For the past several years, the Northwest has been ground zero in a debate over whether to build a trio of gas-to-methanol facilities that would be among the largest petrochemical plants in the world. It’s a $5.2 billion venture by the Chinese government that would fundamentally alter the Northwest’s economy and environment. Designed to use North American natural resources to fuel Chinese manufacturing, the project backers are looking for billions of dollars in public subsidies that would cost Northwest taxpayers and put public coffers at risk.
Given what’s at stake, it’s worth examining the books to see who benefits—and who’s really paying.
“Northwest” Innovation for China’s benefit
The company behind the methanol proposals, NW Innovation Works (NWIW), is an arm of primary investor Shanghai Bi Ke Clean Energy Technology, which is owned by the Chinese Academy of Science Holdings. Through these subsidiaries, the Chinese government is prepared to funnel billions of dollars into constructing the missing link in a resource chain: fracked gas from Canada and the US Rockies to be delivered via pipeline to power- and water-hungry petrochemical refineries in Oregon and Washington. These facilities would convert the gas into liquid methanol, load it onto tanker vessels for a trans-Pacific voyage, and deliver it to Chinese factories for use in making plastics and vehicle fuels.
Large-scale foreign investment in the Northwest might sound like a good thing. But a closer look at the scheme reveals that, as with most proposals for investment in Northwest fossil fuel infrastructure these days, the region is neither the instigator nor the intended beneficiary. Situated between huge reserves of cheap North American gas and overseas markets hungry for cheap, dirty energy, Cascadia is simply in the way.
Yet the project backers are asking the region to underwrite the proposal.
American taxpayers to subsidize China’s project
The proposed Kalama facility has already come under scrutiny for exposing American taxpayers to billions of dollars in potential risk. In order to finance construction of the refinery and port terminal on the Columbia River, NWIW has applied for more than $2 billion in loan guarantees from the US Department of Energy—meaning the federal government would ultimately be on the hook if the company is unable to repay the loans. The Port of Kalama is also asking for tens of millions of dollars in federal grants and loans to fund new infrastructure to support the methanol plant. (At least one of these requests, an $11 million grant to underwrite new roads and a dock, was denied by the US Transportation Department in December 2018.)
The project also appears to be benefiting from public employee pensions and retirement funds, as previously documented by Sightline. The Washington State Investment Board voted in December 2015 to invest $400 million in public funds into a New York-based private equity firm called Stonepeak Infrastructure Partners. The investment accounts for more than 11 percent of Stonepeak’s “Infrastructure Fund II.” According to the US Department of Energy loan guarantee application, Stonepeak is the only other investor in NWIW other than the Chinese government. That means Washington public employees are risking a portion of their pension funds on the profitability of a methanol plant to boost China’s economy.
China’s project will avoid taxes
Although the public is underwriting a project to benefit China’s economy, the project backers are keen to exploit every loophole they can to avoid paying taxes. Experts estimate that the Kalama project would avoid $143 million in state and local taxes under current state law.
NWIW is proposing to build and operate in Cowlitz County, a location eligible for state sales and use tax deferment, thanks to its status as a “high unemployment county.” The loophole, meant to stimulate job growth, would defer (and ultimately waive) state sales and use taxes on qualifying machinery, equipment, and construction costs. NWIW could divert and pocket would-be tax revenue on computers, manufacturing components, and even labor and services for building. Another loophole would allow up to 80 percent of initial spending to be exempted from sales and use tax, as well as installation and routine maintenance of equipment and machinery.
Find this article interesting? Please consider making a gift to support our work.
In concrete figures, construction costs at Kalama are estimated at $1.8 billion, yet only around a third of that would be subject to Washington sales and use taxes. The official environmental analysis predicts the project’s construction would generate a paltry $47.5 million in retail sales tax for the state— 2.6 percent of the total construction costs. Just $7.4 million would stay in Cowlitz County—a return to local taxpayers of 0.4 percent.
Plus, NWIW won’t pay sales or use tax on the methanol it produces because all of it will be exported to China. That’s owing to another Washington tax loophole providing that sales or use taxes are not collected on goods manufactured here but exported outside of the state.
The project’s boosters like to argue that methanol produced at Kalama would be cleaner than some other types of methanol—a claim that is hotly contested by opponents. The scale of the project is staggering and it yields other risks too.
- It would be the largest methanol-producing facility in the world
- It would use more gas than all of Cascadia’s largest cities combined
- Require an additional 100 megawatts of power from the region’s electricity grid
- Generate steam plumes longer than Mount St. Helens’ 8,633-foot height.
It’s well-known that petrochemical sites are inherently dangerous—and potentially costly. Consider the unknown potential cleanup costs should something go wrong on the banks of the Columbia, where some 72 million gallons of methanol would be stored on soil with a moderate to high risk of liquefying in the event of an earthquake. Add it to the tabulation we already know about: that NWIW is financing the project with public funds, that the Port of Kalama is angling for taxpayer money in the form of grants and loans, and that the Department of Energy may pledge to put up billions in taxpayer money as a guarantee of the project financial health.
The first of NWIW’s methanol projects, slated for Tacoma, Washington, died in 2016 in the face of withering public opposition. The second, in Clatskanie, Oregon, appears to be on hold. The third, in Kalama, Washington, on the Columbia River, is now undergoing review.
The public can submit comments on the project to the Port of Kalama until December 28. After that, public agencies will continue their review of the project to decide whether the benefits outweigh the costs.
Thanks to Alyse Nelson, who contributed research to this article.