[Senate Hearing 117-361]
[From the U.S. Government Publishing Office]
S. Hrg. 117-361
CLIMATE CHALLENGES: THE TAX CODE'S ROLE
IN CREATING AMERICAN JOBS, ACHIEVING
ENERGY INDEPENDENCE, AND PROVIDING CONSUMERS WITH AFFORDABLE, CLEAN
ENERGY
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON FINANCE
UNITED STATES SENATE
ONE HUNDRED SEVENTEENTH CONGRESS
FIRST SESSION
__________
APRIL 27, 2021
__________
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Printed for the use of the Committee on Finance
___________
U.S. GOVERNMENT PUBLISHING OFFICE
48-510-PDF WASHINGTON : 2022
COMMITTEE ON FINANCE
RON WYDEN, Oregon, Chairman
DEBBIE STABENOW, Michigan MIKE CRAPO, Idaho
MARIA CANTWELL, Washington CHUCK GRASSLEY, Iowa
ROBERT MENENDEZ, New Jersey JOHN CORNYN, Texas
THOMAS R. CARPER, Delaware JOHN THUNE, South Dakota
BENJAMIN L. CARDIN, Maryland RICHARD BURR, North Carolina
SHERROD BROWN, Ohio ROB PORTMAN, Ohio
MICHAEL F. BENNET, Colorado PATRICK J. TOOMEY, Pennsylvania
ROBERT P. CASEY, Jr., Pennsylvania TIM SCOTT, South Carolina
MARK R. WARNER, Virginia BILL CASSIDY, Louisiana
SHELDON WHITEHOUSE, Rhode Island JAMES LANKFORD, Oklahoma
MAGGIE HASSAN, New Hampshire STEVE DAINES, Montana
CATHERINE CORTEZ MASTO, Nevada TODD YOUNG, Indiana
ELIZABETH WARREN, Massachusetts BEN SASSE, Nebraska
JOHN BARRASSO, Wyoming
Joshua Sheinkman, Staff Director
Gregg Richard, Republican Staff Director
(ii)
C O N T E N T S
----------
OPENING STATEMENTS
Page
Wyden, Hon. Ron, a U.S. Senator from Oregon, chairman, Committee
on Finance..................................................... 1
Crapo, Hon. Mike, a U.S. Senator from Idaho...................... 3
WITNESSES
Walsh, Jason, executive director, BlueGreen Alliance, Washington,
DC............................................................. 5
Pope, Maria M., president and CEO, Portland General Electric,
Portland, OR................................................... 6
Brill, Alex, resident fellow, American Enterprise Institute,
Washington, DC................................................. 8
Sunday, Kevin, director, government affairs, Pennsylvania Chamber
of Business and Industry, Harrisburg, PA....................... 10
ALPHABETICAL LISTING AND APPENDIX MATERIAL
Brill, Alex:
Testimony.................................................... 8
Prepared statement........................................... 53
Responses to questions from committee members................ 61
Crapo, Hon. Mike:
Opening statement............................................ 3
Prepared statement........................................... 63
Pope, Maria M.:
Testimony.................................................... 6
Prepared statement........................................... 64
Responses to questions from committee members................ 65
Sunday, Kevin:
Testimony.................................................... 10
Prepared statement........................................... 66
Responses to questions from committee members................ 80
Walsh, Jason:
Testimony.................................................... 5
Prepared statement........................................... 80
Responses to questions from committee members................ 89
Wyden, Hon. Ron:
Opening statement............................................ 1
Prepared statement........................................... 90
``U.S. Energy and Climate,'' Rhodium Group, April 20, 2021... 91
Communications
American Chemistry Council....................................... 99
American Petroleum Institute et al............................... 100
American Public Gas Association.................................. 103
Associated Builders and Contractors.............................. 105
Carbon Capture Coalition......................................... 112
Center for Fiscal Equity......................................... 115
Citizens' Climate Lobby.......................................... 121
Fermata LLC (d/b/a Fermata Energy)............................... 126
Independent Petroleum Association of America..................... 129
Industrial Energy Consumers of America........................... 133
National Association of Royalty Owners, Inc. (NARO).............. 134
National Energy and Fuels Institute.............................. 136
Natural Gas Vehicles for America................................. 140
National Stripper Well Association (NSWA)........................ 145
Paper Recycling Coalition........................................ 149
Permian Basin Petroleum Association.............................. 152
Resources for the Future......................................... 155
Zero Emission Transportation Association......................... 163
CLIMATE CHALLENGES: THE TAX CODE'S
ROLE IN CREATING AMERICAN JOBS,
ACHIEVING ENERGY INDEPENDENCE, AND PROVIDING CONSUMERS WITH
AFFORDABLE, CLEAN ENERGY
----------
TUESDAY, APRIL 27, 2021
U.S. Senate,
Committee on Finance,
Washington, DC.
The hearing was convened, pursuant to notice, at 10:05
a.m., via Webex, in the Dirksen Senate Office Building, Hon.
Ron Wyden (chairman of the committee) presiding.
Present: Senators Stabenow, Cantwell, Menendez, Carper,
Cardin, Brown, Bennet, Warner, Whitehouse, Hassan, Cortez
Masto, Crapo, Grassley, Thune, Portman, Toomey, Scott,
Lankford, Daines, Young, and Barrasso.
Also present: Democratic staff: Robert Andres, Professional
Staff Member; and Joshua Sheinkman, Staff Director. Republican
staff: Gregg Richard, Staff Director.
OPENING STATEMENT OF HON. RON WYDEN, A U.S. SENATOR FROM
OREGON, CHAIRMAN, COMMITTEE ON FINANCE
The Chairman. The Finance Committee meets this morning for
its first hearing on the climate crisis in 12 years. It comes
right on the heels of President Biden's announcement of an
ambitious new climate goal, cutting emissions at least in half
by the end of the decade, compared to 2005 levels.
The target comes with big challenges, starting with energy-
related emissions, as well as transportation. The reality is, a
debate on energy and transportation is largely a debate on tax
policy. That puts our committee in the driver's seat when it
comes to job-creating legislation that addresses head-on
existential challenges. The energy tax code in America is a
cluttered, outdated, old heap of more than 40 different tax
breaks for energy sources and technologies, including clean
energy and transportation. And most of those incentives are
temporary, and that keeps clean energy businesses and workers
living in an uncertain state of limbo.
On the other hand, at the base of the system are centuries-
old permanent tax breaks for oil and gas companies. No
uncertainty for them. They get guaranteed benefits funded by
American taxpayers each year. At a time when Oregonians and
Americans everywhere are routinely clobbered by the disastrous
effects of the climate emergency, it is important to be clear
about what this broken crazy-quilt of energy taxes means in
practice.
Under the laws on the books, taxpayers in America are
subsidizing the climate crisis. That is what it means when
fossil fuel interests get special permanent breaks above and
beyond what is available to everybody else. There is a taxpayer
subsidy for mega-storms and terrible floods along our
coastlines and waterways. There is a taxpayer subsidy for
massive wildfire infernos bigger than any decades ago. There is
a taxpayer subsidy for wintertime bouts of extreme cold that
send the privileged fleeing to tropical resorts, while their
neighbors freeze to death in their homes. What is worse,
taxpayers are also on the hook for much of the cleanup after
those disasters strike.
Last week I introduced the Clean Energy for America Act
that would throw the old set of more than 40 tax breaks in the
dust bin. This bill now has more than two dozen Senate
sponsors, and would replace the old hodgepodge of tax breaks
with a new set of three incentives: one for clean energy, one
for clean transportation, and one for energy efficiency. We
believe this is the right policy because the emissions-based
approach also can work hand-in-glove with the smart, fresh
ideas that several other members on the Finance Committee are
going to discuss today.
In terms of tax certainty and predictability, it would
level the playing field for everybody. It would be a job-
creating free-market competition to get to net-zero carbon
emissions. Clean energy producers and businesses that focus on
cutting-edge transportation would no longer have to worry about
their tax incentives disappearing because Congress is in yet
another deadlock.
The bill helps to supercharge innovation in clean
transportation and energy storage. That is a big reason why a
new coalition is lining up behind the Clean Energy for America
Act. You have folks from the environmental community--the
Environmental Defense Fund, the Sierra Club, the Natural
Resources Defense Council--folks from our union groups led by
the building trades--the Edison Electric Institute,
representing utilities of all sizes. They have all announced
their support for the Clean Energy for America Act. It is a new
coalition for a new day.
There is a big opportunity in the months ahead to pass this
legislation, along with investments that have powered the
United States over the last century. It is essential to make
sure that nobody is left behind in the process of tackling the
challenges in moving to clean energy.
The Clean Energy Act for America is the right approach for
high-wage, high-skilled jobs. It is the right approach for
addressing the existential threat of the climate emergency. It
is the right approach for promoting innovation and competing
with companies in China and around the world.
If the Congress does not work hard to create these jobs in
America, other countries are going to grow at our expense. And
to be clear, under the Clean Energy for America Act, what
matters, what the bottom line is, is reducing emissions. A
nuclear plant, or a gas- or coal plant that fully captures its
emissions would qualify for the same amount as a wind or solar
farm. The goal here is not to pick winners or losers, it is to
reduce carbon emissions, and do it in a way that drives
investment in jobs.
Today is an important day for the Finance Committee. We
appreciate our excellent witness panel for joining us, and
let's now turn to Senator Crapo.
[The prepared statement of Chairman Wyden appears in the
appendix.]
OPENING STATEMENT OF HON. MIKE CRAPO,
A U.S. SENATOR FROM IDAHO
Senator Crapo. Thank you, Mr. Chairman. Thanks for holding
this timely hearing.
The tax code, as you said, plays an important role in the
economy and jobs in the energy sector. Energy incentives have
the potential to grow our economy and create jobs, if executed
properly. A number of energy-related policy areas have the
potential for bipartisan agreement, and I look forward to
working with Senator Wyden to develop that agreement.
While there are not a lot of specifics on President Biden's
energy tax credits in the American Jobs Plan, he is clearly
proposing to increase the corporate and international tax rates
and penalize the oil and natural gas industry through the tax
code. We must understand the impact of this proposal on the
10.9 million American jobs in the oil and natural gas
industries. They pay on average seven times the Federal minimum
wage. I look forward to hearing from our witnesses their policy
expertise and their understanding of how President Biden's
proposal will either grow or shrink good-paying American energy
jobs.
Prior to the pandemic, the United States was experiencing
one of the strongest economies in decades. With the Tax Cuts
and Jobs Act in place and an agenda focused on smart
regulation, we saw progress for all Americans, including record
low unemployment rates for African Americans, Hispanics, and
others; 50-year lows in overall unemployment; robust wage gains
skewed toward lower-wage earners; and record high household
incomes followed by record low poverty.
Considering offsetting the cost of energy provisions with a
corporate tax rate increase or increasing international taxes,
especially during a pandemic, is counterproductive and a non-
starter on my side of the aisle.
It will be increasingly challenging to return to an economy
as robust as we saw before the pandemic with endless streams of
tax hikes and actions by the administration such as revoking
the permit for the Keystone XL Pipeline. The Biden
administration's revocation of the presidential permit for the
Keystone XL Pipeline was short-sighted and eliminated over
1,000 jobs, the majority of which were unionized. I am willing
to work on constructive proposals to modernize and innovate our
Nation's energy production, while not adversely affecting the
millions of good-paying American jobs and the existing energy
sources necessary for a comprehensive, affordable, and reliable
domestic energy network.
We should discuss ways to improve and potentially expand
incentives to increase domestic energy production and
manufacturing. However, it is important that we also consider
the effectiveness of existing incentives.
Congress should not be picking winners or losers every year
when temporary credits expire. We must assess whether these
credits continue to be necessary, or whether they have served
their intended purpose of incentivizing growth and investment.
Yet we continue extending credits to technologies that have
achieved a significant market presence in the United States, an
inefficient use of taxpayer dollars.
While I support Congress taking a neutral approach to
energy tax credits, we must consider whether some of these
technologies continue to require assistance and ensure we are
designing the tax code to be fair and effective. Our tax code
should incentivize
technology-wide clean energy innovation, helping to bring
breakthrough power generation to deployment until it can
compete independently in the market.
My technology-inclusive bipartisan energy tax proposal, the
Energy Sector Innovation Credit, or ESIC, legislation would
accomplish this by working with experts at the Department of
Energy, national labs, and other stakeholders to target tax
credits for innovative, clean technology industries. In
addition, ESIC would implement a credit phase-down system based
on market penetration, systematically reducing credits as
technologies increase their market share, instead of allowing
Congress to pick winners and losers. I thank Senator Whitehouse
for leading this proposal with me in the Senate.
Mr. Chairman, I look forward to working collaboratively
with you through the committee process to strengthen U.S.
energy competitiveness by rapidly scaling and diversifying
innovative clean energy technologies.
Thank you, Mr. Chairman.
[The prepared statement of Senator Crapo appears in the
appendix.]
The Chairman. I thank my Northwest colleague. And I want
everybody to understand that I think there is an opportunity
for the members of this committee to come together. The bottom
line has to be reducing carbon emissions. That is something
that I think Americans in every nook of this cranny care deeply
about, and I look forward to working with my colleague on it.
The first witness is going to be Mr. Jason Walsh, executive
director of the BlueGreen Alliance. Our next witness, from my
hometown, will be Ms. Maria Pope, the president and chief
executive officer of Portland General Electric. Our third
witness will be Mr. Alex Brill, resident fellow at the American
Enterprise Institute. Our final witness will be Mr. Kevin
Sunday, who is director of government affairs for the
Pennsylvania Chamber of Business and Industry.
We thank all of our witnesses. As is customary, your
prepared statements will automatically be made part of the
record. And if you can summarize your views in 5 minutes, that
would be good.
Mr. Walsh, please proceed.
STATEMENT OF JASON WALSH, EXECUTIVE DIRECTOR, BLUEGREEN
ALLIANCE, WASHINGTON, DC
Mr. Walsh. Thank you, Chairman Wyden and Ranking Member
Crapo, distinguished members of the committee. My name is Jason
Walsh. I am the executive director of the BlueGreen Alliance, a
national partnership of labor unions and environmental
organizations. On behalf of my partners and the millions of
members and supporters they represent, I want to thank you for
convening this important hearing.
It is our belief that Americans should not have to choose
between good jobs and a clean environment. We can and must have
both. We are in a unique moment to address the climate crisis
and create good jobs as we work to rebuild our economy and
recover from the COVID-19 pandemic.
The Federal tax code is vital to supporting clean
technology deployment. We can also use it to ensure equity in
the transition to a clean economy by maximizing the benefits of
job growth in that economy for all American workers, and for
communities disproportionately impacted by pollution, de-
industrialization, and job loss from incumbent energy sectors.
The science is unambiguous that our climate is in crisis,
and action is required. We have to get to net-zero emissions by
2050 and ensure we are solidly on that path by 2030.
Clean energy investments will be central to accomplishing
our climate goals. These investments already spur economic
growth and significant job creation across this country. At the
same time, not enough of the new jobs that have been created in
the clean energy economy are high-quality family-sustaining
jobs. We need to do better.
As we continue to use the tax code to catalyze necessary
investments in clean technologies and energy efficiency
nationwide, we must ensure that these investments translate
into strong domestic supply chains, high-quality jobs, and
accessible pathways into those jobs, including for workers who
have historically been under-represented in the energy economy.
To this end, we would like to make three recommendations to
the committee, which I elaborate on in my written testimony.
First, Congress should extend and strengthen clean energy
tax credits, including those for onshore and offshore wind,
solar energy, clean transportation, grid modernization, and
energy efficiency. Congress should couple these tax credits
with standards that ensure the use of domestic clean and safe
materials, made by law-abiding corporations throughout the
supply chain, and support employers that adopt high-road labor
practices including prevailing wages, protection against worker
misclassification, and the use of registered apprentices and
community benefit and project labor agreements.
We look forward to working with this committee on Chairman
Wyden's Clean Energy for America Act, which outlines a very
promising technology-neutral approach to clean energy tax
policy that would reward carbon abatement and spur the
deployment and innovation of low- and no-carbon technologies.
Importantly, this bill includes prevailing wage and registered
apprenticeship utilization standards.
Second, Congress should invest directly in manufacturing
and clean energy supply chains. Policies that increase the
demand for clean technology must go hand in hand with direct
investments to support and grow American manufacturing.
Congress can help accomplish these goals by renewing and
robustly funding the Advanced Energy Projects Tax Credit, 48C.
We think 48C can also be strengthened along the lines of the
American Jobs and Energy Manufacturing Act sponsored by
Senators Stabenow and Manchin, in which qualifying projects
must meet key labor standards and are targeted to support
investments in the communities that have lost jobs in
manufacturing, mining, or power generation.
Congress can also adapt the 45M technology production tax
credit to fund domestic production of strategic clean energy
and vehicle component technologies. Upholding such a PTC with
other manufacturing and deployment incentives would help
reverse decades of disinvestment, offshoring, and inconsistent
manufacturing policy that has weakened the competitive edge we
once held in clean tech manufacturing.
Third, Congress should support a job-sustaining transition
to clean vehicles. Consumer incentives stand to play a
significant role in shaping the shift to electric vehicles and
the manufacturing jobs and community impacts of that
transition. The existing 30D consumer tax credit should be
updated to support domestic assembly, domestic content, and
high-road labor standards.
The structure of the credit must help retain and grow the
next generation of high-skilled, family-supporting jobs in the
U.S., and support the growth of domestic electric vehicle
production and supply chains.
In closing, let me reflect on the reason this committee is
gathered here today, which is to discuss the tax code's role in
creating American jobs, achieving energy independence, and
providing consumers with affordable clean energy. I am here to
argue that we can achieve all of these policy goals, while also
ensuring that workers are paid fair wages; that we support and
grow American manufacturing; and that communities that have too
often been left behind in our economy can share fully in the
benefits of clean air, clean water, and middle-class-supporting
jobs.
Thank you for the opportunity to speak to you today.
[The prepared statement of Mr. Walsh appears in the
appendix.]
The Chairman. Thank you very much, Mr. Walsh. And I would
just like to note for the record that the BlueGreen Alliance
was for coalition building before anybody knew it was cool. And
I thank you very much, and we look forward to working very
closely with you.
Our next witness will be Ms. Maria Pope, president and
chief executive officer of Portland General Electric.
STATEMENT OF MARIA M. POPE, PRESIDENT AND CEO, PORTLAND GENERAL
ELECTRIC, PORTLAND, OR
Ms. Pope. Thank you, Chairman Wyden, Ranking Member Crapo,
and members of the committee. I am honored to testify today on
the critical issues of climate change, jobs, and effective
clean energy tax policy.
Climate change is having very real global impacts, and
greenhouse gas emissions must be dramatically reduced on an
economy-wide basis. It will take all of us working together to
make a difference.
Portland General Electric is a fully integrated utility. We
serve roughly half of all Oregonians and three-quarters of the
State's industrial and commercial activity. We share our
customers' and our communities' vision for a clean, reliable,
and affordable energy future. We have ambitious climate goals
to reduce greenhouse gas emissions associated with the power we
serve customers by at least 80 percent by 2030, with an
aspirational goal of zero greenhouse gas emissions by 2040.
We are not alone in our emissions reduction work. The
Edison Electric Institute's members, representing the Nation's
investor-owned utilities, are collectively on a path to reduce
their emissions by at least 80 percent by 2050, and many
companies are pledging even faster, more aggressive timelines.
As of year-end 2019, the U.S. power sector has reduced its
CO2 emissions by 33 percent below 2005 levels.
Advancements in policy, regulations, and technology are needed
to meet these emissions goals, while maintaining reliable
service at reasonable prices.
According to the Intergovernmental Panel on Climate Change,
we have a decade to make significant progress to curb
greenhouse gas emissions. Utilities, or any sector of our
economy, cannot achieve these ambitious goals alone. The
climate crisis will require substantial investments and Federal
policies that serve everyone equitably, maximizing both
benefits to customers and the deployment of a wide variety of
clean energy resources.
The right technology-neutral incentives will accelerate
this transition and activate all players to make significant
investments. To move forward with speed requires new thinking,
which is exactly what we see in the Clean Energy for America
Act.
Chairman Wyden, I want to thank you and your team for this
thoughtfully crafted bill. The legislation provides tax
incentives to address many of these issues, and motivates
everyone, utilities and independent developers alike, to
transform how electricity is generated and used.
Portland General Electric enthusiastically supports this
bill, and we urge its enactment. Critical to PGE and the
utility industry is the optionality between production and
investment tax credits, while also allowing utilities to opt
out of normalization requirements from the new energy storage
credits.
These provisions ensure that the full benefits of tax
incentives are passed through to customers, and that regulated
utilities will not be disadvantaged, leveling the playing field
to accelerate deployment and ensure affordability for all
customers.
Along with affordability, preserving reliability is
essential. Dispatchable clean resources will play an important
role. So will a smarter grid that can harness electricity from
wind, solar, and other resources when they are available, and
store that energy for when it is needed.
We appreciate that Chairman Wyden's bill provides tax
incentives for stand-alone energy storage facilities and new
clean resources that provide important capacity. Additionally,
the option to elect direct payment of these credits enables
broader use and lower costs, savings that can be passed
directly on to customers.
The legislation requires that eligible facilities must be
built by workers who are paid prevailing wages. We value our
partnership with labor, including the IBEW, and PGE supports
this requirement.
I am pleased that the BlueGreen Alliance is here to discuss
their perspective. Today the transportation sector is the
largest source of greenhouse gas emissions. The bill's clean
transportation credits enable transformational change,
encouraging purchase of electric vehicles and investments in
critically important charging infrastructure.
Mr. Chairman, I would like to express my appreciation for
your thoughtful legislation. Your long-term technology-neutral
approach enables all parties' participation in the path to
decarbonization. This is vital as we work together to bring
about change.
Chairman Wyden, Ranking Member Crapo, committee members,
thank you for your time. I look forward to working with you as
you craft these essential policies. Thank you.
[The prepared statement of Ms. Pope appears in the
appendix.]
The Chairman. Thank you very much, Ms. Pope. And what is
little known is our wonderful Oregon witnesses at these
hearings have to be up very early in the morning in order to
participate, and we very much appreciate PGE's focus not just
on being here today, but on a relentless assessment that this
ball game is all about reducing carbon emissions. And I know we
will have some questions for you in a moment.
Our third witness will be Mr. Alex Brill, resident fellow
at the American Enterprise Institute.
STATEMENT OF ALEX BRILL, RESIDENT FELLOW,
AMERICAN ENTERPRISE INSTITUTE, WASHINGTON, DC
Mr. Brill. Thank you, Chairman Wyden, Ranking Member Crapo,
and members of the committee. My name is Alex Brill, and I am a
resident fellow at the American Enterprise Institute.
Thank you for the opportunity to testify at today's
important hearing on the tax code's role in our country's
pursuit of clean energy and energy efficiency.
Let me begin my remarks with a comment on jurisdiction. As
others have noted as well, it is my strongly held view that
lawmakers' interests in curbing CO2 emissions and
addressing climate change are best handled through policy that
can be adopted by this committee. Other committees may have
energy in their names, and important agencies may have
regulatory authority over these issues, but the tax-writing
committees--the Senate Finance Committee and the House
Committee on Ways and Means--are uniquely situated to drive
market-oriented change that reduces carbon emission and
encourages innovation in low-carbon, renewable, and energy-
efficient technologies.
The tax code is a powerful tool. Time and again, taxes have
been shown to affect decision-making by businesses and
individuals. For this reason, basic principles of tax policy
argue for a broad-based, simple, transparent tax system that
treats like activities alike and keeps tax rates as low as
possible.
There are exceptions to these principles. Tax policy can be
effective at intervening when markets are imperfect, and energy
is one such example. Because the environmental and economic
costs of carbon emissions are not reflected in private
transactions between producers and consumers, it is appropriate
that policy-makers use the tax code to encourage clean energy
and energy conservation.
The historical approach has been to enact tax preferences
to encourage specific forms of clean energy or to encourage
specific types of energy efficiencies. But tax subsidies can
be, and often are, costly, complicated, overly narrow, overly
generous, and non-neutral in a technological sense. It is
simply impossible to appropriately and efficiently subsidize
every energy-saving tool or activity. Most subsidies are
temporary, and this creates costly uncertainty for many
taxpayers.
The better option from an economic policy perspective may
carry some political baggage. I am here today to encourage the
committee to give it fair consideration. A price on carbon, or
a fee on polluters, a carbon tax, whatever it is called, is a
superior policy to subsidies. Now I would also note that these
approaches are not mutually exclusive.
A carbon tax is technology-neutral and encourages shifts
away from carbon-intensive sources of energy while encouraging
energy efficiency and conservation, as well as research and
development in new technologies. It is the climate policy
endorsed by thousands of economists, both Democrats and
Republicans, including four former Federal Reserve Board
Chairmen, 28 Nobel laureates in economics, and 15 former Chairs
of the White House Council of Economic Advisers. Most recently,
it has earned the support of the business community as well.
A carbon tax would increase the rate of return on energy
efficiency upgrades, encourage the utilization of more fuel-
efficient vehicles, reduce miles traveled, and drive many, many
small and modest adjustments in the choices made by consumers,
manufacturers, and others on energy consumption. And revenues
from a carbon tax can be used to avoid other tax increases or
to offset other taxes that are more distortionary.
Speaking of tax increases, let me conclude with a final
observation. The tax policy least likely to promote economic
growth and competitiveness in the United States is an increase
in the corporate tax rate to 28 percent. Such a change would
raise the cost of capital for all corporations, widen the
disparity between debt and equity financing, and place the U.S.
first among OECD nations in the combined State and Federal
corporate marginal tax rates.
A carbon tax could raise the same amount of revenue while
avoiding all these pitfalls, and efficiently and effectively
reduce CO2 emissions.
I urge you to give it a fair look, and I look forward to
your questions.
[The prepared statement of Mr. Brill appears in the
appendix.]
The Chairman. Thank you very much, Mr. Brill. I know we are
going to have questions for you in a moment.
Our final witness will be Mr. Kevin Sunday, director of
government affairs for the Pennsylvania Chamber of Business and
Industry.
STATEMENT OF KEVIN SUNDAY, DIRECTOR, GOVERNMENT AFFAIRS,
PENNSYLVANIA CHAMBER OF BUSINESS AND INDUSTRY, HARRISBURG, PA
Mr. Sunday. Thank you, and good morning. Thank you,
Chairman Wyden, Ranking Member Crapo, honorable members of the
committee. I appreciate the opportunity and privilege to appear
before you this morning.
My name is Kevin Sunday, director of government affairs for
the Pennsylvania Chamber of Business and Industry. Our State is
blessed in many respects to be a microcosm of the United
States, whether that is over urban split, or average age,
income, education, and political affiliation, but where we are
not average is on energy.
Pennsylvania is the number two State for natural gas
development, energy production, and nuclear power and is the
biggest power producer on the country's biggest grid. Our
companies are up to the task to meet the many challenges of the
21st century, but meeting those challenges means not fighting
climate change with one hand tied behind our back.
If the United States is going to succeed, it will do so
because it leverages our State's workforce, infrastructure, and
human capital in our energy and manufacturing sectors,
including nuclear, natural gas, and carbon capture.
So we encourage you to work towards a durable, bipartisan
policy that makes it easier to build things again in this
country and that leverages our strengths. But we have little
confidence that Federal policy, established through executive
action or partisan reconciliation, would not simply just run
roughshod over our State's energy economy, an energy economy
that led by prolific production from natural gas and through
competitive markets to lower energy costs by the billions for
families and businesses in Pennsylvania and the United States.
Air quality has continued to improve dramatically in our
State, and since 2005 Pennsylvania has reduced CO2
emissions more than any one other State--as EPA officials
recently noted--in large part because of markets. The
nationwide 2030 goals of the Obama administration's Clean Power
Plan have already been achieved. And in part due to
Pennsylvania's resource base, reducing emissions and sending
power prices in the PJM grid down to generational lows, no
country has a story to tell like that of the United States when
it comes to reducing energy costs and emissions, while growing
the economy.
The U.S. lapped the European Union in growth over the past
decade and a half while reducing emissions more. Our energy
prices are much lower, and we have an abundance of resources
that are lowering our geopolitical risk and that of our allies.
But we cannot take the success for granted.
Tax policy that discourages continued investment and growth
into our States' energy, commodities, and manufacturing sectors
will be a drag on the national economy as a whole. As various
reports noted, the Tax Cuts and Jobs Act significantly improved
the international competitiveness of the United States. In its
wake, companies invested in their facilities and workers. In
fact, in Pennsylvania, wages went up across all occupations by
double digits, with the biggest gains coming from the bottom
quartile of workers.
This is indicative of the fact that the burden of tax
policy is ultimately shouldered by workers, and policy-makers
should take care that the tax policy does not further cost us
jobs or raise energy costs for families and businesses. In just
1 year, the pandemic and associated response measures cost our
State a decade's worth of job growth.
Our industries, particularly those working in energy and
infrastructure, need long-term certainty. Such certainty will
be certainly eroded if Federal officials follow up on
generational tax and regulatory reform with even more sweeping
mandates and regulations in the other direction in short order.
Tax increases on their face are chilling to investment, but
so is establishing the precedent that there will be massive
changes to tax and regulatory policies following every election
cycle. If in fact it truly is the case that there is a desired
outcome for a cleaner and more efficient economy--and that is a
goal we share--we are not going to reach that goal by pairing
the highest corporate rate in the developed world with the
slowest, most bureaucratic, most expensive infrastructure
build-out regime.
Too often, whether it is due to the National Environmental
Policy Act, or spurious litigation from third parties, or
States obstructing federally approved infrastructure, it is
taking entirely too long to build things in this country.
Neither will be well served by tariffs and trade policies that
raise costs across the supply chain.
In closing, our State's success and programs and policies
at the Federal level have helped the United States keep costs
low, produce massive economic growth, become energy
independent, and lead the world in reducing greenhouse gas
emissions. There is more work to be done, to be sure. So let's
come together and produce durable, effective bipartisan energy
and environmental policy that keeps the United States in a
flagship position in an increasingly challenging and dynamic
global marketplace.
I thank you for the opportunity to appear before you today
and look forward to answering any questions you may have. Thank
you.
The Chairman. Thank you very much, Mr. Sunday.
[The prepared statement of Mr. Sunday appears in the
appendix.]
The Chairman. Now let me start with you, Ms. Pope. The
President committed our country to reducing carbon emissions
more than 50 percent below 2005 levels by 2030. This is an
ambitious target, but in line with what the science says is
needed to avert a climate disaster.
My take is that the lynchpin here is the power sector. To
meet the President's goal, America will need to reduce carbon
emissions from the power sector by 80 percent in the next
decade.
Now, we are obviously digging in to how the tax system
affects this, and my view is, the combination of certainty with
flexibility, putting a system in place that provides long-term
certainty to businesses, while simultaneously providing the
flexibility to innovate and to make the best clean energy
investments, is what we are going to need.
In your view, what would be the most helpful tax policies
to put that 80 percent target in reach for you and other
utilities?
[Inaudible.]
The Chairman. Ms. Pope, you are on mute.
Ms. Pope. I beg your pardon. Thank you, Chairman Wyden.
The Chairman. Thank you.
Ms. Pope. Let me just start over again. You are absolutely
right. To meet these ambitious goals, we are going to need the
certainty and the flexibility that you are talking about.
Certainly it is going to take us a number of years to get
Portland General Electric to 80-percent reductions by 2030, and
then the more ambitious net-zero goals. But we need to make
investments in clean, renewable technologies consistently, and
the well-designed tax incentives like those in your Clean
Energy for America Act will give us that long-term certainty
and flexibility to accelerate the energy transition and
activate all players for that investment.
So for us, it is particularly important that we have
technology-neutral incentives that encourage and reward
innovation that really works. Our customer mix, and all of the
regions across the country's utilities, are diverse. And the
widest set of solutions is needed to meet the broader sets of
demands for the entire country.
It is critical also that all parties are able to fully
utilize tax credits. So for us to work together on these
ambitious goals, we are going to need to be able to have a
choice between production tax credits and investment tax
credits, and the normalization alternative for the energy
storage investment tax credits.
It is especially important to utilities that we are able to
participate in these credits effectively and level the playing
field. Affordability passed directly on to customers is top of
mind as we work towards a clean energy future. It is going to
take all of us working together. So thank you.
The Chairman. Reducing carbon emissions from the power
sector by 80 percent in the next decade is clearly going to be
ambitious, but we are committed to working with you and others
to get there, as without it, there is a climate catastrophe,
and we cannot have that.
Now let's move to Mr. Walsh. I want to talk about this
argument that if you move to a clean energy economy, somehow
you are throwing in the towel on good jobs. I am going to
submit for the record now an independent analysis from the
Rhodium Group that shows that a clean energy plan like mine
would create nearly 600,000 new jobs, more than eight times as
many as might be lost in fossil fuels over the next decade.
[The report appears in the appendix beginning on p. 91.]
The Chairman. Now, Mr. Walsh, in your testimony you say
that the real issue is ensuring more good-paying jobs. And I
note that you call for applying Federal labor standards to
areas like tax incentives, which is similar to what I have
proposed.
What in your view--because we are talking about the real
world--is the impact of these kinds of provisions for workers?
And what else should the Congress be looking at to make sure
that jobs are high-quality and well-paid?
Mr. Walsh. Thank you, Mr. Chairman. I think provisions in
labor standards like the ones you included in your technology-
neutral bill make it much more likely that the wages that are
paid on these projects building out this infrastructure pay
family-
supporting wages and benefits and give workers a voice on the
job.
So including standards like prevailing wage and registered
utilization is key. There are other standards to include as
well. And I would argue for domestic content standards as well
to make sure that we capture the whole manufacturing supply
chain benefit of these kinds of investments.
The Chairman. Now, one other question for you, if I might,
Mr. Walsh. We held a hearing on U.S. manufacturing in the
committee here recently. It was a hearing on incentives for
domestic manufacturing, and there was enormous interest among
committee members, broad bipartisan interest. And clearly the
climate crisis is wreaking havoc from storms and fires and
droughts. But it also provides an opportunity for the country
to reclaim the mantle of manufacturing and technological
leadership through investments in clean energy.
We had a leader from the Steelworkers, Donnie Blatt, argue
at the March hearing that this is not an abstract issue of
global power; it is a real challenge in American communities
every single day for American workers.
Your organization has been putting a lot of time into this
issue. What would be the one or two policies, let us say, in
the interest of brevity, that you think are most important to
make sure the clean energy revolution is a catalyst for
American manufacturing?
Mr. Walsh. Thank you for the question. In terms of one or
two policies, I would say we need to come at this from both the
supply and the demand side. So on the demand side, ensuring
that domestic clean energy products and materials and
components are manufactured in this country by tying clean
energy tax credits to domestic content incentives. And then on
the supply side, ensuring that domestically manufactured
components receive tax credits that directly support the build-
out and retooling of domestic manufacturing.
There are ways to do that and examples that we have from
48C potentially also, and adapting the 45M tax credit. And we
would love to explore those with the committee.
The Chairman. All right; let's go to Senator Crapo next.
Senator Crapo. Thank you, Chairman Wyden.
First to you, Mr. Brill. A number of companies and
organizations have made reduced or zero-carbon commitments by
2050, and some by 2030. However, global and national emissions
goals will be hard to achieve until the technologies essential
to meet them, many of which currently do not exist, are
developed and deployed.
Can you speak to our current energy technology landscape
and how energy innovation will play a key role in significant
decarbonization?
Mr. Brill. Thank you, Senator Crapo. As we work towards
reduced carbon emissions in the United States, both the
increased utilization of existing technologies is important--
that is, wind and solar that we know today, geothermal, and
others--but over the longer term and the medium term, new
technologies, some which may exist in a lab or some which may
not exist at all, will be increasingly important, both here in
the United States and globally.
This involves both developing those technologies which are
new and innovative ways to generate energy without carbon
emissions, but also to do that in a cost-effective way, to
bring down the costs of those new technologies over time.
Policies, whether they be R&D-focused, or the carbon pricing
that I suggested, all of these will encourage private-sector
activity in the development of these new technologies which are
necessary, both here and around the world.
Senator Crapo. All right; thank you.
And, Mr. Sunday, like Pennsylvania, my State of Idaho has a
rich history with nuclear energy development and deployment,
particularly because of the Idaho National Lab's leadership in
nuclear energy R&D. Currently, nuclear energy provides roughly
20 percent of our electricity and is the largest clean energy
source in the United States.
Do you think we can meet our clean energy targets without
continued investment and R&D in nuclear power? And can you
speak to the benefits that nuclear power provides not only for
clean energy production, but also for providing reliable
baseload power and grid reliability?
Mr. Sunday. Thank you for the question, Senator. And no, I
do not think we can meet our goals without nuclear power, and I
am not aware of a credible international commission forecast
that does not have a role for nuclear power moving forward.
In terms of the benefits, according to the National
Association of State Energy Officials' jobs report, nuclear
pays the highest hourly average wage of all energy resources.
And within our State, the PJM grid, but for the maintenance
outages every 18 to 24 months, nuclear is going to operate 24/7
regardless of weather conditions. And it has the benefit of
storing fuel onsite. So it is very unlikely to ever have a
disruption. It is a fuel source that is safe, it is reliable.
We have a strong vendor and supply chain base in Pennsylvania,
and our leading universities, like Carnegie Mellon and Penn
State, are continually producing world-class nuclear
engineering graduates who are looking for opportunity now and
in the future.
Senator Crapo. Well, thank you. I think nuclear energy
needs to be one of the key parts of our national energy policy
in achieving these laudable goals.
My final question, back to you, Mr. Brill, is on the
capital gains rate increase that we expect to be proposed by
the President in his speech tomorrow night, and has already
been proposed, frankly.
On April 25th, The Wall Street Journal editorial board
responded to talk about raising the top tax rate on capital
gains to 43.4 percent, with a headline that read ``The dumbest
tax increase.''
The most important reason to tax capital investment at low
rates is to encourage savings and investment. Consumption--
buying a car or a yacht--faces a sales tax, but not a Federal
tax. But if someone saves income and invests in the family
business or stock, he or she is smacked with another round of
tax. If you tax something more, you get less of it. Tax capital
income more, and you get less investment, which means less
investment to improve worker productivity and thus smaller
income gains over time.
My question to you is, why is it important to have a low
capital gains rate to encourage investment and growth? And what
do you think of the trial balloon to raise the top rate on
capital gains almost double?
Mr. Brill. Thank you for your question, Senator. The
capital gains tax rate has bounced around over time, but
economists know that, in terms of long-term economic growth, it
is important in our country, or in any economy, to constantly
invest and grow the capital stock.
The capital gains tax rate works counter to that objective.
In particular, raising the capital gains tax rate to 40 or 43
percent would encourage what is known as lock-in. It would
discourage investors from reallocating capital into more
productive ways. It is probably counter to our objectives to
move towards cleaner energy. It is also counter to the
objective for achieving capital deepening, a larger capital
base here in the United States, which is good for productivity
and good for workers' wages.
Senator Crapo. Thank you. Thank you, Mr. Chairman.
The Chairman. Thank you, Senator Crapo. And next we have--
with their hectic schedules, next will be Senator Stabenow. And
Senator Stabenow has been the leader of the green manufacturing
effort with Senator Manchin and Senator Daines.
Why don't you go ahead, Senator Stabenow?
Senator Stabenow. Well, thank you so much, Mr. Chairman.
And I first just want to thank you for this really important
hearing. And I am proud to be a co-sponsor of your Clean Energy
for America Act, which I think is so significant.
And before asking a question--I know, Mr. Chairman, you
have heard me say this before, but whenever we talk about
winners and losers, I just have to go back to 1914 when Henry
Ford and Thomas Edison in Michigan first started out making an
automobile and tried to have it battery-operated, and it was so
difficult with all the challenges on range and a whole host of
things. And 2 years later, Congress decided to put its full
weight on tax policy behind oil and gas in 1916, and basically
gave robust tax credits that ended up essentially in no-
interest loans, and 100 years later, they are still winning.
So we did actually, in our tax policy, pick winners and
losers. And I really appreciate that you are just simply trying
to level the playing field. And maybe we will get back to what
Henry Ford and Thomas Edison actually envisioned over 100 years
ago.
There is no question that when you think about the climate
crisis, we have unprecedented challenges. But what is exciting
is the fact that we have great economic opportunities as well.
And that is really what we are talking about here.
We have some catching up to do on clean energy
manufacturing. We know, as our other hearings have shown--I
mean, today China holds 75 percent of the world's manufacturing
capacity for lithium ion battery cells and builds over 70
percent of the solar panels. And the current semiconductor
shortage shines a light on the threat that supply chain
vulnerabilities pose to U.S. global competitiveness.
But we know we can change that, and that is what this is
really all about. So, Mr. Walsh, thank you for the BlueGreen
Alliance's work for so many years. I remember when you first
got it started, and I have been a strong supporter the entire
time.
Thank you for endorsing the American Jobs and Energy
Manufacturing Act, which, as you indicated, is a bipartisan
initiative with Senator Manchin and Senator Daines. And we
really believe that the 48C program can once again drive
investments in clean energy manufacturing.
And also, before asking you to respond, Mr. Walsh, I think
it is important to know--and I am really pleased to be working
with our chairman on the production tax credit for domestic
production of batteries, semiconductors, solar cells. I
wondered if you could speak to why we need to be providing
incentives, not only investments in new and retooled
manufacturing plants, which I think is critical, but also a tax
incentive for each unit produced.
And what would be the implications of providing an
investment tax credit only, but not a production tax credit,
for manufacturing?
Mr. Walsh. Thank you for the question, Senator Stabenow,
and thank you very much for sponsoring the American Jobs and
Energy Manufacturing Act. We were proud to endorse it.
As you know, that is a 30-percent investment tax credit,
which was created to re-equip, expand, and establish domestic
clean energy transportation grid technology manufacturing
facilities. We particularly appreciate the way in which you
provide incentives in that legislation to site facilities in
communities that have suffered whole economy job loss and
deindustrialization. We think that is a critical equity
consideration. 48C is incredibly important. It has historically
been successful in generating investments in new facilities and
equipment. It has been less successful in generating large-
scale investments and the durable incentives necessary to grow
domestic manufacturing supply chains over the long term.
So production tax credits like 45M can fill this gap and
provide enough security in terms of demand for investors to
create the kind of large-scale facilities that are not only
necessary to meet our climate ambitions, but to keep us
globally competitive.
As you know, these are big capital expenditures. Investors
are going to need that certainty, and they are going to need
some assistance. And we view an investment tax credit and a
production tax credit as complementary to achieving those
goals.
Senator Stabenow. Thank you. And, Mr. Chairman, I know we
have a number of members who are all balancing schedules, so I
will not ask another question. But I have many questions and
appreciate the panel, including the 30B consumer incentives
that are so important on the front end on electric vehicles,
and I look forward to working with you and with everyone as we
move what I think is a very exciting economic opportunity
forward.
It is a win/win on how we address the climate crisis, and
also create jobs. So thank you.
The Chairman. Thank you, Senator Stabenow. And we look
forward to working with you on greening up manufacturing and
getting that win/win.
Our next panel member to ask questions will be Senator
Carper, who is also chairman of Environment and Public Works.
He has his hands full. We appreciate him.
Senator Carper. Mr. Chairman, thanks so much. This is a
terrific hearing, with terrific witnesses, and I am grateful to
both you and the ranking member.
The ranking member raised the issue of nuclear. My wife and
I usually come home after church on Sunday mornings, and the
first thing we do is go to the kitchen and fix breakfast. And
we had breakfast with a guy named Fareed Zakaria. And this last
Sunday he spent the last 4 minutes of his show talking about
nuclear, just providing advice, unsolicited advice, about
nuclear.
Anyway, he provided some friendly advice to President Biden
that he should not dismiss and lose sight of what nuclear is
already doing in terms of providing carbon-free electricity,
and the future that it might provide with advanced technology.
So I just leave that with my colleagues.
I am going to send around a copy of his 4-minute close on
his show to our colleagues and just ask you to take a look at
it, if you will.
I would thank all the witnesses for joining us today. This
could not be more interesting, more important, more timely.
Last week our President celebrated Earth Day by committing the
United States to becoming 50-percent cleaner in terms of
greenhouse gas emissions by the end of the decade.
Through my work on this committee, and as chairman of the
Senate Environment and Public Works Committee, I remain
committed to passing laws that would drive down dangerous
emissions and clean energy costs for consumers, help tackle the
climate crisis head-on, and support economic growth in this
country.
Today, clean energy investment and production tax credits
have been indispensable tools in driving clean energy and
economic growth in our country. But to me, with our ambitious
climate goals, we can do better, and indeed we must do better.
That is why I was delighted to join our chairman again in
introducing the Clean Energy for America Act, and I was
particularly pleased that this year's legislation draws on a
number of common-sense policies that some of our colleagues and
I have co-authored this year. The Save America's Clean Energy
Jobs Act, which I introduced with Senator Whitehouse and
Senator Heinrich, will provide temporary refundability for
clean energy credits.
Clean energy developers are currently unable to access tax
equity financing as a result of the pandemic, leaving clean
energy projects frozen and unable to break ground.
Refundability of these credits will provide efficient access to
capital that will immediately help facilitate job creation in
the clean energy sector, all while contributing to more
reliable power, cleaner air, and a true win/win/win situation.
Question: Ms. Pope, would you share with us, please, your
thoughts on how refundability of these credits could lead to
increased clean energy innovation and capital employment, as
well as to more good-paying jobs? Ms. Pope, please.
Ms. Pope. Senator, thank you. And thank you for your
question and your leadership on this issue, as well as your
leadership on the nuclear issue.
Your legislation recognizes near-term challenges that many
projects face in terms of a direct-pay option. The short-term
nature is helpful, but longer-term it would be more helpful if
there was more certainty.
Direct-pay lowers the project costs, and these are savings
that can be directly paid to customers. And as you know, there
is transition in the work we have to do that is very
significant. So keeping customer prices low is very important.
But it also frees up capital to invest in additional clean
energy projects. These investments, as has been noted, will
result in additional jobs. Direct-pay's impact on innovation
lowers project costs, and, when combined with technology-
neutral credits, gives us the ability to innovate and choose
technologies that best maintain a reliable and affordable
energy grid.
Given the investments that are needed in the next decade in
order to reach the aggressive greenhouse gas emission reduction
goals that the President, Congress, and we at PGE share, as do
many other utilities across the country, it is going to take
even longer-term direct-pay options such as that proposed by
Chairman Wyden.
But thank you so much for your support of the direct-pay
option.
Senator Carper. Thanks, Ms. Pope.
Mr. Chairman, I think I am probably close to out of time,
but I would like to ask one last question for the record, if I
could.
Mr. Brill laid out a thoughtful endorsement of implementing
a technology-neutral carbon tax to address global warming. I am
going to ask, for the record, for the reaction of our witnesses
to what he had to say. Is this a fool's errand? Is this
something that we ought to get serious about? And if you could
just respond to that for the record.
I think I have one more minute. If I can, I will ask a
quick question. It is a question of Mr. Walsh, please, and it
deals with the 30C tax credit for vehicle charging and
refueling stations. The transportation sector generates about
29 percent of our carbon emissions, the highest source of
carbon emissions in our country, global emissions. To clean up
our transportation sector, we need cleaner vehicles powered by
sources other than oil, and we can't have clean vehicles
without clean vehicle fueling infrastructure. We've got to have
both.
That is why I recently introduced the Securing America's
Clean Fuels Infrastructure Act with Senator Richard Burr, our
colleague on this panel, along with our colleagues Senator
Cortez Masto and Senator Stabenow.
This legislation will improve and expand the 30C tax
incentive for investments in clean vehicle infrastructure, like
electric vehicle charging stations and hydrogen fueling
stations. And this legislation is complementary to broader
efforts in the EPW Committee, which I chair, to decarbonize our
transportation sector. This infrastructure is necessary for the
success of our American automakers and for the widespread
adoption of cleaner vehicles. That's why the major automakers,
along with the fuel cell and electric vehicle infrastructure
sector, support the legislation.
The question for the record for Mr. Walsh: Mr. Walsh, can
you speak for us--on the record--to the importance of tax
policy that supports the deployment of clean vehicles and clean
vehicle infrastructure?
Thank you all for coming today, and for responding to our
questions, and your willingness to respond to a few more for
the record. Thank you so much.
The Chairman. Thank you, Senator Carper.
Senator Grassley?
Senator Grassley. Thank you, Mr. Chairman.
Green energy, of course, is music to my ears. I am the
father of the wind energy tax credit, and 30 years have proven
it to be a very successful initiative.
Now on a different note, leading to a question for Mr.
Brill, I often hear my Democrat colleagues complain about
companies paying zero taxes. However, oftentimes the reason a
profitable company pays no tax is they are eligible for tax
incentives such as green energy incentives.
Recently, there have been proposals from both sides of the
aisle to make incentives in green energy essentially refundable
by providing a direct-pay option. This option is included in
the chairman's technology-neutral proposal.
I do not necessarily object to direct-pay. It might make
sense in certain circumstances, but in light of my colleague's
concern about a company paying zero tax, my question for Mr.
Brill is, couldn't a direct-pay option result in companies
having a negative tax liability, that is, receiving a tax
refund in excess of taxes paid?
Mr. Brill. Thank you for the question, Senator. The answer
is, certainly yes, the direct-pay option is only useful or
effective in the cases where there is no other tax liability.
So it, by definition, would increase the number of firms paying
no, or in fact negative tax rates. These two issues are, just
as you are suggesting, certainly in conflict: to be concerned
about businesses in particular years not paying Federal income
tax and then, at the same time, promoting policies that would
exacerbate that reality.
The truth is that it is quite normal and natural in many
instances for firms not to pay corporate income tax, even if
they are showing book income. That is a result of a sound
corporate income tax system involving net operating loss
carried forward and carried back, and is not necessarily
something that policy-makers should be concerned with.
The proposal is to create minimum taxes for certain
businesses that do not pay tax when they report income, which
is in effect bringing back the alternative minimum tax in
another form, something that is not good, I think.
Senator Grassley. You are getting into my next question,
Mr. Brill, so stay there. Due to the concerns for a company
reducing their tax liability to zero, President Biden has
proposed a new 15-percent corporate minimum tax based on book
income. Of course, book income generally does not reflect tax
incentives.
So, Mr. Brill, for some companies, wouldn't a book tax
effectively remove the benefit of green energy incentives, thus
undermining the legislative intent of those provisions?
Mr. Brill. It very well could, Senator; you are correct.
The minimum tax that President Biden has proposed, if fully
implemented as it is being described, would negate many of the
provisions that are also being advocated and proposed. And so,
they work at cross-purposes, for sure.
Senator Grassley. The next question will be for Mr. Walsh.
President Biden's infrastructure program calls for over $174
billion in consumer rebates for electric vehicles. However, the
Energy Information Administration projects that in 2050, 81
percent of the new vehicle sales will still be gas-powered or
flex fuel. Biofuels are the only option to make significant,
immediate carbon reductions on the cars that are on the roads
today.
So, Mr. Walsh, would you agree that the investment should
also be made in biofuels infrastructure to maximize carbon
reductions in the near future?
Mr. Walsh. Thank you for the question, Senator Grassley. As
a coalition of a bunch of different partners, we have typically
not taken positions on biofuels. But let me talk to some of our
partners and get back to you on that one.
Senator Grassley. Well, thank you very much. And then also
for you, Mr. Walsh--and this will have to be my last question--
the United States only comprises one-sixth of all global
greenhouse gas emissions, and the international demand for
energy is rapidly growing.
As you mentioned in your testimony, the United States has a
significant number of manufacturing facilities specializing in
wind energy. One of those is in my State of Iowa.
How can the United States support more exports of our clean
energy production and other technologies to meet global demand
for alternative energy?
Mr. Walsh. We can support the wind industry and other clean
technology industries with a range of both tax policies and
direct investments. And doing so, we would argue--to the points
you make--would make them competitive to capture market share
in what will be one of the most important global economic races
of this century.
So we would be strongly supportive of that.
Senator Grassley. Thank you, Mr. Chairman.
The Chairman. Thank you, Senator Grassley.
Senator Cantwell?
Senator Cantwell. Thank you, Mr. Chairman, and thanks for
this important hearing. It is ironic that over in the Energy
Committee we are having a discussion about carbon production on
public lands. And I think there is an important nexus here.
I know one of the speakers was saying how this is the
committee of jurisdiction on important incentives, but over
there we are not really charging the right royalty response to
the impacts of carbon pollution on public lands. If we did, and
took into consideration their true impact, we would generate
billions in royalties.
So maybe Mr. Walsh would have a second to respond to that.
But generally, I am here to continue to talk about the price on
carbon--you know, making sure that we move forward. Senator
Hatch and I, in 2007, did the first tax incentive, $7,500 for
electric vehicles. So just think about that. That was 2007. And
now look at where we are today with the plethora in the
marketplace of many electric vehicles, and in some States even
like mine, moving forward on trying to create all-electric
markets by a certain time period.
So one of the issues I think that we have to address is,
about 5 percent of our vehicles represent 23 percent of the
emissions, and that is heavy-duty trucks. So thank you, Senator
Wyden, for your legislation.
But I want to hear whether either Mr. Brill or others
support a 30-percent ITC, investment tax credit, on heavy-duty
trucks, so that we can get that aspect, which is again
disproportional to the amount. They might be 5 percent of the
vehicles, but they are 23 percent of the emissions.
So can we--and should we--tackle that next? And obviously I
would like to hear people's views on why setting a price on
carbon--Senator Collins and I had a cap and dividend bill. So
we were trying to send the right market signals and give time
for the market to adjust. So I see now where chambers of
commerce and people like AEI and others are saying, ``Yes, that
is right. We need this price signal.''
So I am not talking about--I am asking the AEI witness to
comment about why predictability is so important. But first,
Mr. Walsh, if you wanted to comment on public lands and why a
30-percent ITC on heavy-duty trucks is important?
Mr. Walsh. Thank you for the question, Senator. I mean we
are, I think, supportive of getting a fair return for taxpayers
in terms of royalties from extraction on public lands. I'm
happy to follow up with you on that, to get into a little bit
more detail.
On trucks, we would have to look at the specifics of an
investment tax credit on trucks, but conceptually that is going
to be incredibly important. We are already on, I think, a clear
pathway with passenger cars. We have some more work to do to
get there with trucks. And we would welcome an opportunity to
talk with you and your staff about that.
Senator Cantwell. Well, I think the technology is there.
And just like with everything, nonrefundable engineering costs
are costly things that drive or prohibit the market. And what
we found with the tax credit for automobiles is that it really
accelerated in just a short period of time, and look at where
we are. And that is the whole point. I think that is what we do
best, frankly. I think we incent things that take some of those
costs off the table to make the manufacturing market go faster
than it might normally, when otherwise the cost of the cars is
prohibitive and they cannot get the market up and running.
So anyway, Mr. Brill, on the larger question about AEI and
chambers of commerce looking for a focused approach, and why
that is better and predictable----
Mr. Brill. Thank you very much, Senator. As I mentioned in
my written testimony, numerous economists across the political
spectrum have, for a long time, advocated for a price on
carbon. And as you noted, more recently the business community,
BRT, the Chamber of Commerce, API, and others have also joined
in that view.
A price on carbon is a very broad-based strategy for
addressing climate emissions, as opposed to the narrow approach
of a specific subsidy or a targeted tax credit. For that
reason, it works through a myriad of channels. It encourages
both the innovation of new technologies, encourages consumers
to alter their behavior to reduce energy consumption overall,
and encourages the deployment of existing technologies.
It is my view--and I think the view of many who say this
from an academic perspective, as well as now from a business
perspective--that this broad-based approach is a durable policy
and one that could lead to the increase in deployment of the
technologies we know, as well as the development of the
technologies that we cannot yet even imagine.
Senator Cantwell. Thank you. And, Mr. Chairman, I just
would be remiss if I did not reiterate my interest in--look, I
think we have to work across global markets on these issues. I
think we must engage other countries, big markets that are big
CO2 polluters, and get them to join us on pledges to
drive down the price on products that are going to help us deal
with carbon emissions.
I think the more we create that global market, the better
we create the opportunities for our U.S. products as well. So
anyway, thank you for this important hearing, and I certainly
support your legislation that was just recently introduced, as
a broad way to incent generation of more carbon-free energy.
Thank you, Mr. Chairman.
The Chairman. Thank you. I would note the fact that in
2007, once again, you were ahead of the times with Senator
Hatch on electric vehicles, and so we appreciate all the
leadership.
Next is Senator Menendez.
Senator Menendez. Well, thank you, Mr. Chairman.
In a newly released study by the largest reinsurance
company in the world, it found that climate change would cost
the global economy 18 percent of GDP by 2050, including 10
percent of U.S. GDP.
While some have said that transitioning to renewable energy
is too expensive, or that it kills jobs, with every passing day
and every passing disaster it becomes more and more clear that
the cost of inaction is far higher than the cost of creating a
modern, sustainable clean-energy economy.
So, Mr. Walsh, will the transition to a clean energy
economy, coupled with strong coordination with our global
partners to combat climate change, be beneficial for our
economy and our Nation in the long run?
Mr. Walsh. Thank you for the question, Senator. I think it
would. And actually the first analysis I would point to is one
by the Rhodium Group that Senator Wyden entered into the record
at the start of this hearing, which shows net job creation of
roughly 600,000 jobs annually over a 10-year period. That is
only looking at decarbonizing the electricity sector. Obviously
we have to do this economy-wide. Bottom line, we are going to
have to manufacture and install and operate and maintain an
enormous amount of new generation capacity, along with
transmission lines and energy storage, to make that possible.
And that will create an enormous number of jobs.
I think the bigger challenges will be, one, ensuring that
these jobs are high-quality and accessible and across the full
value chain, including manufacturing; two, targeting
investment, and the jobs it creates, to parts of the country
where that investment in job creation has lagged to date; and
three--which is very much related to two--ensuring that workers
and communities that have relied on fossil energy sources are
not left behind.
Senator Menendez. Absolutely. So we use our tax code to
incentivize private-sector investment in areas that fit the
public good. And I think we have established that acting on
climate is an economic imperative, and that our continued
reliance on fossil fuels not only harms public health and our
environment, but also our economy--and that clean energy
technologies have the potential to create millions of good-
paying jobs right here at home.
Yet, the United States continues to subsidize the fossil
fuel industry to the tune of billions of dollars every year.
Instead of moving us in the right direction, my Republican
colleagues used the 2017 tax bill to give even more handouts to
big oil.
I previously introduced the Close the Big Oil Tax Loopholes
Act to try to correct some of these taxpayer subsidies to
corporate polluters, and I am working towards reintroducing
that legislation. I know the chairman has worked to incorporate
some of these principles into his Clean Energy for America Act
as well, which I support, and I hope we can work together to
move the pertinent parts of the tax code in the right
direction.
And speaking of the right direction, last year PSE&G, the
parent company for New Jersey's largest electricity utility,
announced that it was divesting its fossil fuel assets. At the
same time, they maintained a 25-percent stake in the Ocean Wind
project in Federal waters off of our State.
Ms. Pope, as companies like yours face decisions on
decarbonization going forward, in order to ensure a smooth
transition, how vital is it that the tax code catches up to
current market trends?
Ms. Pope. Thank you, Senator. It is definitely time to
update the tax code to match current demand with new
technologies, flexibility, and long-term certainty. The
technology-neutral approach does this, and it does not pick
winners or losers, or lock in specific technologies, but it is
a good way to encourage innovation and incent clean energy
deployment.
Your example of PSE&G's offshore wind is a great one. And
certainly that long-term tax policy is critical to utilities
that routinely engage in long-term planning and invest in long-
lived assets, 20 to 40 years or more.
Tax incentives also help keep customer prices affordable,
especially when designed to ensure that the full credits reach
customers. Tax policy needs to be paired with continued Federal
funding for research, development, and deployment of emerging
technologies, including the offshore wind that you were talking
about, but also renewable hydrogen, long-term storage, and
smart grid advances.
So thank you.
Senator Menendez. Thank you. Thank you, Mr. Chairman.
The Chairman. Thank you, Senator Menendez.
Senator Thune is next.
Senator Thune. Thank you, Mr. Chairman. Good morning, and
thank you to all the witnesses for your testimony.
On President Biden's first day in office, he issued an
executive order canceling the permit for the Keystone XL
Pipeline. The decision led to the loss of good-paying jobs in
South Dakota and across the country and set the Nation back in
terms of modernizing our energy infrastructure.
Even the Canadian Prime Minister, a member of the liberal
party, supported the pipeline and included it in Canada's clean
energy roadmap.
The pipeline's operator committed to operate Keystone with
net-zero emissions by 2030 and pledged to invest $1.7 billion
on solar, wind, and battery power to operate the pipeline. This
would have ranked the operator among the highest corporate
backers of renewable energy purchases directly supporting the
green energy agenda.
Since the executive action, the President has proposed
trillions of new taxpayer dollars to address infrastructure and
the climate, but the $9-billion pipeline project would have
helped benefit both of those areas and added thousands of
American jobs.
Mr. Sunday, if our Nation wants to maintain its place as an
economic superpower, will we need to modernize both
conventional energy infrastructure and the build-up of low-
emissions energy projects?
Mr. Sunday. Thank you for your question, Senator.
Yes, absolutely. As a recent report from Columbia
University said--while it is counter-intuitive--the most
efficient and cost-
effective way to reach climate goals is going to be to continue
to invest in our gas infrastructure. Along with that, I would
encourage continued reforms and streamlining and certainty on
siting interstate energy projects like the one that you
referenced.
Senator Thune [off mic]. That chill other large-scale
private investments that are both good for American energy
security and for the environment.
Mr. Sunday. I apologize, Senator. You were on mute the
first half of that question.
Senator Thune. I am off mute. So just tell me how it is
that preventing such projects as Keystone chill other large-
scale private investments that are both good for America's
energy security and the environment.
Mr. Sunday. The infrastructure space has a decades-long
timeline for certainty in making estimations on if the
investment makes sense. If we enter this frame where the only
period of time you know that you might have certainty is over
the next couple of years, capital is not going to be interested
in investing in the type of projects that we are actually going
to need to meet energy demand now and into the future.
Senator Thune. The U.S. has moved from being a net importer
of most forms of energy to a declining importer and, as of
2019, a net exporter of energy, a truly remarkable
transformation.
U.S. oil production and natural gas production hit record
highs in 2019, and today our country is the largest producer of
natural gas in the world. Much of this progress, of course, has
come from American innovation in extractions from
unconventional formations such as shale, and a policy and a
regulatory environment that encourages growth.
Mr. Brill, how would raising the corporate tax rate by a
third, and eliminating all fossil fuel tax incentives, impact
America's energy security? And would such policies increase the
costs of energy consumption for Americans?
Mr. Brill. Thank you, Senator Thune. Raising the corporate
tax rate, as has been proposed by President Biden, from 21
percent to 28 percent, or even from 21 percent to 25 percent,
raises the cost of capital, raises the cost of new investments
for all corporations, including energy corporations, including
clean energy corporations and businesses trying to develop new
clean energy, as well as existing businesses working in the
natural gas space, which are relatively low-carbon technology,
and other industries as well.
This has a myriad of adverse consequences. This is bad for
our U.S. economy from an international competitiveness
perspective, but it is bad from an energy perspective with
respect to those businesses that are trying to make investments
here in the United States.
And so this policy works at cross-purposes to the overall
objective, I think of this hearing, and I think of the
objective of energy security and clean energy in the United
States.
Senator Thune. Anybody on the panel can respond to this,
but one concern I have about the proposed carbon fees or other
emission-based proposals is that we first have to have an
accurate count of emissions.
South Dakota is a leader in clean energy in terms of wind,
hydroelectric, and biofuels, yet we face obstacles like the EPA
using outdated greenhouse gas modeling for ethanol, which cuts
fuel emissions by roughly half. Biodiesel cuts emissions by 70
percent, and advanced biofuels, when paired with CO2
storage, could approach carbon-negative territory.
How do we ensure that we are accurately accounting for the
real emissions of all sources to ensure that we have a level
playing field when it comes to these incentives? Anybody? And I
know I am out of time, so whoever wants to take that one.
[Pause.]
The Chairman. Senator Thune, could we take that one for the
record?
Senator Thune. No one wants to answer it, evidently, so,
yes, that is fine, Mr. Chairman.
The Chairman. I thank my colleague.
Senator Portman?
Senator Portman. I appreciate you fitting us all in.
First of all, I appreciate the witnesses. Some of you
talked about permitting today, and one of the things that
concerns me is that it takes so long to permit a project, and
it is so darned expensive.
In your testimony, Mr. Sunday, you talked about that and
the need for reform. Back a few years ago, former Senator
Claire McCaskill and I offered legislation called the Federal
Permitting Improvements Hearing Council, called FAST-41 because
it was in the FAST highway bill. And the AFL-CIO Building
Trades Council, as well as a lot of business groups, supported
it. And it has worked. It saved large infrastructure projects
well over a billion dollars. By the way, a bunch of these
projects were clean energy projects, including hydro on the
rivers in Ohio.
And so my question for you is, should we be doing more of
that? My concern is that it sunsets. This bill sunsets the
Council in 2022. Are you aware of this FAST-41 proposal
project, Mr. Sunday? And would you support lifting the sunset
so it can continue?
Mr. Sunday. Thank you, Senator. Absolutely. We appreciate
your leadership on this issue. The business community is behind
it, and we would certainly support its extension. We have seen
FAST-41 permitting help get some very important Pennsylvania
energy infrastructure projects built more efficiently,
including a pipeline that is helping gas get exported to
developing worlds to help them meet their energy needs and
reduce security risks.
The fact that you mentioned the reduced statute of
limitations and time for environmental reviews, that has helped
collect capital on the ground and put people to work in this
country. So, we appreciate your leadership on this issue.
Senator Portman. Great. Well, I would hope that, no matter
what we do, we extend FAST-41 and ensure that we can have the
Federal dollar stretch further by reducing the costs and the
time for permitting.
Ohio is one of these energy States, like Pennsylvania, Mr.
Sunday, where we have a lot of manufacturing. We also have a
lot of coal and natural gas. We have nuclear. We have
renewables. We have solar, wind, hydro.
The fossil fuels, though, the natural gas in particular, we
are going to need to continue in our energy mix for some time
as a reliable and affordable baseload energy source. Because of
this, I think carbon capture is absolutely critical. And you
know, for our Nation to reduce emissions along the lines that
are being talked about is absolutely essential, without
undercutting our economy.
Carbon capture and direct-air capture facilities are
costly. They are very expensive--and up to a billion dollars,
as an example, at a power plant. And I think there is an
opportunity for us to use the tax code more here.
We have 45Q, which is the tax credit which we just extended
for an additional 2 years in our 2020 year-end spending bill.
That is an important incentive. I continue to work with Senator
Bennet--who is on the committee--on carbon capture through our
Carbon Capture Improvement Act, which allows the use of private
activity bonds. And I like the private activity bonds in part
because they are an incentive for private investment as well
for creating efficiencies for the government.
Mr. Brill, are you aware of our carbon capture legislation
that uses private activity bonds, as was used in the 1970s for
scrubbers? And how do you feel about that? And, Mr. Sunday, can
you share the similarities to Ohio and can you comment on that
as well?
Mr. Brill. Thank you, Senator Portman. Broadly speaking
from a technology perspective, carbon capture, I think, is
critically important going forward, because we are going to
continue to have forms of energy that do contain some carbon
emissions, such as natural gas, and so really to capture that
is a critical way to get to lower emissions overall and
eventually perhaps to net-zero.
So, carbon capture is critically important, and as you
noted, is expensive. R&D in this area to help bring down those
costs will be important. And the development of a price on
carbon will be important to make adjustments for carbon
emissions which are captured.
And of course, as you noted, other strategies such as the
private activity bonds, 45Q, or reforms to those provisions,
may also encourage the deployment of carbon capture.
Senator Portman. Mr. Sunday, any comment?
Mr. Sunday. Thank you, Senator. Yes, as I mentioned in my
opening statement, no State but one reduced emissions. Ohio is
number one. So I know we compete on a lot of fronts, but this
is certainly one area where our States should work together,
given shared energy interests, the shared pipeline
infrastructure, similar geologies. We have some projects in the
beginning stage on carbon capture. It certainly makes sense to
continue to pursue that. There is no real reasonable scenario
that we meet net-zero by 2050 without continued investment into
carbon capture.
Senator Portman. But we think these private activity bonds
are an effective way to finance it. We also finance direct air
capture facilities in our new version of the legislation. So we
look forward to working, Mr. Chairman, with the committee on
that. And thank you for letting me ask questions.
The Chairman. Thank you, Senator Portman.
Let me also just say to colleagues, under the Clean Energy
for America Act, a gas or coal plant that fully captures its
emissions would qualify for the same amount as a wind or solar
farm, because this bill is all about reducing emissions. So I
appreciate my colleague's questions on this.
Senator Toomey, you are next.
Senator Toomey. Thank you, Mr. Chairman.
You know, the 2017 tax reform was guided by an underlying
theory in terms of the design on the business side of that. The
idea was, if we would lower the after-tax cost of investing
capital, we would have an increase in invested capital. And it
is invested capital that makes workers more productive, and we
said that if we do this, we are likely to get that investment,
and the results will be more income for workers as well as an
accelerated growth in our economy. This is exactly what
happened.
Mr. Sunday, as you mentioned in your testimony, in the wake
of the TCJA, Pennsylvania companies in particular invested in
their facilities and their workers. From 2016 to 2020,
Pennsylvania alone added over 238,000 jobs. Median wages grew
by 13\1/2\ percent. In some sectors like the chemical plant
operators and natural gas power plant operators, wage growth
was 34 percent and 20 percent respectively.
The fact is, by January 2020, in the wake of our tax
reform, we had the strongest economy of my lifetime. We were at
full employment. We had more job openings than people looking
for jobs. The poverty rate was at a record low. African
American unemployment was at an all-time record low. Wages were
growing for everyone, but they were growing fastest for the
lowest-income workers, so we were narrowing the income gap as
well.
And now, shockingly, what the Biden administration and many
of my Democratic colleagues want to do is reverse the policies
that got us there, unwind the tax reform that gave us the best
economy of my entire lifetime.
So, Mr. Sunday, could you comment on how you think
Pennsylvania businesses and workers would be affected if the
Biden tax increases went into effect?
Mr. Sunday. Thank you for the question, Senator, and thank
you for your leadership on tax reform and all the work you have
done on behalf of our State over these many years.
We cannot lose sight of the fact that Pennsylvania has the
second highest CNI tax in the country. We have unfair treatment
of NOLs. Layer all that on top of raising the Federal rate, and
keeping in place all the base broadeners that were part of
TCJA, and suddenly, not only does America have the highest
corporate rate in the world, Pennsylvania is 10 points higher
than that and we become a very uncompetitive place to do
business.
We just saw that we are losing a congressional seat. I do
not think that unfair, unattractive measures or policies are
going to do anything to reverse that type of population and
investment loss.
Senator Toomey. Yes, I would just strongly stress, it would
be okay to get back to the best economy of my lifetime. That
would be a good thing to aspire to. Maybe keeping in place the
policies that got us there would be a good idea.
Speaking of which, in your testimony, and just a moment ago
with Senator Portman, there was a discussion about
CO2 emissions. According to the data I have seen,
the U.S. as a whole has brought its CO2 emissions
down. We have been doing that steadily. And by 2019, our
CO2 emissions were back to the level they were at in
1992, in absolute amounts. On a per capita basis, we had
brought the CO2 emission level down to the level of
1950.
Now we all know what did that. It was natural gas replacing
coal as a source of electricity. And Pennsylvania has led the
way; together with Ohio, we are the two top States in
CO2 emission reductions. Pennsylvania is an energy
powerhouse.
Could you give us some sense of your view on how central a
role natural gas has played in the Pennsylvania economy, but
also in America achieving this remarkable success in reducing
the level of CO2 emissions at a rate faster than
most people thought even possible?
Mr. Sunday. Sure. Over the last decade, we have seen an 11-
fold increase in natural gas production in Pennsylvania, and
that has brought utility bills down by the billions, and
aggregate electricity prices in PJM are at generational lows.
That is more money that folks had to save and meet their
budgets, low-income folks in particular who were spending 10 to
15 to 20 percent of their budget on utility bills. A lot of
breathing room there.
We have seen manufacturers in our State invest in combined
heat and power projects to reduce costs, enhance output, add
shifts. One consumer packaged goods plant in the Northeast went
from one of the most expensive plants in that company's
footprint to meeting a net revenue raise on energy because they
can now sell power back to the grid. It has been a total game
changer for our economy and the environment.
Senator Toomey. And I will close with this, Mr. Chairman.
All the while this has been happening, since 2010, from 2010 to
last year, Pennsylvania's power sector emissions have declined
by 36 percent. It is really a remarkable story of the success
of natural gas. Thank you.
The Chairman. Thank you, Senator Toomey.
Senator Cardin?
Senator Cardin. Mr. Chairman, first I want to thank you for
your leadership on the legislation that you have introduced. We
do need a level playing field. We do need predictability. We do
need a rational basis for how we provide, in the tax code, for
our energy sources, and I think you have given us a template.
And I just really want to first thank you for your leadership
on this issue.
I do want to acknowledge several of the witnesses. Their
comments have been what I agree with. Ms. Pope said we need a
level playing field, and I could not agree more that we do need
a level playing field on energy.
And, Mr. Brill, I appreciate your comments in regards to a
carbon tax. I do think that is the clearest, easiest way that
we can reward clean energy, and we incentivize the private
sector to do what is right. So I think that is extremely
important.
And then Senator Crapo asked the questions of Mr. Sunday in
regards to nuclear power, which I agree with. I am a Democrat.
He is a Republican. We need nuclear power. It is 20 percent of
our electricity today. It is a carbon-free, basically, source
of energy.
So, until we can get to that level playing field, nuclear
power is at a disadvantage in that it does not have a
production tax credit, or an investment tax credit. The cost of
power today makes it very difficult to modernize our nuclear
power plants without some form of a tax credit.
So we are looking at a production tax credit in this
Congress as a way of leveling the playing field on nuclear
power. So I wanted to give Ms. Pope, and perhaps Mr. Brill, an
opportunity to respond as to, on at least the current basis,
what we need to do to encourage the modernization of our
nuclear power plants.
Ms. Pope. Thank you, Senator. Additional tax policies that
enable the continuation of the country's nuclear plants are
critically important if we are going to achieve the 2030 and
2035 goals.
Existing nuclear is an important carbon-free resource that
today, as you know, makes up 20 percent of the country's energy
supply, and, it is clear, a much higher percentage of the clean
energy supply for the country. But new nuclear is going to take
investments. It is going to take investments that have
certainty. We obviously know the complexity. It is going to
take investments for partnering with Idaho National Labs and
other labs that are part of DOE. It is going to take credits.
And that's why the discussion we have had today, with regards
to tech-neutral incentives that allow for all participants to
be able to participate equally and allow people to be able to
use investment tax credits, is so timely. Most importantly,
policy-makers need to make sure that everyone is able to access
these credits, and that we have a normalization fix for all
participants, particularly utilities, most of which operate
many of the nuclear plants in the country.
Senator Cardin. Thank you. Mr. Brill, do you want to add
anything?
Mr. Brill. Yes; thank you, Senator Cardin. I would note, I
would agree with you and others who have talked about the
importance of nuclear power as a consistent and reliable source
of energy in the United States. Consistent with my testimony, a
price on carbon would likely extend the life of the existing
fleet or stock of nuclear power in the United States and get to
new investments in nuclear power that will allow new
technologies, new research, and regulatory changes that will
facilitate and bring down the cost of those new investments as
well.
Senator Cardin. Thank you. I want to mention one other
area, and that is conservation. Conservation, conserving
energy, is a win/win/win for everyone. And our tax code needs
to be sensitive on how we can use it to encourage conservation.
We were able to get section 179B, which allowed for the energy
efficiencies of our buildings, to be made permanent, but there
are still areas where we could vastly improve the tax code as
it relates to the conservation of energy in our buildings under
section 179B.
There are other sections of the tax code that can encourage
conservation and reduce the amount of energy use, which would
be friendly towards our climate and reduce greenhouse gas
emissions.
So, I just really want to put on the table that one of the
areas that I think is low-hanging fruit is to improve the
provisions we have in our tax code as it relates to conserving
the use of energy. We can do that in the auto industry in
electric vehicles. We can do that in so many different areas,
and I applaud the chairman for his leadership in this area, and
the other members of our committee, as we work together to
develop an energy policy.
Thank you, Mr. Chairman.
The Chairman. Thank you, Senator Cardin. You are the first
to explicitly mention conservation, and we appreciate it.
Our next two Senators will be Senator Cassidy and Senator
Brown. And, colleagues, we are going to try to keep this moving
even though we have a vote.
Senator Cassidy?
Senator Cassidy. Thank you, Mr. Chairman. Thank you for
being here. Thank you all for being here.
Mr. Sunday, I am always struck when people talk about
things like intangible drilling costs as being some big bailout
for a super major, but as you and I both know, they do not
qualify for the intangible drilling cost deduction. Is that
correct?
Mr. Sunday. That is my understanding. It is more limited to
the independents.
Senator Cassidy. And it is only 1,000 barrels a day, which
for ExxonMobil is, one, they do not qualify, but, two, it would
not be very important in their overall production.
Now that would be very important for the small, independent
producer who diversifies, if you will, prevents the monopoly of
the super majors and the larger independents. So how essential
is such a thing for that smaller producer who is creating such
prosperity for working Americans in your State?
Mr. Sunday. Thanks for the question, Senator. Our natural
gas producers have been a huge win for the economy and the
environment, but it is a challenged price environment because
of infrastructure constraints and regulations. So the folks who
are still able to sustain are those independents, but their
business structure is such that 80, 85 percent of their capex
is intangible drilling costs. That is what we quote for that
industry and other industries----
Senator Cassidy. Let me stop you, because I have limited
time. So the point is, there are all these folks who are
providing great-paying jobs for working Americans, great-paying
jobs that have persisted despite the pandemic, they are
dependent upon this particular provision which does not go to
ExxonMobil, but does go to these very small companies in some
cases, and they are the ones providing this employment. I want
to make that point.
Mr. Brill, I am always interested in the carbon tax because
it seems as if it leaves various things out. By the way, I
think philosophically you and I are in agreement on many
things. But we know--let's just be honest: we are not going to
have battery production on the scale that is required for this
vision of the administration for at least a decade, if not a
lot longer.
And we also know that currently most of the batteries are
produced in China, where they use coal as feedstock. And the
cobalt is mined in the Congo, with abhorrent conditions, a very
energy-intensive process. And I have read that if you take into
account the mining of the cobalt, the processing in China, and
the shipment of the battery to the U.S., the amount of savings
in life-cycle costs on global greenhouse gas emissions is
minimal, and perhaps even nonexistent.
So as we do a--and by the way, hear that: it is minimal or
nonexistent. So everybody who looks at EVs as kind of the
savior of the environment is looking at U.S. emissions. They
are not looking at global greenhouse gas emissions. And if we
had more time, we could develop that further.
Mr. Brill, though, in your carbon tax, are we not
effectively out-sourcing the carbon relief to China and India,
et cetera, unless we are going to put in place a border
adjustment tax which takes into account the mining of the
cobalt with the equipment that is used in the Congo, the
shipping cost to China, the concrete that is laid in China, et
cetera? Is that practical?
Mr. Brill. Thank you for your question, Senator. You are
absolutely right that in a well-designed carbon tax there needs
to be a border adjustment mechanism that would exclude the tax
on U.S. exports of carbon-intensive goods and impose that tax
on imports of goods containing carbon from other countries.
That policy is something that tax lawyers and tax
economists have thought about a lot, and it can protect the
U.S.'s competitiveness----
Senator Cassidy. I accept--we both accept the need for the
border adjustment tax. Is it practical, if you are going to
have heavy equipment in the Congo which is going to be, you
know, scraping this out of the ground, putting it in a diesel-
spewing truck to take it to the port to ship it to China, with
a 50-percent coal-fired energy source, and then shipped over
here, not to mention the fact that the factories in China are
made with lots of concrete and other vessels, other trucks
spewing diesel? How practical is it to have a VAT which totally
captures all of that?
Mr. Brill. My view, Senator, is that it is definitely
possible to capture most of the trade in carbon emissions from
the----
Senator Cassidy. Just for a second, Mr. Brill; everything
is possible. Is it practical?
Mr. Brill. Yes.
Senator Cassidy. I mean, are we really going to get the
diesel truck that is 20 years old in the Congo bringing the
stuff made by child labor to the port?
Mr. Brill. I am not suggesting that it can capture 100
percent of the carbon emissions involved in trade, but I do
believe that one can practically design a policy that captures
the vast majority of trade in carbon emissions----
Senator Cassidy. I am over time, but I will say that it is
in the interest of our trading partners to bury those costs.
And so I do think the practicality of it may be subject to
definition. But thank you all for your testimony.
The Chairman. Thank you, Senator Cassidy.
Next will be Senator Brown. I am going to run and vote, and
Senator Crapo will keep this hearing moving, and I will vote
and be right back.
Senator Brown. Thank you. Thank you, Chairman Wyden and
Senator Crapo.
Mr. Walsh, the Banking and Housing Committee, which I
chair, last week had the pleasure of hearing from Zoe Lipman of
BGA. We talked about the potential for my State as the Nation
shifts to a low-carbon economy. Mr. Walsh, where do you see the
most potential job growth in domestic manufacturing?
Mr. Walsh. Well, I think--thank you for the question,
Senator. I think certainly in component parts and assembly of
EV vehicles, there is an enormous amount of work to be done. We
have talked a little bit about how the tax code could be used
to support EV production in this country. We also have direct
investment via the Department of Energy programs that we can
use.
I think we need to reflect on the fact, which has been
commented on, that China controls roughly 60 percent of EV car
production, roughly 70 percent of battery cell production. That
was not accidental. That was the result of focused industrial
policy which included roughly $60 billion worth of investment
from the Chinese Government.
I think we also have the ability to make key material like
steel and cements in lower-carbon ways. And I think this is an
area where we have a lot of work to do. We have been doing a
bunch of work with different policy models that can, I think,
better reward U.S. manufacturers vis-a-vis our international
competitors.
I think it is worth noting that every kind of steel made in
China has roughly twice the embodied emissions compared to the
steel made in the United States. So I think if we can have
policy designed that actually takes that into account, we are
going to set up U.S. manufacturers of a wide range of materials
that are the fundamental building blocks of this country and
the world.
Senator Brown. Well, you talked about the existing
industrial policy in China, and I would add, lack of industrial
policy in the United States, coupled with Presidents of both
parties from George Bush the first through Donald Trump, and a
trade policy and a tax policy that undermined our efforts.
You note that the union density in the traditional energy
sector likely accounts for the wage differential between it and
the renewable sector. Why are we seeing this? How do we
increase wages in solar and wind, whether it is in the factory,
or whether it is in the field?
Mr. Walsh. Yes. I think there are a couple of reasons. One
of the reasons is that one of the most important deployment
drivers of clean energy technologies like solar and wind has
been the tax code. And we have, at least historically, not
included labor standards or domestic content standards in our
clean energy tax incentives. We think that needs to change to
level that wage gap and that union density gap. And Senator
Wyden's bill, I think, shows us a good first step.
Senator Brown. So if I could interrupt, Mr. Walsh, in other
words, you do not provide clean energy tax incentives without--
or energy tax incentives, period--without some kind of labor
standards, and some kind of domestic content standards?
Mr. Walsh. That is what we believe, Senator. I think it is
also worth noting that that alone is not enough, that we need
to fundamentally rebalance power between workers and their
employers in this country. We need to support and reinforce
workers' ability to organize amongst themselves, to
collectively bargain with their employers for better wages and
benefits and working conditions.
The PRO Act is, I think, a very important piece of
legislation that our coalition, all of our partners, support.
And we are hoping to see support from the U.S. Senate of the
PRO Act, because that, to our minds, is critical as we build
out this clean energy economy, but also important to addressing
what is fairly profound income inequality in our economy as a
whole.
Senator Brown. Thank you. And the BlueGreen Alliance has
partnered with many Ohio and other Appalachian stakeholders on
opportunities to clean up the legacy of extractive industries.
What sort of work--and I see Senator Bennet, who is going
to be in the same meeting I am in on the Child Tax Credit in a
moment--what sort of work needs to be done there?
Mr. Walsh. Well, we have a lot of cleanup that needs to be
done. Just in looking at abandoned mine lands, some estimates
go as high as $20 billion of cleanup costs.
This is heavy construction work. It is moving a lot of
earth. With prevailing wages, we think these jobs can support
middle-class jobs and careers and, importantly, can be an
important source of job creation in parts of the country that
have been hurt economically by the transitions going on in our
energy economy.
So we are extremely supportive of cleanup, both on
abandoned mine lands, but also on brown fields, on Superfund
sites, and oil and gas wells as well. The job-producing
potential is really significant.
Senator Brown. Thank you, Mr. Walsh.
Senator Crapo [presiding]. Thank you very much.
Next is Senator Lankford, and he will be followed by
Senator Bennet.
Senator Lankford. Thank you very much. Let me ask a couple
of questions.
Mr. Sunday, I want to first start with you, talking about
tax policy on this. Europe, and Germany in particular, is
losing some of its energy independence of late by trying to be
more dependent on Russia and the Nord Stream 2 pipeline for
natural gas. That is an enormous geopolitical shift that will
have very long-term effects on Western Europe.
We in the United States started exporting natural gas half
a decade ago, specifically dealing with the geopolitical
importance of that, and also dealing with the carbon issues of
trying to be able to reduce carbon usage around the world by
using cleaner natural gas for energy around the world.
So geopolitically, it is important. In other ways it is
important as well. The reason I want to talk about that is, one
of the key issues is the intangible drilling costs on that,
with just normal operating costs for oil and gas and for their
production. There has been conversation about that.
Mr. Sunday, what would that mean to lose intangible
drilling costs, both geopolitically for us and our energy
independence domestically, as well as just in tax policy?
Mr. Sunday. Thanks for the question, Senator. It would
incredibly disadvantage the producers that are still able to
operate here in Pennsylvania. That would translate to reduced
production, fewer jobs, and a reduction in the LNG exports to
countries, as you mentioned, in Southeast Asia, India--and it
would increase their geopolitical risks and our ability to
shrug off geopolitical turmoil in the Gulf.
Senator Lankford. So let me ask the same type of question.
Enhanced recovery has been a process that has been around for a
while. It has been very important to actually reduce our
footprint.
Mr. Sunday, do you want to give any additional details on
enhanced recovery, what that could mean to be able to reduce
our carbon footprint?
Mr. Sunday. Sure. I think if the goal is reduced emissions,
you want to get the most molecules out of the ground with the
least surface activity possible. So that is certainly something
that we would want to continue to support, if that is our goal.
Senator Lankford. Thank you for both of those.
Mr. Brill, I want to ask you about the wind production tax
credit. The issue is not whether we should engage in wind. Wind
is a great source of energy around the country. It is an
effective piece of energy, when the wind is actually blowing,
to be able to engage in that.
My question is, we still continue to put billions of
dollars into the wind production tax credit as a specific set-
aside to incent new construction on that. It obviously changes
the formula of the price for wind compared to everything else.
But it seems to be something that should be fading. There is a
lot of great wind production out there. It is very efficient.
But we are doing it the same way, though, that we have done it
now for 30 years.
Is it effective to continue to do the same credit over and
over again, even when wind is no longer a startup entity?
Mr. Brill. Thanks for the question, Senator. It is true
that the technology has advanced by leaps and bounds over the
last few decades, and the price of wind energy has plummeted
over this same period of time. Depending on how one does the
calculations, it is often cost-competitive even without the
subsidies.
The subsidies, of course, further encourage additional
investment and additional deployment of a carbon-neutral source
of energy, and there are climate and economic advantages to
that. But continuing a strategy of large subsidies for all
clean energy will become increasingly costly over time as we
continue to transition towards lower carbon emissions. And so
therefore, the cost of these policies, I think, should be
carefully examined.
Senator Lankford. Thank you.
Ms. Pope, I want to ask you specifically about an issue
that I do not think you were directly affected by, but 2 months
ago, obviously, we had a really deep cold snap that came across
the central part of the United States. I was in that. Southwest
Power Pool had a pretty dramatic shift during that time period,
as we saw a lot of wind towers that froze up. Our solar panels
were all covered in deep snow. A lot of our natural gas
facilities that were active in gas processing froze up in the
central part of the United States. There was a pretty dramatic
set of issues there, and it seemed to cascade.
Part of the challenge is, we are trying to go through this
to continue to be able to focus on energy diversity. Some of
the tax incentives, when you put those in place, obviously
capital runs towards where it is going to get the greatest
return. That has been wind, and that has been other things,
which again, in my part of the country in Oklahoma, you know,
wind comes sweeping down the plain and we actually turn wind
towers with it and make energy out of it. It has been great as
a source. But the question becomes over-reliance, and on peak
days, what that really means, that over-reliance.
How can tax policy actually push us in our energy diversity
area so that we over-create some areas and under-supply others?
And so on peak days hot and cold, we need to mix that. How do
you balance that out in your own portfolio?
Ms. Pope. Thank you very much for the question.
First of all, in Oregon and across the Pacific Northwest,
we saw tremendously harsh weather, particularly the last 2
weeks of February. And at Portland General Electric in
particular, we had more than half of our customers lose power
during that time. And we spoke with Chairman Wyden, as well as
many others, while getting that power restored.
One of the things that happened during those significant
ice, wind, and snow storms in our part of the country, was the
generation continued to produce, whether that be wind, whether
that be solar, whether that be hydro, or whether that be
thermal resources.
One of the reasons for that is that those resources are all
constructed for the weather conditions that we have in the
Pacific Northwest on the hottest days of the year, and on the
very, very coldest days of the year. The storms that we were
impacted by were probably one-in-40-year events. So I am very
aware of the reliability issues and the problems for all of our
customers and community members and your constituents when
there is not power, particularly during this pandemic.
As we look forward to how to incent diversity across all of
our resources, it is something we feel very strongly about, and
it is one of the reasons that we really like the tech-neutral
aspects of Chairman Wyden's proposals--and most importantly,
that all participants, utilities and independent power
producers alike, can participate.
And thirdly, I say that to balance renewables--wind, solar,
hydro, as well as others--Portland General Electric, as well as
many utilities in the west, belong to the Energy Imbalance
Market. And we work with each other to lower the costs of
renewables, to be able to use the maximum amount of renewables
across a much wider geography of the entire west.
So, through a variety of mechanisms, I think there is a
real opportunity to expand the use of renewables in a reliable
and low-cost fashion. Thank you.
Senator Lankford. Thank you, Mr. Chairman.
Senator Crapo. Thank you.
Senator Bennet?
Senator Bennet. Thank you, Mr. Chairman. Can you hear me?
Senator Crapo. Yes.
Senator Bennet. Thank you. Thank you for running an
excellent hearing, and thank you to the witnesses for your
testimony.
Ms. Pope, cleaning up electricity generation is critical to
meeting our climate goals, as we have discussed this morning.
It is responsible for 30 percent of the greenhouse gas
pollution in this country.
Clean electricity will also be critical to reducing
emissions in other sectors, like transportation. And while we
have made important progress already without new policy, the
electric power sector is poised to reduce emissions roughly 45
percent below 2005 levels by 2030.
Analysis after analysis shows that this sector is where the
fastest and cheapest opportunities to cut emissions remain.
These studies also show we need to reduce emissions from
electricity by at least 80 percent below 2005 levels by the end
of the decade to reach our economy-wide climate targets.
I was really encouraged to see a group of leading power
companies, including yours, Ms. Pope, recently release a letter
calling for a new policy to limit electricity sector emissions
to that level nationwide. And as we have heard, Portland
General Electric recently upgraded its corporate greenhouse gas
reductions goal, pledging to reduce emissions 80 percent by
2030. At the same time, your company has supported public
policy efforts both in Oregon and federally that would provide
certainty around the emissions reductions necessary from both
the power sector and economy-wide.
Can you talk about the role of policy frameworks that limit
carbon emissions from electricity such as the clean electricity
standard like the one currently under consideration in the
Oregon legislature, and how they can be a critical complement
to Chairman Wyden's tech-neutral bill and help ensure we meet
our climate goals?
Ms. Pope. Thank you. And first of all, Senator Bennet, let
me mention that one of the reasons that we have been successful
in achieving the goals that we have, and being able to set more
aggressive goals as we go forward, is the utility sector across
the United States works closely together, shares best
practices. In particular, your State of Colorado and how you
manage wind energy that integrates that resource not only from
the IOUs, but from your public power participants in the State,
has been an example to us for many years. So, thank you.
We believe very strongly that State policy and Federal
policy need to work hand in hand with one another. And we view
these as complementary to help us move faster and meet all
needs.
We have seen in the past that when there is a disconnect
between Federal and State policies, it can be challenging for
utilities, particularly those that operate in different States
and different parts of the country, and we do not move as fast
toward a clean energy future.
So having more certainty is important, as well as having
tech-neutral approaches, and allowing all participants to be
able to work collaboratively together as we do this important
work to get an 80-percent reduction from the electric sector,
so that our broader economy can hit 50-percent reductions by
2030, and then go beyond with more technology advancements to
2035 and 2040.
Senator Bennet. Thank you for that.
Mr. Chairman, I cannot see a clock, so I do not know what I
have left.
Senator Crapo. You have about a minute and a half left.
Senator Bennet. Excellent.
So, Mr. Walsh, workers in communities in coal-dependent
regions across our country are struggling to make ends meet.
And in order to safeguard our environment, health, and economy
we need to transition to cleaner sources of energy to achieve
net-zero emissions by 2050, and we need to do this, as you have
said, while ensuring there are good-paying jobs for energy
workers. We need to support communities that rely on local
government revenue from fossil fuels to support core services
like education, water, and public safety. I have in mind places
like Craig, CO, in my own State.
Mr. Walsh, in terms of tax policy, what lessons should
Congress learn from experiences in States or cities--or even at
particular facilities--about how to support workers and
communities in transition, especially in rural communities like
Moffat County, or like Craig, CO?
Mr. Walsh. Thank you for the question, Senator. I mean, I
think we can start by learning from your State of Colorado,
where we see a great example of a coordinated whole-of-state-
government approach to using public investment to support
workers and communities in the coal economy, Craig and Moffat
County being a big part of that in northwest Colorado.
I think they would be the first to tell us, though, that
States cannot do this by themselves; that they need the Federal
Government as a partner, and a whole-of-government approach
from the Federal Government. You note ways in which we can
potentially use the tax code. We have already talked a little
bit about how legislation can target new investment in
manufacturing and infrastructure to communities that have been
disrupted by coal economy transition. The 48C proposal from
Senator Stabenow and Senator Manchin is one such example.
You do flag, though, the importance of local tax revenue
that comes from facilities like coal power plants and coal
mines. I think this is something we really need to explore. I
think, as a coalition, we would be very interested in working
with you and other folks on the committee to figure out how we
can most reasonably help local and State and tribal governments
replenish revenue they have lost when, for example, a coal mine
or power plant closes.
I think there is a strong role in that for this committee,
and the Federal tax code.
Senator Bennet. I agree with that. Thank you, Mr. Chairman.
Senator Crapo. Thank you.
And next is Senator Daines.
Senator Daines. Thanks, Senator Crapo.
Instead of investing in Colstrip and the high-paying jobs
it creates, PG&E and the Pacific Northwest owner have done
everything they could to avoid investing in the plant. It is in
part because of the State-wide carbon-free mandates in Oregon
and Washington, and early closure of Colstrip will have huge,
huge impacts on the communities, on jobs, and reliable baseload
power in the region.
It is one thing to be forced to close because of State
policies. It is another to actively advocate for them.
Ms. Pope, has PG&E been party to any communication directed
to the Washington utility commission urging the immediate
closure of Colstrip?
Ms. Pope. Thank you, Senator Daines. We reflect, as an
Oregon utility, the values of our customers, and the values of
the community leaders in the State in which we serve and
operate.
As for the operation at Colstrip, we have been an owner of
that facility since its inception, and are committed to doing
the right thing for our employees, for the community of
Colstrip, and for the environment.
We are working collaboratively with the----
Senator Daines. Ms. Pope, the question was, has PG&E been a
party to any communication directed to the Washington utility
commission urging the immediate closure of Colstrip?
Ms. Pope. We have not engaged with the Washington utility
commission. We are governed by the Oregon utility commission.
Senator Daines. But I asked Washington or Oregon. So
Oregon, you have?
Ms. Pope. Our Oregon commission, we have a utility
regulation. It includes not having coal in our customer rates
by 2030.
Senator Daines. But regarding the Oregon utility
commission, you have been a part of urging the immediate
closure of Colstrip with the Oregon utility commission?
Ms. Pope. We haven't. We are working collaboratively with
stakeholders to figure out a solution that reflects the values
of Oregon customers, community leaders, and others across the
State, as well as customer prices, making sure that we are
doing the right thing for the employees of Colstrip, working
collaboratively with other owners in our contractual
relationships there, as well as the communities in Montana that
have supported the facility for the decades it has been
operating.
Senator Daines. So, regarding serving your customers, as
you know, the Pacific Northwest has a looming capacity shortage
with a possibility that baseload power will not be able to meet
peak demand. We saw this happen, of course, in California last
summer.
Would extending and expanding clean energy credits address
that problem? Or would it make it worse due to the intermittent
energy and decreased baseload?
Ms. Pope. As we look forward to a clean energy future, we
look to using technology to integrate new sources of renewable
energy like battery storage, also traditional storage of pumps,
hydro, as well as others. We also are working to ensure that we
have distributed energy resources. That will allow us to more
flexibly manage load and customer usages so that we are able to
take advantage of the diverse set of energy resources--wind,
solar, hydro, and others. In particular, we are looking at
investments in the State of Montana around wind energy and
solar energy.
Senator Daines. So I know Oregon's legislature is
considering a bill to require PG&E to service Oregon customers
with 100-percent clean energy by 2040, I believe. Is that
something your company supports?
Ms. Pope. We have been in dialogue with the parties with
regard to legislation currently in front of the Oregon
Legislature on both the House and the Senate side.
Senator Daines. So PG&E relies on Colstrip to reliably
serve the load. The economics of operating the plant have been
changed in part by renewable tax subsidies. If that continues,
Colstrip's continued operation could be put in jeopardy. This
would result in displacement of an entire community, and remove
from the region a facility that has served to maintain grid
reliability.
The question is, what do you think we should do as part of
this legislation to enable PG&E to exit Colstrip while enabling
others to continue to own and operate the plant to supply,
certainly a State like Montana, and aid regional grid
stability?
Ms. Pope. So, there are a number of owners in the Colstrip
facility that have different interests, and some interests that
are aligned. In working through the contractual relationships,
with both its owners and its operators, finding a workable
solution for the plant is important.
We will make sure that we do the right thing by the plant's
employees--who have worked there for a long time--as well as
the operations, the environment, and the community of Colstrip.
As you note, two of the units have already closed, and we have
worked collaboratively as those costs have been incurred by the
other co-
owners of the other units. And we have continued to meet
regularly to discuss the operations of the facility.
Senator Daines. Thanks, Ms. Pope.
Senator Crapo, thanks; I am out of time.
Senator Crapo. Thank you. Next is Senator Casey, and he
will be followed by Senator Young, if he is able to get back,
and Senator Warner.
Senator Casey?
Senator Casey. Senator Crapo, thanks very much. I will have
a question, I hope, for both Mr. Walsh and Mr. Sunday.
Mr. Walsh, I wanted to start with you. In your written
statement, you noted how important it is that we seek out ways
to build career pathways in order to increase access to clean
energy jobs. I agree, and I know a lot of people do as well.
And at the same time, we have to look to address the climate
crisis, as well as addressing the economic and jobs crises that
we are confronting right now.
We must also prioritize training and skill development
opportunities. So obviously, this has to include pathways to
good jobs, and I believe one of the best pathways to a good job
is union jobs for new workers, as well as workers seeking new
opportunities within the energy sector.
I have a Civilian Conservation Corps proposal that I have
been working on. While it is not limited to energy jobs, it
prioritizes opportunities for a Civilian Conservation Corps
member to not only obtain short-term employment, but also to
gain both skills and connections as well as opportunities that
will help them set up for the long term.
So here is the question. As we look to advance policies,
including through the tax code, that will expand the clean
energy sector, what steps should we be taking to ensure that
training programs--whether it is registered apprenticeships or
career apprenticeship programs--what steps should we be taking
to ensure that we are focused on the broader goal of creating
new clean energy jobs?
Mr. Walsh. Thank you for the question, Senator Casey. We
agree that unions and the registered apprenticeship and union-
affiliated training programs they create with their signatory
employers, are a key pathway to doing that.
You mentioned your Conservation Corps proposal. That, for
example, could be used as a pathway into registered
apprenticeship programs. The key is to make sure that we have
incentives within our tax credits to actually leverage those
existing assets, right? So, for example, Senator Wyden's
inclusion of registered apprenticeship utilization in his bill
is a way to do that.
We have other ways to do that as well. We can incent or
require project labor agreements which come with them.
Typically a large project has a very sophisticated plan on not
only the use of registered apprentices on those projects, but
then the pathway that usually starts with a pre-apprenticeship
program, often based in a local community so that folks
actually have the skills they need to get into those
apprenticeships and therefore earn a pathway to what ultimately
becomes a career-track middle-class job.
So I think intentionality about the standards we apply to
tax credits is the key, and we look forward to working with you
and working with this committee to expand on some of the good
first steps that Senator Wyden has made in including registered
apprenticeships and prevailing wages in his legislation.
Senator Casey. Mr. Walsh, thank you very much.
I will move to Mr. Sunday with regard to kind of three
interrelated issues: methane, jobs, and infrastructure. In your
testimony, you refer to the need to take steps to both reduce
methane emissions from natural gas, but also the potential that
it has. Methane, as we know, is a terribly powerful greenhouse
gas. Its effect on climate change is more than 30 times greater
than that of CO2 when averaged over a 100-year time
period--and even greater when considered over the first 20
years after it is emitted.
We know that in my home State of Pennsylvania, this
opportunity is a real win/win to help address methane leaked
from natural gas production, but also to protect and create new
jobs at the same time we are addressing the climate.
You know the significance of pipeline infrastructure in
this question, so I guess I would just ask you to speak to the
economic opportunity for a State like ours with regard to
further investment in methane leak detection and repairs at all
stages, and whether this is a good opportunity to create good-
paying jobs in taking steps on lowering emissions?
Mr. Sunday. Thanks for the question, Senator. I think you
have the upstream stage where drillers are committing to
corporate stability goals, the same with the pipeline. On the
utility side, with the infrastructure, we have to figure out a
way to repair some of those leaks and aging mains and not sock
rate-payers. And then we cannot forget about the contributions
from methane from abandoned oil and gas wells, which, as you
know, some estimates say that several hundred thousand of them
are scattered across the State. We need to find a viable way to
get those things plugged.
Senator Casey. Thanks very much.
Senator Crapo. Next is Senator Young. Is he back? Senator
Young, are you here?
[No response.]
Senator Crapo. I see Senator Warner----
Senator Warner. Yes; thank you, Senator Crapo, and my
apologies to Senator Young. Thanks for this hearing. I am going
to have a couple of questions for Mr. Walsh.
Here in Virginia, we are taking bold steps to modernize our
energy economy, particularly through the development of
offshore wind. The Commonwealth is currently in the midst of
developing a 2.6-gigawatt commercial offshore wind project in
Federal waters. And that will be the first in Federal waters.
It will be, when fully operational, capable of providing clean
renewable energy to about 650,000 homes. As I mentioned, it is
currently the largest project in Federal waters.
The Global Wind Energy Council has said that the outlook
for wind energy is going to ramp up exponentially. As a matter
of fact, it is looking at 13,000 megawatts in 2024, and over
20,000 megawatts in 2025. All this is good news. But that also
means there is more competition for capital. There is going to
be a lot more focus here.
Mr. Walsh, what can this committee and the administration
do to make sure that the United States is more successful in
both attracting domestic and international capital? And how can
we make sure that we maintain that supply chain?
One of the things we are trying to do in Virginia is make
sure that some of those wind turbines are actually made in
Virginia, as they will help produce wind for Virginians and
others. But can you help address that question around supply
chain? And since Senator Crapo did not mute himself and is
over-talking, I am going to probably get an extra 30 seconds or
so out of that.
Senator Crapo. Thanks for letting me know, Mark. I will
mute myself.
Senator Warner. Mr. Walsh, can you take that question on
the supply chain and wind?
Mr. Walsh. Yes. Thank you for the question, Senator. We
agree with you that the economic potential of offshore wind is
truly dramatic. And we have a great example from the first
grid-connected offshore wind farm in this country, in Block
Island off of Rhode Island, of how unionized craftspeople from
a whole set of building trades under a project labor agreement
built that wind farm.
The only place where it fell short--and this gets to your
question--is in the materials and the technologies that were
actually used for the wind turbines. The nacelles came from
France. The towers came from Spain. And the blades came from
Denmark.
We can do better than that. One of the ways to do that is
to include domestic content incentives or requirements in our
offshore wind production tax credit. Another way to do that is
on the supply side, because to make the kind of components for
offshore wind that are going to be necessary, size and scale
are enormously important. There are going to be big capital
expenditures going into that, for example, to make one of those
blades by domestic manufacturers. And we think we are going to
need some supply-side help for U.S. manufacturers to actually
become competitive in what will be an enormously important
economic opportunity.
You have seen the data that we have. The National Renewable
Energy Laboratory estimates that the Atlantic coast States
could create roughly $200 billion in new economic
opportunities.
So we want to make sure that we capture those benefits, not
just on the installation and operation and maintenance--those
are important--but also in the manufacturing supply chain as
well.
Senator Warner. Well, as we get into that, one of the
things that we need to guarantee is that there is going to be
that domestic demand. And as you may be aware, we got approved
in Virginia, but there are a lot of other offshore projects
stacking up in terms of getting through the approval process.
We want to make sure these are all environmentally sound, but
if we do not have a faster approval process, we do not--there
was so much dismantling done in the previous administration.
And just the administrative oversight, if we do not get these
projects approved on a timely basis, we are not going to have
the kind of guaranteed domestic generation that will then move
some of those European companies to say, well, you know, we
need to actually build some of those turbines and blades here
in the United States.
In the last 24 seconds, can you speak to that issue of
getting this approval process speeded up a little bit?
Mr. Walsh. We completely agree with you. Efficiency and
transparency in permitting are going to be really important, as
well as fully attending to environmental mitigation issues. I
mean, we have had direct conversations with Director Leftin at
BOEM. I think she shares that vision and is committed to making
sure that BOEM uses all the resources at its disposal to make
sure that that permitting is done in an expeditious and
thorough way.
As you note, capital expenditures are going to be
absolutely reliant on that kind of certainty. Otherwise, we are
not going to see manufacturers and developers and other
businesses in the value chain make the kind of investments
necessary to capture this economic opportunity.
Senator Warner. And that is, again, why I think--I know my
time has expired--but that is why I think, again, my Republican
colleagues, this is an area where I think there was agreement
that we need a faster regulatory review and approval process.
And BOEM needs the resources to get that done.
Thank you, Senator Crapo.
Senator Crapo. Thank you, Senator Warner.
And I do see Senator Whitehouse. Senator Whitehouse, you
are next.
Senator Whitehouse. Thanks, Senator Crapo. I appreciate it.
And thanks to all the witnesses.
Since Mark raised the question of BOEM, let me just flag
that one of the reasons Rhode Island got steel in the water and
electrons on the grid first is because we did two very smart
things that had not been done before. One was, we got a very
robust data plan together so that everybody knew who was doing
what in the waters where the siting was to take place. And the
second was, we front-loaded the use conflicts, and we got those
resolved, or minimized, at the very get-go. And BOEM, despite
that, has not learned that lesson yet.
And so, Mr. Walsh, I would urge you, and Mark, and
everybody else, to join me in pushing that BOEM require
applicants, when they come in with these projects, to have done
a conflicting use survey, and report to BOEM what conversations
they have had with the other users so that you do not end up
with warfare breaking out between conflicting users that could
have been headed off, and instead slows things down.
So I will just flag that issue, because I think we have
real common cause there.
Some background on this. You know, I think the fossil fuel
industry has known for decades about this problem. They have
had every chance to deal responsibly with the pollution. We
could have robust technologies in place for dealing with
carbon, but instead the industry chose to set up front groups,
and traffic in lies, and attack the real scientists, and use
immense amounts of dark money to influence politics. In effect,
they ran a big covert operation against their own country to
try to prevent the action that we are trying to push for now.
And I think they need to be held accountable for that, plain
and simple.
Moreover, the rest of corporate America--there has been a
lot of talk about how the rest of corporate America supports a
lot of what we are talking about, kind of. I mean, they do when
they are meeting BRT and CLC, but when they come to this
building, when it is their lobbyists and their trade
associations, that support has evaporated.
So please, nobody watching this should think that there is
effectual corporate support, particularly for carbon pricing,
in Congress right now. They just are not doing it. And I do not
know if it is because the CEOs do not know what their posture
is, or because they want to stick with the trade associations
who have been so much trouble, but whatever it is, the effect
is, there is simply no real business pressure for carbon
pricing at this point.
And the last point I would make is, you cannot talk about
natural gas emissions without talking about methane. And
methane has been a nightmare, and the industry has been very
sloppy about reporting and has backed away from commitments to
report. So we have a lot of work to do to get the methane
problem solved, and I think there are a lot of jobs in solving
the methane problem.
So let me turn to just a couple of quick questions. One is
to Mr. Brill. Mr. Brill, the IMF has put the subsidy for fossil
fuel in the United States at $600 billion--billion--per year,
which obviously includes the negative externalities and not
just the direct subsidies we are addressing today.
Is that an economically correct way to look at the subsidy
for fossil fuels, the IMF way?
Mr. Brill. Well, I would not attribute that subsidy to the
industry. I would agree that there are negative externalities
associated with emissions, and that is the reason why a carbon
tax can help move the economy, the energy economy, away from
fossil fuels and towards alternative energies and clean
energies.
Senator Whitehouse. And you are aware of the IMF report
that puts the number at $600 billion with----
Mr. Brill. I have not seen that report.
Senator Whitehouse. Okay; take a look.
I think Mr. Sunday, Mr. Brill, and Mr. Walsh, all their
testimony supported carbon capture and removal. I would love to
offer Ms. Pope the chance to make it unanimous. And I would
note that it is hard to get much carbon capture and removal
going if just dumping it into the atmosphere is free. There is
not much of a revenue proposition for carbon capture and
removal until there is a price on emissions. And so I think
those of us who support carbon capture and removal as an
essential way to safety in all of this need to think about it
in those terms.
Mr. Brill, would you agree with that? And, Ms. Pope, how do
you feel about carbon capture and removal?
Mr. Brill. I would agree, yes.
Senator Whitehouse. Ms. Pope?
Ms. Pope. And, Senator, yes, we would agree. We also
believe that we need to have a combination of policies.
Senator Whitehouse. Yes, there is no single--it is silver
buckshot, not silver bullet, I think is the way to describe it.
Lastly, Mr. Brill, you talk about making progress globally.
With a price on carbon, that would be consistent with global
progress, you say, but it would also facilitate global progress
through border adjustments, because nothing is easier to
reconcile in a border adjustment than international prices on
carbon. Isn't that true?
Mr. Brill. I'm sorry? I do not understand the question,
Senator.
Senator Whitehouse. Like if different countries have
completely different regulatory systems for regulating carbon
emissions, that makes it hard to figure out, at the border, who
should pay what. But if one country has $100 per ton and the
other has $50 per ton, figuring out what the border adjustment
should be gets a lot easier.
Mr. Brill. Absolutely. Many of our regulatory policies are
not and cannot be border-adjusted, but a carbon tax can be
border-
adjusted. And your point is absolutely correct.
Senator Whitehouse. And that is how you get to global
progress. Thank you very much, everybody. Great hearing. Much
appreciated.
Senator Crapo. Thank you, Senator Whitehouse.
Next is Senator Young. Is Senator Young back?
[No response.]
Senator Crapo. I will just explain to the witnesses. We
have a series of votes going on, so members are having a hard
time getting back.
I see the chairman is back now.
Senator Young is next, and then I will turn the gavel back
over to the chairman.
The Chairman. Thank you, Senator Crapo, and there is a vote
on.
Senator Young?
Senator Young. I am headed to vote. Thank you, Mr.
Chairman. Very well-engineered and choreographed.
Well, I thank our witnesses for joining us today. And it is
really important we hold this hearing today, so I commend the
chairman for doing that.
Despite being considered a promising carbon alternative for
years now, hydrogen has not seen national investment like other
nationally important renewable energy sources. In the meantime,
innovators have been expanding the uses of hydrogen, while
global investors have directed over $100 billion toward
hydrogen infrastructure.
To ensure that the United States is rightly leveraging this
resource, last week I reintroduced a piece of legislation, the
Hydrogen Sustainability and Utilization Act, along with Senator
Whitehouse. The bill would incentivize investment in hydrogen
energy infrastructure by adding hydrogen to the list of
renewables that qualify for the renewable electricity
production tax credit.
Mr. Walsh, it is estimated that the growth of hydrogen
infrastructure could generate 700,000 jobs in the next 10
years. Now, as we look forward to rebounding from the economic
impact of this global pandemic, do you believe that hydrogen is
a worthy Federal investment?
Mr. Walsh. Thank you for the question, Senator Young.
Hydrogen is, I think, enormously important as an energy
carrier. It is also extremely intriguing for a number of other
reasons. I will just cite steelmaking, given the State that you
represent. Hydrogen is actually being used as a reductant--not
in this country, because we do not have a policy regime in
place to actually support that--but as a reductant for
steelmaking over in Europe right now.
So there are a number of really interesting uses for
hydrogen. I think it is particularly interesting to look at
ways in which we can produce free hydrogen, using renewable
energy sources that are otherwise curtailed in off-demand
cycles to create the hydrogen in clean ways.
So I think this is an issue that we would be very
interested in talking with you further about. The other benefit
of hydrogen, of course, is that it allows us to use some of our
existing infrastructure in lower-carbon, or even zero-carbon
ways, if done right. And I think that is another benefit that
we need to look at as well. There is a set of safety and co-
pollutant issues associated with hydrogen that I think need to
be looked at very, very carefully, but I know that is something
that you would welcome looking at as well.
Senator Young. You are correct, sir. Thank you for your
fulsome response.
We will leave behind the hydrogen for a moment, and I will
pivot to another topic, which is renewable energy incentives.
And I am looking for the time clock here. Okay. This is always
a challenge when we are remotely asking questions, so I want to
be sensitive to that.
Renewable energy incentives, particularly within the tax
code, often have unintended consequences. For example, nearly
two-thirds of solar panel production occurs in China, with many
more companies sourcing inputs from Communist China.
With an expansion of demand for more solar panel
installation, this means that Americans will have to rely on
Chinese manufacturing in order to increase utilization of solar
energy.
Of course, reshoring solar panel manufacturing is one
option, but it will be very capital-intensive and time-
consuming. The disadvantages of relying on China for the supply
chain are multi-fold. Let me just move forward to some
questions for Mr. Brill.
Mr. Brill, to what extent should we be concerned about the
level of dependence on China in our renewable energy supply
chains? And what is the role of the Federal Government in
supporting domestic reshoring without causing even more market
disruptions?
Mr. Brill. Thank you, Senator Young, for your question. I
think it is important that the United States has a diversified
supply chain with respect to renewable energy. And so to the
extent that--that does not necessarily mean that all of our
renewable energy needs to be manufactured here in the United
States, but to the extent that we are relying on a single
country, and particularly a country with which we have an
adverse relationship, that does put at risk that supply chain.
Bringing some of that manufacturing onshore or ensuring
that other countries are capable and active in the production
of solar panels or other technologies, I think, is to our
advantage.
Senator Young. Yes, sir. Well, thank you for the concise
response. I just add, as I pass it back to the chairman, that I
think the Federal Government should examine the effects of
increasing our dependence on China before launching a sweeping
policy to further incentivize the use of renewable energy
sources.
The Chairman. I thank my colleague. And I also want to note
that his interest in hydrogen is well-taken. And hydrogen would
get the same kind of treatment as wind and solar with respect
to this effort to reduce emissions. And I thank my colleague.
Senator Cortez Masto?
Senator Cortez Masto. Thank you, Mr. Chairman. And thank
you to the panel members. This is a great discussion. I am one
who believes we have to invest in building and modernizing our
infrastructure to meet the demands of tomorrow with the 21st-
century technology. And I think it is going to be key.
Otherwise, we are going to be left behind.
I want to talk a little bit about the EV infrastructure.
And I apologize if this question has already been asked. I know
I have had other hearings and had to go vote, but let me just
say I am very proud of Nevada. It is leading the way in
electric vehicle innovation production, and I am proud to
support that, first by joining my colleagues in signing on to
the Securing America's Clean Fuels Infrastructure Act to
provide incentives to support building the infrastructure that
is necessary to support Americans as they move toward electric
vehicles. I even have some bills that focus on incentivizing
that new modern technology.
But, Ms. Pope, let me start with you. How can bills like
these, and the Clean Energy for America Act, support the growth
of EV infrastructure to make drivers' commutes cleaner and more
fuel-
efficient, while also driving our global economic
competitiveness?
Ms. Pope. Thank you. There are three main areas that would
make a significant difference. The first is charging
infrastructure, making sure that all participants can
participate in building out charging infrastructure.
The second is overall utility infrastructure, what the
industry tends to call ``make ready,'' and that is ensuring
that we have the right equipment in the distribution system all
the way to the charging area.
And then the third is really around clean energy and being
able to charge the vehicles when the wind is blowing and the
sun is shining, to make sure that we are maximizing the use of
renewables.
We can also then begin to use the batteries in the vehicles
to return energy back to the grid for stability. So the
benefits to the transportation sector also accrue to the
utility customers overall in making a stronger, more resilient
grid.
Portland General just launched a partnership with Daimler
North America on an electric island charging area for--and
Senator Cantwell will appreciate this--for heavy-duty trucks,
medium-duty trucks, buses for our local transit authority, as
well school buses. And that was done just last week, and there
is tremendous growth in this area. So thank you.
Senator Cortez Masto. Well, thank you. And I see that in my
own State. Most people do not even know where Lovelock, NV is.
But I'll tell you what, if you have an electric vehicle and you
are traveling across Interstate 80, you know Lovelock, NV,
because there is a charging station there.
And I think it is so important that we make these
investments now in the infrastructure that is necessary to
utilize the technology that is going to bring us to a cleaner
environment as well.
Let me ask this: future investments in our transmission
system must prioritize strategic choices that maximize
distribution for the consumers and businesses that will rely on
it.
So, Ms. Pope, do you have any thoughts on how Congress can
clearly define and target transmission investments?
Ms. Pope. Sure. And before I answer your question on
transmission, I do want to acknowledge that many of the
batteries that are used across the entire west, in fact across
the entire country, are manufactured in Nevada. And I have
visited that facility.
Senator Cortez Masto. Thank you. Thank you for highlighting
that. We are very proud. And that is what I say: Nevada is
primed with its innovation on this new technology really to
create jobs, lead in this technological age, and contribute
economically and reduce our carbon footprint. I am very proud
of all of the work everyone in Nevada has done here, including
the private sector that has been instrumental in this
innovation space.
But, please, go ahead.
Ms. Pope. And with regard to transmission, as we look at
the lowest-cost resources that are renewable, generally they
are very large and they are away from the areas where most
electricity is used in urban centers and whatnot. So
transmission is absolutely critical. And as you know, across
the west and across the rest of the country, we have not kept
up with our transmission investments.
As we change our sources of electricity, it will be
important that we also invest in transmission to deliver it.
And so whether that is, to take an example, a transformation
within many States in the west, including Montana, there will
need to be additional transmission built, but we can also
leverage existing transmission. And some of the transmission
projects in Nevada are particularly important in terms of
stability of the grid. So, thank you.
Senator Cortez Masto. Thank you. I know my time is up.
Thank you, Mr. Chairman. Thank you to the panelists.
The Chairman. Thank you, Senator Cortez Masto.
Senator Hassan?
Senator Hassan. Well, thank you, Mr. Chair and Ranking
Member Crapo, for holding this hearing. And thank you to our
witnesses for testifying today.
I wanted to start with a question to you, Ms. Pope. The
year-end relief package contained my bipartisan bill to
increase access to capital for residential and commercial
energy storage projects. I am also a supporter of bipartisan
efforts led by Senator Heinrich and others to strengthen tax
incentives for energy storage.
Ms. Pope, how do battery storage incentives help improve
the reliability of the electrical grid and cut costs for
consumers?
Ms. Pope. Thank you, Senator Hassan. Battery storage is an
absolutely critical component to the future of the reliability
of our systems, both connected with the generation by
renewables, as well as for reliability of the distribution
system when connected with substations, as well as in
individual homes for reliability and resilience. And if you
look at the grid of the future, we will be able to store solar
and wind energy for use during times when the wind is not
blowing and the sun is not shining, and be able to have truly a
bi-directional integrated, much more reliable grid.
For example, Portland General Electric, together with
NextEra Energy Resources, just brought online the wind portion
of the
largest-scale solar/wind/battery storage facility in eastern
Oregon. And what that does--to the prior discussion on
transmission--is it allows us to utilize better the
transmission that goes across the State on more of a 24/7 basis
when you otherwise would not be generating, because that
storage has been able to store the solar. And in the future,
with Chairman Wyden's bill, we would also be able to store the
wind. So it is a very, very important component as we move
forward, and technology is moving very quickly.
Senator Hassan. Thank you for that answer.
I want to move now to Jason Walsh. Mr. Walsh, I have
introduced bipartisan, bicameral legislation, along with
Senator Collins, to modernize and expand energy efficiency tax
incentives.
The energy efficiency sector is one of the largest clean
energy employers, with millions of workers spread out across
every State. Our bills would expand tax credits for homeowners
who upgrade appliances, and improve incentives for building new
energy efficient homes.
Can you comment on how promoting energy efficiency can
simultaneously create high-quality jobs, reduce homeowners'
energy bills, and help fight climate change?
Mr. Walsh. Thank you for the question, Senator.
Well, you are right. It does all of those things. It is a
triple win. The only thing I would add to the very useful way
you framed the question, which I completely agree with, is
that, if you look at the U.S. energy employment report, energy
efficiency jobs are the biggest source of clean energy economy
jobs in our entire economy.
There is a ton of good building trades work in particular
that is done on energy efficiency, as we move to more fully
deploy energy efficiency resources across the country and
across the economy in multiple sectors. The job growth
potential is really significant. We obviously care a lot about
the quality of those jobs and access to those jobs. But energy
efficiency is enormously important, and I am really glad you
asked the question and are such a champion on energy efficiency
issues.
Senator Hassan. Thank you very much. I have another
question.
I have additional legislation, the Net Meter Act, that
would support the renewable energy market by helping States
expand net metering programs. Net metering allows consumers and
businesses to reduce their electric bills by compensating them
for renewable energy that they produce and return to the grid.
So, Mr. Walsh, can net metering complement our efforts to
fight climate change by strengthening solar and wind tax
incentives?
Mr. Walsh. I think it can, Senator. We have done
comparatively little work on net metering, but on the
legislation you mentioned, we would be happy to talk with you
further and work with you further on that.
Senator Hassan. Thank you very much.
The last question is to you, Mr. Walsh. The tax code
currently hands numerous special tax giveaways to big oil,
including special deductions for oil drilling.
How do these special tax giveaways for big oil hurt our
efforts to combat climate change, including good-paying clean
energy jobs?
Mr. Walsh. Senator, we do not take a position on those tax
credits. We are much more focused on the affirmative tax
credits that can be made, that invest in energy efficiency and
new renewable energy generation, and doing so in an equitable
way.
Senator Hassan. Well, I thank you for your care with that
answer. I suggest that those tax credits should be eliminated
as we transfer to clean energy tax incentives. Thank you.
Mr. Walsh. Thank you.
The Chairman. Thank you, Senator Hassan.
Senator Barrasso?
Senator Barrasso. Well, thanks so much, Mr. Chairman, and I
appreciate you taking the time to hold the hearing and involve
so many of us.
America is energy-independent right now. Our Nation reached
that goal through the hard work of hundreds of thousands of
American workers. Securing energy independence provides all
Americans with a safer and stronger future. That is why I am
baffled, really baffled, by the efforts of President Biden and
his supporters in Congress to destroy entire industries in
America, and to force tens of thousands of America's fossil
fuel energy workers into the ranks of the unemployed.
I continually hear the administration tell oil rig workers,
coal miners, pipeline workers, that they can simply get new
jobs building solar panels. Shortly after President Biden took
office, John Kerry said the Biden administration policies will
give these workers, in his words, better choices.
In 2019, the average salary of solar panel technicians was
about $30,000 a year less--$30,000 a year less--than the
average salary of workers in oil, gas, coal, in all those
industries. That is even if these green jobs even exist.
To that point, The Washington Post fact checker took a look
at what John Kerry had said. They said he was offering--Kerry
and the administration were offering false hope with a
misleading use of statistics.
America needs all of the energy. We need the solar. We need
the wind. We need the oil. We need the gas. We need the coal.
We need the uranium for nuclear power. We need it all. And the
demands for energy in this country are going to continue to
increase.
Choosing to use the tax code to intentionally destroy
America's fossil fuel industry, to hurt our economy, to force
more American workers to lose their jobs, and to strengthen the
economic power of the government's of China, Venezuela, Iran,
and Russia, is a path I will not go down.
Today at the Energy Committee hearing, where I am the
ranking member, Joe Manchin and I were talking with those
people who were there to testify. Senator Murkowski from Alaska
said that right now Russia is providing more energy to the
United States than is Alaska. What is that going to make
Americans feel if they hear that that is a result of the Biden
administration?
So for me the choice is easy. I am going to continue to be
on the side of, and support America's fossil energy workers,
their families, their communities, all of the things related to
it.
So a question for Mr. Sunday. Following up with Senator
Lankford's question to you, Chairman Wyden's tax proposal
released last week includes several provisions I think are
harmful, that are going to raise costs for businesses and for
consumers. The provisions threaten the jobs of tens of
thousands of American workers.
One of these provisions is the elimination of the
percentage depletion allowance for oil and gas and coal
operations. The allowance has been in the tax code since 1926.
The percentage depletion allowance is available to businesses
engaged in extraction operations. That is sand, gravel,
granite, marble, coal, borax, sulfur, gold, copper, silver, and
oil and gas. But for oil and gas operators, the allowance is
available to the smallest, usually family-owned oil and gas
companies that usually employ anywhere from 10 to 15 workers.
Large integrated companies cannot claim the deduction. And
a producer can only claim the allowance for the first 1,000
barrels of oil or gas equivalent produced a day. So you can
take a look in comparison of the big oil companies that can
produce 370 net oil barrels a day.
What people do not often realize is that the royalty owner
can also claim the percentage depletion allowance on their tax
return. Well, the owners are a diverse group, from the
professional investor, to a retiree, a rancher, farmer, people
who receive some little extra income each month to help with
ongoing bills. Often, but not always, the payments are small.
So I was talking to a royalty owner who mentioned his most
recent oil royalty payment for production on land that he owned
was about $120 for 2 months of royalties--period. He does not
take advantage of the percentage deduction allowance, but
eliminating the allowance will likely result in the well that
he has had, which has been producing for nearly 40 years, to be
shut down.
The royalty payment is going to disappear. No question,
American workers are going to lose their jobs. So the question
is, what in your opinion will the economic impact be of
eliminating the percentage depletion allowance, particularly as
it affects your independent producers, as well as individual
royalty owners?
Mr. Sunday. Thank you. And in the commodities space, we are
talking percentage of the depletion. Everywhere else it is
expensing and depreciation, and we have bipartisan support for
that. So this is not special in the oil and gas industry, it is
just different terminology.
Making it harder to drill for the commodity that we need to
sustain our modern economy is just going to raise costs on
households and consumers, and leave local governments with
fewer revenues for things like conservation in Pennsylvania.
There are billions of dollars that come into State government
because of energy development, and the less we drill, the less
we are going to have that type of revenue in the State.
Senator Barrasso. So with the elimination of this long-time
business deduction, is it likely to consolidate more control or
less control of oil and gas markets into the hands of the
large, integrated oil and gas companies?
Mr. Sunday. I think it is fair to say you would see
continued pressure on the independents.
Senator Barrasso. And in the long run, if an industry
consolidates into only a handful of companies, what is the
economic impact for consumers?
Mr. Sunday. I would venture to say they would lose out in
that situation, sir.
Senator Barrasso. Mr. Chairman, I assume my time is about
up. I do not really see a clock on the screen.
The Chairman. Yes. Does my colleague have anything else he
wanted to talk about? Your time is up.
Senator Barrasso. If my time is up, no; thank you, Mr.
Chairman.
The Chairman. Okay.
So 2\1/2\ hours into the hearing, I want to close with what
I believe is the clean energy lodestar for our times: a job-
creating, free-
market competition to get to net-zero carbon emissions.
Now, over the last nearly 3 hours, Senators asked about
natural gas, coal, nuclear, conservation, hydrogen, the list
goes on and on. And as we wrap up, I want to make it clear that
all of those sources, when they capture emissions, fully
capture emissions, they would qualify just as wind and solar do
under my legislation.
In my view, that makes sense for the times, even though to
pick up on Senator Barrasso's last comments, nobody would have
contemplated something like this as necessary way back in 1926.
Now, committee members have brought up a number of areas
where they have interests. I think that they are compatible
with the legislation that I have authored, and I would just
wrap up by way of saying that writing legislation is about
bringing Senators together. We are going to do everything we
possibly can to do that. But what is non-negotiable is just
saying that this can wait, because that is something, given
what scientists are saying, our country cannot afford.
So I want to thank all our guests. A special commendation
to Ms. Pope, because not only was it very helpful to have her
testimony, but she got up before all of us in order to be here,
and we thank her for it, because she is home in Oregon.
And my final comment is just to remind Senators they have 1
week to submit questions for our witnesses. With that, the
Senate Finance Committee is adjourned. And I thank all of our
guests.
[Whereupon, at 12:34 p.m., the hearing was concluded.]
A P P E N D I X
Additional Material Submitted for the Record
----------
Prepared Statement of Alex Brill, Resident Fellow,
American Enterprise Institute
Chairman Wyden, Ranking Member Crapo, and members of the committee,
my name is Alex Brill, and I am a resident fellow at the American
Enterprise Institute, a public policy think tank here in Washington,
DC. Thank you for the opportunity to testify about the tax code's role
in our country's pursuit of clean energy. The views and opinions I
offer today are mine alone and do not represent those of my employer or
necessarily those of my colleagues at AEI.
introduction
Today's hearing addresses a timely and important topic: the tax
treatment of energy. A broad, efficient, technology-neutral tax policy
geared toward encouraging less energy consumption and more renewable
energy production is critical to ensuring a reduction in CO2
emissions. The US tax code has long encouraged the use of clean and
renewable energy, as well as energy conservation and efficiency, with
policies dating back to the Energy Tax Act of 1978. Unfortunately, a
scattershot approach to tax policy aimed at reducing U.S., reliance on
fossil fuels--whether in pursuit of energy independence or to address
concerns about climate change--has led to a complex and convoluted tax
code.
Over the years, Congress has enacted dozens of deductions, credits,
exclusions, and other favorable tax policies to incentivize a broad
array of renewable energies (wind, solar, geothermal, biomass, etc.);
structural efficiency technologies (residential energy efficiency
upgrades, commercial energy efficiency investments, etc.); and low-
carbon transportation (plug-in vehicles, electric motorcycles,
alternative fuels, vehicle refueling facilities, etc.). In some cases,
policies encourage additional investment in existing technologies,
foster demand for and broader adoption of clean energy, and incentivize
research and development. In other cases, policies may be little more
than windfall gains for manufacturers of existing products.
As Congress considers the role of tax policy in addressing our
climate challenges, I encourage members to consider options that
simplify the tax code with respect to energy, avoid the economic
distortion of provisions that are not technology-neutral, and adopt a
broad-based and fiscally responsible approach.
trends in energy use
In broad terms, the United States is becoming more energy-efficient
relative to gross domestic product (GDP), and the energy consumed in
the United States results in significantly less CO2
emissions per BTU than in the early 2000s. Total energy consumption has
been relatively constant in the last two decades and CO2
emissions from the energy sector peaked in the United States in 2007.
From that year through 2019, the US economy grew 22 percent in real
terms while the amount of CO2 emitted per unit of energy
fell more than 14 percent (EIA, 2021). Recent data from the Energy
Information Administration (EIA) indicate that energy-related
CO2 emissions in the United States fell an additional 11
percent in 2020. This was due in part to the pandemic and recession (in
particular a decline in transportation-
related energy consumption), but in large part to a decline in
CO2 intensity from less coal and more natural gas and
renewable energy use (EIA, 2021).
In addition, from 2007 to 2019, the amount of energy per dollar of
GDP dropped more than 30 percent, as the service sector grew faster
than the goods-producing sector (EIA, 2021). In other words, our energy
sector has become significantly less carbon-intensive, thanks to the
decreasing share of coal and increasing share of natural gas and
renewable energies, and the U.S. economy has become less energy-
intensive.
Figure 1 illustrates these trends. The first panel presents total
U.S. energy consumption, which fluctuated between approximately 94 and
101 quadrillion BTUs from 2000 to 2019. The second panel illustrates
the decline in the carbon intensity of the energy that is consumed in
the United States, a ratio that was relatively constant through 2007
but has since steadily declined 14 percent. The third panel presents
the overall upward trend of the U.S. economy, and the fourth panel
plots
energy-related CO2 emissions as a share of GDP. Since 2000,
the U.S. economy's CO2 emissions dropped from nearly 450
million metric tons per trillion dollars of GDP to 269 million metric
tons. Of course, total emissions matter most with regard to climate
change, but the progress toward lower emissions, relative to near-
constant levels of energy consumption and significant economic growth,
is noteworthy.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Nevertheless, a much greater reduction in CO2
emissions is necessary to address the significant risks of climate
change. Meaningful policy interventions are required to achieve
additional large-scale carbon emission reductions. Such progress must
be achieved globally, but a lack of binding commitments from all
nations does not preclude the U.S. from adopting sensible, market-based
policies domestically.
President Biden recently announced an emissions reduction target of
50 percent of 2005 economy-wide greenhouse gas pollution levels by 2030
(White House, 2021). This is a significant goal, as the Energy
Department's current baseline forecast for energy-related
CO2 emissions in 2030 changes little from current levels
(EIA, 2021). Even less ambitious reductions will require significant
changes in the carbon intensity of the energy consumed and the quantity
of energy consumed in the United States.
For perspective, in 2019, energy-related CO2 emissions
accounted for 78 percent of total U.S. greenhouse gas emissions (EPA,
2021). Figure 2 reports CO2 emissions from the energy sector
since 2005 and shows that total emissions have declined 14.5 percent
from 2005 through 2019. Figure 2 also presents the baseline forecast
from the Department of Energy's Annual Economic Outlook along with the
level equivalent to a 50 percent reduction in energy-related
CO2 emissions relative to 2005.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
the case for targeted energy tax policy
Policy interventions to encourage market-based reductions in carbon
emissions are justified by the lack of price signals associated with
the societal cost of these emissions. Private transactions between
buyers and sellers of carbon-intensive products fail to incorporate the
negative externalities associated with emissions of CO2 into
the atmosphere. Instead, the cost of CO2 emissions is borne
by society as a whole, including both current and future generations.
This negative externality is becoming increasingly obvious. Beyond
the increase in sea level, extreme weather (intensity and frequency),
and environmental damage, the consequences of climate change can be
measured in economic terms. Recent research published by the
Congressional Budget Office (CBO, 2020) estimates that, absent
meaningful intervention, climate change will cause output in the United
States to be 1 percent lower in 2050 and in every year after. As I
recently noted, policymakers need to understand that the cost of
inaction on climate change is nowhere close to zero (Brill, 2021).
Tax policies can correct for the negative externality by putting an
explicit price on CO2 emissions, providing a tax subsidy
that encourages energy conservation and renewable or low-carbon forms
of energy, or a combination of both strategies. Tax subsidies can
reduce the after-tax cost of an investment in a source of renewable
energy (an investment tax credit) or can be designed to increase the
price received for the sale of clean energy (a production tax credit).
Moreover, tax subsidies can serve to bolster nascent technologies
seeking to achieve production cost efficiencies through scale. For
example, there have been extremely valuable and important technological
advances in wind and solar energy. The average prices of solar and wind
energy have tumbled over the last decade, and markets have responded
with significant increases in demand for these renewable forms of
energy. Tax credits further lower the cost of these technologies and
positively contribute to their adoption (Mai, 2016). However, there are
downsides to energy tax subsidies that should be noted.
drawbacks of energy tax subsidies
The tax code includes a wide array of tax incentives to encourage
clean energy, energy efficiency, or energy conservation. Broadly
speaking, these policies can be grouped in the following categories:
Production tax credits for renewable energy.
Production credits for alternative fuels.
Investment tax credits for renewable production capacity.
Tax credits for energy-related residential property
investments such as renewable energy generation and energy-efficient
upgrades.
Alternative fuel vehicles and refueling properties.
Other provisions, including accelerated depreciation for
certain energy-related properties and pollution control facilities; tax
credit bonds for renewable energy; an energy research tax credit; and a
carbon sequestration tax credit.
Table 1 provides a summary of these provisions that are considered
tax expenditures by the Joint Committee on Taxation (JCT, 2020).
Table 1. Clean Energy Related Federal PTax Expenditures by Category
------------------------------------------------------------------------
-------------------------------------------------------------------------
Production tax credits for renewable energy
------------------------------------------------------------------------
Credits for electricity production from renewable resources (sec.
45)
- Wind
- Geothermal
- Qualified hydropower
- Small irrigation power
- Municipal solid waste
- Open-loop biomass
------------------------------------------------------------------------
Credit for electricity production from closed-loop biomass
facilities (sec. 45(d)(2))
------------------------------------------------------------------------
Production tax credits for alternative fuels
------------------------------------------------------------------------
Credit for second-generation biofuel production (sec. 40(a)(4))
Credit for biodiesel and renewable diesel fuel (sec. 40A)
Credit for producing fuels from a nonconventional source (sec. 45K)
------------------------------------------------------------------------
Investment tax credits for renewable production capacity
------------------------------------------------------------------------
Energy credit (sec. 48)
- Solar
- Geothermal Fuel Cells
- Microturbines
- Combined heat and power
- Small wind
- Geothermal heat pump systems
------------------------------------------------------------------------
Tax credits for energy-related residential property investments
------------------------------------------------------------------------
Credit for nonbusiness energy property (sec. 25C)
Residential energy-efficient property credit (sec. 25D)
Credit for construction of energy-efficient new homes (sec. 45L)
Credit for investment in advanced energy property (sec. 48C)
------------------------------------------------------------------------
Alternative fuel vehicles and refueling properties
------------------------------------------------------------------------
Credit for plug-in electric vehicles (sec. 30)
Credit for fuel cell vehicles (alternative motor vehicle credit)
(sec. 30B)
Credit for alternative fuel vehicle refueling property (sec. 30C)
Credit for electric motorcycles (sec. 30D)
------------------------------------------------------------------------
Other clean energy-related tax provisions
------------------------------------------------------------------------
Credit for carbon dioxide sequestration (sec. 45Q)
Credit for holders of clean renewable energy bonds (sec. 54)
Credit for holders of qualified energy conservation bonds (sec. 54A)
Exclusion of energy conservation subsidies provided by public
utilities (sec. 136)
Exclusion of interest on State and local government qualified
private activity bonds for energy production facilities (sec. 141)
Exclusion of interest on State and local qualified private activity
bonds for green buildings and sustainable design projects (sec.
142(a)(14))
Energy efficient commercial buildings deduction (sec. 179D)
------------------------------------------------------------------------
Source: Joint Committee on Taxation JCX-23-20, November 5, 2020.
From a budget perspective, many of the existing tax policies are
small, sometimes because their value is limited (for example, a 10-
percent credit not to exceed $500 per taxpayer for residential window
upgrades) and sometimes because the utilization of the policy is low
(for example, a cellulosic biofuel producer credit). However, the
aggregate cost of tax subsidies for clean energy is significant. Based
on estimates provided by the Joint Committee on Taxation, the tax
expenditures for clean or renewable energy or energy efficiency
policies will exceed $60 billion during the period 2020-2024 (see Table
2). The largest renewable energy tax provisions are the Energy
Investment Tax Credit, and the Energy Production Tax Credit. The five-
year tax expenditure for these two provisions is $52.5 billion.
Table 2. Clean Energy Related Tax Expenditures: 2020-2024 (Billions of
Dollars)
------------------------------------------------------------------------
Tax Expenditure Category 2020 2021 2020-2024
------------------------------------------------------------------------
Renewables $13.2 $12.6 $56.1
------------------------------------------------------------------------
Efficiency $0.7 $0.5 $1.4
------------------------------------------------------------------------
Alternative Tech. Vehicles $0.7 $0.6 $3.0
------------------------------------------------------------------------
Total $14.6 $13.7 $60.5
------------------------------------------------------------------------
Source: Data from the Joint Committee on Taxation JCX-23-20, November 5,
2020.
The realized cost of these subsidies to the Federal budget could
grow exponentially if the clean and renewable energy target that
President Biden has proposed is achieved. This dramatic decline in
greenhouse gas emissions--a 50-percent reduction relative to 2005
emissions by 2030--would require a dramatic increase in the utilization
of renewable energy and electric vehicles, as well as increases in
energy conservation. The cost of tax subsidies for these activities
will grow as their adoption grows.
In addition to the significant cost and the large number of tax
subsidies, there are other limitations to the subsidy approach. The
Treasury Department's Inspector General for Tax Administration has
identified administrative problems with residential energy tax credits
(sec. 25C and sec 25D) involving both improper claims of the credit and
incorrect denials (TIGTA, 2011 and 2015). More generally, subsidizing
energy production will lower the price of electricity and thereby lead
to an overall increase in demand, which is counterproductive to the
goal of energy conservation.
It is difficult (if not impossible) for a subsidy agenda to be
technology-neutral. Metcalf (2009) illustrates how the hybrid vehicle
tax credit offers a subsidy that varies from $0 to more than $11 per
gallon of avoided gasoline consumption based on typical usage
assumptions and depending on the vehicle purchased. JCT (2016)
illustrates the complexity in determining the amount of energy saved
from the credit. Metcalf (2009) demonstrates that the production tax
credit for wind and geothermal, if measured in terms of subsidy amount
per ton of CO2 avoided, varies significantly due to the fact
that geothermal energy likely displaces coal (high in CO2
per BTU) and wind likely displaces natural gas (lower in CO2
per BTU). While the production tax credit, determined based on the
quantity of electricity generation, is the same for both wind and
geothermal, the subsidy value in terms of CO2 is unequal.
Finally, many provisions are temporary, which causes uncertainty
for taxpayers. For example, in 2020, 15 tax provisions were set to
expire. All but two were renewed, and only one was made permanent (see
Table 3). This year and in 2022, another 16 energy-related provisions
are set to expire (JCT, 2021).
Table 3. Energy-Related Tax Provisions Previously Set to Expire December
31, 2020
------------------------------------------------------------------------
Tax Provision Extended Until
------------------------------------------------------------------------
Credit for section 25C Nonbusiness Energy Property 12/31/2021
(sec. 25C(g))
------------------------------------------------------------------------
Alternative Motor Fuel Vehicle Credit for Qualified 12/31/2021
Vehicles (sec. 30B(k)(1))
------------------------------------------------------------------------
Credit for Alternative Fuel Vehicle Refueling 12/31/2021
Property (sec. 30C(g))
------------------------------------------------------------------------
Credit for Two-Wheeled Plug-In Electric Vehicles 1/1/2022
(sec. 30D(g)(3)(E)(ii))
------------------------------------------------------------------------
Second Generation Biofuel Producer Credit (sec. 1/1/2022
40(b)(6)(J))
------------------------------------------------------------------------
Energy Production Tax Credit (sec. 45) 1/1/2022
------------------------------------------------------------------------
Credit for Production of Indian Coal (sec. 12/31/2021
45(e)(10)(A))
------------------------------------------------------------------------
Credit for Construction of Energy-Efficient New 12/31/2021
Homes (sec. 45L(g))
------------------------------------------------------------------------
Special Dep. Allowance for Second Gen. Biofuel Expired
Plant Property (sec. 168(I))
------------------------------------------------------------------------
Energy-Efficient Commercial Building Deduction Made Permanent
(sec. 179(D))
------------------------------------------------------------------------
Special Rule to Implement Electric Transmission Expired
Restructuring (sec. 451(k))
------------------------------------------------------------------------
Black Lung Disability Trust Fund: Increase in 12/31/2021
Amount of Excise Tax on Coal (sec. 4121(e)(2))
------------------------------------------------------------------------
Oil Spill Liability Trust Fund Financing Rate (sec. 12/31/2025
4611(f)(2))
------------------------------------------------------------------------
Excise Tax Credits and Outlay Payments for 12/31/2021
Alternative Fuel (sec. 6426(d)(5), sec.
6426(e)(6)(C))
------------------------------------------------------------------------
Excise Tax Credits for Alternative Fuel Mixtures 12/31/2021
(sec. 6426(e)(3))
------------------------------------------------------------------------
As the Joint Committee on Taxation (JCT, 2016) noted in a report
prepared for this committee:
While the government can in theory establish an efficient set
of subsidies for the activities it chooses to subsidize, in
practice it cannot administratively identify and set up
programs to subsidize every conceivable energy-saving practice.
Additionally, it is not possible to identify meritorious
technologies not yet invented. The government must continue to
expand the class of credit-eligible activities if it wishes to
minimize the economic distortions that come from favoring
certain technologies through tax subsidies over other
technologies that prove equally capable of achieving reductions
in fossil fuel consumption. Furthermore, the investment in
research to develop such new technologies might be constrained
by the existence of tax subsidies for current technologies.
Investors in such research run the political risk that their
newly discovered technologies will not be granted any tax
subsidies and may find it difficult to compete with existing
subsidized technologies.
the recent reform proposal introduced by the senate finance chairman
Chairman Wyden and other lawmakers recently introduced legislation,
the Clean Energy for America Act, that would consolidate tax incentives
for renewable energy, transportation, and energy conservation. One
admirable intent of this legislation is to establish a more technology-
neutral clean energy tax policy. However, as noted above, a fixed rate
production tax credit may appear neutral but have disparate impacts on
carbon mitigation.
Moreover, the new credits proposed in this legislation phase out
once sector-
specific CO2 emissions decline 25 percent (relative to
2021). As a recent report by researchers at the University of Maryland
outlines, a plausible path toward President Biden's emissions target
would include a 76-percent reduction in CO2 emissions from
electricity generation and a 40-percent reduction in emissions from
transportation. Other sectors are likely less adaptable in the coming
decade (Hultman et al., 2021). Therefore, the clean electricity and
clean transportation provisions in the Clean Energy for America Act are
not designed to provide tax incentives during the full transition
period proclaimed by the administration. An extension and expansion of
these provisions to align with the targets proposed by President Biden
would dramatically expand the cost.
explicitly pricing carbon is the optimal way to reduce co2
emissions
While tax subsidies for renewable energy production or investment
can encourage the deployment of more clean energy, these policies--for
reasons just discussed--are certain to be suboptimal relative to a
price on carbon, specifically a carbon tax.
Economists have long agreed that a carbon tax is an efficient and
effective way to reduce carbon emissions. Prominent economists on the
left and right--including Ben Bernanke, Alan Greenspan, Martin
Feldstein, Greg Mankiw, and Glenn Hubbard, as well as Janet Yellen,
Austan Goolsbee, Jason Furman, Laura Tyson, and Larry Summers--have
urged the United States to adopt a carbon tax. These views are not new.
A Wall Street Journal article in 2007 found that a majority of
economists surveyed believed that a ``tax on fossil fuels would be the
most economically sound way to encourage alternatives'' (Izzo, 2007).
One carbon tax proposal has earned endorsement from four former Federal
Reserve Board chairmen, 28 Nobel Laureates in economics, and 15 former
chairs of the White House Council of Economic Advisers.
More recently, the business community has strongly endorsed putting
a price on carbon. For example, in September 2020, the Business
Roundtable advocated for a carbon tax, and in January of this year, the
Chamber of Commerce's position paper on climate change signaled its
openness to a carbon tax. The American Petroleum Institute and top
companies in the oil industry have also expressed support.
A carbon tax is technology-neutral and encourages shifts away from
carbon-
intensive sources of energy while encouraging energy efficiency and
conservation, and research and development in new technologies. Many of
the advantages and design considerations of a carbon tax are considered
in Brill (2017).
By imposing a larger burden on coal than on natural gas, a carbon
tax would support the transition toward greater natural gas utilization
in the United States and would accelerate the retirement of coal
plants. Extending and accelerating this trend will further the
reduction in CO2 emissions in the United States. In
addition, by imposing a larger burden on natural gas than on renewable
energy, a carbon tax would encourage additional investment and
deployment of energy sources such as wind and solar.
Unlike tax subsidies targeted toward the production of new
renewable energy, a carbon tax has the potential to impact energy
demand generally, thereby further reducing CO2 emissions
over time. A carbon tax would increase the rate of return on energy-
efficient upgrades; encourage the utilization of more fuel- efficient
vehicles; reduce miles traveled; and drive many small and modest
adjustments in choices made by consumers, manufacturers, and others on
their energy consumption. While the price elasticity for electricity
demand is small in the short run, recent evidence suggests that it is
quite high in the long run (Burke and Abayasekara, 2018). The
significance of this result is that a durable carbon tax has the
potential to significantly reduce energy demand in the period after
2030, a contrast to policies targeting wind and solar energy deployment
within the current decade.
A carbon tax would, depending on the rate set, raise significant
amounts of new Federal tax revenues. While tax increases may not be a
desirable outcome to conservatives committed to limited government, a
carbon tax should be recognized as an opportunity to reduce other more
distortionary taxes, or as a substitute to alternative taxes that are
more economically damaging. For example, a carbon tax is certainly
superior to an increase in the corporate tax rate.
A $15/ton carbon tax that increases 6 percent annually would raise
a similar amount of revenue as President Biden's proposal to raise the
corporate tax rate to 28 percent. A $35/ton carbon tax could raise as
much as President Biden's entire business tax agenda.
President Biden's proposed corporate rate hike would put the United
States first among all OECD nations with respect to the average
combined State and Federal corporate tax rate (Bunn et al., 2021). It
would also raise the cost of capital for corporations and increase the
tax distortion between debt and equity financing (Pomerleau, 2020). A
carbon tax would have none of these negative consequences but would
have positive effects on carbon emissions, energy conservation, and the
transition to a clean energy economy. York (2021) estimates the
economic advantage of a $25/ton carbon tax versus a 28 percent
corporate tax rate.
conclusion
The tax code is a well-suited instrument for policy-makers pursuing
market-based strategies to shift energy consumption in the United
States toward clean and renewable fuels. This objective is laudable
given the costs and risks associated with climate change. In theory,
renewable energy consumption can be encouraged with either a tax on
carbon or a tax subsidy on items or activities that are alternatives to
fossil fuels. To date, the United States has pursued the latter
approach and enacted dozens of targeted tax credits and other tax
subsidies intended to favor particular types of renewable energy and
specific energy conservation investments.
However, as a practical matter, a carbon tax proves far superior.
Subsidies are difficult to construct in an efficient, technology-
neutral manner when the objective is to displace CO2
emissions from existing energy forms. Subsidies can be fraught with
complexity, and the temporary nature of most clean energy tax
provisions creates costly uncertainty. In contrast, a carbon tax offers
a broad, efficient, and
technology-neutral approach to encouraging wider adoption of existing
clean energy sources. It also incentivizes research into new
technologies and encourages consumers of energy, whether they be
households or businesses, to adopt energy-
efficient choices. Finally, a carbon tax is a far superior policy when
compared to President Biden's business tax agenda, which includes
increasing the corporate tax, increasing the tax on foreign income, and
establishing a new alternative minimum tax on certain large businesses.
References
Brill, Alex. 2017. Carbon Tax Policy: A Conservative Dialogue on Pro-
Growth Opportunities.
Brill, Alex. 2021. ``There Are Costs for Climate Change Whether Leaders
Take Action or Not.'' The Hill. https://thehill.com/
opinion/energy-environment/544507-there-are-costs-for-
climate-change-whether-we-take-action-or-not.
Bunn, Daniel, et al. 2021. ``President Biden's Infrastructure Plan
Raises Taxes on U.S. Production.'' https://
taxfoundation.org/biden-infrastructure-american-jobs-plan/.
Burke, Paul J., Ashani Abayasekara. 2018. ``The Price Elasticity of
Electricity Demand in the United States: A Three-
Dimensional Analysis.'' The Energy Journal 39 (2): 123-146.
https://www.iaee.org/energyjournal/article/3055.
Congressional Budget Office (CBO). 2020. ``CBO's Projection of the
Effect of Climate Change on U.S. Economic Output: Working
Paper 2020-06.'' https://www.cbo.gov/publication/56505.
Energy Information Administration (EIA). 2021. ``Annual Energy Outlook
2021.'' https://www.eia.gov/outlooks/aeo/pdf/
AEO_Narrative_2021.pdf.
Environmental Protection Agency (EPA). 2021. ``Inventory of U.S.
Greenhouse Gas Emissions and Sinks Fast Facts.'' https://
www.epa.gov/sites/production/files/2021-04/documents/
fastfacts-1990-2019.pdf.pdf.
Hultman, Nathan, et al. 2021. ``Charting an Ambitious U.S. NDC of 51%
Reductions by 2030.'' Center for Global Sustainability
Working Paper. https://cgs.umd.edu/sites/default/files/
2021-03/Working%20Paper_ChartNDC_Feb
2021.pdf.
Izzo, Phil. 2007. ``Is It Time for a New Tax on Energy?'' The Wall
Street Journal, https://www.wsj.com/articles/
SB117086898234001121.
Joint Committee on Taxation (JCT). 2016. ``Present Law and Analysis of
Energy-Related Tax Expenditures.'' https://www.jct.gov/
publications/2016/jcx-46-16/.
Joint Committee on Taxation (JCT). 2020. ``Estimates of Federal Tax
Expenditures for Fiscal Years 2020- 2024.'' https://
www.jct.gov/publications/2020/jcx-23-20/.
Joint Committee on Taxation (JCT). 2021. ``List of Expiring Federal Tax
Provisions 2021-2029.'' https://www.jct.gov/publications/
2021/jcx-1-21/.
Mai, Trieu, et al. 2016. ``Impacts of Federal Tax Credit Extensions on
Renewable Deployment and Power Sector Emissions.'' National
Renewable Energy Laboratory. https://www.nrel.gov/docs/
fy16osti/65571.pdf.
Metcalf, Gilbert E., 2009. ``Tax Policies for Low-Carbon
Technologies,'' National Tax Journal, National Tax
Association, vol. 62(3), pages 519-33, September.
Pomerleau, Kyle. 2020. ``The Tax Burden on Business Investment Under
Joe Biden's Tax Proposals.'' https://www.aei.org/wp-
content/uploads/2020/09/The-tax-burden-on-business-
investment-under-Joe-Bidens-tax-proposals.pdf.
Treasury Inspector General for Tax Administration, Processes Were Not
Established to Verify Eligibility for Residential Energy
Credits, Reference Number: 2011-41-038, April 19, 2011,
http://www.treasury.gov/tigta/auditreports/2011reports/
201141038fr.pdf.
Treasury Inspector General for Tax Administration, Results of the 2015
Filing Season, August 31, 2015, https://www.treasury.gov/
tigta/auditreports/2015
reports/201540080fr.pdf.
White House. 2021. ``Fact Sheet: President Biden Sets 2030 Greenhouse
Gas Pollution Reduction Target Aimed at Creating Good-
Paying Union Jobs and Securing U.S. Leadership on Clean
Energy Technologies.'' https://www.whitehouse.
gov/briefing-room/statements-releases/2021/04/22/fact-
sheet-president-biden-sets-2030-greenhouse-gas-pollution-
reduction-target-aimed-at-creating-good-paying-union-jobs-
and-securing-u-s-leadership-on-clean-energy-technologies/.
York, Erica. 2019. ``Comparing the Trade-offs of Carbon Taxes and
Corporate Income Taxes.'' https://taxfoundation.org/biden-
carbon-tax-corporate-tax-tradeoffs/.
______
Questions Submitted for the Record to Alex Brill
Question Submitted by Hon. Rob Portman
Question. Concerns have been raised regarding the tax equity
markets and increased calls for a direct pay option for renewable
energy credits. Some proposals have been introduced that would provide
a direct pay option in lieu of tax credits.
More than a decade ago, in 2009, Congress created such a program,
called the section 1603 program. The creation of this temporary, $26-
billion section 1603 grant program was part of the American Recovery
and Reinvestment Act in 2009 and motivated by difficult economic
conditions and the perceived lack of tax-equity in supporting renewable
energy projects. The program allowed the Treasury Department to provide
grants for investments in certain energy production properties in lieu
of renewable energy tax credits.
However, the U.S. Treasury Inspector General for Tax Administration
(TIGTA) outlined serious issues of program integrity, such as companies
double dipping to receive both the grant and tax credit. As we continue
to engage in these conversations to further define the role of the tax
code in helping our country reduce its carbon footprint, program
integrity must remain a top priority for us.
Do you think the vulnerabilities such a grant program may have for
fraud, waste, and abuse limit the effectiveness of its benefits? Do
program integrity problems, as was demonstrated in the section 1603
program, have unintended consequences on the development of the broader
industry?
Answer. Senator Portman, you are correct that the section 1603
grant program had significant faults. The December 2013 TIGTA report
indicates that the majority of taxpayers who had received section 1603
grants and been inspected by the IRS had compliance issues, including
the ``double-dipping'' concern you raised.
As a matter of sound tax policy, any provision intended to promote
renewable energy should pursue that goal in as neutral and cost-
effective a fashion as possible. Poor administration of a program that
allows taxpayers to claim both the grant (for which they are eligible)
and the tax credit (for which they are ineligible if they claim the
grant) is costly, wasteful, and concerning.
Programs such as section 1603 should be able to be operated and
administered by the IRS as intended. However, it is also the case that
the availability of targeted tax credits and grant programs will lure
some firms to engage in improper tax activity.
The alternative policy strategy that I proposed in my testimony--
that is, a carbon tax--does not carry the risk of ``double-dipping''
like section 1603 and other tax credits might. Moreover, a carbon tax
would be cost-effective and technology-neutral.
______
Questions Submitted by Hon. Todd Young
Question. I wanted to follow up on our discussion from the hearing
related to the dangers of relying on China for our renewable energy
supply chain needs. China has consistently been responsible for unfair
trade practices like state subsidization, forced data transfer, and IP
theft. And, as we've most recently seen, a supply chain that is
completely reliant on Chinese manufacturing is most at risk during
adverse events, like this global pandemic.
Should the Federal Government examine the effects on increasing our
dependency on China before launching a sweeping policy to further
incentivize the use of renewable energy sources?
Answer. China is indeed a major supplier of inputs to renewable
energy production. In addition to the concerns you have raised, I am
also concerned about the evidence of the use of forced labor in the
production of solar panel inputs. The U.S. Government should continue
to examine these issues closely and address concerns with China as they
arise. Recent actions by the Commerce Department against Hoshine
Silicon Industry Company and others, for example, are positive steps.
The targeted banning of imports of polysilicon from Xinjiang will be
effective in ensuring that renewable energy incentives do not accrue to
Hoshine and other firms that use forced labor. In my view, broader
policy action to address the risks of climate change and promote
renewable energy production in the United States can and should be
pursued in parallel with efforts to combat unfair or immoral trade
practices.
Question. As this committee considers various strategies to support
energy production--specifically renewable energy production--we should
diligently keep in mind the number of jobs tied to various energy
sectors. Energy use in my home State of Indiana is similar to how the
entire country looks--in Indiana, as of 2019, coal fueled almost 60
percent of our electricity net generation. Renewable sources for
electricity in Indiana like wind power accounted for 6 percent, and
solar power accounted for less than 1 percent. Nationally, renewable
energy sources account for 17 percent of electricity.
How do we ensure that jobs tied to energy sectors that are not in
the ``renewable'' category are not abruptly terminated?
With millions of Americans relying on diversified energy sources
for their employment, how can disruptions be minimized?
Answer. The consequences of a transition from fossil fuel to
renewable energy will, like any technological advance, result in some
labor market disruptions. For example, the number of workers in coal
mining has declined by roughly 50 percent in the last decade to
approximately 42,000. While these jobs are a very small share of total
U.S. employment, they are still critical for the workers, their
families, and their communities. In all likelihood, the trend in
downward employment in this sector will continue as productivity rises
and demand falls. While jobs in these industries are unlikely to shift
``abruptly'' as a result of either technological advances or efforts to
support renewable energy production, policy-makers may want to consider
strategies to facilitate more effective job retraining opportunities
for any displaced workers.
______
Prepared Statement of Hon. Mike Crapo,
a U.S. Senator From Idaho
The tax code plays an important role in the economy and jobs in the
energy sector. Energy incentives have the potential to grow our economy
and create jobs, if executed properly. A number of energy-related
policy areas have the potential for bipartisan agreement.
While there are not a lot of specifics on President Biden's energy
tax credits in the American Jobs Plan, he is clearly proposing to
increase the corporate and international tax rate and penalize the oil
and natural gas industry though the tax code. We must understand the
impact of this proposal on the 10.9 million American jobs in the oil
and natural gas industries that pay on average seven times the Federal
minimum wage.
I look forward to hearing from our witnesses their policy expertise
and their understanding of how President Biden's proposals will either
grow or shrink good-
paying American energy jobs. Prior to the pandemic, the United States
was experiencing one of the strongest economies in decades.
With the Tax Cuts and Jobs Act in place, and an agenda focused on
smart regulation, we saw progress for all Americans, including record-
low unemployment rates for African Americans, Hispanics, and others;
50-year lows in overall unemployment; robust wage gains skewed toward
lower-wage earners; record-high household incomes; and record-low
poverty. Considering offsetting the cost of energy provisions with a
corporate tax rate increase or increasing international taxes,
especially during a pandemic, is counterproductive and a non-starter on
my side of the aisle.
It will be increasingly challenging to return to an economy as
robust as we saw before the pandemic with the endless streams of tax
hikes and actions by the administration, such as revoking the permit
for the Keystone XL Pipeline. The Biden administration's revocation of
the presidential permit for the Keystone XL Pipeline was shortsighted
and eliminated over 1,000 jobs, the majority of which were unionized.
I am willing to work on constructive proposals to modernize and
innovate our nation's energy production, while not adversely affecting
millions of good-paying American jobs and the existing energy sources
necessary for a comprehensive, affordable, and reliable domestic energy
network. We should discuss ways to improve, and potentially expand,
incentives to increase domestic energy production and manufacturing.
However, it is important that we also consider the effectiveness of
existing incentives.
Congress should not be picking winners and losers every year when
temporary credits expire. We must assess whether these credits continue
to be necessary or whether they have served their intended purpose of
incentivizing growth and investment. Yet we continue extending credits
of technologies that have achieved a significant market presence in the
U.S., an inefficient use of taxpayer dollars. While I support Congress
taking a neutral approach to energy tax credits, we must consider
whether some of these technologies continue to require assistance and
ensure we are designing the tax code to be fair and effective.
Our tax code should incentivize technology-wide clean energy
innovation, helping to bring breakthrough power generation to
deployment until it can compete independently in the market. My
technology-inclusive bipartisan energy tax proposal--the Energy Sector
Innovation Credit, or ESIC--would accomplish this by working with
experts at the Department of Energy, national labs, and other
stakeholders to target tax credits for innovative clean-energy
technologies.
In addition, ESIC would implement a credit phase-down system based
on market penetration, systematically reducing credits as technologies
increase their market share, instead of allowing Congress to pick
winners and losers. I thank Senator Whitehouse for leading this
proposal with me in the Senate.
Mr. Chairman, I look forward to working collaboratively with you
through the committee process to strengthen U.S. energy competitiveness
by rapidly scaling and diversifying innovative clean energy
technologies.
______
Prepared Statement of Maria M. Pope, President and CEO,
Portland General Electric
Chairman Wyden, Ranking Member Crapo, and members of the committee,
my name is Maria Pope, and I am the president and CEO of Portland
General Electric. I am honored to testify before you today on the
critical issues of climate change, jobs and effective clean energy tax
policy. Thank you for taking up this very important issue. Climate
change is having very real global impacts and greenhouse gas emissions
must be dramatically reduced on an economy-wide basis. It will take all
of us working together to make a difference. National attention and an
all-hands-on-deck approach is needed without further delay.
Portland General Electric is a fully integrated electric utility
based in Portland, OR. We serve roughly half of all Oregonians and
three quarters of the State's industrial and commercial activity. We
share our customers' and our communities' vision for a clean, reliable,
affordable energy future. We have ambitious climate goals to reduce
greenhouse gas emissions associated with the power we serve customers
by at least 80 percent by 2030, compared with 2010 levels. We also have
an aspirational goal of zero greenhouse gas emissions associated with
the power we serve to customers by 2040. Advancements in policy,
regulation, and technology are needed to meet these emission reduction
goals, while maintaining reliable service at a reasonable cost to
customers.
PGE is not alone in our emissions reduction work. Many of our peer
utilities across the country have set similarly ambitious targets. The
Edison Electric Institute's members, representing the Nation's
investor-owned utilities, are collectively on a path to reduce their
greenhouse gas emissions at least 80 percent by 2050, compared with
2005 levels. Many companies are pledging even faster, more aggressive
timelines. As of year-end 2019, the U.S. power sector had reduced its
CO2 emissions by 33 percent below 2005 levels.
According to the Intergovernmental Panel on Climate Change, we have
a decade to make significant progress to curb greenhouse gas emissions.
To achieve that progress across the energy sector on the timeline
climate science requires, deployment of clean energy resources by
utilities and others in the energy industry must be accelerated.
Utilities, or any sector of our economy, cannot achieve these ambitious
emissions reductions alone. Addressing the climate crisis requires
substantial capital investments and Federal policies that serve
everyone equitably--maximizing both benefits to customers and the
deployment of a wide variety of clean energy resources.
It is also imperative that Federal policy does not pick winners and
losers regarding technologies or which entities can deploy the new
resources that will be needed. It's clear that the Nation needs all
parties, especially those responsible for delivering reliable power, to
be able to develop and deploy new resources. The right
technology-neutral incentives will accelerate the clean energy
transition and activate all players to make significant investments.
This committee has the authority to provide those well-designed
incentives via the tax code. To move forward with speed requires new
thinking, which is exactly what we see in the Clean Energy for America
Act.
Chairman Wyden, I want to thank you and your team for this newly
introduced and thoughtfully crafted bill. This legislation provides tax
incentives in a manner that addresses many of these issues I just
identified. Notably, your bill will help incentivize utilities and
independent developers alike to transform how electricity is generated
and used. It is designed to ensure success as it doesn't pick winners
and losers--in terms of technology or business model--and is flexible
in that it covers emerging technologies as long as they have zero or
net negative carbon emissions. This bill reflects the findings from a
recent analysis by the Rhodium Group which concluded that this kind of
long-term technology-neutral approach enables all parties to
participate in the path to a clean energy future, creating an
opportunity for an all hands on deck approach to drive down electricity
sector greenhouse gas emissions.
Portland General Electric enthusiastically supports this bill, and
we urge its enactment. The Clean Energy for America Act recognizes that
utilities play a critical role in meeting ambitious greenhouse gas
reduction and clean energy targets and, at the same time, need support
to deploy new clean electricity resources and technology supportive of
the transportation sector's transformation. The bill paves the way for
us to boost investments--more quickly and equitably--to meet our shared
goals of reducing emissions and addressing climate change.
We especially appreciate the optionality between production and
investment tax credits, while also allowing utilities to opt-out of
Internal Revenue Service normalization requirements for the new storage
credit. These provisions ensure that the full benefits of these tax
incentives are passed through to customers and that regulated utilities
will not be disadvantaged--leveling the playing field to accelerate
deployment and ensure affordability for all customers. Keeping energy
affordable helps build and maintain the broadest support for this
critical transition.
Along with affordability, preserving reliability is essential.
Dispatchable clean resources will play an important role. So will a
smarter grid that can harness electricity from wind, solar and other
resources when they are available and store that energy for when it's
needed. Chairman Wyden's bill provides tax incentives for stand-alone
energy storage facilities and new clean resources that provide
important capacity, leading to improvements in reliability.
The bill also provides the option to elect direct payment of these
credits. The option enables broader use and lowers costs, creating
savings which can be directly passed on to customers. For example,
direct pay can financially insulate the development of these projects
during challenging economic conditions such as the financial crisis in
2008 or the pandemic that we are currently experiencing. It also
mitigates the need for complex tax equity transactions, where credits
are heavily discounted by large commercial and investment banks or
other parties. Instead, with this option, the benefits of the tax
credits can more fully flow through to utility customers and lower the
cost of the clean energy transformation.
The Clean Energy for America Act requires that eligible facilities
must be built by workers who are paid prevailing wages. PGE values our
partnership with labor, including the IBEW, and we support this
requirement. We are pleased that the BlueGreen Alliance is here today
to discuss their perspective.
Today, the transportation sector is the largest source of
greenhouse gas emissions. The bill's clean transportation credits
enable transformative change, encouraging the purchase of a range of
electric vehicles and investment in critically important charging
infrastructure. These credits will help us meet our commitment to
electrify our own fleet and will also enable our customers to make the
transition to electric vehicles, important steps if our state is to
meet its decarbonization goals. PGE appreciates and values the
inclusion of Chairman Carper's charging infrastructure proposal for
robust charging credits that will boost installation and provide access
across the Nation.
I would like to express again my appreciation for Chairman Wyden's
thoughtful legislation. As we continue our transition to clean energy
resources, what we need from Congress are the tax incentives contained
the Clean Energy for America Act, as well as Federal funding for the
research, development and deployment of new technologies that will help
us deliver dispatchable clean energy resources. These Federal
investments will enable utilities to reach deep reductions in
greenhouse gas emissions.
As Congress begins discussion on an infrastructure package, there
is an opportunity to include provisions to help modernize the electric
grid and transition the Nation to the clean infrastructure of tomorrow.
This includes legislation such as Chairman Wyden's Clean Energy for
America Act. We are also aware that Ranking Member Crapo has developed
his own tax legislation. We look forward to working with Ranking Member
Crapo, his staff, and the committee as these proposals move forward in
the months ahead.
Chairman Wyden, Ranking Member Crapo, committee members, thank you
for your time and the opportunity to share our perspective on these
important matters.
______
Questions Submitted for the Record to Maria M. Pope
Questions Submitted by Hon. Catherine Cortez Masto
Question. One of the key provisions of the Clean Energy for America
Act of 2021 is its flexibility for new zero-emission facilities to
utilize either a production tax credit or an investment tax credit--
based on the needs of each facility. Can you discuss the importance of
having this flexibility in clean energy legislation?
Answer. Flexibility for new zero-emission facilities to utilize
either a production tax credit or an investment tax credit is critical
to accelerate decarbonization of the power sector and mitigate cost
impacts on utility customers. The scale of this effort requires the
active engagement of all parties to build out needed clean energy
resources. The option to choose the PTC, which is not subject to IRS
tax normalization rules, creates a level playing field when utilities
seek new clean energy facilities. Without this optionality, or the
ability to opt out, regulated utilities must normalize the tax benefit
over the life of these resources and are therefore at a competitive
disadvantage during the bidding process. A level playing field between
unregulated developers and regulated utilities will ensure robust
competitive procurement processes that result in customers getting the
best prices for these new clean resources. It is important to note that
for State-regulated utilities like Portland General Electric, the full
value of Federal tax credits and other incentives are passed directly
back to customers in the form of rate credits or rate decreases.
Question. In line with Chairman Wyden's tech-neutral legislation
which outlined a stand-alone investment tax credit for transmission,
and in order to direct public dollars to the appropriate projects, we
must ensure that any project meets sufficient capacity. Do you think
that the incentive needs to be focused on building large-scale,
interregional, difficult to build transmission lines, not subsidize
lines within already existing utility territories?
Answer. Limiting the credit to exclude certain transmission lines
that are needed to integrate and deliver clean energy will make it more
difficult to achieve the administration's decarbonization goals. It
also would be difficult to exclude lines in existing utility territory.
Utility territory covers much of the map of the U.S. and transmission
within a utility's territory is not necessarily owned, built, or
controlled by that utility.
There have been efforts to try to quantify the need for new
transmission, with a number of studies finding that a significant
expansion of transmission will be needed to support the clean energy
transition and get renewable resources from where they are located to
where the customer need is. For example, one study from the National
Academy of Sciences, Engineering and Medicine (Carbon-Neutral Pathways
for the United States) found that a 2.5-fold increase over 2020
transmission levels would increase the share of wind and solar to 60
percent of total generation. If we wish to support this needed
expansion of transmission, it will be important to provide broad-based
incentives and assistance, as there is no one single answer that will
address every challenge associated with transmission.
New transmission lines are difficult to site, permit, and build,
and they do not necessarily need to be interregional to be vital to our
decarbonization efforts. Even projects that proponents had hoped would
be less complicated, for example by proposing to use existing rights of
way to connect clean energy to load centers, have run into challenges
with lengthy permitting and siting processes, with significant cost
outlays.
Chairman Wyden's proposed tax credit for transmission strikes the
right balance and addresses the need for transmission by applying the
credit to transmission 275 kV and above, which would encompass an
estimated 22 projects across the country currently in some stage of
development, including the Greenlink West and Greenlink North projects
in Nevada. These high-capacity, regionally significant transmission
lines will interconnect large amounts of new generation and the
electricity will travel long distances to serve load or will be
transmitted between energy markets. This will provide diversity among
renewable resources, increasing resilience and integrating wind, solar,
and other needed generation to decarbonize the generation resource mix.
______
Prepared Statement of Kevin Sunday, Director, Government Affairs,
Pennsylvania Chamber of Business and Industry
executive summary of testimony
The Pennsylvania Chamber encourages lawmakers on both sides of the
aisle to come together to produce durable, bipartisan policy that
applies the lessons from Pennsylvania's successful leveraging of our
historic leadership positions in energy and industry through
competitive markets to produce electricity, natural gas and a host of
goods and commodities in an increasingly affordable and sustainable
manner, to Federal policy that positions America for continued
leadership in an increasingly competitive and dynamic global
marketplace.
Among all States, Pennsylvania ranks second in total energy
production, second in natural gas production, second in installed
nuclear capacity, third in coal production, third in electricity
production and eighth in manufacturing output. Pennsylvania is also the
largest net exporter of electricity of any State and is the largest
producer on the 13-State PJM grid, where prices are at generational
lows and GHG emissions have fallen 34 percent across the region since
2005.
Pennsylvania's energy assets have contributed to significant
nationwide decreases in commodity costs for gas and electricity and in
emissions of NAAQS and greenhouse gasses. Our State has helped position
the United States as a leader in sustainable economic growth, as our
Nation has outpaced other developed countries in keeping energy prices
low while growing the economy and reducing emissions.
The private sector is deploying a number of innovative technology
and energy solutions to support traditional and emerging industries in
a sustainable manner.
Federal tax and regulatory reform led to substantial wage growth
across all occupations and job creation in Pennsylvania; however, the
pandemic has wiped out a decade's worth of job growth. All sectors of
Pennsylvania's economy fared worse than national averages in terms of
lost jobs in 2020. Congress must not burden our State with
uncompetitive, anti-growth tax and regulatory policy.
Federal infrastructure and air quality permitting must be reformed
to position our country for continued leadership. Federal policy should
also reward stewardship and build upon existing public and private
commitments and leverage the human capital and technology base of
traditional industries. Regardless of the future energy mix, our
Nation's economy will require a strong, competitive domestic industrial
base to provide critical minerals, timber, aggregates, concrete, steel
and cement.
A strong economy and continued improvements in quality of life
depend upon ongoing increases in labor productivity in every region of
the country. At present, the only rural communities that are matching
urban and metropolitan regions in terms of wage and productivity growth
are those communities with natural resource development. Given the high
wage premiums for workers in the power generation, oil and gas, and
manufacturing industries, Federal policy must support the continued
operation and expansion of critical energy and manufacturing industries
in these non-metro areas.
Good morning, Senator Wyden, Senator Crapo, and honorable members
of the Senate Finance Committee, it is an honor and a privilege to
appear before you this morning to discuss Federal energy and
environmental policy. It is our sincere hope that lawmakers on both
sides of the aisle come together to produce durable, bipartisan policy
that applies the lessons from Pennsylvania's successful leveraging of
our historic leadership positions in energy and industry to produce
electricity, natural gas and a host of goods and commodities in an
increasingly affordable and sustainable manner, to Federal policy that
positions America for continued leadership in an increasingly
competitive and dynamic global marketplace. The private sector is
continuing to innovate and lead on technology solutions to energy
challenges, and it is imperative that Federal policy produce a reformed
permitting and regulatory process that allows innovation to flourish
through a predictable and timely decision-making process. In contrast,
policy that brackets energy resources into either mandates or bans, or
that simply encourages the closure of domestic facilities and the
offshoring of their output to locales with less stringent environmental
requirements, will not produce a sustainable economy.
Pennsylvania is the second-largest energy producing State, the
second-leading State in natural gas production, the third-largest coal
producing State, and the third-largest electricity producer.\1\ Our
State is also the largest net exporter of electricity in the country
and is the largest electricity producer on the 13-State PJM grid that
provides power to 65 million Americans, thanks to our competitive,
diverse fleet of power generation resources, including the second-
largest amount of nuclear power of any State in the country.
Pennsylvania is also eighth in total manufacturing output, with
leadership positions in food manufacturing, refined products,
pharmaceuticals, steel, cement, aggregates and pulp and paper.
---------------------------------------------------------------------------
\1\ Pennsylvania State Energy Profiles, U.S. Energy Information
Administration, https://www.eia.gov/beta/states/states/PA/rankings.
All of our members are committed to the stewardship of our State
and Nation's land, air, and water, and we seek to provide a thoughtful
and balanced approach on ways we can continue to reduce our
environmental impacts and grow the economy. As policy-makers at the
Federal level take a long-term vision towards energy policy, it is
imperative that the goals be established thoughtfully after careful
consideration of their ability to be executed in an efficient and
effective manner. As energy crises in multiple States have shown,
failure to adequately consider the magnitude of downside risks by
getting assumptions wrong can produce real-world suffering and impose
---------------------------------------------------------------------------
enormous costs on businesses and consumers.
competitive markets and private-sector leadership have delivered
significant environmental and economic progress in pennsylvania and the
united states
Among all States, Pennsylvania is the biggest net exporter of
electricity in terms of megawatt hours, according to a recent analysis
by the U.S. Energy Information Administration (EIA).\2\ Based on an
analysis of EIA data, Pennsylvania exported 36 percent of total
megawatt hours in 2019. Pennsylvania is also the largest power producer
in the 13-State PJM grid, the largest grid in the country and one that
delivers power to the homes, schools, and workplaces of more than 65
million Americans. The competitive markets managed by PJM have resulted
in significant reductions in NAAQS criteria and greenhouse gas
emissions from the power generation sector. Since 2005, carbon dioxide
emission fell across PJM by 34 percent in large part due to competition
among generation and improvements in technology.\3\ Remarkably,
Pennsylvania has remained in a leadership position with respect to
power generation and net exports even with a substantial decrease in
both tons of emissions and emissions intensity among the portfolio.
According to a profile of the State's generation and transmission
assets compiled by PJM,\4\ Pennsylvania's average CO2
intensity declined from approximately 1,150 lbs/MWh in 2005 to
approximately 765 lbs/MWh in 2019 (a reduction of 33 percent), and
SO2 intensity declined from 10 lbs/MWh in 2005 to less than
1 lb/MWh in 2019 (a reduction of more than 90 percent). Since 2005,
only one other State has reduced its energy-related CO2
emissions more in terms of absolute tons.\5\ Additional reductions from
our State's power generation sector are expected to continue, with PJM
reporting more than 11,000 MW of natural gas and solar in the State's
capacity queue. Across the 13-State grid, significant amounts of wind
(6,240 MW), solar (25,759 MW), storage (3,920 MW) and new natural gas
(24,990 MW) capacity are also in the queue.
---------------------------------------------------------------------------
\2\ Today in Energy, December 7, 2020. U.S. EIA, https://
www.eia.gov/todayinenergy/detail.php?id=46156.
\3\ Emissions Continue to Drop Throughout PJM Footprint. PJM
Interconnection, March 4, 2020, https://insidelines.pjm.com/emissions-
continue-to-drop-throughout-pjm-footprint/.
\4\ 2019 Pennsylvania State Infrastructure Report. PJM
Interconnection, July 2020, https://www.pjm.com/-/media/library/
reports-notices/state-specific-reports/2019/2019-pennsylvania-state-
infrastructure-report.ashx?la=en.
\5\ State Energy-Related CO2 Emissions by Year, Adjusted
(1990-2018). U.S. Energy Information Administration, March 2, 2021,
https://www.eia.gov/environment/emissions/state/.
These significant declines in air emissions have also been paired
with decreases in the commodity costs within PJM's energy markets.
During the first 9 months of 2020, prices in the energy markets were
the lowest in the 21-year history of the RTO's organized markets.
Energy markets provide approximately two-thirds of the weight of
wholesale power prices in PJM. Wholesale prices across PJM for 2019
were the lowest in 15 years, according to the Independent Market
Monitor's recent annual report.\6\
---------------------------------------------------------------------------
\6\ 2019 State of the Market Report for PJM. Independent Market
Monitor, March 2020, https://www.monitoringanalytics.com/reports/
PJM_State_of_the_Market/2019.shtml.
With respect to natural gas costs, residential consumers in
Pennsylvania have seen utility bills, inclusive of commodity costs and
distribution charges, fall by as much as 56 percent, with annual
savings ranging between $321 and $1,643 depending on the utility. With
respect to commercial and industrial customers, total bills have fallen
at minimum by 28 percent and as much as 56 percent, depending on the
utility. These cost reductions have resulted in significant
improvements in one of the highest cost pressures for these types of
facilities, and by extension their competitiveness.\7\
---------------------------------------------------------------------------
\7\ Rate Comparison Reports for 2008 and 2020, Pennsylvania Public
Utility Commission, https://www.puc.pa.gov/filing- resources/reports/
rate-comparison-reports/.
With specific regards to the commodity cost components of gas
utility bills, utilities' purchased gas costs are between 67 percent
and 83 percent lower compared to 2008 levels. These costs are passed
directly to consumers with no mark-up by the utility. Absent
infrastructure buildout and the onset of production from the Marcellus
shale that has occurred since 2008, the average household would be
paying between $1,368 and $2,467 more annually on commodity charges.
Commercial customers would be paying between $3,800 and $6,855 more per
year, and large commercial and industrial customers would be paying
between $68,400 and $123,390 more.\8\ In a hypothetical alternative
timeline in which natural gas production from the Marcellus shale never
occurred and these higher costs held constant over the last 12 years,
natural gas utility customers across all ratepayer classes would have
paid tens of billions of dollars more in higher costs in Pennsylvania
alone.
---------------------------------------------------------------------------
\8\ Purchased Gas Costs, Pennsylvania Public Utility Commission,
https://www.puc.pa.gov/NaturalGas/pdf/PGC.pdf.
Reductions in air emissions have not been limited to the power
generation sector. Overall, Pennsylvania's industrial sources have
achieved significant declines in emissions of federally regulated
pollutants over the past several decades. According to data available
on PA DEP and U.S. EPA's websites, these reductions include decline in
annual emissions of NOx on the order of 65 percent,
SO2 by 90 percent, CO by 69 percent, VOCs by 36 percent and
PM 10 by 37 percent. Further, these reductions are yielding a
demonstrable improvement in air quality. Every monitoring point in the
State is measuring attainment for the 2008 ozone standards of 75 ppb,
and in just 1 year the number of monitoring points measuring non-
attainment for the 2015 ozone standard of 70 ppb fell from eight to
just four. The State is also measuring attainment at all points for
both the annual and 24-hour standards from PM 2.5, and the Allegheny
County Health Department announced in February that for the first time
in decades its monitors were measuring healthy levels of air quality
---------------------------------------------------------------------------
for all criteria pollutants.
Pennsylvania's contributions to growing the economy while reducing
energy prices and emissions have positioned the United States for
leadership in sustainable growth. As EPA's Acting Assistant
Administrator Joseph Goffman noted in a recent memo to regional
offices, ``ongoing changes in electricity generation mean that the
emission reduction goals that the [Obama administration's Clean Power
Plan] for 2030 have already been achieved.''\9\ From 2005 to 2019,
according to an analysis of World Bank, EIA and International Energy
Agency data,\10\ the United States' economy grew by 64 percent, to
roughly $21.4 trillion in GDP, while reducing carbon dioxide emissions
by 16 percent. Over the same period, Europe's economy grew at half the
same pace (31 percent) yet lagged the United States on emissions
reductions on an absolute basis--a reduction of 742 mmt for Europe
compared to a reduction of 936 mmt for the United States, or a delta of
210 million metric tons of CO2. More broadly, over the same
15-year period, OECD countries as a whole reduced on net carbon dioxide
emissions by 1,524 mmt--of which the United States can proudly lay
claim to having been responsible for more than 60 percent of those
reductions. Policy-makers must not lose sight of the fact that while
these reductions were taking place in the developed world, as the
economies of India and China grew, so did their greenhouse gas
emissions. India's CO2 emissions grew by more than 1,200
mmt, or a 115-percent increase, nearly single-handedly dwarfing
reductions in OECD countries. China's emissions grew by 4,400 mmt, or
an 81-percent increase--nearly three times the total reductions of OECD
countries. Further, as this international comparison in emissions
demonstrates, the offshoring of domestic manufacturing as a result of
uncompetitive tax, labor, and regulatory policy will result in
operations in countries that have much higher emissions intensities.
---------------------------------------------------------------------------
\9\ Memorandum to EPA Regional Administrators: Status of Affordable
Clean Energy Rule and Clean Power Plan. United States Environmental
Protection Agency Office of Air and Radiation, February 12, 2021.
\10\ World Bank Open Data, March 9, 2021, https://
data.worldbank.org/; International Energy Statistics, U.S. EIA, https:/
/www.eia.gov/international/data/world; CO2 Emissions from
Fuel Combustion, International Energy Agency, http://wds.iea.org/wds/
pdf/Worldco2_
Documentation.pdf.
As the United States develops new technology solutions in both
fossil and zero-carbon resources, it is imperative trade and energy
policy support the continued export of these solutions to developing
countries. In the near term, this must include liquefied natural gas
(LNG), which is currently being shipped to India and East Asia. In
addition to providing a reliable, low-carbon resource for countries
abroad while supporting domestic exploration and pipeline activity, LNG
also provides, for the importing country, greater geopolitical
optionality and a reduced reliance on energy developed in countries
---------------------------------------------------------------------------
whose regimes favor neither democracy nor sustainable development.
IEA electricity and natural gas commodity pricing data also hint at
why economic growth in the EU has trailed the United States. Industrial
users in the United States pay much less for electricity than any
European country--in some cases, less than half. Residential
electricity prices in the United States are also the fourth-
lowest among all developed nations. The United States is also second
among all developed nations in terms of lowest natural gas commodity
costs for industry and third for residential users. Leveraging these
low costs with pro-growth tax and regulatory policy will position
Pennsylvania and the United States for further global leadership in
economic growth and emissions reductions, but policy-makers must not
sacrifice these economic advantages on costly mandates or unwieldy
regulatory mechanisms that raise costs and offshore economic activity.
In sum, higher energy prices due to taxes, regulatory requirements or a
lack of infrastructure do not result in better environmental outcomes,
but they do result in worse economic performance.
congress should not enact punitive federal tax and energy policy, given
the pandemic erased substantial economic gains achieved in years
leading up to 2020
Various recent analyses noted the significant benefits that accrued
to the Nation, its economy and its workforce in the years following the
passage of the Tax Cuts and Jobs Act. Research published in late 2019
from the St. Louis Federal Reserve concluded that ``the evidence
suggests that both innovation and [venture capital] investment
increased significantly after the Tax Cuts and Jobs Act. The level of
innovation and VC investment in 2018 and the first half of 2019 should
support increased growth rates in the next years.''\11\ Last month, the
Joint Committee on Taxation reported to this committee that in the year
immediately following enactment of TJCA, business investment and
employment rose in the United States.\12\ Finally, tax reform moved the
United States from having the highest corporate rate among all OECD
nations to a more competitive position. As the U.S. Chamber noted in
its recent statement to this committee, ``. . . on the Tax Foundation's
International Tax Competitiveness Index (ITCI), the United States ranks
21st out of 36 countries on overall competitiveness, a jump from the
28th ranking prior to tax reform, and 19th on corporate taxes, up from
35th before tax reform.''\13\
---------------------------------------------------------------------------
\11\ Tax Cuts, Venture Capital, and Long-Term Growth. Juan M.
Sanchez, Federal Reserve Bank of St. Louis Economic Research, August 8,
2019, https://research.stlouisfed.org/publications/economic-synopses/
2019/08/30/tax-cuts-venture-capital-and-long-term-growth.
\12\ U.S. International Tax Policy: Overview and Analysis. Joint
Committee on Taxation, March 19, 2021, https://www.jct.gov/
publications/2021/jcx-16-21/.
\13\ U.S. Chamber of Commerce letter to Senators Wyden and Crapo,
regarding March 25, 2021 hearing, April 6, 2021.
Pennsylvania benefitted significantly from the passage of this act
as well. Using 2016 as a baseline, economic conditions in Pennsylvania
significantly improved through 2020, in part due Federal tax and
regulatory reform. As noted throughout various media reports, companies
in Pennsylvania and across the country raised wages, increased hiring,
and boosted benefits in the wake of the act's passage. Across all
occupations, Pennsylvania added more than 238,000 jobs between 2016 and
2020. Based on the most recently available State and Federal labor and
employment data,\14\ median wages across all occupations in
Pennsylvania increased by $6,410 in the 4-year period, or roughly 13.5
percent. Notably, workers in the 25th percentile saw the biggest gains
in average annual income (+16.84 percent) versus workers at the median
(+13.8 percent) or at the 75th percentile (+13.76 percent). The table
below notes income gains among several broad categories of occupations
in Pennsylvania. We also highlight the significant wage growth since
2016 in growing Pennsylvania sectors: chemicals manufacturing and
natural gas power plant operations.
---------------------------------------------------------------------------
\14\ State Occupational Employment and Wage Estimates--
Pennsylvania, 2020 and 2016. U.S. Bureau of Labor Statistics, May 2020,
https://www.bls.gov/oes/current/oes_pa.htm
------------------------------------------------------------------------
Net increase
Median wage, Median wage, in average % chance
Occupation 2016 2020 wages since since 2016
2016
------------------------------------------------------------------------
All occupations $47,540 $53,950 $6,410 +13.48%
------------------------------------------------------------------------
Business $72,010 $78,750 $6,740 +9.36%
financial
------------------------------------------------------------------------
Community social $42,840 $48,360 $5,520 +12.89%
service
------------------------------------------------------------------------
Education $55,760 $63,690 $7,930 +14.22%
------------------------------------------------------------------------
Health care $74,590 $80,640 $6,050 +8.11%
------------------------------------------------------------------------
Food service $22,530 $26,130 $3,600 +15.98%
------------------------------------------------------------------------
Personal care $25,190 $30,030 $4,840 +19.21%
------------------------------------------------------------------------
Construction $49,610 $55,570 $5,960 +12.01%
trades and
extraction
------------------------------------------------------------------------
Maintenance and $45,620 $52,270 $6,650 +14.58%
repair workers
------------------------------------------------------------------------
Manufacturing $38,130 $42,010 $3,880 +10.18%
workers
------------------------------------------------------------------------
Chemical plant $54,130 $72,480 $18,350 +33.90%
operators
------------------------------------------------------------------------
Gas plant $58,730 $70,440 $11,710 +19.94%
operators
------------------------------------------------------------------------
However, our State's economy suffered greatly during the pandemic
and in just 1 year lost major ground in terms of Pennsylvanians
employed. Comparing February 2021 to February 2020, Pennsylvania lost
nearly 436,000 jobs, the seventh-highest job loss figure of all States.
To put it another way, in just 1 year, the pandemic (and the impacts of
mitigation response measures and individual behavior) cost Pennsylvania
nearly twice as many jobs as were created over 4 years, and the total
number of Pennsylvanians employed in the State today is smaller than it
was 10 years ago, despite a larger population.\15\ Over the past year,
Pennsylvania has outpaced national averages in job losses in all
sectors, with outsized losses in mining and logging, manufacturing, and
leisure and hospitality. While State and Federal pandemic recovery
efforts are helping these industries recover, Federal policymakers must
not enact tax, trade and regulatory policy that will further damage
already ailing sectors. As we note throughout this testimony,
Pennsylvania is a leader in the vital energy, manufacturing and service
industries that produce the goods necessary to sustain a modern
economy.
---------------------------------------------------------------------------
\15\ Pennsylvania Local Area Unemployed Statistics. U.S. Bureau of
Economic Analysis, April 14, 2021, https://data.bls.gov/timeseries/
LASST420000000000006?amp%253bdata_tool=XG
table&output_view=data&include_graphs=true.
----------------------------------------------------------------------------------------------------------------
Net Net
February February change, % change, February change, % change, % change,
2016 2020 2016 vs. 2016 vs. 2021 2020 vs. 2020 vs. 2020 vs.
2020 2020 2021 2021, PA 2021, USA
----------------------------------------------------------------------------------------------------------------
Total Nonfarm 5,855.10 6,093 238 4.06% 5,656.70 -435.90 -7.15% -6.21%
Jobs
----------------------------------------------------------------------------------------------------------------
Goods Producing 826.8 861.5 35 4.20% 812 -49.50 -5.75% -4.59%
Industries
----------------------------------------------------------------------------------------------------------------
Mining and 29.6 26.1 -4 -11.82% 21.4 -4.70 -18.01% -14.64%
Logging
----------------------------------------------------------------------------------------------------------------
Construction 229.6 264.6 35 15.24% 253 -11.60 -4.38% -4.03%
----------------------------------------------------------------------------------------------------------------
Manufacturin 567.6 570.8 3 0.56% 537.6 -33.20 -5.82% -4.38%
g
----------------------------------------------------------------------------------------------------------------
Service 5,028.30 5,231 203 4.03% 4,844.70 -386.30 -7.38% -6.56%
Providing
Industries
----------------------------------------------------------------------------------------------------------------
Trade, 1,125.90 1,129.40 4 0.31% 1101.7 -27.70 -2.45% -2.86%
Transportat
ion and
Utilities
----------------------------------------------------------------------------------------------------------------
Information 85.8 89.2 3 3.96% 81 -8.20 -9.19% -8.51%
----------------------------------------------------------------------------------------------------------------
Financial 318.5 333.4 15 4.68% 323.6 -9.80 -2.94% -1.18%
Activities
----------------------------------------------------------------------------------------------------------------
Professional 780.9 812.8 32 4.09% 770.3 -42.50 -5.23% -3.59%
and
Business
Services
----------------------------------------------------------------------------------------------------------------
Education 1,192.60 1308.6 116 9.73% 1,233 -75.60 -5.78% -5.28%
and Health
Services
----------------------------------------------------------------------------------------------------------------
Leisure and 558.6 584.2 26 4.58% 439.2 -145.00 -24.82% -20.4%
Hospitality
----------------------------------------------------------------------------------------------------------------
Other 259.8 264.3 5 1.73% 228.2 -36.10 -13.66% -7.41%
Services
----------------------------------------------------------------------------------------------------------------
Government 706.2 709.2 3 0.42% 667.2 -42.00 -5.92% -6.08%
----------------------------------------------------------------------------------------------------------------
Significant Federal intervention into the private sector through
energy and environmental policy may result in economic damage to local
communities, many of them in rural America. The energy and
manufacturing base in many such communities create high labor
productivity and well-paying jobs for workers. While from a national
perspective, workers in metropolitan areas on average are more highly
paid and productive than in rural areas, as researchers at the
Brookings Institution have noted, the most productive industries
outside cities are those involving natural resources. To quote their
analysis, ``many small metro economies are highly productive as well,
especially those that specialize in oil, gas and mining.''\16\ As noted
throughout this testimony, the United States will continue to need a
strong domestic manufacturing, mining, energy production, and
infrastructure base to continue to grow its economy and meet
environmental goals. Regulatory policy that results in the loss of
these industries will not produce a sustainable economy and will only
further exacerbate the challenges already facing rural communities.
Many of the provisions envisioned in the American Jobs Act and Clean
Energy for America Act are sweeping in their scope and may have
significant unintended consequences; as such we strongly encourage
deliberation and economic evaluation of these proposals, given the
potential for economic harm to much of our State's energy economy. A
recent jobs and wage report from the National Association of Energy
Officials notes that while energy workers earn on average 34 percent
more than the media worker, the lowest paid energy jobs are those in
solar, wind and energy efficiency.\17\ Conversely, workers in natural
gas earn 59 percent above median wages and 42 percent above average for
power generation workers. Within Pennsylvania, oil, petroleum and
natural gas provide the most employment of all energy resources,
according to the report.
---------------------------------------------------------------------------
\16\ Understanding US productivity trends from the bottom-up.
Joseph Parilla and Mark Muro, Brookings Institution, March 2017,
https://www.brookings.edu/research/understanding-us-productivity-
trends-from-the-bottom-up/#cancel.
\17\ Wages, Benefits and Change: A Supplemental Report to the
Annual U.S. Energy and Employment Report. NASEO and Energy Futures
Initiatives, 2020, https://www.usenergyjobs.
org/.
---------------------------------------------------------------------------
sweeping changes to federal tax and regulatory policy would threaten
long-term investment, given challenging dynamics at the state level
While much detail remains to be filled in regarding how the Biden
administration would pay for proposed infrastructure investments and
other social programs under the American Jobs Act, our members remained
concerned with discussions around proposals to raise the corporate tax
rate. As noted by the U.S. Chamber in its statement for the record to
this committee dated April 6, 2021, the 2017 Tax Cuts and Jobs Act
resulted in significant improvements in the United States'
competitiveness among OECD nations. Raising the Federal corporate rate
to 28 percent while leaving in place provisions of TCJA that broadened
the tax base would result in the United States being in an even worse
competitive situation than prior to 2017. Additionally, as the U.S.
Chamber's statement notes, various reports, including those compiled by
the Joint Economic Committee, have estimated labor bears a significant
burden of the corporate income tax--``70 percent or higher [being] the
most likely outcome'' according to one of the analyses.\18\ As the Tax
Foundation has noted, just a 1-percentage-point increase in the Federal
corporate rate would reduce long-run GDP by $56 billion, with
commensurate losses in average wages and employed Americans. An
increase to 25 percent would reduce GDP by $220 billion and cost more
than 175,000 jobs.\19\
---------------------------------------------------------------------------
\18\ Labor Bears Much of the Cost of the Corporate Tax. Tax
Foundation, October 24, 2017, https://taxfoundation.org/labor-bears-
corporate-tax/.
\19\ Proposed Corporate Rate Hike Would Damage Economic Output.
August 23, 2018, https://taxfoundation.org/proposed- corporate-rate-
hike-damage-economic-output/.
The National Association of Manufacturers also released an analysis
of the detrimental consequences to our economy should Congress raise
taxes on business and repeal key provisions of the TCJA.\20\ These
consequences include a significant decline in total employment--nearly
1 million jobs by 2023--as well as a reduction in annual employment of
600,000 jobs per year and a reduction in national GDP of $117 billion
over the next 2 years.
---------------------------------------------------------------------------
\20\ Study: Tax Increases Cause Major Job Losses, Harm U.S.
Economy. National Association of Manufacturers, April 2021, https://
www.nam.org/wp-content/uploads/2021/04/TaxStudy
OnePager.pdf.
Should Congress raise the Federal corporate tax rate,
Pennsylvania's economy would be disadvantaged worse than most States,
given our State corporate net income tax rate is 9.99 percent, the
second-highest flat rate among all States. In addition, Pennsylvania is
one of only a handful of States that limits the ability of companies to
carry forward net operating losses. Significant increases in corporate
rates at the Federal level, on top of Pennsylvania's middling status
for competitiveness and attractiveness for new and expanded investment,
would further disadvantage our State's economy and, by extension, its
vital industries that, as noted in this testimony, have helped this
---------------------------------------------------------------------------
Nation grow its economy and reduce its emissions.
Further, to impose sweeping tax and regulatory changes just a
handful of years after the largest change to the Federal tax code in a
generation threatens to set up a dynamic which will ultimately harm the
long-term attractiveness of investment in Pennsylvania and the United
States--which is rapid swings of the pendulum of policy. Such a dynamic
would make long-term planning and investment extremely challenging.
In addition, key industries in energy and manufacturing in
Pennsylvania face an inordinate number of challenges at the State and
regional level. These include: persistent calls by some policy-makers
and stakeholders for a punitive severance tax on natural gas
development (in addition to the already challenging business tax
structure at the State level and the State's unique impact fee that is
assessed on every unconventional gas well), neighboring States
attempting to obstruct the construction of federally approved
infrastructure or taking other regulatory actions to raise costs on our
State's manufacturing, energy, and infrastructure facilities, continual
litigation over local land use and State and Federal permitting
approvals for new and expanded infrastructure and operations, and a
generally challenging regulatory environment for air and water permits.
To reiterate, our State's energy economy, including continually
increasing output from the Marcellus shale and other natural gas plays,
has helped position the United States in a leadership position with
respect to emissions reductions and economic growth. Among independent,
non-integrated oil and gas drillers, an outsized portion of capital
expenditures are related to intangible drilling costs--in some cases
upward of 80 percent--which is expected given their predominant
business is extracting hydrocarbons. Changes to Federal tax policy that
discourage continued investment into the exploration and production of
oil and gas would not only harm our State's economy, they would have
the effect of restricting supply of vital commodities but not the
demand for them--with the result being higher energy costs paid by
consumers and businesses. As the International Energy Agency's most
recent World Energy Outlook notes, the world and the United States
still need to invest $390 billion per year into oil and gas development
after 2030 to meet energy demand.
The U.S. Department of Labor announced recently that the Consumer
Price Index increased month over month by a level unseen in a decade,
in large part due to higher gasoline and natural gas prices.\21\ Tax or
regulatory policy that discourages new production or the construction
or operation of associated infrastructure will only further cause
further upward pressure on prices, given expected demand.
---------------------------------------------------------------------------
\21\ Consumer Price Index--March 2021. U.S. Department of Labor
Bureau of Labor Statistics, April 13, 2021, https://www.bls.gov/
news.release/pdf/cpi.pdf.
Further, the State is in the midst of a debate regarding whether
Governor Wolf can and should have Pennsylvania join the Regional
Greenhouse Gas Initiative, a cap-and-trade program for power
generators. The Pennsylvania Chamber has, while noting the merits of
market-based approaches to reduce emissions and the challenges that
climate change presents, repeatedly raised concerns over the potential
costs of doing so. Meeting energy and environmental challenges will
require continued innovation, and innovation is much more likely to
come through market-based systems that send investment signals, rather
than command-and-control regulatory structures that mandate the use of
certain energy resources and that ban (in practice or in the plain
definition of the term) other resources. To this end, we have advocated
that should Pennsylvania join RGGI, it must be a workable program that
encourages the continued development of combined heat and power
projects at manufacturers and that does not sacrifice, through leakage
(the displacement of generation to non-RGGI States within PJM)
Pennsylvania's role as a net energy exporter and largest generating
State in PJM. Beyond RGGI, the Republican State legislature and
Democratic governor's administration continue to engage on long-term
energy policy conversations related to climate change, net metering,
tax policy, regulatory reform, electric vehicles and land use policy.
Any durable energy policy established through legislation under the
current political dynamics in Pennsylvania will be the product of
bipartisan compromise and collaboration; we remain greatly concerned
that Federal energy and infrastructure policy established solely
through executive action or partisan reconciliation will erode the
value of such a give and take at the State level and eclipse the policy
---------------------------------------------------------------------------
choices our State has made.
To cite one example, the State legislature is contemplating policy
to address deployment of electric vehicle charging stations in a manner
that is equitable with respect to the various ratepayer classes--
residential, commercial and industrial--and that respects that many
counties are rural and whose populations lack interest in purchasing an
electric vehicle. The legislature, the Governor, and various
stakeholders, including the Pennsylvania Chamber, are also in dialogue
regarding sustainable transportation funding given the increased use of
more efficient and alternative fuel vehicles. Federal policy that
mandates deployment of electric vehicles is, in our view, extremely
unlikely to respect these dynamics and any compromise policy outcome
reached by stakeholders at the State level.
federal infrastructure decision-making must be streamlined to support
domestic manufacturing and energy security
As Federal lawmakers debate a long-term vision for energy and
environmental progress, administration officials and Congress must not
lose sight of the many challenges currently facing our existing
industries. Addressing these issues through bipartisan reforms can
unlock further investment and continue to position the United States
for long-term growth. Among these include streamlining the permitting
process for infrastructure, providing for a more common-sense and
flexible air quality permitting regime, and rewarding stewardship in
key industrial sectors.
First, while Pennsylvania has abundant supplies of energy and
exports roughly one-third of its electricity and three-quarters of its
natural gas, nearby States are facing self-imposed energy crises due to
short-sighted political decisions on infrastructure. As a few examples
of the real-world impacts of these States attempting to impose
unilateral vetoes on federally approved infrastructure projects,
utilities in New Jersey have warned State regulators that there may be
inadequate supplies of natural gas during the winter season.\22\
Electricity market regulators in New England continue to grapple with
fuel security and natural gas supply issues, with ISO-NE noting
``inadequate infrastructure to transport natural gas has at times
affected the ability of natural gas-fired power plants to get the fuel
they need to perform. This energy-security risk has become a pressing
concern for New England, considering the major role natural gas-fired
generation plays in keeping the lights on and setting prices for
wholesale electricity.''\23\ Infamously, several winters ago a ship
carrying LNG from Russia delivered its cargo to a Boston port despite
the city being just a short drive away from some of the most prolific
producing shale gas wells in the world in northeastern Pennsylvania.
Our Federal infrastructure permitting regime was not designed with the
intention of allowing single States to unilaterally veto federally
approved interstate projects--a position the Biden administration
endorses in its recent Supreme Court filing in PennEast Pipeline v. New
Jersey.\24\
---------------------------------------------------------------------------
\22\ New Jersey utilities warn of gas shortages, argue for new
pipelines. Politico Pro New Jersey, October 25, 2019, https://
subscriber.politicopro.com/states/new-jersey/story/2019/10/25/new-
jersey-utilities-warn-of-gas-shortages-argue-for-new-pipelines-1225986.
See also comments of New Jersey Natural Gas, Levitan and
Associates, and PSEG Services Corporation in New Jersey Board of Public
Utilities Docket GO19070846.
\23\ Natural Gas Infrastructure Constraints. ISO-NE, https://
www.iso-ne.com/about/what-we-do/in-depth/natural-gas-infrastructure-
constraints.
\24\ See Brief of the United States as Amicus Curiae Supporting
Petitioner, filed March 8, 2021, https://www.supremecourt.gov/
DocketPDF/19/19-1039/171249/20210308193306999_19-1039
tsacUnitedStates.pdf.
Oil pipelines and associated infrastructure are also being impacted
or threatened by Federal and State regulatory actions--the result of
which would eliminate jobs and jeopardize economic vitality. To our
north, our allies in Canada are crying foul over the Federal
Government's revocation of the Keystone XL pipeline's cross-border
permit. To our west, the State government in Michigan is attempting to
obstruct the international, interstate Line 5 project--which supplies
crude oil and natural gas liquids to domestic refiners in Michigan,
Ohio, and Pennsylvania as well as Ontario and Quebec. Crude shipped on
Line 5 makes its way to northwest Pennsylvania to be refined and sold
at retail outlets in the Great Lakes region. Growing our economy,
ensuring reliable energy and meeting environmental goals will require a
durable Federal permitting approach that considers State interests in
interstate permitting but does not allow them to obstruct the
---------------------------------------------------------------------------
construction of vital and necessary projects.
Siting and permitting reforms for interstate infrastructure,
broadly speaking, would also be a boon to investment into electric
transmission projects specifically in a way that additional
socialization of costs for these projects through investment tax
credits would not. Given the return on equity rates approved by State
and Federal commissions as well as the identified need to increase
supply and reduce congestion in certain regions of the country, the
barriers to construction of interstate projects have not been from a
lack of financing but from a dysfunctional permitting process,
obstruction by States and litigation by disaffected NGO's. Further,
socialization of costs through Federal investment tax credits for
electric infrastructure may only exacerbate the on-going controversy
regarding equitable cost allocation of certain transmission project
costs between and among States and their ratepayer classes.
Second, and relatedly, the decision-making process for
infrastructure permitting in this country needs streamlining. Whether
the project in question is a port expansion, a new highway, or an
energy project, the National Environmental Policy Act (NEPA), while
well-intentioned, has resulted in years of delay to the point where it
can take longer to approve a project than to build it. These
unreasonable delays are not only costly, but deprive the public and our
economy of the benefits that modern infrastructure can deliver. Keeping
our transportation, logistics, manufacturing, aviation and energy
industries competitive in an intensely dynamic global marketplace will
require a more transparent, fair, and nimble approval process, and as
Congress and the Biden administration turn the page to an
infrastructure package, it is vital these projects be built quickly and
efficiently. The PA Chamber is a proud member, alongside leaders from
the building trades, agriculture, construction, transportation,
manufacturers, and trade associations as part of the Unlock American
Investment coalition that supports reforms to NEPA.
Finally, given the significant energy security, economic
opportunity, and environmental benefits such a storage hub would
represent, we strongly encourage the Biden administration and lawmakers
to continue to support an ethane storage hub in Appalachia. Continued
investment into the operation and expansion of domestic petrochemical
and plastics manufacturing capacity is necessary, given that recent
supply chain disruptions, leading to a shortage of semiconductor chips
and plastics components, have caused automakers to halt production in
several States. An
energy-focused economic development strategy for Pennsylvania, as
outlined in an economy analysis dubbed Forge the Future, has the
potential to bring an additional $60 billion in State GDP and more than
100,000 jobs to our State. The Appalachian region, including
Pennsylvania, Ohio, West Virginia and Kentucky, could become a
petrochemicals and plastic manufacturing hub--according to the American
Chemistry Council, more than $28 billion in economic expansion and more
than 100,000 jobs could be created should the region capitalize on an
ethane storage project and secure the construction and operation of
several petrochemical plants.
pennsylvania's energy and manufacturing sectors continue to lead
Pennsylvania is a leading State in terms of food manufacturing,
refined products, pharmaceuticals, steel, concrete, cement, aggregates,
and pulp and paper, as well as industries that helped us weather and
overcome the pandemic: health care, telecommunications and logistics.
Every one of these industries are working to innovate and make use of
domestic energy resources to improve resiliency and sustainability. A
few examples include:
A major metropolitan airport working with leaders in natural
gas and renewables to develop a microgrid using natural gas developed
on site.
Innovative deployment of nuclear power to provide reliable,
baseload, zero-carbon power to a data center warehouse.
A former underground mine now houses a secure, world-class
data center and documents storage facility.
Fertilizer and ammonia manufacturers producing vital products
for the agriculture sector through the use of domestic natural gas
liquids and carbon capture and sequestration technology.
Use of natural gas helps a leading pharmaceutical company's
manufacturing facility reduce.emissions and costs to remain competitive
A cement manufacturer switching to natural gas to reduce costs
and emissions.
A leading pulp and paper manufacturer turning to natural gas
for on-site heat and power to reduce cost and emissions.
A global integrated oil and gas company selecting southwestern
Pennsylvania to site a multi-billion-dollar petrochemical facility,
with its produced products boosting domestic medical, automotive, and
food manufacturing industries.
A leading consumer products company harnesses local gas
reserves to provide all of its heating and power needs while sending
excess power back out to the grid.
Waste management, logistics and utility companies are
partnering to capture biogas for use as a clean fuel for heavy
trucking.
These success stories demonstrate just a fraction of the renewal of
opportunity that can be achieved in part through policy that allows all
segments of the energy value chain to flourish. These segments include
the development of our natural resources, power generation from a
diverse portfolio of fuel sources, expanded oil, gas, and electric
infrastructure, and the use of those commodities in manufacturing and
industry. The American economy stands to benefit tremendously as energy
is developed and moved through infrastructure for final use in homes
and businesses; we can also continue to secure additional improvements
in air and water quality as we develop this value chain.
federal energy and environmental policy must also encourage investments
into efficiency improvements, domestic output, and long-term energy
security
We must, however, not lose sight of the fact that if the goal of
Federal energy and infrastructure policy is to encourage and
accommodate the rapid and efficient buildout of new and expanded energy
and manufacturing facilities and related infrastructure, financing is
only one aspect of the process. Permitting reform must come hand in
hand with any Federal policy, and end-users in industrial and
manufacturing sectors must be able to operate in a regulatory
environment that encourages the adoption of cleaner burning fuels and
allows such facilities' to continue and expand domestic operations. The
PA Chamber also urges adequate funding and resources be provided to
States commensurate with any Federal partnership in funding key
infrastructure projects. The regulatory schema established by EPA and
USDOT, among other Federal agencies, are in large part passed down to
State and local resource agencies for implementation. This may come in
the form of State environmental agencies incorporating Federal air or
water permitting requirements into State approvals of projects. Broadly
speaking, in many years the practical extent of EPA's involvement in
the permit review process is to hand down substantial regulatory
obligations to the States without commensurate funding and then delay
projects approvals by second-guessing the State regulators' work.
As noted previously in testimony before other congressional
committees, economic growth and environmental progress depend upon a
well-functioning and rational regulatory system; the Federal air
quality permitting regime shows signs of being neither and must be
modernized.\25\ Pennsylvania Chamber members have reported that the
current process is an impediment to investing in the efficiency of
their operations and improving their ability to compete abroad. Because
of the costs associated with triggering New Source Review (NSR)
thresholds, companies have canceled projects that would have reduced
emissions, lowered operating costs and provided an overall benefit to
public health and the environment. Disputes between State and Federal
regulators over interpretation and application of regulatory criteria
result in sizeable legal and engineering costs and leave projects in
limbo for months, or years. Lenders will not provide financing until
the resolution of litigation from third-party groups over the
perpetually changing universe of Best Achievable Control Technology
(BACT) and Lowest Achievable Emissions Rate (LAER) controls.
---------------------------------------------------------------------------
\25\ Hearing on the CLEAN Future Act: Industrial Climate Policies
to Create Jobs and Support Working Communities, March 18, 2021, https:/
/energycommerce.house.gov/committee-activity/hearings/hearing-on-the-
clean-future-act-industrial-climate-policies-to-create.
New Source Review Permitting Challenges for Manufacturing and
Infrastructure, February 14, 2018, https://www.pachamber.org/advocacy/
legislative_agenda/communications/PA_
Chamber_House_EC_Sub_Enviro_NSR_Testimony_021418.pdf.
Modernizing Environmental Laws: Challenges and Opportunities for
Expanding Infrastructure and Promoting Development and Manufacturing,
February 16, 2017, https://www.pa
chamber.org/advocacy/legislative_agenda/communications/
House_EC_Sub_Enviro_Modernizing
_Environmental_Laws.pdf.
Our members have supported reforms to these programs, including
greater consideration for the net emissions benefit when a facility is
going through the NSR or PSD process for a facility modification. We
have also applauded the Trump administration's end of the longstanding
``once in, always in'' rule for major sources of hazardous air
pollutants, the repeal of which encouraged sustainability by no longer
requiring facilities who reduce annual emissions below major source
thresholds to continue to be permitted and operate as major sources. We
also encourage contemplation of two reforms regarding the use of offset
credits--one, given the focus of the Clean Air Act on interstate
impacts, being expanding the geography of where a credit may be secured
beyond the purchasing facility's region or county, and two, given the
shortage of some types of credits and regulators' penchant for
justifying new rules on the co-benefits of emissions not being directly
regulated, being more accommodating to securing and retiring emission
reduction credits (ERCs) of one pollutant (for example, nitrogen oxide)
---------------------------------------------------------------------------
to offset emissions of another (for example, particulate matter).
Given the challenges presented by NSR and other air and permitting
programs, and the fact that there is no scenario in which the United
States achieves substantial decarbonization without widespread
deployment of carbon capture and underground storage technology (CCUS),
policy-makers should enact reforms such that the permitting obligations
do not discourage a power plant, manufacturing or industrial facility
looking to retrofit CCUS technology into the facility's operations. A
company proposing to install CCUS technology at an existing facility
will have to undergo applicability determinations with State and
Federal regulators to determine if the project is significant enough to
constitute a ``major modification'' and thus subject to NSR
requirements. NSR may also be triggered if the installation of carbon
capture technology results in a significant change in the process
design of the plant, even if the overall emissions profile of the
facility does not change. In a hypothetical future carbon-constrained
policy environment, NSR may also be triggered by power plants or
industrial facilities seeking to install and operate carbon capture
technology that will allow the facilities to run more frequently but
with less emissions intensity. Depending on the structure of State air
quality requirements (i.e., if the State outright adopts by reference
Federal NSR requirements) and the judgment of EPA's regional air
offices, applicability determination process may include notice and
comment and public hearings. Should the project be located in an area
that is in attainment with NAAQS, the project may be required to
conduct air modeling, which can take a year. As noted in this
testimony, there is also risk of litigation from third-party NGO's over
what is the relevant technology under LAER or BACT. We project that,
absent litigation and with a commitment from air quality regulators on
timely permitting, it will take upwards of 2 years to permit a CCUS
project in a best-case scenario. Within PJM, the installation of the
technology may require the power plant to go idle for a period of time
and lose out on energy and capacity market revenues, which again speaks
to the need for a timely, fair and predictable process. Finally, there
may be additional delays in constructing and operating infrastructure
associated with a CCUS project, due to permitting requirements as they
relate to endangered species, pipeline siting, underground injection
and NEPA. These challenges were discussed in a recent report from DOE's
Lawrence Liverpool National Laboratory,\26\ which examined challenges
associated with constructing CCUS projects in California--an analysis
that is especially salient given that much of the CLEAN Future Act
appears to borrow, in both intent and design, from environmental policy
established by California State regulators.
---------------------------------------------------------------------------
\26\ Permitting Carbon Capture and Storage Projects in California.
George Peridas, Lawrence Liverpool National Laboratory, February 2021,
https://www-gs.llnl.gov/content/assets/docs/energy/
CA_CCS_PermittingReport.pdf.
Further, as Dr. Brian Anderson, director of the Department of
Energy's National Energy Technology Laboratory (NETL), situated in
southwestern Pennsylvania, recently testified to the Pennsylvania State
Senate,\27\ given the carbon-emitting resources' significant share of
domestic energy resources and the intermittent nature of renewable
resources such as wind and solar, carbon capture and underground
storage ``will continue to be necessary to grid-scale energy storage
for grid reliability during this energy transition.'' In other words,
should Congress establish a goal of net-zero emissions for the United
States by mid-century, it will be absolutely necessary to continue to
invest in fossil fuel exploration and associated transmission
infrastructure--so that both the fuels themselves and the greenhouse
gasses produced during combustion can be moved through a robust and
safe network of pipelines. Several leading energy companies are working
with DOE NETL on innovative research and demonstration projects
involving carbon capture, including applications in power generation
and consumer products. Pennsylvania Chamber members are also working
with innovative leaders in the ammonia and fertilizer industries to
pair carbon capture technology with locally produced natural gas to
produce vital products for the agriculture sector. Companies working in
the concrete and cement industries are also switching to natural gas in
the near term to power their industrial processes and examining ways
to, in the long term, develop their products with carbon capture.
---------------------------------------------------------------------------
\27\ Written Comments of Dr. Brian Anderson, Director of the
National Energy Technology Laboratory, U.S. Department of Energy,
Informational Briefing to the Pennsylvania Senate Environmental
Resources and Energy Committee, March 10, 2021, https://environmental.
pasenategop.com/wp-content/uploads/sites/34/2021/03/2021-03.10.2021-
Anderson-Written-Comments_PA-Senate-ERE-Committee-8MAR2021.pdf.
As these efforts show, traditional energy resources can be paired
in innovative ways with new technology to create new markets and
support vital existing industries. Continued investment into both
electric and gas infrastructure is necessary to meeting energy and
climate goals. As researchers as Columbia University recently noted in
an analysis, ``while it may seem counterintuitive, investing more in
the domestic natural gas pipeline network could help the US reach net-
zero emission goals more quickly and cheaply. Fortifying and upgrading
the system could prepare the existing infrastructure to transport zero-
carbon fuels as they become available and, in the meantime, reduce
harmful methane leaks from natural gas.''\28\
---------------------------------------------------------------------------
\28\ Investing in the US Natural Gas Pipeline System to Support
Net-Zero Targets. Blanton, Lott and Smith, Columbia University, April
22, 2021, https://www.energypolicy.columbia.edu/research/report/
investing-us-natural-gas-pipeline-system-support-net-zero-targets.
Pennsylvania also continues to be a leader with respect to nuclear
power, having the second-most installed nuclear capacity of any State.
These facilities represent nearly 80 percent of the State's zero-carbon
generation and are supported by a strong base of vendors and human
capital in the State, augmented by nuclear engineering graduates
produced by leading universities such as Penn State and Carnegie
Mellon. An economic report sponsored by our organization, the
Pennsylvania Building and Construction Trades Council, the Allegheny
Conference on Community Development and the Greater Philadelphia
Chamber of Commerce found that the nuclear industry contributes
approximately $2 billion to State GDP and supports nearly 16,000
jobs.\29\ Nuclear jobs are also the highest-paying of all energy jobs,
according to a recent report--105 percent more than the average median
wage.\30\ Our State was host to the Nation's first commercial nuclear
facility and we have a resource and knowledge base to support continued
innovation and operation of these facilities, and it remains imperative
that Federal policy recognize emissions reduction goals will not be met
without continued contributions from the nuclear energy industry.
---------------------------------------------------------------------------
\29\ Pennsylvania Nuclear Power Plants' Contribution to the State
Economy. Brattle Group, December 2016, https://www.pachamber.org/
assets/pdf/pa_nuclear_report.pdf.
\30\ Wages, Benefits and Change: A Supplemental Report to the
Annual US Energy and Employment Report. NASEO and Energy Futures
Initiatives, 2020, https://www.usenergyjobs.
org/.
As domestic and international demand for renewable resources
expands, it is also imperative the United States establishes policy
that encourages the domestic mining of critical minerals, which are
used not just in solar panels but a variety of applications in
telecommunications, computer chips and other hardware. Pennsylvania's
mining, steel, and timber industries, as well as that of other States,
must not be regulated out of existence. Regardless of the composition
of our energy mix, our economy will still need timber, aggregates,
concrete, steel and cement to build infrastructure, and the human
capital and equipment stock used by these industries today can be put
to use for critical minerals mining and low- carbon manufacturing and
infrastructure buildout tomorrow. Federal policy must also continue to
support development of strong domestic energy and manufacturing bases,
which includes trade policy that does not result in higher costs for
vital supply chain components. At the same time, policy should also
continue to encourage research and development, including advances in
modular nuclear technology, hydrogen and other emerging energy
---------------------------------------------------------------------------
resources.
In closing, Pennsylvania's success in energy production and leading
in a variety of industrial and manufacturing segments while reducing
emissions demonstrates how competitive markets, private sector
innovation and stable policy can reap enormous dividends for our
environment and our economy. Our success has helped the United States
keep costs low, produce massive economic growth, and lead the world in
reducing greenhouse gas emissions. We stand ready to work with leaders
in Washington to continue those trends. I reiterate our encouragement
that the Biden administration and lawmakers on both sides of the aisle
come together to produce durable, effective, bipartisan energy and
environmental policy that keeps the United States in a flagship
position in an increasingly challenging and dynamic global marketplace.
Thank you for the opportunity to appear before you today.
______
Questions Submitted for the Record to Kevin Sunday
Questions Submitted by Hon. Rob Portman
Question. Concerns have been raised regarding the tax equity
markets and increased calls for a direct pay option for renewable
energy credits. Some proposals have been introduced that would provide
a direct pay option in lieu of tax credits.
More than a decade ago, in 2009, Congress created such a program,
called the section 1603 program. The creation of this temporary, $26
billion section 1603 grant program was part of the American Recovery
and Reinvestment Act in 2009 and motivated by difficult economic
conditions and the perceived lack of tax equity in supporting renewable
energy projects. The program allowed the Treasury Department to provide
grants for investments in certain energy production properties in lieu
of renewable energy tax credits.
However, the U.S. Treasury Inspector General for Tax Administration
(TIGTA) outlined serious issues of program integrity, such as companies
double dipping to receive both the grant and tax credit. As we continue
to engage in these conversations to further define the role of the tax
code in helping our country reduce its carbon footprint, program
integrity must remain a top priority for us.
Do you think the vulnerabilities such a grant program may have for
fraud, waste, and abuse limit the effectiveness of its benefits? Do
program integrity problems, as was demonstrated in the section 1603
program, have unintended consequences on the development of the broader
industry?
Answer. As our testimony noted, Pennsylvania's embrace of
competitive markets has secured significant economic and environmental
benefits for the State, region, and country. We therefore are concerned
over the potential for distortive effects into the energy marketplace
through subsidies and mandates, which too often have the effect of not
producing innovation in the private sector but competition in the
lobbying space to preserve favorable financial and regulatory treatment
granted by Congress and regulators. As the Independent Market Monitor
for the 13-State PJM grid (which manages the competitive electricity
markets in states including Pennsylvania and Ohio) has noted on several
occasions, ``subsidies are contagious.'' With this in mind, we must
raise serious concerns over direct pay provisions, which as outlined in
your question for the record would function as direct financing by the
government to preferred energy resources in a manner that may not be
transparent or equitable. With respect to entities without tax
liabilities either due to the financial circumstances of a tax
reporting period or due to their status as a non-profit, tax credits
can still be monetized through sales between private parties. Such
practice is common today among many recipients of tax credit programs
and as such speaks against the need for direct pay.
Finally, as it remains a live policy question at FERC as to how
regional transmission organizations, who oversee electricity markets,
must account for State and Federal subsidies in market offerings as
established in approved tariffs such as the Minimum Offer Price Rule,
we also encourage the committee to engage with PJM, FERC, and
stakeholders as to how these tax credits would be incorporated into
competitive electricity market structures in a just and reasonable
manner.
Please consider our organization a resource for further discussion
on this or any other policy matter. Thank you for the opportunity to
provide our perspective on these important matters, and for your
leadership in promoting pro-growth tax and energy policy for our
region.
______
Prepared Statement of Jason Walsh, Executive Director,
BlueGreen Alliance
Thank you, Chairman Wyden, Ranking Member Crapo, and distinguished
members of the committee. My name is Jason Walsh. I am the executive
director of BlueGreen Alliance, a national partnership of labor unions
and environmental organizations. On behalf of my organization, our
partners, and the millions of members and supporters they represent, I
want to thank you for convening this important hearing to discuss the
role of the Federal tax code in transitioning to a clean energy economy
and ensuring the creation of quality, family-sustaining jobs across the
economy.
The BlueGreen Alliance unites America's largest and most
influential labor unions and environmental organizations to solve
today's environmental challenges in ways that create and maintain
quality jobs and build a stronger, fairer economy. Our partnership is
firm in its belief that Americans don't have to choose between a good
job and a clean environment--we can and must have both. I believe we
are in a unique moment to address the climate crisis, create good jobs,
and inject equity into our society as we work to rebuild our economy
and recover from the COVID-19 pandemic.
This committee and the U.S. tax code can play a critical role in
achieving these goals. Federal tax policies can be enacted to ensure we
are deploying the technology needed to meet our climate goals, while
ensuring jobs created in the clean energy sector are high-quality union
jobs and that investments made drive growth in U.S. manufacturing. We
can also work to ensure equity in the transition to a clean economy by
maximizing the benefits of job growth in the clean energy sector for
low-income workers and workers of color, as well as for communities
disproportionately impacted by pollution, deindustrialization, and
energy transition.
good jobs in the clean economy
We are in the midst of a massive energy transition. The world's
leading scientific organizations have been unambiguous that climate
change is a dire and urgent threat and that the longer we delay, the
stronger the action required. Over the last decade, we have witnessed
the worsening impacts climate change is having on our communities. To
avoid the catastrophic consequences of climate change, we must ensure
rapid greenhouse gas emissions reductions--based on the latest science
and in line with our fair share--to put America on a pathway of
reducing its emissions to net-zero emissions by 2050, and to ensure we
are solidly on that path by 2030.
As the Nation works to drive down emissions to address the climate
crisis and fights to stay competitive in the global race to develop the
clean technology of the future, we can see examples of how clean energy
investments can spur economic recovery, the growth of a clean economy,
and high-quality job creation across the country. For example, a
heavily unionized crew of trades people built the Block Island offshore
wind project off the coast of Rhode Island, union auto workers on
factory floors across the country are building cleaner cars and trucks,
and workers in St. Louis and Los Angeles are gaining access to high-
skilled jobs in energy efficiency retrofitting, pipefitting, and
transit manufacturing. These are good, union jobs building and
maintaining a clean energy and climate-resilient economy, today.
At the same time, not enough of the new jobs that have been created
or promised in the clean energy economy are high-quality, family-
sustaining jobs. Before the COVID-19 pandemic, more than 3.3 million
Americans were working in the clean energy economy.\1\ On average,
clean energy workers make more than the typical worker in America. A
recent report found that clean energy jobs--defined by that report as
jobs in renewable energy, energy efficiency, grid modernization and
storage, clean fuels, and clean vehicles--pay 25 percent more than the
national median wage \2\ at an average of $23.89 an hour for clean
energy jobs compared with the 2019 national median of $19.24.
---------------------------------------------------------------------------
\1\ BW Research Partnership, Clean Jobs, Better Jobs; An
Examination of Clean Energy Job Wages and Benefits, 2020. Available
online: https://e2.org/wp-content/uploads/2020/10/Clean-Jobs-Better-
Jobs.-October-2020.-E2-ACORE-CELI.pdf.
\2\ BW Research Partnership, Clean Jobs, Better Jobs; An
Examination of Clean Energy Job Wages and Benefits, 2020. Available
online: https://e2.org/wp-content/uploads/2020/10/Clean-Jobs-Better-
Jobs.-October-2020.-E2-ACORE-CELI.pdf.
However, it is also the case that workers in clean energy sectors
earn less on average than workers in fossil fuel energy sectors. The
primary reason for this wage gap is the gap in union density between
renewable energy jobs and jobs in the traditional energy sector. For
example, jobs in wind and solar industries average 4 percent to 6
percent union density, compared to 10 percent to 12 percent union
density in natural gas, nuclear, and coal power plants. Likewise, we
see that clean energy-specific occupations are in general lower paid
than traditional energy-specific occupations. While highly unionized
fossil fuel utilities workers earn over $82,000 a year, solar PV
installers with a 4-percent unionization rate make a median annual wage
of less than $45,000, though that wage does increase slightly if those
---------------------------------------------------------------------------
workers have an electrician's license.
Wind and solar generation currently employ significantly more
workers than most traditional energy generation sectors. Solar energy,
which is the energy sub-sector with the lowest union density, employs
345,393 workers. By comparison, the nuclear generation sector employs
60,916 workers and has a much higher union density at 12 percent.
Likewise, the wind generation sector employs 114,774 workers with union
density of just 6 percent, while coal generation employs 79,711 with a
unionization rate of 10 percent. The two lowest paying occupations in
the clean energy sector--solar PV installers and wind turbine
technicians--are also the two with the highest projected growth,
meaning that the sectors within the energy industry that are expected
to grow the fastest are not currently producing good-paying jobs
relative to other jobs in the energy sector.
Unionization is a key pathway to quality jobs and family sustaining
wages. Union jobs on the whole pay better, have better benefits, and
are safer than non-union jobs.\3\ Workers who are members of, or are
represented by a union, earn significantly more than those who are not
across all relevant industries and occupations, with especially
pronounced benefits for lower-paid workers. For example, on average,
union members earn a premium of 15 percent higher wages than non-union
workers in the utilities sector, and 45 percent higher wages in the
construction sector.
---------------------------------------------------------------------------
\3\ AFL-CIO, Building Power for Working People, 2021. Available
online: https://aflcio.org/what-unions-do/empower-
workers#::text=Union%20Jobs%20Help%20Achieve%20Work%2DLife
%20Balance&text=There%27s%20more%20to%20life%20than,schedules%20and%20no
%20manda
tory%20overtime.
As we work to meet our climate goals, we need to make a massive
investment in energy efficiency and the deployment of clean and
renewable technology nationwide, including low- and no-carbon
electricity production; carbon capture, removal, storage, and
utilization; natural ecosystem restoration; and zero carbon
transportation options. At the same time, we must ensure that these
investments translate into good jobs and that in doing so we eliminate
the disparities between job quality of renewable and traditional energy
---------------------------------------------------------------------------
sectors.
While we're working to grow clean energy jobs in this country, we
must ensure that we are not only ensuring those are good jobs, but
accessible jobs. This includes supporting and growing pathways into
good union jobs in these and other sectors for workers of color and
other segments of the population historically left out of these jobs.
Historically--and persistently--black Americans fare worse in the
economy, having lower wages, less savings to fall back on, and
significantly higher poverty rates as systemic racism has stacked the
deck against people of color. Regardless of education level, black
workers are far more likely to be unemployed than white workers.
Historically, unemployment rates are twice as high for black workers.
That disparity carries into the workplace as well, with black workers
paid on average 73 cents to the dollar compared to white workers.\4\
The wage gap persists regardless of education, and even with advanced
degrees black workers make far less than white workers at the same
level. The poverty rate for white Americans sits at about 8.1 percent.
For black households, it is 20.7 percent.\5\
---------------------------------------------------------------------------
\4\ Economic Policy Institute, Black workers face two of the most
lethal preexisting conditions for coronavirus--racism and economic
inequality, 2020. Available online: https://www.epi.org/publication/
black-workers-covid/.
\5\ Economic Policy Institute, Black workers face two of the most
lethal preexisting conditions for coronavirus--racism and economic
inequality, 2020. Available online: https://www.epi.org/publication/
black-workers-covid/.
One of the tools at our disposal in the fight for equity is
unionization. Research has shown that through the collective bargaining
power of unions,\6\ workers are able to get more and better benefits
such as health insurance and pensions, and are able to fight for more
enforcement of the labor protections they have a right to under the
law, like enforcement of safety and health regulations, and overtime.
And research has shown that across the board, union members earn higher
wages than non-union workers,\7\ and the difference is most pronounced
for workers of color and women. White union members earn on average 17
percent more than their non-union counterparts. Female union members
earn 28 percent more, black union members earn 28 percent more, and
Latino union members earn 40 percent more in wages than non-union
Latino workers.
---------------------------------------------------------------------------
\6\ Economic Policy Institute, Black workers face two of the most
lethal preexisting conditions for coronavirus--racism and economic
inequality, 2020. Available online: https://www.epi.org/publication/
black-workers-covid/.
\7\ Bureau of Labor Statistics, New Release, January 22, 2021.
Available online: https://www.bls.gov/news.release/pdf/union2.pdf.
Increasing union density in the clean energy sector is therefore a
key way to address the inequity inherent in our economy. Another key
mechanism for building career pathways and increasing access is through
registered apprenticeship, pre-
apprenticeship, and other union-affiliated training programs. Community
Workforce Agreements (CWAs) and Community Benefit Agreements (CBAs) are
another key opportunity. Similar to a project labor agreement, these
are collective bargaining agreements that are negotiated with both
union and community partners. These types of agreements often include
local hire provisions, targeted hire of low-income or disadvantaged
workers, and the creation of pre-apprenticeship pathways for careers on
the project. Beyond the obvious benefits to workers of these higher
wage, benefit, and career path opportunities, it's also relevant to
this committee the fiscal benefits of decreased reliance on Federal
programs such as Medicaid, EITC, SNAP, and the like, that come with a
well-paying union job with strong, stable benefits.
manufacturing supply chain
Although the environmental benefits to Americans of a wind or solar
farm or a car lot full of electric vehicles (EVs) may be obvious, to
truly bring home the benefits of the clean energy transition, policy-
makers must make sure that the manufacturing facilities producing these
products, as well as the machines that make the parts and materials
that go into them, are also here at home. Manufacturing has a long
history of supplying good-paying jobs to workers across this country
and has been the backbone of the American middle class. Manufacturing
currently employs about one in 11 American workers, in addition to
contributing $2 trillion a year \8\ to the gross domestic product
(GDP). However, the Nation has lost nearly 5 million manufacturing jobs
since 1997.\9\ If the Nation fails to make the investments needed and
put in place smart policies, American manufacturing will continue to
weaken. Countries around the world are rushing to capture the
manufacturing and jobs benefits of the global shift to clean energy and
the United States could lead the pack with the right policies in place.
---------------------------------------------------------------------------
\8\ Economic Policy Institute, The Manufacturing Footprint and the
Importance of U.S. Manufacturing Jobs. Available online: https://
www.epi.org/publication/the-manufacturing-footprint-and-the-importance-
of-u-s-manufacturing-jobs/.
\9\ Economic Policy Institute, We can reshore manufacturing jobs,
but Trump hasn't done it, 2020. Available online: https://www.epi.org/
publication/reshoring-manufacturing-jobs/#::text=
Overall%2C%20the%20U.S.%20has%20suffered,Census%20Bureau%202020a%2C%2020
20b.
Unfortunately, decades of bad policy, offshoring, and outsourcing
have weakened supply chains and lost jobs, and the United States has
not been taking full advantage of the opportunity to support and
strengthen domestic manufacturing along that supply chain. Today, far
too many of the solar panels,\10\ solar components, EV components,\11\
and parts and materials for wind turbines \12\ that build the clean
economy are manufactured overseas and shipped to the United States.
Steps should be taken now to rebuild those vital supply chains and grow
jobs here in the United States.
---------------------------------------------------------------------------
\10\ U.S. Energy Information Administration, U.S. shipments of
solar photovoltaic modules increase as prices continue to fall, 2020.
Available online: https://www.eia.gov/today
inenergy/
detail.php?id=44816#::text=Effective%20February%207%2C%202018%2C%20the,
sub
sequent%20year%20for%20four%20years.&text=In%202019%2C%20imports%20accou
nted%20for
,of% 20total%20solar%20PV%20shipments.
\11\ United States Trade Commission, Journal of International
Commerce and Economics, The supply chain for electric vehicle
batteries, 2018. Available online: https://www.usitc.gov/publications/
332/journals/the_supply_chain_for_electric_vehicle_batteries.pdf.
\12\ IBIS World, Wind Turbine Manufacturing Industry in the U.S.,
2021. Available online: https://www.ibisworld.com/united-states/market-
research-reports/wind-turbine-manufacturing-industry/.
---------------------------------------------------------------------------
Solar
The story of the U.S. solar industry is illustrative of the
consequences of the failure to act proactively in the early days of a
budding industry and the need for a comprehensive, coordinated
industrial policy that marries strong trade and manufacturing rules.
In the early days of solar energy, the U.S. was the leader of solar
energy research, development, and manufacturing. However, due to
China's aggressive moves though trade policy, subsidy, and massive
domestic investment in PV manufacturing around 2008-2013, U.S.
manufacturing of solar components was largely pushed to the sidelines.
Because of inconsistent international trade policy and incoherent
Federal clean technology manufacturing strategy, the Nation has
struggled to build a competitive solar manufacturing industry. The few
solar manufacturers we have left rely on international supply chains.
For example, for American polysilicon manufacturers, this means
they are entirely captive to Chinese wafer manufacture, which dominates
the global market, as their only customers. When China strategically
decided to shut down the use of non-Chinese polysilicon in their wafer
manufacturing, the U.S. suppliers were essentially frozen out of the
supply chain. And it's no better at the other end of the supply chain,
where U.S. module manufacturers have no control over the materials
sourcing, labor, or environmental practices behind the key components
in their modules, because they have no choice but to source them from
China. Recent reporting on the substantially lower environmental, human
rights, and labor standards, in China, show how ultimately
unsustainable this arrangement is, for example, in the ongoing
accusations of forced labor.\13\
---------------------------------------------------------------------------
\13\ Council on Foreign Relations, China's Repression of Uyghurs in
Xinjiang, 2021. Available online: https://www.cfr.org/backgrounder/
chinas-repression-uyghurs-xinjiang.
Over the years to come, with the dramatic fall in prices for solar
and continuing improvements in the manufacture of solar components, the
United States has an opportunity to expand PV manufacturing capacity in
a way that provides quality, high-road jobs. With strong deployment
measures, crafted hand in hand with deliberate manufacturing policies--
including manufacturing investment, measures to fill critical supply
chain gaps, and a fairer trade policy--the United States can create
high-quality jobs and improve our economic security at the same time.
Our policies must also support high labor and environmental standards
throughout the clean energy supply chain.
Wind
Primarily due to the extraordinary size of the components and the
attendant logistical issues of international shipping, the story is
brighter when looking at the onshore wind industry, though there is
still room for improvement. There are currently more than 500 U.S.
manufacturing facilities specializing in wind components.\14\ Currently
more than 90 percent of nacelles \15\--the housing for the generator,
gearbox, and other mechanics--for U.S. onshore wind turbines are
assembled in the United States, along with 40 percent-70 percent of
blades and hubs and 65 percent-85 percent of wind towers.\16\ However,
the materials that can readily be shipped, such as internal nacelle
components, like electronics, have very little domestic content. And
very few of these facilities are union-represented. We must ensure we
expand our domestic supply chain for wind and increase job quality.
---------------------------------------------------------------------------
\14\ DOE Office of Energy and Renewable Energy, Wind Manufacturing
and Supply Chain, 2021. Available online: https://www.energy.gov/eere/
wind/wind-manufacturing-and-supply-
chain#::text=There%20are%20more%20than%20500,to%20multi%2Dmegawatt%20po
wer%20rat
ings.
\15\ Lawrence Berkeley National Laboratory, Wind Energy Technology
Data Update: 2020 Edition, 2020. Available online: https://
escholarship.org/uc/item/9r49w83n.
\16\ Lawrence Berkeley National Laboratory, Wind Technologies
Market Report, 2020. Available online: https://emp.lbl.gov/wind-
technologies-market-report.
The opportunities and risks are even more acute with respect to the
budding offshore wind industry. The potential for responsible offshore
wind development in the United States is substantial. According to the
U.S. Department of Energy, if the Nation utilized even 1 percent of its
technical potential offshore wind capacity, it could power nearly 6.5
million homes.\17\ The industry is rapidly expanding both domestically
and internationally.
---------------------------------------------------------------------------
\17\ DOE Office of Energy and Renewable Energy, Computing America's
Offshore Wind Energy Potential, 2016. Available online: https://
www.energy.gov/eere/articles/computing-america-s-offshore-wind-energy-
potential.
Currently, the United States has just one offshore wind project
operating--the Block Island Offshore Wind Farm off the coast of Rhode
Island.\18\ This project was the result of years of collaboration
between labor unions, environmental organizations, industry, and key
government officials and entities. The project demonstrates the
diverse, highly skilled workforce that will be necessary for all future
offshore projects the United States is now projected to create 18.6
gigawatts (GW) of clean and cost-effective offshore wind power in seven
Atlantic States within the next decade.\19\ This has the potential of
133,000 and 212,000 jobs per year in seven Atlantic States.\20\ The
Atlantic coast States could create $200 billion in new economic
opportunities, as well as over 43,000 high-paying, permanent jobs,
simply by developing 54 GW of their 1,283 GW offshore wind energy
potential.\21\
---------------------------------------------------------------------------
\18\ Orsted, Offshore Wind Projects in the U.S., 2020. Available
online: https://us.orsted.com/wind-projects.
\19\ Oceana, Offshore Wind Report, 2010. Available online: https://
oceana.org/sites/default/files/reports/Offshore_Wind_Report_-
_Final_1.pdf.
\20\ National Renewable Energy Laboratory, Offshore Wind Power in
the United States, 2010. Available online: https://www.nrel.gov/docs/
fy10osti/49229.pdf.
\21\ National Renewable Energy Laboratory, Offshore Wind Power in
the United States, 2010. Available online: https://www.nrel.gov/docs/
fy10osti/49229.pdf.
However, with very little domestic infrastructure to support
offshore wind, the risk of components coming from overseas along with
the installation vessels is high. For example, with the exception of
the foundation, all of the major parts and components of the Block
Island Wind Farm were manufactured outside of the United States. The
nacelles for the project came from France, the towers from Spain, and
the blades from Denmark.\22\ As the industry grows, sourcing components
domestically represents a significant opportunity to help revitalize
American manufacturing. SIOW's recent white paper predicts an almost
$70 billion buildout of U.S. offshore wind supply chain by calculating
growth in a number of sectors, which include wind turbines and towers;
turbine and substation foundations; upland, export, and array cables;
onshore and offshore substations; and marine support, insurance, and
project management. However, currently there is no domestic supply
chain for these items, meaning that we risk significant portions of the
investment to build offshore wind projects flowing out of the economy
to purchase technology manufactured abroad, rather than supporting the
growth of manufacturing and jobs domestically.
---------------------------------------------------------------------------
\22\ General Electric, My Turbine Lies Over the Ocean: It Takes
Herculean Labor to Build America's First Offshore Wind Farm.
Strong, long-term policy that drives rapid and responsible
deployment and provides investment certainty in offshore wind is
necessary, coupled with policies to ensure utilization of domestically
manufactured materials, invest directly in U.S. manufacturing
facilities, and in related infrastructure like transmission.
Electric Vehicles
Happening alongside the Nation's transition to cleaner, cheaper
forms of energy is an ongoing shift to cleaner vehicles, including EVs.
The auto sector is at the heart of U.S. manufacturing, and ensuring the
United States leads in EV deployment and manufacturing will be critical
to sustaining good jobs in auto and auto components manufacturing. The
global transition to EVs is already underway, with our competitors
moving quickly to capture the manufacturing and jobs gains in this
transition. Today China holds 70 percent share of global EV battery
production capacity, with U.S. and Europe lagging with 16 percent and
10 percent respectively. Looking out 10 years, current business-as-
usual market projection puts the U.S. even further behind--now lagging
Europe with only 12 percent of global battery capacity. The security of
American jobs in an EV-dominated automotive market depends on swift
policy action to leverage our world class manufacturing base and enable
it to move rapidly to build electric vehicles, cells, batteries, and
electric drivetrain components, at scale, in the U.S. In short, the
United States is at a crossroads with EV development. Either we enact
policy that secures and potentially grows manufacturing jobs or we step
away from technological leadership and cede the next generation of
manufacturing jobs to our competitors.
As is true across the clean energy sector, the quality of EV jobs
varies a great deal throughout the industry.\23\ Looking across the
supply chain, some manufacturers in the auto sector offer wages just
over minimum wage with no benefits and hazardous working conditions.
Others pay workers in the $20-$30 per hour range with full benefits and
rigorous safety processes and oversight. Jobs in the automotive sector
can either provide a ladder of training and rewarding career paths or
they can be temporary and dead-end jobs.
---------------------------------------------------------------------------
\23\ BlueGreen Alliance, Electric Vehicles at a Crossroads:
Challenges and Opportunities for the Future of U.S. Manufacturing and
Jobs. Available online: https://www.bluegreenalliance.org/wp-content/
uploads/2018/09/Electric-Vehicles-At-a-Crossroads-Report-vFINAL.pdf.
As we make investments to grow deployment of energy efficiency and
clean and renewable energy, we must ensure that those investments
simultaneously spur growth of domestic supply chains and American
---------------------------------------------------------------------------
manufacturing.
And we must also ensure that throughout the manufacturing sector
steps are taken to require or incentivize high road labor standards and
responsible labor practices, and to strengthen workers' rights by
protecting the right of workers to unionize, fighting back against
offshoring and outsourcing with strong domestic procurement and trade
policies, and discouraging worker misclassification, which allows
employers to deny benefits to workers by claiming they are temporary or
part-time employees while they are working full time.
recommendations
I believe we can update and improve our tax policy to reshape our
clean energy economy and ensure that family sustaining jobs come with
it. We can also enhance tax credits to strengthen American
manufacturing and domestic supply chains.
In particular, I urge this committee to:
1. Extend and Strengthen Clean Energy Tax Credits: Key clean
energy tax credits should be extended and strengthened, including those
for onshore and offshore wind, solar, clean transportation, EV charging
infrastructure, grid modernization, and energy efficiency. Congress
should also make these tax credits temporarily refundable--many of the
newer companies in this space don't have taxable income to fully take
advantage of these credits and lower income consumers may be unable to
gain the benefits of these credits if they aren't refundable. Congress
should couple these tax credits with labor standards and procurement
policies that ensure the use of domestic, clean, and safe materials
made by law-abiding corporations throughout the supply chain and
support employers that adopt high road labor practices, including
organizing neutrality, prevailing wages, registered apprenticeship,
protection against worker misclassification, excessive use of temporary
labor, safety and health protections, project labor agreements,
community benefit agreements, local hire, and other provisions and
practices that prioritize improving training, working conditions, and
project benefits. As I mentioned earlier, not only are these important
worker protections, but they substantially lower costs to the Federal
Government of enforcement actions as well as lessening the expenditures
from low-income support programs, such as EITC, Medicaid, and SNAP.
We are eager to engage with this committee and congressional
offices around consideration of a technology-neutral approach to future
energy tax credits, such as the approach outlined in Chairman Wyden's
Clean Energy for America Act. We appreciate that this approach rewards
carbon abatement, spurring deployment and innovation of low- and no-
carbon technologies and rewarding existing zero-emission generation.
Nuclear power is the single largest source of zero-emission electricity
in the United States. A recent report by the Union of Concerned
Scientists found that nearly 35 percent of the country's nuclear power
plants, representing 22 percent of U.S. nuclear capacity, are at risk
of early closure or slated to retire and that retiring plants early
could result in a cumulative 4- to 6-percent increase in U.S. power
sector carbon emissions by 2035. The study also found that to avoid the
worst consequences of climate change we need carbon-reduction policies
that better reflect the value of zero-emission electricity, coupled
with policies to ensure safety and waste remediation.
We are also encouraged to see inclusion in this bill of
prevailing wage and registered apprenticeship language to better ensure
that clean energy construction jobs are safe and family-sustaining and
provide competitive benefits. We look forward to working with Chairman
Wyden and this committee to expand on these provisions, including
addressing domestic content.
2. Support Manufacturing and Clean Energy Supply Chains:
Policies that increase the demand for clean technology must go hand in
hand with incentives to support and grow American manufacturing and
domestic supply chains. Already, as the Nation increases deployment of
clean technology, our ability to manufacture those products and the
parts and materials that go into them is falling further behind as
demand increases.\24\ That is why targeted investments and smart
policies are needed to ensure that the Nation is able to capture the
benefits of the clean energy economy.
---------------------------------------------------------------------------
\24\ E&E News, Biden's ``Buy America'' plan may hit a solar wall,
2021. Available online: https://www.eenews.net/stories/1063726219.
In 2020, the BlueGreen Alliance released a comprehensive
manufacturing agenda \25\ proposing a set of national actions to
achieve global leadership across clean technology manufacturing; cut
emissions from the production of essential materials; upgrade and
modernize the entirety of the U.S. industrial base; and undertake a new
generation of industrial development that rebuilds good American jobs
and is clean, safe, and fair for workers and communities alike.
---------------------------------------------------------------------------
\25\ BlueGreen Alliance, Manufacturing Agenda: A National Blueprint
for Clean Technology Manufacturing Leadership and Industrial
Transformation, 2020. Available online: https://
www.bluegreenalliance.org/resources/manufacturing-agenda-a-national-
blueprint-for-clean-technology-manufacturing-leadership-and-industrial-
transformation/.
There are two key policies this committee should consider.
First, it should renew and robustly fund the Advanced Energy Projects
Credit (48C): The Advanced Energy Projects Credit is a 30-percent
investment tax credit created to reequip, expand, or establish domestic
clean energy, transportation, and grid technology manufacturing
facilities. The program should be funded at at least $10 billion, or
made permanent and, given the current economic climate, the program
should be made refundable. The scope of the program should be expanded
to capture the manufacture of key energy and carbon reducing
technologies, such as battery cells. Furthermore, both the manufacture
of and deployment of industrial emissions reduction technologies and
processes should be eligible for support under this or other existing
---------------------------------------------------------------------------
relevant tax credits.
We also recommend the committee improve the 48C tax credit
along the lines of the American Jobs in Energy Manufacturing Act,
sponsored by Senators Stabenow and Manchin, which would ensure projects
pay prevailing wage and would be targeted in a way to support clean
technology manufacturing in communities that have lost jobs in
manufacturing, mining, or power generation and other disadvantaged and
impacted communities and should prioritize those firms hiring displaced
workers. Legislation like this can help jumpstart our economic
recovery, ensure we are building America's energy future here at home,
reduce industrial emissions, and deliver good union jobs for workers
and the communities that need it the most, including those impacted by
changes in our Nation's energy systems.
Second, it should create an incentive, similar to the 45M
technology production tax credit (PTC) to create a durable incentive
for domestic production of strategic clean energy and vehicle component
technologies. In addition to the up-front investment incentive of 48C,
this structure would give an incentive to expand operations to a
globally competitive scale quickly and substantially. For example, to
help fill gaps in the solar supply chain, such a manufacturing PTC
could provide a per-unit or per-watt credit for domestically produced
modules, photovoltaic cells, photovoltaic wafers, and solar grade
polysilicon. Coupling a PTC with other manufacturing and deployment
incentives could help reverse decades of disinvestment, offshoring, and
inconsistent manufacturing policy that has weakened our once
competitive edge. Importantly, such an incentive would reward large
scale and efficiency, exactly what we need to compete in these rapidly
expanding global industries and help ensure our manufacturing remains
strong and resilient against future subsidies and potential dumping by
our competitors. We need a coordinated approach, including measures
such as an adapted 45M technology production tax credit as proposed
here, to incentivize strategic technology manufacturing here, harness
American ingenuity, and drive down deployment costs while adding
family-sustaining jobs across the country.
3. Support a job-sustaining transition to clean vehicles:
Consumer incentives stand to play a significant role in shaping the
shift to electric vehicles and the manufacturing, jobs, and community
impacts of that transition. The existing 30D consumer tax credit should
be updated to support domestic assembly, domestic content, and high-
road labor standards. The structure of the credit must help retain and
grow the next generation of high-skill, high-wage, family-supporting
jobs in the United States and support the growth of high-volume, high-
quality domestic electric vehicle production and supply chains
necessary to remain competitive in this space over the long term. To
address equity issues with the existing credit, the credit should be
converted to a refundable credit or ideally refunded at the point of
sale, and the incentive should be targeted towards more moderate income
and working-class households. Additionally, we believe that Congress
should establish a tax credit to incentivize the purchase of used EVs,
which could improve access to EVs for low- and moderate-income
consumers, and Congress should ensure that such a credit is similarly
refundable and targeted. Additionally, similar criteria for domestic
manufacturing, labor standards, and addressing equity should be applied
to the 30B credit for other advanced technology vehicles.
We also support the ongoing work to expand the 30C tax credit
for charging infrastructure, as the robust proliferation of easily
accessible charging will be essential to the success of EV adoption.
Incentives for charging infrastructure should ensure availability for
all communities, with a priority on filling gaps in low-income, rural,
and deindustrialized communities and communities of color, and
availability for residents of multi-family housing, and be refundable.
These incentives should also require certified training of electric
vehicle supply equipment (such as the Electric Vehicle Infrastructure
Training Program, or EVITP) and the domestic manufacture of charging
stations.
potential impact of good jobs and domestic manufacturing in clean
energy
This committee is gathered today to discuss the tax code's role in
creating American jobs, achieving energy independence, and providing
consumers with affordable, clean energy. I'm here to argue that we can
achieve all of these policy goals while also ensuring that workers are
paid fair wages, that we support and grow our domestic manufacturing
supply chains, and that communities that have traditionally been left
behind in our economy experience the gains in clean air, clean water,
and middle-class-enabling jobs. This is a classic example of the
BlueGreen Alliance's mission: we don't have to choose between achieving
our climate goals by deploying clean, affordable energy and creating
quality, family-sustaining jobs across our economy. We can have both at
the same time.
Researchers from Princeton University \26\ in a recent working
paper found increasing wages for workers in the clean energy sector by
20 percent would only increase the capital costs of solar and wind
projects by 2-4 percent and operations and maintenance costs by
approximately 3-6 percent across technologies, assuming current
domestic content shares. Those small technology cost increases may very
well be offset by an increase in labor productivity--an increase, by
the way, that often comes from better training and the stability that
comes from higher wages. For example, a 20-percent labor cost premium
can be offset by an increase in domestic labor productivity of 20
percent. The research also found the impact of increased domestic
manufacturing for clean energy to be similarly minimal, with a 10-
percent increase in domestic sourcing associated with only a 1-percent
increase in project costs for solar PV projects.
---------------------------------------------------------------------------
\26\ Princeton University, Influence of high road labor policies
and practices on renewable energy costs, decarbonization pathways and
labor outcomes, 2021. Available online: https://www.dropbox.com/sh/
ad9pzifo9w1a49u/AAC2milGD44MlwXo1Sk7EAgsa?dl=0.
When looking at the larger picture of the impact that increasing
the wages of clean technology workers and domestic content utilization
would have on the total cost of transitioning to a clean energy system,
again, the Princeton researchers found that the impact was very
minimal, determining that there is only a 3-percent difference in
supply-side investment cost over the entire transition period from 2020
to 2050, and that these costs would have no recognizable impact on
---------------------------------------------------------------------------
deployment of clean energy.
While increasing wages and the amount of domestic content in the
solar and wind energy industries will have a very minimal impact on
project costs, workers in those industries would see significant
benefits, including billions in higher wages and hundreds of thousands
of new jobs in the 2020s. The researchers found paying workers 20
percent more and increasing the use of domestic content would generate
an additional $5 billion in annual wages in the 2020s, which equates to
increasing each worker's average annual wages by over $12,000-$13,000.
And by producing more of these components here in the United States, we
can support an additional 45,000 jobs in the 2020s. Importantly, this
committee has before it a set of policies that it can undertake to
ensure that even these small potential increases are ``lost in the
noise'' of robust incentives to re-shore and expand domestic
deployment. The smart incentives we're talking about today can not only
increase the standard of living of millions of Americans, but can
increase their quality of life, all while continuing to drive down the
costs of the clean energy technologies we need to deploy to secure our
children's future--a win-win-win opportunity that is nearly
unprecedented in our history.
conclusion
As the United States ramps up efforts to grow the clean economy, we
must invest in a range of clean energy sources, energy efficiency, and
electric vehicles. At the same time, moving forward without putting the
right policies in place to lift up the quality of the jobs created and
ensure workers and communities see the benefits of these investments
would put the burdens of economic transition on workers.
Through Federal tax policy, we can make strategic investments in
clean energy projects in ways that ensure the jobs created are good
jobs and that the investments deliver gains for American manufacturing,
for workers, and for communities, particularly disadvantaged
communities and workers. I urge this committee to advance policies to
support clean energy development together with high-road labor
standards and policies to reinvigorate our domestic supply chains and
American manufacturing, and to prioritize these investments in places
hit by energy transition and deindustrialization.
Thank you for the opportunity to speak in front of the committee.
______
Questions Submitted for the Record to Jason Walsh
Question Submitted by Hon. Catherine Cortez Masto
Question. In line with Chairman Wyden's tech-neutral legislation
which outlined a stand-alone investment tax credit for transmission,
and in order to direct public dollars to the appropriate projects, we
must ensure that any project meets sufficient capacity. Do you think
that the incentive needs to be focused on building large-scale,
interregional, difficult-to-build transmission lines, not subsidize
lines within already existing utility territories?
Answer. Thank you for the question. In my testimony, I spoke about
how we should create policy that supports the deployment of clean
energy and related infrastructure including expanding our transmission
capacity and grid security.
To accommodate for the increased demand for renewable energy, we
need to build out our transmission lines by two or three times our
grid's current capacity. I believe we should incentivize new
transmission capacity for where it is necessary, which will
predominantly be new lines, connecting existing or future projects. The
Federal Government should increase availability for Federal loan
guarantees and grants for high-voltage transmission lines. DOE should
develop a national transmission plan and address gaps in the grid to
avoid shortages and ensure consistent supply. We should also increase
funding for energy storage and grid resiliency RD&D. We can do this
through revitalizing the Smart Grid Investment Grant Program, and
increasing funding for the Energy Storage program. That said, ensuring
existing lines within utility territories have the capacity to
transport the energy necessary should also be a competitive factor when
awarding Federal funds. Further, lines built with Federal dollars
should also have high-road labor standards, such as prevailing wage and
apprenticeship utilization. We were pleased to see these standards
included in the chairman's Clean Energy for America Act, which has an
investment tax credit for transmission. Additionally, high-voltage
lines should utilize domestically sourced materials and supply chains
when possible.
______
Question Submitted by Hon. Todd Young
Question. Thank you for your comments during the hearing related to
Federal investment in hydrogen. Beyond the promising energy uses, you
had mentioned some other unique opportunities for hydrogen utilization.
Can you please expand further on the economic opportunities that
hydrogen energy provides given its broad potential in the electricity
sector--in addition to transportation, energy storage, and many other
uses?
Answer. Thank you for this question. As I mentioned in the hearing,
hydrogen has enormous potential as an energy carrier.
We are particularly interested in the role zero-carbon hydrogen can
play in reducing emissions from hard-to-abate sectors, like heavy
industry. Manufacturing is critical for the health of our economy, and
the industrial sector is a key source of good jobs for American
workers. At the same time, the sector represents a large and growing
share of U.S. greenhouse gas emissions. To meet our climate goals, we
need to reduce these emissions while ensuring we do not drive jobs and
emissions overseas.
Using zero-carbon hydrogen as a fuel or feedstock for industrial
processes is a promising pathway to reduce industrial emissions. As one
example, primary steel can be produced through direct reduction of iron
ore with renewables-based hydrogen as a fuel and feedstock instead of
coal. These kinds of projects are already underway. In Hamburg,
Germany, ArcelorMittal launched a project aimed at the first industrial
scale production and use of Direct Reduced Iron (DRI) made with 100
percent hydrogen as the reductant. And in a trial at its Hofors mill,
the Swedish steel maker Ovako found that using hydrogen instead of
natural gas as a source of high-temperature heat is not only possible
to power commercial steel production but also had no effect on the
quality of steel.
Hydrogen is also showing promise as a fuel source for aviation,
marine shipping, and long-haul trucking--sectors where electrification
is more challenging.
What is more, hydrogen allows us to decarbonize sectors while using
some of our existing infrastructure and workforce. And workers,
especially those already trained in the utility sector and in
pipefitting, already have many of the skills necessary to operate a
hydrogen economy.
As I mentioned in the hearing as well, while hydrogen is promising,
we need to work out concerns over safety and co-pollutants.
______
Prepared Statement of Hon. Ron Wyden,
a U.S. Senator From Oregon
The Finance Committee meets this morning for its first hearing on
the climate crisis since 2009. It comes right on the heels of President
Biden's announcement of an ambitious new climate goal: cutting
emissions at least in half by the end of the decade compared to 2005
levels. That target comes with a lot of big challenges, starting with
energy-related emissions, as well as transportation.
The reality is, a debate on energy and transportation is largely a
debate on tax policy. That puts this committee in the driver's seat
when it comes to job-creating legislation that addresses head-on the
existential challenge of the climate crisis.
The energy tax code in America is a cluttered, old heap of more
than 40 different tax breaks for a variety of energy sources and
technologies, including clean energy and transportation. Most of those
incentives are temporary. That keeps clean energy businesses and
workers living in an uncertain state of limbo. On the other hand, at
the base of this system are century-old, permanent tax breaks for oil
and gas companies. There's no uncertainty for them; they get guaranteed
benefits funded by American taxpayers every year.
At a time when people in Oregon and around the country are
routinely clobbered by the disastrous effects of the climate emergency,
it's important to be clear about what this broken, old energy tax
system means in practice. Under the laws on the books, taxpayers are
subsidizing the climate crisis. That's what it means when fossil fuel
interests get special, permanent breaks above and beyond what's
available to everybody else.
There's a taxpayer subsidy for megastorms and terrible floods along
our coastlines and waterways. There's a taxpayer subsidy for massive
wildfires bigger and hotter than any the west experienced decades ago.
There's a taxpayer subsidy for wintertime bouts of extreme cold that
send the privileged fleeing to tropical resorts while their neighbors
freeze to death in their homes. What's worse, taxpayers are also on the
hook for much of the cleanup when disasters strike.
Last week I introduced the Clean Energy for America Act that would
throw the old set of more than 40 tax breaks in the dustbin. The bill,
which has more than two dozen cosponsors, would replace that old
hodgepodge with a new set of three incentives: one for clean energy,
one for clean transportation, and one for energy efficiency.
Experts tell us that getting the policy right in those areas is the
whole ballgame. This emissions-based approach also works hand in glove
with the smart, fresh ideas that several other members will bring
forward today.
In terms of tax certainty and predictability, it would level the
playing field for everybody. It would be a job-creating, free market
competition to get to net-zero carbon emissions. Clean energy producers
and businesses that focus on cutting-edge transportation would no
longer have to worry about their tax incentives disappearing because
Congress is deadlocked yet again. The bill would help to supercharge
innovation in clean transportation and energy storage.
That's a big reason why there's a new coalition lining up behind
this proposal. The Environmental Defense Fund, the Sierra Club, the
Natural Resources Defense Council, the building trades and the Edison
Electric Institute, among others, have all announced support for this
bill. It's a new coalition for a new day.
There's a big opportunity in the months ahead to pass this
legislation along with investments in communities that powered the
United States over the last century. It's essential to make sure that
nobody is left behind in the process of tackling these challenges and
moving to clean energy.
This is the right approach for high-wage, high-skill jobs. This is
the right approach for addressing the existential threat of the climate
emergency. This is the right approach for promoting innovation and
competing with companies in China and around the world. If the Congress
doesn't work hard to create these jobs in America, other countries are
going to grow at our expense.
I'm looking forward to discussing the Clean Energy for America Act
today. And I want to thank our excellent witness panel for joining the
committee.
______
Rhodium Group
5 Columbus Circle
New York, NY 10019
Tel: +1 212-532-1157
Fax: +1 212-532-1162
Web: www.rhg.com
U.S. Energy and Climate
April 20, 2021
Pathways to Build Back Better: Jobs From Investing in Clean Electricity
One of the primary goals of President Biden's American Jobs Plan is to
create millions of new jobs through new federal investments in clean
infrastructure. This note focuses on the electric power sector and
assesses job creation and retention potential associated with a
substantial clean energy investment package. We find that investments
in decarbonizing electricity on net can create more than 600,000 jobs a
year on average over the timeframe of 2022-2031. We find that the jobs
created or retained in clean generation far outweigh jobs lost at
fossil fuel-fired power plants and upstream fuel supply.
Investing in a clean future
President Biden's American Jobs Plan (AJP) includes a series of new
programs and extensions of tax credits to drive investment in new clean
electricity infrastructure. The core of the plan is a Clean Electric
Standard (CES) coupled with a long-term extension of renewable tax
incentives and new tax credits for storage and transmission. Meanwhile,
members of Congress are considering their options for clean electricity
investment policies and procedural pathways for passing legislation. We
previously assessed the impact of an investment package consisting
solely of tax credits and incentives to expand new clean generation,
retain existing clean capacity and accelerate coal retirements. That
research found that the federal spending package on its own could get
electric power sector emissions on a straight-line path to zero in
2035, at least through 2025. In 2031, the package drives emissions down
to 66-74% below 2005 levels depending on the costs of clean energy
technologies (Figure 1). EPA regulations on CO2 and
conventional pollutants deliver further gains.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
In this note, we take the next step and quantify the employment
impact of our investment scenario. With 9 million Americans still out
of work 14 months into the COVID-19 pandemic, understanding if and how
new clean energy investments can get people back to work is critical.
While our investment scenario is not identical to the clean electricity
provisions in the AJP, it is directionally consistent. Our investment
scenario also reflects recent legislative proposals, including the
Clean Energy for America Act and the American Nuclear Infrastructure
Act. While it's too early to know the contents of a congressional clean
electricity infrastructure package, we think that the investment
scenario is a decent proxy for what potentially is yet to come. It is
also a good foundation for assessing the job impacts of clean
electricity investment overall.
A clean infrastructure investment transition
As we discussed in our previous note, federal investment can drive new
clean capacity additions onto the grid at an annual average rate up to
twice as fast as last year's record. Investment also retains existing
clean generators such as nuclear plants that would otherwise retire due
to competition with cheap natural gas. The net impact is a surge of
zero-emitting generation onto the grid over the next decade at the
expense of coal and natural gas. In our analysis, on an annual average
basis over the 2022-2031 budget window, every 3 megawatt-hours (MWh) of
additional clean generation from investment displaces roughly 2 MWh of
natural gas combined cycle (NGCC) generation and 1 MWh of coal. This
leads to 307-328 MWh of additional nuclear generation and 204-318 MWH
of wind and solar compared to current policy (Figure 2). The range
reflects mid and low technology costs. Meanwhile, coal declines by 182-
198 MWh, and NGCCs ramp down by 330-420 MWh on an annual average basis.
Reductions in fossil generation directly impact jobs both at the power
plants generating electricity and at the coal mines and gas fields
where the power plant fuel comes from, and in the transportation of
those fuels to generation sites. The main driver of jobs associated
with clean energy is the number of gigawatts (GW) of retained and new
capacity built in response to federal investment. Think workers running
nuclear plants and crews building record amounts of wind, solar, and
storage over the next decade across the US. On a cumulative capacity
basis, retained and new clean capacity dwarf the decline of fossil
capacity (Figure 3). Under mid tech costs, clean capacity additions and
retentions are 6.5X greater than fossil subtractions. This grows to
nearly 9X when we consider low tech costs.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
All of the new clean capacity additions and clean capacity
retention reflect private investment into US clean energy
infrastructure leveraged by federal spending. We estimate that federal
spending catalyzes $332-$399 billion in net new investment in the bulk
power system from 2022 through 2031. The investments consist of $244-
$361 billion for new and retained capacity, plus another $26-$59
billion in transmission and $62-$79 in net new spending on operation
and maintenance of generators (Figure 4). Meanwhile, switching the grid
from fossil to clean results in $104-$119 billion in savings from
avoided fuel costs. While this represents savings for consumers, it
also reflects fewer work opportunities for coal miners, gas drillers,
and fossil power plant operators.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
The employment implications of federal electricity investment
To assess what new federally driven spending on electricity
infrastructure and clean energy deployment means for jobs, we developed
an employment projection model calibrated to the Energy Futures
Initiative and NASEO's annual US Energy and Employment Report. This
survey identifies total annual employment in both electricity
generation and fuel supply, broken down by technology and sector. We
identify employment intensity trends in all generation technologies
over the past five years (including solar, wind, geothermal, nuclear,
coal, natural gas, oil, geothermal, hydro, and biomass), as well as all
fuel supply and transportation categories and transmission investment
by comparing historical employment survey data from the US Energy and
Employment Report with historical energy data from the Energy
Information Administration (EIA). We then apply these historical
relationships to projected changes in electricity capacity additions,
retirements, transmission buildout, and fuel supply from RHG-NEMS, a
detailed energy system model used to produce the generation, capacity,
and investment results described above.
We find that in our investment scenario, net national employment in
power generation, upstream fuel supply, and downstream transmission is
290,000 jobs higher on average between 2022-2031 in our mid technology
cost case and 606,000 jobs higher in our low technology cost case than
under current policy over the same period (Figure 5). That's 2.9 and
6.1 million job-years respectively. In our mid technology cost case,
coal mining and transportation jobs are 14,000 and coal generation jobs
are 11,000 lower in the investment scenario than in the current policy
counterfactual. Natural gas production and transportation jobs are
31,000 lower and generation jobs are 3,600 lower (oil-related jobs are
relatively unchanged due to the small amount of oil used for power
generation in the U.S.) These losses in fossil fuel employment are
dwarfed by gains in nuclear and renewable generation, battery storage
and transmission. 26,000 jobs are saved at currently operating nuclear
plants and 278,000 jobs are gained through the manufacture,
installation and operation of new wind, solar, geothermal and other
renewable energy sources. Jobs associated with building and operating
transmission lines and battery storage are 33,000 and 11,000 higher
respectively on average between 2022 and 2031 in our investment
scenario than under current policy.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
In our low technology cost case, coal employment (mining,
transportation and power generation) is 27,000 jobs lower and natural
gas employment (production, transportation and power generation) is
46,000 jobs lower on average between 2022 and 2031 as a result of
federal clean electricity investment than under current policy. But the
job gains in clean generation, storage and transmission are more than
8x larger than those lost in fossil generation and upstream fuel
supply. Renewable electricity-related jobs are 548,000 higher on
average between 2022 and 2031. Transmission jobs are 75,000 higher and
battery storage jobs are 28,000 higher. All told, we project 1.7
million Americans on average would be working in the manufacture,
installation and production of clean electricity between 2022 and 2031
(Figure 6). That's nearly 1 million more than work in these fields
today, and 679,0000 more than would be employed under current policy
over that same time period. In our investment scenario, clean
electricity would employs as many people between 2022 and 2031 in the
US as all fossil fuel production, transportation, distribution and
generation combined.
A core promise of the AJP is not just creating jobs but creating
``good-paying union jobs.'' How do the clean electricity jobs a federal
investment package would create fare on this metric? A new US Energy
and Employment Report provides national survey data on current average
wages across all occupations associated with different energy sources
(Table 1). Unfortunately, there is not the same kind of comprehensive
survey data on unionization rates. The US Energy and Employment Report
recommends the federal government start collecting and publishing these
data going forward.
Across all energy types, median hourly wages are considerably higher
than the national median wage. Workers in nuclear power and electricity
transmission and distribution earn the most--105% and 66% more than the
national median, respectively. In our investment scenario there are
49,000 more jobs on average in these areas combined between 2022 and
2031 in our mid technology cost case, and 103,000 more in our low
technology cost case. Coal and natural gas jobs, both of which decline
in our investment scenario relative to a current policy counterfactual
pay 50% and 59% more than the national median respectively. Median
wages for wind, solar and storage jobs, all of which grow considerably
in our analysis, are 36%, 28%, and 27% higher than the national median.
Table 1. Average Wages by Energy Type Across Occupations
Thousand full-time jobs
------------------------------------------------------------------------
Premium Compared to
Industry Crosscut Median Hourly Wage National Median
------------------------------------------------------------------------
Coal $28.69 49.9%
Natural Gas $30.33 58.5%
Oil $26.59 38.9%
Nuclear $39.19 104.8%
Wind $25.95 35.6%
Solar $24.48 27.9%
Electricity $31.80 66.1%
Transmission and
Distribution
Electicity Storage $24.36 27.3%
------------------------------------------------------------------------
Source: U.S. Energy Employment Report.
It's worth noting that while the majority of current solar jobs are
associated with rooftop solar and other distributed applications, the
majority of additional solar capacity built in our investment scenario
is utility-scale solar serving the bulk power system. Utility-scale
solar is less labor intensive than distributed solar, so this feature
of our modeling significantly reduces projected job gains compared to a
future where the current split between utility-scale and distributed
solar remained constant. But utility-scale solar-related jobs also tend
to pay more and are more likely to be unionized, so we would expect the
median wage associated with the renewable energy jobs created as a
result of the plan to be higher than Table 1 suggests. The inclusion of
prevailing wage, project labor agreement (PLA) or other job quality
requirements in a federal infrastructure package, as some in Congress
are considering, would further increase future wages in renewable
energy-related professions.
While the increase in clean generation jobs we project in our analysis
far outweighs declines in fossil generation jobs and associated fuel
supply, Congress can take additional steps to mitigate the impact of
those job declines--particularly for coal communities. In our
investment scenario, total natural gas-related employment still grows
relative to 2019 levels, just less than it would under current policy.
Oil-
related employment stays relatively flat. Coal-related employment,
which has been declining for decades, continues to fall sharply under
current policy due to already announced and projected coal power plant
retirements. Average annual employment between 2022 and 2031 is 42%
lower than 2019 levels in our low technology cost case. In our
investment scenario this grows to 56%. There will be some opportunities
for coal mine, transport and power plant workers to find employment in
renewable energy, nuclear, transmission, storage, or in carbon capture
and sequestration (which is not the focus of this analysis but a likely
additional area of infrastructure investment with substantial economic
and employment benefits). But investments as part of a federal
infrastructure package can also help diversify the economic and
employment base of coal communities beyond energy and create new
pathways to economic growth and prosperity.
Conclusion
It's still unclear whether a clean energy infrastructure investment
package will make it through Congress, and if it does, what it will
include. What is clear from our analysis is that an ambitious effort to
invest in decarbonizing the electric system will, on net, create and
retain far more jobs in clean generation than will be lost in fossil
fuel generation and associated fuel supply. These can be well-paid,
high-quality jobs, particularly if an infrastructure investment package
includes labor standards and support for coal communities. If one of
the goals of an infrastructure package is to get Americans back to work
after a pandemic-induced recession, robust investment in the electric
power sector is a solid place to start.
Disclosure Appendix
This nonpartisan, independent research was conducted with support from
Bloomberg Philanthropies, ClimateWorks Foundation, the Heising-Simons
Foundation, and the William and Flora Hewlett Foundation. The results
presented in this report reflect the views of the authors and not
necessarily those of supporting organizations.
This material was produced by Rhodium Group LLC for use by the
recipient only. No part of the content may be copied, photocopied or
duplicated in any form by any means or redistributed without the prior
written consent of Rhodium Group.
Rhodium Group is a specialized research firm that analyzes disruptive
global trends. Our publications are intended to provide clients with
general background research on important global developments and a
framework for making informed decisions. Our research is based on
current public information that we consider reliable, but we do not
represent it as accurate or complete. The information in this
publication is not intended as investment advice and it should not be
relied on as such.
______
Communications
----------
American Chemistry Council
700 Second Street, NE
Washington DC 20002
May 10, 2021
The Honorable Chairman Wyden
The Honorable Ranking Member Crapo
U.S. Senate
Committee on Finance
Dirksen Senate Office Bldg.
Washington, DC 20510-6200
Re: Senate Committee on Finance Hearing on ``Climate Challenges: The
Tax Code's Role in Creating American Jobs, Achieving Energy
Independence, and Providing Consumers with Affordable, Clean Energy''
Hearing April 27, 2021--10 a.m.
Dear Chairman Wyden and Ranking Member Crapo:
The American Chemistry Council (ACC) represents the leading companies
engaged in the business of chemistry. ACC member companies apply the
science of chemistry to create and manufacture innovative products that
make people's lives better, healthier, and safer. The business of
chemistry is a $565 billion enterprise and a key element of the
nation's economy. Over 25% of U.S. GDP is generated from industries
that rely on chemistry, ranging from agriculture and automotive to
semiconductors and electronics, textiles, pharmaceuticals, and building
and construction. Materials and technologies from our industry are used
to create solutions that enhance sustainability, including electric and
fuel-efficient vehicles, wind turbines, solar panels, advanced
batteries, and energy-efficient building materials.
To fight climate change, we call upon Congress to enact legislation
that will:
Increase government investment and scientific resources to
develop and deploy low emissions technologies in the manufacturing
sector;
Adopt transparent, predictable, technology- and revenue-neutral,
market-based, economy-wide carbon price signals; and
Encourage adoption of emissions-avoiding solutions and
technologies throughout the economy to achieve significant emissions
savings.
More specifically, ACC appreciates the opportunity to submit comments
in response to the Committee's hearing in late April concerning use of
the tax code to combat climate change. We approve of all approaches
that support U.S. competitiveness and recognize contributions from the
products of chemistry to avoid greenhouse gas emissions--including use
of the tax code.
To that end, ACC has several suggested proposed changes to the tax
code. These include:
Temporarily extend and expand the Section 48C clean energy
manufacturing tax credit and ensure it includes a broad range of
technologies, including those that are nascent.
Increase the value of the Section 45Q tax credit for Carbon
Capture Utilization and Storage, extend the start of construction date
to 2031, and lower the volume threshold.
Establish a technology-neutral incentive for production of low-
carbon hydrogen.
Temporarily extend and expand the Section 25C and Section 45L
tax credits to promote energy efficient construction and home energy
efficiency retrofits in a technology-neutral manner.
Simplify the cost recovery for energy-efficient building
improvements, for example, by enacting the E-QUIP Act and/or enhancing
the Section 179D tax deduction.
We are encouraged that many of our suggestions were the topic of the
hearing in late April. We look forward to continuing our engagement
regarding such changes.
Sincerely,
Robert B. Flagg
Senior Director, Federal Affairs
______
American Petroleum Institute et al.
200 Massachusetts Avenue, NW, Suite 1100
Washington, DC 20001-5571
Our organizations represent all the diverse segments of the natural
gas, oil, and fuels industry--ranging from fully integrated oil and
natural gas companies to independent companies. Together, our industry
employs almost 11 million people. Our members are producers, refiners,
suppliers, retailers, pipeline operators and marine transporters, as
well as service and supply companies providing much of our nation's
energy.
As the Senate Finance Committee considers changes to the domestic
and international components of the United States' Internal Revenue
Code, our organizations wish to submit this statement for the record to
ensure all due consideration is given to 1) the contributions made by
the oil and natural gas industry in combating global climate change; 2)
the unique aspects of the industry necessitating specific taxation
rules; and 3) the impact our industry has on the many communities
across the country.
The oil and natural gas industry will also continue to play an
essential role in the ongoing economic recovery and expansion related
to the global COVID-19 pandemic. Our organizations support policies
that will continue to facilitate the development of affordable,
reliable, and sustainable energy and look forward to working with the
Senate Finance Committee to achieve these objectives.
Achieving and Maintaining American Energy Independence and Emissions
Reduction
The last decade of American energy production has moved the U.S.
into the enviable position of being the world's energy leader. The days
of the U.S. being dependent on energy sources from our global
competitors and unfriendly regimes is no longer a reality thanks to the
American energy renaissance. Prior to the COVID-19 pandemic, the U.S.
was a net exporter of energy in 2020.\1\ This occurred simultaneously
\2\ with the U.S. becoming the leader in global carbon dioxide
reductions since 2000.\3\ A vast majority of these reductions were due
to innovations implemented by the oil and natural gas industry.
Ensuring the U.S. tax code adequately recognizes the unique aspects of
the industry-which has made the American energy renaissance and carbon
emissions reductions possible-is essential if further emissions
reductions are to be achieved.
\1\ EIA, ``U.S. total energy exports exceed imports in 2019 for the
first time in 67 years,'' https://www.eia.gov/todayinenergy/
detail.php?id=43395.
\2\ U.S. Energy Information Administration, ``U.S. Energy Facts
Explained,'' https://www.eia.gov/energyexplained/us-energy-facts/.
\3\ UN Climate Change ``GHG data from UNFCC'' (CO2 Total
w/o LULUCF 2000-2018), https://unfccc.int/process-and-meetings/
transparency-and-reporting/greenhouse-gas-data/ghg-data-unfccc/ghg-
data-from-unfccc.
It is of critical importance these innovations be paired with a tax
code that recognizes the differences between oil and natural gas
production and other industries. Preserving intangible drilling costs
(IDCs) achieves this goal and puts the oil and natural gas sector on a
level playing field with other industries who get to immediately
expense their expenditures. IDCs also take into account the unique
aspects of the industry that distinguish it from others. By definition,
the oil and natural gas reserve is a depleting resource. When a
productive well is found, it immediately contains less resources. To
continue providing domestically sourced and cost-efficient energy, new
wells must be continually drilled. By comparison, other industries can
use the same robot, structure, or piece of equipment for many years
---------------------------------------------------------------------------
before having to replace it.
Drilling is also still an inexact science. Although the odds of
drilling a ``dry hole'' are far lower than in the past, nonproductive,
or dry, holes still occur. When constructing a piece of tangible
equipment, provided that the plans are followed, a usable piece of
equipment will be placed in service. There is no such guarantee with
oil and natural gas production. Allowing the oil and natural gas sector
to recover its costs in the year of spend is crucial to ensuring that
enough capital is available to drill the next well and produce the oil
and natural gas that has been crucial to the U.S. becoming a leader
energy production. Industry-specific provisions exist in the Internal
Revenue Code not because they are tax giveaways, but because they are
provisions that recognize the unique aspects of the industry.
The same characteristics apply to percentage depletion, a tax
provision that is almost 100 years old and is used by only to the
smallest producers-often family-owned businesses. Percentage depletion
was created by Congress to compensate extractive industries, like oil
and natural gas, for the declining value of extractive resources. In
the intervening years, Congress has restricted the provision to only
the smallest oil and gas producers. It is currently limited to the
first 1,000 barrels of oil (or equivalent) per day and is limited to
60% of the taxpayer's net income. Percentage depletion primarily helps
these small businesses operate, retire, and reclaim end of life wells.
The elimination of percentage depletion would likely force many of
these small businesses to lay-off employees or shutter their businesses
altogether. It may also increase the number of orphan wells by
significantly reducing the capital needed to cap and reclaim
unprofitable wells.
The oil and natural gas industry has also become a leader in
finding synergies between the extraction of natural resources and the
sequestration of emissions related to global warming. In particular,
the deployment of carbon capture, utilization and storage (CCUS),
hydrogen and other low and zero-emission technologies hold great
promise for reducing emissions while meeting the world's growing energy
demand.
The U.S. is the world leader in the deployment of CCUS technology.
The U.S. has 12 commercial-scale carbon capture facilities in
operation, with the capacity to capture on the order of 25 million
metric tons (MMT) of CO2 annually.\4\ An additional 22
carbon capture facilities are in various stages of development in the
U.S., including those already under construction.\5\ CCUS may not be an
oil and gas specific technology, but it offers a way of meeting energy
demand while also offering the potential to lower the carbon profile of
oil and natural gas production through CO2-enhanced oil
recovery (EOR) with permanent geologic storage. Finding ways to
encourage both CCUS, and related EOR projects, will be essential in
combating carbon dioxide emissions.
---------------------------------------------------------------------------
\4\ Global CCS Institute. ``Facilities Database'' 2020.
\5\ Id.
According to the IEA Sustainable Development Scenario for the World
Energy Outlook 2020, CCUS accounts for nearly 15% of the cumulative
reduction in emissions compared with the Stated Policies Scenario.\6\
Similarly, according to the United Nations Intergovernmental Panel on
Climate Change (IPCC), the costs of achieving atmospheric
CO2 levels consistent with the Paris Agreement would be more
than double without CCUS.\7\ The oil and natural gas sector is an
essential partner in the global fight against climate change. Having a
tax code which reflects this reality will better position the U.S. to
lead in both energy production and global emission reductions.
---------------------------------------------------------------------------
\6\ International Energy Administration, ``Energy Technology
Perspectives 2020,'' https://www.iea.org/reports/energy-technology-
perspectives-2020. September 2020.
\7\ Intergovernmental Panel on Climate Change, Climate Change 2014:
Synthesis Report. Contribution of Working Groups I, II and Ill to the
Fifth Assessment Report of the Intergovernmental Panel on Climate
Change [Core Writing Team, R.K. Pachauri and L.A. Meyer (eds.)]. IPCC,
Geneva, Switzerland, 151 pp. 2014.
---------------------------------------------------------------------------
Jobs, Lower Energy Costs, and Other Economic Impacts of the Oil and
Gas Industry
The oil and natural gas sector operates worldwide and provides jobs
that pay well above the U.S. average. Our organizations urge the Senate
Finance Committee to consider the impact of proposals relating to the
oil and natural gas sector from the standpoint of economic impact to
the American worker. For example, proposals exist to increase the rate
of taxation on income earned abroad even if it is in the form of
extractive income for which there is zero risk of profit shifting given
that oil and gas reserves cannot be physically moved to low or no tax
jurisdictions. However, some wish to increase the rate of taxation of
this type of income, with some even seeking to end the practice of
foreign extraction. Policymakers should recall that a 10% reduction in
foreign investment could reduce our ability to invest domestically by
2.6%, and that for every 100 jobs lost abroad, an additional 127 jobs
are lost domestically.\8\ Although the physical extraction of resources
may occur overseas, the support necessary for these operations comes
from domestic workers in the form of geologists, planners, accountants,
attorneys, and so on.
---------------------------------------------------------------------------
\8\ PwC, ``Impacts of the Natural Gas, Oil and Petrochemical
Industry on the U.S. Economy in 2018,'' May 2020.
It is also important to note that many foreign countries impose
separate taxes on oil and gas operations since they are immobile and
cannot move to a country with lower taxes. For example, on top of a
corporate income tax, Norway imposes an additional tax on oil and gas
extractive income. Recognizing this, the U.S. tax code provides foreign
tax credits (FTCs) to U.S. companies to prevent the double taxation of
that income earned abroad. For countries with separate income taxes on
extractive income, dual capacity taxpayer rules and a decades long
history of legal precedent have created a process for U.S. corporations
to demonstrate that those separate taxes on oil and gas operations are
in facts and circumstances income taxes. If they are determined to be
income taxes, they qualify for FTCs, which ensure that these U.S.
---------------------------------------------------------------------------
corporations are not double taxed.
Any proposal to eliminate this process and these dual capacity
rules will subject U.S. companies to double taxation. It will make U.S.
corporations less competitive and cede U.S. jobs to foreign
competitors, which will result in less investment and fewer jobs here
in the U.S.
The oil and natural gas industry is also a major contributor to job
creation and investment in our communities. More than ten million jobs
in the U.S. are associated with the sector, with direct industry jobs
paying nearly double the national private sector average. Furthermore,
for every oil and natural gas industry job, an additional 2.7 jobs are
also supported.\9\ These jobs are found in the restaurant, hotel and
hospitality, and transportation sectors. All of these economic sectors
have been severely impacted by the ongoing COVID-19 pandemic.
Legislation intended to punish the oil and natural gas sector will also
inevitably punish these workers, none of whom ought to be unnecessarily
subjected to additional pain during this ongoing crisis.
---------------------------------------------------------------------------
\9\ Id.
Moreover, the oil and natural gas industry generates billions in
revenue for the federal and state governments in rent, royalties, and
corporate and income tax payments. In 2019 alone, the industry
generated over $14 billion for state treasuries through severance
taxes. Now more than ever, our communities rely on those payments to
---------------------------------------------------------------------------
fund schools, infrastructure, and other critical social services.
The natural gas, oil, and fuels industries' investment in this
country have also led to a 15% decrease in household energy costs over
the last decade-while the costs for food, education, and healthcare
have skyrocketed. Those cheaper energy costs are crucial to working
families in every single community across the country.
Additionally, there are an estimated 12.5 million private owners of
oil and natural gas mineral rights. These royalty owners receive
regular payments from companies which develop these mineral resources.
Many are retirees who rely on a predictable stream of payments and the
associated depletion allowance for retirement security. These royalty
owners, residing in all fifty states, also benefit from the percentage
depletion allowance. These royalty owners are not producers or
operators, rather they are private landowners from all walks of life
who operate in partnership with oil and natural gas producers to ensure
fair access and fair return for the minerals produced on their land.
No Discrimination Against Economic Sectors
The Internal Revenue Code is most effective when general
provisions, rather than industry-specific, are made available to all
economic sectors. This creates a level playing field on which all
sectors can compete equally. The application of this philosophy can be
found in several proposals currently sitting with the Senate Finance
Committee. Our organizations are resolutely opposed to the elimination
of generally available business provisions, solely applicable to the
oil and natural gas sector, such as the availability of emergency
economic relief under the CARES Act. These discriminatory proposals to
limit generally available business provisions are based on animus
towards individual companies and not accounting, taxation, financial,
or prudent energy policy. This lack of consideration for effective
energy policy is further demonstrated by proposals to terminate the
CCUS credit, which has and can further support substantial amounts of
sequestered carbon emissions. Our organizations believe that generally
available business provisions should be made available for all.
Thank you for the opportunity to provide feedback on the ongoing
efforts of the Senate Finance Committee to address changes to the
United States tax code.
Sincerely,
American Exploration and Production Council
American Fuel and Petrochemical Manufacturers
American Petroleum Institute
Energy Workforce and Technology Council
Independent Petroleum Association of America
U.S. Oil and Gas Association
______
American Public Gas Association
201 Massachusetts Avenue, NE, Suite C-4
Washington, DC 20002
May 10, 2021
The Honorable Ron Wyden
Chairman
U.S. Senate
Committee on Finance
219 Dirksen Senate Office Building
Washington, DC 20510
The Honorable Mike Crapo
Ranking Member
U.S. Senate
Committee on Finance
219 Dirksen Senate Office Building
Washington, DC 20510
Re: April 27, 2021 Hearing on ``Climate Challenges: The Tax Code's Role
in Creating American Jobs, Achieving Energy Independence, and Providing
Consumers with Affordable, Clean Energy''
Dear Chairman Wyden and Ranking Member Crapo,
APGA is the trade association for approximately 1,000 communities
across the U.S. that own and operate their retail natural gas
distribution entities. They include municipal gas distribution systems,
public utility districts, county districts, and other public agencies,
all locally accountable to the citizens they serve. Public gas systems
focus on providing safe, reliable, and affordable energy to their
customers and support their communities by delivering fuel to be used
for cooking, clothes drying, and space and water heating, as well as
for various commercial and industrial applications. In addition to the
residential and industrial uses most are familiar with, natural gas is
also used for transportation. Our members supply gas to natural gas
vehicle (NGV) fueling stations, and many also maintain and manage
fueling stations or operations of their own.
APGA appreciates the opportunity to contribute to the Committee's
discussion regarding how to ensure the tax code incentivizes investment
in and development of the technology needed for a clean energy future.
Public natural gas utilities continue to play a role in reducing
greenhouse gas (GHG) emissions in all sectors. Our members are good
stewards of the environment and take seriously their role in providing
clean, affordable, and reliable energy. Tax code changes that allow for
effective and efficient use of all energy, including natural gas,
should be a part of the conversation as the Committee develops
legislation.
APGA would like to use this opportunity to highlight the importance of
tax code provisions that support the NGV industry. APGA has been a
strong supporter of the growth and development of NGVs. This important
engine technology already provides some of the cleanest vehicles on the
road with significantly lower GHG emissions than those using gasoline
or diesel. Despite this, the ongoing conversation regarding
transportation and climate change centers on electrification. We
appreciate the opportunity to share more information with the Committee
about how natural gas and NGVs can play a part in meeting the
Administration's climate goals.
Many APGA members are heavily invested in natural gas transportation
fuels, primarily in the form of compressed natural gas (CNG). This fuel
has proven to be safe, clean, abundant, and affordable, and our members
are proud to distribute it. As a fuel source, CNG provides unmatched
reliability. Its delivery is only dependent on the availability of
natural gas via underground pipelines. Natural gas supply is far less
likely to be disrupted by severe weather events than gasoline and
electricity. During the 2017 hurricane season, for example, natural gas
remained fully functional even while there were widespread power
outages and major gasoline shortages. Natural gas and the NGVs that run
on it proved resilient for two reasons. First, the fuel supply could be
delivered without interruption because natural gas pipelines are mostly
underground and were protected from debris, wind, and storm surges.
Further, CNG can be pumped without the use of electricity because NGV
fueling stations are run on generators that are powered by natural gas.
Natural gas is not only a reliable energy source; it is also
environmentally friendly. The Committee is right to focus on promoting
investment in low and no-emission vehicles in America's pursuit of a
clean energy future. Electric vehicles, however, are not the only
available technology. The Department of Energy estimates that natural
gas engines can lower emission levels of GHGs as much as 11 percent
when compared to traditional gasoline combustion engines.\1\ While NGVs
are already cleaner and achieve lower GHG emission levels than
traditional vehicles, they also have the immediate potential to become
even more environmentally friendly with additional support for the
development of renewable natural gas (RNG).
---------------------------------------------------------------------------
\1\ ``Natural Gas Vehicle Emissions,'' Alternative Fuel Data
Center, U.S. Department of Energy, https://afdc.energy.gov/vehicles/
natural_gas_emissions.html, accessed May 4, 2021.
RNG, which is produced by capturing gas created by various waste
sources, is chemically identical to fossil natural gas and can be
blended with fossil natural gas or, in some cases, used exclusively in
a system.\2\ Blending even small amounts of RNG with fossil natural gas
can produce significant emissions reductions,\3\ and RNG currently
accounts for more than 53 percent of all natural gas motor fuel.\4\
Because RNG is created by recycling biomethane collected from
agricultural waste, landfills, and wastewater treatment plants into a
usable product, it has the potential to yield a carbon-negative
lifecycle emissions result.\5\ Using the tax code to promote the
development and use of this fuel will only further advance the already
existing environmental benefits of NGVs.
---------------------------------------------------------------------------
\2\ Id.
\3\ Id.
\4\ ``Decarbonize Transportation with Renewable Natural Gas,''
NGVAmerica, https://static1.squarespace.com/static/
53a09c47e4b050b5ad5bf4f5/t/6079e813a7999069b32ece17/1618
602009958/NGV+RNG+Decarbonize+2020+final.pdf, accessed May 4, 2021.
\5\ Id.
The environmental benefits of RNG have led to growing interest from the
transportation sector in increasing its use to lower GHG emissions. The
United Parcel Service (UPS), for example, is making significant
investments in RNG and compressed natural gas (CNG) transportation
initiatives. They recently announced plans to purchase more than 6,000
natural gas-powered trucks between 2020 and 2022, a commitment
representing a $450 million investment in the company's alternative
fuel program to reduce emissions.\6\ Amazon, as part of its commitment
to become carbon neutral by 2040, also recently signed a five-year
contract to purchase RNG for its fleet.\7\ The Committee should ensure
that any changes to the energy tax code continue to encourage such
investments.
---------------------------------------------------------------------------
\6\ ``UPS adding 6,000 NGVs,'' Shale Directories, https://
www.shaledirectories.com/blog/ups-adding-6000-ngvs/ accessed May 4,
2021.
\7\ ``Amazon Inks RNG Agreement, Considers Possible Stake in Clean
Energy Fuels,'' Natural Gas Intel, https://www.naturalgasintel.com/
amazon-inks-rng-agreement-considers-possible-stake-in-clean-energy-
fuels/, accessed May 4, 2021.
It is especially noteworthy that, when fueled by RNG, the newest NGVs
are the only fully commercially available option to achieve ultra-low
or near-zero emission levels of nitrogen oxides (NOx).\8\
They also produce a much lower amount of particulate matter than other
engines, supporting the Administration's goals of decreasing emissions
in areas disproportionately impacted by urban air pollution. Cummins
Westport, for example, already produces natural gas engines that are
90% cleaner than what the current EPA standard requires.\9\ The
company's 8.9-liter ISL G NZ engine is certified to meet the California
Air Resource Board (CARB) standard--the most rigorous emission standard
for NOx.
---------------------------------------------------------------------------
\8\ NGVAmerica, supra note 4.
\9\ ``Next Generation Heavy-Duty Natural Gas Engines Fueled by
Renewable Natural Gas,'' NGV America, https://cdn.ngvgamechanger.com/
pdfs/game-changer-graphic-onesheet.pdf, accessed May 4, 2021.
This already-existing natural gas engine technology can fill an
important gap by providing an opportunity to reduce emissions in
difficult to electrify applications like long-haul and regional
trucking, transit buses, refuse trucks, and high horsepower off-road
equipment. Heavy-duty vehicles and equipment are major sources of
emissions, and while reliable electric alternatives are not yet
available, natural gas options are. Replacing one diesel-burning,
heavy-duty truck with a new ultra low-NOx, natural gas
heavy-duty truck has the same emissions reduction impact as removing
119 traditional combustion engine passenger vehicles from the road.\10\
If policymakers are serious about achieving the ambitious emissions
reduction goals laid out by the Administration, it would be foolish to
ignore the opportunity to capitalize on existing natural gas technology
to reduce emissions in these areas, simply because it does not fit with
the current narrative of electrification as the ``end all be all''
climate solution.
---------------------------------------------------------------------------
\10\ ``Which Road to Take,'' NGV America, https://ngvamerica.org/
wp-content/uploads/2020/10/NGVAmerica-Which-Road-TX-vs-CA-
Investments.pdf, accessed May 4, 2021.
Finally, APGA would like to urge the Committee to consider the full
lifecycle of vehicles and their energy source when choosing the path
forward. While we acknowledge that battery powered electric vehicles
(BEVs) have the advantage of zero tailpipe emissions, producing
lithium-ion batteries is an energy intensive process. In fact,
manufacturing an electric vehicle can produce anywhere from 15 to 68
percent more GHG emissions than a conventional vehicle, depending on
the size and range.\11\ This should be accounted for when evaluating
the environmental benefits of BEVs versus other alternatives, like
NGVs. It is also important to note that battery disposal is another
looming environmental issue associated with BEVs. The current lack of
available recycling methods when electric vehicle batteries reach the
end of their useful life is an additional environmental cost that
should be factored into the Committee's consideration of how to move
towards a cleaner transportation future.
---------------------------------------------------------------------------
\11\ Cleaner Cars from Cradle to Grave, Union of Concerned
Scientists, https://www.
ucsusa.org/resources/cleaner-cars-cradle-grave, accessed May 4, 2021.
APGA supports the Committee's work to reduce emissions and move towards
a cleaner energy future, and we are grateful for the opportunity to
contribute to the conversation on this important topic. However, the
Committee should use the tax code to promote a level playing field for
all energy sources in the pursuit of lower GHG emissions. The pursuit
of electrification as the sole solution ignores the contributions
natural gas has already made to lowering emissions and abandons its
potential in achieving environmental goals. When it comes to clean
vehicle fuels, if policymakers provide support for the adoption of NGV
technology and the increased use of RNG, public natural gas utilities
will continue to deliver emissions reductions and environmental
benefits well into the future. For these reasons, APGA hopes the
Committee will pursue tax incentives that encourage an ``all of the
above'' approach to reducing emissions. Thank you again for the
opportunity to submit this input. APGA stands ready to work together in
---------------------------------------------------------------------------
this effort.
Dave Schryver
President and CEO
[email protected]
______
Associated Builders and Contractors
440 First Street, NW, Suite 200
Washington, DC 20001
202-595-1505
www.abc.org
May 4, 2021
The Honorable Ron Wyden
U.S. Senate
Committee on Finance
219 Dirksen Senate Office Building
Washington, DC 20510
Dear Chairman Wyden:
On behalf of Associated Builders and Contractors, a national trade
association with 69 chapters representing more than 21,000 member
companies in the construction industry, I submit the following letter
expressing concerns with changes proposed to a number of clean energy
program tax credits in the Clean Energy for America Act as a statement
for the record for the April 27, 2021, full Senate Finance Committee
hearing titled, ``Climate Challenges: The Tax Code's Role in Creating
American Jobs, Achieving Energy Independence, and Providing Consumers
With Affordable, Clean Energy.''\1\
---------------------------------------------------------------------------
\1\ https://www.finance.senate.gov/hearings/climate-challenges-the-
tax-codes-role-in-creating-american-jobs-achieving-energy-independence-
and-providing-consumers-with-affordable-clean-energy.
As builders of America's clean energy projects and infrastructure, ABC
members appreciate your leadership in support of a sustainable and
resilient clean energy ecosystem to fuel America's economic comeback
from the COVID-19 pandemic and maintain its global competitiveness in
the 21st century. However, ABC is troubled by provisions in the
legislation that will needlessly increase construction costs and reduce
competition from qualified companies and their skilled employees who
---------------------------------------------------------------------------
participate in the construction of the clean energy marketplace.
The increased costs resulting from the legislation's proposed
government-registered apprenticeship program requirements and
prevailing wage regulations for the construction of projects receiving
clean energy tax incentives may make program tax credits unusable--
depending on the type of clean energy construction project and
geographic market--and hinder the ability of clean energy producers to
be competitive against fossil fuel producers, which ultimately
undermines critical policies addressing climate change.
As currently drafted, this legislation will create a shortage of
skilled labor and contractors able to deliver a rapid, market-driven
and cost-effective transition away from fossil fuel energy to clean
energy. In addition, these changes will create added costs that will be
passed on to ratepayers, manufacturers and consumers, and decrease
America's energy cost advantage attractive to manufacturers and
businesses in a global marketplace.
Concerns With Government-Registered Apprenticeship Requirements
Section 601 in Title VI of the Clean Energy for America Act requires
all contractors and subcontractors building projects receiving
applicable tax credits with four or more construction workers on a
jobsite to ``ensure that not less than 15% of the total labor hours of
such work'' is to be performed by participants in government-
registered apprenticeship programs.\2\
---------------------------------------------------------------------------
\2\ Title VI offers some exceptions to this requirement if
contractors can demonstrate ``a lack of availability of qualified
apprentices in the geographic area,'' and a ``good faith effort,''
although it is unclear how and who makes exception determinations and
if it will impact competition during the bidding process for the
construction of a clean energy project.
In practice, this will increase costs and have a chilling impact on the
ability of contractors--especially local, small, veteran-, disabled-,
women- and minority-owned contractors and workers already performing
specialty work in the clean energy economy--to continue to compete to
build the clean energy ecosystem, and it will artificially limit the
---------------------------------------------------------------------------
pool of scarce labor needed to build out the clean energy marketplace.
To be clear, ABC and its 69 chapters support government-registered
apprenticeship programs--offering more than 300 U.S. Department of
Labor and state government-registered apprenticeship programs in 20
different construction occupations across America--as part of its all-
of-the-above workforce development strategy \3\ to tackle the
industry's skilled workforce shortage--estimated at 430,000 workers in
2021 alone.\4\
---------------------------------------------------------------------------
\3\ According to the results of Associated Builders and
Contractors' 2020 Workforce Development Survey, ABC contractor members
invested $1.5 billion on workforce development initiatives in 2019,
providing craft, leadership and safety education to 1.1 million course
attendees to advance their careers in commercial and industrial
construction. Safety education accounted for nearly half of the total
workforce investment, averaging $1,147 per employee annually. ABC's
investment in an all-of-the-above approach to workforce development has
produced a network of ABC chapters and affiliates in hundreds of
locations across the country that offer more than 800 apprenticeship,
craft, safety and management education programs--including more than
300 U.S. Department of Labor and state equivalent government-registered
apprenticeship programs across 20 different occupations--to build the
people who build America. Available at: https://www.abc.org/News-Media/
News-Releases/entryid/17581/abc-members-provided-education-for-1-1-
million-course-attendees-in-2019-new-survey-finds.
\4\ ABC: The Construction Industry Needs to Hire an Additional
430,000 Craft Professionals in 2021, March 23, 2021, https://abc.org/
News-Media/News-Releases/entryid/18636/abc-the-construction-industry-
needs-to-hire-an-additional-430-000-craft-professionals-in-2021.
In addition, individual ABC member contractors, other construction
industry trade associations and community and educational workforce
development partners also provide federal and state government-
---------------------------------------------------------------------------
registered apprenticeship programs.
However, as further explained below, participants and graduates of
federal and state registered apprenticeship programs in the
construction industry constitute only a small fraction of the
industry's workforce. In fact, some segments of the industry have
almost no government-registered apprenticeship programs. For example,
the residential construction sector has few government-registered
apprenticeship programs, and this marketplace would be especially
harmed by new regulations tied to the 45L New Energy Efficient Home
Credit in Title III of this bill.
Other segments of the construction industry have greater concentrations
of government-registered apprenticeship programs and contractor
participation, but the majority of these contractors do not participate
in government-registered apprenticeship programs for a variety of
compelling reasons. The majority of industry contractors provide
workforce development for employees through vocational and technical
schools, community workforce development program partnerships,
industry-
recognized programs and specialty training designed by employers that
are not federal or state government-registered apprenticeship programs.
Data demonstrates the government-registered apprenticeship system is
not meeting the industry's demand for skilled labor. According to data
from the U.S. DOL,\5\ in FY 2020, the construction industry's federal
government-registered apprenticeship system produced less than 20,749
completers of its 4- to 5-year apprenticeship programs. In addition,
construction industry apprenticeship programs registered with state
governments produced an estimated 15,000 to 20,000 completers in FY
2020.\6\ At current rates of completion, it would take more than 10
years for all government-registered construction industry
apprenticeship program completers to fill the estimated 430,000 vacant
construction jobs needed just in 2021.
---------------------------------------------------------------------------
\5\ According to the U.S. DOL Office of Apprenticeship, in FY 2020
the construction industry's 4,793 federal government-registered
apprenticeship programs had 188,452 active apprentices and produced
just 20,749 completers, https://www.dol.gov/agencies/eta/
apprenticeship/about/statistics/2020.
\6\ Unfortunately, there is no centralized reporting of government
data for all State Apprenticeship Agency government-registered
apprenticeship programs, as discussed by the Workforce Data Quality
Campaign's Registered Apprenticeship Data FAQs, available at https://
thetruthaboutplas.com/wp-content/uploads/2019/04/
Apprentice_FAQ_2pg_web-RAPIDS-020219.pdf.
Almost all unionized contractors, which are concentrated in the
nonresidential construction markets, participate in government-
registered apprenticeship programs as a condition of collective
bargaining with unions. According to Bureau of Labor Statistics data,
unionized contractors employ less than 13% of the U.S. construction
workforce, while 87% of the U.S. construction workforce freely chooses
to work for contractors not affiliated with unions.\7\
---------------------------------------------------------------------------
\7\ U.S. Bureau of Labor Statistics, Union Members Summary, January
22, 2021, https://www.bls.gov/news.release/union2.nr0.htm.
It is undeniable that this legislation's government-registered
apprenticeship requirement will steer work to unionized contractors and
create clean energy jobs for unionized labor, while needlessly
eliminating contracting opportunities and killing jobs for nonunion
---------------------------------------------------------------------------
businesses and workers already building the clean energy ecosystem.
Needlessly excluding all contractors who do not participate in
government-registered apprenticeship programs from building clean
energy projects subject to clean energy tax incentives is problematic.
It will create a shortage of contractors and skilled labor to complete
these projects, undermine established and preferred industry workforce
development pipelines not affiliated with government-registered
apprenticeship programs, displace contracts and jobs for businesses and
workers already building the clean energy economy, give an unfair
competitive advantage to unionized contractors and labor, increase
clean energy construction costs and ultimately threaten America's rapid
and cost-effective transition to clean energy.
Concerns With Davis-Bacon Prevailing Wage Requirements
The Clean Energy for America Act expands Davis-Bacon prevailing wage
requirements to eight clean energy tax credit programs, which will
reduce competition from contractors already building the clean energy
economy, increase construction costs and render some of these tax
credit programs unusable.
ABC has long maintained that the Davis-Bacon Act and related
regulations are outdated, needlessly raise construction project costs
for hardworking taxpayers, stifle contractor productivity and
discourage competition while disproportionately affecting small
businesses interested in pursuing federal and federally assisted
construction projects.
Flaws in the Prevailing Wage Determination System
The 90-year-old Davis-Bacon Act requires the U.S. DOL's Wage and Hour
Division to determine and set hourly prevailing wages and benefits
contractors must pay to construction workers on federal and certain
federally assisted construction projects exceeding $2,000. The DOL WHD
determines wage and benefits rates for four different types of
construction (Building, Heavy, Highway and Residential), for more than
20 different types of construction trade occupations (i.e.,
electricians, carpenters, laborers etc.) in more than 3,000 counties
across America. Instead of using statistically modern and accurate BLS
survey methodology and data, the WHD surveys contractors in various
markets on a rolling basis through a convoluted and inefficient
process.\8\ In short, once survey response data is collected, if a
single rate is paid to a majority of the employees in a given
classification and locality, it is adopted as prevailing. If no single
rate is paid to a majority, then the weighted average of all rates paid
is adopted as prevailing wage.
---------------------------------------------------------------------------
\8\ U.S. DOL Wage and Hour Division, Construction Surveys Status By
State, https://www.dol.gov/agencies/whd/government-contracts/
construction/surveys/status.
For more than three decades, Congress and government oversight agencies
have decried the timeliness and accuracy of the prevailing wage rates
determined by the U.S. DOL. In particular, the DOL's survey process
leading to the determination of prevailing wages has long been
recognized to be arbitrary and unworkable, leading to inflated,
outdated and inaccurate prevailing wage determinations and other errors
on many projects. Numerous reports from the U.S. Government
Accountability Office, DOL's Office of Inspector General and
congressional hearings \9\ have highlighted the DOL's failure to
properly determine prevailing wage rates under the Davis-Bacon Act.
These reports and hearings have criticized the DOL WHD for: (1) Using
an unscientific method to estimate Davis-Bacon rates with DOL wage
surveys that use unrepresentative, self-selected samples;\10\ (2)
Utilizing unreliably small sample sizes;\11\ (3) Combining data from
economically unrelated counties;\12\ and (4) Failing to update wage
rates in a timely manner.\13\
---------------------------------------------------------------------------
\9\ Congressional hearing, Promoting the Accuracy and
Accountability of the Davis Bacon Act, June 18, 2013, https://
www.gpo.gov/fdsys/pkg/CHRG-113hhrg81435/html/CHRG-113hhrg81
435.htm.
\10\ U.S. Government Accountability Office, Davis-Bacon Act:
Methodological Changes Needed to Improve Wage Survey, GAO-11-152, March
2011, http://www.gao.gov/new.items/d11152.pdf; U.S. Department of
Labor, Office of Inspector General, Concerns Persist with the Integrity
of Davis-Bacon Act Prevailing Wage Determinations, Audit Report No. 04-
04-003-04-420, March 30, 2004, pp. 12-13, http://www.oig.dol.gov/
public/reports/oa/2004/04-04-003-04-420.pdf; U.S. Department of Labor,
Office of Inspector General, Inaccurate Data Were Frequently Used in
Wage Determinations Made Under the Davis-Bacon Act, Audit Report No.
04-97-013-04-420, March 10, 1997, http://www.oig.dol.gov/public/
reports/oa/pre_1998/04-97-013-04-420s.htm; and U.S. General Accounting
Office, Davis-Bacon Act: Labor Now Verifies Wage Data, but Verification
Process Needs Improvement, HEHS-99-21, January 1999, http://
www.gao.gov/archive/1999/he99021.pdf.
\11\ U.S. Government Accountability Office, Davis-Bacon Act:
Methodological Changes Needed to Improve Wage Survey, p. 23.
\12\ U.S. Government Accountability Office, Davis-Bacon Act:
Methodological Changes Needed to Improve Wage Survey, Figure 5.
\13\ U.S. Government Accountability Office, Davis-Bacon Act:
Methodological Changes Needed to Improve Wage Survey, p. 18.
As a result of a flawed, unscientific wage calculation methodology, the
DOL's published determinations of federal ``prevailing'' wages in
construction no longer reflect actual local wages in many geographic
markets and types of construction. In fact, despite years of low union
density, hovering around 13% of the U.S. construction industry
workforce,\14\ the DOL's wage survey process somehow adopts union wage
rates more than 48% of the time, according to the DOL OIG.\15\ Union
wage rates are estimated to be mandated in the nonresidential
construction categories (Building, Heavy and Highway) of Davis-Bacon
wage determinations more than 80% of the time, a statistical
improbability given that 87% of the U.S. construction workforce does
not belong to a union.\16\
---------------------------------------------------------------------------
\14\ Ibid. BLS Union Members Summary.
\15\ U.S. Department of Labor, Office of Inspector General, Better
Strategies are Needed to Improve the Timelines and Accuracy of Davis-
Bacon Act Prevailing Wage Rates, Audit Report No. 04-19-001-15-001,
March 29, 2019, at https://www.oig.dol.gov/public/reports/oa/viewpdf.
php?r=04-19-001-15-001&y=2019.
\16\ https://www.bls.gov/news.release/union2.nr0.htm.
---------------------------------------------------------------------------
Prevailing Wage's Regulatory Burden on Small and Large Contractors
In a 2021 survey of ABC member companies, roughly 88% of participants
stated they do not support prevailing wage laws and the Davis-Bacon Act
in its current form, with more than 82% supporting reforms to and/or
full repeal of prevailing wage laws.\17\
---------------------------------------------------------------------------
\17\ ABC Newsline, Survey Says: ABC Members Strongly Support Repeal
or Reforms to Costly Davis-Bacon Act and Prevailing Wage Laws, March 3,
2021, https://abc.org/News-Media/Newsline/entryid/18540/survey-says-
abc-members-strongly-support-repeal-or-reforms-to-costly-davis-bacon-
act-and-prevailing-wage-laws.
The construction industry has one of the highest concentrations of
small business participation, at more than 82%.\18\ In fact, of the
745,207 construction industry establishments employing more than 7
million workers, 81.47% (607,161 establishments) have fewer than 10
employees and 98.77% (736,068 establishments) have less than 100
employees.\19\
---------------------------------------------------------------------------
\18\ U.S. Small Business Administration, Office of Advocacy, 2019
Small Business Profile, Table 1: U.S. Employment by Industry, 2016,
https://cdn.advocacy.sba.gov/wp-content/uploads/2019/04/23142719/2019-
Small-Business-Profiles-US.pdf
\19\ U.S. Census Bureau, All Sectors: County Business Patterns by
Legal Form of Organization and Employment Size Class for the U.S.,
States, and Selected Geographies: 2019, https://data.census.gov/cedsci/
table?d=ANN%20Business%20Patterns%20County%20Business%20Pat
terns&tid=CBP2019.CB1900CBP&hidePreview=true.
The amount of time that contractors must spend educating their payroll
administrators, human resource personnel, project estimators,
operations managers and foreman in the arcane and arbitrary regulations
governing the regulatory framework and current enforcement of Davis-
Bacon prevailing wage rules can be overwhelming to small and even large
---------------------------------------------------------------------------
businesses.
DOL wage determinations force contractors performing work on Davis-
Bacon covered projects to use outdated and inefficient union job
classifications that ignore the productive and safe work practices and
efficient labor utilization strategies successfully used in the merit
shop construction industry. Further, the DOL has failed to give
contractors notice of many of its letter rulings and, with rare
exceptions, has not posted such rulings on its website. ABC supports
regulatory language requiring the DOL to publish any union work
assignment rules that contractors are expected to abide by and
prohibiting the DOL from penalizing contractors for misclassifications
based on unpublished work rules.
The effort required to determine proper classification of employees in
the absence of published information on unwritten union work assignment
practices is in itself a significant burden, and each of the issues
referenced above leads to compliance dilemmas and additional burdens
for many contractors, particularly small businesses in the construction
industry.
As a result, many contractors capable of successfully performing
prevailing wage work choose not to pursue it. Because of these
increased administrative costs and other burdens, 67.6% of ABC member
survey respondents said prevailing wage laws result in less competition
from subcontractors, and 75% said it would make contractors less likely
to bid on public works projects in their own communities, paid for by
their own tax dollars.\20\
---------------------------------------------------------------------------
\20\ Ibid, ABC survey of membership, 2021.
The DOL's failure to provide detailed information about job duties that
correspond to each wage rate makes it difficult to determine the
appropriate wage rate for many construction-related tasks in new
technologies. In addition, the DOL's lack of wage determinations in new
job classifications and programs covered by Davis-Bacon has a history
of delaying the distribution of federal assistance, slowing the
construction and growth of new technologies and undermining public
---------------------------------------------------------------------------
policy goals.
For example. the American Recovery and Reinvestment Act of 2009
expanded federal Davis-Bacon requirements to 40 additional federal
programs.\21\ Several agencies reported that new Davis-Bacon
regulations had a negative impact on ARRA-related program
administration and goals that resulted in needless delays, increased
costs and complaints from stakeholders impacted by the policy
change.\22\ Federal agencies maintained that Davis-Bacon regulations
directly delayed their ability to spend funds, in part because the DOL
was required to determine prevailing wages for home weatherization work
in every county in the United States before work could be
performed.\23\ A related 2010 U.S. Department of Energy Office of
Inspector General report cited Davis-Bacon regulations as the prime
factor holding up the launch of its Weatherization Assistance Program,
which did not begin work until October 2009, eight months after
President Obama signed ARRA into law.\24\ A March 4, 2010, GAO report
determined that ``as of December 31, 2009, 30,252 homes had been
weatherized with Recovery Act funds, or about 5 percent of the
approximately 593,000 total homes that DOE originally planned to
weatherize using Recovery Act funds.''\25\ This bureaucratic boondoggle
helped shape the narrative that ARRA failed at creating and funding
shovel-ready jobs.\26\
---------------------------------------------------------------------------
\21\ U.S. Government Accountability Office, Recovery Act:
Officials' Views Vary on Impacts of Davis-Bacon Act Prevailing Wage
Provision, GAO-10-421, Published February 24, 2010, released March 24,
2010, https://www.gao.gov/products/gao-10-421.
\22\ U.S. Government Accountability Office, Recovery Act: Progress
and Challenges in Spending Weatherization Funds, GAO-12-195, December
2011, https://www.gao.gov/assets/gao-12-195.pdf.
\23\ U.S. Government Accountability Office, Recovery Act: Project
Selection and Starts Are Influenced by Certain Federal Requirements and
Other Factors, GAO-10-383, Published Feb. 10, 2010, Publicly Released
February 18, 2010, https://www.gao.gov/products/gao-10-383.
\24\ U.S. Department of Energy Office of Inspector General Office
of Audit Services, Special Report: Progress in Implementing the
Department of Energy's Weatherization Assistance Program Under the
American Recovery and Reinvestment Act, OAS--RA-10-04, February 2010,
https://www.energy.gov/sites/prod/files/igprod/documents/OAS-RA-10-
04.pdf.
\25\ U.S. Government Accountability Office, Recovery Act: Factors
Affecting the Department of Energy's Program Implementation, GAO-10-
497T, Published March 4, 2010, https://www.gao.gov/products/gao-10-
497t.
\26\ Jonthan Karl, ABC News, Report: Stimulus Weatherization
Program Bogged Down by Red Tape; February 8, 2010, https://
abcnews.go.com/WN/Politics/stimulus-weatherization-jobs-president-
obama-congress-recovery-act/story?id=9780935.
Applying new prevailing wage regulations to the construction of clean
energy projects with job classifications that lack DOL-determined rates
has the potential to delay projects, increase costs and undermine the
market's ability to deliver critical projects to achieve climate goals
faster.
Prevailing Wage Regulations Will Increase Costs
It is difficult to determine the exact cost expanding prevailing wage
regulations would have on the clean energy marketplace. Doing so would
require further complex study for each type of clean energy
construction project receiving tax credits and replicating that
research in various geographic markets across the country. However,
broader research \27\ and industry feedback suggests prevailing wage
regulations will increase costs.
---------------------------------------------------------------------------
\27\ Additional studies on the impact of the federal Davis-Bacon
Act and state and local prevailing wage laws on construction costs
available at www.abc.org/Davis-Bacon.
As a result of the government mandating non-market-wage determinations
and increased administrative costs and other burdens described above,
94% of ABC member survey respondents believe that government prevailing
wage laws make projects more expensive.\28\
---------------------------------------------------------------------------
\28\ ABC Newsline, Survey Says: ABC Members Strongly Support Repeal
or Reforms to Costly Davis-Bacon Act and Prevailing Wage Laws, March 3,
2021, https://abc.org/News-Media/Newsline/entryid/18540/survey-says-
abc-members-strongly-support-repeal-or-reforms-to-costly-davis-bacon-
act-and-prevailing-wage-laws.
The Congressional Budget Office estimates that repealing the Davis-
Bacon Act would save the federal government $17.1 billion between 2021
and 2030.\29\ However, additional research that found Davis-Bacon
requirements add 9.9% to construction costs and inflate labor costs by
an average of 22% above market rates,\30\ further suggests repealing
the act would actually save taxpayers more than $11.56 billion a year.
---------------------------------------------------------------------------
\29\ Congressional Budget Office, Repeal the Davis-Bacon Act,
December 9, 2020, https://www.cbo.gov/budget-options/56809.
\30\ Glassman, Head, Tuerck and Bachman, The Beacon Hill Institute,
The Federal Davis-Bacon Act: The Prevailing Mismeasure of Wages,
February 2008, https://www.beaconhill.org/BHIStudies/PrevWage08/
DavisBaconPrevWage080207Final.pdf.
Other research indicates the increased costs of expanding prevailing
wage requirements onto clean energy projects receiving tax credits
would be especially acute in the single-family and multifamily
---------------------------------------------------------------------------
residential construction markets.
For example, a 2017 study by Blue Sky Consulting Group, Impacts of a
Prevailing Wage Requirement on Market Rate Housing in California,\31\
found that prevailing wage requirements on privately financed
residential construction would, ``lead to a reduction in the number of
new market rate houses built, fewer affordable housing units, and a
decrease in the number of construction jobs in the state. . . .'' The
report concludes, ``Overall, our analysis shows that expanding
prevailing wage requirements to include privately financed housing
construction in California would also increase the costs of building
new homes. Requiring prevailing wage rates for residential construction
would increase hourly labor costs by 89% on average, with some parts of
the state experiencing increases of more than 125%. We estimate that
this increase could translate to a 37% increase in construction costs,
or about $84,000 for a typical new home.''
---------------------------------------------------------------------------
\31\ https://www.mendocinocounty.org/home/
showpublisheddocument?id=23824.
A 2016 report by the New York City Independent Budget Office on the
impact of New York state prevailing wage requirements on affordable
housing projects built with the 421a property tax break estimated it
would cost the city an additional $4.2 billion, increasing affordable
housing construction costs by 23%, or $80,000 per unit.\32\
---------------------------------------------------------------------------
\32\ New York City Independent Budget Office, Correction to Our
January 2016 Report on Prevailing Wages, February 2017, https://a860-
gpp.nyc.gov/downloads/k0698779f?locale=en.
According to a March 2020 study by the Terner Center for Housing
Innovation at the University of California, Berkley, prevailing wage
requirements cost an average of $30 more per square foot.\33\ An 83
square foot project--smaller than most kitchens--would consume the
entire value of the 45L tax credit. An average new home of 2,300 square
feet would see increased construction costs of nearly $70,000.
---------------------------------------------------------------------------
\33\ https://ternercenter.berkeley.edu/wp-content/uploads/pdfs/
Hard_Construction_Costs_
March_2020.pdf (see page 14).
Until the Davis-Bacon Act can be modernized and regulators address the
red tape burdens and increased costs resulting from this anti-
competitive and costly regulatory scheme, it would be wise to keep
prevailing wage regulations in their current form off of clean energy
tax credits projects. Doing so would create the conditions for all
qualified contractors and their skilled workforce to compete to build
the clean energy economy and give taxpayers additional value for
investments in clean energy and public works projects as Congress works
to enact critical clean energy infrastructure modernization and America
faces a $2.6 trillion infrastructure gap by 2029.\34\
---------------------------------------------------------------------------
\34\ American Society for Civil Engineers, 2021 Report Card for
America's Infrastructure, Investment Gap 2020-2029, https://
infrastructurereportcard.org/resources/investment-gap-2020-2029/.
---------------------------------------------------------------------------
The Free Market Should Determine Wages
ABC supports robust wages and benefits for construction workers
pursuing their career dreams in the construction industry while
building the clean energy economy. In contrast to government wage
mandates disconnected from a true prevailing wage, compensation is best
set by the free market that can reward a worker's experience, training,
commitment to safety and overall work ethic.
Research suggests that clean energy jobs, in general, are good jobs and
provide a median hourly wage that is 25% higher than the national
median wage. In addition, according to an October 2020 report by BW
research, ``Clean energy job salaries are also comparable--in some
cases better--than fossil fuel job salaries. Jobs in coal, natural gas
and petroleum fuels pay about $24.37 an hour, for instance, while jobs
in solar and wind pay about $24.85 an hour. Similarly, jobs in energy
efficiency--the biggest part of America's energy sector--come with
median salaries of about $24.44. Clean energy occupations also had
higher rates of health care coverage, and virtually all enjoyed
comparable or better retirement benefits than the national
average.''\35\
---------------------------------------------------------------------------
\35\ BW Research Partnership, Clean Jobs, Better Jobs; An
Examination of Clean Energy Job Wages and Benefits, October 2020,
https://e2.org/wp-content/uploads/2020/10/Clean-Jobs-Better-Jobs.-
October-2020.-E2-ACORE-CELI.pdf.
Additional research on construction worker wages and benefits for jobs
specific to various sectors of the clean energy ecosystem and in
individual geographic labor markets is needed before sweeping
government-determined prevailing wage requirements and their
accompanying red tape and inefficiencies are implemented on clean
energy projects receiving federal tax incentives.
Conclusion
Thank you for considering ABC's serious concerns regarding new
government-
registered apprenticeship requirements and Davis-Bacon prevailing wage
regulations on the construction of clean energy projects receiving tax
credits. We hope that you will continue to work with the clean energy
marketplace's construction stakeholders and producers to assess the
real economic impact of these proposed changes so the credits are
usable, create jobs for all Americans and qualified companies in the
construction industry and support America's transition to the clean
energy economy.
If you or your staff have questions or require any additional
information, please do not hesitate to contact me.
Respectfully submitted,
Ben Brubeck
Vice President of Regulatory, Labor and State Affairs
______
Carbon Capture Coalition
2801 21st Ave. S, Suite 220
Minneapolis, MN 55407
The Carbon Capture Coalition appreciates the opportunity to submit this
statement for the record for the Senate Finance Committee's hearing
entitled ``Climate Challenges: The Tax Code's Role in Creating American
Jobs, Achieving Energy Independence, and Providing Consumers with
Affordable, Clean Energy.'' The Coalition thanks the Committee for its
efforts to date to respond to the COVID-19 pandemic. As our nation
begins to look beyond the crisis, we have a responsibility to rebuild
and retool our nation's domestic energy, industrial and manufacturing
sectors in ways that put our economy on a path to net-zero emissions by
midcentury. Carbon capture must be central to the effort to achieve
net-zero emissions reduction goals, while preserving and creating
middle-class jobs that pay family-sustaining wages, providing
environmental and other benefits to communities, and supporting
regional economies across our country.
The Carbon Capture Coalition is a nonpartisan collaboration of more
than 80 businesses and organizations dedicated to building federal
policy support to enable
economy-wide commercial scale deployment of the full suite of carbon
capture technologies, which includes carbon capture, removal,
transport, utilization, and storage. Widespread adoption of carbon
capture technologies at industrial facilities, power plants and future
direct air capture facilities is critical to achieving net-zero
emissions to meet midcentury climate goals, strengthening and
decarbonizing domestic energy, industrial production and manufacturing,
and retaining and expanding a high-wage jobs base. Convened by the
Great Plains Institute,\1\ Coalition membership includes industry,
energy, and technology companies; energy and industrial labor unions;
and conservation, environmental, and clean energy policy organizations.
---------------------------------------------------------------------------
\1\ https://betterenergy.org/.
This statement outlines comprehensive and robust policy recommendations
---------------------------------------------------------------------------
to realize economy-wide deployment of carbon capture, including:
Providing a direct pay option for the federal 45Q tax credit;
Extending an additional ten years the commence construction
window for the 45Q credit;
Enhancing 45Q credit values for industrial and power plant
carbon capture and direct air capture;
Making carbon capture and direct air capture projects eligible
for tax-exempt private activity bonds;
Expanding eligibility of master limited partnerships to include
carbon capture projects; and
Implementing technical fixes and direct pay for the Section 48A
tax credit to enable carbon capture retrofits of existing power plants.
Providing a direct pay option and additional ten-year extension for
the federal Section 45Q tax credit
The 45Q tax credit is the cornerstone federal policy for enabling
economy-wide deployment of carbon management technologies, and a direct
pay option and 10-year extension for 45Q represent the Coalition's top
legislative priorities. Implementing direct pay for 45Q is the most
important step Congress can take to leverage greater private investment
in carbon capture, direct air capture and carbon utilization projects
and to realize the full emissions reduction and job creation benefits
of the tax credit. Direct pay would eliminate the significant tax
credit value currently being lost to burdensome, costly and inefficient
tax equity transactions, creating an urgently needed alternative for
most project developers, who otherwise lack sufficient taxable income
to fully utilize the credits, or who are exempt from federal tax
liability altogether. The full value of federally funded tax credits
should go directly to investments in technology innovation, emissions
reductions and job creation, not to financial and legal third parties.
Extending the commence construction window to qualify for 45Q an
additional ten years, to the end of 2035, would establish a critically
needed investment horizon to give carbon management projects the time
required to scale up between now and midcentury. While federal tax
credits were first established for wind and solar energy in 1992 and
2005, respectively, the current 45Q tax credit has only been in place
since 2018. Carbon capture technologies deserve a comparable timeframe
to benefit from the availability of this crucial federal 45Q incentive.
To that end, the Coalition urges the Committee to pass the Carbon
Capture, Utilization, and Storage (CCUS) Tax Credit Amendments Act of
2021 (S. 986) introduced by Senators Tina Smith (D-MN) and Shelley
Moore Capito (R-WV) earlier this year. This broadly supported
bipartisan bill includes direct pay for 45Q and a 5-year extension of
the tax credit, with the aim of helping carbon capture achieve its full
potential for emissions reduction, job creation and domestic energy and
industrial production.
Enhancing 45Q credit values for industrial and power plant carbon
capture and direct air capture
Analyses by the Intergovernmental Panel on Climate Change and the
International Energy Agency make clear that economywide deployment of
carbon capture and direct air capture is vital to meeting midcentury
climate goals. However, carbon-
intensive and hard-to-abate industrial sectors, including steel,
cement, chemicals and refining; electric power generation; and direct
air capture all feature higher costs of capture and greater commercial
risk for early deployment. In fact, cement production, natural gas and
biomass power generation, and direct air capture do not yet have large-
scale commercial projects placed in service anywhere in the world,
making it critically important to provide higher 45Q tax credit values
to accelerate and expand early carbon capture and direct air capture
deployment.
Given the urgency of the climate crisis, the need to safeguard domestic
production and jobs as key energy, industrial and manufacturing sectors
decarbonize, and the opportunity to maintain U.S. technology leadership
in this arena, Congress should increase current 45Q credit values for
industrial and power generation projects to $85 per metric ton for
CO2 captured and stored in saline geologic formations and
$60 per ton for captured CO2 stored in oil and gas fields or
used to produce low and zero-carbon fuels, chemicals, building
materials and other products. For direct air capture projects, credit
values should rise to $180 and $130 per ton, respectively.
The above-referenced bipartisan CCUS Tax Credit Amendments Act (S. 986)
includes enhanced 45Q credit values for direct air capture projects.
However, further bipartisan legislation is needed to augment the value
of 45Q for carbon capture and utilization projects in industry and
electric power generation, as proposed by the administration.
Make carbon capture and direct air capture projects eligible for tax-
exempt private activity bonds
Federal financial incentives beyond the 45Q tax credit often either
exclude carbon capture projects or require technical modifications to
allow projects to qualify. Expanding the suite of financing mechanisms
available to carbon capture, direct air capture and carbon utilization
projects will make additional private capital available on more
favorable terms, thus increasing future deployment and emissions
reduction potential.
Carbon capture and direct air capture projects are currently ineligible
for tax-
exempt private activity bonds (PABs), a common, well-accepted mechanism
for financing large-scale private infrastructure projects that have
public benefits, including large-scale air pollution control
investments in the 1970s and 1980s at privately owned power plants.
Compared to conventional bank financing, tax-exempt PABs reduce annual
debt payments, both by lowering interest rates and extending the
repayment period. The Coalition urges Congress to make carbon capture
and direct air capture eligible for PABs, which would, in turn, reduce
financing costs and encourage the development of more projects.
Expanding eligibility of master limited partnerships to include carbon
capture projects
Carbon capture projects, along with other low- and zero-carbon energy
projects, are also currently ineligible for master limited partnerships
(MLPs), a business structure that allows for raising equity on public
markets, while providing the tax benefits of a partnership.
The Coalition urges the Committee to pass the Financing our Energy
Future Act (S. 1034) introduced by Senators Chris Coons (D-DE) and
Jerry Moran (R-KS) in March 2021. This bill would ensure the
availability of tax-advantaged MLPs as a tool for financing carbon
capture projects, reducing the cost of equity and providing project
developers with access to capital on more favorable terms.
Implementing technical fixes to the Section 48A tax credit to enable
carbon capture retrofits of existing power plants
Design flaws in the current 48A investment tax credit program have made
it impossible for companies to access existing incentives to retrofit
currently operating coal-fired power plants with carbon capture
technology. Enacting proposed reforms to 48A to modify plant heat rate
requirements for compatibility with operating carbon capture equipment
and providing for direct pay would unlock approximately $2 billion in
currently available funding for retrofits.
The bipartisan CCUS Tax Credit Amendments Act of 2021 (S. 986), as
mentioned above, would implement these needed technical changes, while
also making a direct pay option available for the 48A credit, in
addition to the 45Q tax credit. Again, the Coalition urges the
Committee to pass this pivotal bill, which enjoys bipartisan support
from across the political spectrum in the Senate.
Conclusion
The groundbreaking provisions for deployment of carbon capture, direct
air capture, carbon utilization and associated CO2 transport
and storage infrastructure in these bipartisan bills before Congress
will help put America's energy, industrial and manufacturing sectors on
track to reach net-zero emissions by 2050. Analyses by the Rhodium
Group also reveal the potential for creating tens of thousands and
hundreds of thousands of jobs and for hundreds of billions in
investment from carbon capture \2\ and direct air capture \3\
deployment, respectively, if these technologies are deployed at levels
needed to meet net-zero targets. At the same time, Congress will be
ensuring the long-term viability of vital industries that provide
millions of existing high-wage jobs, which represent the lifeblood of
American workers, their families and communities, and regional
economies.
---------------------------------------------------------------------------
\2\ https://rhg.com/research/state-ccs/.
\3\ https://rhg.com/research/capturing-new-jobs-and-new-business/.
The Carbon Capture Coalition appreciates the support of the Committee
in advancing legislation to enable greater deployment of carbon
management technologies to meet net-zero emissions reduction goals by
midcentury. We look forward to working with the Committee on a
bipartisan basis to advance the policy priorities outlined in this
statement. Should you have any questions about the legislation or
recommendations noted in this statement, please contact Madelyn
Morrison, External Affairs Manager, Carbon Capture Coalition at
mmorrison@carboncapture
---------------------------------------------------------------------------
coalition.org.
______
Center for Fiscal Equity
14448 Parkvale Road, Suite 6
Rockville, MD 20853
[email protected]
Statement of Michael G. Bindner
Chairman Wyden and Ranking Member Crapo, thank you for the opportunity
to submit these comments for the record to the Committee on this topic.
On warming in general, there is no doubt that it is man-made. While
there was a warm period around the first millennium, we came to it
gradually. Industrialization may have ended what is called the Little
Ice Age, but that warming is sudden and has dire consequences. We do
not know that it will stop the way it did in the Middle Ages; indeed,
it is not likely to, which makes these hearings vital.
Starting with the coasts, there will be sea level rise. Indeed, the
flooding shown in Vice President Gore's latest film shows how bad it is
getting. The wealthy don't seem to care, because they have flood
insurance.
The most basic step to at least get wealthier taxpayers on board
(including the upper-middle class) is to cap flood insurance benefits
to a level where beach houses properties can no longer be insured. Even
that small step could never be enacted. Too many donors have beach
houses.
Our economic system is the problem. Until we move to something more
cooperative, the well-off will turn their economic power into political
power.
Without a technical solution, (like fusion, which Koch et al. are slow
rolling) all the incentives in the world will not stop plutocrats from
scuttling every attempt at regulating emissions. Historically, unless
people start dying from the air, as they are in China and did in
Pennsylvania from the smog, nothing gets done. The river had to be
actually burning in Cleveland before anything was done. Expect no less,
which is why the hurricanes are coming in handy now.
Polluters will only accept carbon taxes as an alternative to direct
regulation. If we dropped fuel efficiency standards and imposed carbon
taxes instead, I suspect that car makers and the energy industry would
jump on board. Some level of regulation, like some level of social
welfare, helps save business owners from themselves. One need only
remember the smog that blanketed Beijing during their Olympics to see
what happens from minimal regulation. China is now going all in on
renewable energy. Will we learn the same lesson?
We have the capacity to do both. Regulations need to be ramped up AND
Carbon Value-Added Taxes need to be enacted to fund infrastructure and
research into technical solutions like Helium-3 fusion and electric
cars which receive computer control and power from a covered roof
deck--preferably one topped with grass.
I use the term carbon value-added tax (C-VAT) because energy prices are
tax-
inelastic. When energy is needed, it is purchased, especially for
transportation. Unless gasoline taxes approach $4 per gallon, people
simply fill up their SUV's and cope with the price changes. There is
plenty of space to increase gas taxes before consumers change their
behavior.
Because energy usage is inelastic, carbon usage must be included on
receipts or invoices. It is the only way to assure consumers have the
information to purchase responsibly.
The Fair Tax, the Green New Deal, Carbon Taxes, and Goods and Services
(Credit Invoice) Taxes all assume some sort of subsidy to hold poor
families harmless--some kind of rebate or prebate. Many even believe
that levying such taxes could be a good way to increase household
income to for poorer families, which would also produce economic
growth. I agree that subsidizing families will increase growth, however
I submit that the best way to do so is through either existing
subsidies or wages.
Increasing the Child Tax Credit, making it permanently refundable and
establishing a carbon VAT should all be elements of comprehensive tax
reform. The first attachment offers the latest update to the Center for
Fiscal Equity's proposal. Reform should be bipartisan so that it has
staying power. One possible point of compromise is to end the
requirement for all but the wealthiest to file income tax.
The nation has already taken steps on the journey to reform in passing
the American Rescue Plan Act.
The ARPA has its pluses and its minuses. On the minus side, families
who had adequate income during the pandemic now have money to blow.
Instead of spending it they are using it to speculate. Masses of people
are about to enter the bottom half of EFT and Crypto markets, which
will allow the top tiers of the scheme (whose seed money was provided
by the Ryan-Brady-Trump tax cuts) to get out.
On the plus side, the increased child tax credit and its new
refundability will provide long-term economic security to families. The
second essential step is to increase the minimum wage so that no one
has to work for free or have a decreased standard of living without
working by living solely on the CTC.
The minimum wage should be immediately increased to match the
Republican offer of $10 per hour. To return wages to 1965 levels, which
rewarded productivity gains, the wage should be increased over time to
between $11 and $13 an hour, which is a nice range to compromise,
We should also make a commitment to also decrease what constitutes a
full-time work week. 32 hours, with four 8 hour days or five 6.5 hour
days would put more people to work at higher wages. Increased minimum
wages are important given increases to the Child Tax Credit so that no
one will attempt to simply live on what is paid to their children.
The current challenge in implementing a higher CTC is how to get the
money to families immediately. Doing so through direct IRS payments
cannot be a long-term solution.
There are two avenues to distribute money to families. The first is to
add CTC benefits to unemployment, retirement, educational (TANF and
college) and disability benefits. The CTC should be high enough to
replace survivor's benefits for children.
The second is to distribute them with pay through employers. This can
be done with long-term tax reform, but in the interim can be
accomplished by having employers start increasing wages immediately to
distribute the credit to workers and their families, allowing them to
subtract these payments from their quarterly corporate or income tax
bills.
Over the long haul, tax reform is necessary to cement these gains. Our
tax reform plan is designed to provide adequate income and services to
families (both with increased minimum wages and child tax credits)
through employer-paid taxes, funding government services through a
goods and services tax, separating out taxation of capital gains and
income from income to an asset value-added tax and higher tier
subtraction VAT collections on wage income up to the $330,000 level and
above, with additional personal income taxation for incomes over
$425,000.
The top rates for higher tier subtraction VAT, personal income taxes
and asset VAT would all be set to the same rate, say 26%, so that forms
of income are not manipulated to avoid taxation. It would also
effectively raise taxes on salaried income to 52%, with capital incomes
reinvested or investments funded by salary income adding an additional
26% of taxation. Spending money will also trigger taxation.
Adding the effect of lower tier subtraction VAT collection to taxation
on business owners and the top marginal rate approaches 90%. Such taxes
are meant to prevent payment of extreme salaries rather than maximizing
revenue. This provides more wages to the rest of the population,
especially to those who are not adequately compensated at lower income
levels.
Reform allows a rebalancing of fiscal responsibilities. The federal
child tax credit we propose, plus increases in the minimum wage to at
least $12/hour may provide enough family income in most states. Other
states would add additional support through a state subtraction VAT.
Comprehensive reform will truly end welfare as we know it by giving
families what they need for a decent living.
Please see a second attachment for an updated treatment of energy taxes
as a whole, which was first submitted in 2012. Energy taxes can take
three forms: infrastructure development, environmental sin taxes and
subsidies to industry (and how to avoid them).
Thank you for this opportunity to share these ideas with the committee.
As always, we are available to meet with members and staff or to
provide direct testimony on any topic you wish.
Please be so kind as to distribute these comments to members and staff
in both houses, with the invitation to acknowledge and discuss today's
submission.
Attachment--Tax Reform, Center for Fiscal Equity, March 5, 2021
Individual payroll taxes. These are optional taxes for Old-Age and
Survivors Insurance after age 60 for widows or 62 for retirees. We say
optional because the collection of these taxes occurs if an income
sensitive retirement income is deemed necessary for program acceptance.
Higher incomes for most seniors would result if an employer
contribution funded by the Subtraction VAT described below were
credited on an equal dollar basis to all workers. If employee taxes are
retained, the ceiling should be lowered to $85,000 to reduce benefits
paid to wealthier individuals and a $16,000 floor should be established
so that Earned Income Tax Credits are no longer needed. Subsidies for
single workers should be abandoned in favor of radically higher minimum
wages.
Wage Surtaxes. Individual income taxes on salaries, which exclude
business taxes, above an individual standard deduction of $85,000 per
year, will range from 6.5% to 26%. This tax will fund net interest on
the debt (which will no longer be rolled over into new borrowing),
redemption of the Social Security Trust Fund, strategic, sea and non-
continental U.S. military deployments, veterans' health benefits as the
result of battlefield injuries, including mental health and addiction
and eventual debt reduction. Transferring OASDI employer funding from
existing payroll taxes would increase the rate but would allow it to
decline over time. So would peace.
Asset Value-Added Tax (A-VAT). A replacement for capital gains taxes,
dividend taxes, and the estate tax. It will apply to asset sales,
dividend distributions, exercised options, rental income, inherited and
gifted assets and the profits from short sales. Tax payments for option
exercises and inherited assets will be reset, with prior tax payments
for that asset eliminated so that the seller gets no benefit from them.
In this perspective, it is the owner's increase in value that is taxed.
As with any sale of liquid or real assets, sales to a qualified broad-
based Employee Stock Ownership Plan will be tax free. These taxes will
fund the same spending items as income or S-VAT surtaxes. This tax will
end Tax Gap issues owed by high income individuals. A 26% rate is
between the GOP 24% rate (including ACA-SM and Pease surtaxes) and the
Democratic 28% rate. It's time to quit playing football with tax rates
to attract side bets.
Subtraction Value-Added Tax (S-VAT). These are employer paid Net
Business Receipts Taxes. S-VAT is a vehicle for tax benefits, including
Health insurance or direct care, including veterans' health care
for non-
battlefield injuries and long-term care.
Employer-paid educational costs in lieu of taxes are provided as
either
employee-directed contributions to the public or private unionized
school of their choice or direct tuition payments for employee children
or for workers (including ESL and remedial skills). Wages will be paid
to students to meet opportunity costs.
Most importantly, a refundable child tax credit at median income
levels (with inflation adjustments) distributed with pay.
Subsistence level benefits force the poor into servile labor. Wages and
benefits must be high enough to provide justice and human dignity. This
allows the ending of state administered subsidy programs and
discourages abortions, and as such enactment must be scored as a must
pass in voting rankings by pro-life organizations (and feminist
organizations as well). To assure child subsidies are distributed, S-
VAT will not be border adjustable.
The S-VAT is also used for personal accounts in Social Security,
provided that these accounts are insured through an insurance fund for
all such accounts, that accounts go toward employee-ownership rather
than for a subsidy for the investment industry. Both employers and
employees must consent to a shift to these accounts, which will occur
if corporate democracy in existing ESOPs is given a thorough test. So
far it has not. S-VAT funded retirement accounts will be equal-dollar
credited for every worker. They also have the advantage of drawing on
both payroll and profit, making it less regressive.
A multi-tier S-VAT could replace income surtaxes in the same range.
Some will use corporations to avoid these taxes, but that corporation
would then pay all invoice and subtraction VAT payments (which would
distribute tax benefits). Distributions from such corporations will be
considered salary, not dividends.
Invoice Value-Added Tax (I-VAT). Border adjustable taxes will appear on
purchase invoices. The rate varies according to what is being financed.
If Medicare for All does not contain offsets for employers who fund
their own medical personnel or for personal retirement accounts, both
of which would otherwise be funded by an S-VAT, then they would be
funded by the I-VAT to take advantage of border adjustability. I-VAT
also forces everyone, from the working poor to the beneficiaries of
inherited wealth, to pay taxes and share in the cost of government.
Enactment of both the A-VAT and I-VAT ends the need for capital gains
and inheritance taxes (apart from any initial payout). This tax would
take care of the low-income Tax Gap.
I-VAT will fund domestic discretionary spending, equal dollar employer
OASI contributions, and non-nuclear, non-deployed military spending,
possibly on a regional basis. Regional I-VAT would both require a
constitutional amendment to change the requirement that all excises be
national and to discourage unnecessary spending, especially when
allocated for electoral reasons rather than program needs. The latter
could also be funded by the asset VAT (decreasing the rate by from
19.5% to 13%).
As part of enactment, gross wages will be reduced to take into account
the shift to S-VAT and I-VAT, however net income will be increased by
the same percentage as the I-VAT. Adoption of S-VAT and I-VAT will
replace pass-through and proprietary business and corporate income
taxes.
Carbon Value-Added Tax (C-VAT). A Carbon tax with receipt visibility,
which allows comparison shopping based on carbon content, even if it
means a more expensive item with lower carbon is purchased. C-VAT would
also replace fuel taxes. It will fund transportation costs, including
mass transit, and research into alternative fuels (including fusion).
This tax would not be border adjustable.
Summary
This plan can be summarized as a list of specific actions:
1. Increase the standard deduction to workers making salaried income
of $425,001 and over, shifting business filing to a separate tax on
employers and eliminating all credits and deductions--starting at 6.5%,
going up to 26%, in $85,000 brackets.
2. Shift special rate taxes on capital income and gains from the
income tax to an asset VAT. Expand the exclusion for sales to an ESOP
to cooperatives and include sales of common and preferred stock. Mark
option exercise and the first sale after inheritance, gift or donation
to market.
3. End personal filing for incomes under $425,000.
4. Employers distribute the child tax credit with wages as an offset
to their quarterly tax filing (ending annual filings).
5. Employers collect and pay lower tier income taxes, starting at
$85,000 at 6.5%, with an increase to 13% for all salary payments over
$170,000 going up 6.5% for every $85,000--up to $340,000.
6. Shift payment of HI, DI, SM (ACA) payroll taxes employee taxes to
employers, remove caps on employer payroll taxes and credit them to
workers on an equal dollar basis.
7. Employer paid taxes could as easily be called a subtraction VAT,
abolishing corporate income taxes. These should not be zero rated at
the border.
8. Expand current state/federal intergovernmental subtraction VAT to a
full GST with limited exclusions (food would be taxed) and add a
federal portion, which would also be collected by the states. Make
these taxes zero rated at the border. Rate should be 19.5% and replace
employer OASI contributions. Credit workers on an equal dollar basis.
9. Change employee OASI of 6.5% from $18,000 to $85,000 income.
Attachment--Energy Taxes
There are three aspects to consider regarding whether energy policy
should be conducted through the tax code: energy taxes as
transportation user fees; energy taxes as environmental sin taxes and
energy tax policies as a subsidy for business. How to design provisions
for a sustainable energy policy and tax reform will be discussed for
each of these areas and we will address certain oversight questions on
whether current tax provisions have been implemented efficiently and
effectively.
Energy Taxes as Transportation User Fees
The most familiar energy tax is the excise tax on gasoline. It
essentially functions as an automatic toll, but without the requirement
for toll booths. As such, it has the advantage of charging greater
tolls on less fuel efficient cars and lower tolls on more efficient
cars, all without requiring purchase of a EZ Pass or counting axles.
It is a highly efficient tax in this regard, although its effectiveness
is limited because it has not kept pace with inflation. This could be
corrected by shifting it from a uniform excise to a uniform percentage
tax--however because the price of fuel varies by location, there may be
constitutional problems with doing so. The only other option to
increase this tax in order to overcome the nation's infrastructure
deficit--which is appropriately funded with this tax--is to have the
courage to increase it.
In times of high unemployment, such an increase would be a balm to
economic growth, as it would put people back to work. Given the
competitive nature of gas prices, there is some question as to whether
such an increase would produce a penny for penny increase in gasoline
prices. If the tax elasticity is more inelastic than elastic, the tax
will be absorbed in the purchase price and be a levy on producers. If
it is more elastic, it will be a levy on users and will impact
congestion (and thus decrease air pollution and overall conservation).
For many citizens, either prospect is a win-win, given concerns over
both climate change and energy industry profits. The only real question
is one of the political courage to do what is necessary for American
jobs and infrastructure--and that seems to be a very open question.
Energy taxes are currently levied through the private sector, rather
than through toll booth employees, which from the taxpayer point of
view is a savings as it externalizes the pension and benefit
requirements associated with hiring such workers.
In the event that gasoline cars were replaced with electric cars, given
either improvements in battery charging technology or in providing
continuous supply through overhead wires, much in the same way that
electric trains and buses receive power, any excise per kilowatt for
the maintenance of roads could be collected in the same way--or the
road system could be made part of a consortium with energy providers,
car makers and road construction and maintenance contractors--
effectively taking the government out of the loop except when eminent
domain issues arise (assuming you believe such a tool should be used
for private development, we at the Center believe that it should not
be).
The electric option provides an alternative means to using natural gas,
besides creating a gas fueling infrastructure, with natural gas power
plants providing a more efficient conduit than millions of internal
combustion engines. The electric option allows for the quick
implementation of more futuristic fuels, like hydrogen, wind and even
Helium3 fusion. Indeed, if private road companies become dominant under
such a model, a very real demand for accelerated fusion research could
arise, bypassing the current dependence on governmental funding.
Energy Taxes as Environmental Sin Taxes
Carbon Taxes, Cap and Trade and even the Gasoline Excise are
effectively taxes on pollution or perceived pollution and as such,
carry the flavor of sin taxes. As such, they put the government in the
position of discouraging vice while at the same time trying to benefit
from it. Our comments above as to whether the tax elasticity of the
gasoline excise has an impact on congestion and pollution is applicable
to this issue, although tax inelasticity will mute the effect of
discouraging ``sinful'' behavior and instead force producers to
internalize what would otherwise be considered externalities--provided
of course that the proceeds from these taxes are used to ameliorate
problems of both pollution (chest congestion) by paying for health care
and traffic congestion in building more roads and making more public
transit available--while funding energy research to ease the carbon
footprint of modern civilization.
Oddly enough, this approach was once considered the conservative
alternative to other more intrusive measures proposed by liberals, like
imposing pollution controls on cars and factories or simply closing
down source polluters. When those options are taken off the table,
however, or are considered impractical, then the concept of
environmental sin taxes becomes liberal and no action at all becomes
the conservative position.
These use of environmental sin taxes is by nature much more efficient
economically than pollution controls and probably also more efficient
than allowing producers and consumers to benefit from externalities
like pollution, congestion and asthma. As with transportation funding,
such taxes are only effective if they actually provide adequate funding
for amelioration or otherwise change consumer behavior. If the politics
of the day prevent taxes from actually accomplishing these objectives,
then their effectiveness is diminished.
The short term political win of keeping taxes too low can only work for
so long. Reality has a way of intruding, either because infrastructure
crumbles, congestion becomes too high, children become ill with asthma
(for full disclosure purposes, I suffered from this after moving down-
wind as a child from an Ohio Edison coal plant) and sea levels rise--
destroying vacation homes and the homes of those who support them--and
if Edgar Cayce is to be believed--the states that are the heart of the
Republican base.
The role of energy taxes as sin taxes are preserved in comprehensive
tax reform only if they are preserved in addition to value added and
net business receipts taxes. If there is no separate tax or higher rate
for these activities, there is no sin tax effect and the ``sin'' is
effectively forgiven with any amelioration programs funded by the whole
of society rather than energy users.
Energy Tax Policies as a Subsidy for Business
There are quite a few ways in which energy tax policy subsidizes
business. The most basic way is the assessment of adequate energy
taxes, or taxes generally, to pay for government procurement of
infrastructure and research. If tax reform does not include adequate
revenue, the businesses which fulfill these contracts will be forced to
either reduce staff or go out of business. Government spending
stimulates the economy when more money is spent because taxes are
raised and dedicated (or even earmarked) for these uses. Eliminating
specific energy taxes in tax reform forces this work into competition
with other government needs.
Let me be clear that the Center does not propose such a move. Our
approach actually favors more, not less, identification of revenues
with expenditures, reducing their fungibility, with the expectation
that taxes increase when needs are greater and decrease when they are
met, either through building in advance of need or finding an
alternative private means of providing government services.
The more relevant case to the Committee's question is the existence of
research and exploration subsidies as they exist inside of more general
levies, such as the Corporate Income Tax. To the extent to which tax
reform eliminates this tax and replaces it with reforms such as the
Subtraction Value-Added Tax (which taxes both labor and profit), such
subsidies are problematic, but not impossible to preserve.
This is one of the virtues of a separate S-VAT, rather than replacing
the Corporate Income Tax with a VAT or a Fair Tax--which by their
nature have no offsetting tax expenditures. The challenge arises,
however, when the existence of such subsidies carry with them the
impression that less well connected industries must pay higher taxes in
order to preserve these tax subsidies. Worse is the perception, which
would arise with their use in an SVAT, that such subsidies effectively
result in lower wages across the economy. Such a perception, which has
some basis in reality, would be certain death for any subsidy.
One must look deeper into the nature of these activities to determine
whether a subsidy is justified, or even possible. If subsidized
activities are purchased from another firm, the nature of credit
invoice value-added taxes, carbon (receipt visible) value-added taxes
and employer-paid subtraction value-added taxes alleviate the need for
any subsidy at all, because the VAT paid implicit in the fees for
research and exploration would simply be passed through to the next
level on the supply chain and would be considered outside expenditures
for SVAT calculation and therefore not taxable. If research and
exploration is conducted in house, then the labor component of these
activities would be taxed under both the IVAT and the SVAT, as they are
currently taxed under personal income and payroll taxes now.
The only real issue is whether the profits or losses from these
activities receive special tax treatment. Because profit and loss are
not separately calculated under such taxes, which are essentially
consumption taxes, the answer must be no. The ability to socialize
losses and privatize profits through the SVAT would cease to exist with
the tax it is replacing.
If society continues to value such subsidies, they would have to come
as an offset to a carbon tax or cap and trade regime, if at all, as the
excise tax for energy is essentially a retail sales tax and the
industrial model under which the energy industry operates insulates the
gasoline excise from the application of any research and exploration
credits. If the energy companies were to change their model to end
independent sales and distribution networks and treat all such
franchisees as employees (with the attendant risk of unionization),
then the subject subsidies could be preserved--provided that the
related energy tax is increased so that the subsidy could actually
operate--favoring those who participate in research and development and
penalizing those who do not.
In other words, if big oil wants to keep this subsidy when there are no
corporate income tax, it must buy up all its franchisees and allow the
government to double the gasoline tax with a deduction at payment for
research and exploration.
Without taxes, there can be no subsidy.
______
Citizens' Climate Lobby
1750 K St., NW, Suite 1100
Washington, DC 20006
Citizens' Climate Lobby (CCL) appreciates the opportunity to submit
written testimony to the Senate Finance Committee for the April 27,
2021 hearing on ``Climate Challenges: The Tax Code's Role in Creating
American Jobs, Achieving Energy Independence, and Providing Consumers
with Affordable, Clean Energy.''
Citizens' Climate Lobby is a grassroots organization that trains and
supports volunteers to build relationships with their elected
representatives in order to influence climate policy. CCL's key purpose
is to create political will for climate solutions while empowering
individuals to exercise their personal and political power. CCL has
over 180,000 supporters nationwide from every state and congressional
district.
Summary
Citizens' Climate Lobby encourages Congress to put a price on
greenhouse gas emissions as an effective and evidence-based approach to
mitigating climate change. Congress has already developed impressive
carbon pricing legislation that can quickly reduce greenhouse gas
emissions and protect low income Americans including America's Clean
Future Fund of 2021 (S. 685),\1\ The American Opportunity Carbon Fee
Act of 2019,\2\ The Climate Action Rebate Act of 2019,\3\ and The
Energy Innovation and Carbon Dividend Act.\4\ This last policy is a
carbon fee and dividend approach supported by scientists, economists,
and thousands of businesses, prominent individuals, faith groups, and
local governments from both sides of the political aisle.\5\
---------------------------------------------------------------------------
\1\ https://www.congress.gov/bill/117th-congress/senate-bill/685.
\2\ https://www.congress.gov/bill/116th-congress/senate-bill/1128.
\3\ https://www.congress.gov/bill/116th-congress/senate-bill/2284.
\4\ https://energyinnovationact.org/.
\5\ https://energyinnovationact.org/supporters-overview/.
We support this policy and encourage Congress to pass it because it
---------------------------------------------------------------------------
would
Create millions of jobs in a clean energy economy.
Act quickly and efficiently to reduce emissions.
Add higher quality jobs in the energy sector.
Increase GDP on a net basis.
Move the U.S. toward energy independence.
Make clean, affordable energy available to Americans.
Protect U.S. businesses in the transition to clean energy.
Encourage global action on emissions reductions.
Dramatically improve our health and save lives.
Achieve emissions reductions without adding to the federal
deficit.
Creating Quality American Jobs
Creating Jobs
A carbon price will create more U.S. jobs in the clean energy sector as
we transition to a clean energy economy. To provide a few examples,
relative to coal, generating energy from wind creates 1.5 times more
jobs, from solar thermal creates 2 times more jobs, from photovoltaic
solar creates 8 times more jobs, and energy efficiency efforts create
3.5 times more jobs per unit of energy.\6\ Similarly, investing in
clean energy generates approximately 3.2 times more U.S. jobs than
equivalent spending would generate in fossil fuels.\7\
---------------------------------------------------------------------------
\6\ Wei, Max, et al. ``Putting Renewables and Energy Efficiency to
Work: How Many Jobs Can the Clean Energy Industry Generate in the
U.S.?'' Energy Policy, vol. 38, no. 2, 2010, pp. 919-931.
\7\ Pollin, Robert, et al. Department of Economics and Political
Economy Research Institute (PERI), June 2009, The Economic Benefits of
Investing in Clean Energy.
A carbon price that returns revenue to citizens will bring job growth
in other sectors beyond clean energy as well. British Columbia
implemented a carbon price that returned revenues to citizens and
demonstrated that over a 6 year period, job gains in labor-intensive
sectors like health care outweighed job losses in energy intensive
sectors like air travel.\8\ A study of a carbon fee and dividend
similar to the Energy Innovation and Carbon Dividend Act showed that
the policy would create 2.8 million jobs above baseline over 20 years
between clean energy jobs and local jobs in sectors such as healthcare
and entertainment.\9\ The clean energy economy provides more job
opportunities in both the energy sector and the broader economy.
---------------------------------------------------------------------------
\8\ Yamazaki, Akio. ``Jobs and Climate Policy: Evidence from
British Columbia's Revenue-
Neutral Carbon Tax.'' Journal of Environmental Economics and
Management, vol. 83, 25 April 2017, pp. 197-216.
\9\ Nystrom, Scott, and Patrick Luckow. Regional Economic Models,
Inc. (REMI) and Synapse Energy Economics, Inc. (Synapse), 2014, The
Economic, Climate, Fiscal, Power, and Demographic Impact of a National
Fee-and-Dividend Carbon Tax.
---------------------------------------------------------------------------
Quality Jobs
Transitioning to clean energy will not only create more jobs, but will
create more quality jobs with higher wages and better benefits. On
average in 2018 fossil fuel jobs earned $25/hr, wind and solar jobs
earned $24/hr, nuclear jobs earned $46/hr, and jobs that applied to all
forms of energy earned $28/hr.\10\ The median hourly wages for clean
energy jobs are 25% higher than the national median wage for all jobs.
Further, clean energy jobs are more likely to come with health and
retirement benefits than the rest of the private sector. And generally,
unionization rates for clean energy jobs are slightly higher than the
rest of the private sector.\11\
---------------------------------------------------------------------------
\10\ ``Occupational Employment Statistics.'' U.S. Bureau of Labor
Statistics (May 2018).
\11\ E2, ACORE, and CELI, October 2020, Clean Jobs, Better Jobs: An
Examination of Clean Energy Job Wages and Benefits.
Energy jobs are naturally transitioning to clean energy jobs as clean
energy employment (+6%) grew more than twice the national average
(+2.7%) between 2017 and 2019 while employment in natural gas and coal
have fallen -5.3% and 7.1% respectively.\12\ A carbon price would
accelerate this trend of job creation in a sector that has higher than
average wages and higher unionization rates. Many current energy
occupations will also continue to thrive in a low-carbon energy
environment. These would include installation and maintenance of
expanded power grid infrastructure, pipeline installation and
maintenance for CO2 and/or hydrogen pipelines, refinery and
process plant construction and operation in biorefineries, and the
nuclear power utility workforce.
---------------------------------------------------------------------------
\12\ E2, ACORE, and CELI, October 2020, Clean Jobs, Better Jobs: An
Examination of Clean Energy Job Wages and Benefits.
---------------------------------------------------------------------------
Achieving Energy Independence
Well designed climate policy can help the U.S. increase energy
independence on its path to net-zero emissions. A study of the carbon
fee and dividend approach using the Energy Innovation and Carbon
Dividend Act of 2019 found that the policy would have virtually no
effect on U.S. oil production and relatively small impact on U.S.
natural gas production by 2030 while effectively reducing
emissions.\13\ This is possible because as U.S. fuel demand decreases
as a result of the carbon price, the U.S. sources higher percentages of
fuel locally and decreases imports.
---------------------------------------------------------------------------
\13\ Kaufman, Dr. Noah, et al. Columbia Center on Global Energy
Policy, 2019, An Assessment of the Energy Innovation and Carbon
Dividend Act.
---------------------------------------------------------------------------
Providing Consumers With Affordable, Clean Energy
Moving to Clean Energy
Carbon pricing is an effective way to move our economy toward clean
energy sources. Modest carbon prices, as low as $7/ton by 2020, $22/ton
by 2025, and $36/ton by 2030 can meet the same greenhouse gas emissions
reductions that would be achieved by the regulatory approaches of the
Clean Power Plan, Corporate Average Fuel Economy (CAFE) Standards, and
Renewable Fuel Standards combined.\14\ Reasonable carbon prices can put
the U.S. clearly on the path to net-zero by 2050. A carbon price of
about $34 to $64/ton by 2025 and $77 to $124/ton in 2030 will put us on
the path to net-zero by 2050.\15\ The carbon price targets set in the
Energy Innovation and Carbon Dividend Act hit the center of these
estimates.
---------------------------------------------------------------------------
\14\ Knittel, Christopher R. MIT Center for Energy and
Environmental Policy Research, 2019, Knittel, Christopher R., Diary of
a Wimpy Carbon Tax: Carbon Taxes as Federal Climate Policy.
\15\ Kaufman, Noah, et al. ``A Near-Term to Net Zero Alternative to
the Social Cost of Carbon for Setting Carbon Prices.'' Nature Climate
Change, vol. 10, no. 11, 2020, pp. 1010-1014, doi:10.1038/s41558-020-
0880-3.
---------------------------------------------------------------------------
Maintaining Affordable Energy
As the U.S. transitions to a healthier and more sustainable clean
energy economy, there will be temporary increases in energy prices for
consumers. It is critical to protect low income communities from
increasing energy prices as we make this necessary transition. A carbon
fee and dividend like the Energy Innovation and Carbon Dividend Act can
effectively move the U.S. toward net-zero energy while protecting
consumers by returning 100% of the revenue equally to American
residents. Under this plan, 61% of households and 68% of individuals in
the U.S. end up receiving more than enough in monthly carbon dividends
to offset their increased costs. These benefits highly correlate with
low income Americans with 97% of the lowest two economic quintiles
benefiting or breaking even on increased energy costs.\16\
---------------------------------------------------------------------------
\16\ Ummel, Kevin. 2020, Household Impact Study II (HIS2) The
Impact of a Carbon Fee and Dividend Policy on the Finances of U.S.
Households.
---------------------------------------------------------------------------
Preferred by Businesses
Carbon pricing is the preferred climate policy of many businesses. This
approach lays out a predictable price for businesses to plan for. A
carbon price does not set restrictions on specific businesses or select
winners but applies the same incentive to innovate and reduce emissions
evenly. See the following notable statements of support for carbon
pricing:
U.S. Chamber of Commerce: ``The Chamber supports a market-based
approach to accelerate GHG [greenhouse gas] emissions reductions across
the U.S. economy. We believe that durable climate policy must be made
by Congress, and that it should encourage innovation and investment to
ensure significant emissions reductions, while avoiding economic harm
for businesses, consumers and disadvantaged communities. This policy
should include well designed market mechanisms that are transparent and
not distorted by overlapping regulations. U.S. climate policy should
recognize the urgent need for action, while maintaining the national
and international competitiveness of U.S. industry and ensuring
consistency with free enterprise and free trade principles.``
Business Roundtable:\17\ ``Business Roundtable believes
corporations should lead by example, support sound public policies and
drive the innovation needed to address climate change. To this end, the
United States should adopt a more comprehensive, coordinated and
market-based approach to reduce emissions. This approach must be
pursued in a manner that ensures environmental effectiveness while
fostering innovation, maintaining U.S. competitiveness, maximizing
compliance flexibility and minimizing costs to business and society.
International cooperation and diplomacy backed by a broadly supported
U.S. policy will be the key to achieving the collective global action
required to meet the scope of the challenge and position the U.S.
economy for long-term success.''
---------------------------------------------------------------------------
\17\ https://www.businessroundtable.org/climate.
---------------------------------------------------------------------------
American Petroleum Institute (API):\18\ ``API endorses an
economy wide price on carbon, the most impactful policy for emissions
reductions, but recognizes the prevalence of ongoing discussions
regarding sector-specific policies, including a Clean Energy Standard
(CES) focused on the electricity sector. API supports fuel- and
technology-neutral approaches to addressing emissions in the
electricity sector and believes that any CES under consideration should
include natural gas and recognize and value the many benefits natural
gas provides to an increasingly lower-carbon electricity grid.''
---------------------------------------------------------------------------
\18\ https://www.api.org/climate.
---------------------------------------------------------------------------
Carbon Border Fee Adjustment
Protecting U.S. Businesses
Carbon prices paired with a carbon border fee adjustment will not
disadvantage U.S. business in the world market. A carbon border fee
adjustment may be imposed on covered fuels and ``emissions-intensive
trade-exposed'' (EITE) goods \19\ that cross our border in either
direction; imported EITE goods from a country without an equivalent
carbon price to the U.S. will pay a fee to make up the difference and
American-made EITE products exported to such a country will receive a
rebate for the carbon fee. These goods include products like steel,
aluminum, cement, glass, certain chemicals, and some agricultural
products.\20\
---------------------------------------------------------------------------
\19\ ``Legislation: Energy-Intensive, Trade-Exposed Industries.''
American Council for an Energy-Efficient Economy (accessed 21 May
2020).
\20\ Mares, J.W. and B.P. Flannery. ``WTO-Compatible Methodologies
to Determine Export Rebates and Import Charges for Products of Energy-
Intensive, Trade-Exposed Industries, If There Is an Upstream Tax on
Greenhouse Gases.'' Working Paper 18-19. Resources for the Future (Oct
2018).
Carbon border fee adjustments prevent the carbon fee from putting
American businesses at a competitive disadvantage in global markets. It
will also remove the incentive for businesses to relocate overseas to
---------------------------------------------------------------------------
avoid the carbon fee.
Threats and Opportunities on International Coordination
The United States is currently falling behind as the only developed
nation without a national carbon price.\21\, \22\ China,
another influential economy, has launched an emissions trading scheme
that lays the groundwork for phasing out carbon emissions.\23\ Both the
European Union (EU) and Canada--countries that account for a third of
our international trade \24\--have enacted carbon prices and are
discussing border carbon adjustments of their own.\25\, \26\
---------------------------------------------------------------------------
\21\ ``Carbon Pricing Dashboard: Up-to-Date Overview of Carbon
Pricing Initiatives.'' Carbon Pricing Dashboard | Up-to-Date Overview
of Carbon Pricing Initiatives, World Bank.
\22\ World Economic Situation and Prospects, United Nations, 2021,
p. 125.
\23\ Carpenter, Scott. ``Toothless Initially, China's New Carbon
Market Could Be Fearsome.'' Forbes, 2 March 2021.
\24\ ``U.S. International Trade Data.'' Foreign Trade, U.S. Census
Bureau.
\25\ Aylor, B., et al. ``How an EU Carbon Border Tax Could Jolt
World Trade.'' Boston Consulting Group (30 June 2020).
\26\ ``A Healthy Environment and a Healthy Economy.'' Government of
Canada (11 December 2020).
The EU's recent announcement that they will enforce a carbon border
adjustment mechanism in 2023 has already inspired meaningful action in
other countries. Russia, reportedly worried about what an EU border
carbon adjustment would mean for their trade relationship, announced a
plan to monitor polluters by 2022 to serve as the basis of an emissions
trading system.\27\ The EU's announcement also inspired China to
accelerate the deployment of their carbon market \28\ because of their
significant trade relationship. This is a convincing proof point that
carbon border adjustments will play an important role in influencing
global action on climate change.
---------------------------------------------------------------------------
\27\ Khrennikova, Dina. ``Russian Lawmakers Back The Nation's First
Ever Climate Law.'' Bloomberg.com, Bloomberg, 20 April 2021.
\28\ Rathi, Akshat. ``Carbon Restrictions Can Bend the Emissions
Curve: Green Insight.'' Bloomberg Law, 27 April 2021.
The U.S. has the opportunity to enact a carbon price to not only avoid
paying our trading partners border carbon adjustment fees, but to enact
a carbon border fee adjustment that will leverage our trade
relationships to encourage other countries to meet the ambition of our
carbon price. Goods made in the U.S. are already 80% more carbon-
efficient than the world average \29\ meaning the U.S. holds a
competitive advantage in a global market with an ambitious carbon
price.
---------------------------------------------------------------------------
\29\ Rorke, Catrina, and Greg Bertelsen. Climate Leadership
Council, September 2020, America's Carbon Advantage.
---------------------------------------------------------------------------
Quickly and Efficiently Reduce Emissions
Carbon pricing will quickly reduce emissions to put the U.S. on a path
to net-zero emissions by 2050. Studies of the Energy Innovation and
Carbon Dividend Act show that it would reduce U.S. emissions 50%
relative to 2005 by 2030 \30\ and put us on a path to attain net-zero
emissions by 2050.\31\ Furthermore, carbon prices are less likely to be
held up by judicial hurdles. Carbon fees are firmly grounded in
Congress's constitutional ``power to lay and collect taxes,''\32\
making it resistant to court challenges similar to those that held up
the Clean Power Plan.
---------------------------------------------------------------------------
\30\ Hafstead, Marc. ``Carbon Pricing Calculator.'' Carbon Pricing
Calculator, Resources for the Future, 10 August 2020, www.rff.org/
publications/data-tools/carbon-pricing-calculator/.
\31\ Kaufman, Noah, et al. ``A Near-Term to Net Zero Alternative to
the Social Cost of Carbon for Setting Carbon Prices.'' Nature Climate
Change, vol. 10, no. 11, 2020, pp. 1010-1014, doi:10.1038/s41558-020-
0880-3.
\32\ Article I. Legal Information Institute (accessed 28 November
2020).
Carbon pricing is an economically efficient way to reduce greenhouse
gas emissions. In a comparison between regulations or a $42/ton carbon
tax to achieve the same emissions reductions, using the carbon tax
approach will best protect U.S. GDP. If a carbon tax is applied, by
2036 the annual GDP will be $420 billion higher ($100 per month per
U.S. household) than if the same emissions reductions were achieved by
regulations.\33\
---------------------------------------------------------------------------
\33\ Analysis Insights for Policymakers ed., vol. 1, NERA Economics
Consulting, December 2020., Economic Impacts of the Climate Leadership
Council's Carbon Dividends Plan Compared to Regulations Achieving
Equivalent Emissions Reductions.
---------------------------------------------------------------------------
Increase GDP on a Net Basis
Continuing on our current climate change trajectory will have a
negative impact on the U.S. GDP from changes including worsening
agricultural productivity, mortality, crime, energy use, storm
activity, and coastal inundation.\34\ Reducing greenhouse gas emissions
consistent with the Paris target of ``well below 2+C'' instead of
continuing business-as-usual will result in the U.S. GDP being an
estimated 2-4% higher in 2050.\35\ A carbon fee and dividend policy
would also maintain a higher U.S. GDP relative to a business-as-usual
scenario through mid century and develop a far stronger GDP by
2100.\36\
---------------------------------------------------------------------------
\34\ Nunn, Ryan, et al. Brookings, 2019, Ten Facts about the
Economics of Climate Change and Climate Policy.
\35\ Swiss Re Institute, April 2021, The Economics of Climate
Change: No Action Not an Option.
\36\ International Monetary Fund, Oct 2020, World Economic Outlook:
A Long and Difficult Ascent.
---------------------------------------------------------------------------
Dramatically Improve Our Health and Save Lives
The impacts of climate change have been acknowledged as the major
public health challenge of the century.\37\ Burning fossil fuels harms
our health directly by generating pollutants, and indirectly through
release of greenhouse gases. Both the direct and indirect costs are
often paid for by taxpayers. A policy consistent with 2+C would save an
average of 90,000 U.S. lives a year over 50 years creating a health co-
benefit value of $700 billion per year.\38\
---------------------------------------------------------------------------
\37\ Watts, N., et al. ``The Lancet Countdown on health and climate
change: from 25 years of inaction to a global transformation for public
health.'' The Lancet 391 10120, 581-630 (10 February 2018).
\38\ Shindell, Drew, ``Health and Economic Benefits of a 2+C
Climate Policy.'' 2020.
---------------------------------------------------------------------------
Achieve Emissions Reductions without Adding to the Federal Deficit
Carbon pricing can not only quickly and efficiently reduce America's
greenhouse gas emissions, but can do so without adding to the federal
deficit. Assessing a fee on pollution generates revenue that can be
used to aid the transition to a low carbon economy. The following
recent bills demonstrate effective carbon prices and uses of revenue
that protect vulnerable populations:
The Energy Innovation and Carbon Dividend Act \39\ is a revenue
neutral carbon price that distributes all of the net proceeds equally
back to citizens in carbon dividend payments. This legislation would
reduce America's carbon pollution by 50% by 2030 and ensure that more
than 60% of Americans, especially low income Americans, have their
increased carbon costs offset.\40\
---------------------------------------------------------------------------
\39\ https://energyinnovationact.org/.
\40\ Kevin, Ummel. vol. 2, Greenspace Analytics, 2020, Household
Impact Study: The Impact of a Carbon Fee and Dividend Policy on the
Finances of U.S. Households.
---------------------------------------------------------------------------
America's Clean Future Fund of 2021 (S. 685) \41\ allocates the
majority of revenues to be used as rebates to American households to
manage increased carbon costs. 25% of the funds are saved to be
allocated between transition assistance programs for fossil fuel
employees and the Climate Change Finance Corporation (C2FC), a federal
agency the bill would establish to support clean energy research and
development.
---------------------------------------------------------------------------
\41\ https://www.congress.gov/bill/117th-congress/senate-bill/685.
---------------------------------------------------------------------------
The American Opportunity Carbon Fee Act of 2019 \42\ provides a
tax credit to individuals to compensate for increased carbon cost. This
bill targets assistance by providing Social Security and veterans'
program beneficiaries and other retired and disabled Americans with an
inflation-adjusted annual benefit and by delivering grants to states to
support transition assistance.
---------------------------------------------------------------------------
\42\ https://www.congress.gov/bill/117th-congress/senate-bill/685.
---------------------------------------------------------------------------
The Climate Action Rebate Act of 2019 \42\ distributes the
majority of revenue back to American households in carbon dividend
payments. 20% of revenues are reserved to fund infrastructure projects,
5% to research and development, and 5% to transition assistance.
---------------------------------------------------------------------------
\42\ https://www.congress.gov/bill/117th-congress/senate-bill/685.
______
Fermata LLC (d/b/a Fermata Energy)
1705 Lambs Road
Charlottesville, VA 22901
Chairman Wyden, Ranking Member Crapo, and Members of the Committee, my
name is David Slutzky, and I am the Founder and CEO of Fermata LLC (d/
b/a Fermata Energy). Fermata Energy designs, supplies, and operates
technology that integrates electric vehicles with buildings and the
electricity grid, turning electric vehicles into valuable storage
assets that combat climate change, increase energy resilience, and
reduce energy costs.
Today most electric vehicles have ``one-way'' charging. Their batteries
can be charged with electricity from the grid or other power sources,
but they cannot discharge that electricity back into homes, businesses
or the grid. Electric vehicles that can send electricity back into
homes, businesses and the electric grid help cut energy costs, improve
energy resilience and fight climate change. However most electric
vehicles and electric vehicle chargers are not equipped to do that
today.
By helping to jumpstart the market for ``bidirectional'' electric
vehicle charging (sometimes referred to as ``vehicle-to-x,'' ``V2X'' or
``V2G''), the federal government could build an American industry with
good jobs and other enormous benefits for families and businesses. This
technology can help protect against electric outages like what happened
earlier this year in Texas. Bidirectional charging will speed
deployment of solar and wind power by unlocking a vast new source of
energy storage: the batteries already in electric vehicles. And it
accelerates the deployment of electric vehicles by providing owners
with a way to earn money with their parked cars and gives them a source
of backup power.
As a V2X industry leader, we hope that our testimony will bring
attention to the bidirectional charging and V2X services industry
emerging in the United States. In addition to Fermata, companies such
as Nuvve, Coritech, Rhombus, and Amply are pioneering bidirectional
charging and V2X services technology in California, Colorado, and
Delaware. At the same time, a growing number of U.S. automotive
manufacturers, such as Ford, Rivian, Lucid, Blue Bird Corporation,
Proterra, and Thomas Built are also incorporating bidirectional
technology in their vehicles, creating jobs in Illinois, Michigan,
Ohio, North Carolina, and Georgia. We believe that it's only a matter
of time before bidirectional charging is the standard for electric
vehicles.
Momentum for bidirectional charging is building. Many utilities are
taking interest in V2X, launching pilots, research studies, programs,
and industry partnerships to explore the potential of this technology.
A U.S. bidirectional charging industry is starting to emerge, with more
vehicle manufacturers offering models enabled for bidirectional power
flows, UL-certified bidirectional chargers being manufactured and
installed, and a growing number of projects demonstrating the
technology's benefits.
Federal leadership could be transformational for bidirectional charging
in the U.S., helping position the U.S. as a leader in this industry of
the future. At present the federal solar and storage tax credit
actually acts as a barrier to bidirectional EV charging, since it
applies to stationary energy storage assets only. This creates an
uneven playing field for the vast energy storage potential within
electric vehicles. Widespread adoption of bidirectional charging will
involve a number of market participants, including utilities, auto
manufacturers, vehicles owners and building owners. Federal support
would send a strong signal about the opportunities and public benefits
of bidirectional charging, helping jumpstart the market.
PROPOSAL
We propose strengthening the electric vehicle charger tax credit to
support bidirectional EV charging infrastructure.
The IRS Section 30C alternative refueling property tax credit
currently covers 30% of eligible costs (capital and installation) for
electric vehicle charging equipment, up to a maximum of $1,000 for
individuals and $30,000 for businesses. The credit expires December 31,
2021.
IRS Section 30C should be amended to: 1) add ``bidirectional
electric vehicle charging equipment'' to the list of alternative
refueling property eligible for 30C tax credits, 2) increase the
current tax credit ceilings for both individuals and businesses (as
proposed in S.975) and 3) increase the tax credit percentage for
bidirectional charging equipment from 30%, by an additional 20%, to
allow for the increased cost of the equipment. The total credit would
be up to a maximum of $3,333 for individuals and $200,000 for
businesses, with an expiration date of December 31, 2028.
``Bidirectional electric vehicle charging equipment'' would be defined
as ``equipment that allows an electric vehicle to charge and discharge
electricity."
To create thousands of new clean energy jobs and support U.S.
manufacturing: Expand the Section 48C Qualifying Advanced Energy
Project credit to include bidirectional electric vehicle charging
equipment (in Section 48C(c)(1)(A)(i)(II)) and increase the overall
credits available by $3B each year for the next five years.
BENEFITS
Bidirectional charging of electric vehicles will bring enormous
benefits on a range of issues.
Job creation: The steps proposed here would create thousands of U.S.
jobs and position the United States as the leader in a growing global
industry. This includes jobs manufacturing bidirectional electric
vehicle chargers and components as well as installing those chargers.
U.S.-based manufacturing of bidirectional electric vehicle chargers and
components is already underway, with facilities ready to expand
quickly. Installation and maintenance of bidirectional electric vehicle
chargers are jobs that can never be outsourced. Furthermore, by
speeding adoption of solar and wind power with widespread, cost-
effective energy storage, these steps would also contribute to job
creation in the renewable energy industry. Expanding this tax credit
would create American engineering, manufacturing, supply chain, and
sales jobs in a nascent American industry and an emerging technology
industry that is poised for rapid growth.
Lower Costs for Families and Businesses. Bidirectional charging turns
electric vehicles into revenue-generating assets. With bidirectional
charging, families and businesses can reduce--or in some cases,
completely offset--the cost of owning of a vehicle. Parked vehicles
could deliver real value for their owners for the first time. Families
struggling to pay the bills and businesses looking to cut costs would
both benefit. The benefits for disadvantaged communities would be
especially strong, providing affordable mobility with clean vehicles
that produce no air pollutants. Most EVs remain parked most of the day
as an underutilized, untapped energy storage resource. Bidirectional
charging technology harnesses this resource to lower the cost of EV
ownership, leading to faster, more equitable EV adoption for low-income
communities at risk of being ``left behind.''
The savings potential of bidirectional charging technology is enormous.
In a recent case study by E Source--a leading research and advisory
firm--a Fermata bidirectional charger paired with a Nissan LEAF in
Virginia generated revenue sufficient to pay for more than 95% of the
lease cost of a Nissan LEAF. In some parts of the United States
(including California, Colorado, Indiana, Michigan and the Northeast),
revenues from bidirectional charging could equal or exceed annual
vehicle costs. It is important to recognize how impactful V2X can be to
the total cost of ownership of an EV, making these vehicles more cost
effective than internal combustion vehicles.
Affordable, Clean Transportation for Low-Income Communities:
Low-income communities benefit most from this technology:
Many disadvantaged cannot afford personal transportation, let
alone EVs. COVID-19 budget impacts to public transportation compound
this problem enormously.
Low-income options for cars are often limited to old vehicles,
which while being less expensive to purchase, are not dependable and
often end up costing more to service and repair than drivers can
afford.
Bidirectional EVs are the solution because they provide the
lowest cost form of effective personal transportation.
Decarbonization of the Electric Grid and Vehicle Fleet: Bidirectional
electric vehicles could provide a massive, decentralized source of
energy storage, allowing utilities to integrate solar and wind power
into electric grids far more rapidly and cheaply. With bidirectional
chargers, for example, electric vehicles can charge when there is
overgeneration of renewables (such as in the middle of a sunny day) and
then supply stored energy back into the grid when renewable generation
is low. Bidirectional charging also provides owners of electric
vehicles with a new revenue source, helping cut the costs of electric
vehicle ownership and speeding deployment of electric vehicles.
Bidirectional charging thus simultaneously promotes the transition to
both a clean electric grid and clean vehicle fleet.
Energy Resilience and Grid Stability: Bidirectional electric vehicle
charging can help families and businesses during electric outages,
unlocking the potential of their electric vehicles to serve as backup
generators. The technology also reduces the need for costly utility
infrastructure upgrades by providing peak shaving, renewable energy
optimization and ancillary services for grid operators and utilities.
Bidirectional charging has the potential to generate significant value
and cost-savings for utilities and grid operators by optimizing smart
charging services and unlocking V2X value streams at the wholesale and
retail level. By enabling electric vehicles to provide backup power to
buildings and the grid, this next-generation of charging infrastructure
will help families during electric outages, enhance grid resilience and
protect the grid against disruptions such as from natural disasters.
Direct Benefits to the Federal Government: As the nation's largest
vehicle owner, the federal government would benefit enormously from
bidirectional charging. With bidirectional electric vehicles, the
federal government could sell electricity from its vast fleet back to
electric grids, earning revenue and cutting costs for taxpayers.
BIDIRECTIONAL CHARGING IS A TRIPLE WIN
It protects families and businesses against electric outages
like happened in Texas.
It speeds deployment of solar and wind power, by unlocking a
vast new source of energy storage.
It speeds deployment of electric vehicles to all Americans, by
providing owners with a way to earn money with their parked cars and
source of backup power. (Bidirectional charging is an especially big
win for low- and middle-income drivers, democratizing EV adoption by
lowering costs.)
FERMATA ENERGY
Fermata Energy is one of a few American companies pioneering technology
in the space of bidirectional or V2X charging. We are an inspiring
story of American entrepreneurship and innovation. Founded in 2011,
Fermata Energy is a vertically integrated company focused on V2X
technology that includes all aspects needed for V2X operations:
hardware development of chargers, network aggregation and operational
software, and business operations for commercial interactions and
monetization of V2X activities for customers.
Fermata is headquartered in Charlottesville, VA and has a hardware team
based in Blacksburg, Virginia and a software team based in Raleigh,
North Carolina. Other Fermata employees are based in New York,
California, Maryland, and Texas. Fermata's existing V2G charger, the
FE-15, is the first charger UL has certified in North America to the
UL9741 bidirectional charger requirements. Fermata's existing units are
manufactured by Fermata's contract manufacturer, Electronic
Instrumentations Technology (EIT), in Danville, Virginia.
In addition to developing hardware and software required to perform V2X
activities, Fermata Energy has spent nearly 10 years studying the value
streams that V2X can unlock from an EV, which of these value streams
are commercially viable today without regulatory intervention, and how
to best monetize these value streams. Fermata has extensive experience
with analyzing use cases, monetization mechanisms, and business models
to maximize the benefits of V2X technologies. Fermata Energy's V2X
solutions integrate not only proprietary hardware and software, but
also a network of strategic partnerships. In 2018, Nissan North America
announced that they chose Fermata Energy for a major V2G pilot project
at their North American Headquarters.
Fermata already has several active V2X sites with utility partners and
fleet customers across the U.S.. We currently have seven publicly
announced projects across the U.S., and many more deployments with
utility and fleet partners planned for 2021. Most notably, we have
active commercial V2X deployments with the City of Boulder, Colorado;
Green Mountain Power (an electric utility in Vermont); Roanoke Electric
Cooperative (a rural electric cooperative in North Carolina); and
Bigelow Tea Company. These sites are performing commercial V2B and V2G
activities with EVs right now, earning thousands of dollars a year for
our customers with just a few initial applications. At our utility
sites, Fermata's systems are successfully performing demand response
and Fermata plans to expand this technology to the utilities' customer
base this year as well. In 2021, Fermata also plans to pilot other
revenue-generating V2X applications with our next deployment partners.
As an industry leader, we are committed to our founding vision:
accelerating the adoption of electric vehicles and accelerating the
transition to a clean energy economy. We are a mission-driven
organization, and we understand that the importance and potential of
the bidirectional charging industry far outweighs any one organization
or company. Educating consumers, utilities, industry, and policymakers
about bidirectional charging is central to our mission.
CONCLUSION
We are at a critical tipping point as a nation, and globally, in our
response to climate change. Natural disasters that threaten the
reliability of the electric power grid and American lives are on the
rise. The impacts of climate change are also intensifying. Rolling
blackouts and brownouts in California and the Pacific Northwest, as
well as the recent grid failure in Texas, are stark examples of this
growing risk.
Now, more than ever, we must support and incentivize domestic
technologies that can stem the tide of climate change and its adverse
impacts. Bidirectional charging has proven potential to cut energy
costs, improve energy resilience, and fight climate change. This new
but growing segment of the electric vehicle charging industry provides
cost effective solutions to rolling blackouts, peak reduction, and the
transition to renewable energy. The electric grid and consumers need
energy storage to meet evolving energy needs and to harden the grid
against natural disasters. At the same time, EVs must be affordable to
enable an equitable transition to a clean energy economy. Bidirectional
charging sits at the intersection of these two major societal
challenges, and offers a powerful solution to both.
This technology and growing American industry can provide major
benefits to consumers, utilities, and the electric grid, all while
delivering cost-savings and pollution mitigation to low-income
communities that have often been underserved by the cleantech and
renewable energy sector. The green energy space has seen tremendous
growth over the past few decades; dozens of new, innovative, and
disruptive technologies have flourished with the support of public
investment. The bidirectional charging industry is similarly poised to
provide tremendous benefits to American consumers, the energy industry,
and the economy at large. With a jumpstart from a small change to the
tax code, this emerging American technology and industry can deliver on
its full promise.
Thank you for your time and consideration,
David Slutzky
CEO, Founder Fermata LLC
______
Independent Petroleum Association of America
1201 15th Street, NW, Suite 300
Washington, DC 20005
202-857-4722
Fax 202-857-4799
https://www.ipaa.org/
IPAA represents thousands of America's independent oil and natural gas
producers. Our members are the primary producers of the nation's oil
and natural gas and account for 83 percent of America's oil production
and 90 percent of its natural gas output. These independent producers
are a driving force in our economy and support roughly 4.5 million jobs
in the United States. IPAA member companies are innovative leaders and
broke the code to usher in the shale oil and natural gas revolution in
the United States.
As the United States and the world struggle to rebound from the
economic hardship caused by the COVID-19 pandemic, it is essential for
America to continue to be a leader in energy development. All forms of
energy will be needed in the coming years and natural gas and oil
produced in the United States will be a key component of that energy
mix. Oil and natural gas will not be the only energy source for the
United States, but they will be essential to the American economy for
years to come.
The choices the nation makes regarding its energy mix will have a huge
impact on its economy and its international position. If America does
not pursue a thoughtful energy policy, the nation will suffer
economically. Unless demand for fossil energy changes dramatically,
efforts to suppress U.S. oil and natural gas production will be
counterproductive to the goals of addressing greenhouse gas emissions,
increasing job growth and expanding America's impact around the globe.
Energy is a geopolitical issue. For the last half-century, American
foreign policy has been predicated on the nation's vulnerability to oil
and natural gas supply disruptions. The shale revolution turned the
United States into an energy superpower, has enhanced American national
security and created significant geopolitical advantages for this
nation around the globe.
Additionally, natural gas production and use has created the cleanest
air quality the nation has seen in two decades. The United States has
become the envy of nations for its dedication to reliable, affordable,
responsible energy production.
Independent producers recognize the need to manage their emissions,
including methane emissions. Over the past several years, as methane
regulations have been developed, IPAA has been active in trying to
assure that the regulations are designed appropriately for the diverse
elements of the industry, including the small business operations that
dominate ownership of low producing wells.
However, a troubling undercurrent of effort to suppress American oil
and natural gas production appears directed at numerous factors that
affect production. Among these is a false claim of ``tax subsidies''
for oil and natural gas production that are, in fact, normal business
deductions.
The Role of American Oil and Natural Gas
Despite the hyperbole of new energy sources displacing oil and natural
gas, in reality, oil and natural gas supplied about 70 percent of
America's energy in 2020 and is projected to supply about 70 percent in
2050. Internationally, oil and natural gas are about 50 percent of
total energy consumption. These realities cannot be ignored and wished
away. Oil and natural gas are a key component of the American economy--
an economy that must grow for a strong nation to continue.
They provide the fuels for the vast majority of the 275 million
vehicles registered in the United States--vehicles that will be on the
road for decades to come. Included among these are the millions of
trucks that transported and delivered the key commodities that kept
America functioning for the past year of the COVID pandemic.
They provide fuel for the trains and the airplanes that are
essential for interstate and international commerce.
They fuel the vessels that transport America's exports and
imports.
Altogether, oil and natural gas provide 93 percent of
transportation energy.
They heat and cool America's homes and businesses, providing 95
percent of the energy needed.
They generate American electricity; natural gas generates 40
percent of American electrical power.
They produce the synthetic fibers, pharmaceuticals, medical
supplies, computer and cell phone components, agricultural fertilizers
and chemicals that are essential for a modern country.
The provide revenues to state governments and the federal
government to fund important programs ranging from education to land
and water conservation.
While oil and natural gas greenhouse gas emissions must be managed,
their use provides key environmental benefits. America's success in
reducing its greenhouse gas emissions comes from its expanded use of
natural gas. Internationally, expanded use of natural gas promises to
help the world improve its greenhouse gas emissions. Meanwhile, cleaner
American oil products like low sulfur diesel fuel provides lower income
countries the opportunity to reduce their reliance on dirty fuels in
their homes and huts that place severe risks on their health and to
limit the devastation of their forests. The environment and public
health challenges across the world are large and complex and failure to
address fundamental health challenges limits nations' ability to
address their greenhouse gas emissions.
Unfortunately, rather than recognize the key roles oil and natural gas
play in the American economy, anti-oil and natural gas interests
concoct elaborate fiction that American oil and natural gas companies
somehow duped the American public into using its products.
Realistically, demand for these products has driven the advanced
economies of the world. Following World War II, Americans began the
long sought recovery from the Great Depression. Their demand for
vehicles, electricity, emerging new products and homes resulted in
increasing the need for more and more oil and natural gas and their
products. In fact, American demand exceeded the capacity of American
oil and natural gas production. America had to import more and more oil
and eventually turned to importing natural gas.
American oil dependency after 1970 led to fifty years of international
security issues where America's foreign policy choices depended on its
effect on oil supply. Two clear crises were oil embargoes in 1973 and
1979. By 2007, the United States was importing 65 percent of its oil
supply. While much of it came from Canada and Mexico, significant
amounts came from the Middle East where relationships were tenuous or
hostile. The shale oil revolution changed international energy security
dynamics significantly, positioning the United States more securely.
However, new efforts to suppress American oil and natural gas supply
could reverse these important policy shifts. Demand drives the need for
oil and natural gas supply. Crushing American supply will not reverse
American demand. Instead, America will need to meet its energy demand
by returning to imports. Global greenhouse gas emissions will not be
reduced but American energy security will be threatened again like the
fifty years following 1970.
Tax Issues
One path to reducing American oil and natural gas production involves
restricting its capital investment. Because all oil and natural gas
production declines--or depletes--over time, new production must
replace the lost production. New wells must be drilled. Existing wells
must be maintained even as their production diminishes. For independent
producers, most of its capital comes through the well head. That is,
the revenue it receives from selling its production becomes the capital
it needs to drill and maintain wells. Clearly, tax policy then plays a
significant role. Taxes remove capital.
Oil and natural gas tax policies will continue to draw attacks from
those anti-oil and natural gas factions that want to cripple American
production. Much of the rhetoric surrounding these attacks will hide
behind the red herring of ``tax subsidies for Big Oil'' when the
reality is that the tax provisions are not ``subsidies'' but normal
business deductions. The impact of changing the provisions will fall on
independent oil and natural gas producers, substantially on small
businesses, and on royalty owners such as retirees, ranchers and
farmers who own oil and natural gas mineral resources underlying their
properties.
Two of the most targeted tax provisions are the treatment of intangible
drilling and development costs (IDC) and percentage depletion.
Intangible Drilling Costs
Since 1913, a drilling and development costs deduction has been allowed
as an ordinary and necessary business expense for those costs where
there is no remaining equipment to value (salvage value) when an oil or
natural gas well is completed. Because there is nothing tangible to
value, these costs are generally called ``intangible drilling costs''
or IDCs. For the past 35 years, American tax policy has shortened the
depreciation period for equipment to allow capital to be recovered and
reinvested in new American projects. Like other rapid depreciation
schedules in the tax code, the drilling cost deduction allows for
investment capital to be immediately recovered and encourages its
reinvestment. This is the same concept adopted as Bonus Depreciation in
the 2017 Tax Reform Act. It is neither a ``tax subsidy'' nor a
``loophole.'' For American independent producers expensing has resulted
in facilitating reinvestment in new American projects at rates up to
150 percent of American cash flow.
Within the past 15 years the combination of advanced horizontal
drilling techniques and sophisticated hydraulic fracturing opened the
development of both shale gas and shale oil formations. Clearly, while
America has been producing these resources for 150 years, today's
production will reflect a vastly different onshore industry than in the
past. Similarly, the industry will continue to advance its technology
in the offshore where the challenges of deeper formations and deeper
water depths have driven significant changes in the past twenty years.
What is common to developing all of these resources is the need for
capital. In 2017, independent producer capital expenditures were
approximately $110 million.
Independent producers have a history of investing in America. Prior to
the economic challenges the industry has faced in the past several
years, assessments have concluded independents reinvesting up to 150
percent of their American cash flow back into new American projects.
And, independents drill 91 percent of wells in the United States. The
faster that producers recover the capital invested in projects, the
faster it can be reinvested. For independent producers since 1913--at
the inception of the tax code--drilling costs for the elements that are
not a part of the final operating well could be deducted in the year
they are incurred (expensed). These costs can be 60 to 90 percent of
the development costs of a well--with shale wells on the high end.
Clearly, putting this capital back into new production means more jobs,
more production and more federal and state taxes.
For example, independent producers influenced almost $1.2 trillion of
sales activity in the United States during 2018. This, in turn,
contributed about $573 billion or 2.8% of U.S. GDP and supported 4.5
million jobs (3.0% of non-agricultural employment). IHS Market
estimates the independents initiated economic activity that generated
over $101 billion in federal state and local taxes in 2018.
Percentage Depletion
Depletion, like depreciation, allows for the recovery of capital
investment over time. Percentage depletion is used for most mineral
resources including oil and natural gas. It is a tax deduction
calculated by applying the allowable percentage to the gross income
from a property. For oil and natural gas the allowable percentage is 15
percent.\1\
---------------------------------------------------------------------------
\1\ For marginal wells the allowable percentage is increased (from
the general rate of 15 percent) by one percent for each whole dollar
that the average price of crude oil for the immediately preceding
calendar year is less than $20 per barrel. In no event may the rate of
percentage depletion under this provision exceed 25 percent for any
taxable year. The term ``marginal production'' for this purpose is
domestic crude oil or domestic natural gas which is produced during any
taxable year from a property which (1) is a stripper well property for
the calendar year in which the taxable year begins, or (2) is a
property substantially all of the production from which during such
calendar year is heavy oil (i.e., oil that has a weighted average
gravity of 20 degrees API or less corrected to 60 degrees Fahrenheit).
A stripper well property is any oil or gas property which produces a
daily average of 15 or less equivalent barrels of oil and gas per
producing oil or gas well on such property in the calendar year during
which the taxpayer's taxable year begins.
Depletion has been a part of the tax code since its inception.
Initially, the only form of depletion was cost depletion; however, it
limits depletion to the capital cost of a project. After World War I,
Congress recognized that too many natural resources were being
abandoned because of cost depletion limiting the economic viability of
projects. Consequently, it began to allow forms of value depletion to
---------------------------------------------------------------------------
be used as well. In 1926, it settled on percentage depletion.
Percentage depletion has changed over time. Current tax law limits the
use of percentage depletion of oil and natural gas in several ways.
First, the percentage depletion allowance may only be taken by
independent producers and royalty owners and not by integrated oil
companies. Second, depletion may only be claimed up to specific daily
American production levels of 1,000 barrels of oil or 6,000 mcf of
natural gas. Third, the net income limitation requires percentage
depletion to be calculated on a property-by-property basis. It
prohibits percentage depletion to the extent it exceeds the net income
from a particular property. Fourth, the deduction is limited to 65% of
net taxable income. Percentage depletion in excess of the 65 percent
limit may be carried over to future years until it is fully utilized.
Despite these limitations, percentage depletion remains an important
factor in the economics of American oil and natural gas production.
Most independent producers do not exceed the 1000 barrel per day
limitation. Yet, these producers are a significant component of
America's oil and natural gas production. For example, they are the
predominant operators of America's marginal wells. Over 85 percent of
America's oil wells are marginal wells--producing less than 15 barrels
per day, averaging about 2.5 barrels per day. Yet, these wells produce
about 10 percent of American oil production. About 75 percent of
American natural gas wells are marginal wells (averaging about 22
mcfd), producing approximately 10 percent of American natural gas.
Marginal wells are unique to the United States; other countries shut
down these small operations. Once shut down, they will never be opened
again--it is too costly. Even keeping them operating is expensive--they
must be periodically reworked, their produced water (around 9 of every
10 barrels produced) must be disposed properly, the electricity costs
to run their pumps must be paid. The revenues retained by percentage
depletion are essential to meet these costs. For larger wells,
percentage depletion provides more revenues to be used to find new oil
and natural gas in the United States.
In addition to independent producers, royalty owners can take
percentage depletion on wells producing their mineral assets. Royalty
owners can take percentage depletion on wells regardless of whether the
producer is an independent or integrated company. One reason that
percentage depletion draws attention is the revenue estimate associated
with it; however, the revenue estimate never separates its evaluation
between producers and royalty owners.
Conclusion
Oil and natural gas will remain a key component of energy supply in the
world for the foreseeable future. Their emissions will need to be
managed, but no modern economy will function without them. This is
clearly true in the United States where oil and natural gas contributes
approximately 70 of the energy consumed in the country now and in 2050.
Growth in other energy sectors will occur but more energy will be
needed to maintain a robust American economy.
If new policies reduce American demand for oil and natural gas,
production and imports will diminish. However, artificial politic
efforts to suppress American supply will not reduce demand; it will
only lead to a return to an import dependent energy structure with
attendant energy security risks.
False attacks on ``tax subsidies'' targeting American oil and natural
gas producers and royalty owners will reduce supply while hurting
independent producers, particularly small businesses, and royalty
owners. They will not reduce greenhouse gas emissions. The ultimate
beneficiaries of these actions would be foreign national oil companies
producing with less emissions management than those in the United
States. Congress should oppose these adverse policies.
Industrial Energy Consumers of America
1776 K Street, NW, Suite 720
Washington, DC 20006
Telephone (202) 223-1420
www.ieca-us.org
The Honorable Ron Wyden
Chairman
U.S. Senate
Committee on Finance
221 Dirksen Senate Office Building
Washington, DC 20510
Re: The ``Clean Energy for America Act.'' Investment Tax Credit (ITC)
for Electric Transmission Infrastructure
Dear Chairman Wyden:
Thank you for the introduction of the ``Clean Energy for America Act.''
As some of the largest industrial electricity consumers in the U.S., we
are concerned about Section 102, the Clean Electricity Investment
Credit and the 30 percent Investment Tax Credit (ITC) for electric
transmission facilities. The ITC is not needed and unless consumer
safeguards are added, consumers will likely pay for hundreds of
billions of dollars for electric transmission projects that are not
needed or are overpriced, which substantially increases electric costs
for all consumers. Manufacturing competitiveness and jobs will be
impacted.
Electric transmission costs are manufacturing's highest increasing
energy-related cost. As an example, in the last decade, PJM's
transmission costs increased from $4.22 to $10.39 per megawatthour
(Mwh), which is an increase of 145 percent. In the last 5 years, the
costs increased from $7.69 to $10.39 per Mwh or 35 percent. Other RTOs
and ISOs have similar cost increases.
The assumption that a financial incentive is necessary for companies to
invest in electric transmission is not correct. Companies have easy
access to low-cost capital for transmission projects. The major barrier
to building-out the grid is the failure to implement planning and
permitting processes. This is a matter that the Federal Energy
Regulatory Commission (FERC) needs to address.
Electric transmission projects receive generous guarantee high return
on equity (ROE) on capital for the life of the asset. State and federal
wholesale electric market regulations award generous ROEs that range
from 10 to 15 percent. These high ROEs are sufficient incentive to
attract capital without an ITC. Most manufacturing business ROEs are in
the single digits.
To meet national climate GHG emissions reduction goals, hundreds of
billions of dollars of transmission projects would be needed. President
Biden's ``American Jobs Plan'' calls for the buildout of at least 20
gigawatts of high-voltage capacity power lines. Princeton University's
December 2020 study ``Net Zero America'' states that high-voltage
transmission capacity will need to be expanded by roughly 60 percent at
an estimated cost of $350 billion. We urge you to be prudent to protect
consumers.
If you do proceed with the ITC, we would urge you to insert a provision
which requires that all electric transmission projects that receive the
ITC be competitively bid. The FERC can verify that when transmission
projects are competitively bid, it reduces costs to consumers. To this
point, several state utilities have used their influence over state
policymakers to put in place Right of First Refusal (ROFRs) provisions
that block competitive bidding of transmission projects, over the
objections of consumers. Importantly, ROFRs exist in states with large
wind and solar resources.
We encourage you to hold a hearing on this matter. Given the magnitude
of the transmission spending that will be needed to achieve U.S.
climate goals, unless this matter is handled correctly, consumers will
be saddled with high electric prices for decades to come and
manufacturing competitiveness will be impacted. We look forward to
working with you on this matter.
Sincerely,
Paul N. Cicio
President and CEO
______
The Industrial Energy Consumers of America is a nonpartisan association
of leading manufacturing companies with $1.1 trillion in annual sales,
over 4,200 facilities nationwide, and with more than 1.8 million
employees. It is an organization created to promote the interests of
manufacturing companies through advocacy and collaboration for which
the availability, use and cost of energy, power or feedstock play a
significant role in their ability to compete in domestic and world
markets. IECA membership represents a diverse set of industries
including: chemicals, plastics, steel, iron ore, aluminum, paper, food
processing, fertilizer, insulation, glass, industrial gases,
pharmaceutical, building products, automotive, independent oil
refining, and cement.
______
National Association of Royalty Owners, Inc. (NARO)
7030 S. Yale Ave., Suite 404
Tulsa, OK 74136
Jack Fleet
Executive Director
[email protected]
My name is Jack Fleet, executive director of NARO. I appreciate the
opportunity to provide testimony to the committee on this important
topic.
This testimony is being provided to present NARO's concerns about
legislation which has been proposed in Congress and would remove
Percentage Depletion Allowance for oil and gas production. This action
will be harmful to millions of middle-income American royalty owners
and result in the loss of royalty payments, many of whom are retirees
living on fixed incomes.
NARO shares concerns of the domestic energy community, in particular
oil and natural gas, in the treatment of US government policy regarding
stimulation of domestic energy production. To that end, my testimony is
focused on the significant negative impact to royalty owners through
the modification of removing Percentage Depletion Allowance from our
Federal Tax Code. Percentage Depletion Allowance is the only tax
deduction that many royalty owner takes on their royalty income.
Who is NARO?
The National Association of Royalty Owners is a volunteer led, member
based, 501(c)6 and represents the concerns of an estimated 12.6 million
royalty owners. Our mission is to support, advocate and educate for the
empowerment of mineral and royalty owners. We were founded by Jim
Stafford in 1980 to address the concern of Windfall Profit Tax on
royalty owners. We have members in all 50 states.
The average NARO member is over 60 years old, widowed and receives less
than $500 a month in royalties, which supplements their social security
income.
Owners of producing mineral interest (royalty owners) are entitled to
their proportionate share of production paid by royalty revenue. NARO
holds to the claim the royalty owner's right of equity and fair play in
accordance with lease contracts and law. To that end, royalty owners
have the right to be heard in matters regarding oil and gas energy
policy, proposed legislation or regulatory issues that would positively
or adversely affect their interest.
NARO represents many royalty owners who do not have the wealth, time or
resources of larger oil and gas or mineral companies and as a result,
have a limited ability to make an impact and inform legislators of
their concerns.
How many royalty owners are there?
Royalty owners come from all walks of life: ranchers, farmers, barbers,
teachers, pharmacist, homemakers, factory workers, carpenters,
retirees, widowers and just about every trade or profession in the
United States. Our members are your constituents, they are diversified
politically and belong to all political parties. Many of them, no
doubt, voted for members of this committee and depend on you to
represent them.
In 2013, NARO gave testimony to the United States House of
Representatives Committee on Ways and Means and estimated nationally
there were 8,440,755 royalty owners. Today, that number has grown to an
estimated 12,600,000. The number of royalty owners is increasing due to
fractionalization of mineral estates from generation to generation.
Additionally, there is an increase in citizens buy minerals and
royalties for the first time.
Today, we estimate the number of royalty owners in each state to be:
------------------------------------------------------------------------
------------------------------------------------------------------------
AK 20,400 AL 49,725 AR 382,500 AZ 216,750 CA 765,000
------------------------------------------------------------------------
CO 981,750 CT 25,500 DC 25,500 DE 3,825 FL 242,250
------------------------------------------------------------------------
GA 127,500 HI 12,495 IA 49,725 ID 53,550 IL 114,750
------------------------------------------------------------------------
IN 40,800 KS 221,850 KY 16,575 LA 188,700 MA 45,900
------------------------------------------------------------------------
MD 53,500 ME 8,288 MI 66,300 MN 71,400 MO 165,750
------------------------------------------------------------------------
MS 58,650 MT 71,400 NC 100,725 ND 36,975 NE 29,325
------------------------------------------------------------------------
NH 20,400 NJ 71,400 NM 242,250 NV 66,300 NY 191,250
------------------------------------------------------------------------
OH 45,900 OK 2,537,250 OR 76,500 PA 18,500 RI 8,288
------------------------------------------------------------------------
SC 33,150 SD 8,288 TN 89,250 TX 4,462,500 UT 58,650
------------------------------------------------------------------------
WY 45,900
------------------------------------------------------------------------
These estimates are only those that are currently receiving royalties
on producing mineral estates. However, there are many more mineral
owners in all states that are not receiving royalties.
Percentage Depletion Allowance:
This tax allowance is not specific to the oil and natural gas Industry.
In fact, many natural resource industries are allowed to take depletion
allowance, such as Sulphur, Uranium, other rare earth minerals, ores,
industrial grade crystals, gold, silver, copper, timber and coal to
name a few. It should also be noted that small oil and gas operations
that take advantage of percentage depletion allowance are capped at 15
barrels of oil per day per well. Many of these small operators produce
1-5 barrels of oil a day and have 11 employees on average.
Percentage Depletion is Not Cost Depletion:
Depletion represents the decreasing values of a limited reservoir of a
non-renewable resource. Just as an assets value depreciates over time
and thus the tax liability on that value changes accordingly. The non-
renewable resource is diminished over time and the value of that
resource depreciates.
Most large companies use cost depletion to calculate the cost/expense
involved in extracting or mining of the natural resource and the
reserve that remains after the extraction. The alternative to this
complicated method is Percentage Depletion Allowance, which is much
simpler to apply, especially for the average royalty owner.
The Percentage Depletion Allowance for oil and natural gas is 15%. The
flat percentage makes calculating this allowance easy and has limits to
benefit the middle-income American royalty owner and has nothing to do
with large companies. While Cost Depletion is very costly, complicated
and, in most cases, impossible for the small royalty owner to
determine. Contracts between the mineral or royalty owner and the
operator do not provide for the details necessary for Cost Depletion to
be determined.
The proposal to eliminate Percentage Depletion Allowance would not
eliminate a ``subsidy'' to ``Big Oil'' but would hurt the small royalty
owner, most assuredly constituents of the members of this committee.
Subsidy is defined as a direct cash payment by the government to a
person or business. While leaving Cost Depletion which the large oil
and natural gas companies use untouched. Further, people that buy
minerals, such as one family member who buys out another family
member's interest, likely relied on the continued existence of
percentage depletion in agreeing on the price.
Removing Percentage Depletion Allowance would also result in a tax
increase for many royalty owners who make less than $400,000 per year.
As mentioned earlier, the average NARO member's royalty income is $500
per month and supplements their social security and retirement income.
Removing their Percentage Depletion Allowance would raise their annual
taxable income and increase their tax burden, counter to President
Biden's commitment to protect incomes of those below $400,000 a year.
Conclusion:
NARO stands strongly behind keeping Percentage Depletion Allowance and
opposes efforts to eliminate it. Removing this allowance will put an
added financial burden on the citizens that own these natural resources
and hurt those that use their royalty income to supplement their social
security and retirement. All of this, just as the economy and our
citizens are starting to recover from the COVID pandemic.
I would like to conclude with an example of the impact royalty income
means to a NARO member, Ms. Mosley of North Carolina with mineral and
royalty interest in West Virginia.
``The royalty money supplements my small social security allowing me
freedom from fear of poverty. And it allows me to donate to charities,
including in the county where my minerals are (different from my
residence). My cataract surgery with special replacement lenses was
possible with the royalty money. President Biden has said that he will
not raise taxes on incomes under $400,000. Well, mine is quite a lot
less than that, and removal of the depletion deduction would certainly
raise my taxes!''
Source: ``The Need for Percentage Depletion Allowance for Mineral/
Royalty Owners: How Tax Policy Can Simultaneously Affect the Equitable
Treatment of Royalty Owner, and National Security'' by NARO 2013.
______
National Energy and Fuels Institute
1629 K Street, NW
Washington, DC 20006
(202) 508-3645
www.nefi.com
@nefiaction
May 11, 2021
The Hon. Ron Wyden The Hon. Mike Crapo
Chair Ranking Member
U.S. Senate U.S. Senate
Committee on Finance Committee on Finance
219 Dirksen Senate Office Building 219 Dirksen Senate Office Building
Washington, DC 20510 Washington, DC 20510
Dear Chairman Wyden and Ranking Member Crapo:
We write in response to the hearing titled ``Climate Challenges: The
Tax Code's Role in Creating American Jobs, Achieving Energy
Independence, and Providing Consumers with Affordable, Clean Energy,''
held on Thursday, April 27, 2021. The National Energy and Fuels
Institute (NEFI) appreciates the opportunity to submit comments on
behalf of America's liquid heating fuels industry.
NEFI has been a voice for small Main Street energy distributors and
HVAC providers since 1942. Most are multi-generational family
businesses that deliver a safe, reliable, and efficient fuel for space
and water heating applications. This fuel is commonly referred to as
home heating oil, a catch-all term that includes various grades of fuel
oil and kerosene. Our industry serves approximately 6.5 million homes
and businesses nationwide.\1\ This includes over five million homes and
businesses throughout the Northeast and Mid-Atlantic regions, or 90% of
the entire U.S. heating oil market.\2\
---------------------------------------------------------------------------
\1\ U.S. Census Bureau, American Community Survey (ACS), Fuel Oil
Use by Occupied Housing Units, Five-Year Avg. (2013-2017). Percent (%)
of homes is calculated as a percentage of total state occupied housing
units.
\2\ For this purpose, NEFI defines the ``broader Northeast and Mid-
Atlantic regions'' to include New England, Delaware, Maryland, New
Jersey, New York, North Carolina, Pennsylvania, West Virginia,
Virginia, and the District of Columbia.
As the Chairman noted in his opening statement, the purpose of the
hearing was to discuss the Clean Energy for America Act (CEAA),
introduced on Wednesday, April 21, 2021. The CEAA eliminates around 40
temporary tax incentives and, according to the Chairman, ``replac[es]
them with emissions-based, technology-neutral credits to turbocharge
investment in clean electricity, clean transportation and energy
conservation.''\3\ Our comments focus on the CEAA and its potential
effects on NEFI members and their consumers.
---------------------------------------------------------------------------
\3\ U.S. Senate Committee on Finance, Wyden, Colleagues Introduce
Legislation to Overhaul Energy Tax Code, Create Jobs, Combat Climate
Crisis, April 21, 2021 [press release].
---------------------------------------------------------------------------
I. Renewable Fuel Incentives
The liquid heating fuels industry is committed to reducing greenhouse
gas emissions (GHGs). At a 2019 summit organized by NEFI in Providence,
Rhode Island, over 300 industry stakeholders approved a resolution that
promises to deliver a net-zero-carbon liquid heating fuel to consumers
by 2050. This commitment, known as the Providence Resolution, includes
interim goals of a 15-percent reduction in GHGs by 2023 and at least a
40-percent reduction by 2030. These goals are largely consistent with
President Biden's emission reduction targets and U.S. commitments under
the Paris Climate Agreement.
Recent studies by IHS Markit and Kearney find the Providence
Resolution's goals can be achieved through utilization of renewable
fuels including biomass-based diesel and cellulosic fuels designed
exclusively for thermal energy applications.\4\ A 15-percent reduction
in carbon emissions can be achieved with a 20-percent (or B20) blend of
biodiesel and ultra-low sulfur heating fuel; and a 40-percent reduction
can be achieved with a 50-percent (or B50) blend of the same.\5\ Based
on average annual consumption, around 2.5 billion gallons of biodiesel
will be required annually to achieve a B50 blend industrywide.
Additional volumes of biodiesel and other advanced biofuels, including
those produced from cellulosic feedstocks, will enable delivery of a
``net-zero'' liquid heating fuel by 2050.
---------------------------------------------------------------------------
\4\ See HIS Markit, Heating Oil: Transitioning to Bioblends 2023-
2050 (report prepared for the National Oilheat Research Alliance),
August 13, 2020; and Kearney, Roadmap to Success: Achieving a Net-Zero
Carbon Future by 2050, October 2020.
\5\ Based on average biodiesel emissions data provided by the
National Biodiesel Board (NBB).
Blends of biodiesel derived from either soybean oil or recycled
vegetable oils are in widespread use throughout the industry and have
been embraced by consumers. Many retailers are now delivering biodiesel
and heating oil blends of 20% (B20).\6\ These fuels utilize existing
storage and distribution infrastructure and, in most cases, can be used
seamlessly in existing oil-fired appliances to deliver immediate GHG
reductions at little to no additional cost to the end-user.\7\ At the
direction of Congress, the National Oilheat Research Alliance (NORA) is
developing pathways to even higher biodiesel blends and high-
performance cellulosic fuels designed exclusively for residential and
commercial heating appliances.\8\
---------------------------------------------------------------------------
\6\ National Oilheat Research Alliance, Survey on Mechanical Issues
Related to Biodiesel Blending, March 2017, p. 2.
\7\ National Oilheat Research Alliance, Developing a Renewable
Biofuel Option for the Home Heating Oil Sector: A Report to Congress,
State Governments and the Administrator of the Environmental Protection
Agency,'' May 2015, p. 18.
\8\ Congress revised the NORA statute in the 2014 Farm Bill to
focus on the research and development of advanced biofuels. See Pub. L.
113-79, Section 12405(a). Cellulosic fuels being developed for thermal
heating applications includes Ethyl Levulinate (EL), a high-performance
renewable fuel derived from woody biomass, municipal solid waste, and
other sustainable feedstocks. A study by Biofine Developments Northeast
Inc. and EarthShift Labs shows EL to reduces emissions by over 100-
percent when compared to conventional petroleum-based home heating oil.
The successful adoption and widespread acceptance of renewable liquid
heating fuels across our industry is due in large part to the biodiesel
and renewable diesel blenders' tax credit (BTC). We commend Congress
for reinstating the tax credit through December 31, 2022, thereby
providing producers, marketers, and consumers alike with greater
certainty and market stability. The BTC incentivizes fuel suppliers in
the Northeast to invest in blending, storage, and delivery
infrastructure to help meet growing demand for advanced biofuels in the
---------------------------------------------------------------------------
residential and commercial energy sector.
Section 201 of the CEAA replaces the BTC and other renewable fuel
incentives with a single ``technology-neutral'' incentive based on a
fuel's lifecycle carbon emissions. Alternative fuels produced in the
United States may receive a tax credit if their lifecycle emissions are
reduced by at least 25%. Zero and net-negative emission fuels qualify
for a maximum tax credit of $1.00 per gallon. Between now and 2030,
renewable fuels must become increasingly cleaner to qualify for the
credit. Further, the CEAA phases-out the incentive over five years once
the U.S. Environmental Protection Agency and Department of Energy
certify that the transportation sector emits 75% less carbon than 2021
levels.
NEFI is evaluating the specifics of Section 201 and its potential
impact on continued growth of renewable liquid heating fuels,
particularly in the Northeast. While we do not currently have a
position on this proposal, we look forward to discussing the merits of
performance-based policies based on life cycle emissions. An accurate
measuring of carbon intensity must be established and applied
universally for such policies to be successful.
II. Residential Energy Efficiency Incentives
In addition to reducing GHGs through cleaner drop-in fuels, significant
gains can be made through increased building efficiency. Our industry
has been a leader in this regard. Through more efficient appliances and
cleaner burning fuels, the heating oil industry has reduced per home
fuel consumption by more than 50% over 40 years.\9\ Over the last ten
years, our industry has embraced ultra-low sulfur (ULS) heating fuels,
which are now in widespread use and have been mandated by state and
local governments throughout the Northeast and Mid-Atlantic regions.
ULS heating fuels burn as cleanly as natural gas, increase system
efficiencies, reduce maintenance costs, and save consumers
money.\10\, \11\
---------------------------------------------------------------------------
\9\ Source: www.oilheatamerica.com.
\10\ Batey, John E., et al., Ultra Low Sulfur Home Heating Oil
Demonstration Project: Summary Report, Energy Research Center, Inc and
Brookhaven National Laboratory and prepared for the New York State
Energy Research and Development Authority (NYSERDA), September 2015.
\11\ The National Oilheat Research Alliance estimates heating plant
service cost savings for a typical homeowner for ULS fuel is around $50
per year and fuel efficiency improves about 2 percent.
Combining renewable liquid heating fuels with modern, efficient home
heating appliances is the quickest and most cost-effective path to
reducing residential GHG emissions and consumer energy bills. It also
provides homeowners an affordable alternative to costly and inefficient
heat pumps. A residential heat pump conversion is typically 3 to 6
times the cost of a high efficiency biofuel-compatible heating system,
with conversions ranging up to $35,000 or more. Recent studies conclude
that electric heat pumps and ``cure-all'' electrification policies
unnecessarily burden lower-income households and vulnerable communities
and perpetuate environmental and economic inequalities.\12\
Alternatively, renewable fuels provide Americans on a fixed income with
a ``plug and play'' solution to lower energy costs and an opportunity
to make meaningful contributions in the battle against climate change.
---------------------------------------------------------------------------
\12\ Acosta, Joel, Study: Electrification is a Misguided Approach
to Tackle Climate Change, Energy In Depth, July 9, 2020,
www.energyindepth.org/study-electrification-is-a-misguided-approach-to-
tackle-climate-change (accessed May 11, 2021).
Notably, heat pumps could quite literally leave consumers ``out in the
cold.'' They are known to perform very poorly in the field compared to
their nameplate efficiency rating. This efficiency continuously
degrades as temperatures drop below 40 degrees to the point of the
equivalent of electric resistance heat.\13\, \14\ The
increased load results in super-peaking situations that increase GHG
emissions because many generators rely on fossil fuels to meet surging
electricity demand. These peaking events strain the electric grid and
can result in catastrophic power outages, as evidenced by the recent
Texas power crisis.
---------------------------------------------------------------------------
\13\ Winkler, Jon, Ph.D., Laboratory Test Report for Fujitsu 12RLS
and Mitsubishi FE12NA Mini-Split Heat Pumps, U.S. Department of Energy,
September 2011.
\14\ RDH Building Sciences, Inc., BC Cold Climate Heat Pump Field
Study (Project 21090.00), November 9, 2020.
A total of 61% of all occupied housing units in the state rely on
electric heat to stay warm each winter, according to the U.S. Census
Bureau.\15\ In response to record cold temperatures and snowfall this
February, millions of Texans cranked up their electric heating systems,
which proved more than the state's electric grid could handle.\16\
While not the lone cause of the crisis, dependence on electric heat
contributed to blackouts that resulted in $195 billion in economic
damages and up to 200 deaths statewide, making it one of the costliest
disasters in the Lone Star State's history.\17\, \18\
---------------------------------------------------------------------------
\15\ U.S. Census Bureau, American Community Survey, 2019, primary
heat source by occupied housing unit.
\16\ Traywick, Catherine, et al., The Two Hours that Nearly
Destroyed Texas' Electric Grid, Bloomberg Green, February 20, 2021,
www.bloomberg.com/news/features/2021-02-20/texas-blackout-how-the-
electrical-grid-failed (accessed May 11, 2021).
\17\ Ivanova, Irina, Texas winter storm costs could top $200
billion--more than hurricanes Harvey and Ike, CBS News, February 25,
2021, www.cbsnews.com/news/texas-winter-storm-uri-costs (accessed May
11, 2021).
\18\ Despart, Zach, Analysis reveals nearly 200 died in Texas cold
storm and blackouts, almost double the official count, April 1, 2021,
https://www.houstonchronicle.com/news/houston-texas/
houston/article/texas-cold-storm-200-died-analysis-winter-freeze-
16070470.php (accessed May 11, 2021).
Consider as well that refrigerants used in heat pump installations have
a high global warming potential (GWP). R-410A, the most common
refrigerant used in heat pumps, has a GWP that is 2,088 times that of
carbon dioxide.\19\ Heat pump refrigerant often leaks, resulting in
reduced efficiency and poor performance. Leaks are so common that
recharging refrigerant is necessary over the life of the heat pump.
Further, next generation modern fluorinated refrigerants are now
recommended for evaluation and phase-out by the European Commission due
to even greater GWP than R-410A, as they degrade into the same
substance that they were supposed to replace.\20\
---------------------------------------------------------------------------
\19\ Global Warming Potential (100 year), IPCC 4th Assessment
Report, 2007.
\20\ Garry, Michael, EC Urged to Look at ``Lifecycle GWP'' of
Alternatives to HFCs, R744: CO2 Cooling Marketplace, May 7, 2021,
www.r744.com/ec-urged-to-look-at-lifecycle-gwp-of-hfc-alternatives
(accessed May 11, 2021).
We commend the committee for seeking an approach that allows Americans
to choose heating fuels and technologies they deem safest for their
families and the environment. Section 302 of the CEAA replaces the
existing and relatively lackluster home energy efficiency tax credits
with a more robust incentive. It provides a credit of 30% of the cost
of a home efficiency improvement up to $500, with an overall annual
limit of $1,500 for all home improvements. This is three times the
---------------------------------------------------------------------------
benefit under existing law.
Homeowners may choose whether to upgrade an existing heating system,
water heater, or air conditioner, or make improvements to envelope
efficiency. This is not unlike the existing tax credit under Section
25C of the Internal Revenue Code. However, the existing tax credit
needlessly restricts some of the most efficient renewable liquid
heating fuel appliances from eligibility. This could result in a
consumer switching to a fuel with a higher global warming potential
just to be eligible for a tax credit.
The CEAA discussion draft defers from the existing tax credit in that
it allows heating appliances to qualify if they meet or exceed
requirements of the highest efficiency tier (not including any advanced
tier) established by the Consortium for Energy Efficiency (CEE).\21\
Unfortunately, the CEE does not address efficiencies for biofuel-
compatible space and water heating systems.\22\ We strongly recommend
the CEAA include qualifying language for these systems to allow our
consumers to improve the efficiency of their homes, reduce their energy
costs, and help in the fight against climate change.
---------------------------------------------------------------------------
\21\ Section 320(c)(1)(A) of the CEAA discussion draft.
\22\ Note that biofuel-compatible heating system or appliance is
synonymous with liquid fuel-fired or oil-fired.
Specifically, we recommend qualifying criteria include ENERGY STAR
certified biofuel-compatible furnaces and heat and hot water boilers.
Prescriptive measures can be taken to help ensure energy savings are
much greater than identified by AFUE alone for heat and hot water
boilers. First, boilers having two-inch or greater insulation on water
jacketed surfaces, identifies a better performing class of heating
equipment.\23\ Second, ``tankless coil'' boilers that have an internal
heat exchanger to produce domestic hot water without a tank are
inefficient and should be excluded. The CEAA should also include
indirect water heaters and storage tanks with two-inch or greater
insulation that are heated by a biofuel-compatible heat and hot water
boiler.
---------------------------------------------------------------------------
\23\ Butcher, Thomas, Performance of Integrated Hydronic Heating
Systems, Brookhaven National Laboratory prepared for the New York State
Energy Research and Development Authority (NYSERDA) and the National
Oilheat Research Alliance, December 2007.
---------------------------------------------------------------------------
III. Conclusion
We understand Congress is in the early stages of advancing clean energy
tax reform. We applaud the Senate Finance Committee for taking this
ambitious first step in evaluating how the tax code can be better
leveraged to reduce GHG emissions, strengthen U.S. energy security, and
reduce energy costs. NEFI stands ready to work with you to ensure the
CEAA allows the renewable liquid heating fuels industry and its
consumers to contribute to these goals and benefit from related tax
incentives.
Please do not hesitate to reach out by phone (202) 508-3645 or by e-
mail at sean.
[email protected].
Thank you again.
Sincerely,
Sean O. Cota
President and CEO
______
Natural Gas Vehicles for America
400 North Capitol Street, NW, Suite 450
Washington, DC 20001
ngvamerica.org
Hon. Ron Wyden Hon. Mike Crapo
Chairman Ranking Member
U.S. Senate U.S. Senate
Committee on Finance Committeeon Finance
Dear Chairman Wyden, Ranking Member Crapo, and Members of the
Committee:
NGVAmerica, on behalf of our member companies, thanks you for your
April 27 hearing focused on the role of the tax code in creating
American jobs, enhancing our energy independence, and providing
affordable clean energy. NGVAmerica and our members believe the tax
code plays a crucial role in tackling our climate challenge and
respectfully asks for an extension of key alternative fuel incentives
in any climate-related tax legislation.
NGVAmerica is the national trade organization dedicated to the
development of a growing, profitable, and sustainable market for
vehicles and carriers powered by clean, affordable, and abundant
geologic and renewable natural gas (RNG). Our roughly 200 member
companies produce, distribute, and market natural gas and biomethane,
domestically manufacture and service natural gas vehicles, engines, and
equipment, and operate fleets powered by clean-burning gaseous fuels
across North America.
NGVAmerica believes climate change is real, that we need immediate
investment to clean and decarbonize heavy-duty transportation, and that
renewable natural gas vehicles are an affordable, scalable, and
immediate solution. In keeping with these beliefs, we ask that you
consider the following policy recommendations aimed at cleaning
emissions from transportation:
Policy Recommendations
Extend for a minimum of five years the $0.50/gallon Alternative
Fuels Tax Credit.
Enact for a minimum of ten years a $1.00/gallon tax credit for
renewable natural gas in transportation.
Provide a two-year Federal Excise Tax holiday for clean trucks;
permanently amend the Federal Excise Tax to provide a level-playing
field for clean trucks.
Amend the Waterways Fuel Tax to Remove the Disincentive for
Liquefied Natural Gas (LNG).
Level the Playing Field for Natural Gas Vehicles by Enacting a
Tax Credit for Light, Medium, and Heavy Natural Gas Vehicles.
Background and Policy Justification
We are in the midst of an irreversible climate crisis and need to make
a drastic impact on emissions in a short period of time. The
transportation sector emits the largest share of the nation's
greenhouse gases, and 57% of trucks on road today don't meet EPA's 2010
emissions standards.\1\ We also have a clean air problem. More than 135
million people live in counties the American Lung Association awarded
an ``F'' for either ozone or particle pollution in its 2021 State of
the Air report.\2\ The number one source of urban emissions is vehicles
such as short-haul, long-haul, refuse, school and transit buses. These
high polluting trucks are diesel trucks, but newer technology brings
affordable, clean options offering a big impact when it comes to clean
air. In fact, replacing 1 traditional diesel-burning heavy-duty truck
with 1 new Ultra Low-NOx natural gas heavy-duty truck is the
emissions equivalent of removing 119 traditional combustion engine cars
off our roads.\3\
---------------------------------------------------------------------------
\1\ https://www.dieselforum.org/news/accelerating-turnover-to-new-
technology-diesel-engines-increased-use-of-biobased-diesel-fuels-
ensure-steady-progress-on-carbon-reduction-clean-air-gains.
\2\ https://www.lung.org/research/sota/air-quality-facts.
\3\ Source: https://greet.es.anl.gov/afleet_tool.
Deploying cleaner technology, with help from key tax incentives, can
reduce this significant source of GHGs and tailpipe emissions. The
newest heavy-duty natural gas trucks are 90% cleaner than the EPA's
current NOx standard and 90% cleaner than the latest
available diesel engine.\4\ Fueling with natural gas reduces
CO2 and greenhouse gas emissions compared to comparable
diesel. If fueling with LNG, the well-to-wheels GHG emissions reduction
is 11%; fueling with CNG is a 17 reduction.\5\ However, fueling with
renewable natural gas (RNG) provides even greater CO2 and
greenhouse gas emission reductions, anywhere from 40 percent to greater
than 500 percent on a well-to-wheels basis.\6\ When it comes to carbon
intensity, the California Air Resources Board's Low Carbon Fuel
Standards Pathways certified carbon intensity values for RNG (Bio-LNG
or Bio-CNG) as the lowest Energy Economy Ratio-Adjusted Carbon
Intensity, as low as -532.74 CI.\7\
---------------------------------------------------------------------------
\4\ https://www.ngvamerica.org/wp-content/uploads/2018/12/NGV-VW-
HD-Trucks.pdf.
\5\ Source: NGVAmerica Emissions Whitepaper based on CARB LCFS.
Numbers compared to diesel emissions (well-to-wheel).
\6\ https://ww2.arb.ca.gov/resources/documents/lcfs-pathway-
certified-carbon-intensities.
\7\ https://ww2.arb.ca.gov/resources/documents/lcfs-pathway-
certified-carbon-intensities.
Simply put, heavy-duty vehicles fueled by natural gas give drastic,
immediate tailpipe emissions reductions in the segment of the
transportation sector that is dirtiest and hardest to electrify. When
fueling these clean trucks and buses with renewable natural gas,
tailpipe emissions reductions are paired with carbon neutral and carbon
---------------------------------------------------------------------------
negative fuel.
Renewable Natural Gas (RNG), or biomethane (RNG) is produced by
capturing methane wherever organic materials are present (e.g.,
landfills, dairy farms, wastewater treatment facilities, and animal and
crop waste systems). The United States has abundant sources of
renewable natural gas that can be harnessed for RNG production,
including 66.5 million tons per year of food waste, 17,000 wastewater
facilities, 8,000 large farms and dairies, as well as 1,750
landfills.\8\ Renewable natural gas production is steadily increasing
to meet growing demand throughout the U.S.
---------------------------------------------------------------------------
\8\ Source: Coalition for Renewable Natural Gas, 2017.
Utilized in heavy-duty NGVs, RNG use as a transportation fuel has
increased 267% over the past five years, eliminating 3.5 million tons
of carbon dioxide equivalent (CO2e) in 2020 alone.\9\ In
2020, 53% of all on-road fuel used in natural gas vehicles was RNG,
which is over 340 million gasoline gallon equivalents. In 2020, RNG as
a Transportation Fuel lowered greenhouse gas emissions equivalent to
removing 8,796,396,117 miles driven by the average passenger car.
Despite the increased commitment from the NGV industry to reduce our
carbon footprint and increase use of renewable fuels, the tax code and
other market forces have made it difficult for additional NGVs to be
deployed on road.
---------------------------------------------------------------------------
\9\ https://www.ngvamerica.org/wp-content/uploads/2019/04/RNG-
Driving-Down-Emissions.pdf.
Unfortunately, low diesel prices, the increased expense to fleets for
investment in cleaner-burning trucks, costs related to infrastructure,
and inconsistent and retroactive tax incentives for natural gas in
transportation, the U.S. falls far behind other countries with regard
to deploying these clean, domestic and renewably fueled vehicles. In
2020, 1.68% of new heavy freight truck sales were natural gas and just
---------------------------------------------------------------------------
0.73% of all new truck sales were natural gas.
This means that the transportation sector remains particularly
dependent on
petroleum-based diesel fuels, importing about 5 million barrels of
crude oil a day and exacerbating America's reliance on foreign oil.
While natural gas currently accounts for 30% of total energy
consumption, it represents just 0.3% of energy consumed in the
transportation sector.\10\ Per the Department of Energy, ``Petroleum
comprised 92% of U.S. transportation energy use in 2018.''\11\
---------------------------------------------------------------------------
\10\ Energy Information Administration (EIA) Annual Energy Outlook
2017, Table 2: Energy Consumption by Source and Sector, https://
www.eia.gov/outlooks/aeo/data/browser/#/?id=2-
AEO2017&cases=ref2017&sourcekey=0.
\11\ https://tedb.ornl.gov/wp-content/uploads/2019/03/
Edition37_Full_Doc.pdf#page=176.
As such, there remains a transformative opportunity to invest in
switching more American fleets to domestically produced natural gas and
renewable natural gas. Between unstable or rapidly increasing fuel
prices, concerns over market manipulation by OPEC, and the role the
global oil market plays in funding governments whose policies are
hostile to U.S. interests, there are significant geopolitical reasons
---------------------------------------------------------------------------
to pursue further energy independence.
While proponents of electric vehicles (EVs) insist that zero tailpipe
emissions vehicles are the only way to fight on-road emissions, EVs
have carbon-intensive component parts, are only as clean as the
electricity that charges them, and Heavy-Duty EVs are unlikely to be
scalable, affordable, and on road in the next decade. Additionally,
with regard to vehicle replacement, as it currently stands, it would
take more than 1 EV to replace an existing diesel vehicle, while
natural gas offers a 1:1 replacement option.
Battery-electric and hybrid EVs are also particularly resource heavy
when it comes to rare earth minerals. Batteries for these vehicles
contain up to thirty pounds of rare earth minerals, and with the
relatively short lifespan of these batteries, this mineral rich product
will be manufactured more frequently than other vehicle components.
This is critically important, as 85% of the world's rare earth minerals
come from China. Continuing to invest in EVs for transportation would
be to continue to invest in Chinese global leadership in rare earth
minerals extraction and exportation. In fact, during 2012-2015, more
than 70% of rare earth compounds and minerals imported by the U.S. came
from China. This also leads to the possibility of price swings, as was
the case in 2011, when the average price of certain rare earth minerals
increased 750% as a result of China, who controlled 97% of global rare
earth production, clamped down on trade. As America works to clean our
transportation sector and maintain energy independence it's crucial to
bear in mind that increased use of rare earth minerals for EV
technology shifts export power and American dollars to China.
Fortunately, we have a domestically manufactured technology and
domestically produced alternative fuel available for on-road heavy-duty
use today. Natural gas vehicles, engines, component parts, along with
fueling infrastructure such as compressors, cylinders, and machinery
are developed and manufactured in the United States. An increase in
NGV- and RNG-related manufacturing will bring about more American jobs
and continue to move America toward energy independence. An industry
study found that for a five-year extension of the Alternative Fuels Tax
Credit (AFTC), the industry could expect, over the course of ten years,
to see an additional $9.9 billion in economic growth, creation of
62,000 new middle-class jobs with an average salary of $52,000/year and
$5.8 billion in additional private sector investment in infrastructure
and equipment.
Use of the tax code to further deploy clean, domestically fueled
vehicles powered by natural gas and RNG is a no-brainer. Credits such
as the $0.50/gallon Alternative Fuels Tax Credit (AFTC) are needed to
spur additional deployment of NGVs. Unfortunately, this credit has
experienced very short-term and, in many instances, retroactive
extensions and fleets interested in purchasing newer, more expensive
technologies have not been able to plan for long-term investments or
make purchase decisions with the ability to account for financial
benefits from the credit. Another reason natural gas has failed to
reach market saturation as a transportation fuel is that it has been
competing on an uneven playing field. Electric vehicle technology and
petroleum-based fuels have dominated American transportation for
decades, receiving the lion's share of federal focus tax credits, and
research and development funding. Biodiesel, for example, has received
$1.00/gallon while clean fuels such as natural gas and RNG have
received half that. As such, NGVs have not reached market penetration
and continue to require support from the tax code in order to offset
increased incremental cost of newer alternative fuel technologies.
Providing incentives for natural gas fuel sales will make it more
economically attractive to a larger percentage businesses and vehicle
operators. As the natural gas industry grows and larger numbers of
vehicles are produced, the first-cost or incremental cost of natural
gas vehicles will come down because of economies of scale and
competition. That process would be greatly accelerated by extending tax
incentives and removing tax barriers that currently impede the growth
of natural gas vehicle use.
When making a purchase decision, fleets consider fixed costs, running
costs, fuel costs, maintenance costs, and other considerations,
including their payback period. There remains a significant incremental
cost on alternative fuel vehicles when compared to standard diesel
vehicles. In fact, DOE has identified the desire to obtain an ambitious
price reduction of $40,000 or more in order to spur more deployment,
for the case of natural gas vehicles. Tax credits help in offsetting
these costs and making the switch to a cleaner fuel not only more
attractive, but economically feasible.
Further, a study conducted by the National Renewable Energy Laboratory
(NREL) concluded: ``As illustrated throughout this report, the economic
environment for any particular fleet brought about by subsidies and tax
credits can have a tremendous impact on project profitability,
especially those projects that involve vehicle and fuel purchasing.
Significant synergies result when tax credits are used in combination.
When combined, the tax credits for station cost, vehicle purchase, and
fuel purchase result in payback periods shorter than 4 years for each
fleet [considered with VICE 2.0].''\12\
---------------------------------------------------------------------------
\12\ https://www.nrel.gov/docs/fy15osti/63707.pdf.
As such, we respectfully ask for the following changes to the Tax Code:
Extend for a Minimum of 5 Years the $0.50/Gallon Alternative Fuels Tax
Credit
The Alternative Fuels Tax Credit (AFTC) is the single most effective
mechanism for transitioning fleets to clean-burning natural gas.
Unfortunately, the credit has been extended only for short periods of
time and is often extended retroactively, with uncertainty negatively
impacting fleet investment decisions. The credit was put in place as a
mechanism to get vehicles of all duty weights to transition to
alternative fuels. This credit performs as intended when given a
sufficient prospective extension. Since enactment of the credit, we
have seen increased deployment in alternative fuel vehicle technology,
improved efficiency and reliability of alternative fuel vehicles,
advancements in on-board fuel storage, fueling infrastructure
components, and higher horsepower engines. Technology has matured, is
reliable, and utilizes American manufacturing. Unfortunately, due to
the short-term nature of the AFTC, fleets interested in purchasing
newer, more expensive technology have not been able to plan for long-
term investments or make purchase decisions with the ability to account
for financial benefits from the credit. As such, NGVs and other
eligible fuels have not reached market penetration and continue to need
the credit as a way of offsetting increased incremental cost of newer
alternative fuel technologies.
Enact for a Minimum of 10 Years a $1.00/Gallon Tax Credit for RNG in
Transportation
Similar to the AFTC, NGVAmerica proposes creation of an RNG-specific
transportation fuel credit worth $1.00/gallon. This amount will
incentivize deployment of clean-burning NGVs and quicken the move to
decarbonized on road fuels. This credit will also incentivize fleets
who are already deploying NGVs to move to RNG, further reducing their
carbon footprint.
Implementing a new RNG fueling credit creates a new economic driver
unlocking millions of investment dollars in local economies and
supporting hundreds of thousands of clean energy-sector jobs in
construction, operations, maintenance, manufacturing, and engineering.
This credit incentivizes capture of emissions for beneficial use and
creates additional revenue streams in the agriculture sector, where RNG
production also encourages carbon-responsible waste handling practices.
According to the World Bank, solid waste is expected to rise by 70% by
2050 if global status quo is maintained. Stimulating investments in RNG
incentivizes businesses to capture this waste where it exists. RNG
production results in increased gas collection at landfills, wastewater
treatment plants, and agricultural waste streams while simultaneously
benefiting communities that are disproportionately impacted by air,
water, and odor pollution. Creation of a new on road credit for RNG
provides dual environmental benefits, grows our economy, and continues
expansion of clean energy infrastructure across the country.
Provide a 2-year Federal Excise Tax Holiday for Clean Trucks;
Permanently Amend the Federal Excise Tax on Trucks
to Provide a Level Playing Field for Trucks Powered
by Natural Gas
The tax code currently imposes a 12% Federal Excise Tax (FET) on the
sale of heavy-duty trucks, trailers and tractors. This tax is the
highest federal excise tax on a percentage basis on any product. The
FET is an onerous tax burden to customers who want to buy new, cleaner,
and safer, more fuel-efficient trucks, and because it raises the
capital cost of purchasing trucks, it therefore discourages new
investment and new sales. The current tax treatment amplifies an
inequity imposed on alternative fuel (NGV) trucks because these trucks
include new technology and are sold in limited quantities, and,
therefore have a much higher ``first cost'' or incremental cost than
conventional trucks.
The tax acts as a penalty for alternative fuel trucks because the 12%
rate is assessed on the base cost of the truck and on the incremental
cost, unnecessarily adding to the already higher cost of these
vehicles. The higher tax increases prices and extends the required
payback period for these trucks and makes it harder for businesses to
choose to purchase a natural gas truck. In order to spur purchases of
cleaner trucks and further a thriving secondary clean-truck market,
Congress should provide a two-year FET holiday and permanently resolve
disparities in the FET for clean heavy-duty trucks. Both of these
actions will also spur a burgeoning secondary market for clean trucks,
which is one of the more challenging segments to turn over.
Amend the Waterways Fuel Tax to Remove the Disincentive for Liquefied
Natural Gas
Liquefied Natural Gas (LNG) used to power marine vessels on the inland
waterways is a burgeoning market. LNG produces significantly lower
levels of toxic emissions than diesel fuel, including lower levels of
carbon dioxide, nitrogen oxide and sulfur dioxide. Using LNG instead of
diesel fuel also reduces pollution from particulate matter,
specifically PM2.5, known as exhaust soot. The use of other
fuels such as heavy fuel oil (HFO) and marine fuel oil (MFO) result in
particularly high levels of harmful exhaust emissions such as black
carbon and CO2 which are both major contributors to climate
change. While CO2, particulate matter, and black carbon are
the dominant GHG emissions of concern for climate change, the
combustion of diesel, HFO, and MFO in marine applications also leads to
high levels of criteria air pollutants such as nitrogen oxide
(NOX), sulfur oxide (SOX) that compromise human
and ecosystem health. LNG, on the other hand, virtually eliminates many
of these air pollutants and GHG emissions and is ready for large-scale
deployment in all sectors of marine transportation today.
In 2014, a significant increase in the inland waterways tax on fuel
used in marine transportation was enacted into law. Effective March 31,
2015, the inland waterways tax increased from 20 cents per gallon to 29
cents per gallon of diesel, LNG, or any other fuel used in marine
transportation on the inland waterways. Unfortunately, a user of LNG in
marine transportation now has to pay 50 cents in tax for the same
amount of energy contained in a gallon of diesel fuel that is only
taxed at 29 cents.
According to the Oak Ridge National Laboratory, diesel fuel has an
energy content of 128,700 Btu per gallon (lower heating value) and LNG
has an energy content of 74,700 Btu per gallon (lower heating value).
Therefore, a gallon of LNG produces approximately 58 percent of the
energy produced by a gallon of diesel fuel. On an energy equivalent
basis, it takes about 1.7 gallons of LNG to provide the same amount of
energy as a gallon diesel. This current tax treatment of LNG to power
vessels on the inland waterways is a disincentive to investment in new
LNG powered marine vessels and fueling locations. Congress should
change the Inland Waterways Financing rate on LNG so that the tax is
imposed on the energy content of a diesel gallon (known as a diesel
gallon equivalent) rather than strictly on a per gallon basis. LNG has
huge potential as a cheaper, cleaner, domestic energy source and the
financing mechanism for the inland waterways system should not be
putting its use at a disadvantage.
Level the Playing Field for Natural Gas Vehicles by Enacting a Tax
Credit for Light, Medium, and Heavy Natural Gas
Vehicles
The tax code currently provides a tax credit of up to $7,500 for the
purchase of an electric vehicle (26 USC 30D). This incentive is
available on the first 200,000 electric vehicles sold by a manufacturer
and phases out shortly after this level is achieved. The credit is
therefore worth in excess of $1.5 billion per manufacturer. The tax
code does not provide a similar incentive for the purchase of natural
gas vehicles.
The tax code should be amended to include a comparable credit for
natural gas vehicles ($7,500 light-duty, $12,000 medium-duty, $25,000
heavy-duty) in order to encourage manufacturers to produce them and
accelerate the sale of all classes of natural gas vehicles. This action
is needed to create a level playing field for natural gas vehicles
relative to electric vehicles and encourages the deployment of cleaner
trucks, SUVs, and popular heavy light-duty vehicles not currently
available electrified, affordably. Providing a tax incentive for the
purchase of new natural gas vehicles would be an effective tool because
it directly incentivizes businesses, fleets and individuals to invest
in new, natural gas vehicles. Such an incentive would directly support
all aspects of the natural gas vehicle industry value chain, from
equipment suppliers, to vehicle manufactures, fuel sellers, station
owners, and component producers.
Conclusion
NGVAmerica and our member companies believe these are a few crucial
ways the tax code can fight climate change, create jobs, and continue
our energy independence. Cleaning up the transportation sector as
quickly as possible will have drastic clean air improvements and reduce
our carbon footprint. Transitioning our fleet to domestic geologic and
renewable natural gas ensures that our clean energy transition
continues to employ American workers, increase American manufacturing,
and enhance energy independence.
The tax code is key to this transition, and as such, we respectfully
request that you enact and extend these key tax incentives to provide
parity, predictability, and an incentive mechanism enabling fleets
nationwide to make cleaner transportation investments.
For additional information concerning this statement, please contact
NGVAmerica's Director, Federal Government Relations Allison Cunningham
at acunning
[email protected] or 202-824-7363.
Thank you for your consideration.
Sincerely,
Daniel J. Gage
President
______
National Stripper Well Association (NSWA)
Who is NSWA?
Founded in 1934, the NSWA is the only national association responsible
for representing the interests of the nation's smallest, and yet most
efficient and effective, oil and natural gas wells before Congress and
the federal agencies. Learn more about NSWA at www.nswa.us.
Our mission is to ensure the critical needs and concerns of producers,
owners, and operators of marginally-producing oil and gas wells are
addressed regarding federal legislation and regulation. With members in
30 states, from California to West Virginia, NSWA is a viable and
powerful voice for the American stripper well producer.
Our members are the small independent businessmen and women who own
stripper wells producing 15 barrels of oil (equal to 90 Mcf of natural
gas) or less per day. No large integrated oil and gas company is a
member of NSWA.
Our members are the ``family farmers'' of the United States energy
sector, with our typical member company employing 11 or fewer full-time
employees.
Why Oil and Gas Matters to the Nation
Today, oil and gas operators are the lifeblood of the American economy.
The industry supplies nearly 70 percent of America's energy needs at a
low cost for millions of families, as household energy costs have
decreased 15 percent in the last decade alone. It has given the United
States enviable energy independence and, as a result, enhanced national
security.
Production of oil and gas provides much-needed tax revenues for
federal, state, and local governments to fund education, infrastructure
projects, and helps to provide salaries for teachers and first
responders.
Consider that the vast majority of the 275 million vehicles registered
in the United States--vehicles that will be on the road for decades to
come--are oil and gas powered. This includes the trucks that
transported and delivered the key commodities that kept America
functioning for the past year of the COVID pandemic. They provide fuel
for the trains and the airplanes that are essential for interstate and
international commerce. They fuel the vessels that transport America's
exports and imports.
Yet, consider that less than half the content of a barrel of oil goes
towards gasoline, as the industry produces critical products used for a
wide array of everyday products: agricultural fertilizers,
pharmaceuticals, medical supplies, a host of pivotal technologies,
production of synthetic fibers in clothes and sportswear, medical
supplies, computer and cell phone components, and chemicals that are
essential for a modem country.
The industry also provides lubricants in wind turbines and uses
hydrocarbon precursors for manufacturing of synthetic blade components
that go into solar panels that require oil or natural gas.
The Importance of Percentage Depletion and IDC
For the reasons outlined above, continued economic incentives drawn
from the tax code to allow small operators like our members to keep
more of their own monies to run their businesses--monies often from the
owner's pocket, not provide by banks, large corporations, or hedge
funds--are vital to the economy, just now coming out of the COVID
crisis. Two of those tax treatments, Percentage Depletion and IDC, are
vital to NSWA.
IDC
Since 1913, a drilling-and-development-costs deduction has been allowed
as an ordinary and necessary business expense for those costs where
there is no remaining equipment to value (salvage value) when an oil or
natural gas well is completed.
Because there is nothing tangible to value, these costs are generally
called ``intangible drilling costs'' or IDC. For the past 35 years,
American tax policy has shortened the depreciation period for equipment
to allow capital to be recovered and reinvested in new American
projects. Like other rapid depreciation schedules in the tax code, the
drilling cost deduction allows for investment capital to be immediately
recovered and encourages its reinvestment. This is the same concept
adopted as Bonus Depreciation in the 2017 Tax Reform Act. It is neither
a ``tax subsidy'' nor a ``loophole.'' For American independent
producers, expensing has resulted in facilitating reinvestment in new
American projects at rates up to 150 percent of American cash flow.
The U.S. tax code is designed to levy taxes on net profits, not on
dollars used for operational costs or capital expenditures. Every
business since the inception of the tax code has used cost recovery
provisions like IDC.
The expensing of IDC allows companies to recover costs such as labor,
site preparation, equipment rentals, and other expenditures for which
there is no salvage value. It is important to note that 80 percent of
IDC are associated with labor costs. It is also important to note that
the independent oil and gas industry, which accounts for 80 percent of
our nation's oil production and 90 percent of its natural gas
production, would be hit hardest by the elimination of this provision.
IDC often represent 60 to 80 percent of total production costs and
repealing them could result in the loss of over a quarter million jobs
by 2023.
Percentage Depletion
Depletion, like depreciation, allows for the recovery of capital
investment over time. Percentage depletion is used for most mineral
resources, including oil and natural gas. It is a tax deduction
calculated by applying the allowable percentage to the gross income
from a property. For oil and natural gas, the allowable percentage is
15 percent.\1\
---------------------------------------------------------------------------
\1\ For marginal wells, the allowable percentage is increased (from
the general rate of 15 percent) by one percent for each whole dollar
that the average price of crude oil for the immediately preceding
calendar year is less than $20 per barrel. In no event may the rate of
percentage depletion under this provision exceed 25 percent for any
taxable year. The term ``marginal production'' for this purpose is
domestic crude oil or domestic natural gas which is produced during any
taxable year from a property which (1) is a stripper well property for
the calendar year in which the taxable year begins, or (2) is a
property substantially all of the production from which during such
calendar year is heavy oil (i.e., oil that has a weighted average
gravity of 20 degrees API or less corrected to 60 degrees Fahrenheit).
A stripper well property is any oil or gas property which produces a
daily average of 15 or less equivalent barrels of oil and gas per
producing oil or gas well on such property in the calendar year during
which the taxpayer's taxable year begins.
Depletion has been a part of the tax code since its inception.
Initially, the only form of depletion was cost depletion; however, it
limits depletion to the capital cost of a project. After World War I,
Congress recognized that too many natural resources were being
abandoned because of cost depletion limiting the economic viability of
projects. Consequently, it began to allow forms of value depletion to
---------------------------------------------------------------------------
be used as well. In 1926, it settled on percentage depletion.
Percentage depletion has changed over time. Current tax law limits the
use of percentage depletion of oil and natural gas in several ways.
First, the percentage depletion allowance may only be taken by
independent producers and royalty owners and not by integrated oil
companies. Second, depletion may only be claimed up to specific daily
American production levels of 1,000 barrels of oil or 6,000 Mcf of
natural gas. Third, the net income limitation requires percentage
depletion to be calculated on a property-by-property basis. It
prohibits percentage depletion to the extent it exceeds the net income
from a particular property. Fourth, the deduction is limited to 65% of
net taxable income. Percentage depletion in excess of the 65 percent
limit may be carried over to future years until it is fully utilized.
Despite these limitations, percentage depletion remains an important
factor in the economics of American oil and natural gas production.
Most independent producers do not exceed the 1,000 barrel per day
limitation. Yet, these producers are a significant component of
America's oil and natural gas production. For example, they are the
predominant operators of America's marginal wells. Over 85 percent of
America's oil wells are marginal wells--each producing less than 15
barrels per day, averaging about 2.5 barrels per day. Yet, these wells
produce about 10 percent of American oil production. About 75 percent
of American natural gas wells are marginal wells (averaging about 22
Mcfd), producing approximately 10 percent of American natural gas.
Marginal wells are unique to the United States; other countries shut
down these small operations. Once shut down, they will never be opened
again--it is too costly. Even keeping them operating is expensive--they
must be periodically reworked, their produced water (around 9 of every
10 barrels produced) must be disposed properly, the electricity costs
to run their pumps must be paid. Therefore, the revenues retained by
percentage depletion are essential to meet these costs. For larger
wells, percentage depletion provides more revenues to be used to find
new oil and natural gas in the United States.
In addition to independent producers, royalty owners can take
percentage depletion on wells producing their mineral assets. Royalty
owners can take percentage depletion on wells regardless of whether the
producer is an independent or integrated company. One reason that
percentage depletion draws attention is the revenue estimate associated
with it; however, the revenue estimate never separates its evaluation
between producers and royalty owners.
The Economic Impact of Loss of Percentage Depletion
NSWA has commissioned a just-released independent economic study that
outlines the impacts of eliminating percentage depletion over the next
15 years, both nationally and across the most directly impacted 18
states. From the study:
Eliminating the percentage depletion allowance would have a
large and increasing impact on the stripper well industry, the oil and
natural gas sector, as well as the broader economy. The percentage
depletion elimination case [in this study] assumes that the percentage
depletion allowance would be eliminated as of 2022.
The elimination of the percentage depletion allowance is
projected to have a large and increasing impact on the number of
producing stripper wells across the 15-year (2021-2035) forecast
period. On average,\2\ the elimination of percentage depletion is
projected to lead to an over 14 percent reduction in the number of
producing stripper wells in the U.S.
---------------------------------------------------------------------------
\2\ The averages calculated in this report are calculated across
the full 15-year forecast period which includes one year (2021) where
no impacts of eliminating percentage depletion are assumed to occur due
to delays in implementation.
By the end of the forecast period in 2035, the number of
producing stripper wells is projected to be over 167 thousand wells
lower if the percentage depletion allowance was eliminated, with
producing stripper wells projected at around 489 thousand compared to
---------------------------------------------------------------------------
656 thousand in the base case (an over 25 percent reduction).
This study forecasts that in the Base Case--which assumes no
change in law or policy--combined oil and natural gas production from
stripper wells will average around 1.98 million barrels of oil
equivalent a day between 2021-2035, the forecast period. In the
Percentage Depletion Elimination Case--where legislation is enacted to
eliminate it, production is projected to fall to an average of 1.68
million barrels of oil equivalent a day (an over 12 percent reduction).
The impact of eliminating the percentage depletion allowance is
projected to grow across the forecast period.
For example, if percentage depletion was eliminated, by 2035,
oil and natural gas production from stripper wells is projected to fall
by over 26 percent, from over l .91 million barrels of oil equivalent a
day in the Base Case to just over 1.42 million barrels of oil
equivalent a day in the Percentage Depletion Elimination Case.
If percentage depletion were eliminated, this study projects
that over the 2021 to 2035 forecast period, oil and natural gas
industry spending would be reduced by over $7.1 billion per year on
average. By the end of the forecast period in 2035, spending is
projected to be reduced by over $9.1 billion dollars. Over the full 15-
year forecast period from 2021 to 2035, total spending is projected to
be reduced by over $107 billion.
Across the forecast period (2021-2035), projected average
employment reductions are estimated at just under 84 thousand jobs per
year. By 2035, projected reductions in employment are estimated to be
just over 105 thousand jobs per year.
Elimination of the percentage depletion allowance is projected
to reduce annual contributions to GDP by an average of around $8.7
billion per year. By the end of the forecast period in 2035, reductions
in GDP are projected to reach over $11 bill ion per year.
Over the next 15 years, royalty payments are projected to
decline by an average of around $640 million per year. By the end of
2035, royalty payments are projected to decline by over $935 million
per year. Over the full 15-year period from 2021 to 2035, total royalty
payments are projected to be reduced by over $8.9 billion.
This study estimates that eliminating the percentage depletion
allowance would lead to state government revenue reductions of around
$200 million per year on average over the 2021 to 2035 forecast period.
By the end of the forecast period, revenue reductions are projected to
reach around $315 million annually in 2035.
Across the 15-year forecast period, additional federal corporate
taxes paid to the U.S. Treasury, due to the elimination of percentage
depletion, are projected to average just over $450 million per year.
Over the forecast period, as production is projected to decline
due to the elimination of percentage depletion, the positive tax
benefit of eliminating percentage depletion is projected to decline
annually starting in 2025 ($560 million per year). By the end of the
forecast period in 2035, projected additional revenues are expected to
decline to around $385 million.
Conclusion
Eliminating or reducing the present-law percentage depletion deduction
and IDC would significantly harm the competitiveness of the American
economy.
In particular, independently owned stripper well operators--who are
eligible for the deduction, unlike ``Big Oil'' companies due to the per
day barrel limitation of oil produced--would be particularly impacted.
These stripper well operators provide approximately ten percent of U.S.
oil and gas production, drawn from approximately 80 percent of the
wells operating in the U.S., across 35 states.
Ending percentage depletion would mean the loss of tens of thousands of
direct and indirect well paying jobs, especially in rural areas where
small communities are dependent in ways big and small on operators and
their employees.
In addition, the federal treasury would lose significant federal income
tax revenue as well as the loss of state and local taxes and royalty
revenues.
Also, over 12 million land and lease owners--across all 50 states--
would lose royalty checks, in the event of the loss of percentage
depletion, resulting in the loss of critical income to countless
retirees on fixed incomes.
The combined impact of countless lost jobs and individual royalty
payments at a time of an ongoing pandemic would be an especially cruel
and callous act by Congress.
However, it's more than jobs. It's about maintaining real energy
security for future generations.
Lest we forget how far we have come in our nation's drive for energy
independence, a short history lesson is in order. American oil
dependency after 1970 led to fifty years of international security
issues where America's foreign policy choices depended on its effect on
oil supply. Two clear crises were oil embargoes in 1973 and 1979.
By 2007, the United States was importing 65 percent of its oil supply.
While much of it came from Canada and Mexico, significant amounts came
from the Middle East where relationships were tenuous or hostile. The
shale oil revolution changed international energy security dynamics
significantly, positioning the United States today much more securely.
However, new efforts to suppress American oil and natural gas supply
could reverse these important policy shifts. Demand drives the need for
oil and natural gas supply. Crushing American supply will not reverse
American demand. Instead, America will need to meet its energy demand
by returning to imports. Global greenhouse gas emissions will not be
reduced but American energy security will be threatened again like the
fifty years following 1970.
So, short-sighted actions to undercut safe and environmentally sound
oil and gas production through the elimination of tax treatments and
deductions could easily lead to the rise in oil and gas imports being
delivered via large tankers from foreign, less environmentally
conscious, nations because eliminating percentage depletion will not
curb demand. In addition, increased costs for commodities and higher
prices for consumers will continue to rise, thereby imposing an
unnecessary burden on the United States' economy.
In short, we cannot over-emphasize the importance of energy production
to the people and economy of our nation.
For all these reasons, the percentage depletion deduction and IDC are
vitally important to U.S. prosperity and must be retained.
______
Paper Recycling Coalition
P.O. Box 275
Clifton, VA 20124
(202) 347-8000
https://www.paperrecyclingcoalition.com/
U.S. Senate
Committee on Finance
Dear Chairman Wyden and Ranking Member Crapo:
The Paper Recycling Coalition (PRC) is pleased to submit this statement
for inclusion in the Committee's hearing record. We look forward to
serving as a resource to the Committee as it evaluates how the tax code
can help address climate challenges, including advancing paper
recycling as a climate solution.
Paper recycling has significant climate benefits, including the
avoidance of methane emissions from landfills. Moreover, the
manufacture of 100 percent recycled paperboard and containerboard has a
net negative emissions profile. Yet federal tax policy incentivizes the
destruction of the recycled paper sector's raw material: recyclable
paper. Specifically, section 45(c)(1)(G) of the tax code provides a tax
credit for electricity produced from municipal solid waste (i.e.,
waste-to-energy production). This policy has negatively impacted the
paper recycling industry by incentivizing the burning of paper for
energy recovery.
The PRC's comments submitted herein are in support of eliminating this
economically destructive and environmentally harmful practice. A simple
way to address this issue is by adopting the proposed section 45
modifications included in the ``Protecting America's Paper for
Recycling Act'' (PAPER Act). The PAPER Act was introduced in both the
115th and 116th Congresses and is expected to be reintroduced this
spring by Senators Stabenow, Carper, Boozman, Baldwin, and Cassidy.
About the Paper Recycling Coalition
The PRC's eight member companies represent the interests of the 100
percent recycled paperboard and containerboard industries. Our members
operate 500 facilities in 45 states and support over 63,000 well-paid
jobs with competitive benefits. PRC members manufacture 100 percent
recycled paper products that are ubiquitous in American commerce, such
as cereal and pizza boxes, tubes and cores, Amazon cartons, and other
shipping containers and packaging critical to today's growing
e-commerce economy.
The paperboard and containerboard manufacturing sectors are among the
country's greatest economic and environmental success stories. The
amount of used paper recovered for recycling has nearly doubled since
1990. In 2019, over 66 percent of all paper used by Americans was
recovered to be recycled into new products, marking the tenth
consecutive year with a rate above 60 percent.
As rates of paper recycling rise, they will compound the significant
economic and employment benefits of paper recycling. In addition to the
63,000 direct jobs PRC members support, the sector influences another
615,000 jobs across the recycling supply chain (collection, processing,
and manufacturing), totaling nearly 680,000 U.S. jobs.\1\ The annual
economic impact of the paper recycling supply chain amounts to a
staggering $150 billion.\2\
---------------------------------------------------------------------------
\1\ See EPA, ``Recycling Economic Information Report'' (2016),
https://www.epa.gov/smm/recycling-economic-information-rei-report.
\2\ See EPA Smart Sectors, ``Paper and Wood Products'' (2020),
https://cfpub.epa.gov/wizards/smartsectors/woodpaper/#Chart; ISRI,
``The Economic Impact of the Scrap Recycling Industry in the United
States--Paper'' (2019), https://www.isri.org/docs/default-source/
engage_toolkits/paper-isri-recycling-economic-impact.pdf?sfvrsn=4.
The domestic paper recycling sector is primed to drive $4.1 billion
into recovered fiber investment between 2018-2022. These investments
will add 7 million tons of additional U.S. manufacturing capacity in
the form of new mills, new paper machines, paper machine conversions
and the re-starting of idle mills. In fact, according to at least one
industry survey, over a dozen domestic recycling mills representing
millions in new investments will be coming online between 2018 and
2021, much of it able to process mixed paper feedstocks that used to be
exported to China.\3\ Further, 5 out of the last 6 paper mills opened
in the U.S. are 100% percent recycled. These facilities were planned
and built without federal subsidies or intervention.
---------------------------------------------------------------------------
\3\ Scrap Magazine, ``Gearing Up'' (July/August 2019).
Paper recycling also delivers real environmental benefits for the
American people. By recycling paper and turning it into new 100 percent
recycled paper products, PRC members prevent it from being landfilled
where it degrades, producing methane, a potent greenhouse gas. Further,
even as the paper recycling sector has continued to add capacity in the
form of new mills, machines, and related infrastructure, it has
nevertheless improved its energy efficiency, resulting in reduced
energy usage and reduced greenhouse gas emissions. In fact, the
production of 100 percent recycled paperboard and containerboard
---------------------------------------------------------------------------
products results in net negative greenhouse gas emissions.
The impressive economic and environmental benefits of paper recycling
are directly tied to the availability of a clean and stable supply of
recovered fiber collected for recycling. For that reason, the PRC's
mission is to promote recycling education and to prevent market-
distorting government subsidies from diverting recyclable paper from
the supply chain. Diverting this feedstock from the circular economy to
landfills or for waste-to-energy eliminates opportunities to recycle
these materials and turn them into valuable new products, such as 100
percent recycled paper and packaging products.
The Section 45 Credit for Municipal Solid Waste Creates the Wrong
Incentive--Not to Reuse Recyclable Paper
It is the mission of the PRC to protect the supply of recyclable paper.
That is why the PRC continues to have serious concerns about the
section tax credit for electricity produced from WtE facilities. The
provision provides an incentive to incinerate any municipal solid
waste--including recyclable paper that has not been separated from the
MSW stream. This dramatically reduces the amount of paper available for
recycling, and in some cases leads to an erosion in the quality of the
recyclable paper that is recovered. There simply is no sound policy
justification for this approach.
Congress has made efforts to clarify that section 45 should not act as
an incentive to burn recyclable paper. In 2012, as part of the enacted
American Taxpayer Relief Act of 2012, Congress amended section 45 to
limit the availability of the credit for the production of energy from
municipal solid waste that includes paper that is commonly recycled and
that has been segregated from other solid waste. This clarification was
intended to ensure that the federal government does not incentivize the
burning of paper that should be recycled.
Unfortunately, residual ambiguity in the law means that recyclable
paper continues to be burned for energy production. Instead of
separating paper from waste as Congress intended, in some cases paper
continues to be commingled--or ``mixed''--with waste for energy
production purposes. As an added negative, commingling in many cases
contaminates recyclable paper and leaves it unusable as a feedstock for
recycled packaging and products.
The Section 45 Credit for Municipal Solid Waste Should Not be Extended
Without Reform
In evaluating clean energy tax credits, the Committee should consider
not only the original purpose of these policies but also any unintended
consequences they create. The section 45 credit for WtE and other
``clean'' resources was conceived to incentivize the environmental and
economic benefits of renewable energy. But those benefits are seriously
undermined by the provision's subsidy for the burning of recyclable
paper for energy production. Further, WtE presents sobering
environmental justice concerns that are increasingly coming to
light.\4\
---------------------------------------------------------------------------
\4\ Politico, ``Burning Trash is Good. The Law Says So'' (February.
9, 2021), https://www.politico.com/newsletters/the-long-game/2021/02/
09/burning-trash-is-good-the-law-says-so-491693.
If Congress continues to renew the section 45 credit for WtE facilities
without modification, it will continue to provide an incentive for this
counterproductive and harmful activity. Section 45 is thus a
prototypical example of a tax policy that should not be continued
---------------------------------------------------------------------------
without reform.
The PRC supports bipartisan legislation--the PAPER Act (S. 1396, 116th
Cong.)--to clarify that the section 45 credit is not available for WtE
facilities that burn commonly recycled paper that has been segregated
from solid waste, or that burn solid waste that has been mixed with
garbage. By eliminating the incentive to burn paper for electricity,
the legislation better protects recyclable paper, thus coming closer to
Congress' original intent for the provision.
The PAPER Act was previously sponsored by current Finance Committee
members Senator Stabenow, Senator Cassidy, and Senator Carper. Senators
Boozman and Baldwin were additional co-sponsors last Congress (as was
former Senator Isakson). This same group of Senators plans to
reintroduce the PAPER Act this spring. We urge the Committee to include
this reform should it decide to extend the section 45(c)(1)(G) tax
credit.
Ultimately, since section 45 provides an incentive for energy
production and not recycling, the PRC does not support the continued
extension of the tax credit for WtE facilities. If Congress does act to
continue this incentive, it is essential to include the modifications
reflected in the PAPER Act. This commonsense proposal is the only way
to bring coherence to a policy that would otherwise prioritize energy
production over recycling in contradiction to EPA's Waste Management
Hierarchy.\5\
---------------------------------------------------------------------------
\5\ https://www.epa.gov/smm/sustainable-materials-management-non-
hazardous-materials-and-waste-management-hierarchy.
In closing, we hope the Committee will take this opportunity to either
eliminate the harmful WtE incentive entirely, or to modify it in a way
that protects America's vibrant and growing recycling industry. We
stand ready to work with you and your staff as you examine these
---------------------------------------------------------------------------
issues.
Please do not hesitate to contact us with any questions, or if we can
provide additional information about our industry or the negative
effects caused by the section 45 WtE credit.
Sincerely,
Brian McPheely Michael P. Doss
Chairman, Paper Recycling
Coalition, Vice Chairman, Paper Recycling
Inc. Coalition, Inc.
Global CEO, Pratt Industries President/CEO, Graphic Packaging
Int'l,
LLC
Terese Colling
President, Paper Recycling
Coalition, Inc.
______
Permian Basin Petroleum Association
P.O. Box 132
Midland, TX 79701
https://pbpa.info/
432-684-6345
Who is PBPA
The PBPA is the largest regional oil and gas association in the United
States. Since 1961, the PBPA has been the voice of the Permian Basin
oil and gas industry. The PBPA's mission is to promote the safe and
responsible development of our oil and gas resources while providing
legislative, regulatory, and educational support services for the
petroleum industry. The PBPA membership includes the smallest
exploration and services companies as well as some of the largest
companies with world-wide operations. The Permian Basin is the largest
inland oil and gas reservoir and the most prolific oil and gas
producing region in north America.
Benefits of Permian Supply for the Nation
Today, oil and natural gas operations are the lifeblood of the American
economy.
The Permian is a Key Contributor . . .
The Permian Basin accounts for about 60% of oil production and 20% of
natural gas production in the United States. In New Mexico, the
industry accounts for roughly 134,000 jobs. In Texas, the industry
account for roughly 400,000 jobs.
Nationally, the Permian Basin supplies America's energy needs at a low
cost for millions of families, as household energy costs have decreased
15 percent in the last decade alone. It has given the United States
enviable energy independence and, as a result, enhanced national
security.
Production of oil and gas provides much-needed tax revenues for
federal, state, and local governments to fund education, infrastructure
projects, and helps to provide salaries for teachers and first
responders.
In Texas, the oil and gas industry contributes over $13 billion
annually to the state Treasury. In New Mexico, the industry contributes
nearly $3 billion annually to the state in taxes and royalties.
Specifically as to the Permian Basin, absent taxes and royalties paid
on operations a family of three, on average, would either have to pay
around $1,000 more in taxes every year in Texas and $1,500 more in New
Mexico, or accept a lower amount of services from state and local
governments.
In New Mexico, these revenues provide for one-third of the funding for
schools, roads, public safety and healthcare. In Texas, local school
districts received more than $2 billion in property taxes on oil and
gas interests in 2020 and the Permanent School Fund and Permanent
University Fund, which support Texas public education, together
received over $1.7 billion from royalties paid on oil and gas
production.
Consider that the vast majority of the 275 million vehicles registered
in the United States--vehicles that will be on the road for decades to
come are oil and gas powered. This includes the trucks that transported
and delivered the key commodities that kept America functioning for the
past year of the COVID pandemic. They provide fuel for the trains and
the airplanes that are essential for interstate and international
commerce. They fuel the vessels that transport America's exports and
imports.
Yet, consider that less than half the content of a barrel of oil goes
towards gasoline, as the industry produces products used to make 96% of
everyday essential items, including: agricultural fertilizers,
pharmaceuticals, shampoo, eye glasses and a host of pivotal
technologies, production of synthetic fibers in clothes and sportswear,
medical supplies, computer and cell phone components, and chemicals
that are essential for a modern country.
Modern renewable technologies wouldn't exist without the utilization of
hydrocarbons. The industry provides lubricants in wind turbines,
hydrocarbon precursors are used for manufacturing of synthetic blades,
and the raw earth materials that are essential in the electronic
components of wind turbines and solar blades are mined, refined and
created by machinery and equipment powered by hydrocarbons.
Reinvestment Is Key to a Continued Supply
As it is they are used extensively by renewable energy operations, the
use of tax treatments--including target deductions--are important tools
in the small and medium oil and gas operators' efforts to continue
reliable and environmentally safe oil and gas production in the U.S.
Key among them are IDC, percentage depletion and enhanced oil recovery.
IDC
Since 1913, a drilling and development costs deduction has been allowed
as an ordinary and necessary business expense for those costs where
there is no remaining equipment to value (salvage value) when an oil or
natural gas well is completed.
Because there is nothing tangible to value, these costs are generally
called ``intangible drilling costs'' or IDC. For the past 35 years,
American tax policy has shortened the depreciation period for equipment
to allow capital to be recovered and reinvested in new American
projects. Like other rapid depreciation schedules in the tax code, the
drilling cost deduction allows for investment capital to be immediately
recovered and encourages its reinvestment. This is the same concept
adopted as Bonus Depreciation in the 2017 Tax Reform Act. It is neither
a ``tax subsidy'' nor a ``loophole.'' For American independent
producers expensing has resulted in facilitating reinvestment in new
American projects at rates up to 150 percent of American cash flow.
Our tax code is designed to levy taxes on net profits, not on dollars
used for operational costs or capital expenditures. Every business
since the inception of the tax code, has used cost recovery provisions
like IDC.
The expensing of IDC allow companies to recover costs such as labor,
site preparation, equipment rentals, and other expenditures for which
there is no salvage value. It is important to note that 80 percent of
IDCs are associated with labor costs. It is also important to note that
the independent oil and gas industry, which accounts for 80 percent of
our nation's oil production and 90 percent of its natural gas
production, would be hit hardest by the elimination of this provision.
IDC often represent 60 to 80 percent of total production costs and
repealing them could result in the loss of over a quarter million jobs
by 2023.
Percentage Depletion
Depletion, like depreciation, allows for the recovery of capital
investment over time. Percentage depletion is used for most mineral
resources including oil and natural gas. It is a tax deduction
calculated by applying the allowable percentage to the gross income
from a property. For oil and natural gas the allowable percentage is 15
percent.\1\
---------------------------------------------------------------------------
\1\ For marginal wells, the allowable percentage is increased (from
the general rate of 15 percent) by one percent for each whole dollar
that the average price of crude oil for the immediately preceding
calendar year is less than $20 per barrel. In no event may the rate of
percentage depletion under this provision exceed 25 percent for any
taxable year. The term ``marginal production'' for this purpose is
domestic crude oil or domestic natural gas which is produced during any
taxable year from a property which (1) is a stripper well property for
the calendar year in which the taxable year begins, or (2) is a
property substantially all of the production from which during such
calendar year is heavy oil (i.e., oil that has a weighted average
gravity of 20 degrees API or less corrected to 60 degrees Fahrenheit).
A stripper well property is any oil or gas property which produces a
daily average of 15 or less equivalent barrels of oil and gas per
producing oil or gas well on such property in the calendar year during
which the taxpayer's taxable year begins.
Depletion has been a part of the tax code since its inception.
Initially, the only form of depletion was cost depletion; however, it
limits depletion to the capital cost of a project. After World War I,
Congress recognized that too many natural resources were being
abandoned because of cost depletion limiting the economic viability of
projects. Consequently, it began to allow forms of value depletion to
---------------------------------------------------------------------------
be used as well. In 1926, it settled on percentage depletion.
Percentage depletion has changed over time. Current tax law limits the
use of percentage depletion of oil and natural gas in several ways.
First, the percentage depletion allowance may only be taken by
independent producers and royalty owners and not by integrated oil
companies. Second, depletion may only be claimed up to specific daily
American production levels of 1,000 barrels of oil or 6,000 mcf of
natural gas. Third, the net income limitation requires percentage
depletion to be calculated on a property-by-property basis. It
prohibits percentage depletion to the extent it exceeds the net income
from a particular property. Fourth, the deduction is limited to 65% of
net taxable income. Percentage depletion in excess of the 65 percent
limit may be carried over to future years until it is fully utilized.
Despite these limitations, percentage depletion remains an important
factor in the economics of American oil and natural gas production.
Most independent producers do not exceed the 1,000 barrel per day
limitation. Yet, these producers are a significant component of
America's oil and natural gas production. For example, they are the
predominant operators of America's marginal wells. Over 85 percent of
America's oil wells are marginal wells--producing less than 15 barrels
per day, averaging about 2.5 barrels per day. Yet, these wells produce
about 10 percent of American oil production. About 75 percent of
American natural gas wells are marginal wells (averaging about 22
mcfd), producing approximately 10 percent of American natural gas.
Marginal wells are unique to the United States; other countries shut
down these small operations. Once shut down, they will never be opened
again--it is too costly. Even keeping them operating is expensive--they
must be periodically reworked, their produced water (around 9 of every
10 barrels produced) must be disposed properly, the electricity costs
to run their pumps must be paid. The revenues retained by percentage
depletion are essential to meet these costs. For larger wells,
percentage depletion provides more revenues to be used to find new oil
and natural gas in the United States.
In addition to independent producers, royalty owners can take
percentage depletion on wells producing their mineral assets. Royalty
owners can take percentage depletion on wells regardless of whether the
producer is an independent or integrated company. One reason that
percentage depletion draws attention is the revenue estimate associated
with it; however, the revenue estimate never separates its evaluation
between producers and royalty owners.
Enhanced Oil Recovery
Various legislative proposals have called to preclude Enhanced Oil
Recovery techniques from qualifying for the Section 45Q tax credit, a
bipartisan provision to incentivize carbon capture and sequestration.
American energy innovation has led to a reduction of greenhouse gas
emissions by 30 percent in the last few decades and the oil and gas
industry has led the charge in the research, development, and
utilization of new carbon capture technologies. By allowing carbon
sequestration for EOR, producers are simultaneously reducing emissions
while also efficiently recovering more resources, leading to lower
energy prices for consumers. It should be celebrated by those concerned
about carbon emissions, and even by critics of the industry, that oil
and gas producers are able to help Americans realize the benefits of
affordable, efficient, and reliable energy, while making strides
towards carbon neutral production. An industry that invests billions of
dollars in this new technology must be encouraged to continue these
game-changing developments, not punished.
Conclusion
Eliminating or reducing the present-law percentage suite of targeted
tax deductions--not subsidies, where the government gives direct cash
payments to an industry--which allow small to medium size operators
like our members to keep more of their hard earned monies for continued
safe and environmentally responsible energy production would greatly
harm the U.S.' economic competitive disadvantage.
Most directly and immediately: the combined impact of countless lost
jobs and federal, state, and local revenues at time of an ongoing
pandemic would be an especially short sighted act by Congress.
However, it is more than jobs. It is about maintaining real energy
security for future generations.
Lest we forget how far we have come in our nation's drive for energy
independence, a short history lesson is in order. American oil
dependency after 1970 led to fifty years of international security
issues where America's foreign policy choices depended on its effect on
oil supply. Two clear crises were oil embargoes in 1973 and 1979.
By 2007, the United States was importing 65 percent of its oil supply.
While much of it came from Canada and Mexico, significant amounts came
from the Middle East where relationships were tenuous or hostile. The
shale oil revolution changed international energy security dynamics
significantly, positioning the United States today much more securely.
However, new efforts to suppress American oil and natural gas supply
could reverse these important policy shifts. Demand drives the need for
oil and natural gas supply. Crushing American supply will not reverse
American demand. Instead, America will need to meet its energy demand
by returning to imports. Global greenhouse gas emissions will not be
reduced, but will likely increase and American energy security will be
threatened again like the fifty years following 1970.
Elimination of tax deductions discussed above could easily lead to a
rise in oil and gas imports, while delivered via large tankers from
foreign, less environmentally conscious, nations because eliminating
percentage depletion or the other treatments will not curb demand.
In addition, increased costs for commodities and higher prices for
consumers will continue to rise, thereby imposing an unnecessary burden
on the United States' economy.
In short, we cannot over-emphasize the importance of energy production
to the people and economy of our nation.
For all these reasons, the energy tax treatments discussed here are
vitally important to U.S. prosperity, and must be retained.
Regards,
Ben Shepperd, President
______
Resources for the Future
Emissions Projections for a Trio of Federal Climate Policies
New modeling by Resources for the Future shows that three prominent
climate policy proposals, either in isolation or combined, do not
reduce emissions enough to meet the Biden administration's new climate
goals.
Issue Brief (21-02) by Wesley Look, Karen Palmer, Dallas Burtraw,
Joshua Linn, Marc Hafstead, Maya Domeshek, Nicholas Roy, Kevin Rennert,
Kenneth Gillingham, and Qinrui Xiahou.
This issue brief was published by Resources for the Future (RFF) in
April.
_______________________________________________________________________
With the Biden Administration's recent announcement of the American
Jobs Plan and nationally determined contribution (NDC) under the Paris
Agreement, and as Congress begins to seriously consider legislation to
advance clean energy and cut greenhouse gas emissions, RFF researchers
have been investigating environmental outcomes under various policy
scenarios. In this issue brief, we provide a snapshot from this work--
including estimates of energy-related CO2 emissions and
cost-effectiveness.
Policy Scenarios
We compare three prominent proposals being discussed by federal
policymakers:
A simplified version of the recently re-introduced Clean Energy
for America Act (CEAA), which provides tax incentives for renewables,
energy efficiency, electric vehicles and more.
A Clean Electricity Standard (CES) based on the 2019 Smith-Lujan
proposal, which stipulates a schedule for the decarbonization of the
electricity sector
An economy-wide carbon tax starting at $15 per ton and rising at
5 percent real per year (C$15).
We model energy-related US CO2 emissions under each of these
policies, various combinations thereof, and business-as-usual (BAU)
assumptions. In our ``All-in'' scenario, we also include federal
spending on electric vehicle charging infrastructure and residential
building weatherization. Table 1 summarizes the policy scenarios
included, with more detail in the appendix. Note: this analysis is
calibrated to pre-COVID projections (see appendix), which yields
conservative emissions estimates.
Table 1. Policy Scenarios Included in This Analysis
------------------------------------------------------------------------
Abbreviation Policy Scenario Key Features
------------------------------------------------------------------------
BAU Business-as-usual/ Calibrated to AEO 2019 and
Reference case 2020
------------------------------------------------------------------------
CEAA Clean Energy for America Clean electricity and
Act (CEAA) * energy storage tax
credits, extension of 30D
EV incentives, EE tax
credits
------------------------------------------------------------------------
CES Clean Energy Standard 80% clean by 2032, with
(CES) banking
------------------------------------------------------------------------
C$15 Carbon tax Starting price: $15, gr.
rate: 5% real
------------------------------------------------------------------------
CEAA+CES Combined CEAA and CES See above
------------------------------------------------------------------------
All-in C$15 + CEAA + CES + See above
weatherization and EV
charging infrastructure
spending
------------------------------------------------------------------------
* This is an incomplete representation of the CEAA, see appendix for
details.
Energy-Related Emissions Estimates Under the Various Policy Scenarios
As shown in Figure 1, all policy scenarios make progress cutting
emissions from BAU. Across the policy scenarios studied, estimates of
economy-wide energy-related CO2 reductions in 2030 range
from roughly 10 to 25 percent from BAU and 30 to 40 percent from 2005
levels.
The CES and $15 carbon tax produce similar emissions trajectories
through 2035, with steeper reductions than the CEAA early-on and after
2030. The CEAA and CES combined are an improvement over all individual
policies, reducing emissions by approximately 37 percent from 2005
levels in 2030. The All-in scenario, which combines all three policies
and federal spending on weatherization and EV charging is estimated to
cut 2030 emissions by 41 percent from 2005.
While all scenarios make progress on emissions goals, none hit the NDC
target of a 50-52 percent reduction from 2005 levels by 2030,
indicating that additional policies and/or greater policy ambition are
needed.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Additionally, none of the policy scenarios maintain a reduction
path commensurate with what would be needed to reach net-zero by 2050
(as projected linearly from 2020), however a number of scenarios do
maintain such a path through 2025 and one (All-in) through 2030. While
not shown here, even if a CES were designed to achieve 100% clean by
2035 and combined with all the other policies we study, emissions would
still not be on track to hit the midcentury target--policies that
substantially cut emissions from sectors other than electricity will be
needed as well.
One reason for misalignment with midcentury targets is that almost all
policy scenarios hit a plateau around 2030. This is largely because
these policies--even when combined--lose their effectiveness in the
electricity sector over time (discussed below), and the vast majority
of emissions reductions come from electricity through 2035.
Indeed, as shown in Figure 2, under the All-in scenario, about 75
percent of 2035 reductions from BAU come from electricity. The next
greatest portion (13 percent) comes from the industrial sector, driven
exclusively by the carbon tax. Reductions in the transportation sector
are mostly driven by existing policy, which includes the national fuel
economy/GHG standards for passenger vehicles and the Zero Emission
Vehicle (ZEV) program, which sets sales targets for electric vehicles
in California and 12 other states. New policy, particularly subsidies
for electric vehicles, largely shifts costs of meeting the national
standards and ZEV requirements from automakers and consumers to
taxpayers, without substantially reducing national emissions--the All-
in scenario only reduces 2035 emissions 6 percent below BAU (driven
entirely by the carbon tax). With electricity emissions declining so
much (in this and other scenarios), the major challenge going forward
will be to reduce emissions from the transportation and industrial
sectors--which, under All-in, represent nearly 80 percent of US energy-
related CO2 emissions in 2035.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
In Figure 3, we take a closer look at the electricity sector. Of
the individual policies, the CES reduces emissions most, both in the
near- and long-term. And, because the CES and the CEAA together cut
electricity emissions so significantly, the addition of the modest $15
carbon tax in the All-in scenario has little to no additional effect on
electricity emissions.
None of the policy scenarios studied achieve the Biden goal of net-zero
carbon electricity by 2035, but they make solid progress--between a 65
and 85 percent reduction in CO2 emissions by 2035 (from 2005
levels).
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
As mentioned above, all policies lose effectiveness over time in
the electricity sector--indicated by flattening (and in some cases
rising) curves after 2025. Why is this? Both the CES and the CEAA
promote clean electricity, which primarily replaces coal in the early
2020s, and natural gas in the late 2020s and 2030s. This declining
carbon intensity of the replaced electricity partially accounts for the
decreasing emissions slopes. Additionally, by the 2030s, most
renewables that are cheaper than natural gas (including tax credits)
have been built; and the remaining gas in the system is either cheaper
than renewables, or necessary for system balancing.
Post-2030, more stringent carbon pricing, richer tax credits, steeper
CES requirements, or policies that target natural gas electricity
emissions or promote clean firm resources--such as energy storage--
would be necessary to achieve the 100% clean goal by 2035.
Cost-Effectiveness of Policy Scenarios in Reducing Electricity
Emissions
Considering electricity sector effects only, Figure 4 displays cost-
effectiveness of the policy scenarios discussed above, along with two
additional scenarios--one which assumes a higher tax credit for clean
electricity (6 cents per kWh, or $60 per MWh), and a CES with no credit
banking.
We measure cost-effectiveness as the change in total resource cost \1\
from BAU (discounted over the 10-year budget window) divided by the
cumulative emissions reduction from BAU. A lower number on the vertical
axis indicates greater economic efficiency in achieving a given
emissions reduction.
---------------------------------------------------------------------------
\1\ Resource costs are the sum of electricity sector fuel costs,
variable operations and maintenance costs, fixed operations and
maintenance costs, and annualized capital costs.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Policies that provide incentives to pursue numerous options for
emissions reductions tend to be more cost-effective than narrowly
targeted approaches. The CES is more cost-effective (and more effective
at reducing emissions regardless of cost) than the CEAA because it
applies to a broader set of clean generators, including existing
nuclear, although it also gives credits to existing renewable resources
that may not need further incentives to generate. It also provides some
incentive to move from coal to natural gas by providing partial credits
to efficient natural gas plants. The carbon tax is more cost-effective
than the CEAA because it increases the market price of all emitting
generation, whereas the CEAA simply changes the price of renewables
constructed in 2022 or later. We also find the CEAA energy efficiency
incentives to be inefficient at reducing emissions, but may be
necessary to meet electrification and equity goals. When coupled with a
carbon tax or CES, the CEAA amplifies emissions reductions and
---------------------------------------------------------------------------
increases the cost per ton of achieving those reductions.
The CES performs comparably to a modest carbon price and, when credits
are bankable, cumulative emissions are reduced by an additional 40
percent below BAU while only increasing the average cost by roughly $2
per ton. Enabling banking for any multipolicy scenario involving a CES
also leads to greater reductions in emissions and relative costs. To
achieve CES (with banking) levels of cost-effectiveness and emissions
reductions using tax credits alone would require the CEAA's PTC to be
raised by over 150 percent of its current level to $60/MWh.
Conclusion
The policy scenarios discussed in this brief produce reductions in
energy-related CO2 emissions between 10 to 25 percent from
BAU--and 30 to 40 percent from 2005--by 2030. None of these scenarios
achieve reductions commensurate with the recently announced 2030 NDC,
the Biden administration 2035 target for electricity, or midcentury
emissions targets identified by IPCC scientists to avoid potentially
catastrophic climate change.
One reason for this may be the fact that we calibrate our models to
pre-COVID energy and emissions projections (see appendix), which
produces conservative estimates in all years of our analysis.
Uncertainty remains about the pace and shape of the economic recovery,
as well as the extent to which COVID-induced behavior changes (e.g.,
working from home) will persist even after society restabilizes, and
how this may effect emissions in 2030 and 2035.
In any case, greater ambition under this suite of policies is one way
to reduce emissions further--for example, by increasing tax credit and/
or carbon price levels, or by designing a CES with a more stringent
decarbonization path than the one we model here (as current approaches
indeed propose).
Another approach would be to broaden the set of policy tools beyond
what we study here (which we recognize is a small sample of the climate
policy ideas being discussed in Washington). With electricity emissions
declining 65-85 percent by 2035 (from 2005 levels) under the scenarios
we study, leaders will need to devote attention to other sectors,
including the transportation and industrial sectors which together
account for 70-80 percent of emissions in 2035 under the scenarios we
analyze.
Our research also indicates that policies which incentivize a diversity
of decarbonization pathways tend to be more cost-effective than more
narrowly targeted approaches.
While the policies we study may not achieve the administration's
emissions goals, they represent a significant down payment on those
goals, and they show that--with additional policy and refinements to
existing approaches--these goals are within reach.
Appendix
In this appendix, we list key assumptions applied in our analysis
(organized by reference and policy cases), and we provide brief
descriptions of the models used.
Assumptions Regarding the Reference Case
Model reference case (or business-as-usual, BAU) assumptions are
calibrated to EIA's Annual Energy Outlook (AEO) 2019 and 2020 reference
cases. This means the models do not take into consideration the effects
of COVID-19 on the economy or emissions (which are incorporated for the
first time in AEO 2021). To give a rough sense of scale, pre-COVID BAU
emissions projections are about 10 percent higher in 2020, and 3-4
percent higher in each of 2025, 2030 and 2035, compared to post-COVID
projections.
Electricity and transportation models--AEO 2019
The electricity and light duty transportation models calibrate to AEO
2019. This implicitly includes the following major policy assumptions
(think of these as policies included in the reference case):
No Clean Power Plan.
Obama CAFE standards still in effect.
ZEV mandate in effect and federal plug-in vehicle tax credit
(30D) phases out after manufacturers exceed 200,000 sales.
For assumptions about other policies assumed active in AEO 2019:
https://www.eia.gov/outlooks/archive/aeo19/assumptions/pdf/summary.pdf.
For additional general AEO 2019 assumptions see: https://www.eia.gov/
outlooks/archive/aeo19/assumptions/.
Economy-wide model--AEO 2020
The economy-wide model calibrates to AEO 2020. This implicitly includes
the following major policy assumptions:
No Clean Power Plan.
Obama CAFE standards still in effect.
ZEV mandate not in effect (Trump administration refusal to renew
CAA Sec. 209 waiver)
For assumptions about other policies assumed active in AEO 2020:
https://www.eia.gov/outlooks/archive/aeo20/assumptions/pdf/summary.pdf.
For additional general AEO 2020 assumptions see: https://www.eia.gov/
outlooks/archive/aeo20/assumptions/.
Assumptions Regarding Modeled Policy Scenarios
Carbon Tax
Policy start: January 1, 2023
Starting tax rates: $15 per metric ton
Real annual growth rate: 5%
Clean Energy for America Act (CEAA)
Electricity generation PTC and ITC
Policy start: January 1, 2023
PTC
Qualifying Fuels: Wind, Solar, Hydro (Non-
buildable), Nuclear (Non-buildable), Geothermal (Non-buildable),
Biomass
Price: $24 (2020$)/MWh starting in 2023 (assumes
full value of tax credit goes to generators, which may not be the case
in the context of tax equity market transaction costs and mark-downs)
New plants qualify for 10 years of credits
ITC
Qualifying Fuels: Battery Storage
Price: 30% discount on capital costs beginning in
2023 (assumes full value of tax credit goes to generators, which may
not be the case in the context of tax equity market transaction costs
and mark-downs)
New plants qualify for 10 years of credits
Energy efficiency tax credits
Policy start: January 1, 2022
New Homes
Whole-home energy reduction
10% more efficient than IECC 2021 $2,500
Home Improvements
Replacing heating and cooling systems
Min (30% of the replacement, $500) per appliance
Up to $800 for air source heat pumps and ductless
mini-split heat pumps
Up to $10,000 for ground source heat pumps
New Commercial Buildings
25% more efficient than ASHRAE 90.1-2016 -> $1.75/
sqft
Electric vehicle tax credits
Policy start: January 1, 2022 and ends December
31, 2031. Vehicle tax credits are available for all plug-in vehicle
purchases, regardless of manufacturer's cumulative sales.
Clean Energy Standard (CES)
Policy start: January 1, 2022
Starting Requirement: 44% of national retail sales must be clean
generation in 2022.
1st Segment: linear increase to 80% clean generation by 2032
(3.6% /year)
2nd Segment: linear increase to 100% clean generation by 2050
(1.11% per year)
Benchmark Emission Rate: .4 metric tons / MWh (modeled as .44
short tons / MWh)
Banking and no-banking scenarios considered
Other
EV charging infrastructure spending is included in the All-in
scenario. Spending assumptions: $1 billion per year from 2022 through
2031. Each charging station costs $50,000, and charging stations are
allocated across regions according to the region's share in total new
vehicle sales in 2018. The effect of charging stations on EV sales is
calibrated based on regional trends from 2015-2018.
Weatherization spending ($5 billion per year) is included in the
All-in scenario.
Model Descriptions
The following models were used for this analysis. Results from each of
these three models were combined to produce the estimates discussed
above.
E3 Computable General Equilibrium (CGE) Model (Marc Hafstead)
The Goulder-Hafstead Energy-Environment-Economy E3 CGE Model is an
economy-wide model of the United States with international trade. The
model has two key features that distinguish it from most other CGE
models. First, it combines a detailed description of domestic energy
supply and demand with a detailed treatment of the US tax system, which
allows for a careful examination of the interactions between climate
and fiscal policies. Second, the model combines capital adjustment
costs and perfect foresight to consider the dynamics of investment and
disinvestment in response to climate policy. The current iteration of
the model is benchmarked to 2018 data from the BEA and is carefully
calibrated to both benchmark year data on energy use by fuel and sector
from the EIA and EIA's AEO 2020 projections of energy use and GDP.
Haiku Electricity Sector Model (Karen Palmer, Dallas Burtraw, Maya
Domeshek, Nick Roy)
The Haiku model is a detailed dynamic linear programming model of the
US electricity sector. The model solves for investment and retirement
of generation capacity over a 25-year horizon, with annual operation of
the electricity system represented in eight time-blocks in each of
three seasons (winter, summer and spring/fall). Electricity market
equilibria are solved at the state level, allowing for state-level
representations of environmental policies and regulatory practice, with
interstate transmission capability calibrated to observed transactions
in recent data. The model includes representations of existing power
plants categorized by technology and fuel, and new options for
investment in both fossil plants and various renewable options that
capture costs and performance characteristics including resource
availability by location and time block. Forecasted demand for
electricity is fixed in any given model solution based on forecasts
from EIA and is modified across scenarios to reflect the effects of
policies such as vehicle electrification or increased investment in
energy efficiency. The model solves for generation by model plant,
costs and emissions of CO2 based on fuel type and heat rates
at emitting generators.
Energy Efficiency Model (Kenneth Gillingham, Qinrui Xiahou)
The energy efficiency modeling uses a back-of-the-envelope approach
that accounts for four tax credits in the CEAA--those that apply to:
new homes, home improvements, weatherization, and new commercial
buildings.
For new homes and weatherization, the analysis is conducted at the
climate zone level. The total energy saving is the weighted sum of the
product of energy intensity savings, the number of new homes, the
average floor area and participation rates. Energy intensity savings
come from DOE's analyses of building codes; participation rates are
estimated based on the energy efficiency distribution from the 2015
RECS Survey and existing WAP practice; and other parameters are
acquired from the U.S. Census Bureau.
For home improvements, the calculations use empirical results on the
effect of rebate policies on the sales share of Energy Star appliances.
Along with efficiency improvement and sales data from the Energy Star
website, the total energy saving is the sum of efficiency gains
deriving from additional sales over major heating and cooling systems.
For commercial buildings, the parameters are collected and calibrated
for each building type. The total energy saving aggregates the
participation rates estimated based on the energy efficiency
distribution from the 2012 CBECS Survey, the energy intensity savings
from DOE's estimations, and the number of buildings and average floor
area forecasted with historical data from EIA.
In all the analyses, it is assumed that savings for each energy type
(natural gas, petroleum, electricity, etc.) are proportional to their
shares of residential/commercial energy consumption at the national
level.
Light-Duty Vehicle Model (Josh Linn)
The transportation model embeds a model of the new vehicle market in a
representation of the on-road fleet of light-duty passenger vehicles.
In the model of the new-vehicle market, vehicle manufacturers maximize
profits by choosing the prices and fuel economy of their vehicles while
complying with federal fuel economy/GHG standards and the ZEV program.
Consumers in the model choose a vehicle that maximizes their own
subjective well-being. All parameters of the model have been estimated
or calibrated using a unique data set that is derived from survey data
from approximately 1.5 million car-buying households from 2010-2018.
For a given set of policy and fuel price assumptions, the model
characterizes the equilibrium prices, sales, and GHG emissions rates of
new vehicles by year and demographic group from 2017-2035.
Emissions of the on-road fleet are estimated from a model of the stock
of light-duty vehicles. The stock evolves over time as new vehicles are
purchased and older vehicles are scrapped. Utilization of each vehicle
in the fleet depends on total national vehicle miles traveled (VMT),
driving preferences of demographic groups, and fuel costs of the
vehicle relative to other vehicles. For each scenario, key inputs to
the model include a) projected aggregate VMT and fuel prices from the
2019 AEO; b) sales and GHG emissions rates of new vehicles as described
above; and c) scrappage rates. Emissions are calculated for each policy
scenario and year from 2017-2035.
______
Zero Emission Transportation Association
659 C St., SE
Washington, DC 20003
(p) 703-328-8016
https://www.zeta2030.org/
May 11, 2021
The Honorable Ron Wyden
Chairman
U.S. Senate
Committee on Finance
Washington, DC 20510
The Honorable Mike Crapo
Ranking Member
U.S. Senate
Committee on Finance
Washington, DC 20510
Chairman Wyden, Ranking Member Crapo, and honorable members of the
Committee, thank you for holding this hearing on these important issues
and for providing the opportunity to provide this statement for the
record.
The Zero Emission Transportation Association (ZETA) is a public
interest non-profit of 55 member companies advocating for 100% electric
vehicle (EV) sales by 2030. Our membership spans the entire EV supply
chain and includes critical materials, charging companies, utilities,
vehicle manufacturers, and battery recyclers.
We are dedicated to strengthening our nation's domestic EV industry to
ensure the United States swiftly decarbonizes its transportation sector
and maintains its edge in an increasingly competitive global auto
market. At the start of this year, ZETA launched a comprehensive
federal roadmap to achieve 100% electric vehicle sales by 2030.
ZETA's Roadmap to 2030 articulates the importance of strong incentives
to electrify the transportation sector, provide benefits to consumers,
create hundreds of thousands of 21st-century jobs, and drive down
harmful emissions to improve public health while addressing climate
change. A number of our recommendations rely on adapting the tax code
to better serve the American consumer in order to drive domestic
manufacturing and electrification in a swift and equitable manner.
ZETA views the tax code as the federal government's most powerful tool
to invest in strong domestic manufacturing and drive deployment of
electric vehicles. ZETA applauds the creative proposals put forth in
both Chairman Wyden's Clean Energy for America Act and Ranking Member
Crapo's Energy Sector Innovation Act that would peg clean energy
incentives to concrete outcomes like emissions reduction and market
penetration, rather than arbitrary expiration dates or caps as they
have been to date.
We support the reforms to the plug-in electric vehicle tax credit and
new incentives for commercial vehicles in the Clean Energy for America
Act. While we support the spirit of the Energy Sector Innovation Act,
especially the focus on the 48C Investment Tax Credit reform, we would
like to see it include transportation technologies, especially for zero
emission drivetrains and batteries.
We also support the bipartisan American Jobs in Energy Manufacturing
Act led by Senators Manchin, Stabenow and Daines, that would
incentivize domestic manufacturing of advanced energy technologies with
targeted investment in rural communities across America that have
suffered from a decline in manufacturing and traditional energy sector
jobs. The important resources allocated to this fund will provide
certainty and spur immediate manufacturing investment that otherwise
may have been put off.
It is fiscally responsible to phase out subsidies for mature
technologies with nearly 100 percent market saturation and reinvest the
savings toward emerging sectors with high returns on investment like
clean energy--which is a category that should include advanced
batteries and zero-emission vehicles.
We believe that the Clean Energy for America Act, the American Jobs in
Energy Manufacturing Act, and the Energy Sector Innovation Act can
complement each other with smart revisions. Together, they can
accelerate the development of new, domestic clean energy technologies
from early-stage emergence to commercial deployment. With some
additional calibration they can begin creating new domestic
manufacturing jobs and ensure America maintains its edge in this
increasingly competitive global clean energy race of the 21st century.
Sincerely,
Joe Britton
Executive Director
[all]