When asked about the provision's origins, Senate Finance Committee aides at first said they did not know, only that it did not "originate" with Grassley. One aide noted that the Senator "ultimately is responsible for everything in [the bill], but routinely with such bills, other committee members propose certain ideas, and he accepts them or rejects them as he sees fit."What the article is describing is this provision:
Asked again by TIME to identify the author, the Senate Finance aide later wrote in an e-mail, "the provision originated as an amendment from Sen. [Rick] Santorum [a Pennsylvania Republican]. Sen. [Gordon] Smith [an Oregon Republican] had a similar amendment co-sponsored by several other Senators, Republicans and Democrats. Chairman Grassley accepted the Santorum amendment ... It's routine for him to accept non-controversial provisions that way rather than have the committee vote on each amendment ... So now the Santorum amendment is in the bill." A Santorum aide said the senator pushed the provision to "provide parity for the non-conventional fuel tax credit with other energy tax credits and to provide certainty for taxpayers." He added that it would also "allow coke plants" to take advantage of tax incentives, claiming "this is important to the steel industry, which employs thousands of Pennsylvanians -- making it more competitive in the global market." Coke, produced from coal or crude oil, is used in steelmaking.
Another Senate supporter of the credit is Orrin Hatch of Utah, the ranking Republican on the Finance Committee. An aide said Hatch believes the new provision in the Senate bill "helps make the current credit work better." Utah-based Headwaters Inc., one of the synfuel industry's most active companies, licenses its technology as well as sells materials to synfuel producers. "If the tax credits under Section 29 of the Internal Revenue Code are repealed or adversely modified," the company said in its latest annual report, "Headwaters Energy Services' profitability will be severely affected."
Today about 55 such plants around the U.S. process 125 million tons of coal or, in many cases, coal waste from an earlier mining era. For owners and operators, the whole point isn't creating a profitable new energy resource for the U.S.; it's about collecting the tax subsidy. Progress Energy Inc. of Raleigh, N.C., which owns electric utilities that serve portions of the Carolinas and Florida, reported in a filing with the Securities and Exchange Commission that in 2002-04 its synfuel-production losses added up to $400 million. No problem: the company claimed $852 million in tax credits, magically transforming a money-losing operation into a money-making business with $452 million in profits--courtesy of the American taxpayer. And that's not all. Like other synfuel producers, Progress Energy can't immediately use all the tax credits it mines because of tax-law limitations. As of Dec. 31, 2004, it was sitting on $745 million in deferred credits that it can write off against future earnings for years to come. And Progress Energy is not alone. Plants run by DTE Energy Co. of Detroit generated $1.2 billion in tax credits during the same years.So guess what happened in 2005? Because of Bush's enormous blunders in Iraq and Iran, coupled with the devastation to the Gulf of Mexico oil producing sector, the price of oil valuted past $50/barrel.
This was not what Congress had in mind in 1980 when it enacted the subsidy. The idea was to stimulate the birth of a new industry that would make synthetic fuel competitive with the price of conventional oil and gas. To achieve that end, lawmakers pegged the value of the credit to the price of crude oil. If oil prices were to rise above a certain level, the synfuel industry would no longer need the credit to make a profit and the subsidy would be phased out. As long as oil prices were below $50 per bbl., synfuel producers could claim the full value of the credit. But in the past year, as prices have risen to as much as $66 per bbl., anxiety has spread through the synfuel ranks that their boondoggle is imperiled.
Which means the credit, intended to provide an artificial-yet-guaranteed profit for synfuel, was null and void, since that was the level Congress originally estimated would be sufficient for synfuel to make it's own way in the world. Granted, the credit is on the books now 25 years and likely that ceiling needed to be adjusted, but rather than do that, what the Senate did was quite remarkable: it rolled back the price of a barrel of oil to "the amount which was in effect for sales in calendar year 2004."
Nice trick, huh? Kinda like backdating a late check to take advantage of a lower interest rate on your adjustable mortgage. Except you couldn't get away with that, in the reality-based world.
Even more ludicrous is how the use of coal in synfuel is determined(WILL require subscription):
What happens inside them? To alter coal's chemistry so it qualifies as a synthetic fuel even though it looks and burns like regular coal, some plants merely spray newly mined coal with diesel fuel, pine-tar resin, limestone, acid or other substances. Others mix coal waste with chemicals, coat it with latex and blend it with untreated coal to form briquettes. And plant operators in some extreme cases do nothing at all. Whatever the process, it's still coal.So a program intended to promote "independence from foreign oil" while mitigating risk to the American public has been turned into a scam to line the pockets of Senators from Pennsylvania, Utah, and Iowa.
This may explain why synfuel owners, in addition to being reluctant to talk about their processes, are not eager to let anyone actually see one of these so-called plants. Half a dozen electric utilities contacted, from DTE in Detroit to Progress Energy in Raleigh, N.C., declined to give TIME a tour. As did plant operators.
Actually, plant is a grandiose term for such operations. The facilities consist of little more than a collection of conveyor belts, nozzles, mixing vats, a few small buildings and sometimes equipment to convert the coal into pellets or briquettes. The spraying equipment is fairly simple. According to an industry consultant who asked not to be identified, it resembles "what you go through in a car wash, like the sprayers that wash your car." The plants can be easily taken apart and trucked hundreds of miles and then reassembled. "It's not that complicated to take one of these apart, load it on trucks and take it someplace else and put it back together," says an industry official. If the process seems flimsy, keep in mind that the real product is not synfuel but tax credits. And lots of people are cashing in.
Who benefits? A carnival of characters. But the most stunning numbers have been posted by big companies that wanted to boost their bottom line. The hotel chain Marriott International Inc., which has 2,500 lodging properties worldwide, bought four synfuel plants in October 2001. The next year, the first full year of production, Marriott's new synthetic-fuel operations generated $159 million in tax credits. Marriott had paid $46 million in cash for the facilities, meaning the tax credits gave the company a return of 246% on its investment in just one year. It was a welcome boost for the company at a time when the average room revenue from Marriott's traditional lodging business fell 4.8%. Moreover, the company's effective income tax rate plunged to 6.8% in 2002 from 36.1% in 2001, "primarily due to the impact of our synthetic-fuel business," according to its annual report. Consequently, Marriott paid federal income taxes at a rate below that paid by individuals and families earning less than $20,000 a year.
Shame on them.
Why is it necessary to alter coal in the first place? Two words: carbon dioxide:
Coal-burning power plants like [the Gibson generating facility]supply the United States with half its electricity. They also emit a stew of damaging substances, including sulfur dioxide—a major cause of acid rain—and mercury. And they gush as much climate-warming carbon dioxide as America's cars, trucks, buses, and planes combined.Of course, there's more to the story than that, and for that, I urge you to pick up the current issue of "National Geographic" magazine for an in-depth discussion on synfuel and on a new coal mining technique called "mountaintopping". While synfuels maybe a key bridge to renewable energy generation, it's far from a friendly one.
Here and there, in small demonstration projects, engineers are exploring technologies that could turn coal into power without these environmental costs. Yet unless utilities start building such plants soon—and lots of them—the future is likely to hold many more traditional stations like Gibson.
Santorum, Hatch, Grassely, coal, synfuel
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