Senate Finance Committee holds hearing on energy tax incentives

The U.S. Senate is once again addressing energy tax incentives. On Sept. 17, the Senate Committee on Finance held a hearing, titled “Reforming America’s Outdated Energy Tax Code,” to discuss possible paths forward to reform U.S. energy tax code.

Sen. Ron Wyden, D-Ore., opened the hearing with a statement on America’s role in the role in the global clean energy future. “Around the world, countries driven by tough global competition, dramatic demographic shifts, climate change, and an investment boom in clean tech are ripping up the 20th century energy playbook and laying out new paths forward. The United States – with a penchant for innovation and entrepreneurship – can lead the way,” he said. “In order to lead, our challenge is to guarantee that outdated energy policies aren’t pulling America back into the pack. And on our watch, leading the pack on energy – and striving for American energy exceptionalism – means leading the pack on tax reform.”

Wyden said that a new energy tax code must take the costs and benefits of energy sources into account, including considerations that aren’t always figured into that equation today, such as energy efficiency, affordability, pollution and sustainability. He also said he believes it is past time to replace today’s crazy quilt of more than 40 energy tax incentives with a modern, technology-neutral approach. “Let’s clear the hurdles that slow down America’s energy innovators and let’s introduce a new level of competition and fairness into the marketplace,” he said.

Wyden also stressed that the disparity in how the tax code treats energy sources, and the uncertainty it causes, must end. “Traditional sources benefit from tax incentives that are permanently baked into law. But clean energy sources are stuck with stop-and-go incentives that have to be renewed every few years,” he continued. “Congress has developed a familiar pattern of passing temporary extensions of those incentives, shaking hands, and heading home. But short-term extensions cannot put renewables on the same footing as the other energy sources in America’s competitive marketplace.”

“Clean energy projects take time to plan and finance,” Wyden said. “The facilities and machinery take years to get up and running – especially in sources like hydropower, geothermal, and biomass. Predictable, level-playing-field tax policies could clear the way for America’s clean energy sector to thrive at home and outmatch global competitors hungrily eyeing the multi-trillion dollar market for energy goods and services.”

In his statement, Wyden also said that better tax policy alone will not solve America’s energy needs. “Energy tax reform must be part of an overall strategy that moves the country toward a clean energy future. That cohesive, overall strategy for American energy is what’s lacking today,” he said. “That has to change.”

Sen. Orrin Hatch, R-Utah, also delivered a statement to open in the hearing. While he indicated he is in support of an all-of-the-above energy approach, he criticized the Obama Administration for its treatment of fossil fuels and for its support of cap-and-trade programs and carbon taxes.

Hatch also criticized former Finance Committee Chairman Max Baucus’s tax proposal, which was released in December, for picking carbon emissions as the standard for judging whether a technology would be eligible for federal incentives, calling the proposal biased against fossil fuels. Hatch, however, did stress the importance that Congress make it a priority to pass a tax extenders package as soon as possible.

Brooke Coleman, executive director of the Advanced Ethanol Council, issued a statement weighing in on the hearing. “The advanced and cellulosic biofuels industry commends Chairman Wyden for restarting the conversation about energy tax reform,” he said. “The title of the hearing is right. While it may have been prudent decades ago to dedicate federal energy tax policy to derisking fossil fuel investments, it no longer makes sense from either an economic or environmental perspective to put all our eggs in one basket.”

“Investors are highly sensitive to protections offered by tax law, and today’s energy tax regime drives investment away from viable petroleum alternatives like cellulosic biofuels because oil tax breaks are richer and permanent,” Coleman continued. “The short term fix is extending recently expired and existing tax incentives for clean energy this year, to buttress against those offered to fossil fuels permanently. But any broader discussion about America emerging as the leading energy innovator in the world starts and ends with the federal tax code. It simply won’t happen without serious energy tax reform.”