Jonathan L. Ramseur
Specialist in Environmental Policy
Imports of crude oil derived from Canadian oil sands have increased substantially in recent years. Recent pipeline oil spills, including the 2010 Enbridge spill in Michigan and the 2013 ExxonMobil spill in Arkansas, have involved this material and have generated interest from policymakers and a variety of stakeholders.
The Oil Spill Liability Trust Fund (OSLTF) provides an immediate source of federal funding to respond to oil spills in a timely manner. Monies from the OSLTF can be used to respond to a wide variety of oil types, including oil sands-derived crude oils. The OSLTF is primarily financed by an 8-cents per-barrel tax on domestic crude oil and imported crude oil and petroleum products. In the context of the per-barrel OSLTF tax provision, a 1980 House committee report stated:
the term crude oil does not include synthetic petroleum, e.g., shale oil, liquids from coal, tar sands, or biomass, or refined oil.
Based on that statement, the Internal Revenue Service (IRS) concluded that oil sands-derived crude oils are not subject to the OSLTF excise tax. This determination raises several issues. Perhaps the foremost issue is one of equity. Policymakers may consider whether there is a rationale for exempting certain types of crude oils from the excise tax. At present, it is unclear the degree to which importers of oil sands-derived crude oils are paying the OSLTF excise tax.
The different contexts for “oil” could lead to situations in which expenditures from the trust fund are used to clean up oil that was not subject to the tax. However, the OSLTF arguably plays a backup role in terms of response funding during many oil spills. The responsible party for an oil spill often provides the primary source of response (i.e., cleanup) funding, and the federal government may recover costs or damages paid from the OSLTF. Thus, the financial impact to the trust fund could be minimal if the majority of its payments are reimbursed by the responsible parties. Nonetheless, the liability of responsible parties may be limited under certain conditions. In those situations, the OSLTF could effectively pay—up to a per-incident cap of $1 billion—for response costs and applicable damages above the liability limit.
Several legislative proposals would specifically include oil sands-derived crude oils within the scope of the per-barrel tax:
- S. 268 (Levin, introduced February 11, 2013): the “CUT Loopholes Act” addresses multiple tax provisions;
- H.R. 786 (Markey, introduced February 15, 2013): the “Tar Sands Tax Loophole Elimination Act” is stand-alone legislation;
- S. 953 (Reed, introduced May 14, 2013): the “Student Loan Affordability Act” includes changes to several laws to offset the costs of components of the student loan program.
If Congress were to explicitly include oil sands-derived crude oils within the scope of the perbarrel OSLTF tax, the revenue supporting the OSLTF would likely increase. Over the last four fiscal years, this tax has generated, on average, $485 million per year. Based on import data of Canadian oil sands-derived crude oil, the tax would have increased by approximately $35 million in 2012, assuming the IRS was not collecting the tax for these materials in that year.
Date of Report: July 1, 2013
Number of Pages: 19
Order Number: R43128
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