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Leveling the Playing Field for Renewables

December 03, 2012 By Michaela Burroughs, Undergraduate Research Fellow

Renewable energy bashers like talking about all of the subsidies the industry receives but fail to mention the financial support coal, nuclear, and petroleum lobbyists have carved into public policy for their industries.

One such advantage dates back to the 1980’s, when Congress established the Master Limited Partnership (MLP). This business set up is only available to investors in real estate, commodities, and energy portfolios for oil, natural gas, coal extraction, and pipeline projects. In fact, it excludes most renewable energy sources.

MLPs can drastically cut tax liabilities for companies because profits are taxed only at the shareholder level. Most other publicly traded companies are taxed at both the corporate level and the shareholder level.

As of 2008, Congress amended the tax code to include ethanol and biofuel, but nothing has since been done to include other renewable resources.

“These projects get access to capital at a lower cost and are more liquid than traditional approaches to financing energy projects, making them highly effective at attracting private investment,” according to Delaware senator Chris Coons, who is sponsoring an amendment that would expand this opportunity to renewable energy sources. Minnesota’s Amy Klobuchar and Al Franken are co-sponsors on the bill, known as The Master Limited Partnerships Parity Act.

For now, Klobuchar and Franken are eager to level the playing field to ensure legislation to advance renewable energy passes, even if it requires keeping advantages in place for fossil fuel. Going forward, however, they feel—along with Minneapolis Congressman Keith Ellison—that it’s past time to cut big-oil subsidies.

The Star Tribune quotes a green energy advocate who takes that concept even further: “Environmentally, ‘the smart thing to do is remove all incentives from fossil fuels and give them to renewable energy,’ said Rod Larkins of the University of Minnesota's Initiative for Renewable Energy and the Environment. ‘From a political standpoint, that's not going to happen.’”

With bi-partisan sponsorship in both the House and Senate, the MLP amendment could wind up being part of a tax deal that also extends the expiring production tax credit for wind generation, according to the Star Tribune report.

As Minnesota 2020 has written about a number of times, the Wind Production Tax credit (PTC) is an important tool to keep that resource growing. Uncertainty over its extension has already led to contraction in the industry and job losses. Passing both the Parity Act and PTC would provide that sector a helpful jolt.

Drawing investment to renewable energy sources is a powerful move. However, other legislation, which has little do with direct financing or tax credits, needs to be revised to accommodate these emerging resources. Much like new media technology, Minnesota and the nation’s legal framework hasn’t kept pace with science.

Specifically when it comes to solar, Minnesota must update several policies expanding opportunities for property owners and businesses to sell back to the grid.

Of the estimated $350 billion in MLP capital currently in the market, approximately $290 billion (83 percent) has gone into qualifying energy and natural resources.

If renewables were to be given the opportunity to have fewer taxes attached to investment, then their appeal to smaller investors becomes greater. An extension of the qualified energy resources over time could lead to renewables fundraising more capital independent of other tax credits. With Minnesota having such a strong renewable resource base, the Master Limited Partnership Parity Act would benefit the state economy while making renewable energy sources more competitive. This policy moves the energy standard forward towards a more innovative direction while allowing for renewable sources to become independent from the tax incentives currently provided.

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1 Comments:

  • Frank W. Hawthorne says:

    December 4, 2012 at 10:46 am

    I’d like to see MN2020 do a piece on the issue of a “Minnesota Bottle Bill;” i.e. a point-of-purchase, deposit based system like those found in a dozen other states, and directed at misc. beverage containers. A huge issue for progressives is WHY this type of legislation has in the past not found willing champions among DFL office-holders.  Many of us think that—beyond the limits of voluntary compliance—the data shows this would go far in reducing the still-great waste (and litter) “stream.” Thanks!