Senate Finance Committee Chairman Max Baucus (D-MT) released a proposal on December 18 that would streamline energy tax incentives to make them more predictable and technology-neutral.  Theproposal consolidates several different energy tax incentives into just two tax credits: one for electricity and one for transportation fuels.  The proposed provisions would allow facilities placed in service after 2016 to choose between a 10-year production tax credit and an investment tax credit of up to 20 percent.  The amount of the credit is dependent on the greenhouse gas emissions of the facility or fuel, as determined by the Environmental Protection Agency (EPA); the cleaner the facility the larger the credit.  Any facility producing electricity that is 25 percent cleaner than the average for all electric production facilities will receive the credit.  The credit would be open to all resources.  The credit phases out over four years once the greenhouse gas intensity in the market has declined by 25 percent.  The package of reforms is based on proposals previously offered by both Republicans and Democrats.  The package calls for extending current clean energy incentives through 2016 to provide for a smooth transition period.

Earlier in the week, over 30 Congressmen sent letters to the House Ways and Means Committee andSenate Finance Committee urging their fellow Congressmen to extend numerous clean-energy tax credits set to expire at the end of the year.  The letters supported a comprehensive reform of the tax code but urged immediate action to renew specific clean energy incentives facing expiration.

Among the tax incentives slated to expire are the production and investment tax credits for wind, biomass and other renewable technologies other than solar, and the advanced energy manufacturing tax credit.  Also set to expire are tax credits for efficient commercial buildings, new homes, appliances and home energy efficiency upgrades; transportation fringe benefits which provide parity between parking and transit benefits; and tax credits for biofuel production, hybrid medium- and heavy-duty trucks, and the installation of refueling equipment for alternative fuel vehicles.

The coalition of Congressmen urged long-term extension of the tax credits in order to accommodate the long planning horizon of renewable projects, such as offshore wind farms. However, another group of Senators urged the Senate Finance Committee on December 17 to allow for the expiration of the production tax credit for wind energy, arguing that it is time to let the technology stand on its own.

Jessica Bayles, associate in McDermott’s Energy Advisory practice, contributed to this article.