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Propane Industry Prepares to Battle to Protect Its Tax Breaks

Two alternative-fuel tax credits that currently apply to propane are set to expire at the end of the year

Bill Clark/CQ Roll Call File Photo
Wyden, who serves as chairman of the Energy and Natural Resources Committee, has said the stop-and-start nature of many energy tax incentives must change.

Propane lobbyists are gearing up for a hard sell on Capitol Hill for tax incentives they say would help make the fuel more readily accessible to vehicle fleet operators and homeowners who want to invest in energy-efficient technologies.

The industry joins other renewable energy and alternative-fuel advocates in appealing to lawmakers for special treatment in any comprehensive tax overhaul legislation. But what makes propane different from other gasoline proxies such as ethanol is that it’s a fossil fuel produced alongside the abundant supplies of natural gas flooding the U.S. energy marketplace.

Propane is produced from natural gas liquids or refined from crude oil and burns about as cleanly as natural gas. It costs about $1 less per gallon than conventional gasoline and can be used to power commercial fleets such as school buses and delivery trucks, as well as for home heating and cooking.

An alternative-fuel vehicle refueling infrastructure credit and an excise tax credit for alternative fuels — both of which currently apply to propane — are set to expire at the end of the year.

Besides achieving greater tax certainty — a common objective of stakeholders affected by the temporary nature of clean-energy tax benefits — propane proponents want to be considered on par with natural gas, both in the tax code and as a solution to curbing greenhouse gas emissions.

“When you think about natural gas, you should think about propane, too,” said Phil Squair, the National Propane Gas Association’s senior vice president for public and governmental affairs.

Total carbon emissions associated with burning propane have declined as the supply source for the fuel has shifted from crude oil to natural gas, according to a report by ICF International, which estimates that propane produced from natural gas creates 16 percent less greenhouse gas pollution than propane refined from oil. Propane has a similar — though slightly higher — carbon footprint to natural gas, but it does not contribute directly to the greenhouse effect because it breaks down rapidly in the atmosphere.

The domestic supply of propane has increased alongside growing natural gas production from shale formations and light crude oil extraction, according to the Energy Information Administration.

Total U.S. propane inventories grew by 1.6 million barrels during the last week of September to 67 million barrels, the EIA said in an Oct. 2 report. And the amount of domestically produced propane increased by about 9 percent between 2005 and 2011, according to ICF International.

Propane powered more than 143,000 vehicles in 2010, according to EIA statistics, but its share of the alternative-fuel vehicle market has declined in the past decade despite being the third-most-common engine fuel worldwide after gasoline and diesel. Consumer-grade propane consumption fell 24 percent between 2000 and 2010, according to American Petroleum Institute statistics.

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