Energy-Related Tax Credits and Incentives – What’s Happening in Congress

Congress is paying a lot of attention to renewable energy tax credits lately. With polling suggesting that climate change is among the top issues for voters in 2020, it’s no surprise.

The Clean Energy for America Act

Earlier this month, Senator Ron Wyden of Oregon, along with twenty or so co-sponsors, introduced the Clean Energy for America Act (CEAA). The bill reads like the wish list of every renewable energy advocate in the country. It also calls for the elimination of every fossil fuel related tax break there is (which reads like a list of reasons why you won’t see this bill making it to the Senate floor, let alone becoming a law). Still, this creates a good opportunity to look at the ways in which fossil fuels are subsidized in our tax code – whether before, during, or after extraction. Though I am well-versed in the substance of renewable energy tax credits, I am admittedly ill-informed on the fossil side ─ the tax code’s dirty little secret.

Last week Senator Grassley of Iowa, chair of the Senate Finance Committee, created a series of taskforces to address the issue of repeated expiration and potential renewal of a myriad of temporary tax incentives and credits.  His remarks can be read here. Senator Grassley is a longtime supporter of the Production Tax Credit (PTC), IRS code section 45, and the Investment Tax Credit (ITC), IRS code section 48 for renewable energy properties, recognizing the impact these credits had on driving the growth of the wind and solar industries. Because the PTC is in its final year of a phasedown, wind will be at the mercy of the unsubsidized market starting in 2020.

The Phase-out of PTC and ITC – That’s only fair, right?  

On May 21, the Senate Energy and Natural Resources Committee, chaired by Senator Murkowski, held a hearing on renewable energy and energy efficiency. Senator Murkowski made it clear, and many agree, that the PTC and ITC were extended for the last time at the end of 2015 when they were given a phaseout period. Rather than consensus, the extension was a compromise. The alternative being nothing. Energy storage has never had the benefit of the ITC. A separate push is being made to include it now.

But how is it that the tax incentives for renewable energy have gone on too long, when there are permanent incentives for fossil fuels built into our tax code? They’re not even being discussed by Senator Grassley’s taskforces because they don’t expire.

What Fossil Fuel Credits Would the Clean Energy for America Act Eliminate?

The Clean Energy for America Act would eliminate the following tax incentives, many of which are scarcely discussed by Congress:

(All section references are to the Internal Revenue Code)

• 167(h): amortized deductions for oil and gas exploration activity
• 263(c): deduction for intangible drilling costs (the CEAA would change the deduction from straight-line to a 60-month amortized deduction)
• 613: oil shale (15%), coal (10%), and lignite (10%) depletion allowance
• 613A: oil and gas depletion allowance
• 631: coal disposed of (sold) after holding for at least one year is treated as capital gains
• 43: enhanced oil recovery credit
• 45I: marginal well production credit for oil and gas
• 48A: qualifying advanced coal project credit
• 48B: qualifying gasification project credit
• 954 and 951A: favorable treatment of income from foreign oil and gas sources
• 7704: master limited partnership tax treatment

I want to be clear that I am not advocating the repeal of any of these tax credits. Although every opponent of renewal of the PTC and ITC in the early 2010s said “we don’t pick winners and losers,” we actually do every day through the myriad of fossil fuel tax breaks listed above.

It’s ironically poetic. The tax credits for renewable energy have to be renewed, and the tax credits for finite fossil resources last forever.

We will continue to track the progress of these discussions, taskforces, bills, and other proposals shaping tax policy for energy and storage projects.