Exxon won't pay into cleanup fund because oil spilled in Arkansas isn't "oil"
Despite spilling tens, if not hundreds of thousands of gallons of oil and chemicals into an Arkansas neighborhood, thanks to a loophole in a law from 1980, ExxonMobil will not be paying into a federal oil spill cleanup fund because the oil they spilled is not the right type of oil. It is a twisted example of the legal technicalities and lax regulations that all too often favor oil companies, but a coalition of environmental groups are working to close the loophole.
According to Congress and the IRS, diluted bitumen or dilbit, which is the type of oil that has spilled in Arkansas, is not classified as oil and companies shipping it are not required to pay an 8-cents-per-barrel excise tax into the federal Oil Spill Liability Trust Fund, as companies shipping conventional oil do.
Other conventional crude producers pay 8 cents a barrel to ensure the fund has resources to help clean up some of the 54,000 barrels of pipeline oil that spilled 364 times last year.
As Oil Change International said in a statement today:
“The great irony of this tragic spill in Arkansas is that the transport of tar sands oil through pipelines in the US is exempt from payments into the Oil Spill Liability Trust Fund. Exxon, like all companies shipping toxic tar sands, doesn’t have to pay into the fund that will cover most of the clean up costs for the pipeline’s inevitable spills.”
In July of last year, Lisa Song at Inside Climate News noted that both Congress and the IRS acknowledge this distinction:
Dilbit is exempt from the tax, because the 1980 legislation that created the tax states that "the term crude oil does not include synthetic petroleum, e.g., shale oil, liquids from coal, tar sands, or biomass..."
The Internal Revenue Service cited that 1980 text in a 2011 memo that confirmed the exemption for at least one company.
While these substances are different, the ways the government does and does not recognize these differences seems be the exact opposite of how it should be.
According to the oil industry, tar sands oil is oil when the oil industry needs oil spill cleanup funds, but it isn't oil when it comes to paying for that cleanup fund. The industry also opposes changes to how tar sands oil pipelines are regulated. So again, they consider tar sands oil just like conventional oil when it comes to their pipelines, but not when it comes to cleaning the spills those pipelines create.
Whether it is tar sands oil, dilbit or conventional crude, oil spills are a mess to clean up and the oil industry should pay a cleanup fee for a barrel of one type of oil as it does for another. But when it comes to the safety regulations for how these oils are transported via pipeline, they should be regulated differently, considering that tar sands oil is more corrosive and harder to cleanup.
In a series of updates to my initial post on the Arkansas spill, I highlighted the differences in dilbit from conventional oil and what it meant for the debate over the Keystone XL pipeline and communities at risk from future spills.
First, for background, InsideClimate News produced a good primer on the differences between dilbit and conventional oil:
Bitumen is a kind of crude oil found in natural oil sands deposits—it's the heaviest crude oil used today. The oil sands, also known as tar sands, contain a mixture of sand, water and oily bitumen.
Conventional crude oil is a liquid that can be pumped from underground deposits. It is then shipped by pipeline to refineries where it's processed into gasoline, diesel and other fuels.
Bitumen is too thick to be pumped from the ground or through pipelines. Instead, the heavy tar-like substance must be mined or extracted by injecting steam into the ground. The extracted bitumen has the consistency of peanut butter and requires extra processing before it can be delivered to a refinery.
To make the thick bitumen flow through a pipeline, chemicals and water are added to dilute it. Benzene, a known carcinogen, is often part of the diluents mixture.
Because this oil is so different from conventional crude, a coalition led by the National Wildlife Federation is demanding a moratorium on building new tar sands pipelines—including the Keystone XL—until regulators update the rules regarding this type of oil.
Filed on behalf of 29 environmental and community groups and 36 individuals, the petition includes a list of nine policy recommendations for the safe transport of dilbit, a type of crude oil produced from Canada's oil sands region.
"Simply put, diluted bitumen and conventional crude oil are not the same substance," the petitioners wrote. "There is increasing evidence that the transport of diluted bitumen is putting America's public safety at risk. Current regulations fail to protect the public against those risks. Instead, regulations ... treat diluted bitumen and conventional crude the same."
Dilbit isn't just potentially more corrosive and dangerous inside the pipeline, we should also be concerned with how dilbit behaves when it is spilled into water.
The problem, as I lay out in Update X here, is that dilbit sinks, making boom ineffective in containing and cleaning up spills.
So while the Oil Spill Liability Trust Fund will be tapped to clean up spills of tar sands oil, like the Arkansas spill, because of this loophole, ExxonMobil and other oil companies dealing in tar sands dilbit are not helping replenish these funds.
If the oil industry wants to pipe these dangerous tar sands oils over our water sheds and aquifers, putting our drinking supply and neighborhoods at risk, they should not only be required to pay into the cleanup fund, they should be paying far more than the 8 cents per barrel they pay for conventional oil since these tar sands oils are not just worse for the environment, but potentially pose a greater risk of spills and are even harder to clean up.
UPDATE: I'm seeing more and more press reports covering Exxon's statement that they will "pay all costs for the Arkansas oil spill cleanup." Exxon is parsing words and sidestepping the issue I and other journalists have raised about the technicality over how tar sands oil is classified.
Exxon may indeed end up paying for all of the oil spill cleanup in Mayflower, but they are not paying the 8-cents-per-barrel fee for the tar sands oil, as they would if they were transporting conventional oil. While I think there is legitimate cause for concern as to whether Exxon really will pay for the damage they have caused (Ben Jervey has a good post on this point), the broader concern is that this 1980 law is currently allowing oil companies shipping tar sands oil to get away without contributing to the Oil Spill Liability Trust Fund. With so much of this oil crossing the United States via pipeline and rail, there is considerable risk of spills and it is not right that they are able to avoid these oil spill liability trust fund fees.
MORE: See all of our Mayflower, Arkansas oil spill coverage here.