Grassley Holds Keys to the Energy Tax Code

Democrats see an opening with the Finance Committee chair and renewable-energy champion.

Senate Finance Committee Chairman Chuck Grassley, with ranking member Ron Wyden
AP Photo/J. Scott Applewhite
March 12, 2019, 8 p.m.

Senate Democrats are gearing up to push a dramatic overhaul to the energy tax code.

And those lawmakers, along with private-sector advocates, are prodding Sen. Chuck Grassley of Iowa, the renewable-energy champion and newly minted chairman of the Finance Committee, to clear a path.

The wind and biofuel industries, key economic drivers in the Midwest state, stand to benefit from a set of bills on the cusp of introduction. A bipartisan measure led by Sen. Chris Coons would extend master-limited-partnership tax benefits—currently available only to fossil-fuel projects like pipelines—to renewable energy.

Lawmakers aim to reintroduce the legislation the last week of March, according to a spokesperson for GOP Sen. Jerry Moran, a lead cosponsor on the bill.

And Sen. Ron Wyden, the ranking member on Finance, is preparing to introduce his Clean Energy for America Act in the coming days. That legislation would scrap dozens of separate energy breaks and replace them with a technology-neutral energy code that incentivizes clean electricity production, clean transportation fuel, and energy efficiency.

Supporters of the Wyden bill see an opening with Grassley, known as the father of the wind-energy-production tax credit.

“It’s a regional issue and not a partisan issue,” said John Godfrey, senior government-relations director for the American Public Power Association. “The trajectory really, hugely depends on Senator Grassley. If he agrees that this is a priority, I think that could be pivotal.”

Wind energy provided 6.6 percent of total U.S. electricity production in 2018, according to the Energy Department. Meanwhile, the wind industry’s slice of the Iowa energy portfolio is nearly six times that, the American Wind Energy Association says. But the tax credit is set to expire at the end of 2019 after a phase-down process over recent years.

Grassley’s staff declined to comment on his position on the legislation. Instead, a spokesperson pointed to comments he delivered at the outset of this Congress.

After taking the Finance gavel, Grassley pledged to “work to ensure fair and equitable treatment for all domestic energy production, both above and below ground, including supporting tax incentives for renewable and alternative energy sources.”

The wind credit and a solar-investment tax credit, set to expire in 2021 for residences and hit a permanent 10 percent credit for commercial and utility projects, are only two of dozens of energy-related breaks in the tax code, which for decades has been seen as a key driver in energy policy. Grassley pledged to allow the tax-credit sunsets as part of a deal struck in 2015 on temporary extensions.

But renewable proponents point to permanent breaks for the oil-and-gas industry, notably intangible-drilling-cost expensing and the oil- and gas-depletion allowance, as evidence of an unfair playing field. The fossil-fuel industry clamored successfully for Republicans to keep those breaks intact in the 2017 tax-cut package.

The Wyden legislation would give breaks to power plants that emit at least 35 percent less carbon dioxide than the average plant in the national fleet, renewable transportation fuel that emits at least 25 percent less than the national average, and contractors building new homes that are at least 50 percent more efficient than an International Energy Conservation Code standard.

On top of that, the bill would reform the clean-energy bond structure, which nonprofits like the American Public Power Association are likely to embrace. And power plants that install energy-storage and carbon-capture equipment are also able to claim a 30 percent credit.

“The availability of the credit enhances the economics of potential credits,” said Todd Foley, senior vice president of policy and government affairs at the American Council on Renewable Energy. “The whole idea here is the beauty of an incentive. It’s saying to the market, ‘If you put your capital at risk and invest, we will provide a bit of a discount for your activity.'”

An overhaul akin to the Wyden measure would also alleviate some of the perennial legislative burden of energy-heavy tax extenders. Grassley is aiming to move extenders legislation forward this year.

But the Wyden legislation is couched in a largely Democratic drive to tackle climate change. A series of both domestic and international reports over recent months have concluded that the global community has only a dozen years to drastically reduce greenhouse-gas emissions in order to keep temperatures from rising 1.5 degrees Celsius. Beyond that point, drought, flooding, and extreme heat will pose drastic challenges, the reports say.

Republicans are slowly owning up to the scientific consensus that mankind is driving temperature increases, and many free-market conservatives are championing private-sector innovation as a critical tool in paring down greenhouse-gas emissions.

Last week, the Senate Energy and Natural Resources Committee held its first hearing in years to explicitly tackle climate change. Chairwoman Lisa Murkowski and ranking member Joe Manchin then called for bipartisan action in a joint Washington Post op-ed. And lawmakers have banded together to push emissions-reduction policy in the past. Biofuels that qualify for the Renewable Fuel Standard, a law put in place in 2005 and amended two years later, must meet emission-reduction targets.

Still, a chasm remains between the two parties, and that could derail legislative movement on the Wyden bill.

“It’s a straight-up recognition of the urgency and the breadth of climate change,” said Mike Carr, executive director of New Energy America, which focuses on clean-energy development in rural areas.

“Senator Grassley’s party has a real problem with being so overt about recognizing that. He’s willing to buck his caucus on specific things that are really beneficial to his state,” said Carr, who was a staffer for former Energy and Natural Resources Chairman Jeff Bingaman. “Is he willing to take that extra step and go even further based on that sort-of broader platform? I don’t know. That’s a tougher one, I think, for him.”

Carr said the legislation would be a big boon to the biofuel industry in Iowa and elsewhere. The Midwest state produces nearly a 100 million barrels of ethanol annually, roughly double the amount of runner-up Nebraska.

Monte Shaw, executive director of the Iowa Renewable Fuels Association, expressed some concern that the agencies that roll out the new tax regime wouldn’t properly assess the emissions reductions linked to biofuel. But Shaw pointed to Coons’ Master Limited Partnerships Parity Act as an unequivocal asset to his industry.

That legislation would allow biofuel and other renewable-energy industries to structure energy-business projects to avoid corporate tax, an option currently limited to real estate and fossil-fuel extraction.

“That’s a no-brainer,” Shaw said. “Why in the world would we limit it to more or less fossil companies? That’s something that we’ve worked on for some time and absolutely support.”

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