Senate Democrats are proposing to overhaul the energy tax code in favor of a trio of incentives based on emissions reductions in a move that environmentalists are lauding, but Republicans say would disadvantage fossil fuels.
The bill — from Senate Finance Committee Chairman Ron Wyden, an Oregon Democrat — replaces 44 energy tax breaks and incentives with three emissions-based incentives: clean power, clean fuels, and energy efficiency. The incentives wouldn’t favor a particular technology so long as it reduces carbon emissions. Technologies prompting greater reductions would receive a higher credit.
The legislation would also allow clean energy developers to claim the tax incentives as direct cash payments, a request renewable energy groups have long asked for to expand the scope of companies that can take advantage of the credits.
On Wednesday, the Senate Finance Committee approved the legislation along party lines, with an even 14-14 vote, teeing up the measure for possible inclusion in any infrastructure package.
The bill “throws the old system in the waste bin,” Wyden said Wednesday during the markup of the bill. “It replaces the old rules with a free-market, technology-neutral system in which reducing carbon emissions becomes the lodestar of America’s energy future.”
Wyden’s bill takes a slightly different approach than President Joe Biden, who outlines efforts to bolster existing incentives for clean energy as part of his massive infrastructure plan. Republicans have slammed those efforts, cutting them out of the infrastructure counteroffer they’ve proposed, along with most of the other climate funding.
Biden’s fiscal year 2022 budget request proposes to spend more than $265 billion on expanded renewable energy tax credits, which he would extend by 10 years.
The White House also proposes to spend $9.7 billion over 10 years for tax incentives for existing nuclear power plants, $10.6 billion on tax credits for zero-emissions trucks, $4.1 billion for incentives for low-carbon hydrogen, and $6 billion to expand and enhance tax credits for carbon capture technology.
Wyden’s bill would spend $259 billion over the next 10 years, according to estimates from the Joint Committee on Taxation.
Environmental groups and clean energy advocates say Wyden’s legislation would offer certainty to renewable energy and electric vehicle companies, which in recent years have faced diminishing tax credits and last-minute political haggling over whether to extend the incentives in budget bills.
“This bill is a key pillar of moving to President Biden’s goal of 100% clean power by 2035,” said Matthew Bearzotti, deputy legislative director for the Sierra Club.
Incentives for electric cars would also be substantial under Wyden’s bill. The legislation would allow consumers to receive tax credits of up to $12,500 for an electric car made in the United States at facilities where workers are unionized.
Current electric vehicle incentives start at $7,500, and individual automakers are ineligible for the credit once they sell 200,000 electric cars. Tesla and General Motors have already hit that cap.
Republicans and the fossil fuel industry have slammed Wyden’s bill, arguing the legislation would remove a host of tax breaks for fossil fuel companies.
“The provisions of this bill that repeal an array of oil and natural gas tax deductions were written solely to undermine American production,” said Barry Russell, president and CEO of the Independent Petroleum Association of America, which represents independent and small oil and gas producers.
Senate Minority Leader Mitch McConnell, during a speech on the Senate floor Wednesday, compared Wyden’s bill to the left-wing Green New Deal, arguing the legislation would increase energy costs for consumers, discourage energy industry innovations from curbing emissions, and risk U.S. energy security.
“In exchange, the bill would have ordinary Americans subsidize the lifestyle preferences of wealthy people in places like New York and San Francisco,” McConnell said.