Refined coal tax credits drew fire from three US Senators in early June.

Senators Elizabeth Warren (D-Massachusetts), Sheldon Whitehouse (D-Rhode Island) and Sherrod Brown (D-Ohio) sent a letter to the IRS commissioner urging him to require refined coal producers to use CEMS field testing on site to prove actual emissions reductions rather than accept laboratory results from burning coal samples in pilot-scale test furnaces.

The US government offers production tax credits of $7.173 a ton as an inducement to produce refined coal. Refined coal is coal that has been treated with chemicals to make it less polluting. To qualify for tax credits, nitrogen oxide emissions must be reduced by at least 20% compared to burning regular coal and sulfur dioxide or mercury emissions must be reduced by at least 40%. Tax credits can be claimed for 10 years after the equipment for treating coal is first put in service. Such equipment had to be in service by December 2011 to qualify.

Refined coal producers must prove emissions reductions at the outset by comparing the emissions produced from burning both refined coal and regular coal at the actual power plant using a continuous emissions monitoring system or by analyzing emissions from test burns of both types of coal at a laboratory. Most testing is done at a test facility at the University of North Dakota.

IRS rules then require the emissions to be checked every six months. However, the required emissions reductions are assumed to have been maintained as long as the sulfur and mercury content of both the refined coal and regular coal are within 10% of what was observed when emissions testing was done at the outset.

The IRS has been challenging aggressively structured tax equity transactions involving refined coal credits. (For earlier coverage, see “Refined Coal” in the April 2018 NewsWire.) However, the agency has been reluctant to spend time rewriting the basic rules it has been using because the tax credits have nearly expired.

Two researchers at Resources for the Future said in a 37-page report in early June that they found no evidence that any coal-fired power plant is achieving the required emissions reductions in fact in both NOx and sulfur dioxide or mercury. Actual emissions at less than 20% of plants were reaching the NOx target, and emissions at none of the plants that reached the NOx target also reached the sulfur dioxide or mercury target.

The two researchers did regression analyses comparing emissions at coal-burning power plants accounting for 90% of coal usage in the United States and found average emissions reductions using refined coal of 12.5% for NOx, 2.3% for sulfur dioxide and 24.1% for mercury.

Refined coal accounts for roughly 20% of coal used in the US power sector.

A bill introduced in the Senate in May by the two North Dakota Senators would allow another 10 years of tax credits for existing refined coal facilities and reopen the window for another three years from 2019 through 2021 for additional refined coal facilities to be put in service to qualify for tax credits. A similar bill was introduced in both the House and Senate in 2018, but failed to advance.