Democrats in the U.S. Senate are calling on the U.S. Government Accountability Office to audit a coal production tax credit they say has permitted refiners, many of them owned by financial services companies, to claim roughly $1 billion in tax write-offs based on "questionable pollution data."
A call for an investigation follows the release of a report from environmental research group, Resources for the Future, that found under real-world conditions, the actual emissions reductions achieved by using refined coal were roughly half the required emissions reductions for nitrogen oxides and mercury, while generating next to no reduction in sulfur dioxide emissions. Sens. Sheldon Whitehouse, D-Rhode Island; Elizabeth Warren, D-Mass.; and Sherrod Brown, D-Ohio, called on the Internal Revenue Service to justify its award of the tax credits in June.
"We ought to know if Wall Street-backed corporations are bilking the U.S. Treasury for massive sums of money based on a phony premise," the senators said in a statement. "The data from private labs hired by these refiners to justify the use of these tax credits looks like it fails to measure dangerous pollutants from real-world burning of so-called 'refined' coal."
The senators said some of the large financial services firms taking advantage of the credit generated hundreds of millions of dollars in refined coal tax credits with a return on investment of several hundred percent.
Arthur J. Gallagher & Co., one of the companies named by the senators as benefiting from the program, noted at a December investor relations meeting that its "clean coal exercise" will likely end up generating between $95 million and $97 million of earnings this year. Douglas Howell, the company's CFO and corporate vice president, took credit for creating a "machine" that generated multiples of up to 500% on a March 2018 investor meeting..
"The program has done exactly what Congress wanted," Howell said at a more recent meeting in September. "It's created innovation, it's created clean energy, it's created a continued life for coal. We couldn't be more proud of the contributions we made in that space. And hopefully, the Congress will recognize that maybe a couple of more years as — will help continue to increase innovation."
Constructing a refined coal facility is relatively inexpensive. Once built, however, processed coal can be sold to utilities for nearby coal plants at a lower cost while the refiner generates a profit from the government subsidy.
The tax credit is worth $7 per ton of refined coal in exchange for a 20% reduction of nitrogen oxide and sulfur dioxide or a 40% reduction in mercury emissions per unit of thermal energy compared to unrefined coal. The study by Resources for the Future concluded combusting refined coal generates a 12.5% average reduction in nitrogen oxides emissions, a 2.3% average reduction in sulfur dioxide emissions and a 24.1% average reduction in mercury emissions.