Wyden aims for energy parity in overhaul to ‘rotting’ tax code

Source: Nick Juliano, E&E reporter • Posted: Tuesday, April 8, 2014

A tax break that has been used for decades by companies in the oil and natural gas industry should be either pared back or extended to clean energy firms, Senate Finance Chairman Ron Wyden (D-Ore.) told an investors’ conference yesterday.

Referring to the current tax code as a “rotting carcass that smells worse every year,” Wyden reiterated his commitment to comprehensive tax reform.One target of that effort will be addressing master limited partnerships (MLP), which have allowed fossil fuel companies to reduce their tax bills since the 1980s. The same break has not been available for renewable energy sources such as wind, solar or geothermal, but that needs to change, the chairman told the Bloomberg New Energy Summit in New York, according to a recording of his remarks.Wyden said tax reform could present two options when it comes to MLPs. Congress could pare them back for existing recipients as House Ways and Means Chairman Dave Camp (R-Mich.) proposed in his recently drafted tax reform bill in order to raise revenue for a reduction in the top-line corporate tax rate. Or it could extend them to all sectors, as would happen under the “MLP Parity Act” sponsored by Sens. Chris Coons (D-Del.) and Jerry Moran (R-Kan.) and in the House by Reps. Ted Poe (R-Texas), Mike Thompson (D-Calif.) and others.

While he supports Camp’s goal of reducing overall tax rates, Wyden said he also hopes to use tax reform to level the playing field of incentives available to various energy technologies.

“So you make a choice,” he told the summit. “There’s an argument for not having MLPs. But it seems to me, if you have them, I think it is very hard to argue that somehow renewable energy should not have a chance to exist side by side.”

Wyden last week moved his first tax bill through the committee — a two-year renewal of about 50 temporary tax breaks known as extenders that affect a variety of businesses. He said it would be the last time his committee considers extenders, but that it was important to renew them ahead of comprehensive tax reform in order to put “an expiration date on the status quo” without overly burdening the industries that rely on them.

Included in the package were incentives for renewable energy, biofuels and energy efficiency, and Wyden has said extending those tax breaks was key to their affected industries while Congress continues working on comprehensive reform, an effort that is expected to take at least another year or two.

Wyden said that through tax reform, he hopes “to really put some flesh behind this idea of an all-of-the-above energy policy.” His goal is to pare down the more than 40 permanent and temporary tax incentives related to energy to “just a handful” that will provide parity across various sectors.

In addition to the MLP disparity, Wyden highlighted two other examples of unfairness in the tax code he hopes to address. He mentioned the disparate taxation of diesel fuel and liquefied natural gas (LNG), and the availability of a tax credit for combined heat and power but not waste heat and power.

Because LNG is subject to the same per-gallon excise tax as diesel, even though it provides less energy than diesel per gallon of fuel, there is less incentive to transition trucking fleets to run on LNG. The issue was briefly discussed during last week’s extenders markup, but Wyden said it would be fully addressed when the Finance Committee considers funding for the highway trust fund in the near future.

Similarly, industrial facilities that wish to install a new combined heat and power system, which uses the same heat source for industrial processes and to generate electricity, are eligible for a tax credit. But facilities that already produce wasted heat and want to just install a generator to capture it are not eligible for a credit, Wyden said, “leaving thousands of megawatts of energy to be lost out of the top of smokestacks each and every year.”