is that infrastructure for natural gas is significantly less developed than infrastructure for gasoline and diesel. Consumers are reluctant to buy natural gas vehicles without a network of refueling stations, and companies are reluctant to invest in fueling stations until people purchase natural gas cars, according to Knittel’s paper.

“While the costs of building such an infrastructure are true social costs and must be considered when comparing the merits of the two fuels, the lack of a refueling presence leads to what is known as a network externality, or a chicken-and-egg problem, that can lead to the efficient product not being selected in the market,” Knittel writes.

But he states that even a modest increase in the use of natural gas in transportation could provide large benefits. Policymakers, however, appear to hold the key, and Knittel argues that realizing the benefits of natural gas will require action on their part to help natural gas overcome challenges to its increased use.