The Environment Report
11:43 am
Tue March 25, 2014

Environmental groups split over proposed tax break for oil recovery

Jake Neher talks about the proposed tax break for oil recovery.

The Michigan Legislature recently approved a package of bills that’s causing a split between environmental groups.

The legislation would lower a tax on a certain kind of oil recovery.

Jake Neher is the capitol reporter for the Michigan Public Radio Network and he’s been following this story. I spoke with him about these bills for today's Environment Report.

“The main bill in the package would cut the state severance tax from 6.6% to 4% for companies using what’s called enhanced production or enhanced recovery methods to essentially clean out low-producing oil wells. So basically, they pump a bunch of carbon dioxide into the wells to help get relatively little amounts of oil out of them. In other words, companies would pay a lower tax rate on the oil they take out of the ground using that process.”

A great divide

Neher says environmental groups have differing opinions on the legislation.

“Supporters of the bill say that process is pretty expensive, so petroleum companies tend to say ‘to heck with it’ and just leave that oil in the ground. So they say cutting the severance tax for this specific practice would encourage them to finish off the wells instead of moving on to new, other pristine land to drill new wells that produce more oil for cheaper," he says.

The Michigan chapter of the Sierra Club has been the most outspoken against the bill, saying it would result in more oil production across the board.

"They also say big oil and gas companies don’t need any tax cuts right now; they’re doing just fine. So, Democrats in the state Senate echoed many of those ideas on the Senate floor just last week."

Here’s what State Senator Coleman Young, II, D-Detroit, had to say just before the bill came up for a vote:

"I don’t know about you, but I represent the interests of the people of Michigan, not foreign oil companies looking for bigger profits at the expense of our citizens," said Young.

On the other hand... maybe it'll encourage better use of resources

But other environmental groups like the Michigan Environmental Council say this would not be a huge windfall for oil and gas companies. They say it could actually mean some benefits to the environment. Here's what James Clift with the MEC said this week:

“They’re pumping at extra cost to get that last oil out of the ground. So, you know, maybe this will encourage the practice a little bit more; shouldn’t have much of an impact at all on state revenues, but hopefully will respect our resources and use them as wisely as we can,” said Clift.

MEC is coming out neutral on these bills; they’re not outwardly supporting it. Basically, they say it just comes down to how well the state regulates this process.

Neher points out the debate over these bills doesn't end with the tax break.

“There’s also a big controversy related to this package because it would also expand eminent domain for the transportation of petroleum products. And now, that would include carbon dioxide for this enhanced drilling process. Of course, whenever you’re talking about taking land away from property owners, there are going to be serious concerns about how that process will play out.”

Also, Neher says Democrats got an amendment to the package approved in the Senate last week.

"You might remember that just last week, Encana Oil and Gas USA and Chesapeake Energy were arraigned on conspiracy and anti-trust violations related to an alleged bid-rigging scandal. This bill could potentially prohibit those two companies from being eligible for that lower tax rate we’ve been talking about, and that’s if those companies are convicted of any violations related to that scandal."

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