May 17, 2012

New legislation proposes slashing 'Big Oil' subsidies to promote renewables

For some solar policy advocates, a recent bill introduced in Congress would appear to represent their dream legislation. After all, its purpose, as summarized simply in its introduction, is "to provide incentives for clean energy and to repeal fossil fuel subsidies for big oil companies."

This bill, called the Investing to Modernize the Production of American Clean Energy and Technology Act of 2012 (IMPACT Act), made an appearance on the U.S. House of Representatives' floor last week, when it was introduced by Reps. Ed Markey, D-Mass.; Henry Waxman, D-Calif.; John Larson, D-Conn.; Earl Blumenauer, D-Ore.; and Bill Pascrell Jr., D-N.J.

However, compared to other energy-policy bills, the IMPACT Act has garnered relatively little attention - even though it would extend the U.S. Department of Treasury's Section 1603 cash-grant program. Revival of this program, which expired at the end of last year, has ranked as a perpetually high priority for many solar groups. (The most recent attempt to extend 1603, via an amendment to the Surface Transportation Bill, failed on the Senate floor in March.)

Why the quiet reception for the IMPACT Act? In Congress' highly polarized climate, even optimistic renewable energy supporters - and, likely, the bill's authors themselves - know that a bill that espouses pulling long-standing fossil fuel subsidies in order to pay for clean energy subsidies is already dead.

"Certainly, something proposed by someone like Markey that would touch oil subsidies doesn't stand a good chance of even getting a hearing," says Salo Zelermyer, an associate in the energy strategies group at law firm Bracewell & Giuliani.

In addition to extending the 1603 program for two years, the bill would also extend the production tax credit for solar and other forms of renewable energy for eight years, and extend the election of the investment tax credit.

The Section 48C program, which allows manufacturers of renewable energy equipment to claim a 30% tax credit, would also receive a boost; its funding would be increased by $5 billion.

These and the other measures introduced, which also include incentives for offshore wind and tax credits for electric vehicles, would all be paid for by the elimination of certain fossil-fuel subsidies.

"The bill closes six different tax loopholes for large international oil companies, including tax breaks related to last-in, first-out accounting methodology, foreign tax credits, deductions for manufacturing, intangible drilling costs, percentage depletion allowance, and tertiary injectants," the bill's sponsors explain in a fact sheet.

"Together, eliminating these tax subsidies for the largest oil companies will save $44.8 billion over 10 years," they continue. "These changes to the tax code were all part of the president’s 2013 Budget Request."

This approach - while politically divisive - is not unprecedented, Zelermyer says. "There have been several attempts to repeal subsidies to pay for various things," he notes. "That's been part of the debate for years."

Enacting major energy legislation, however, appears to be off the table for the time being. Zelermyer pinpoints the next likely chance for serious negotiations on the topic as the next lame-duck session of Congress.

"There are a number of major tax provisions expiring - it's clear that there's going to have to be something done," he says.

Discussion of extending the Section 1603 program, specifically, could take place at that time. Whereas the U.S. Department of Energy's loan-guarantee program has come under significant political and public scrutiny, the 1603 program has enjoyed a comparatively positive image and has "functioned more efficiently," Zelermyer says.

At the same time, he adds, the solar sector must keep in mind that the fate of 1603 or any other renewable energy incentive may depend on the political make-up of the post-election Congress - and executive branch.

Politics also may have played a major role in the IMPACT Act itself. Zelermyer says that the bill's sponsors likely introduced it while fully aware of its slight likelihood of passage. Such pieces of legislation known in Washington as messaging bills.

"Messaging bills are offered to just get the concept out to the media before the election season," he explains. "This is a perfect example of that."


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