Accounting Loopholes for Fossil Fuel Pollution Must Be Closed
WASHINGTON — A massive accounting loophole allowing the fossil fuel industry to avoid acknowledging future cleanup costs must be closed, according to a comment filed to the Financial Accounting Standards Board (FASB) by Public Citizen.
In the filing, Public Citizen argues that accounting standards require that companies quantify the costs they expect to incur cleaning up and retiring long-lived tangible assets, such as oil refineries and pipelines at the end of their useful lives. However, many fossil fuel companies exploit a loophole by claiming that these assets have “indeterminate lives” and will not be retired in the foreseeable future, allowing the industry’s accounts to keep these costs off their balance sheets—even though U.S. refineries have been steadily shutting down for decades.
“These loopholes raise significant concerns regarding transparency, comparability, and risk exposure for people considering investing in fossil fuels,” said Mekedas Belayneh, policy advocate with Public Citizen. “Current accounting standards fail to recognize the cost of cleaning up and retiring fossil fuel infrastructure, masking the true financial condition of companies — which increases the risks to investors. Requiring companies to tell investors their cleanup obligations will make financial reporting more effective and transparent for investors.”
Additionally, the filing asks FASB to end rules allowing companies to use extremely long-tailed estimates of the timeline for retiring the infrastructure to make the costs seem much smaller than they will actually be. The loophole creates unrealistic retirement horizons for infrastructure, especially in light of accelerating net-zero targets and refinery closures.
For example, Valero Energy Corporation announced in April that it would close the Benicia refinery in California by the end of April 2026. Yet, in previous years’ financial disclosures, Valero reported $0 in potential costs to retire its fifteen refineries, even though the company will eventually retire these assets.
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