[Congressional Record Volume 155, Number 95 (Tuesday, June 23, 2009)]
[Senate]
[Pages S6944-S6945]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. SPECTER:
  S. 1325. A bill to amend the Internal Revenue Code of 1986 to 
permanently extend and modify the section 45 credit for refined coal 
from steel industry fuel, and for other purposes; to the Committee on 
Finance.
  Mr. SPECTER. Mr. President, I have sought recognition to introduce 
legislation to make permanent a tax credit for the production of Steel 
Industry Fuel, SIF. SIF is used by the domestic steel industry as a 
feedstock for the manufacture of coke, which is coal that has been 
carbonized and is used as a fuel in steel making.
  Last fall, Congress enacted a new tax credit under the refined coal 
provision of section 45 of the Internal Revenue Code for the production 
of this fuel product made from coal waste sludge and coal. This tax 
credit supports SIF projects that may not otherwise be viable due to 
materials, process, technology and other transaction costs. As 
originally enacted, the SIF credit provides for a one-year credit 
period.
  There are numerous reasons that favor extending the tax incentives 
for SIF: it has significant energy, environmental, and economic 
benefits. First, SIF recaptures the BTU content of coal waste sludge; 
second, its production is the preferred method of coal waste sludge 
disposal and is done so in a manner approved by the Environmental 
Protection Agency, EPA; and third, it provides the economic and 
financial benefits of making our domestic steel industry more 
competitive by lowering production and operational costs.
  The production of SIF is the most favorable method of disposing of 
coal waste sludge from an energy resource and environmental 
perspective. The disposal of coal waste sludge would otherwise be 
treated as a hazardous waste under applicable Federal environmental 
rules. The alternative methods of disposal are to transport the coal 
waste sludge off-site for incineration or to foreign countries for 
land-filling. Both options require the physical conveyance of a waste 
product, which is a dangerous, cumbersome, and expensive undertaking. 
The more obvious drawback is the failure to recapture the energy 
content of the coal waste sludge.
  An extension of the SIF tax incentive is of critical importance in 
the current economic downturn, and its sunset would have a negative 
impact on the industry. Steel companies and coke plant operators are 
incurring losses as the demand for their product has dried up. There 
have been significant layoffs at the major domestic integrated steel 
producers, impacting thousands of workers in Pennsylvania, Illinois, 
Indiana, Michigan, Ohio, West Virginia, Kentucky, and elsewhere. 
Domestic steel manufacturers have been forced to operate at low 
capacity utilization rates and coke batteries have been placed on ``hot 
idle,'' a holding pattern to prevent the bricks that comprise the coke 
battery from cooling and damaging the battery. An extension of the SIF 
credit will enable these manufacturers to mitigate their losses while 
the economy recovers.
  The current 1-year period for the SIF credit has been a significant 
hindrance in attracting the outside investment needed to finance SIF 
projects, especially in light of the prevailing economic conditions 
since the enactment of the credit. Steel industry fuel projects often 
involve lengthy negotiations to implement the transaction structure 
necessary to claim the SIF credit, which has effectively reduced the 1-
year credit period to a lesser period for many projects. For this 
reason, the subsidy intended to be provided by the credit for the 
development of SIF projects requires a longer credit period.
  Included in this legislation is an important clarification on an 
issue that has slowed negotiations with respect to SIF projects. It is 
expected that, for the convenience of the parties and for environmental 
safety, facilities producing SIF will typically be located on land 
leased from a steel company or other owner of a coking operation. Such 
a lessor will not be treated as having an ownership interest in the SIF 
facility because it leases land and related facilities, sells coal 
waste sludge or coal feedstock, and/or buys SIF so long as such 
person's entitlement to rent and/or other net payments is measured by a 
fixed dollar amount or a fixed dollar amount per ton, or otherwise 
determined without reference to the profit or loss of the facility. 
Similarly, a licensor of technology will not be treated as having an 
ownership interest in the SIF facility because it is entitled to a 
royalty and/or other payment that is a fixed amount per ton or 
otherwise determined without regard to the profit or loss of the 
facility. Such arrangements may also cause facilities that produce SIF 
to operate at a loss before the credit is taken into account; however, 
it is intended that the occurrence of such a ``pre-tax loss'' will not 
affect entitlement to this credit, regardless of whether such ``pre-tax 
loss'' is caused by the terms of the lease, license, supply or sales 
contracts between the parties. To that end, the bill provides necessary 
flexibility for varying circumstances of ownership interests and 
clarifies that the existence of such arrangements will not prevent the 
equity owner of a facility from receiving tax credits for its sales of 
SIF. This provision provides greater tax certainty to potential 
investors in SIF projects.
  SIF is typically produced at facilities that are located on the 
premises of coke plants that are owned by integrated steel companies 
that are unrelated to the producer of such SIF. The

[[Page S6945]]

SIF production facility is situated on or near conveyor belts that may 
be leased from the integrated steel company and production of SIF may 
occur while coal, and coal blended with petroleum coke, as described 
below, is transported on the conveyor belts. For commercial, liability, 
safety, environmental and other business reasons germane to the 
integrated steel companies that consume the SIF, SIF producers may 
purchase coal from the integrated steel producer, taking title and 
having risk of loss while such coal is transported on the conveyor 
belt, rather than directly purchasing the coal from the mine. The bill 
provides a safe harbor that establishes that the SIF producer shall be 
treated as the producer and seller of SIF that it manufactures from 
coal to which it has taken title. The bill further clarifies that the 
sale of SIF shall not fail to qualify as a sale to an unrelated party 
for purposes of the SIF credit solely because the sale is to a party 
that is also a ground lessor, supplier, and/or customer.
  The bill also establishes that SIF may also be made using coal or 
coal that is mixed with some petroleum coke. Such ``pet coke'' has 
traditionally been used by steel companies/coke operators in a blend 
with coal as a feedstock for coke. The bill provides that its presence 
in SIF does not invalidate or otherwise reduce the credit.
  SIF projects will expand our domestic energy resources by using what 
would otherwise be a hazardous waste of the coking process in a fuel 
product. The availability of the tax credit will attract outside 
investment to the steel and coke production industries and promote job 
growth in the domestic steel production industry and in related 
industries that service the steel and coke production industries. I 
urge my colleagues to support this legislation.
                                 ______