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Senate Democrats Unveil US Energy Sector Tax Reforms

by Mike Godfrey, Tax-News.com, Washington

23 September 2015


On September 22, Senate Democrats unveiled the American Energy Innovation Act, which aims to reduce greenhouse gas emissions in the United States by at least two percent each year until 2025, by overhauling the current tax breaks subsidizing energy production.

As a transitional measure, the proposed bill would extend until December 31, 2017, the existing wind and solar "clean energy" tax provisions, including the current production tax credit and investment tax credit, which are presently included in the "tax extenders" package.

However, all present incentives for the production of clean energy would, from January 1, 2018, be replaced by "a performance-based incentive that would be neutral and flexible between clean electricity technologies, … [and] scaled based on the carbon emissions of the electricity generated." The new tax credit would be available for ten years after a facility is placed in service.

The bill would also create a similar ten-year technology-neutral tax credit for the US production of renewable transportation fuels, the level of which would depend on each fuel's carbon emissions.

The existing tax incentives for oil and gas extraction and refining companies would be eliminated, including the section 199 domestic manufacturing deduction, expensing for intangible drilling costs, the use of percentage over cost depletion for oil and gas wells, and the deduction for the use of tertiary injectants for enhanced oil recovery.

In addition, under current law, crude oil is subject to an eight cent per barrel excise tax, which is used to fund the Oil Spill Liability Trust Fund. The bill would expand the definition of crude oil to include oil derived from tar sands, so that the latter would also be subject to the excise tax.

"By tackling energy efficiency in sectors ranging from trucks and buildings to the electric grid, we are targeting our best opportunities for job growth, consumer savings, and carbon dioxide reductions," said Senate Committee on Energy and Natural Resources Ranking Member Maria Cantwell (D – Washington), who introduced the bill.

Ranking Member of the Senate Finance Committee Ron Wyden (D – Oregon) added that "the tax code plays an enormous role in energy policy, but the current system is a crazy quilt of laws that suffocates innovation. This bill is built around the proposition that the law ought to reward clean energy with incentives that spark innovation in the private economy."

The proposals are, however, unlikely to proceed in the US Congress against Republican opposition, but they are seen as representing Democrat ideas for the future of the energy sector's tax code, both within proposals for comprehensive tax reform and also during the 2016 presidential election campaign.

TAGS: environment | Energy | tax | tax incentives | energy | law | oil and gas | tax credits | manufacturing | legislation | United States | tax breaks | tax reform

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