On May 26, 2021, the Biden Administration released its Fiscal Year (FY) 2022 federal budget, which includes proposals to reform how the tax system treats energy investment and usage to shift the focus to green energy and environmentally conscious initiatives from other fuels and programs.

The President's Budget is not the first major proposal focusing on these provisions. In early April, Senate Finance Committee Chair Ron Wyden introduced the Clean Energy for America Act (S.1288) and recently passed a modified version out of committee. Last summer, the House of Representatives passed the Moving Forward Act (H.R. 2), which contained similar changes to energy preferences.

Comparing tax cuts

The President's FY2022 Budget includes $363 billion of tax incentives for green energy investments and projects over the next 10 years as part of the Administration's American Jobs Plan. It would also remove more than $30 billion in tax incentives for the fossil fuel industry during the same time frame. Compared to other proposals, the Administration's Budget provides over $43 billion more in net tax cuts than the Clean Energy for America Act and over $150 billion more in net tax cuts than the Moving Forward Act that passed the House of Representatives last year.

Table 1. Comparisons of green energy legislation revenue estimates ($ millions)

Note: 10-year revenue estimates for the Biden Administration's American Jobs Plan and S. 1288 — The Clean Energy for America Act are for 2022-31 and estimates for H.R. 2 — The Moving Forward Act are for 2020-30

Source: Revenue Estimates of the Administration's Fiscal Year 2022 Revenue Proposals (treasury.gov); Estimates from the Joint Committee of Taxation - JCX-29-21 and JCX-18-20; EY analysis.

A significant portion of the tax cuts in the Administration's Budget goes to clean energy generation as credits and deductions. It contains almost $283 billion of these incentives between fiscal years 2022 and 2031. That is $89 billion more than what the Clean Energy for America Act provides, and more than triple the $88 billion in the Moving Forward Act.

For alternative fuels, the Budget provides a little more than the Moving Forward Act and significantly less than the Clean Energy for America Act. The Budget contains less than $11 billion in tax cuts for alternative fuel. The Moving Forward Act included more than $8 billion in similar incentives. The Clean Energy for America Act eclipsed both with more than $27 billion in tax preferences for alternative fuels.

Each includes significant revenue for incentives to invest, purchase or construct electric vehicles (EVs)/zero-emission vehicles (ZEVs) and related infrastructure. The Budget provides almost $25 billion in EV/ZEV tax credits or deductions, approximately $14 billion more than the Move Forward Act. Both proposals include fewer incentives than the Clean Energy for America Act, which contained almost $37 billion over 10 years.

With just under $39 billion in tax cuts, the Administration's Budget only proposes just $1 billion more in energy-efficient construction or other property-related incentives than the Moving Forward Act. The Clean Energy for America Act has approximately $16 billion in fewer real estate tax credits and deductions than the other proposals. All three proposals contain similar levels of incentives for various other activities, such as sustainable manufacturing or carbon capture technology, that do not fit into neat buckets.

Tax increases

The only net tax increases in the proposals would affect the oil and gas industry. The Administration's Budget would raise more than $60 billion over the 10-year budget window with the elimination of fossil fuel tax credits and deductions. A significant portion of the revenue comes from reinstating Superfund excise taxes. The Clean Energy for America Act would remove similar tax incentives but does not include Superfund excise taxes. Hence, it only has a net increase of approximately $24 billion. The Moving Forward Act did not include any of these tax increases.

Implications

Climate policy continues to be a focus of attention in public debate by the Congress and the Biden Administration. As proposals evolve and more legislators develop or sign onto plans that may involve changes to energy tax incentives, businesses need to pay attention and determine what such policies would mean for their industries, companies, competitors and consumers. They should be aware of whether a proposal grants particular industries or mitigation technologies assistance, free allowances or exemptions.

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