Simplifying Energy Tax Code System Proving Not So Simple

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By Laura Davison and Brian Dabbs

Proposals to simplify energy tax credits are garnering interest from Senate Democrats and House Republicans as congressional leaders contemplate comprehensive tax reform.

Lawmakers are looking at tax reform or a bill to extend nuclear production tax credits as possible vehicles to help them untangle the current energy tax system, lawmakers and industry officials told Bloomberg BNA.

One idea involves moving to a “technology-neutral” tax credit. The subsidy would apply to all forms of renewable energy, such as wind, solar, and geothermal, to prevent Congress from having to create credits for new technologies as the industry innovates. Supporters laud the proposal for simplifying a complex energy tax quilt.

“It will prevent the need to shoehorn new technologies into statutory definitions, some of which have been written decades ago,” said David K. Burton, a partner at Mayer Brown LLP who leads the firm’s renewable energy group.

The effort comes as lawmakers are aiming to overhaul the tax code by year-end—an ambition that faces big hurdles, since Republicans have failed so far to agree on a framework. House Ways and Means Committee Chairman Kevin Brady (R-Texas) said he expects energy tax credits to be included in the legislation. Some lawmakers also hope technology-neutral provisions could be attached an extension of the nuclear production tax credit—a bill (S. 666) lawmakers from South Carolina and Georgia are looking to push through Congress quickly.

Sen. Ron Wyden (D-Ore.), ranking member of the Finance Committee, has been pushing the idea of streamlining the energy sections of the tax code with a technology-neutral credit for several years. His bill, Clean Energy for America Act (S. 1068), would let taxpayers choose between a production or an investment tax credit, scaled according to the amount of carbon emissions. It has 21 co-sponsors in the Senate, none of whom are Republicans.

Renewable energy groups, including the Solar Energy Industries Association and the American Council on Renewable Energy, have expressed support for the Wyden bill.

The tension between Democrats and Republicans on technology neutrality hinges on which energy sources will qualify for the credit. Wyden’s bill allows zero-emission technologies, such as wind and solar, to qualify for the maximum credits, either 2.3 cents per kilowatt hour for the production credit or an investment tax credit of up to 30 percent. Rep. Tom Reed (R-N.Y.) has been exploring ways to create a Republican-friendly alternative that doesn’t base eligibility on carbon.

“In a perfect world, you would start with a technology-neutral credit,” rather than the patchwork of incentives that exists now, a GOP aide said.

Energy Priorities

For now, the strongest push in the Senate is to combine expired renewable energy credits under tax code Section 48 (H.R. 1090), the nuclear credit extension that passed the House in June, with an extension of a carbon sequestration tax credit, the aide said. The sequestration measure, which is spearheaded by Sens. Heidi Heitkamp (D-N.D.) and Sheldon Whitehouse (D-R.I.), hasn’t been introduced yet this year but is expected to closely resemble legislation (S. 3179) from last Congress.

But if those don’t pass, momentum could shift to a technology-neutral approach.

Republicans, however, still need to come up with a bill. The disagreement between the right and the left stems from how they view the idea, a Democratic aide said. Democrats see a technology-neutral approach as a climate issue “at its core,” the aide said. For Republicans, this is about spurring energy innovation, a GOP aide said.

“Conservatives generally are for agnostic government policies that don’t choose winners or losers but that instead empower consumers and encourage research and development,” Rep. Carlos Curbelo (R-Fla.) said.

One idea that has been considered is to provide incentive to new technologies with a credit until they reach a certain level of power generation, a GOP aide said. That would allow the oil and gas sector to receive the credit for technologies that are more efficient than current systems. Aides of both parties said, however, that the approach could be open to litigation because it’s hard to define what processes are “innovative.”

A compromise between Democratic and Republican approaches, however, would be a delicate balancing act, and so far no real headway appears to have been made, Timothy Fox, an alternative power analyst at ClearView Energy Partners LLC, told Bloomberg BNA.

“The fact that this minimizes the tax code could generate some support for this, but tax reform is very difficult,” he said. “If a bill with this regulatory construct could be drafted in a way that more services could qualify in terms of lowering the baseline, then the prospects that it advances are greater.”

For example, plants that burn cleaner coal could benefit from a lower baseline, he said.

Competing Factions

Power plants that emit 35 percent less carbon than the national average would be able to qualify for the minimum credit under Wyden’s plan. Those that emit zero carbon would access the full credit.

The bill, therefore, could benefit the “fossil fuel guys” who crack down on carbon emissions, Wyden told Bloomberg BNA.

But Republicans still often lock horns over the basic merits of subsidizing energy, tax and energy specialists said. “It’s a spectrum type of thing. You’re going to have conservatives who don’t want to incentivize energy production and some that want to incentivize fossil energy and some that want to incentivize renewable energy,” Curtis Beaulieu, an energy lobbyist at Bracewell LLP, said. “I couldn’t tell you how to amend this proposal to get the maximum Republican support.”

Rep. David Schweikert (R-Ariz.), a member of the House Freedom Caucus, said the credits are likely to face resistance from some conservative members.

“If you have none, you are treating everyone the same,” he said. “Wouldn’t the ultimate policy-neutral perspective be really low rates accomplishing the same thing rather than a subsidy for energy?”

Christopher Guith, senior vice president of the U.S. Chamber of Commerce’s Institute for 21st Century Energy, echoed that call, pointing to what he said were potential perils of the Wyden proposal or a related version.

“If you look at some of the struggles that are happening in competitive power markets right now that are pushing coal and nuclear out of the market, there’s a growing consensus that the piecemeal approach to subsidizing renewables has had unintended consequences,” he told Bloomberg BNA. “There’s a growing realization that federal subsidies have caused more problems than solutions.”

Since the White House’s “energy week,” which wrapped up June 30, President Donald Trump continues to tout the value of baseload power, which refers to fossil fuels and nuclear. Environmentalists and like-minded lawmakers, however, urge an immediate transition to carbon-free energy production in order to minimize emissions that cause climate change.

Compromise Search

Despite the uncertainty, Reed told Bloomberg BNA he is working with a group of Senate Democrats and Republicans to find a way to move a technology-neutral bill, especially since the House passed the nuclear tax credit bill. “My hope is that as that vehicle goes forward that our technology-neutral-type provisions are recognized in the same caliber as that legislation,” Reed said.

Attaching technology-neutral provisions to the nuclear bill could be difficult, especially if the nuclear legislation is fast-tracked through the Senate in a unanimous-consent process as some Republicans are hoping.

Wyden indicated he would wait to see how a Republican bill looks, before committing to compromising on his bill, but added “we are looking for opportunities to advance this.”

And Sen. Debbie Stabenow (D-Mich.), Wyden’s deputy on the committee, said the measure could be a Democratic position in tax reform negotiations. “We’re just now hearing that we may actually have an open process on tax reform in the committee, which would be a welcome change,” she told Bloomberg BNA.

The proposal, in fact, could ultimately serve as an olive branch if Republicans need a few Democratic votes to pass comprehensive tax reform. “I’m not saying the inclusion of this proposal would lead those Democrats to support tax reform, but it could entice them. This might move the needle a bit,” Beaulieu said.

To contact the reporters on this story: Laura Davison in Washington at, Brian Dabbs in Washington at

To contact the editor responsible for this story: Meg Shreve at

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