One of the handful of new proposals in President Obama's FY 2017 Budget released February 9, his eighth and final annual policy blueprint, is a 21st Century Clean Transportation Plan that combines a new oil fee alongside revenue from business tax reform to make investments in areas such as mass transit systems and accelerating the safe integration of autonomous vehicles, low-carbon technologies, and intelligent transportation systems. The Administration also calls for permanency of some renewable energy provisions and re-proposes repeal of fossil fuel preferences.

The clean transportation plan is the most far-reaching and controversial energy and infrastructure policy component of the FY 2017 Budget, funded in part by a new $10.25 per barrel fee on oil. In combination with current law baseline resources, nearly $900 billion would be invested in surface transportation over 10 years, according to the Administration.

Describing the 2015 FAST Act's five-year reauthorization of surface transportation programs as providing "only a modest increase in infrastructure funding," the Administration seeks an average of $20 billion per year in additional transportation investments. Key components of the Plan include: $10 billion annually allocated to new and existing transit programs; $7 billion annually dedicated to high-speed rail; over $2 billion annually to promote cleaner vehicles; and, $1 billion annually provided for multi-modal freight programs.

The FY 2017 budget also requests that Congress create the Transportation Trust Fund, a successor to the Highway Trust Fund (HTF), which would be broadened in scope. The Plan would allocate oil fee revenues to restore the long-term solvency of the trust fund. The HTF is funded by fuels taxes which have not been increased since 1993 and Congress resorted once again to temporary patches in the FAST Act. In addition, 15% of the oil fee revenues would be used to provide assistance to low-income families to cope with energy costs.

The most politically-charged aspect of the Plan is the $10.25 per barrel equivalent of crude oil fee that would be imposed to produce revenue to offset the infrastructure spending package. The fee would be collected on domestically produced as well as imported petroleum products. However, exported petroleum products would not be subject to the fee and home heating oil would be temporarily exempted. The fee would be phased in evenly over a five-year period beginning October 1, 2016 and would also be adjusted for inflation.

The $10.25 per barrel oil fee proposal in the wake of the recent enactment of the FAST Act make it highly improbable that the Congress in 2016 will approve any comprehensive version of the President's 21st Century Clean Transportation Plan.

To implement the "Mission Innovation" commitment that the president made with other world leaders at the 2015 Paris climate negotiations, the Administration is seeking to double the US investment in clean energy research and development from $6.4 billion in FY 2016 to $12.8 billion in FY 2021.

The FY 2017 request is for $7.7 billion in funding for clean energy R&D across 12 agencies, reflecting a 20% increase above the FY 2016 enacted level of $6.4 billion. An additional $1.3 billion in funding sought for deployment support raises the total FY 2017 request to $9 billion for clean energy technology programs.

Approximately 76% of the Mission Innovation-related funding request is dedicated to Department of Energy (DOE) research and development programs including: basic clean energy research ($1.8 billion); sustainable transportation technologies ($880 million); nuclear energy technologies ($804 million); carbon capture ($564 million); renewable energy ($500 million); and, grid modernization ($177 million).

Also included within the Mission Innovation DOE funding is $350 million in funding for the Advanced Research Projects Agency-Energy ("ARPA-E") which serves as a catalyst for applied clean energy research and development.

Energy Tax Proposals

The Administration's budget proposes to make the section 45 renewable electricity production tax credit (PTC) both permanent and refundable, effective for projects that begin construction after December 31, 2016. In addition, the PTC would be made available to electricity produced from solar facilities. The proposal would relax the current law restriction on the credit to electricity sold to unrelated third parties, by providing that the PTC would also be made available to electricity consumed directly by the producer, but only to the extent that its production can be independently verified. The proposal would also make permanent the election to claim the section 48 investment tax credit lieu of the PTC for qualified facilities eligible for the PTC.

The section 48 investment tax credit (ITC) would also be made permanent — but would not be made refundable. Solar facilities that qualify for the section 48 ITC also would be eligible for the PTC for construction beginning after December 31, 2016. The proposal would allow individuals who install solar electric or solar hot water property on a dwelling unit to claim the PTC in lieu of the section 25D ITC through the end of 2021. Beginning on January 1, 2022, individuals who install solar property on a dwelling unit would be able to claim only the production tax credit.

On the transportation fuel side, the budget proposes to extend the $1.01 per gallon second generation biofuel producer credit through Dec. 31, 2022, after which the credit would be phased out by 20.2 cents per gallon in each subsequent year, so that the credit would expire after Dec. 31, 2026.

The budget calls for providing an additional $2.5 billion for the section 48C tax credit for advanced energy manufacturing projects (i.e., projects that re-equip, expand, or establish a manufacturing facility for the production of: (1) property designed to produce energy from renewable resources; (2) fuel cells, microturbines, or an energy storage system for use with electric or hybrid-electric vehicles; (3) electric grids to support the transmission, including storage, of intermittent sources of renewable energy; (4) property designed to capture and sequester carbon dioxide emissions; (5) property designed to refine or blend renewable fuels or to produce energy conservation technologies; (6) electric drive motor vehicles that qualify for tax credits or components designed for use with such vehicles; and (7) other advanced energy property designed to reduce greenhouse gas emissions). Up to $200 million of these credits may be allocated to the construction of infrastructure that contributes to networks of refueling stations that serve alternative fuel vehicles. Applications for the additional credits would be made during the two-year period beginning on the date on which the additional authorization is enacted.

The budget also includes the proposal introduced last year to expand the existing carbon dioxide capture and sequestration credit. The budget would authorize $2 billion to be allocated to a new 30% refundable ITC available to new and retrofitted electric generating units which meet certain requirements, and for the installed cost of eligible property used to transport and sequester carbon dioxide, among other things. In determining awards of the ITC, Treasury would consider (i) the credit per ton of net sequestration capability and (ii) the expected contribution of the technology and the type of plant to which that technology is applied to the long-run economic viability of carbon sequestration from fossil fuel combustion.

The proposal would also provide for a new refundable sequestration tax credit for qualified investments at a rate of (1) $50 per metric ton of CO2 permanently sequestered and not beneficially reused (e.g., in an enhanced oil recovery operation) and (2) $10 per metric ton for CO2 that is permanently sequestered and beneficially reused. The credit would be indexed for inflation and would be allowed for a maximum of 20 years of production.

Other energy-related tax proposals, recycled from previous budgets, include:

— Tax credit for the production of advanced technology vehicles

— Tax credit for medium- and heavy-duty alternative fuel commercial vehicles

— Modification and expansion of the tax credit for the construction of energy efficient new homes

As in prior years, the Administration proposes yet again to eliminate all fossil fuel tax preferences effective after December 31, 2016 (except as otherwise noted), including, among others:

— Enhanced oil recovery credit

— Credit for oil and natural gas produced from marginal wells

— Expensing of intangible drilling costs

— Deduction of costs paid or incurred for any tertiary injectant used as part of tertiary recovery method

— Exception to passive loss limitations provided to working interests in oil and natural gas properties

— Use of percentage depletion with respect to oil and natural gas wells and hard minerals

— Use of the domestic manufacturing deduction

— 2-year amortization of independent producers' geological and geophysical expenditures

— Expensing of mining exploration and development costs

— Use of the domestic manufacturing deduction against income derived from the production of coal and other hard mineral fossil fuels

— Exemption from the corporate income tax for fossil fuel publicly traded partnerships, effective after December 31, 2021.

As previously noted, the budget also would repeal the LIFO method of inventory accounting effective for the first taxable year beginning after December 31, 2016.