Non-conventional Fuel Production Credit Background Section 29 of the Internal Revenue Code allows oil
and gas companies to take a production tax credit for fuels produced from
non-conventional sources. Qualifying fuels include oil produced from shale
or tar sands, synthetic fuels produced from coal, and gas produced from
either pressurized brine, Devonin shale, tight formations, or biomass and
coalbed methane. The production credit is more than $6.00 per barrel of
liquid fuels and more than $1.00 per thousand cubic feet for gaseous
fuels. This production credit phases out when oil prices range from $40 to
$50 per barrel.
Green Scissors Proposal Repeal the "non-conventional" production
credit for oil produced from shale or tar sands, synthetic fuels produced
from coal, and gas produced from geopressurized brine, Devonian shale, and
tight formations. This action would save taxpayers $7.1 billion over 5
years.
Project Hurts Taxpayers In theory, the credit was supposed to
decrease American reliance on foreign oil by increasing the production of
non-conventional fuel substitutes. Instead, most of the credit has gone to
oil and gas production and has been used to develop drilling and
production technologies. The subsidy has not led to major increases in
alternative fuel production and has not helped to decrease U.S. reliance
on foreign oil. Moreover, the program has significantly exceeded its
original estimated costs.
Project Hurts Environment A remnant of the $88 billion "synfuel"
program under the Carter Administration, the "non-conventional fuel" tax
credit has had unintended environmental consequences. For example, coalbed
methane developers in states such as Colorado, New Mexico, Wyoming, and
Alabama have been overlaying a new grid of wells on top of older fields of
abandoned oil and gas wells that have not been properly plugged. When new
methane wells are drilled, the gas not only moves up into the new wells,
but also can move into underground aquifers and escape through older oil
and gas wells and water wells. The result has been contaminated drinking
water and irrigation systems, and even explosions. As a whole, the credit
simply adds to the volume of tax-subsidized fossil fuels and the pollution
that results from burning them.
$7.1
billion