Geoscience Policy Monthly Review
march 2014

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energy

Administration and Ways and Means Committee Chair propose energy incentive cuts

March saw new developments from the Administration and lawmakers on energy financing under the American tax code.

The Presidential Budget Request for fiscal year (FY) 2015, released on March 4, aims to repeal over $4 billion per year in oil, gas, and fossil fuel producing industry subsidies, while perpetuating renewable energy tax credits. The budget would repeal intangible drilling costs and tertiary injectants subsidies for oil and gas companies, increase the geological and geophysical amortization period from two to seven years, provide $2.3 billion for renewable energy sources and nuclear defense under the Department of Energy (DOE), and provide a revenue neutral corporate tax rate of 28 percent.

Alternatively, House Committee on Ways and Means Chairman Dave Camp (R-MI) released his draft of the Tax Reform Act of 2014 in the last days of February. Representative Camp’s bill calls for repeal of the exception for spudding and like-kind exchanges subsidies and from oil and gas companies. The spudding exception currently allows a tax shelter for expenses associated with wells that have been newly drilled, or spudded, within 90 days of the close of the tax year. Companies can defer gains on like-kind exchanges, or exchanges of similar property, when reporting their tax status. Legislation would also repeal subsidies for nuclear and renewable power, including those that fund planned reactors in Georgia and South Carolina, and proposes a 25 percent flat corporate tax rate.

Both the Administration and Representative Camp called for the repeal of percentage depletion, domestic manufacturing, passive loss, marginal well, and recovery credit tax deductions for oil and gas companies. Both proposals, subject to congressional approval, would also include permanent tax credits for scientific research and development (R&D).

Sources: Cornell University Law School Legal Information Institute; E&E News; FY 2015 Presidential Budget Request; House Committee on Ways and Means; Internal Revenue Service; Representative Dave Camp

Russia, Ukraine situation stimulates U.S. energy support efforts

The Russia-Ukraine conflict has caused the U.S. Administration and lawmakers to step up energy support to Ukraine. On March 4, U.S. Secretary of State John Kerry announced $1 billion in aid to Ukraine, including energy subsidies, to ease transition of the newly created government. Lawmakers in both chambers have since proposed legislation on liquefied natural gas (LNG) exports in efforts to reduce Ukraine’s dependence on Russian energy.

The March spree of legislation involving LNG exports comes from both sides of the aisle. Senator Robert Menendez (D-NJ) introduced S. 2124, which would pledge U.S. support in helping diversify Ukraine’s energy economy. Senator Barrasso’s (R-WY) amendments to S. 2124 called for expediting LNG exports to North Atlantic Treaty Organization (NATO) and World Trade Organization (WTO) nations.

A barrage of distinct legislation coming from both sides of the aisle encourages similar action, including S. 2096, sponsored by Senator Mark Begich (D-AK), S. 2083, sponsored by Senator Mark Udall (D-CO), H.R. 4139, sponsored by Representative Michael Turner (R-OH) and H.R. 6, sponsored by Representative Cory Gardner (R-CO).

Alternatively, Senator Ed Markey’s (D-MA) bill, H.R. 1189, counters the pro-export legislation and would require each LNG export application to be approved by the Secretary of Energy. According to Jason Bordoff from the Columbia Center on Global Energy Policy, the U.S. is a few years from being able to use LNG exports as geopolitical leverage. Only six LNG exporting projects have received permits, and most are still in the stages of financing and building export infrastructure.

Sources: CNN; E&E News; Government Printing Office; The Guardian; NPR OnPoint