Student Loan Bill Had Pipeline Implications

A little-noticed part of U.S. Senate Democrats’ effort to freeze the interest rates on federal student loans could have implications for the debate over the proposed Keystone XL pipeline.

The legislation, which stalled today on a procedural vote, would end a tax exemption on bitumen, the heavy form of crude mined in Canada’s oil sands.

Oil refiners pay an 8-cent excise tax on each barrel of oil they receive. The money goes into the Oil Spill Liability Trust Fund, which Congress set up to pay for the immediate costs of oil spills.

Foes of the $5.3 billion project proposed by Calgary-based TransCanada Corp. (TRP) have complained that the oil would be exempt from the taxes that fuel the cleanup fund.

Ending the exemption, which Massachusetts Democrat Ed Markey, the top Democrat on the House Natural Resources Committee, has proposed in the last two sessions of Congress, would neutralize that part of the Keystone debate.

The Internal Revenue Service said last year that the per barrel tax didn’t apply to bitumen, the heavy form of crude mined in Canada’s oil sands. The IRS based its decision on language from a House Ways & Means Committee legislative report that specifically exempted the fuel, along with liquids produced from coal and agricultural products.

2012 Report

The pipeline would bring diluted bitumen from Alberta to Steele City, Nebraska, and then on to refineries in Texas.

In a July 2012 report, Democrats on the House Natural Resources Committee said that the congressional language the IRS relied on was written at a time when extraction of Canada’s oil sands was in its infancy, at about 100,000 barrels a day. Canada produced about 1.6 million barrels a day from the oil sands last year, according to the report.

Democrats also have been drawing attention to spills of heavy crude.

Exxon Mobil Corp’s (XOM) Pegasus pipeline was shut down March 29 after a leak was discovered in Arkansas that the company has said spilled about 5,000 barrels of heavy crude. A 2010 spill on an Enbridge Inc. (ENB) pipeline in Michigan spilled more than 843,000 gallons of oil, entering a nearby creek that fed into the Kalamazoo River, coating birds and wildlife.

Brian Straessle, spokesman for the American Petroleum Institute that represents oil companies, said including the excise tax redefinition in the student loan bill was a “flip flop wrapped up in a budget gimmick.”

“The same dollar cannot be set aside for oil spill response and also be used to pay for student loans,” he said in an e-mail. “We’d be happy to discuss a 360 degree review of federal definitions of crude oil in the context of an all-of-the-above energy plan, but that is not what some in the Senate are trying to do today.”

Student Loans

The pipeline-fee language was included in S. 953, a Democratic bill that would stop rates from rising to 6.8 percent from the current 3.4 percent for two years.

Progress on the bill stalled today when a procedural vote that required 60 votes fell short, 51-46.

A competing Republican student-loan bill, S. 1003, also failed to advance. The procedural vote on that one was 40-57.

The Republican-controlled House on May 21 passed H.R. 1911, which would peg the interest rates for subsidized Stafford loans, unsubsidized Stafford loans and Plus loans to the 10-year Treasury note yield.

Unless the two chambers come to an agreement, federal student-loan interest rates will double, to 6.8 percent, on July 1.

Markey’s oil liability bill is H.R. 786.

To contact the reporters on this story: Derek Wallbank in Washington at dwallbank@bloomberg.net; Jim Snyder in Washington at jsnyder24@bloomberg.net

To contact the editor responsible for this story: Katherine Rizzo at krizzo5@bloomberg.net

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