Senate Finance Committee Chairman Max Baucus, D-Mont., has proposed a sweeping set of reforms on energy-related tax incentives that would overhaul energy tax breaks offered by the government and consolidate or extend many of the provisions promoting renewable energy that are currently only temporary.
Notably, the plan ensures that all energy tax incentives would be technology-neutral and provide an equal credit to all U.S.-produced resources or technologies based on carbon emission levels.
‘Our current energy incentives are overly complex and far less effective than they could be,’ writes Baucus. ‘Today, there are 42 different energy tax incentives. More than half are too short-term to effectively stimulate investments. They also provide different subsidies to different technologies with no discernible policy rationale. On top of that, they result in significant revenue loss: If we continue to extend current incentives, they will cost nearly $150 billion over 10 years.’
The most significant ramification for the solar sector is the proposed reduction of the investment tax credit (ITC) from its current 30% to 20%. This aspect drew immediate fire from the Solar Energy Industries Association (SEIA). Rhone Resch, SEIA president and CEO, released the following statement:
"While we appreciate efforts by Chairman Baucus to make the convoluted U.S. tax code simpler and fairer for everyone, we're very concerned that reducing the solar [ITC] and dramatically altering the way companies depreciate their assets could jeopardize future clean energy development in the United States. At a time when we're searching for creative ways to reduce carbon emissions, fight climate change and improve U.S. competitiveness, the continued development of a strong, viable solar industry in the U.S. is critically important."
Notably, the plan did not address expanding master limited partnerships to renewable energy, nor did it address depreciation. However, in November, the committee addressed the issue.
When reached for comment, industry watchers gave the finance committee high marks for its ingenuity.
‘The proposal is innovative in that it's technology neutral,’ explains David Burton, a partner at law firm Akin Gump Strauss Hauer & Feld. ‘It is the most thoughtful that Congress has been with energy,’ he says, adding that the plan's streamlined approach could be used as a future model when – or if – tax reform talks progress.
‘Although the proposals set forth in the plan are a good way to approach energy,’ Burton says, ‘I don't see tax reform happening.’
John Marciano, a partner at law firm Chadbourne & Parke, agrees. ‘[The proposal] probably has legs," he says." It represents a good starting point for discussions.’ Nonetheless, he cautions that he doesn't expect further action on tax reform to heat up before the 2014 elections.
Akin Gump's Burton calls Baucus' rumored departure from chairing the Senate Finance Committee (to become U.S. Ambassador to China) ‘a setback’ that would ensure the status quo remains in place.