James Montgomery, Associate Editor, RenewableEnergyWorld.com
December 19, 2013 | 10 Comments
New Hampshire, USA -- For those clamoring for (and against) the year-end-expiring legislation, and anyone in favor of some tax-code simplification, today the government has offered an early holiday present: proposed reform for some key areas including the production tax credit (PTC) and investment tax credit (ITC).
"Our current set of energy tax incentives is overly complex and picks winners and losers with no clear policy rationale," wrote Sen. Max Baucus (D-Mont.), chairman of the Senate Finance Committee. "We need a system of energy incentives that is more predictable, rational, and technology-neutral to increase our energy security and ensure a clean and healthy environment for future generations."
The new discussion draft (here's the short version and a longer version) proposes to swap out the "existing patchwork" of energy tax incentives with two new tax credits: one for electricity and one for transportation fuels, and both of them technology-neutral and performance-based. For the electricity one, the amount of credit would be based on "the cleanliness of the generating technology," defined as greenhouse gas emissions of a facility vs. its output. Recipients could choose to receive it as an annual production tax credit or an investment tax credit claimed upon facility operation. That single overreaching tax credit would expire once the "cleanliness" of the nation's electricity supply "increases significantly."
This single "clean electricity tax credit" would involve the following criteria:
The choice about consolidating tax credits, extending some and eliminating others comes down to a desire to support "areas that appear to have the largest bang-for-the-buck in reducing air pollution and enhancing energy security," while seeking to avoid "overlapping regulations and spending programs, compliance costs, and the potential for fraud or abuse," according to the proposal.
The Senate Finance Committee proposes that both the production tax credit (PTC, Section 45) and the investment tax credit (ITC, section 48), as well as the Section 25D credit for residential renewable energy use, would be extended through 2016. For fuels, three tax credits would also be extended through 2016: Section 40, 40A, and 6426 credits for transportation-grade, renewable, and alternative fuels. (A previous Baucus discussion draft in November proposed repealing an accelerated depreciation credit for renewables and two fuel production tax incentives, generally seen as a blow to renewable energy development.) Eleven other energy-related tax incentives will be repealed or allowed to expire, including the 2009-era manufacturing tax credit and several others for energy efficiency, hybrid and electric vehicles.
Comments are now being accepted by the Senate Finance Committee, which asks to receive them up to January 31, 2014. The committee even lists what it says it expects and would mull over: an alternative tax credit structure to "discourage energy production that is not clean," whether through a subsidy for clean technologies or a tax or fee on more polluting ones; making the new credits available to facilities that come online before 2016; and qualifying a facility if upgraded to reduce its emissions including carbon-capture retrofits.