Propane Laws and Incentives in Kentucky

The list below contains summaries of all Kentucky laws and incentives related to propane.

Laws and Regulations

Alternative Fuel Tax

An excise tax rate of 9% of the average wholesale price on a per gallon basis applies to all special fuels, including diesel, natural gas, propane, ethanol, biodiesel, hydrogen, and any other combustible gases and liquids, excluding gasoline, used to propel motor vehicles. Additionally, a highway motor fuel tax of $0.02 per gallon applies to all special fuels. For taxation purposes, one gasoline gallon equivalent of compressed natural gas (CNG) is equal to 5.66 pounds (lbs.) or 126.67 cubic feet. One diesel gallon equivalent of liquefied natural gas (LNG) is equal to 6.06 lbs.

(Reference Kentucky Revised Statutes 131.130, 138.220, and 138.226)

Alternative Fuel Vehicle (AFV) Acquisition Requirements

By January 1, 2026, the Kentucky Finance and Administration Cabinet (Cabinet) must increase the use of ethanol, biodiesel, and other alternative transportation fuels and replace at least 50% of light-duty state fleet vehicles with new AFVs or vehicles equipped with low-emission technology. Beginning December 1, 2024, the Cabinet must compile annual reports detailing the progress made towards these requirements, including a life-cycle cost assessment, vehicle replacement timeline, and targets for increased alternative fuels in state agency vehicles.

(Reference Kentucky Revised Statutes 45A.625 and 152.715)

Alternative Fuel and Conversion Definitions

Clean transportation fuels include propane, compressed natural gas (CNG), liquefied natural gas (LNG), electricity, and other transportation fuels determined to be comparable with respect to emissions. Propane is defined as a hydrocarbon mixture produced as a by-product of natural gas processing and petroleum refining and condensed into liquid form for sale or use as a motor fuel. CNG is defined as pipeline-quality natural gas that is compressed and provided for sale or use as a motor vehicle fuel. LNG is defined as pipeline-quality natural gas treated to remove water, hydrogen sulfide, carbon dioxide, and other components that will freeze and condense into liquid form for sale or use as a motor vehicle fuel.

A bi-fuel system is defined as the power system for motor vehicles powered by gasoline and either CNG or LNG. Bi-fuel systems are considered clean fuel systems. Conversion is defined as repowering a motor vehicle or special mobile equipment by replacing its original gasoline or diesel powered engine with one capable of operating on clean transportation fuel or retrofitting a motor vehicle or special mobile equipment with parts that enable its original gasoline or diesel engine to operate on clean transportation fuel.

(Reference Kentucky Revised Statutes 186.750)

State Incentives

Diesel Emission Reduction Grants

The Kentucky Division for Air Quality (DAQ) provides U.S. Environmental Protection Agency (EPA) Diesel Emissions Reduction Act funding for the replacement of school buses in Kentucky. Funding for up to 25% of eligible project costs is available for public and private schools that reduce diesel emissions by replacing a school bus that is model year 2009 or older with a bus that is a model year 2021 or newer diesel or alternative fuel bus. New buses must be equipped with an EPA-certified engine configuration that meets the latest EPA emissions standards. Grants will be awarded on a competitive basis. For more information, including current funding opportunities and how to apply, see the Kentucky DAQ Clean Diesel Grant Program website.

Propane Excise Tax Exemption

Propane is exempt from the state excise tax when it is used to operate motor vehicles on public highways provided that vehicles are equipped with carburetion systems approved by the Kentucky Energy and Environment Cabinet or fuel systems that meet Federal Motor Vehicle Safety Standards contained in Title 49 of the Code of Federal Regulations, section 571. (Reference Kentucky Revised Statutes 234.321)

More Laws and Incentives

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