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POWERING OUR FUTURE: 

PRINCIPLES FOR ENERGY TAX REFORM 

HEARING 

BEFORE THE

SUBCOMMITTEE ON ENERGY, NATURAL RESOURCES, 

AND INFRASTRUCTURE 

OF THE

COMMITTEE ON FINANCE 

UNITED STATES SENATE 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

JULY 31, 2013 

( 

Printed for the use of the Committee on Finance 

COMMITTEE ON FINANCE 

MAX BAUCUS, Montana, Chairman 

JOHN D. ROCKEFELLER IV, West Virginia 

RON WYDEN, Oregon 

CHARLES E. SCHUMER, New York 

DEBBIE STABENOW, Michigan 

MARIA CANTWELL, Washington 

BILL NELSON, Florida 

ROBERT MENENDEZ, New Jersey 

THOMAS R. CARPER, Delaware 

BENJAMIN L. CARDIN, Maryland 

SHERROD BROWN, Ohio 

MICHAEL F. BENNET, Colorado 

ROBERT P. CASEY, Jr., Pennsylvania 

ORRIN G. HATCH, Utah 

CHUCK GRASSLEY, Iowa 

MIKE CRAPO, Idaho 

PAT ROBERTS, Kansas 

MICHAEL B. ENZI, Wyoming 

JOHN CORNYN, Texas 

JOHN THUNE, South Dakota 

RICHARD BURR, North Carolina 

JOHNNY ISAKSON, Georgia 

ROB PORTMAN, Ohio 

PATRICK J. TOOMEY, Pennsylvania 

AMBER COTTLE, Staff Director 

CHRIS CAMPBELL, Republican Staff Director 

SUBCOMMITTEE ON ENERGY, NATURAL RESOURCES, AND INFRASTRUCTURE

DEBBIE STABENOW, Michigan, Chairman 

MAX BAUCUS, Montana 

JOHN D. ROCKEFELLER IV, West Virginia 

RON WYDEN, Oregon 

MARIA CANTWELL, Washington 

BILL NELSON, Florida 

THOMAS R. CARPER, Delaware 

MICHAEL F. BENNET, Colorado 

JOHN CORNYN, Texas 

CHUCK GRASSLEY, Iowa 

MIKE CRAPO, Idaho 

MICHAEL B. ENZI, Wyoming 

JOHN THUNE, South Dakota 

RICHARD BURR, North Carolina 

JOHNNY ISAKSON, Georgia 

(II) 

C O N T E N T S 

OPENING STATEMENTS 

Page 

Stabenow, Hon. Debbie, a U.S. Senator from Michigan, chairman, Subcommittee on Energy, Natural Resources, and Infrastructure, Committee 

on Finance ............................................................................................................ 1 

Cornyn, Hon. John, a U.S. Senator from Texas .................................................... 3 

CONGRESSIONAL WITNESSES 

Moran, Hon. Jerry, a U.S. Senator from Kansas .................................................. 5 

Coons, Hon. Christopher A., a U.S. Senator from Delaware ............................... 17 

WITNESSES 

Cuttino, Phyllis, director, clean energy, The Pew Charitable Trusts, Washington, DC ............................................................................................................. 9 

Reicher, Dan, executive director, Steyer-Taylor Center for Energy Policy and 

Finance; professor, Stanford Law School; and lecturer, Stanford Graduate 

School of Business, Stanford University, Stanford, CA .................................... 10 

Coleman, Will, partner, OnRamp Capital, San Francisco, CA ............................ 12 

Thorning, Margo, Ph.D., senior vice president and chief economist, American 

Council for Capital Formation, Washington, DC .............................................. 14 

ALPHABETICAL LISTING AND APPENDIX MATERIAL 

Coleman, Will: 

Testimony .......................................................................................................... 12 

Prepared statement .......................................................................................... 35 

Coons, Hon. Christopher A.: 

Testimony .......................................................................................................... 17 

Prepared statement .......................................................................................... 49 

Cornyn, Hon. John: 

Opening statement ........................................................................................... 3 

Cuttino, Phyllis: 

Testimony .......................................................................................................... 9 

Prepared statement .......................................................................................... 51 

Moran, Hon. Jerry: 

Testimony .......................................................................................................... 5 

Prepared statement .......................................................................................... 81 

Reicher, Dan: 

Testimony .......................................................................................................... 10 

Prepared statement .......................................................................................... 85 

Stabenow, Hon. Debbie: 

Opening statement ........................................................................................... 1 

Prepared statement .......................................................................................... 97 

Thorning, Margo, Ph.D.: 

Testimony .......................................................................................................... 14 

Prepared statement, with attachment ............................................................ 99 

(III) 

Page

IV 

COMMUNICATIONS

Alliance to Save Energy .......................................................................................... 143 

American Public Power Association ....................................................................... 156 

American Trucking Associations ............................................................................ 162 

National Association of Publicly Traded Partnerships ......................................... 167 

Solar Energy Industries Association et al. ............................................................ 175 

(1) 

POWERING OUR FUTURE: 

PRINCIPLES FOR ENERGY TAX REFORM 

WEDNESDAY, JULY 31, 2013 

U.S. SENATE, SUBCOMMITTEE ON ENERGY, NATURAL

RESOURCES, AND INFRASTRUCTURE, COMMITTEE ON FINANCE, Washington, DC. 

The hearing was convened, pursuant to notice, at 3:15 p.m., in 

room SD–215, Dirksen Senate Office Building, Hon. Debbie Stabenow (chairman of the subcommittee) presiding. 

Present: Senators Wyden, Cantwell, Nelson, Bennet, Crapo, 

Cornyn, and Portman. 

Also present: Democratic Staff: Joe McGarvey, Senator Stabenow’s staff. Republican Staff: Andrew Siracuse, Senator Cornyn’s 

staff. 

OPENING STATEMENT OF HON. DEBBIE STABENOW, A U.S. 

SENATOR FROM MICHIGAN, CHAIRMAN, SUBCOMMITTEE ON 

ENERGY, NATURAL RESOURCES, AND INFRASTRUCTURE, 

COMMITTEE ON FINANCE 

Senator STABENOW. Well, good afternoon. I want to call the Finance Committee Subcommittee on Energy, Natural Resources, 

and Infrastructure to order and apologize for the wait. Due to votes 

and an extended vote, we are starting later than we had anticipated. But I would like to ask Senator Moran to join us at the 

table, and Senator Coons is anxious to be here. He is now presiding 

over another hearing, unfortunately, so, if he is able to come before 

the meeting is over, we do intend to give him an opportunity later 

in the hearing to speak. 

Last month, Chairman Baucus and Ranking Member Hatch invited all Senators to provide their ideas on what a reformed tax 

code should look like. I know the chairman and ranking member 

and their staffs will be carefully reviewing these ideas. Starting 

from the views of each member, we need to build a consensus in 

Congress and around the country on what our tax system should 

look like. 

The purpose of today’s hearing is to see if there are principles for 

energy tax reform where we can build consensus. In general, I believe that we should seek to streamline our Nation’s tax code to 

grow our economy while making the system fairer and simpler for 

our families and our businesses. 

Tax reform will only be successful, however, if it furthers our effort to make America more competitive in the global economy. 

2 

Competitiveness needs to be defined in a way that not only includes business success, but the economic success of individual 

Americans as well. 

A recent study by the Harvard Business School makes the point 

exceptionally well, I believe: ‘‘The United States is a competitive location to the extent that firms in the U.S. can succeed in the global 

marketplace while raising the living standards of the average 

American.’’ 

That is why a top priority of tax reform needs to be the elimination of current barriers in our tax code that make it difficult to 

innovate and make things in this country, and thus create and sustain a strong middle class. We need a do-it-all approach when it 

comes to energy production. 

This is not a new idea, and it has garnered support from both 

sides of the aisle, but we cannot have a true do-it-all approach if 

we only support one technology with 100-year-old tax credits and 

incentives while ignoring emerging energy technologies. Part of our 

strategy must be supporting innovative new clean energy industries and jobs in America. 

The global demand on fossil fuels is increasing as well, with rapidly growing middle classes in countries like Brazil, China, and 

India using much more energy than in previous decades. China put 

16.5 million vehicles on the road in 2010 alone. 

Prices will continue to go up, and the world will increasingly look 

for alternatives. Other countries know this, and that is why they 

are investing heavily to develop new clean energy technologies. We 

know that China is spending over $178 million every day on clean 

energy technologies. 

New clean energy industries not only mitigate the impact of climate change, they represent the potential for tremendous job creation here at home. They also give consumers more options and 

provide more market competition in energy. 

Other countries know that the race is on to be the global leader 

in these new technologies and that the country that controls new 

energy production will be the Saudi Arabia of the 21st century. 

This is one of the most important economic and national security 

issues of our time. We cannot afford to trade dependence on foreign 

oil for dependence on advanced batteries, wind, solar, hydrogen, advanced biofuels, or any other forms of energy. 

This discussion is also very much about jobs. There are 8,000 

parts in a wind turbine, as I like to say, and we can make every 

single one of those in the United States. In fact, we can make every 

one of those in Michigan. During 2012, wind energy became the 

number-one source of new U.S. electricity generating capacity, providing 42 percent of new generating capacity and supporting 75,000 

jobs nationwide. The solar industry employs 119,000 people, up 13 

percent from 2011, representing one of the fastest growth rates for 

any industry. Solar prices have declined by 60 percent as well since 

2011. 

I believe we must engage in the global race to lead the world in 

these new technologies or risk falling farther behind other countries. It is our responsibility to create tax policies that help our 

companies thrive. We need to provide American businesses the 

long-term certainty they need so they will invest in creating these 

3 

new technologies and jobs, and give consumers real energy choices 

in order to bring down prices. We need to seize the opportunity before it is too late, and tax reform is that opportunity. 

[The prepared statement of Senator Stabenow appears in the appendix.] 

Senator STABENOW. I would now like to turn to my friend and 

ranking member, Senator Cornyn, for his opening remarks. 

OPENING STATEMENT OF HON. JOHN CORNYN, 

A U.S. SENATOR FROM TEXAS 

Senator CORNYN. Thank you, Madam Chairman. I appreciate you 

holding today’s hearing, and it is certainly very timely considering 

the discussion of tax reform initiated by Chairman Baucus and 

Senator Hatch, although, as we know, the process of requesting Finance Committee members to send in their preferred tax expenditures has proven to be somewhat problematic. I read somewhere I 

think they offered to allow Senators to be part of the witness protection program if they submitted their preferred tax expenditures. 

[Laughter.] 

So it has been a little bit of a challenge. But it is important to 

talk about taxes. Taxes affect everything we do, although I must 

say that the revolution, or maybe renaissance is a better word, of 

energy production in America was primarily due to the innovation 

in the private sector of George Mitchell, the father of horizontal 

drilling and fracking, who died just this last week. 

I think he was 94 years old, and he was a legend and a great 

innovator in the oil and gas industry who created this process that 

promises to help us produce more oil in America than in Saudi 

Arabia by 2020. Of course, the natural gas revolution has been 

nothing short of phenomenal, causing inexpensive energy to be 

available for manufacturers, having them move back on shore. 

I mentioned all that, which you know, just to say that the private 

sector is not waiting on the Federal Government, but the Federal 

Government can throw obstacles in the way of the private sector 

when it comes to producing more energy here at home. 

In my State, we are fortunate to be a growing, stable economy, 

in large part because of our energy policies. We have a diverse 

array of energy sources. We are, by the way, number one in the 

production of electricity from wind energy, so we really do believe 

in the all-of-the-above policy. These industries, this energy production, provides great employment opportunities for Texans, while at 

the same time supplying energy needs to small businesses and 

working families. 

Of course, any time Washington starts talking about taxes, people sit up and listen. I want to say that I do appreciate the work 

of Chairman Baucus and Senator Hatch, although I do notice some 

divisions between those who insist that tax reform generate more 

revenue and those of us who—actually, I think I heard President 

Obama at one time say, at least for the corporate side, that he is 

for revenue-neutral corporate tax reform, which would be in our 

Nation’s self-interest and help get our economy back on track. 

The President’s own fiscal commission—if I am not mistaken, 

Senator Bennet was a part of that, the Simpson-Bowles Commission—argued that the tax code is rife with inefficiencies, loopholes, 

4 

perverse incentives, tax earmarks, and, as we all know, baffling 

complexity. 

They also noted that we need lower rates, marginal rates, we 

need to broaden the base, and we need to simplify the tax code to 

make America the best place to start and grow a business and create jobs, especially during a time of chronic high unemployment 

and where the labor participation rate is at a 30-year low, because 

many people have simply quit looking for work and a lot fewer of 

them participate in the job market. 

But our efforts to reform and simplify the tax code should not devolve into an opportunity just to raise taxes on the American people. After all, the Congressional Budget Office already projects that 

tax revenues in 2014 and beyond will exceed historical averages. 

Tax reform should not be taken as an opportunity to make job creation harder or more expensive or burdensome, especially given the 

millions of people who are out of work or under-employed. 

So, for these reasons, I think we have a little bit of an impasse— 

maybe not a little bit of an impasse, a big impasse. When the Senator Majority Leader says that tax reform cannot even be close to 

revenue-neutral, that is a non-starter for my colleagues; certainly 

it is for me. 

I do not think many, if any, families or small businesses in Texas 

believe that tax reform should just be another opportunity for 

Washington to suck more money out of the private sector. Tax policy is one important piece of the policy when it comes to making 

energy affordable and robust job creation a reality. 

A regulatory regime that makes it more difficult to produce or 

deliver affordable energy and to sustain and create jobs here at 

home is a recipe for more dependence on foreign sources of energy, 

which can lead to volatility and be a threat to our economy. It certainly does not do anything to help create the jobs we need. 

In this regard, I continue to be disappointed at the administration’s pursuit of regulatory policies that will end up increasing the 

cost of energy to consumers, to their employers, and their families. 

I understand, and Americans understand, that raising taxes and 

putting more regulations on industry will translate into higher 

prices. They are not absorbed by the industry; they are passed 

along to consumers in terms of higher prices. But I really would 

like to commend Senator Stabenow for having today’s hearing. 

This is important to flesh out differences in point of view and to 

hear from the experts from whom I am sure we can learn a lot. Today’s hearing is just another step down the path created by the 

chairman and ranking member of the full committee, and it is useful for the committee to examine what is in the tax code that is 

working and what is not. Many will argue for extensions of valuable tax incentives, or new tax incentives perhaps, for their preferred type of energy. 

The question is, for me, are we getting the best bang for the tax 

dollar, and which ones should we extend, modify, or eliminate altogether? Of course, the answer is one that Congress will ultimately 

provide. I look forward to hearing the testimony of the witnesses 

on what should be our guiding principles as we move forward. I especially want to welcome my friend, Senator Moran from Kansas. 

5 

When Senator Coons comes and joins us, we look forward to hearing from him too. 

Thank you, Madam Chairman. 

Senator STABENOW. Thank you very much. I also want to recognize our very distinguished friend, Senator John Warner, who is 

with us. We welcome you and miss you and hope all is well. So we 

are very glad to see you today. 

So, Senator Moran, if you would like to proceed, we would welcome your testimony. 

STATEMENT OF HON. JERRY MORAN, 

A U.S. SENATOR FROM KANSAS 

Senator MORAN. Madam Chairman, thank you very much. It is 

disappointing to me that my colleague and friend, Senator Coons, 

is not available for us to do this jointly, and I probably will not be 

here for his testimony, but he has been a great ally on an issue 

that he and I both are excited about and wanted to visit with the 

committee about today. 

This is the first time I think in the 21⁄2 years that I have been 

a member of the U.S. Senate that I have testified in front of a committee, and I was not intimidated—no offense to either one of you, 

Ranking Member or Chairman—but when my colleague from Colorado, Chairman Bennet, walked in, I became a bit more nervous. 

But then, when you announced that Senator Warner was seated 

behind me, now I am a little bit more nervous than I had hoped. 

There are standards that I wish we all could meet, and Senator 

Warner certainly exemplifies those. 

The United States is experiencing a resurgence—and Senator 

Cornyn talked about what is happening in the private sector. But 

we are seeing a real resurgence in domestic energy and innovation 

in exploration and production. With this growth, more Americans 

all the time are employed in the development of our country’s natural resources, both traditional and renewable. 

Our country does much of its energy policy in the tax code, so, 

while many of us will spend time trying to develop what we call 

energy policy, the reality is that what this committee, what the Finance Committee does, how the tax code looks, in many ways determines what our energy policy is. So I am pleased that this committee and the subcommittee are pursuing this topic. 

As our technologies have matured and our knowledge has advanced, our tax code has not adjusted to the needs of today’s markets. As Congress considers the future tax treatment of the energy 

sector, there appears to be a bipartisan consensus around a sound 

financial tool that has allowed the oil and gas industry to efficiently raise more than $450 billion over the past 2 decades from 

a broad array of individuals and institutions, and that tool is the 

Master Limited Partnership (MLP) structure that was introduced 

in 1987 in section 7704 of the Internal Revenue Code. In my view, 

it should be renewed, continued, and, in my view, it should be modernized to include renewable and clean energy sources. 

The MLP is what I would describe as a publicly traded partnership that holds energy or other specified assets. Traded on public 

stock exchanges, MLPs allow individuals and small institutional investors to invest in energy projects similar to the way a mutual 

6 

fund allows investors to make small investments in diversified 

stock portfolios. 

MLPs are efficient structures for raising capital, in part because, 

unlike corporations, the taxable income and deductions are passed 

through directly to the investors, the limited partners, rather than 

being taxed twice, once at the corporate level and then again at the 

shareholder level. This feature of MLPs has enabled the oil and gas 

industry to raise capital efficiently at an appropriate cost that has 

provided investors with sustained and consistent cash flow. It is 

important to note that MLPs, in my view, do not represent what 

I would call a tax break. 

For those industries that are eligible for MLP structures, it is not 

a tax break; rather, it is a tax simplification structure that concentrates tax at the investor level, avoids double taxation, and significantly broadens the potential investor base. 

MLPs have aided in the construction and operation of much of 

our modern oil and gas infrastructure and, most recently, fueled 

the shale revolution in oil and gas. In 2012 alone, MLPs raised 

over $23 billion of new capital for eligible projects. These include 

significant parts of the oil and gas supply chain, such as production 

pipelines, refineries, and gathering and storage facilities. 

MLPs create needed investment opportunities for individual savings for retirement, for pension funds, and, according to the National Association of Publicly Traded Partnerships, in their survey, 

75 percent of investors in MLPs are over the age of 50. This is in 

part due to the fact that these individuals are seeking secure 

income-oriented investments that provide a reasonable return. 

MLPs fill this roll, where other types of investments will fall 

short. This perhaps is most important for those who struggle to pay 

their utility bills. MLPs lower the cost of energy. MLPs afford the 

energy industry stable access to less expensive capital and therefore lower the cost of energy to consumers. While it is critical that 

MLPs continue to be available to investments in the nonrenewable energy industry, it is also important that we extend this 

tax structure to the broader energy sector. 

For example, companies involved in the production of solar, wind, 

geothermal, combined heat and power, our largest renewable energy industries, they have never been eligible for MLP treatment 

even though renewable energy has been burdened by the same 

high cost of capital as the non-renewable energy industry. Only a 

small group of investors, consisting mostly, almost entirely, of a 

few large corporations, have been able to invest profitably in renewable energy projects. 

Ironically, the United States has the largest and most efficient 

capital markets in the world, but our renewable energy companies 

rarely have access to those markets. Extending MLP treatment to 

renewable energy could move the renewable energy industry from 

relying on a few investors demanding high rates of return to a 

broader and deeper investment pool for those energy projects. 

Continuing the MLP structure in the Internal Revenue Code and 

expanding it to include investments in renewables and clean energy would provide a predictable tax policy that encourages investment in U.S. energy projects, creates jobs, and promotes American 

7 

competitiveness in the global race to develop and utilize competitively priced energy sources. 

I grew up in a family whose father worked in the oil fields. It 

is what put food on our family’s table. The energy sector is a perfect example of how America can provide an opportunity for all 

Americans to pursue the American dream, and I encourage the 

committee’s consideration of MLPs, and I thank the chairman. 

Senator STABENOW. Thank you very much. We welcome your testimony. 

[The prepared statement of Senator Moran appears in the appendix.] 

Senator STABENOW. I am pleased to be a co-sponsor of the bill. 

I think you and Senator Coons have done a terrific job in putting 

this together. 

I am wondering if you might just speak a little bit more about 

the kinds of energy companies that you think would be most interested in organizing as MLPs. You talked a little bit about it, but, 

as you talk to businesses, how do you think this would have a specific impact, and what kind of businesses would be most interested 

in organizing as MLPs? 

Senator MORAN. Madam Chairman, it is clear to me that certainly the tax treatment available, or the circumstances that our 

oil and natural gas companies, our pipelines, our infrastructure 

companies in the energy sector, are able to access today are very 

important to them, so in part I am here to indicate that that needs 

to continue. 

But, as you say, there are a number of other companies involved 

in other sectors of energy: wind, geothermal. The inability to raise 

capital is one of the greatest impediments toward us pursuing more 

energy projects in the United States. 

Senator Cornyn talked about Texas. Madam Chairman, I would 

only disagree with you when you indicate that all those things can 

be done in Michigan. They can, and are, being done in Kansas. The 

manufacturing of the necessary equipment to create wind and solar 

is occurring in our State. We are the third-largest supplier of wind 

energy in the country. The ability to transport that energy elsewhere where wind is not such a viable resource creates the necessity of raising significant amounts of capital to transport, to transmit that energy. 

Again, these are areas in which private investment, not only in 

the production of energy but in the transmission of energy in the 

renewable area, is where I believe this legislation, this tax provision, creates great opportunities. 

Senator STABENOW. Thank you very much. 

Any questions from the committee? Senator Cornyn? 

Senator CORNYN. I have some really hard questions for Senator 

Moran, but I am going to withhold them for now. 

Senator STABENOW. Senator Bennet? 

Senator BENNET. Not a question, but a comment. I just want to 

say ‘‘thank you’’ to you and to Senator Coons for your leadership 

on this important bill. As Senator Cornyn said, we are about to 

begin this discussion about tax reform generally in the country. 

What I hope people will remember when they hear people say, the 

government should not pick winners and losers, is that we already 

8 

have a tax code that is full of that, full of decisions that have been 

made about winners and losers. 

What we need is a tax code that is actually looking forward into 

the 21st century, into the economy that the people of Kansas are 

building, the people of Colorado are building, that does not necessarily look like the economy from 100 years ago. So I want to say 

‘‘thank you’’ to you for recognizing that and for the work you have 

done on this bill. 

Senator MORAN. Thank you, Senator Bennet. 

Senator STABENOW. Thank you very much. We appreciate your 

coming. 

Senator MORAN. Madam Chairman, thank you. I did submit a 

letter to the committee, and I am interested in further pursuing 

the witness protection program. [Laughter.] 

Senator STABENOW. We look forward to working with you on that 

as well. 

We would ask our second panel, who have been very patient 

today, to please come forward. Good afternoon, and welcome. Let 

me introduce our panel, then of course, as you know, we will ask 

each of you to give us 5 minutes of testimony. We welcome your 

larger testimony in writing, as well as any other information that 

you have for us. We are very pleased to have such a distinguished 

panel of experts, people who have been working in these areas for 

a long time. 

First, Ms. Phyllis Cuttino is director of the clean energy program 

for The Pew Charitable Trust. She has helped lead Pew’s research 

on a series of reports on the global clean energy sector titled, 

‘‘Who’s Winning the Clean Energy Race?’’ Thank you for coming. 

Mr. Dan Reicher—it is good to see you—is executive director at 

the Steyer-Taylor Center for Energy Policy and Finance at Stanford University. He is also a professor at the Stanford Law School 

and a lecturer at Stanford Graduate School of Business. Prior to 

joining Stanford in 2011, Mr. Reicher worked as director of climate 

change and energy initiatives at Google and as president and cofounder of New Energy Capital Corporation and Vantage Point 

Venture Partners, which provided early funding for clean energy 

projects. Of course, we all know you from your days in the Clinton 

administration, having served 8 years in a number of very key positions at the Department of Energy, including the Assistant Secretary for Energy Efficiency and Renewable Energy. So, it is great 

to see you again. 

Mr. Will Coleman, it is good to see you again. Mr. Coleman is 

the founder and a partner in OnRamp Capital in San Francisco, 

which partners with corporations to invest in early-stage innovations. He was previously a partner at the venture capital firm, 

Mohr Davidow, investing in early-stage companies producing products like LED lighting and building networks. So, welcome. It is 

good to have you with us. 

And Dr. Thorning. Dr. Margo Thorning is senior vice president 

and chief economist for the American Council for Capital Formation here in Washington, which represents members of the American business community on issues like tax and regulatory policy. 

She previously worked at the U.S. Department of Energy, the U.S. 

9 

Department of Commerce, and the Federal Trade Commission. We 

welcome you as well. 

So we will now turn to Ms. Cuttino to begin today. 

STATEMENT OF PHYLLIS CUTTINO, DIRECTOR, CLEAN 

ENERGY, THE PEW CHARITABLE TRUSTS, WASHINGTON, DC 

Ms. CUTTINO. Well, thank you, Chairman Stabenow and Ranking 

Member Cornyn, for inviting me to discuss clean energy, tax policy, 

and our energy future. I would like to submit my full testimony for 

the record, and I will summarize it in the time that I have here. 

[The prepared statement of Ms. Cuttino appears in the appendix.] 

Ms. CUTTINO. It was discussed earlier, but it is worth noting that 

a remarkable U.S. energy transformation has occurred in less than 

a decade. Oil imports have dropped to 40 percent, and the electric 

sector has never been so diverse, with approximately one-third of 

electricity coming from coal, one-third coming from natural gas, 

and a third from nuclear, hydro, and renewable energy sources. 

Efficiency is also having a major impact in transportation, buildings, and commercial sectors. These developments have delivered 

important benefits to the American people: our trade balance has 

improved, energy prices are relatively stable and low, and carbon 

emissions have been reduced. 

As a result, our economy is stronger, our country is more secure, 

and our environment is cleaner. The lesson is clear. Diversification 

and advanced energy technologies must be the cornerstone of U.S. 

energy and tax policy. Research by The Pew Charitable Trust has 

shown that clean energy technologies have entered the mainstream 

of global energy markets. In 2012, $269 billion was invested, and 

clean energy deployment was a record 88 gigawatts, spurred by 

dramatic price declines. 

Private investment will continue to grow significantly as countries around the world prioritize clean energy. The International 

Energy Agency predicts that renewables will provide more than 

half of all new electric generating capacity over the next 25 years, 

and forecasters expect trillions of dollars to be invested in the sector. 

This presents a significant economic opportunity for our U.S. 

manufacturers. Madam Chairman, even the oil-rich state of Saudi 

Arabia has set a goal of obtaining 30 percent of their electricity 

from solar power. We want to step up and compete in these emerging markets and supply these growing markets because, although 

we lead in clean energy innovation, we are not manufacturing, deploying, or exporting those technologies as we should be. 

Once, we were the worldwide clean energy leader, but policy uncertainty in this country has hurt U.S. standing in the global sector. In 2012, China led the world in attracting private investment, 

with $65.1 billion. In the United States, investment fell 37 percent 

to $35.6 billion, and we are now in second place. 

Last year, Pew organized roundtable discussions in New York, 

Ohio, Colorado, Georgia, Mississippi, and Washington, DC with 

clean energy leaders in the areas of finance, manufacturing, innovation, and deployment. They identified three key challenges facing 

their industry. Policy uncertainty was described as the over-riding 

10 

impediment, but stiff international competition and tight credit 

markets were also identified as challenges. 

Our roundtable participants offered six policy priorities to address these challenges and for Congress—you—to consider. First, 

set a clear and long-term goal for the deployment of clean energy, 

providing the certainty needed for innovators to invent, investors 

to mobilize capital, and manufacturers to scale up. Tax policy can 

play a critical role. 

Second, support energy R&D at higher levels in order to maintain that pipeline of ideas and innovation which are so critical to 

U.S. competitiveness. 

Third, renew the production and investment tax credits. Congress has, and does, provide permanent incentives to incumbent 

technologies such as oil, gas, and nuclear power. Our industry participants would welcome a multi-year, but time-limited, extension 

of clean energy tax credits to help ensure full market maturation, 

including strengthening the investment tax credit to better reflect 

the needs of industrial energy-efficient technologies, including combined heat and power, and waste heat recovery. The renewal of the 

ITC and PTC would provide certainty and encourage a more diverse and clean energy mix. 

Fourth, address barriers to industry progress and pass Senator 

Moran’s and Senator Coons’s MLP Parity Act, which would allow 

clean energy to qualify for the same tax treatment that is open to 

oil and gas infrastructure. It is a matter of fairness. 

Fifth, support American manufacturing through the Advanced 

Energy Manufacturing Tax Credit. This will help us better compete 

in this critical and growing industry. 

Finally, sixth, strengthen and expand trade promotion for exports of American-made technologies to emerging markets. In conclusion, U.S. competitiveness in the clean energy economy warrants 

public and private priority and partnership. 

In this regard, policy matters. Encouraging the innovation, deployment, manufacturing, and trade of clean energy technologies 

through policy will help ensure that America capitalizes on this 

substantial economic opportunity. It will provide our Nation with 

economic, environmental, and national security benefits. 

Thank you. 

Senator STABENOW. Thank you very much. 

Mr. Reicher, welcome. 

STATEMENT OF DAN REICHER, EXECUTIVE DIRECTOR, 

STEYER-TAYLOR CENTER FOR ENERGY POLICY AND FINANCE; PROFESSOR, STANFORD LAW SCHOOL; AND LECTURER, STANFORD GRADUATE SCHOOL OF BUSINESS, STANFORD UNIVERSITY, STANFORD, CA 

Mr. REICHER. Thank you, Chairman Stabenow, Ranking Member 

Cornyn, and subcommittee members. I really appreciate the opportunity to testify. 

My written statement addresses three finance challenges: first, 

how to significantly lower the cost of financing renewable energy; 

second, how to dramatically increase investment in building efficiency retrofits; and third, how to more effectively commercialize 

energy technology of all kinds. I will address the first two chalVerDate Nov 24 2008 20:19 Jun 23, 2014 Jkt 000000 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 R:\DOCS\88062.000 TIMD
11 

lenges now, but I would be pleased to take questions on commercialization. 

Regarding renewables, two factors largely determine the cost of 

large-scale renewable power projects: first, equipment costs, that is, 

what you pay for buying and installing solar panels, wind turbines, 

and the like; second, finance costs, what you pay for project capital. 

Technological innovation has dramatically reduced renewable energy equipment costs, but financial innovation has not kept pace. 

As a result, the cost of financing today makes up an ever-greater 

fraction of the total cost of renewable energy projects, inflating the 

cost of the electricity that is produced. We face this because solar 

and wind projects are generally financed using Federal tax credits. 

These credits, which have been critical over the last 2 decades, 

turn out to be an expensive way to finance renewable energy 

projects. First, there are only a couple of dozen investors nationwide who can monetize them; that is, only those with very large 

taxable incomes to shelter who can navigate the complicated structuring. This greatly drives up the cost of capital. 

Second, use of these credits ties up capital for years because of 

IRS recapture rules. This illiquidity drives up rates further. 

Third, renewable energy tax credits have only short-term congressional approval. Boom-and-bust cycles make tax credits less attractive to investors. 

The good news? There is a straightforward solution: give renewables access to the very same mechanisms currently providing lowcost capital to hundreds of billions of dollars’ worth of traditional 

energy projects like oil and gas pipelines and transmission infrastructure. 

These mechanisms, as you have heard, are Master Limited Partnerships and Real Estate Investment Trusts, also known as MLPs 

and REITs. As you just heard from Senator Moran, the use of 

MLPs and REITs would give renewable energy developers access to 

much greater pools of capital, and they would no longer have to 

pay scarcity prices. We estimate that MLPs and REITs could cut 

the cost of capital in half for many renewable energy projects relying on tax equity. 

MLPs and REITs would also mean that millions of Americans 

could finally own shares in a renewable energy project just like 

they can in a gas pipeline project. The MLP Parity Act, cosponsored by Senators Coons, Moran, Stabenow, and Murkowski, 

would open up MLPs to renewables and other kinds of energy 

projects, including co-generation and carbon capture, and there is 

a companion and bipartisan bill in the House. 

On the REIT front, the Treasury Department, on its own, could 

issue a broad revenue ruling extending REITs to renewables. 

Thirty-five congressional Democrats and Republicans wrote President Obama, urging his support for REITs and MLPs. 

I want to emphasize that my support for MLPs and REITs 

should in no way signal that I endorse an immediate phase-out of 

the PTC or any weakening of the current ITC. We need significant 

time for a smart transition to MLP and REIT financing. 

Turning to energy efficiency finance, Deutsche Bank calculates 

that there is about a trillion dollars worth of energy to be saved 

in U.S. buildings over the next 10 years, and the bank says there 

12 

is about a $300-billion investment opportunity to achieve those savings, but there is barely a trickle of investment being made in energy efficiency improvements in existing buildings. 

The challenge is helping investors of all types see their way clear 

to making large-scale energy efficiency investments and making 

some money. This means addressing the performance and credit 

risks in energy efficiency investments. There are several finance 

mechanisms now being used to address these risks, like property 

assessed clean energy and on-bill repayment. 

The jury is still out on these mechanisms, but in the meantime 

there are steps that Congress could take to prime the pump. One 

is, legislation sponsored by Senators Bennet and Isakson of this 

subcommittee called the SAVE Act. 

The SAVE Act would address an odd situation in home mortgage 

underwriting. A lender, in determining mortgage terms, takes into 

account the cost of real estate taxes and home owners’ insurance 

but does not consider the cost of energy, often a greater expense 

in many parts of our country. 

The SAVE Act would require a lender to take the projected energy savings of an efficient home into account when presented with 

a qualified energy report. Under Federal law, borrowers have to report whether termites are chewing up the beams in an attic. Why 

not encourage a homeowner to discover an inefficient furnace devouring cash in a basement and help find low-cost financing to replace it? 

The SAVE Act enjoys the backing of key business organizations, 

including the National Association of Home Builders and the National Association of Realtors, and there is immediate opportunity 

to attach the SAVE Act to the Shaheen-Portman bill. There are few 

legislative moments in Washington these days where the stars are 

so well-aligned. 

With that, I would be pleased to take your questions, including 

on commercialization. Thank you. 

Senator STABENOW. Thank you very much. 

[The prepared statement of Mr. Reicher appears in the appendix.] 

Senator STABENOW. Mr. Coleman? 

STATEMENT OF WILL COLEMAN, PARTNER, 

ONRAMP CAPITAL, SAN FRANCISCO, CA 

Mr. COLEMAN. Thank you, Chairman Stabenow, Ranking Member Cornyn, and distinguished members of the committee. I appreciate the opportunity to be here today. 

My name is Will Coleman. I am an investor in early stage energy 

and technology companies. I have spent the better part of the last 

15 years assessing different ways to build and invest in new technologies in the energy sector. 

I think we need to start this conversation by acknowledging that 

in energy, Federal policy, and particularly Federal tax policy, has 

a huge impact on where and how investors and corporations invest 

their dollars. 

In my written testimony, I talked a lot about innovation. I focused on that because innovation is what has kept us competitive 

13 

as a Nation, and because the truth is the government has always 

played a huge role in driving innovation in energy. 

We have nuclear energy because of policy, we have renewables 

because of policy, and we have the Bakken because of policy. So I 

want to focus on three major points today: number one, America 

is actually falling behind when it comes to energy innovation; two, 

the tax code is compounding that problem; and three, we need solutions that specifically target this innovation challenge that apply 

equally across technologies and that provide the long-term certainty necessary to drive investment, and then we need to get out 

of the way. 

Energy has always been a strategic imperative. Some people argued just a few years ago that we already had the technology to 

compete and that we just needed to produce more, yet we have 

seen over the last few years how technologies like fracking and horizontal drilling that were developed over several decades by the 

National Labs and others have been applied to open up significant 

new resources like the Bakken. This would not have happened 

without new innovation, and it would not have happened without 

tax credits that reduced the risks of development. 

But oil and gas is just one piece of the equation. Even with these 

resources, we still spent almost 30 percent more on imports in 2012 

than we did in 2010. There are a multitude of other alternatives 

that could be equally transformative if they could just get to scale. 

Continued innovation is critical in oil and gas and beyond, not just 

because we need more alternatives, but because it ensures our competitiveness and it is a huge driver of growth in our economy at 

a time when growth is obviously at a premium. 

It has been shown that innovation at large is responsible for 75 

percent of the economic growth in this country since World War II. 

It drives down costs, catalyzes investments, and enables new industries. Unfortunately, the energy industry spends less on innovation than almost any industry in the world, and when independent 

investors like us look at the tax code, it clearly drives them toward 

investing in projects using only mature, already-proven technologies rather than taking risks on developing new technologies 

and unproven ones. 

This would not be a problem if we did not need innovation, but 

we do. This committee has spent a lot of time thinking about how 

to reform the medley of energy tax provisions that have been 

spawned over the last century. As an investor with the flexibility 

to invest in whatever technologies and industries make economic 

sense, I am glad to hear the increasing view that, whatever we do, 

we need to apply tax policy more equally across technologies. 

As investors, we ask the question: if you wipe the slate clean, 

where would there still be failures in the market? The answer is 

that new technologies in any category would still struggle to get to 

scale and commercialized, to get the financing to build that first 

manufacturing plant for the technology, and this would diminish 

any interest in investing further upstream in innovation. 

In my written testimony, I detailed this persistent funding gap 

in energy and other industrial sectors. The bottom line is that technology innovation, particularly in sectors like energy, takes a long 

time. Without long-term, stable market indicators or policies that 

14 

otherwise incent investors to take the risks necessary for new technology, innovation atrophies. We have never accepted that as a Nation, and I do not think we have the ability to start now. Venture capitalists have invested over $25 billion in energy technologies over the last 10 years, but in large part, because we have 

not yet figured out how to overcome this commercialization funding 

gap, even venture capital has begun to pull back from investing in 

new energy technologies. Investing in the early stages of innovation 

has dropped from 50 percent of capital deployed to less than 10 

percent in 2012. 

We believe there are solutions that can address this gap in a 

technology-neutral way, that are targeted and efficient, and that 

can continue to drive the innovation we need without dictating the 

playing field. In my written testimony, I detailed one such approach which provides a credit for investment in the manufacture 

of new and improved technologies. Companies would receive the 

credit up to a percentage of the capital invested to produce the innovation and would only receive the credit for actual production. 

The credit would be available to all technologies across the energy sector, and it would support specific innovations only to the 

point where they reach commercially competitive scale and then 

roll off. The key in our minds is to create a credit that encourages 

the private sector to invest in strategically important areas and 

forces investors, rather than the government, to make the determination of whether a technology can eventually compete. 

So let me be clear. If we are going to remain competitive, we 

need more Bakken shales, and we need more of them not just in 

oil and gas. Venture capital and other investors have the capacity 

to invest in these sectors, but the current code encourages us not 

to. 

In this 113th Congress, the tax code is clearly front and center. 

I believe we have a rare opportunity to streamline the tax code to 

make it more efficiently and equitably encourage the next generation of technologies. 

Innovation is something we have done extremely well in this 

country, but we cannot assume that we will continue to innovate 

in important sectors like energy without the right policies. I appreciate the time, and I look forward to working with you on these important issues. 

Senator STABENOW. Thank you very much. 

[The prepared statement of Mr. Coleman appears in the appendix.] 

Senator STABENOW. Dr. Thorning, welcome. 

STATEMENT OF MARGO THORNING, Ph.D., SENIOR VICE 

PRESIDENT AND CHIEF ECONOMIST, AMERICAN COUNCIL 

FOR CAPITAL FORMATION, WASHINGTON, DC 

Dr. THORNING. Thank you, Chairman Stabenow, Ranking Member Cornyn, members of the committee. My name is Margo 

Thorning, and I am chief economist of the American Council for 

Capital Formation. I appreciate the chance to appear before you 

today. 

I would like to look a little bit at where we are with respect to 

our economy. The new GDP numbers came out today showing that, 

15 

for the first half of 2013, economic growth has averaged only 1.4 

percent. That is far too low to have an impact on the high unemployment rate, 7.6 percent. So, as we look at tax policy, I think it 

is very important that we look, as we think about reform, at how 

it is going to impact new investment, how it is going to impact economic growth. 

One of the things I wanted to highlight is the contribution of the 

shale oil and shale gas revolution to our current job growth. It is 

not as strong as it should be, but States like Wyoming, North and 

South Dakota, Texas, Colorado, others, are experiencing much faster growth in personal income and much lower unemployment rates 

than our States that are not producing shale oil or shale gas. 

Furthermore, a new McKinsey Global Institute study just released a week or so ago shows that, of the five game changers that 

could really help us restore economic growth, shale oil and shale 

gas are the number-one item. According to the McKinsey report, we 

could see GDP growth of between 2 and 4 percent by 2020 and an 

additional 1.7 million jobs. So we need to make sure, as we evaluate tax proposals, that we look at the costs and the benefits and 

think about what they may do to investment incentives. 

I would like to propose that the policymakers think even more 

broadly about tax reform and think about a consumption tax in 

which all investment, including for renewables, oil and gas, every 

kind of energy, is expensed the first year. All investment would be 

expensed, and saving would be taxed at a very low rate. 

I would like to ask that you include in the record a new paper 

that my colleague Dr. C ̧ ebi and I just released on the impact of a 

consumption tax and what it could mean to the capital stock and 

to job growth. 

Senator STABENOW. Without objection. 

[The paper appears in the appendix on p. 120.] 

Dr. THORNING. So a consumption tax would be the best way to 

go forward, as a Treasury analysis in 2006 indicated, and I draw 

your attention to the table in my testimony that shows how much 

stronger the capital stock would grow if all investment could be expensed immediately and consumption was the tax base rather than 

income. 

But if policymakers cannot make that leap and cannot get there 

in the near term, they should at least consider the impact of cash 

flow on investment. Recent research by academics shows that, for 

firms that have ready access to capital, each dollar of cash flow 

generates about 33 cents of new investment. For firms with not 

such strong access to capital, each dollar allows another 66 cents 

of new investment. 

Recall that each $1 billion of investment in the U.S. is associated 

with 22,300 new jobs. The new GDP numbers that the Bureau of 

Economic Analysis released today show that we are still down $27 

billion in non-residential fixed investment compared to the fourth 

quarter of 2007. So here it is, 5 years after the recession started, 

and we still have not gotten real investment up to the level that 

it was prior to the recession, and it obviously is hurting job growth. 

So I would like to look a little bit at the provisions that impact 

the oil and gas industry. They of course use accelerated depreciation, LIFO, bonus depreciation, other provisions that are available 

16 

to all industries, but, in particular, provisions like geological and 

geophysical expenses, intangible drilling costs, percentage depletion, are really outlays for current labor costs, current well costs. 

These are costs that have no salvage value, and they should not 

be depreciated. 

So it is important that these provisions be kept in the code, as 

long as we have the current system, in order to keep the cost of 

capital low for these investments that have been responsible for so 

much of the oil and shale gas boom. 

One thing that I think we ought to also think about, and again, 

harking back to the need for a cost/benefit analysis, is, as we look 

at incentives for renewable energy, we need to look at the cost of 

that energy and the benefit that we are going to achieve. As you 

see in Table 3 in my testimony, the Department of Energy estimates that the capital cost of renewable energy electricity generation is far higher than that for conventional energy. 

In addition, the costs in my table do not even measure the need 

for back-up generation; they are just strictly the capital costs. In 

this global situation where energy costs matter, we want to keep 

energy costs as low as we can in order to stay competitive and, we 

hope, strengthen our economic recovery. 

It is interesting to note that European countries are cutting back 

on their subsidies for renewable electricity and energy, in part because they realize it is impacting their energy costs, so we need to 

be sure that each of the provisions in the code really meets that 

cost/benefit test. As data from the Congressional Research Service 

shows, the renewable sector gets 80 percent of all the tax code subsidies, and other energy is only getting 20 percent. 

Finally, I would like you to think about some of the environmental regulations that act like a tax on U.S. industry in general, 

not just the energy industry. For example, the administration’s 

new ‘‘social cost of carbon’’ number—which is pegged at about $36 

a metric ton of CO2 compared to their number 3 years ago, which was $22—is based on we are not sure what. 

It has not been a transparent process, and we think stakeholders 

should be allowed to understand and comment on changes that 

may be justifying stricter requirements for renewable fuel and 

other mandates. 

Other provisions like the Renewable Fuel Standard—which the 

National Academy of Science study just released shows—have actually increased greenhouse gases, not decreased them. That should 

be looked at too, because it is clearly costing consumers a lot of 

money, and it is not helping the environment. 

And finally, the Clean Air Act is not a good tool for regulating 

GHGs and, according to ACCF studies which I cite in my testimony, and others, is costing quite a bit of investment because of 

the uncertainty and the inability to meet some of the targets that 

EPA is supporting. 

So finally, I would just like to say, let us take each provision in 

the code and look to see how much job growth and investment it 

is creating and make sure that, as we move ahead, we are keeping 

our eye on the most effective ways of growing our economy. Thank 

you. 

Senator STABENOW. Thank you very much. 

17 

[The prepared statement of Dr. Thorning appears in the appendix.] 

Senator STABENOW. Before proceeding to questions, I do notice 

that Senator Coons has joined us. So, Senator Coons, if you would 

like to come up to the table, we would ask witnesses just to remain. 

Senator Coons, if you are willing to come up to the table here with 

our witnesses rather than asking people to step away, we will just 

ask you to join the table and to speak about your very important 

legislation. 

Senator Moran was also here earlier and had an opportunity to 

speak. But we welcome you and appreciate your leadership on this 

question of leveling the playing field and providing some opportunities for capital, so we will let you proceed. I know you were presiding, and we are pleased that it worked out that you were able 

to join us. 

STATEMENT OF HON. CHRISTOPHER A. COONS, 

A U.S. SENATOR FROM DELAWARE 

Senator COONS. Thank you, Madam Chairman. As always, I am 

relying on the kindness of my colleagues. Senator Baldwin of Wisconsin was willing to accommodate me by changing her schedule 

and allowing me to get here a little early, so thank you. 

Thank you to you for convening this hearing and for your leadership and partnership on this important piece of legislation. I think 

this is a timely and important subject, and so, as we look at energy 

taxes in particular and as you consider principles for energy tax reform, I am grateful for the chance to offer a brief testimony on an 

element of the tax code that I think, if appropriately modernized 

and focused, could drive significant new investment in clean and 

renewable energy while sustaining a long, beneficial, advantageous 

tax provision for traditional energy. 

Chairman Stabenow, I am particularly grateful to you and Senator Moran, who testified previous to me, for your collaboration and 

support. 

I think there is little debate about America’s very strong potential to lead the world in clean energy development and deployment. 

We have unparalleled innovation and ingenuity. We are among the 

world’s leaders in developing advanced clean energy technologies, 

but we are really struggling at the moment to deploy these innovations, and we are missing out, in my view, on the very real economic and sustainability opportunities they represent to benefit 

our country and our communities, in part because of the absence 

of a reliable source of long-term financing. 

To advance, our technology needs a catalyst, the catalyst of a 

clearer and stronger regulatory and statutory structure that allows 

efficient access to long-term financing. 

Today’s energy market is defined broadly by narrowing profit 

margins in established technologies that are supported by low-cost, 

long-term financing. If clean and renewable sources of energy are 

to grow and compete in the American energy marketplace and 

around the world as well, we have to make sure they are given a 

level playing field on which to operate. 

But the Master Limited Partnerships Parity Act of 2013—that is 

a mouthful—S. 795, which I re-introduced in April along with you, 

18 

Senator Stabenow, Senator Moran, and Senator Murkowski, would 

do just that. It is, I think, a strikingly simple, broadly bipartisan 

bill that modernizes a section of our tax code, harmonizing it with 

the all-of-the-above energy strategy for American energy independence that so many of us have endorsed as the blueprint for our 

country’s energy future. 

The MLP Parity Act would allow clean energy projects to utilize 

a beneficial tax structure that taxes a project like a partnership, 

a pass-through, but that allows its interest to be traded like a Ccorp, a corporate stock. So it allows access to the liquidity of equity 

markets, prevents double taxation, and leaves more cash on the 

table available for distribution back to the investors. 

For the last 30 years, MLPs have given natural gas, oil, and coal 

access to private capital on a lower-cost, long-term basis, something 

other capital-intensive projects badly need. It is a well-developed, 

well-established financing vehicle that currently has a market cap 

of about $450 billion, spread across roughly 100 currently traded 

MLPs. 

The extension of access to this financing vehicle to a very wide 

range of energy sources—energy efficiency, energy storage, carbon 

capture and storage, and a wide range of renewable energy 

sources—has the real potential to bring a significant wave of private capital off the sidelines and into the potentially burgeoning renewable energy marketplace. It would not only level the playing 

field, but it would increase access to low-cost capital for all energy 

sources in our marketplace on an equal basis. 

Again, I am thankful to you, Chairman Stabenow, to Senator 

Moran and Senator Murkowski, for your tireless partnership in 

this effort, and for working closely with me on this bill. Bipartisan 

companion legislation is being led by Congressmen Ted Poe, Mike 

Thompson, Peter Welch, Cory Gardener, and Chris Gibson, which 

is three Republicans and two Democrats, for those of you scoring 

at home, and was recently re-introduced in the House at the same 

time as the bill here in the Senate. 

In summary, I think access to low-cost financing will define our 

Nation’s energy future and will determine how, when, and which 

energy sources emerge as central players in our energy marketplace in the long term. I believe it is up to us to ensure that our 

vast supply of energy of all types, but, in particular for me, of renewable types, is a vital part of that equation. 

Thank you. 

Senator STABENOW. Thank you very much. 

[The prepared statement of Senator Coons appears in the appendix.] 

Senator STABENOW. I do not know if any members have any 

questions for Senator Coons at this point. 

[No response.] 

Senator STABENOW. If not, we would thank you very much. We 

will save the tough questions, and we will submit those in writing. 

Senator COONS. Thank you. I welcome your questions, and I appreciate the opportunity to join you today. 

Senator STABENOW. Thank you very much. You are certainly welcome to stay, but we certainly understand your schedule, and we 

19 

are appreciative that you were able to get here before the meeting 

was over. So, thank you very much. 

Let us move now to questions. I think the fundamental question 

for me, in listening to all of your testimonies, really relates to the 

broad picture that we look at when we talk about this question of 

picking winners and losers. We hear that a lot, we should not pick 

winners and losers, but our tax code, in fact, has. It started 100 

years ago, and I am sure I would have supported that 100 years 

ago. 

We have proceeded, not only with a series of benefits and policies 

to spur the oil, gas, and coal industries over that time period, but 

they have been consistent. They have been imbedded in the tax 

code. They do not have to be put in tax extenders every year, so 

there is the ability to plan, to make investments, and it has paid 

off. 

We invested, we picked winners, and they have won. It has been 

good for the economy. I mean, we certainly have many challenges 

now as it relates to other issues, but in the last 30 years we have 

given fossil energy companies support, Federal taxpayer support, 

worth about $166 billion adjusted for inflation. 

We are now at a point where certainly our oil companies are the 

most profitable companies in the history of the world. They are the 

five top companies, making $112 billion in profits in 2012. I do not 

say that in any disparaging way except to say the question is, is 

it appropriate, is it needed, to continue, with limited dollars in a 

time of trying to balance budgets, with that? 

So I guess I would ask each of the panelists in some way to respond to this in terms of what approach is best for us right now 

in the area of the ITC, the production tax credit, 48C. As the author of 48C, I look at the fact that in 2009 we put in place an advanced manufacturing technology credit for 30 percent of the costs 

of retooling equipment and so on for clean energies, and we had 3 

times as many requests as we had dollars. It was capped at $2.3 

billion. We had 3 times as many requests as we had available dollars, so each one of the three at the top had been stop-start, stopstart, or just stop in the case of 48C. 

So when we look at all of this, in the age of clean slate tax reform, which the chairman and ranking member have asked us to 

do, we certainly would not have, I do not think, designed this 100 

years ago to look like this. So here we are at this point in time, 

and what is the approach that we ought to be using at this point 

to fix this? 

Ms. Cuttino? 

Ms. CUTTINO. Well, in terms of principles, I think I can sum it 

up in just a few words, which are certainty, diversity of supply— 

we should not put our eggs all in one basket—innovation—it is critical to the future—fairness, and then finally clean, because there 

are other imperatives outside economic imperatives. 

So those are the principles that I would look to. I think, in talking to our industry roundtable participants, those in the energy industry, they have been quite clear about, those are the kinds of 

things they need. So again, I would go back to the six steps, including renewal of 48C, a renewal of the ITC and PTC, and certainty 

across the board. 

20 

Senator STABENOW. Mr. Reicher, could you respond? And in responding, if you could also answer, can we be competitive with this 

kind of an approach here, an unequal playing field? 

Mr. REICHER. Madam Chairman, I think it makes it quite difficult to compete internationally with this very complicated, fairly 

unreliable system that we have. I encourage you to go back to the 

1980s when the Master Limited Partnership legislation was adopted. 

There was actually a decision made not to include what were 

called non-depletable resources, that is, renewables and related 

technologies. It would be interesting to say to yourself, if they had 

been included back in the 1980s when this law was adopted, I 

think we would be in a very different place. 

Instead, what we have had to rely on is this very much on-again/ 

off-again system of tax credits, the production tax credit, for example, for wind, over a period of 15 years, having to be reauthorized 

and at several points running out and having to be retroactively 

put back on the books. 

I was an investor in this industry for a period of time, and this 

was a very difficult place to want to put money when you were 

looking at a system of incentives built on such an unreliable set of 

tax credits, as opposed to the ability of the oil and gas industry to 

make an investment through the Master Limited Partnership 

structure and know that that incentive was there and you could 

move forward with it. 

So, beyond its greater simplicity, which I think is one of its great 

attributes, its greater reliability than what we have had with tax 

credits is a real hallmark. If we could put that sort of reliable system in place, I think we would be doing a great deal of service to 

the renewable energy industry in this country. 

Senator STABENOW. Thank you. 

My time is up, but I am going to ask Mr. Coleman and Dr. 

Thorning to briefly comment, and we will add a minute to everyone’s questions as well. 

So, Mr. Coleman? 

Mr. COLEMAN. Thanks. Yes, I think that, obviously, we need 

more innovation as sort of the driving force behind energy policy, 

and particularly tax policy. The reason is, we need to drive down 

cost. I think that the challenge is that, currently, the tax code focuses on individual technologies and allocates very specific credits 

to each of them. 

The challenge there is that things change. I think the whole 

point of your chart is that they change pretty dramatically over 

time. If it was 1908 and we were looking at what things we need 

to support, we would probably say faster horses, but that is not 

what we needed 20 years from then. 

And I think we need to create a tax code that allows the flexibility to be able to adapt over time. The only way you are going 

to be able to do that is if you do not have to say, this industry gets 

this credit, this industry gets that credit, this industry gets another 

credit. And, if you treat all those industries the same, i.e, if the tax 

incentives are permanent, that is the only way we are going to invest upstream. 

Senator STABENOW. Dr. Thorning? 

21 

Dr. THORNING. I would suggest we let markets decide which 

technologies are going to survive and thrive. I think expensing, as 

I mentioned, for all types of energy investment would be optimal. 

It puts everybody on the same playing field. 

I would like to point out the reason for our manufacturing renaissance: most people think the low-priced natural gas has been a 

huge factor in that, and the resurgence in U.S. oil production is 

certainly reducing our dependence. So, as we look at tax reform, we 

ought to be very careful not to harm the incentives that have been 

responsible for this very strong help in our economic recovery. 

Senator STABENOW. Thank you. 

Senator Cornyn? 

Senator CORNYN. Well, thank you all for being here and for your 

testimony. 

I want to start with Dr. Thorning, because I think there is a 

major misunderstanding here in Congress, and perhaps around the 

country, in terms of what sort of tax treatment different forms of 

energy receive. 

I have heard some people suggest that oil and gas receives special tax treatment that is unavailable to other industries or other 

businesses. I am sure there are some specialized ones and you will 

mention those, but I was struck by your testimony that, of the tax 

benefits available to the energy sector, 80 percent of them flow to 

renewables already. Would you care to put a little meat on that 

bone for us? 

Dr. THORNING. Yes. The tax provisions that are used by the oil 

and gas industry are primarily things like accelerated depreciation, 

LIFO. All of that is certainly available to every industry. The bonus 

depreciation was cut back for the oil and gas industry to 6 percent 

versus 9 percent for other manufacturing industries. 

The geological and geophysical expenses, the intangible drilling 

costs, are really labor costs. It is engineering costs, it is finding the 

sites, it is drilling the well. Those are analogous to the costs that 

a Google or an Apple incurs when they are developing a product, 

so most analysts feel that expensing those costs is the right way 

to treat them, because they are not assets with a depreciable value. 

So I think it is important to look at the whole picture and consider 

that the oil and gas industry really does not have any particular 

advantage over other industries. 

Another thing I wanted to bring out is, the oil and gas industry 

over time is no more profitable than any other industry. If you look 

at the data, their rate of return on assets is about the same as others’, so we want to be careful as we think about tax reform not to 

do things that will hurt the cash flow that is used, especially by 

the independent producers, for finding oil and gas here in the U.S. 

Senator CORNYN. Well, I certainly support Senator Baucus’s and 

Senator Hatch’s blank sheet approach to tax reform, because I 

think it would be very instructive, not just to members of the committee and Congress, but to the American people, to see what the 

relationship is between marginal tax rates and tax credits. 

In other words, I think that Chairman Baucus’s approach, a 

blank slate, will tell us—first of all, we will have to figure out how 

much revenue needs to be generated by the Federal Government, 

what would that rate be, and, if you are going to add back in varVerDate Nov 24 2008 20:19 Jun 23, 2014 Jkt 000000 PO 00000 Frm 00025 Fmt 6633 Sfmt 6633 R:\DOCS\88062.000 TIMD
22 

ious tax credits, subsidies, and expenditures, how much you would 

have to raise the marginal rate in order to accommodate that tax 

expenditure. 

Now, I am confident there are many—or let us just say some— 

tax expenditures that will have strong bipartisan support, but 

hopefully everyone will have to compete and will have to make 

their case. 

Just one more question, Dr. Thorning. I am intrigued by your 

table 5 on page 20. This is something else that I think is not wellunderstood. In other words, there are some who would suggest, 

again, that the oil and gas industry actually gets tax dollars, and 

my experience is, while they are subject to much of the same tax 

treatment as other similar enterprises, that they actually pay 

taxes, unlike many of these other enterprises. Can you explain the 

effective tax rate on energy-related capital investments and how 

that relates to the tax treatment by the Federal Government of different forms of energy? 

Dr. THORNING. Well, as you can see in table 5, which I drew from 

a Congressional Research Service testimony by Molly Sherlock, the 

integrated oil drilling companies, the refiners, are actually paying 

effective rates of between 15.2 and 19 percent, whereas the renewable energy sector is benefitting in many cases because of the production credits and the other incentives, and they are experiencing 

highly negative tax rates. In other words—— 

Senator CORNYN. They are getting a check from the government? 

Dr. THORNING. Yes. The wind industry’s effective tax rate is 

minus 164 percent, and the solar/thermal industry is minus 245. So 

these industries are benefitting from taxpayer subsidies. Then, 

when you look at the costs and the benefits of that energy, you 

have to wonder if those incentives are really justified. 

Senator CORNYN. I appreciate your clarifying that. I agree with, 

I think, every member of the committee or all the witnesses who 

said that we need greater certainty in our tax code, but I do think 

it is important to do a little fact check against preconceptions about 

different forms of energy and the benefits they receive from the 

taxpayer. 

I would stipulate that it is important, particularly for new forms 

of energy that need some help along the way, to get some help to 

see whether they can be commercially viable. Mr. Reicher, my time 

is about up. Let me just ask you, you could probably hit this one 

out of the park. 

On the production tax credit, one of the reasons why Congress 

has periodically renewed it is because I think, initially, no one 

thought that it would be a permanent tax credit, that it would be 

important to early developments of wind energy, it would be important to subsidize it with a tax credit, but at some point there would 

be a need to wean that form of energy off of the tax credit in order 

to let it compete with other forms of energy in the marketplace. 

Would you share your thoughts on that? 

Mr. REICHER. Senator, I think, in fact, done in the right way, 

that is probably the moment where we have arrived. We need a 

transition period, a significant transition period, with respect to the 

production tax credit. It needs to be reauthorized for several years. 

23 

But I think, in addition to that, we can move this system of finance towards Master Limited Partnerships and Real Estate Investment Trusts and therefore have the reliability, the stability, 

that the traditional energy industry has long enjoyed, not having 

to go back to Congress every couple of years and say, please renew 

this form of finance. 

If we could make that transition, I think we would be a lot further ahead in terms of this industry, which is growing very fast, 

and where there is a highly competitive global industry. We really 

risk losing out on a major opportunity in renewable energy technology in this global race that we are facing right now. 

Senator CORNYN. If I could just ask a quick follow-up to that, Mr. 

Reicher. Would MLPs be more effective for these renewable energy 

projects than targeted tax credits? 

Mr. REICHER. You have to look at this project by project. I think, 

in a significant majority of cases, you probably will cut the cost of 

capital in a renewable energy project, the cost of financing that 

project—not in all cases, but in many cases. The point is, let us 

move in a smart transition. 

Let us give these industries a transitional period under the production tax credit and the investment tax credit, but ultimately let 

us end up with these finance mechanisms that the rest of the energy industry has long used, and I think we are going to be all the 

better for it. 

Senator CORNYN. Thank you, Madam Chairman. 

Senator STABENOW. Thank you very much. 

Senator Portman? 

Senator PORTMAN. Thank you, Madam Chairman. Thank you for 

allowing me to join you today, even though I am not on the subcommittee. I was interested in the testimony, and I have learned 

a lot, and I appreciated the last question that Senator Cornyn 

asked and Mr. Reicher’s response. As you know, we have an energy 

efficiency bill that is wending its way to the floor. In fact, it looks 

like it will be up tomorrow, and then maybe we will have votes on 

amendments as soon as we get back in September. 

There are a number of interesting ideas for energy efficiency that 

are being proposed in the tax code, some of which are already part 

of our law, others that are new ideas. Energy services agreements, 

for instance, and energy savings performance contracts are something that a number of us have a strong interest in. 

On the SAVE Act, I thought Mr. Reicher’s testimony was very interesting, and I wonder if he could elaborate a little on that. He 

talks about how buildings, which use 40 percent of the energy in 

the United States and therefore are a big part of our energy bill, 

can be upgraded with relatively simple changes that would result 

in huge savings, but there are not a lot of incentives. He thinks 

that the SAVE Act that Senator Bennet, who was here earlier, and 

Senator Isakson have introduced would be helpful in that regard. 

If you could talk a little about how this would work for the typical homeowner in terms of their mortgage payment, and also just 

a little bit more about how this would work in terms of non-Federal 

Government guaranteed loans. 

In other words, most loans are guaranteed now, but, moving forward, many of us are interested in seeing how we can get Fannie 

24 

and Freddie and the Federal Government to pull back some on 

their secondary mortgage position. So how would this work outside 

of the Federal Government? 

Mr. REICHER. Well, thank you, Senator Portman. First, the energy savings opportunities are vast in buildings. It really is an extraordinary number: 40 percent of U.S. energy use is in buildings. 

The opportunities, as Deutsche Bank has said, are huge. It has 

really been a challenge, though, to move private capital into retrofitting commercial and residential buildings. 

The investment industry is concerned about credit risk and performance risk: will they get paid back, and will the buildings perform as predicted? The good news is, there are some mechanisms. 

You alluded to energy savings performance contracts, energy services agreements, property assessed clean energy, on-bill repayment. 

There are a whole host of mechanisms. Those are moving forward. 

I think they each have promise. The jury is out, though. We still 

do not know that. 

I think what you can do, sitting here today, and what the 

Bennet-Isakson approach would do, is to look at something very 

simple, which is people going at this important moment to buy a 

home and going to get a mortgage, to get that energy savings 

cranked into the mortgage underwriting. 

The mortgage underwriter looks at the cost of taxes, the cost of 

insurance, but often does not look at the cost of energy, which can 

be larger than those other two. If that got added into the formula, 

people would be strongly encouraged to be looking at more energyefficient homes. 

I think the home builders are supporting it, and the National Association of Realtors is supporting it, because they know this could 

be a big step forward. I think your bill would be a great vehicle 

for moving this forward. 

Senator PORTMAN. Well, thank you. I appreciate that. In terms 

of, again, the number of mortgages that would be affected by it, my 

question about governmental or Federal loans or guaranteed loans 

versus those that were not guaranteed, do you have a thought on 

that? 

Mr. REICHER. About 90 percent, as I understand it, of Federal 

mortgages are under the Federal Housing Administration, so about 

90 percent of those mortgages issued today would be covered by 

this bill. I am not sure if I can take it any further than that. 

Senator PORTMAN. Yes. Again, the notion is to move away from 

that over time, as has been talked about in the context of the appointment of the new Director, so it is just something to think 

about, how the private sector might take this on, too, because it is 

in their own interests, probably, when you look at the actual costs. 

Mr. REICHER. Absolutely. 

Senator PORTMAN. I am going to embarrass him, but I see Senator Warner is getting up to leave. I was going to acknowledge him 

and thank him for being here today. Whatever he is supporting 

today is going to have a much better chance of being pursued. I do 

not know what it is, but he is a good friend of this committee and 

a good friend of mine. Thank you for being here, Senator. 

And thank you, Mr. Reicher. I really appreciated your testimony, 

and thank you to the other witnesses as well. This is a topic that 

25 

we will be taking up again on the energy-efficiency front soon, but 

also with regard to tax reform. Obviously, this is an issue that is 

timely. 

So, thank you all. Thank you, Madam Chairman. 

Senator STABENOW. Thank you very much. We look forward to 

having your legislation on the floor and working on it. 

Senator Cantwell? 

Senator CANTWELL. Thank you, Madam Chairman. Thank you 

for holding this hearing. One of the things I know that was in part 

of The Pew’s work was, who is winning the clean energy race. Obviously your discussion about China—specifically you stated, last 

year Asia and Oceana became the leading destination for clean energy investment, attracting $101 billion in private investment and 

42 percent of the global total. 

So that is a concern to me in the context of, we want to not only 

have green energy solutions, but we would also like to have the 

supply chain that goes with it so all the money is going in one direction, and obviously, a lot of the long-term job creation will go 

there too. 

So I wanted to get your thoughts on how we counter that. I am 

all for clean energy solutions in China. In fact, I think we should 

have a zero tariff on all clean energy products around the globe because, if we did, they would all be cheaper for everybody to implement. But I wonder if you could, Ms. Cuttino, comment on that and 

what we need to do in the race to win on the investment side. Mr. 

Coleman and Mr. Reicher, comment on that as well. 

Then also if the panel could comment on a technology-neutral energy incentive program. Obviously, as we have discussed ITC and 

PTC over time, the complexity of both, one concept that has 

emerged as a way to not have to figure out every piece of the puzzle—whether it is biodiesel, wind, solar, biomass, or storage capacity, what have you—is to come up with an incentive that is 

technology-neutral, either based on Btu or kilowatt production or 

something of that nature, and if people could talk about that idea 

and give us your comments—— 

Ms. CUTTINO. Great. Well, Senator Cantwell, we certainly share 

your concern about the United States slipping to second in the 

global clean energy race. We have seen investment flowing to Asia. 

In fact, investment flows to nations that have policy certainty, and 

that is why we repeat time and time again that policy matters. 

Those countries that have pulled back on policy, whether it is 

subsidies or whether it is targets or whatever, have seen investment decline. Those countries that have strengthened their targets 

or put them in place, no matter what the policy is, have seen investment flow in their direction. Certainly, when it comes to China, 

there is a competition afoot. We have been trading our leadership 

with China when it comes to attracting investment, and we need 

more policy certainty in this country, whether it is in the tax code 

or energy policy. 

When it comes to different approaches, certainly an interesting 

approach would be a tiered technology-neutral approach that would 

be based on emissions or other measures. That is something that 

I know a lot of folks are looking at, so it is very interesting. There 

could be capacity goals that are set, so there are a variety of apVerDate Nov 24 2008 20:19 Jun 23, 2014 Jkt 000000 PO 00000 Frm 00029 Fmt 6633 Sfmt 6633 R:\DOCS\88062.000 TIMD
26 

proaches that I think are very interesting that Congress could consider. 

Senator CANTWELL. Mr. Reicher or Mr. Coleman, do you have 

any ideas about technology-neutral solutions as a way to include 

everything? 

Mr. COLEMAN. Yes. So I think, in terms of the competitiveness 

issue, obviously, if you look at what has been happening in the 

marketplace, we have been developing quite a few technologies and 

we have a lot of investment through our National Labs and other 

places in these technologies, but we fail to commercialize them 

here. 

In a lot of cases, they are being commercialized elsewhere, and 

they are being manufactured elsewhere and deployed around the 

world. So I think we really need to figure out how to solve this 

commercialization gap, which is what I was testifying about, because, until we do that, we will not be able to get early-stage innovations into the marketplace. 

And, in terms of the technology neutrality part of it, we need to 

do it in such a way, obviously, that allows us, as the market, to 

try to pick these different technologies based on their competitiveness in the marketplace at the time. I think an MMBtu-based process is one approach. 

I also think though that, if you can figure out how to do it based 

on criteria that we agree we need to accomplish—i.e., whether it 

is innovation or improvement in various criteria—that is something 

that can drive the way we think about investing in a category so 

that we are not just investing in the next technology, we are investing in better technology. 

Senator CANTWELL. All right. 

Mr. REICHER. Senator, I would just quickly add, there is an extraordinary number that an international energy agency has said 

that we are going to be spending—$38 trillion—between now and 

2035 on global energy infrastructure. It might be clean or less 

clean, but, however it happens, that is the sort of number we are 

looking at in terms of what we are going to have to build out globally in energy infrastructure. That is an extraordinary number; it 

is an extraordinary market. I have to say, I think the Chinese have 

said, we are going to own—the Chinese are going to own—a very 

large proportion of that market. That is their plan. 

They are moving forward, not only in low-cost manufacturing, 

but increasingly in R&D; increasingly, as Mr. Coleman just said, 

in commercialization. Many technologies invented here, often at 

government expense, are in fact being commercialized in China. 

The intellectual property is increasingly owned in China. So I think 

we really face a real race here. 

There are ways to collaborate with the Chinese, but I think we 

also have to be smarter about competition as well. This is a vast, 

vast market with extraordinary numbers of jobs, and I do not think 

we are well-organized to seize a reasonable fraction of that for our 

own country. 

Senator CANTWELL. All right. 

Dr. Thorning, when you were talking about the amount of money 

spent on renewable energy versus fossil fuel energy, were you talking about section 1603? 

27 

Dr. THORNING. No, I was talking about the entire tax code. The 

Congressional Research tabulation of all the incentives in the code 

shows that 80 percent of them are going right now to the renewable sector. 

Senator CANTWELL. I think there are something like $40 billion 

in tax incentives for the fossil fuel industry in various forms, so I 

definitely do not think we are spending $40 billion on renewable 

energy. So maybe we could compare notes and come up with a—— 

Dr. THORNING. Yes, I would love to. Because if you are counting 

accelerated depreciation and other expenses, other deductions, 

those are allowed for all industry, not just oil and gas. 

So I believe it is the case that the renewable sector is benefitting, 

as I showed in table 5, from the quite negative effective tax rates, 

and so it is a question of whether the cost to the American taxpayer is worth what we are getting. 

Senator CANTWELL. Well, I would love to compare notes, because 

I definitely think we are spending a lot more on fossil fuel incentives today than we are on renewable energy, but maybe we can 

compare notes and come up with something, and we can at least 

agree on the facts of what those things are. So, that would be helpful. Thank you so much. 

Did you want to say anything about a technology-neutral approach? 

Dr. THORNING. Well, I think, as I said in my opening statement, 

allowing expensing for all energy investments is the most neutral 

way to go, and let the market decide what is going to be put in 

place. 

Senator CANTWELL. Thank you. 

Thank you, Madam Chairman. 

Senator STABENOW. Senator Wyden, welcome, the distinguished 

chair of the Energy Committee. We are so glad to have you. 

Senator WYDEN. Thank you, Madam Chairman. I so much appreciate your leadership on this. Senator Cornyn and I have teamed 

up on a whole host of issues over the years, and I appreciate the 

chance to be with both of you. 

Let me start this way. Historically in the Senate, energy policy 

has been about region versus region. Senators from one region or 

another come on in and duke it out, and you have one kind of energy source battling against another, where somebody comes in and 

says, I am a gas person, somebody says, I am a renewables person. 

The consumer barely gets mentioned in all of this. The consumer 

is the one who gets short shrift. 

When Chairman Bingaman retired, I said, this is one of the 

areas I want to really be part of: trying to focus on the consumer, 

the consumer’s well-being. So I want to start, and I am going to 

try to get all four of you in with a couple of questions, but let us 

try this one for Ms. Cuttino and Mr. Reicher. 

We have a situation here where crude oil production is booming. 

We are glad to see that. Gas prices keep soaring. The consumer 

pulls up at the pump and just feels like they are getting mugged. 

I mean, prices just keep going up and up. 

What are all these tax breaks that we are talking about going 

to do to provide some relief for that consumer? Because that is a 

big focus of what I have been looking at, and I know Senator 

28 

Stabenow and our committee have been looking at it. For you, Mr. 

Reicher, what are these tax breaks doing to try to get some help 

to the consumer, if anything? 

Mr. REICHER. Great question, Senator Wyden. Clearly, these tax 

breaks have encouraged significant new development of these fossil 

energy resources, but those energy resources are being developed 

in an international market where we do not have a separate domestic price for oil. We compete in a global market for oil. 

So we have encouraged greater production. We are in fact reducing our dependence on foreign sources of oil, but we work in a market that is an international one, where the price is not determined 

here. As you know, natural gas is a little bit different. 

What I would say is—and this is really where I think policy 

comes into this—we have taken some extraordinary steps to help 

people deal with the price at the pump, and that is the fuel efficiency of vehicles. I think the President’s fuel economy standards 

that he set—— 

Senator WYDEN. But that is not a tax area, primarily. 

Mr. REICHER. Understood. It is regulatory. 

Senator WYDEN. It is regulatory. I want to just get on this tax 

issue, because the tax code—and all three of us are going to be very 

involved in reform. I have had a bipartisan proposal for years with 

Senator Gregg formerly, then Senator Coates. So we are talking 

about tax expenditures. That is why what Senator Stabenow and 

Senator Cornyn are doing is so important: they are looking at expenditures. Just, if you would, tell me what these expenditures are 

doing to help the consumer at the pump. 

Mr. REICHER. I think the answer is, they are helping in terms 

of production. They are not primarily oriented towards helping the 

cost at the pump. That is something that, as you look at the tax 

code, there are other ways to do that. 

Senator WYDEN. Ms. Cuttino, unless you want to add something 

to this, and you are welcome to, I will just kind of move on. We 

will just hold the record open, because I would like to get into another area that I would welcome any of you to flesh out. I want the 

production. It is a very good thing. The fact is—and I am going to 

North Dakota with Senator Hoeven here in a few weeks—natural 

gas is 50 percent cleaner than the other fossil fuels, so this production is good. 

But it has to translate to the consumer at the pump who feels 

like they are getting shellacked in this, and they are just kind of 

mystified. They turn on the news and production is up and jobs are 

being created, and they are saying, how is this going to translate 

to me? Of course, this also bumps up against what they have been 

told all these years, that if you just produced more, this would be 

good for the consumer, but it is not getting to them. 

So here is my other question for the panel. Why do we not just 

start at the other end with you, Dr. Thorning and Mr. Coleman. 

Is there, in your view, any kind of measure—I guess the fancy 

word is to call it a metric; it probably does not count in Washington 

unless you call it a metric, but to me it is just kind of a plain, old 

measure—that a technology is competitive in the marketplace and 

would no longer be in need of government assistance? 

29 

Let me start with you on this one, Dr. Thorning. Is there any 

such creature here, a measure or a metric that would help us look 

at how we can have the innovation we want, a role for government, 

but recognize that the real challenge is to make sure we are generating the growth and the vitality in the private sector? Is there any 

measure that you know of? 

Dr. THORNING. Well, that is a wonderful question, and I may 

have to reflect on it. But it seems to me if you look at market 

prices—for example, LNG, liquified natural gas, compressed natural gas, is making inroads into the transportation sector with fleet 

vehicles and so forth. The price per unit of Btu maybe is as good 

a metric as any, but I think it is important to again let the market 

decide which technology is best for transportation fuel. 

Let me just go back quickly to the question about, why are consumers not seeing much benefit at the pump in terms of reductions 

in gasoline prices. As Mr. Reicher said, it is determined in international markets. Most analysts feel that the U.S.’s extra billion 

barrels of oil produced last year has had some helpful impact in 

terms of keeping the price from rising even faster. Another issue 

is whether the renewable fuel standards are raising the price of 

gas. So these are all things that are in addition to tax policy that 

I think we all should be aware of. 

Senator WYDEN. I know I am over my time. Maybe the chairman 

will let Mr. Coleman respond. 

Senator STABENOW. Please respond. 

Mr. COLEMAN. It is a great question. Thank you. It is a great 

question because it gets right to the heart of the challenge round, 

saying we are going to renew things like the PTC or the ITC or 

other provisions until the industry is ready to roll off. I think one 

of the false premises there has always been that these industries 

are somehow homogeneous, that solar is at some point going to be 

ready to roll off of these credits. 

I think the reality is, if you look inside the solar industry, there 

are companies like First Solar which have iterated on technologies 

over and over again and they have gotten down the cost curve and 

they are at a scale point, and there are other technologies that are 

much earlier in the chain which are nowhere near that. They have 

not even built the first plant. 

So I think the reality is, we have to create structures that allow 

that to be accommodated over time. If you look at a lot of the oil 

and gas credits, part of the reason that they are permanent is to 

do that, and part of the reason that there are things like depletion 

allowances is they basically say, when you go into the marketplace 

and you take a risk, you will be rewarded by being able to write 

off the CapEx of that risk. That is the kind of thing that we are 

trying to get into place with this provision that we have proposed. 

Senator WYDEN. My colleagues have been kind to give me the 

extra time, and I thank them. 

Senator STABENOW. Thank you very much. 

I had one question, and I am now going to do two in conclusion. 

Thank you all again for being here. 

Dr. Thorning, you have twice now talked about the renewable 

fuel standard, and I just have to put my chair of the Agriculture 

Committee hat on and let you know I have a very different view 

30 

on this. As we look at how we level a playing field and create competition, I think we would all start by saying competition is a good 

thing; it brings prices down if it is fair competition. 

We certainly do not see that at the pump in terms of availability 

of biofuels or other kinds of fuels at the pump—to be able to get 

real competition to bring prices down. But what is important, I 

think, when we look at biofuel producers, is this whole discussion 

that has gone on about the renewable identification number, or 

RIN, that is a part of what folks have said is a cost of this industry. 

It is my understanding that, when a biofuel producer sells biofuel, they get this credit, this RIN, and they give it to the buyer, 

which is the oil company, for free. There is no cost to them; it is 

given free. Is that true, it is given free as part of buying the 

biofuel? 

Dr. THORNING. Well, you have to buy the biofuel. 

Senator STABENOW. You buy it. 

Dr. THORNING. The RIN price, I think, has gone up to maybe $1.33 recently, so it is a cost that has to be passed forward. 

Senator STABENOW. I guess the point is, I would just say—and 

it is important for the record that I make it, so I want to speak 

to this a minute—is that the purchaser buys the biofuel, they get 

the credit, there is no cost for that, and then the oil companies 

trade this and create the value back and forth. 

There is a small group that trades all of this, and the cost goes 

up and up and up based on how they trade it. As I understand it, 

there are 2.5 billion unassigned credits, RINs, coming into 2013, 

and I am not sure how we know how the RINs get valued. Do you 

have any idea? 

Dr. THORNING. I am not an expert on RINs either, but to me, as 

an economist, when I see the ever ramped-up EPA requirements 

for blending renewable fuels with gasoline, and we see that gasoline consumption is down in the U.S., there is going to be a blend 

wall hit, perhaps as soon as this year, according to a recent 

Bloomberg article, and that is bound to impact prices and the supply of gasoline. 

So I am just saying we ought to take a look at this renewable 

portfolio, renewable fuel standard, and see if it is still making economic sense, especially since the National Academy of Sciences report indicated it actually increases GHGs. 

Lastly, because ethanol does add octane to gasoline, even if the 

renewable fuel standards were cut back or eliminated, there would 

still be a market for biofuels. It would not disappear. 

Senator STABENOW. Well, we are looking forward, in the Agriculture Committee, to getting into this more. But I would just say 

that we do not have a transparent market at all to determine the 

value of something given free to the companies that they then 

trade with each other and then goes up and up and up in value, 

and then there is a complaint about how high it is—it is an interesting system that has been put in place. 

But I would just suggest that if we were blending more biofuels, 

if we had more access at the pump, then it would alleviate the 

price in terms of the RIN and so on. It is interesting that those 

controlling the access are creating a system and then arguing that 

31 

it is not working to create competition at the pump. It just is a 

very interesting system. 

So we are going to get more into that, but I would just suggest 

that if we had more competition—with the little bit that we have 

from biofuels, it is estimated that the price of gas is 80 cents to 

a dollar lower, just with the little bit of E85 we have, and we do 

not have that much access to it. So I am looking forward to broader 

hearings on that one. 

Senator CORNYN. Madam Chairman, can I ask just one question? 

Senator STABENOW. Yes, you may. Yes, you may. 

Senator CORNYN. Did you say ‘‘blend wall’’? 

Dr. THORNING. Yes. 

Senator CORNYN. What is that? 

Dr. THORNING. Well, right now, gasoline consumption is falling 

in the U.S., in part because of fuel efficiency for cars and so forth. 

So the fact that the EPA regulation mandates ever more use of renewable fuels each year, if you are not selling more gasoline but 

you have to use the renewable fuel, you are going to hit a blend 

wall. 

It is like you have a coffee cup and you have to keep pouring 

more cream into it and less and less coffee, which is the gasoline 

at the bottom. So there is a National Economic Research Associates 

study, which I would be pleased to share with you, that looks at 

the economics of this and projects it will inflict significant costs on 

U.S. consumers. 

Senator CORNYN. Thank you. 

Senator STABENOW. The challenge is that more could be blended 

if there were more pumps and if there were more access to service 

stations—if there was more willingness to have it available. So that 

is really the larger debate in terms of whether or not it is available. 

In conclusion, I would like to ask each of you, and particularly 

Mr. Coleman, because you mentioned this in your testimony: when 

we look at this broad question of how we go forward on tax policy, 

how do we create a level playing field, make it technology-neutral, 

let the market decide, create more competition for consumers, all 

of those things, jobs, address issues of a cleaner environment— 

there is a whole range of things that are very, very important? 

I feel like we go round and round about which preferences are 

what or who is successful enough to be paying taxes and so on, and 

we do not look at the fact that we are comparing one group that 

is at the 50-yard line with others who are back just getting started, 

and we are not comparing this the same way. 

I was interested that in your testimony you referenced a 2011 report by DBL Investors, noting that Federal spending on oil in the 

first 15 years of deployment was 5 times greater than what we 

have spent on renewables. From your investment experience, I 

know you know it takes about 15 years or more for some technologies to move from R&D to initial commercialization. 

So we have mature industries, successful industries in America. 

Clearly, we want them to be successful, certainly we want the jobs 

and so on, but we are comparing a mature industry that has gone 

through all the beginnings of it, they do not need to worry about 

a refundable tax credit, they are at a point where they have gone 

through all those stages, and they are now paying taxes and so on. 

32 

Then you have all these new technologies that are in the interests 

of our country to develop, and so these debates go on, but these 

new technologies are not all at the same stage as we debate all of 

this. 

So I am wondering if you could speak to that, any of you who 

would like to speak to that in terms of, again, how we look at these 

technologies, how we determine the policy, and how far along are 

we in the development of our clean energy technologies. What are 

the technologies that you think are going to become most competitive with conventional sources? 

How do we wrap this all together? Because we can argue either 

side using lots of numbers that show a lot of different things, but 

we are talking about a mature industry versus new promising industries and the challenge of making sure that we can be competitive in those industries in a global marketplace and do the right 

thing for our country. Mr. Coleman? 

Mr. COLEMAN. I think it is a complex issue to get your head 

around because—as evidenced by all of our testimonies; they can 

turn into dissertations in a hurry—the solution is not necessarily 

that complicated. So I think at the highest level the issue is that, 

even when you look at solar versus wind versus oil versus nuclear, 

it is absolutely true that some are really in the early stages of development and others are further along. 

The numbers from the DBL report are really about those sectors 

as a whole, and the kind of support those sectors as a whole have 

gotten. But there is another layer to it, which is, even within those 

sectors, when you look at—just take solar as an example. When 

you look at this range of technology, you have some technology 

companies that are creating technologies that are at the very, very 

beginning, they are still in the lab, and they have not moved down 

the cost curve yet. 

Cost curves are something that are really important in this debate, because what happens with the cost curve is you basically 

have a portion, a steep portion of the curve as you come down, 

which is really about fundamental innovation. Then the other portion of it, where you get this tipping point, where you get competitive and you can actually compete on your own two feet in the marketplace, is really about scale. It is really about actually producing 

at scale, because you get enormous economies of scale as you get 

more and more mature and iterate. 

So the challenge is, how do you create a support that encourages 

the early innovation to happen and then also drives the scale in the 

marketplace, but does it in a way where we have continuous innovation over time? If you just look at solar versus oil, versus wind, 

you would see very different levels of support over time, and that 

is an issue. 

But, if you get to the next layer, you also need to create these 

permanent credits, something that is a permanent structure that 

actually says, for new innovation, we are going to support the risk 

that is taken to go and do that, and we are going to help them get 

to the point where they are competitive in a marketplace. 

That marketplace might not be you versus some other technology, it might be you versus other technologies in the market 

that are exactly the same but have a variation. How do we conVerDate Nov 24 2008 20:19 Jun 23, 2014 Jkt 000000 PO 00000 Frm 00036 Fmt 6633 Sfmt 6633 R:\DOCS\88062.000 TIMD
33 

tinue to do that so that we drive costs down for the entire sector 

and then for the entire energy industry as a whole? That is the 

only way we are going to get to a point where we have an evergreen innovation process in this country. 

Senator STABENOW. Would anyone else like to comment about 

that as well? Mr. Reicher, would you like to? 

Mr. REICHER. Senator, I would just add that there are an array 

of maturities among these technologies, from nuclear power, which 

has been here and well-established for decades and decades, 

fracking has arrived recently, solar still has a long distance to go, 

particularly certain aspects of solar, and how we treat each of these 

is quite different. 

The loan guarantee programs that you put in place in the 2005, 

2007, and 2009 acts have been an attempt to help that commercialization process, and we have seen some good results from those. 

We have seen some failures as well, but for the most part most of 

those investments have done reasonably well, and I think the taxpayer, looking back a few years from now, is going to see a pretty 

successful portfolio of investments in commercialization. 

The Energy Department is moving on right now to begin to put 

some of that loan guarantee funding into advanced fossil technologies, into carbon capture, various things we need to improve 

the fossil energy industry. That should move forward. 

But let me say this. If you, as members of Congress, decide not 

to ultimately recapitalize those loan guarantee programs which you 

put in place in 2005, 2007, and 2009, I would strongly encourage 

you to go back and take a look at something that you had very good 

bipartisan support for a few years ago, and that was the Clean Energy Deployment Administration. Senator Wyden, Senator Murkowski, Senator Bingaman, when he was here, were all strong supporters of this. 

The beauty of that approach is that we would have put something into place with a very broad array of investment tools, not 

just loan guarantees and loans, but a whole set of other tools: the 

ability to issue bonds, the ability of this new entity to actually profit from the up-side, pay itself back and keep going, not to have to 

go back to Congress for new funding. 

I would encourage you to go back and take a look at that if you 

decide not to recapitalize these loan guarantee programs, because 

I think that would be a way, in a very technology-neutral fashion, 

to support these earlier-stage technologies that in fact do struggle 

across what we call the Valley of Death. I think the Clean Energy 

Deployment Administration would be worth a strong second look. 

Senator STABENOW. Yes, Dr. Thorning? 

Dr. THORNING. I would just like to suggest that it might be better 

to have the government have taxpayer money going into R&D more 

than trying to pick the technologies and fund them. I mean, we 

have seen what happened after the 2009 act and the series of 

losses of taxpayer money from picking the technology. 

I just want to bring you back to 1832. That is when the first electric car was developed in Scotland. It was a battery-powered electric car. By 1910 or so in New York City, the electric vehicles had 

a quarter of the market. But as we know, since 1910 in New York 

34 

City, the electric vehicle, because of failure to come up with a satisfactory range in battery, has just not made it. 

So the electric vehicle has been in place for 180 years in one form 

or another, and it is still not really commercially viable. So I think 

picking winners is not the government’s long suit. I would rather 

see money going into R&D to keep the tax code neutral so that 

each technology has the same ability to write off its investments 

as the other. 

Ms. CUTTINO. We really need to invest in new technologies until 

they get to cost-competitiveness, at the very least. Senator Wyden 

asked, what is good for the consumer? That is good for the consumer, and it is good for our security, diversity in the mix, and also 

consumer choice. 

But there are not only new technologies that we need to incentivize—we talked about the electric car—but for instance, combined 

heat and power. Currently in 48C, for instance, industrial energy 

efficiency is treated differently than solar power. There are technical fixes that need to happen to that for our industrial base to 

seize the benefits of industrial energy efficiency, which again would 

make them more competitive, would save energy, and would reduce 

costs. Now we know, after Hurricane Sandy, it would also provide 

resiliency. 

So we do need to have some measures, and cost-competitiveness 

is certainly one, but other measures that would support these new, 

or in some cases older, technologies that just need a little more 

time to get over the hump. 

Senator STABENOW. Well, thank you all very much. We appreciate your time and expertise, and we look forward to moving forward. This is a very important part of, I believe, growing the economy, creating jobs, and addressing many of our challenges. 

So we would ask that any additional questions for the record 

should be submitted to the committee clerk within 5 business days 

from today. That is 5 p.m. on Wednesday, August 7th. 

The hearing is adjourned. 

[Whereupon, at 5 p.m., the hearing was concluded.] 

(35) 

A P P E N D I X 

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