Irrational Exemption: Tar sands pipeline subsidies and why they must end

Credit: National Transportation Safety Board

Download our briefing on the tar sands exemption to the Oil Spill Liability Trust Fund here.

When Enbridge’s Line 6B burst open near Marshall, Michigan in July 2010 spewing over a million gallons of tar sands sludge into the Kalamazoo river watershed, funds were quickly released from the Oil Spill Liability Trust Fund to mobilize Environmental Protection Agency staff and other federal employees to assist and monitor clean up. But the tar sands companies that produced the oil that is still polluting Talmadge Creek nearly two years later have never paid a penny into the fund. Why? Because when payments into the fund were reinstated by the 2005 Energy Policy Act following a hiatus, someone convinced the IRS that tar sands crude was not crude oil, and therefore did not need to pay.

As a new report released today shows, the transport of tar sands oil through pipelines in the United States is exempt from payments into the Oil Spill Liability Trust Fund. This is a free ride worth over $375 million to tar sands oil producers between 2010 and 2017, including over $160 million for shippers on TransCanada’s Keystone pipeline system. This exemption is an unnecessary subsidy, and one that ignores the elevated risks of transporting tar sands crude oil relative to conventional crude. Logically, tar sands oil transport should be subject to a higher rate than conventional oil, not exempt.

The diluted bitumen that was being transported in Line 6B behaves differently than conventional crude oil when it spills. Natural gas liquids which are used to liquefy the bitumen so it will flow through a pipeline quickly evaporate posing a breathing hazard to anyone downwind. The heavy bitumen sludge left behind sinks to the bottom of the water body making it impossible to properly clean up.

This makes remedying a tar sands pipeline spill more difficult, less effective and much more expensive. So wouldn’t it seem like a good idea to charge a higher rate to tar sands producers as insurance that a spill can be properly addressed and monitored? You would have thought so, but in a political system that is bought by the highest bidder rational policymaking falls victim to special interests. The result is an irrational exemption worth over $30 million a year to an industry making billions while the taxpayer is increasingly liable when things go wrong.

And guess what? The industry plans to more than double the amount of tar sands oil passing through American pipelines over the next decades, making it less and less likely that the oil spill trust fund will have adequate funds to address a spill.

The fund is paid for by an 8-cents-per-barrel tax on oil produced in or imported into the United States. It is mandated to hold up to $2 billion with half of that available to address a single spill. In February 2012, it held a mere $130 million following large claims for the BP Gulf of Mexico spill and Enbridge’s Kalamazoo spill. Under the current exemption, as tar sands supplies increase, less and less money will flow into the fund. We have calculated that between 2010 and 2017, when the current provisions for the fund expire, tar sands producers are likely to save over $375 million due to the exemption. Yet tar sands spills are both more likely to happen and more damaging when they do.

Credit: Sue Connolly, Marshall, Michigan

But irrational and destructive subsidies for the oil and gas industry are not confined to the spill fund exemption. Senator Bernie Sanders (I-VT) and Rep. Keith Ellison (D-Minn.) introduced bills in Congress last week that target over $10 billion in subsidies, tax breaks and exemptions enjoyed by the oil and gas industry every year. The oil spill fund tar sands exemption is just one of many. These bills are unlikely to be fully debated because Congress receives tens of millions of dollars every year from the very beneficiaries of these subsidies. By our last count the industry got a 5,800% return on its investment in Congress.

The Kalamazoo tar sands spill caused real damage to people in Marshall, Michigan. Damage they are still suffering two years on and may be dealing with for many years to come. It makes no sense whatsoever to exempt tar sands oil from paying into the Oil Spill Liability Trust Fund, just as it makes no sense for America to continue to waiver royalties on Gulf of Mexico oil production or any of the other subsidies to an industry that pollutes with impunity while laughing all the way to the bank.

It’s another stark reminder of how American governance has been sold to the highest bidder.

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Download our briefing on the tar sands exemption here

Tell your Congress members to support ending all fossil fuel subsidies and reject money from fossil fuel polluters here.