The Senate "Energy Tax Incentives Act Of 2002"

Overall Allocation of $16 Billion in Incentives
Although the Senate's Energy Policy Act of 2002 provides important tax incentives to encourage energy efficiency and renewable energy sources, it also continues to subsidize polluting energy industries. Of the $20.6 billion total, the Act allocates 29 percent of its tax incentives to clean, renewable energy and energy efficiency and 42 percent to dirty coal, oil, gas and nuclear power.

Renewable Energy Incentives - Cost: $3.1 billion
Section 45 of the Internal Revenue Code is a Production Tax Credit (PTC) that is intended to develop specified renewable energy sources and to promote competition between renewable energy sources and conventional energy sources. The Energy Tax Incentives Act of 2002 extends the PTC for wind facilities, closed-loop biomass facilities and poultry waste facilities through January 2007. The proposal also extends the tax credit to four new categories of renewable energy: solar, open-loop biomass, swine and bovine waste, and geothermal energy.

U.S. PIRG Analysis: Since the current structure of energy production tax incentives skews the economic benefits of energy production towards dirty fossil fuel and nuclear power, the production tax credit is an important factor in making the cost of renewable energy more competitive. The PTC helps to offset the relatively high front-end capital costs of renewable energy, thus allowing renewable energy to compete on a more even footing with fossil fuel and nuclear power. U.S. PIRG supports the Energy Tax Incentives Act's exclusion of municipal solid waste from the definition of biomass.

Conservation and Energy Efficiency Incentives - Cost: $1.8 billion
The Energy Tax Incentives Act includes several incentives to increase energy efficiency, including tax incentives for energy efficient homes and appliances; tax credits for purchase of alternative energy systems using wind and solar energy to power, heat and cool homes; and tax deductions for commercial building owners who implement energy efficiency measures and reduce energy consumption.

U.S. PIRG Analysis: Despite the initial upfront cost associated with investment in energy efficiency and conservation, in the long run consumers benefit by paying less for energy as well as by reducing air pollution and other threats to human health. Energy efficiency is the quickest, cheapest, cleanest way to save energy and reduce dependence on unstable fuel supplies. In fact, energy efficiency policies enacted over the past 25 years saved consumers $260 billion on their energy bills in 2000 alone.

Alternative Vehicles Incentives - Cost $1.1 billion
The Energy Tax Incentives Act would create or modify credits for the purchase of alternative motor vehicles.

U.S. PIRG Analysis: We can reduce our reliance on oil by using America's technological know-how to develop cleaner sources of energy and by making our vehicles more energy efficient. U.S. PIRG endorses incentives, such as those proposed in the Act, which encourage the production and sale of clean and efficient electric, hybrid and fuel cell vehicles. However, such measures must be carefully implemented to build a market for more efficient vehicles without eroding fuel economy gains.

Clean Coal Incentives - Cost: $1.9 billion
The Energy Tax Incentives Act would create three new credits for so-called "clean coal" technology, including the first-ever clean coal production tax credit.

U.S. PIRG Analysis: There is no such thing as "clean coal." Burning coal, even of the so-called "clean" variety, releases significantly more dirty emissions than any other commonly-used energy source. The federal government already has spent more than $1.8 billion in funds on "clean" coal since 1984, yet emissions of carbon dioxide and mercury from coal-fired plants have continued to increase. Giving away more money in the form of tax breaks to the coal industry will not reduce global warming and mercury pollution; rather, the solution rests in shifting to clean renewable forms of energy.

Oil and Gas Incentives - Cost: $3.7 billion
The Energy Tax Incentives Act would create or modify eleven oil and gas tax credits and deductions, ranging from suspending the 100 percent of taxable income limit with respect to marginal well production to treating natural gas pipelines as seven year property.

U.S. PIRG Analysis: The oil and gas industry already enjoys tax advantages and relief from tax rules that industries in other sectors of the economy covet. In fact, the oil and gas industry already dominates the federal tax code, with 62% of all federal tax expenditures going to oil and gas companies. These tax breaks further entrench our reliance on energy supplies that pollute our air and threaten public health.

Non-Conventional Fuel Credit - Cost $1.9 billion
The Energy Tax Incentives Act extends Section 29 of the Internal Revenue Code, offering producers a tax credit of $3 per barrel or Btu oil barrel equivalent for production of "non-conventional" fuels.

U.S. PIRG Analysis: Coalbed methane, which is derived from coal seams, accounts for most of the production qualifying for Section 29 credit. Industry representatives and analysts acknowledge that the Section 29 tax credit is not needed to promote and sustain coalbed methane development. Coalbed methane operators discharge enormous amounts of highly saline water; over 20,000 gallons per day, per well, onto the ground surface. This massive release of water causes soil erosion, stream sedimentation, vegetation loss and water pollution.

Nuclear Power Incentives - Cost: $1.1 billion
The Energy Tax Incentives Act would extend to unregulated utility owners the same tax deduction currently enjoyed only by rate-regulated utilities in connection with nuclear decommissioning funds.

U.S. PIRG Analysis: The owners of nuclear power plants should pay the full life-cycle cost of the construction, operation, waste storage and decommissioning of nuclear power plants. Over the course of 50 years, the U.S. Department of Energy alone has poured more than $66 billion in taxpayer dollars into nuclear power research and development. Nuclear plant operators should be required to compete against other energy providers, without the benefit of government tax breaks.