Economic Analysis of the LNG Excise Tax Penalty

The Tax Penalty
LNG competes with diesel fuel as a transportation fuel for use in heavy duty trucks. The federal highway excise tax on both diesel and LNG is set at 24.3 cents per gallon. However, LNG has less energy per gallon than diesel fuel. In fact, it takes about 1.7 gallons of LNG to equal the same energy content as one gallon of diesel fuel. Since the excise tax is based on volume, not energy content, LNG is taxed at 170% of the rate of diesel on an energy equivalent basis. This disparity creates a significant disincentive for the use of LNG.

A diesel truck traveling 100,000 miles per year at 5 miles per gallon consumes 20,000 gallons of diesel fuel per year. An identical LNG truck would require 34,000 liquid gallons of LNG to travel the same distance. The LNG truck would pay an additional $3,402 per year in taxes for using LNG.

Fuel Type Annual Mileage Gallons/Year Excise Tax Rate/Gallon Total Annual Tax
Diesel 100,000 20,000 24.3 cents $4,860
LNG 100,000 34,000 24.3 cents $8,262

Combined with the higher up-front cost of an LNG truck (in some cases as high as an additional
$60,000) and the fact that most of these trucks drive over 1 million miles during their lifetime, this higher federal highway excise tax is a critical barrier to the adoption of lower-emission LNG trucks.