Since 2009, U.S. Rep. Mac Thornberry (R-TX) has been trying to permanently equalize the impact of an excise tax on liquefied natural gas (LNG) used in transportation by reintroducing a provision in each consecutive session of Congress.
In August, that diligence paid off when President Obama signed into law the LNG Excise Tax Equalization Act of 2015, which includes Thornberry’s provision to assess the tax on an energy-equivalent basis with diesel fuel.
It has been a long time coming for Thornberry, who introduced the most recent iteration of the tax change in February. The bill garnered co-sponsorships the same month from U.S. Reps. John Larson (D-CT), Leonard Lance (R-N.J.) and Chris Collins (R-N.Y.).
“This was a very technical and targeted provision that needed the right vehicle at the right time,” Thornberry recently told Ripon Advance. “That just happened to be this year.”
Specifically, the federal excise tax on LNG and diesel has been set at 24.3 cents per gallon. Because it takes 1.7 gallons of LNG to produce the same amount of energy as a gallon of diesel fuel, LNG was being taxed 70 percent higher than diesel.
The new law that takes effect on Jan. 1, 2016, levels the playing field by applying the excise tax to LNG and diesel based on the amount of energy each produces. This aligns with how it is applied to Compressed Natural Gas and gasoline.
To put the change to the excise tax in perspective, consider that 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, domestic form of fuel, it had to pay an additional $3,402 per year in taxes for using LNG.
“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.
Most noteworthy, the tax change is beneficial in important ways, the congressman added.
“This change will encourage more private sector investment in LNG infrastructure and production, and that will have a real, positive effect on our local and national economies,” Thornberry told Ripon Advance.
Additionally, Thornberry said the tax change “will also help trucking fleets looking to convert to a clean and abundant domestic fuel.”
The bill received support from the American Gas Association, America’s Natural Gas Alliance, Natural Gas Vehicles for America, UPS, AGL Resources and Clean Energy Fuels, among others.