A growing number of light-duty fleets across America are converting to natural gas vehicles (NGVs) due to the environmental benefits and potential fuel savings compared to gasoline.

And, because policymakers also recognize the economic and environmental benefits of driving on natural gas, many states are offering incentives to encourage drivers to make the switch by lowering vehicle costs.

While federal incentives have played a less prominent role in recent years, this could change with the new Congress.

Reducing Payback

States have taken the lead in offering a wide range of incentives for NGVs, including tax credits, grants, and rebates to reduce up-front costs as well as low- or no-interest loans to reduce the cost of financing NGV purchases.

In some states, such as Pennsylvania, these incentives have been motivated largely by a desire to stimulate development of the state’s natural gas resources. In others, such as California, the principal goal is cleaner air.

Regardless of the motivation, these incentives can play a major role in shortening the payback periods of NGV purchases.

With 21 states offering some type of incentive, there’s a good chance the state in which the fleet operates is a part of the push for light-duty NGVs. Of course, the ability of your company’s fleet to take advantage of a given incentive may be affected by solicitation schedules, available funding, various eligibility requirements, or other factors.

Learning more about the incentives available in the fleet’s state — and whether or not it can use them — is another important step to take in deciding whether NGVs are right for the fleet.

Updated Federal Incentives

At the federal level, the main incentive for an NGV is an excise tax credit for alternative transportation fuels (including natural gas) worth 50 cents per gasoline gallon equivalent (GGE). Over the years, this incentive has helped alternative fuels gain a foothold by helping offset the high cost of building a compressed natural gas (CNG) fueling infrastructure.

While this credit expired at the end of 2013, Congress approved H.R. 5771, the Tax Increase Prevention Act of 2014, which President Barack Obama signed into law. It retroactively extends the excise tax credit for alternative fuels through the end of 2014.

In the past year, legislation has been introduced on a wide range of proposals that would equalize the tax treatment of liquefied natured gas (LNG) and diesel fuels, provide tax credits for natural gas vehicles and refueling equipment, require the production of vehicles that could run on several different fuels (such as gasoline and CNG), increase federal research and development on natural gas vehicle tank and fuel line technologies, and revise vehicle emission regulations to encourage manufacturers to produce more CNG passenger cars.

The split Congress of recent years has made it difficult to pass any of these bills into law, but the Republican takeover of the Senate may change this dynamic. Because NGVs benefit both the environment and the economy, they have traditionally enjoyed strong support from Republicans as well as Democrats, making pro-NGV legislation a good opportunity for bipartisan cooperation.

How Incentives Help Fleets

The lower cost of CNG by GGE, compared to gasoline, is obviously where fleets can lower their total cost of ownership. But, fleet managers should also factor in any available incentives or grants when putting together a business case.

In one example of a payback model with a 50-percent grant award of the incremental upfit cost offered on NGVs, the available NGV grant cuts the payback period in half, to just more than two and a half years. Of course, fleet managers need to do their own calculation using assumptions based on actual vehicle use data.

Additionally, most states offering NGV grants/rebates have a website to facilitate the application process.

Editor's note: Rob Minton is the director of sales at VNG, a fleet fueling provider of CNG.