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Comparing Energy Provisions in the House and Senate Tax Proposals

By Erin Smith

Thursday, November 16, 2017

With the House and Senate releasing their proposals on tax reform, BPC’s energy team examined their respective energy-related provisions to provide a comparative analysis. At this stage the proposals are quite different and will require negotiation before they can be reconciled into a single bill. In the meantime, see below for a breakdown of their potential impacts. 

Production Tax Credit (PTC)

The PTC awards a maximum credit of 2.4 cents per kilowatt-hour (kWh) to qualifying renewable resources based on the amount of electricity generated over the first 10 years of production. The credit expired for qualifying projects that began construction after 2016 including biomass, geothermal, solar, municipal solid waste, hydro, and marine and hydrokinetic. However, the FY2016 Omnibus Appropriations bill extended the PTC for wind projects constructed before 2020, with provisions reducing the credit 20% per year beginning in 2017 and phased out by 2020.

Table 1: Current PTC Phaseout Schedule based on Year Construction Begins

Technology 12/31/16 12/31/17 12/31/18 12/31/19 12/31/20  Future   Years
Wind 2.4¢/kWh 1.9¢/kWh 1.4¢/kWh 1¢/kWh 0   0
Closed-Loop Biomass, Geothermal, Solar 2.4¢/kWh 0 0 0 0   0
All other qualifying renewable resources 1.2¢/kWh 0 0 0 0   0
Source: https://energy.gov/savings/renewable-electricity-production-tax-credit-ptc; http://programs.dsireusa.org/system/program/detail/658

House tax bill would:

  • Maintain PTC and Phaseout Schedule, but repeal inflation adjustment, effectively reducing the PTC from 2.4 to 1.5 cents per kWh for the remaining part of the 10-year period.
  • Require a “continuous program of construction” until a facility comes online to qualify, rather than the date construction begins. This applies retroactively to projects that already began construction.

Senate tax bill would:

  • Preserve the current PTC and Phaseout Schedule

The Joint Committee on Taxation (JCT) estimates the House provisions would increase tax revenues by $12.3 billion from 2018-2027.

Business Energy Investment Tax Credit (ITC)

The ITC is an upfront credit for a percentage of the investment in qualifying renewable energy projects. Under Section 48, a 30% ITC is available for commercial solar, fiber-optic solar, fuel cell, and small wind projects, with a 10% ITC for geothermal, combined heat and power (CHP), and microturbine projects. Solar and wind project credits are based on when construction begins, while all other technologies are based on when they are placed into service. The FY2016 Omnibus Appropriations bill extended the 30% ITC for solar projects through 2019, dropping to 26% for 2020 projects, 22% for 2021 projects, and 10% for projects begun thereafter. The FY2016 Omnibus enabled large wind projects to claim the ITC, in lieu of the PTC, but did not extend the ITC for small wind, CHP, fuel cells, geothermal, and other “orphaned” technologies.

Table 2: Current Business Energy ITC Phaseout Schedule based on Year Construction Begins (solar and wind) or Date Placed in Service (all other technologies)

Technology 12/31/16 12/31/17 12/31/18 12/31/19 12/31/20 12/31/21 12/31/22 Future Years
Solar: PV, Water Heat, Space Heat, Process Heat 30% 30% 30% 30% 26% 22% 10% 10%
Hybrid Solar Lighting, Fuel Cells, Small Wind 30% 0 0 0 0 0 0 0
Geothermal Heat Pumps, CHP, Microturbines 10% 0 0 0 0 0 0 0
Geothermal Electric 10% 10% 10% 10% 10% 10% 10% 10%
Large Wind 30% 24% 18% 12% 0 0 0 0
Source: https://energy.gov/savings/business-energy-investment-tax-credit-itc

House tax bill would:

  • Eliminate permanent 10% ITC for solar and geothermal projects that begin construction after 2027
  • Extend and harmonize ITC for “orphaned technologies,” with no ITC available for projects that begin construction after 2021.
  • Require a “continuous program of construction” until a facility comes online to qualify, rather than the date construction begins. This applies retroactively to projects that already began construction.

Senate tax bill would:

  • Preserve the current ITC and Phaseout Schedule, meaning “orphaned technologies” still don’t qualify, but the permanent 10% ITC for commercial solar and geothermal projects remains

The JCT estimates the House provisions would reduce federal tax revenues by $1.2 billion over 2018-2027.

Energy Investment Tax Credit (ITC), Residential Energy Efficient Property

Under Section 25D, a 30% ITC is available for the cost of purchasing certain energy efficient residential property. The ITC expired for all property placed in service after 2017 except solar, which phases down to 26% in 2020 and 22% in 2021, after which it expires.

Table 3: Current Residential ITC Phaseout Schedule based on Date Placed in Service

Technology 12/31/16 12/31/17 12/31/18 12/31/19 12/31/20 12/31/21 12/31/22 Future Years
Solar-Electric & Solar Water-Heat 30% 30% 30% 30% 26% 22% 0 0
Fuel Cells 30% 0 0 0 0 0 0 0
Small Wind Turbines 30% 0 0 0 0 0 0 0
Geothermal Heat Pumps 30% 0 0 0 0 0 0 0
Sources: https://www.energy.gov/savings/residential-renewable-energy-tax-credit

House tax bill would:

  • Retroactively extend residential ITC for ALL qualified property placed in service before 2022, but phase out along the same schedule as solar.

Senate tax bill would:

  • Preserve the current ITC and Phaseout Schedule, meaning only solar can still claim the credit.

The JCT estimates the House provision would reduce federal tax revenues by $1.1 billion between 2018-2027.

Oil & Gas

Under current federal law, there is a 15% credit for the cost of enhanced oil recovery projects, and a credit for domestic crude oil and natural gas produced from marginal wells. U.S. parent companies of a foreign subsidiary face taxes on certain oil-related income (ex. refineries, pipelines, and other oversea assets). Section 199 of the federal tax code allows manufacturers to claim a 9% deduction for domestic production activities (6% for oil and gas activities). Meanwhile, oil companies enjoy a deduction for intangible drilling costs, specifically necessary costs related to preparing wells for production that have no salvageable value (i.e. wages, fuel, repairs, survey work, ground clearing, etc.).

House tax bill would:

  • Repeal the enhanced oil recovery (EOR) credit
  • Repeal the marginal well production credit
  • Eliminate the tax on foreign base company oil-related income
  • Eliminate Section 199 deduction for domestic production activities in tax years after 2017
  • Preserve the current tax deduction for intangible drilling costs

Senate tax bill would:

  • Preserve the current enhanced oil recovery (EOR) credit
  • Preserve the current marginal well production credit
  • Eliminate the tax on foreign base company oil-related income
  • Eliminate Section 199 deduction for domestic production activities in tax years after 2018
  • Preserve the current tax deduction for intangible drilling costs

Between 2018-2027, the JCT estimates repealing the EOR credit would increase federal tax revenues by $200 million, while repealing or preserving the marginal well credit would have no effect. Both the House and Senate proposal to eliminate the tax on foreign oil-related income would reduce federal tax revenues by roughly $4 billion. The House proposal to eliminate the Section 199 deduction for domestic production activities after 2017 would increase federal tax revenues by $95.2 billion between 2018-2027; repealing it a year later under the Senate proposal would increase federal tax revenues by $80.7 billion over the same period.

Nuclear

The nuclear production tax credit is available for electricity produced at advanced nuclear facilities during the first 8 years of production. Facilities must be in service by the end of 2020 to claim the credit. Credits are capped at 6,000 megawatts of national capacity and as of 2017, all credits beneath the cap have been allocated. Credits may be transferred among project participants in some instances.

House tax bill would:

  • Modify the credit allocation process beginning in 2021, re-allocating any unused megawatt capacity below the 6,000-megawatt cap to:
    • Facilities that didn’t receive an allocation equal to their full capacity, and then:
    • Facilities placed in service thereafter, in the order they’re placed in service
  • Modify the credit transfer provision by enabling certain public entities to transfer credits to specified project participants.

Senate tax bill would:

  • Preserve the current nuclear PTC, including the 2020 deadline for facilities to claim the credit

The JCT estimates the House provisions would reduce federal tax revenues by $400 million between 2018-2027.

Electric Vehicles

Currently, individuals can claim a $7,500 credit for qualified plug-in electric vehicles. The credit is limited to 200,000 vehicles per manufacturer, which phase out over 4 quarters after their limit is reached.

House tax bill would:

  • Repeal the credit for the purchase of plug-in electric vehicles

Senate tax bill would:

  • Preserve the current credit for the purchase of plug-in electric vehicles

The JCT estimates repealing the credit would increase federal tax revenues by $200 million between 2018-2027.

KEYWORDS: JOINT COMMITTEE ON TAXATION, 115TH CONGRESS, FY2016