Wyden wants ‘performance based’ energy subsidies — defining ‘performance’ is the tricky part 

The top Senate Democrat and Republican in charge of tax issues agreed yesterday they would like to see dozens of temporary tax breaks – including credits for renewable electricity and biofuels – reinstated by the end of the year.

A Finance Committee hearing yesterday on energy tax policy issues served largely as a table-setter for a potential return next year to comprehensive tax reform negotiations, which would affect all sectors of the economy. But Chairman Ron Wyden (D-Ore.) and ranking member Orrin Hatch (R-Utah) briefly touched on their more immediate concern – the “tax extenders” package that has been awaiting action for months. Both said they would like a post-election lame-duck session to be used to pass the bill, which includes about a dozen energy-related tax breaks such as the production tax credit (PTC) among its 50 or so provisions.

“We need to set partisanship and political gamesmanship aside and get the extenders package across the finish line as soon as possible,” Hatch said in his opening remarks.

Beyond that, there was little agreement between the two parties on how to reconcile the 40 or so tax credits, deductions and other incentives applied to oil, natural gas, wind, solar, biofuels and other energy sources.

Finding a way through that thicket of existing temporary and permanent tax incentives will be a key step in any plan to overhaul the tax code, but common ground seems as elusive now as it has been throughout the process.

Wyden, for example, touted his view in favor of a “technology neutral” tax code with government support provided based on the “performance” of different types of energy sources. It’s an approach that dovetails with a proposal floated last year by Wyden’s predecessor, former Sen. Max Baucus (D-Mont.), to replace all existing credits with incentives based on the emissions profile of an electricity or fuel source (Greenwire, Dec. 18, 2013).

Speaking to reporters after the hearing, Wyden said he was optimistic that a technology-neutral, performance-based tax incentive could gain traction – at least in principle – but he acknowledged that much work remained on the particulars.

“What’s striking about it is I have tried that out on people across the political spectrum, and there is some openness to it,” he said. “Obviously, the details about what constitutes performance – there are people who say it will only be this and it will only be that – but I’m encouraged by the reaction.”

Unaddressed during yesterday’s hearing was a possibility Wyden has refused to even consider in previous discussions with reporters – that Republicans will take control of the Senate in this year’s election. That would dramatically shift the landscape, although bipartisan agreement would still be needed for any tax reform bill to secure the 60 votes it would need in the Senate and avoid a veto from President Obama.

Hatch offered a vision that prioritized producing more oil and gas in the United States and keeping costs down for consumers. Regarding Baucus’ draft, Hatch said, “by picking carbon emissions as the standard for judging whether a technology would get federal dollars or not, the proposal is biased against fossil fuels such as coal, oil and gas.”

Those divergent views illustrate in part the massive, persistent divide between the two parties over whether climate change is something that needs to be addressed at all by the federal government.

To that end, Wyden and some of the witnesses argued that it is important to support emerging technologies, such as wind and solar, because the global energy market is in the midst of a shift toward cleaner sources that won’t stop regardless of what the United States does. In that view, supporting clean energy isn’t so much about saving the planet as it is about making sure U.S. companies continue to thrive against their global competitors. He also noted that a technology-neutral, performance-based standard could benefit natural gas, as well as renewable energy.

“In order to lead, our challenge is to guarantee that outdated energy policies aren’t pulling America back into the pack,” Wyden said. “And on our watch, leading the pack on energy – and striving for American energy exceptionalism – means leading the pack on tax reform.”

Uncle Sam writing checks?

While finding common ground on a finished tax bill will be difficult enough, senators and witnesses yesterday could hardly even agree on a starting point. Much of yesterday’s hearing featured extensive disagreement over what should be considered a “subsidy,” when it comes to energy tax breaks and who constitutes a deserving recipient.

The debate proceeded largely as it has over the last several years in which these issues have been debated. Fossil fuel proponents say tax credits like the PTC are government giveaways to mature industries, and should be eliminated, while the incentives enjoyed by oil and gas companies, such as the intangible drilling costs deduction, are standard business deductions that must be maintained. Renewable energy backers took the opposite view.

Former Sen. Don Nickles – a Republican who once represented the people of Oklahoma from an office in the Hart Building and now advocates for the interests of Koch Industries, Exxon Mobil Corp. and a variety of other oil companies from an office downtown – seemed to coin a new talking point.

“Uncle Sam is writing a check to enormous investors, some of which are billionaires” to develop wind farms, Nickles said of the PTC. “That is so much different than allowing somebody to deduct their out-of-pocket expenses in the year they were made.”

Nickles repeated some variation of the “Uncle Sam writing a check” line every chance he got during the hearing.

Sen. Debbie Stabenow (D-Mich.), a leading biofuels and renewable energy supporter, said oil companies have received some form of support from the federal government for decades, worth $166 billion over the last 30 years.

“We picked the winner, and they won,” Stabenow said.

Bloomberg New Energy Finance analyst Ethan Zindler said the PTC and IDC and other energy incentives are “all subsidies” in that they reduce the amount of money the government otherwise would receive.

“By the way, the government doesn’t write you a check; it simply expects you to pay less taxes,” he said, referring to Nickles’ talking point.

The American Wind Energy Association also took issue with Nickles’ characterization.

“Tax credits like the PTC involve no payments from the government; rather, they reduce the tax burden on private entities based on the performance-based metric of energy production, the elimination of which is typically defined as a ‘tax increase’ by most Republicans,” said AWEA’s vice president for public affairs, Peter Kelley, in an email.

Wyden said one of the potential benefits of his approach is that it would leave behind the old debate over how to classify a subsidy, even as he acknowledged that the scorekeepers at the Joint Committee on Taxation tend to view both tax credits and deductions similarly.

“That’s to me one of the … aspects that is attractive about moving to a tech-neutral standard – you have an opportunity to move away from that,” he said. “You know, the reality is JCT scores all of these, when you have an actual expenditure.”