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Senate Finance Committee Proposes Overhaul of Renewable Energy Tax Incentives for Electricity and Fuel Production

December 26, 2013
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On December 18, Senate Finance Committee Chairman Max Baucus released a discussion draft of an overhaul of energy tax incentives aimed at making the incentives more predictable and technology-neutral.

The draft proposes to consolidate the myriad energy-related tax preferences (under current law, there are 42 different energy tax incentives) into two targeted but flexible incentives for the domestic production of clean energy and clean transportation fuel. The Committee summarized the features of these two proposed incentives as follows:

Tax Credit for Clean Electricity

  • Technology-neutral tax credit for domestic production of clean electricity. The cleaner the facility, the larger the credit.
  • Open to all resources—renewable, fossil, or anything in between.
  • Available as either a production tax credit of up to 2.3 cents/kwh or an investment tax credit of up to 20 percent.

This proposed production tax credit would have a 10-year life per facility. This tax credit would not be available for facilities that began operations before 2017. The existing section 45 credit for renewable electricity production, Section 48 investment tax credit for electricity and Section 25D credit for residential renewable electricity investment would continue through 2016 under the Baucus proposal.

Tax Credit for Clean Transportation Fuel

  • Technology-neutral tax credit for domestic production of clean transportation fuel. The cleaner the facility, the larger the credit.
  • Open to all resources—renewable, fossil, or anything in between.
  • Available either as a production tax credit of up to $1/gallon or an investment tax credit of up to 20 percent of qualified investment costs.

The credit would apply to fuel that is 25 percent cleaner than conventional gasoline. The production tax or investment tax credit would also be provided to qualifying businesses.

Under the proposal, the two credits would phase out once the greenhouse gas intensity of each market has declined by 25 percent.

The Committee requested public feedback by January 31, 2014.

More detail on the Committee’s proposal can be found by clicking here.

While passage is uncertain given the current political atmosphere in Washington, this proposal should be watched closely since it would provide major benefits for interested parties in the renewable energy investment markets.

Please feel free to contact a member of the Environment & Energy Strategies team at Godfrey & Kahn for more information.

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