Discussion Draft - Energy Sector Subsidies Associated with Republican Tax Reform Plans

This review assesses the House and Senate tax reform proposals as they relate to the energy sector. Three main areas are examined: cross-cutting changes to tax rates or baselines and whether some of them will have disproportionate or distortionary impacts on particular fuels; specific energy tax expenditures that are modified or repealed in the proposals; and baseline subsidies that remain untouched. All three factors affect energy market structure and the degree to which political decisions on taxation will affect the direction of energy investment and the pace and form of the transition away from carbon-based fuels in the United States.

A combination of key subsidies to fossil energy remaining untouched while core subsidies to renewables are repealed, along with significant use of tax-favored corporate structures by oil and gas all suggest that were the current proposals become law, they would materially benefit fossil fuel industries relative to other energy market participants. The changes will also benefit Southern Company, the sole private owner of two under-construction nuclear reactors in Georgia. While not actually named in the bill, the firm will be the only beneficiary of the changed rules on the nuclear production tax credit.

The paper is a discussion draft, and likely to evolve as more information becomes available.  If you see items that would benefit from updating, please email.