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THE FINANCIAL CRISIS

Bailout's tax breaks aid 'dirty fuels'

Incentives aimed at renewable energy mean billions for coal and oil projects that increase emissions.

October 04, 2008|Julie Cart | Times Staff Writer

The renewable-energy tax incentives tucked into the financial bailout package passed by the House on Friday include billions of dollars in breaks for old-fashioned fossil-fuel processes such as liquefying coal and squeezing petroleum out of sand and rock.

These "dirty fuels" are making a tentative comeback among policymakers. Such ventures are aimed at "unconventional" deposits once deemed too expensive or technologically difficult to tap. Backers of the tax breaks believe the substantial incentives might boost these technologies and spur invention of new ones.

"We feel good about the outcome here, in terms of the government supporting our requirements," said Larry Winter, vice president of Oil Shale Producing Exploration Co., which operates an experimental project in Utah's Uintah Basin. "As we start to expand our project, we will be looking to build our own refinery. That requires a very large capital investment that requires long-term paybacks. Without government support, they are potentially a nonstarter."

Critics of the measures note that the breaks run counter to the carbon-reduction message Congress intended when it vowed to bankroll clean, renewable technology. And a substantial portion of the tax breaks go to energy companies already flush with record oil profits.

"This is deeply offensive that they would attach this massive lobby goodie bag to a bill," said Tyson Slocum of Public Citizen, a Washington-based public interest organization.

"This is a gravy train. The American people are suffering here, and oil companies are getting a tax break. Not even clean energy. This is not a way to make laws. This is not even a way to make sausage."

The provisions are found in the complicated tax-extenders legislation tacked on by the Senate after the House rejected the original bailout package. Although House members were adamant that the overall tax provisions remain revenue-neutral, the add-ons will cost taxpayers more than $100 billion, according to the Congressional Budget Office.

Managers in the Senate said the energy provisions were needed to make the bailout more palatable to some Western members.

Energy companies say oil prices that exceed $100 a barrel make extracting some of these nonconventional fossil fuels profitable.

A recent report by the Air Force put the cost of building a coal gasification plant at $6 billion or more.

"They are not going to build those because of the massive capital costs," Slocum said. "This will encourage an industry where no one wants to invest -- for a reason. The question is, should taxpayers' money be used to shovel subsidies for coal?"

Converting solid coal into a liquid transportation fuel, an industry that does not exist in the United States, could nearly double the global warming effects of the fuel and increase air and water pollution associated with coal mining, according to some scientific estimates. The bill extends production credits for coal gasification plants and includes the end product, aviation fuel, in the alternative fuel category.

The coal investment credit will cost $389 million next year, the CBO said.

Oil shale and tar sands processing are decades-old technologies that have endured drastic boom and bust cycles. Both involve heating sand and hard rock to draw out fossil fuels. Neither has reached commercial production in the United States. Processing oil shale, which is abundant in parts of Colorado, Wyoming and Utah, requires large amounts of water and energy to create a product that must then be refined.

The bailout package includes a 50% tax write-off on refinery construction, which would assist the oil shale and tar sands industries.

The next refinery expected to come on line is the Hyperion Resources Inc. plant in Elk Point, S.D., which would be the first built in the Untied States since 1976, excluding expansions. The facility, which could cost $10 billion, is intended to refine crude oil extracted from tar sands pits in Canada's Alberta province.

The breaks for refineries are expected to cost $72 million, but, said Bobby McEnaney of the Natural Resources Defense Council, "they are the best guesses from the Congressional Budget Office. There are no industries to use as an economic model."

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julie.cart@latimes.com

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