OPINION: How one of Detroit’s biggest polluters gets a massive tax break… for ‘not polluting’

Marathon saves many times its penalties every year on sales and property taxes via the state’s Air Pollution Control Exemption program.
Marathon Petroleum Refinery, February, 2023. / Alamy

A costly Michigan tax break intended to reduce air pollution has been a boon for one of Detroit’s biggest polluters: Marathon Petroleum. 

Over the last decade, Marathon has entered into three different consent orders with the Michigan Department of Environment, Great Lakes, and Energy (EGLE) for violating state air pollution control regulations at its refinery in southwest Detroit. The company exceeded permitted emissions limits on fine particulate matter, carbon monoxide, and hydrogen sulfide, endangering working-class Black and Hispanic families living nearby and contributing to Detroit’s dubious distinction as the asthma capital of the United States.

For its violations, the company was required to pay penalties totaling $243,353 and to spend an additional $282,000 on supplemental environmental projects in neighboring communities. Marathon ultimately spent $539,000 on a new air filtration system at Mark Twain School for Scholars, a nearby public elementary and middle school, and ongoing air quality monitoring to comply with the latter requirement.

All the while, unbeknownst to the general public, Marathon was saving many times those penalties every year on its sales and property taxes via the state’s Air Pollution Control Exemption program. This program is written into the state’s main environmental protection law. It allows companies to avoid paying any taxes on real and personal property acquired to mitigate air pollution, revenue that would have otherwise gone to fund city and county services and public education.

In 2013 and 2014, after completing a $2.2 billion expansion at its Detroit complex, Marathon received exemption certificates for $432 million worth of pollution control equipment. Over the next six years, it exempted another $100 million worth of equipment.

In the last decade, these exemptions have saved the company nearly $50 million on its property tax bill, more than making up for the $782,000 in penalties it was compelled to pay for air quality violations. And that’s not even counting the 20-year personal property tax abatement Marathon received for the expansion project back in 2007. Still in effect, the latter is estimated to save the company another $176 million over the full life of the abatement. 

While the city of Detroit includes a fairly detailed note in its annual comprehensive financial report on the cost of various tax abatement programs, it has never disclosed revenue losses from active pollution control exemptions.

Since its inception, Michigan’s pollution control exemption program—which also covers equipment for abating water pollution—has shielded more than $17 billion worth of real and personal property from taxation. These exemptions are administered exclusively by EGLE and the State Tax Commission, meaning at no point have they ever been put to a vote by state or local elected officials.

The stated purpose of this program is to reduce pollution by subsidizing the equipment necessary to capture and dispose of harmful emissions. But once a company has an exemption, it is very difficult for regulators to either modify or revoke it, let alone claw back lost revenue in the event a facility is found violating clean air and water standards.

The statutory language establishing the program specifies that “substantial noncompliance” with rules promulgated under Michigan’s air quality legislation does constitute grounds for revoking a certificate. Out of 9,041 approved certificates, only 860 have ever been revoked in the program’s history.

Worse still, noncompliance is not reason enough for state tax authorities to force repayment of polluters’ past tax savings. Only if an exemption certificate was “obtained by fraud or misrepresentation” can a clawback be initiated, an especially high bar for regulators to prove.

Marathon may be a high-profile example of a polluter benefiting from pollution control exemptions, but it’s far from the only one: US Ecology in Detroit, Graphic Packaging International in Kalamazoo, DTE in Monroe and River Rouge. All have been subsidized through the program.

While financial penalties for environmental violations are already too small to act as an effective deterrent, these exemptions neutralize any incentive companies might have to change their behavior.

The new Democratic majority in Lansing has shown a strong interest in beefing up environmental regulations and sanctions. If lawmakers are serious about making polluters pay, clawing back their costly tax breaks would be an obvious place to start.

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