"Refined Coal" Tax Credit A Cash Cow For Wall Street - $100s Of Millions For Goldman Sachs, et. al.
(Reuters) - Earlier this year, the chief financial officer of global insurance giant Arthur J. Gallagher & Co. (AJG.N) explained to analysts how the company had turned a little-known U.S. energy subsidy into a profit machine, worth hundreds of millions of dollars to its bottom line.
The money came from the U.S. “clean coal” tax credit, a provision of the American Jobs Act of 2004 meant to encourage the use of chemically treated coal to cut pollution in the nation’s power plants.
To capitalise on the subsidy, A.J. Gallagher arranged investor partnerships to produce vast quantities of refined coal, as the fuel is known in the industry, for utilities across the nation, splitting the benefit of the lucrative government incentive – now worth more than $7 (5.47 pounds) per ton. “Our return on investment is staggering,” CFO Douglas Howell told analysts in the March 14 call. “Oh, 200 percent, 300 percent, 400 percent, 500 percent. I mean, just because it costs so little to develop” clean coal facilities.
A.J. Gallagher’s experience reflects a truth about the U.S. refined coal tax credit, a subsidy that now costs taxpayers about $1 billion a year: While coal mining firms, utility companies and power consumers can benefit indirectly from the subsidy, the big winners are a diverse group of investors – ranging from Wall Street’s most powerful banks to insurers, meat packers and drug makers – who identified the incentive as an easy way to make money. Over the past decade, these companies have financed the construction of facilities to produce refined coal, which are situated next to coal-fired power plants and typically cost about $4 million to $6 million each to develop. They then sell the resulting coal to utilities below cost, but make eye-popping returns from the subsidy rather than the underlying business, according to regulatory documents and interviews.
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https://uk.reuters.com/article/uk-usa-coal-wallstreet-specialreport/special-report-wall-street-cleans-up-on-clean-coal-subsidies-idUKKBN1O31BQ