Robert Pirog
Specialist in Energy Economics
The Obama Administration, in the FY2014 budget proposal, seeks to eliminate
a set of tax expenditures that benefit the oil and natural gas industries.
Supporters of these tax provisions see them as comparable to those affecting
other industries and supporting the production of domestic oil and natural
gas resources. Opponents of the provisions see these tax expenditures as
subsidies to a profitable industry the government can ill afford, and
impediments to the development of clean energy alternatives.
The FY2014 budget proposal outlines a set of proposals, framed as the
termination of tax preferences, that would potentially increase the taxes paid
by the oil and natural gas industries, especially those of the independent
producers. These proposals include repeal of the enhanced oil recovery and
marginal well tax credits, repeal of the current expensing of intangible
drilling costs provision, repeal of the deduction for tertiary injectants,
repeal of the passive loss exception for working interests in oil and
natural gas properties, elimination of the manufacturing tax deduction for
oil and natural gas companies, increasing the amortization period for certain
exploration expenses, and repeal of the percentage depletion allowance for
independent oil and natural gas producers. In addition, a variety of increased
inspection fees and other charges that would generate more revenue for the
Department of the Interior (DOI) are included in the budget proposal.
The Administration estimates that the tax changes outlined in the budget
proposal would provide $24.2 billion in additional revenues over the
period FY2014 through FY2018, and $40.7 billion from FY2014 to FY2023.
These changes, if enacted by Congress, would reduce the tax advantage of
independent oil and natural gas companies over the major oil companies. They
would also likely raise the cost of exploration and production, with the
possible result of higher consumer prices and more slowly increasing
domestic production; however, the measurement of these effects is beyond
the scope of this report.
Date of Report: October 30, 2013
Number of Pages: 13
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Anthony Andrews
Specialist in Energy Policy
Richard K. Lattanzio
Analyst in Environmental Policy
In early 2013, media outlets around Detroit, Michigan began publishing
stories about large piles of petroleum coke stored along the Detroit
Riverfront. Petroleum coke (petcoke) is a blackcolored solid composed
primarily of carbon, and may contain limited amounts of elemental forms of
sulfur, metals and non-volatile inorganic compounds. Petcoke is essentially
chemically inert. Petcoke exposure is considered to pose few human health
or environmental risks, but may present significant nuisance concerns. The
material in Detroit was the byproduct of the nearby Marathon Refinery’s
processing of heavy crude oils derived, in part, from Canadian oil sands
deposits. The situation gained national attention with the publication of
an article in the New York Times (“A Black Mound of Canadian Oil Waste
Is Rising over Detroit,” New York Times, May 17, 2013). The piles
of petcoke sparked local concerns over the potential impacts of the material on
human health and the environment, and whether these concerns were adequately
addressed by local, state, and federal regulations. As petroleum refining
is a nationwide commercial industry, these concerns may arise in other
regions.
Petcoke is a co-product of several distillation processes used in refining
heavy crude oil. Nearly half of U.S. petroleum refineries (56 or more) use
a coking process to convert heavy crude oils into refined petroleum
products, and more refineries may follow suit to take advantage of
the supply of heavy crude oils from Canada’s oil sands projects. Although
it is a refining co-product, petcoke has economic value as both a heating
fuel and raw material in manufacturing. In 2012, the U.S. Energy
Information Administration reported that U.S. refineries produced in excess of
56 million metric tons of petcoke, of which 80% was exported.
The U.S. Environmental Protection Agency has surveyed the potential human
health and environmental impacts of petcoke through its High Production
Volume (HPV) Challenge Program and found the material to be highly stable
and non-reactive at ambient environmental conditions. Most toxicity
analyses of petcoke find it has a low potential to cause adverse effects on
aquatic or terrestrial environments as well as a low health hazard
potential in humans, with no observed carcinogenic, reproductive, or
developmental effects. Cases of repeated-dose and chronic inhalation of
fugitive dust (as generated during petcoke handling and storage) in animal
studies do appear associated with respiratory inflammation. Emissions from
the combustion of petcoke, however, can have impacts on human health and
the environment, including the release of common pollutants, hazardous
substances, and high levels of the greenhouse gas, carbon dioxide.
While some federal statutes address certain environmental impacts of petcoke’s
life-cycle, most regulatory action and oversight has been undertaken at
the state and local levels, generally through facility-specific permitting
requirements. Federally, petcoke is exempted from classification as either
a solid or hazardous waste under the Resource Conservation and
Recovery Act (RCRA) and is not considered a hazardous substance under the
Comprehensive Environmental Response, Compensation, and Liability Act
(CERCLA). Petcoke facilities may be regulated under certain provisions of
the National Pollutant Discharge Elimination System (NPDES) permit program, as
authorized by the Clean Water Act (CWA), if it is determined that runoff
from sites where it is stored has the potential to transport the substance to
nearby surface waters. The handling of petcoke may also create instances
of reduced air quality due to releases of fugitive dust into the
atmosphere. Most of the impacts of fugitive dust are localized; and
thus, much of the regulatory oversight is implemented at the local and
state level. Whether such oversight is providing adequate protection is
among the issues that have been raised.
Date of Report: October 29, 2013
Number of Pages: 29
Order Number: R43263
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Adam Vann
Legislative Attorney
Paul W. Parfomak
Specialist in Energy and Infrastructure Policy
Controversy over the proposed Keystone XL pipeline project has focused
attention on the existing U.S. requirements for authorization to construct
and operate pipelines and other energy infrastructure at international
borders. For the most part, developers are required to obtain
a Presidential Permit for border crossing facilities. The agency
responsible for reviewing applications and issuing Presidential Permits
varies depending on the type of facility. Oil and other hazardous liquids
pipelines that cross borders are authorized by the U.S. Department of State. Natural
gas pipeline border crossings are authorized by the Federal Energy
Regulatory Commission. Electricity transmission facilities are authorized
by the Department of Energy. CRS has identified over 100 operating or
proposed oil, natural gas, and electric transmission facilities crossing
the U.S.-Mexico or U.S.-Canada border.
The authority for federal agencies to review applications and issue
Presidential Permits for oil pipelines comes from a series of executive
orders. These executive orders have been upheld by the courts as
legitimate exercises of the President’s constitutional authority over foreign
affairs as well as his authority as Commander in Chief. It is worth
noting, however, that Congress has enacted statutes applying to cross-border
natural gas and electric transmission facilities that require developers
of such projects to apply for authorization from executive branch
agencies.
In recent years, in the context of the Presidential Permit application for the
proposed Keystone XL crude oil pipeline project, Congress has acted to
modify the State Department permitting process. Legislation proposed in
the 112th and 113th Congresses has been, for the most part, directed at Presidential
Permit authority only with respect to the Keystone XL project—although such
legislation could set a precedent for Congress to assert authority over cross
border energy infrastructure permits more broadly. However, the North
American Energy Infrastructure Act (H.R. 3301) would change presidential
permitting for all border crossing energy infrastructure. What practical
effects any of these legislative proposals would have on the review and
approval of future border crossing energy infrastructure projects is the
subject of ongoing debate.
Date of Report: October 29, 2013
Number of Pages: 16
Order Number: R43261
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