On September 17, 2014, the Senate Committee on Finance held a hearing titled “Reforming America’s Outdated Energy Tax Code” to discuss possible reforms to the U.S. energy tax policy.
Senate Finance Committee Chairman Sen. Ron Wyden (D-OR) underscored the need for predictable, level playing-field tax policy that puts renewables on the same footing as other energy sources in the competitive marketplace. He called for energy tax code that considers the costs and benefits of energy sources and replaces tax incentives with a modern, technology-neutral approach.
Sen. Orrin G. Hatch (R-UT) called for expedited action on the tax extenders package which addresses important energy tax issues. He emphasized that carbon tax and cap-and-trade have negative implications for energy security as they raise electricity, natural gas, and gasoline prices.
Nickles Group Chairman and CEO and former Senator Don Nickles called for a reformed tax code that encourages investment, lowers corporate rate, and supports a simplified territorial system. Pointing to expired tax provisions that await Congressional action, Nickles underscored that the wind production tax credit (PTC) should be left expired while investment-encouraging provisions such as bonus depreciation and small business expensing should be made permanent. The wind PTC has existed for 23 years and projects that qualified under new regulations will receive the credit until 2024. The wind industry has expanded 10-fold in the last decade and currently accounts for more than 60,000 MW of installed capacity. It also benefits from state Renewable Portfolio Standard (RPS) mandates and impending Environmental Protection Agency (EPA) power plant emissions standards. Nickles also stated that proposals that deny oil and gas companies the Section 199 manufacturing deduction, increase recovery period intangible drilling costs, and deny the “dual capacity” provision (credit for taxes paid to foreign governments) causing companies to be double-taxed must be addressed.
American Energy Innovation Council Member Norman R. Augustine stressed the security advantages of developing domestic energy resources that decrease dependence on foreign oil. Tax policies should be technology- and source-neutral, predictable, not subject to yearly renewals, and not permanent. Such an approach would phase out existing source-specific tax incentives over time, allowing for predictable transition for investors and an optimal investment strategy for the nation. Phasing out existing source-specific subsidies and incentives would unencumber revenue, part of which should be invested in research and development. Tax reforms must ensure clear incentives for research and innovation as energy is a key driver of economic growth.
Tufts University Professor Gilbert E. Metcalf called for tax rates that align private and social costs of energy production and consumption to achieve economic efficiency. This could be achieved by a well-designed carbon tax that would also eliminate the need for tax-based energy subsidies and raise significant revenue to finance other tax reforms. Subsidies in the form of accelerated depreciation, percentage depletion, and production and investment tax credits have an equally important role. Metcalf also stressed that streamlining renewable energy tax preferences, making them technologically neutral, and phasing out fossil fuel tax preferences would be a major improvement over current tax code.
Bloomberg New Energy Finance Analyst Ethan Zindler highlighted the ongoing fundamental transformation in the energy sector and the role of wind and solar – the two largest U.S. non-hydro renewables – with regard to their respective tax credits. The wind energy PTC’s importance has been illustrated each time it was allowed to expire, causing installations to fall sharply – with the steepest declines during 2012-2013. Similar declines are expected in the solar sector with the Investment Tax Credit (ITC) expiration at the end of 2016. The solar PV industry expanded 10-fold over the past five years creating “socket parity” for new installations as the cost is lower than purchasing from the grid when subsidies are taken into account. Cost reductions and technological developments – attributable to tax credits – are projected to continue causing wind and solar to represent at least 20 percent of U.S. generation by 2030. Zindler noted that inconsistent and unpredictable short-term policies are inevitable due to technological innovation, economies of scale, and worldwide policy support.
Heritage Foundation Research Fellow Dr. David W. Kreutzer stated that a tax on carbon dioxide will drive up energy costs as fossil fuels provide 85 percent of U.S. energy. He cited economic analyses by the Energy Information Administration (EIA) and the Heritage Foundation which project that carbon taxes will result in job losses exceeding 1,000,000 and GDP losses exceeding $1T by 2030; and that resultant emissions reduction will have at most tenths of a degree moderation in global warming. Kreutzer emphasized the Interagency Working Group’s 2013 social cost of carbon estimates are not credible and cannot justify the job and income losses resulting from a carbon tax.
Originally published by EnerKnol.
Founded in 2011, EnerKnol provides U.S. energy policy research and data services to support investment decisions across all sectors of the energy industry. Headquartered in New York City, EnerKnol is proud to be a NYC ACRE company.
