Bipartisan support for LNG fuel tax reform

Echoing a move by another bipartisan duo in the House, US Senators Michael Bennett (D-CO) and Richard Burr (R-NC) introduced legislation on June 7 that would require that liquefied natural gas (LNG) for transportation fuel be taxed based on energy output and not by the gallon equivalent.

The LNG Excise Tax Equalization Act of 2013 (S.1103) looks to establish equitable taxation of LNG as a transportation fuel. The current excise tax rate for LNG and diesel is the same, at $0.243 per gallon, despite the fact that LNG costs about $1.85 per gallon compared to $3, noted Global Hunter Securities analysts in a note to investors June 12.

Because it takes about 1.7 gallons of LNG to equal the energy content of one gallon of diesel, the result is the taxation of LNG at a rate 70% higher than diesel on an energy equivalent basis. The proposed legislation would change the way LNG is taxed—from a volume (gallon) to an energy content (diesel gallon equivalent) basis.

In a statement following the legislation's introduction, NGVAmerica, a national organization dedicated to the development of a market for vehicles powered by natural gas or biomethane, put the disparity in context. Consider a diesel truck traveling 100,000 miles per year at 5 miles per gallon. The diesel truck consumes 20,000 gallons of diesel fuel. An identical LNG truck would require 34,000 gallons of LNG to travel the same distance. Under current tax laws, the LNG truck would pay an additional $3,402 per year in taxes for using LNG.

The bill by the bipartisan pair comes on the heels of companion legislation introduced in the House by US Reps. Mac Thornberry, (R-TX), and John Larson, (D-Conn), on May 24.

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

In a statement, Richard Kolodziej, president of NGVAmerica, commended the action, noting the “common-sense measure” would “help reduce reliance on foreign oil and accelerate the switch to domestic natural gas.”


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