Chairman Makes His Move on Energy Tax Overhaul

Senate Finance Committee Chairman Max Baucus(D-MT) speaks during a hearing on health insurance exchanges on November 6, 2013 in the Dirksen Senate Office on Capitol Hill in Washington, DC.
National Journal
Ben Geman
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Ben Geman
Dec. 18, 2013, 8:24 a.m.

Sen­ate Fin­ance Com­mit­tee Chair­man Max Baucus is pitch­ing an over­haul of en­ergy tax policy that he’s call­ing a money-sav­ing, cli­mate-friendly way to sim­pli­fy today’s “con­fus­ing and costly” maze of in­cent­ives.

The Montana Demo­crat is mak­ing a big polit­ic­al bet with the sweep­ing pro­pos­al un­veiled Wed­nes­day that would cre­ate a wholly new sys­tem of in­cent­ives for pro­du­cing low-car­bon elec­tri­city and fuels.

His plan would jet­tis­on in­cent­ives that have vo­cal polit­ic­al con­stitu­en­cies, such as oil com­pan­ies and elec­tric vehicle and ef­fi­ciency ad­voc­ates. But his of­fice hopes to at­tract sup­port be­cause the pro­pos­al saves money com­pared to ex­tend­ing the cur­rent patch­work of en­ergy in­cent­ives, and the plan is part of wider tax code over­haul ef­forts that would lower cor­por­ate rates.

“Our cur­rent set of en­ergy tax in­cent­ives is overly com­plex and picks win­ners and losers with no clear policy ra­tionale,” Baucus said in a state­ment Wed­nes­day. “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.”

Baucus is not run­ning for reelec­tion next year and has made it his top pri­or­ity to try to re­form the na­tion’s com­plex tax code. The plan un­veiled Wed­nes­day is a piece of that ef­fort.

But at­tempts to push through the first ma­jor tax-code re­form since 1986 face gi­gant­ic hurdles on Cap­it­ol Hill, where even nuts-and-bolts meas­ures draw par­tis­an dis­putes.

Ac­cord­ing to a sum­mary of the en­ergy plan, more than three-dozen cur­rent in­cent­ives—in­clud­ing 25 tem­por­ary meas­ures that ex­pire every year or two — would largely be re­placed with two primary in­cent­ive pro­grams for elec­tri­city and mo­tor fuels.

For new elec­tri­city pro­jects, the plan cre­ates a “tech­no­logy neut­ral” slid­ing cred­it for pro­du­cing power that’s at least 25 per­cent less car­bon-in­tens­ive than the na­tion­al av­er­age. The 10-year cred­it would be avail­able for pro­jects that use any type of fuel — re­new­able, nuc­le­ar or fossil en­ergy — as long as they’re clean enough.

“The clean­li­ness of the gen­er­a­tion tech­no­logy de­term­ines the size of the cred­it,” a staff sum­mary states.

The biggest cred­it avail­able is 2.3 cents per kilo­watt hour of power pro­duc­tion or, if claimed as an in­vest­ment cred­it, up to 20 per­cent of a pro­ject’s cost.

For trans­port­a­tion fuels such as next-wave bio­fuels, the draft plan sim­il­arly cre­ates a “tech­no­logy-neut­ral” cred­it for pro­duc­tion and build­ing new pro­jects that would be avail­able to vari­ous types of green­er fuels. The less car­bon-emit­ting the fuel, the more luc­rat­ive the in­cent­ive.

Both tax cred­it pro­grams would be­gin in 2017.

The avail­ab­il­ity of the pro­grams would phase out once the U.S. power and fuel mix hits cer­tain car­bon bench­marks. The power cred­it would phase out over four years once the car­bon “in­tens­ity” of U.S. power gen­er­a­tion — that is, the amount of emis­sions per amount of en­ergy pro­duced — is 25 per­cent clean­er than it is in 2013.

For mo­tor fuels, it would start phas­ing out once the green­house gas in­tens­ity of all U.S. fuels over­all has be­come 25 per­cent lower than con­ven­tion­al gas­ol­ine.

Un­til the pro­grams launch in 2017, the plan would ex­tend some ex­pir­ing pro­vi­sions for sev­er­al years, in­clud­ing the soon-to-ex­pire pro­duc­tion tax cred­it for wind power pro­du­cers that the in­dustry calls vi­tal.

The new draft fol­lows a pro­pos­al Baucus re­leased in Novem­ber that would end some oil in­dustry tax breaks. Taken to­geth­er, the en­ergy tax plans would save tens of bil­lions of dol­lars, his of­fice said.

Con­tinu­ing to ex­tend cur­rent in­cent­ives would cost al­most $150 bil­lion over 10 years, while the new pro­pos­als would at least trim that in half, ac­cord­ing to Demo­crat­ic staff on the fin­ance com­mit­tee.

In ad­di­tion to the cred­its for new green elec­tri­city pro­jects, the plan would cre­ate an in­vest­ment tax cred­it for ret­ro­fit­ting in­dus­tri­al fa­cil­it­ies with car­bon cap­ture and stor­age tech­no­logy.

While he’s pitch­ing the broad over­haul, Baucus may also push for­ward with a sep­ar­ate and more lim­ited pack­age of tax “ex­tenders” that would in­clude pro­vi­sions to pre­vent the wind cred­it from ex­pir­ing at the end of 2013.

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