That ‘80s Show known as Superfund is back – and it’s anything but super for the oil and gas industry.
Formally known as the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), the law enacted in December 1980 established an excise tax on a number of the chemicals used in the petroleum and chemical industries. The money collected went into a trust fund – the Superfund – to offset the cost of remediating abandoned or uncontrolled hazardous waste sites.
In 1995, Congress opted not to renew the funding mechanism. Since then, the cost of cleaning up hazardous waste sites has been borne by taxpayers. Now, however, a new Superfund provision has been included within the larger infrastructure bill that was just passed by Congress.
New Excise Taxes on Chemicals and Petrochemicals
The American Chemistry Council (ACC) estimated that reinstating Superfund excise taxes could put over 1,000 industry jobs at risk and result in a $1.211 billion per year cost on the American chemical industry. ACC has warned that “for specific chemicals and specific plant operations, the added costs from the taxes could exceed profit margins.”
While estimates for the oil and gas sector are not available, the impact is expected to be considerable. Ten of the 42 petrochemicals on the excise tax list are common in the oil and gas industry. The new mandate will require companies to identify which of the chemicals they’re using and the volume of each chemical in their production processes and output. Have a blended product? How much of chemical X is in there?
A Slow Recovery Could Slow Further
The timing of the new taxes couldn’t be much worse: Just as a slow, post-COVID recovery is starting to happen and the oil and gas market is in recovery. Some refineries are retooling for alternative fuels – a critical shift needed for the U.S. to reduce emissions and slow climate change. That switch likely won’t impact their cost obligations under Superfund. A chemical is still a chemical, no matter the formulation around it.
So, what about imports? The mandate will cover oil and gas imports, so switching from domestic supplies to imports won’t help. It could, however, push the margins back in favor of domestic production – lessening the overall U.S. reliance on imported oil and gas.
Start Preparing Now for the Revived Superfund
Companies in the chemical and petrochemical industries should start preparing today for the revival of the Superfund in 2022. Companies need to get a good grasp of their data now. Can you identify all your inventory volumes by product, category and product level? Because the Superfund excise taxes are on specific chemicals, it’s not enough to identify a product by material group. Instead, you need to be able to identify its properties down to the smallest levels.
Say, for example, that you have a product material code that is used for a blend of three different chemicals. Perhaps one of those chemicals is subject to the excise tax but the other two are not. So, you can’t just say that you have 10 gallons of product A. In reality, you might have three gallons of product A1, three gallons of product B, and two gallons of product C in that blend. Perhaps product C is the only one subject to the excise tax; thus, the tax is on just two gallons.
Yes, you’ll need to be able to track your inventory that carefully.
It’s Complicated. But the Right Software Can Make It Easier.
Tracking inventory is complicated, but it will be essential to ensure that your company isn’t paying too much (or too little) in Superfund excise taxes.
At the simplest level, you could track your chemicals in a spreadsheet. That’s not likely to be feasible unless you operate with only minimal volumes. The second option is to use enterprise resource planning (ERP) software. However, most ERP solutions will not provide the level of detail needed to account for excise taxes. The third option would be to modify custom software. Start now to design, build and test your software to ensure that it’s ready to roll out when you need it. If you’re a large company, your best option could be paying for a commercial solution. Doing so will give you the peace of mind that your partner is not only building your software for today but modifying and maintaining it to adjust for your needs moving forward.
The bottom line is that Superfund excise taxes impacting chemical, and oil and gas companies are coming soon. Think through the impact on your business today and what steps you need to take now to be ready when the time comes.
John Beaty serves as general manager for Excise at Avalara. His extensive experience in process technology consulting in the petroleum industry, including adaptation of global ERP solutions and energy trading and risk management systems, has taken him across the United States and overseas to Asia, Europe, the Middle East and South America.
Oil and gas operations are commonly found in remote locations far from company headquarters. Now, it's possible to monitor pump operations, collate and analyze seismic data, and track employees around the world from almost anywhere. Whether employees are in the office or in the field, the internet and related applications enable a greater multidirectional flow of information – and control – than ever before.