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That's what WPS Resources did in 2001. WPS bought a synfuel facility near Tuscaloosa, Ala., and moved it near a coal mine in Hopkins County, Ky. Naturally, the plant lost money. But it generated such bountiful tax breaks that before long, WPS could no longer take full advantage of the credit because it lacked sufficient income. In 2001 and 2002, for example, WPS claimed a total of $45 million in credits...
...course, just that. Congress's idea of a synthetic-fuel industry is unlike any other business model: it doesn't make a profit and never will. The cost of treating the coal makes synfuel more expensive than conventional coal. Thus this new generation of synfuel plants makes no economic sense. Their only allure is the tax credit. To be sure, those who benefit from the tax credit dispute the notion that it is a windfall. They claim that it has increased the supply of low-cost coal, lowered electricity prices, improved the efficiency of coal-fired generators and been environmentally...
Beyond the drain on the treasury, the credit has destabilized coal markets because synfuel producers periodically undercut conventional coal producers in this country and abroad, which they can afford to do because of their tax credits. Coal associations in Canada and Australia have complained that the tax credit is nothing less than a government subsidy interfering with the free market...
...preserve the break, the synfuel industry is lobbying intensely in Washington. The industry's Council for Energy Independence, whose members include Headwaters, GE Capital, Pacific Gas & Electric and other utilities, investment firms and coal companies, has been meeting with officials from Congress and the IRS. Says Kies, a former chief of staff of Congress's Joint Committee on Taxation, who heads the effort: "There is a lot of energy being put forth on behalf of taxpayers to force the IRS to back off of this...
...decline in crude-oil prices was partly responsible, but a larger factor was a government policy reversal. Although bullish on shale, coal and other synfuels in 1980, Washington soon cooled to the idea, as it had done in the past. After 1980, the Reagan Administration thought private industry, not government, should shoulder all the costs. Subsidies were reduced, and in 1985 the Administration killed the entire program, except for the synthetic-fuels tax credit. "The Administration no longer believes continued funding of the Synthetic Fuels Corp. serves any useful purpose," Budget Director James Miller told Congress. Former Colorado Governor Richard...