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The GOP Tax Bill Is A Big Win For U.S. Oil And Gas

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The GOP tax overhaul passed both chambers of the U.S. Congress, although a lot remains to be done before a bill can reach the President’s desk. Still, there are a lot of changes in store for energy, and because much of the discrepancy between the two chambers is focused on some big-ticket tax items—and not energy—we can be reasonably confident about what to expect from the legislation in regard to the energy sector.

The post, The GOP Tax Bill Is A Big Win For U.S. Oil And Gas, was first published on OilPrice.com.

On its face, the GOP tax proposal seems to be a big win for oil and gas. The most obvious item is the opening of the Arctic National Wildlife Refuge (ANWR), which, if not for the multi-trillion-dollar tax overhaul in question, would be a blockbuster proposal on its own. Republicans have pushed for years—decades—to open up ANWR to drilling, but have been stymied by opposition from the other side of the aisle. It’s hard to believe that the opening of ANWR, tucked into the tax bill, has received so little attention. But there are bigger fights these days.

The inclusion of the ANWR language was critical to securing Alaska Senator Lisa Murkowski’s vote, and because the margin for error in the Senate is razor thin, there is little chance of that provision getting touched when the House and Senate try to reconcile their respective pieces of legislation.

A few months ago, the Washington Post reported that the Trump administration’s Interior Department was quietly working on rules to allow seismic testing in ANWR, in the event that Congress acted to open up the refuge for oil and gas drilling. It seems that with the passage of the GOP tax bill likely, the Interior Department might allow the industry to hit the ground running. Still, the remote location and lack of knowledge on the prospect for oil production in ANWR means that drilling won’t suddenly take off, particularly with shale in the Lower 48 offering a better business case. But, as the obstacles are removed, the industry will probably get its chance.

Related: Gulf Of Mexico Production Recovers After Recent Slump

But ANWR isn’t the only aspect of the tax bill affecting the energy industry.

Renewable energy could be hit hard. The House bill slashes tax credits for wind and solar, while the Senate version retains them. Those tax credits, readers may recall, were extended at the end of 2015 in exchange for a lifting of the decades-old ban on crude oil exports. The subsidies were supposed to last until the end of the decade, before phasing out by 2022.

A more obscure provision—the Base Erosion Anti-Abuse Tax (BEAT)—would be scrapped under the Senate bill. It’s a complicated provision, but it would subject multinational renewable developers to a new 100 percent tax, which would be “devastating” to the entire industry, according to a letter sent to Congress by the American Council on Renewable Energy and other clean energy groups. Renewables projects would no longer be able to take advantage of tax equity, and the tax equity market would “collapse,” which would lead to “a dramatic reduction in wind and solar energy investment and development.”

Also, the last-minute inclusion of the Alternative Minimum Tax in the Senate bill could put other clean energy tax credits out of reach for the industry.

In addition, the House retroactively changed how wind projects qualified for a tax credit—a move that the American Wind Energy Association (AWEA) estimates would put 60,000 jobs and $50 billion worth of investment at risk. The provision, AWEA says, “would kill over half of new wind farms planned in the U.S.”

Related: Analysts Raise 2018 Oil Price Forecasts After OPEC Deal

Oil and gas, on the other hand, would emerge unscathed. In fact, a last-minute provisiontucked in by Senator John Cornyn (R-TX) allows oil and gas companies to be taxed at a lower rate. How this works is that energy companies classified as “master limited partnerships” could be taxed under the reduced “pass-through” rate. Other tax breaks enjoyed by the oil and gas sector are left untouched, save for one credit for producers of “marginal wells” and for “enhanced oil recovery.”

To be sure, there are a lot of changes afoot given that both chambers need to reconcile their differences. For instance, the inclusion of the AMT, most analysts seem to think, was an eleventh-hour move in the Senate to make the bill comply with budgetary rules. There is speculation that it won’t survive the final bill, although removing it means that revenue will have to be made up elsewhere.

However, overall, the final tax bill will likely carry out what the Trump administration has tried to do for much of its first year: reward oil and gas while taking aim at renewables.

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James Stafford's picture

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Rudolf Huber's picture
Rudolf Huber on Dec 8, 2017 11:37 am GMT

Eventually, governments will have to stop throwing money on renewables and start to tax them as otherwise, their budgets go to the dumpers. As long as renewables were an oddity, it was easy to give them favours for brownie points with the greenies. But when politicians have to choose between some greenies or the ability to fund big porc that keeps the bulk of their voters in their jobs, they won’t think twice. Renewables have a perfect storm coming for them and it’s of their own making.

Rick Engebretson's picture
Rick Engebretson on Dec 8, 2017 2:40 pm GMT

Being both “green” and advocating “renewables” I strongly favor the “America First” tax plan. Innovation will explode.

Some day we will wake up and California will be on fire, a starving rogue nation (like N. Korea) will threaten our continental energy infrastructure, and the oil superpower mideast will be firing missiles into Israel. We won’t have time to argue sex, fraud science, and hate politics.

I don’t know how we re-invented “green” to mean anything except agriculture, forestry, habitat, soil and water conservation, clean air. Similarly, I don’t know how “renewable” came to mean anything except life cycle Biophysics. But if civil public discourse can’t work, economic incentives to innovate will.

America has NEVER been so locked into innovation stagnation as has been created by “green renewables” usurpers.

Mark Heslep's picture
Mark Heslep on Dec 9, 2017 7:43 pm GMT

Other tax breaks enjoyed by the oil and gas sector are left untouched…

…the Trump administration has tried to do for much of its first year: reward oil and gas while taking aim at renewables.

Then, which is it, “untouched”, or done “much” to “reward oil and gas”?

What specifically has the administration done to “aim at”, i.e. impede renewables since taking office? Both the wind PTC and solar ITC continue, though both industries now regularly declare they are lower cost than thermal power plants. There is no US “sun tax” on solar systems as in Spain. US solar cell and panel production companies have called for tariffs on foreign production, and the US administration is considering one favorably AFAICT, unfortunately.

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