15 June 2016 Senate Finance Committee examines energy tax incentives in the context of tax reform The Senate Finance Committee held a brief hearing today on June 14, 2016, to explore how the tax code affects the energy industry and what policies have the most merit as the Congress looks forward to tax reform. Chairman Orrin Hatch (R-UT) used his opening statement to criticize the Administration's energy policies — citing, among other things, the "war on coal," the Keystone XL pipeline decision and the $10-per-barrel fee on petroleum proposed in the President's FY 2017 budget — all of which he argued would punish the production and use of fossil fuels and raise energy costs for taxpayers. Hatch asserted that "in addition to increasing costs, particularly on middle class and lower income earners, the President's energy tax policy also seems hyper-focused on picking winners and losers and in handing over taxpayer resources to unproven ideas and technologies that, far too often, are completely unable to compete in the energy marketplace." He noted that he is conducting an investigation of the 1603 Treasury grant program and energy tax credits "based on evidence from the Treasury Inspector General for Tax Administration and elsewhere that suggests possible misuse." In his opening statement, Ranking Democrat Ron Wyden (D-OR) asserted that it is time to take the "mish-mash of energy provisions in the tax code and throw them in the trash can." He called for replacing what he termed "a byzantine web of 44 special interest provisions" with the technology-neutral approach that he and 30 of his Democratic colleagues have introduced that provides three incentives built around simple, clear goals — cleaner energy, cleaner transportation, and energy efficiency. He also noted that "the price-tag of today's system — $125 billion every decade — will be cut in half" by the technology neutral plan and it would eliminate "unfair market distortions" and provide for greater certainty. Dr. Benjamin Zycher, American Enterprise Institute, Washington, D.C. Dr. Zycher, is an economist with AEI who has previously testified before the Finance Committee in opposition to providing tax incentives for renewable energy. His testimony was focused on presenting the case that the traditional rationales given for promoting renewables — which he listed as energy "independence," support for infant industries, leveling the subsidy playing field, adverse external effects of conventional generation, resource depletion/sustainability, employment expansion through the creation of "green jobs," or ·mitigating the "social cost of carbon" — all suffer from fundamental analytical weaknesses. Zycher asserted that in considering tax incentives for renewable energy, policymakers should adopt the operating assumption that "resource allocation in energy sectors driven by market prices is roughly efficient in the absence of two compelling conditions: (1) it must be shown that some set of factors has distorted allocational outcomes to a degree that is substantial and (2): it must be shown that government actions with high confidence will yield net improvements in aggregate economic outcomes." Mr. Steve Miller, CEO, Bulk Handling Systems, Eugene, OR. Mr. Miller, the CEO of a company located in Wyden's home state of Oregon, focused his testimony on the work his company is doing to produce renewable energy and compost from the solid waste stream and described the opportunities that changes in tax policy will create for recycling efforts. Bulk Handling Systems (BHS) uses an anaerobic digestion process to create baseload renewable fuel and/or electricity from the large percentage of food waste and other organic materials in the waste stream that would otherwise decompose for years in a landfill, leaking methane and carbon dioxide into the atmosphere. BHS has successfully built projects that produce electricity and compressed natural gas (CNG) that is used to provide fuel for waste truck fleets as a replacement for diesel. He noted that while the PTC and ITC for wind and solar received long-term extensions, biogas credits were extended to only the end of 2016 for the biomass industry and only applied to the renewable energy portion of the project. To make the credit useful, Miller argued that it needs to include all necessary elements of the renewable energy system. "As such, we would ask you to consider the following: — Extend the PTC for biogas technologies for five years with no phase out Ms. Susan Kennedy, CEO, Advanced Microgrid Solutions, San Francisco, CA. Ms. Kennedy's company (AMS) finances, designs, installs, and manages advanced energy storage systems for businesses, utilities and government entities. Her testimony focused on the fact that the nation's electricity transmission grids need massive infrastructure improvements and are failing to keep pace with the changes in the nation's electricity markets. Part of the solution that her company is trying to address is energy storage. She noted that energy storage is a $528 million industry, and it is expanding at a rapid pace, but indicated that the storage market still faces significant barriers to widespread deployment. "The costs of battery systems are dropping, but are still too prohibitive to make economic sense in most parts of the nation. Improved federal incentives are necessary to make energy storage more attractive to consumers and more affordable for investors, supporting the technological development that we need for scaled deployment of energy storage." Kennedy argued that "providing targeted and efficient incentives for truly innovative, source neutral technologies like energy storage will spur competition and attract the private investment we need to build a more resilient and efficient grid, help control electricity usage and costs, and move towards energy security and independence." The Honorable Karen Alderman Harbert, President and CEO, Institute for 21st Century Energy, United States Chamber of Commerce, Washington, D.C. Harbert's testimony presented the views of the U.S. Chamber of Commerce on energy tax policy. Among other things, she lauded the permanent extension of the research and development tax credit in last year's extenders legislation. If Congress tackles energy tax policy within the context of comprehensive tax reform, Harbert said that tax incentives should be "results oriented and not proscriptive, should be technology neutral and focused on the underlying desired result." Moreover, she argued that "taxing one industry in an effort to support another is a recipe for higher prices, less economic growth, and diminished energy security. The U.S. greatly relies on energy diversity and attempting to tax one or more forms out of existence puts the county on a path to a much less secure energy future." Harbert spent a great deal of her testimony arguing that the Section 45 Production Tax Credit (PTC) for wind is having negative unintended consequences, particularly for the nuclear industry. She said that while wind capacity has been growing rapidly because of the PTC and other incentives, U.S. electricity demand has been stagnating owing to the recent recession. "In many electricity markets additional wind generation often creates gluts of electrons. Since the electricity grid must precisely balance supply with demand, it cannot accept more electricity than what is being used. When supply outstrips demand, prices actually go "negative," that is, the grid operator requires an electricity generator to pay it to take additional electrons, creating severe market dislocations." She argued that this specifically hurts nuclear. "When prices go negative, nuclear generators have little choice but to pay the grid to take their generation because shutting down the reactor is a very complicated undertaking that could result in it going offline for several days to several weeks, something no nuclear facility can afford. Even when prices are not negative, the PTC-induced wind generation is glutting many power markets, depressing wholesale power rates. While these lower wholesale rates rarely result in lower retail rates paid by end-users, they are artificially distorting some power markets and Regional Transmission Organizations (RTO) making a significant number of nuclear reactors much less competitive. According to the Nuclear Energy Institute, eight reactors have either closed or are scheduled to close, and up to 17 are vulnerable to premature closure." Chairman Hatch began his questions by asking Dr. Zycher to expound on the thoughts he presented in his testimony that energy policy should not be run through the tax code. Zycher responded that the government makes efforts to change resource allocation that would otherwise emerge through market competition. He argued that the purpose of the tax code is to raise revenue in a way that should minimize market distortions. Subsidizing renewable energy results in distortions in the private sector that minimize efficiency. Zycher said that one way to approach thinking about tax reform would be to use it as an opportunity to gradually eliminate or substantially reduce the use of tax policy to affect energy markets because all of the traditional rationalizations for meddling in energy policy through the tax code have no merit. Wyden used his time to ask Mr. Miller and Ms. Kennedy, who Wyden noted "actually run companies," whether something like the tech neutral plan he proposed — cosponsored by 30 Senators — would be better for them than the current "hodgepodge?" Miller answered "Yes, and the primary benefit would be certainty of the credit. If we know that credits are going to be there and we can rely upon them, we can fund them." Kennedy also indicated that it would be very beneficial to have a technology neutral policy that benefits all energy types across the board and attracts investment. Senator Charles Grassley (R-IA), the author of the wind PTC, clearly was not happy with Ms. Harbert's attack on the wind credit. He noted that many nuclear plants were closing in markets where wind energy was not a major factor and that nuclear energy also enjoyed hundreds of millions in government support through a liability cap and years of research and development funding. He asked her whether she viewed the Price-Anderson liability limits for nuclear power plants a subsidy, implying that the nuclear industry received federal support through the Price-Anderson Act far in excess of subsidies provided to the wind industry. Ms. Harbert responded that she was not intending to single out wind, but to provide an illustration of how well intended policy can have unintended consequences. Senator Robert Menendez (D-NJ) began his questioning by asserting that "Big Oil" received a $500 billion fiscal stimulus last year as a result of the lifting of the crude oil export ban and noted that despite the downturn in oil prices, the petroleum industry is still making huge profits. He argued for the enactment of his bill to "Close Big Oil Tax Loopholes." Menendez also made a strong push for extending the 13 clean energy tax provisions that are due to expire at year's end. He directed his questions to Ms. Harbert, noting that while the Chamber's statement was comprehensive in extolling the benefits of fossil fuels, it contained nothing about the costs — the economic and safety risks of transporting oil by train, the health care costs, or the threat to the climate. He asked her whether the U.S. Chamber agrees that the threat of climate change is real and that human activity is contributing to it. She indicated that the Chamber did agree with both of those points, but that it did not necessarily agree with the environmental movement about the solutions. The hearing concluded immediately thereafter as a result of votes on the Senate floor.
Document ID: 2016-1039 | |||||
