Anticipating Energy Issues in Tax Reform

As Carly Simon sang decades ago, “anticipation, anticipation, it’s makin’ me late, it’s keepin’ me waitin’.”  “Anticipation” could be the theme song of the week here in Washington, D.C., where several thousand people are getting ready (again) for release of the Republican tax reform plan.

Rumors are circulating that “everything is on the table,” meaning every interest group is gearing up to protect current provisions that lower their constituents’ tax bills and therefore cost the Treasury money.

Even amid all the anticipation, long-time tax-watchers know disappointment could be next week’s story line. Still, something seems to be coming together, and so it’s timely to review a few of the known knowns and ask questions. What’s the timeline? Who are “the deciders?” What provisions could impact energy policy and consumers? 

Speaker Ryan said earlier this month that the tax reform plan would debut the week of September 25. “Plan” likely means a document outlining areas of agreement between the Trump administration and congressional leadership. It’s unclear how much can be gleaned from the plan, though, as Speaker Ryan also said that Ways & Means and Finance need to figure out the details and draft legislative language. Late October is the current best guess for when the tax committees might take up legislation.   

However, between now and late October (only 6 weeks!) lie a boatload of challenges. Aside from the really thorny tasks of maintaining consensus, and reflecting that in legislation which amends thousands of pages of the Internal Revenue Code, Congress must also pass a budget resolution in order to sidestep Senate rules that normally require 60 votes to move forward. 

Who’s likely to be in the room when decisions are made? The “Big Six” for tax reform are:

• House Speaker Paul Ryan
• House Ways & Means Chairman Kevin Brady
• Senate Majority Leader Mitch McConnell
• Senate Finance Chairman Orrin Hatch
• National Economic Council Chair Gary Cohn
• Treasury Secretary Steve Mnuchin.

However, many other members of Congress (just about all of the other 531) will want to weigh in and are already doing so on social media, in public forums and behind closed doors. Some key bills have already been introduced as part of lawmakers’ campaigns to get important ideas into the overall reform package.

One bill that seems to have momentum and could bring benefits to energy consumers is bipartisan and bicameral – an increasingly rare combination. The “Carbon Capture Utilization and Storage Act” seeks to increase an existing tax credit for carbon capture and storage projects that could eventually help keep clean coal in the generation mix.  According to a recent summary of the Senate version, the bill is necessary because the existing “45Q” credits, at “$10 per ton for Enhanced Oil Recovery (EOR) and $20 per ton for geologic storage continue to be insufficient to stimulate any real financing of CO2 capture or utilization projects.”

Renewable energy technologies, perennial applicants for tax benefits, are expected to push benefits for small wind, geothermal heat pumps, fuel cells, and Combined-Heat-and-Power. We may also see a renewed effort to extend timelines and increase flexibility for the nuclear Production Tax Credit, an integral building block in making sure conventional plants (such as Vogtle) and next-generation installations (Small Modular arrays) come to market and add diversity to our generation mix.

Another likely entrant into the tax reform fray – a renewed push for a carbon tax; while congressional support is thin, new D.C.-based, well-funded coalitions have emerged to boost the concept. At PACE, we view a carbon tax as saddling the American economy and its consumers with higher costs, while doing very little to address global carbon emissions.

As Congress and the White House circle around tax reform, PACE will keep an eye on the debate, especially as it relates to energy, and update you if anticipation becomes real action.