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Madrid’s refuse-collection system represents the kind of tidy, elegant low-carbon scheme that advocates of renewable energy love.

Since 2004, the Spanish capital has deployed hundreds of compressed natural gas (CNG) powered rubbish trucks made by Fiat’s Iveco brand, which also supplies the city with CNG buses.

Some of the fuel for the fleet is biomethane, derived from the waste the trucks themselves collect. So the scheme represents a closed loop of sorts, with negligible “well-to-wheel” carbon dioxide emissions (the total emissions from every step required to produce and distribute a fuel).

Gas-powered vehicles have long been an interesting niche market for automakers and after-market companies that specialise in retrofitting conventional cars to run on gas.

Now, as the car industry faces growing pressure from regulators around the world to cut CO2 emissions, many producers are taking a fresh look at gas as part of a technology mix that also includes cars powered by batteries or hydrogen fuel cells.

Gas-powered cars emit about one-fifth less CO2 than comparably sized conventional ones, according to Fiat, Europe’s biggest producer.

In an age of frugal tastes, vehicles fuelled by CNG or liquefied petroleum gas (LPG) have the added attraction of offering consumers – whether individuals or corporate or public-transport fleets – lower running costs.

Alongside Fiat, Ford Motor, General Motors, Daimler, Volkswagen and Renault are among the companies that produce them.

But gas-powered vehicles suffer from chicken-and-egg obstacles to mass adoption, similar to those bedevilling hydrogen. Drivers need to know they can rely on a network of refuelling stations, but investors have few incentives to build infrastructure for a small number of vehicles.

Like hydrogen, CNG is a bulky fuel that takes longer to tank and occupies more space and weight in a car than petrol. A midsize “C” car can take as long as half an hour to refuel.

It is unsurprising, then, that most of the world’s gas-powered vehicles belong to fleets – such as Madrid’s rubbish trucks – that typically go on short urban runs, then return to centrally located depots.

“The demand is really coming from fleets,” says Robert Stevens, Ford’s chief engineer for commercial vehicles. “They are interested in all the things gas or LPG can offer: lower fuel costs, better greenhouse gas emissions.”

The US carmaker has produced about 4,000 units of its E-Series van capable of running on CNG since launching production last November. Its customers include AT&T and Verizon, the telecommunications companies.

In India, a push to cut pollution caused by diesel exhaust has seen a significant portion of the auto­rickshaw taxi and inter-city bus fleet converted to LPG or CNG.

“Infrastructure is the primary regulator for this market in terms of consumer acceptance,” says Krishnasami Rajagopalan, an auto industry analyst with Frost & Sullivan, a consultancy. “The driver for the market is the pressure on carmakers to reduce CO2 emissions.”

Unsurprisingly, countries with significant gas reserves – including Iran, Thailand, and Pakistan – have been traditional leaders in promoting gas-powered transport.

In Europe, Germany, Italy and France all have significant distribution networks for gas-powered cars. According to Fiat, Italy alone has just over 600,000 vehicles on the road.

Italy’s interest in gas dates back to the rule of Benito Mussolini, who wanted to make the country energy-independent and promoted early efforts to use CNG in transport, with gas derived from anything available, including wood.

The push was renewed in the 1950s, when ENI, Italy’s oil and energy company, began exploiting large methane reserves located near the Adriatic sea.

The latest sweeteners came in 2009, when Silvio Berlusconi’s government offered carmakers led by Fiat, “eco-incentives” for lower-emission vehicles of be­tween €2,000 ($2,460) and €3,500 – depending on their CO2 emissions – to stimulate car sales.

A record 130,000 CNG vehicles were sold last year in Italy, where Fiat claimed a 90 per cent market share. Europe-wide, gas-powered cars and light commercial vehicles accounted for about 100,000 units a year, or 9 per cent of the total number the Italian automaker sold.

“Promoting urban mobility at the public and private level based on CNG is really beneficial for the environment,” says Daniele Chiari, who heads the Italian group’s powertrain planning and institutional relations.

But Fiat’s assertion is by no means uncontested, as the industry grapples with carbon-cutting ideas at a time of volatile markets and intense competition.

The European Commission has officially recognised biomethane on its list of renewable energy sources.

However, on the national level – where governments have pledged billions of euros of tax breaks for low-CO2 vehicles – a patchwork of regulations exist.

“Not everywhere is the incentive level the same for CNG and electric vehicles,” says Mr Chiari.

Some believe that new capability to extract natural gas from shale, which is driving down prices, will tip the market.

According to Ford’s Mr Stevens, natural gas costs a dollar a gallon less than the equivalent amount of liquid petrol.

“I think [the market] is going to grow,” Mr Stevens says. “The cost will come down a bit; infrastructure will improve.”

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