House lawmakers at odds over energy incentives

Source: Geof Koss, E&E News reporter • Posted: Thursday, March 30, 2017

As Congress readies to dig into the thorny complexities of tax reform, a House hearing yesterday highlighted the wide political gulf over what role the tax code should play in U.S. energy policy.

Backed by like-minded witnesses, Republicans and Democrats staked out familiar positions on the merits of an assortment of federal tax credits.

GOP members of the Energy and Commerce Subcommittee on Energy emphasized a preference for free-market forces driving competition, while Democrats highlighted the shortcomings inherent in current U.S. energy markets, where the costs of carbon pollution are largely externalized.

At the outset, Subcommittee Chairman Fred Upton (R-Mich.) acknowledged that “specialized energy tax treatments” have been a major factor in lowering the prices of renewables and other energy technologies that face challenging economics.

“However, given the lasting market and price distorting impacts that these policies place on effective price formation and bidding in competitive markets, some are questioning whether yesterday’s justifications for energy tax policies remain appropriate for today,” he said.

“Today’s markets are evolving to respond to new trends in energy production, electricity generation, technological innovation and state policies, which are all having an impact on the proper functioning of the interstate wholesale electricity system.”

Testifying on behalf of the Institute for Energy Research, a free-market think tank, Robert Murphy cited federal data showing that in fiscal 2013, direct federal support for renewables dwarfed that devoted to fossil fuels.

“As these figures amply demonstrate, federal tax policy currently provides artificial encouragement to some sectors, such as wind and solar, at the expense of other energy sources,” he testified.

Responding to an Upton question on how policymakers can get the most “bang for the buck” in rewriting the tax code, American Enterprise Institute resident scholar Ben Zycher said Congress should focus on supporting “all of the competitive” sources, rather than the familiar “all of the above” mantra.

But Rep. Frank Pallone (D-N.J.), ranking member of the full committee, noted that “every form of energy receives some sort of favorable tax treatment” but that policymakers must consider the effects of some energy sources on human health and the environment.

“The federal government should be incentivizing technologies that are cleaner, safer and more protective of the health of all Americans,” he said in his opening statement. “Renewable energy sources, in particular, provide societal benefits that cannot be effectively valued by the markets.”

Pallone and other Democrats repeatedly pressed Congressional Budget Office senior adviser Terry Dinan on the social costs of carbon — a controversial metric employed by the Obama administration to justify the benefits of its climate policies, and one President Trump scrapped when signing his “energy independence” executive order.

Dinan noted that the CBO hadn’t “quantified the benefit” of curbing emissions but said putting a price on carbon through a tax would address the externalized costs of the pollution.

Rep. Kathy Castor (D-Fla.) slammed Trump’s order and ticked off a laundry list of additional expenses Floridians will see because of sea-level rise and extreme weather.

“The Trump administration is instituting an energy policy that’s more suitable to 50 years ago in America,” she said. “It’s not a policy for innovation, it’s not a policy to keep the boom in clean energy jobs going, it’s a policy that will keep costs on our kids and future generations.”

Castor pressed Dinan on whether CBO would consider such costs when assessing tax reform efforts. The witness in turn responded that the Joint Committee on Taxation will make those estimates, which “just include forgone revenue.”

Zycher of AEI rejected the preponderance of scientific evidence that carbon pollution is making the planet warmer and twice asserted that renewables were actually “dirtier” energy sources because their backups are often powered by fossil fuels.

While both sides reiterated long-standing positions on energy policy, the hearing skipped over a key aspect of the House’s tax reform blueprint that has prompted angst among some energy sectors and other industries.

The Border Adjustment Tax proposal would assess a 20 percent tax on imported products, while exempting exports. Some refiners that rely on foreign crude oil have said the policy would raise the price of domestic gasoline by 20 percent.

Rep. Joe Barton (R-Texas), vice chairman of the full committee, said later yesterday that he was “willing” to support the plan but added that he was “not committed one way or another.”

“I definitely want to get as much tax reform and get rates as low as we can,” he told reporters.

Noting that most other nations have a similar form of consumption-based tax system, Barton said, “In principle, I don’t have a problem with it.”