Alternative Fuel Tax Credit
The alternative fuel tax credit (AFTC) is a $0.50 per gallon of gasoline equivalent excise tax credit on the sale of compressed natural gas (CNG), liquefied natural gas, renewable natural gas (RNG), and other fuels used for transportation. This credit was originally instated the Energy Policy and Conservation Act of 2005. It expired in 2010 and has been renewed on a short term or retroactive basis since then. The last extension occurred in the 2018 Bipartisan Budget Act, but only for tax year 2017.
The AFTC plays a crucial role by promoting investment in natural gas vehicles and fueling infrastructure. However, the AFTC is constantly being extended for only one year or retroactively. This creates massive uncertainty for those looking to invest in NGVs, whether in vehicles, infrastructure, or for fuel providers. The lapse in the credit is impacting future investment in NGVs. The time is now to act on reinstating the AFTC.
Further, many other fuels and vehicles enjoy generous federal tax incentives and subsidies. This creates an unlevel playing field in the transportation space and makes attracting investment in certain areas difficult. Renewing and extending the AFTC will, at the very least, allow NGVs to better compete in an already unfair federal fuel policy space. The AFTC is necessary to ensure fairness and promote competition.
Congress should extend the AFTC and work to find a long-term solution for this credit.
LNG Excise Tax Equalization
Under current law, the federal highway excise tax on both LNG for use in motor vehicles and diesel are taxed on a volumetric basis at 24.3 cents per gallon. LNG is less energy dense than diesel, as it requires 1.7 gallons of LNG to equal the energy content of 1 gallon of diesel. Based on this fact, LNG trucks will consume more fuel than their diesel counterparts and therefore will pay more in federal highway taxes than their diesel counterpart.
This additional tax burden provides a strong disincentive for consumers to purchase an LNG-powered truck. Taking into account the incremental cost of an LNG truck, which can be up to $60,000, the additional fuel tax burden may be sufficient to prevent fleets from using cleaner-burning LNG.
This legislation should be passed to remedy that disincentive by taxing LNG on an energy content basis, as CNG is taxed. This would level the playing field between LNG and diesel.