IRS Ruling

On August 7, 1995, the Federal

Register reported the Internal

Revenue Service (IRS) ruling that

liquefied natural gas (LNG) is a 

liquid fuel and will thus be taxed 

as a “special motor fuel,” effective

October 1, 1995. This definition 

covers all liquids that substitute for

gasoline and diesel. 

The ruling refuted the claim of

petitioners, such as the Natural Gas

Vehicle (NGV) Coalition, that LNG

is the same as compressed natural gas

(CNG) and should be taxed at the

equivalent excise tax rate. The IRS

also rejected the Coalition's proposal

that the NGV tax rate be expressed 

as gasoline gallon equivalent (GGE)

rather than in thousand cubic feet

(mcf) as provided in the Internal

Revenue Code, but stated that no

restrictions exist on taxpayers

engaged in fuel sales based on 

GGE, as long as the tax is paid at

48.54 cents per mcf as provided in

the Omnibus Budget Reconciliation

Act of 1993.

The Act imposed a tax of 

48.54 cents per mcf for CNG, but

made no reference to LNG. Nonliquid fuels that substitute for gasoline and diesel are taxed at 5.9 cents

per gallon, liquid substitutes at 18.4

cents per gallon. But the IRS concluded that, because the Act contained no

specific provision on the LNG tax

rate, no change was justified. 

Response to the Ruling

The American Trucking

Association (ATA), the trade association for the trucking industry, joined

the NGV Coalition and other groups

on September 6 to file petitions for

reconsidering the ruling. Ken

Simonson, Chief Economist for ATA,

stated in a letter to the IRS that if

natural gas is compressed and cooled

to within 1° of the temperature at

which it liquefies before being introduced into a motor vehicle, the fuel is

taxed at 48.54 cents per mcf as measured at standard temperature and

pressure. The substance remains taxable at that rate if the temperature is

lowered another degree, whether at

fueling time or once in the vehicle.

Simonson argued that there is no

basis for declaring LNG a “special

motor fuel.”

Under contract with the

Department of Energy, the ATA

Foundation (the public policy and

research affiliate of ATA) conducts

extensive alternative fuels research,

including gathering data from the

daily operations of medium- and

heavy-duty alternative fuel trucks.

This research is supported by industry, and during the past several years,

has all pointed to the same conclusion: LNG has the greatest potential

of any alternative fuel for the commercial trucking industry. It has a

favorable energy density, can be easily stored and delivered, and has the

potential to compete with diesel, the

most popular fuel in the industry

today. All major truck engine manufacturers have begun to develop LNG

engines, and the ATA Foundation has

led an effort to establish safety standards and practices.

Of course, LNG has some 

disadvantages compared to diesel:

(1) LNG requires spark-ignited

Volume 4, Number 3

Ruling on Liquefied Natural Gas (LNG) Tax Rate

Sparks Debate

INSIDE THIS ISSUE

Incentives Provide

Opportunities for LNG ........2

Natural Gas Engine

Announced...........................3

LNG Demonstration

Programs .............................5
Incentives for Early Introduction of Clean

Heavy-Duty Engines Open Window of

Opportunity for LNG

by Steven Shivak, Marketing Manager, ZEUS Development Corporation

engines, which can be as much as

15% less efficient; (2) LNG has

lower energy density, which causes it

to achieve a somewhat lower range;

and (3) LNG trucks cost much more

because of the more sophisticated

fuel storage and delivery system,

which includes superinsulated fuel

tanks that keep LNG at very low temperatures.

The Economics of LNG

At the “special motor fuels” tax

rate of 18.4 cents per gallon—higher 

than diesel on an energy-equivalent

basis—LNG cannot compete with

diesel, and motor carriers will have 

no economic incentive for using it.

Thus, the market for NGVs could

drastically diminish and create no

revenues, special or otherwise, for the

federal treasury. Further, this market

demise would be detrimental to the

trucking industry and its suppliers, as

it makes achieving local and national

emissions reduction and energy independence goals more difficult.

Such a high tax on LNG also

seems to contradict Congress’s goal,

stated in the Methane Transportation

Research, Development, and

Demonstration Act of 1980, to 

“facilitate, and remove barriers to 

the use of methane-fueled vehicles in

lieu of gasoline- or diesel-powered

motor vehicles where practicable.”

If an LNG market develops, LNG

users will ultimately expect to pay

their share of highway taxes into the

Highway Trust Fund. Within 5 years,

the LNG market should be large

enough to warrant introducing a tax

rate equal to that on diesel fuel, on 

an energy-content basis. However,

the IRS ruling may eliminate the

fuel’s use altogether, and the IRS 

has not announced whether it will

even reconsider its decision.

Diesel engines are being 

challenged by tough new federal 

regulations that reduce ozoneforming oxides of nitrogen (or NOx)

emissions from heavy-duty trucks by

60% by the year 2004. However, several models of liquefied natural gas

(LNG) heavy-duty engines can

already meet this standard.

The new regulation, announced

last month by the U.S. Environmental

Protection Agency (EPA), could provide LNG an opportunity to gain a

foothold in the heavy-duty motor fuel

market. “LNG is offered wholesale

for less than 30 cents per gallon,

or less than 50 cents per equivalent

diesel gallon, in some regions of the

country,” said Bob Nimocks,

President of ZEUS Development

Corporation. “Moreover, as volumes

increase, we believe these prices

could fall further, offering heavy-duty

transportation a more cost-effective

fuel.”

The problem for the LNG industry is that the high cost of prototypical vehicle modifications and fuel

stations have thus far outweighed any

fuel cost benefits fleets might enjoy

from LNG. “LNG and LNG-powered

vehicle costs are more expensive

today because virtually every LNGpowered vehicle on the road is a custom built prototype,” said Daniel J.

McKay, editor of LNG Express.

“Similarly, LNG fuel producers have

therefore not had the sales volumes

necessary to reduce their per-gallon

price below diesel—they don’t yet

enjoy economies of scale.”

LNG proponents hope that new

incentives for early introduction of

clean-emission engines will persuade

more fleets to use the fuel. About 

20 states waive a significant part of

their fuel excise taxes for clean fuels

such as LNG. California, Connecticut,

Illinois, and Oklahoma may also provide cost-share incentives to improve

NOx emissions more rapidly.

2 Alternative Fuels In Trucking—Volume 4, Number 3

Continued on page 5
Cummins Engine Company, Inc.,

has announced two new higher performance ratings for its L10 natural

gas engine (the L10G), which feature

advanced electronic controls. The

new version of the engine is chargeair-cooled and uses a water-cooled,

wastegated turbocharger (in contrast

to the jacket water aftercooling 

featured on earlier L10Gs).

The new L10Gs will be introduced at two ratings, 300 and 280

horsepower (the L10-300G and L10-

280G). Both will deliver maximum

power at the engine’s rated speed 

of 2100 rpm and peak torque of 

900 lb/ft at 1300 rpm, suitable for

bus and on-highway applications.

The engine is fully compatible with

compressed natural gas and liquefied

natural gas fuel delivery systems.

The Cummins L10G engine is 

no stranger to the heavy-duty truck

market. The 600 plus L10 natural gas

engines currently in service have

logged more than 60 million aggregate on-highway miles, more than

any natural gas-fueled engine. Some

vehicles have logged more than

100,000 miles.

The L10-300G will offer several

other advantages over earlier L10G

engines. The fuel system of the new

engine features a closed-loop oxygen

sensor and other electronic controls

that monitor parameters affecting 

the emissions generated by the

engine. The sensors are designed to

optimize engine performance by

instantly adjusting the engine’s

air/fuel ratio for emissions control

and optimum power.

The L10-300G will meet 1996

California Air Resources Board

(CARB) emissions standards without

using a catalytic converter, and the

agency’s even stricter low-emissions

vehicle standard (see Table 1). It will

also meet 1997 EPA emissions standards without using an exhaust catalyst. Using an oxidation exhaust catalyst, the L10-300G will also meet

1998 CARB ultra-low-emissions

vehicle emissions standards. The oxidation catalyst will reduce unburned

hydrocarbons, carbon monoxide

emissions, and particulates.

This six-cylinder engine is sparkignited and integrates a lean-burn

technology to provide cooler combustion temperatures. This results 

in reduced levels of oxides of nitrogen and increased engine durability.

Alternative Fuels In Trucking—Volume 4, Number 3 3

Cummins Announces New 

Natural Gas Engine

by Ann Linn, L10/M11 Product Manager, Cummins Engine Company

1996 CARB/ 1998 CARB/ 1998 CARB 1998 CARB 2004 CARB/

1998 EPA EPA LEV ULEV EPA

Urban Bus Heavy-Duty Medium-Duty Medium-Duty Heavy-Duty

NOx 4.0 4.0 — — —

NMHC 1.2 1.2 — — —

NOx + NMHC — — 3.5 2.5 2.5

PM 0.05 0.10 0.10 0.05 0.10

CO 15.5 15.5 15.5 15.5 —

*grams per brake-horsepower hour LEV = low-emissions vehicle

ULEV = ultra-low-emissions vehicle

NOx = oxides of nitrogen

NMHC = nonmethane hydrocarbons

PM = particulate matter

CO = carbon monoxide

Table 1. CARB/EPA Heavy-Duty Engine Emissions Standards*
Alternative Fuels In Trucking—Volume 4, Number 3 4

The lean-burn air/fuel mixture also

helps convert fuel to energy more

completely and releases a greater percentage of the fuel’s potential energy

at combustion, an indicator known as

“thermal efficiency.” The improved

lean-burn technology of the L10-

300G raises the engine’s thermal efficiency to a 37% peak. Spark plugs

for the natural gas L10 engines have

been developed specifically for leanburn conditions and high-energy ignition requirements.

The L10-300G is equipped with

an engine-mounted electronic control

module that controls the air/fuel mixture and turbocharger wastegate and 

provides information to the Cummins

ignition control module. There is also

a governor control module, which

provides power takeoff, fault detection, a throttle inhibitor, optional

cruise control, and an optional road

speed limiter.

In 1992, Cummins built the 

first natural-gas-fueled engine to 

be certified by CARB. Early experience with lean-burn production

engines for truck and bus fleets 

has allowed Cummins to respond

quickly to customer needs. Recent

advancements in Cummins natural

gas technology have maintained

diesel-like performance, reliability,

and durability standards.

The L10-300G will be available

early in 1996. During the past few

years, natural gas-powered L10

engines have been used in various

heavy-duty applications, including

buses, line-haul, refuse, and delivery

trucks. The L10s are made at

Cummins’ plant in Jamestown,

New York.

Research efforts into alternative

fuels at Cummins are ongoing and

extensive. Natural gas products provide lower emissions levels without

losing the high-octane characteristics

necessary for heavy-duty engine performance. Natural gas resources provide a worldwide alternative as fuel

delivery infrastructures are developed. The Gas Research Institute,

Columbia Gas of Ohio, Consolidated

Natural Gas Company, Gas

Technology Canada, New York 

Gas Group, and Southern California

Gas are working with Cummins to

develop natural gas engine products.

Headquartered in Columbus,

Indiana, Cummins Engine Company,

Inc., designs, manufactures, and 

markets diesel engines, natural gas

engines, components, and power 

systems for trucks, buses, military

vehicles, and industrial equipment.

For more information contact:

Ann Linn

L10/M11 Product Manager

Cummins Engine Company

1537 Washington Street

Columbus, Indiana 47201

The Cummins L10-300G engine will meet 1996 California Air Resources

Board emissions standards without using a catalytic converter.

Photo courtesy of Cummins Engine Company/PIX03489
Alternative Fuels In Trucking—Volume 4, Number 3 5

Two regions of California,

the south coast and the Sacramento 

metropolitan areas, have begun new

incentive programs to put hundreds

of heavy-duty trucks with cleaner

engines on the road within 3 years.

The funds, obtained primarily

through the federal Congestion

Mitigation and Air Quality program,

will pay for the cost difference

between conventional and clean

emission engines. Proposed

California legislation would also 

provide as much as $25,000 for each

heavy-duty truck that emits 80% less

NOx than current models—a level

that some engine manufacturers can

already attain using LNG.

This trend toward incentives 

for cleaner heavy-duty engines will

continue as more information about

the hazards of diesel engine smoke

becomes available. A recent study by 

the Health Effects Institute for EPA

has indicated that the assumed safe

levels of particulate smoke may be

dangerous (or even lethal) to asthmatics and others with impaired breathing. EPA is under pressure to issue

new standards on particulate smoke

by the end of 1996. In general, the

LNG-powered engines produce much

less particulate smoke than do diesel

engines.

LNG has many favorable properties, but its cryogenic temperature

of -162°C (-260°F) requires precautions, technical knowledge, and significant investment for specialized

equipment. A challenge for the

emerging LNG industry is to offset

these costs with lower fuel and

equipment prices, better efficiency,

and safety.

More than 300 companies are

working to develop LNG transportation technology and infrastructure. During the past 5 years,

approximately 50 heavy-duty fleets,

including trucks, locomotives, and

buses, have conducted demonstration

programs. The question now is

whether LNG is ready for much

broader commercialization.

For further information, contact:

Steven Shivak

Marketing Manager

ZEUS Development Corporation

10333 Richmond Avenue, Suite 400

Houston, Texas 77042

Phone: (713) 952-9500

Fax: (713) 782-9594

LNG Demonstration Programs—Five Examples

1. Overnite put its Ford CF-7000 truck into service in Los Angeles. The truck uses the Cummins B5.9 engine.

2. Browning-Ferris Industries (BFI) of Atlanta recently added two LNG-powered refuse trucks to its fleet. The

trucks are Peterbilt 320s and are equipped with Cummins L10-260G engines. BFI has also added a Mack

MR600 packer truck to its fleet and has negotiated additional orders of both trucks for use in its Atlanta 

operations.

3. The Greater Austin Transportation Company (GATC) has converted four 25-foot buses to LNG and put them

into service. These Eldorado National Coach Escorts were powered by gasoline, but GATC converted the buses

by equipping them with 7.4-liter V8 engines and 100-gallon cryogenic tanks.

4. Ryder Truck Rental-One-Way is planning to purchase 10 LNG-powered Class 8 Kenworth tractors from Pacar,

Inc., in Seattle. Ryder will equip the tractors with Cummins L10 engines, and Pacar will install the fuel systems. Ryder expects to make use of the fleet in California by 1996.

5. Sun Metro of El Paso has recently added 35 new 40-foot buses to its fleet, each powered by a DDC Series 50

engine, and 22 buses from NGV Tech Center in Austin, each equipped with a Chevy 7.4-liter engine.

Continued from page 2
Volume 4, Number 3

Susan Moon, Editor

Dean Armstrong, Graphic Designer

Alternative Fuels in Trucking is published quarterly

by the National Renewable Energy Laboratory

(NREL), a U.S. Department of Energy (DOE) national laboratory. The newsletter is written by the

American Trucking Association Foundation’s

(ATAF’s) Trucking Research Institute.

The aim of Alternative Fuels in Trucking is to

inform fleet owners and operators, equipment suppliers, government officials, and other interested parties

about important developments in the use of alternative

fuels in heavy-duty trucks. Suggestions and comments

are welcome and may be directed to the National

Alternative Fuels Hotline at 1-800-423-1DOE. Views

expressed by guest authors are their own, and not

those of ATAF, DOE, or NREL.

NREL/TP-425-20318

Winter 1996

Printed with a renewable-source ink on paper

containing at least 50% wastepaper, including

20% postconsumer waste

UNITED S AT

FO SET

MA

ERICA

• DEPAR MT

EFOTNE

NERGY •

gy tment of Ener U.S. Depar

wable Energy Office of Energy Efficiency and Rene

Office of Transportation Technologies