Question of the Month: Are fuel taxes equal for all fuels?
In theory, if all motor fuels were taxed equitably it would ensure tax consistency among jurisdictions and reduce consumer burdens. In practice, motor fuel taxes vary widely between jurisdictions and across fuel types. This is largely because federal and some state highway excise taxes are based on volume, not on energy content, resulting in significant tax inequity among fuels. As discussed in the July and August Questions of the Month, motor fuel taxes are used to fund transportation infrastructure. The number of vehicle miles traveled on a specific amount of fuel is linked to the amount of energy in the fuel. Therefore, energy content provides a more accurate measure of a vehicle’s impact on a roadway.
Before we go any further, let’s make sure you understand some basic keywords and phrases regarding energy content:
• Btu: British thermal units, or the unit of measure to show an amount of energy.
• Heating value: A measure of energy content in Btus, which represents the amount of heat released during combustion. Typically, we use the lower heating value when comparing fuels.
• Gasoline gallon equivalent (GGE): The amount of fuel that has the equivalent energy to a gallon of gasoline. Similarly, diesel gallon equivalent (DGE) is the amount of fuel that has the equivalent energy to a gallon of diesel. GGE is used for alternative fuels that typically replace gasoline (e.g., ethanol), whereas DGE is used to measure fuels that replace diesel (e.g., liquefied natural gas, or LNG).
Federal Excise Taxes
Last month, the President signed H.R.3236 (Public Law 114-41), the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, which assesses the federal fuel excise tax levied against LNG and propane on a Btu basis relative to diesel and gasoline, respectively, beginning on January 1, 2016. Compressed natural gas (CNG) is already taxed based on an energy content basis relative to gasoline. Prior to Public Law 114-41, the federal excise taxes for LNG and propane were higher than the conventional fuel counterpart. This is still the case for biodiesel and ethanol, leaving these fuels at a tax disadvantage compared to diesel and gasoline, respectively.
State Excise Taxes
Motor fuel tax variations within and between states are even more complex. Many states have some of the same tax equity issues that we see at the federal level. Plus, there are many different fuel definitions and measures, which create an undue burden for interstate fleets that must comply with the International Fuel Tax Agreement (http://www.iftach.org/). For example, only some states tax CNG and LNG on a GGE or DGE basis. Though a number of states are currently evaluating legislative proposals to tax fuels this way, others states are waiting for a decision by the National Conference on Weights and Measures (NCWM). And if NCWM does adopt a standard, states will still have to individually adopt the standard into their laws or regulations before it can be implemented.
Taxes on Electricity as a Transportation Fuel
Other motor fuels, such as electricity and hydrogen, do not have federal excise tax requirements. Although plug-in electric vehicles (PEVs) and fuel cell electric vehicles (FCEVs) currently represent a very small portion of the total vehicle population, it is likely PEV and FCEV registrations will continue to grow in coming years. Any effort to collect taxes on electricity to pay for highway infrastructure would need to account for the fact that PEVs are capable of fueling at home. In addition, some plug-in hybrid electric vehicle owners pay taxes on their gasoline use. Making the situation even more complicated, electricity is already taxed in ways not tied to highway funding. Some states have implemented annual PEV fees through registration or vehicle decal programs to account for lost revenue from motor fuel taxes, which we discussed in the August Question of the Month.
Refer to the following for more information on motor fuel taxes:
• Alternative Fuels Data Center’s Laws and Incentives website (http://www.afdc.energy.gov/laws)
• National Renewable Energy Laboratory’s A Primer on Motor Fuel Excise Taxes and the Role of Alternative Fuels and Energy Efficient Vehicles (http://www.nrel.gov/docs/fy15osti/60975.pdf)
Centralina Stakeholder, UPS, announced in October it plans to add 200 new hybrid electric delivery trucks to the company’s growing alternative fuel and advanced technology fleet. The vehicles have the same 2-cylinder engine and E-GENTM chassis as the 125 vehicles UPS announced earlier this year.
Equipped with lithium ion batteries and a range extender engine, these trucks will deliver significant fuel economy equivalency gains, approximately four times the fuel economy of a gasoline powered vehicle. A cloud-based, real time telematics performance monitoring system provides feedback for energy monitoring and route efficiency. The trucks, manufactured by Workhorse Group, Inc., will be deployed beginning in January 2017 starting in Arizona, Texas, Nevada, Mississippi, Alabama, Georgia and Florida, and, possibly in other states as well.
“The improvements in these new package cars came from real-world experience in our alternative fuel Rolling Laboratory, which earlier this year hit a 1 billion miles driven milestone,” said Mark Wallace, UPS senior vice president global engineering and sustainability. “We are committed to developing alternative fuel vehicles that lessen our impact on the environment and reliance on petroleum based fuels – that effort is helping to transform markets and communities.”
UPS operates one of the largest alternative fuel and advanced technology fleets in the U.S. In addition to hybrid electric vehicles, the company’s fleet includes all-electric, hydraulic hybrid, compressed natural gas (CNG), liquefied natural gas (LNG), propane and light-weight fuel-saving composite body vehicles. In addition to its use of alternative vehicles, UPS uses millions of gallons of lower carbon footprint renewable diesel and renewable natural gas (RNG) in its fleet each year.
Using its “Rolling Laboratory” approach, UPS deploys more than 7,200 low-emission vehicles and achieved its goal of driving 1 billion miles with the alternative fuel fleet in August 2016.
For more information on UPS's sustainability initiatives, please visit www.ups.com/sustainability.