Introduction
The discovery of new sources of domestic natural gas from shale has given rise to new interest in using natural gas more extensively in transportation. This could occur in a number of ways. Natural gas (methane) can be burned directly in conventional diesel and gasoline engines that have been modified or retrofitted. Natural gas liquids such as propane and butane can also replace gasoline. As a petrochemical feedstock, methane can be used to produce synthetic diesel fuel and gasoline substitutes such as ethanol, methanol, and butanol. A reformation process can convert methane to hydrogen for fuel cell-powered vehicles. In addition, natural gas can be burned to generate electricity for charging electric vehicles.
As natural gas supplies have increased and prices have dropped, automakers and truck manufacturers have begun taking steps to introduce new vehicle lines fueled by natural gas, principally compressed natural gas (CNG) and liquefied natural gas (LNG). Several factors have contributed to this interest:
- Price differential. On an energy-equivalent basis, oil has been more expensive than natural gas in recent years. Moreover, while oil prices are set in a global market, U.S. natural gas prices are largely determined domestically, and the discovery of large domestic reserves suggests that prices may remain relatively low.1
- Environmental preference. Natural gas, while also a fossil fuel, generally produces lower emissions per vehicle mile than diesel and heavier oil.
- Energy diversity and security. Increased use of domestic natural gas for transportation may mean that less oil will be imported. The United States might be more insulated from global petroleum price volatility if more forms of transportation were based on natural gas.
- Growth potential. Only 2.9% of U.S, natural gas production is currently used in transportation, mainly to move gas through the pipelines, and expanded use of natural gas vehicles would likely lead to increased demand for natural gas.
Change in U.S. Natural Gas Supply
Technology improvements such as hydraulic fracturing and directional drilling have led to massive growth in natural gas production from shale formations.2 Annual natural gas production in the United States has increased by roughly one-fourth since 2006 (Figure 1).
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Figure 1. U.S. Natural Gas Production 2000-2013 |
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Source: U.S. Department of Energy, Energy Information Administration, Natural Gas Gross Withdrawals and Production, http://www.eia.gov/dnav/ng/ng_prod_sum_dcu_NUS_m.htm. |
Oil-based gasoline and diesel fuel continue to remain the fuels of choice in both the domestic and commercial transportation sectors. However, U.S. demand for finished petroleum products has fallen 12% from its all-time peak in 2005, due in part to greater use of natural gas for many purposes. Although natural gas consumption by vehicles grew 26% from 2008 through 2013, natural gas still represents less than 1% of the fuels used in the transportation sector.3
Among the key factors determining the attractiveness of natural gas as a transportation fuel is its price relative to diesel fuel. The energy content of a given volume of natural gas in compressed or liquefied form differs from that of refined petroleum products. For example, one gallon of LNG has 82,644 British thermal units (Btu) of energy compared to 139,000 Btu per gallon of diesel fuel and 114,000 Btu per gallon of gasoline.4 Prices can be compared by converting natural gas to its gasoline gallon equivalent (GGE) or diesel gallon equivalent (DGE). Measured by Btus, a barrel of oil has historically cost several times as much as a comparable unit of natural gas (Figure 2). U.S. natural gas prices fell by half between 2008 and 2014 as increasing supplies from shale formations became available. The competitive price advantage that natural gas now demonstrates could be eroded if crude oil prices fall or natural gas prices rise.
Vehicle Technologies Using Natural Gas
Several different technologies can be used to harness natural gas as a vehicle fuel. Some of them require pressurized systems to burn the fuel in a gaseous state, and others convert natural gas to a liquid. Still others process natural gas into a variety of liquid fuels suitable for powering internal-combustion engines.
The increased use of natural gas as a transportation fuel in any form would require substantial changes in vehicles and fueling infrastructure. New vehicles would need to be developed on a large scale, in some cases requiring new technologies. New fueling stations would be required to make fuel widely available. Vehicle manufacturers, fleet owners, vehicle buyers, and service station operators would all need to make significant investments. The required investments differ with the type of technology employed.
Compressed Natural Gas
Under ambient temperatures and pressure,5 natural gas has a volumetric energy density of about only 1/1000 that of gasoline.6 In that state, it would not be able to function as a vehicle fuel. If natural gas is compressed to a pressure of 3,600 pounds per square inch (psi),7 however, it becomes suitable for use in a vehicle engine. As shown in Figure 3, a CNG vehicle's fuel storage tank is mounted in the back of a vehicle and takes up about half of what is the trunk in a traditional vehicle. It contains about eight gasoline gallons equivalent, which give it a driving range of over 150 miles.
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Figure 3. Cross-Section of a CNG Vehicle 2015 Chevrolet Impala |
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Source: General Motors Company. Reprinted by permission. |
The CNG fuel system transfers the highly pressurized natural gas from the storage tank to the engine, reducing pressure during the transfer to equate to the operating pressure of the engine's fuel-management system.8 A CNG engine functions like a gasoline engine: The fuel and air mixture are compressed and then ignited by a spark plug, expanding gases to drive pistons to propel the vehicle. Certain changes are required to accommodate the pressurized, gaseous CNG, such as new valves and fuel injectors and a pressure regulator.9 While much of a natural gas vehicle's composition is similar to that of gasoline-powered internal combustion engine vehicle, modifications required for CNG use currently add up to $11,000 to the price of a passenger vehicle.10
Some current models of CNG vehicles are bifuel, with tanks for both CNG and gasoline, thereby allowing for extended driving range.11 When a bifuel vehicle runs out of CNG, it automatically shifts into gasoline mode. Drivers can also shift from one fuel to another by selecting a dashboard button.
In addition to passenger vehicles, CNG has been adopted as a fuel for taxis; regional-haul trucks used in local freight and package delivery; construction, residential refuse pickup, and municipal fleets; and transit buses. The vehicles return each day to a central garage or maintenance yard, where refueling infrastructure may be installed. In some cases, government subsidies have been required to make CNG competitive with diesel fuel. In September 2014, for example, the brewer Anheuser-Busch announced that it would replace 66 heavy-duty delivery trucks in Houston with CNG-powered vehicles after the Texas Commission on Environmental Quality approved a $45,000 grant for each vehicle.12
There are about 150,000 CNG vehicles on the road today in the United States. About 88,000 are cars, SUVs, and vans, and the rest are commercial vehicles, refuse trucks, and buses.13 Among passenger vehicles, and in addition to the Honda Civic natural gas sedan and the Chevrolet Impala sedan, automakers offer bifuel Chevrolet Silverado and Sierra pickup trucks and a Chrysler Dodge Ram 2500 Dual Cab pickup truck. General Motors also offers Express and Savana cargo and passenger vans with dedicated CNG engines.14 Further, several companies offer natural gas conversions of new vehicles.
Liquefied Natural Gas
LNG is produced when natural gas is cooled to -260 degrees Fahrenheit, turning it into a liquid fuel that takes up 1/600 of the volume of the fuel in a gaseous state. Long-haul trucks are a target market for use of LNG because of the fuel's price advantage and environmental benefits over diesel fuel.15 It is preferred over CNG for long-haul trucking because it requires only 30% of the space to store the same amount of energy16 and has a higher energy density per unit of volume.17 Range is also important, as long-haul truck drivers seek to reduce down-time in refueling. According to trucking company J. B. Hunt Transport Services,18 a diesel tractor with:
- a 100-gallon diesel tank has a range of 640 miles,19
- two 100-gallon LNG tanks (110 DGE) has a range of 605 miles,20 and
- four 25-gallon CNG tanks (100 DGE) has a range of 467 miles.21
When a truck engine is started, it warms the LNG, converting it into a compressed gas. While about 80% of an LNG truck engine is similar to a diesel truck engine,22 LNG-related components add about $50,000 to the price of a truck that might otherwise sell for $150,000.23 According to truck manufacturer Freightliner, an LNG-fueled truck driven 50,000 miles per year could save $85,000 in annual fuel costs, recouping the additional capital cost of the vehicle in seven months.24
LNG is not ideal for passenger vehicles because of the large insulated tanks needed to keep the fuel cold.25 In addition, LNG is most effective when the vehicle it fuels is used regularly, such as long-haul trucks. When LNG is not being used on a regular basis, it is slowly heated by the surrounding temperatures and eventually escapes into the air.
There are 4,000-5,000 LNG trucks operating on U.S. highways.26 Fleet operators—including Waste Management, United Parcel Service, and AT&T—have shown an interest in LNG trucks. In some cases, they have installed conversion kits that enable trucks to run on either LNG or diesel, allowing owners to take advantage of changing prices. The market for truck fuel is large. Approximately 3.2 million big-rig trucks use about 25 billion gallons of diesel annually, accounting for about 9% of U.S. oil consumption.27
Methanol
Methanol is a form of alcohol that can be made from plant material or anything that was once a plant. About 15 billion gallons of methanol are produced worldwide annually, most of it from natural gas.28 It is used to make a wide range of chemicals that form the basis of acetic acid, formaldehyde, and other industrial products. Because it is a liquid and has a high octane rating,29 it can also be utilized as motor vehicle fuel source in three ways: (1) directly in a vehicle or blended with gasoline; (2) converted into dimethyl ether (DME) as a diesel replacement, and (3) part of biodiesel30 production.31 Its main disadvantage is that methanol has low volumetric energy density: A gallon of methanol has about 49% of the Btus of a gallon of gasoline.32
The incremental cost of adding methanol capability to a passenger vehicle is under $200 per vehicle. This is normally done by installing an alcohol fuel sensor to monitor the fuel mixture and adjust fuel flow according to the ratio of methanol to gasoline, thereby creating a "flex-fuel" vehicle that can run on pure methanol, pure gasoline, or any combination of the two. No methanol flex-fuel vehicles are produced domestically at this time.33 When they were in production, manufacturers added larger fuel injectors and stainless steel fuel tanks and fuel lines, because methanol is highly corrosive and would deteriorate aluminum or other standard metal fuel line parts.
California experimented with use of methanol as a fuel from 1988 to 2004 and spurred the production of about 15,000 methanol vehicles, most of them flex-fuel cars.34 Lower gasoline prices and other industry factors led to a gradual decline in the competitiveness of methanol as a vehicle fuel.
Propane Autogas
Propane accounts for about 2% of the energy used in the United States. It is stored and transported in compressed liquid form, but it is vaporized into a gas for final use when released from a pressurized storage container.35 Propane is commonly used for home and water heating, cooking, and refrigeration, especially in rural areas without natural gas. In addition, the chemical industry uses propane as a raw material.
Propane's relatively high energy density36 and clean-burning attributes have made it attractive for some types of transportation. It is known as autogas or liquefied petroleum gas (LPG) when used as a motor vehicle fuel.37 Only a very small part of the propane manufactured each year is used for transportation.38 Stored in a vehicle tank pressurized to about 150 pounds per square inch, it becomes a liquid with an energy density 270 times greater than the gaseous form. Because its Btu rating is lower than gasoline, it takes more fuel to drive the same distance. As with CNG, vehicles are produced as dedicated propane or bifuel, with separate fueling systems permitting use of either propane or gasoline. General Motors offers the only light-duty propane vehicles now on the market, the Chevrolet Express and GMC Savana vans.39 It is estimated that about 157,000 propane vehicles are on U.S. roads, most of them school buses, police cars, and other fleet vehicles.40
Other Natural Gas Fuels
Natural gas can be processed into a number of other fuels that are suitable for use in motor vehicles:
- DME is a colorless gas that can be derived from renewable materials and fossil fuels like natural gas and coal. When liquefied under pressure, it has properties similar to propane. It can also be used as a replacement fuel in diesel trucks.41 China accounts for about 90% of global DME consumption, using it for residential heating and cooking but also increasingly as a truck and bus fuel.42 A privately funded U.S. pilot program for trucks is underway.
- Using gas-to-liquids technology (GTL), natural gas can be converted into synthetic base oil with fewer impurities than petroleum, resulting in less wear of equipment and greater fuel efficiency. GTL products can be used as replacements for motor oil and diesel fuel (or blended with it).43 Royal Dutch Shell operates two GTL plants outside the United States, and other companies are studying the feasibility of constructing GTL plants on the U.S Gulf Coast.44 There are no known plans to use GTL to fuel motor vehicles in the United States, but Shell has announced that it will use the technology to create lower-viscosity engine oils to improve fuel economy.45 GTL-based lubricants are used in some U.S. light vehicles.46
- Hydrogen, produced mainly from natural gas, can be used to power fuel cell vehicles. This process relies on the existing natural gas supply and pipeline network: 95% of the hydrogen produced in the United States is made this way in 73 plants.47 Hydrogen fuel cell vehicles have been under development for well over a decade, with substantial research and development by automakers and the Department of Energy (DOE) to find a competitively priced vehicle technology. Methods of making hydrogen from natural gas currently result in significant greenhouse gas emissions, so further research is seen as necessary to develop better processes.48 The absence of a refueling network is also a challenge. A few manufacturers will introduce fuel cell cars in 2015.49
- Butanol is an alcohol that can be used as a gasoline substitute. It can be produced almost entirely from petroleum, but like ethanol, the colorless alcohol can also be brewed from sugar beets, cereal crops, and corn, though it contains more energy when mixed into gasoline. A blend of 85% butanol and 15% gasoline can be used in unmodified gasoline engines.50 Butanol depends on natural gas indirectly as fuel source for the distillation processes, can be transported in existing gasoline pipelines, and produces more power per gallon than ethanol. It can be used in existing motor vehicles without any adjustments to the engines and can be sold through gasoline stations, much as gasoline/ethanol blends are sold now. It may debut at U.S. pumps as soon as next year: A BP-DuPont joint venture is retrofitting a Minnesota ethanol plant to begin producing butanol for vehicles in 2015.51
Natural-Gas-Based Electricity
Spurring the production and use of electric vehicles is another way to use natural gas in vehicles. In 2013, 27% of U.S. electricity was generated from natural gas, more than doubling from amounts used for that purpose in 2004.52 The use of natural gas in electricity generation is forecast to grow steadily in the future. In 2013, it accounted for just over half of new electric utility generating capacity.53
Greater production and use of electric vehicles could be an indirect way to increase the natural gas/vehicle linkage. A $7,500 federal tax credit currently exists for purchasing a plug-in electric vehicle; many states have tax incentives on top of the federal credit.54
Prospects for Growth
Future consumer and commercial interest in natural gas vehicles hinges on the relative price of petroleum to natural gas, refueling infrastructure, environmental concerns, federal and state incentives, and the price of natural gas vehicles relative to traditional gasoline vehicles. Perhaps the most important one is the long-term relationship of gasoline and diesel prices to fuels using natural gas. The success of all alternative fuel vehicles—whether electric, ethanol, natural gas, or hydrogen—is premised on rising prices for gasoline and other vehicular petroleum products. Methanol and ethanol flex-fuel vehicles are to some extent casualties of falling petroleum prices in the 1990s and later. If vehicle buyers believe that the cost of gasoline and diesel fuel in future years will be low relative to the cost of natural gas, the hurdle for natural gas vehicles will be high.
Refueling Network
Any new vehicle fuel faces a chicken-and-egg dilemma. On one hand, the lack of a refueling infrastructure makes vehicle buyers reluctant to try the new technology. On the other hand, investors are unwilling to build the necessary infrastructure until they can see that the new fueling stations will be widely used and return a profit. This dynamic is accurately summarized by J. B. Hunt Transport Services: "finding an adequate natural gas station to support an operation is usually the biggest obstacle we encounter on this topic today."55
Cars and CNG
Natural gas fueling is less expensive than gasoline. For example, in mid-October 2014, a gallon of gasoline was $3.20, and CNG on a GGE basis was $2.69.56 An extensive network of natural gas pipelines throughout the United States provides a ready source of gas in most communities. The most difficult step is finding an economical way to transfer that gas to facilities where it can be pressurized as CNG and distributed commercially.
Stations can offer three ways to fill up a vehicle tank: fast-fill, time-fill, and combination fill (using both fast- and time-fill). Fast-fill draws gas from the gas utility line, filters it with a dryer to remove water and humidity, compresses it, and then stores it in a tank from which it is dispensed. Most retail and some fleet operations use this process, which requires only a few minutes to fill a 20-gallon-equivalent tank. With time-fill, the CNG is provided straight from utility gas line to the compressor. Since there is no storage tank to draw from, time-fill's speed depends on the size of the compressor; it could take a few minutes or many hours. An advantage to a slower fill is that the tank is filled more thoroughly than with fast-fill.57 Time-fill is usually a slower refueling option and is often used by delivery trucks and buses refueling overnight at a central garage or by car owners at home.
There are 772 public CNG service stations throughout the country (Figure 4), and another 127 are planned. Car owners also have the option of refueling vehicles at home. A home refueling unit, including installation, can cost about $5,000.58
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Figure 4. CNG Refueling Stations Open in 2014 |
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Source: CRS map developed using DOE data, http://www.afdc.energy.gov/fuels/natural_gas_locations.html. |
Trucks and LNG
LNG refueling infrastructure is not yet as developed as the CNG network. Stations use LNG produced off-site at liquefaction facilities. The fuel is then trucked to the refueling station for use.59 LNG refueling is similar to diesel refueling and takes about the same amount of time: fuel is dispensed at pressures of 30-120 psi.60 However, the cryogenic nature of LNG requires the person filling the tank to use safety equipment, such as gloves and eye protection.61 In addition to filling stations, LNG is available from mobile tanker trucks with onboard metering and dispensing capacity.
Refueling stations are being built primarily on major interstate highways used by long-haul trucks and at wide intervals, since the trucks can usually travel about 500 miles without refueling. According to DOE, 64 public LNG stations are open (Figure 5), and another 82 are planned. The public network is being built by three investor groups. Clean Energy Fuels and Pilot Flying J, a truck stop operator, are building an LNG infrastructure known as "America's Natural Gas Highway," which will have over 200 stations in 33 states when completed.62 Shell Oil Company has announced plans to build 200 LNG stations across the country in conjunction with truck stop operators TravelCenters of America and Petro Stopping Centers. These truck stops will also have LNG truck repair and servicing capability.63 Blu.LNG, a Utah-based company, is building an infrastructure in that state and adjoining western states as well as in a few Midwestern states.64
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Figure 5. LNG Refueling Stations Open in 2014 |
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Source: CRS map developed using DOE data, http://www.afdc.energy.gov/fuels/natural_gas_locations.html. |
Methanol
California, New York, and a few other states made concerted efforts to develop a methanol infrastructure for passenger vehicles, resulting in over 100 methanol dispensing locations by 1997.65 While some stations dispensed methanol, the preferred fuel was a blend of 85% methanol and 15% premium gasoline (known as M85). Lower gasoline prices and an insufficient refueling infrastructure contributed to the gradual closing of retail methanol facilities. Today there are no retail stations dispensing methanol or M85.66
Propane Autogas
An infrastructure of propane production, storage, and distribution facilities exists in most parts of the United States.67 An increase in the number of propane refueling stations would require only a modest investment in dispensing equipment (storage tank, pump, dispenser, and a credit card reader). Propane autogas is delivered to stations by a transport truck, where it is stored onsite, usually in an above-ground tank. Dispensers can be added to existing retail outlets for gasoline and diesel, as the equipment is similar to that used for traditional fuels. The main difference is that propane autogas is delivered to the vehicle under pressure so it remains a liquid. A full vehicle tank signals the dispenser to stop. Across the country, there are 2,687 propane refueling stations, not counting private refueling operations.68
Hydrogen Fuel Cell Vehicles
According to DOE,69 there are 13 publicly available hydrogen fuel cell refueling stations, mostly in the Los Angeles area, where the California Fuel Cell Partnership is promoting the commercialization of fuel cell vehicles through a partnership with automakers, government organizations, and energy providers.
Electric Vehicles
Electric vehicles can be charged at home or at commercial charging stations, but DOE notes that "consumers are likely to do the majority of their charging at home."70 Car owners who recharge at home have two main options: standard and fast.71 Similar fast charging is available at workplaces, shopping centers, and public parking lots. In addition to home outlets, there are 8,685 publicly available electric charging stations and over 21,000 charging outlets throughout the country.72
Vehicle Conversions
From a technical feasibility standpoint, there are few problems with converting a passenger vehicle or pickup truck to operate on natural gas. Most existing internal combustion engines can operate on the fuel, and most conversions involve changes to the fuel system, including a new fuel tank, new fuel lines, and modifications to the vehicle's electronic control unit.73 A conversion to CNG by a certified installer would cost from $6,500 to $12,000,74 depending on the type of fuel tank used.75 The payback for a conversion would be quite long unless the vehicle has low fuel efficiency and was driven more than the average car. For example, a $6,500 conversion with today's gasoline and CNG prices could take almost seven years to repay the investment.76
Natural gas conversions—or any other conversion—can potentially run afoul of the Clean Air Act (CAA). All new vehicles (gasoline or otherwise) must pass rigorous tests to prove that they will meet emissions standards over the life of the vehicle. The tests tend to be expensive, although when an automaker spreads them over thousands of vehicles, the cost is not prohibitive. After EPA certifies a vehicle, any changes to the exhaust, engine, or fuel system may be considered tampering under CAA.77
Certifying vehicle conversions for small producers and individuals was formerly very expensive, since each converted vehicle needed to be independently approved. The process was further complicated by a requirement that the emissions of "engine families"78 be tested separately, effectively precluding the use of universal conversion kits. To provide more flexibility to the conversion certification process, EPA issued new regulations in 201279 relaxing requirements for "intermediate age" vehicles and "outside of useful life" vehicles.80 There may be warranty issues that consumers should investigate before contracting with a certified installer to make the changes.81
Emissions and Fuel Economy
Air Emissions
In general, natural gas vehicles are seen as better than conventional gasoline and diesel vehicles in terms of criteria pollutant82 and greenhouse gas83 emissions. However, many factors must be considered when comparing vehicles' emission profiles. All new vehicles, regardless of fuel, are considerably cleaner than older vehicles due to a periodic tightening of emission standards. As noted by DOE, "due to increasingly stringent emissions regulations, the gap has narrowed between tailpipe emissions benefits from natural gas vehicles (NGVs) and conventional vehicles with modern emissions controls. That's because the U.S. Environmental Protection Agency (EPA) is requiring all fuels and vehicle types to meet the same thresholds for tailpipe emissions of air pollutants."84
That said, most analyses conclude that CNG and LNG vehicles have somewhat lower greenhouse gas and pollutant emissions compared to gasoline and diesel vehicles. For example, a recent DOE analysis predicted that in 2035 (after new vehicle fuel economy and greenhouse gas standards are fully implemented), CNG cars will achieve roughly 10% lower and 5% lower greenhouse emissions than gasoline and diesel cars, respectively.85 It should be noted, however, that for CNG, gasoline, and diesel, projected emissions in 2035 were roughly half that of the baseline 2012 gasoline car.
But analyzing the total emissions of any vehicle/fuel combination is complicated. Estimations of the total emissions attributable to a fuel and vehicle require detailed analysis of three key components: (1) the processes required to produce or extract fuel feedstocks, convert them into fuel, and deliver the fuel to the end-user; (2) the emissions from the vehicle itself; and (3) any indirect changes in emissions not attributable to fuel production or use, including changes in land use.86 For petroleum fuels, potential lifecycle emissions include process emissions from exploration and extraction of crude oil, transportation of crude oil to refineries, refinery process emissions, distribution of finished products, and end-use combustion of the fuel. Assumptions about efficiency, resource use, emissions capture, and other factors must be made for each step in the process.
Similar analyses must be conducted for the natural gas fuel cycle and its emissions. For example, because natural gas is primarily composed of methane, fugitive methane emissions (both intentional from venting and unintentional from leakage) must be considered.87 If fugitive emissions from actual operations exceed those assumed in the model, then the total lifecycle emissions associated with natural gas vehicles would be higher. Similarly, if there are fewer fugitive emissions, total lifecycle emissions would be lower. In the DOE analysis, while the median projected emissions for CNG vehicles is lower than for gasoline or diesel, there is significant overlap in the range of projected emissions from each fuel.
Fuel Economy and Greenhouse Gas Standards
Vehicle greenhouse gas emissions and fuel economy are regulated under the Clean Air Act (CAA) and the Energy Policy and Conservation Act (EPCA). EPA has authority to regulate greenhouse gas emissions while the National Highway Traffic Safety Administration (NHTSA) administers the Corporate Average Fuel Economy (CAFE) standards.88 However, vehicle fuel consumption and greenhouse gas emissions are tightly linked, so the two agencies have issued joint rules since 2012. By model year (MY) 2025, passenger car light truck fuel economy will roughly double, and vehicle greenhouse gas emissions will be roughly cut in half compared to MY2007.
Within the two programs, there are incentives for automakers to produce natural gas vehicles. First, as noted above, natural gas vehicles generally emit fewer greenhouse gases than conventional vehicles, making compliance easier. Further, the CAFE standards are based on petroleum consumption: Vehicles operating on non-petroleum fuels generate credits under the program that effectively treat those vehicles as if they had significantly higher fuel economy. Depending on how expensive it is for automakers to comply with the new regulations, these incentives may help offset the incremental cost of natural gas vehicles.
Existing Federal and State Programs
Federal Programs
While federal programs supporting alternative vehicles have been centered on electric battery research and manufacturing, at least five federal programs have brought more attention to natural gas vehicles.
Energy Policy Act of 1992
Among the provisions of the Energy Policy Act of 1992 (P.L. 102-486),89 federal agencies, state governments, and alternative fuel providers90 are required to purchase alternative fuel vehicles. This law mandates that a certain percentage of new passenger vehicles (such as police cars) must be capable of operating on alternative fuels, including ethanol, methanol, natural gas, and propane.
Advanced Technology Vehicle Manufacturing Program
Of the $8.4 billion in loans provided under this DOE program, $50 million was awarded to companies seeking to produce natural gas vehicles. In March 2011, DOE made a loan to the Vehicle Production Group (VPG) to develop and produce a natural-gas-powered, wheelchair-accessible van. While some MV-1 vans were produced and sold, VPG was unable to make its loan payments and closed in 2013. Its assets were sold in the fall of 2013 to AM General, which has relaunched the MV-1 van with both a gasoline engine and an optional CNG fuel system.91
CMAQ
The Congestion Mitigation and Air Quality Improvement (CMAQ) program, established in 1991 and administered jointly by the Federal Highway Administration and the Federal Transit Administration, provides a funding source for state and local governments for transportation projects that will help meet CAA requirements. Eligible activities include transit improvements, travel demand management strategies, traffic flow improvements, and public fleet conversions to cleaner fuels. CMAQ was authorized at $2.4 billion for FY2014 and at a proportionate amount through May 31, 2015, when the current program authorization expires. It has been a source for funding alternative fuel projects in many states.92 For example, recent CMAQ grants will enable Oregon to build CNG fueling stations.93
ARPA-E
DOE's Advanced Research Projects Agency-Energy (ARPA-E) focuses on energy technologies that may be considered too early for private-sector investment. ARPA-E has several natural gas research programs, including the Methane Opportunities for Vehicular Energy (MOVE) program to advance technologies to use domestic natural gas as fuel for passenger vehicles. It seeks to develop less expensive CNG fuel tanks and compressors, which in turn would lower the price of CNG vehicles. To meet these goals, MOVE is spending $30 million on 13 projects.94 In addition, it has established a program to develop GTL technologies for transportation fuels. It seeks to lower the cost of GTL conversion while enabling the use of low-cost, domestically sourced natural gas for transportation. ARPA-E has announced 15 projects across nine states that will receive $34 million under this program.95
Clean Cities Program
This DOE program seeks to reduce petroleum use in transportation, with 100 Clean Cities coalitions around the country that focus on use of alternative fuels, fuel economy improvements, and new transportation technologies. Clean Cities provides technical and financial assistance to communities. Clean Cities grants have expanded the use of natural gas vehicles with school and transit buses, airport vehicles, taxis, and delivery fleets. To further the use of natural gas vehicles, Clean Cities has financially supported the expansion of public-access refueling infrastructure.96
State Programs
State policies with regard to natural gas vehicles are extensive. Laws and regulations governing sale and use of natural gas vehicles differ from state to state. Natural gas motor fuel is taxed in different ways, and there is no uniform method of taxing CNG and LNG. Some states tax CNG based on a GGE or DGE basis; others tax fuels using other methods. A few states tax LNG based on its energy content.
Some states have incentives for purchase or conversion of a vehicle,97 including tax deductions or credits and lower license fees, vehicle sale taxes, and registration fees. Some states (such as California and Arizona) permit some types of alternative fuel vehicles to drive in high-occupancy vehicle lanes during rush hour.
The interest of states in expanding the natural gas refueling networks within their borders also differs. Local codes, standards, and permitting processes dictate how CNG stations are to be built. A few states have designated some highways as corridors for building out natural gas service station networks. The South Coast Air Quality Management District and UPS, the package shipping company, are building a natural gas corridor from Las Vegas, NV, to Ontario, CA, with stations that will sell fuel to UPS heavy-duty vehicles as well as to the public.98 In Utah, Interstate 15 from Idaho to Arizona has been designated as a natural gas vehicle corridor, as has the Texas Clean Transportation Triangle, which connects Houston, San Antonio, and Dallas/Fort Worth.99 Thirteen governors have initiated a multistate agreement to expand the production of natural gas vehicles, committing to "aggregate our annual state fleet vehicle procurements to provide an incentive to manufacture affordable, functional natural gas vehicles."100
Congressional Involvement
As the availability of domestic natural gas supplies has increased, so too has congressional interest in finding ways to use more natural gas in the transportation sector. The federal government's tax, regulatory, and research and development policies are viewed as possible incentives for expanding production and use of natural gas vehicles.
Legislation to promote natural gas as a vehicle fuel has been introduced in the 113th Congress (and in previous years), including proposals that would change the taxation of alternative fuels and vehicles, modify the regulation of natural gas vehicles under federal CAFE standards, increase the weight limit for natural gas trucks on interstate highways, provide loans and grants for deployment of alternative fuel vehicles and recharging stations, and raise federal agency use of alternative fuel vehicles.
One proposal affecting natural gas vehicles has passed thus far in the 113th Congress. An amendment (H.Amdt. 93) offered by Representative Eliot Engel was added to the Military Construction and Veterans Affairs, and Related Agencies Appropriations Act of 2014 (H.R. 2216), prohibiting the Departments of Defense and Veterans Affairs from purchasing new light-duty vehicles unless they are alternate fuel vehicles such as hybrid, electric, natural gas, or biofuel. The House agreed by voice vote to this amendment, which Representative Engel noted in his floor remarks was in line with requirements in the May 24, 2011, Memorandum on Federal Fleet Performance issued by President Obama.101 The Engel amendment was included in the enacted legislation.102
A broad energy efficiency bill (S. 761) reported out of the Senate Energy and Natural Resources Committee on June 3, 2013, includes a provision (Section 403) amending the National Energy Conservation Policy Act to authorize the use of energy savings performance contracts and utility energy service contracts for projects that support the use of natural gas and electric vehicles or the related fueling or charging infrastructure. The bill, the Energy Savings and Industrial Competitiveness Act of 2013, has not come to the Senate floor.103
S. 2260, the Extension of Alternative Fuel Excise and Infrastructure Tax Credits Act of 2014, would extend many expiring tax provisions, including the incentive for alternative fuels, the alternative fuel refueling property credit, and the credit for new fuel cell motor vehicles. The bill was reported from the Senate Finance Committee on April 28, 2014, but has not yet received a Senate vote. A similar bill extending fuel and infrastructure credits is H.R. 5559, the Bridge to a Clean Energy Act of 2014, but it has not been acted on by the Ways and Means Committee.
S. 1486, the Postal Reform Act of 2014, among other provisions, would require the postmaster general to submit a report to Congress on the feasibility of a pilot program to use natural gas and propane in U.S. Postal Service long-haul trucks. The bill was reported from the Senate Homeland Security and Governmental Affairs on July 31, 2014.
Several bills have been introduced104 to change the Motor Fuels Excise Tax so that LNG would be taxed on an energy-equivalent basis instead of a volume basis. As 1.7 gallons of LNG equates to one gallon of diesel on an energy-equivalent basis, transportation users of LNG pay more tax than users of an equal amount of energy from diesel. The federal excise tax on CNG is already assessed on an energy content basis. The Senate Finance Committee included this tax change in the Preserving America's Transit and Highways Act (PATH Act), but the Senate adopted the House Highway and Transportation and Funding Act (H.R. 5021), which did not include the LNG tax provision.105
Tax Policy
In the recent past, federal tax policy has supported the production and sale of alternative fuels and vehicles, including those powered by natural gas (Table 1). However, many of those provisions have expired.106
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Existing Provisions |
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|
Program |
Description |
Expiration Date |
Eligible Fuels |
|
Motor Fuels Excise Tax |
Gasoline: 18.4 cents per gallon |
4.3 cents per gallon of the gasoline/diesel fuel tax is permanent; the rest expires on September 30, 2016. |
Gasoline, diesel, LPG, LNG, CNG, fuels with methanol from natural gas. |
|
Plug-In Electric Drive Vehicle Credit |
Credit of up to $7,500 for purchasers of these vehicles, depending on battery capacity. |
Credit is phased out when automaker sells 200,000 qualified vehicles. |
Plug-in electric vehicles. |
|
Some Recently Expired Natural Gas-Related Provisions |
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|
Incentives for alternative fuels |
Excise tax credit of 50 cents per gasoline gallon equivalent for CNG and liquid gallon of LNG. |
2013 |
LPG, CNG, LNG, and other alternative fuels. |
|
Alternative Motor Vehicle Credit |
Separate credits for vehicles purchased with certain technologies, including those with alternative fuels. |
2010 |
CNG, LNG, LPG and any mixture that is at least 85% methanol or a mixture of other fuels with a petroleum fuel. Credit for fuel cell vehicles expires at the end of 2014. |
|
Conversion Kits |
Credit up to $4,000 for purchasers of a kit to convert a vehicle to plug-in electric vehicle. |
2011 |
Qualified plug-in electric kits. |
|
Alternative Fuel Refueling Property Credit |
This tax provision was originally enacted in 2005 and has been modified and extended twice. In its last iteration, consumers purchasing qualified non-hydrogen fueling equipment received a 30% tax credit up to $1,000; businesses received a credit up to $30,000. (Respective hydrogen fueling credits are up to $1,000 and $200,000.) |
2013 for all fuels but hydrogen, which expires in 2014 |
Natural gas, LPG, hydrogen, electricity, E85, and some diesel fuel blends. |
Sources: Internal Revenue Service and CRS Report R42566, Alternative Fuel and Advanced Vehicle Technology Incentives: A Summary of Federal Programs, by [author name scrubbed] et al.
Other Federal Legislation
Other pending legislation affecting natural gas vehicles includes:
- S. 2065, Alternative Fuel Vehicle Act (originally introduced as S. 1355), seeks to provide parity for dual-fuel natural gas vehicles with electric vehicles and dedicated natural gas vehicles under the federal CAFE standards and greenhouse gas regulations. Current law provides limited incentives for dual-fuel natural gas vehicles. The sponsors would like to spur the use of dual-fuel natural gas vehicles by expanding the definition of dedicated natural gas vehicles to include models with a reserve gasoline tank for incidental or emergency use. S. 2065 would also amend CAFE standards to alter the treatment of natural gas vehicles and provide natural gas vehicles with access to high-occupancy vehicle lanes.
- H.R. 1027 and S. 488, Advanced Vehicle Technology Act of 2013, would authorize a DOE program of research, development, demonstration, and commercial application of passenger and commercial vehicle technologies to reduce or eliminate petroleum use.
- H.R. 1364, New Alternative Transportation to Give Americans Solutions Act of 2013, would allow an excise tax credit through 2018 for alternative fuels and fuel mixtures involving CNG or LNG, establish an income tax credit for CNG and LNC vehicles, and extend through 2018 the tax credit for alternative fuel vehicle refueling property. It would also require DOE to provide grants to improve the performance and efficiency of natural gas vehicles and urge EPA to provide incentives to encourage and reward manufacturers who produce natural gas vehicles.
- H.R. 2242, State and Local Fleet Efficiency Act, would recognize the authority of state and local governments to require their fleets to acquire only new vehicles that use natural gas as a fuel or are flexible fuel vehicles that operate on gasoline, E85, and M85.
- H.R. 2493, Open Fuel Standard Act of 2013, would promote the production of alternative fuel light vehicles. (Qualified vehicles include natural gas, hydrogen, biodiesel, E85, M85, and plug-in electric drive.) It would require U.S. automakers to produce at least 30% qualified vehicles in MY2016 and 50% qualified vehicles in MY2017 and each subsequent years.
- H.R. 3937 would direct the U.S. Department of Transportation (DOT) to prepare an economic and environmental assessment of using natural gas as a fuel source in long-haul trucks.
- H.R. 3938 would require DOT to designate natural gas fueling corridors for long-haul trucking.
- H.R. 3940 and S. 2721, Natural Gas Long Haul Truck Competitiveness Act of 2014, would require DOT to issue regulations to allow natural gas vehicles to exceed federal weight limitations to operate on U.S. interstate highways by an amount equal to the weight of the vehicle's natural gas tank and fueling system, less the weight of comparable diesel tanks and fueling systems.
- H.R. 4753, IMPACT Act of 2014 would extend tax credits for qualified plug-in electric drive motor vehicles, heavy natural gas vehicles, and alternative fuel vehicle refueling property and provide for tax-exempt financing for refueling property for such vehicles.
- H.R. 4956, American Energy Opportunity Act of 2014 would extend through 2019 the tax credit for fuel cell motor vehicles, advanced lean burn technology (diesel) motor vehicles, hybrid motor vehicles, alternative fuel motor vehicles, plug-in electric drive motor vehicles, and plug-in conversions. It would create a new tax credit for the purchase of a motor vehicle identified by EPA as the most efficient vehicle in its class and establish an excise tax credit through 2019 for alternative fuels and fuel mixtures involving CNG, LNG, or LPG. In addition, it would establish benchmarks for the increasing electrification of the federal fleet and establish a DOE grant program to assist local governments in the installation of electric vehicle recharging facilities.
- H.R. 5107, Fuel Choice for American Prosperity and Security Act of 2014, would revise the calculation for average fuel economy for alternative fuel vehicles, including those powered by natural gas, hydrogen, propane, biodiesel, fuel cells, and plug-in electricity.
- S. 1230, Alternative Fueled Vehicles Competitiveness and Energy Security Act of 2013, would expand categories of vehicle technologies that are eligible for DOE loans and direct DOE to provide technical assistance and grants to for the deployment of alternative fuel vehicles and infrastructure. In addition, it would require DOE to identify barriers and remedies in pipeline transmission and distribution systems to the distribution of alternative fuels and the deployment of alternative fuel recharging and refueling capability. Among other provisions, it calls for an interagency council for the development and procurement of alternative fuel vehicles by federal agencies.