On December 18, Senate Finance Committee Chairman Max Baucus, D-Mont., released a discussion draft of legislation that aims to reform U.S. energy tax incentives. The proposed energy tax incentives are a simpler set of incentives to promote cleaner energy that are designed to be technology-neutral and more predictable. Currently, there are 42 different energy tax incentives, including 16 for clean energy, alternative vehicles and renewable fuels. Of these, over half are temporary and expire every year or two, creating considerable uncertainty for investors and developers seeking to utilize these incentives. Although taxpayers would welcome the greater predictability offered by the Baucus proposal, there are many aspects that may not be viewed favorably, including the elimination of many existing incentives.

The Baucus proposal may gain traction because it is projected to reduce overall government “tax expenditures” for energy, depending on the assumptions made for what those expenditures are projected to be under current law. The Senate Finance Committee predicts that the enactment of the proposal, along with proposed changes in depreciation that affect energy producers, would reduce the cost of the government incentives for energy, which would exceed $150 billion if extended for the next 10 years, by more than half.