A Post-Tax Credit "Incentive" for Renewable Energy Development

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The U.S. Senate’s recent vote to repeal $5.4 billion worth of ethanol subsidies indicates an uncertain future for many renewable energy incentives.  In fact, the current climate in Congress appears generally hostile towards subsidies for any energy sector, with Democrats calling on Republicans to cut oil and gas subsidies and Republicans calling for the elimination of renewable energy subsidies.  With renewable energy subsidies on the table as part of ongoing deficit-reduction negotiations, Congress will need to consider other policy options and tools if, after losing significant subsidy support, renewable energy is going to be able to compete economically with fossil fuels. 

There are other options for incentivizing renewable energy even if certain current subsides are reduced or eliminated.  A recent bi-partisan Congressional Research Service (CRS) report discusses allowing the renewable energy sector access to the master limited partnership (MLP) business organizational form which can have significant tax benefits, attract additional capital, and stimulate lower-cost investment in renewables.  The oil and gas extraction industry has had access to the MLP structure since it was first established in the 1980s.  The MLP structure would allow renewable energy companies to be treated as partnerships for tax purposes but behave as corporations with access to public equity markets to obtain greater amounts of capital.  The CRS report cites a number of concerns to consider, such as narrowing the U.S. corporate tax base and the possibility of renewable energy investments being used as a tax shelter.  Allowing the renewable energy sector access to the MLP structure would, however, level the playing field with fossil fuels, which have enjoyed this benefit for decades.

 

Published In: Energy & Utilities Updates, Environmental Updates, Tax Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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