Kerry, Lieberman release draft climate legislation with tax incentives; path through Senate is unclear

As expected, Senate Finance Committee member John Kerry, D-Mass., and Sen. Joe Lieberman, I-Conn., on May 12 released a discussion draft of a comprehensive climate-change bill that, if enacted, would affect all types of businesses in many aspects of their operations, particularly energy-related costs.

The Kerry-Lieberman bill would set a mandatory cap on certain greenhouse gas (GHG) emissions across the economy starting in 2013 with the goal of gradually reducing emissions to 17 percent of 2005 levels by 2050. The House of Representatives passed its version of climate legislation (H.R. 2454) in June 2009, with similar targets. Like the House bill, the Kerry-Lieberman bill provides nontax incentives for the development of clean energy technologies and regulates GHG emissions primarily through a cap-and-trade system.

Unlike the House-passed bill, whose tax-related are limited to energy tax credits for low-income families, the Kerry-Lieberman bill includes a package of tax incentives targeted primarily to nuclear power generation. This, in addition to some significant nontax differences between the two bills, may prove difficult to resolve in conference if the Kerry-Lieberman proposal clears the Senate.


Tax incentives for nuclear energy

As drafted, the bill would more than double the funding for the popular advanced manufacturing energy credit under section 48C (from $2.3 billion to $7.3 billion). This is a 30 percent investment tax credit that was enacted as part of the American Recovery and Reinvestment Act of 2009 (P.L. 111-5) and is available for qualified clean energy manufacturing projects. The bill also would make nuclear power plants eligible for the credit.

Other tax incentives are:
- A five-year accelerated depreciation period for new nuclear power plants;
- A 10 percent investment tax credit for the construction of nuclear power facilities;
- Modification of the credit for production from advanced nuclear power facilities to allow the credit to be allocated to private partnerships with public power companies;
- Modification of the tax-exempt bond rules to permit exempt bonds to be used by public-private partnerships for advanced nuclear power facilities; and
- Grants for 10 percent of qualified nuclear power facility expenditures in lieu of tax credits. Public power providers and cooperative electric companies would be eligible grant recipients.

The bill also would require the Government Accountability Office to report to Congress by the end of 2011 on the utilization of energy-related tax incentives.


Outlook

Further action on this legislation is unlikely to occur before mid-June when an economic analysis by the EPA is expected to be completed. Senate Majority Leader Harry Reid, D-Nev., has indicated that he would like to gauge reactions to the proposal and determine chances for action after returning from the one-week Memorial Day recess that is scheduled to begin on May 31. Additionally, Senate Finance Committee Chairman Max Baucus, D-Mont., will have to agree to the tax incentives in the legislation before legislative action could occur.

The prospects for passage of the bill have diminished since former sponsor Sen. Lindsey Graham, R-S.C., decided he could no longer support the effort. Graham was the only Republican to work on the bill and without bipartisan support it will not receive the 60 votes needed to overcome procedural hurdles in the Senate. The upcoming midterm congressional elections will also have an impact on the bill's prospects. Large Democratic losses may make senators more reluctant to undertake controversial legislation.