Natural Gas Laws and Incentives in Texas
The list below contains summaries of all Texas laws and incentives related to natural gas.
Laws and Regulations
Alternative Fuel Use and Vehicle Acquisition Requirements
State agency fleets with more than 15 vehicles, excluding emergency and law enforcement vehicles, may not purchase or lease a motor vehicle unless the vehicle uses natural gas, propane, ethanol or fuel blends of at least 85% ethanol (E85), methanol or fuel blends of at least 85% methanol (M85), biodiesel or fuel blends of at least 20% biodiesel (B20), or electricity (including plug-in hybrid electric vehicles). Waivers may be granted for fleets if the fleet will operate primarily in areas where neither the state agency or a supplier can reasonably be expected to establish adequate fueling infrastructure for these fuels or the agency is unable to obtain equipment or fueling facilities necessary to operate alternative fuel vehicles at a cost that is no greater than the net costs of using conventional fuels.
Covered state agency fleets must consist of at least 50% of vehicles that are able to operate on alternative fuels and use these fuels at least 80% of the time the vehicles are driven. Covered state agencies may meet these requirements through the purchase of new vehicles or the conversion of existing vehicles. State agencies that purchase passenger vehicles or other ground transportation vehicles for general use must ensure that at least 25% of the vehicles purchased during any state fiscal biennium, other than exempted vehicles, meet or exceed federal Tier II, Bin 3 emissions standards.
(Reference Texas Statutes, Government Code 2158.004-2158.009)
Alternative Fuel Vehicle (AFV) Fee Study
The Texas Department of Motor Vehicles (TxDMV) in collaboration with the Texas Commission on Environmental Quality shall conduct a study on AFV fees. The study will examine the impact of the AFV industry on Texas, the impact of lost motor fuel tax revenues on state highways, fee collection options, and the feasibility of establishing an AFV fee. TxDMV submitted the study to the governor and state legislature in December 2020. (Reference Senate Bill 604, 2019)
Alternative Fuel Vehicle (AFV) Registration Tracking Program
The Texas Department of Motor Vehicles (Department) collects data on the number of AFVs registered in the state. The Department must submit an annual report to the Texas Legislature detailing the results of each data collection year. For the purpose of this program, AFVs include plug-in electric vehicles, hybrid electric vehicles, and natural gas vehicles. (Reference Texas Statutes, Transportation Code, 502.001 and 502.004)
Authorization of Governmental Alternative Fuel Fleet Grant Program
The Texas Commission on Environmental Quality (TCEQ) will establish and administer a grant program for governmental alternative fuel fleets to provide grants for the purchase or lease of a new vehicle and the purchase, lease, or installation of alternative fueling equipment. Eligible alternative fuels include natural gas, propane, hydrogen, and electricity. State agencies and political subdivisions are eligible to apply for a grant under the program if the entity operates a fleet of more than 15 vehicles. Mass transit and school transportation providers will also be eligible for grants.
TCEQ will establish standardized vehicle grant amounts based on the incremental costs associated with the purchase or lease of different categories of motor vehicle, including the fuel type, vehicle class, and other categories TCEQ considers appropriate. TCEQ will also establish standardized fueling equipment grant amounts.
(Reference Texas Statutes, Health and Safety Code 386.153)
Natural Gas Tax
Compressed natural gas (CNG) and liquefied natural gas (LNG) dispensed into a motor vehicle is taxed at a rate of $0.15 per gasoline gallon equivalent (GGE) or diesel gallon equivalent (DGE), depending on how the dispenser lists the price. A GGE is defined as 5.66 pounds (lbs.) of CNG or 5.37 lbs. of LNG. A DGE is defined as 6.38 lbs. of CNG or 6.06 lbs. of LNG. Exemptions may apply. (Reference Texas Statutes, Tax Code 162.001, and 162.351-162.356)
Natural Gas Vehicle (NGV) Inspection Requirements
To pass the state vehicle inspection, an NGV owner must be able to provide proof that the fuel tank on the vehicle has met inspection requirements and falls within the manufacturer's recommended service life, as required by Title 49 of the U.S. Code of Federal Regulations, section 571.304. Fleet operators must also prove that a certified technician inspected the vehicle's fuel tank. (Reference Texas Statutes, Transportation Code 548.104)
Propane and Natural Gas Licensing and Safety
The Railroad Commission of Texas regulates the safety of the natural gas and propane industries. Any business that engages in propane or natural gas activities in Texas must be licensed. These activities include selling, transporting, dispensing or storing propane and natural gas and manufacturing, installing, servicing or repairing propane and natural gas containers, systems and appliances. Some exceptions apply. For more information, see the Texas Safety, Licensing, Training, and Certification website. (Reference Texas Statutes, Natural Resources Code 113.011 and 116.011)
Clean Fleet Grants
The Texas Commission on Environmental Quality (TCEQ) administers the Texas Clean Fleet Program (TCFP) as part of the Texas Emissions Reduction Plan (TERP). TCFP encourages owners of fleets containing diesel vehicles to permanently remove the vehicles from the road and replace them with alternative fuel vehicles (AFVs) or hybrid electric vehicles (HEVs). Grants are available to fleets to offset the incremental cost of such replacement projects. An entity that operates a fleet of at least 75 vehicles and commits to placing 20 or more qualifying vehicles in service for use in the Clean Transportation Zone may be eligible. Qualifying AFV or HEV replacements must reduce emissions of nitrogen oxides or other pollutants by at least 25% as compared to baseline levels and must replace vehicles that meet operational and fuel usage requirements. Neighborhood electric vehicles do not qualify. For more information, including current application periods, see the TCEQ TERP website. (Reference Texas Statutes, Health and Safety Code 386 and 392, and Texas Administrative Code 114.650-114.658)
Clean School Bus Program
Any public school district or charter school may receive a grant through the Texas Commission on Environmental Quality (TCEQ) to pay for the incremental costs to replace school buses or install diesel oxidation catalysts, diesel particulate filters, emission-reducing add-on equipment, and other emissions reduction technologies in qualified school buses. Furthermore, funds may also be used to purchase qualifying fuels, including any liquid or gaseous fuel or additive registered or verified by the U.S. Environmental Protection Agency (other than standard gasoline or diesel) that provides particulate matter emission reductions. Additional rules and conditions apply. For more information, see the TCEQ Texas Emissions Reduction Plan website. (Reference Texas Statutes, Health and Safety Code 390, and Texas Administrative Code 114.640-114.648)
Clean Vehicle and Infrastructure Grants
The Texas Commission on Environmental Quality (TCEQ) administers the Emissions Reduction Incentive Grants (ERIG) Program and Rebate Grants Program as part of the Texas Emissions Reduction Plan (TERP). The ERIG Program provides grants for various types of clean air projects to improve air quality in the state's nonattainment areas and other affected counties. Eligible projects include those that involve replacement, retrofit, repower, or lease or purchase of new heavy-duty vehicles; alternative fuel dispensing infrastructure; idle reduction and electrification infrastructure; and alternative fuel use. The Rebate Grants Program provides grants to upgrade or replace diesel heavy-duty vehicles and non-road equipment. Qualifying projects must reduce emissions of nitrogen oxides or other pollutants by at least 25% as compared to baseline levels and must meet operational and fuel usage requirements. For more information, including eligibility and the application form, see the TCEQ TERP website. (Reference Texas Statutes Health and Safety Code 386 and Texas Administrative Code 114.620-114.629)
Light-Duty Alternative Fuel Vehicle Rebates
The Texas Commission on Environmental Quality (TCEQ) administers the Light-Duty Motor Vehicle Purchase or Lease Incentive Program for the purchase or lease of a new light-duty vehicle powered by compressed natural gas (CNG), propane, hydrogen, or electricity. CNG and propane vehicles, including bi-fuel vehicles, are eligible for a rebate of up to $5,000. Electric drive vehicles powered by a battery or hydrogen fuel cell, including plug-in hybrid electric vehicles with a battery capacity of at least 4 kilowatt hours, are eligible for a rebate of up to $2,500. One rebate is available per eligible vehicle. Rebates are awarded on a first-come, first-served basis. For more information, including eligibility requirements and the application form, see the TCEQ Texas Emissions Reduction Plan website. (Reference Texas Statutes Health and Safety Code 386 and Texas Administrative Code 114.610-114.613)
Medium- and Heavy-Duty Grant Program
The Texas Commission on Environmental Quality (TCEQ) provides funding for eligible medium- and heavy-duty on-road alternative fuel vehicles or engine repowers and replacements, as well as for associated electric vehicle and hydrogen fueling infrastructure. Both government and non-government entities that own and operate diesel fleets and equipment are eligible for funding. This grant program is funded by Texas’ portion of the Volkswagen Environmental Mitigation Trust. For more information, including how to apply, see the TCEQ Volkswagen Environmental Mitigation Program website.
Natural Gas Vehicle (NGV) Grant
The Texas Commission on Environmental Quality (TCEQ) administers the Texas NGV Grant Program as part of the Texas Emissions Reduction Plan (TERP). The NGV Grant Program provides grants to replace existing medium- and heavy-duty vehicles with new, converted, or repowered natural gas or propane vehicles that operate in one or more of the eligible counties for at least 75% of the activity life. Qualifying vehicles must be on-road vehicles with a gross vehicle weight rating of more than 8,500 pounds, operate on at least 60% natural gas or propane, and be certified to current federal emissions standards. Additional terms and conditions apply. For more information, including eligibility and the application form, see the TCEQ TERP website. (Reference Texas Statutes Health and Safety Code 394)
Natural Gas Vehicle (NGV) Weight Exemption
NGVs may exceed the maximum gross vehicle weight limit and the axle weight limit by an amount equal to the difference of the weight of the natural gas tank and fueling system and the weight of a comparable diesel tank and fueling system. The NGV must not exceed a maximum gross vehicle weight of 82,000 pounds. (Reference Texas Statutes, Transportation Code 621.101)
Natural Gas Vehicle (NGV) Rebates - Texas Gas Service
The Texas Gas Service Conservation Program offers a rebate of up to $2,000 for the purchase of a qualified NGV or $3,000 for the conversion of a gasoline powered vehicle to operate on natural gas. The rebate is available for up to five vehicles per customer, and only centers certified by the Railroad Commission of Texas may perform conversions. These incentives are available to commercial and residential customers within the city limits of Austin, Bee Cave, Lakeway, Sunset Valley, Rollingwood, West Lake Hills, Cedar Park, and Kyle with specific gas rate codes. For more information, see the Texas Gas Service Rebate Program website.
Point of Contact
Texas Gas Service
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