Category: Biofuels

Tax Credits for Energy Facilities Extended in New Budget Bill
Renewable Fuel Standard – RIN Roundup
Teresa A. Hill Named to National Law Journal’s “Energy & Environmental Trailblazers”
New Treasury Guidance Significantly Expands Field of Renewable Energy Projects That May Qualify for the PTC or ITC
U.S. Senate Currently Debating Legislation to Reauthorize the FAA, Extend Energy Tax Credits
DOE Announces Loan Guarantee Solicitation
Senate Action Halted on Tax Legislation
New Turns in Germany’s Energy Turnaround
Energy Tax Incentives Prominent in Senate Finance Committee’s Extenders Package
President’s Budget Sets Energy Tax Priorities

Tax Credits for Energy Facilities Extended in New Budget Bill

By Charles Purcell,  Won-Han Cheng, Elizabeth Crouse, and Andrea Templeton

Congress recently enacted the Bipartisan Budget Act of 2018, which contained a number of extenders applicable to tax credits for energy facilities.  In the case of PTC-eligible energy facilities that were not covered by the earlier extension applicable to wind and solar, the credit was extended to facilities where construction was commenced before January 1, 2018.  This new rule applies to closed and open loop biomass, geothermal, landfill gas, trash, qualified hydropower, and marine and hydrokinetic facilities.  In addition, the election to claim the ITC in lieu of the PTC on these facilities was also extended to facilities where construction was commenced before January 1, 2018.

The ITC provisions were amended to extend the “commence construction” dates for 30% credits for fiber optic solar, qualified fuel cell, ground based thermal heating and cooling systems, and qualified small wind energy property to be consistent with solar facilities (terminating at the end of 2021). The Act also extended the “commence construction” dates for 10% credits relating to qualified microturbine and combined heat and power system property (also terminating at the end of 2021).  To be eligible for the extension, combined heat and power system property must be placed into service after December 31, 2016.

In addition, the credits for fiber optic solar, qualified fuel cell and qualified small wind project will step down over the next 5 years.  It also appears that any such property not placed in service by the end of 2023 will not be eligible for any ITC.

Renewable Fuel Standard – RIN Roundup

By Buck B. Endemann and Jeff M. Cohen

The federal Renewable Fuel Standard (RFS) requires refiners and importers of gasoline and diesel to blend a minimum volume of renewable fuel into their transportation fuel products. Refiners and importers subject to the RFS must purchase Renewable Identification Numbers (RINs), which are compliance credits traded on a secondary market, to prove that their fuel contains U.S. Environmental Protection Agency (EPA)-required volumes of cellulosic biofuels, biomass-based diesel, advanced biofuels, and total renewable fuel. While the RFS has generated controversy from the moment its first iteration was passed in the Energy Policy Act of 2005, volatile RIN prices and lower fuel demand have more recently prompted refiners to become increasingly vocal in their opposition to the program.

Two recent court rulings and a rulemaking proceeding could contribute to additional uncertainty, at least in the short term. On August 15, 2017, the U.S. Tenth Circuit Court of Appeals potentially expanded the RFS exemptions available to small refineries, a ruling that was followed by lower RIN prices in the secondary market. The RFS has a case-by-case exemption for small refineries that face “disproportionate economic hardship” in achieving compliance. EPA had previously interpreted the exemption to apply only where there existed an existential threat to a refinery’s survival. In Sinclair Wyoming Refinery Company v. EPA, the 10th Circuit rejected EPA’s interpretation, finding that a small refinery could qualify for an exemption if it suffered hardship that was merely out-of-line with that suffered by other small refineries. While the longer term implications of the case are unclear, if EPA grants more small refinery exemptions, fewer entities will be required to purchase RINs, which could potentially depress the market. It is worth noting that the Tenth Circuit broke with other circuits on the standard used to review EPA’s decision, and this case could be taken up by the U.S. Supreme Court.

While Sinclair may reduce the pool of regulated entities required to buy RINs, there is also reason to believe that EPA may require the remaining refiners and importers to blend an increased volume of biofuels into their gasoline and diesel. On July 28, 2017, the D.C. Circuit Court of Appeals struck down an Obama-era reduction in the amount of ethanol required to be blended in the nation’s fuel supply. In Americans for Clean Energy v. EPA, the D.C. Circuit concluded that the EPA had improperly used its “inadequate domestic supply” waiver to reduce blending targets below Congressionally-approved levels. Going forward, EPA will not be able to consider the “inadequate domestic supply” waiver by considering the retail demand for biofuels—the biofuel supply available to refiners, blenders, and importers should instead be the focus of the analysis. Pro-biofuel stakeholders praised the decision, which could result in more biofuels being sold into the marketplace.

These two cases were decided against the backdrop of EPA’s Renewable Fuel Standard Program rulemaking for its 2018 standards and 2019 biomass-based diesel volume. While the annual rulemaking process is used to set volumetric requirements and to consider various waivers, EPA is also presently seeking comment on whether the proposed 2018 biofuel volumes would cause “severe harm” to the economy. EPA is accepting public comments on the rulemaking through August 31, 2017.

Given recent developments, those in favor and those opposed to the RFS should have plenty to say in the rulemaking proceeding. K&L Gates attorneys are continuing to monitor the situation as we guide our clients through important RIN and RFS issues that affect their businesses.

Teresa A. Hill Named to National Law Journal’s “Energy & Environmental Trailblazers”

K&L Gates is pleased to congratulate our partner Teresa A. Hill on being named to the National Law Journal’s “Energy & Environmental Trailblazers.” The National Law Journal recognized lawyers across the country that have moved the needle in the energy or environmental space through devising new strategies, pioneering technological advancements, litigating landmark cases, and other innovative initiatives.

Teresa was honored for her work in the cutting edge area of corporate energy sourcing, which helps corporate customers develop and implement sustainability and carbon reduction goals through their energy strategy.

In addition to her work spearheading the K&L Gates Corporate Energy Sourcing Initiative, Teresa focuses her practice in the areas of energy and infrastructure projects and transactions with an emphasis on on wind, solar, biomass, geothermal and hydroelectric power.

Click here to read the National Law Journal feature

New Treasury Guidance Significantly Expands Field of Renewable Energy Projects That May Qualify for the PTC or ITC

On May 5, the U.S. Treasury Department released Notice 2016-31 to address certain changes made to the Production Tax Credit (“PTC”) and Investment Tax Credit (“ITC”) in the Protecting Americans from Tax Hikes (“PATH”) Act of 2015, Pub. L. No. 114-113, Div. Q.  The Notice generally extends the application of the “beginning of construction” and “continuous construction” requirements set forth in Notices 2013-29, 2013-60, 2014-46, and 2015-25, and also favorably modifies several key factors of both requirements.  In addition, on May 18, the U.S. Treasury Department released a revised version of Notice 2016-31, which states that the provisions of Notice 2016-31 apply to any project for which a taxpayer claims the PTC or, via Code Section 48(a)(5), the ITC, that is placed in service after January 2, 2013.

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U.S. Senate Currently Debating Legislation to Reauthorize the FAA, Extend Energy Tax Credits

The U.S. Senate is currently debating legislation to reauthorize the Federal Aviation Administration (FAA).  It is likely that the bill will contain a tax title including energy tax provisions.   There is increasing support for an extension of the Investment Tax Credit for biomass, geothermal and fuel cells.  Also under discussion are other proposals, including tax credits for biofuels, carbon capture and sequestration.

Some conservative groups are voicing opposition to any renewable energy tax provisions.  However, key Senate Republicans and Democrats indicate that an agreement is close.

Timing for House action on a FAA bill and possible tax title is unclear.

We will provide an update next week.

DOE Announces Loan Guarantee Solicitation

Last Thursday, July 3rd, the Department of Energy (DOE) issued its finalized loan guarantee solicitation for renewable energy and energy efficiency projects. DOE made $2.5 billion in loan guarantee authority directly available through the solicitation, but indicated that an expansion of this financing up to $4 billion is possible depending on how much it can stretch an appropriated credit subsidy on applications. This suite of loan guarantees has been a highly sought after item as Secretary Ernest Moniz and other DOE officials have repeatedly stressed the Department’s focus on renewable and energy efficiency research and financing. DOE support for research and investment in these areas can be seen as an extension of the President’s Climate Action Plan, as the Administration strives to cut carbon emissions. Read More

Senate Action Halted on Tax Legislation

Senate consideration of legislation to reinstate 55 expired incentives ground to a halt on May 15. The Senate fell 7 votes short of ending a Republican filibuster. While many Republicans support the underlying package, they are opposed to efforts by Senate Majority Leader Reid to limit amendments.

The bill includes a dozen energy-related measures such as the renewable electricity production tax credit and biofuels credits.

Negotiations between key Democrats and Republicans will resume the week of May 19 in hopes of reaching an agreement to end the filibuster and allow the tax package to come up for votes. If the two sides remain at a standoff, the bill may not come up for a vote until after the November election.


New Turns in Germany’s Energy Turnaround

In March 2014, the German government presented the details of its plans for changes in the country’s renewable energy support scheme. The planned legislation (the “Draft”), which passed the cabinet on 8 April 2014, seeks to curb the increase of energy costs and to promote a stronger market integration of renewable energy production.

Under the Renewable Energies Act (“EEG”), renewable energy producers are entitled to fixed feed-in tariffs and to priority feed-in into the grids. The spread between the market price and the feed-in tariff is levied to electricity consumers by a renewable energy surcharge (“EEG Surcharge”) whereby energy-intensive industries benefit from a reduction.

Under the EEG support scheme, renewable energy sources have experienced a boom in Germany, now serving as a source for about 25 % of the country’s electricity consumption – four times as much as a decade ago. In turn, the system has increasingly been put under political pressure as energy costs (especially for households) continue to increase. In addition, the support scheme is held to produce a paradox effect: whereas consumer prices increase due to the EEG Surcharge that levies the feed-in tariffs, wholesale electricity prices plunge because the rapidly growing renewables are flooding the market. The effect of this price development is tangible: Germany’s second largest utility, RWE AG from Essen, whose core business is electricity delivery, has announced a net loss for the year 2013 of 2.8 billion Euros. It was RWE’s first loss-making year since the end of the Second World War. Read More

Energy Tax Incentives Prominent in Senate Finance Committee’s Extenders Package

The Senate Finance Committee approved its long-awaited tax extenders package on April 3, 2014. The Expiring Provisions Improvement Reform and Efficiency (EXPIRE) Act, which the Committee approved by voice vote, would extend dozens of temporary tax incentives that expired at the end of last year or are set to expire at the end of this year. Moreover, the package includes numerous energy tax incentives that lapsed at the end of last year.

The EXPIRE Act would extend the following energy tax provisions:

  • * Production tax credit and investment tax credit with respect to facilities producing electricity from certain renewable sources (e.g., wind) (Sections 45 and 48)
  • * Deduction for energy efficient commercial building property (Section 179D)
  • * Credit for residential energy efficient property (Section 25C)
  • Alternative fuel refueling property credit (Section 30C)
  • Credit for electric motorcycles and three-wheeled vehicles (Section 30D)
  • Second generation biofuel producer credit (Section 40)
  • Special depreciation allowance for second generation biofuel plant property (Section 168(l))
  • Tax credits for biodiesel and renewable diesel (Section 40A)
  • Credit for the production of Indian coal (Section 45(e)(10))
  • Credit for energy efficient new homes (Section 45L)
  • Alternative fuel and alternative fuel mixture credit (Sections 6426 and 6427(e))
  • Credit for new qualified fuel cell motor vehicles (Section 30B) (expires in 2014)

* Provision was not included in Senator Ron Wyden’s (D-OR) “Chairman’s mark” but was added to the package before the Committee’s mark-up.

That said, the EXPIRE Act is, for the most part, a “clean” extenders package, meaning that the proposal mostly changes termination dates and includes few changes to underlying policy. As a result, certain modifications sought by the renewable energy industry were not included. For example, the proposal would not expand Master Limited Partnerships (MLPs) along the lines of Senator Chris Coons’ Master Limited Partnerships Parity Act (S. 795). Additionally, the EXPIRE Act would not impose a “commence construction” requirement (as opposed to a “placed in service” requirement) with respect to solar projects under the investment tax credit under Section 48. Finally, it would not extend the credit for energy efficient appliances under Section 45M.

K&L Gates hosted Chairman Wyden for a breakfast meeting on April 8. Wyden stated that he is working with Senate leadership on a strategy that would bring the EXPIRE Act to the Senate floor. Some staff indicate that floor action could occur as early as the next congressional work period, during the weeks of April 28 or May 5. Meanwhile, the House Ways and Means Committee may also consider energy tax incentives soon as part of its planned series of hearings on tax extenders.

We will provide more updates as this debate unfolds over the coming months.

President’s Budget Sets Energy Tax Priorities

On March 4, President Obama released his annual budget request to Congress. The President’s Fiscal Year (FY) 2015 request includes many proposals from previous years, but it also includes some new ideas—including on energy taxes. Below is a summary of the Administration’s energy tax proposals.

  •  Modify and Permanently Extend the Renewable Electricity Production Tax Credit (PTC).  As in its budget request last year, the Administration would make the Internal Revenue Code (IRC) Section 45 PTC permanent, refundable, and available to solar facilities. However, there are two significant changes from last year: (1) the Administration would make the credit available for electricity consumed directly by the taxpayer; and (2) solar facilities could choose to use either the PTC or the investment tax credit (ITC) under IRC Section 48 through the end of 2016. After 2016, the proposal would repeal the permanent 10 percent ITC for solar and geothermal property.
  • Modify and Permanently Extend the Deduction for Energy-Efficient Commercial Building Property. The Administration would raise the current maximum deduction for energy-efficient commercial building property to $3.00 per square foot, increase the maximum partial deduction for each separate building system to $1.00 per square foot, and provide a new deduction to reward energy savings achieved by retrofits to existing buildings, among other changes.
  • Provide a Tax Credit for the Production of Advanced Technology Vehicles. The Administration would replace the existing tax credit for plug-in electric drive motor vehicles with a credit for “advanced technology vehicles” that: (1) operate primarily on an alternative to petroleum fuels; (2) use technology employed by few other vehicles in the U.S.; and (3) exceed the “target” miles per gallon gasoline equivalent (MPGe) by at least 25 percent.
  • Provide a Tax Credit for Medium- and Heavy-Duty Alternative Fuel Commercial Vehicles. The Administration would create a new tax credit for alternative fuel vehicles weighing more than 14,000 pounds. The credit would equal $25,000 for vehicles weighing up to 26,000 pounds and $40,000 for vehicles weighing more than 26,000 pounds.
  • Extend the Tax Credit for Cellulosic Biofuels. The tax credit for the production of cellulosic biofuels under IRC Section 40 (recently re-titled the “second generation biofuel producer credit”) expired at the end of 2013. The Administration would retroactively extend the credit through 2020 at its current level of $1.01 per gallon.
  • Modify and Extend the Tax Credit for the Construction of Energy-Efficient New Homes. The Administration would extend the tax credit for new energy-efficient homes acquired before 2015. For homes acquired between 2015 and 2025, the proposal would provide a $1,000 credit for the construction of a qualified ENERGY STAR certified new home.  The Administration would also provide a $4,000 tax credit for construction of DOE Challenge Homes.
  • Reduce Excise Taxes on Liquefied Natural Gas (LNG) to Bring Into Parity with Excise Taxes on Diesel. The Administration would lower the 24.3 cents per gallon excise tax on LNG to 14.1 cents per gallon after 2014.

The Administration has also proposed to repeal numerous tax preferences for conventional energy companies. In particular, the President proposed to repeal the following provisions:

  • Credit for Enhanced Oil Recovery (“EOR”) Projects
  • Credit for Oil and Natural Gas Produced from Marginal Wells
  • Expensing of Intangible Drilling Costs 
  • Deduction for Tertiary Injectants 
  • Exemption to Passive Loss Limitation for Working Interests in Oil and Gas Properties 
  • Percentage Depletion for Oil and Natural Gas Wells
  • Domestic Manufacturing Deduction for Oil and Natural Gas Production
  • Expensing of Exploration and Development Costs
  • Percentage Depletion for Hard Mineral Fossil Fuels
  • Capital Gains Treatment for Royalties
  • Domestic Manufacturing Deduction for the Production of Coal and Other Hard Mineral Fossil Fuels

In addition to repealing these provisions, the Administration would increase the geological and geophysical amortization period for independent oil producers from two years to seven years.

Although it’s unclear whether Congress will enact any of these proposals into law, the Administration’s budget request is significant in that it establishes the President’s position on energy tax issues moving forward. This positioning is especially important as Congress debates tax extenders legislation and energy tax reform. It’s also important when considered in comparison to recent proposals from House Ways and Means Committee Chairman Dave Camp (R-MI), whose tax reform discussion draft would repeal incentives for alternative energy, and former Senate Finance Committee Chairman Max Baucus (D-MT), whose tax reform staff discussion draft would establish a regime of technology-neutral tax incentives to reward reductions in greenhouse gas emissions while eliminating other energy tax provisions.

Stay tuned for more information as this debate unfolds.

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