Proposed Energy Tax Bill Includes Incentives for Renewable Energy Production, including an Extension of the Production Tax Credit

March 6, 2008

President likely to veto the bill in its current form

Last week, the U.S. House of Representatives passed an energy tax bill, HR 5351, which includes incentives for renewable energy production and conservation.  Under a 10-year cost estimate from the Joint Committee on Taxation, the incentives provided reach around $18 billion and are offset by revenue increases.  Regarding the production tax credit, HR 5351 would extend and modify existing provisions.

Specifically, the bill would extend the placed-in-service date for three years--through December 31, 2011--for certain qualifying facilities:  wind; open-loop biomass; geothermal; landfill gas; trash combustion facilities; closed-loop biomass; and small irrigation hydropower.  In addition, the bill includes a new category of qualifying facilities that would benefit from the extension of the placed-in-service date:  those that generate electricity from marine renewables.  The aggregate amount of tax credits available to be earned for these qualifying facilities placed in service after December 31, 2009 is capped at an amount that has a present value equal to 35 percent of the facility's cost. 

The production tax credit provision of HR 5351 is estimated to cost $6.57 billion over 10 years.  To offset the cost of this and other provisions of the bill, HR 5351 would deny section 199, a manufacturing tax credit, for certain integrated oil companies and freeze the the credit at 6 percent for oil and natural gas income of other taxpayers.  This provision is expected to raise $13.57 billion over 10 years.  Other revenue raisers include a requirement that oil and gas companies adjust the way they claim foreign tax credits regarding foreign oil and gas extraction income.  This provision is expected to raise $4.08 billion over 10 years.  The imposition of these tax increases on the oil and gas industry led the White House to issue a Statement of Administration Policy that recommends the President veto the bill in its current form. 

Text of HR 5351and the House Ways and Means Committee staff summary of the bill

The White House's Statement of Administrative Policy on HR 5351

The Joint Committee on Taxation's estimated revenue effects of HR 5351

Bracewell will continue to monitor developments in this legislation and incentives for renewable energy production.