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Congress Introduces the LNG Excise Tax Equalization Act of 2013

June 4, 2013

The U.S. Congress introduced bipartisan legislation to equitably tax liquefied natural gas (LNG) as a transportation fuel on Friday, May 24. Representatives Mac Thornberry (R-TX) and John Larson (D-CT) introduced the LNG Excise Tax Equalization Act of 2013 (H.R. 2202) in the U.S. House of Representatives. Senators Michael Bennet (D-CO) and Richard Burr (R-NC) will introduce a similar bill to the Senate when it returns from recess.

The Act 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-percent higher than diesel on an energy equivalent basis, according to Natural Gas Vehicles for America. This legislation changes the way LNG is taxed—from a volume (gallon) to an energy content (diesel gallon equivalent) basis.

To better understand the problem with the current excise tax, consider 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 form of fuel, it would pay an additional $3,402 per year in taxes for using LNG.

Already this year, legislatures in six states have passed bills that adjust the tax on LNG so that it is based on an energy equivalent basis.

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