Energy Tax Incentives - S. 14

ENERGY TAX INCENTIVES—S. 14

Mr. GRASSLEY. Mr. President, last night, Senator Baucus and I, along with Chairman Domenici and Senator Bingaman introduced the Energy Tax Incentives Act of 2003 as an amendment to the underlying energy bill. We also submitted an amendment that contains technical and conforming modifications to the Finance Committee reported amendment. Those amendments are numbered 1424 and 1431 and are printed in the RECORD of Wednesday, July 30, 2003. These important tax initiatives were developed after several months of consultation between our Committee members, and voted out of the Finance Committee as a bipartisan product. In my estimation, the Energy Tax Incentives Act reflects a fair balance of the interests of the members and effectively supports the development of energy production from renewable and environmentally beneficial sources.

I would like to briefly describe that amendment before I talk about the tax incentives part of the energy bill.

For years, I have worked to decrease our reliance on foreign sources of energy and accelerate and diversify domestic energy production. I believe public policy ought to promote renewable domestic production that uses renewable energy and fosters economic development.

Specifically, the development of alternative energy sources should alleviate domestic energy shortages and insulate the United States from the Middle East dominated oil supply. In addition, the development of renewable energy resources conserves existing natural resources and protects the environment. Finally, alternative energy development provides economic benefits to farmers, ranchers and forest land owners, such as those in Iowa who have launched efforts to diversify the state's economy and to find creative ways to extract a greater return from abundant natural resources.

Section 45 of the Internal Revenue Code currently provides a production tax credit for electricity produced from renewable sources including wind, closed-loop biomass, and poultry waste. The Energy Tax Incentives Act extends the section 45 credit and expands the sources of electricity to include biomass, including agricultural waste nutrients, geothermal wells and solar energy.

I have been a constant advocate of alternative energy sources. Since the inception almost ten years ago of the wind energy tax credit, nearly 4,300 megawatts of generating capacity have been installed across the country. Forty percent of that capacity was added during 2001, a year in which wind energy installations increased 3000% over the prior year—the most new wind capacity ever installed in the United States. Wind farms installed last year produce enough electricity to power almost half a million average American households per year, demonstrating the significant capacity of wind. In addition, wind represents an affordable and inexhaustible source of domestically produced energy. Extending the wind energy tax credit until 2007 would support the tremendous continued development of this clean, renewable energy source.

The Finance Committee's amendment supports a maturing green energy source. Experts have established wind energy's valuable contributions to maintaining cleaner air and a cleaner environment. Every 10,000 megawatts of wind energy produced in the United States can reduce carbon monoxide emissions by 33 million metric tons by replacing the combustion of fossil fuels.

In addition, this proposal helps to empower our rural communities to reap continued economic benefits. The installation of wind turbines has a stimulative economic effect because it requires significant capital investment which results in the creation of jobs and the injection of capital into often rural economic areas. The wind industry now estimates that nearly $2 billion in employment and economic development will be added this year alone in the presence of the prompt extension of the credit through January 1, 2007

In addition, for each wind turbine, a farmer or rancher can receive more than $2,000 per year for 20 years in direct lease payments. Iowa's major wind farms currently pay more than $640,000 per year to land owners, and the development of 1,000 megawatts of capacity in California, for example, would result in annual payments of approximately $2 million to farm and forest landowners in that state.

As many of my colleagues know, I authored the section 45 tax credit included in the Energy Policy Act of 1992 which provided a tax credit for the production of energy from closed loop biomass.

This term refers to biomass produced specifically for energy production. An example is switchgrass grown in my home state of Iowa. To sustain many of the benefits derived from the production of biomass energy, we extend the existing credit and expand the provision to additional new sources of biomass energy production.

Environmentally-friendly biomass energy production is a proven, effective technology that generates numerous waste management public benefits across the country.

Moreover, the amendment expands the biomass definition to cover open loop biomass. Open loop biomass, includes organic, non-hazardous materials such as saw dust, tree trimmings, agricultural byproducts and untreated construction debris.

The development of a local industry to convert biomass to electricity has the potential to produce enormous economic benefits and electricity security for rural America.

In addition, studies show that biomass crops could produce between $2 and $5 billion in additional farm income for American farmers. As an example, over 450 tons of turkey and chicken litter are under contract to be sold for an electricity plant using poultry litter being built in Minnesota. This is a win-win, not only do the farmers not have to pay to dispose of this stuff, they get paid to sell the litter.

Finally, marginal farmland incapable of sustaining traditional yearly production is often capable of generating native grasses and organic materials that are ideal for biomass energy production. Turning tree trimmings and native grasses into energy provides an economic gain and serves an important public interest.

I am very proud of a long history of supporting new alternative energy concepts in the production of electricity. This amendment continues and expands that commitment. As discussed previously, section 45 provides a production tax credit for electricity produced from renewable sources including wind, closed-loop biomass, and poultry waste. The amendment modifies section 45 to include electricity generated from swine and bovine waste nutrient. This is a great example of how the agriculture and energy industries can come together to develop an environmentally-friendly renewable resource.

By using animal waste as an energy source, an American livestock producer can reduce or eliminate monthly energy purchases from electric and gas suppliers and provide excess energy for distribution to other members of the community. By way of example, in January 2001, an 850-cow dairy operation near Princeton, MN generated enough electricity to run its entire dairy farm and to sell $4,400 worth of excess power to the local electric provider—enough to power 78 homes during the coldest month of the year. In addition, a 5,000-hog farm, has potential to generate approximately 650,000 kilowatts of electricity—an amount equal to the consumption of 76 average American homes.

The swine and bovine proposal is truly Green electricity, as it also furthers environmental objectives. Specifically, anaerobic digestion of manure improves air quality because it eliminates of as much as 90 percent of the odor from feedlots and improves soil and water quality by dramatically reducing problems with waste run-off. Maximizing farm resources in such a manner may prove essential to remain competitive in today's livestock market. In addition, the technology used to create the electricity results in the production of a fertilizer product that is of a higher quality than unprocessed animal waste.

The Energy Tax Incentives Act is important to agriculture, rural economy and small business, it is also important for domestic supply and energy independence.

Rural America can play an important part in energy independence and domestic supply. In addition to the production of electricity, this amendment includes additional tax incentives for the production of alternative fuels from renewable resources.

A small producers credit for the production of ethanol has been included to clarify that farmers cooperatives producing ethanol will be able to pass that tax incentive through to their farmer members. And we have a new incentive for the production of biodiesel. Biodiesel is a natural substitute for diesel fuel and can be made from almost all vegetable oils and animal fats. Modern science is allowing us to slowly substitute natural renewable agricultural sources for traditional petroleum. It gives us choices for the future and it can relieve the strain on the domestic oil production to fulfill those important needs that agricultural products cannot serve.

Let me point out that the Finance Committee amendment contains provisions that enhance the tax incentives for ethanol production. Ethanol is a clean burning fuel that will continue to be a key element in our transportation fuels policy. We reshaped the ethanol excise tax exemption. Under the Finance Committee change, ethanol-blended fuels will make the same contribution to the highway trust fund as regular gasoline while also retaining an important incentive to promote the use of domestic, renewable fuels.

It makes common sense for ethanol taxes to contribute just as much to building highways as traditional gasoline taxes. It isn't logical for a smaller portion of ethanol taxes to contribute to highways than the taxes from traditional gasoline. All types of vehicle fuel taxes should contribute equally to highway construction and maintenance.

Our highway needs are great. Our dependence on imported fuel should decrease. This restructuring of ethanol excise taxes contributes to both of those priorities. At the same time, it preserves all incentives to use the clean-burning, renewable, domestically produced ethanol, the fuel of the future.

Renewable fuels like ethanol and biodiesel will improve air quality, strengthen national security, reduce the trade deficit, decrease dependence on the Middle East for oil, and expand markets for agricultural products.

The Energy Tax Incentives Act amendment is a balanced package. I would like to note, with some satisfaction, that today we have the opportunity to do the people's business in the way they want us to do business. This Energy Tax Incentive amendment was crafted in a bipartisan way on an important initiative in a way that reflects the diversity of our views and the diversity of our nation. In this wartime climate, this is what the people want.

I have only taken a few minutes to review a portion of the amendment. The electricity tax credits and the alternative fuel incentives in the amendment are good for agriculture, good for the environment, good for energy consumers and good for national security interests. But this entire tax incentive amendment is equally important to a sound energy policy and I hope that my colleagues will join with me to advance these important legislative objectives.

Let me turn to the peculiar procedural situation that we find ourselves in. I want to enter conference with a clear understanding of the bipartisan intent of the Senate.

Today, the Senate will pass the text of last year's energy bill. Read literally, the unanimous consent agreement, states that the text of last year's Finance Committee amendment, which was adopted unanimously at the time, passes the Senate.

Folks in my home state of Iowa or my friend, Senator Baucus' home State of Montana, might reasonably ask a question. That question would be if you have improved the Finance Committee amendment from last year's bill, why not last year's tax title with this year's tax title? That's a good question. That was my position and that of Senator Baucus.

From a technical standpoint, you'd have to scratch your head, looking at effective dates for a bill that is now over a year old. There are other details in the official Senate-passed bill that will appear odd simply because the text has not been updated in over a year.

The answer to the question is simple. The answer is that this procedural agreement would not hold together unless last year's bill text stayed exactly the same. That reflects the agreement of the leaders on both sides. It has nothing to do with the substance of this year's Finance Committee amendment which is non-controversial. It has to do with the all or nothing, simplistic nature of the offer made by Senators DASCHLE and REID. The problem is that, if tax matters are opened up, no matter how non-controversial, then other matters would be open. In that situation, then the agreement of the leaders could not be consummated expeditiously.

Our majority leader, Senator Frist, assured me that the position of the Senate Republican Caucus would be this year's Finance Committee amendment. As the senior Finance Committee conferee, let me assure the Senate, that will be our conference position. Just as importantly, let me make sure the other body understands the letter and spirit of our position. Let me repeat that, loudly and clearly.

The Senate position for conference purposes will be this year's Finance Committee amendment. Everyone here knows, that in regular order, this year's Finance Committee would have been adopted by the Senate. That is the substantive position and the intellectually honest position. I expect my House counterparts to recognize and respect that intellectually honest position.

Before I finish I would like to comment on a few tax incentive proposals I intended to offer to the Finance Committee amendment. Because of the procedural situation we are in, these matters will not be in the Senate-passed bill. That is unfortunate, but, if we are to get a bill out of the Senate, these proposals became casualties for the cause.

The first proposal deals with dividend allocation rules for cooperatives. This proposal would allow the payments of dividends on the stock of cooperatives without reducing patronage dividends. This measure is very important for energy production and agriculture and, I expect, would have easily cleared the Senate.

The second proposal deals with an expansion of the qualified zone academy bond program to cover certain "green" teaching facilities recognized by the Department of Energy. This is an important matter for one such facility in my home State of Iowa. Like the first proposal, I expect this provision would have easily cleared the Senate.

The third proposal deals with publicly-traded partnerships. This proposal would permit mutual funds to acquire interests in publicly-traded partnerships. Publicly-traded partnerships are a key source of financing for energy production projects such as pipelines.

I regret the procedural situation we find ourselves in. Unfortunately, these important priorities will not be directly addressed in the Senate bill. I intend to raise them in conference in the spirit of this bill. If not successful, I will pursue them on future tax vehicles.