NCPA - National Center for Policy Analysis

Special Tax Credits Give Natural Gas Vehicles Unfair Advantage

May 17, 2011

The bipartisan New Alternative Transportation to Give Americans Solutions (NATGAS) Act provides preferential tax treatment to subsidize the production, use and purchase of natural gas vehicles (NGVs).  Supporters argue that it promotes transportation fuel competition and reduces foreign oil dependence and greenhouse gas emissions.  In reality, the NATGAS Act simply transfers a portion of the actual costs of using and producing NGVs to taxpayers, says Nicolas Loris, a policy analyst at the Heritage Foundation.

  • Special tax credits create the perception that NGVs are more competitive than they actually are by artificially reducing their price for consumers.
  • Rather than increase competition, this artificial market distortion gives NGVs an unfair price advantage over other technologies.
  • Unfortunately, this shortcut to market viability does not work; indeed, Washington has an abysmal record of picking energy winners and losers.
  • Instead of adding more market distortions to the energy sector, Congress should remove energy subsidies and increase access to America's resources.

Pieces of legislation like the NATGAS Act will not be a quick fix for high gas prices and are not the way to reduce either America's dependence on foreign oil or greenhouse gas emissions.  They provide special benefits to one industry, distorting the market and misallocating resources away from potentially more economically viable alternatives.  If Congress truly wants to promote NGVs, it should eliminate subsidies in the transportation industry and consider other market-oriented policies -- such as full expensing, lowering corporate tax rates and removing barriers to drilling -- that would incentivize the production of profitable endeavors and ultimately lower prices through competition, says Loris.

Source: Nicolas Loris, "Natural Gas Vehicle Subsidies Hurt Consumers," Heritage Foundation, May 11, 2011

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