Assessment of the FY Natural Gas Fuel Fleet Vehicle Rebate Program

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3 Assessment of the FY Natural Gas Fuel Fleet Vehicle Rebate Program Highlights of the FY Natural Gas Vehicle Rebate Program A total of $5.2 million in rebates were disbursed statewide to support the purchase, lease or conversion of 518 vehicles. The program incentivized investment from private and public sector entities in the amount of $72.3 million. Use of the 518 vehicles will result in $15.3 million in annual fuel savings. A total of 627 jobs paying an average $50,826 were created or retained as a result of the program. The program s contribution to Florida s Gross Domestic Product (GDP) is estimated at $147.4 million. Section One: Introduction The Natural Gas Fuel Fleet Vehicle Rebate was established by the Florida Legislature in 2013 through HB 579 as a program administered by the Florida Department of Agriculture and Consumer Services (department). The legislation provides $6 million per year in recurring funds from FY through FY , to provide rebates for the purchase, conversion or lease of natural gas fuel fleet vehicles. The department is required by Section (7), Florida Statutes, to produce an annual assessment of the use of the rebate program during the previous fiscal year. HB 579 took effect on July 1, 2013, and the department began rule development for the Natural Gas Fuel Fleet Vehicle Rebate program on July 2, Three public workshops were held during the rule development; two in Tallahassee and one in Orlando. The first proposed rule was released on October 21, On January 7, 2014, Rule 5O-4.001, Florida Administrative Code, implementing the Natural Gas Fuel Fleet Vehicle Rebate Program became effective and the department began accepting applications. Because HB 579 took effect on July 1, 2013, and program rules had to be developed and enacted before the first rebate applications could be accepted, the program did not begin until January 7, Thus, the first year of the program ran on a six month timeframe from January 7, 2014 through June 30, The second year of the program ran in concurrence with the state fiscal year (July 1 through June 30), and all subsequent years of the program will run in similar concurrence with the state fiscal year. The program goals, as laid out in the legislation, are to help reduce transportation costs and encourage freight mobility investments that contribute to the economic growth of the state. The program accomplishes these goals by providing rebates of up to $25,000 per vehicle and $250,000 per applicant per fiscal year for up to 50 percent of the costs associated with the conversion, purchase or lease of natural gas fleet vehicles registered in the state of Florida. During the first year of the program, the department received 572 applications; 272 were approved, and the remaining 300 were deemed incomplete. Applications were deemed incomplete for reasons such as 1

4 insufficient payment documentation or a lack of Environmental Protection Agency documentation. During the second year of the program, the department received 899 applications; 518 were approved, and the remaining 381 were deemed incomplete. By providing monetary incentives for the adoption of natural gas as a fuel for private and public fleet vehicles, the program can be expected to foster public and private sector spending in the automotive and natural gas distribution sectors, reduce fuel costs for private and public sector entities, and increase the financial feasibility of investments in new or retrofitted vehicles, all of which have a positive impact on Florida s economy. The purpose of this report is to document the expenditures fostered by the program, estimate the economic contributions of the program to the state s economy and determine the program s return on investment. Section Two: Data Source Rule 5O-4.001, Florida Administrative Code, requires applicants to complete a Natural Gas Fuel Fleet Vehicle Rebate Application, FDACS-01976, Rev 10/13, for each vehicle purchase, lease or conversion. Besides determining the eligibility of the applicant and associated investment, the application is designed to collect relevant information, including whether the investment is a conversion, purchase or lease, the total eligible incremental costs, the rebate requested, the total value of the investment in alternative fuels, and the projected fuel savings. In addition, the type of natural gas technology the vehicle will utilize the type of entity that is applying for the rebate and the county, in which the vehicle is licensed and fueled, are also recorded in the application. All relevant information was entered into an electronic database, and the data was aggregated to the applicant level for this analysis. Summary statistics for the relevant information are compared between the first and second years of the program in Table 1. Section Three: Expenses and Savings Supported by the Program Aggregation of the data to the applicant level gives a clear picture of the type of entities that received rebates, the types of investments supported by the program and the fuel savings supported by the program. For example, 43.5 percent of applicants to the program in FY were public sector entities, while 56.5 percent were private sector entities, representing a slight increase in the proportion of private sector applicants relative to FY Similarly, Compressed Natural Gas (CNG) seems to be preferred over other types of natural gas technology available in the marketplace, as 58.1 percent of applicants reported investments in CNG, while only 16.1 percent invested in propane gas, and 4.8 percent invested in Liquefied Natural Gas (LNG). In addition, 17.7 percent of applicants reported investments in bi-fuel CNG, while 3.2 percent reported investments in bi-fuel propane. The program supports three types of investments, including purchase of new vehicles, lease of new vehicles and conversion or retrofit of existing vehicles. New vehicle purchases are the most common type of investment, and 54.8 percent of applicants used the rebates to support new vehicle purchases. Furthermore, 9.7 percent of applicants leased new vehicles, while 35.5 percent invested in the 2

5 conversion or retrofit of an existing vehicle. In comparison to FY , the proportion of applicants who are using the rebate for existing vehicle retrofits more than doubled in FY Table 1. Percent applicant breakdown by type of entity and natural gas technology adopted Description Applicant is a Public Sector Entity 44.7% 43.5% Applicant is a Private Sector Entity 55.3% 56.5% Investment is in CNG Technology 65.8% 58.1% Investment is in Bi-Fuel CNG Technology 16.0% 17.7% Investment is in LNG Technology 5.3% 4.8% Investment is in Propane Technology 10.5% 16.1% Investment is in Bi-Fuel Propane Technology 2.6% 3.2% New Vehicle was Purchased 76.0% 54.8% New Vehicle was Leased 7.9% 9.7% Existing Vehicle was Converted 16.0% 35.5% In terms of the value of investments supported by the program, the average rebate recipient made a total eligible investment of $180,767 in approximately eight vehicles, and received $84,373 in rebates. For the average recipient, the rebate program covered 47 percent of the total incremental cost of the investment. In addition, the average recipient will conserve 233,549 gallons of gasoline or diesel every year, for a total estimated annual fuel savings of $246,869. On average, recipients invested a total of $1,167,501 in alternative fuels, including the new or converted vehicles as well as any additional support infrastructure. On a per vehicle basis, the average incremental cost eligible for a rebate was $26,221, and the average vehicle received a rebate of $11,654. Each vehicle receiving a rebate in the program was responsible for an average total investment of $161,538. Besides the eligible incremental cost, the average rebate fostered an investment of $135,317 in either the vehicle itself or in infrastructure needed to support the vehicle. The average vehicle will save 21,993 gallons of conventional fuel each year, for an average annual fuel savings of $25,178. As seen in the last column of Table 2, the 518 Natural Gas Fuel Fleet Vehicle rebates approved in FY14-15 accounted for a total of $11,207,572 in eligible incremental costs, of which $5,230,652 was reimbursed to applicants. The total direct investment supported by the program was $72,385,063. In addition, 14,480,059 gallons of gasoline or diesel fuel will be saved every year, resulting in estimated fuel cost savings of $15,305,890 per year. Analysis of the statistics by type of applicant reveals interesting patterns (Table 2). For instance, while the total number of applicants is nearly evenly distributed between public sector entities (43.5%) and private sector entities (56.5%), it is the private sector that has been able to benefit most from the program. For example, private sector entities received a total of $3,242,016 in rebates, while public sector entities received $1,988,636. However, the public sector s total reported investment in 3

6 alternative energy ($50,448,656) is more than twice the reported investment by the private sector ($21,936,407). In addition, the number of vehicles purchased, leased or retrofitted is very similar across sectors, with 289 vehicles in the public sector and 229 vehicles in the private sector entering service. Table 2. Program benefits accruing to public and private sector entities. Public Sector Private Sector Total Incremental Costs $4,178,223 $7,029,349 $11,207,572 Rebates Awarded $1,988,636 $3,242,016 $5,230,652 Total Investment $50,448,656 $21,936,407 $72,385,063 Fuel Savings (Gallons) 1,011,314 13,468,745 14,480,059 Fuel Savings ($) $2,437,125 $12,868,765 $15,305,890 Number of Vehicles Separation of program statistics by the type of natural gas technology yields insights on the types of technology preferred by Florida s public or private entities (Table 3). Compressed Natural Gas was the most utilized technology in FY , with pure CNG and bi-fuel CNG accounting for 54 percent (282) of vehicles in the program and 92 percent ($66,766,527) of the total investment in natural gas technology facilitated by the program. These two technologies together comprised 74 percent ($3,883,245) of the rebates awarded statewide. Table 3. Program statistics by type of natural gas technology. CNG Bi-Fuel CNG LNG Bi-Fuel Propane Propane Incremental Costs $7,771,688 $600,727 $1,190,341 $291,500 $1,353,315 Rebates Awarded $3,582,882 $300,363 $525,000 $145,750 $676,658 Total Investment $59,498,766 $7,267,761 $3,350,031 $417,500 $1,851,005 Fuel Savings (Gallons) 7,717,520 78,132 4,249,236 1,809, ,971 Fuel Savings ($) $5,557,747 $472,106 $5,704,918 $2,143,338 $1,427,781 Number of Vehicles Sixty-five percent of the vehicles sponsored by the program were new purchases that supported 89 percent of the total investment in natural gas technology and infrastructure by private and public sector entities in the state (Table 4). One item to note is the large increase in the number of existing vehicle conversions supported by the program. In FY , only 43 vehicle retrofits were supported by the program. In FY , a total of 136 vehicles were retrofitted with the program s support, marking an almost three-fold increase in the growth of this category. 4

7 Table 4. Program statistics by type of investment. Purchases Leases Conversions Incremental Costs $8,208,446 $1,734,763 $1,264,363 Rebates Awarded $3,815,041 $782,267 $633,344 Total Investment $64,892,566 $6,218,836 $1,273,662 Fuel Savings (Gallons) 9,425,529 3,104,756 1,949,775 Fuel Savings ($) $10,046,796 $2,560,462 $2,698,632 Number of Vehicles The benefits of the program are reasonably distributed throughout the state (Figure 1). There is, however, a strong concentration of both rebates awarded and total investment in the Tampa Bay and South Florida regions. North Central Florida is perhaps the region that benefited from the FY program most, as a large number of counties in this area received rebates. The three westernmost counties in the Panhandle received a significant amount of rebates, and Escambia County, in particular, received a large amount of investment in alternative fuels as a result of the program. Figure 1. Geographic distribution of rebates and total investment Section Four: Contribution to Florida s Economy The data collected through the application process and summarized in Section 3 can be used to create a regional economic model that tracks the flow of expenditures and savings that result from the program through Florida s economy. The model was created using the Impact Analysis for Planning (IMPLAN) software v3.1 with statewide Florida data for IMPLAN is an input/output tool that characterizes spending patterns and relationships between households and industries, and is one of the most widely used and well known platforms for modeling economic impacts and contributions. 5

8 Several indicators are used in regional economic models to characterize the impact or contribution of an activity or a set of activities on the economy. Employment refers to full- and part-time employment for one year. Labor income is an employee s total payroll cost as paid by the employer, including wages and salary, all benefits, and payroll taxes, as well as income earned by proprietors and self-employed professionals. Total value added includes all profits, indirect business taxes and payments to households (such as investment income). Finally, output is the total value of industry production. Regional economic models generally report three types of impacts or effects. Direct effects refer to total spending in the program or activity of interest. Indirect effects result from changes in the demand of factor inputs caused by the program or activity under study. Induced effects result from households and workers spending the money earned as a result of the program or activity of interest. Table 5. Total investment expenditures driving the regional economic model. Sector Description Amount Automotive Repair and Maintenance, Except Car Washes (414) Conversions are performed by trained auto and truck maintenance specialists. Expenses in this category include the incremental costs of conversions. $1,264,363 Light Truck and Utility Vehicle Manufacturing (277) Heavy Duty Truck Manufacturing (278) Natural Gas Distribution (32) One third of the total investment from new vehicle $23,703, purchases and leases is assumed to be expenses in this sector. One third of the total investment from new vehicle $23,703, purchases and leases is assumed to be expenses in this sector. One third of the total investment from new vehicle $23,713, purchases and leases is assumed to be expenses in this sector. In addition, this sector includes the excess investment from conversions not included as automotive repairs. TOTAL $72,385, To determine the economic contribution of the program, the total investment reported by program applicants was used as the change in final demand as a consequence of the program. This change in final demand is assumed to take place in four sectors (Table 5). Similarly, the fuel savings reported by program applicants are also modeled as drivers of final demand in the sectors that benefit from these savings (Table 6). That is, savings by a particular sector are assumed to be used to generate an equivalent value in services by the same sector. 6

9 Table 6. Total fuel savings driving the regional economic model. Sector Description Amount Waste Management and 20% of fuel savings are assumed to benefit waste $3,061,178 Remediation Services (390) management companies. Transport by Truck (335) 30% of fuel savings are assumed to benefit freight transport companies. $4,591,767 State and Local Government Passenger Transit (430) Other State and Local Government Enterprises (432) 30% of fuel savings are assumed to benefit local government entities engaged in public or school related ground transportation. 20% of fuel savings are assumed to benefit local governments whose employees will be using more efficient fleets for local government business related transportation. $4,591,767 $3,061,178 TOTAL $15,305,890 Regional economic model results are summarized in Table 7. The program fostered an estimated $87.6 million in direct expenditures, which includes $72.3 million of total investment in alternative energy related to the program and $15.3 million in fuel savings statewide. An estimated 627 jobs were created or retained as a result of the program, and the total economic contribution of the program to Florida s economy in FY was estimated at $147.4 million. Table 7. Direct, indirect and induced effects from the program in FY Impact Type Employment Labor Income Value Added Output Direct Effect $14,011,736 $4,005,107 $87,690,956 Indirect Effect $10,140,161 $16,231,333 $36,004,776 Induced Effect $7,742,368 $13,973,150 $23,713,996 Total Effect $31,894,266 $34,209,590 $147,409,728 Table 8 shows the ten sectors that saw the largest gains or retention in employment as a result of the program. State and local passenger transit is one of the largest beneficiaries of the program with 110 jobs created or retained. The natural gas industry, including distribution and extraction, is also a major beneficiary of the policy, and 47 jobs were created or retained in these two sectors. A number of jobs were also created in the manufacturing of heavy duty trucks and the transportation and wholesale trade sectors. Due to the new infrastructure being built to support natural gas fuel vehicles in the state, the construction industry was also among the major beneficiaries, with 17 jobs created or retained. 7

10 Table 8. Top ten job producing sectors as a result of the program in FY Description Employment Labor Income Value Added Output State and local government passenger transit $6,891,288 ($8,598,015) $4,627,947 Transport by truck 43.3 $1,812,949 $2,205,806 $5,569,182 Wholesale trade businesses 23.7 $1,839,293 $3,218,270 $4,275,572 Natural gas distribution 23.6 $2,316,269 $5,645,800 $23,882,747 Extraction of oil and natural gas 23.3 $49,584 $171,402 $6,275,072 Food services and drinking places 23.2 $581,267 $831,533 $1,502,483 Automotive repair and maintenance, except car washes 22.7 $703,325 $816,616 $1,531,536 Heavy duty truck manufacturing 20.2 $522,656 $662,418 $23,718,415 Maintenance and repair construction of nonresidential structures 17.4 $869,992 $924,630 $1,672,359 Real estate establishments 17.1 $236,114 $1,827,300 $2,622,962 Section Five: Returns on Investment The program statistics summarized in Section Three, coupled with the economic contributions documented in Section Four, can be used to calculate the returns on the state of Florida s investment in the program in FY Every $1 million that the state invests in awarding rebates for natural gas vehicle purchases, leases and conversions, fosters an incremental investment of $2.14 million, and a total investment in alternative fuels of over $13.8 million. Similarly, every $1 million invested in rebates promotes the creation or retention of 120 jobs paying a total of $6 million in labor income, or an average income of $50,826. In addition, every $1 million invested in the program spurs total contributions to Florida s gross domestic product (GDP) of $28.1 million. Table 9. Returns on Investment, per $1 million awarded in rebates Type of ROI FY FY Incremental Investment $2,237, $2,142, Total Investment $20,375, $13,837, Fuel Savings $1,007, $2,925, Employment Labor Income $4,874, $6,097, Total Output $32,860, $28,179,

11 Section Six: Conclusion The program made a substantial contribution to Florida s economy in FY A total of $5.2 million was disbursed as rebates in all regions of the state for the purchase, lease or conversion of 518 vehicles, fostering a total investment of $72.3 million. This investment, coupled with $15.3 million in annual fuel savings, resulted in the creation or retention of 627 jobs paying an average yearly wage of $50,826. The total contribution to Florida s GDP as a result of this program is estimated at $147.4 million. Florida Department of Agriculture and Consumer Services Office of Energy The Holland Building 600 S. Calhoun St., Ste. B04 Tallahassee, Florida (850) (850) Fax Energy@FreshFromFlorida.com 9