NCPA - National Center for Policy Analysis

Coal Dust Into Gold Dust: Thanks To Synfuels Subsidy

January 17, 2001

Twenty years ago, as part of the failed Carter administration energy policy -- designed to deal with an energy crisis caused by price controls from the Nixon administration -- Congress decided to give taxpayers' money away to companies that produce synthetic fuels. Only recently have companies figured out how to mine the synfuels tax credit.

Here's an example of how it is working:

  • A Salt Lake City company called Headwaters Inc. holds eight patents covering the process of binding waste coal -- such as coal dust -- with latex to form briquettes that can be sold to an electric utility.
  • But the process is uneconomical: the stuff can be sold for only about $20 a ton, but costs more than that to make it.
  • So the federal government offers a subsidy that can exceed $26.

Observers say a lot of people are cleaning up in the coal dust game. The only way to get a subsidy is to claim it as a credit against a federal income tax bill. So utilities are cashing in, as well as participants in non-energy businesses.

If coal synfuel production -- which has already tripled to 10 million tons -- quadruples again by 2003, as experts predict -- taxpayers could shell out $1 billion in year in subsidies.

Experts surmise that some producers are fusing perfectly good coal simply to qualify for the subsidy. And it is oil, not coal, that is in short supply.

Source: Richawn Biddle, "Here We Go Again," Forbes, January 22, 2001.


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