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Industry-Funded NATGAS Act Is Financial Fairy Dust

Posted By David Kreutzer, Ph.D. On March 8, 2012 @ 1:49 pm In Energy | Comments Disabled

Senate Democrats and Republicans are negotiating a number of amendments to attach to the highway transportation bill, including a possible vote on the NATGAS Act.

The bi-partisan NATGAS Act provides a host of subsidies for producing and buying natural gas vehicles and refueling infrastructure. Similar legislation was introduced in the House last year, but 20 Members, recognizing this subsidy-laden approach as bad for both taxpayers and the economy, withdrew co-sponsorship and stopped any momentum the bill had.

Proponents of the Senate version argue that the bill “won’t add a dime do the federal deficit” because it will be paid for by a user fee on natural gas vehicle fuel. That, of course, is financial fairy dust to convince Members and the public that this will be a cost-free piece of legislation that will revolutionize our transportation sector.

The problem is that the tax revenue generated from the user fee won’t come close to covering the subsidy amount. For instance, the maximum allowable subsidy for heavy-duty tractor trailers is $64,000. Assuming that a tractor trailer drives 150,000 miles a year and gets six miles per gallon, the vehicle will use 25,000 gallons per year. The tax revenue generated from the 2014–2021 time frame (these are the years the tax is enacted [1], increasing from 2.5 cents to 12.5 cents per gallon) would be $15,000—less than a fourth of the subsidy cost. The same holds true for light- and medium-duty trucks.

But won’t the numbers change when economies of scale hit? President of NGVAmerica Richard R. Kolodziej made that argument when he voiced his support for the NATGAS Act:

Operating costs for NGVs are significantly less than for gasoline and diesel vehicles. But, right now, our purchase costs are greater. These greater first costs have been the biggest factor holding back faster growth in NGV use. Even with the added cost of the surcharge, the natural gas vehicle industry is confident that the incentives in [the NATGAS Act] will result accelerated demand for NGVs. With economies of scale that will result from this increase in demand, first cost will be driven down even more, and the market will flourish.

Raise your hand if you’ve heard that one before. Ethanol, cellulosic ethanol, and other biofuels? Wind and solar? Synthetic fuels? Hydrogen? Electric vehicles? They just need a five-year window with the taxpayers’ help and the “market will flourish.” Five years later, they’re asking for five more.

That’s because these subsidies create a dependence on government and do not allow producers to recognize the full costs of entering the market. They centralize power in Washington and allow lobbyists and politicians to decide what companies will produce. They concentrate benefits to the industry and disperse the costs to the rest of us.

Those who believe in the long-term viability of natural gas vehicles should pony up the purchase costs with the expectations that not only will they recover their investment, but they’ll make hundreds of billions of dollars. The global market for oil is a multi-trillion-dollar market; if natural gas vehicles capture a sliver of that market share, natural gas vehicle producers will collect hundreds of billions of dollars annually.

But what about the chicken and egg problem? As President Obama said on March 7, “It doesn’t matter how much natural gas, or flex fuel, or electric vehicles you have if there’s no place to charge them up or fill them up.” It also doesn’t matter how many cell phones you have if there’s no place to obtain a signal. But producers built cell phone towers and sold cell phones without a massive subsidy from Washington. If natural gas vehicles are economically competitive and the price is right, consumers will happily switch over and both the vehicle production and necessary supporting infrastructure will expand at rapid rates.

Natural gas vehicles are a risk for venture capitalists and the private sector to undertake, not the taxpayers. Too many times the public has been fooled to think a few billion here and there will fundamentally transform our energy sector. These attempts have done nothing but waste taxpayer dollars and benefit special interests. Congress needs to eliminate subsidies in the transportation industry, not make more room for mouths at the government’s trough.


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URL to article: http://blog.heritage.org/2012/03/08/industry-funded-natgas-act-is-financial-fairy-dust/

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[1] these are the years the tax is enacted: http://menendez.senate.gov/newsroom/press/release/?id=d478d932-e3a2-4602-a4d6-e4aafac271e9

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