Enhanced Oil Recovery Background Oil companies can qualify for a 15 percent income tax credit for the costs of recovering domestic oil as long as they use qualified "enhanced oil recovery" methods. Qualifying methods involve injecting fluids, gases, and other chemicals into the oil reservoir, or using heat to extract oil that is too viscous to be extracted by conventional techniques. Costs covered by the tax credit include the costs of equipment, labor, supplies, repairs, and injectants.
In addition, oil companies can expense, or immediately write off, so-called tertiary injectants used in enhanced oil recovery. Unlike other businesses, which have to deduct these costs over the lifetime of the investment, oil companies can deduct tertiary injectant expenditures within the year of the cost. Expensing allows companies to write off the costs of machinery and equipment faster than they actually wear out. The result is that the beneficiaries of this tax break, such as oil companies, have lower tax bills and maintain higher profit margins while the Treasury and taxpayers lose revenue.
Green Scissors Proposal Repeal the 15 percent credit for "enhanced oil recovery" and eliminate the expensing of tertiary injectants. This action would save taxpayers $300 million over five years.
Project Hurts Taxpayers The tax credit and immediate expensing for enhanced oil recovery encourage over production of domestic oil at taxpayer expense. These tax provisions promote oil production from sources that would not otherwise be economically viable.
Project Hurts Environment The nation does not need more subsidized oil, no matter what the source. Moreover, this tax credit gives the already profitable petroleum industry an advantage over cleaner emerging technologies.
$300 million