Congress Approves Tax Fairness Updates For Liquid Natural Gas

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2012 Honda Civic Natural Gas

2012 Honda Civic Natural Gas

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Congress has taken an important step to advance cleaner transport with the introduction of new, fairer taxation for natural gas.

The 'LNG Excise Tax Equalization Act of 2013' is designed to equalize the discrepancy between taxation of diesel and liquefied natural gas (LNG).

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Currently, both are taxed at the same federal rate of 24.3 cents per gallon.

FURTHER UPDATE: Legislation that accomplishes the same goals as the Alternative Fuel Tax Parity Act was passed in July 2015 by the House and the Senate as part of a three-month extension (HR 3326) of the highway funding act.

UPDATE: The Alternative Fuel Tax Parity Act (HR 1665) was introduced in March 2015 by Representatives Todd Young [R-IN], John Larson [D-CT], Mac Thornberry [R-TX], and Ron Kind [D-WI]. It is substantially the same as the 2013 bill covered in this article, originally published in May 2013.

The issue, now corrected by the Act, is that diesel has a higher energy content than natural gas--1.7 gallons of LNG are roughly equal to a gallon of diesel--yet LNG is taxed at the same rate. The result is that LNG is taxed at a rate 70 percent higher than diesel, on an energy equivalent basis.

The new legislation taxes LNG on energy content in relation to diesel, rather than on volume.

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Natural Gas Vehicles for America, an organization promoting the market for natural gas on behalf of more than 200 parties, illustrates the disparity in taxation with the example below:

"To better understand the problem with the current excise tax, consider a diesel truck traveling 100,000 miles per year at 5 miles per gallon consumes 20,000 gallons of diesel fuel. An identical LNG truck would require 34,000 gallons of LNG to travel the same distance. While the LNG truck uses a cleaner form of fuel, it would pay an additional $3,402 per year in taxes for using LNG."

The example does also illustrate just how much extra LNG a truck would use over the same distance compared to a diesel truck--but the emphasis here is on cleaner emissions and reducing dependency on foreign oil.

Introduced by Representatives Mac Thornberry (R-TX) and John Larson (D-CT), Senators Michael Bennet (D-CO) and Richard Burr (R-NC) will introduce a similar bill to the Senate when it returns from recess.

Six U.S. states have already introduced a similar bill at a local level this year.

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“This bill provides a fair, market-centered solution to fix the tax disparity between diesel and LNG,” explained Rep. Thornberry.

“I think this change will encourage more private sector investment in LNG infrastructure and production, and that will be a real positive effect on our economy.”

The effect will be strongest in the commercial sector for the time being, with no LNG passenger vehicles on sale in the U.S, and few LNG stations. Only one CNG, or 'compressed natural gas' car is currently on sale--the Honda Civic Natural Gas.

Even so it's positive news, showing that cleaner fuels are finally starting to attract bipartisan support, with both economic and environmental benefits.


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