Advises Lawmakers to Transition from Current Patchwork to Technology-Neutral Provisions that Provide Stability, Phase Out Incentives Based on Market Criteria

Washington, DC – Advanced Energy Economy (AEE), a national business organization representing the advanced energy industry, today urged Congress to reform the U.S. tax code in a way that promotes energy innovation more effectively while also providing budgetary savings. AEE encouraged Congress to adopt policy principles that would promote innovation, sunset incentives when market objectives are achieved, provide stability and certainty for businesses and investors, and not favor one innovative energy technology over another. 

“These four principles represent a commonsense approach that puts federal tax policy squarely behind energy innovation that will pay off in the marketplace,” said AEE CEO Graham Richard. “But they equally represent a dramatic break from the status quo. We look forward to working with Congress and the President to transition to a principled approach to federal energy tax policy that fosters innovation and moves us toward a more secure, clean and affordable energy future.”

Through a series of conversations and interactions with numerous stakeholders, including business and finance leaders, tax policy experts, members of Congress and their staff, AEE has created a set of principles that can act as a guide to the development of new tax policy as applied to energy. To the maximum extent possible, energy tax incentives should: 

• Be targeted: limit incentives to where innovation is needed to build a more secure, clean and affordable energy future. Rather than providing permanent support to mature technologies that already have significant market penetration, the federal government’s role should be limited to driving innovation and commercializing the next generation of technologies that promise public benefits such as enhancing energy security through fuel diversity and grid modernization, providing cleaner energy that better protects public health, and reducing energy costs for consumers and businesses.

• Sunset automatically when market-based objectives are achieved. No company or technology should be entitled to permanent subsidies. When left in place too long, tax incentives distort price and market signals and ultimately create barriers to entry for new technologies. Tax incentives should remain in place only long enough to achieve a measurable, market-based objective that represents a point at which emerging technologies have reached sufficient maturity to stand on their own.

• Provide stability and certainty for businesses and investors. Rules that change frequently or unpredictably are disruptive to markets and harmful to the businesses, investors, and consumers participating in them. The life of many current credits is determined by expiration dates that are short-term, arbitrary in nature, and unrelated to market conditions. When credits are allowed to lapse, or renewed at the eleventh hour – and extended to the next short-term, arbitrary deadline – the result is a cycle of boom and bust. Using meaningful performance metrics tied to maturity in the marketplace, rather than calendar deadlines, to sunset a tax benefit would provide certainty to investors, focus businesses on bringing their technologies to scale and down the cost curve, and allow market dynamics to drive business success.

• Be technology neutral. Many of today’s energy tax policies were written with one sector in mind, even favoring a single technology. Such an approach distorts market signals and puts the weight of the government behind investment decisions. This is inefficient and it imposes unnecessary risk on taxpayers. In addition, this approach can inadvertently freeze out next- generation technologies. Energy tax benefits should be applied as broadly as possible to stimulate innovation across technologies, including those that have not yet emerged.

Noting that not one of 26 existing energy tax provisions meets all four of these principles, and none meets more than two, AEE has said that existing energy tax incentives should be gradually and responsibly phased out and replaced with a structure that more accurately reflects the energy realities of today and interacts more efficiently with energy markets.

In comments submitted to the House Ways and Means Committee’s Energy Work Group on Tax Reform today, AEE also sketched out a framework for translating the four principles into the tax code. Through a new structure, the tax code could create credits that are permanent in law but self-regulating in such a way that benefits phase out as energy innovations achieve benchmarks indicating market maturity, at which point these technologies are left to compete on their own. 

AEE’s proposed framework consists of four broad categories – fuels, energy generation, demand technologies, and financing – within which innovative technologies and services could qualify for tax benefits as long as they meet criteria based on the four principles.

“On the basis of this framework, we could move the United States toward a more efficient, business-focused energy tax code that spurs innovation, avoids market distortion, and reduces taxpayer burden,” said Richard. “We hope the Committee, and the Congress as a whole, make use of this framework to enact tax reform that accelerates innovation and advanced energy development in this country.”

Advanced energy is a vital part of America’s 21st century growth story. In 2011, global revenue from advanced energy reached nearly $1.12 trillion, according to a landmark market analysis commissioned by Advanced Energy Economy Institute, AEE’s educational and charitable affiliate. The global advanced energy industry is larger, by revenue, than pharmaceutical manufacturing, and roughly two-thirds the size of telecommunications. In the U.S., advanced energy revenue in 2011 was greater than that of trucking, and twice as great as commercial casinos

About Advanced Energy Economy 

Advanced Energy Economy is a national association of businesses and business leaders who are making the global energy system more secure, clean, and affordable. AEE’s mission is to influence public policy, foster advanced energy innovation and business growth, and provide a unified voice for a strong U.S. advanced energy industry. For more information, please visit www.aee.net.

Contact:         Kelley Vendeland, Advanced Energy Economy, 619-300-6642