Prime Time for Tax Parity

By Bob Cleaves | July 22, 2013

Tax reform, while still a long shot, is gaining momentum on Capitol Hill. In late June, the chairman and ranking member of the Senate Finance Committee, Sen. Max Baucus, D-Mont., and Sen. Orrin Hatch, R-Utah, sent a joint letter to their colleagues in the Senate announcing a new approach to tax expenditures. Instead of the old way of doing things—assuming all incentives were “in” and arguing over which ones to cut—Baucus and Hatch were going to “zero out” the tax code. This approach assumes that all incentives are “out” and requires Senators to present a convincing case for the incentives that are most important.

While there are never any legislative guarantees, this may be a good opportunity for a renewable energy source with a compelling story, such as biomass.

While biomass qualifies for some tax credits, our industry doesn’t come close to the status of the other renewable energy sources. In the case of Section 45 credits, biomass facilities qualify for only half the tax credit rate compared to other renewable energy sources. And because of the long lead time in developing projects, the stop/start nature of extending Section 45 means that the technologies with the shortest development timeline—e.g. wind—benefit more than other technologies. A dramatic illustration of this disparity is the so-called 1603 Treasury grant, where, over the life of the program, biomass received a mere fraction of the funding awarded to other energy sources while supplying a disproportionately larger share of the power.

The lack of funding and ambiguous tax situation makes it harder for us to build new facilities, attract outside investment for construction and, probably the most common challenge, update older or aging facilities with the latest efficient technology. This is a perennial topic that we keep revisiting, partly because the credits we’ve received so far are only temporary. Therefore, this is a battle we continue to fight every two years or so, dedicating valuable resources that could be better allocated elsewhere.

Biomass Power Association provided oral and written input to the Ways and Means Committee Working Group on Energy Tax Reform earlier this spring. We presented four simple suggestions for improving parity among renewable energy sources and giving biomass the credit it deserves.

Our suggestions included:

• Renewable electricity tax incentives should be made permanent.

• The credit rate should be harmonized for all technologies under Section 45.

• Congress should recognize the value of existing biomass facilities by extending their current credit period from five to 10 years.

• The tax code should be modernized to promote the refurbishment of obsolescent facilities and to acknowledge the value of cofiring of biomass with fossil fuels.

As we are all aware, biomass punches above its weight. It’s one of the only sources of renewable energy that, in most cases, pays for its own fuel. Particularly as forest fire season is upon us, the power of biomass is considerable as a forest fire prevention method that can save millions of dollars, as well as lives.

The “zero out” approach being employed by Sens. Baucus and Hatch will certainly inspire the usual mad dash of lobbying, but in the end, it’s our hope that biomass will stand out as an energy source truly deserving of its tax incentives.

Author: Bob Cleaves
President and CEO, Biomass Power Association