Investment Decision Making for Alternative Fuel Public Transport Buses: The Case of Brisbane Transport

Cleaner and less polluting public transport buses based on alternative fuels are of paramount importance if cities are to attain their ambitious emissions reduction targets. Public transport buses are high usage vehicles that operate in heavily congested areas where air quality improvements and reductions in public exposure to harmful air contaminants are critical. As such, they are good candidates for achieving both near-term and long-term emission reductions. Decision making for the investment in alternative fuel buses is dependent on future technological development and emissions standards, and it is difficult, given the uncertainty in regards to both these factors. The objective of this paper is to develop an analytical framework that will give us more insight into the trends in emissions standards as well as technology development, and eventually translate these insights into a sound investment decision making strategy. This paper concludes that, due to presence of uncertainties, the decision maker (public transport fleet manager) can take only incremental steps that will allow him or her to safeguard investments. Furthermore, if policy makers Journal of Public Transportation, Vol. 13, No. 2, 2010 116 are serious about accelerating the diffusion of alternative fuels, they should aim at creating stable policy environment. Introduction Cities around the world have set ambitious emissions reduction targets. The primary environmental objective of any city is to reduce human exposure to harmful pollutants while at the same time not hindering the movement of people. This objective can be achieved in two ways—reduce the number of vehicles and reduce the pollution from each vehicle. The number of vehicles can be reduced by improving public transport and simultaneously encouraging residents to use public transport instead of driving their personal automobiles. Pollution from each vehicle can be reduced by promoting the use of alternative fuel vehicles that have lower emissions. Given the potential of alternative fuels as a clean and safe energy resource, they can be expected to play a larger role powering the transport sector in the future. Cleaner and less polluting public transport buses based on alternative fuels are of paramount importance if cities are to attain their ambitious emissions reduction targets, as public transport buses are high usage vehicles that operate in heavily congested areas where air quality improvements and reductions in public exposure to harmful air contaminants are critical. As such, they are good candidates for achieving both near-term and long-term emissions reductions, as many buses are centrally kept and fueled, making the introduction of new technologies and alternative fuels more efficient (Kojima 2001). This paper establishes the importance of emissions standards and technological development during the decision making process of procurement of new public transport buses. A bus has a life expectancy of about 20 years. If the emissions standards change during the lifespan of a bus and if it can no longer satisfy the requirements, the bus has to be phased out or upgraded to comply with the emissions standards requirements—which cost time and money, thus leading to financial and service losses. The objective of a decision maker while investing is to optimize the returns of his/her investments—low costs for high returns. Given the long life span of the buses, a decision maker is faced with a number of uncertainties while making the investment decision. These uncertainties are related to the progression of the technology development and emissions standards for diesel buses, i.e., the pace at which they will become more stringent and the development of technology over time. Numerous strategies can be employed to face this uncertainty (Walker et al. 2001; Kim and Sanders 2002), including delay of decision, do