This week, House Ways and Means Committee Chairman Dave Camp (R-MI) released a provocative tax reform proposal that would zero out advanced energy tax credits among many other changes to the tax code. While the prospects for tax reform are all but non-existent this year, the draft represents Chairman Camp’s stake in the ground in a discussion that will carry on into the next Congress. On the other side of the Capitol, new Senate Finance Chairman Ron Wyden (D-OR) continues to focus on moving legislation to address the extension of tax provisions that expired at the close of 2013. Finance Committee staff anticipate an accelerated process, skipping time-consuming hearings and moving to mark up a tax extender bill as early as next month.
The executive summary of Chairman Camp’s proposal advocates for ending the “practice of using the tax code to pick winners and losers based on political power rather than economic merit.” Unfortunately the Chairman still plays kingmaker, as historical subsidies plus those that remain as part of his bill put incumbent technologies at an unfair advantage to advanced technologies in the competition to deliver secure, affordable energy to the market.
This approach hampers American leadership in the evolving energy industry. AEE’s Advanced Energy Now 2014 Market Report highlighted the fact that the companies deploying advanced energy grew at 4x the rate of the rest of the U.S. economy and garnered 15% of the $1.1 trillion global advanced energy market. Why would anyone want to put the brakes on a set of private businesses that are creating jobs and driving economic growth while the rest of the economy limps along?
Federal tax credits have played a vital role in advancing all energy resources during the past hundred years, and they remain critical to progress toward better energy solutions today. Over the last 50 years, U.S. government support for fossil fuels totaled nearly $600 billion. Even if all subsidies for energy were wiped out, traditional energy sources would still be at an advantage due to these historic subsidies.
The array of potential energy sources has expanded dramatically in the last 20 years, and it’s time for a new approach. Rather than supporting mature, incumbent industries to the exclusion of new and innovative technologies, our federal energy tax policy should take a technology-neutral approach and offer stable incentives for technologies that improve the performance of our energy system.
The recent Senate Finance Committee discussion draft on energy tax reform released by former chairman Max Baucus is largely in line with AEE’s tax reform principles. The Finance draft proposed offering tax credits to technologies that move us toward a cleaner electric grid and transportation fuel supply. Using this approach – first establishing the goals for federal energy tax policy, then crafting the most cost-effective incentives that will enable the U.S. to meet those goals – opens the door for a highly engaged private sector with limited but efficient federal tax expenditures.
While smart tax reform could bring huge dividends, energy market stability and American leadership in advanced energy depends on Congress extending tax credits that expired at the end of last year. The previously mentioned AEE 2014 Market Report showed that uncertainty around the extension of the wind production tax credit (PTC) at the close of 2012 led to a dramatic $23 billion plunge in revenue for the U.S. wind industry last year – the only sector of the advanced energy economy to suffer a decline. New Finance Chair Wyden has indicated that moving a tax extenders package is a top priority, and his colleagues in Congress should support him in that effort.
Chairman Camp, on the other hand, should heed his own advice: construct an energy tax policy that doesn’t pick winners. A far more efficient and effective approach would be to acknowledge that America’s energy security requires an environment where innovation can flourish and to define a tax policy that provides support for that innovation without picking technology winners and losers. With a set of stable market signals in hand, the private sector can seize the opportunity and compete to deliver the kinds of solutions that will result in a secure, affordable and high-performing energy system.