Bingaman Defends Energy Tax Package

May 11, 2004
10:36 AM
Sen. Bingaman this afternoon offered a defense of the energy tax package that is a part of the corporate tax bill being debated in the Senate. He opposes efforts to remove them from the FSC/ETI bill. Bingaman, a member of the Senate Finance Committee and top Democrat on the Senate Energy Committee, takes pride in the role he has played in advancing tax incentives to boost energy production and conservation. Here is his floor speech, as prepared: Encouraging Sound Energy Policy Through Energy Tax Incentives Sen. Jeff Bingaman May 11, 2004 As we bring the debate on the JOBS Act to a conclusion, I would like to talk about some of the very good provisions of this bill that will help our energy policy over the long term. Those energy tax incentives were added to this bill, as a package, on April 8. These energy tax incentives have a long history here in the Senate. Beginning with the 107th Congress, the Finance Committee has worked in a bipartisan and effective mode to find ways to tailor the tax code to carry out the three basic goals that I and others have repeatedly outlined for an effective U.S. energy policy. Those three goals are to increase our domestic energy supplies, to increase the efficiency with which we use energy, and to make sure that energy and environmental policy considerations are treated in a balanced manner as we move forward. That bipartisan work on the Finance Committee was evidenced in the last Congress under the leadership of Sen. Baucus, then the Chair of the Committee. A number of us on the Finance Committee, including Sen. Frank Murkowski and myself, had introduced energy tax incentive bills for consideration by the Committee. Sen. Baucus led us in hearings on the proposals in those bills, and in marking up and unanimously reporting an original bill, S.1979, the Energy Tax Incentives Act of 2002, on February 13, 2002. That was just before the Senate began floor consideration of energy legislation in the last Congress. S.1979 was adopted into last Congress’ comprehensive energy bill, also by voice vote, on April 23, 2002. It was a good package of tax incentives. It contained a number of tax provisions that I personally had proposed. I was glad to be a strong supporter of the package, both as a member of the Finance Committee and as the Majority floor manager for the overall energy bill. When we began the task of putting together energy legislation in this Congress, we used the energy tax provisions from last Congress as our starting point. As Chairman of the Finance Committee, Senator Grassley took the lead in introducing this consensus package of tax provisions as S.597 on March 11, 2003. Sen. Baucus and I joined him from the Finance Committee as co-sponsors. The new chairman of the Energy Committee, Sen. Domenici, also joined us in co-sponsoring this bill. Once again, the Finance Committee, this time under the leadership of Senator Grassley, worked in an effective and bipartisan manner to fine-tune and update a balanced package of energy tax provisions. That package, S.1149, the Energy Tax Incentives Act of 2003, was again reported to the full Senate by the Finance Committee by a recorded vote of 18-2, on April 2, 2003. The strong bipartisan tradition in the Finance Committee and the leadership of both Senators Grassley and Baucus was reflected in their decision to add these energy provisions to the bill before us. That was a choice that many of us had been urging for a some time. Some of us on both sides of the aisle had filed discrete energy tax amendments to this bill, drawn from the Finance Committee package. I was a co-sponsor for efforts by both Senators Dorgan and Reid to add renewable tax incentives to this bill. I had also filed an amendment to this bill containing a package of oil and gas production incentives. I was pleased when these individual amendments were subsumed by the unanimous and bipartisan agreement to include all of the energy tax provisions in this bill, in a manner that was fully paid for. Let me say a few things about some of the highlights of the energy tax package, and why we should keep it in this bill. I will talk first about renewable energy incentives, then about some of the oil and gas provisions, and finally about the incentives for hybrid cars and other advanced vehicles. Renewable Energy The package of energy incentives in this bill will help to promote renewable energy projects in a variety of ways. To begin with, it restores the current 1.8 cent per kilowatt-hour tax credit for wind energy, closed-loop biomass energy, and energy conversion from poultry waste, and extends this credit to all such facilities placed in service before January 1, 2007. This renewal of the production tax credit will have a significant impact on the development of wind energy systems in the United States. According to the Energy Information Administration, or EIA, wind energy is likely to see the greatest increase of all renewable energy technologies as a result of this tax credit. The tax credit will change the economics of new wind projects sufficiently that it will put wind energy in the same cost range as existing coal and natural gas plants. I think we will see continued strong development of wind energy once this provision becomes law. This package will also create the same 10-year, 1.8 cent per kilowatt-hour tax credit for renewable energy produced from 6 new categories of facilities, including: -- converting so-called "open-loop" biomass into energy, -- geothermal energy, -- solar energy, -- small hydroelectric turbines that work on the flow of water through irrigation systems, -- converting recycled sludge from commercial, industrial, or municipal wastewater facilities into energy, and -- converting pig or cow manure or litter into energy. A seventh new facility category can qualify for the 1.8 cent production tax credit, but only for a period of 5 years – renewable energy facilities that produce energy from municipal solid waste. These new facility categories are a major expansion in the number and character of renewable energy facilities that will have their economics improved significantly by this tax credit. As one example, I believe that we will see a significant effect of this expanded tax credit for biomass-to-energy facilities. Not only will it make more kinds of biomass facilities eligible, but the economic effects of the tax credit will lower the production cost of biomass-generated electricity to a range in which biomass facilities can be cost-competitive with the next generation of advanced coal-fired plants. A final feature of the renewable energy tax package in this bill is the treatment of tax-exempt organizations that produce significant amounts of electricity in the United States. These include municipal power authorities, rural electric cooperatives, and Federal entities like the Tennessee Valley Authority. These entities can use additional renewable energy generation to earn tradeable certificates that they can then sell or trade to other firms. Thus, renewable projects by these entities will similarly have their economics enhanced by the tax credit. Oil and Gas Provisions Another major national benefit from energy tax package will be with respect to its effect on natural gas prices. All of us have heard from consumers and industries in our States concerned about the economic hardships caused by high natural gas prices. This energy tax package will help this problem on a number of fronts. First, by making generation of electricity from renewable energy more competitive, the expanded credit for producing electricity from our abundant domestic renewable energy sources will help reduce our current over-reliance on natural gas fired electric generation. Second, the incentives in this package for energy efficient homes and commercial buildings, and for energy efficient appliances and smart meters, will help consumers control their skyrocketing energy costs. Third, the oil and gas title of this package includes provisions that will help us maintain production from existing wells and also stimulate needed new production. The primary beneficiaries of these provisions are independent oil and gas producers - those small to medium sized companies that drill 85% of the wells in the U.S. - not multi-national oil companies. Finally, the energy tax title contains important provisions to reduce the risks involved in the construction of a natural gas pipeline to bring tremendous natural gas reserves in Alaska to markets in the lower 49 states. These provisions were dropped from the old energy conference report over Democratic objections, and I am glad to see that they have been reinstated in this package. The incentives for further production of natural gas, which are contained in section 29 of the tax code, were analyzed by EIA earlier this year and judged likely to be an effective use of tax policy to increase energy production. According to EIA’s analysis, this section 29 provision will: -- result in the drilling of 20 percent more nonconventional gas wells, while the provision is in effect, and an increase in nonconventional reserve additions by 13 percent; -- increase total domestic natural gas production, particularly through 2009; -- reduce natural gas imports; -- reduce the wellhead natural gas price by almost 15 cents per trillion cubic feet over the 2005-2010 period, which could, in turn result in $10.6 billion in consumer savings from 2005 through 2009. The downward pressure on natural gas prices from the provisions in today’s energy tax incentive package can help lower manufacturing costs, and preserve jobs that might otherwise be lost overseas. Advanced Vehicles I could describe other favorable provisions in this package that relate to other oil and gas production; to giving incentives to deploy clean coal technologies; and to helping our electric utility industry (including rural electric cooperatives) restructure to benefit consumers without incurring onerous tax penalties. But I will close by highlighting the provisions that will help provide additional incentives for hybrid vehicles and other advanced technologies for cars and trucks. It is clear from looking at the prices posted at any gasoline station that Americans are now paying very high prices to fill up their tanks. The Secretary of Commerce pointed out earlier this week that we are not strictly, in terms of inflation-adjusted costs, at a historic high for gasoline – that occurred during the Presidency of Ronald Reagan. But most Americans justifiably feel that they are paying too much at the pump these days. There are many short-term and longer-term steps that we should be taking, as a nation, to reduce gasoline prices. With respect to the shorter-term steps, there are a variety of steps that the President can take today, under existing legal authority, to help matters somewhat. I have suggested 13 such short- and medium-term actions to the President in a letter that I sent him on March 24. On a longer-term basis, it is clear that we need more fuel-efficient cars on the road. And while gasoline prices today may be an incentive to buy a more fuel-efficient car, gasoline prices tend to wax and wane. By themselves, gasoline prices historically have not sent effective signals to consumers that fuel-efficient vehicles are good long-term values. This tax package has a Federal tax credit for hybrid vehicles and other alternative fuel vehicles that will help give consumers a price signal that has staying power. It also helps automakers feel more confident about projections for future markets for these vehicles, which will encourage them to invest in their manufacture, and to bring down product costs more. Conclusion When you add up all the provisions that are contained in the bipartisan energy tax package that is in this bill, you can see that it goes a substantial way towards a forward-looking national energy policy. I strongly support these provisions, and their presence in this bill. I commend both Senators Grassley and Baucus for their bipartisan leadership in the Finance Committee over the past two Congresses in developing this package of energy provisions. Those of us on the Finance Committee with interests in energy appreciate their work, and the work of their capable Committee staff, Elizabeth Paris and Matt Jones. I think it is appropriate to recognize the role that former Senator Frank Murkowski played in the initial formulation of this package in the last Congress. He was a member of both the Finance Committee and the Energy Committee. I would like to express appreciation for the Energy Committee staff who helped provide policy support for this package, and in particular Deborah Estes, who served as the coordinator and principal point of contact on the Energy Committee staff for these tax issues. And I appreciate the support shown for these provisions by my colleague on the Energy Committee, and current Chair, Senator Domenici. # # #