Benchmarks

Fortnightly Magazine - May 15 2000
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A tax credit for synthetic fuel wreaks havoc on coal markets.

The recent introduction of synthetic coal products has upset the fragile balance between supply and demand in the U.S. coal market. A recent study by Resource Data International (RDI) on synthetic coal finds that imbalance is being driven by the operation of more than 40 facilities that were rushed into commercial service to meet a July 1, 1998, deadline to qualify for a tax credit. Favorable treatment by the U.S. tax code will encourage synthetic coal producers to continue expanding production levels to as much as 30 million tons per year, significantly influencing utility steam coal markets for the foreseeable future.

The amount of the tax credit is based on the Btu content of the final product, less any Btus contained in the binding or agglomerating material. The tax credit amount also is based upon the cost of a barrel of oil and adjusted for inflation each year. The credit currently is worth approximately $25 a ton for synfuel with a heat content of 12,500 Btu per pound.

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