The Railroad Commission of Texas has released a proposed amendment of sections 3.50 and 3.80 of Title 16 of the Texas Administrative Code, as well as Chapter 202 of the Texas Tax Code. The proposal would implement the provisions of HB 3732, which provides for a reduction in the tax rate on oil produced from enhanced oil recovery projects using anthropogenic CO2. HB 3732 took effect on September 1, 2007. The proposed rule will be published in the Texas Register on October 26.
HB 3732 authorizes the Commission to issue a certification for a 50% tax reduction in the recovered oil tax rate set forth in the Texas Tax Code to producers of oil generated through qualified EOR projects. A qualified product will use CO2 captured from an antropogenic source within Texas that would otherwise be released into the atmosphere as industrial emissions and is measurable at the source of capture. In addition, the CO2 is to be sequestered in one or more geologic formations in Texas following the EOR project. Lesser tax reductions are also available if some percentage of the CO2 used in the project does not originate from anthropogenic sources in Texas. As part of the certification process, the oil producer must demonstrate, inter alia, based on "substantial evidence," that at least 99 percent of the sequestered CO2 can reasonably be expected to remain sequestered for at least 1,000 years.
The tax reduction provision is to be effective until the later of either the seventh anniversary of the date that the Comptroller of Public Accounts first approves an application for a tax rate reduction, or "the effective date of a final rule adopted by the Environmental Protection Agency regulating carbon dioxide as a pollutant."
The Commission will accept comments on the proposed rules through November 26, 2007.