Senate Introduces the LNG Excise Tax Equalization Act

Recently, the U.S. Congress introduced bipartisan legislation to equitably tax liquefied natural gas as a transportation fuel. Senators Michael Bennet (D-CO) and Richard Burr (R-NC) introduced the legislation, titled the “LNG Excise Tax Equalization Act of 2013” (S.1103). 

The bill makes a simple but important modification in the way LNG is taxed as a transportation fuel. Currently, the federal highway excise tax on both diesel and LNG is set at 24.3 cents per gallon (Internal Revenue Code 4041).

However, 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. This legislation changes the way LNG is taxed—from a volume (gallon) to an energy content (diesel gallon equivalent) basis.

LNG is an attractive fuel for large trucks and other heavy-duty applications that use a large amount of fuel per year. This makes the current LNG tax penalty a significant barrier to wider LNG use in these applications. 

For example, consider that a diesel truck traveling 100,000 miles per year at 5 miles per gallon would consume 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 form of fuel, it would pay an additional $3,402 per year in taxes for using LNG.

Two weeks ago, Representatives Mac Thornberry (R-TX) and John Larson (D-CT) introduced similar legislation, H.R. 2202, in the U.S. House of Representatives. Since then, Representatives Jim Matheson (D-UT), Leonard Lance (R-NJ) and Lee Terry (R-NE) have co-sponsored the bill.

This effort by Congress also is being mirrored by efforts in a number of states.  Already this year, legislatures in six states have passed bills that adjust their state tax on LNG so that it is based on an energy equivalent basis.