U.S. Senate energy bill now includes ULSD tax breaks for 'small' refiners

Diesel Fuel News, Feb 18, 2002 by Jack Peckham

The U.S. Senate Finance Committee last week attached several tax breaks to a pending Senate energy bill, including a 5 cent/gallon tax break for "small" refiners investing in ultra-low-sulfur diesel (ULSD) prior to U.S. EPA deadlines.

The bill also includes a $1/gallon tax break for biodiesel (see related story, below), plus $1 billion in tax credits for purchase of hybrid-electric vehicles, and expanded tax breaks for "alternative" fuels including compressed natural gas (CNG), ethanol, LP-Gas or methanol.

The bill gives another gives $624 million in taxpayer hand-outs exclusively for "alternative" fuels (not gasoline or diesel).

This tax credit would be "equal to the gasoline gallon equivalent of 30 cents per gallon of alternative fuel sold in 2003, 40 cents/gallon in 2004 and 50 cents/gallon thereafter," the Senate bill says. Another $150 million would subsidize the high cost of alt-fuel refueling stations, at taxpayer expense, while another $171 million would go to "small" ethanol producers via an extra 10 cent/gallon credit.

Meantime, refiners with less than 1,501 employees and less than 155,001 barrels/day average refinery runs could claim a 75% tax deduction for the investment costs for making ULSD, plus 5 cents/gallon for all gallons produced between 2002 and 12 months after the refiner's ULSD compliance deadline. "Small" refiners can delay ULSD compliance until 2010, under U.S. EPA rules, but some might choose to accelerate production.

Meantime, small refiners with average 50,000 b/d production (rather than actual production, as currently) also would get oil depletion allowances if they are also oil producers. Big, integrated oil companies get zilch.

Small refiners with average daily runs of between 155,000 to 205,000 b/d could likewise claim a reduced portion of the "small refiner" 75% tax deduction and the nickel/gallon credit. Farm co-ops would be allowed to pass through the breaks to their patron-members. Bigger refiners get nothing in the Senate bill, yet it's the bigger refiners who represent the vast majority of U.S. diesel production.

Other provisions in the pending Senate energy bill would give billions of dollars of subsidies for an Alaska gas pipeline, "biofuel" mandates for ethanol/biodiesel, more R&D funds on high-efficiency vehicles, and R&D funding for cleaner, high-efficiency locomotives (see Diesel Fuel News 12/10/2001, p1).

The Senate bill contains none of the accelerated 7-year tax depreciation for refining investments earlier included in the U.S. House energy bill (see Diesel Fuel News 7/23/2001, p1), nor does it include the House-approved tax break on the water portion of diesel-water emulsions.