Oil Sands and the
Oil Spill Liability Trust Fund:
The Definition of “Oil” and
Related Issues for Congress
Jonathan L. Ramseur
Specialist in Environmental Policy
January 22, 2015
Congressional Research Service
7-5700
www.crs.gov
R43128
Oil Sands and the Oil Spill Liability Trust Fund: The Definition of “Oil”
Summary
Imports of crude oil derived from Canadian oil sands have increased substantially in recent years,
and some project further increases in the future. Recent pipeline oil spills, including the 2010
Enbridge spill in Michigan and the 2013 ExxonMobil spill in Arkansas, have involved this
material and have generated interest from policy makers and a variety of stakeholders.
The Oil Spill Liability Trust Fund (OSLTF) provides an immediate source of federal funding to
respond to oil spills in a timely manner. Monies from the OSLTF can be used to respond to a wide
variety of oil types, including oil sands-derived crude oils. The OSLTF is primarily financed by
an 8-cents per-barrel tax on domestic crude oil and imported crude oil and petroleum products. In
the context of the per-barrel OSLTF tax provision, a 1980 House committee report stated: “the
term crude oil does not include synthetic petroleum, e.g., shale oil, liquids from coal, tar sands, or
biomass, or refined oil.”
Based on that statement, the Internal Revenue Service (IRS) concluded that oil sands-derived
crude oils are not subject to the OSLTF excise tax. This determination raises several issues.
Perhaps the foremost issue is one of equity. Policymakers may consider whether there is a
rationale for exempting certain types of crude oils from the excise tax. At present, it is unclear the
degree to which importers of oil sands-derived crude oils are paying the OSLTF excise tax.
The different contexts for “oil” could lead to situations in which expenditures from the trust fund
are used to clean up oil that was not subject to the tax. However, the OSLTF arguably plays a
backup role in terms of response funding during many oil spills. The responsible party for an oil
spill often provides the primary source of response (i.e., cleanup) funding, and the federal
government may recover costs or damages paid from the OSLTF. Thus, the financial impact to the
trust fund could be minimal if the majority of its payments are reimbursed by the responsible
parties. Nonetheless, the liability of responsible parties may be limited under certain conditions.
In those situations, the OSLTF could effectively pay—up to a per-incident cap of $1 billion—for
response costs and applicable damages above the liability limit.
Several legislative proposals from the 113th Congress would have specifically included oil sands-
derived crude oils within the scope of the per-barrel tax, but none were enacted. This issue
continues to receive attention in the 114th Congress. Several Members have offered amendments
(S.Amdt. 25, S.Amdt. 27, S.Amdt. 38, and S.Amdt. 50) to the Keystone XL Pipeline Act (S. 1),
which would authorize the construction and operation of the Keystone XL pipeline. In general,
the amendments would modify the definition of “crude oil” in the OSLTF tax authority (26
U.S.C. Section 4612) to include oil sands-derived crude oil, often described in the amendments as
“any bitumen or bituminous mixture, any oil derived from a bitumen or bituminous mixture.” In
addition, Representative Blumenauer introduced similar legislation (H.R. 214) that would amend
the definition of “crude oil” in Section 4612.
If Congress were to explicitly include oil sands-derived crude oils within the scope of the per-
barrel OSLTF tax, the revenue supporting the OSLTF would likely increase. Over the last five
fiscal years, this tax has generated, on average, $495 million per year. Based on import data of
Canadian oil sands-derived crude oil, the tax would have increased by approximately $41 million
in 2013, assuming the IRS was not collecting the tax for these materials in that year.
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Oil Sands and the Oil Spill Liability Trust Fund: The Definition of “Oil”
Contents
Introduction ...................................................................................................................................... 1
Oil Sands—Background .................................................................................................................. 2
Oil Spill Liability Trust Fund........................................................................................................... 5
Uses of the Fund ........................................................................................................................ 5
Sources of Fund Revenue .......................................................................................................... 6
Does the Trust Fund Have a Ceiling? ........................................................................................ 7
Scope of Taxed Oil vs. Scope of Spilled Oil.................................................................................... 8
Oil in the Context of the Internal Revenue Code ...................................................................... 8
Oil in the Context of OPA ......................................................................................................... 9
Implications of the Different Scopes ....................................................................................... 10
Estimated Tax Revenues .......................................................................................................... 11
Additional OSLTF Tax Scope Issues ....................................................................................... 12
Crude Produced From a Well ............................................................................................ 13
Shale Oil (“Tight Oil”) ...................................................................................................... 13
Legislative Activities ..................................................................................................................... 14
114th Congress ......................................................................................................................... 14
113th Congress ......................................................................................................................... 14
Concluding Observations ............................................................................................................... 15
Figures
Figure 1. U.S. Imports of Canadian Crude Oil by Type .................................................................. 4
Figure 2. Oil Spill Liability Trust Fund ........................................................................................... 7
Tables
Table 1. OSLTF Excise Tax Revenues and Oil Sands Crude Oil Imports from Canada ............... 12
Contacts
Author Contact Information........................................................................................................... 16
Congressional Research Service
Oil Sands and the Oil Spill Liability Trust Fund: The Definition of “Oil”
Introduction
Imports of crude oil derived from Canadian oil sands have increased in recent years. Recent oil
spills involving oil sands-derived crude oils have generated interest from policy makers and a
variety of stakeholders. Several oil spills, including both the 2010 Enbridge pipeline spill in
Michigan and the 2013 ExxonMobil pipeline spill in Arkansas, involved this material (see text
box below).
Oil spill liability, cleanup, and compensation issues are addressed by the Oil Pollution Act of
1990. The Oil Spill Liability Trust Fund (OSLTF) provides an immediate source of federal
funding to respond to oil spills in a timely manner. The National Pollution Funds Center (NPFC),
an office within the Coast Guard, manages the trust fund.1 The monies from the OSLTF can be
used to respond to a wide variety of oil types, including oil sands-derived crude oils.
The OSLTF is primarily financed by an 8-cents per-barrel tax on domestic crude oil and imported
crude oil and petroleum products. Based on language in a 1980 House committee report, the
Internal Revenue Service (IRS) concluded in 2011 that oil sands-derived crude oils are not
subject to this excise tax.2
Members in the 113th Congress introduced several proposals to address this issue, but the bills did
not receive committee action. This issue has received considerable interest in the 114th Congress,
as policy makers have debated the approval of the Keystone XL pipeline, which would transport
830,000 barrels of oil sands-derived crude from Canada to U.S. refineries.3 In addition, the
Obama Administration’s Budget Proposals in recent years have called for statutory changes that
would subject oil sands to the per-barrel tax.4
The first section of this report provides a background of oil sands resources. The second section
discusses the OSLTF, including authorized uses and revenue sources. The third section compares
the scope of oil subject to the per-barrel tax (that funds the OSLTF) versus the scope of oil that
triggers activities under the Oil Pollution Act, and discusses the potential implications of the
different scopes. The fourth section provides details of the legislative activity from the 114th and
113th Congresses. The final section offers concluding observations.
1 Pursuant to Executive Order 12777, 56 Federal Register 54,757 (1991).
2 Internal Revenue Service (IRS) Office of Technical Advice, Private Letter Ruling 201120019, January 12, 2011.
3 See CRS Report R43787, Keystone XL Pipeline: Overview and Recent Developments, by Paul W. Parfomak et al.
4 See Budget of the United States Government, Fiscal Year 2015, Analytical Perspectives, p. 166.
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Recent Pipeline Spills Involving Oil Sand Crude Oils
2010 Enbridge Spill in Michigan
On July 26, 2010, an Enbridge pipeline released oil sands crude oil5 into Talmadge Creek, a waterway that flows into
the Kalamazoo River (Michigan).6 The spill volume was estimated at almost 850,000 gal ons.7 As of September 30,
2014, Enbridge estimated the cost of the spill to be approximately $1.2 billion, which does not include potential
federal and state penalties.8 The National Transportation Safety Board (NTSB) issued an accident report in July 2012.9
2013 ExxonMobil Spill in Arkansas
On March 29, 2013, an ExxonMobil pipeline released approximately 210,000 gal ons of oil sands-derived crude oil in a
residential area in Mayflower, AR.10 The classification of the material has been a subject of some dispute.11
ExxonMobil provided a Material Safety Data Sheet (MSDS) to the Pipeline and Hazardous Materials Safety
Administration (PHMSA), listing the spilled material as “Wabasca Heavy Crude Oil.”12 Crude Quality Inc. categorizes
this material as diluted bitumen or dilbit (i.e., oil sands-derived crude oil).13
Oil Sands—Background
The terms “oil sands” and “tar sands” are often used interchangeably to describe a particular type
of nonconventional oil deposit that is found throughout the world in varying quantities.14
Opponents of the resource’s development often use the term tar sands, which arguably carries a
negative connotation; proponents typically refer to the material as oil sands. Some federal
government resources refer to the deposits as tar sands, some oil sands, and some have used both
terms. In its documents evaluating the Keystone XL pipeline, the Department of State refers to
the material as oil sands. EPA has followed suit in its letters to the Department of State
concerning the pipeline’s environmental impacts. In general, this report uses the term oil sands to
describe the deposits in the ground and oil sands-derived crude oil to describe the material
imported into the United States. The use of this term is not intended to reflect a point of view, but
5 See National Transportation Safety Board, Accident Report: Enbridge Incorporated Hazardous Liquid Pipeline
Rupture and Release- Marshall, Michigan, July 25, 2010, July 2012, at http://www.ntsb.gov/; the Enbridge response
website “Frequently Asked Questions” at http://www.response.enbridgeus.com; and NRDC et al., Tar Sands Pipelines
Safety Risks, 2011 (citing a conference call with Enbridge CEO), at http://www.nrdc.org.
6 For more up-to-date information, see EPA’s Enbridge oil spill website at http://www.epa.gov/enbridgespill/
index.html.
7 National Transportation Safety Board, Accident Report: Enbridge Incorporated Hazardous Liquid Pipeline Rupture
and Release- Marshall, Michigan, July 25, 2010, July 2012, at http://www.ntsb.gov/.
8 See Enbridge Inc., Third Quarter Financial Report, 2014, at http://enbridge.com/~/media/www/Site%20Documents/
Investor%20Relations/2014/2014_ENB_Q3_Report.pdf.
9 National Transportation Safety Board, Accident Report: Enbridge Incorporated Hazardous Liquid Pipeline Rupture
and Release- Marshall, Michigan, July 25, 2010, July 2012, at http://www.ntsb.gov/.
10 Mayflower Incident Unified Command Joint Information Center, Cleanup Operations Update, April 16, 2013, at
EPA Region 6 website, http://www.epa.gov/region6/newsevents/index.html.
11 See, e.g., Letter from Richard Byrne (ExxonMobil) to Edwin Quinones (EPA), April 10, 2013.
12 See http://phmsa.dot.gov/staticfiles/PHMSA/DownloadableFiles/Files/
ExxonMobil_MSDS_Sheet_for_Wabasca_Crude_Oil.pdf
13 Canadian Crude Quick Reference Guide, at http://www.crudemonitor.ca/tools/Quick_Reference_Guide.pdf.
14 By far, the largest proven reserve is in Alberta, Canada, but estimates indicate the resource is also located in several
U.S. states, particularly Utah. For more information, see CRS Report R42611, Oil Sands and the Keystone XL Pipeline:
Background and Selected Environmental Issues, coordinated by Jonathan L. Ramseur.
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Oil Sands and the Oil Spill Liability Trust Fund: The Definition of “Oil”
to adopt the term most commonly used by the primary executive agencies involved in recent oil
sands policy issues.
These terms generally refer to a mixture of sand, clay and other minerals, water, and bitumen. The
bitumen component of this mixture is a form of crude oil that has undergone degradation over
millions of years. After oil producers separate the bitumen from the mixture, it is very dense and
highly viscous (i.e., resistant to flow), having the consistency of molasses at room temperature.15
This property lends itself well to making asphalt; bitumen deposits have been mined since
antiquity for use as sealants and paving materials.16
In recent decades, the natural bitumen in oil sands, particularly deposits in Alberta, Canada, has
been extracted to generate substantial quantities of crude oil and related substances. The Alberta
deposits are estimated to be one of the largest accumulations of oil in the world, contributing to
Canada’s third-place ranking for estimated proven oil reserves (behind Venezuela and Saudi
Arabia).17 Canadian production of oil sands-derived crude oil has increased dramatically in recent
years. If approved and constructed, the Keystone XL pipeline would add to existing cross-border
pipelines in transporting oil sands-derived crude oils from Alberta into the United States.18
Companies developing Alberta’s oil sands resources process or dilute the natural bitumen in order
to transport it via pipeline.19 This processed/diluted bitumen falls into three general categories:
• Upgraded bitumen, or synthetic crude oil (SCO). SCO is produced from
bitumen at a refinery that turns the very heavy hydrocarbons into a lighter
material.
• Diluted Bitumen (Dilbit). Dilbit is bitumen that is blended with lighter
hydrocarbons, typically natural gas condensates, to create a lighter, less viscous,
and more easily transportable material. Dilbit may be blended as 25% to 30%
condensate and 70% to 75% bitumen.
• Synthetic bitumen (Synbit). Synbit is typically a combination of bitumen and
SCO. Blending the lighter SCO with the heavier bitumen results in a product that
more closely resembles conventional crude oil. Typically the ratio is 50%
synthetic crude and 50% bitumen, but blends, and their resulting properties, may
vary significantly.
15 Bitumen viscosity is related to temperature. When heated to 50° C (approximately 112° F), bitumen’s viscosity
decreases dramatically (by 100-fold) and its flow resembles that of a heavy crude oil (P. Gosselin et al., Environmental
and Health Impacts of Canada’s Oil Sands Industry, The Royal Society of Canada, Expert Panel Report, Ottawa,
Ontario, December 15, 2010). Conversely, at 10° C (approximately 50° F) bitumen has the hardness of a hockey puck
(Canadian Association of Petroleum Producers, The Facts on Oil Sands, April 2012, at http://www.capp.ca).
16 E.D. Attanasi et al., Natural Bitumen and Extra-Heavy Oil, World Energy Council, 2010 Survey of Energy
Resources, 2010, at http://energy.usgs.gov/portals/0/Rooms/economics/text/WEC10NBEHO.pdf.
17 EIA “International Energy Statistics,” at http://www.eia.gov/.
18 See CRS Report R43787, Keystone XL Pipeline: Overview and Recent Developments, by Paul W. Parfomak et al.
and CRS Report R42611, Oil Sands and the Keystone XL Pipeline: Background and Selected Environmental Issues,
coordinated by Jonathan L. Ramseur.
19 The vast majority of oil sands-derived crude oils is transported via pipeline. However, crude oil rail imports from
Canada have increased by ten-fold in the past three years, according to data from Canada’s National Energy Board, at
http://www.neb-one.gc.ca/nrg/sttstc/crdlndptrlmprdct/stt/2014/cndncrdlxprtsrl-eng.html. For further discussion, see
CRS Report R43390, U.S. Rail Transportation of Crude Oil: Background and Issues for Congress, by John Frittelli et
al.
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Oil Sands and the Oil Spill Liability Trust Fund: The Definition of “Oil”
Figure 1 illustrates the proportions of crude oil types that Canada has exported to the United
States in recent years. Crude oil imports from Canada account for the largest percentage (33%) of
imports by nation.20 In 2005, the United States imported approximately 195 million barrels of oil
sands-derived crude oils from Canada. In 2014, that figure increased to 507 million barrels,21
accounting for approximately 14% of crude oil imports from all nations.22 The figure indicates
that “blended bitumen” exports, which include both Dilbit and Synbit, have more than tripled in
the past 10 years. They are also expected to constitute most of the growth in oil sands production
in the foreseeable future.23
Figure 1. U.S. Imports of Canadian Crude Oil by Type
2005-2014
1,200
1,000
s
rel
800
f Bar
600
s o
illion
400
M
200
-
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Conventional Crude
Synthetic Crude from Oil Sands or Conventional Heavy Oil
Dilbit and Synbit
Source: Prepared by CRS; data from Canada’s National Energy Board, at http://www.neb-one.gc.ca/nrg/sttstc/
crdlndptrlmprdct/index-eng.html. The 2014 data are based on an average of barrels-per-day data from the first
three quarters in 2014.
Notes: Conventional crude includes conventional light, medium, and heavy crude oil. Synthetic Crude Oil
includes crude oil produced from both oil sands and conventional heavy oil. According to Canada’s National
Energy Board, approximately 90% of the synthetic crude oil comes from oil sands (Personal communication June
14, 2013).
20 Saudi Arabia is second with 17%. See EIA, U.S. Imports by Country of Origin, at http://www.eia.gov.
21 Data from Canada’s National Energy Board. These figures include imports of both “blended bitumen” (which
includes Dilbit and Synbit in the figure above) and “synthetic crude oil,” the vast majority of which is produced from
oil sands.
22 CRS calculation based on data from Energy Information Administration, “U.S. Imports by Country of Origin,” at
http://www.eia.gov/.
23 Canadian Association of Petroleum Producers, Crude Oil: Forecast, Markets & Pipelines, June 2014, at
http://www.capp.ca.
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Oil Sands and the Oil Spill Liability Trust Fund: The Definition of “Oil”
Oil Spill Liability Trust Fund
Prior to the Oil Pollution Act of 1990 (OPA),24 federal funding for oil spill response was generally
considered inadequate,25 and damages recovery was difficult for parties affected by an oil spill.26
The 1989 Exxon Valdez oil spill highlighted many of these concerns. To help address these issues,
Congress established the Oil Spill Liability Trust Fund (OSLTF). Although Congress created the
OSLTF in 1986,27 Congress did not authorize its use or provide its funding until after the 1989
Exxon Valdez oil spill. In 1990, OPA provided the statutory authorization necessary to put the
fund in motion.28 Executive Order 12777 (signed October 18, 1991) authorized the Coast Guard
to create the National Pollution Funds Center (NPFC) to manage the trust fund.
Uses of the Fund
Pursuant to OPA Section 1012,29 the trust fund may be used for several specific purposes:
• payment of removal costs, including monitoring removal actions, by federal
authorities or state officials;
• payment of the costs incurred by the federal and state trustees of natural
resources for assessing the injuries to natural resources caused by an oil spill, and
developing and implementing the plans to restore or replace the injured natural
resources;
• payment of removal costs related to a discharge from a foreign offshore unit;
• payment of parties’ claims for uncompensated removal costs, and for
uncompensated damages;30
24 P.L. 101-380, primarily codified at 33 U.S.C. §2701 et seq. OPA amended other sections of the U.S. Code, including
the Clean Water Act (e.g., 33 U.S.C. §1321) and portions of the tax code (26 U.S.C. §4611 and §9509).
25 See, e.g., Wilkinson, Cynthia et al., “Slick Work: An Analysis of the Oil Pollution Act of 1990,” Journal of Energy,
Natural Resources, and Environmental Law, 12 (1992), p. 188.
26 U.S. Congress, House Committee on Merchant Marine and Fisheries, Report accompanying H.R. 1465, Oil Pollution
Prevention, Removal, Liability, and Compensation Act of 1989, 1989, H. Rept. 101-242, Part 2, 101st Cong., 1st sess.,
p. 35.
27 Omnibus Budget Reconciliation Act of 1986 (P.L. 99-509).
28 Pursuant to OPA authorization, Congress transferred monies from other federal liability funds into the OSLTF,
including the CWA Section 311(k) revolving fund; the Deepwater Port Liability Fund; the Trans-Alaska Pipeline
Liability Fund; and the Offshore Oil Pollution Compensation Fund. According to the trust fund managers (the National
Pollution Funds Center), no additional funds remain to be transferred to the OSLTF. National Pollution Funds Center,
Oil Spill Liability Trust Fund (OSLTF) Annual Report FY 2004–FY 2008.
29 33 U.S.C. §2712.
30Damages are defined as those listed in 33 U.S.C. 2702(b), including personal property loss and loss of profits and
earning capacity.
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Oil Sands and the Oil Spill Liability Trust Fund: The Definition of “Oil”
• payment of federal administrative and operational costs, including research and
development;31 and
• payment of loans to provide interim assistance to fishermen and aquaculture
claimants impacted by an oil spill.
The above funding authorities from the OSLTF are subject to appropriations, with several
exceptions.32 Two exceptions stand out: First, the NPFC has immediate access to $50 million each
fiscal year for removal activities and natural resource damage assessment.33 Although not
described as such in the statute, the NPFC refers to this funding as the “Emergency Fund.”34
Second, the NPFC’s payments of claims for removal costs or economic and natural resource
damages are not subject to appropriations. However, the NPFC is limited in the total amount of
payments—removal costs and natural resource and economic damages—that may be awarded for
each incident.35 Under current law, the per-incident cap is $1 billion.36
Sources of Fund Revenue
Although Congress created the OSLTF in 1986,37 Congress did not authorize its use or provide its
funding until after the 1989 Exxon Valdez incident. OPA provided the statutory authorization
necessary to put the fund in motion. Through OPA, Congress transferred balances from other
federal liability funds38 into the OSLTF. In other legislation, Congress imposed a 5-cent-per-barrel
tax on domestic and imported oil to support the fund.39 This tax expired on December 31, 1994.
However, in April 2006, the tax resumed as required by the Energy Policy Act of 2005 (P.L. 109-
58). In addition, the Emergency Economic Stabilization Act of 2008 (P.L. 110-343) increased
the tax rate to 8 cents through 2016. In 2017, the rate increases to 9 cents. The tax is scheduled to
terminate at the end of 2017.40
Figure 2 illustrates the receipts, expenditures, and balances of the OSLTF over time. The figure
indicates that during the years the per-barrel tax was imposed, the tax was a primary source of
revenue for the trust fund. For example, the per-barrel oil tax has provided approximately $500
million per year in the last five fiscal years (Figure 2).
31 These payment authorities have further limitations. For example, oil spill research and development is authorized at
$27.5 million per fiscal year.
32 33 U.S.C. §2752.
33 The Coast Guard may obtain an advance (not to exceed an additional $100 million) from the OSLTF. During the
Deepwater Horizon incident, Congress enacted P.L. 111-191, which allowed for further advances (up to the $1 billion
per-incident cap).
34 See NPFC website at http://www.uscg.mil/npfc/About_NPFC/osltf.asp.
35 “Incident” means any occurrence or series of occurrences having the same origin, involving one or more vessels,
facilities, or any combination thereof, resulting in the discharge or substantial threat of discharge of oil. 33 U.S.C.
§2701(14).
36 26 U.S.C. §9509(c).
37 Omnibus Budget Reconciliation Act of 1986 (P.L. 99-509).
38 The CWA Section 311(k) revolving fund; the Deepwater Port Liability Fund; the Trans-Alaska Pipeline Liability
Fund; and the Offshore Oil Pollution Compensation Fund.
39 Omnibus Budget Reconciliation Act of 1989 (P.L. 101-239). Other revenue sources for the fund include interest on
the fund, cost recovery from the parties responsible for the spills, and any fines or civil penalties collected.
40 Section 405 of P.L. 110-343.
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As Figure 2 indicates, the “other receipts” category has contributed a substantial portion of
revenues in recent years, the vast majority stemming from the 2010 Deepwater Horizon oil spill.
Other receipts include earned interest on the unexpended trust fund balance, fees from fines and
penalties, and cost recovery from responsible parties. The trust fund is likely to receive additional
revenues related to that incident, particularly from anticipated Clean Water Act civil penalties on
BP.41
Figure 2. Oil Spill Liability Trust Fund
Receipts, Expenditures, and End-of-Year Balances
5,000
4,500
*FY2014 and FY2015 include
estimated data
4,000
rs
lla
o 3,500
D 3,000
of
s 2,500
llion 2,000
Mi
1,500
1,000
500
0
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
19
19
19
19
19
19
19
19
19
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
Fiscal Years
Excise Tax Receipts
All Other Receipts
Total Trust Fund Expenditures
End of Year Balance
Source: Prepared by CRS; data from annual Office of Management and Budget, Budget of the United States
Government, Appendices.
Notes: The initial gap between the end-of-year balance (line) and the receipts-expenditures columns is due to
the FY1991 starting balance of $358 million. The relative increases in “other receipts” in 1995 and 2000 are due
to transfers from the Trans-Alaska pipeline fund of $119 million and $182 million, respectively. The increases in
expenditures and “other receipts” between 2010 and 2013 are related to the 2010 Deepwater Horizon oil spill.
Does the Trust Fund Have a Ceiling?
Until 2008, the OSLTF tax provisions (26 U.S.C. §4611) included a mechanism that would
suspend the per-barrel oil tax—the fund’s primary source of revenue—if the fund’s balance
reached certain thresholds. This mechanism has been generally described as a “ceiling” for the
OSLTF. Although this provision did not set a hard ceiling on the amount of revenue allotted to the
fund, the provision had a similar effect.
When Congress established the OSLTF in 1986, the statutory language included a provision to
terminate the per-barrel oil tax if the tax revenue exceeded $300 million. However, this language
was never put into practice. The OSLTF was effectively dormant until Congress passed OPA in
1990 and complementary tax legislation in 1989. Per the 1989 legislation (the Omnibus Budget
Reconciliation Act of 1989 [P.L. 101-239]), Congress amended the “ceiling” provisions. The per-
41 See CRS Report R43380, Gulf Coast Restoration: RESTORE Act and Related Efforts, by Charles V. Stern, Pervaze
A. Sheikh, and Jonathan L. Ramseur.
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barrel tax would be suspended in any calendar quarter if the fund balance reached $1 billion,
restarting again if it dipped below that number. In the Energy Policy Act of 2005 (P.L. 109-58),
Congress raised this threshold from $1 billion to $2.7 billion.
The so-called “ceiling” was eliminated in 2008. The Emergency Economic Stabilization Act of
2008 (P.L. 110-343, EESA) repealed the requirement that the tax be suspended if the unobligated
balance of the fund exceeded $2.7 billion. In a report from the Senate Committee on Finance
(S.Rept. 110-228), which discussed a provision similar to the repealing language of EESA, the
committee stated that this change would simplify the administration of the tax.
Scope of Taxed Oil vs. Scope of Spilled Oil
“Oil” has different meanings in different legal or statutory contexts. For example, “oil” in the
context of OPA and OSLTF response authority has a different meaning than “oil” in the context of
the Internal Revenue Code that established a per-barrel tax to help finance the OSLTF. This
difference has generated considerable interest from policy makers in recent months.
Oil in the Context of the Internal Revenue Code
The statutory provisions that cover the per-barrel oil tax that helps fund the OSLTF are codified in
the Internal Revenue Code (IRC, Title 26 of the U.S. Code). Section 4611(a) imposes a per-barrel
tax on:
• “crude oil received at a United States refinery,” and
• “petroleum products entered into the United States for consumption, use, or
warehousing.”42
Section 4612 includes definitions for “crude oil,” “petroleum products,” and “domestic crude oil”
for the purposes of the applicability of the per-barrel tax:
• “The term ‘crude oil’ includes crude oil condensates and natural gasoline.”
• “The term ‘petroleum product’ includes crude oil.”43
Sections 4611 and 4612 were first enacted with the passage of the Comprehensive Environmental
Response, Compensation, and Liability Act (CERCLA, or Superfund Act) on December 11,
1980.44 CERCLA established the above per-barrel tax on oil (and chemical feedstocks and
imported derivatives)45 to support the Hazardous Substance Superfund Trust Fund.46
42 26 U.S.C. §4611(a).
43 26 U.S.C. §4612(a).
44 P.L. 96-510 (December 11, 1980), codified generally at 42 U.S.C. 9601-9675.
45 26 U.S.C. §4661.
46 In general, CERCLA does not apply to oil, because the act excludes releases of petroleum, including crude oil and
any fraction thereof, from the definition of a “hazardous substance.” In addition, the taxing authority to finance the
Superfund Trust Fund expired at the end of 1995. For more information, see CRS Report R41039, Comprehensive
Environmental Response, Compensation, and Liability Act: A Summary of Superfund Cleanup Authorities and Related
Provisions of the Act, by David M. Bearden.
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A 2011 Technical Advice Memorandum from the IRS stated that “tar sands imported into the
United States are not subject to the excise tax imposed by § 4611 of the Internal Revenue Code
[i.e., the per-barrel tax that funds the Oil Spill Liability Trust Fund, OSLTF].”47 The 2011 IRS
interpretation is based on language from a committee report. In a 1980 House report leading to
the passage of CERCLA in the House, the Committee on Ways and Means stated, “the term crude
oil does not include synthetic petroleum, e.g., shale oil, liquids from coal, tar sands, or biomass,
or refined oil.”48
This committee statement is specifically cited in the IRS memorandum, supporting its conclusion
that “tar sands” are not subject to the per-barrel tax. It is unclear whether the IRS means “tar
sands” or “liquids from tar sands,” as the committee report text suggests.
In 1985, leading up to the passage of the Superfund Amendments and Reauthorization Act of
1986 (SARA, P.L. 99-499), the same committee included identical statements in a House report.49
In addition, the Senate Committee on Finance included identical text in its report during the
SARA debate.50 In 1986, Congress established the OSLTF and amended IRC Section 4611 by
adding a separate tax rate that would fund the OSLTF, but the tax did not immediately take
effect.51 In 1989, Congress enacted legislation that required collections of the OSLTF tax (starting
January 1, 1990).52
CRS searched the legislative histories of these acts and did not find further discussion concerning
the scope and applicability of the per-barrel tax in Sections 4611 and 4612. However, several
CRS reports written in the early 1980s indicate that certain tax code provisions were established
to “subsidize synthetic fuels development at various stages of production.” According to these
reports, during that time period, liquid from tar sands was generally included in the “synthetic
fuel” category.53
Oil in the Context of OPA
OPA liability and compensation provisions, including OSLTF expenditures, generally apply to a
broader definition of oil.54 In comparison to the IRC definition, the OPA definition of “oil” states:
“oil” means oil of any kind or in any form, including petroleum, fuel oil, sludge, oil refuse,
and oil mixed with wastes other than dredged spoil, but does not include any substance
which is specifically listed or designated as a hazardous substance under subparagraphs (A)
through (F) of section 101(14) of the Comprehensive Environmental Response,
47 Internal Revenue Service (IRS) Office of Technical Advice, Private Letter Ruling 201120019, January 12, 2011.
48 H. Rept. 96-1016, Part II (June 20, 1980), p. 6.
49 H. Rept. 99-253, Part 2 (October 28, 1985), p.43.
50 S. Rept. 99-73 (May 23, 1985), p. 6.
51 Omnibus Budget Reconciliation Act of 1986 (P.L. 99-509).
52 Omnibus Budget Reconciliation Act of 1989 (P.L. 101-239).
53 See, e.g., CRS Report 83-231, The Effects of Federal Tax Policy on the Development of Energy Resources: A
Comparative Analysis of Oil/Gas and Synthetic Fuels (available by request).
54 33 U.S.C. §2702.
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Compensation, and Liability Act (42 U.S.C. 9601) and which is subject to the provisions of
that Act [42 U.S.C. 9601 et seq.]55
This first part of this definition—particularly, “oil of any kind or in any form”—comes from the
definition of oil in the Clean Water Act.56 The wording of that definition goes back to at least
1970.57
Implications of the Different Scopes
Based on the statutory definitions above and the committee report language, oil sands-derived
crude oil likely meets the OPA definition of “oil,” but would not meet the definition of crude oil
in the context of the OSLTF excise tax.
This difference raises several issues. Perhaps the foremost issue is one of equity. Policymakers
may consider whether there is a rationale for exempting certain types of crude oils from the
excise tax. On the other hand, some may contend the equity concern is overstated, considering the
tax is relatively small (8-cents per-barrel) compared to the recent per-barrel prices for crude oil.
Although the price of crude oil fluctuates, over the past 10 years (2004-2013), the price of
imported crude oil averaged about $80 per barrel (in 2015 dollars).58
At present, it is unclear the degree to which importers of oil sands-derived crude oils are paying
the OSLTF excise tax. For example, ExxonMobil recently stated that it paid the excise tax on its
oil sands-derived crude oil that was involved in the 2013 pipeline spill in Arkansas.59 Moreover,
the IRS memorandum stated that “crude oil and/or petroleum products that are comingled with tar
sands are subject to the excise tax on petroleum imposed by § 4611.” This statement suggests that
the bitumen component in dilbit would not be subject to the tax, while the non-bitumen
component would. As mentioned above, the ratio of these components may vary: dilbit typically
includes a mixture of bitumen (70%-75%) and a non-bitumen component (25%-30%), often
natural gas condensate.
Assuming most importers are not paying the OSLTF excise tax for imported oil sands, the
difference in scope could lead to situations in which expenditures from the trust fund are used to
clean up spilled oil that was not subject to the tax supporting the trust fund.
The OSLTF arguably plays a backup role in terms of response funding during many oil spills.
Although the trust fund is available to support oil spill cleanup efforts, the responsible party for
an oil spill often provides the primary source of response (i.e., cleanup) funding.60 The federal
government has the statutory authority to direct response activities, including those of the
55 33 U.S.C. §2701(23).
56 33 U.S.C. §1321.
57 Water Quality Improvement Act of 1970 (P.L. 91-224).
58 CRS calculation based on EIA imported crude oil prices in real dollars ($2015), at http://www.eia.gov/forecasts/steo/
realprices/.
59 Letter from Theresa M. Fariello (ExxonMobil) to Representative Ed Markey, May 28, 2013, at
http://markey.house.gov/sites/markey.house.gov/files/documents/Exxon_re_AR_OilSpill.pdf.
60 Within the liability framework of the Oil Pollution Act (33 U.S.C. §2701 et. seq.), “responsible party” is a critical
term and concept. The term has different meanings for different sources of oil spills: vessels, onshore facilities,
offshore facilities, deepwater ports, and pipelines.
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responsible party.61 Moreover, OPA Section 1015 authorizes the Attorney General (at the request
of the Secretary of Homeland Security) to recover costs or damages paid from the OSLTF.62 Thus,
the financial impact to the trust fund could be minimal if the majority of its payments are
reimbursed by the responsible parties. This was the case with the 2010 Deepwater Horizon oil
spill.
However, the Oil Pollution Act provides liability limits (or caps) for responsible parties.63 These
limits vary by oil spill source. For example, onshore facilities, which includes pipelines, have a
liability limit of $350 million for response costs and applicable damages (e.g., natural resource
damages and specific economic damages). However, the Coast Guard issued a proposed rule in
August 2014 that would increase this limit to $405 million.64 If finalized, this limit would apply
to future spills.
Liability limits may be an issue at the Enbridge pipeline spill in Michigan. As noted above,
Enbridge recently estimated that the company’s response costs could reach approximately $1.2
billion, well above the liability limit for an onshore facility. OPA allows responsible parties to
seek reimbursement from the trust fund if a party’s response costs and damages exceed its
liability limit.65
However, the limits are not automatic, but conditional. First, the liability limits do not apply to
situations involving acts of gross negligence or willful misconduct. Second, liability limits do not
apply if the violation of a federal safety, construction, or operating requirement proximately
caused the spill. Third, parties must report the incident and cooperate with response officials to
maintain their liability caps.
Therefore, if a party’s liability limit remains valid, the OSLTF could effectively pay—up to a per-
incident cap of $1 billion—for response costs and applicable damages above a responsible party’s
liability limit.
Estimated Tax Revenues
Table 1 lists the annual revenues the OSLTF excise tax has generated since 2007. Over the last
four fiscal years, this tax has generated, on average, $485 million per year.66 If Congress were to
amend the underlying Internal Revenue Code (26 U.S.C. §§4611-4612) to explicitly include oil
sands-derived crude oils, the tax revenue supporting the OSLTF would likely increase. Among
other things, the level of the increase would depend upon the degree to which importers of oil
sands crude oil are currently paying the excise tax. As mentioned above, it is uncertain whether
importers of oil sands crude oils are taking advantage of the exemption.
61 33 U.S.C. §1321(c).
62 33 U.S.C. §2715(c).
63 33 U.S.C. §2704.
64 U.S. Coast Guard, “Consumer Price Index Adjustments of Oil Pollution Act of 1990 Limits of Liability—Vessels,
Deepwater Ports and Onshore Facilities,” 79 Federal Register 49206, August 19, 2014.
65 33 U.S.C. §2708.
66 Calculation from CRS, using data from the annual U.S. Budget appendices.
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Table 1 provides an estimate of the amount of additional revenue that could be obtained by
subjecting oil sands-derived crude oil to the excise tax. The below estimate assumes that 100% of
the imports of Canadian oil sands crude oils are currently not contributing to the excise tax.
Table 1. OSLTF Excise Tax Revenues and Oil Sands Crude Oil Imports from Canada
2008-2013
2007 2008 2009 2010 2011 2012 2013 2014*
Excise tax revenues ($ millions)
452
333
447
476
501
497
504
495
Estimates of additional excise tax
21 22 24 27 29 35 34
41
revenues from Canadian exports
of oil sands-derived crude oil ($
millions)
Source: Prepared by CRS; actual excise tax revenues from annual Office of Management and Budget, Budget of
the United States Government, Appendices. Tax revenues from 2014 are estimated values. Estimates of
revenues from Canadian exports of oil sands materials based on export data from Canada’s National Energy
Board, available at http://www.neb-one.gc.ca/clf-nsi/rnrgynfmtn/sttstc/crdlndptrlmprdct/stmtdcndncrdlxprttpdstn-
eng.html. The 2014 data are based on an average of barrels-per-day data from the first three quarters in 2014.
Notes: In this table, oil sands-derived crude oil includes material classified by the National Energy Board as
“blended bitumen” and “synthetic crude oil.” Synthetic crude oil includes crude oil produced from both oil sands
deposits and conventional heavy oil. According to Canada’s National Energy Board, approximately 90% of the
synthetic crude oil comes from oil sands (Personal communication June 14, 2013). Therefore, the above figures
may be somewhat overestimated.
The Congressional Budget Office (CBO) estimated the additional revenue that would be received
if S. 953 (113th Congress) were enacted. Section 5 of S. 953 would permanently extend the per-
barrel financing rate and amend the definition of crude oil to include “any bitumen or bituminous
mixture, and any oil derived from a bitumen or bituminous mixture.” CBO estimated this
provision would generate $475 million of additional revenue, in aggregate, between 2013 and
2018.67
In addition, in the Obama Administration’s FY2015 Budget, the President proposed (1) to include
in the OSLTF tax base “other sources of crudes such as those produced from bituminous deposits
as well as kerogen-rich rock”; and (2) to increase the tax rate to 9-cents per-barrel starting in 2015
and 10-cents per-barrel in 2017.68 The Budget appendix estimates this change would provide $81
million in additional revenue to the OSLTF in FY2015.69
Additional OSLTF Tax Scope Issues
Other issues may arise that relate to the scope of oil covered by the OSTLF excise tax. These
issues are discussed below.
67 Congressional Budget Office, Estimate of the Budgetary Effects of S. 953, the Student Loan Affordability Act, as
introduced in the Senate on May 14, 2013, May 23, 2013, at http://www.cbo.gov/sites/default/files/cbofiles/
attachments/s953.pdf.
68 Office of Management and Budget, Budget of the United States Government, Fiscal Year 2015, Analytical
Perspectives, p. 166.
69 Office of Management and Budget, Budget of the United States Government, Fiscal Year 2015, Appendix,
Department of Homeland Security, p. 517.
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Crude Produced From a Well
Another OSLTF excise tax issue that could potentially arise was not considered in the IRS
memorandum. In addition to the tax that applies to “crude oil” received at the refinery and
imported “petroleum products” (which include crude oil), IRC Section 4611(b) imposes a tax if
(A) any domestic crude oil is used in or exported from the United States, and (B) before such
use or exportation, no tax was imposed on such crude oil [i.e., at the refinery].
Section 4612 includes a specific definition for “domestic crude oil,” which states:
any crude oil produced from a well located in the United States [emphasis added by CRS].
The phrase “from a well” could be important at some juncture. This phrase is neither defined in
Sections 4611 or 4612, nor discussed in congressional committee report language. Some may
argue that this phrase would limit the scope of the tax on “domestic crude oil.” Proposed projects
to extract oil sands at several Utah locations would involve mining processes.70 Currently, about
50% of the Alberta oil sands deposits are extracted through mining processes and 50% are
extracted with in situ operations.71
This issue may gain attention if Congress were to amend the clarifying statements concerning
“crude oil” from the 1980 and 1986 committee report language. For instance, if the definition of
“crude oil” in Section 4612 were modified to include tar/oil sands and/or liquids derived from
tar/oil sands, such material from Canada would likely be subject to the tax in IRC Section
4611(a). In contrast, some might argue that “domestic crude oil” that is (1) extracted through
mining techniques, and (2) used or exported (i.e., not sent to a U.S. refinery), would not meet the
applicability of the tax in IRC Section 4611(b). Such a scenario could involve trade complications
with Canada, an issue beyond the scope of this report. S. 953 would address this issue by
amending Section 4611 to strike the phrase “from a well located.”
Shale Oil (“Tight Oil”)
The 1980 House committee report, upon which the IRS based its 2011 memorandum, lists other
materials that would not be considered crude oil within the context of OSLTF excise tax
provisions. For the reader’s sake, the relevant statement is repeated: “the term crude oil does not
include synthetic petroleum, e.g., shale oil, liquids from coal, tar sands, or biomass, or refined
oil.”72
Policymakers may be particularly interested in the inclusion of “shale oil” in the above list of
examples. Shale oil or “tight oil” refers to crude oil trapped in particular geologic formations. In
contrast, “oil shale” is a fine-grained sedimentary rock that contains kerogen. Kerogen is solid,
70 For more information on the status of these efforts, see the Utah Department of Environmental Quality website:
http://www.deq.utah.gov/locations/prsprings/index.htm.
71 Other deposits are extracted through processes that more closely resemble conventional crude oil well extraction.
These include one of three in situ methods: primary production, cyclic steam stimulation (CSS), and steam-assisted
gravity drainage (SAGD). SAGD accounts for the greatest percentage of in situ recovery and is the preferred method of
recovery for most new projects. See CRS Report R42611, Oil Sands and the Keystone XL Pipeline: Background and
Selected Environmental Issues, coordinated by Jonathan L. Ramseur.
72 H. Rept. 96-1016, Part II (June 20, 1980), p. 6.
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insoluble organic matter that results from deposits of organic matter, like those that eventually
form crude oil. There are known deposits of both shale oil and oil shale in the United States.
Significant and growing quantities of shale/tight oil are currently being produced. U.S. oil shale
deposits, however, are not currently produced at commercial scale.
The U.S. Energy Information Administration and industry stakeholders appear to be expressing a
preference for the term “tight oil,” instead of shale oil, because this material may be found in non-
shale rock formations. Whether it is trapped in shales, dolomite, or dense sandstone, tight oil is
being produced with similar processes, including horizontal drilling and hydraulic fracturing.
Advances in these technologies in recent years have enabled rapid growth in tight oil (and natural
gas) production. According to estimates, U.S. tight oil production surpassed 3.2 million barrels
per day at the end of 2013, accounting for more than 40% of domestic crude oil production.73
The IRS has not issued a memorandum that explicitly addresses whether “shale oil” (or tight oil)
is subject to the OSLTF excise tax.74 It is uncertain whether shale oil producers have not paid the
OSLTF excise tax.
S. 268 would address this issue by amending the OSLTF tax provisions to state that “crude oil”
includes “crude oil condensates, natural gasoline, shale oil, any bitumen or bituminous mixture,
any oil derived from a bitumen or bituminous mixture, and any oil derived from kerogen-bearing
sources.”
Legislative Activities
114th Congress
Several Members have offered amendments (S.Amdt. 25, S.Amdt. 27, S.Amdt. 38, and S.Amdt.
50) to the Keystone XL Pipeline Act (S. 1), which would authorize the construction and operation
of the Keystone XL pipeline. In general, the amendments would modify the definition of “crude
oil” in the OSLTF tax authority (26 U.S.C. Section 4612) to include oil sands-derived crude oil,
often described in the amendments as “any bitumen or bituminous mixture, any oil derived from a
bitumen or bituminous mixture.” Some of these amendments would also address the “from a
well” phrase, discussed above.
In addition, Representative Blumenauer introduced similar legislation (H.R. 214) that would
amend the definition of “crude oil” in Section 4612 to read “The term ‘crude oil’ includes crude
oil condensates, natural gasoline, any bitumen or bituminous mixture, any oil derived from a
bitumen or bituminous mixture, and any oil derived from kerogen-bearing sources.”
113th Congress
Several Members in the 113th Congress proposed legislation that would specifically include oil
sands-derived crude oils within the scope of the per-barrel tax:
73 EIA, “Tight oil production pushes U.S. crude supply to over 10% of world total,” at http://www.eia.gov/
todayinenergy/detail.cfm?id=15571.
74 Personal communication with IRS (June 12, 2013).
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• S. 268 (Levin, introduced February 11, 2013): the CUT Loopholes Act addresses
multiple tax provisions;
• H.R. 786 (Markey, introduced February 15, 2013): the Tar Sands Tax Loophole
Elimination Act is stand-alone legislation;
• S. 953 (Reed, introduced May 14, 2013): the Student Loan Affordability Act
includes changes to several laws to offset the costs of components of the student
loan program.75 A cloture motion to proceed with this legislation failed June 6,
2013.
Concluding Observations
The different definitions of “oil” in two distinct, but related, contexts may create situations in
which expenditures from the OSLTF are used to address discharges of “oil” that were not subject
to the tax supporting the cleanup fund. As noted above, such a scenario may not substantially
impact the OSLTF, unless the federal government were unable to recover the trust fund’s costs
from a responsible party (or parties). Regardless, the different definitions raise a potential equity
concern.
The IRS interpretation of the definition of “crude oil” is based on a statement from a committee
report from 1980 that was repeated in 1986. At that time, U.S. deposits of oil sands were known,
but not extracted on a commercial scale for energy purposes. This remains the case today,
although some parties are expected to begin limited operations to extract deposits in Utah in
2013.
Canadian oil sands accounted for a relatively minor proportion of Canadian crude oil production
(0.6%) in 1980.76 However, Canadian oil sands production has steadily increased since that time.
Moreover, the 1980 committee report specifically exempted “synthetic petroleum, e.g., shale oil,
liquids from coal, tar sands ... ” from the definition of “crude oil.” At that time, virtually all
Canadian oil sands production involved mining operations that subsequently upgraded the
bitumen to “synthetic crude oil” before transporting it to the United States. In more recent years,
Canadian production of oil sands has included in situ operations which have predominately
employed the process of blending the bitumen with diluents to facilitate transport. Some may
assert that blended bitumen would not be considered “synthetic petroleum,” but others may argue
that blended bitumen would still be considered “liquids from tar sands.” Further, some Canadian
mining operations have also begun to blend bitumen for transport as opposed to upgrading.
Policymakers may choose to re-examine the rationale for excluding particular materials from the
definition of “crude oil” in the context of the Internal Revenue Code. The tax code’s definition of
“domestic crude oil” may also be subject to reassessment, if U.S. oil sands resources become
commercially viable for energy purposes. In addition, some may question whether the 1980
committee report language applies to “shale oil,” which is being produced in substantial
quantities.
75 For more information about this issue, see CRS Report R43094, An Examination of Student Loan Interest Rate
Proposals in the 113th Congress, by David P. Smole.
76 Canadian Association of Petroleum Producers, at http://www.capp.ca/.
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Author Contact Information
Jonathan L. Ramseur
Specialist in Environmental Policy
jramseur@crs.loc.gov, 7-7919
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