Dirty tax break, dirtier fuel
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The U.S.’s operable refinery capacity — that is, the amount of crude oil that can be processed and sold to consumers as liquid fuel — is a whopping 18 million barrels per day. The United States is home to 140 oil refineries, all but six of which were built before 1990.
However, a large chunk of these refineries have undergone substantial expansions over the last decade to allow for the processing of evermore barrels of thick, heavy crude. These upgrades, which involved the construction of new petroleum cokers, distillation units and other refining equipment, typically cost billions of dollars and take around five years to complete. Sound like a huge undertaking? It’s a lot easier when taxpayer money is helping to cover the costs.
Prior to its expiration last year, Section 179C of the federal tax code, an obscure provision from the Energy Policy Act of 2005, provided a subsidy to companies that expanded their refineries. While EPAct 2005 is riddled with special loopholes and giveaways to the fossil fuel industry, Section 179C was especially repugnant, allowing oil companies to write off 50 percent of the costs of refinery equipment. This means that instead of recovering equipment costs over the course of 20-30 years — the usable life of such property for tax purposes—Exxon, Chevron, and other abundantly rich corporations were able to deduct over half of these costs from their federal income taxes in a single year, boosting their record-high incomes at the expense of American taxpayers.
Section 179C was originally set to expire at the end of 2011, but in 2008 the government not only bailed out the banks, it used the occasion to extend numerous energy production credits, including the deduction for “qualified refinery property.” Amended to expire on January 1, 2014, the refinery deduction was also expanded so as to apply to upgrades for the processing of tar sands, a type of heavy, unconventional crude extracted by strip mining underneath the boreal forests in Alberta, Canada.
A viscous black mixture of clay, sand and water, Canadian tar sands require vast amounts of energy to extract and refine into consumable fuel. One of the world’s dirtiest energy sources, tar sands wreak havoc on the atmosphere, emitting approximately 17 percent more greenhouse gases per barrel than conventional crude. Nevertheless, thanks in part to the generous subsidy stipulated under Section 179C, imports of Canadian tar sands have soared in the past few years, reaching nearly 3 million barrels per day in September 2014. Canadian oil sands now account for over a quarter of the 8.4 million barrels of oil and petroleum products the U.S. imports on a daily basis, and the U.S. consumes almost 99 percent of Canada’s oil exports overall.
BP’s Whiting Refinery in Indiana
Based on year-to-year estimates from the JCT, this little-known provision has cost American taxpayers a projected $3.2 billion over the past decade and helped finance the production of an especially dirty type of oil. For those who frequently wonder where their tax dollars are going, it’s no relief to learn that a decent-sized chunk has been used to promote rising levels of greenhouse gas emissions and expedite climate change.
Here’s a look at the major refinery upgrades that occurred in the wake of the 2008 extension to increase U.S. processing of Canadian tar sands:
Wood River Coker and Refinery Expansion, Wood River, Illinois
Company: WRB Refining (joint venture of ConocoPhillips Co. and Cenovus Energy Inc.)
Price tag: $4 billion
Increase in tar sands processing capacity: 94,000 bpd
On both an economic and environmental level, the 179C refinery deduction has placed a giant burden on American taxpayers. But while the fiscal damage can’t be undone — the refineries have already been upgraded and the tax dollars spent — it’s not too late to stop the flow of tar sands into the U.S.
At the present moment, the oil industry is planning the construction of multiple cross-border pipelines designed specifically to transport Canadian tar sands down to U.S. refineries. Keystone XL, the pipeline that ignited a vast movement, is the most visible. The oil industry and its Congressional allies have repeatedly tried to ram through approval of this pipeline, but President Obama used his veto pen to stop them. EPA has confirmed that the project fails the Obama administration’s “climate test,” and a final decision on its permits could come any day.
However, it’s important to note that only grassroots activism has kept Keystone XL from being competed. The oil industry has other plans in the works to boost imports of tar sands, and the lack of public awareness surrounding these plans has enabled the U.S. government to accelerate their advancement. One example is the Alberta Clipper pipeline expansion, a project engineered by Canadian energy company Enbridge to increase transportation capacity from 450,000 to 800,000 barrels of tar sands per day. With the help of the U.S. State Department, Enbridge managed to manipulate the permitting process for the expansion to gain approval without a presidential sign-off. This scheme has allowed the project to progress without an environmental assessment — an analysis desperately needed in light of Enbridge’s deplorable environmental record and the additional amount of tar sands that will be transported. In 2010, an operational failure at Enbridge’s Line 6B resulted in a spill of an estimated 843,000 gallons of tar sands crude into the Kalamazoo River in Michigan. The disaster exposed the dangers of tar sands production, and it highlighted the urgency of the fight to keep tar sands out.
Five years after the spill, the movement to halt the tar sands invasion is strong, and its success is visible in the rising number of projects that have been abandoned due to lack of pipeline infrastructure. Last September, a Norwegian oil company postponed a 40,000 barrels-a-day project in Alberta, citing limited pipeline access as a clear driver of its decision. Seven months earlier, Shell halted its efforts to develop a 200,000 barrel-a-day mine in the same region. Each cancelled project signifies more reserves that will now remain underground — at least for now.
We cannot reverse the refinery upgrades or reclaim the billions lost to tax subsidies, but if we stop enough pipelines and prevent new refineries from upgrading, we can limit the flow of tar sands across our borders. Keeping dirty fuels in the ground demands nothing less.
Image credit: Ablerta tar sands extraction, via Pembina Institute/Creative Commons; BP Whiting Refinery, via Joey Lax-Salinas/Creative Commons