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President Signs Law Giving Tax Help for LNG Used in Vehicles

Natural gas vehicle (NGV) advocates were delivered a long-sought tax change Monday in legislation signed by President Obama that includes a provision equalizing the impact of an excise tax on liquefied natural gas (LNG) used in transportation. The tax will be assessed on an energy equivalent basis with diesel fuel.

Under the provisions of the bill, beginning Jan. 1, LNG for transportation will be taxed based on a diesel gallon equivalent (DGE), something the NGV sector leaders have been urging for several years (see Daily GPI, Jan. 16). The measure was part of a temporary highway funding bill.

All of the major NGV trade associations and fueling businesses hailed the measure when it passed out of Congress late last month (see Daily GPI, July 31), noting it would help put LNG on a competitive footing with diesel, which has about 70% more energy-per-gallon of fuel.

The federal excise tax on LNG and diesel has been 24.3 cents/gal., and because it takes 1.7 gallons of LNG to produce the same amount of energy as a gallon of diesel, LNG was being taxed 70% higher than diesel.

A bipartisan effort supported the provision, led by Reps. Mac Thornberry (R-TX) and John Larson (D-CT), that was originally introduced in the House of Representatives as the "LNG Excise Tax Equalization Act of 2015 (HR 905)." Thornberry originally introduced the measure in 2009.

Executives with America's Natural Gas Alliance (ANGA), and the NGVAmerica and American Gas Association (AGA) trade associations, NGV fuel and equipment suppliers and large fleet operators have been calling for the excise tax parity for a long time, arguing that it is a barrier to future growth of use of natural gas among heavy duty vehicle fleets, particularly.

Industry officials offer the example of a diesel-fueled truck traveling 100,000 miles annually at five miles/gallon, consuming 20,000 gallons of fuel. The same truck operating on LNG would require 34,000 gallons of fuel to cover the same total miles. Although cleaner operating and using a U.S. produced fuel, the LNG truck would pay an extra $3,402 annually in excise taxes.

Under the new provision, the energy equivalent of a diesel gallon of LNG is defined as having a Btu content of 128,700, which AGA said is equal to 6.06 pounds of LNG. Separately, the new measure defines the energy equivalent of a gallon of compressed natural gas (CNG) as having a Btu content of 115,400, or 5.66 pounds of CNG.

"We have been working for several years to achieve a fair, market-centered solution to fix the tax disparity between diesel and LNG" Thornberry said. "This change will encourage more private sector investment in LNG infrastructure and production, and that will have a real positive effect on our economy."

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