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U.S. senator eyes overhaul of energy tax incentives

December 19, 2013

By Valerie Volcovici

WASHINGTON (Reuters) – The U.S. Senate’s top tax writer unveiled a proposal on Wednesday to change the way the government promotes clean energy by streamlining dozens of federal tax incentives for electricity and fuel production.

Senator Max Baucus released a “discussion draft” calling for simplifying 42 separate energy tax incentives. Left as is and renewed, these incentives, he said, will cost the government nearly $150 billion over 10 years.

“Our current set of energy tax incentives is overly complex and picks winners and losers with no clear policy rationale. We need a system of energy incentives that is more predictable, rational, and technology-neutral,” the Democratic chairman of the Senate finance committee said in a statement.

The Baucus plan comes at a time when hopes for comprehensive U.S. tax code reform before 2015 have all but vanished. Most analysts agree there is little chance of such an ambitious project succeeding in the fractious Congress.

That has not stopped Baucus pressing forward with proposals. Last month, he released discussion drafts on international tax reform, tax administration, and cost recovery and accounting.

Over the past three years, the finance committee has held six hearings on energy tax reform, and it has issued a white paper on some of the options outlined in the discussion draft.

To encourage cleaner electricity production, the plan would establish a “technology-neutral and performance based” tax credit for domestically produced clean electricity. The credit would replace a number of different temporary credits, such as the production tax credit for wind energy.

The plan would allow any facility that produces electricity that is 25 percent cleaner than the average production, based on a ratio of greenhouse gases it emits relative to its electricity output, to get a tax credit.

The credit would be phased out over four years once the greenhouse gas intensity of U.S. electricity generation declines to the point that it is 25 percent cleaner than 2013, according to the draft.

The proposal offers a similar consolidated approach to clean fuels by offering a tax credit for any fuel produced that is 25 percent cleaner than conventional gasoline.

The credit would phase out over four years once the greenhouse gas intensity of all transportation fuels in the United States has declined to a level 25 percent cleaner than conventional gasoline.

The plan would end, allow to expire, or set up for repeal a number of other energy-related tax incentives, including credits for electric plug-in vehicles, a carbon dioxide sequestration credit and a residential energy efficiency credit.