The natural gas industry is now making the all-too familiar claim that natural gas is the abundant, domestic fuel of the future, which will reduce our dependence on foreign oil, lower prices at the pump, and reduce CO2 emissions. All that’s needed to enter this new era of Fahrvergnügen (driving enjoyment) is for the government to provide generous incentives for the production, purchase, and use of natural gas vehicles, as well as funding for further research and development.
Legislation now before Congress seeks to advance the natural gas wish list (The Natural Gas Act of 2011) by providing special tax breaks for the industry. In particular, the act would extend the existing 50 cent a gallon alternative fuel tax credit through 2016; it would make all new dedicated natural gas vehicles (bi- fuel included) eligible for a credit equal to 80 percent of costs up to a $64,000 cap; it would also create a new production tax credit tax of up to $4,000 per vehicle, while making manufacturers eligible for a total of $200 million in tax credits.
Supporters of the bill claim that these incentives should be a no-brainer for Americans. As one industry cheerleader, who owns a Honda Civic GX fueled by natural gas, proclaimed, “I fuel it in my garage at night and it’s less than a $1 a gallon and you’re getting ready to pay $4 a gallon.”
If running cars on natural gas is such a great deal, why then is the technology in such dire need of generous taxpayer handouts? In order to find out whether natural gas is the silver bullet to our transportation needs, we have to allow the market to do what it does best: direct scarce resources towards their most highly valued uses. If natural gas vehicles are indeed as economically competitive as supporters claim, vehicle manufacturers and consumers will make the switch without taxpayer support.
Instead of spending money on legislative battles, those with genuine confidence in the viability of natural gas as transportation fuel would invest in commercializing the technology directly. Sadly, when government tries to determine winners in energy, politics—not economics— distributes profits, and American taxpayers end up the losers.