Editorial Board

Natural-Gas Vehicles Will Run Best Without Subsidies

Few areas of American governance have been as incoherent in recent decades as energy policy, which is saying something. But lately, we keep seeing reasons for optimism.

Almost miraculously, the U.S. is both reducing its greenhouse-gas emissions and becoming increasingly energy independent. As Bloomberg News recently reported, the share of U.S. energy demand met by domestic sources increased to 81 percent through the first 10 months of 2011 -- the highest level in 20 years -- and emissions are expected to decline 12 percent by 2020.

A major factor in both trends is increased use of natural gas, a cleaner-burning fossil fuel now being extracted in abundance across the country. Hydraulic fracturing, a new production technology also known as fracking, has helped push prices for the fuel to a decade low, and has created plenty of jobs in the process.

Inevitably, a large lobbying effort has attached itself to this booming business, advancing buoyant visions of an America free of Middle East oil, cleansed of carbon pollution and humming with new natural-gas-powered vehicles -- if only Congress would provide a few billion in tax credits to get the industry on its feet.

Natural gas has many advantages -- which is exactly why the industry doesn’t need more government help.

Proponents of federal aid argue that the costs of switching to natural gas on a large scale are prohibitive for trucking companies and consumers. But as Bloomberg News has reported, trucking companies are already buying more long-haul natural-gas trucks simply because the fuel is so cheap. Annual savings over diesel can add up to $20,000 for a single truck -- so a company can recoup the extra cost of the new technology in about two years.

On the consumer side, Chrysler Group LLC and General Motors Co. recently announced that they plan to build pickups that use compressed natural gas, joining Honda Motor Co., which sells a version of the Civic that runs on the fuel.

To meet increased demand, companies are building infrastructure on their own: Clean Energy Fuels Corp., which provides natural gas fuel for transportation, plans to build 70 liquefied natural-gas stations by the end of the year. General Electric Co. and Chesapeake Energy Corp. have formed an alliance to help make compressed natural gas available at more filling stations. Honda plans to install fueling stations at some of its dealerships. Fleets of taxis, trucks and buses across the country are using the fuel in growing numbers.

In other words, market forces are working. It’s not yet clear what will be the most efficient means to get natural gas to power vehicles -- many options are on the table -- but the private sector is the best place to experiment. Billions of dollars in government subsidies will only further distort the energy sector, threaten to create another industry reliant on Washington’s largesse and drive up prices by artificially boosting demand. Such support could also crowd out promising renewable energy sources.

Congress, which can rarely pass up too much of a good thing, for the moment is showing restraint. On March 13, legislation providing tax credits for natural gas -- backed by billionaire investor T. Boone Pickens -- failed to pass the Senate. A House version of the bill also looks unlikely to pass.

The issue will surely come up again. When it does, the government’s role in encouraging natural gas should be modest. Scrapping subsidies for oil companies would be a good first step. On the supply side, the government should start minimizing uncertainty about the future of fracking -- which poses real environmental and safety concerns -- by drawing up a clear regulatory plan to protect communities without unduly burdening a promising industry.

President Barack Obama’s small-scale National Community Deployment Challenge -- which would help a dozen or so communities become “real-world laboratories” by funding infrastructure for a variety of alternative-fuel vehicles -- is on the right track. The government could conduct similar limited experiments using parts of its own fleet of vehicles.

Otherwise, Washington should avoid undue meddling in the natural-gas industry while continuing to support research and development for renewables. The president is right to push an “all of the above” strategy for U.S. energy use. That shouldn’t mean taxpayer handouts for all of the above.

    To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at davidshipley@bloomberg.net.

    Before it's here, it's on the Bloomberg Terminal.