Nonconventional Fuel Credits

Nonconventional Fuel Credits

April 01, 2007

Nonconventianal fuel credits for producing landfill gas and synthetic fuel from coal were 81.4¢ an mmBtu during 2006, the IRS said in early April.

These are tax credits that the US government offers as an inducement to look in unusual places domestically for fuels that might displace US oil imports. The tax credits are winding down. They used to be given for producing a large list of fuels. They only remain available through the end of 2007 and then only as a reward for producing two types of fuels: gas from biomass — into which category landfill gas falls — and synthetic fuel from coal. The facilities used to produce these fuels must have been put into service no later than June 1998. Credits may also be claimed, but at a reduced rate, for producing coke or coke gas.

The credits would have been $1.212 an mmBtu last year were it not for high oil prices. The credits phase out in any year when oil prices return to levels reached during the Arab oil embargo in the 1970s. In such years, Congress felt the market itself should provide enough incentive to look for alternative fuels without the need for tax subsidies.

The IRS said the average wellfield price last year for domestic crude oil was $59.68 a barrel. It said the credits were subject to a phase out last year as oil moved across a range of $55.06 to $69.12 a barrel. Since the average oil price for the year was one third into that range, the credits suffered a one-third reduction last year.

The IRS made the announcement in Notice 2007-38. The credit and phase-out range are adjusted each year for inflation. Producers will not know until April next year how much the credit is during 2007.

Keith Martin