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What Does the Senate Think About Energy Tax Policy?

Tim TarpleyAnalysis by Energy Workforce SVP Government Affairs & Counsel Tim Tarpley

Late last month, Senate Finance Chair Ron Wyden (D-OR) along with 24 of his Democratic colleagues introduced the Clean Energy for America Act, which aims to consolidate all energy tax incentives into a unified package. Many provisions are technology neutral and could benefit some of our companies.

This debate will be a prominent part of the infrastructure and tax policy work being done in the nation’s capital this year. While the bill is unlikely to pass in its current form, it does signal what many in the Senate majority think on energy tax policy. Republicans criticized the bill in a hearing this week, particularly its repeal of provisions favorable to oil and natural gas producers.

“We must understand the impact of this proposal on the 10.9 million American jobs in the oil and natural gas industries that pay on average seven times the federal minimum wage,” said Ranking Member Mike Crapo (R-ID).

Major Provisions

  • Technology-Neutral Tax Credit. The bill includes an emission-based, technology-neutral tax credit for clean energy projects placed in service after 2022. This credit would be open to all resources (including fossil fuels), but only for facilities with zero or net-negative carbon emissions. The bill would require the Treasury Department and the Environmental Protection Agency (EPA) to establish rules for determining which technologies satisfy the zero or net-negative greenhouse gas emission rates.
  • Choice of PTC or ITC. Any new zero-emission facility would be eligible to elect either a 10-year production tax credit (PTC) of 2.5 cents per kilowatt hour or a one-time investment tax credit (ITC) of 30% of the tax basis to construct the facility.
  • Cash in Lieu of PTC or ITC. Taxpayers are provided the option to receive the PTC or ITC as direct cash refunds. However, the election to take a direct payment must be made with the IRS before construction of the facility begins.
  • Increased ITC for Investments in Low-Income Areas. Investments in zero-emission renewable electricity or energy storage properties in qualifying low-income areas would be eligible for a 40% ITC.
  • Prevailing Wage Requirement. To qualify for the tax credits, these projects would need to pay prevailing wages at the local rate and use registered apprenticeship programs.
  • Carbon Capture Credit Would Remain, but With New Limitation. Section 45Q (carbon capture tax credits) would remain in place until the power and industrial sectors meet emission goals. However, the bill amends section 45Q to eliminate the carbon-capture tax credit when the captured carbon oxide is used in enhanced oil recovery.
  • Phase-out of PTC and ITC. The PTC and the ITC would phase-out over a five-year period when the EPA and the Department of Energy (DOE) certify that the electric power sector emits 75% less carbon than 2021 levels. Facilities that begin construction in the first year following the EPA and DOE determination would be eligible for 100% of the PTC and ITC. After that, the PTC or ITC drops to 75% of the original value and then to 50% in year three. The PTC and ITC phases out in the fourth year after the EPA and DOE determine the power sector emits 75% less carbon than 2021 levels.

What’s in Store for the Industry During the Upcoming Travel Season?

Energy markets and key indicators are showing optimism for what could be a big jump in economic activity in the coming months. The price for West Texas Intermediate ended last week up 2.2%, and prices continued to rise. It was just over a year ago that futures prices dipped into the negative.

The American travel boom is fueled by an increasing number of people getting vaccinated, and the pent-up demand to see family and friends. On Sunday, more than 1.6 million people were screened at U.S. airport checkpoints according to TSA. This is the highest since March 12 of last year when travel plummeted because of the COVID-19 pandemic.

This number is still 35% below pre-pandemic levels, but it’s an impressive signpost of the progress the country is making towards a return to normal. Airlines are rushing to pull planes back into service and re-hire furloughed pilots and plane crews. There is a nationwide shortage of rental cars and ride-share drivers as companies struggle to meet surging demand.

It should be no surprise that last week the U.S. Energy Department reported that petroleum demand jumped 35% from the same time last year. Expect this to continue as we head towards the summer driving season.

On top of the surge in demand, there’s a shortage of tanker drivers that has 25% of tanker trucks out of service. That could cause shortages at some gas stations this summer.

These factors should start making its way into the policy debate on Capitol Hill with an increased call to end to policies such as a federal lands leasing moratorium. With lawmakers debating infrastructure and tax policy over the next few months, we should expect to see policies that focus on low carbon domestic energy production.

For more information on the Council’s advocacy efforts or to get involved, contact SVP Government Affairs & Counsel Tim Tarpley


Tim Tarpley, SVP Government Affairs & Counsel, analyzes federal policy for the Energy Workforce & Technology Council. Click here to subscribe to the Council’s newsletter, which highlights sector-specific issues, best practices, Council activities and more.
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