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From 2003 through 2005, TIME estimates, the synfuel industry raked in $9 billion in tax credits. That means the lucky few collectively cut their tax bills by that amount, which would be enough to cover a year's worth of federal taxes for 20 million Americans who make less than $20,000 a year and pay income taxes. How important is the tax credit to synfuel producers? In its latest annual report, Headwaters Inc., a Utah-based purveyor of synfuel processes and substances, says flatly, "Headwaters does not believe that production of synthetic fuel will be profitable absent the tax...
...price of oil for its friends, it's necessary to return to the oil shocks of the 1970s, when long lines formed at gas stations and people dialed down the thermostats in homes and apartments so they could afford to pay their utility bills. In 1980, Congress enacted tax incentives that were designed to spur the development of a synthetic-fuel industry. The goal was to build huge plants using new technologies that would transform raw coal, which the U.S. has in abundance, into synthetic natural gas and oil to heat homes and factories, power cars and--here comes...
...coal can look and burn like regular coal. The IRS rule for transforming coal into synfuel--and getting the tax credit--requires only that the substance be chemically altered in some way. The alchemy that satisfies the IRS is a simple process: some plants spray newly mined coal with diesel fuel, pine-tar resin, limestone, acid or other substances--a practice that industry critics call "spray and pray." Other operators mix coal-mining waste with chemicals, coat it with latex and blend it with untreated coal to form briquettes. (For an earlier story on the scheme, see "The Great Energy...
Once a few pioneers started reaping the tax credits, it wasn't long before plants using various techniques sprouted next to coal-burning power plants, which buy the so-called synfuel and use it as they would any other coal. Those synfuel operations were a far cry from the state-of-the-art plants that Congress had envisioned as performing a more radical transformation. Instead, they were flimsy facilities that could be easily dismantled and moved to other locations...
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...