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US Senate panel advances energy tax credit overhaul bill, GOP releases counter-offer for Biden

27 May 2021 IHS Markit Energy Expert

The US Senate Finance Committee on 27 May advanced legislation to revamp clean energy tax credits to make them technology-neutral, though Republican members voted solidly against the measure over proposals to eliminate billions of dollars in long-standing tax breaks for fossil fuel production.

In a 14-14 vote, the committee deadlocked on the Clean Energy for America Act to eliminate existing sector-specific tax credits.

Despite the tie, Senator Ron Wyden, Democrat-Oregon, who also authored the bill, said he would exercise his powers as the committee chairman under special US Senate rules to move the legislation to the chamber floor agenda.

During a lengthy debate, Republicans expressed qualified support for technology-neutral tax credits as a good concept for ending inequity in government support for clean energy technologies. However, they demanded federal aid be curtailed for more mature renewable technologies, such as wind and solar, saying they no longer needed the help. They also said scrapping tax breaks for fossil fuel production would cost thousands of jobs.

Partisan battling

There also was partisan battling over Wyden's plan to expand tax credits for purchasers of electric vehicles (EVs), with GOP senators contending that would largely benefit a small number of wealthy Americans who can afford still-pricey EVs. However, Democratic and GOP members unanimously agreed to ban automakers based in China from qualifying for federal EV subsidies.

Overall, Wyden's legislation would overhaul the US energy tax credit system by consolidating more than 40 current ad hoc tax credits into three technology-neutral categories: clean electricity, clean transportation, and energy efficiency. Supporters of the plan said this would provide huge encouragement for zero-emission power generation, energy storage, transmission lines, EVs, and energy efficiency.

The Senate bill is seen as a potential legislative vehicle for President Joe Biden's infrastructure proposal, which includes multiple proposals to increase tax credits for low-carbon energy technologies such as hydrogen, and grid modernization efforts.

The bill combines key elements of three bills -- Securing America's Clean Fuels Infrastructure Act; the Save America's Clean Energy Jobs Act; and the Clean H2 Production Act -- that Senator Thomas Carper, Democrat-Delaware, introduced.

Noting that the US federal tax code does not yet reflect the urgency of combating the existential threat posed by climate change, Carper said in a 27 May statement following the vote, "The energy tax measures added on to the Clean Energy for America Act and passed by the Finance Committee today will cut carbon emissions, create high-paying jobs and help the US lead the world in clean energy innovation."

The White House and senior Republican senators have been negotiating on the infrastructure legislation, with the Biden administration recently offering to meet GOP spending concerns by lowering the cost of his plan to $1.7 trillion from a prior $2.2 trillion.

Counter-offer

GOP senators, led by Shelley Moore Capito of West Virginia, released a $928-billion counter-offer a day after the committee action that would be paid for by repurposing funds in the American Rescue Plan, which Democrats pushed through the US Congress in March without Republican support.

Right at the outset, Capito emphasized that their proposal is "sticking to the core physical infrastructure" because that is "what American people think of when they think of infrastructure, and that is certainly what we do to."

Capito made it clear that the proposal zeroes out EV vouchers: "We don't think there's a place for that."

White House Press Secretary Jen Psaki termed the counter-offer "encouraging" and said Biden looks forward to engaging with Republicans, but expressed concern that "their plan still provides no substantial new funds for critical job-creating needs, such as fixing our veterans' hospitals, building modern rail systems, repairing our transit systems, removing dangerous lead pipes, and powering America's leadership in a job-creating clean energy economy, among other things."

Meanwhile, Wyden's bill still is far less expensive than the White House's pared-down infrastructure proposal, according to analysis by Congress' Joint Committee on Taxation released 26 May. The committee said the bill overall would cut US tax revenue by $215.5 billion between fiscal years 2022 and 2030. Incentives for clean electricity would make up the lion's share of that impact, reducing tax revenue by about $154 billion, while those for clean transportation would cost about $47.1 billion, with EV incentives costing about $21 billion.

The analysis said eliminating fossil fuel tax incentives would boost federal tax revenue by about $24.5 billion through fiscal year 2030.

Wyden said his legislation would address concerns that current clean energy tax credits are arbitrary and unfair.

"These tax breaks have stacked up over the decades like dusty old papers on the messiest desk in the office," he said during the debate. "The system is anti-competitive and anti-innovation."

"It puts the government in the role of picking winners and losers by giving some fuels and technologies big, permanent tax breaks while others have short-term, temporary extensions," he said, adding: "It has survived in this form for one reason only: Congress has long found it easier to pile on so-called 'tax extenders' than clean things up once and for all."

Middle ground?

Significantly, Senator Mike Crapo of Idaho, who is the committee's ranking Republican, said he supports the idea of technology-neutral tax credits. "There at least appears to be consensus that energy tax credits should be market-based," he said.

"Senator Wyden and I agree, and I think there is bipartisan support for modifying energy tax provisions in the code … and there is broad bipartisan support for the concept of a technology-neutral approach for investments in our clean energy sectors. There is also bipartisan agreement that Congress should not continue to pick energy tax winners and losers through the annual tax extenders process," Crapo said.

But Crapo has called for such credits to go to early-stage technologies that need federal aid, with government support phasing out as they garner additional market share.

Republicans also said Wyden's plan to kill subsidies for coal, oil, and natural gas would have devastating economic consequences for fossil fuel-producing states.

"[T]his proposal could result in job losses and negatively impact states for members on both sides of the aisle," Crapo said. "Most, if not all, of the members on my side of the dais cannot support a bill that eliminates all provisions related to fossil fuels and essentially prevents bipartisan technologies, like carbon capture, from qualifying."

In action before the vote on final passage, the committee rejected several amendments from Republicans largely aimed at curbing the expansion of EV credits. However, the panel voted 26-0 to accept an amendment from Senator John Cornyn, Republican-Texas, to bar Chinese-produced EVs from qualifying for tax credits, with Democrats and Republicans agreeing that those companies already receive enough handouts from the Chinese government.

--Original reporting by Ellen Meyers for The Energy Daily, with contribution by Amena Saiyid.

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