June 10, 2019

Whitehouse, Brown, Warren Call for IRS to Justify Billions in Coal Tax Credits Based on Questionable Pollution Data

Senators point to new study showing Wall Street profiting at taxpayers’ expense without coming close to hitting pollution reduction targets

Washington, DC – Senators Sheldon Whitehouse (D-RI), Sherrod Brown (D-OH), and Elizabeth Warren (D-MA) called on the IRS to justify allowing major coal refiners to claim roughly $1 billion annually in tax credits for alleged reductions in dangerous pollution when new analysis shows the burning of their coal may fail to meet the credits’ minimum pollution reduction standards.  The senators’ request for the data that the IRS used to justify the tax credits comes as the group Resources for the Future (RFF) released a report Monday casting significant doubt on whether combusting refined coal under real-world conditions at power plants generates anywhere near the mandated emissions reductions predicted by laboratory results.  The IRS has permitted coal refiners – many of them big Wall Street financial services companies – to submit lab results in lieu of real-world testing.

“We have evidence to show that Wall Street is raking in hundreds of millions in tax credits each year for pollution reductions they aren’t coming close to delivering in the real world.  That’s a massive boondoggle for taxpayers, a blow to air quality and American’s health, and a setback for our climate,” said Senator Whitehouse.

“Ohio taxpayers shouldn’t be footing the bill for Wall Street firms who are gaming the system,” said Senator Brown.

“Giant corporations are cheating taxpayers into giving them tax subsidies intended for technologies that truly reduce emissions,” said Senator Warren. “American workers deserve big, bold investments that make us leaders in the global effort to combat the climate crisis and create good jobs in the process.”

As the senators point out to the IRS, refiners have claimed roughly a billion dollars annually in refined coal tax credits in recent years.  Refined coal tax credits have also become a big business for large financial services firms including Goldman Sachs, JPMorgan Chase, Capital One Financial, Fidelity Investments, and Arthur J. Gallagher.  Some of these companies have generated hundreds of millions of dollars in refined coal tax credits and boast of a “staggering” return on investment of several hundred percent.

RFF’s new study suggests that power plants using Wall Street’s refined coal do not come close to achieving the tax credit’s emissions reduction targets for nitrogen oxides, sulfur dioxide, and mercury.  Real world combustion of refined coal produces roughly half the required emissions reductions for nitrogen oxides and mercury, and next to no reduction in sulfur dioxide emissions, RFF’s study shows.

“The results of this study suggest that the IRS needs to revise its guidance with respect to how refiners must demonstrate the required emissions reductions in order to qualify for the refined coal tax credit,” the senators add in their letter to the IRS.

Full text of the senators’ letter is below.  A PDF copy is available here.  Resources for the Future’s report is available here.

 

Charles Rettig

Commissioner

Internal Revenue Service

1111 Constitution Ave. NW

Washington, DC 20224

 

Dear Commissioner Rettig:

We write to you concerning the refined coal tax credit, as established under 26 U.S. Code §?45(c)(7). 

In order to claim this tax credit, currently worth $7 per ton of refined coal, refiners must demonstrate that their refined coal reduces emissions of nitrogen oxides (NOx) by 20 percent and emissions of either sulfur dioxide (SO2) or mercury by 40 percent per unit of thermal energy compared to unrefined coal.  Current Internal Revenue Service (IRS) guidance allows refiners to demonstrate through laboratory analysis (rather than real world results) that combusting their refined coal generates the required emissions reductions from the power plants where it is used.[1]  Reporting has revealed that almost all refiners choose to demonstrate via laboratory testing that their refined coal generates the required emissions reductions.[2]

In recent years, refiners have claimed roughly a billion dollars annually in refined coal tax credits.[3]  Refined coal tax credits have also become a big business for large financial services firms including Goldman Sachs, JPMorgan Chase, Capital One Financial, Fidelity Investments, and Arthur J. Gallagher.[4]  Some of these companies have generated hundreds of millions of dollars in refined coal tax credits and boast of a “staggering” return on investment of several hundred percent.[5]

A recent study by Resources for the Future[6] casts significant doubt on whether combusting refined coal under real world conditions at power plants generates anywhere close to the required emissions reductions or those predicted by laboratory results.  This report examined data from 639 boilers and 287 coal-fired power plants across the United States; this dataset accounts for more than 90 percent of coal combusted in the U.S. power sector.[7]  This study also controlled for other variables that might account for emissions increases or decreases.

According to this analysis, combusting refined coal only generates a 12.5 percent average reduction in NOx emissions, a 2.3 percent average reduction in SO2 emissions, and a 24.1 percent average reduction in mercury emissions.[8]  All of these emissions reductions are below the minimum emissions reductions required to claim the refined coal tax credit.

The results of this study suggest that the IRS needs to revise its guidance with respect to how refiners must demonstrate the required emissions reductions in order to qualify for the refined coal tax credit.  Laboratory testing does not appear to accurately predict real world emissions reductions. 

We therefore request that you provide us by June 14, 2019 with any data you may have demonstrating that:

(1)   combusting refined coal under real-world conditions generates the emissions reductions required to qualify for the refined coal tax credit;

(2)   laboratory results are a reliable indicator of real-world emissions; or

(3)   the public health benefit of the tax credit as currently enforced outweighs the cost to taxpayers. 

If no such data exists, we urge the IRS to issue new guidance requiring refiners to demonstrate that their refined coal generates the required emissions reductions on the basis of annual emissions data from power plants where their refined coal is combusted.

The use of refined coal is growing,[9] suggesting that this tax credit will cost taxpayers even more in the coming years.  The estimated health benefits of the actual emissions reductions generated by the combustion of refined coal, calculated to be somewhere between $400 and $600 million annually, are significantly below the cost to taxpayers of the refined coal tax credit.  This suggests the refined fuel tax credit has become a taxpayer subsidy to large corporations that provides relatively little in the way of a public health benefit.  We look forward to receiving the data requested so we can work with you to ensure the program is achieving the results Congress originally intended.

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