By Philip L. Comella and William R. Schubert

Changes in regulation and investment incentives seem to happen at a frenetic pace in the energy sector.

For example, we have previously blogged about the last-minute extension of renewable energy credits and the year-to-year changes in EPA’s biofuel standards. As we pointed out in a recent one-minute memo about possible funding mechanisms for renewable energy projects, the energy sector needs reliable ground rules to attract better investment.  The stakeholders need to know what to expect with a safe degree of certainty.

To this end, piecemeal energy policies that affect players in the industry unevenly and are subject to unexpected change probably need an overhaul.

The Senate Finance Committee just released a paper, drafted by the Committee members’ staffs, which compiled tax reform options affecting infrastructure, energy and natural resources.  The paper stated that as a starting point, any tax provisions affecting energy and conservation should aim to fulfill these principles:

  • Provide businesses with greater certainty.
  • Consolidate and simplify such tax expenditures.
  • Make such tax expenditures fairer and more efficient.
  • Encourage energy independence through a comprehensive approach.
  • Carefully consider whether and how to address any positive or negative externalities.

Not surprisingly, this bipartisan staff effort listed sharply different recommendations about how to meet these goals.  It identified the following basic “reform options”:

  1. Eliminate all existing tax expenditures for the energy sector;
  2. Replace existing energy tax expenditures with technology-neutral tax expenditures;
  3. Modify and consolidate some incentives while eliminating others;
  4. Equalize tax treatment of master limited partnerships (MLPs) in the energy sector;
  5. Establish a carbon tax or cap and dividend approach while eliminating most or all other existing energy tax expenditures; and
  6. Modify conservation easements.

With practically every option on the table, it remains to be seen how quickly Congress will advance a meaningful, comprehensive reform package on energy incentives.