After years of failed attempts to overhaul the tax code, it appears that Congress may finally be getting serious about reform. Earlier this year, Representative Dave Camp (R-MI), Chairman of the House Ways and Means Committee, set up several working groups and took public comments that were compiled into an enormous catalogue by Joint Committee on Taxation (“JCT document”). Senator Max Baucus (D-MT), Chairman of Finance, also took proposals from his colleagues and wrote a compilation of tax reform options by sector.
In reviewing the JCT document, we are reminded once again of the significant challenge we face in trying to achieve parity within the tax code for clean energy sources. The code is filled with permanent subsidies for the deployment of fossil fuels while credits for renewable energy sources and energy efficiency are temporary, with some set to expire this year, and all within the next few years. The preferential treatment within the tax code for fossils puts clean energy firms at a tremendous disadvantage. While oil and gas companies can make long-term investments that yield high returns in the near-and-long term, clean energy advocates are forced to annually fight for short-term extensions, creating a cycle that prevents the industry from developing any sort of certainty about their long-term place in America’s market.
As a result, renewable energy advocates have long-sought parity within the tax code, only to see those efforts fall by the way-side as Democratic and Republicans in Washington have been unable to reach an agreement. This year, however, the appetite for reform on both sides of the aisle seems to be greater than any time in recent memory. Recently, Chairman Baucus announced that he would retire in 2014. This announcement, coupled with the fact that Representative Camp must abandon his chairmanship due to term-limits, creates a strong motivation for both lawmakers to work together on a compromise that each would view as part of their legacy. Further, the recent scandal involving the Internal Revenue Service appears to be making it clear to legislators in both chambers that reform is necessary.
While the move to reform is encouraging, it is important to keep in mind that although opening the tax code for revision presents a terrific opportunity to the clean energy sector, clean energy advocates must also be prepared to defend their industry. But we are encouraged by the compilation of proposals released by Chairman Baucus, as it puts forth several proposals that create a parity scheme in which cleaner innovations and manufacturing would have some credits for a period of time while the seemingly endless fossil credits would in fact phased-out.
While it is impossible to predict now whether Congress will ultimately be able to advance meaningful reform, it is clear that stakeholders from all sectors of the economy are taking this effort seriously and presenting their proposals to policymakers. In order to be best positioned to influence the process we urge all stakeholders with an interest in the research, development, and deployment of renewable energy and energy efficiency to take Congress’s latest reform effort seriously and implement a legislative strategy.