Energy tax incentive hearing focuses on NGVs bill

A bill to provide financial incentives for natural gas vehicles (NGVs) provided a focus as two US House Ways and Means Committee subcommittees discussed whether alternative and new energy technology proposals are compatible with federal tax policy reforms.

Testimony concerning HR 1380, the New Alternative Transportation to Give American Solutions (NAT-GAS) Act followed more than 2 hr of more general energy tax incentive discussions as witnesses and subcommittee members weighed potential long-term US energy improvements against more immediate federal budget pressures.

The NAT-GAS bill would jump-start gas use in vehicles by offering limited, targeted, short-term tax credits and federal regulatory changes, according to its sponsor, Rep. John Sullivan (R-Okla.).

The bill, which has bipartisan support from 183 other House members, “will not only significantly reduce our dependence on foreign oil, but also create hundreds of thousands private-sector jobs across the country,” Sullivan said following the Sept. 22 joint hearing by the Select Revenue Measures and Oversight Subcommittees.

Witnesses on the hearing’s final panel were evenly divided on the proposal. Supporters echoed Sullivan’s sentiments, adding that HR 1380 would encourage use of an abundant and less-expensive US energy resource that has less environmental impact than imported oil. Opponents argued that providing more access to US on and offshore oil and gas resources would provide much more direct economic benefits.

Conversions under way

Vehicle engine conversions to gas by Wal-Mart, FedEx, UPS and other large US fleet operators show that subsidies aren’t needed, maintained Calvin M. Dooley, president of the American Chemistry Council. Chemical manufacturers, which have begun to expand US operations in response to currently low gas prices, are concerned that subsidizing more NGVs would distort the gas market and make prices more volatile, he told the subcommittees.

“We want competitively priced, not cheap, natural gas,” Dooley said, adding, “We’re not just concerned about the bill’s possible market distortion consequences. A lot of this new gas isn’t out of the ground yet. There’s also growing demand for gas to displace coal to generate electricity, and increasing regulatory uncertainty regarding shale gas production.”

David W. Kreutzer, a research fellow in energy economics and climate change at the Heritage Foundation, said if NGV technologies were more cost-effective, they would not need subsidies. He added that he’s as excited as anyone else about domestic shale gas’s potential, “but there’s no certainty that prices will stay low for a long time. It’s certainly not a bet that government should make.” The NAT-GAS bill is a narrowly targeted amendment to the federal tax code, which would promote preferential benefits for special interests and place greater burdens on the federal budget, he contended.

But other witnesses said that HR 1380 is needed. “I am not normally inclined to support legislation that aims to steer private decision-making through government incentives,” said Lawrence B. Lindsey, an economic consultant who served in several capacities during George W. Bush’s presidency.

“Any such legislation should be held to a very high cost-benefit standard,” Lindsey said, adding, “First, any government incentives to affect private decision-making should be tied to a clearly defined reason why the market might not correct on its own. Second, there must be an externality at the national level which would justify that such a change in private sector behavior [would] be in the national interest. Finally, the subsidy should be subject to rigorous cost benefit analysis and be held to a high standard for approval.”

Conversion costs

The NAT-GAS Act meets those standards because it’s not being used extensively as a motor fuel despite its being much cheaper than petroleum products, Lindsey said. The difference in initial costs for a long-haul truck using diesel fuel and one using natural gas could potentially be recovered in fuel cost savings over 15 months, but it would cost about $1 million for each of the nation’s 9,600 truck stops to install natural gas refueling systems, he explained.

“If government were to provide a tax credit of $70,000 per natural gas truck purchased, the up-front capital cost would be the same as a diesel-fired truck,” Lindsey said in his written testimony. “Based on the rate trucks turn over, it would be reasonable to assume that in 3 years, we would have a critical mass of about 350,000 such trucks, spending about $3.5 billion at retail distributors of natural gas.” Truck conversions would accelerate once more retailers sold natural gas, or retail conversions could be encouraged with direct subsidies, he said.

Other witnesses said that economic benefits from lower foreign oil imports, reduced fuel costs for long-haul trucking firms and independent operators, and greater demand for hoses, tanks, and valves in vehicle and refueling conversions would offset subsidies during the bill’s 5-year term. The argument was similar to the one advanced by several witnesses on a previous panel supporting reauthorization of tax credits for renewable and alternative energy technology research and development.

Members of the two subcommittees said that justifying subsidies of any kind has grown difficult amid growing calls to simplify the federal tax code. “When I held a recent Town Hall meeting, many of my constituents said they don’t like the idea of any tax giveaways,” said Rep. Kenny Marchant (R-Tex.), who serves on both panels.

Some Democrats called for the repeal of federal tax provisions that benefit the oil and gas industry. “When I read in late July that the largest oil companies reported another quarter of profitability, with one company reporting a 97% increase, I had to once again question whether these profitable companies really need taxpayer subsidies,” said Richard E. Neal (D-Mass.), the Select Revenue Measures subcommittee’s ranking minority member.

But Oversight Subcommittee Chairman Charles Boustany Jr. (R-La.) said that the White House’s proposals to repeal such provisions and increase oil and gas taxes would primarily hit independent producers. “If we’re going to develop alternatives, we have to have a transition strategy that doesn’t punish current producers,” he said. “Some of the administration’s proposals do exactly that. Natural gas might provide a good transition approach.”

Contact Nick Snow at nicks@pennwell.com.

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