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Energy Interests Step up Efforts to Defend Tax Breaks

As the political conversation shifts from elections to fiscal matters, renewable and fossil fuel interests are taking to Capitol Hill to fight to preserve their tax incentives in any final fiscal agreement.

While a long-term deal on overhauling the corporate tax code appears out of reach during the lame-duck session that began Tuesday, the wind energy industry and the oil and gas sectors are looking to shore up congressional support.

On behalf of the Governors Wind Energy Coalition, Republican Gov. Terry E. Branstad of Iowa journeyed to Washington to deliver a bipartisan plea for a multiyear extension of the 22-cents-per-kilowatt-hour wind production tax credit, which is scheduled to expire at the end of the year.

In an acknowledgement of fiscal realities, the group told House and Senate leaders this week that wind will soon be able to wean itself off the tax credit but still “urgently” needs an extension.

“While the industry has lowered its costs significantly over the past decade, we believe the industry will be competitive in the not-so-distant future with other well-established fuel sources,” wrote Branstad, who co-chairs the group along with Oregon’s Democratic Gov. John Kitzhaber.

The governors said the modified one-year extension of the credit included in a tax extenders package (S 3521) that the Senate Finance Committee approved in August would provide enough time to account for the 18-24 months needed to plan and finance wind projects.

Under the modification, the credit would apply to wind projects on which construction begins before the end of 2014, rather than those that begin operations by then.

Still, Republican Sen. Charles E. Grassley said Tuesday that tax extenders will likely be on hold while President Obama and House Speaker John A. Boehner try to reach a deal with other congressional leaders to avert the so-called fiscal cliff.

“I hope that they have different views than I do because it would move separately and be OK with me,” he said after a news conference with Branstad on the production tax credit, which Grassley originally wrote in 1992.

While Grassley is an avid backer of the incentive, he said he does not think that extending the approximately 60 expiring tax provisions takes precedence over the looming tax increases and spending cuts set to take effect in January.

Despite the remaining process questions, Grassley and the governors from states with significant wind deployment urged against singling out one tax provision for expiration when a tax code overhaul is expected next Congress.

“Washington should have learned a lesson given by the expiration of the biodiesel tax credit when it was allowed to lapse two years ago,” Grassley said, adding that about 23,000 jobs were “put on hold” because of it.

Along with Branstad and Republican Gov. Sam Brownback of Kansas, who participated in the event by phone, Grassley offered a rough sketch for a much-discussed phaseout of the production credit, which many Republican supporters have said will be necessary to keep the provision in the tax code beyond an additional year.

Brownback said he has discussed setting a three- to four-year period during which the credit’s value would gradually decrease.

Grassley reiterated that the American Wind Energy Association and other wind supporters have acknowledged that the credit cannot be permanent, echoing the four-year time frame put forth by Brownback. Grassley suggested the credit could be reduced by 20 percent a year until it expires.

The oil and gas industry also is working to make sure that it doesn’t get left behind in fiscal talks. On Tuesday, the American Petroleum Institute announced a new phase of its two-year campaign to defend the billions of dollars of tax breaks its members receive annually.

Khary Cauthen, senior director of federal relations for the industry group, said the ads are intended to remind lawmakers and their constituents about the oil and gas industry’s contributions to the U.S. economy.

“More energy development produces more jobs, revenue and energy,” he told reporters on a conference call. “More taxes produce less of all three.”

The Obama administration and congressional Democrats have long sought to cancel billions of dollars of tax breaks enjoyed by the industry. In recent months, some leading Republicans have indicated the breaks may be on the table in talks aimed at averting year-end tax increases and budget cuts and overhauling the tax code.

The tax breaks were reported to have been among the potential revenue sources that a bicameral deficit reduction committee was discussing last year, before those talks fell apart.

API senior tax adviser Brian Johnson said the industry is willing to discuss its tax breaks in the context of a larger corporate tax overhaul, but he said the matter is too complex to be addressed in the lame-duck session that started Tuesday.

“Any conversations to eliminate our deductions in the context of lame duck is a tax increase and will be treated and opposed as such,” he said. “When and if Congress decides to address true corporate tax reform, API and our members stand ready to work with policy makers and achieve the goal of a pro-growth, non-discriminatory tax system.”

Johnson said the group is reaching out to lawmakers and their staffs — including members of the tax-writing committees and House and Senate leadership in both chambers — to remind them of the industry’s contributions to the U.S. economy. Cauthen estimated the industry pays $86 million in revenues to the federal government every day.

Canceling some of the tax breaks, he maintained, amounts to an “invitation to push American investment and jobs overseas.”

The new phase of the campaign includes print and television ads within the beltway and the energy producing states of Alaska, Louisiana, Arkansas, New Mexico, Colorado, North Carolina and Virginia, to name a few.

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