Traverse City Record-Eagle


March 20, 2014

Tax cuts for oil drilling pass Senate

LANSING (AP) — A measure aimed at encouraging a type of oil drilling using carbon dioxide cleared the Michigan Senate Wednesday as nearly all Republicans backed a process that has divided environmental groups.

The tax cut proposal senators approved 25-13 is the last in a four-bill package that lowers the severance tax for drilling projects involving carbon dioxide. The legislation would allow oil and gas companies to construct carbon dioxide pipelines and would expand their authority to build them on private property.

Lawmakers mostly voted along party lines, with Democrats opposing the package. The measure now goes back to the House, which originally passed the tax cut 85-25. It’s expected to reach Gov. Rick Snyder’s desk soon.

The bills aim to increase enhanced oil recovery with carbon dioxide, a technique that involves injecting carbon dioxide into oil wells that have already been drilled. Since conventional drilling methods extract only 20-40 percent of the oil in wells, injected carbon dioxide can push “stranded oil” from the bottom of wells. The method can result in oil extraction of 30-60 percent, according to the U.S. Department of Energy.

Bill sponsor Rep. Aric Nesbitt, R-Lawton, said the legislation would make Michigan’s drilling market competitive with other states’, thereby boosting the economy and creating jobs.

The bills will help produce “more domestic oil without having to drill a new oil field” or “import it from Russia or Venezuela,” said Nesbitt, the Energy and Technology committee chairman.

Michigan’s severance tax is 6.6 percent of cash market value for oil and 5 percent for gas. The legislation would lower the taxes to 4 percent for oil or gas extracted with carbon dioxide.

State revenue from the oil and gas severance taxes was $59.5 million in fiscal year 2012-2013 and is projected to total $62 million in fiscal 2013-2014, according to the Senate Fiscal Agency. The agency said the tax bill’s fiscal impact is “unknown” because it can’t predict whether it will spur production that wouldn’t otherwise occur.

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