Statement of NGVAmerica

Introduction

NGVAmerica appreciates the opportunity to provide the following statement concerning America’s energy policy.  NGVAmerica is a national organization of over 100 member companies, including: vehicle manufacturers; natural gas vehicle (NGV) component manufacturers; natural gas distribution, transmission, and production companies; natural gas development organizations; environmental and non-profit advocacy organizations; state and local government agencies; and fleet operators.  NGVAmerica is dedicated to developing markets for NGVs and building an NGV infrastructure, including the installation of fueling stations, the manufacture of NGVs, the development of industry standards, and the provision of training.

The Ways and Means Committee has indicated it will hold a series of hearings to address energy and tax policy.  This effort also will address global warming and the climate change implications of energy use.  The first hearing on this issue was held February 28, 2007.  NGVAmerica’s comments respond to the committee’s invitation for interested organizations to provide statements for the record.  Our statement also addresses the Bush Administration’s goal for 2017 of using 35 billion gallons of non-petroleum fuels.  NGVAmerica has submitted a similar statement for consideration by the Senate Finance Committee, which is holding hearings on the same issues.

NGVAmerica is pleased to provide the following statement to the committee as it considers these very important issues.  NGVs can and will play an increasing role in replacing petroleum motor fuels and reducing emissions that contribute to climate change. Congress already has taken a number of steps to encourage greater use of natural gas and other alternative transportation fuels.  These steps were enacted as part of the Energy Policy Act of 2005 and SAFETEA-LU.  These incentives include tax credits for alternative fueled vehicles, alternative fuel infrastructure and alternative fuel use. Consumers and businesses alike are benefiting from the congressional action that was taken to encourage the increased use of alternative fuels.  However, much more must be done if the U.S. is to begin the long process of transitioning away from the use of petroleum motor fuels – especially if America is to achieve the goal called for the President in his State-of-the-Union address of displacing 35 billion gallons of petroleum transportation fuels by 2017.  This effort will require sustained and significant federal support since the risks associated with this effort are simply too great for private industry to undertake them alone in the timeframe needed.  Moreover, this effort will require a mix of different transportation fuels to fill the void provided by petroleum since no one single fuel appears likely to supplant petroleum.

The comments provided below discuss the potential benefits of increasing the use of NGVs and ways in which the committee can assist in achieving them.  Increasing the use of natural gas vehicles (NGVs) can: (1) reduce America’s dependence on foreign oil, (2) improve air quality in urban areas, (3) reduce emissions of greenhouse gases, and (4) pave the way for the more rapid introduction of hydrogen transportation technologies.

Summary of Recommendations

1. Extend and amend the tax incentives for purchasing natural gas vehicles, using natural gas in those vehicles and building natural gas fueling infrastructure.
2. Provide the same tax incentive for biogas converted to biomethane as currently exists for biogas used for electricity generation.
3. Provide tax incentives for natural gas use in off-road vehicles.

Rationale for Recommendations

Reducing Petroleum Reliance

There has been much discussion and controversy about the energy balance of various alternative fuels and their ability to reduce petroleum consumption.  In the case of natural gas, each gasoline gallon equivalent of natural gas used for transportation displaces nearly 100 percent of the petroleum that would otherwise be used in the form of gasoline or diesel fuel.  Furthermore, nearly 85 percent of the natural gas currently consumed in the U.S. is from domestic sources – produced right here in the continental U.S., the Gulf of Mexico, or Alaska.  Most of the remainder is imported from Canada.  The total U.S. natural gas resource base, including proved reserves, is more than 1,300 trillion cubic feet, over a 65-year supply of natural gas at current production levels.[1]  Thus, U.S. supplies of natural gas are abundant and secure.  With sufficient will, supplies of conventional natural gas will continue to grow as U.S. demand for this valuable fuel grows.  And with the right incentives, non-conventional, renewable sources of natural gas also could increasingly be available to U.S. consumers.  For example, an analysis previously conducted for DOE estimated that the U.S. could feasibly produce 1.25 quadrillion Btu annually.  This is equivalent to 10 billion gasoline-gallon-equivalent of biomethane from landfills, animal waste processing facilities, and sewage.   

Biomethane is pipeline-quality natural gas produced by cleaning up and purifying biogas.  Biogas is a mixture of methane and other gases produced from the decomposition of organic materials such landfill waste.  Thus, biomethane is a renewable source of natural gas.  In the U.S., the production of biomethane has been overshadowed by the production of electricity from biogas.  This is partly because the U.S. tax code encourages renewable electricity production but does not encourage biomethane production.  In addition, many of the incentives recently adopted in the Energy Policy Act of 2005 (grants, loan guarantees, demonstration projects) favor bio-refineries that produce liquid fuels, or more specifically ethanol.  If these incentives were expanded to be biofuels-neutral, the U.S. could more quickly realize the potential of this valuable fuel source.  Other countries are moving forward with biomethane development even as they also move forward with increased ethanol use.  In Sweden, twenty-five biomethane production facilities are in use and there are sixty-five fueling stations now dispensing biomethane for transit buses and other vehicles.[2]  Some positive developments are occurring here in the U.S.  California officials recently signed a memorandum of understanding to work with officials from Sweden to advance the use of biomethane as part of California’s bioenergy initiative.[3]  And just this year, Prometheus Energy, a Washington State-based company, began producing biomethane at the Bowerman Landfill in Irvine, California.[4]  This facility will be producing 5,000 gasoline-gallon-equivalent of biomethane per day.  The biomethane will be used to fuel low-emission, transit buses operated in Orange County. 

If fully utilized, biomethane could offset nearly all or most of the future demand for natural gas as a transportation fuel.  As noted above, the potential exists to produce an estimated 10 billion gallons equivalent.  This amount of fuel represents nearly a third of the President Bush’s announced target for 2017 of achieving the production and use of 35 billion gallons of non-petroleum motor fuels.[5]  Current demand for natural gas as a transportation fuel in the U.S. stands at about 200 million gallons per year.  Thus, the increased use of natural gas for transportation could grow substantially in the coming years, offsetting a large amount of petroleum, and be supplied almost exclusively by renewable sources.  Importantly, most of the fuel inputs that would be used to produce biomethane (e.g., sewage, landfill gas, animal waste) are currently underutilized or not used at all.  Therefore, encouraging the production and use of biomethane would not harm other industries and would provide additional revenue stream for those industries that currently process and handle these feedstocks.  Farmers and other operators of animal facilities can install anaerobic digester systems to convert their animal waste to usable biomethane -- with valuable, sanitary fertilizer as a byproduct.  Longer term, cellulosic crops could be used to produce biomethane.  Currently, the focus on cellulosic biofuels is on cellulosic ethanol.  However, cellulosic crops also could be used to produce biomethane if the government were to provide biomethane refineries the same level of incentives as currently being given to ethanol biorefineries.

Climate Change Benefits

The use of conventional natural gas in motor vehicles reduces greenhouse gas emissions by 15 – 20 percent.[6]  More recent emission testing programs indicate that greenhouse gas reductions from using natural gas in heavy-duty applications may be as much as 20 – 30 percent, based on improvements to natural gas engine technology and changes to petroleum fueled vehicles.[7]  These emission benefits are in addition to the very large reductions in volatile organic compounds, nitrogen oxides and air toxics provided by using natural gas as a motor vehicle fuel. 

The greenhouse gas benefits provided by natural gas vehicles are significantly greater if the natural gas is biomethane.  This is because capturing and using biomethane offsets flaring or venting of methane emissions that would otherwise occur, and also offsets the emissions associated with producing, refining and burning gasoline and diesel fuel.  Methane is a significant greenhouse gas -- estimated to be 21 times as intense a greenhouse gas as carbon dioxide.  Capturing and “flaring” biogas reduces the methane to carbon dioxide.  But, in doing so, its energy value is wasted.  An energy-wise and greenhouse gas-wise alternative is to capture the biogas from these renewable waste sources, convert that biogas to biomethane, and use the biomethane to displace petroleum or other fossil fuels in transportation or other energy applications.  If the potential biomethane resources in the U.S. were realized (i.e., 10 billion gallons per year), the estimated greenhouse gas reductions would be on the order of 500 million metric tons of CO₂  per year – or the equivalent of removing 90 million light-duty gasoline vehicles from the roads.

Paving the Way for Hydrogen

DOE’s long-range plans to address energy independence and lessen the environmental impact of motor vehicles call for a transition to hydrogen fuel cell vehicles (FCVs).  This goal includes producing hydrogen from renewable energy sources, such as solar, wind, or even landfills.  In the near-term, however, hydrogen will most likely be produced by steam-reforming natural gas.  Currently, natural gas steam-reforming represents nearly all U.S. hydrogen production (used mostly by refineries) and about half of world hydrogen supply.  Natural gas is used because methane (the main constituent of natural gas) has the highest hydrogen-to-carbon ratio of any hydrocarbon fuel.  Thus, natural gas provides a near-term, widely available feedstock with a proven technique for separating out hydrogen molecules. During the initial launch of hydrogen-fueled vehicles (both FCVs and internal combustion engine vehicles, or ICEVs), it is likely that demand for hydrogen fuel in the transportation sector will be met through the steam reforming of natural gas. 

There is another equally important link between natural gas and hydrogen, however.  That link is the infrastructure, technology, and experience currently being developed to use compressed natural gas and liquefied natural gas as transportations fuels.  By advancing the market for CNG and LNG, it just might be possible to accelerate the transition to hydrogen.  Attached is a list of some of the ways increased use of natural gas is making the hydrogen future more viable. 

Tax Policies and Incentives Needed to Increase Natural Gas Use

In order to achieve the potential benefits of increased natural gas use, NGVAmerica urges the Ways and Means Committee and Congress to consider the following measures.

1. Alternative Fuel Excise Tax Credit
The 2005 Transportation Law (SAFETEA-LU, § 11113, Pub. L. No. 109-59) provides tax incentives for natural gas and other alternative fuels when used as vehicle fuels.  That alternative fuel credit expires on 9/30/2009.  This short timeframe sends the wrong message to businesses and consumers about the government’s support for using natural gas and other alternative fuels, and is inconsistent with the President’s 2017 goal of replacing 35 billion gallons of petroleum with alternative fuels.  Therefore, the incentive for alternative fuels should be extended until the end of 2016.  Moreover, Congress should clarify that the tax credits provided for alternative fuels are not includable in income since such treatment would significantly discount the benefit (and, therefore, the impact) of this incentive.  The IRS is currently looking at the treatment of the tax credits when taken by taxable entities, and has indicated that they may be includable income.  Also, the tax credits for alternative fuels should be amended so that they are available on an accelerated basis just like the alternative fuel mixture credits; taxpayers filing for alternative fuel credits currently must wait until end of year to file certain claims (over and above excise tax offsets) while persons filing for alternative fuel mixture credits may file multiple claims during the year for payments from the government.

2. Alternative Fuel Vehicle Purchase Income Tax Credit
The 2005 Energy Law (EPAct 2005, § 1341, Pub. L. No. 109-58) provides tax credits for the purchase of dedicated alternative fuel vehicles, including NGVs. The alternative fuel vehicle credit expires on 12/31/2010.  As with the fuel credit above, the short timeframe for this incentive sends the wrong message to businesses and consumers about the government’s support for NGVs, and is inconsistent with the President’s petroleum replacement goal.  Therefore, the incentive should be extended until the end of 2016.  The existing credit covers 80 percent of the incremental price for dedicated vehicles that meet the most stringent emission standards, and 50 percent for other dedicated vehicles.  Since much of the emphasis on promoting alternative fuels has shifted to petroleum replacement and since dedicated NGVs displace 100 percent of the petroleum that would otherwise have been used, the credit for dedicated vehicles should be expanded to 90 percent of the incremental price.  Congress also should provide a credit of 50 percent of incremental cost for the acquisition of bi-fuel NGVs since some businesses and consumers will continue to demand the flexibility of a multi-fuel vehicle until alternative fueling infrastructure is more widespread.  In order to make these credits attractive to businesses, they should be exempt from tentative minimum tax provisions.  Imposition of the minimum tax means that most large fleets are only able to use the tax credits as an incentive to acquire a very small number of new NGVs each year.  Fleets represent the best opportunity to maximize the use of alternative fuels but this opportunity will not be realized if fleets receive an incentive that encourages no more than one or two NGV acquisitions each year.

3. Alternative Fueling Station Income Tax Credit
EPAct 2005 (§ 1342, Pub. L. No. 109-58) provides for an income tax credit of 30 percent up to a maximum of $30,000 for the installation of business NGV fueling stations and $1,000 for home refueling equipment.  This incentive is inadequate to spur fueling station expansion.  Large natural gas fueling facilities, capable of fast-filling frequent customers, cost up to $1 million.  The cost of even the least expensive home refueler (with installation) can be upwards of $5,000.  Therefore, the fueling station credit should be increased to 50 percent with a maximum of $300,000, and the home refueling credit to a maximum of $2,000.  The tax credit for fueling infrastructure also should be exempt from the minimum tax provisions.  Most fueling facilities are currently being developed by a small number of companies that build and operate stations for customers.  If tax credits are subject to minimum tax, these businesses will only be encouraged to install a minimal number of new stations each year.

4. AFV and Fueling Infrastructure Tax Credit for Not-For-Profits
As mentioned above, EPAct 2005 (§§ 1341 -1342, Pub. L. No. 109-58) provides an income tax credit for part of the incremental price of new alternative fuel vehicles and alternative fuel stations.  In an effort to ensure that public agencies also could benefit from this incentive, Congress provided that, when the purchaser is a public entity, the income tax credit can be passed back to the vehicle or equipment seller – with the expectation that the seller would pass some or all of the incentive to the buyer in the form of a lower purchase price.  For a number of reasons, however, very few public agencies have benefited from this provision.  Frequently, the sellers do not have sufficient tax liability.  Transit bus manufacturers are a good example.  In other cases, the alternative minimum tax eliminates the seller’s ability to capture (and, therefore, pass on to the public agency) the tax credit.  To provide public agencies with a clear and certain incentive to buy alternative fuel vehicles and install associated fueling stations, Congress should provide public agencies with the option of receiving the value of the credit as a federal grant or other direct federal payment.

5. Biomethane Production Credit
Biogas (i.e., methane-rich gas produced from animal waste, crop waste, crops, sewage and landfills) that is used to produce electricity is eligible for a Section 45 production tax credit.[8]  However, if that same biogas is used directly (e.g., for on-site steam production) or is converted to pipeline quality methane and used for any other purpose, the biogas producer receives no credit.  All use of renewable biogas should be encouraged.  Therefore, the Section 45 biogas credit should be redefined to include all energy uses of biogas.

6. Tax Credits for Off-Road Vehicles
The vehicle, infrastructure and fuel use credits for alternative fuel vehicles included in the 2005 Energy and Transportation laws are generally limited mostly to on-road vehicles. However, about a quarter of the fuels used in transportation are used in off-road vehicles. Since these vehicles do not have to meet on-road vehicle emission standards, they tend to produce far more emissions than comparable on-road vehicles.  To help reduce our dependence on foreign oil as well as air pollution, off-road vehicles should be provided financial incentives to move to non-petroleum fuels and technologies.

Conclusion

NGVAmerica appreciates the opportunity to provide these comments.  We look forward to working with the committee as it crafts legislative proposals to address our nation’s energy policy in ways that will diversify the mix of fuels used in transportation, provide greater energy security, reduce reliance on petroleum fuels, and increase the use of fuels that address climate change.

Attachment

How NGVs and Helping to Paved the Way for a Hydrogen Transportation Future

Fuel Storage
Until major breakthroughs in hydrogen storage technologies are realized, hydrogen will most likely be stored on-board vehicles as a compressed gas or a cryogenic liquid. Today’s prototype hydrogen vehicles are able to use existing tank technology for CNG or liquefied natural gas (LNG) vehicles as base technologies for hydrogen storage. However, to achieve commercialization objectives (e.g., sufficient driving range), FCVs and other types of hydrogen vehicles will require ongoing advancements in on-board hydrogen storage technology. Fuel storage capacity also must be safely increased, while reducing cost and weight.  Because of similar material and manufacturing issues, several companies that make NGV tanks are also designing improved fuel-storage systems for hydrogen vehicles, applying their vast experience from years of developing onboard CNG and LNG tanks.

Fuel Management and Safety Systems
As with fuel storage technologies, commonality exists among companies working on fuel management systems for NGVs and FCVs. Generally, advancements made for natural gas systems also have application to hydrogen systems. Onboard safety technology designed for NGVs (e.g., gas detection and fire suppression) are also being applied to hydrogen vehicles.

Fueling Station Infrastructure & Dispensing Equipment

Fuel cell vehicles will deliver the greatest benefits (zero emissions, highest system efficiency) if they are designed to operate on direct hydrogen, rather than operating on hydrogen reformed onboard the vehicle. FCVs, therefore, require access to hydrogen fueling stations. It is unlikely that, early on,  hydrogen for these stations will be produced at large methane-reforming plants, and transported to the stations via trucks or pipelines. A far more likely scenario is that the hydrogen will be reformed in relatively small volumes at the local station using pipeline natural gas. Pre-existence of the necessary natural gas pipeline infrastructure makes this feasible. The U.S. has more than 1.3 million miles of natural gas transmission and distribution lines.  In addition, the U.S. has more than 1,000 fueling stations that currently supply natural gas for motor vehicle use.  It only makes sense that some of these stations also would be modified to serve fleets using hydrogen fuel.  In fact, some already are providing hydrogen.  The existing natural gas infrastructure makes reforming of natural gas at existing gasoline stations a convenient, relatively cost-effective option for producing hydrogen.  Today’s natural gas dispensers are a bridge technology to pumps that will fuel tomorrow’s vehicles using either compressed or liquefied hydrogen. Much commonality exists between systems that dispense and meter these two fuels, whether in gaseous or liquid form. Consequently, today’s natural gas dispensers are paving the way for affordable, user-friendly hydrogen dispensers.  NGVs also can be refueled overnight at home -- a major advantage compared to gasoline vehicles. Today’s home refueling appliances (HRAs) that dispense CNG are also being designed for longer-term capability to refuel FCVs in the residential setting. In this way, home refueling of NGVs provides a clear pathway to the longer-term scenario of fueling FCVs at home.

Natural Gas/Hydrogen Blends
Compressed hydrogen can be blended with CNG to produce an exceptionally clean transportation fuel. With relatively minor vehicle modifications, this blend can be used in today’s heavy-duty NGVs. For example, transit buses at SunLine Transit Agency in the Coachella Valley are operating in revenue service on a blend of CNG and hydrogen. This is helping SunLine to gradually transition its bus fleet to 100 percent operation on hydrogen. Similar efforts are underway in other areas, such as Las Vegas. Many members of the NGVAmerica are cooperating in efforts to develop and demonstrate vehicles that operate on this type of hydrogen-natural gas mixture. 

Codes & Standards, and Safety Training
A host of other ongoing issues must be addressed for hydrogen to become a common transportation fuel.  Many of these issues currently are being addressed by users of natural gas vehicles.  As hydrogen transportation technologies gradually move from the demonstration phase into commercial deployment, a new structure of human support services will be needed. This includes specialists such as mechanics, inspectors, and fire marshals who are familiar with FCVs, hydrogen fuel, and fueling stations. The NGV industry is already helping to create such a support structure. To serve today’s well- established markets for NGVs and natural gas fueling stations, thousands of people have been trained in related jobs. This support structure continues to grow, serving as a harbinger for training of America’s future hydrogen workforce and the people who will be responsible for deploying hydrogen vehicles and fueling stations on a commercial scale.

[1] See - American Gas Associations (U.S. Resource Base) - http://www.aga.org.

[2] See State of California Department of Resources Press Release June 29, 2006 - http://resources.ca.gov/press_documents/CaliforniaSwedenBioenergyMOURelease_06_29_06.pdf

[3] See Memorandum of Understanding Between State of California and Sweden; http://resources.ca.gov/press_documents/CaliforniaSwedenBiofuelsMOU.pdf

[4] See GreenCar Congress (January 25, 2007) - http://www.greencarcongress.com/2007/01/prometheus_prod.html; or  Prometheus Energy - http://www.prometheus-energy.com/whatwedo/bowerman.php

[5] The President’s Advanced Energy Initiative now includes a target of achieving 35 billion gallons of non-petroleum motor fuels.  Few details have been released on this target but it is believed that it is based largely on increased use of ethanol.  A gallon of ethanol, however, has far less energy than a gasoline gallon, about 35 percent less energy content.  If the 35 billion gallon target is based on the energy content in ethanol, achieving 10 billion gasoline gallon equivalent of biomethane would actually represent about 43 – 44 percent of the President’s target.

[6] See Argonne National Laboratory, GREET Model (2007);   http://www.transportation.anl.gov/software/GREET/

[7] See National Renewable Energy Laboratory, WMATA Emission Testing Report, December 2005;   http://www.cleanenergyfuels.com/pdf/NREL-WMATA_DieselvNG21606.pdf

[8] See 26 U.S.C. § 45.