[Senate Hearing 113-655]
[From the U.S. Government Publishing Office]
S. Hrg. 113-655
NATURAL GAS VEHICLES: FUELING AMERICAN JOBS, ENHANCING ENERGY SECURITY,
AND
ACHIEVING EMISSIONS BENEFITS
=======================================================================
HEARING
before the
SUBCOMMITTEE ON ENERGY, NATURAL RESOURCES, AND INFRASTRUCTURE
of the
COMMITTEE ON FINANCE
UNITED STATES SENATE
ONE HUNDRED THIRTEENTH CONGRESS
SECOND SESSION
__________
DECEMBER 3, 2014
__________
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Printed for the use of the Committee on Finance
______
U.S. GOVERNMENT PUBLISHING OFFICE
94-819 PDF WASHINGTON : 2015
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COMMITTEE ON FINANCE
RON WYDEN, Oregon, Chairman
JOHN D. ROCKEFELLER IV, West ORRIN G. HATCH, Utah
Virginia CHUCK GRASSLEY, Iowa
CHARLES E. SCHUMER, New York MIKE CRAPO, Idaho
DEBBIE STABENOW, Michigan PAT ROBERTS, Kansas
MARIA CANTWELL, Washington MICHAEL B. ENZI, Wyoming
BILL NELSON, Florida JOHN CORNYN, Texas
ROBERT MENENDEZ, New Jersey JOHN THUNE, South Dakota
THOMAS R. CARPER, Delaware RICHARD BURR, North Carolina
BENJAMIN L. CARDIN, Maryland JOHNNY ISAKSON, Georgia
SHERROD BROWN, Ohio ROB PORTMAN, Ohio
MICHAEL F. BENNET, Colorado PATRICK J. TOOMEY, Pennsylvania
ROBERT P. CASEY, Jr., Pennsylvania
MARK R. WARNER, Virginia
Joshua Sheinkman, Staff Director
Chris Campbell, Republican Staff Director
______
Subcommittee on Energy, Natural Resources, and Infrastructure
MICHAEL F. BENNET, Colorado, Chairman
RON WYDEN, Oregon JOHN CORNYN, Texas
JOHN D. ROCKEFELLER IV, West CHUCK GRASSLEY, Iowa
Virginia MIKE CRAPO, Idaho
DEBBIE STABENOW, Michigan MICHAEL B. ENZI, Wyoming
ROBERT MENENDEZ, New Jersey JOHN THUNE, South Dakota
MARIA CANTWELL, Washington RICHARD BURR, North Carolina
BILL NELSON, Florida JOHNNY ISAKSON, Georgia
THOMAS R. CARPER, Delaware
(ii)
C O N T E N T S
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OPENING STATEMENTS
Page
Hatch, Hon. Orrin G., a U.S. Senator from Utah................... 1
Bennet, Hon. Michael F., a U.S. Senator from Colorado, chairman,
Subcommittee on Energy, Natural Resources, and Infrastructure,
Committee on Finance........................................... 2
Cornyn, Hon. John, a U.S. Senator from Texas..................... 3
Wyden, Hon. Ron, a U.S. Senator from Oregon, chairman, Committee
on Finance..................................................... 4
Isakson, Hon. Johnny, a U.S. Senator from Georgia................ 5
WITNESSES
Carrick, Robert, sales manager, natural gas, Daimler Trucks North
America, Portland, OR.......................................... 7
Whitlatch, Mike, vice president, global energy and procurement,
UPS, Atlanta, GA............................................... 8
Calabrese, Joseph A., CEO, general manager, and secretary-
treasurer, Greater Cleveland Regional Transit Authority,
Cleveland, OH.................................................. 10
Jibson, Ronald, chairman, president, and CEO, Questar, Salt Lake
City, UT....................................................... 12
Kassel, Rich, senior vice president, east coast operations,
Gladstein, Neandross, and Associates, New York, NY............. 14
Clay, Harrison, president, Clean Energy Renewable Fuels, Newport
Beach, CA...................................................... 16
ALPHABETICAL LISTING AND APPENDIX MATERIAL
Bennet, Hon. Michael F.:
Opening statement............................................ 2
Prepared statement........................................... 27
Calabrese, Joseph A.:
Testimony.................................................... 10
Prepared statement........................................... 29
Carrick, Robert:
Testimony.................................................... 7
Prepared statement........................................... 32
Clay, Harrison:
Testimony.................................................... 16
Prepared statement........................................... 34
Cornyn, Hon. John:
Opening statement............................................ 3
Hatch, Hon. Orrin G.:
Opening statement............................................ 1
Isakson, Hon. Johnny:
Opening statement............................................ 5
Jibson, Ronald:
Testimony.................................................... 12
Prepared statement........................................... 48
Kassel, Rich:
Testimony.................................................... 14
Prepared statement........................................... 51
Whitlatch, Mike:
Testimony.................................................... 8
Prepared statement........................................... 62
Wyden, Hon. Ron:
Opening statement............................................ 4
Communications
American Chemistry Council....................................... 69
Diesel Technology Forum.......................................... 70
Natural Gas Vehicles for America................................. 74
NATURAL GAS VEHICLES:
FUELING AMERICAN JOBS, ENHANCING
ENERGY SECURITY, AND ACHIEVING
EMISSIONS BENEFITS
----------
WEDNESDAY, DECEMBER 3, 2014
U.S. Senate,
Subcommittee on Energy, Natural
Resources, and Infrastructure,
Committee on Finance,
Washington, DC.
The hearing was convened, pursuant to notice, at 2:34 p.m.,
in room SD-215, Dirksen Senate Office Building, Hon. Michael F.
Bennet (chairman of the subcommittee) presiding.
Present: Senators Wyden, Stabenow, Hatch, Cornyn, Thune,
and Isakson.
Also present: Democratic Staff: Sean Babington, Senior
Policy Advisor; Laura Sherman, Legislative Fellow; and Andrew
Siracuse, Legislative Assistant.
Senator Bennet. So I am going to gavel this meeting to
order with my hand, because I have no gavel. I do have a thing
up here that says ``Mr. Bennet, Chairman,'' but that is not
going to be true for very long. So I want to thank my
colleagues for not making it ``temporary.''
In the interest of time, we are going to start with Senator
Hatch, who has a witness to introduce, and then I will do my
opening statement and turn it over to Senator Cornyn, and then
we will introduce the rest of the witnesses, if that is okay
with everybody. Great.
OPENING STATEMENT OF HON. ORRIN G. HATCH,
A U.S. SENATOR FROM UTAH
Senator Hatch. Well, thank you, Mr. Chairman. It is a
pleasure to be here today. I can only be here for a minute or
two to introduce a fellow Utahan.
Ron Jibson is the chairman, president, and CEO of The
Questar Corporation, one of the largest natural gas companies
in the country. Mr. Jibson has been with Questar for over 30
years. He started as a design engineer and has served as
director of engineering, operations manager, general manager of
operations, vice president of operations, and executive vice
president.
Just prior to his current role with the company, he was the
president and CEO of a subsidiary, the Questar Gas Company. Mr.
Jibson has been very involved in the natural gas industry at
large, having served as chairman of both the American Gas
Association and the Western Energy Institute.
He graduated from Utah State University. Go Aggies. BYU was
very unkind to them the other night, but they are doing pretty
good. He has a degree in civil engineering and has an MBA from
Westminster College in Salt Lake City.
Welcome, Ron, and we want to thank you for your
participation today. I am sure the subcommittee will benefit
greatly from your knowledge and your expertise in this
important area. I cannot stay, but I did want to get here and
introduce you so they realize how important you really are to
all of us in Utah and really across this country. So I
appreciate having you here, and I am sure these fellows are all
going to treat you very, very well.
Senator Bennet. We will.
Senator Hatch. Plus Senator Stabenow. She can be a little
rough from time to time, but----
Senator Bennet. Not today.
Senator Hatch [continuing]. Not today. [Laughter.]
Senator Bennet. Thank you, Senator Hatch. Thank you very
much for coming by.
OPENING STATEMENT OF HON. MICHAEL F. BENNET, A U.S. SENATOR
FROM COLORADO, CHAIRMAN, SUBCOMMITTEE ON ENERGY, NATURAL
RESOURCES, AND INFRASTRUCTURE, COMMITTEE ON FINANCE
Senator Bennet. Good afternoon to everybody, and thank you
to Senator Cornyn and to our distinguished panel and to our
colleagues for being here today. The Subcommittee on Energy,
Natural Resources, and Infrastructure will now come to order.
I want to thank our witnesses for traveling here today. We
have convened to discuss an incredibly important topic, natural
gas, and specifically the use of natural gas as a
transportation fuel in the United States. As most know, the
country has undergone a dramatic change in our domestic energy
picture over the last decade. Thanks to innovations in the
drilling processes, our domestic production of natural gas has
quadrupled since 2005. That is good for jobs, good for energy
security, and, when natural gas is produced responsibly, it
also can be good for the environment.
I want to spend just a moment on that at the outset,
because it is an important point. I am a firm believer that we
can produce natural gas safely and in a way that protects
drinking water, air quality, and adjacent communities. The
State of Colorado has led the way in establishing a robust
regulatory regime for natural gas production.
From first-in-the-Nation standards that dramatically reduce
fugitive methane emissions all the way to the innovative Clean
Air, Clean Jobs Act, it has led to increased natural gas usage
in Colorado's power plants. This law and the associated fuel
switching and efficiency targets will lead to sizable
reductions in both criteria emissions and carbon pollution,
which are two of the biggest environmental advantages of using
more natural gas in power generation and transportation.
More important, these initiatives were broadly supported
both by the industry and by the environmental community. On
this topic, like many others, I think that Washington would do
well to learn a lesson from how we work together in Colorado.
While various aspects of natural gas have been discussed in
front of the Energy and Environment Committees, we are here
today to discuss natural gas as a transportation fuel. There is
a huge opportunity to grow this market. It is amazing to me
that over 40 percent of the country's public buses are
currently powered by alternative fuels or blends. We have seen
this happen in Colorado: Weld County Public Works has recently
converted many of their cargo vans, snowplows, and school buses
to natural gas. They predict this will save the school district
$100,000 a year and will reduce emissions of smog-producing
pollutants.
As we will hear today, this committee can do more to help
this growing industry. Specifically, we can level the playing
field on excise taxes on natural gas so that it is not taxed at
a higher rate than diesel. Senators Burr, Hatch, and I have a
bill that will do just that. It passed this committee and the
full Senate during our consideration of the highway bill. It
was stripped out of the House bill before final passage.
The Finance Committee also has jurisdiction over a variety
of alternative fuel tax credits, specifically the 50-cent per-
gallon equivalent credit for selling natural gas as a
transportation fuel--a credit that has expired--and the 30-
percent credit for the installation of new natural gas
refueling equipment, which also has expired. Our tax laws are
critical to the development of the new infrastructure needed to
aid the growth of these vehicles and to exploit the potential
of this domestic resource. Both of these credits were included
in the EXPIRE Act that passed the Finance Committee with
bipartisan support.
I would prefer, and I know that many in the Senate would
too, that we move back to the bipartisan legislation that moved
through this committee over 6 months ago. But in the meantime,
we should pass the Senate Finance Committee bill, including the
natural gas vehicle provisions, and get down to the hard work
of tax reform.
As we do this, it is important that Congress understands
the growing natural gas vehicle industry and its positive
effect on our economy, national security, and our environment.
[The prepared statement of Senator Bennet appears in the
appendix.]
Senator Bennet. Once again, I want to thank our panel for
being here and to tell you that we are looking forward to your
testimony. I will now turn it over to Senator Cornyn for his
opening remarks. Thank you.
OPENING STATEMENT OF HON. JOHN CORNYN,
A U.S. SENATOR FROM TEXAS
Senator Cornyn. Well, thank you, Mr. Chairman, and thanks
to each of the witnesses for being here today. Listening to
Senator Bennet's opening statement, I find that there is much
that I agree with--not all, but most, which is a good start.
Obviously, coming from States like Colorado and Texas, we
are no strangers to energy and the natural gas renaissance that
we have seen in this country--and its impact not only on low-
cost energy, but also on the promise to perhaps help us with
the geopolitics of energy, as well as job creation, which is so
important at home. We know the key in my State to the energy
sector and producing a growing economy is a stable and secure
supply of affordable energy. We, of course, have a diverse
array of energy sources and industries that provide solid
employment not just in Texas, but around the country, at the
same time that they provide for the energy needs of working
families across the country.
I think one of the big challenges we are going to have is
trying to figure out how to reconcile our tax policy with
energy policy. It is no secret to any of us here that, while we
all support an all-of-the-above approach, not all energy
sources are treated the same. Indeed, many of the energy
sources, like the oil and gas industry, pay vast sums of money
in taxes to the Federal Treasury.
Other forms of energy depend on generous subsidies from the
Federal Government, and obviously that is something we need to
continue to study as we try to solve this puzzle of our tax
code, which is so important. But we also need to remember and
remind ourselves that a regulatory regime that makes it more
difficult to produce and deliver affordable energy and to
sustain and create jobs here at home is a recipe for more
dependence and less independence. It can lead to more
volatility and be a threat to our economy.
I continue to be concerned about the administration's
pursuit of regulatory policies that will end up increasing the
cost of energy for families and small businesses and, in the
end, dampen the potential growth of our economy. Americans
understand that raising taxes and piling on more regulations
will translate into higher prices. Although I find myself in
agreement again with Chairman Bennet's comments, this is not to
suggest we proceed ignorant or unaware or unconcerned about
impact on the environment. That remains a common concern.
I commend the chairman for holding today's hearing and look
forward to the testimony from the witnesses.
Senator Bennet. Thank you, Senator Cornyn. We appreciate
very much your leadership on this panel. And with that, we are
blessed to be joined by our chairman, Ron Wyden, who is here to
introduce the first witness.
OPENING STATEMENT OF HON. RON WYDEN, A U.S. SENATOR FROM
OREGON, CHAIRMAN, COMMITTEE ON FINANCE
Senator Wyden. Thank you very much, Chairman Bennet and
Senator Cornyn. I very much appreciate both of you tackling
this on a bipartisan basis, and I just have a couple of points
to make.
We are so glad to have Mr. Carrick here. It seems like eons
ago when you participated in our natural gas roundtable, when I
was chair of the Energy Committee. So we are very pleased you
are here.
So just a couple of quick points, and then I want to talk
about his important work at Daimler, which, of course, is
headquartered in my hometown.
First, this is an especially important hearing, Chairman
Bennet and Senator Cornyn. It is important that we tackle this
in a bipartisan way, because the reality is that natural gas,
particularly because of what has happened in the Bakken, is
advantage America. Natural gas is, of course, the cleanest of
all the fossil fuels. It is 50-percent cleaner than the other
fossil fuels, and we have it, and the rest of the world wants
it. It seems to me that this effort to look at how safely and
efficiently we can use natural gas is especially important
because of what is going on right now in discussions back and
forth between the House and the Senate.
This committee, on a bipartisan basis back in April, passed
a 2-year extension of the 30-percent investment tax credit for
refueling infrastructure and a 2-year extension of the 50-cent
per-gallon tax credit for natural gas transportation fuel.
Right now--certainly in the absence of an alternative--the
House is about to vote on providing what Senator Cornyn and I
talked about this morning: essentially 4 weeks, a grand total
of 4 weeks of certainty, at a time when our economy--and
particularly for business decisions and matters that are so
important to working-class families--hungers for certainty and
predictability. So my view is--and what I have spent most of my
day on and what I will be walking out of here in a minute to do
is--I think the American people deserve an upgrade on that kind
of approach. They deserve a bipartisan alternative, and my hope
is--and Senator Cornyn and I have been talking about this
through the day, a number of colleagues have--that we can do
that.
Also, before we get to Mr. Carrick, I want to mention
another bipartisan effort, which is Chairman Bennet and Senator
Burr's effort to equalize the tax treatment of liquefied
natural gas with diesel fuel. This passed as part of the
highway bill, as colleagues will recall, and I very much hope
that what Senator Bennet and Senator Burr are trying to do,
again on a bipartisan basis, will become law in the very near
future.
Mr. Carrick, you, of course, and Daimler are very much a
part of Oregon's economic future. We are glad you are in my
hometown, manufacturing natural gas vehicles and supplying
those trucks that are used for regional and short-haul
applications, but are especially valuable for utility
companies, for municipal solid waste companies, and for pickup
and delivery. So to have you, Mr. Carrick, as a representative
of Daimler, which consistently provides vehicles that are
reliable, powerful, and clean, I guess I am glad you are a
recidivist. You came to the Energy Committee, and now you are
here at the Finance Committee.
My apologies for having to go back to the extenders fray,
but, colleagues, I think you are really going to enjoy his
presentation, because this is the face of what the two of you
are trying to do on a bipartisan basis, and I commend you for
it and look forward to visiting with you at home as well, Mr.
Carrick.
Senator Bennet. Thank you very much, Mr. Chairman. I think
Senator Isakson is going to introduce our next witness.
OPENING STATEMENT OF HON. JOHNNY ISAKSON,
A U.S. SENATOR FROM GEORGIA
Senator Isakson. Thank you very much, Chairman Bennet. I
commend you on calling this very important hearing on a very
important subject. It is really a pleasure for me to introduce
Mr. Mike Whitlatch of the UPS Corporation in Atlanta, GA.
As I think all of the committee knows and the audience
knows, UPS is a preeminent logistics company, internationally
and worldwide, in the delivery of packages. If anybody knows
trucks, fuel, and logistics, it is UPS Corporation.
Mike is vice president of global energy and procurement for
UPS and is responsible for the energy strategy and energy
supply chain that supports UPS in its worldwide enterprise. He
is a 27-year veteran of UPS Corporation, and we are delighted
to welcome you here today, Mr. Whitlatch.
I am going to take liberty with your introduction by making
two other acknowledgments. Half the panel has a Georgia tie.
Mr. Carrick ships all of his trucks in the Port of Brunswick,
if I am not mistaken, on the southeast coast of the State of
Georgia. We appreciate that business.
Mr. Harrison Clay's father, Steve, is one of the most
prominent attorneys in the city of Atlanta. I met him when he
came in this afternoon, and I had worked with him and Boone
Pickens on other projects before.
We welcome you to the committee, and we welcome all of the
panel members and their testimony today. Thank you, Mr.
Chairman.
Senator Bennet. Thank you, Senator Isakson. In fact, this
entire effort was just a way to showcase Georgia. So I am glad
you are here. [Laughter.]
I know that Senator Portman wanted to introduce our next
witness. He is not here, so I am going to take the liberty of
introducing Joseph Calabrese. He is the CEO, general manager,
and secretary-treasurer for the Greater Cleveland Regional
Transit Authority. Mr. Calabrese was appointed to represent the
public transit industry on the U.S. Department of
Transportation's Intelligent Transportation Systems Advisory
Committee. Under his leadership, the Greater Cleveland Regional
Transit Authority is now converting its fleet of diesel buses
to natural gas. We look forward to hearing your testimony.
Our next witness, Rich Kassel, is the senior vice president
of east coast operations for Gladstein, Neandross, and
Associates. He is an environmental policy advisor to
governments, international organizations, nonprofits, and
funders. Mr. Kassel is an expert in transportation, air
pollution, clean energy, and climate change policy. In this
capacity, he has played a major role in the development of
government programs to reduce vehicle emissions, including new
regulations and a set of programs. We are very glad that you
are here as well.
Our final witness, Harrison Clay, is the president of Clean
Energy Renewable Fuels, which is a division of Clean Energy
Fuels Corporation. Clean Energy Renewable Fuels is dedicated to
the production of renewable natural gas and organic waste. Mr.
Clay has expertise in the financing and development of
renewable energy products as well as the sale of renewable
energy and carbon credits. Prior to joining Clean Energy, he
served as director of corporate development and general counsel
to the San Francisco investment bank, WR Hambrecht and Company.
We are delighted that all of you are here, and I think we
will start, Mr. Carrick, with you and just go across. If you
could try to keep your comments to about 5 minutes or so, that
will leave more time for questions, but we certainly want to
hear your point of view.
STATEMENT OF ROBERT CARRICK, SALES MANAGER, NATURAL GAS,
DAIMLER TRUCKS NORTH AMERICA, PORTLAND, OR
Mr. Carrick. Thank you. My name is Robert Carrick, and I am
the sales manager for natural gas for Daimler Trucks North
America. We appreciate Chairman Bennet and Ranking Member
Cornyn for holding this important hearing on the role of
natural gas in the transportation sector.
Daimler Trucks North America is headquartered in Portland,
OR, as Senator Wyden mentioned, and we are a leader among U.S.
truck manufacturers in introducing natural gas technology to
the transportation sector.
Since 2008, Daimler has sold and delivered over 5,000
natural gas heavy-duty trucks, Class 7 and 8 trucks, as well as
thousands of school buses and step vans through our Thomas
Built Buses and Freightliner Custom Chassis organizations. The
Freightliner Business Class M2 112 has been ideal for
utilities, refuse, municipalities, and other short- and
regional-haul applications.
Our Freightliner Cascadia Natural Gas has been on the road
for just over a year. It offers the next step in super-regional
haul and lane applications. Freightliner now offers natural gas
technology in nearly all of its truck applications, including
the Vocational 114SD.
While DTNA is headquartered in Portland, much of our truck
manufacturing is in North Carolina. DTNA operates four
manufacturing plants in the State. Thomas Built Buses is
headquartered in High Point; our parts manufacturing facility
is located in Gastonia; the Freightliner truck manufacturing
plant is in Cleveland, where we produce the Cascadia Natural
Gas Truck; and in Mount Holly we manufacture our Freightliner
Business Class M2 trucks, including the M2 and 114SD, powered
by natural gas.
With record order intake so far this year, DTNA is adding
capacity and jobs in North Carolina. Daimler is committed to
natural gas because of customer demand for high-performing,
reliable trucks that run with near zero emissions. With natural
gas, greenhouse gas emissions are reduced by at least 20
percent versus comparable diesel engines. And because the
United States has an abundant supply of natural gas, the fuel
supply is less constrained by overseas developments.
As I travel around the country, I get asked a lot of
questions from perspective truck buyers whether natural gas is
right for their business. For some, the decision to go with
natural gas makes sense, but for others, natural gas is not the
best, most economical choice.
For example, natural gas-powered trucks are perfect for
short- and regional-haul trucking. Today's natural gas trucks
are ideally suited for 300 to 500 miles per day usage. For
companies that operate in that environment, for example at
ports and in regional hub-and-spoke distribution, natural gas
is both economical and efficient.
Good examples of what I mean are delivery companies like
UPS here on the panel with me today, food and beverage
distributors, utility vehicles, and refuse and public transit
vehicles that stay within a relatively compact radius and
return to a dedicated depot or station to fill up daily.
Although natural gas trucks have distinct advantages,
challenges do exist, particularly for long-haul trucking. The
lack of a national network of natural gas stations is a leading
obstacle facing natural gas long-haul trucking. Less than 1,500
CNG natural gas stations exist in the U.S., and only about half
are publicly available. On the LNG side, there are
approximately 100 retail stations in operation today. By
comparison, there are about 168,000 gas and diesel stations out
there.
Technology costs also remain high. The incremental cost of
a typical natural gas truck is $45,000 to $60,000 more
expensive than a comparable truck with a conventional diesel
engine. And do not forget to add the Federal Excise Tax on top
of that figure as well.
Engine technology is still a work in process, but the good
news is that there are some new engine products on the market
that have the potential to deliver game-changing results,
particularly in the long-haul truck segment.
Thank you for this opportunity to participate on this panel
today, and we look forward to addressing all of your questions.
Senator Bennet. Thank you, Mr. Carrick.
[The prepared statement of Mr. Carrick appears in the
appendix.]
Senator Bennet. Mr. Whitlach?
STATEMENT OF MIKE WHITLATCH, VICE PRESIDENT,
GLOBAL ENERGY AND PROCUREMENT, UPS, ATLANTA, GA
Mr. Whitlatch. Thank you, Senator, for the introductions.
Thank you for the kind words. Chairman Bennet, Ranking Member
Cornyn, and members of the subcommittee, thank you for allowing
me to testify in front of you today.
I think he referred to it, Senator Cornyn, as a renaissance
in the U.S. with natural gas, and we do believe that, in fact,
natural gas is revolutionizing transportation within the United
States, especially for heavy-duty trucking--UPS included and
the rest of the industry.
I have submitted my prepared testimony, and I would like to
make three points to you today.
First, UPS is absolutely committed to developing
transportation alternatives that reduce our dependence on
petroleum-based fuels. In fact, UPS operates over 4,700
alternative fuel vehicles. Natural gas is a key part of that
strategy. In fact, we operate over 100,000 pieces of equipment
worldwide. Seventeen thousand of those pieces of equipment are
heavy-duty, Class A over-the-road trucks that operate on diesel
fuel. Out of those, 1,243 are LNG or CNG long-haul trucks that
we have added to our fleet.
In fact, all of the heavy-duty trucks that we are buying
this year, 2014, for a domestic U.S. small package operation
which is the core of our business, will run on natural gas. The
natural gas supply situation in the U.S. provides a tremendous
opportunity to adopt a cleaner-burning alternative fuel, and
removing barriers will be the key to this transformation.
My second point is, although UPS has tested virtually every
type of alternative fuel technology in our fleet, we have found
that natural gas is one of the best alternatives for long-haul
heavy-duty trucks. Natural gas heavy trucks are ideal because
heavy trucks simply burn the most fuel. In fact, if you look at
it, to put this into perspective, there are 2.4 million heavy-
duty trucks on the road today. They only account for 1 percent
of the vehicles on the road, but they consume 17 percent of the
transportation fuel.
There is also a price for technology. Mr. Carrick just
referred to that in his opening statement. Each natural gas-
powered alternative vehicle costs significantly more than a
conventional diesel truck, and it requires investment in
infrastructure.
This incremental up-front cost for a Class A tractor can
run between $60,000-$70,000 per unit depending on how it is
equipped. But in addition to the investment risk, we face a 12-
percent excise tax that is applied to the total purchase price.
This simply means that we pay extra taxes for purchasing
alternative fuel vehicles.
So for example, 12 percent on an incremental investment of
$70,000 is $8,400 in extra taxes when compared to a diesel
truck, all for investing in a vehicle that uses domestic fuel,
creates jobs here in America, and makes for cleaner air.
My third point is, the biggest impediment to greater
adoption of LNG trucks in the U.S.--in the heavy-duty truck
market--is a very simple glitch in how the Federal excise tax
is applied to fuel. So you may ask what is the glitch--and I
think everyone in this subcommittee understands the glitch very
well. Today the Federal excise tax on both diesel and LNG fuel
is 24.3 cents per gallon. This is a volumetric tax. I think it
was mentioned earlier that not all of these fuels are equal in
their energy content, and this is definitely not the case with
LNG.
So, to illustrate this, a gallon of LNG only has 58 percent
of the energy content when compared to a gallon of diesel fuel.
This requires you to burn 1.7 gallons of LNG for the same work
that 1 gallon of diesel fuel would require. So in short, we are
effectively taxed at 170 percent of the rate of an equivalent
diesel fuel gallon on an equivalent energy basis. So this means
that LNG is disadvantaged from the start, costing 17 cents more
for every diesel gallon equivalent. So another way to look at
this is that the effective tax rate on an LNG-equivalent gallon
is 41.3 cents compared to 24.4 cents on diesel.
Seventeen cents does not sound like a lot, but it adds up
over the life of the vehicle. In fact, for a company like UPS,
the extra LNG fuel tax will cost more than the incremental
investment of that vehicle over the life of the truck. So in
short, the glitch with this LNG excise tax is probably the
biggest impediment to the general adoption of LNG trucks.
If the Congress wants to accelerate the adoption of
alternative fuels, fuels like LNG, increase the use of domestic
natural gas to enhance our energy security, and clean the air,
then we must start with just fixing the LNG glitch in the tax
code. That is my primary message here today. Let us just
provide simple parity for this fuel.
Consequently, UPS is pleased to support Senate Bill 1103,
the LNG Excise Tax Equalization Act of 2013, which Chairman
Bennet--we thank you very much--sponsored and Senator Burr of
this subcommittee cosponsored. We commend you for your
leadership on this matter and hope that we can get LNG taxed at
the same rate as diesel fuel.
Again, I would like to thank the subcommittee for allowing
me to testify. Thank you.
[The prepared statement of Mr. Whitlatch appears in the
appendix.]
Senator Bennet. Mr. Calabrese?
STATEMENT OF JOSEPH A. CALABRESE, CEO, GENERAL MANAGER, AND
SECRETARY-TREASURER, GREATER CLEVELAND REGIONAL TRANSIT
AUTHORITY, CLEVELAND, OH
Mr. Calabrese. Yes. Thank you very much. I thank the
chairman and the committee for giving me this opportunity to
talk and testify on the importance of continuing the
alternative fuels tax credit.
Public transit ridership is growing, and projections are it
will continue to grow at an increasing rate. Our cities are
growing in population, our seniors are getting older and
relying on public transportation both in our urban and our
rural areas, and the younger generation is using public transit
much more than their parents and even their grandparents.
While public transit is important for both rural and urban
areas, certainly the bulk of it is in the urban areas where
environmental concerns are the greatest. I think that is a very
important point. Without public transit, an additional 4.2
billion gallons of gasoline will be burned in the Nation--4.2
billion. Now I think that is a very important service we
provide. And my agency, the Regional Transit Authority in
Greater Cleveland--we are a multi-modal agency with heavy rail,
light rail, bus, Bus Rapid Transit, and paratransit service--we
serve about 200,000 customers on a typical weekday and, as in
other cities, the appreciation and value of public transit is
growing, not just in terms of mobility, but also in terms of
economic development.
If the first thing RTA is about is mobility, the second
thing it is about is sustainability. During our mission in
greater Cleveland, we remove about 50,000 cars each day from
the streets and the congestion and pollution associated with
that.
I am pleased to talk about two programs that are underway
in greater Cleveland in terms of alternative fuels. The first
relates to our paratransit service, which is designed to serve
people with disabilities. We have 20 propane-powered 12-
passenger vehicles that run on propane, modified by Rousch
Corporation. These cutaways travel about 150 miles a day
serving, again, exclusively people with disabilities.
The cost of these vans is more than the cost of the diesel
vehicles they replaced. We think over the life of the vehicle--
about 6 or 7 years--that up-front capital cost will be
addressed through a lower fuel cost; however, we still have the
up-front cost of the infrastructure to deal with. The good news
is, over the same life cycle of the vehicles, we will
drastically reduce particulate matter and eliminate 20 percent
of the NOX compared to the diesel vehicles they have
replaced. We hope this pilot is successful. If it is, we will
replace all of our vehicles in that fleet with propane
vehicles.
In our big bus fleet, we just received a delivery of the
first of 240 CNG 40-foot transit buses. They are being produced
in California by Gillig Corporation. We hope to eventually
replace the other 500 vehicles with CNG. Again, the capital
costs for the CNG buses were more than the diesel buses they
replaced--about a $40,000 differential. We feel that, over the
life of the vehicle, that $40,000 would be more than offset by
lower fuel costs.
And again, the great news is that one diesel coach emits
170 tons of CO2 annually, but one CNG coach emits
only 4 tons of equivalent CO2 annually. When we
transition the entire fleet to CNG, we will save over 41,000
tons, really a tremendous improvement in air quality.
For both projects, in addition to the increased capital
costs, really the big thing is increased infrastructure costs.
With stagnant, at best, Federal investments, allocating
discretionary funds for the purchase of vehicles that are more
expensive, and then investing in infrastructure needed to fuel
and maintain the CNG vehicles, is a real, real challenge. We
are investing right now between $15 million and $20 million in
the two facilities that we are upgrading so the CNG vehicles
can be serviced and operated.
So the good news is, alternative fuel is cleaner. The good
news is, it is being produced locally, it is helping American
jobs, and there is significant interest--as you are hearing
here at this table--by fleet operators to go to CNG.
The bad news is, the vehicles cost more. There is an issue
in the public transit industry--in the State of Ohio, for
example, 1,000 of the 3,000 vehicles, or over one-third, right
now are already beyond their useful lives. So we are having a
difficult time replacing buses of any type, let alone buses
that cost more up front.
The third and probably the biggest challenge is the cost of
the infrastructure, as I have mentioned. In making our
decision, we relied on the alternative fuels tax credits, and
we hope to rely on them to finance some of the infrastructure
investments that we are going through right now.
Transit has been moving to alternate fuels in big numbers,
as the chairman mentioned. Over 40 percent of the Nation's
buses now operate on alternative fuels or blends, over 20
percent on CNG or LNG. For many, what made that possible was
the alternative fuels tax credit, and many systems are weighing
the alternatives right now. And the future of the alternative
fuels tax credit is going to be the make-or-break in those
decisions. So there is a real opportunity to expand the use of
CNG buses in public transit, but the alternative fuels tax
credit is so very important to make that happen, especially in
times of very critical funding.
I strongly request that the alternative fuels tax credit be
extended. I certainly also have to say that we encourage a
bipartisan approach to the mass transit and transit bill in
general because, without that bill, we really cannot move
forward on this or any other important project.
Thank you very much.
Senator Bennet. Thank you very much.
[The prepared statement of Mr. Calabrese appears in the
appendix.]
Senator Bennet. Mr. Jibson?
STATEMENT OF RONALD JIBSON, CHAIRMAN,
PRESIDENT, AND CEO, QUESTAR, SALT LAKE CITY, UT
Mr. Jibson. Thank you and good afternoon.
Senator Bennet. Good afternoom.
Mr. Jibson. Chairman Bennet, Ranking Member Cornyn, thank
you for this opportunity. I am pleased and appreciate the
opportunity to appear before you today.
I would like to begin by thanking the committee for holding
today's hearing. It is critical that Congress remains current
on the dynamic discussion regarding natural gas brought about
by the obvious shale gas revolution. The new abundance of
natural gas reserves in our country has fundamentally shifted
our energy landscape.
A decade ago it seemed inevitable that the United States
would become a major importer of natural gas, yet today we are
the world's leading producer of natural gas, with over 100
years of supply of natural gas right here at home. We have made
great strides in turning down the curve of petroleum imports
through increased domestic petroleum production and landmark
fuel economy standards for light-duty vehicles.
But energy security means more than reducing our petroleum
imports below the 50-percent mark. In past decades, we have
successfully reduced or virtually eliminated petroleum use in
other sectors, such as in electrical generation and in home
heating. Yet our transportation sector depends on petroleum for
94 percent of its primary energy.
Our singular dependence on oil for transportation fuel
makes us vulnerable to economic and national security risks.
Every American recession over the past 4 decades has been
preceded by or occurred concurrently with an oil price spike,
including the most recent.
Our armed forces expend enormous financial and human
resources ensuring that oil transit routes remain open and
critical infrastructure is protected. Our relations with
foreign governments are too often influenced by our need to
minimize disruptions to the flow of oil.
The path that we are on is not sustainable, and it is not
smart. The smart path forward includes diversifying our
transportation energy mix and seeking to displace high-cost
imports with lower-cost domestic alternatives. Greater use of
natural gas as a transportation fuel delivers on both of these
objectives. While natural gas provides 24 percent of the
primary energy used to drive our economy, only 0.1 percent is
currently being used for transportation.
Natural gas has tremendous potential for the transportation
sector, and many nations are ahead of the United States in
grasping this opportunity. There are currently over 18 million
natural gas vehicles in use worldwide today. That is up from
over 4 million over a decade ago. Yet only about 150,000, less
than 1 percent of the global total, are on U.S. roadways.
There is good news, however, and this is that the market is
recognizing that switching from gasoline to diesel to natural
gas, as has been discussed by other witnesses today, can mean
significant costs savings. Major fleet operators, like Swift
Trucking, obviously UPS, Waste Management, Verizon, Ryder, and
many others are switching to natural gas vehicles because of
the business case that is obviously there.
But good policy choices can support the adoption of natural
gas vehicles by leveling the playing field with other fuels.
Currently, liquefied natural gas is taxed at a higher rate than
the diesel fuel it competes with, working against NGV adoption
in the heavy truck market. Resetting the tax rate so that it is
applied on an
energy-content basis is a common-sense measure that would
remove an artificial barrier from the market.
The alternative fuels tax credit should also be reset to
apply on an energy-content basis for natural gas fuels like LNG
and CNG and for all other alternative fuels. Weight
restrictions on trucks using natural gas also work against NGV
adoption in the heavy-truck market because of the weight of
storage tanks and the lower energy density of the fuel compared
to a diesel. To comply with Federal highway weight
restrictions, NGV operators must compensate with smaller
payloads. Allowing an adjustment for these vehicles would
remove an unfairly imposed market disadvantage. As this market
continues to grow, natural gas utilities will play a key role
in supplying the fueling infrastructure needed to support these
vehicles.
The gas utilities in our membership maintain over 2 million
miles of natural gas distribution pipelines nationwide. This
distribution network means that we can place compressed natural
gas fueling stations around the country without the need to
truck that fuel. Currently, there are over 1,400 compressed
natural gas stations in the United States, and many of these
are owned and operated by our gas utilities.
Natural gas utilities like Questar can help greatly in
building a national fueling infrastructure for natural gas
vehicles. Working with their regulators, a number of natural
gas distribution companies are exploring many innovative
methods for supplying this gas infrastructure for participation
in this market.
Research to develop affordable, reliable home refueling for
natural gas vehicles could greatly expand the appeal for
natural gas vehicles to residential customers. As that
technology matures, companies again, like ours and others, will
be involved in ensuring the safe and reliable operation of
home-refueling appliances, just as we have ensured safe and
reliable natural gas services to homes and businesses today.
The attractive price of natural gas is creating momentum in
the market that is translating into growth in our fueling
infrastructure for natural gas vehicles. Since 2008, the number
of CNG stations has grown by over 11 percent per year. This
sustained growth has occurred even as we have weathered one of
the worst economic recessions our Nation has seen in decades.
Our domestic abundance of natural gas and the fact that,
unlike petroleum, its price is not set on a global market,
means that we are likely to see low and stable prices for
natural gas for many years to come. To stay on the smart path
forward, we need policies that help us sustain the momentum we
are seeing in the adoption of natural gas vehicles and fueling
infrastructure. The most important component of this is
maintaining a level playing field that allows natural gas
vehicles to compete fairly in the market.
Developing the market for natural gas vehicles enhances our
energy security and our competitiveness and encourages the
expansion of transportation fueling infrastructure and
technological advances. The American Gas Association, with
member companies like Questar, urges the Congress and
appreciates what you are doing in regards to this important
issue.
Senator Bennet. Thank you very much, Mr. Jibson.
[The prepared statement of Mr. Jibson appears in the
appendix.]
Senator Bennet. Mr. Kassel?
STATEMENT OF RICH KASSEL, SENIOR VICE PRESIDENT, EAST COAST
OPERATIONS, GLADSTEIN, NEANDROSS, AND ASSOCIATES, NEW YORK, NY
Mr. Kassel. Chairman Bennet, Ranking Member Cornyn, members
of the committee, thank you for the opportunity to testify
today. My name is Rich Kassel, and I am a senior vice president
with Gladstein, Neandross, and Associates or GNA.
For more than 20 years, GNA products around the country
have helped to demonstrate the feasibility of natural gas
vehicles. More personally, I have been involved with natural
gas vehicles since the mid-1990s when I was working with the
Natural Resources Defense Council and we put together a project
to bring hundreds of natural gas buses to New York City.
For more than 30 years, I have worked in a variety of
capacities to reduce emissions from vehicles across a range of
fuels and vehicle types. From this work, we know that natural
gas vehicles can provide clean, safe, cost-effective
transportation, while reducing our dependence on oil and
creating American jobs.
In my remarks, I am going to limit my focus to the air
quality and the energy side of this discussion. But in brief,
as we have already heard, here is the challenge: converting
operations to natural gas pairs up-front capital costs with
considerable savings in fuel costs. For many fleets, these up-
front costs are a barrier that keeps them invested in older,
dirtier diesel trucks.
All new truck engines are at least 90 percent cleaner than
the ones they replace, regardless of the fuel they use. So our
main challenge is to create mechanisms that accelerate the
replacement of today's legacy fleet of roughly 7 to 8 million
so-called ``dirty diesels'' with cleaner engines in the most
cost-effective manner possible.
We will not be able to use natural gas everywhere cost
effectively. We know that. But using natural gas in those
niches where it is most cost-effective to do so will reduce
costs for operators and thereby accelerate the overall cleanup
of our transportation sector.
Switching to natural gas tends to be most cost-effective,
as you have already heard, as the engine gets larger or its
fuel consumption goes up. Thus, the most cost-effective natural
gas applications are found among truck and bus fleets that use
a great deal of fuel or in high-horsepower applications like
mining and locomotives and marine engines.
From an air quality and an energy perspective, this
approach also yields the greatest benefits. I would like to
share with you a couple of quick examples. On the energy side,
switching to natural gas for a long-haul truck can displace
20,000 gallons of diesel fuel each year. Using it in a
locomotive can displace 250,000 gallons each year. Using it in
a ferry vessel can displace 800,000 gallons, more than 40
trucks, in a single year. And converting a small container ship
to liquefied natural gas or LNG can displace more than 35
million gallons of fuel each year. That is a lot of petroleum
displaced.
In a moment, you will hear about renewable natural gas or
RNG. RNG moves us off of fossil fuels entirely and emits 90
percent less greenhouse gases than diesel. That is the energy
side.
Now I would like to shift to the air quality perspective
and provide a few examples there as well. A recent California
and West Virginia University study found that natural gas
trucks used in port drayage--one of the areas of most concern
about dirty diesels--emitted 91 percent less smog-forming
nitrogen oxide emissions than comparable trucks. Just to be
clear, these are diesel and natural gas trucks that are
certified at the exact same emission levels by the EPA in the
State of California. What happens in the real world, as this
study shows, is that the natural gas trucks in real hard-duty
applications, are emitting much less nitrogen oxides.
Second example: by 2017, we should see new direct-injection
technologies that will enable natural gas engines to meet not
only EPA's upcoming Tier 4 emission standards, but also create
the potential for up to 25 percent lower greenhouse gas
emissions.
Third example: container ships and cruise lines are
increasingly looking at liquefied natural gas as a
significantly less expensive way to comply with the fuel and
emission requirements of the emission control area that is
being put into effect on our coastlines. With LNG currently
roughly 25 to 35 percent lower than diesel on an energy-
equivalent basis--that is about $1 a diesel gallon equivalent--
we can see why there is so much interest in the marine sector
in liquefied natural gas. In fact, there are 19 different
projects around the country that are investing in LNG on the
marine side.
Fourth and last, natural gas engines are already on the
path to meeting California's optional low NOX
emission standards for highway truck and bus engines. These are
engines that will be up to 90 percent lower than even EPA's
cleanest in the world standard.
To put it into perspective, these are what we call in our
world ``power plant equivalent emissions levels.'' In other
words, they are competitive with what we see from fuel cell
vehicles and electric vehicles, yet with the mileage range and
the cost-competitiveness of natural gas that we do not yet see
on the fuel cell and electric side. These are the kinds of
numbers that are necessary for sustainable, cost-effective
goods movement.
To close, at GNA we believe that well-framed tax policy,
such as basing the highway excise tax on the energy content of
the fuel, is necessary--as Senator Cornyn said in his opening
remarks--to conform our tax policy with our energy policies.
Taking these kinds of steps can help end-users accelerate the
positive return on their investments, and they are going to be
more likely to make those investments.
That is great for individual companies for sure, but from a
broader perspective, doing so will accelerate the overall
cleanup of the transportation sector, the legacy fleet of 7 to
8 million dirty diesels that are still out there. Doing so will
translate into increased economic benefits, increased energy
security, reduced oil consumption, and less air pollution for
everybody.
Thank you for the opportunity to testify.
Senator Bennet. Thank you, Mr. Kassel.
[The prepared statement of Mr. Kassel appears in the
appendix.]
Senator Bennet. Mr. Clay, you are going to bring us home
here. The testimony has just been excellent. Thank you. Not to
put any pressure on you. [Laughter.]
STATEMENT OF HARRISON CLAY, PRESIDENT,
CLEAN ENERGY RENEWABLE FUELS, NEWPORT BEACH, CA
Mr. Clay. Mr. Chairman, members of the committee, thank you
for inviting me to testify before you today. I work for Clean
Energy Fuels. We are the largest LNG and CNG fuel provider in
North America today.
Within Clean Energy, I am responsible for leading our
efforts to produce and sell renewable natural gas, or
biomethane, that is derived from the decomposition of organic
waste such as that found in landfills or in wastewater
treatment plants.
By fully utilizing the enormous natural gas resources that
are just below our feet and developing the inexhaustible
potential of renewable natural gas, this Nation has the
building blocks for a cleaner, greener future with more jobs
and opportunities, less reliance on foreign oil imports, and a
healthier environment than we have seen in generations.
Natural gas is an increasingly important vehicle fuel for
heavy-duty trucks, taxis, transit vehicles, airport shuttles,
and fleets. Clean energy fuels fleets at airports and cities
across the country, and we have built a network of fueling
stations within 43 States to allow heavy-duty trucks to travel
coast-to-coast fueled entirely by natural gas.
We have also innovated in renewable natural gas. Renewable
natural gas is the only alternative fuel available in
commercial quantities today that can meet 100 percent of the
fuel requirements of an 18-wheeler, achieve a 90-percent
reduction in greenhouse gas emissions, compared to diesel,
leverage existing infrastructure, and be cost effectively sold
at a substantial discount to current diesel prices.
We have a branded biomethane vehicle fuel product we call
Redeem. We are the largest producer and marketer of renewable
natural gas as a vehicle fuel in North America. We sold 14
million gallons last year. We expect to sell 20 million this
year and 45 million next.
When the EPA classified renewable natural gas as a
cellulosic biofuel earlier this year under the renewable fuel
standard, it was really a game changer for us and our industry.
It is really an important program for those of us producing
low-carbon alternative fuels, and I am asking that you ensure
the long-term viability of the renewable fuel standard. Any
efforts to gut it will derail the promise of viable fuel
solutions like Redeem that are just coming to market today.
Bringing stability to the RFS and the Renewable
Identification Number market will spur further development with
a commitment to long-term investment and innovation. I urge
every member of the committee to consider standing up for what
is becoming an amazing opportunity for our Nation's energy
future. I also believe that adopting a performance-based,
technology-neutral renewable energy tax incentive would be a
game changer.
We recognize the importance of current and expired tax
incentives to our businesses. We believe that a permanent long-
term incentive can provide the kind of business certainty that
would supercharge the industry.
In addition, correcting the highway excise and fuel tax
treatment of LNG and addressing other barriers currently
hindering LNG adoption are important. LNG competes directly
with diesel in heavy-duty vehicles. The Federal highway excise
tax credit on diesel and LNG is set at 24 cents per gallon. LNG
effectively pays 170 percent of the diesel rate, since it has
less energy per liquid gallon. This applies to every gallon of
Redeem LNG we sell as well.
So our renewable, low-carbon, domestically produced, and
cleaner fuel is being taxed at a higher rate than diesel. The
proposal we support, promoted by Senators Bennet and Burr,
would change the excise tax on LNG so that it is imposed on the
energy content of a gallon of diesel fuel or a diesel gallon
equivalent.
There is also the Federal highway excise tax credit of 12
percent on heavy-duty trucks and tractors and interstate weight
limits, both of which put LNG and Redeem-powered heavy-duty
trucks at a competitive disadvantage compared to diesel-fueled
counterparts. We are asking for a level playing field for LNG,
whether it comes from renewable or conventional natural gas,
and we appreciate the leadership that so many of you have shown
to address it.
Lastly, I want to stress the importance of enacting a
retroactive reinstatement and expansion of the expired
alternative fuels tax credit as well as the alternative fuel
vehicle refueling property credit. These important
infrastructure and alternative fuels tax credits provide
critical incentives for individuals and businesses to increase
their use of natural gas as an alternative transportation fuel.
Both of these provisions were proposed for retroactive
reinstatement, as well as extension, in Chairman Wyden's EXPIRE
Act of 2014 and the Bridge to a Clean Energy Future Act of 2014
in the House.
We joined more than 30 others, from the American Trucking
Association and Cummins Westport to UPS and Waste Management,
to ask for consideration of the LNG fix and several tax-based
actions in a recent letter that I hope you will consider, which
was included with my written testimony.
Congress has a key role to play in ensuring that the
journey that we have started, leading to a cleaner future using
domestic renewable energy, does not get derailed. I hope you
will consider taking action on these important regulatory
matters, tax incentives, and extensions, as well as addressing
the technical corrections I have outlined.
Thank you for your leadership in the area and the time and
attention you have dedicated to it. I will be more than happy
to answer any questions or provide any further information you
might need.
Senator Bennet. Thank you, Mr. Clay.
[The prepared statement of Mr. Clay appears in the
appendix.]
Senator Bennet. Thank you, again, to all of the witnesses
for your great testimony. It is down to the two of us, and we
are going to go in 5-minute rounds. Thank you, Senator Cornyn,
for hanging in there.
I think what is clear, if you listen to this, is that there
is a revolution going on out there, the beginnings of one
anyway, that American entrepreneurs are figuring out how to
invent the future when it comes to driving our fleets. But
there are some things Congress can do to help along the way to
create an ecosystem that
actually gets us to a place where maybe we can get off refined
petroleum imported from other places and on to our own cleaner-
burning natural gas.
In that spirit, I would like to start with you, Mr. Jibson.
You mentioned in your testimony that other countries have moved
ahead of where we are in terms of their implementation of
natural gas as a transportation fuel. I wonder if you could
talk a little more about that: the conditions that have allowed
that to happen and what you think the hang-up has been here.
Mr. Jibson. Yes, thank you, Chairman Bennet. I appreciate
the question.
I think it is something that we have wrestled with for a
long time. I think it has a lot of dynamics associated with it.
Back in the mid-1990s, when we were starting to see more
vehicles being converted to natural gas, I think we were
keeping up a little bit better at that time with the rest of
the world.
What we saw was that engines became very model-specific,
very computerized, requiring specific kits for each engine. We
also, I think, had a time period there where we saw gasoline
prices being much lower, and I think, as a Nation, we probably
did not see the need to go to smaller vehicles or more
efficient-type vehicles. That is, obviously, open for debate,
but I think at that point, we saw a lot of different models of
vehicles being introduced throughout the world, certainly in
South America, Europe, and some other countries, where
economics was emphasized more, but also there was the
willingness to have a smaller-type vehicle.
I think that is the point where we started to see that
divergence, and we are now seeing that turn around. I think, as
far as the growth we are seeing in the U.S., including
infrastructure as well as the move to natural gas by so many
tremendous companies that you have heard from today and
referenced today, that we are starting to obviously catch up.
But I think cost is a big issue. I talked about home
refueling units. In other parts of the world, we are seeing
home refueling units in the $1,000 to $1,200 range. That is
making it more possible for those personal vehicles.
I also think air standards, other things maybe, are of
greater importance than they are in the U.S. I think that has
also fueled that conversion.
Senator Bennet. Thank you. Mr. Whitlatch, you were kind
enough to mention the bill that I have with Senator Burr that
would tax natural gas and diesel by energy content instead of
by volume. I wonder if you could talk a little bit about what
that would mean economically to UPS or to others in your
industry and what kind of effect that might have on the
adoption of vehicle technology across the country. How big a
deal is it?
Mr. Whitlatch. Sure. So I think we heard that a Class 8
vehicle can burn 20,000 gallons-plus of fuel per year. So, if
you do the math, and, at the end of the day, you are operating
a fleet of, say, 1,000 Class 8 vehicles, that is 20 million
gallons of fuel. A 17-cent conversion on that is almost $4
million--$4 million to the bottom line just in excise tax when
compared to diesel.
So when this scales, you can see this is a recurring tax
forever. So, getting back to your leadership on this bill here,
this equalizes this and makes it on parity with diesel fuel,
which is what we need.
Senator Bennet. I will turn it over to you, Senator Cornyn.
Senator Cornyn. Well, thank you all for your testimony.
This has been very encouraging, but it seems to me--and I would
like to have you comment on this--it boils down to four
different points. I would like to get your advice, because I
think this is something we are going to need your help to
figure out.
First of all, these vehicles are more expensive than
traditional diesel vehicles, and the question is, do the
advantages of natural gas provide enough benefit to the owner
of the vehicle that they are going to pay the extra money
without some additional help from the Federal Government in
terms of tax credits and subsidies? I know when the Pickens
Plan was being proposed, that was one of the hang-ups because,
frankly, while everybody thought it was a good idea, at the
same time that we are talking about flattening the tax code and
doing tax reform, we are, on the other hand, talking about
adding additional credits and subsidies.
The second thing is, obviously, there need to be refueling
stations. I was interested, Mr. Jibson, in what you had to say
about the role of natural gas utilities and the capacity there.
Third, we basically have a tax code problem that I alluded
to a moment ago, and, of course, every tax deduction, subsidy,
and the like essentially comes from the taxpayer. And when you
start thinking about tax expenditures with our $18 trillion in
debt, you can see how this starts to get to be pretty
complicated.
And then there is the Highway Trust Fund. If we do what Mr.
Whitlatch and Senator Bennet have proposed, it cries out as a
fair resolution, but at the same time, that is less money going
into the Highway Trust Fund, which is already operating at a
deficit.
Maybe you will start, Mr. Clay, and I will give other
people a chance to comment, but you mentioned a performance-
based,
technology-neutral tax policy, and that that would be a game
changer. What would that look like?
Mr. Clay. We would be supportive of something comparable to
what Senator Baucus introduced, last year I believe. That was a
really, I thought, interesting idea. It provided long-term
incentives for renewable energy production--without regard to
whether it was solar, wind, or biofuels--entirely based on the
performance, based on the greenhouse gas emission reductions
that that particular renewable fuel or energy would provide.
And we have something comparable to that in California with
a low-carbon fuel standard as a technology-neutral,
performance-based carbon credit generation program, which I
think is very effective. It really gets the government out of
the game of trying to figure out what the solution will be, but
rather just saying, these are the qualities of the renewable
energy that we want to incentivize, whether it is reduction of
carbon or fuel diversity or moving away from petroleum, to get
to more domestic fuel sources. We can set those kinds of
guidelines out there and then let the industry figure out what
the most cost-effective solution is.
A perfect example is what we produce: biomethane. It was
not even on the radar when the renewable fuel standard was put
together 5 years ago, and now we are the largest generator of
cellulosic biofuel RINs by a wide magnitude of any biofuel.
That was not something anyone anticipated, but it is something
we have been able to accomplish.
I think that incentivizes the industry. And programs that
do not pick the fuels but rather provide technology-neutral
incentive programs are the most effective in stimulating that
kind of activity.
Senator Cornyn. Mr. Whitlatch, do companies like UPS need
tax benefits to make this commercially viable?
Mr. Whitlatch. Yes. I think you saw in our prepared remarks
that incentives have played a key role in the initial adoption.
I think what we would like to stress is that, when you have a
new technology, getting to scale, getting to the tipping point,
is absolutely critical.
I think what you have seen with the folks on this panel is,
when you have incentives, they can make a marginal business
case attractive. Once you get to that level of scale, it brings
the cost down for everyone across the board. Infrastructure
comes down, cost per unit comes down, which leads to widespread
adoption, which leads to greater scale.
So initially we believe, like any other alternative fuel
that we have seen, you need to have some sort of incentives,
and they do help. You get to scale. It is just a matter of how
you achieve that.
Senator Cornyn. I was smiling as you were making those
remarks. I agree with your analysis. The problem Congress has
is, for example, in the case of the Production Tax Credit for
wind, I think it is 20 years old, and we are still having a
debate about whether this is a mature enough industry to not
require Congress to provide additional subsidies. We all see
the benefits of it, but that is the challenge.
Mr. Carrick, let me just close with you, in the time I
have, and just ask, in terms of your business and producing
these engines and these trucks, how critical is the tax
treatment?
Mr. Carrick. Thank you for the question. It is a very good
one and there are a lot of different answers to it.
Senator Cornyn. Okay.
Mr. Carrick. Our customers today that we are selling larger
volumes of product to, like UPS--and I could go down a list of
them--probably 80 percent of them have installed their own fuel
stations and operate in applications where they are running
very high mileages, turning the vehicles 100,000 to 200,000
miles a year, burning a lot of fuel, and they are making this
work. They are making this pencil out.
So where incentives may be needed or tax credits may be
needed is with the smaller customers; 30,000 miles a year
beverage distributors want to be green but cannot afford to
because they do not burn enough fuel to make the return on
investment. When we meet with CFOs in these different
companies, they do very, very extensive business plans to make
sure that this is going to work for them.
The 50-cent tax credit, if you look at that--these CFOs
want certainty. I think Senator Wyden brought that word up. It
is a great word. They want certainty. What is this 50 cents
going to entail? Is it going to be here for the next 3 years,
or is it going to be here for a year and they might get
something retroactive? So really what we need to do is--we
certainly appreciate what is going on right now and the chance
of getting it extended--if we could come out with a plan that
was 3 years in duration and said, until 2018, you have this, I
think it would make a remarkable difference in some of the
adoption rates of some of these big fleets.
Senator Cornyn. Okay.
Senator Bennet. Thank you, Senator Cornyn, very much for
being here.
I just have a few more questions, although I want to say,
for the record, that the bill I have with Richard Burr is not
one that would create a tax credit for anything. What it is
doing is removing a disincentive that is making people make a
choice they would not make if the Congress were allowing the
market to work properly. And that is what we are trying to do.
We are going to get through it one of these days, but, in the
meantime, you are going to have to stick with us.
Mr. Calabrese, would you talk a little bit more about the
development of the fueling infrastructure in the Cleveland
Transit Authority and how your decisions would have been
different--this is actually apropos the conversation we were
just having--if the alternative fuels tax credit for natural
gas financing had not been in place?
Mr. Calabrese. Yes, thank you. When I went from New York to
Cleveland in 2000, Cleveland really had a CNG-only policy on
diesel buses and full-size transit buses. When we looked at
that--we had about 400 buses that needed to be replaced--I just
could not come up with the money to replace the diesel buses
with CNG buses because, number one, it was $70,000 additional
per unit and, number two, because of the additional
infrastructure costs we would incur.
So I really went to my board and said, ``We really cannot
afford this.'' We went away from CNG back to diesel because I
felt that the best thing we could do as an organization was to
be sustainable, and the best thing we could do in terms of
sustainability was to put as much high-quality public transit
on the road as possible, as opposed to a cleaner versus a less-
clean bus.
So we went away from it. The bottom line is, what I said to
the community was, at a time in the future when the incentives
were different or when the technology had improved, when the
differential cost between the CNG and diesel buses had come
down, we would reevaluate that.
That is what we did 2 years ago. Part of that evaluation
was the alternative fuels tax credit, and we made the decision
to go back to CNG in a very big way. Number one, the tax credit
was important. Number two, the cost of diesel fuel had risen
significantly from 2002 to 2012. We did the analysis, and Mr.
Clay's organization helped us with the analysis, by the way,
really to make the decision.
And that tax credit was a very important piece of it, not
just for us, but for my counterparts in the industry. I think
that credit is, in many cases, a deciding factor.
Senator Bennet. So how do you think your counterparts in
the industry are thinking about this now?
Mr. Calabrese. Well, I think that the American Public
Transportation Association in a very strong way is supporting
the continuation. When we make a decision to buy a CNG bus,
that is probably a 14-year decision, so that consistency and
continuity, I think, are very important. I think there are a
number of people in my industry who are waiting on the fence
right now to see if that tax credit is there and makes it
financially worthwhile to go ahead with the increased cost of
the vehicle and the increased costs necessary for the fueling
infrastructure.
Senator Bennet. Thank you. Mr. Kassel, could you talk a
little bit more, elaborate a little bit about the technological
changes that you are seeing in these engines? I was curious
about that, just because that also is going to contribute to
adoption rates, I think, going forward. Do you think,
ultimately, this could end up going as far as passenger cars?
You had mentioned railroads and marine craft as well. Where are
we on the technology curve, and what does the future look like?
Mr. Kassel. I think there are three different things going
on that I would like to touch on. The first is, we are in a
moment where there is finally some regulatory certainty in some
of these high-horsepower applications that is driving
investment in new technologies, whether it is high-pressure
direct-injection for large natural gas engines or other
technology pathways that companies are taking on. What is
driving it is, on both the locomotive side and on the marine
side, there is regulatory certainty.
So on the marine side, we now are implementing the emission
control area, which requires low-sulfur fuels and much lower
emissions from ships. We are essentially going from a world of
35,000 parts per million sulfur bunker fuel and no emission
controls to a world of a low-sulfur distillate fuel combined
with some form of scrubbers or selective catalytic reduction or
LNG.
So that regulatory certainty is driving everybody to say,
``How am I going to comply? What is the most cost-effective way
for me to do that? And I am going to have to invest in
something, so what will I invest in?''
It changes completely the analysis from where the shipping
industry would have been, which is: we have our stock. We are
continuing to use it for as long as we were going to use it,
and we are not looking to make major capital investments.
Everybody has to do something because of this. What will they
do?
On the locomotive side, it is the EPA Tier 3 regulations
that, again, are driving towards much, much cleaner low-sulfur
fuels and emissions that are 90 percent or more, depending on
the pollutant, lower than where they are. That gets the
operators to say, ``What am I going to do?'' That, in turn,
gets the engine makers, everybody involved in the chain of
companies that produces the locomotive or a piece of mining
equipment or a ship, to ask, ``How are we going to provide what
our customers need, which is a fuel-efficient vessel, an
energy-efficient vessel, that meets these standards and is
cost-effective?''
With car buyers, we buy our cars because we like the car.
Most people do not walk in to the dealer and say, the only
thing I care about is energy efficiency or the lifetime fuel
costs of my vehicle. In the trucking sector, in the mining
sector, in locomotives and marine applications, we are talking
about asset turnover that is very, very slow and companies and
operators that are facing that sort of life cycle.
So regulatory certainty is number one. That is what is
driving it.
Two is, of course, the race to figure out how you create a
product that is going to meet not just the regulatory goals,
but the operating goals of your customers, which include
maintenance and durability and low cost of energy, because,
after all, energy is a huge, huge variable. Think of a
container ship; there are not a lot of labor costs, but there
are a lot of fuel costs. So I think that is the second
attribute.
I think the third is, really, that the word is getting
around. When we did a study recently of what is happening in
the marine sector, we looked at 19 different projects around
the country. And really, wherever you are in that sector, if
you are operating ferries, if you are operating cruise ships,
if you are operating container vessels, if you are operating
dry bulk vessels in the Great Lakes, you can save a million
dollars a year by converting, so everybody is looking at these
different issues. I think that is what is really driving it.
Senator Bennet. Mr. Carrick, do you have anything you would
like to add? You talked about potential game-changing
technology changes.
Mr. Carrick. Well today, on the transportation side, there
really is nothing new on the horizon. There is no silver
bullet. Cummins just came out with the 12-liter engine. It came
out about a year ago and has made a big change in the
applications we were able to take from a 9-liter engine to a
12-liter engine, which is now up in the 400 horsepower, 1,450
torque range, which is required by most heavy customers.
So they were looking at a 15-liter engine. They put that on
the back burner for the time being, and I think it is really
because the adoption rate has slowed down. It is still growing
at about 40 or 50 percent a year, which is not bad except that
it is from a very, very low base, and, until we start to get
more adoption of these vehicles, I do not think you are going
to see any engine manufacturers step in at this time.
Senator Bennet. So that is the problem of scale that we
talked about earlier?
Mr. Carrick. That is right.
Senator Bennet. I have two more questions, and we are
done--one for Mr. Whitlatch and one for Mr. Clay.
UPS's commitment to this has been really very strong, and
you had to make a business case--or somebody had to make a
business case--to build the infrastructure that is required. A
lot of the fueling stations are yours, right? They are not
commercial. There are more than 1,100 natural gas fueling
stations in the United States. In Colorado, we have 21
compressed natural gas fueling stations, which is obviously a
tiny number compared to more than 100,000 traditional gas
stations across the country.
So could you talk a little bit about your approach, why it
made sense in your context, if it did, and then any other
thoughts you have about our trying to get to scale, other than
the stuff we have already talked about? What have we left out?
Mr. Whitlatch. I think you have covered it. From our
perspective, we are kind of in a unique situation. We have a
very large home base where we domicile vehicles, and those
vehicles go out and they drive a lot of miles and they come
back to the same refueling point. So for us, we have a very
captive network.
So you asked how we got there. It is really based upon the
cost of the technology, the spread of the fuel prices, and how
many miles do you run it. So in our case, how we make it pencil
out is--and we do make it pencil out--it makes absolute sense
for us to do this. We run a lot of miles, and we refuel back at
one main station. And for us, that allows us to amortize the
cost of this over that network. So having a captive network is
one of the keys, as is running lots of miles and having the
right equipment density to do that.
So we are fine. We are finding LNG works. Now we will see
where CNG works. In our network, our scale allows us to do that
and for it to pencil out.
Senator Bennet. Mr. Clay, you have a very different kind of
network that you are thinking about, including a station at
Denver International Airport.
Mr. Clay. Yes.
Senator Bennet. Can you talk about that and what that
buildout looks like?
Mr. Clay. Sure. So we supply renewable natural gas to clean
energy stations, and the decision to build those stations is
somewhat independent of the buildout of our renewable and
natural gas production facilities.
As a company, when we are looking to build CNG or LNG
stations, typically what we look for is an anchor tenant. So we
will go out and build a station anywhere where there is a fleet
that is willing to commit to convert their vehicles over time
to run on natural gas and has enough fuel demand to justify the
capital investment in the station so that we can get a minimal
level of capital return on that station.
Then, over time, we market the availability of that station
to other fleets in the area and build demand on the station. So
today, our most successful and largest sales stations are three
that we have at the Los Angeles International Airport, at LAX.
We sell 20,000 gallons a day from those facilities to shuttles
and fleets, but it sure did not start out that way.
We had to go out and find the customers, create programs
for them to finance vehicles, and look for creative ways to get
them into natural gas vehicles that could fuel at those
stations. With the over-the-road trucking----
Senator Bennet. What kind of customers are those?
Mr. Clay. So it is typically return-to-base fleets; high
fuel consumers are really the kind of customers you are looking
for, people who purchase a lot of gas because they are going to
get the most economic benefit, produce the most environmental
benefit, per customer. If you look at a heavy-duty truck
burning 20,000 gallons a year, versus a passenger car burning
500, it is pretty clear you can get a lot more bang for your
buck building a station for 20 heavy-duty trucks than trying to
build one for the passenger car market.
So it is high fuel consumers, return-to-base fleets where
they can fuel at one centralized fueling infrastructure. So
airports are great markets for us. The station you see in
Denver has fueling for taxis that come to the airport
regularly, airport shuttle buses, airport service vehicles,
small trucks, those kinds of light-duty and
medium-duty refuse trucks, which are another great market for
us.
This year, 60 percent of the trash trucks that will be
bought in North America will run on natural gas. It is perfect
for refuse trucks. They are return-to-base fleets, they can
fuel overnight, they can get enough fuel onboard to run their
route during the day, and they can see significant savings on
the fuel that they are buying.
Senator Bennet. When I interrupted you, you were going to--
--
Mr. Clay. With the over-the-road trucks in the long-haul
trucking industry, we did, as a company, make a decision to go
out and vary from our usual strategy of building stations only
where there was already a committed customer or one that would
be at that station. We went out and did build those stations
for LNG and CNG heavy-duty trucking because we felt, with the
introduction of the Cummins Westport 12-liter engine and the
availability of that vehicle, that in order to get those
vehicles out on the road, somebody had to build the stations.
We had to kind of solve the chicken-and-egg question. So we
did. We went out and built the stations to enable over-the-road
trucks to run from coast to coast fueling on natural gas.
Senator Bennet. Thank you, everybody. I really appreciate
the thoughtfulness. The testimony will help us as we try to
make the case moving forward.
I am also a strong believer that we ought to be moving
toward technology-neutrality in our tax code. How we do that
and what that transition looks like is going to be very
complicated, but I think it is essential that we do it, for a
lot of reasons.
One of the reasons is that, every time I hear somebody on
the television say that the government should not pick winners
and losers, that is when I hold onto my wallet, because they
say it as if the government has not already made decisions to
pick winners and losers. If you happen to be in the winning
category, you happen to be an incumbent interest that earned
something deep in the last century in our regulatory code, our
tax code, that is great for you, but it is not great for
innovation in this country. That is why I think this set of
issues is so critical, beyond even the discussion of natural
gas.
So I thank you all for what you do, for being here, for
being willing to take time out to come here, and I give you an
open invitation on behalf of the entire committee that, as we
go forward, please do not be shy about coming to us with your
ideas or suggestions for how we can actually get this stuff
done.
Thank you. We are adjourned.
[Whereupon, at 3:50 p.m., the hearing was concluded.]
A P P E N D I X
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