The original purpose of granting companies tax credits for research and development of synthetic fuels was to encourage development of methods to turn coal into a substitute for oil -- either as a gas, a liquid or an environmentally clean solid. That was 20 years ago, when the U.S. faced a shortage of imported oil -- but had coal aplenty.

Today, the synthetic-fuels tax credit is still on the books and some companies are reaping millions of dollars in subsidies just for altering coal a little bit to make it qualify as a synthetic fuel.

• One process -- grinding coal up and then soaking it with an oily emulsion -- produces a product which has the same energy content as regular coal and burns similarly.

• Other processes involve soaking, spraying or coating coal with substances ranging from asphalt to waste oil to starch and even diesel fuel -- processes that don't increase energy output.

• The only difference, experts say, is that it's the taxpayer who gets burned -- to the tune of about $26 a ton.

• Tax subsidies under the program this year will run between $650 million and $850 million.

President Ronald Reagan killed off President Jimmy Carter's U.S. Synthetic Fuels Corp. because it had become a symbol of government failure and waste -- but not before it had made about $1.5 billion in grants and guarantees.

But Congress failed to eliminate the tax credit -- thanks to some skilled lobbyists -- and it continues to prop up bogus processes.

Source: John D. McKinnon, "Washington Alchemy Turns Coal Products into Big Tax Credits," Wall Street Journal, July 12, 2001.

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