Revamping Federal Tax Policy towards LNG

Of all the motor fuels taxed by the Federal government, LNG is taxed at the highest rate on an energy basis.

The federal government has a complex transportation fuel tax policy. While some fuels are taxed based on their energy content, others are taxed based on the volume of space they occupy. Gasoline, diesel and LNG are all taxed by the gallon, while CNG is taxed based on its energy content.

Looking at the fuels which are taxed by the gallon, gasoline, diesel, and LNG have drastically different energy contents. The higher a fuels energy content, the farther you can travel on a single gallon of fuel. As measured in BTUs, a gallon of diesel fuel has approximately 138,000 BTUs of energy, a gallon of gasoline has approximately 114,000 BTUs of energy, and a gallon of LNG has approximately 75,000 BTUs of energy. The federal government taxes gasoline at $.183 per gallon, diesel at $.243 per gallon, and LNG at $.243 per gallon. Because there is less energy in a gallon of LNG, you will need more LNG gallons to go the same distance than you would using either gasoline or diesel fuel. As such, the tax on LNG, when calculated on an energy content basis, is much higher than the tax on either gasoline or diesel.

CNG on the other hand is taxed on an energy equivalence basis relative to a gallon of gasoline. Therefore, regardless of how many gallons of CNG it takes to reach the same energy content of a gallon of gasoline, 114,000 BTUs of energy, it is only taxed at a rate of $.183 per gasoline gallon equivalent (GGE). The following table shows the fuel, tax rate and tax base, and the tax when calculated on an energy equivalent basis.

Tax Rates for Common Fuels:

Fuel Federal Tax Rate Effective Tax Rate
(on an Energy Equivalent basis
using Gasoline Gallon Equivalents)
CNG $.183 per GGE $.183
Gasoline $.183 per gallon $.183
Diesel $.243 per gallon $.201
LNG $.243 per gallon $.369

It is perplexing that LNG is taxed at a much higher rate than CNG, considering that they are two different forms of the same base fuel, natural gas. CNG is natural gas that is stored under an extremely high pressure, while LNG is natural gas that is cooled to the point where it goes from a gaseous state into a liquid state. Because they are the same base fuel, we do not see any reason to tax LNG at more than twice the rate of CNG.

Further, LNG is taxed at a much higher rate than either gasoline or diesel fuel. This is counterintuitive as natural gas vehicles pollute significantly less than gasoline or diesel powered vehicles. From an environmental perspective, the federal government should be encouraging the use of cleaner fuels rather than taxing it at 55-100% more than conventional fuels. The following chart shows the emissions reductions for trucks operating on natural gas compared to diesel powered trucks.

From an environmental perspective, the federal government should be encouraging the use of cleaner fuels rather than taxing it at 55-100% more than conventional fuels. Natural gas vehicles pollute significantly less than gasoline or diesel powered vehicles. The following chart shows the emissions reductions for trucks operating on natural gas compared to diesel powered trucks.

Emission Reduction in Emissions by using Natural Gas Vehicles
Carbon Dioxide 20-30%
Carbon Monoxide 70-90%
Sulfur Dioxide 99%
Nitrogen Oxide 75-95%
Particulate Matter 90%
Volatile Organic Compounds 89%

Moving forward, we plan to bring this tax disparity to the attention of lawmakers. With your support, we can rectify this disparate tax system and encourage the development and use of LNG as an affordable, cleaner, and safer transportation fuel.


© LNG for NY 2013