Proposal Will Equalize Tax Treatment to Put Competing Fuels on Fair Footing
U.S. Senators Michael Bennet (D-CO) and Richard Burr (R-NC) introduced a bipartisan bill to put liquefied natural gas (LNG) on equal footing with diesel fuel under the federal highway excise tax. The bill (S.1103) will allow LNG to compete fairly with diesel by taxing LNG on energy output rather than per gallon.
LNG is a transportation fuel source used for large trucks and some marine and rail vessels. The fuel has attracted the attention of fleet operators due to its low cost at the pump and reduced environmental impact. LNG produces significantly lower levels of toxic emissions than diesel fuel, including lower levels of carbon dioxide, nitrogen oxide and sulfur dioxide. Using LNG instead of diesel fuel also reduces pollution from so-called “black carbon,” also known as soot. Black carbon is a major contributor to climate change, second only to carbon dioxide in the amount of heat it traps in the atmosphere once emitted.
In addition to the environmental benefits of the fuel, at $1.85 per gallon, LNG is cheaper at the pump than diesel’s $3.19 per gallon. Currently, the excise tax rate for both LNG and Diesel Fuel is set at 24.3 cents per gallon, however LNG produces less energy per gallon than diesel fuel. It takes about 1.7 gallons of LNG to equal the energy in 1 gallon of diesel fuel, resulting in LNG being taxed at 170% of the rate of diesel fuel on an energy equivalent basis. Taxing LNG based on energy output versus volume removes a disincentive to use the fuel.
“Using more LNG in our transportation sector can clean up our air and help address climate change, but the current tax system is putting this fuel at a disadvantage,” Bennet said. “This bill is a common sense proposal that allows diesel fuel and LNG to compete in the market fairly, opening doors for companies interested in switching to this cleaner, cheaper domestic energy source.”
“This legislation would tax LNG on an energy equivalent basis and put this cleaner and cheaper source of energy on an even playing field with diesel,” said Burr.
The current tax system can result in thousands of dollars of additional cost for companies choosing to utilize LNG. For example if a diesel truck travels 100,000 miles at 5 miles per gallon it consumes 20,000 gallons of diesel fuel, however, an identical LNG truck would require 34,000 gallons of LNG to travel the same distance. The current tax system would result in the LNG truck paying an additional $3,402 in taxes because of the 14,000 gallons more of fuel.
A recent study commissioned by the Small Business and Entrepreneurship Council shows that increased international demand for LNG has had a positive impact on the nation’s economy, particularly in Colorado. Colorado’s natural gas production has risen by almost 45 percent resulting in large numbers of job growth particularly for small and midsize businesses in the state.