2004
Wind Tax Credits
Nov 2004 -- The U.S. Senate recently passed a $170 billion corporate tax bill that included $14 billion in tax incentives for energy producers. A part of these tax incentives includes the restoration of the wind production tax credit for another three years. The wind tax credit of 1.8 cents per kilowatt-hour expired on Dec. 31, 2003, impeding development of new wind power projects across the nation.
Alaska Natural Gas Pipeline Legislation Approved
Congress passed legislation for the Alaska natural gas pipeline on Monday, October 11, 2004 that includes expedited approval of permits and loan guarantees worth up to $18 billion. The line is expected to cost about $20 billion.
The bill was part of a 2005 military construction funding bill. The U.S. Senate passed a corporate tax bill with two gas line-related tax credits on a 69-17 vote. A separate military construction bill, which offers a federal construction loan guarantee and streamlines several regulatory processes, also passed by unanimous consent. The House passed the corporate tax bill Thursday, October 7, 2004 by a vote of 280-141 and the construction bill unanimously Saturday, October 9, 2004. Alaska's three members of Congress advocated or voted for passage of all the measures.
Proponents have been working for two decades to get subsidies for an Alaskan natural gas pipeline. Companies interested in building the pipeline include British Petroleum, ExxonMobil and ConocoPhillips.
Gas pipeline owners can now amortize the cost of all Alaska portions of a pipeline over seven instead of 15 years. There is also a tax credit for a gas conditioning plant on the North Slope of Alaska. It should take about 10 years to complete the pipeline. In summary, the measures:
- Provide a federal loan guarantee provision of $18 billion, or up to 80 percent of capital costs, to make the project more attractive to the eventual pipeline builder.
- Direct the Federal Energy Regulatory Commission to quickly permit the project once certain requirements are met, and provide for expedited judicial review.
- Designate FERC as the lead agency for the National Environmental Policy Act process and requires a single environmental impact study.
- Allow pipeline owners "accelerated depreciation" to claim construction costs on their taxes over seven years instead of 15 years. They also makes a proposed North Slope gas conditioning plant eligible for a tax credit worth $295 million over the same period.
- Create a federal coordinator within the executive branch to provide a single point of contact between federal agencies and pipeline officials.
The three major North Slope gas owners already are negotiating as a group with Gov. Frank Murkowski's administration. The Alaska Legislature passed a law a few years ago allowing the executive branch to tinker with existing state tax rules to make a project more attractive for developers. Two Canada-based pipeline companies, TransCanada Corp. and Enbridge Inc., are also negotiating under that law. The gas owner companies and the pipeline companies all can negotiate with the state over sales, corporate income and property tax rates, The three major North Slope operators, because they own the gas, can negotiate the share that the state collects as a royalty. The Alaska Legislature must approve any agreement before it takes effect.
Exxon is not necessarily seeking lower tax rates from the state of Alaska and it refrained from advocating for any federal tax breaks. Exxon believes the pipeline project should be able to stand on its own. They are concerned about certainty and the risk of going into the project and then three or four years later the administration or the Congressional mood changes.
Another question mark is the traditional regulatory process of the Canada National Energy Board for approving pipeline projects, in which the 1970s Alaska Natural Gas Transportation System failed. While the Alaska delegation stressed that the package they have put in place does not mandate a line through Canada, the major gas owners have said that is the most feasible option. However, two governmental organizations, the Alaska Natural Gas Development Authority and the Alaska Gas Line Port Authority, want to build a line to Valdez rather than through Canada.
Clock Ran Out On Energy Bill (2003-2004)
A main sticking point that caused the energy bill to fail was the MTBE liability exemption. The exemption provides protection from lawsuits for makers of the fuel additive methyl tertiary-butyl ether (MTBE), which has been found to contaminate groundwater.
One of the main proponents of the MTBE exemption is House Majority Leader Tom Delay (R-TX). The largest domestic producer of MTBE, Lyondell Chemical Company (formerly Arco Chemical) is headquartered in Houston, Texas, part of which is represented by Delay. Valero Energy Company of San Antonio, Texas also makes MTBE. Critics charge the MTBE exemption will affect approximately 130 lawsuits filed by communities seeking damages for contamination. A key defense of MTBE's manufacturers is that the 1990 Clean Air Act Amendments passed by Congress mandated the use of oxygenates such as MTBE as additives in gasoline to reduce smog. Finally, opponents of ethanol as a replacement for MTBE agreed to support ethanol in exchange for the exemption. So eliminating the exemption to try to pass the energy bill neutralizes the ethanol deal. This equation will not change in 2004.
The Energy Bill has been in limbo for weeks because of a disagreement between Senate Finance Chairman Grassley and House Ways and Means Chairman Thomas over tax breaks for ethanol. Thomas has consistently rejected Grassley's plan to reform the ethanol tax incentive program, known as the "Volumetric Ethanol Excise Tax Credit (VEETC) Act of 2003, S.1548, " which proposes to eliminate the ethanol tax credit exemption and fully fund the Highway Trust Fund.
The sticking point: If states show significant economic harm from the ethanol requirement, they can "opt out" of the bill's ethanol mandate. Because gasoline that is blended with ethanol is taxed at a lower rate, and under current law puts less into the Highway Trust Fund than normal gasoline, ethanol-using states such as California contribute less funding , and therefore receive a smaller proportion of funding back for highway projects through the Highway Trust Fund. As a result, states in theory could argue that the ethanol mandate is creating a significant economic harm, and seek an exemption, unless Grassley's VEETC is put in place to ensure the ethanol credits are not paid out of the Highway Trust Fund, but are paid out of general revenue. If enough states used the "opt out" clause, the program would also be ineffective.
Appropriators approved a conference report on the annual energy and water appropriations bill (HR 2754) and provided $580 million to the Yucca Mountain nuclear waste dump in Nevada. The House had wanted $765 million and the Senate proposed $425 million.
Senate Passes Energy Tax Breaks
April 11, 2004 -- The Senate voted 85-13 vote to approve a $14 billion package of tax breaks to stimulate U.S. energy production and hold down prices. The tax incentives are aimed at long-term production and would have little impact on high prices for gasoline, natural gas and crude oil this year. The energy provision was attached to a corporate tax bill, the Foreign Sales Corporation/Extraterritorial Income Act, FSC/ETI bill (HR 4520 and S 1637) or JOBS Bill, (S.1637). Senators supporting the measure believe actions are needed to persuade industry to get back into the business of producing more energy.
The bill includes $9 billion in tax incentives for the oil and gas industry and billions more to encourage development of clean coal technology and renewable fuels. The bill would encourage construction of a $20 billion pipeline to carry natural gas from Alaska's North Slope by guaranteeing a price support if the price of gas falls below a certain level.
It also contains tax breaks aimed at energy conservation and development of renewable energy sources, including building more energy efficient homes, buying more energy efficient appliances and a tax credit of up to $2,000 for the purchase of increasingly popular gas-electric hybrid automobiles. These incentives would encourage consumers to save energy and would develop markets for innovative energy-efficient products. The result would be a meaningful reduction in energy use, with associated environmental and energy security benefits. While these important tax incentives are included in the Senate tax bill known as "FSC/ETI", the House version of the legislation does not include such provisions. The Senate and House have begun a conference on the to work through the differences.
In summary, the critical incentives for new energy-efficient technologies include:
- Buildings: incentives for new homes, improvements to existing homes, and commercial buildings that far exceed building codes;
- Vehicles: incentives for hybrid engines and future fuel cell vehicles based on their fuel economy improvements over current cars;
- Appliances and equipment: incentives for heating and cooling equipment, as well as for refrigerators and clothes washers; and
- Distributed generation: incentives for combined heat and power, and for stationary fuel cells.
