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Senate Committee Debates 'Tax Extender' Legislation

Senate lawmakers and a panel of experts on Wednesday debated how to reform the nation’s energy tax code, and whether renewing “tax extender” legislation makes sense for energy innovation and job creation.

The Senate Finance Committee heard testimony from experts on both sides of the aisle who argued for and against carbon taxes, as well as renewable subsidies, among other things.

"It's past time to replace today’s crazy quilt of more than 40 energy tax incentives with a modern, technology-neutral approach," said committee Chairman Ron Wyden (D-OR). "Let's clear the hurdles that slow down America’s energy innovators and let's introduce a new level of competition and fairness into the marketplace."

Ranking member Orrin Hatch (R-UT) said President Obama's cap-and-trade and carbon tax proposals weren't "the only bad ideas out there."

"Over the last few years, we've seen the administration's continued refusal to approve no-brainer energy projects like the Keystone XL pipeline," Hatch said. "Our entire pipeline infrastructure needs to be updated and enhanced, yet the Obama administration continues to sit on its hands.

"We need to set partisanship and political gamesmanship aside and get the extenders package across the finish line as soon as possible."

But Gilbert Metcalf, professor of economics at Tufts University, said a carbon tax would be the most efficient way to reduce greenhouse gas emissions.

"Since energy related carbon dioxide [CO2] emissions account for the vast bulk of emissions, a carbon tax on fossil fuels would be a cost effective and administratively straightforward way to reduce those emissions," Metcalf said in his prepared remarks. He later added that if a carbon tax were implemented, "it would have an additional revenue benefit as there would no longer be a need for...renewable energy tax credits, and various other credits designed to encourage reduced emissions in the energy sector."

Conversely, David Kreutzer, a researcher for The Heritage Foundation, argued that a carbon tax would be bad for the economy and would have a minimal impact on reducing CO2 emissions.

"Carbon taxes will drive up energy costs, reduce employment, and cut income," Kreutzer said in his prepared remarks. He later added that "reducing CO2 with a carbon tax will have at most tenths of a degree moderation in global warming."

Former Sen. Don Nickles (R-OK) -- a former committee member who now serves as CEO of The Nickles Group -- said the wind production tax credit should remain expired, and blasted the Obama administration for advocating cutting tax breaks to oil and gas companies.

"The president's punitive proposals include denying oil and gas companies the Section 199 manufacturing deduction that all other manufacturers receive," Nickles said in his remarks. "In fact oil and gas companies already receive a smaller benefit than all other manufacturers, but the president believes even that should be taken away. He would also dramatically increase the cost of exploring and drilling by increasing the recovery period for intangible drilling costs [IDCs].

"IDCs are the ordinary and necessary business expenses of this industry, and they should remain immediately deductible."

During a question-and-answer session, Nickles added that "some people don't make the connection that extending and subsidizing wind actually works to the detriment of some of those [oil and gas] jobs. But it does. If you did the administration's proposal on IDCs, you're going to be telling the person who's drilling that well that he can't expense the wages on that well -- he has to amortize [a portion of that] over five years. That to me makes no sense.

"That is not a subsidy. Uncle Sam is not writing a check to...drill wells. [But] Uncle Sam is writing a check to...produce windmills."

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