Chemical industry facing pressure for added tax burden to fund site remediation work

Petrochemical companies grouped under guild association American Chemistry Council oppose plans for a reinstatement in fiscal 2022 of Superfund chemical excise taxes that may bring back levies unseen in a quarter century saying that the added tax burden may threaten the entire American industry’s competitiveness.

Image courtesy of BrunoGermany/Pixabay

The association, which lists members like Americas Styrenics, BASF, Celanese, Chevron Phillips, Dow, LyondellBasell, and SABIC among dozens others, said in a statement on June 25 that reinstating Superfund chemical excise taxes may “create conditions conducive to shutdowns for plants producing certain industrial chemicals.”

Such a tax reinstatement “would target all chemical manufacturers, and some other industries, regardless of whether there is a connection to a Superfund site,” the ACC said.

Superfund Site is the denomination used for polluted locations in the U.S. that require a long-term managed cleanup effort, as designated under environmental laws.

Properties considered Superfund Sites include locations along the Texas and Louisiana coasts with soil and water surface contamination with compounds including acetone, chlorinated hydrocarbons, ethylbenzene, styrene, toluene, vinyl chloride, xylene and others.

$1.2 billion in new annual costs

“The taxes would be reinstated at two times their previous levels,” the ACC said in an infographics and fact sheet attachment published on July 1.

According to the ACC, the chemical industry would face about $1.2 billion in new annual costs that besides the direct impact on chemical manufacturers it would add costs to nearly all U.S. manufacturing.

Chemicals are the basic building blocks of many manufactured goods.

Such taxes have not been in effect for a quarter century, it said. They were last collected in 1995.

Only “foreign competition whose goods would bear no similar tax burden” would see benefits, it added.

List of 42 chemicals

A Superfund excise tax reinstatement would bring back levies to 42 chemicals but the burden would primarily fall on ethylene, propylene, benzene, chlorine, and xylene, the ACC said.

The chemical association warned that these chemicals are the basic building blocks for the entire industry.

Those chemicals help provide intermediate materials used not just to make airplanes and vehicles, medicine supplies and construction, but also across all business equipment down to water delivery and purification.

 A new tax on chemicals would add costs to materials used to help obtain renewable energy, cleaning products, as well as packaging to prevent breakage or contamination, the ACC said.

Looking ahead

According to information posted on the website of U.S.-based legal firm Arnold & Porter on June 24 by partners Brian Israel and David Skillman, before 1996 the excise tax on 42 chemicals “varied from 22 cents to $4.87 per ton.”

It noted that the argument to support a reinstatement is that Superfund excise taxes must come back “because of the continuing need for funds to remedy damages caused by releases of hazardous substances.”

U.S. President Joe Biden “also alluded to restoring payments" from polluters into the Superfund Trust Fund in his American Jobs Plan, they noted

The “pay-for under consideration for the bipartisan framework likely relies on the administration’s policy proposal, but details are sparse,” they said.

Infrastructure plan

According to a White House statement released on June 24, the $1.2-trillion Bipartisan Infrastructure Framework includes an expansion and upgrade of all transit and rail, water pipes, as well as road and bridge repair in addition to investment toward environment protection.

The plan contemplates investment to advance clean energy and “the largest investment in addressing legacy pollution in American history, a cleanup effort that will create good-paying union jobs and advance environmental justice,” it added.

“The Framework, which will generate significant economic benefits and returns, is financed through a combination of closing the tax gap, redirecting unspent emergency relief funds, targeted corporate user fees, and the macroeconomic impact of infrastructure investment,” it added.

Other funding alternatives include plans to “reduce the IRS (Internal Revenue Service) tax gap” or non-compliance with tax laws. The IRS has estimated the tax gap, or tax law non-compliance, at $441 billion annually, according to an Oct. 21 report.

The government may also consider an strategic oil reserve sale.

The ACC separately said on July 1 it supported “much needed physical infrastructure improvements” to keep U.S. manufacturing competitive.

Pending remediation work

The ACC stressed the past efforts by member companies in site remediation, or removing polluted or contaminated material from soil, surface or groundwater to reduce the impact on people and the environment.  

 “Chemistry companies and others targeted by the Superfund tax have paid for Superfund site remediation several times over. As responsible parties, they’ve paid to study, clean up, and reimburse federal and state government costs at sites they contaminated,” the ACC said.

“At multi-party sites, they paid the shares of responsible parties that were defunct, bankrupt, or released from liability by Congress. As corporate taxpayers, they paid again,” it added.

“The chemistry industry is already facing depressed demand from the COVID-related recession, intensifying foreign competition, and razor-thin margins,” the infographic added.

The petrochemical industry faced significant uncertainty particularly in the second quarter of 2020 amid lockdowns that led to reductions of running rates, shutdowns and forecasting uncertainty.

However, according to first quarter 2021 statements and commentary by CEOs of some chemical companies including Dow, LyondellBasell and others, the industry has seen a strong demand recovery and sustained price gains for several months.  

By Renzo Pipoli