Biomass Gets Tax Break, Oil & Gas Get Tax Hike

Nicolas Loris /

With wind, solar and geothermal receiving much of the government handouts when it comes to energy production, biomass is back in the game after the Senate Finance Committee unveiled its tax extender plan, which includes a $100 million in production tax credits for biomass energy as part of a larger tax extender package. Politico reports,

As drafted, Section 503 breathed new life into an unusual production tax credit, first awarded to the industry in 2004 as part of a one-time, five-year deal benefiting nearly 80 biomass electric-generating plants, most of which were up and running well before the tax break was enacted. The House balked at renewing this bargain in December, saying production tax credits are to spur new production, not to subsidize old. But Finance subtly changes the old wording from five years to six, thereby adding 12 months to a tax break that is typically worth about $1.75 million annually for a qualified 20-megawatt plant.”

So if biomass production received government support when it wasn’t needed, why does it need more help now? Robert Cleaves, president of the Biomass Power Association, answers, “The production tax credit is really a lifeline for the industry. It’s not a windfall. We’re on the ragged edge as it is.” This should be a pretty convincing indicator that biomass is currently an uncompetitive product and might not be in the market without production tax credits. Biomass, one of the cheaper renewable energy sources, may play a role in America’s energy portfolio, but if it cannot compete in the market, it doesn’t deserve to be there. And biomass isn’t as environmentally friendly as some might suggest.

Billionaire Sam Zell is a financial supporter of biomass. He also bought the Chicago Tribune in 2007, only to see it go bankrupt by the end of 2008. “[I]f you bought something and it’s now worth a great deal less, you made a mistake. And I’m more than willing to say that I made a mistake. I was too optimistic in terms of the newspaper’s ability to preserve its position,” said Zell after the paper went under. Maybe he should consider the same for biomass. Although Senator Harry Reid stripped the tax extenders set to expire at the end of the year from the larger jobs bill, the $31 billion in tax extenders could be broken out into a separate bill.

This comes at a time when President Obama’s budget plans to reduce the deficit by eliminating $36.5 billion in tax breaks to the oil and natural gas industry. Without removing tax breaks and subsidies to other sources of energy, this is essentially a tax increase on our proven sources of energy. The Americans for Tax Reform has more here.

Removing government support for energy production isn’t necessarily a bad thing, but it should be done across the board. A good starting point would be to ending the special tax breaks for biomass.