Clean diesel cars are growing in popularity with consumers and saving fuel, reducing emissions and improving air quality for everyone. More clean diesel passenger vehicles on the road will greatly contribute to future clean air and climate benefits. Even President Obama has taken note of growing interest in clean diesel cars. The “All of the Above Energy Policy” released by the Administration attributes some of the anticipated reduction in gasoline use to expanded adoption of diesel passenger vehicles. One of the roadblocks to increasing the number of clean diesel vehicles on the road today is the disparity in tax treatment of diesel fuel.
Since 2005, the banner year for reintroduction of diesel into the U.S. passenger vehicle market, diesel cars, SUVs, vans and pickup trucks make up just under three percent of the market or about seven million vehicles on the road. These vehicles are estimated to have reduced carbon emissions by almost 10 million tons between 2005 and 2014 and saved 36 million barrels of crude oil. According to research commissioned by the Diesel Technology Forum, if diesel vehicles make up 10 percent of the market by 2020, a further 12 million tons of carbon emissions could be eliminated while displacing 2.3 billion gallons of gasoline use.
Expanding the fleet of diesel passenger vehicles depends on quite a lot of variables and motor fuels tax treatment is one leading factor. Today, the federal government taxes gasoline and diesel differently. A driver of a gasoline car pays $0.18/gallon in federal gasoline tax while a diesel driver pays $0.06 more at $0.24/gallon. Federal motor fuels have been in place for decades to help pay for road and highway maintenance along with other federal transportation initiatives. The current disparity in tax treatment means diesel drivers pay more than their fair share to maintain roads and highways than a drivers of gasoline vehicles.
Back in 1984, President Ronald Reagan needed to raise funds for roads and highways that were quickly falling into disrepair. At that time, most of the nation's heavy-duty trucks ran on diesel while very few passenger cars ran on diesel. Understanding that big trucks imposed more wear and tear on the nation's roads, the President urged Congress to adopt a motor fuels tax hike that increased the diesel tax, by $0.06 cents/gallon, above that imposed on gasoline. Fast forward to 1994. President Bill Clinton needed to raise money for roads and help pay for deficit reduction. The President urged Congress to increase federal motor fuels taxes again... to $18.4 cents/gallon for gasoline and $24.4 cents/gallon for diesel maintaining the $0.06 cent/gallon disparity. For 21 years now, federal motor fuels taxes have remained unchanged.
A lot has changed since 1994 and certainly 1984. Since that time, more clean diesel cars have hit the road. As of 2014, there are about 7.4 million diesel cars, SUVs and pickup trucks. Baseline estimates have diesel sales exceeding one million vehicles every year through 2020. These are an additional one million diesel drivers every year who would pay more per gallon in fuels taxes than drivers of gasoline vehicles.
While the federal motor fuels tax regime is not very favorable to diesel drivers, many states are getting the message that more and more motorists are behind the wheel of a diesel car or pickup truck. As of July 2015, more states are now imposing the same taxes and fees on diesel as on gasoline than states that impose higher taxes on diesel. Hopefully, as more states impose tax parity between gasoline and diesel, more likely car and truck buyers will take a second look at the diesel option.
Chart source: American Petroleum Institute,7/15/15