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In December, the Senate Finance Committee released a plan (links below table), spearheaded by Senator Max Baucus, that aims to simplify tax breaks to energy.  There are some interesting elements to their approach.  For example, they attempt to combine many tax breaks specifying a single energy technology into a pooled provision with more standardized rules for all potential suppliers.  Access to the subsidies is driven by how well a technology can provide electricity or transport fuels with lower ghg-intensities.  This approach should be helpful in making the subsidies more objective-oriented, consistent across sources, and less subject to political carve-outs to narrow constituencies.

However, for reasons I plan to address in a more detailed review of the proposal over the coming weeks, I expect the proposal is also likely to increase overall tax subsidies to energy rather than decrease them.  Further, the approach also seems likely to perpetuate an important bias of current rules, with far more subsidies propping up suppliers of all types than flowing to demand-side management options.

Nuclear power provides a salient example of how the new rules would drive up taxpayer subsidies.  As shown in the table below, all of the existing constraints in current law regarding nuclear's use of energy tax credits will be removed.  Favorable language related to increasing the low-carbon power output from existing facilities is particularly worrying.  It will likely allow every kWh of electricity coming out of a future nuclear plant uprate to receive a 2.3 c/kWh tax subsidy. (Though a separate issue, these rules, in combination with the ability to claim credit on self-consumed power so long as a third party owns the power metering equipment, will also result in large subsidies to primary industries in the metals, petrochemical, and paper industries.  This will further erode the competitive position of secondary, recycled materials.)

Another big change in nuclear tax breaks relate to technological requirements.  Current rules provide production tax credits only to "advanced" reactors; the new rules would apply to any new reactor built, even if using off-the-shelf technology.  These projects would also be able to tap into investment tax credits instead of PTCs, if deemed more favorable by plant investors.

Nuclear subsidies likely to rise sharply under energy tax subsidy reform proposal


Current Law

Baucus Clean Energy Tax Credit Proposal

Eliminates other subsidies to nuclear fuel chain?


Only the 45J nuclear production tax credit; all other nuclear subsidies remain.


Unit Subsidy

-1.8 c/kWh, not indexed for inflation.

-Nuclear not eligible for investment tax credits under current rules.

-2.3 c/kWh, indexed for inflation.


-20% investment tax credit.

Tax credits allowable for on-site use of power?

No; sales to unrelated parties only.

Yes; if metering installed and monitored by unrelated party.

Eligible facilities

New advanced nuclear reactors.

New reactors of any type; investments that make existing reactors more efficient (e.g., power uprates) also appear to be eligible.

Number of years for which a facility can claim the tax credit

8 years of production

10 years of production; if ITC claimed, full 20% of investment expenses can be claimed in the year spent.

Other limitations on eligibility

-Per-facility maximum. $125m per 1,000 MW of capacity.  More eligible facilities will reduce PTCs available to any one plant.

-National maximum.  6,000 MW of capacity, and $750m per year of credits ($6 billion total over 8 year eligibility).

-Phase-out in strong markets.  If prices for nuclear power exceed 8 c/kWh as adjusted for inflation (> 11 c/kWh in 2013), allowable PTC declines.

-Per-facility maximum. None.

-National maximum.  None.

-Phase-out in strong markets.  None.

Sources:  26 U.S. Code Section 45J; Joint Committee on Taxation, Technical Explanation of the Senate Committee on Finance's Staff Discussion to Reform Certain Energy Tax Provisions, December 18, 2013 (JCX-21-13); Senate Finance Committee, "Chairman's Staff Discussion Draft:  Title ____ - Energy Provisions," Accessed 4 February 2014.