Obama reiterates call to ax oil incentives, boost renewables

Source: Nick Juliano, E&E reporter • Posted: Wednesday, March 5, 2014

President Obama’s annual wish list unveiled this morning reiterated his long-standing call to make the tax code far more generous to renewable energy companies while rescinding a bevy of incentives the oil and gas industry has enjoyed for decades.Although top tax writers on Capitol Hill in recent proposals have flirted with some of the president’s ideas — such as making permanent a popular research and development credit or eliminating some oil and gas industry tax breaks — none of the changes is likely to make it into law this year.

This morning’s release of the fiscal 2015 budget proposal kicks off the annual process of setting spending levels for the coming year.

On the tax front, the budget comes amid heightened attention to tax reform, even as prospects for major changes remain dim. Rep. Dave Camp (R-Mich.) last month released an expansive proposal to eliminate myriad targeted tax breaks in pursuit of a lower overall tax rate. Former Sen. Max Baucus (D-Mont.) last year released several of his own proposals when he chaired the Finance Committee, but he has since left Washington to become the next U.S. ambassador to China, dampening the momentum for comprehensive reform this year.

Some overlap exists between the Obama and Camp proposals — although the president would use most of the revenues from eliminating business tax breaks to cut the corporate tax rate to 28 percent, rather than aiming for corporate and individual tax reforms as Camp did. And in the energy realm, Camp’s proposal would be less generous toward renewable energy and eliminate fewer oil and gas deductions.

Though he did not specifically address the energy provisions, Camp said he was unimpressed with the president’s proposal.

“Unfortunately, the president’s budget adds more complexity to the tax code and increases taxes for more Washington spending,” Camp said in a statement. “That is the wrong direction.”

President Obama would make the renewable energy production tax credit (PTC) and similar green incentives both permanent and refundable, meaning they could be claimed even by companies with no tax liability. Currently, those incentives are made available only on a temporary basis, and they expired at the end of last year. They also are not refundable, which means smaller renewable energy developers often must partner with tax equity investors, such as major banks, to reap the full value of the credit, which is worth $23 for every megawatt-hour of electricity generated at an eligible facility.

In addition to the PTC, the budget would extend a $1.01-per-gallon cellulosic biofuels credit and proposes new tax incentives for trucks to run on natural gas or other alternative fuels and for refueling infrastructure.

The budget also would eliminate a suite of oil and gas incentives that have been popular targets in each of the president’s previous proposals. They include the “intangible drilling costs” deduction, which was untouched by Camp’s proposal, as well as some that Camp has proposed getting rid of, including the use of percentage depletion rules and oil companies’ eligibility for a domestic manufacturing tax deduction.

“As the nation continues to pursue clean energy technologies that will support future economic growth, it should not devote scarce resources to subsidizing the use of fossil fuels produced by some of the largest, most profitable companies in the world,” the budget proposal said.

Obama’s proposals have gained almost no traction after being included in his previous budgets, and this year is unlikely to be any different. The oil industry was quick to pan the proposal as a going-nowhere rehash of old ideas.

“The president should be concerned about the deficit of new ideas in his budget,” American Petroleum Institute President Jack Gerard said in a statement. “Raising taxes on U.S. oil and natural gas companies would undermine the investments in energy production that are driving job creation and moving us closer to energy security than we have been in decades.”

On the renewable energy front, even the wind industry — the biggest beneficiary of the PTC — is not asking for the credit to be made permanent and hopes only to secure an extension for a few more years. While Camp’s proposal would have eliminated a smaller number of oil and gas tax breaks than Obama’s, it has encountered substantial resistance on Capitol Hill.

The biggest similarity between the two proposals is that both call for making permanent the research and development tax credit, which is claimed by a variety of energy, technology, health care and other companies. The R&D credit has been temporary since its inception more than 30 years ago, though it is frequently renewed along with a broader package of “tax extenders.”

Congress last passed a one-year extenders package in January 2013, but the credits have since expired. Senate Finance Chairman Ron Wyden (D-Ore.) has said he plans to move quickly on another extenders package this year, but little enthusiasm for the idea exists on the other side of the Capitol.

Such a package faces a trickier path this year than in the previous Congress, when it hitched a ride on the “fiscal cliff” bill that lawmakers had to enact to avoid across-the-board tax hikes. No similar must-pass bill is on the horizon this year, although some supporters of the clean energy extenders have expressed hope that the R&D credit is a popular enough item to spur passage of another extenders bill.