Policy: Environment & Energy

Democrats on Senate Finance Committee float overhaul of energy tax incentives

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Taxes,PennAve,Energy and Environment,Zack Colman,Senate Finance Committee

Dozens of energy tax credits would be whittled down to two long-term incentives that reward cleaner burning energy under a tax code overhaul floated Wednesday that the Senate Finance Committee's Democratic staff predicts would more than halve the $150 billion of energy incentives awarded over 10 years.

The incentives — one for fuel, the other for electricity — would start in 2017, just after a handful of one- and two-year credits are set to expire, a move aimed at eliminating some of the investment uncertainty the clean energy industry says short-term credits present. Democratic staff said, however, that the committee is considering extending some — such as the wind production tax credit — that would end this year.

Cleaner burning fuels and power would benefit most from the change. Those that emit zero greenhouse gases — such as wind, solar and nuclear power — would be eligible to receive the full credit. For electricity, facilities must produce power that's 25 percent cleaner than average to receive the credit, and fuels must be 25 percent cleaner than conventional gasoline.

A production tax credit of up to 2.3 cents per kilowatt-hour through 10 years or a 20 percent investment tax credit for power production, and up to $1 per gallon or 20 percent investment tax credit for fuel production, would replace the current 42 tax carve-outs for energy. Of those credits, 25 exist on a one- or two-year basis.

The incentives are designed to be technology-neutral and would be awarded to new projects. It creates some exceptions —for example, existing power plants would be eligible for credits for carbon capture and sequestration technology, which captures carbon emissions and pumps them underground.

It also includes a nod to the natural gas industry by not accounting for life-cycle emissions that would wrap in methane produced during hydraulic fracturing, or fracking, and the nuclear industry could grab the full credit for building new reactors at existing power plants.

The proposal faces long odds, especially when it comes to securing support from House Republicans who want to do away with tax credits for clean energy.

Even so, the recommendations set out to accomplish the major goal of both chambers' tax-writing panels: simplify the federal tax code.

"It is time to bring our energy tax policy into the 21st century," said Senate Finance Chairman Max Baucus, D-Mont., of the proposal, one of many as he and his House counterparts attempt to rewrite the federal tax code. "Our current set of energy tax incentives is overly complex and picks winners and losers with no clear policy rationale."

The credit values would be scaled to reflect the greenhouse gas emissions profile of each energy source. The credits phase out four years after the greenhouse gas intensity of the electricity and fuel sectors fall 25 percent below 2013 levels. When that would occur is not clear because of complexities forecasting energy demand, technological innovation and regulations, staff said.

A bulk of the projected tax code savings would come through ending fossil fuel industry provisions, a move that many congressional Republicans oppose because they, as does the oil and gas industry, consider the measures business expenses.

Those tax breaks, which the committee recommended cutting in an earlier proposal, include a pair worth a combined $25 billion. Wednesday's proposal also would ax two fossil fuel incentives that largely haven't been a factor in recent decades because they're triggered by low oil prices.

But the oil and gas industry isn't the only player to take lumps in the proposal.

The draft also calls for ending all energy-efficiency incentives, many of which enjoy bipartisan support. The up-to-$7,500 federal subsidy for purchasing electric vehicles would expire, and the fuel credit would not provide any benefits for producing or buying electric vehicles.

And the corn ethanol industry could take a hit because of the different ways the credit would be assessed between electricity and transportation fuels.

For electricity, the credit will be calculated based on power plant emissions rather than the life cycle of the fuel source — meaning methane emitted during the hydraulic fracturing, or fracking, process for natural gas wouldn't factor into the emissions impact.

But that life cycle is taken into account for transportation fuels. Corn ethanol could be in trouble, as clearing land for corn and refining fuel contribute to emissions.

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