May 12, 2011
How to Switch to CNG while Saving Taxpayer MoneyBy Howard Richman & Raymond Richman
On April 6, a bipartisan group of 180 congressmen introduced the NAT GAS Act of 2011 (HR 1380), an expensive bill designed to move American transportation from imported oil to domestically produced compressed natural gas (CNG). Not only would it give consumers and businesses a 50 cent per gallon-equivalent subsidy for fuel purchases, but it would also give tax credits to car makers, filling stations, and vehicle buyers. The bill would add at least $3 billion to the federal government deficit each year for the next five years.
We believe that, since 2006, the price advantage of CNG as a fuel for automotive vehicles has been so great that no government subsidy need be required. The following chart compares CNG and gasoline prices:
The 180 cosponsors of the bill have a worthy goal. Indeed American vehicles should be switching from imported oil to domestically-produced natural gas. Congress is addressing a valid "chicken and egg" problem. Most households and businesses will not buy CNG vehicles until CNG filling stations are widespread, and CNG filling stations will not become widespread until CNG vehicles are widespread. Although some businesses have been switching to natural gas, they usually have to create their own filling facilities.
Despite the bipartisan sponsorship and large number of sponsors, the NAT GAS Act may not pass. It is opposed by many environmentalists who want the United States to switch transportation from oil to electricity and by many conservatives who want to reduce the federal deficit.
The Alterative that would reduce the Deficit
There is an alternative to this bill which would accomplish the same end while reducing the federal budget deficit. The federal government, including the U.S. Post Office, could save billions of dollars per year on its automotive fuel bills if Congress directed that future vehicles purchased ran on CNG instead of gasoline, electricity, ethanol, diesel or bio-diesel fuel. For example, in February CNG would have cost about $1.81 per gallon-equivalent at the pump while gasoline actually cost $3.41, a taxpayer saving of $1.60 per gallon.
[Note: In order to estimate how much CNG would cost at the pump we multiplied the price of natural gas to commercial customers, $8.73 per thousand cubic feet in February, by 126.67, the number of cubic feet of natural gas that is equivalent to a gallon of gasoline. Then we added 70¢ per gallon-equivalent, our estimate of taxes, distribution costs, and retailer markups.]
So why has CNG been getting less expensive since 2006, while gasoline is getting more expensive. The reason is simple: Proven natural gas reserves in the United States are growing by leaps and bounds, as shown in the following chart of beginning-of-year reserves:2
[Note: In order to translate natural gas reserves into oil barrels, we divided the trillions of cubic feet of dry natural gas reserves (283.9 at the beginning of 2010) by 5320, the number of cubic feet of natural gas that is equivalent to a barrel of oil.]
Already, Honda, GM, Ford and Chrysler all produce safe CNG vehicles. The only known disadvantage is that the CNG fuel tank is bigger than the gasoline fuel tank. If the Federal government fleet switched, then CNG filling stations would pop up throughout the country to service the increased demand by government, businesses, and households who would be encouraged thereby to buy their own CNG vehicles.
Rein in the EPA
Another obstacle is the policies of the federal government that discourage the production and use of any fossil fuel. In a March 30, 2011 press release, President Obama gave the NAT GAS Act a qualified endorsement, provided that we can "extract the natural gas without polluting our water supply," saying:
In a "safe environmentally sound way"? Ah, there's the rub! Obama's Environmental Protection Agency (EPA) refuses to grant permits for oil, natural gas, and coal extraction as part of its crusade for the 20th century theory that carbon dioxide causes climate change. The 21st century theory, currently being explored by some of the world's top physicists, is that solar activity shields the earth from cosmic rays, which cause clouds to form. And that low lying clouds tend to cool the earth by reflecting sunlight back into space. (Watch this Cern lecture by Jasper Kirkby for a review of the current research evidence.)
President Obama makes a big deal about the dangers of fracking to the water supply. This is a false fear. Fracking is done in shale about a mile under the surface of the earth, far below the sources of drinking water. Rep. Michael Burgess, a member of the House Energy and Commerce Committee, reports that President Obama's "agencies are making it almost impossible to extract the gas."
Congress needs to take the EPA out of the energy permit business. The dangers of energy exploration should not be the province of the federal government. Any harm that is done is local, and should be regulated by the states where the exploration takes place.
Congress also needs to take the EPA out of the carbon dioxide regulation business. Carbon dioxide has little effect upon climate, but a clear beneficial effect upon plant life and crops. The Clean Air Act should be amended to specify that carbon dioxide is not an air pollutant. This would stop the EPA's new draconian regulations of electrical utilities before they further hurt crop growth and raise electricity bills.
And while amending the Clean Air Act, why not take away the EPA's authority over conversion of gasoline vehicles to CNG. The EPA uses its regulations under the Clean Air Act to prevent such conversions, despite the fact that CNG engines burn so cleanly that neither spark plugs nor oil need to be changed. EPA red tape and fees under the Clean Air Act add about $4,500 to $5,000 per vehicle conversion.
And if Congress can't find any other reason to amend the Clean Air Act, EPA's arrogance should suffice. EPA administrators have been refusing to come to Congressional hearings on new EPA regulations. Here's a selection from an article by Robin Bravender posted at Politico.com:
There is an important principle here. Congress needs to stop subsidizing all forms of energy, be they wind power, solar, ethanol, or natural gas. Markets are powerful forces which should be trusted. The relative prices of energy should determine which get used. Our proposal would take advantage of price indicators to reduce the federal government's fuel bill and, thereby, make CNG accessible to everyone.
Congress could further speed up the process of converting from gasoline to natural gas by reining in the arrogant EPA. The steps that need to be taken are simple: (1) switch all authority over energy extraction permits from the EPA to the states, (2) amend the Clean Air Act by specifying that plant-beneficial carbon dioxide is not a pollutant, and (3) take away all jurisdiction of the EPA over the conversion of vehicles from gasoline to clean-burning CNG.
Once CNG filling stations are widespread and CNG conversions are readily available, U.S. households and businesses will have the option of switching to lower-priced CNG. They will no longer be dependent upon imported oil. The U.S. government could balance trade with our oil exporting trading partners by imposing a scaled tariff, which would cause them to take down their tariff, non-tariff and currency-manipulation barriers to U.S. exports. Like the switch of federal vehicles to CNG, the scaled tariff would boost the American economy while helping to balance the federal budget.
Disclosure: The authors get royalties from gas wells and own stock in companies that are involved with natural gas development.
The authors maintain a blog at www.idealtaxes.com, and co-authored the 2008 book, Trading Away Our Future: How to Fix Our Government-Driven Trade Deficits and Faulty Tax System Before it's Too Late, published by Ideal Taxes Association.