SALT LAKE CITY — Legislation encouraging Utah’s refineries to revamp their systems to produce low-sulfur Tier 3 fuels passed with overwhelming support the final week of the 2017 session in spite of the $1.8 million tax break it promises.
According to Sen. Stuart Adams, R-Layton, previous iterations of his bill contained $60 million to provide manufacturers with tax incentives that would help make their businesses more competitive in Utah.
“We currently don’t give them an exemption. There are four states without sales tax. Of the remaining 46, 40 have exemptions for manufacturers,” Adams said.
However, that hefty fiscal note blocked the legislation from advancing — and the current SB 197 looks trim in comparison, scaled back to provide refiners with a sales tax exemption on the purchase or lease of machinery, equipment, catalysts, chemicals, and other supplies related to Tier 3 fuels.
But Adams said he believes in the legislation for reasons beyond keeping Utah’s business climate competitive.
“It’s probably the most significant clean air bill I’ve seen in recent years,” Stuart said. “We think its good tax policy not to tax inputs, but we also think we have significant problems with our air quality.”
Tier 3 fuel, the nationwide standard set by the U.S. Environmental Protection Agency in April 2014, holds the promise of removing a significant portion of the pollutants that sully Utah’s “pretty great state” reputation, particularly during wintertime inversions.
According to the EPA, no state would benefit more from implementing Tier 3 fuels than Utah, and the Utah Clean Air Partnership (UCAIR) explains why:
- Vehicles spew out about half the air emissions up and down the Wasatch Front.
- Tier 3 reduces the sulfur content of fuel from 30 to 10 parts per million (ppm).
- Tier 3 fuels used in existing vehicles will reduce emissions by seven to 11 percent.
- When fully implemented, Tier 3 fuel combined with Tier 3 vehicles will reduce volatile organic compounds and nitrogen oxide emissions by about 80 percent — an impact equivalent to taking four out of five automobiles off the road.
In addition to lowering sulfur in fuel, the EPA also requires the phasing in of cleaner-running vehicles between 2017 through model year 2025. And while large refineries were required to meet Tier 3 standards by 2017, Utah’s smaller refineries have until 2020 to ramp up.
“It’s the right thing to do for the environment, and we’ve given them this window to take advantage of this tax credit,” Stuart said. “They could take advantage of the tax credit in 2018 and 2019 to buy the equipment, put it in place and get it certified. Then they can begin producing it.”
Tyler Kruzich, manager of policy, government and public affairs for Chevron Salt Lake, applauded SB 197, but said Chevron “has not made a public announcement as to whether or not we will produce the Tier 3 fuels in Utah.”
“We’re incredibly encouraged by the legislation, and we strongly commend Sen. Stuart Adams and Rep. Brad Wilson for their work to help try to incentivize refiners to take that next step,” Kruzich said.
But according to Kruzich, Chevron USA already meets EPA’s national Tier 3 requirements.
“The idea behind Tier 3 is that a refiner like Chevron is required to produce 10 ppm across its entire fleet of refineries in the U.S. by a date certain. To comply with the EPA regulation, we can do projects at any of our refineries so long as we bring our pool average to 10 ppm,” Kruzich said. “We understand the importance of Tier 3 to Utah and we continue to analyze how best to provide the lowest sulfur gasoline we can to Utah consumers.”
Sen. Jim Dabakis, a Salt Lake City Democrat, said SB 197 pulled him in two opposing directions.
“The state gives away over $1 billion per year in tax credits to certain winners, and by routine I oppose them all because they pick winners and losers,” Dabakis said. “This is the only tax credit I voted for and even this one wasn’t easy because, in principle, the hard working taxpayers of Utah are turning over a check to the big oil companies.”
However, on final passage he supported SB 197.
“The truth is, the greatest possibility to change Utah’s air quality in many decades — maybe since getting lead out of gas — is Tier 3,” Dabakis said. “All new cars will be required to have it — and it lowers emissions in a huge way. As much as I don’t like giving money to these big oil companies, I don’t like polluted air even more.”
SB 197 is slated to take effect Jan. 1, 2018. Refiners who comply with the 10 ppm sulfur cap by July 1, 2021, will be subject to annual reporting to continue to receive the sales tax exemption on machinery, equipment and inputs required to produce Tier 3 fuel.