A tax plan announced by the Treasury Department would significantly reorient the federal tax code to incentivize clean energy production as part of the Biden Administration’s all-of-government climate change goals.
The headline takeaway from the Biden Administration’s release of the Treasury Department’s report on plans to revise the Internal Revenue Code is that, if forthcoming legislation is enacted, corporate tax rates could rise from the 21 percent set by the 2017 Tax Cuts and Jobs Act to levels somewhere around 25 or 28 precent, but not likely as high as the old top rate of 35 percent. However, less headline-grabbing aspects of Treasury’s announcement would rewrite the tax code to address climate change. The Treasury Department’s Made in America Tax Plan Report provides a preview of President’s Biden’s tax plan, which also would complement the president’s already announced American Jobs Plan, which focuses on infrastructure.
Cleaner energy goals. According to the Treasury report, existing subsidies for fossil fuel producers result in lower tax revenues to the U.S., encourage the use of fossil fuels instead of cleaner fuel sources, and fail to address the externalities related to fossil fuels that allow fossil fuel producers to conduct their businesses without having to pay for environmental damage resulting from the use of the fossil fuels they produce. The Treasury report also said that existing incentives for cleaner, renewable sources of energy are insufficient to grow this segment of the economy.
As a result, the Treasury report calls for the elimination of tax subsidies for fossil fuel producers. The Treasury’s analysis suggested that this step would reduce fossil fuel producers’ profits but not significantly affect the prices of fossil fuels for consumers. The Treasury also estimated that the elimination of these subsidies could produce $35 billion in tax revenues over the next decade. The proposal further suggests ways in which a change in policy could improve environmental justice, especially for communities of color, which the report said often bears a disproportionate impact from the pollution resulting from the use of fossil fuels.
The Treasury report is somewhat short on details, although it does mention a number of topics that bills already introduced in Congress would address. At just over three months into the 117th Congress, Democrats have introduced more tax-related bills on climate change than have Republicans. Some of these bills, for example the Growing Renewable Energy and Efficiency Now (GREEN) Act of 2021, (H.R. 848), sponsored by Rep. Thompson (D-Calif), collect the contents of many individual bills into a single piece of legislation that would amend many Code provisions to incentivize firms to combat climate change. Nevertheless, the totality of the numerous bills introduced thus far in the 117th Congress can be roughly allocated into the following subheadings:
Tax on atoms (C) and molecules (CH4). Treasury Secretary Janet Yellen has previously expressed support for a carbon tax, although the Treasury report does not explicitly mention a carbon tax. The America's Clean Future Fund Act (S. 685), sponsored by Sen. Dick Durbin (D-Ill), would, among other things, impose a carbon fee on covered entities' use, sale, or transfer of covered fuels. Similarly, the Methane Emissions Reduction Act of 2021 (S. 645), sponsored by Sen. Sheldon Whitehouse (D-RI), would impose a fee on the methane emissions of each company that produces, gathers, processes, or transmits oil or natural gas.
Oil & gas. Legislation focused on oil & gas would achieve multiple goals, including repeal of subsidies for the industry.
- H.R. 2184, sponsored by Rep. Blumenauer (D-Ore), would repeal fossil fuel subsidies for oil companies.
- Surface Transportation Investment Act of 2021 (H.R. 1329), sponsored by Rep. Brownley (D-Calif), would repeal loopholes for major integrated oil companies.
- H.R. 1430, sponsored by Rep. Stacey Plasket (D-VI), would cover into the treasury of the Virgin Islands revenue from tax on fuel produced in the Virgin Islands and entered into the U.S.
- Arctic Refuge Protection Act (H.R. 815), sponsored by Rep. Huffman (D-Calif), would repeal the Arctic National Wildlife Refuge oil and gas program.
- Tar Sands Tax Loophole Elimination Act (S. 683), sponsored by Sen. Markey (D-Mass), would clarify that products derived from tar sands are crude oil for purposes of the Federal excise tax on petroleum.
Wind and solar. Several bills would modify tax credits for wind and solar energy.
- Rural Wind Energy Modernization and Extension Act of 2021 (S. 532; H.R. 1484), sponsored by Sen. Amy Klobuchar (D-Minn) and Rep. Earl Blumenauer (D-Ore), would amend the Code to modify energy tax credit to apply to qualified distributed wind energy properties.
- H.R. 1557, sponsored by Rep. Charlie Crist (D-Fla), would extend credits related to solar energy.
Power generation, transmission, and storage. The recent winter storms in Texas and other southern states demonstrated the need to ensure that the nation’s power grid and other transmission infrastructure are not just secure from a national security standpoint but that they also are secure against natural disasters. The energy storage issue arises regarding batteries, which may have limited capacity depending on the specific use.
- S. 1017, sponsored by Sen. Martin Heinrich (D-NM), would establish a tax credit for the production of hydrogen using electricity produced from renewable energy resources.
- S. 1016, sponsored by Sen. Martin Heinrich (D-NM), would establish a tax credit for the installation of regionally significant electric power transmission lines.
- H.R. 2291, sponsored by Rep. Mike Thompson (D-Calif), would extend the publicly traded partnership ownership structure to energy power generation projects and transportation fuels.
- H.R. 1684, sponsored by Rep. Michael Doyle (D-Pa), would provide tax credits for energy storage technologies.
- Energy Storage Tax Incentive and Deployment Act of 2021 (S. 627), sponsored by Sen. Martin Heinrich (D-NM), would provide tax credits for energy storage technologies.
Coal. Although tax legislation will be developed in the House Ways and Means Committee and the Senate Finance Committee, it may be two senators from coal states, Sen. Joe Manchin (D-WVa), Chair of the Senate Energy and Natural Resources Committee and an outspoken supporter of the filibuster, and Sen. John Barrasso (R-Wyo), Ranking Member of the same committee, who influence the content of and, on the Senate floor, decide the fate of many environmental bills, including those with tax provisions. In the last Congress, Sen. Manchin teamed up with Sen. Lisa Murkowski (R-Alaska), then-Chair of the Senate Energy and Natural Resources Committee, to enact significant environmental legislation at the end of 2020. With respect to coal, S. 661 and H.R. 1760, sponsored by Sen. John Hoeven (R-ND) and Rep. David McKinley (R-WVa), would modify the qualifying advanced coal project credit.
Sequestration. Stopping greenhouse gas emissions (GHGs) before they can enter the atmosphere and recapturing carbon and other GHGs once they have entered the atmosphere are opposite ends of technologies that may reduce global warming and lessen the impact of climate change. Sequestration, whether in the ground or elsewhere, could be a significant part of capturing GHGs.
- S. 985, sponsored by Sen. Tom Carper (D-Del), would provide direct payments of the renewable electricity production credit, the energy credit, and the carbon oxide sequestration credit.
- S. 986, sponsored by Sen. Tina Smith (D-Minn), would provide for a 5-year extension of the carbon oxide sequestration credit.
- Accelerating Carbon Capture and Extending Secure Storage through 45Q (ACCESS 45Q) Act (H.R. 1062), sponsored by Rep. David McKinley (R-WVa), would extend and allow an elective payment of the tax credit for carbon oxide sequestration.
Electric vehicles. Electrified vehicles of all types have been the subject of demonstrations in major cities around the country in recent years. The popularity of electric automobiles also has increased as Tesla and other manufacturers have announced plans to ramp up production in the years ahead with at least some hope of bringing the cost of owning electric vehicles down to levels that ordinary consumers can afford.
- Electric Credit Access Ready at Sale (Electric CARS) Act of 2021 (S 395; H.R. 1271), sponsored by Sen. Jeff Merkley (D-Ore) and Rep. Peter Welch (D-Vt), would extend tax credits for electric cars.
- S. 493, sponsored by Sen. Catherine Cortez Masto (D-Nev), would provide for issuance of exempt facility bonds for zero-emission vehicle infrastructure.
- Green Bus Tax Credit Act of 2021 (S. 494), sponsored by Sen. Catherine Cortez Masto (D-Nev), would amend the Code to provide a credit for zero-emission buses.
- Electric Bicycle Incentive Kickstart for the Environment (E-BIKE) Act (H.R. 1019), sponsored by Rep. Jimmy Panetta (D-Calif), would allow a tax credit for electric bicycles.
- S. 975, sponsored by Sen. Tom Carper (D-Del), would extend and modify the credit for alternative fuel vehicle refueling properties.
- H.R. 2289, sponsored by Rep. Brad Schneider (D-Ill), would provide a tax credit to encourage the replacement or modernization of inefficient, outdated freight railcars.
- H.R. 1519, sponsored Rep. Tom Rice (R-SC), would phaseout the Mass Transit Account.
Research and development. The legislation enacted at the end of 2020 contained many provisions calling for public-private demonstration projects to speed the development of cleaner energy resources and to move innovative new technologies from the government to the private sector where they can be commercialized. Research and development also will be a key part of the Biden Administration’s efforts to address climate change.
- American Jobs in Energy Manufacturing Act of 2021 (S. 622), sponsored by Sen. Manchin (D-WVa), would enhance the qualifying advanced energy project credit.
- H.R. 1304, sponsored by Rep. John Larsen (D-Conn), would restore the deduction for research and experimental expenditures.
Resilience, indoor spaces, and veterans. The last group of bills addresses diverse topics, but they generally would affect the places where people live or work or they would provide job benefits for certain persons working in the clean energy field.
- Incentives for our Nation’s Veterans in Energy Sustainability Technologies (INVEST) Act (H.R. 257), sponsored by Rep. Barbara Lee (D-Calif), would allow a tax credit for veterans working in the renewable energy field.
- Clean Start: Back to Work Tax Credit Act (H.R. 883), sponsored by Rep LaHood (R-Ill), would provide tax credit to businesses for disinfecting upon the lifting of "stay-at-home" restrictions due to the pandemic.
- S. 891, sponsored by Sen. Angus King (I-Maine), would establish a refundable tax credit for the installation of energy efficient air source heat pumps.
- H.R. 1974, sponsored by Rep. Steven Horsford (D-Nev), would allow an energy investment tax credit for electrochromic glass.
- H.R. 1984, sponsored by Rep. Bill Pascrell (D-NJ), would provide a credit for owning certain disaster resilient properties.
- H.R. 2346, sponsored by Rep. Brad Schneider (D-Ill), would allow 10-year straight line depreciation for energy efficient qualified improvement properties.
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