A Household Perspective

Why Flex-Fuel Failed?

A Household Perspective

Luleå University of Technology

The raise and fall in the

Swedish Ethanol E85 market

V ol ume , m³ 0 50 000 100 000 150 000 200 000 250 000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Outline

• Motivation of the study

• Development of the Ethanol E85 market • Potential factors affecting the choice of fuel • Survey & model specification

• Results

Motivation of the study

• 2030 - fossil fuel-independent vehicle fleet

• Increased national target for renewable energy – How will biomass be used in the future energy system?

• Modeling the energy system & biofuels • Adding the household perspective

Purpose

The purpose of this study is to analyze

which are the most important factors

affecting the households’ choice of fuel.

Ethanol E85 volumes & price difference

between Ethanol E85 & Petrol

-4 -3 -2 -1 0 1 2 3 0 5000 10000 15000 20000 25000 30000 20 05-01 20 05-05 20 05-09 20 06-01 20 06-05 20 06-09 20 07-01 20 07-05 20 07-09 20 08-01 20 08-05 20 08-09 20 09-01 20 09-05 20 09-09 20 10-01 20 10-05 20 10-09 20 11-01 20 11-05 20 11-09 20 12-01 20 12-05 20 12-09 20 13-01 20 13-05 20 13-09 20 14-01 20 14-05 20 14-09 20 15-01 20 15-05 20 15-09 20 16-01 P ri ce di ff er enc e, kr /l V ol u m e , m 3

Important factors of the Ethanol E85 market

• Price on Ethanol E85 versus Petrol • Debates about pros & cons

– food production – motor damage – climate impact

Survey

• 1 200 flex-fuel owners • 42% response rate • Including:

- driving habits & motives for buying flex-fuel car - filling habits

- attitudes & norms concerning

fuels & environmental engagement - socioeconomic information

Potential factors affecting

the households choose of fuel

Factors of importance when

buying a flex-fuel car (%)

I wanted to fuel E85 for economic

reasons 32 14 21 15 13 5

I bought the car for environmental

reasons 22 10 23 17 24 3

I wanted a lower vehicle tax 23 10 19 18 24 6

I wanted to take part of the

environmental bonus 47 8 10 7 16 12

It did not matter that it was a flex-fuel

Stated fuel choice at different price levels (%)

Statement Ethanol

E85 Petrol 95

Which alternative would you choose next time you fuel if the cost of Ethanol 85 was 6 SEK/litre and the cost of Petrol 95 was 12 SEK/litre?

86 14

Which alternative would you choose next time you fuel if the cost of Ethanol 85 was 9 SEK/litre and the cost of Petrol 95 was 12 SEK/litre?

58 42

Which alternative would you choose next time you fuel if the cost of Ethanol 85 was 12 SEK/litre and the cost of Petrol 95 was 12 SEK/litre?

10 90

Which alternative would you choose next time you fuel if the cost of Ethanol 85 was 15 SEK/litre and the cost of Petrol 95 was 12 SEK/litre?

Comments

”Have been driving on E85 only the last years - until the

liter price became the same as for petrol.”

”I follow the recommendations of my car mechanic to fuel petrol - since E85 lubricates less.”

”I only fuel petrol since I do not know anything about

E85. Since the price is the same I use what I am familiar with. Simply lack of knowledge.”

”To motivate consumers to choose green cars, the political decisions need to be long term and not loose focus after a few years - like in the case of E85.”

Factors of importance when fuelling (%)

I feel a personal responsibility to make environmental

considerations when fuelling 13 14 31 25 13 4

I choose E85 since I believe it is better from a climate

impact point of view 24 12 23 16 18 7

I do not believe that E85 is particularly good for the

environment 19 26 20 7 7 21

I think environmental consideration is more important than

the price of fuels 20 19 32 16 10 3

I am worried that E85 is competing with food production 31 13 15 10 6 25

I am worried that E85 will damage the engine of my car 30 12 14 16 23 5

My car mechanic has recommended me to fuel less E85

Model specification

• Binary probit random effects model

• Dependent variable: Stated choice of fuel Ethanol E85=1, Petrol=0

• Explanatory variables: price, perception of E85 versus petrol, preferences for environment and climate

Regression results

Statements Coefficient t

Constant 5.412* 14.46

Price ratio between Ethanol E85 and Petrol 95 -7.554* -21.55 Car mechanic has recommended fuel less E85 -0.1913* -3.54

E85 will damage the engine of my car -0.187* -3.50

E85 is competing with food production -0.094*** -1.58

Difficult to find place to fuel E85 -0.148** -2.55

Personal responsibility to take environmental

consideration 0.185** 2.47

E85 better from a climate point of view 0.482* 6.82

Rho 0.514* 10.40

Conclusions

• Large variations in households’ values &

beliefs regarding fuel choice

• Price – money matters

• Policy instruments are important

• Information – initially & along the way

• Political decisions lead the way

Contact information

Linda Andersson

Luleå University of Technology Economics Unit

SE-971 87 Luleå, Sweden

Email: Linda.Andersson@LTU.se