Taxing Big Oil for Shale and Tar Sands (S. 187)

What is S. 187?

(Updated March 15, 2018)

This bill would change the definition of "crude oil" in the Internal Revenue Code to include oil from tar sands and shale formations. This means that oils from shale and tar sands (alternatives to conventional crude oil) would be subject to excise tax — i.e. the taxes on specific purchases (like gasoline) that are usually included in the cost of the product.

S. 187 gives the Treasury Secretary the authority to include these new sources of oil in the excise tax on crude oils if they pose a significant hazard in the event of a spill. Sponsoring Rep. Ed Markey (D-MA) introduced this legislation in the 113th and in the current Congress in response to the proposed Keystone XL pipeline. 

Argument in favor

Tar sands and shale oils are just as hazardous to the environment as conventional oils. They should not be exempt from a tax that funds oil spill cleanups.

Argument opposed

Taxes imposed on oil from tar sands and shale will get loaded off onto consumers, meaning even higher fuel prices.

Impact

Companies that use tar sands or shale to produce and refine oil, and consumers of those products, tax payers, the Internal Revenue Code.

Cost of S. 187

The CBO cost estimate is currently unavailable.

Additional Info

In Depth:

At roughly 37 percent, petroleum is currently America’s leading source of energy. By 2040, petroleum is still projected to be the leading source of energy, but its share will have fallen to around 32 percent.

The revenue collected from the excise tax on these new oil sources would fund the Oil Spill Liability Trust Fund that goes to cleanup costs for oil spills around the country.

The per-barrel excise tax, reinstated in 2005, was raised from 5 cents to 8 cents for 2009-2016 and will rise to 9 cents in 2017. Democrats on the House Natural Resource Committee estimated the revenue from the excise tax expansion would be $58.5 million in 2014 and $61.5 million in 2015.

Under current law, oil from tar sands or shale formations isn’t covered by the excise tax on conventional crude oil. This legislation may set a precedent. As costs of energy climb higher and higher, new forms of oil extraction (like tar sands and shale) have become economically viable. Supporters of S. 187 contend that the bill would keep the IRS tax code up to date with those innovations. Rep. Earl Blumenauer (D-OR) noted in support of the bill: 

“We should be moving as quickly as possible and through every legislative avenue to reduce the tax breaks and exemptions that we give to Big Oil, which has raked in record profits in recent years. This bill ensures that we don’t let tar sands — which are a costly, environmentally destructive source of oil — to slip through the cracks and avoid fair taxation.”

In opposition to bills like S.187, Kevin Hassett and Alan Viard from The American Enterprise Institution note:

"Supporters of the tax increases complain that the companies have 'too much' money and that the government is entitled to seize money from them if it believes it can spend the funds more wisely. In a free society, however, government collects revenue from companies and individuals under neutral tax rules, based on an ad hoc determination that politically disfavored companies or individuals have too much money."

Media:

Democratic Natural Resources Committee Press Release

Huffington Post

Law 360

Scientific American — How Tar Sands Become Oil

(Photo Credit: Flickr user karindalziel)