• Energy Issues at Play in End of Year Brinksmanship
  • January 6, 2012 | Author: Thomas J. Spulak
  • Law Firm: King & Spalding LLP - Washington Office
  • The first session of the 112th Congress concluded shortly before the holiday season, but not before Congress struck an 11th hour deal to preserve several provisions set to expire on December 31st. Those provisions included an extension of the payroll tax cut, long-term unemployment benefits, and preventing scheduled cuts in Medicare reimbursement rates to doctors. Noticeably absent from this deal were extensions of expiring energy tax incentives.

    One example is the Section 1603 grant program, named after the title in the 2009 stimulus law creating the program and providing a Treasury Department grant-in-lieu-of-tax-credit. The Section 1603 grant program received a one-year extension at the end of 2010, but despite lobbying from major renewable energy groups such as the Solar Energy Industries Association (SEIA), it was not extended at the end of 2011. Other major tax incentives for energy production also allowed to expire were provisions related to biodiesel, renewable diesel, and other alternative fuels. Of particular note was the expiration of the ethanol blenders tax incentive and the related 54-cent-per-gallon tariff on imported ethanol.

    Other tax credits allowed to expire related to certain alternative technology vehicles and related infrastructure, including:

    • credit for plug-in electric vehicle conversion kits and alternative fuel vehicle refueling property;
    • certain energy efficiency credits, such as credit to taxpayers making energy-efficiency home improvements;
    • credits for manufacturers of energy-efficient appliances; and
    • credit for construction of energy-efficient new homes.

    Congress did not ignore energy issues entirely, though, and took action that reflected a change in priorities and approach. For example, Congress required the President to approve the Keystone XL Oil Pipeline permit application within 60 days of enactment, unless he determines the project not to be in the nation’s interest. If the President takes no action, the permit application will be deemed to have been approved after the expiration of the 60-day period.

    Energy provisions included in the end of year, Fiscal Year 2012 omnibus appropriations bill also reflected the revised priorities of the 112th Congress. The spending bill included $1.8 billion for energy efficiency and renewable energy, an amount $1.4 billion less than President Obama requested. The final bill also included a House-passed provision prohibiting the Department of Energy from implementing energy efficiency standards for light bulbs, reversing a requirement that was authorized by the Energy Independence and Security Act of 2007 and had been scheduled to take effect in 2012.

    Looking ahead, Senate Finance Committee Chairman Max Baucus (D-MT) is working to build support for extending renewable energy tax incentives set to expire at the end of 2012. Included in this effort is the renewable energy production tax credit (PTC), a top priority for the wind industry. The PTC was first enacted in the early 1990s and has been extended seven times since 1992. Under current law, the PTC for wind will expire at the end of 2012, and for other eligible renewable technologies, at the end of 2013. Congressional supporters are also focused on extending the 30 percent investment tax credit for manufacturing equipment, set to expire at the end of 2012.

    While a number of Finance Committee Democrats support extension of these and other expiring provisions, some, such as Senator Tom Carper (D-DE), have raised concerns about “becoming an extenders Congress” and questioned, “Are we getting the best bang from our buck from all of them (extenders), and which ones should we extend, modify or eliminate?” Republican Finance Committee Senator John Cornyn (R-TX) acknowledged during a hearing on renewable energy tax policy that Congress should “allow for planning and predictability” while developing “a national energy policy that takes into account all sources of energy, and what the best use of scarce tax dollars would be to encourage innovation, and to figure out once that innovation has occurred -- once industry is sufficiently mature -- that it doesn’t need any more tax subsidy and can operate on the good old capitalist system of risk and reward.”

    While dramatic restructuring of energy policy is not likely to occur in the second session of the 112th Congress, Members are pursuing changes in targeted energy sectors. For instance, in November, Senators Ron Wyden (D-OR), Jeff Bingaman (D-NM), and Susan Collins (R-ME) introduced S. 1845, the Storage Technology for Renewable and Green Energy Act of 2011, which proposes an investment tax credit for energy storage facilities and equipment, to address the issue of how to use energy most efficiently once it is created.

    Being a Presidential Election year, 2012 promises to be unpredictable and not without surprises.