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As Rest of World Moves Towards Renewables, US Keeps Offering Exclusive Tax Breaks for Fossil Fuels

As Rest of World Moves Towards Renewables, US Keeps Offering Exclusive Tax Breaks for Fossil Fuels

About a half decade ago, as the shale drilling rush was sweeping across the U.S., drillers needed upfront cash — and quick — to let them snap up acreage, drill and frack exploratory wells, and hone their skills at the horizontal drilling and hydraulic fracturing (fracking) that fueled an oil and gas boom.

Bankers and financiers began attending shale industry conferences, marketing a clever idea. By dusting off an obscure part of the tax code, drillers and pipeline builders could attract a different class of investor than would usually look at a boom-and-bust prone industry, an investor hunting for stability and predictability. Form a Master Limited Partnership, or MLP, shale drillers and pipeline builders were advised, and you’ll be able to access that capital.

The pitch for investors on MLPs was hard to resist: They “offer high yields and low taxes,” as the Financial Times described them in 2013. The tax benefits were a huge part of the draw, especially for wealthy investors (not just individuals, but also pension funds, which poured in billions).

The biggest benefit: a tax loophole that lets MLPs dodge so-called “double taxation,” paid by regular corporations and much-hated by investors, in which tax is paid both by the corporation on earning money and by investors as personal income. No corporate income tax, more money to go around for everyone but the government.

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