Sen. Baucus launches major Senate Energy Tax Reform
To match progress on building capacity in Iowa and elsewhere: in DC, there’s been some action on long-term energy policy for energy.
A new, technology-neutral tax credit for the domestic production of clean transportation fuel? Read on.
In Washington, Senate Finance Committee Chairman Max Baucus (D-Mont.) unveiled the latest package in a series of proposals to overhaul America’s tax code. This staff discussion draft focuses on streamlining energy tax incentives so they are more predictable and technology-neutral.
The news comes just as word leaks out of Washington that Senator Baucus is about to be nominated by President Obama as US Ambassador to China.
“It is time to bring our energy tax policy into the 21st century,” Senator Baucus said. “Our current set of energy tax incentives is overly complex and picks winners and losers with no clear policy rationale. We need a system of energy incentives that is more predictable, rational, and technology-neutral to increase our energy security and ensure a clean and healthy environment for future generations.”
The discussion draft released today focuses on reforming the current set of energy related tax preferences. Under current law, there are 42 different energy tax incentives, including more than a dozen preferences for fossil fuels, ten different incentives for renewable fuels and alternative vehicles, and six different credits for clean electricity.
Of the 42 different energy incentives, 25 are temporary and expire every year or two, and the credits for clean electricity alone have been adjusted 14 times since 1978 – an average of every two and a half years. If Congress continues to extend current incentives, they will cost nearly $150 billion over 10 years.
To address these issues, the staff discussion draft proposes a smaller number of targeted and simple energy incentives that are flexible enough to accommodate advances among fuels and technologies of any type – whether renewable, fossil, or anything in between. These proposals are intended to promote domestic energy production and reduce pollution. Specifically, the discussion draft offers proposals to:
• Establish a new, technology-neutral tax credit for the domestic production of clean electricity
• Establish a new, technology-neutral tax credit for the domestic production of clean transportation fuel
• Consolidate almost all of the existing energy tax incentives into these two new credits, with appropriate transition relief
• Provide businesses and investors with more certainty by making the new incentives long enough to be effective, but phasing them out once clearly defined goals have been met
The package of reforms draws heavily from proposals offered by both Republican and Democratic members of the Senate Finance Committee.
Reaction from the AEC
Advanced Ethanol Council Executive Director Brooke Coleman released the following statement.
“We commend Chairman Baucus and his team for taking on the challenge of reforming the federal tax code as it applies to energy. It is very clear that Chairman Baucus sees the big picture when it comes to tax reform; namely, that energy must be at the center of the conversation, and the code must be reformed to: remove inequities favoring fossil fuels, clean up redundancies, reward innovation and spur economic growth.
“Senator Baucus has rightly put all existing policies on the table while proposing a new path that will achieve these goals and ensure that the United States leads instead of follows when it comes to developing new technologies and producing less carbon intensive energy.”
Coleman noted that, as is the case with any new proposal, some details need to be worked out. “We look forward to working with Chairman Baucus and the Senate Finance Committee to ensure that any new piece of legislation covers the critical bases when it comes to maximizing investment. Inequities cannot be allowed to survive this process or we will continue to ship opportunity in the disadvantaged sectors overseas.
“The eligibility criteria must be carefully crafted and Congress must be very careful not to create investment uncertainty when it tries to address when and if these incentives phase-out. The backdrop of this process is not a free market. The code has been de-risking fossil fuel investment for roughly a century, and that legacy will stand if not corrected carefully.”
Coleman also called for immediate energy tax extenders in the context of the proposal’s 3-year extension of existing law. “The proposal admirably calls for a 3-year extension of existing law for cellulosic biofuels to provide a reasonable ramp to a new tax regime.
“We commend the Chairman for recognizing the hazards of frequent expirations and change of law. That said, tax provisions for cellulosic biofuels still come off the books in two weeks while those offered to the fossil fuel industry persist. We recommend that Congress invoke the ‘do no harm’ principle going forward and pass extenders in 2013.”
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