THE BLOG

Plains All American Gets a Sweetheart Deal From Taxpayers

05/26/2015 02:05 pm ET | Updated May 26, 2016

Last Tuesday, a company called Plains All American made a huge, oily mess along nine miles of California coast. A pipeline ruptured at around 10:45 am, and before the flow could be stopped about 105,000 gallons of crude had escaped--including about 21,000 into the Pacific Ocean.

This is horrific news, but not especially surprising. Like climate change, accidents and spills are just part of the reality of our dependence on fossil fuels. Nevertheless Plains All American has one of the worst safety records in the entire pipeline business. According to a federal database, the company has been cited for 175 safety and maintenance violations since 2006--roughly three times the national average and more than all but four other operators.

One of the worst things about Plains All American is that in spite of its many, many spills it is still a giant recipient of federal subsidies. This is because the company is organized as a Master Limited Partnership (MLP), an obscure business structure that hands billions in tax breaks every year mostly to the oil and gas sector.

Think of it like this: unlike most publicly-traded companies, MLPs pay nothing in income taxes. Profits pass tax-free from the corporate level directly to shareholders, resulting in a much lower tax burden. This in turn makes it much cheaper for MLPs to raise capital and puts another government thumb on the scale against renewable energy.

Keep in mind that not just any company can become an MLP. Since 1987, it has been available almost exclusively to companies involved in natural resources. But even though timber, mining, and many kinds of refining are allowed, the field is still dominated by oil and gas--and especially by pipelines. At the end of 2013 there were 107 MLPs totaling $464 billion in market capitalization. Of those billions, pipelines and other "midstream" assets were an overwhelming 83 percent.

This is an expensive loophole. Not treating MLPs as regular corporations costs taxpayers around $4 billion a year. That's revenue lost, which means when pipelines and other polluters get this break every other taxpayer needs to pick up the slack. And there is every indication that this number could grow along with the total number of MLPs. The business structure exploded between 2000 and 2015, growing by more than six times. Although the IRS has made a half-hearted attempt to slow their growth, today MLPs are poised to expand into oil trains, liquid natural gas, and even the management of toxic fracking waste.

But as bad as MLPs are, the revenue lost to taxpayers is a drop in proverbial oil barrel compared to the broader world of polluter welfare. The End Polluter Welfare Act from Senator Bernie Sanders (I-Vt.) and Representative Keith Ellison (D-Minn.) put the total cost of fossil fuel subsidies at over $135 billion over the next ten years. That includes tax breaks for oil drilling and exploration, royalty-free leasing on public lands, and free research from the government.

Even these direct subsidies are tiny compared to the biggest subsidy of them all: free access to our atmosphere. The industries responsible for warming our climate and polluting our air still pay nothing for privilege, and from rising sea levels to mega-droughts, those costs add up. This week the IMF reported that the cost of un-priced fossil fuel externalities was $5.3 trillion globally and $700 billion in the US.

So whether we are scrubbing it off the coast of California or burning it for energy, oil is anything but cheap. As the cleanup continues in Santa Barbara, it is worth remembering that every stage of this dirty business is greased along by subsidies from taxpayers--subsidies that need to stop if we ever want to have a chance of keeping fossil fuels in the ground.