How Tax Changes Could Help a Green New Deal

If the Green New Deal is going to succeed, we will likely need major changes to the country’s energy tax structure; changes that would eliminate big tax cuts and subsidies for the oil and gas industry and instead encourage renewables. Bill’s like Senator Ron Wyden’s Clean Energy for America Act (introduced in 2017-18), could help level the playing field for clean energy, giving a boost to development efforts like the Green New Deal.

Currently, Big Oil profits enormously from federal tax cuts and subsidies that come from the pockets of American taxpayers. Green energy companies don’t see nearly the same tax incentives that the oil and gas industry has spent nearly a century building up. For instance, if a company invests in putting up a new oil well one year, they can deduct 100% of the cost of the well from their yearly taxes. If that oil well should happen to explode and cause environmental damage, the company can deduct what they spend on cleanup. The oil and gas that they do extract also carries lower royalties, due to tax exemptions. Finally, these companies are subsidized for direct spending costs, like using waterways to ship oil and gas. David Roberts at Vox does the math, “Adding everything up: $14.7 billion in federal subsidies and $5.8 billion in state-level incentives, for a total of $20.5 billion annually in corporate welfare.”

Taxes and Subsidies Must Reflect National Priorities

To be fair, these subsidies were developed to encourage the development of America’s resources when our priority was finding and developing fossil fuels. However, national priorities change and the government’s role is to lead that change. The Clean Energy for America Act fits in with the economic overhaul proposals of the Green New Deal by clearing the slate of the 44 energy tax breaks currently on the books and replacing them with a five-pronged approach to incentivize clean energy. Clean energy does get some subsidies, but as of now, “… oil companies continue to be subsidized at a rate of 7-1 compared to permanent tax breaks that go to renewable energy.” The bill attempts to balance the scales so that cleaner energy sources will have a fighting chance.

It does away with subsidies that cover nearly half the cost of new oil fields. The oldest oil and gas subsidy, established over 100 years ago, is the Intangible Drilling oil and gas deduction. That’s a tax break companies get for exploring land and sea for fossil fuels to extract. Coal production is costly and unprofitable, but because of the current regulations that save coal plants from having to comply with the Clean Air Act, these plants continue to stay in business.

Renewables and Oil Must be on a Level Playing Field

“(t)he U.S. tax code is now stacked against renewable energy; it’s stacked against technologies that can lower energy carbon outputs and it’s stacked against taxpayers”, according to Wyden. To correct that the legislation uses a four-pronged approach: Clean Energy Tax Credits, Clean Fuel Tax Credits, Energy Efficiency Incentives, and Clean Electricity and Fuel Bonds. The first gives companies a 75% credit for clean electricity produced and sold in the first year after the law goes into effect and then decreases by 25% in the following years. The clean fuel version is the same but measured in gallons of fuel. Energy efficiency incentives are tax credits for building a new home or business that uses efficient technologies. Replacing heating and cooling units with more efficient ones also gets credit. The bonds would help finance loans for clean energy projects. Overall, the Act would save taxpayers money on their energy bills, prompt investment in clean energy, and create jobs in the clean energy sector.

If proponents of the Green New Deal hope to succeed, they’ll need to see laws that restructure the economy put in place. Wyden’s Clean Energy for America Act would be a big piece of that, effectively changing the way American energy operates. Big Oil won’t go down without a fight though and the oil and gas industry has billions of American tax dollars to fight it with. To prevent them from using taxpayer money to pollute the country’s air and land, bills like Wyden’s will need widespread support, voter engagement, and more political backing. As of now, 21 Democrats support the bill. It will need more support from both sides of the aisle to become a part of the nation’s new story.

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