Amendment will put low cost, environmentally friendly fuel on equal footing as diesel
Today, Senators Michael Bennet (D-CO) and Senator Richard Burr (R-NC) successfully included an amendment in the Preserving America’s Transit and Highways (PATH) Act to allow liquefied natural gas (LNG) to compete fairly with diesel fuel.
The amendment, based on S. 1103 from Bennet and Burr, would require that LNG be taxed on energy output rather than per gallon. This amendment was also co-sponsored by Senator Orrin Hatch (R-UT). Today’s business meeting in the Senate Finance Committee – which adopted the Bennet proposal – will be completed when the Senate reconvenes after the 4th of July.
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, LNG is cheaper at the pump than diesel 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.
“LNG has huge potential as a cheaper, cleaner, domestic energy source and we need to ensure our tax system is not putting it at a disadvantage,” Bennet said. “This common sense proposal allows us to continue expanding our energy portfolio and address climate change by allowing LNG to compete fairly in the market.”
“I am encouraged that Chairman Wyden has made good on his commitment to work with Senator Bennet and me on this issue and achieve parity in our tax code,” said Burr. “It is my hope that the Committee can quickly move forward in a bipartisan manner and approve legislation that addresses the highway trust fund crisis without putting it on the taxpayer’s credit card.”
"We commend the Senators for their dogged determination in resolving this inequity,” said Lem Smith, Director of Federal and State Relations at Encana Corporation. “Natural gas provides great promise for U.S. Energy independence and its versatility relative to use as a transportation fuel increases this opportunity for Colorado and our Nation, and a permanent fix to this problem is an issue of parity."
“The bipartisan Bennet-Burr amendment would remove a counterproductive barrier that is slowing the displacement of foreign oil with American LNG in transportation. It’s good public policy,” said Paul Kerkhoven, Director of Government Relations for NGVAmerica. “NGVAmerica commends the Senators for their leadership in making the tax code more equitable.”
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 study commissioned by the Small Business and Entrepreneurship Council shows that increased international demand for LNG positively affects 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.