Governors' Biofuels Coalition

Senate Democrats’ proposal to simplify the energy tax code is meeting skepticism from Republicans, who say the plan still tilts the scales in favor of clean energy at the expense of fossil fuels.

The Democrats’ broad energy bill unveiled earlier today aims to overhaul the energy tax code by creating new credits for power producers and transportation fuels that are technology-neutral.

“Our proposal today throws an outdated, stagnant set of tax rules in the garbage can,” said Finance ranking member Ron Wyden (D-Ore.), who has urged such an approach for years (Greenwire, Sept. 22).

Under the plan, electricity producers could choose between a production tax credit and an investment tax credit whose value is linked to the amount of carbon dioxide emitted per kilowatt-hour. A similar credit would provide up to $1 per gallon for transportation fuels made from renewables or fossil fuels, while a separate “performance-based” incentive would reward homes and buildings that install efficiency equipment, again based on the amount of energy saved.

Wyden told E&ENews PM the approach should appeal to Republicans because it would halve the estimated $125 billion 10-year cost of current energy tax breaks.

“Having had private discussions and public discussions, the Republican argument begins with ‘There should be fewer subsidies,'” he said. “And there’s a debate about which subsidies, but fewer subsidies, fewer subsidies, fewer subsidies. I’ve got an actual legislative proposal, not a piece of paper floating around in the air, that does that. We take the 44 breaks, we cut the costs in half, so there’s a substantial cost reduction, and then we say it’s technology-neutral. So this isn’t the same old — the oil companies get cut, the renewables get it. Everybody, whether you’re wind, or oil, or whether you’re gas, or hydro, anybody who hits the emissions target is in.”

The Democrats’ bill would start the new credits in 2018, a three-year time frame Wyden says allows sufficient “transition” time while negotiations continue over the broader tax overhaul Republicans want.

“So that gives us a chance to deal with the transition, and by happenstance, the extenders come up right now, we could have a bipartisan agreement on extenders, and then get to a bipartisan effort in terms of reforming the tax code as it relates to energy,” he said. “It kind of fits.”

However, the linkage to carbon emissions will likely give Republicans pause, said Sen. John Thune (R-S.D.), a member of the Finance Committee.

“I think that will be a hard sell with a lot of our guys,” he said in an interview. “I know that there’s going to be a big focus in their energy bill on the climate change issue. On our side, we’re interested in all forms of energy that are American energy, that lessen the dependence that we have on foreign sources of energy, and drive the costs down, that make it more affordable for consumers in this country, and more affordable for businesses that are creating jobs, so if there’s a way to kind of put those two together, it remains to be seen.”

Sen. John Hoeven (R-N.D.), who like Thune has previously expressed support for wind energy, offered a similar assessment.

“You say technology-neutral, but you’re still back at the government regulating CO2,” he said. “So I think that’s going to be a challenge, that’s going to be a problem for a lot of folks in our caucus. The idea that you incentivize investment and that investment produces more energy and better environmental stewardship, that makes sense. But when you start linking it to the CO2, that’s a problem.”

Sen. John Barrasso (R-Wyo.) said he was concerned about any tax incentive that would raise energy prices.

“Democrats owe it to the American people to not try to imply that you can power this country and this economy with wind and solar alone. We need all sources of energy,” he told reporters. “Under the most aggressive plans for more renewable energy, it’s still going to be a very small percentage of the energy mix in the country, even 15, 20 years from now.”

The Democrats’ plan to cancel tax breaks enjoyed by the largest oil and gas companies also drew criticism from the American Petroleum Institute.

“America’s oil and natural gas industry pays one of the highest tax rates among U.S. businesses, generating billions of dollars every year in revenue for the federal government,” API Executive Vice President Louis Finkel said in a statement. “Instead of higher taxes and royalty rates that discourage domestic production, policymakers should follow pro-development energy policies that create jobs and help our nation provide affordable and reliable energy for consumers.”

Reporter Hannah Northey contributed.

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