Energy sector scores wins from fiscal cliff deal

Jan 3, 2013 Posted by

POLITICO

The lack of cuts so far is a relief for green groups. | Reuters

By DARREN GOODE | 1/3/13 4:32 AM EST

A broad range of interests — from renewable energy and green groups to major oil and electric companies — won big in the fiscal deal struck by the White House and Congress.

At least for now.

“I would put it differently: Nobody lost yet,” energy policy analyst Kevin Book said.

The deal extends through 2013 the tax incentives prized by a host of green energy and efficiency interests and doesn’t touch measures oil companies fought to preserve.

The electric and natural gas industries, which were part of a coalition that brought together groups ranging from the Nuclear Energy Institute to Coca-Cola and Walmart, notched a win by keeping dividend tax rates on a par with capital gains taxes. Supporters had spent millions on TV ads and for an all-out lobbying offensive on Capitol Hill to protect the dividend rates.

The lack of spending cuts so far offers at least a stay of execution for green groups that feared spending would shrink for environmental enforcement and national parks.

“Today, Americans can breathe a sigh of relief thanks to the commitment by President [Barack] Obama and Democratic leadership in Congress to ensure that this agreement includes new revenues and delays automatic cuts to essential programs that protect our health, our environment and our future,” said Franz Matzner, associate director of government affairs at the Natural Resources Defense Council.

But all this could be a temporary win as lawmakers put off for only two months the sizable sequestration cuts that will affect all discretionary spending, and Congress is ultimately expected to take on a broader reshaping of the Tax Code that may still hit energy industries.

The Obama administration will inevitably continue to target the tax codes that benefit major oil producers while Republicans will look to overhaul boutique incentives used by a host of green energy companies.

The year-end deal to avoid the fiscal cliff includes a package of tax extenders that won bipartisan backing in the Senate Finance Committee during the summer, including a hard-fought one-year extension of a 2.2-cent-per-kilowatt-hour renewable electricity production tax credit for wind, geothermal and closed-loop biomass. It’s also modified to allow for projects that begin construction before the end of 2013 to claim the 10-year credit.

Wind, biomass, geothermal, hydropower and other facilities that receive the production tax credit are also now offered the choice instead to elect to receive a 30 percent investment tax credit the solar industry has used. The deal also reinstates a $1-per-gallon biodiesel production tax that expired in 2011 retroactive to 2012 and extending through 2013.

Incentives for other biofuels, energy-efficiency improvements to new and existing homes, more energy-efficient appliances, plug-in electric motorcycles and highway vehicles, alternative-fuel vehicle refueling property and support for coal produced on land owned by an Indian tribe were also all extended through 2013.

All this was merely to provide time for Congress to take on a comprehensive tax reform effort that both parties say they want in the next Congress. That reform strategy may reduce or eliminate specially targeted tax breaks in favor of broader reductions in tax rates.

“This is a temporary thing obviously, and I think you have to look at it that way,” Sen. John Thune (R-S.D.), a wind PTC supporter, said in August when the Finance Committee approved the extenders plan. “But at least in the near term, a lot of folks have made a lot of investment and have a lot of stake and they need some certainty as to what the rules are going to be, at least for the foreseeable future.”

The plan includes language Thune added that stipulates the extensions of both traditional and renewable energy tax incentives in the committee’s current package need to be part of broader tax reform “and that no one should interpret this committee’s existing incentives in the near term as a weakening of our commitment to longer-term reform.”

A Finance subcommittee held a hearing last month on how to better tailor energy incentives amid the fiscal belt-tightening, including Thune’s idea of creating incentives with built-in phaseout dates and instituting longer-term and technology-neutral incentives.

The Edison Electric Institute and American Gas Association won with the measure that will permanently keep the 15 percent tax rates for dividends and capital gains for individuals earning up to $400,000 and couples earning up to $450,000. Dividends and capital gains for families earning more will be permanently taxed at 20 percent.

“That’s probably the biggest win in the package because it’s permanent,” Book said.

“We are pleased that the final agreement recognizes that our Tax Code should not pick winners and losers — that we should treat dividends and capital gains equally,” EEI President Tom Kuhn said in a statement.

The lack of a fiscal deal would have ballooned the dividend tax rate to as much as 43.4 percent while keeping the rate for capital gains less than half that.

EEI and AGA represent companies that typically pay high dividends to attract investors.

“AGA and its members have continued to emphasize the importance of low dividends, parity with capital gains and what those actions mean for our economy, investors, retirees and industry,” said Ron Jibson, chairman of the American Gas Association’s board. “While there is still work to be done, recognizing the importance of low rates for dividends and parity with capital gains is significant, and we look forward to addressing the important issues left on the table in 2013.”

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