The Tax Bill is a Big Win for U.S. Oil And Gas

Renewable energy could get hit hard.

By Nick Cunningham, Oilprice.com:

The GOP tax overhaul passed both chambers of the U.S. Congress, although a lot remains to be done before a bill can reach the President’s desk. Still, there are a lot of changes in store for energy, and because much of the discrepancy between the two chambers is focused on some big-ticket tax items — and not energy — we can be reasonably confident about what to expect from the legislation in regard to the energy sector.

On its face, the GOP tax proposal seems to be a big win for oil and gas. The most obvious item is the opening of the Arctic National Wildlife Refuge (ANWR), which, if not for the multi-trillion-dollar tax overhaul in question, would be a blockbuster proposal on its own.

Republicans have pushed for years — decades — to open up ANWR to drilling, but have been stymied by opposition from the other side of the aisle. It’s hard to believe that the opening of ANWR, tucked into the tax bill, has received so little attention. But there are bigger fights these days. The inclusion of the ANWR language was critical to securing Alaska Senator Lisa Murkowski’s vote, and because the margin for error in the Senate is razor thin, there is little chance of that provision getting touched when the House and Senate try to reconcile their respective pieces of legislation.

A few months ago, the Washington Post reported that the Trump administration’s Interior Department was quietly working on rules to allow seismic testing in ANWR, in the event that Congress acted to open up the refuge for oil and gas drilling. It seems that with the passage of the GOP tax bill likely, the Interior Department might allow the industry to hit the ground running. Still, the remote location and lack of knowledge on the prospect for oil production in ANWR means that drilling won’t suddenly take off, particularly with shale in the Lower 48 offering a better business case. But, as the obstacles are removed, the industry will probably get its chance.

But ANWR isn’t the only aspect of the tax bill affecting the energy industry.

Renewable energy could be hit hard. The House bill slashes tax credits for wind and solar, while the Senate version retains them. Those tax credits, readers may recall, were extended at the end of 2015 in exchange for a lifting of the decades-old ban on crude oil exports. The subsidies were supposed to last until the end of the decade, before phasing out by 2022.

A more obscure provision—the Base Erosion Anti-Abuse Tax (BEAT)—would be scrapped under the Senate bill. It’s a complicated provision, but it would subject multinational renewable developers to a new 100 percent tax, which would be “devastating” to the entire industry, according to a letter sent to Congress by the American Council on Renewable Energy and other clean energy groups. Renewables projects would no longer be able to take advantage of tax equity, and the tax equity market would “collapse,” which would lead to “a dramatic reduction in wind and solar energy investment and development.”

Also, the last-minute inclusion of the Alternative Minimum Tax in the Senate bill could put other clean energy tax credits out of reach for the industry.

In addition, the House retroactively changed how wind projects qualified for a tax credit—a move that the American Wind Energy Association (AWEA) estimates would put 60,000 jobs and $50 billion worth of investment at risk. The provision, AWEA says, “would kill over half of new wind farms planned in the U.S.”

Oil and gas, on the other hand, would emerge unscathed. In fact, a last-minute provision tucked in by Senator John Cornyn (R-TX) allows oil and gas companies to be taxed at a lower rate. How this works is that energy companies classified as “master limited partnerships” could be taxed under the reduced “pass-through” rate. Other tax breaks enjoyed by the oil and gas sector are left untouched, save for one credit for producers of “marginal wells” and for “enhanced oil recovery.”

To be sure, there are a lot of changes afoot given that both chambers need to reconcile their differences. For instance, the inclusion of the AMT, most analysts seem to think, was an eleventh-hour move in the Senate to make the bill comply with budgetary rules. There is speculation that it won’t survive the final bill, although removing it means that revenue will have to be made up elsewhere. By Nick Cunningham, Oilprice.com

However, overall, the final tax bill will likely carry out what the Trump administration has tried to do for much of its first year: reward oil and gas while taking aim at renewables.

Energy-hungry China, eager to diminish its reliance on coal, wants to secure its supply of LNG. Where would it look? Read…  U.S. Energy To See Huge Investments From China




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  14 comments for “The Tax Bill is a Big Win for U.S. Oil And Gas

  1. Fred
    Dec 6, 2017 at 11:49 pm

    Bye-bye Tesla??

    • Marty
      Dec 7, 2017 at 1:35 am

      Couldn’t happen to a nicer con man, oops, I mean guy.

      Seriously, these tax breaks for alt energy are just awful. Tax breaks for any industry distort the economy and make everyone poorer. They’re the mechanism for corrupt pols to line their pockets at our expense.

    • Kaz Augustin
      Dec 7, 2017 at 5:12 am

      I doubt it. The “genius” will stay just ahead of tech fantasies and come up with another hare-brained scheme to siphon funds from government and people. Can’t believe how hard the media have been sucking up to the guy; maybe that’s his secret.

    • Nate
      Dec 7, 2017 at 5:13 pm

      More important for Chevy Bolt, Nissan Leaf, etc: is the $7,500 tax credit on the chopping block?

  2. Nicko2
    Dec 7, 2017 at 5:47 am

    An increase in oil price will only HELP renewables, so bring it on. Solar/wind installations are now cost competitive with natural gas/coal plants. – with subsidies, solar/wind projects are the cheapest form of energy production on the planet. We’re past the tipping point.

    • Fred
      Dec 7, 2017 at 11:27 am

      Wouldn’t this added supply decrease the price with all other factors being equal?

  3. walter map
    Dec 7, 2017 at 8:04 am

    You’d think $5 trillion or so in subsidies would be enough, but nothing’s too good for our fossil fuel billionaires – – er, our boys in the oil patch.

    https://www.theguardian.com/environment/climate-consensus-97-per-cent/2017/aug/07/fossil-fuel-subsidies-are-a-staggering-5-tn-per-year

    People who say crony capitalism doesn’t work are just jealous because they can’t afford the ‘campaign contributions’.

  4. RangerOne
    Dec 7, 2017 at 11:04 am

    There are so many obvious reasons to push for renewables over gas for the long term it still blows my mind that the party allegence to the industry is seen as anything but pure crony capitalism and corruption.

    • Fred
      Dec 7, 2017 at 11:29 am

      Agreed. It’s all about what’s in it for each state to pass a given bill.

      Environment, planet or greater good be damned!

      • James Levy
        Dec 7, 2017 at 11:57 am

        The Historian Philip Mirowski has argued persuasively that the whole elite neoliberal/market fundamentalist phalanx has got this down. First, you deny everything–nothing is happening, and if it is happening, we have nothing to do with it, and if we do, there is nothing we can do about it. Then, you come up with some kind of Ruble Goldberg market system to “mitigate” the problem: the whole carbon trading boondoggle. Then, when the problem is too far gone to avoid you unleash the geo-engineering “entrepreneurs” to apply unregulated “free market’ solutions that you pay for via government handout, because we all know that entrepreneurs operating in a “free market” cannot possibly fail.

        We’re looking at closed borders, machine guns, mass starvation, and wars in the Third World over the scraps sooner than most people think.

    • walter map
      Dec 7, 2017 at 1:04 pm

      ” . . . pure crony capitalism and corruption.”

      In its majestic equality, the law allows rich and poor alike to hire lawyers, rent politicians, and profit from government corruption.

      Isn’t democracy wonderful?

  5. Prairies
    Dec 7, 2017 at 12:32 pm

    I am not a huge fan of giving the oil companies free reign to do as they please, but I also think the renewables need a revamp in the US.

    Elon Musk and the value of Tesla vs. the productivity of Tesla, are as bad if not worse than the large oil producers and their greed. I feel they all need a reboot with proper logical regulation, there is a need for oil and gas south of the border but it can’t be at the cost of stepping back from renewables. Coal and N.G. are supplying 60% of the American power and Nuclear providing 20%, that leaves renewables at a tiny little 20%. The incentives only helped Tesla raise funds, the final goal of using renewables is still lagging behind.

    Those numbers don’t reflect the smaller nations like Canada that have enough hydro to cover a majority of the energy needs with renewables, but Canada has a lot of water sources and the production/manufacturing sectors are much smaller requiring less demand in the first place.

    • Gershon
      Dec 8, 2017 at 1:18 am

      Any lingering delusion that Trump was somehow the champion of the downtrodden Everyman against the globalist elites will be dispelled once Wall Street’s Republicrat duopoly passes this abomination of a tax bill. Middle and working class taxpayers are going to find out the hard way that thanks to this “reform” authored by the “former” Goldman Sachs swamp creatures Trump put in charge of our fiscal and monetary policies, they will be shouldering even more of the tax burden from America’s corporations and oligarchs.

      • Prairies
        Dec 8, 2017 at 10:20 am

        That tax bill is going to be a nightmare for the middle class. Sad to see 1% of the world getting stronger, wealthier and healthier while sheep believe campaign promises. I am stuck with stutter miggy, you guys are stuck with denture donald and we all get stuck with the bills.

        I pay my share, but I can’t afford to pay more.

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