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Dave Johnson coal-fired power plant, central Wyoming Photo: Greg Goebel, Wiki CC
The General Accounting Office (aka GAO), which investigates waste, fraud, and abuse claims on behalf of Congress, is examining whether coal companies took advantage of a tax subsidy that was supposed to underwrite their costs in exchange for them emitting less air pollution and greenhouse gasses. It turns out they may never have delivered on their cleaner air promises. Reuters published a Special Report series in December 2018 that revealed that many power plants burning chemically treated coal, which the companies called “clean coal,” were actually emitting even more pollution than when using untreated coal. Resources for the Future, a non-profit group, later corroborated Reuters — finding that power plants using refined coal were not cutting mercury, nitrogen oxide, and sulfur dioxide pollution to levels required by the tax credit program.
Why This Matters: President Biden promised to rid the tax code of all the subsidies for fossil fuels. Subsidies for these pollution sources are bad — but fraudulently claiming them is even worse. Some big companies took advantage of the tax break, including Fidelity Investments, Goldman Sachs Group Inc, JPMorgan Chase & Co Inc, pharmaceutical giant Mylan NV, and Waste Management Inc, according to Reuters. Subsidies like this have to go — the abuses would not have been caught but for journalists.
IRS’ Oversight Was Lax
The Reuters investigation uncovered the fact that the IRS allowed the companies to claim the credit if they tested relatively small amounts of refined coal in a laboratory once a year to show the reduced emissions, instead of requiring actual emissions results data from the source at the power plant. In 2020, 150 million tons of so-called “refined” coal was burned in the United States, according to the U.S. Energy Information Administration for which the claimants received a tax credit of $7.30 for each ton burned. Companies have used the credit to amass billions in tax write-offs that they can use or save for later years when they have higher profits than say during the pandemic.
The Bad Actors
Reuters’ original investigation identified 56 companies taking advantage of the tax break in 2017 using data from the U.S. Energy Information Administration and disclosures from energy companies and refined-coal developers. Of those 56 companies, only 18 reduced NOx emissions by more than 20 percent in 2017 compared to 2009. And of those 18, 15 polluted less after they installed pollution control equipment — so the reductions may not have been derived from the supposedly “clean” fuel they were using. On the other hand, 22 of the 56 had higher NOx emissions in 2017 while burning refined coal than they had when they were using raw coal in 2009.
Ron Sahu, an environmental engineer who has consulted with utility companies, the EPA and the U.S. Justice Department on power plant emissions said at the time that the Reuters analysis showed that refined coal was not effective in reducing NOx emissions at actual power plants, which was the point of the tax credit in the first place. The subsidy program may have been more successful when it came to reducing mercury emissions — where the reduction was 75%, but it may have been attributable to other factors as well.
If more fraud is uncovered it may result in Congress eliminating the subsidy.
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