Ex­perts say en­ergy tax code re­vi­sion may be dif­fi­cult.

Cur­rent rules tilt to so­lar, wind, re­new­able fu­els

The Washington Times Daily - - FRONT PAGE - BY BEN WOLF­GANG

The past decade has brought about a mon­u­men­tal shift in how fuel sources ben­e­fit from the U.S. tax code, with re­new­able en­ergy more than lap­ping its coun­ter­parts in the oil, gas, and coal sec­tors.

Fed­eral tax “pref­er­ences” — such as tax cred­its for en­ergy pro­duc­tion, spe­cific write-offs or de­duc­tions, or other ben­e­fits aimed at an en­ergy sub­sec­tor — have moved dra­mat­i­cally to­ward wind, so­lar and other re­new­able fu­els since 2008. That in­crease has come as tax pref­er­ences for fos­sil fu­els have de­clined or stayed rel­a­tively flat year af­ter year.

In 2016, re­new­able en­ergy re­ceived $10.9 bil­lion in tax pref­er­ences, com­pared to $4.6 bil­lion for fos­sil fu­els. A decade ago, fos­sil fu­els got $8.2 bil­lion while re­new­ables pulled in only $5.3 bil­lion in tax pref­er­ences, ac­cord­ing to Con­gres­sional Bud­get Of­fice fig­ures re­cently pre­sented to Congress.

The dy­namic be­gan to shift in the early days of the Obama ad­min­is­tra­tion. The mas­sive Amer­i­can Re­cov­ery and Rein­vest­ment Act, along with rampedup pro­duc­tion in the wind and so­lar power sec­tors, shifted tax pref­er­ences to­ward re­new­able en­ergy; from 2008 to 2009, for ex­am­ple, tax pref­er­ences for green fu­els jumped by nearly $10 bil­lion, from $7.4 bil­lion to $17.1 bil­lion.

At the same time, tax pref­er­ences for fos­sil fu­els de­creased from $5.5 bil­lion in 2008 to $3.6 bil­lion in 2009.

While the gap has closed sig­nif­i­cantly since then, it still high­lights how the cur­rent tax code seems to tilt to­ward re­new­able fu­els.

The lat­est CBO fig­ures also come against the back­drop of a broader de­bate about tax re­form.

Both Pres­i­dent Trump and his Repub­li­can al­lies in Congress are ea­ger to re­write the tax code, shrink rates and elim­i­nate de­duc­tions — but spe­cial­ists say they’ll have an uphill bat­tle to strip all of the en­ergy carve-outs that have been im­ple­mented over the past decade.

“I think it’s pretty dif­fi­cult. Look at the wind pro­duc­tion tax credit — it keeps get­ting ex­tended be­cause there are a bunch of Repub­li­can sen­a­tors from wind states,” said Ben­jamin Zy­cher, a scholar at the Amer­i­can En­ter­prise In­sti­tute who spe­cial­izes in en­ergy and en­vi­ron­men­tal pol­icy.

“It’s sup­posed to be phased out, but we’ll see. I have my doubts. It’s dif­fi­cult to get rid of these things,” he said.

In­deed, tax cred­its for the pro­duc­tion of wind power rou­tinely have been ex­tended by Congress, though they’re cur­rently be­ing phased out and are sched­uled to end by 2019.

That tax credit, along with other tax pref­er­ences for so­lar power and other re­new­able sources, ac­counted for more $6 bil­lion in tax pref­er­ences last year, ac­cord­ing to CBO num­bers. An­other $4.2 bil­lion went to biodiesel and re­new­able diesel cred­its, the CBO said.

Spe­cial­ists rou­tinely point out, how­ever, that much of the tax pref­er­ences have come about be­cause of in­creased pro­duc­tion in re­new­able en­ergy, not just be­cause of the es­tab­lish­ment of new gov­ern­ment poli­cies fa­vor­ing a given source.

The shift has been the re­sult of tax poli­cies and changes within the en­ergy in­dus­try it­self.

The wind pro­duc­tion tax credit, for ex­am­ple, was first en­acted in 1992. The fol­low­ing year, re­new­able en­ergy re­ceived just $900 mil­lion in tax pref­er­ences, com­pared to $2 bil­lion for fos­sil fu­els.

The tax cred­its have be­come more valu­able in terms of dol­lar amounts sim­ply be­cause of the wind in­dus­try’s ex­pan­sion and sig­nif­i­cant in­creases in pro­duc­tion, an­a­lysts say.

“These tax ex­pen­di­tures don’t rep­re­sent a shift — there have been no changes in the tax pro­vi­sions that de­liver fos­sil fuel tax ex­pen­di­tures over the past decade — but an in­crease in the re­new­able power in­vest­ment and out­put that qual­i­fies for the re­new­able tax ex­pen­di­tures,” said Joseph Aldy, a pro­fes­sor of pub­lic pol­icy at the Har­vard Kennedy School who stud­ies en­ergy and tax pol­icy.

Ad­di­tional gov­ern­ment in­vest­ment and pref­er­en­tial treat­ment through the tax code has spurred that pro­duc­tion even more, creat­ing a cy­cle. From 2007 to 2014, for ex­am­ple, wind ca­pac­ity in the U.S. nearly quadru­pled.

On the fos­sil fu­els side, many of the tax-pref­er­ence poli­cies have been in place for decades.

In 2016, the sec­tor re­ceived $1.8 bil­lion in tax pref­er­ences for the “ex­pens­ing of ex­plo­ration and devel­op­ment costs for oil and nat­u­ral gas,” the CBO said, along with bil­lions of dol­lars in ben­e­fits for the de­pre­ci­a­tion of gas dis­tri­bu­tion lines, “ge­o­log­i­cal and geo­phys­i­cal ex­pen­di­tures” re­lated to ex­plo­ration and other ac­tiv­i­ties.

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