HomeMy WebLinkAboutAgenda Packet 1993/04/22
Thursday, April 22, 1993
4:00 p.m.
'" declare under penalty of perjury that I am
employed by the City of Chula Vista in the
Ol!ice of the City Clerk and that I posted
this Agenda/Notice on the Bulletin Board at
the Public SFrvi9~s .Bu:I'Jin~ and,at City+lall onCouncil Conference Room
DA1ED, ,/Jr;/'1J SIGNED V/'/?-~2 " Administration Building
ReS(Ular Worksession/MeetinS( of the City of Chula Vista City Council
CALL TO ORDER
1.
ROIl. CALL:
Councilmembers Fox ~ Horton _, Moore _' Rindone _, and
Mayor Nader _'
BUSINESS
2. APPIJCATION OF ALTERNATIVE ENERGY TO POWER MUNICIPAL VEHICLES - In January 1993,
Council directed staff to address the use of alternative fuels (especially methanol) for fleet vehicles.
(Director of Public Works)
3. CHULA VISTA ECONOMIC DEVELOPMENT COMMISSION PRESENTATION REGARDING NORTH
AMERICAN FREE TRADE AGREEMENT - Briefing On findings of studies regarding potential impact
of North American Free Trade Agreement (NAFTA) On the local area. (Director of Community
Development)
ORAL COMMUNICATIONS
This is an opportunity for the general public to address the City Council on any subject matter within the Council's
jurisdiction that is not an item on this agenda. (State law, however, generally prohibits the City Council from
taking action on any issues not included on the posted agenda.) If you wish to address the Council on such a
subject please complete the yellow "Request to Speak Under Oral Communications Form" available in the lobby
and submit it to the City Clerk prior to the meeting. Those who wish to speak, please give your name and address
for record purposes and follow up action. Your time is limited to three minutes per speaker.
OTHER BUSINESS
4. CI1Y MANAGER'S REPORTfS)
a. Scheduling of meetings.
5. MAYOR'S REPORTfS)
6. COUNCIL COMMENTS
ADJOURNMENT
The meeting will adjourn to the Regular City Council Meeting on April 27, 1993 at 6:00 p.m. in the City
COUncil Chambers.
COUNCIL AGENDA STATEMENT
Item Z
Meeting Date 4/22/93
TITLE: Workshop on the Application of Alternative Energy to Power Municipal
Vehicles
SUBMITTED BY: Environmental Resource Manager Barbara Bamberge~~
Director of Public Work~ r:?.t:
REVIEWED BY:
,,1
City Manager 1
(4/5ths Vote: Yes_NoX)
Since the energy crisis of the 1970's alternative energy sources have been considered for
powering municipal vehicles. The impetus for this was to release the United States from
dependence on foreign energy sources. Over the years, this issue, as well as the need to
reduce vehicle emissions has fueled interest in alternative energy sources. The production of
electricity and transportation vehicles are responsible for much of the world's urban air
pollution and acid rain, and more than half the carbon emissions from fossil fuels. Carbon
content of fuels range from coal, with 24.12, crude oil, with 19.94, and natural gas with 13.78
determines the amount of carbon emitted into the atmosphere, and results in smog and
depletion of the earth's ozone layer. By using alternative fuels, carbon dioxide, carbon
monoxide, and other smog producing pollutants can be substantially reduced.
CARBON EMISSIONS FROM PRODUCTION OF FUEL
Fuels that are produced from petroleum or natural gas emit 1I4th or less emissions than other
types of end-use and fuels, produced from coal or biomass emit much higher levels of
emissions. The following chart shows a comparison between carbon emissions based on the
production of petroleum and alternative fuels:
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FUEL SOURCE CARBON EMITTED PER
PRODUCTION OF 1
GALLON OF GASOLINE
GASOLINE CRUDE OIL .9
DIESEL FUEL CRUDE OIL .8
METHANOL NATURAL GAS 1.1
METHANOL COAL 6.0
ETHANOL CORN 6.0
COMPRESSED NATURAL NATURAL GAS .7
GAS
PROPANE CRUDE OIL, NATURAL GAS .8
HYDROGEN WATER 9.3
HYDROGEN COAL 9.3
ELECTRICITY NATURAL GAS 4.4
sources: GasolIne and Ethanol- U.S. EPA S eClal Re ort, anab SIS of the economic and envlfonmental effects of
p p y
ethanol as an automotive fuel, April 1990. Transportation fuels and the Greenhouse Effect, December 1987.
This chart indicates that fuel production from coal creates much higher carbon emission levels
than natural gas or petroleum based fuels.
UPCOMING lAWS
Federal law now states that by 1998, 2% of all vehicles must be alternative fuel vehicles.
The California Clean Air Act mandates that by 1994, 10% of new fleet vehicle purchases
must be transitional low emission vehicles (flexible fuel). Beginning in January 1998, 70% of
municipal fleets purchased must be clean fuel vehicles. Clean Air Act of 1990 requires that
municipal purchases in 1998 incorporate 30% alternative fuel vehicles; 50% in 1999 and 70%
in the year 2000. Likewise, state law requires that by the year 1997, 25% of all vehicles in
the state of California must certified as low emission vehicles, 2% ultra-low and 2% must be
zero emission vehicles.
To assist in achieving these goals various grants are available to cities. The California
Energy Commission and SDG&E, for example, both offer grants to offset the cost differential
between the purchase of a standard vehicle and the purchase of an alternate fuel vehicle.
However, should the demonstration program be terminated prior to the agreed-upon date, a
liability exists as to reimbursement to the funding agency for funds provided under this
program.
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There are several alternative energy sources available on the market for municipal fleets.
These include: methanol, compressed natural gas (CNG), propane, ethanol, and electric-
powered vehicles (zero emission vehicles). Research for the development of various fuel cell
powered vehicles is currently funded by the Department of Energy, and proto-types have been
produced for both fuel cell and solar automobiles, but these are not available on the market at
this time.
This workshop will provide an introduction to alternative energy sources, and will introduce
representatives from various alternative fuel companies for direct questions. Presently, San
Diego Gas & Electric has loaned the City two CNG vehicles as a demonstration. Prior to, as
well as the day of the workshop, a representative for an electric-powered vehicle will have a
vehicle on-site for Council inspection.
Currently the Cities of Coronado and San Diego are using CNG vehicles. Coronado has a
factory-dedicated CNG service truck, a CNG forklift, and one sedan conversion. The City of
San Diego has twenty factory-dedicated pickup trucks. Both use slow-fill systems to fill the
vehicles' tanks. At this time no neighboring City is using alternative-fueled vehicles in public
safety services.
RECOMMENDATION: That Council:
1) Direct staff to return to the Council with specific recommendations for the inclusion
of alternative fuel vehicles as it relates to procurement policies for alternative fuel and
energy efficient automobiles fleet purchases,
2) Direct staff to continue to monitor alternative energy vehicles in neighboring city
fleets.
BOARDS/COMMISSIONS RECOMMENDATION: Not applicable.
DISCUSSION:
It is commonly known that vehicles, both public and private, are responsible for the largest
share of urban air pollution. Alternative energy sources (fuel and electric) represent the best
opportunity among the options available to municipal decision makers to improve air quality.
Alternative fuels considered in this workshop are methanol and compressed natural gas.
Battery-powered vehicles are included as an alternative energy.
CURRENT INCENTIVE PROGRAMS:
SDG&E
. SDG&E has an incentive program where they pay 50% of the cost of converting a
vehicle from gasoline to Compressed Natural Gas (CNG). Conversion costs
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approximately $400. The SDG&E CNG pump is currently operating at 814 East J
Street location in Chula Vista.
. SDG&E will also pay 50% of the incremental cost difference of buying a new CNG
vehicle. The California Energy Commission (CEC) has a program that pays the other
half of the cost differential - up to $2500 for the purchase of new CNG vehicles.
Since both programs cover the "difference" between a typical vehicle and a CNG
vehicle, the cost to purchase a CNG vehicle will be the same as a regular vehicle.
CNG vehicles that can currently be bought include GMC trucks and Dodge vans.
These vans would be appropriate for the City's future van pooling program, if we
adopt one under the air quality regulation.
. All other types of light vehicles, including police vehicles (except for pursuit vehicles),
can be converted to CNG with kits, under the SDG&E incentive program. These kits
include a flexible fuel switch, which allows a police officer to use CNG for patrolling,
while being able to switch back to gasoline for emergencies and high speed duties.
One problem, however, is that needed trunk storage would be lost in a conversion as
opposed to a dedicated CNG powered vehicle.
CALIFORNIA ENERGY COMMISSION
. The California Energy Commission has a Methanol Fuel Flexible Vehicle incentive
program. This program will be beneficial if we plan to purchase additional fleet
vehicle in cases where a truck or van is not appropriate. The CEC is offering $400-
$500 toward the cost of a methanol fleet vehicle. The state has a contractual
arrangement with Dodge, Chrysler and Ford, where the cost of these vehicles are the
same as non-methanol (gasoline) models. The City would buy the vehicles through
the state contract, less the $400 per vehicle. Vehicles available include:
1. Dodge Sphit and Plymouth Acclaim Subcompact - flexible fuel gasoline/methanol
State bid price $9630, including buy-down
2. Font Taurus - mid-size flexible gasoline/methanol
state bid $9861, including buy-down
3. Chevrolet Lumina - mid-size sedan Flexible gasoline/methanol
can be purchased from fleet manager at any dealership.
4. GMC truck - one half or three quarter ton pick up dedicated CNG pick-up
or flexible CNG/gasoline trucks models: $5,000.00 differencial cost: up to $2500.00 -
paid for by CEC, and $2500 paid by SDG&E.
5. Dodge Van B350, full size 10-12 passenger dedicated CNG van, cost differential
$5000.00, CEC pays up to $2,500.00 and SDGE pays up to $2,500. Will be available
in June.
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Am OUALIlY REoumEMENTS
. Regulation 1301, under APCB, will mandate the City to embark on an
Employer Trip Reduction Program. We will be required to meet an Average
Vehicle Ridership (AVR) standard of 1.5 AVR by July 1993, with AVR
standards increasing to 1.55 by July 1994, 1.60 by July 1995, etc. If we do not
meet these targets, the APCD will require the City to offer a 50% subsidy
towards using public transit to all employees beginning FY '95.
. Using alternative fuel vehicles, if used during commute time, acts as a credit
towards the A VR target. Any alternative fuel vehicles used during the peak
travel period gives the City a credit toward the City's target A VR. The
following credits are given for alternative fuel usage during commute time
(6:00 - 10:00 a.m.):
. CNG vehicles count as one-fourth of a single occupant gasoline vehicle.
. Flexible fuel vehicles count as three-fourths of a single occupant
gasoline vehicle.
. The trip reduction program also requires a "guaranteed ride home"
program beginning FY '94. The City could consider a policy that
requires any new vehicles, except for emergency vehicles, purchased
after January 1993 be an alternative fuel or flexible fuel vehicle.
California Oean Air Requirements:
California's new clean air rules require an increasing percentage of an automaker's fleet to
meet progressively tighter emissions standards.
. By the year 1997, 25% of all vehicles in the state of California must be low emission
vehicles, 2% ultra low, and 2% zero emissions.
. By the year 2001, 90% must be low emission vehicles, 5% ultra-low and 5% zero
emission vehicles.
. By the year 2003, 75% must be low emission vehicles, 15% ultra low and 10% must
have zero emissions. 2 million vehicles are expected to be sold in California in the
year 2003.
Federal Oean Air Act Requirements:
The main provisions in the 1990 Federal Clean Air Act are as follows:
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. Only reformulated gasoline will be sold in cities with severe and serious ozone
problems after 1995. Unleaded gasoline must be replaced by reformulated gasoline
throughout California starting in 1996.
. 70% of all fleet vehicles purchased must be clean fuel vehicles by 1998.
. Requires automobile manufacturers to produce a total of 150,000 clean fuel vehicles a
year beginning in 1996. This will increase to 300,000 a year by 1999.
. In 1994, new buses in urban areas will need to cut emissions by 50% compared with
conventional diesel buses. If no diesel fuel technology can meet this standard, the
U.S. EP A can mandate alternative fuels.
National Environmental Policy Act of 1992:
The Environmental Policy Act spurs supply and demand for fuels other than gasoline or diesel
by requiring fleets to purchase an increasing number of vehicles that run on alternative fuels:
electric, ethanol, methanol, CNG, hydrogen, fuel cells, and dual fuel or flexible fuel.
TAX CREDITS
The following tax credits apply beginning in June 1993, although this applies primarily to the
private, rather than public sector:
. 10% tax credit for electric vehicles up to $4,000.00.
. $2,000.00 for clean fuel vehicles that use alternative fuels including: ethanol,
methanol, propane, or CNG. This credit is for a differential cost of equipping the
vehicle to use the clean fuel above amount of a regular priced gasoline-only vehicle.
. A $5,000.00 deduction for trucks, vans weighing between 10,000 and 26,000 pounds.
. A $50,000 deduction for trucks/vans over 26,000 pounds or buses that can seat at least
20 passengers.
. Up to $100,000 can be claimed for clean fuel refueling sites. Available on property
placed into service after June 1993.
ALTERNATIVE FUELS - ADVANTAGES AND DISADVANTAGES
METIlANOL
PROS:
. Methanol has been used for several years worldwide successfully as an automotive
fuel. Methanol is plentiful, and can be made from renewable resources. Methanol
might be made from commodities which are surplus, such as grains, sugar cane stalks,
rice hulls, and so forth.
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. Methanol is made from natural gas. It has high performance, and requires only
modifications of current automobiles to allow utilization of the fuel.
. Methanol is a clean-burning liquid alternative fuel. A fuel-flexible auto using 85%
methanol and 15% unleaded gasoline produces 30-50 percent of the smog-forming
emissions than a comparable gasoline-powered vehicle.
. Methanol is convenient, there are no large tanks to include in the auto, as is the case
with CNG, and tanks, can be filled just like gasoline.
. Methane, a by-product of organic decomposition, can be used to produce methanol.
Landfills and sewage treatment plants are a steady, inexpensive supply of this gas.
Methane currently powers the co-generation engines at the City of San Diego's sewage
treatment plant on Point Lorna. During the 1970's energy crisis, the City of San Diego
experimented with the conversion of methane, derived from sewer gas, into methanol
to power the city fleet. This was proposed as a way to provide a "free" fuel for the
city fleet. Another source for "free" methane was the city's landfill. Problems arose
in that the gas derived from these processes was not clean, and the removal of the
impurities was so expensive the projects were abandoned.
. Methanol as a fuel is less polluting than regular gasoline when using APCD criteria.
Because it is a liquid, methanol would not require as compared to CNG, as extensive
modifications to existing facilities. Modifications to existing vehicles would also be
less.
CONS:
. Since it takes 1.7 gallons of methanol to provide the same amount of energy as a
gallon of gasoline, methanol have about half the mileage range of their gasoline
equivalents.
. Methanol is a liquid derived from natural gas. It is toxic and produces as much
carbon dioxide as gasoline. The City of San Diego's 1983 experience with several
methanol-powered sedans revealed that methanol was a difficult and expensive fuel to
use. After several years of testing the program ended. The used methanol vehicles
were sold for $350 each in the County auction.
. Methanol is a corrosive fuel which requires special handling in terms of storage and
transportation. The fuel tanks on the automobiles have to be either stainless steel or
some alcohol-resistant plastic to handle methanol. The methanol will remove the
tinning from the lining of standard fuel tanks, and this tinning material will clog the
fuel system. The fuel lines have to be a special material as do all of the fuel pump
diaphragms as well as the internal parts of the carburetor.
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. Methanol fuel, unlike unleaded gasoline, will penetrate the skin and cause serious liver
damage if there is continued exposure. This will require special training and
procedures for mechanics and other persons working around the fuel. According to
the Amercian Public Works Association, special overgarments and gloves would be
needed to work on the cars, which would then be discarded each day. In addition,
studies have determined that emissions from methanol-powered vehicles contain
formaldehyde. Methanol as a fuel may meet emissions quality standards, but this does
not preclude it from emitting other hazardous substances.
. Fuels are compared by the amount of heat in a standard unit, and this is usually the
British thermal unit (BTU). The fuel with the highest BTU rating used by the City is
diesel fuel, followed by unleaded gasoline. Approximately 1.7 gallons of methanol
have the same heat value as one gallon of regular gasoline.
. The test vehicles were Ford Escort, 4-door sedans. A standard Escort running on
unleaded gasoline could expect at least 30 miles per gallon fuel economy. The
methanol-powered vehicles routinely ran between 10 and 12 miles per gallon. The
driving range for a methanol test Escort was limited to a 50-mile radius. One could
barely drive from San Diego to Escondido and back on a tank of fuel.
. For the duration of the test, one methanol fueling site was opened in downtown San
Diego. Considerable time was spent by City employees traveling to and from the
service station. The absence of suitable, nearby places to fuel were a problem then,
and continue to be so today.
The City of San Diego was not the only municipality used in the demonstration project for
these cars. Among others was the City of Palm Springs. Due to heat-related problems the
vehicles did not perform satisfactorily, and the City of Palm Springs converted their vehicles
to unleaded fuel early in the project.
COMPRESSED NA TIJRAL GAS
Compressed Natural Gas (CNG) is seen as the alternative fuel of the future. It is both a low-
emission fuel and it is plentiful within the continental United States. Like methanol, CNG
has been used world-wide for many years. Both state and federal agencies are providing
incentives for fleets to either convert or purchase CNG-powered vehicles. Incentives are also
provided to energy suppliers such as SDG&E so that fueling stations might be constructed
prior to the consumer demand for the fuel. A typical fast-fill CNG station costs $250,000.
The average CNG vehicle conversion costs $2000 - $3000. Factory-dedicated CNG vehicles
typically cost $4000 - $7000 more than unleaded fuel counterparts.
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2. - 8'"
Background
. Natural gas is the world's largest energy source just behind coal but ahead of
hydropower and nuclear energy. Natural gas supplies an equivalency of 35
million barrels of oil each day.
. The production of natural gas is growing more rapidly than that of any other
major energy source.
. Global use of natural gas has doubled since 1970 while oil consumption has
barely increased.
. In the 1970's price controls were lifted which substantially increased the price
of natural gas artificially. Consumers turned away from gas. In response, the
Government, concerned about limited gas supplies, passed laws prohibiting the
construction of gas-fired power plants.
. Over the last decade the market was adjusting to the price control
removals from the 1970's.
. In 1992 gas prices were half the OPEC price of oil, $9 barrel equivalent
and gas was again the nation's fastest rising energy source, up 20% in
five years.
Pl'Os:
. Using gas avoids the prospect of oil spills through extraction and transportation
of oil which reduces the potential for catastrophic accidents.
. The principal component of natural gas, methane, does not accumulate in bays
and does not "puddle". If a leak occurs, it evaporates very quickly. This
avoids the effects of potential spills accumulating in our bay or along the
beaches.
. Natural gas does not have to be strip-mined, as does coal, which supplies much
of the energy for the San Diego area. Therefore, the environmental impacts
and scars from open pits and toxic metal leaks into water supplies which
accompanies coal mining in numerous cases, is completely avoided. A
concentrated effort to switch from coal to natural gas could save large areas of
land now planned for destruction.
Cons:
. Natural gas production involves the use of toxic and hazardous drilling fluids.
The process for gas development can potentially impact environmentally-
sensitive areas.
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. Methane, the principal component, traps heat that is accumulated in the
atmosphere and contributes to global warming. Burning methane does not
contribute to the accumulation, but methane leaks could offset the positive
effects of reducing carbon emissions.
. Of the various contributors to global warming, fossil fuels account for one-fifth
of all methane released into the atmosphere. Only five percent of methane
emissions is believed to be related to natural gas production or transportation.
Air Quality:
. Currently 300,000 gas vehicles are used in Italy and it is estimated that as of
2005, 4 million natural gas vehicles will be on the roads in the United States.
. Dedicated natural gas-run vehicles have greater pollution benefits than vehicles
that are converted to natural gas, such as those offered in the SDG&E incentive
program. But, even with conversion, carbon monoxide is substantially reduced
and so are hydrocarbons.
. In order to facilitate a market for natural gas vehicles, fleet vehicles and bus
systems owned by governmental agencies and private companies, must start
converting to natural gas. Diesel fuel vehicles, which are one of the worst
polluters, can soon be converted to natural gas which in turn will substantially
improve urban air quality.
. Natural gas contributes to reducing air pollution from fuels otherwise heavily
contributing pollutants.
. Natural gas strips (bums) sulphur prior to it being emitted: sulphur is a main
cause of acid rain.
. Methane, used to produce CNG, contains one-third less carbon per unit of
energy than oil and a little more than half as much coal.
. Air emissions from natural gas combustion systems are much easier to control
with today's technologies than emission systems producing crude oil or coal.
. Currently, surface road transportation depends entirely on oil for energy.
. Natural gas contains little or no sulphur or particulates. These two pollutants
are eliminated from otherwise coal-fired plants, of which we currently get over
50% of our electricity. Some natural gas technologies reduce emissions from
nitrogen oxides compared to coal plants.
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2 ~ ID
. Natural gas plants also emit 40 to 60 percent less carbon dioxide than coal
plants in use today for modem technology in natural gas plants.
The future of natural gas production. According to conventional oil companies, natural gas is
a depleting, non-renewable resource. Now it is non-renewable but there are a variety of
sources that greatly challenge the large oil companies' contentions. Since 1972 gas production
has been declining and prices were increasing substantially in the years to come. According
to World Watch Institute, only in the past decade has the industry looked actively for gas in
areas that do not contain oil. This is important because prior to this exploration, it was
assumed that natural gas was found only as a by-product of oil exploration. A study by the
National Petroleum Council found that earlier assessments underestimated natural gas
reserves. It is now believed that U. S. resources are estimated to be 1,000 to 1,300 trillion
cubic feet, three times what Exxon estimated in 1984. This is enough to last the country 60
years at current rates of use given that there are no major price crises. Globally, resources
have been discovered in Argentina, Indonesia, Mexico, North Africa, the North Sea and
Russia.
ZERO EMISSION VEHICLES
Zero emission vehicles are electric-powered either by battery only or by battery and solar
energy. Zero emission means that the vehicles do not emit any pollution as they are being
driven. Emissions are produced during the production of electricity, and depending on the
type of fuel used to produce electricity, pollution may still be a significant problem at the
power plant site. Similarly, depending on the type of battery used in electric vehicles, the
disposal of lead-acid batteries poses hazardous waste issues. Battery-powered vehicles
eventually require charging which leads to some pollution if a fossil-fuel electric generating
plant is used. Battery-powered vehicles have been used many years in industries such as
mining, and other environments in which confined areas and toxic, explosive fumes are
present. Other familiar applications are golf carts and fork lifts. However, in typical fleet
applications, battery-powered vehicles have limitations as to speed, acceleration, and distance.
Advances in technology have opened the possibility for electric-powered vehicles to compete
in today's alternative energy vehicle market. To convert a compact pickup truck to battery
power costs about $10,000. To purchase a new compact pickup truck costs approximately
$26,000. The range for these trucks is about 40 miles, and they can be charged overnight
during off-peak electrical hours.
A substantial portion of the operating costs for this type of vehicle is the replacement of the
batteries. Depending upon battery quality, type of construction, and service intervals the
batteries are usually replaced in 2-4 years of service.
ETIIANOL FUEL VEHICLES
Ethanol is produced from corn, grain or other agricultural products. More than four million
cars run on ethanol in Brazil as a result of a government program to make fuel from sugar
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.
cane. In the United States, ethanol is affordable primarily because of subsidies from the
federal government. Ethanol is not practical for California fleets, but is heavily used as an
alternative vehicle in mid-western states. Ethanol, or ethyl alcohol or gain alcohol, is a
high-octane fuel. Ethanol produces 30-50 less smog-forming emissions than similar model
gasoline-powered vehicles. Carbon emissions from ethanol, however are high. Because it is
not economically or environmentally efficient to use ethanol in Southern California, staff will
not address this fuel in great detail. However, ethanol is begin researched in California by the
California Renewable Fuels Council, which is working on developing ethanol from local
agricultural products.
FLEXIBLE FUEL VEHICLES
In 1994, 10% of new fleet vehicle purchases must be transitional low emission vehicles.
Flexible fuel vehicles fit this definitions. Flexible fuel vehicles usually run on methanol
and/or gasoline or any combination of the two in a single tank. Flexible Fuel vehicles are
readily available, and various incentives from the California Energy Commission have been
created. The advantage to this type of vehicle is that autos can be retrofitted or can be
purchased as dedicated flexible fuel tanks. They contribute to reduced air emissions over
straight gasoline and can be used for police vehicles and other vehicles where CNG may not
be practical yet. The disadvantages are methanol, as mentioned above, higher operating costs,
and the need to certify exhaust emissions under two standards.
FISCAL IMPACT: The purchase of alternative fuel vehicles will depend on state and
federal incentives, grant funding and fuel availability. The total net cost is unknown at this
time.
12
.2~/2
(Grams/Mile)
1.6
1.4
1.2
1.0
0.8
0.6
0.4
""
rl
0.2
o
Dedicated
Natu ral Gas
(New Technology)
H -. Reactive Hydrocarbons
I\.J -. Nitrogen Oxides
C -. Carbon Monoxide
Pollutant Emissions by Vehicle Fuel Type
C!...
,
(\)
I
H fl)
I
H
c...
Natural
Gas
(Current Technology)
liQuefied
Petroleum
Gas
2- 1.3
<!..
I
""
~
f/ I\J
'*;1
'Y.
Methanol
Gasoline
California Clean Air Requirements
California's new clean air rules require an increasing percentage of an automaker's fleet to meet progressively tighter emis-
sion standards. For example, by 2003, 75 percent of vehicle sales must have low emissions, 15 percent ultra-low emissions
and 10 percent zero emissions. Approximately two million vehicles are sold in California each year.
Mo4oI
8.39H( To 50,000 Tn__
Y.. 1.GeO USNC. 3.4(0, 0.4NO. 1A._is_ l.ewu.iuioI lIt,...t... I..Ellissiol
0.4NO. T. 100,000..... VoWdos VoWdos Ioois....VoWdos VoWdo.
0.3IHC. 4.2<0, 0.4NO. 0.125Hc. 3.4C0, 0.4NO. 0.015Hc. 3.4C0, 0.2NO. 0.040Hc. 1.1(0,0.2NO. 0.0Hc. 0,((0, o.oNO.
.
1991 100%
1992 100%
1993 60% 40%
1994 10% 80% 10%
1995 85% 15%
1996 80% 20% .
1997 73% 25% 2".6
1998 48% 48% 2".6 2%
1999 23% 73% 2% 2%
2000 96% 2".6 2%
2001 90% 5% -5%
2002 85% 10% 5%
2003 75% 15% 10%
.....
::"::1--
t--
N
Figure. lor exhou.t .tondord. ore in gram. per mile; HC - hydrocarbon.; CO - corban monoxide; NOx - nitrogen oxide..
Source: California Air Resources Boord R u/ations.
CECIM&PCO - 11/91
Printed on recycl&d paper.
ALTERNATIVE FUELS WORKSHOP
I. Staff Presentations
Why alternative fuels
Slide presentation
Current local, state and federal regulations
air quality impacts
Alternative fuels
2. Local auto dealer - Availability of alternative fuel vehicles not offered through state bid
South Bay Chevrolet, Chula Vista,
Fleet Manager, Betsy Anderson
3. SDG&E - Neil Sybert - Natural Gas Vehicle program
Charlie Eshelman - Electric Vehicle Specialist
4. Calstart
Tom Miller J3S' - NY 5 YO 'J..
San Diego Consortium and Private Industry Council
How the City can work with local businesses in conjunction with Calstart
5. Electric Vehicles
1. Jim Harris, Zero Emissions Corp., Electric Vehicle
2. Ron Arco, Electric Vehicle
7. Propane Fuels- Suburban Petrolane
Jean Jenkins
Kevin Kerr
8. City of San Diego Fleet Representative
Ted Myrus, Senior Repair Supervisor
Experience with Alternative Fuel Vehicles
9. Methanol - Dr. Ghougassian - to be continued to May 4th Council meeting
Staff will present methanol on May 4th
/
California Energy Commission
Natural Gas Vehicle Fact Sheet
Of all the liquid or gaseous fuels ready for commercial use, compressed natural gas (CNG) offers the
largest reductions in emissions compared to gasoline; c;arbon monoxlde.ls reduced by more than 90
percent, particulates are virtually eliminated, and the reactivity of hydrocarbons from natural gas
vehicles is only 36-45 percent of gasoline emissions.
CNG also ranks high in convenience and availability. California's extensive network of natural gas"
mains can deliver the fuel directiy to many sites, where compressors are installed by the local utility.
Two types of fueling systems are available: a "quick fill" system that fuels a vehicles in two to five
minutes, or a "slow fill" system that can fuel an entire fleet automatically overnight. CNG may be the
preferred clean, alternative fuel for fleet use wher.e vehicles travei specified routes, such as deliVery ttl!cXs. "
Costs for a compressor station typically run from $1,000 to $3,000 per vehicle served. Refueling can be
done easily by trained drivers. Costs for a "slow fill" compressor for use with a singie vehicle in homes
averages about $2,500. Costs for a "quick fill" system or "slow fill" system to handle fleets can cost
$250,000 or as much as $3 million for a bus fleet.
More than 40 natural gas vehicle (NGV) fueling stations are presentiy available or planned for II}I
California (although only 7 have full public access), and as CNG's popularity increases new stations Call
be added by tapping intoJhe. el\i~ting-,municipai gas main syst~m. Pacific Gas and Electric Company
opened its first nine retail fueling stations in early 1990. These numbers are expected to increase to
more than 50 by 1993. Chevron, Shell and Unocal have entered into agreements with the natural gas
utilities to dispense CNG at various gasoline stations.
Automobile manufacturers are now developing dedicated natural gas engines that are extremely clean,
which should lower capital vehicle costs and create further improvements in efficiency. Converslons.of..,
regular gasoline-powered vehicles to CNG are possible now with kits certified by the California I\1IY
Resourc;es Board. The cost of conversion runs from about $1,500 to more than $3,000 depending on the
vehicle. Converted vehicles, however, may not be covered by auto manufacturers' warranties. .
Natural gas vehicles (NGVs) are more common abroad. Italy has about 300,000 natural gas-powered
vehicles; the Soviet Union has an estimated 250,000; New Zealand has more than 150,000; Australia has
some 75,000; and Canada has more than 20,000. There are an estimated 30,000 NGVs operating in tpe
JJfl,lte.9 States, accQrr.Ung to the &l~rli;ill1.Gas Assodation.
CNG is being used In California in light-duty passenger vehicles and trucks, medium-duty delivery .
trucks, and in transit and school buses. The California Energy Commission is working with local
governments and natural gas utility companies to demonstrate 100 GMC Sierra 3/4-ton pick-up trucks
that are being built by General Motors Corporation to run on natural gas. GMC has plans to build up
to 10,000 CNG pick-ups, with 1,000 of these factory-produced, dedicated-CNG pick-up trucks expected
to be placed in other fieets in California by 1993. Ford is building up to 700 dedicated natural gas
F-serfespick-up trucks for limited production. Dodge plans to build up to 2,000 CNG full-size vans.
CNG's biggest drawback remains its limited range of about 120-150 miles for the average vehicle. ,Dual-
fuel vehicles that can operate on gasoline. or natural gas at the fUck of a switch (even while the engine is
running) are available when extended range is necessary - though dual fuel vehicles may have higher
average emissions than dedicated natural gas vehicles. The second major drawback Is the need to use
two to three large storage cylinders in the vehicle to hold the CNG. While this may not be a problem
with pick-up trucks or vans, loss of trunk space occurs in dual-fuel passenger vehicles.
CEC/M&PCO - 4/92
Prlntsd on recycled papar.
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A SDG&:E Is a supplier of natur8I ' ; :::
. gas that wants to see its dean ,;r
fuel more widely US(!d to help solve San :
Diego's air pollution problems. SDG&:E IS
prepared. through a Public Utilities Como
mission approved p1ogram, to offer finan.
cial in:entives forconvemion or ~
of an NGv. Srx:;&E Is also working to in-
crease the number of fueling locatiOM as
quickly as possible. Wide spread use of
natwa1 gas in transportation would help
reduce the cost of natural gas. as well as
dean our ail:
Today's developing
market in clean-fuel
trucks, vans and cars has
many people wondering:
"What's right for me?"
Here's the latest
information on vehicles
powered by natural gas.
If you'd like fudher
details, contact SDG&E's
Alternative Fuels
Marketing at
619-654.1108.
Q How sale are aatural
gas fuel cylinders?
. A NGV fuel cylinders, usually car-
ried under the vehicle or in a
storage space, are safer and far stronger
than conventiona11iquid fuel tanks. The
cylinders have been subjected to bullet-
arid bonfire.tEstlng as well as drops from
100 feet above the ground. ht all tests, the
cylinders have ellCeeded Us. Department
of'liansportation safety stanc1ards.
Q . How eJean are NGVs?
A Natwa1 gas produces the 10west 1;
. amounts of emissions of anyat-. "
ternative bansportalion fue\. Only eJeo.
tric-drive vehicles have no emissions. " ,.!
NGVsam eesily meet current Iow-emfll.: " .
~~ee-~=~='C. .
sian n!qUirements for 1998. !
Q What Is SDG&E's "
.lnvolvement In NGVs?
Q. Wbo1Ulellf!llGvs'l ,
A Cunent efroJ1s to introduce
. NGVs are centenld on mIIlIJlet'-
daI business fleets and mass tIansit. F1eet
operators face hlClLUlng government .
regulations in the next few years to ~
ate Iow-emission vehicles. Also, a limited
number of fueling Iocalionsam better
serve centnilly located fleets. Mass transit
operations also face new~ N1es
and lighter operalinl!; budgets. Natural
gas-powered public buseS and school
buses are now operating In San Diego.
Privately-owned NGVs are still Iimlted, ,
but are exp<<led to grow In the coming
years as more vehicles and fueling 1<x:a-
lions become aval1ab1e.
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Q ::::::?8 natural gas
" ,
A Anal\lra1 gas vehicle (NGV) is a
bud;, van. bus orear which op-
~oncoDltn jsed naturalgas.Natu-
rat gas, composed mostly of the chemical
~ 0CCUJll naturally in the ground.
It is widely used in homes and businesses
for heating, coo1cing and industrial pr0c-
essing. An NGV can be either amverted
from a conventionally-fueled vehide
(called a "bi-fueled" NGV), or built at the
facto~ to use only ~ gas (a "dedi-
cated NGV).
I .
Q What advantageaare
there In using Datural
... as 8 yAkf..w fuel?
Q How doNGVs work?
A Natural gas is compressed and
stored in fiberglass-wrapped
stee1 or aluminum cylinders that have
been m-lIod in the vehicle. When the en-
gine is running, the gas tmvels from the
cylinders to the engine through special
high-pt~sllre fuel lines. Aregulatorat
the engine reduces the gas pressure, al-
lowing it to be injected into the engine 1-
inders for combustion. cy
Q How much does it cost
to convert a vehicle to
DatUra! gas? .
ii.
i
'A Conversion companies typiaIlly
charge about $3,soo to $4.lXXJ to
convert a vehide to "hi-fuel" use. The ex-
isting fuel system is left in plare and c0n-
tinues to operate when nee fl'ry. Afuel
selector switch allows the driver to
change betv.een fuels.
A Nal\lra1 gas is c:Itrmer than c0n-
ventional motor fuels. Only low
~ ofaubonmonoxide, nitrogen
oxides and reactive organic gases are pr0-
duced. Meet exhaust from an NGV is
water vapor andoubon dioxide.
Nal\lra1 gas is dleRper than gasoline by
25toSOpemmt.
Nal\lra1 gas is safer than most other vehi-
cle fuels. If released, it quicldy dissipates,
rather than fonning a combustible pool
on the ground.
Nal\lra1 gas is IlbundRnt throughout
North America, with a more than 70 year
supply CU1Tl!I1tly available. Increased
natwal gas use could help increlllle Amer-
ica's energy security and reduce the tmde
deficielq
Q How are NGVs fueled?
A Neva are fueled from dispen&-
ers that look veIY similar' to con-
ventional self-service fuel ps. Fueling
am be done via "fast fill" ~ takes
about the same time as fueling with a liq-
uid fuel. Another method, "timed-fill."
takes five to eight hours. Tuned-fill fuel-
ing is usually done overnight for buses or
other fleet vehicles.
Q How much does a
dedicated NGV cost?
Q Where can you fuel an
NGV?
A Currently, there are 10 NGV fu-
eling stations in San Diego
County. Three of these are located at pub-
lic service stations in El Cajon, &candido
and Vista. The other fueling locations are
semi-public or private fleet stations. An-
other 10 NGV stations will open in San
Diego during 1993. Thirty-five stations
will be in operation by 1995.
A Vehic1ecosls Cor dodiraMd
. NGVs are set by the mam.Ifac-
turer. The fi1'st few thousand Il'IiI1\UIac-
tured NGVs have been priced about
$4.000 above the cost of a similar' model
vehicle using a conventional fuel system.
This cost difference is expected to sluink
as manufacturers expand their NGV pr0-
duction. NGVs designed and dedicated
to nm only on natwal gas obtain im-
proved mileage and perfo1'1IlallCl!, as well
as reduced emissions and maintenance
costs.
General Motors now sells a dodiraMd
Sierra pickup truck. Ouysler Corporation
has two models of full-size vans in pr0-
duction, and expects to introduce a natu-
ral gas version of it's popula1' minivan in
1994. Ford Motor is CWTently demonstrat-
ing a veIY successful natwal gas-powered
Crown VICtoria, which may go into pr0-
duction by the mid-l990s.
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California Energy Commission
'Electric Vehicle Fact Sheet
(i]
Sllent and nearly pollution:free, electric vehicles (EVs) are no longer overgrown golf carts; New
advances in battery techJ)Qlpgy and commitments to research and development bX major vehicle
manufacturers hav,e~~9~uc~d el~Str!cveh!-:'% that ca.n PlaV wactical rp! e on city streets.
Several Callfornia cities use electricliy to (Jowe, buses, streetcars and mass transit, aithough these
vehicles use an exterior power source. Electric vehicle technology is now being transferred to full-Sl;.e
vans, shuttle buses 'and autombbUes.Whtch operate on a block of batteries and can be used in urban
areas. In California, the Department of Motor Vehicles has registered 40,000 electric vehicles - th()ugh
most of these are small vehIcles that are registered as "motorcycles" because of their body frames.
Due in part to their limited production, the current lIfe-cycle cost of a full-size electric vehicle can De
twice as much as a similar-sized gasoline model. As deman'i1increases, lower capital costs, combined
with the. EV's lowpermlle Cbst, could help bring the life-cycle expense below gasollne models.
EVs now being demonstrated have a range of about SO-60 miles, which Southern Callfornia Edison says
is equal to the miles tCavE!ll!d daily by about 60,000 of the 150,000 commercial light-duty fleet vehicles
in Southern CalIfornia. Acceleration is relatively slow (0-30 m.p.h. in 13 seconds for an electric G-, ,\Il)
but top speeds of ov'er 50mlles an hour can be attained. Some "llmlted production" vehicles claim :'1 top
speed of 85 m.p.h;and'.qange of 100 ~,nes,
General Motors is workJng on a new electric passenger car called the "Impact," which the company says
can go up to 75 miles per hour, accelerate from 0-60 in 8 seconds, and travel 120 mlles before neec'Jng a
recharge. In early 1991,'GM announced that It wlll produce an electric vehicle in Michigan at the
former assembly plant for the Buick Reatta. Auto Industry observers say GM could begin llmlted
production of an Itnpaci:1'ike EV by 1995. Other major automakers, such as Chrysler'S TEVan, Clear' Alr
Transport's L~-39,1;:~M'("'n:2,.th'e-'pord:E.i .' '~rlr' otH~:s;;lr~ in the design or Ilmited production
phase.. . .. ,
EVs produced by a number of specialty Cia companies (based on kits, conversion of gasollne vehicles, or
limited production models) arc also avallable to the general public. These vehicles typically use oloff
technology lead acid batteries, have limited ranges and do not come with major automakers' warra,!tles.
They can cost up to aboutS25,000.
Recharging current EVs can be done at night usually by plugging a recharger into a 220 volt outlet (the
same. type used fpr a~t()ye,qrclectric c1othes'dryer) for about 6-12 hourI. Maintenance illimited to
filling the batteries witllwater every three weeks, a twenty-minute job that can be done automaticdly.
In June 1991, Nissan unveiled its FEV (Future Electric Vehicle) prototype that uses a nlckel-cadmiu.n
battery system that can be fuily recharged in as ilttie as 15 minutes.
,
The first modern rnass-prpduced electric vehicle is the (J- Van, a fuil lize, one-ton van produced by
Vehma International's Conceptor Division and Chloride EV Systems, and based on the General MOlars
Vandura body. The Energy Commission, in partnership with Pacific Gas and Electric Company, will be
demonstrating three G,Vans in publlc fleets In California. These vans wlli b~ placed In the cIties of
Oakland and Santa Rosa and in Yosemite National Park. Other utility companies are currently
demonstrating G-Vans in their fleets. Ford Motor Company has Indicated it will produce 70-100
L.l..v:>LI.U' L;:Jl,..ulL vLJ.l1j Cl.:lf41JllL:U ~\o1LJ1"1I I..:JI.':LllH. FUH\.:t 1I.uu1 ullU U.llllM .1"~IH'"".H''''''' ;"H~""l;'-'). ~:"}"'::"'L
and the Electric Power Research Institute are developing the Chrysler TEVan, which uses a nickel-iron
batt~ry. The federal goy~rnment.and the "I):;.: Three" automak~rs also haVe entered into a partnership to
develop advanctid battErJes fbr'~l"ctrlc"el'<'\,,_~, . ' ';' : ' .,.,
'. CEC/M&PCO -- 4192
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Electricity is also being used In medium-duty shuttle vehicles. The Santa Barbara Metropolitan
Transit District has two electric shuttles made by Bus Manufacturing U.S.A. Inc. The buses serve a
loop in the downtown area. The district estimates that the electric shuttles cost 3.2 cents per mile
to operate, versus 14.5 cents per mile for diesel-powered shuttles. Other cities are considering
purchasing electric buses.
The biggest drawback to EVs remains the price. The Electric Power Research Institute says, however,
that the life-cycle costsof an electric van and conventional van are equal (40.8 cents per mile)
when electricity is five cents per kilowatt hour (generally an off-peak rate) and gasoline Is $1.15 per
gallon. The typical cost of an electric G-Van is $56,000 to $62,000. By comparison, a gasoline-
powered GM Vandura costs about $16,000 to $22,000, depending on options. The cost of electric
vehicles will decrease as they are placed Into full production by major automakers.
Estimates project the G- Van '5 fuel costs to be less than half those of gasoline vans. Large reductions
in maintenance can also be expected with EVs; there isn't any oil to change, transmission to break
down and just a fraction of the number of moving parts found In a gasoline engine. The vehicle's
expected eight-year fleet life, compared to five years for gasoline vehicles, will also keep yearly
operating costs down.
Electric vehicles may be the choice for California urban commuters (for many as a second car)
because of strict air quality regulations. California Air Resources Board regulations require that two
percent of all vehicles sold by major automakers will have to be zero emission vehicles starting In
1998. That number rises to ten percent in 2003, or approximately 200,000 vehicles per year in
2003.
Additionally, the South Coast Air Quality Management District (In metropolitan Los Angeles)
estimates that by 2010, 19 percent of all light-duty passenger vehicles and 7 percent of the IIght-
duty trucks in that district will be electric (a total of more than 2.5 million vehicles in Southern
California). The Energy Commission calculates that a total of 400 megawatts of electrical capacity
will be needed to power all the electric vehicles in California by 2010, with most of them
recharging during off-peak hours (such as over-night). .
2-/1
California Energy Commission
Methanol Vehicle Fact Sheet D
Methanol (methyl alcohol), often referred to as "wood alcohol" but usually made from
natural gas, is considered by many to be a promising substitute for gasoline. Its high octane
performance, the minor modifications needed to allow gasoline engines to'use methanol, and
the reduction of reactive emissions have made it a leading choice among several government
agendes as the alternative fuel for fleet and private vehicle use. According to the American
Methanol Institute, methanol has been used for more than 100 years as a solvent and a
chemical building block to make consumer products such as plastics, plywood and paint.
Consumers use methanol directly in windshield washer fluid, gas line antifreeze and model
airplane fuel.
Methanol is a clean-burning liquid alternative fuel. A fuel-flexible vehicle using &5 percent
methanol and 15 percent unleaded regular gasolin, produces 30-50 percent of the smog-
forming emissions than a comparable gasoline-powered vehicle. Because methanol can be
produced from abundant domestic supplies of natural gas, coal or even biomass it offers
energy security benefits by being a clean alternative to petroleum-based fuels.
In August 1991, approximately 1,000 cars, trucks and buses on the road in California were
runnning on methanol. General Motors and the Energy Commission announced in November
1991 the availability of up to 4,000 Chevrolet Variable Fuel Luminas for purchase by public
and private fleets as well as members of the general public. A total of 1,200 Luminas were sold
to California fleets in early 1992 and delivery of the cars started in late April. Chevrolet says it
will be offering the methanol option on its 1993 model year Lumina at a "competitive price."
At the 1992 Greater Los Angeles Auto Show, Chrysler announced that it will build up to 2,000
A-body cars (Plymouth Acclaims and Dodge Spirits) to run on methanol. The vehicles will be
offered to fleets and the public, with the methanol option at no extra cost to the purchaser,
beginning in July 1992. Chrysler later announced sales of 2,500 additional Acclaims and .
Spirits to the United States General Services Administration. More than 1,500 of these A-Body
cars will come to California. Chrysler's 1994 model year LH series (Chrysler Concord, Dodge
Intrepid and Eagle Vision), appearing on show room floors in the fall of 1993, can be ordered
with the methanol option. Chrysler says it can build up to 100,000 of its A-body and LH-body
cars in 1993-94 to run on methanol.
Ford will be produdng 2,500, 1993 fuel-flexible Tauruses and 200, 1992 Econoline vans for
delivery to California fleets or private purchasers. The 1993 Taurus FFV will be offered as an
option from auto dealers in the fall of 1992.
Volkswagen has produced about 300 fuel-flexible Jettas. Mercedes-Benz says it will offer a
methanol option on 4,000, 1994 model year 300 S-Class vehicles. Other auto manufacturers
have produced a limited number of demonstration or experimental vehicles.
The number of light-duty vehicles using methanol is expected to increase to more than 7,000
fuel-flexible vehicles in California in 1993. Methanol's power, performance and safety has also
made it the fuel of choice for Indianapolis 500 race cars since 1965, and a derivative known as
CEC/M&PCO . 6/19192
Printed on recycled _,.
).)6
Methanol Fact Sheet
Page 2
methyl-tertiary-butyl-ether or MTBE is Deing used in new reformulated gasolines to reduce
e<dlaust..emisiUms..;
Methanol currently sold for light-duty fuel-flexible vehicle use is actually ~ blend of 85
percent methanol and 15 percent unleaded gasoline, which enhances starting ability and
safety. Known as M85, this formula is an interim step to the use of M100, or neat
methanol, which offers greater air quality benefits. M85 has an octane rating of 102,
compared to 92 for premium unleaded and 87 for regular unleaded. This hrgher octane
increases engine horsepower about seven to ten percent, or more, depending on the
vehicle.
Methanol, a liquid fuel, is convenient and tanks can be filled just like gasoline. The
California Energy Commission and Chrysler, Ford Motor Company, General Motors,
Honda, Mazda, Mercedes-Benz, Mitsubishi, Nissan, Toyota, Volkswagen and Volvo are
sponsoring demonstration programs to provide fuel-flexible vehicles to public and private
fleets.
Three American automakers (Chevrolet, Chrysler and Ford) will offer the fuel-flexible
option to the public in the fall of 1992. The methanol option will probably be offered by
most automakers in the 1994 model year.
The Commission is also working with several oil compa.gi\!!i, Jncluding Arc,:Q, Chev.rotl;
Exxon, Mobil, Shell, Texaco and Ultramar (Beacon). to cost-share the establishment of up
to 82 methanol fueling facilities throughout California that will supply M85 to vehicles at.-
prices comparable to premium unleaded gasoline. The projected differential in the cost per
mile is much less: a large private auto/light duty fleet can expect to spend about 23.2 Wl~
per mile. using regular unleaded gasoline ap.j:j i1bout 23.4 cents using methanoJ,.
Because it takes about 1.7 gallons of methanol to provide the same amount of energy as.JI
gallon of gasoline, methanol vehicles have about half the mileage range of their gasoline
equivalents.. Larger fuel tanks and the ability to use unleaded gasoline in these fuel-flexible
vehicles - which run on methanol, gasoline, or any combination of the two from a single
tank - provide extended range when necessary. Methanol is also corrosive and the fuel
tank, some hoses and other parts need to be replaced with nickel, stainless steel or
ro.ethanOI,compatiQ!e .Q.iI.flS.,
2 ~J-I
California Energy Commission
Ethanol Vehicle Fact Sheet
Ethanol, ethyl alcohol or grain alcohol, is a high-octane fuel derived from corn, grain or
other agricultural products. More than four miUionqus ruIl, OIl, ethanol in.-!3razU as a re$\Ut,pf.
UQyerQW.etl.t pr9gramtomaJ<e fuel t~OUl.SJ.!&iU~~.
Ethanol vehicle fuel is being tested in the United States, in a near-neat blend calledW or
.E901 or 85:90 percent ethanol mixed with 10-15 percent unleaded gasoline, Fat.m vehicl~
have been ~onvened to. ethanol, as have a few Iightrduty vehicles which are in testing and
demonstration programs. Fuel-flexible vehicles that operate on methanol and gasoline in any
combination from the same tank must be optimized to run on ethanol and gasoline (E85).
~hevrolet Motors Division of General Motors is producing at least 50 ethanol-optimized
Variable Fuel Chevrolet Luminas for demonstration programs in Iowa, Indiana and other
states. The State of H,awaii,is investigating. etnanol prod\.l.ctjpn from sugar ca.!le as an'
a1ternat.ive.togasolilJa.
Ethanol vehicles produce about 30-50 less smog-forming emissions than a similar model
gasoline-powered vehicle. Carbon emissions for ethanol, however, are high. According to the
U.S. Environmental Protection Agency, when feedstock and corq farming practices -tuel fig,
mactJ,inery, fertili;!erand pesticl<;le prodl.lction, anQ grain drying - are added to a computation
of carbon emissions for ethanol, total ethanol production and use emits more than six times
the amount of carbon than an equivalent gallon of gasoline. Ethanol vehicles do not emit
formaldehyde and ethanol is derived from renewable sources - corn and grain feedstocks.
Ethanol is more costly than other clean, alternative fuels, although government subsidies of
60 cents per gallon have kept prices comparatively low.
The use of ethanol in America has been prima.rilyin tne Midwestl where excess corn;and grain
can be distilled into fuel. A high percentage of Midwest service stations, especially in Iowa"
offer high octane gasOline blenqs containing 10 perce.nt etlianol (gasohol). Gasohol can also'
be purchased in California at Ultramar (Beacon)service stations.
Companies building plants for production of the methanol addiijve methyl tertiary butyl,
ether (MTBE) are considering building Swing .facllities that can produce ETBE (ethyl tertiary
butylether), both additives which can be used in reformulated gasoline to reduce emissions,
Ethanol has about two. thirds the range of a comparable gasoline vehicle. Because ethanol is
corrosive, some modifications must be made to engines and tl1e fuel delivery system to protect
parts; the cost is expected to be about the same as the fuel.flexible option for methanol-
expected to be $100-$300 when full production lines are created. Auto manufacturers in Brazil
and other countries already manufacture dedicated ethanol vehicles, but whether those
vehicles can meet California emission controls is still being studied.
The nation!s first E85 (85 percent ethanol) fueling station opened in La Habra,Orangll
COJ.lnty, CalifOrnia, in ,the spr41g qf 1990.. It is operated by the California Renewable Fuels
Council, which is supporting ethanol research and demonstration programs in California. For
more information, contact the Council at (714) 990-3333.
CEClM&PCO - 4/92
Printed on recycfed paper.
2,,)..'2
_ R.M. ARKO BNTBRPRISBS
~ln.o...~<I'
WHY WAIT FOR DETROIT?
OVER HALF OF ALL AUTO TRIPS ARE UNDER 7 MILES
30% of the balance are between 7 and 20 miles.
How much does it cost to operate the Light Utility Battery
Operated Vehicle ("LUBOV")?
The
charge
6 to 7
moderate
mile.
cost according
the batteries.
hours. Your
range of 40
to SDG&E is about 3~ cents per hour to
The system can be fully charged in about
cost about 28 cents for electricity. A
miles will cost you less then 1 cent per
How far can you drive an Electric Vehicle ("EV")?
Depending on the terrain, it's range is about 55 miles. The
LUBOV is basically a commuter vehicle dedicated to local trips
and can be used for light short distance hauling. A family will
need a gasoline-powered vehicle for long trips or for extensive
driving.
Will the battery charging ever overload the Power Companies?
NO, at least not for the foreseeable future. More than a
MILLION EV' s could be charged off the power grid in Southern
California because most charging is done at night in non-peak
hours. The off-peak capacity in the US could recharge the
batteries of over 40 million EV's.
How complex is the maintenance of an EV?
Other than checking the water level and keeping the tops of
the batteries clean, there is very little. Brakes and tires
will require the same care as any vehicle would.
How fast can the LUBOV go?
The LUBOV has no problem
The acceleration is about
top speed is about 70mph.
keeping up with the flow of traffic.
the same as a Volkswagon Van. Its
How hard is it to charge the batteries in the LUBOV?
~. R.M. ARKO .NnRPRISft
~
You merely plug the vehicle into any standard 110 volt outlet,
the charger is fully automatic and will charge the batteries
completely within 6 to 7 hours.
How safe is the LUBOV?
The vehicle is very safe; no changes have been made to the
body. The batteries are all located outside the driver's
compartment and are fully vented to the atmosphere and no odors
are ever present during charging or while driving. The batteries
are completely covered for safety with the bed of the truck.
The electrical system is fully fused and insulated.
What about the weight distribution of the batteries?
The LUBOV's batteries are below the bed of the truck, making
the center of gravi ty very low, decreasing the possibi Ii ty of
a roll-over. The extra weight is also in front of.the rear wheels
toward the middle of the vehicle. The handling is as good or
better than before the conversion.
How different is the LUBOV to drive?
The LUBOV is not much different than a Gasoline powered
vehicle. The acceleration is normal. However, rapid starts are
not available. The transmission is a standard 4 speed with
reverse. The clutch remains in the vehicle allowing easier
shifting. Shifting can be done without the clutch if desired.
When coming to a stop there is no need to use the clutch,
merely step on the brake as with an automatic transmission.
When taking off merely step on the accelerator. No need to use
the clutch. You would normally start off in 2nd gear.
To check the condition of the batteries and to determine how
much energy is being used at any given time while driving, a
Vol t and Ammeter have been installed. To increase the driving
range you want to keep the Volts as high as possible and the
Amperage as low as possible.
As with the batteries, the Driver also has to be broken-in
so to speak.
CAL METHANOL
Po. Box 121456 . Chula Vista, California 91912 . Us.A.
(619) 476-7847 . Fax (619) 427-3517
March 31, 1993
r','
.,
<:.
Cheryl Dye
Economic Development Manager
City of Chula Vista
276 Fourth Ave
Chula Vista, CA 91910
Dear Ms. Dye:
Pursuant to my discussions with Mayor Tim Nader, John
Goss and yourself, respectively, I hereby make a formal
request for assistance from the City Council of Chula Vista,
to allooate to CAL METHANOL a real property, on whioh the
very first methanol service station will be erected.
In a meeting on Ootober 28, 1992, City Manager John Goss
suggested that the property looated on 4th Ave and Oxford,
near fire station No, 5, could be allocated,
CAL METHANOL is a Chula Vista home grown business venture
fully dedioated to fuel methanol as one of the alternatives
to gasoline, for the prupose of reduoing emission pollution
as oalled for in the California and Federal Clean Air Aots
and the Federal Energy Aot.
CAL METHANOL is a first with the business objeotive to
promote and sell fuel methanol to motorists, as such. It
is a "green teohnology", and friendly to the environment and
the earth.
We will be immensely appreoiative and grateful to the
City Council if it beoame partner with us in the
implentation of the state and federal statutes, RE the
program of fuel methanol.
JG:zy
00. The Hon. Tim Nader, Mayor
John D. Goss, City Manager
--
CAL METHANOL
PO Box 121-1;;(i . Clw/a \'ista, California 9W/2 . CS.A
(619) -176-7847 . Fax (619) 427-35/7
March 30, 1993
The Honorable Tim Nader
Mayor
City of Chula Vista
276 4th Ave
Chula Vista, CA 91910
" "1\
Dear Mayor Nader:
I would like to take this opportunity to thank you for
making time to see me yesterday and to express my
appreciation for your sincere interest in and support for
our business venture to start our very first fuel methanol
sevice station in Chula Vista.
Indeed, it will be very good for Chula Vista to become
the pioneering city -- in partnership with our private
sector green technology entrepreneurship -- to implement
both the state and federal statutes regarding the clean air
acts and energy act, which calls for the use of methanol to
reduce air polution.
.-----.."
Wi h wu~tl~_
The Hon. Dr. Joseph Ghougassian
President
!
JG:zy
'.
ALTERNATIVE FUELS
What You Need to Know
ABSTRACT
The impending Clean Air Act (hereafter referred to as the Act) caJIs for the
adoption of clean fuels for use in motor vehicles. A number of alternative fuels are
among the clean fuels identified. Even in the absence of this federal mandate,
however. lower emissions of air pollutants and a need for a reduction in dependence
on foreign oil are two important reasons why the use of alternative fuels is advisable.
Nonetheless, several factors inhibit their widespread adoption and use. First, because
they present special hazards to mechanics, alternative fuels such as liquid petroleum
gas, methanol, and ethanol have specifically prescribed handling requirements.
Second, each of the alternative fuels candidates under consideration has lower energy
densities per unit volume than conventional petroleum fuels and requires costly
improvements for refueling systems, making them more costly when compared with
equal diesel fuel units of energy. Finally. the United States does not have a sufficient
supply of alternative fuels, nor is there a national network for their large scale
distribution.
M,E.Maggio
InstruC1Or, DepartmentofTransportation and Logistics
T.H. Maze
Associate Professor of Civil and Construction Engineering
Manager, Iowa Transportation Center
Directol", MidwestTransportationCentBr
K.M. Weggoner
AssistantProfessorAffiliate
Civil and Construction Engineering
Iowa Slate University
Ames, Iowa 50011
American Public Worts Association
Chicago, Illinois
INTRODUCTION
Adoption of alternative fuels is
attractive because engines using the fuels
release fewer harmful air pollutants than
engines powered by conventional fuels
(gasoline and diesel fuel). As such, a
factor pushing adoption of alternative
fuels is the Clean Air Act (hereafter
referred to as the" Act"). The Actrequires
that emissions standards be significantly
tightened. Despite their environmental
attractiveness,however, there is a concern
that technical and economic obstacles
will continue to preclude the wide scale
adoption of alternative fuels in the United
States.
A second reason why the adoption of
alternative fuels should be attractive is
that their widespread implementationhas
the potential for decreasing the United
States' dependence on foreign oil. In
lightofrapidlyrising prices forpetroleum
products, coupled with acontinuing threat
to oil supplies resulting from political
instability in the Middle East, energy
availability problems seem sporadic, yet
ongoing.
Using information gained from astudy
of the transit bus industry, this article
presents data on the large scale adoption
and use of alternative fuels. These data
are still considered to be preliminary.
Information gathered from 40 different
trials involving more than 140 coaches
across the United States reflects the
experimental nature of the use of
alternative fuels. At the same time, it
pinpoints insights into hazards and
benefits of the using alternative-fueled
engines.
CLEAN AIR ACT
REQUIREMENTS
The original Clean Air Act has been
amended several times since it was passed
in 1970. Still, the United States has not
cut ambient airpollution tomectstandards
set 20 years ago. A new Act, The Clean
2 Alternative Fuels: What You Need to Know
Air Actof 1990,has recently been signed
by the president. The Act addresses
emissions reduction in vehicle tailpipe
emissions (mobile sources) by setting
several standards, including:
during vehicle refueling andevenrequires
the introduction of onboard vapor
recovery systems. Hydrocarbon
emissions mixed with nitrogen oxides.
heat, and sunlight form omne. This
ground level ozone is not to be confused
with the beneficial, upper-aunospheric
ozone. Ground level ozone can damage
forests andcauselung damageinhumans.
Inonlertocontrol forthe damage resulting
from traditional fuels, the Act requires
the adoption of alternative fuel vehicles
and refonnulated petroleum fuel in
nonattainment areas. It encourages the
use of clean fuels in alllooales.
The Clean Air Acthas two objectives.
First, it mandates a decrease in air
pollution caused by the extraction,
refining, and combustion of petrolewn-
based fuels. Second, it aims to increase
domestic energy security by encouraging
conversion to vehicles operating on
altemativefuels thatcan be produced and
distributed within the United States.
I. Emission standards for light-
duty vehicles (less than 6,000
GVW) and specific deadlines for
implementation.
2. Emission standards for urban
buses and specific deadlines for
implementation.
3. Requirements for the use of
"clean fuel vehicles" by fleet
operators (10 or more vehicles) in
airqualitynonattainmentareas and
specific deadlines. Nonattainment
areas are urban areas that do not
meet ambient ozone and carbon
monoxide standards. Clean fuel
vehicles can bum methanol.
ethanol. reformulated gasoline,
diesel, natural gas, liquefied
petroleum gas, and hydrogen, or a
power source using clean fuels
(including electricity) that meet
the specific emission standards.
These standards only cover
vehicles of 26,000 G VW or less.
EXPERIMENTS WITH
ALTERNATIVE FUELS
Implementation and enforcement of
the original and the new Clean Air Act is
the responsibility of the Environmental
ProtectinnAgency (EP A) whiehdevelops
and enforces administrative rules
regarding emissions standards. InMarch
of 1985, theEPA enforcedstrictemissinn
standards for all new heavy-duty engines.
For transit bus particulate emissions, the
EP A required an 83 percent decrease
from the 1988-90 standards to 0.1 g/bhp-
hr (grams per hrake horsepower hour) by
1991. For transit buses and trucks, the
standards call for a reduction in nitrogen
oxides (NO) from 10.7 g/bhp(gramsper
brake horsepower) in 1989 to 5.0 g/bhpin
1991. Standards for hydrocarbon
emissions (1.3 g/bhp-hr.) and carbon
monoxide (15.5 g/bhp-hr.) were made
effective in 1987, and remain in force.
Because of the concentration and
Emissionstandards forothervehicles
not specifically mentioned in the Act
(i.e., heavy-duty vehicles) are left to the
Environmental ProtectionAgency (EP A)
Administrator to promulgate. Because
EP Ahas already developed standards for
heavy.duty truck emissions, presumably
these administrative rules will remain in
force.
The regulations are aimed at limiting
the release of hydrocarbons, nitrogen
oxides, carbon oxides and particulate
matter. The Act also tightens standards
on evaporative emissions that occur
proximity of transit bus exhausts to
pedestrians, transit buses face earlier and
morerestrictiveemissions standards than
trucks or automobiles. Because
conventional diesel engines cannot meet
these emission standards (without
specialized equipment), theprimary effect
of the EP A's rules was to force the transit
industry to embrace altemativefuels and
begin experimentation with alternative
fuel heavy-duty engines. As a result. the
U.S. transit industry has been placed in
the positionofleading most other sectors
of the transportation industries in
experimenting with alternative fuels.
EPA rules decrease the allowable
exhaust particulate matter in heavy-duty
truck engines toO.1 g/bhp-hrin 1994. At
that point. truck and bus standards are the
same. Although the Clean Air Act of
1 990 does address emission standards for
urban buses and relaxes the deadline for
the particulate standard \UltiI1993, it does
not relax the deadline for heavy-duty
truck engines.
LEADING ALTERNATIVE FUEL
OPTIONS
Fuel experimentation and engine
testing has led to a plethora of fuel
candidates, the most viable of which
include methanol. compressednaturalgas
(CNG), ethanol, and liquified petrolewn
gas (LPG).
Reformulated gasoline and "clean
diesel" fuel are also potential candidates
foruseas"cleanbuming"fuels. Although
their main ingredient is a conventional
fuel, reformulated fuels are "different"
and have many desirable characteristics.
Near-term viability of other alternative
fuels, such as solar power, electricity, or
hydrogenfuel,hasnot beendemonstrated
in the field. Therefore, these fuels were
excluded from this analysis.
Clean Air Act Requirements 3
--
Methanol
Methanol is an alcohol fuel, also
known as methyl alcohol. wood alcohol,
orcarbinol. Anoxygenatedhydrocarbon.
its molecular Cannula is CH,OH. A clear.
colorless liquid. with its owncharacteristic
odor. methanol is derived from natural
gas processing. gasification of coal, or
from wood-based refuse and other bio-
mass sources. According to the
Transportation Research Record, the
technology presented by methanol-fueled
heavy-duty engines offers the only
alternative-fueled engine that has
demonstrated its ability to meet the transit
bus emission standards for both particulate
and nitrogen oxides.
Compressed Natural Gas
Compressed natural gas is a c1ean-
burning fuel thatcan significantly reduce
hydrocarbon. nitrogen oxide, and carbon
monoxide emissions from levels in diesel
engines. At normal atmospheric
conditions, it is gaseous but when
refrigerated, it will become liquid. When
used as a fuel, to increase the amonnt of
available energy. the gas is compressed
to2.400-3,OOOpsi. This accounts for the
necessity of strong but heavy on-board
steeloralwninum tanksthatmustbeone-
quarter-inch toone-half.inch thick.
CNG engines are technologically
capable of meeting bus particulate
emissions standards. In fact, CNG engines
emitnoparticulatematter. Attheircurrent
technological level, however, CNG
engines are less effective in meeting the
NO. emissions standards. Natural gas
engines eliminate evaporative reactive
hydrocarbons. According to three offour
studies, current natural gas technology
exceeds EPA standards for exhaust
reactive hydrocarbons. CNGengines now
indevelopmentpromise that hydrocarbon
levels from exhausts will be well below
EPArequirements. According to a report
4 Alternative Fuels: What You Need to Know
by the American Gas Association,carbon
monoxide emissions from CNG engines
are more than 50 percent below those
with gasoline.
of the petroleum refining process,
specifically in rerming and cleaning up
natural gas. At normal abnospheric
conditions, LPG is gaseous. When
compressedorrefrigerated, itmay become
a liquid. It is then reconverted to a vapor
for burning in the engine.
LPG has been used as an internal
combustion fuel since the mid-I92Os.
National standards for containers and
pertinent equipment were first published
in 1940 and have been continually
updated.
Ethanol
Ethanol, an alcohol fuel, is known
simply as alcohol, ethyl alcohol, or grain
alcohol. An oxygenated hydrocarbon, its
molecular formula is C,H,oH. Although
it is clear and has a neutral odor, its
appearance and odor could be modified
by adding non-hazardous components to
the fuel. Ethanol is produced through the
fermentation of simple sugars, orthrough
other chemical and catalytic reactions.
According to the Solar Energy Research
Institute, the great majority of ethanol
fuel currently in use is fermentation
ethanol, produced as a by-product of com
or wheat milling processes.
Mostethanol used in fu.el is ingasohol.
This fuelis amixtureof 10percentethanol
and90percentunleadedgasoline. Forty-
two states sell gasohol, accounting for
about 9 percent of the total gasoline
market. Performance reports regarding
gasohol use in automobiles are mixed
but, with proper engine design and
adjostrnent, ethanol blends, andeven pure
ethanol can be appropriate,clean-buming
fuels.
Ethanol prices and supplies are
dependent upon the com market, and to a
certain extent on the geographic location
of the wholesale and retail outlet.
According to a report issued by APW A's
Institute for Equipment Services, nearly
a billion gallons of ethanol are used each
year with gasoline in gasohol blends.
Fuel Reformulation
Fuel reformulation may include an
altered composition of gasoline ordiesel
fuel to reduce sulfur and particulate
content. There is significant potential for
"clean" diesel fuel and for expanding the
scope and performance of fuel mixtures,
such as gasohol and M-g5 (85 percent
methanol and 15 percent gasoline). These
alternatives are currently lUlder study by
petroleum companies and engine
manufacturers. Amoco Oil Company
predicts wideavailabilityof"cleandiesel"
fuel in time tomeetl994 tailpipe standards
for heavy trucks.
Ethanol also has a role to play in the
composition of refonnulated gasoline, a
fuel for which the octane levels must be
kept high. Octane is the measure of a
fuel's resistance to premature ignition,
which causes spark-ignited engines to
knock. Oil companies typically add
oxygenates tofuels to boost octane levels.
Using 100 percent petroleum.based
ingredients, it is not currently possible to
meet Clean Air Act standards while
keeping fuel octane ratings high.
Common oxygenates include ethanol,
ETBE (ethyl tertiary botyl ether), and
MTBE (methyl tertiary butyl ether, a
petrochemical made from methanol).
Liquid Petroleum Gas
Liquid pelroleom gas (LPG) is a fuel
that may include propane gas, butane gas,
ormixtures of the two. Liquid petroleum
gases can be extracted from oil fields.
They may also be derived as by.products
J
OBSTACLES TO THE USE OF
AL TERNA lIVE.FUELED
ENGINES
Obstacles to the implementation of
altemative- fueled engines include
problems with transfer, handling, and
dispensing. While, to a certain degn:e,
the problems vary with specific fuels,
each alternative fuel presents potential
handling hazards that are significantly
different from those associated with
conventional fuels.
The economics of each alternative
fuel, based upon its respective energy
density ($ per BTU) and based upon the
capital cost of refueling facilities, is also
a problem. Each of the predominant
alternative fuel candidates has a lower
energy density per unit volume than
conventional fuels. At current energy
markel price levels, as of summer 1990,
theyaremoreexpensiveperunitofenergy
(not including motor fuel taxes-these
taxes are only assessed. to conventional
fuels).
Finally, the supply and distribution
channel characteristics of alternative fuels
present another obstacle. In the United
States, the existing fuel delivery system
provides roughly 110 billion gallons of
gasoline and 20 billion gallons of diesel
fuel per year. It seems unlikely that a
system can be built in the near future to
deliveranenergyvalue approaching that
of conventional fuels. This is because of
the incompatibilities of alternative fuels
with conventional fuels and, with the
exception of reformulated gasoline and
diesel, with conventional fuel delivery
systems.
Handling characteristics are also a
major problem in the adoption of
alternative fuels. While conventional
fuels have traditionally presented many
safety obstacles, many of these have been
overcome as the petroleum and
automotive industries worked todevelop
L..dingFuols 5
--
the appropriate infrastructure and safety
precautions. Leading alternative fuels,
on the other hand, continue to present
unique and challenging risks.
Manyofthediffen:nces in the handling
properties of alternative fuels have to do
with their chemistry and physical
properties. Because gasoline and diesel
fuel aremolecu1armixtures, their specific
physical properties vary. The boiling
temperature of gasoline, for example,
ranges from 800 to 4370 P, while for
diesel it ranges from 3700 to 7000 F.
Ethanol and methanol are pure
chemicals that have fixed physical
properties. The differences in chemistry
and physical properties account for the
different risks associated with transfer,
dispensing and handling of alternative
fuels.
Risks Associated With Methanol
Methanol is considered a dangerous
fire hazard when exposed to sparlcs, heat,
or flames. Ignition sources formethanol
include sparks from shop equipment, or
even sparks from static electricity.
Methanol vapor is "heavier than air,"
with a density of 1.1 times that of air.
lbis means methanol will settle in low
areas, such as maintenance pits. Work
areas should be well ventilated to avoid
concentrations of methanol fumes. At
the same time, methanol is much less
likely than gasoline to ignite in an open
airenvironment.1n well-ventilated areas,
oropenair areas, thevolatilityofmethanol
makes transportation-related fires less
likely.
The flash point of a flammable liquid
is the lowest temperature at which
sufficient vapors may fann above a pool
of that liquid to permit its ignition. With
methanol,theflashpointis520P. Apure
methanol flrehas the addeddangeroflow
flame lwninosity, making it difficult <at
night) or impossible (in daylight) to see,
or even to estimate the size of the fire.
6 Alternative Fuels: What You Need to Know
This led to the development of the M-g5
blend, which makes the flame visible
during daylight houn;.
Work rags, contaminated absorptive
material, and watcrflushed with methanol
may present fire hazards. and should be
placed in well.markcd.closed containers
for approved disposal. Even in mixtures
as diluted as one part methanol to five
parts water, the combination will be
flammable.
Aprimefirehazardofmethanol-fueled
vehicles is a roptured fuel tank resulting
from vehicle collisions. In case such a
spill OCClUS. methanol vehicle operators
may want to consider carrying an on-
board supply of vermiculite or other
absorptive material, as well as an on-
board fire extinguisher.
Methanol is considered to present a
moderate explosion hazard. Amixtureof
methanol fuel vapor and air will auto-
ignite at 7250 P. The Urban Mass Transit
Administration reports that liquid
methanol will ignite if exposed to hot
surfaces, such as hot engine exhaust
manifolds and compooents exceeding
430. F.
Methanol storage and dispensing
facilities present unique. but not
insunno1.D1table, challenges. Methanolis
incompatible withsttongoxidizing agoots
such as nitrates. perchlorates, or sulfuric
acid. It must be stored and dispellBed in
sepllI1lte physical facilities. Fiberglass,
glass-lined or stainless steel vessels.
piping and fittings must be used for
methanol. It is also a solvent which can
attack and corrode some kinds of plastic,
rubber, and outer coatings. It may react
with orcorrode alwninum metals such as
steel-aluminwn fuel nozzles, generating
hydrogen gas. It may attack terneplate
linings of fuel tanks. aluminum or zinc
fuel pump and carburetor castings. and
fuel line and fuel pump elastomers.
The threat of explosion and fire in
methanol fuel tanks is more significant
"
1
i
than with other fuels. Gasoline vapors in
a "closed air" envirorunentareconsidered
too rich to bum. while diesel fuel vapors
are considered too lean to bum. The
methanol fueVairmixture in "closed air"
tanks is within its ignition limits.
To explode, the mixture must fIrst be
exposed to an ignition source. As aresult,
methanol in a closed tank should be
considered adangerousexplosionhazard
Storage tanks often include floating
covers, or tanks with inert atmospheres.
This addresses the problemoftheswface
accumulation of vapors. Fleet OwfU!r
reports that vapor recovery and return
systems are anecessity when methanol is
used.
Vapors from methanol are also toxic.
If a person can smell methanol, he or she
has, in all likelihood, been exposed to a
health risk from the fuel. A brief whiff,
however, is not considered hannful. The
maximum airborne exposure limit for
methanol vapor set by the United States
Department of Labor, Occupational
Safety and Health Administration
(OSHA) is 200 ppm.
Methanol is a defatting agent, and as
such, exposed skin may become cracked
and dry. Skin absorptioo may occur.
Symptoms will be similar to those
experienced by inhalation. The fuel is
especially harmful to the mucous
membranes. Methanol is a severe eye
irritant, and continued exposure may
cause eye lesions. In cases of dermal
contact through the clothing, remove
contaminated clothing inunediately, wash
skin with soap, and flush with water for
15 minutes. Methanol is absorbed into
the skin at a rate of about 0.2 mg/cm2 per
minute. Immersion of one's hand in
methanol for fOllr hollrS would pennit
sufficient absorption to cause death.
Clinical research todatehas provided
little information on methanol toxicity
resulting from chronic,low level ,outdoor
exposure or exposure in well~ventilated
areas. There are some standards set for
chronic exposllre to methanol. In 1976,
the Natiooal Instiu"e for Occupatiooai
Safety and Health established ambient
air concentration threshold values for
methanol vapor. In 1985, this level was
coofrrmed by the American Council of
Governmental Industrial Hygienists.
According to the results of a study
conducted by Fleet Owner, shop areas
andrefueling stations musthave eyewash
facilities and safety showers. It may be
necessary to have a restroom or dressing
room for workers handling methanol to
ensure that contaminated clothing does
not go home with the crew. Specially-
designed floor drainage systems are
needed to prevent spilled methanol from
being discharged into the environment
Traditional oil separators CaJUlot be used
becausemethanolismiscible with water.
The reason for these precautions is
that the research data on acute exposure
to methanol arc relatively complete.
Evidence has shown that toxicity from
larger doses over short periods of time
follow well known patterns. Symptoms
includenausea,headaches, bl1lIredvision,
and initial mild depressino of the central
nervous system. Anasymptomaticperiod
of several hours to several days will
follow. This latent period then gives way
to physical symptoms of metabolic
acidosis and visual impairment or
blindness. In severe cases, coma and
death may follow.
Methanol is toxic if ingested or
accidentally swallowed. Small amonnts
can intoxicate and cause blindness. The
usual fatal dose is three to four
teaspoonsful. Methanol poisoning is
treatable with prompt medical attention.
No chronic health problems are
thought to result from loog-tenn, low-
level exposure tomethanol, which occurs
naturally in the body at a level of about
O.5mg/kg of body weight. It also is
presentin adailydietoffntits, vegetables,
Risks 7
--
alcoholic beverages, and in aspartame, a
diet soft drink sweetener.
A by-productofmethanol combustion
is formaldehyde, which can cause a
burning sensation in the eyes, nose, and
throat. The highest concentrations of
formaldehyde in methanol exhausts have
been fOlU1d during the ftrst eight minutes
following start-up of a vehicle. This
occurs because the catalyst is neither
warmed up nor fully effective. The
Health Effects Institute reports that it is
essential to cold-start methanol engines
outdoors, or in well-ventilated areas.
There arecurrently no EP A standards for
formaldehyde exposure.
Even though methanol presents a
significant health risk, in experimentation
by transit operators, the Urban Mass
Transportation Administration reports
that there have beenno incidents reported
in four years of experimentation.
Measurements of methanol vapor levels
were made at transit garages that maintain
methanol buses andnoviolationsofhealth
standards were found.
Risks Associated With Natural
Gas
Natural gas has been used as a vehicle
fuel in the United States since the late
1960s. According to the Natural Gas
Vehicle Coalition, there arecunently 250-
300 compressed natural gas (CNG)
refueling sites across the nation, with
about two dozen open to the public. Most
refueling stations today are open only to
utility companies or private fleets.
Becauseofwidespreadresidentialand
industrial use of natural gas, it has a
distribution system and supply network
that is superior to thedistributionsystems
of all the other front-running alternative
fuels. A recent Iowa State University
study estimated that 20 percent of the
existing U.S. vehicle fleet could beserved
through the existing natural gas pipeline
network. Because of the significant use
8 Alternative Fuels: What You Need to Know
of nab1ral gas, mechanics and operators
are accustomed to its physical properties
and risks.
There are. however, significant
drawbacks to natural gas. The most
significant is thatithas a very low boiling
poinL As a result, to generate enough
energy per volume of storage, it must be
highly compressed (2,400 to 3,500 psi).
Natural gas compression requires a great
deal of gas and large bulky vehicle tanks.
Igniting at temperatures of 1,2000 to
1,3OOoP (about twice ashighas gasoline),
compressed natural gas is more difficult
to ignite than gasoline. The need for
higher heat at ignition presents problems
in dissipating heat from heavy-duty
engines powered by natural gas. It will
ignite only in a limited gas-to-oxygen
mixture range of5 percent to 15 percent
There is a moderate explosion risk
with CNG. Care should be taken to
isolateandeliminateanypotentialignition
sources. Itis important to note thatnatural
gas is lighter than air, and many leaks will
disperse upward. This makes proper
ceiling ventilation essential in the
maintenance shop. Most refueling
activities should be performed outdoors
to reduce the risks of frre and explosion.
According to standards set by the
National Fire Protection Association
(NFPA), natural gas compressors, their
dispensing equipment, and storage
containers may belocatedeitherinsideor
outsideofbuildings. MostCNGrefueling
activity currently takes place outdoors. It
isunclearwhetherinsuranceunderwriters,
fire officials. and building code
departments will allow indoor fueling of
CNGequipment. Indoorrefueling should
be performed in a building not used for
other activities. such as maintenance.
Additionally ,specially constructed blow-
out wall panels are recommended to
provide relief in theeventof anexplosion.
The New Jersey Transit Bus Operations
has called for fire protection systems with
densities andflow rates adequate for high-
hazard uses.
CNG facilities must have independent
mechanical ventilation systems, gas
detection systems, and explosion venting
systems. Itisnoted that the installation of
fast-fill compressors will significantly
increase noise levels, making
soundproofmg, as well as high-voltage
electrical service, necessary. In some
locations, utility company improvements
may be necessary to increase
underground. gas pipeline capacity,
according to the National Fire Protection
Association.
Risks Associated WRh Ethanol
Grain-producing states from Indiana
to Western Nebraska have amplesupplies
of ethanol fuel. Supply and distribution
channels in New England, the South
Atlantic, and far western states are
considered moderate. The best prospects
for ethanol fuel use from a distribution
perspective, are those fleets with single-
point fueling. Thesewouldincludepublic
works fleets. transit bus operations, city
delivery fleets such as United Parcel
Service, the U.S. Post Office, and short-
range private fleets.
In much the same manner as other
fuels, ethanol presents a fire hazard if
handled improperly. The explosion
hazard of ethanol is rated as moderate
when exposed to flame. Although ethanol
is less volatile than gasoline, it is
considered to be more explosive. Like
methanol, vapors that form above a pool
of ethanol are potentially explosive. In a
reportissued by the Solar Energy Research
Institute, it was pointed out that ethanol
must be stored in specially vented
containers. Small amounts of ethanol
spills or leaks may be flushed with water.
Large amounts should be contained and
collected for incineration.
Repeatedoverexposme to ethanol will
cause redness and irritation of the skin.
This fuel is not considered to be hazardous
to the skin. but it may damage the eyes.
Inhalation of small amounts of ethanol
vapors arenotconsidered toxic. Excessive
ingestion of ethanol is dangerous and will
require gastric lavage. followed by saline
catharsis, and medical care. As an
intoxicating beverage, ethanol presents a
special supervisory challenge. Supplies
of ethanol must be carefully monitored.
Great care should be taken to avoid
employee intoxication on the job.
Risks Associated With
L1qulfled Petroleum Gas
Heavyfueltanksareneeded tocontain
liquifiedpetroleumgas(LPG). LPG fuel
systems are pressurized from 175 psi to
250 psi. Many fuel tanks are built with
one-quarter-inch steel, to a 1.000 psi
specification. This makes them much
more capable of withstanding a collision
than typical gasoline or diesel tanks.
There is also a combustion hazard
with the use of LPG. This can be
minimized by eliminating ignition
sources, and by performing refueling and
maintenance activities outdoors where
possible. Direct heat applied to storage
orvehiclefuel tanks is dangerous because
temperature changes may cause pressure
changes inside the tanks, creating an
increased risk of explosion.
Many organizations that handle LPG
use portable explosion meters that detect
unacceptable levels of ambient propane.
In gaseous form, propane is heavier than
air, so it will tend to settle in trenches or
maintenance pits, exacerbating the
explosion hazard there. For safety
reasons, mostpropane tanks are designed
to be filled to about85 pereentof capacity.
As long as the sealed pumping system is
operating without any leaks, the risk of
explosion is quite low.
Propane boils at minus 440 F. There
is a bum risk when opening valves to
release excess propane that may remain
Risks 9
--
in the line after refueling or fuel transfer.
Heavily insulated gloves are needed for
workers engaged in fuel transferactivities.
Small amounts of propane that leak
into the air will disperse. It is
recommended that all maintenance areas
bewell ventilated. Propanehasnotshown
any known toxicity.
Technical regulations and
recorrunendations for the safe use of LPG
have been well developed over time. A
discussion of standards for containers.
installations. valves, cylinders. vaporizers
and piping, among other items, may be
foundinLP-GasEngineFuels. Thus it is
possible tocontrol fortherisks associated
with LPG. It is recommended that fleet
operators who are heavily involved with
this alternative fuel purchase their own
meters. One reason for this is because
many fIre deparbnents have not invested
in explosion meters.
A COMPARISON
OF ENERGY DENSITY
Diesel fuel contains approximately
18,000 BTUs per pound and 130,000
BTU s per gallon, while gasoline contains
about 18,000 and 115,000 respectively.
Gasoline is less dense and, therefore. has
fewer BTUs per gallon than diesel fuel.
A gallon of methanol has about 57,000
BTUs per gallon or 43 percent of the
energy content of a gallon of diesel fuel.
Wholesale fuel methanol at United States
Gulf Coast markets sold between $0.36
and $0.38 per gallon as ofJanuary 1990.
The price has been decreasing during the
last two years while methanol sold for
$0.55 to $0.60 per gallon. Research has
demonstrated that with methanol al$0.55
per gallon, the methanol-equivalent of
the energy contained in a gallon of diesel
fuel wouldcost$1.22. Duringthesummer
of 1990, No.2 diesel fuel sold at a
wholesale price of between $0.40 and
$0.86per gallon.
10 Alternative Fuels: What You Need to Know
The retail price for CNG varies by
geographic location, from about $0.41 to
$0.70 per thermo One therm is equal to
100,000 BTU's, orroughly three-fourths
the energy content of a gallon of diesel
fuel. Indicating an increased interest in
natural gas, the New York Mercantile
Exchange opened trading in the world's
frrstnatural gas futures contract on April
3,1990.
Ethanol can be burned in diesel
engines, buthas only about 57 ,000 BTUs
per gallon or 58 pereent of the BTU
energy per gallon of diesel fuel. May
1990 fuel ethanol (200 Prool) prices to
retailers were $1.24-$1.25 per gallon,
FOB terminal, Omaha area. Midwest
Grain Products. an ethanol manufacturer.
reported that wholesalers paid $1.13-
$1.14 per gallon, FOB terminal, for
ethanol directly from anAtchison,Kansas
plant
There is a signifIcant price variation
for ethanol that is based on geographic
region. and federal subsidy levels. The
wholesale price of 200-proof ethanol in
January 1990, was between $1.10 and
$1.36per gallon. Ethanol has soldforas
high as $3.00 per gallon. Even at the
lowest prices reported. this fuel is
sigrtificantly higher priced than LPG,
CNG. and methanol. Cost is computed
on the basis of BTU content per dollar.
The principal vehicle fuel application
of LPG is propane gas. LPG (propane)
seUs for $0.30 to $0.40 per gallon at the
wholesale level, and $0.40 to $0.50 per
gallon retail. Many prices are quoted at
Conway, Texas. For terminal delivery.
costs inerease by another$O.04pergallon
to include pipeline and truck transport
cost. The typical91 ,000 BTU-per-gallon
propane offers between 71 percent and
83 percentofthe energy content of diesel
fuel.
A DIRECTION FOR THE
FUTURE?
Because of the wide distribution
system that has been developed over the
last 100 years, conventional fuels are
widely available across the United States.
This current fuel distributionsystemdoes
not lend itself to the ready development
and distribution of alternative fuels.
Alcoholfuels, forexample.are corrosive.
incompatible with petrolewn fuels, and
mix with water. Gaseous altemativefuels
such as natural gas and LPG are
incompatible with existing liquid fuel
distribution systems. Theyareconsidered
inadequate to meet the nation's energy
needs for alternative fueled engines.
Today's gasoline distribution system
delivers 11 0 billion gallons of gasoline
and 20 billion gallons of diesel fuel to
motor vehicles operating in the United
States. For any of the alternative fuels
presented in this article to be considered
acceptable options for non-fleet users,
they must becomemore widely available.
Each continues to face obstacles to
widespread distribution.
The first obstacle is the scarcity of
altemativefuel supplies to off-set energy
requirements for conventional fuels. The
second obstacle is the lack of alternative
fuel delivery systems. These would have
to be constructed to deliver a significant
percentage of total motor fuel energy to
the marketplace.
The annual world supply of methanol
is roughly seven billion gallons.
Methanol's current feed stock is natural
gas. Although its conversion process
results in an energy dense liquid.
conversion to methanol is only about 60
percent efficient; 40 percent of its energy
is lost during the conversion process.
Althoughmethanol can be produced from
coal gasification and biomass, their
conversion to methanol is about twice as
costly as the conversion of natural gas.
The manufacture of methanol could
be increased. There are. however. no
incentives currently in place to
measurably expand supplies. Because
methanol has less than half the energy
density of conventional fuels, thenwnber
of gallons needed to replace petroleum
fuels must be doubled to offse.the energy
requirements of conventional fuels.
Distribution and delivery systems for
methanol present two basic challenges.
Methanoliscorrosive and requires special
storage and delivery equipment. such as
dedicated tank trucks. Its toxicity also
requires special precautions and training
for users and for those who service
methanol vehicles.
Natural gas is in plentiful supply and
mosturbanareas already have distribution
networks. The primary drawback of
compressed natural gas is that it occupies
1.000 times the volwne of its energy
equivalent in gasoline. To provide
reasonable vehiclerange,naturalgasmust
be compressed to 2,400 to 3,000 psi. On
an average, the weight of the tank plus
thatofthe fuel for aCNGvehicle account
for 36 percent of vehicle weight as
compared to 11 percent for average
gasoline-fueled vehicles.
It is estimated that there are 30,000 to
40,000 CNG vehicles on the road today
in the United States. and some 700.000
worldwide. Because of the typical slow-
fill facilities and the need for expensive
compressors at refIlling sites. almost all
United States CNG vehicles are members
of fleets.
Almost a billion gallons of ethanol are
currently used as motor fuel and in
reformulated fuel (gasohol). Ethanol has
slightly more than half the energy density
of conventional fuels (gasoline and diesel
fuel). Thus to replace conventional fuels
would require slightly less than twice the
volume of ethanol. Producing
substantially more ethanol will
tremendously tax the agricultural sector.
According to a report by the Federal
EnergyDensity 11
--
Research Bank of Chicago and the Iowa
Business Council, in 1985 the entire com
crop in Iowa, the highest com producing
state in thenation, was only 1,707 million
bushels. The Des Moines Register
reported that doubling ethanol fuel
production to approximately 1.82 billion
gallons would require an additional 715
million bushels of com annually in the
United States.
Ethanol production cannot be directly
related to com production becauseethanol
is only one of the products from grain
processing and additional grain by-
products would be used to produce other
goods. This illustrates the degree to which
the use of ethanol might overwhelm the
agricultural sector.
LPG is a by-product of petroleum
refming. Although it has desirable
properties for reducing vehicleemissions,
LPG'susedoesnotreduce the dependence
of transportation upon petroleum based
fuels. There are approximately 330.000
LPG-fueled vehicles in the United States
and more than 2.5 million worldwide.
According to R.F. Webb Corporation,
the growth of the LPG transportation fuel
market in the United States could grow
from2.85ntillion to 3.6 million vehicles
by the ycar 2004. As a by-product of
petroleum production, expansion of LPG
is governed by the refming of other
petroleum products. LPG could easily be
transferred to vehicles at rates rivaling
therefuelingof oonventionalfuel vehicles.
which is 12 to 15 gallons per ntinute.
CONCLUSION
Using current technology, none of the
front -running alternative fuels is able to
meet national transportation needs on the
large scale. In light of supply problems
associated with any singlealtemative fuel.
it is doubtful that anyone will dominate
the market in theforeseeablefurure. Each
presents significant impediments to
widespread use. Nonetheless. because of
supply. handling, and distribution
problems, alternative fuels are likely to
have a significant impact on commercial
and governmental fleets.
Given existing motor vehicle and fuel
technology, leading alternative fuel
candidates could help to decrease the
United States' dependence on foreign oil
before the turn of the century.
Reformulated fuels, which can be
distributed and handled in the same
channels as conventional fuels, probably
provide the greatest opportunity for
widespread use as cleaner burning fuels
that offer a general reduction in air
pollution levels. The greatest potential
for reduction in petroleum consumption
and emissions, however, rests with
continued advances in fuel and engine
technology, and astrong.national energy
policy coupled with a national "will" to
conserve.
ACKNOWLEDGEMENTS
The research analysis presented here was supported through a grant to Iowa State
University from the University Research and Training Program. Office of Technical
Assistance and Safety, Urban Mass Transportation Administration, United States
DepartmentofTransportation (grant No. lA-I 1-00(8), "A Manual on Contracting for
Maintenance Services. It The authors are grateful for the opportunity to conduct
research through this University Research and Training Program.
12 Alternative Fuels: What You Need to Know
REGULAR WORKSESSION/MEETING OF THE CITY COUNCIL
CITY OF CHULA VISTA
.h
Item ,<"J
Meeting Date 04/22/93
ITEM TITLE: Report on North American Free Trade Agreement (NAFTA)
SUBMITTED BY: Community Development Director~
REVIEWED BY: Executive Director 'I
A presentation will be made to Council by Economic Development Commissioner Gonzalo
Lopez regarding the status of the NAFTA agreement and anticipated general impacts.
Attached for your information are two studies which have recently been completed evaluating
potential impacts of the North American Free Trade Agreement; Le., the study commissioned
by the City (by Williams-Kuebelbeck & Associates) and a study commissioned by Southwestern
College.
The WKA study is a small component of the City's overall Market Analysis which is ongoing.
A brief summary of potential Chula Vista impacts indicates that the types of local businesses
expected to benefit include: service, high tech manufacturing, software, precision machinery,
chemical producers, plastics manufacturers, transportation, building material suppliers,
telecommunication equipment manufacturers, and consumer goods manufacturers. Also,
increased commercial traffic should create demand for warehousing space. In terms of retail,
short term impacts will be positive; longer term impacts may result in increased Mexican
competition.
cc: Chula Vista Economic Development Commission
C:\WP51\DYE\NAFTA.113
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\!~WA\
WlWAMS. KUEBELBECK &.. Assodates,lnc.
Real Estatt Emnmrtic. Financitd "nd M"nag<1/ft1Jf UnsIilmms
9 u"pv,ale Park, Sui\<! 2SQ. Irvine, Callfomia 9Z714 (714) 411-1606 FAX, (714) 4JIl.-1971
Prituip"t~
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ArIPo C. Silnp<<)ft
MEMORANDUM
FROM:
Apri115, 1993
CheI)'l Dye, Eoonomic Development Manager
City of O1uIa Vista, Community Deve10pmentDepamnent
Anne C. Simpson, Associate
J.B. Mcfarland, Economist
Williams-Kuebe1beck & Associates, Inc.
DATE:
'IT):
SUBJECT;
REGIONAL AND LOCAL IMPACTS OF THE PROPOSED
NORTH AMERICA FREE TRADE AGREEMENT (NAFTA)
(APRIL 1993 REVISION)
Wllltams-Kuebelbeck & Associates, Inc. (WK&A) was retained by the Chula Vista
Community Development Deparunent 10 conduct citywide. doWntown and Mexico market
studies fur the Oty of Chula Vista. As part of the Mexico market analysis, we were asked to
provide a review of existing literature on the North American Fn:e Trade Agreement (NAFI'A).
Initial findings were submitted in our September 13, 1992 memorandum 10 the City.
Subsequently, we have contacted Southwestern College's Small Business Development &
International Trade Center, regarding preliminary fmdings and opinions from their on-going
study of NAFTA's impact on San Diego businesses. This revised memorandum contains
additional information, findings and recommendations based on our completed research.
G.ft FI'.ancbom - Or~ Cwnty
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A. EXECUTIVE SUMMARY
'The purpose of this memorandum is to ptOvide a sUIIlDl.llty of OW' review, with pattlcu1ar focus
on the potential impacts of NAFTA upon San Diego County and the Oty of Chula Vista.
Some: of our major findings include the following:
..
Existing trade regulations and tariffs between Mexico, Canada and the U.S. are
generally felt to be lopsided, with more stringent duties an41lmitations cutreIItly being
placed. upon U.S. and Canadian exports to Mexico.
..
If NAFT A is enacted, tariffs and trade barrie:rs that plOtt<< nUIlleil'01lS ind\lstries will be
systematically phased ouL The U.S. export of high technology goods, chenncal &
plastic products, building materials and numerous financial, engineering, construction
and transportation services are expected to increase tremendously. Labor intensive
Mexican goods ~ into the U.S. arc also expea.cd to increase S\1bstal'ltially.
'"
The overall tnlde impact of this new agreement is expeCted to be very positive far all
three countries. Many U.S. business industry seCtoIS arc el<pected to grow
substantially, wbile some specific sectorS would el<pCrience significant decllnes. Some
of San Diego County's most competitive businesses. like aerospace, computer
software, electronics, banking, insurance and construcdon should benefit almost
immediltte1y. Industries that require nn.1Q1\ed labor, Ilke agriculture, apparel & textiks,
and basic manufacturing & assexnbly, arc ~ted to be hun the most due to the much
lower cost of labor in Mel<ico.
..
The City of 0m1a VlSta should prosper by attracting new firms to lbe Cry that have the
potential for increased business through NAFfA. Other anticipated impacts to Chula
Vista wollld likely incll1de: 1) an increased demand for nulllelOUS services and high
technology products; 2) an ~ in the amount of commP.l"Cial traffic passing through
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the City; 3) growth within the City's tran$portation and warehousing industries; 4)
sl1ort-tem1 increases in retail sales to MeJdcan shoppe%s making daily shopping visits
from Mexico to the U.S. (CUIIeJltly discouraged by Mexico's recently imposed import
duty); and 5} longer-ten:n potential retail competition from U.S. and Canadian based
tel3il chains opening new outlets in TijIllUlll borda region.
,. Although NAFr A is sald to be the "roost environmentally sensitive" trade agreement
ever, there could be a potentially negative environmental impact to Chula Vista and
neighboring cities :resulting from. this a.gteeD1ent, if the Mexico rails to require and
eot'orce stringent pollution controls and compJ.iancc;.
B. BACKGROUND
NAFTA would create the largeSt trading bloc in the world, compri$ed of 360 Ulillion people
with a Gross Domestic Product (GDP) of over $6 uillion. It was developed to eliminate or
reduce most trade tariffs between Canada, Mexico. and the United States. Under the
agreement, about 65 percent of U.S. Industrial and agricultural imports to Mexico will be
eligible for duty-free tleatment either immediately or within fivt: yelU'8, according to a White
House snmmory of the trade agreement's effects.
On August 12, 1992, NAFl'A was approved by each of the three nations. and now must be
approved by the legislative bodies of eacb nation. The U.S. Congress is not cxpcctcd to bclgin
discussions on NAFf A until Spring of 1993. Should the accord be approved by each nation.
it would be phased in over a 15 year period.
Allhough the agn:ement is being touted as a free trade agreement, it is mally a "JIIlIIIlIgl:d" ttade
agxeement. NUOlCCOUS industries in all three nations would receive some form of speeia1
oonsi.deration (or protection) through specific and more gradual phase-out of tariffs and other
restrictions, than other "less protected" industries. Througn domestic content regulations,
known as rules of origin, certain U.S. companies will have advantages over foreign
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competitors. For example, General MotOJ:'S would have an advantage Over Honda Motor
Company in Mexico. in the ~ of automobile sales. ZeDith, which makes some television
sets in the Unites SllIteS, would have an advanlllge over Korean competitors who make their
product overseas. Defendels of the nllIDaged trade pIOVisions te.tm them "neeessaIy" to get Ihe
tleaty .mti.fied by Congt'eSS.
Of the three nations involved, Mexico can expect the greatest benefit from the agreement
becAuse demand for its exports would be expected to increase dramarfeally, due to COSt
competitiveness (diIectly rel.aled 10 Mexico's Iowe.r labor 1'IltCS).
1. History of NAFTA
NAFI'A was the brainchild of Mexican President Carlos Salinas de Gonan, wlto encouraged
Plesident Bush, in 1990, to set up a two country trade pact Mexico is C1It'rel1tly the third
largest trade partner with the United States in tenus of U.S. exports. C3nadll, which has
significamIy less trade with Mexico, joined the negotiations eight months later to eIISUle that the
negoliations did not undermine llIl earlier U.S.-Canadian trade lIgI'CCQlent Which took effect on
lanwuy I. 1989. Negotiations on NAFrA began in June 1991ll1ld culminaled in August 1992
with the si8Ding of 1he agrcemcnt by the tbree nations.
2. Current Status ot NAF'l'A
Funher legal drafting and review /U'e required in order to implement tho IICCOItl reached by
Canadian, Me>dcan, and U.S. negotiators. Once the treaty is finislted, the President must
notify Congress of his intenr to entet.into the agreemenr at least 90 days before he signs it.
After tlte agreement is signed, legislation must be drafted to implement it, including any
changes in U.S. law. Congress must then vote On the Implementing legislation within 90
session days of Congrcss. It is likely that industry and special interest groups in all three
narlons will attempt \0 lobby for the most favorable tleatmenr possible while legislatOJ:S in eactt
nation debate the llgI:eeInent.
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The recent U.S. pzesidenliaI election of Bill Clinton Will certainly affect the timing'. content and
effectiveness of NAFrA. Although some question still exists with regard to Mr. Clinton's
precise stance on NAFrA, POSt-election comments made P.residcnt-Elc:ct Clinton and his staff
indicate a fundamental support fot the agreement. However, the new arf",;nistration's
additional CODCll1'Il fat miniml'>i'lg manufacturing job 1<lSSe8, protecting the environment and
establishing wage/benefit equity ate likely to =utage additional legislative debate and
IIgreement tevision.
C. BUSINESS IMPLICATIONS OF NAFrA
This seedon provides an analysis of the specific inc!ustties that are expected to most positively
and negatively affected by the proposed agreement
1. Industries to Be PosItively Affected
U.S industties in line to benefit most from the trade agteeJnent include: high tech industries,
pIWision machine tool makets, 1l:an.szlortation finns, energy-telaled companies, financial
service providers, industrial chemical manufactllrerll, engineering IIlICI construction service
finns and CODSUlUe:l' product manufacmrers.
a. . m,.h Technology
High technology firms like computet maket., computer software designers, electronic
component manufactl1rCtS, telecommunication equipment manufactuters, biotechnology
companies, and teChnical testing equipment manufactuttts should all benefit from NAFrA In
Mexico these indnstries ate in very fotmative stages at simply do not exist. As the Mexican
economy grows and prospets. so should MeJcico's demand for these high technology
products.
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. b. Precision Machinery
Precision macbinety IDIlIIIlfacnuers, that make numerically controned machincy and other
advanced machinety equipment, should also benefit from NAFrA. Their products are based
upon advanced lllcbnology, an mea of industry far less developed in Mexico than in the United
States. U.S. firms that specialize in p~on machinery and IIIlID~ing ll!Chnology should
be able to capitalize on the new demand from proposed IIIlIDufactm:lng plants in Mexi.co, as
well as existing facilities.
e . Transportation
Transportation firms should realize substantial gains from NAFTA The trUcking industry
would experience growth as trUcks with inlernlltional cargo are allowed .open roads.
throughont the continent. U.S. trucks would m:eive free access to Mexico, phased in ovet' a
five year period. Likewise, Mexico's railroad lines would allow duty free transportation of
,goods by U.S. fl1'.OJS to all parts of Mexico. Fmally. U.S. companies would be able to invest
in and opetate land-side port services in Mexico.
d. Energy-Related
Mexico's natuIll! gas, petroleum and c:lectriclty products would be available for Purc:ha8e by
U.S. suppli.ers, as a competitive alternativc to other imported energy soun:es. This ooold lead
to new opportunities for the design and COnstruction of energy producing power plants and co-
gener.ation facilities.
However, U.S. IIllgotialOl'8 have Dot yet been successful in fin~lizing negotiating deals within
the oil industry (far and away Mexico's most lucrative industry). To date, the Mellican
government has held firm to keep U.S. firms Out of Mexican oil production except on a
minimal basii and specific language in NAFTA will prevents actual fcm:ign ownership of
Meldco's natuml resoun:es.
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e. Financial Services
Financial service firms like security finns, banks, and insurance companies would have weat
opportunities to expand their businesses into Mexico. NAFrA would allow U.S. firms to
open wholly owned subsidiaries in Mexico and thus penetrate the enormous Mexican consur:ner
market. Insurance firms would be able to gain entrance 10 the Mexican IDlIIket by 1996. Given
the strength and experience of U.S. insurance companies, these businesses could attain high
growth. Lastly, nW estate service businesses. are likely to ~ence growth in Mexico as the
government IIK7Ye8 towanls liberalizing its laws regulating real estate ownezship by foreigners.
r. Industrial Cbemicals and Plastics
Opportunities ate expected for upgrading Mexico's oil rufining and chemical production
through joint venture facility development. Additionally. U.S. exports of industtial chemicals
and plastic products are expected to rise 10 meet growing demand from the manufacturing,
utility, transponalion and government sectors.
g . Engineering & Construction
As Mexico's government continues to move toward improving the country's infrasb:ucture,
demand for U.S. architecture, engineering and consuuction services could be significant.
From highway and bridge collStrnction 10 port facilities and waste treatment plants, the need for
high quality design and constmction services within Mexico should be wide spread.
AdditiooaUy, U.S. manufacturers of heavy construction equipment are expected to increase
their exportS to Mexico.
Co=claI. xcsidential and resort development projects are also llkely to flourish, lead by
technically llUperior U.S. lI1Chitecture and engineering firms applying their design standards
and construction methods to a vastly different market. An assoclarod increase in Mexico's
demand for U.S. building IIllI.te1ials is also anticipated.
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h. Consumer Goods
Mexico's large consumc::l' market presents a tremendous target for U.S. manufactured
household appliances. telephone equipment, toyS, glIIIles and sporting goods, which all stand
to benefit from this new agreeI]lCllt. Already, the demand for U.S. made consumer products
by Mexico is very strong. 'lbis strong consumer goods demand is evidcl",...jf daily by the high
volume ofret3il sales 10 M~ shoppcIs atretail centeJ:s in alUla Vista and the Sooth Bay.
:z . Industries to Be Negatively Affected
AUlOmobiles parts, teXtiles & apparel, and agriculture are some of the prin1aIy industries that
may be negatively affected by NAFTA. Regonlless of the industry, however, blue collar jobs
would feel the brunt of job losses due 10 the continued ttanSfer of jobs 10 areas ofloW1:r ~
Light manufacturing jobs, already a major concern for California buslness leaden (such as
furniture, gannent work, metal finishing, and basic electronic assembly). would be among the
most vulnerable industries to relocation due to potentially significant labor cost savin&s.
a. Automobile Parts
The agremnent ~ts a compromise in the aml of automobiles IU1d autoI11ObIle parts. CaIll
and tracks would have to meet a 62.S pc1'CCJIt domestic content and labor level in order 10
qaalify for duty free starns. This repm;ents a mid point from the 10 percent sought by U.S.
car makers and SO peteent wanted by Canada and Mexico. The opening of tl1e Mexican ~
in car sales would be welcomed by U.S. car manufacturerS. Historically, the aulO market in
Mexico has been restrictive, foreign car makers were required to build assembly plants in
Meldco. As the largest car market in the world, the U.S.'s demand for Jess expensive
alltomobile IU1d track pans manufactured in Mexico is anticipalled to grow.
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b. TeJ[dles and Apparel
The textile industry in the U.S. is expected to be dramatically impacted by NAFTA. It is
projected that many low paying ~tile factoty jobs will shift to Mexico because of the large
wage differential between Mexico and the U.S. Daty free textile ixnports frolXI Mexico to the
U.S. would be allowed (tmder NAFTA) as long as &0 percent of the product content comes
from Mexico. U.S. textile iIDpOrtCl'S who import from countries other than Meldoo or Canada
could be at a competitive disadvantage because their imports would Iltilllnclude tariff cbargal.
e. Agriculture
Cextain sectors of the U.S. agriculture industty would also be negatively affected by NAFTA.
Specifically. domestic prices for labor intensive agriculture prodllCts such as flowers. fruits.
tomatoeS, lettuce. sugar. onions, and watcrlDlllOOS are likely to be underout by Mexican
farmers, reflecting the abundance of lower cost labor in Mexico. As well, some U.S.
agricultural products such as wheat and other grains may be affected by less costly Canadian
imports.
3 Effec:ts on Lou) Retail Trade
In 1992. the Mexican government began enforcement of import duties on consumer prodUCts
(over fifty donars) puIclJased in the U.S. With the elimination of tariffs and duties pending,
the short-term prospect for Chala Vtsta's retafl stores should be positive. The numbers of
Mexican shoppers crossing into the U.S. and therefore oo=sponding purohases is expected to
increase.
From a longa:-term perspective, NAFTA will also cncourago some major U.S. and nm9dian
reta.il.ers and franchise operations to pursue dcvelDpment "l'{lOltIlnities in Mexico. As one of
Mexico's largest cities, Tijuana would be a potential target area for retailers considering
international expansion. The retailers most likely to open stores in Tijuana arc those who
9
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al1'eady have international operations such as: F.W_ Woolworth Co., Toys 'R' Us,
McDonalds, Pizza Hut and KFC.
It should be emphasized that the decision to expand internationally is very complicated,
involving sevetal business and rcal estate developxnent risks. For many retailers fmcluding
Price Club and Home Depot), ~lUIlIion into Tijuana is DOt part of their plans, despite apparent
market support for such operations.
4. Effects On U.s. Investment in Mexic:o
Since the late 1980's, Mexico's econOlllY has been directed tOwards lJI(lI'e privatUation.
EnactJXlellt of NAFTA should only further help to spur additional foreign investtnent into the
Mexican economy as Mexico takes additional steps to ennri"lIt~ cw:rent reStrictions on foreign
investment and ownership.
Presently, Mexico is the fastest erowing of the three nations included in NAFfA. It already
has a large consumer population with a strong appetite for U.S. products and services. Given
this climate, man)' U.S. businesses woold be expected to make siuble capital Investments in
Mexico with hopes of estab1ishin~ a business presence in Ibis lllaIket.
5 . Effects On the Maquiladoras
For seveml years, the Maquilladoras have provided a method of shared manufacturing,
packaging and warehousing that could get around certain tariffs and import fees. With !he
taufication of NAFrA, the maquiladora concept (dual plants) would essentially become
obsolete.
The actual number of Canadian and American maquiladoras is expected to deerease slowly as
the benefits derived by these facilities diminishes. Howevc:t, the benefits of shared inve.~tment,
production and warehousing along the border region are fundamentally sound and should
support additional growth in order to raci1ill\te projc:ct<<l incmu;es in trade voljdDe.
10
TOTAL P.03
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6 . Intellectual Propel"ty Rights (lPR)
NAFfA should provide a much higher level of protection of U.S. copyrights, trademarks.
patents, and other intellectual property than presently exists. These rights are crucial to the
success and profitability of U.S. exporters. especially in the areas of pharmaceuticals.
biotechnology, sound xecordings, motion pictmes. and compulU software.
IMPLICATIONS FOR SAN DIEGO COUNTY
The San Diego County business c()llllIlUllity is in a premier position 10 benefit ftoln NAFTA.
:Many of the County's most competitive businesses. like ac:tOspa<:e, c:om.puter software.
electtonics, banking, insurance and consttUCtion would be in high de!])8Bd. As one of the
xnajor biotechnology indusuy cente:r8 in the nation, the County's proximity to Mexico should
further CODlPliment its export efforts of these products to Mexico.
The County's service indnstries toO, IU(\ expected to be major benefactors from the accord.
A1'chitects. general contractors, designers, engineers and consultants should have many new
opportunities to c:om.pete for anticipated government contraCtS to improve Mexico's
infrastructure. Mexico's roads, bridges, railways, ports and utilities all would require
substantial upgrading and repair to xneet increased trade-related traffic and use. U.S rums,
with l.WQgnized leadership in these fields, should see increased demand for their expertise.
However, just as Mexico's border infrastructure deficiencies should create new opportunities,
they also pose a serious problem. Increased congestion at the San Ysidro and Otay Mesa
border crossings could stunt the County's receipt of economic benefits from NAFl'A. The San
Y sidro border crossing is already the busiest land port of entry in the world and the region
lacks an internalicma1 ailpon. Jnc:rem;ed delays at the bolder might motivate some businesses to
locate in Texas or Ari;z.ona, where traffic congestion is not as critical.
11
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Other service industries like banking. securities, acoounting. insurance, legal, and n:al estate.
also stllIld 10 benefit significantly if Mexico opens up its mmket to foreign investlOOl1t. allowing
U.S. fitms to establish branches and operations dJroup.-out the country.
Additionally. new and used automobile retail sales 10 Mexican n:sidents in the U.S. should
increase as NAFrA proposes to eDminaTie laXCS and tariffs c=ent1y paid by Mexican natiomIls
who pl1IChase cars in the U.S. These fees now make the pUl."(:hase of cars in the Unlted StaIl:s
prohibitive to Mexican residents. Most new demand from Mexican nalionals is expected to be
for used au1DD1Obiles IlUhC1" than new. due to generally lower flltDi1y inoome levels..
Finally. similar to other parts of the U.S., San Diego County based indu~es that require
unskilled lalxu",like agriculture. apparel & ~ and basic manufacturing & assembly, are
expected to meet lDugh price competilion from emerging orexisling operations In Mexico. due
to the labor cost differential between the twO counlrles. Additionally. it might even be
logistically easier for companies currently opaating within the County 10 transfer ortclocare to
Mexico. than for companies in other parts of the U.S.
IMPLICATIONS FOR CHULA VISTA
Because of CluIa Vista's close proximity to the U.S.-MeJdcan border, the City is in a strong
posilion 10 benefit in many ways from the ~pccted increaSe in IIlIde with Mexico. Similar to
the County and the rest of the U.S., many of Chula Vista's businesses should ~ increP&ed
bll5iness OpyOltunities directl.y related to NAFT A. Service industries. high 1cCh manufacturers.
computer software companies. preclsion machinery companles. industtial. chemk:al prodncas.
plastics product manufacturers, ttansponation companies. building material suppliers.
telecommunication equipment lIIllkers. and consumer goods manufac1:tm:3:s are expected to
experience increased product and service dellllllld.
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Several of the Chula Vista's larget employers too. should expect to see increases in their
business stemming from NAFfA. For eXllIllple. Nellcor, Inc. (a medical instrument
manufacturer). should realize growth in demand for its products in response 10 growing
demand for technical health service products and biotech products by Mexico. Integrated
Systems Analysts. Inc. (a systemS engineering and teehnical services firm). should be able 10
compete successfully for contraCts in MeJ<ico. because software engineering in Mexico is far
behind U.S. capabilities.
Fmally. inctea.sed commercial traffic throUgh Chula Vista is expec1Cd to create new demRnd for
warehousing space from trucking and transportation flnns choosing to locate intemlediary
operations on the U.S. side of the border. The City's central1ocation and easy access to major
freeways (SUCh lIS InterSllltes 5 and 805) should make it a top choice.
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CONCLUSION
We feel it is important for the City of Cbula Vllita (the Economic Development Commission
and the business conunuDity) to be able to identify and encourage f\1tU1'e development of
industries and businesses that should benefn from NAFTA (as presented in this report).
Organizations and agencies are alJeady in place which can assist the City to capitalize on the
benefits of NAFI'A. For example, Southwestern Conege and the San Diego Private Industry
Council are two ilnportant organizations that have wOlXed jointly with the City in the past on
speciflO economic development issues. Involvement with and direCtion from these groups
should be considered as a basis for establishing specific business development priorities and
tactics.
The City of Chula Vista might consider providing focused assistance to those industries or
businesses within the City that are expected to benefit from NAFl'A. Suc:h assistanee could be
In the form of Redevelopment Ageocy land write downs, low interest loans, or reductions in
development fees.
Another effort might be ma.de by the City 10 contact wgeted businesses and firms that are not
currently located in Chula Vista, but that ate expected to grow or expand as a result ofNAFTA.
The City might identify areas of business or logistical concern and offer assistance and support
to companies in these areas. For example. specific transportation or trueking fiIrns could be
approached to determine levels of interest and facility requirements for opening new operations
in Chula Vista.
Other firms, already doing business in Mexico, such as precision machinery manufacturers
(especially those who have high shipping and transportation costs), could be contacted as they
begin to evaluate relocation options to lower their existing transpOrtlluon costs.
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As a final note. we suggest that the City of Chula Vista consider discussing and coordinating
some NAFfA-n:1atcd business developlllCnt efforts with other San Diego County cities, most
importantly,lm.perla1 Beach and the City of San Diego. Through cooperation, the City could
leam about and possibly avoid implimentation of confIicting business development programs
and thereby contribute 10 a more effective regional business development response.
15
3 #11.
TOTAL P.16
'.
Impact of the North American
Free Trade Agreement
on San Diego Businesses
November 1992
Sponsored by
Southwestern College
Small Business Development
and International Trade Center
Prepared by
Andrea E. Migdal
Senior Counsel for International Trade
Gray, Cary, Ames & Frye
Special thanks to Ms. Christine Opitz, Intern and David Renas, Esq. of Gray, Cary, Ames &
Frye for their assistance in preparing this study, and to Dr. Norris Clement and Dr. James
Gerber of San Diego State University, Department of Economics.
.1-17
rtiliIfi'JitlfilIJJllJ!iTfi,iff,IlJbJlillw
TABLE OF CONTENTS
Em
EXECUTIVE SUMMARY
A. Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
B. Summary of Impact of NAFTA by Sector . . . . . . . . . . . . . . . . . . . . 2
1. Tariff Reductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2. Intellectual Property Protections (IPR) and High
Technology Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3. General Manufacturing Sectors. . . . . . . . . . . . . . . . . . . . . . . . 3
4. Investment Provisions ............................. 3
5. Maquiladora Industry ............................. 3
6. Services Sectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
7. Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
8. Retail/Consumers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
9. Transportation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
10. Energy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
11. Government Procurement and Construction Industry .......... 5
C. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1. INTRODUCTION .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
A. What the NAFTA Is Designed to Achieve .................... 7
B. Negotiating Sectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
C. Implementation Process and Expected Enactment . . . . . . . . . . . . . . . . . 9
ll. TRADE WITIl MEXICO AND TIlE SAN DIEGO ECONOMIC BASE . . . . .. II
A. U.S.-Mexico Trade. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II
B. San Diego's Relationship With Mexico and Economic
Base ............................................... 12
1. San Diego Manufacturing and Services Base. . . . . . . . . . . . . . . .. 13
2. Mexico's Expected Economic Growth by Sector .............. 13
C. Effect of NAFTA By Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
1. Tariff Reductions and General Manufacturing Sectors . . . . . . . .. 14
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\,.
a. Mexican Tariff Reductions on U.S. Exports
to Mexico ....................................... 14
b. U.S. Reductions on Mexican Exports to the
United States ..................................... 15
2. Intellectual Property Protections . . . . . . . . . . . . . . . . . . . . . . . . 17
3. Investment Provisions ............................ 18
4. Maquiladora Industry and Rules of Origin . . . . . . . . . . . . . . .. 19
a. Rules of Origin Impact ......................... 20
b. Drawback ................................. 22
c. Quotas and the Textile Sector ..................... 22
d. Technical and Safety Standards .................... 23
5. Service Sectors ................................ 24
a. Tourism .................................. 24
b. Construction................................ 25
c. Engineering and Environmental Services .............. 26
d. Banking, Financial and Insurance . . . . . . . . . . . . . . . . . . . 26
6. Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
a. U.S. Changes to Agricultural Provisions. . . . . . . . . . . . . . . 27
b. Mexican Law Changes in Agriculture ................ 28
7. Retailers/Consumers............................... 29
8. Warehousing, Distribution and Transportation Services . . . . . . .. 29
a. Truck Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
b. Bus Service ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
c. Port Services ............................... 31
9. Energy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
10. Government Procurement . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ill. OPPOSITION TO NAFTA AND INFRASTRUCTURE ISSUES. . . . . . . . . . . 33
A. Infrastructure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
B. Environmental Considerations .......................... 33
C. Labor Issues and Job Creation . . . . . . . . . . . . . . . . . . . . . . . . . . 35
1. Employment and Wage Issues ........
2. San Diego Employment Impact . . . . . . . .
. . . . . . . . . . . . . . . . . 35
36
......... ........
IV. CONCLUSION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
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-ii-
EXECUTIVE SUMMARY
A. Introduction
This report analyzes how the North American Free Trade Agreement
("NAFT A" or "Agreement") negotiated between the United States, Mexico and Canada, will
impact local San Diego businesses.
While much has been reported regarding the terms of the NAFfA, very little
analysis has been made of the microeconomic effects, despite the importance of such
information for business strategic planning.
This report concludes that overall, San Diego businesses can derive significant
benefits from the NAFfA in almost every sector. The study points out that in San Diego's
most competitive industries, including aerospace, electronics, computer software products,
and in services industries, the Mexican market has growing demand. The NAFfA should
increase San Diego companies' access to these markets by reducing the duties paid on
exports into Mexico and eliminating licensing requirements, quotas and other impediments to
doing business in or with Mexico. The Agreement also liberalizes Mexico's rules governing
foreign investment in its markets, providing national treatment and full participation in most
of Mexico's industrial sectors.
The most specific negative impacts from the NAFf A are likely to be felt in
the San Diego regional agricultural sector, including among flower producers and some fruits
and vegetables producers, as a result of U.S. tariff reductions; although lengthy tariff phase-
out terms should provide an opportunity for adjustment and some continued protection. In
the short-term, border retailers may experience a decline in the number of Mexican
consumers traveling north for shopping trips, as the Mexican market opens to U.S. retailers
and retail goods internally. The maquiladora industry will likely undergo some adjustment in
terms of sourcing and relative competitive edge. The study predicts, however, that the
maquiladora industry will continue to be a strong draw for companies looking to gain the
advantage of low cost labor and proximity to the U.S. market. The continued interest in
maquiladora production is important for San Diego, since the border industry translates into
jobs on the San Diego side of the border as welL
This report also addresses the impact of the NAFfA on border infrastructure
issues, including congestion at border crossings and environmental impacts. While the
NAFTA itself should promote regional development, increased trade could be stymied unless
infrastructure, such as roads, border crossings and customs facilities, keep pace with the
expected increased traffic.
On the environmental side, activism by U.S. environmental groups has made
the NAFfA the "greenest" trade agreement in history. The NAFfA does not include
funding for border environmental concerns nor does it provide an enforcement mechanism
for the obligations. However, the Agreement requires the Parties to maintain existing health,
0250006
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-1- 3-20
safety and environmental standards and encourages_the harmonization upwards of the Parties'
current standards. The NAFfA has also heightened national awareness of border
environmental issues and has resulted in pledges from the u.s. and Mexican governments for
increased funding in this area. With the heightened focus on environmental clean-up and
"clean industries," San Diego-based environmental engineering firms are likely to find new
opportunities in Mexico.
The other area of opposition to the NAFf A has come from labor groups which
are concerned that the Agreement will encourage U.S. businesses to close shop in the United
States and transfer jobs to Mexico. Recent studies indicate that some jobs will be lost as a
result of the NAFfA but more jobs will be gained.
In conjunction with the NAFfA, the Administration has proposed a new
worker retaining program to promote job training and worker adjustment assistance to protect
workers who have lost their jobs as a result of the NAFfA. It appears likely that the
amount and type of assistance to be provided in this area will be a major issue during the
debates over the NAFfA during 1993.
For San Diego, the prediction is that the NAFf A will result in a net job gain,
as a result of our proximity to the border and the inflow of related trade activity.
B. Summary of Impact of NAFfA by Sector
This study contains a sector-by-sector analysis of the impact of the NAFf A on
San Diego businesses, both in terms of positive and negative impacts. The areas, and
summary of conclusions for each area, are as follows:
1. Tariff Reductions
Conclusion: The phased elimination of tariffs on goods traded between the
countries should benefit San Diego companies exporting products subject to
currently high Mexican tariffs. The phase-outs will increase San Diego
competitiveness over third country suppliers. Because Mexican tariffs are on
average higher than U.S. tariff rates, the phase-outs should be of greater
benefit on average for U.S. products.
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3-~
-2-
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2. Intellectual Prooertv Protections (IPR) and Hil!'h
Technolol!'V Products
Conclusion: Increased IPR protections are important for high-tech industries
including software, telecommunications, biotechnology, and pharmaceutical
manufacturers, all important to San Diego. Among other provisions, the
NAFTA grants protection to a company's trade secrets and provides enhanced
coverage in the patent, copyright and trademark areas.
3. General Manufacturine: Sectors
Conclusion: The NAFTA should positively impact the San Diego
manufacturing sector with an expected growth in exports to Mexico, due to
tariff reductions, increased Mexican demand and more regional content
requirements from rules of origin. The best product exports include:
-- machinery and computer parts;
-- software;
-- machine tools;
-- telecommunications equipment;
-- semiconductors;
-- telephone equipment;
-- electronic components;
-- plastic products;
-- industrial chemicals;
-- aircraft and parts;
-- household appliances;
-- toys, games, and sporting goods;
-- building supplies.
4. Investment Provisions
Conclusion: The eventual elimination of Mexico's investment restrictions
under the NAFT A should result in increased participation by San Diego
companies in the Mexican market, resulting in increased business opportunities
for the services sector including in engineering, architecture, construction and
franchising.
5. Maauiladora Industrv
Conclusion: The NAFTA's rules of origin are likely to result in changes in
sourcing practices among some maquiladoras, including greater regional
sourcing. Over time, the nature of maquiladoras will change as they become
more of a "national" industry, shipping freely both to national and export
markets even as NAFTA benefits kick in, the benefits of shared production
and investment along the border will persist.
H-%~
-3-
0250006
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6. Services Sectors
Conclusion: The services sector should benefit from the NAFTA, including
the likelihood of increased San Diego-based tourism, as well as development
of the Mexican tourism industry; opportunities for San Diego companies in the
Mexican banking and insurance markets will also increase, including for San
Diego institutions such as Grossmont Bank and California Commerce Bank
(both Mexican owned) which should be well placed to benefit from the
NAFTA.
7. Al!riculture
Conclusion: The NAFTA may result in readjustments in San Diego's flower
and fruits industries. Snapback provisions should provide some protections.
The NAFT A is likely to result in some movement of production to Mexico.
8. Retail/Consumers
Conclusion: In the short run, retailers might experience some loss in business
as access in Mexico to U.S. durable goods increases and large U.S. vendors
establish themselves directly in the Mexican market. In the long-term,
increased consumer purchasing power and access to border markets should
assist retailers. Consumers should benefit from lower prices. San Diego
chain retailers should also benefit. Price Club, for example, has already gone
into Mexico with great success.
9. Transportation
Conclusion: Liberalization in the transportation area should reduce costs in
cross-border trade. Mexican trucking companies may have an advantage over
U.S. companies as a result of lower Mexican labor rates, but U.S. owners will
have an advantage with better vehicles and capitalization.
10. Enerl!V
Conclusion: The NAFTA opens Mexican natural gas, electricity and refined
petroleum products to U.S. suppliers. The NAFTA also provides new
opportunities for co-generation and independent power production. Mexico's
need to upgrade its petrochemical and refining capabilities could provide
opportunities to local engineering firms. The NAFTA does not open the
Mexican energy market to foreign ownership of Mexico's natural resources.
Liberalization apart from the NAFTA could well occur if Mexico's ability to
expand the exploration and discovery of its natural resources stalls for lack of
capital.
-4- 3-~j
,
11. Government Procurement and Construction lndustrv
Conclusion: NAFfA provisions covering government procurement should
provide substantial benefits to San Diego companies by opening the Mexican
government procurement market, including for example, opportunities for
participation in Mexican government infrastructure development projects.
Mexican growth along the border through increased trade and investment has
created a need for construction of roads, bridges, port facilities, waste water
treatment facilities, and housing, which has not been met internally.
C. Conclusion
The NAFfA should be a net gain to San Diego businesses looking for new
market opportunities, increased exports and potential joint venture arrangements with their
Mexican counterparts. As well, it may in some instances result in the need to develop new
strategies to deal with potential increases in competition in a particular industry or service
area.
This report can be used as a starting point to determine how the NAFfA
might affect a company's operations and marketing activities. The key to success will be in
evaluating the anticipated changes, and where possible, taking advantage of new niches and
changes in the nature of competition within certain markets which will result from the
NAFfA provisions.
0250006
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3-Z'I
-5-
-,-
.- ~-,..
rtllil41l11fj,!1iJjjtiIIflti.fflf{lliJolj
."~,."..
'.
Impact of the North American
Free Trade Agreement
on San Diego Businesses
November 1992
Sponsored by
Southwestern College
Small Business Development
and International Trade Center
Prepared by
Andrea E. Migdal
Senior Counsel for International Trade
Gray, Cary, Ames & Frye
Special thanks to Ms. Christine Opitz, Intern and David Renas, Esq. of Gray, Cary, Ames &
Frye for their assistance in preparing this study, and to Dr. Norris Clement and Dr. James
Gerber of San Diego State University, Department of Economics.
.rF/i....... ""'W<<<<<<'W"^W~"^-W<'N'W'W'l'P."~ll~' W7)tiiii.WVll~
. ..............m.~...........,,"'W.......,.... ... . . ......."
;,,~J&tPl!g!iR!lw*'itl:R~Jrgl.0L"'~;;2
TABLE OF CONTENTS
~
EXECUTIVE SUMMARY
A. Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
B. Summary of Impact of NAFT A by Sector . . . . . . . . . . . . . . . . . . . . 2
1. Tariff Reductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2. Intellectual Property Protections (IPR) and High
Technology Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3. General Manufacturing Sectors. . . . . . . . . . . . . . . . . . . . . . . . 3
4. Investment Provisions ............................. 3
5. Maquiladora Industry ............................. 3
6. Services Sectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
7. Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
8. Retail/Consumers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
9. Transportation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
10. Energy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
11. Government Procurement and Construction Industry .......... 5
C. Conclusion ......................................... 5
1. INTRODUCTION ......................................... 6
A. What the NAFTA Is Designed to Achieve .................... 7
B. Negotiating Sectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
C. Implementation Process and Expected Enactment . . . . . . . . . . . . . . . . . 9
n. TRADE WITH MEXICO AND THE SAN DIEGO ECONOMIC BASE . . . . .. 11
A. U.S.-Mexico Trade. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II
B. San Diego's Relationship With Mexico and Economic
Base ............................................... 12
1. San Diego Manufacturing and Services Base . . . . . . . . . . . . . . . .. 13
2. Mexico's Expected Economic Growth by Sector .............. 13
C. Effect of NAFTA By Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
1.
Tariff Reductions and General Manufacturing Sectors. . . . . . . .. 14
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a. Mexican Tariff Reductions on U.S. Exports
to Mexico ....................................... 14
b. U.S. Reductions on Mexican Exports to the
United States ..................................... 15
2. Intellectual Property Protections . . . . . . . . . . . . . . . . . . . . . . . . 17
3. Investment Provisions ............................ 18
4. Maquiladora Industry and Rules of Origin . . . . . . . . . . . . . . .. 19
a. Rules of Origin Impact ......................... 20
b. Drawback ................................. 22
c. Quotas and the Textile Sector ..................... 22
d. Technical and Safety Standards .................... 23
5. Service Sectors ................................ 24
a. Tourism .................................. 24
b. Construction................................ 25
c. Engineering and Environmental Services .............. 26
d. Banking, Financial and Insurance . . . . . . . . . . . . . . . . . . . 26
6. Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
a. U.S. Changes to Agricultural Provisions. . . . . . . . . . . . . . . 27
b. Mexican Law Changes in Agriculture ................ 28
7. Retailers/Consumers............................... 29
8. Warehousing, Distribution and Transportation Services . . . . . . .. 29
a. Truck Service . . . . . . . . . . . . . . . . . . . . . . . . . _ . . . . . 30
b. Bus Service .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
c. Port Services ............................... 31
9. Energy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
10. Government Procurement . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ill. OPPOSITION TO NAFTA AND INFRASTRUCTURE ISSUES. . . . . . . . . .. 33
A. Infrastructure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
B. Environmental Considerations .......................... 33
C. Labor Issues and Job Creation . . . . . . . . . . . . . . . . . . . . . . . . . . 35
1. Employment and Wage Issues ......................... 35
2. San Diego Employment Impact . . . . . . . . . . . . . . . . . . . . . . . . . 36
IV. CONCLUSION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
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EXECUTIVE SUMMARY
A. Introduction
This report analyzes how the North American Free Trade Agreement
("NAFTA" or "Agreement") negotiated between the United States, Mexico and Canada, will
impact local San Diego businesses.
While much has been reported regarding the terms of the NAFTA, very little
analysis has been made of the microeconomic effects, despite the importance of such
information for business strategic planning.
This report concludes that overall, San Diego businesses can derive significant
benefits from the NAFTA in almost every sector. The study points out that in San Diego's
most competitive industries, including aerospace, electronics, computer software products,
and in services industries, the Mexican market has growing demand. The NAFTA should
increase San Diego companies' access to these markets by reducing the duties paid on
exports into Mexico and eliminating licensing requirements, quotas and other impediments to
doing business in or with Mexico. The Agreement also liberalizes Mexico's rules governing
foreign investment in its markets, providing national treatment and full participation in most
of Mexico's industrial sectors.
The most specific negative impacts from the NAFT A are likely to be felt in
the San Diego regional agricultural sector, including among flower producers and some fruits
and vegetables producers, as a result of U.S. tariff reductions; although lengthy tariff phase-
out terms should provide an opportunity for adjustment and some continued protection. In
the short-term, border retailers may experience a decline in the number of Mexican
consumers traveling north for shopping trips, as the Mexican market opens to U.S. retailers
and retail goods internally. The maquiladora industry will likely undergo some adjustment in
terms of sourcing and relative competitive edge. The study predicts, however, that the
maquiladora industry will continue to be a strong draw for companies looking to gain the
advantage of low cost labor and proximity to the U.S. market. The continued interest in
maquiladora production is important for San Diego, since the border industry translates into
jobs on the San Diego side of the border as well.
This report also addresses the impact of the NAFTA on border infrastructure
issues, including congestion at border crossings and environmental impacts. While the
NAFTA itself should promote regional development, increased trade could be stymied unless
infrastructure, such as roads, border crossings and customs facilities, keep pace with the
expected increased traffic.
On the environmental side, activism by U.S. environmental groups has made
the NAFTA the "greenest" trade agreement in history. The NAFTA does not include
funding for border environmental concerns nor does it provide an enforcement mechanism
for the obligations. However, the Agreement requires the Parties to maintain existing health,
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safety and environmental standards and encourages_the harmonization upwards of the Parties'
current standards. The NAFTA has also heightened national awareness of border
environmental issues and has resulted in pledges from the U.S. and Mexican governments for
increased funding in this area. With the heightened focus on environmental clean-up and
"clean industries," San Diego-based environmental engineering firms are likely to find new
opportunities in Mexico.
The other area of opposition to the NAFT A has come from labor groups which
are concerned that the Agreement will encourage U.S. businesses to close shop in the United
States and transfer jobs to Mexico. Recent studies indicate that some jobs will be lost as a
result of the NAFTA but more jobs will be gained.
In conjunction with the NAFTA, the Administration has proposed a new
worker retaining program to promote job training and worker adjustment assistance to protect
workers who have lost their jobs as a result of the NAFTA. It appears likely that the
amount and type of assistance to be provided in this area will be a major issue during the
debates over the NAFTA during 1993.
For San Diego, the prediction is that the NAFT A will result in a net job gain,
as a result of our proximity to the border and the inflow of related trade activity.
B. Summary of Impact of NAFTA by Sector
This study contains a sector-by-sector analysis of the impact of the NAFTA on
San Diego businesses, both in terms of positive and negative impacts. The areas, and
summary of conclusions for each area, are as follows:
1. Tariff Reductions
Conclusion: The phased elimination of tariffs on goods traded between the
countries should benefit San Diego companies exporting products subject to
currently high Mexican tariffs. The phase-outs will increase San Diego
competitiveness over third country suppliers. Because Mexican tariffs are on
average higher than U.S. tariff rates, the phase-outs should be of greater
benefit on average for U.S. products.
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2. Intellectual ProDertv Protections (IPR) and Hil!h
Technolol!V Products
Conclusion: Increased IPR protections are important for high-tech industries
including software, telecommunications, biotechnology, and pharmaceutical
manufacturers, all important to San Diego. Among other provisions, the
NAFTA grants protection to a company's trade secrets and provides enhanced
coverage in the patent, copyright and trademark areas.
3. General Manufacturinl! Sectors
Conclusion: The NAFfA should positively impact the San Diego
manufacturing sector with an expected growth in exports to Mexico, due to
tariff reductions, increased Mexican demand and more regional content
requirements from rules of origin. The best product exports include:
-- machinery and computer parts;
-- software;
h machine tools;
-- telecommunications equipment;
-- semiconductors;
-- telephone equipment;
-- electronic components;
-- plastic products;
-- industrial chemicals;
-- aircraft and parts;
-- household appliances;
-- toys, games, and sporting goods;
-- building supplies.
4. Investment Provisions
Conclusion: The eventual elimination of Mexico's investment restrictions
under the NAFf A should result in increased participation by San Diego
companies in the Mexican market, resulting in increased business opportunities
for the services sector including in engineering, architecture, construction and
franchising.
5. Maouiladora Industrv
Conclusion: The NAFfA's rules of origin are likely to result in changes in
sourcing practices among some maquiladoras, including greater regional
sourcing. Over time, the nature of maquiladoras will change as they become
more of a "national" industry, shipping freely both to national and export
markets even as NAFf A benefits kick in, the benefits of shared production
and investment along the border will persist.
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6. Services Sectors
Conclusion: The services sector should benefit from the NAFf A, including
the likelihood of increased San Diego-based tourism, as well as development
of the Mexican tourism industry; opportunities for San Diego companies in the
Mexican banking and insurance markets will also increase, including for San
Diego institutions such as Grossmont Bank and California Commerce Bank
(both Mexican owned) which should be well placed to benefit from the
NAFfA.
7. Al!:riculture
Conclusion: The NAFfA may result in readjustments in San Diego's flower
and fruits industries. Snapback provisions should provide some protections.
The NAFf A is likely to result in some movement of production to Mexico.
8. RetailfConsumers
Conclusion: In the short run, retailers might experience some loss in business
as access in Mexico to U.S. durable goods increases and large U.S. vendors
establish themselves directly in the Mexican market. In the long-term,
increased consumer purchasing power and access to border markets should
assist retailers. Consumers should benefit from lower prices. San Diego
chain retailers should also benefit. Price Club, for example, has already gone
into Mexico with great success.
9. Transportation
Conclusion: Liberalization in the transportation area should reduce costs in
cross-border trade. Mexican trucking companies may have an advantage over
U.S. companies as a result of lower Mexican labor rates, but U.S. owners will
have an advantage with better vehicles and capitalization.
10. Enerl!:v
Conclusion: The NAFf A opens Mexican natural gas, electricity and refined
petroleum products to U.S. suppliers. The NAFfA also provides new
opportunities for co-generation and independent power production. Mexico's
need to upgrade its petrochemical and refining capabilities could provide
opportunities to local engineering firms. The NAFfA does not open the
Mexican energy market to foreign ownership of Mexico's natural resources.
Liberalization apart from the NAFfA could well occur if Mexico's ability to
expand the exploration and discovery of its natural resources stalls for lack of
capital.
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.
11. Government Procurement and Construction Industrv
Conclusion: NAFfA provisions covering government procurement should
provide substantial benefits to San Diego companies by opening the Mexican
government procurement market, including for example, opportunities for
participation in Mexican government infrastructure development projects.
Mexican growth along the border through increased trade and investment has
created a need for construction of roads, bridges, port facilities, waste water
treatment facilities, and housing, which has not been met internally.
C. Conclusion
The NAFf A should be a net gain to San Diego businesses looking for new
market opportunities, increased exports and potential joint venture arrangements with their
Mexican counterparts. As well, it may in some instances result in the need to develop new
strategies to deal with potential increases in competition in a particular industry or service
area.
This report can be used as a starting point to determine how the NAFfA
might affect a company's operations and marketing activities. The key to success will be in
evaluating the anticipated changes, and where possible, taking advantage of new niches and
changes in the nature of competition within certain markets which will result from the
NAFfA provisions.
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