Future Impact on Minnesota Transportation Revenue Collection of Commercial Fleet Conversion from Diesel Fuel to Natural Gas

While natural gas currently makes up only a small portion of the fuels used for transportation in the United States, there is significant potential for it to play a greater role in the future. There are several reasons for this, including new technologies that are increasing the supply of natural gas (and therefore reducing its price), combined with high prices for diesel fuel and gasoline, concerns about greenhouse gas emissions from traditional fuels, availability of new vehicle engines that run on natural gas, and a growing fueling infrastructure. In Minnesota, the fuel tax makes up nearly half of the Highway User Tax Distribution Fund. As a result, if a significant number of vehicles converted from traditional fuels to natural gas, highway funding could be affected if natural gas is taxed at a significantly different rate. There have been some indications that commercial trucking fleets may convert to natural gas more quickly than other vehicles. The Minnesota Department of Transportation (MnDOT) wanted to investigate the potential impacts of natural-gas-fueled trucks on fuel tax receipts. Specific topics of interest included: The extent to which commercial trucking fleets, especially in Minnesota, are converting from diesel fuel to compressed natural gas (CNG) and liquefied natural gas (LNG); The expected impacts of these conversions on Minnesota fuel tax revenues; How natural gas is currently taxed in Minnesota, and how that revenue is being directed; Concerns in Minnesota and other states regarding the conversion trend, including revenue losses; Actions being taken by other states to address issues related to conversion; and Potential policy options for Minnesota. To gather this information, CTC & Associates conducted a search of published research, state policies and industry white papers, and conducted interviews with representatives of the trucking industry and state transportation and revenue agencies in Minnesota, Wisconsin, Iowa and Indiana. CTC & Associates did not identify any quantifiable projections of the impact of natural gas conversion on fuel tax receipts in Minnesota. However, it appears that the impact is likely to be small, because natural gas is currently taxed at approximately the same rate as diesel fuel and gasoline. Because natural gas engines are currently less fuel efficient than diesel engines, an increase in trucks fueled by natural gas may even lead to a slight increase in fuel tax revenues. In addition, since natural gas engines are more expensive than traditional diesel engines, buyers pay more sales tax—another component of the state Highway User Tax Distribution Fund. In addition, those interviewed did not anticipate large increases in natural gas conversion in Minnesota in the immediate future.


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  • Accession Number: 01600663
  • Record Type: Publication
  • Created Date: May 25 2016 10:11AM