Governors' Biofuels Coalition

A Senate Finance subcommittee yesterday began its work to overhaul an array of tax incentives benefiting energy companies with a broad overview of what benefits exist today and continued partisan disagreement over how to account for the tax breaks enjoyed by various industries.

Negotiations over comprehensive tax reform have been simmering on Capitol Hill for more than a year, but the effect that overhauling the tax code would have on energy companies has remained largely in the background. Tax reform could have massive implications across numerous sectors, from oil drillers to pipeline operators to wind farm developers to building retrofitters.

The level of interest among those sectors was evident yesterday as an overflowing crowd squeezed into a Dirksen hearing room for the Finance Subcommittee on Energy, Natural Resources and Infrastructure’s first hearing on energy tax reform.

Subcommittee Chairwoman Debbie Stabenow (D-Mich.), a strong supporter of tax breaks for renewable energy production, advanced manufacturing and biofuels, said tax reform presents an opportunity to promote U.S. clean energy companies in a race against foreign competitors to develop new technologies. She also spoke of the need to level the playing field between relatively new clean energy industries that rely on temporary tax breaks and fossil companies that benefit from permanent tax breaks.

“This discussion is also very much about jobs,” Stabenow added. “There are 8,000 parts in a wind turbine, I like to say, and we can make every one of those in the United States.”

In addition to a panel of outside experts, the hearing featured testimony from Sens. Chris Coons (D-Del.) and Jerry Moran (R-Kan.), who were pushing the bill they introduced to allow clean energy companies to establish master limited partnerships, which have shares that can be traded like common stock but pay taxes at the partnership — rather than corporate — level. MLPs have been in place since the late 1980s for fossil fuel companies.

“It’s not a tax break; rather, it is a tax simplification structure” that concentrates tax obligations at the investor level, Moran said. He added that it is “critical” to maintain MLPs for companies that currently can use them while expanding access to renewable and efficiency companies.

Dan Reicher, a former DOE official in the Clinton administration now at Stanford University, backed the MLP proposal in his testimony to the committee. He also stressed that expanding MLPs should not be seen as an immediate replacement for the existing production and investment tax credits for wind, solar and other renewable energy companies. Rather, he said, those incentives should be extended and phased out to allow for a “transition period” as companies adapt to the MLP approach.

Broader discussions over tax reform appeared to gain renewed attention this week with President Obama’s proposal to pair corporate tax reform with new spending on infrastructure (E&ENews PM, July 30).

An aide to Stabenow said more subcommittee hearings examining specific energy tax breaks would likely be scheduled later this year.

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