Kids may be waiting for Santa, but Washington is waiting for the Supercommittee.
Whether it’s the oil and gas industry defending drilling tax breaks, biofuels boosters watching the clock tick down on expiring ethanol credits, wind advocates worried about their tax credits, or energy researchers wondering if their projects will survive to 2012, everyone in the energy sector has something to worry about.
The Supercommittee’s 12 lawmakers are to identify, by November 23, at least $1.2 trillion in net spending reductions over the coming 10 years. How that number is reached–tax or other revenue increases, spending or benefit cuts–is up to the six Republicans and six Democrats, half from the Senate and half from the House of Representatives.
The resulting package must be voted up or down, with no amendments or filibusters allowed, by both houses, and the President must sign it before year’s end. Otherwise, automatic spending cuts, divided half and half between defense and the rest of the federal budget, kick in over the next decade. With Republicans and Democrats seemingly deadlocked over what’s cut and who pays, party leaders are already strategizing for failure.
This all means that any measures requiring Congress to vote new or renewed money are given little chance on Capitol Hill. Among those: extension of the $1 per gallon biodiesel tax credit or the 45-cent-a-gallon ethanol blender’s credit, both expiring December 31.
Renewables Credits Expire
Another benefit ending: the Section 1603 tax credit conversion, which let wind and solar developers convert future tax credits into a one-time cash payout from the Treasury, equal to 30% of their investment. The credit has cost taxpayers $9.6 billion through October 31. Solar advocates predict its demise will halve their industry’s growth.
Also trapped is any new spending, like Senator Jeff Bingaman’s Clean Energy Deployment Authority (CEDA) which passed his Senate Energy committee on a bipartisan vote. It would convert the Department of Energy’s current loan programs for clean energy, including nuclear, to a self-sustaining program housed in a semi-autonomous agency. But it needs $10 billion in startup funding.
Another victim: the NATGAS Act, to give $5 billion over five years in tax credits for long-haul trucks using natural gas fuel and fueling infrastructure. It has more than 180 bipartisan sponsors, and it’s going nowhere.
Fossil Fuels Hit Too
But the Supercommittee’s examination of spending and taxes may ensnare even long-established energy benefits. Some of the key areas that Washington energy analysts are watching include:
- Special tax treatments for oil, gas and coal, some dating back to early in the last century, including depletion allowances, tangible and intangible drilling costs, exploration costs, and manufacturing deductions. The White House has repeatedly urged revocation, so far unsuccessfully in the face of strong industry opposition. Estimates of revenue involved range up to $90 billion, over the decade. Industry lobbyists say these aren’t loopholes, just normal business deductions. Credit Suisse analysts warn revocation of the intangible drilling credit alone could render 4-5 billion cubic feet per day of US natural gas production uneconomical at current prices.
- Possible early ends to renewable energy tax credits. Wind advocates were already campaigning to have their production tax credit extended from 2012 through 2016, to match the solar industry’s investment tax credit. Now, not only does extension look dicey, it’s possible the Supercommittee will recommend ending all production and investment tax credits, for both renewable and conventional energies, as of Dec. 31.
- Revoking pass-through tax treatment for master limited partnerships (MLPs). These partnerships are concentrated in energy, particularly pipelines, coal, oil and gas. MLPs do not pay company-level taxes – all income is paid quarterly to partners, who pay taxes individually. This often means higher investment yields than from tax-paying corporations, and both MLPs and funds of MLPs are traded on stock exchanges. A Joint Tax Committee analysis indicates taxing all pass-through structures like corporations could add $300 billion over 10 years.
Another Decade In Energy
While the Supercommittee wrangles about the next 10 fiscal years, House and Senate appropriations committees are wrestling with 12 appropriations bills for the fiscal year that started October 1. The House has passed six bills; the Senate, four; and none have come out of conference committee.
The bills include funding for the Environmental Protection Agency, which the House laced with riders barring EPA from enforcing new air and water quality rules. The Senate’s rejecting riders, and total funding for EPA enforcement remains contentious. House and Senate appropriators also split over Department of Energy programs like the ARPA-E energy research program and renewables development.
With so much dividing legislators, Congress has to pass another stopgap funding measure by November 18 to keep the government from shutting down until the money bills can be agreed on.
Photo Caption: U.S. Energy Secretary Steven Chu (L) talks with Senate Energy and Natural Resources Committee Chairman Sen. Jeff Bingaman (D-NM) before a committee hearing on Capitol Hill, February 16, 2011 in Washington, DC. Chu testified about the Obama Administration’s proposed Fiscal Year 2012 budget for the Department of Energy.