Financing Our Energy Future Act
A bill to level the playing field by giving investors in renewable energy projects access to a decades-old corporate structure with a tax advantage now available only to investors in fossil fuel-based energy projects
U.S. Senator Chris Coons
At a time when the United States needs to increase domestic energy production and leaders of both political parties say they support an "all of the above" energy strategy, Congress should level the playing field and give all sources of domestic energy — renewable and non-renewable alike — a fair shot at success in the marketplace.
By statute, MLPs have only been available to investors in energy portfolios for oil, natural gas, coal extraction, and pipeline projects. These projects get access to capital at a lower cost and are more liquid than traditional financing approaches to energy projects, making them highly effective at attracting private investment. Investors in renewable energy projects, however, have been explicitly prevented from forming MLPs, starving a growing portion of America's domestic energy sector of the capital it needs to build and grow.
The Financing Our Energy Future Act is a straightforward, powerful tweak to the federal tax code that could unleash significant private capital into the energy market.
The legislation, which is just over 600 words long, would level the playing field between traditional and new energy businesses by helping energy-generation and transmission companies form master limited partnerships, which combine the funding advantages of corporations and the tax advantages of partnerships.
By allowing additional forms of energy development to access this market tool, we can go beyond political rhetoric and start delivering an all-of-the-above energy strategy.
How master limited partnerships work
An MLP is a business structure that is taxed as a partnership, but whose ownership interests are traded like corporate stock on a market. Whereas profit from publicly traded C corporations is taxed at both the corporate level and the shareholder level, income from MLPs is taxed only at the shareholder level because it is treated as a partnership for tax purposes.
An MLP consists of limited partners (investors) and general partners (managers). The limited partners — who can number in the thousands — provide capital and receive quarterly required distributions generally equivalent to shareholder dividends in a C-corporation. They play no role in the operation of the MLP, while the general partners manage the MLP's daily operations. General partners can take the form of another company or a group of individuals, typically holding a 2 percent ownership stake.
Writing in the New York Times, Dan Reicher and Felix Mormann of Stanford University's Steyer-Taylor Center for Energy Policy and Finance described the appeal of MLPs: "Master limited partnerships carry the fund-raising advantages of a corporation: ownership interests are publicly traded and offer investors the liquidity, limited liability and dividends of classic corporations. Their market capitalization exceeds $350 billion. With average dividends of just 6 percent, these investment vehicles could substantially reduce the cost of financing renewables."
Because MLPs are so attractive to investors, they have been proven to bring new capital into American energy projects. This is especially important in the case of renewable-energy generation, where it is harder for investors to see as quick a return as compared to fossil fuel-based energy generation, for which much of the processing and transportation infrastructure was built decades ago. Constructing the same level of critical infrastructure for renewable energy sources will take time and investment, so the Financing Our Energy Future Act levels the playing field and helps address that problem.
An MLP must generate at least 90 percent of its income from qualified sources, such as real estate or natural resources, including crude oil, natural gas, petroleum products, coal, timber, and other minerals. Section 613 of the federal tax code specifically requires qualifying energy sources to be "depletable" resources – meaning we are working against our own goal of an "all of the above" energy strategy that includes additional homegrown renewable energy sources.
How the Financing Our Energy Future Act helps
The Financing Our Energy Future Act simply expands the definition of “qualified” sources to include clean energy resources and infrastructure projects. Specifically included are those energy technologies that qualify under Sections 45 and 48 of the tax code, including wind, closed and open loop biomass, geothermal, solar, municipal solid waste, hydropower, marine and hydrokinetic, fuel cells, and combined heat and power.
The legislation also allows for a range of transportation fuels to qualify, including cellulosic, ethanol, biodiesel, and algae-based fuels, as well as energy-efficient buildings, electricity storage, carbon capture and storage, renewable chemicals, and waste-heat-to-power technologies.
The Financing Our Energy Future Act does not affect any current MLP entity. All projects currently eligible to structure as MLPs would continue to qualify exactly as they would under existing law.
History of master limited partnerships
The first MLP was created in 1981 to attract capital by offering small investors a partnership investment in a liquid security. The success of the Apache Oil Company MLP led to other oil and gas MLPs, as well as MLPs formed for other capital-dependent enterprises.
Congress first established rules for master limited partnerships in 1987 legislation that introduced Internal Revenue Code Section 7704 and, for the first time, defined “publicly traded partnerships.” The MLP structure was limited to businesses deriving 90 percent of their income from specific sources, including dividends, rents, interests, capital gains, and mining and natural resources income identified in Section 613 of the tax code. This definition allowed oil and gas extraction and transportation activities access to the MLP structure, but excluded other energy sources.
In 2008, the Emergency Economic Stabilization Act (P.L. 110-343) expanded the definition of qualifying income to include transportation and storage of certain renewable and alternative fuels (ethanol, biodiesel, and a series of liquefied fuels), as well as industrial-source carbon dioxide.
The National Association of Publicly Traded Partnerships estimates there are more than 100 MLPs currently being traded on major exchanges, primarily focused on energy-related industries and natural resources. “Midstream” oil and gas projects — gathering, processing, pipelines, and distribution —account for the majority of current MLPs.
Of the estimated $445 billion in MLP capital currently in the market, approximately $400 billion (89 percent) has gone into qualifying energy and natural resources. Of that, just under 80 percent has gone into midstream oil and gas pipeline projects.
Broad support for the Financing Our Energy Future Act
Lori Ziebart, Executive Director, Master Limited Partnership Association: “In 1987, Congress passed legislation that established the modern day MLP, with the intent to promote domestic investment in the extensive buildout of our nation’s energy infrastructure. Over more than three decades, the industry has been tremendously successful and effective in raising hundreds of billions of dollars of capital through this highly efficient market-based structure. The MLP model remains a critical way the industry raises capital today to support the significant and ongoing buildout of this essential U.S. energy infrastructure network. This ultimately results in lower cost and more reliable energy for consumers. With the introduction of the Financing Our Energy Future Act, we commend Senators Coons and Moran for their commitment to the MLP structure and recognition of the valuable role it can play in the development and advancement of additional energy resources and related infrastructure.”
David Terry, Executive Director, National Association of State Energy Officials (NASEO): “The National Association of State Energy Officials supports a balanced national energy policy. The Financing Our Energy Future Act, if enacted, would be a critical element of such policy balance. We strongly encourage its adoption.”
Mark P. Allen, President and Chairman, Algae Biomass Organization: “The Financing Our Energy Future Act will open up the master limited partnership tax-advantaged corporate structure to investors ready to finance the growth of renewable energy, carbon capture and utilization, and other vital low carbon products being deployed by the algae industry. The members of the Algae Biomass Organization thank Senators Coons and Moran, and Representatives Estes and Thompson for their leadership in introducing the Act in the 116th Congress. Allowing MLPs to bring new capital to industry innovation and growth will help create jobs and enhance our energy and environmental security. Algae-based clean technology companies look forward to competing on the level playing field this bill will help ensure.”
Noah Deich, Executive Director, Carbon180: “Carbon180 commends Senators Coons and Moran and Representatives Estes and Thompson for introducing the Financing Our Energy Future Act, which will support the commercialization of clean energy technologies including carbon capture, use, and storage here in the US. This bill recognizes that captured carbon dioxide can be utilized economically in many different applications – such as concrete, plastics, graphite, carbon fiber, fuels and chemicals – and it creates financial incentives that can help drive innovation in these technologies in a way that protects industrial jobs, tackles climate change today, and paves the way for carbon dioxide removal solutions in the future.”
David Gardiner, Executive Director, Alliance for Industrial Efficiency: “We applaud Senators Coons (D-DE) and Moran (R-KS) for their bipartisan leadership in introducing the Financing Our Energy Future Act. For the past century, conventional fuels have been able to access low-cost financing to support infrastructure development. This bill levels the playing field for renewables and clean-energy technologies, encouraging investment into the energy infrastructure of tomorrow. The Alliance for Industrial Efficiency is particularly pleased that the bill extends low-cost financing to Combined Heat and Power (CHP) and Waste Heat to Power (WHP), proven clean-energy sources that could provide as much as 20 percent of U.S. electric capacity. Despite this tremendous potential, these technologies currently represent only 8 percent of U.S. electricity. The Financing Our Energy Future Act will lower the cost of financing such projects, sending a strong signal about the value of such investments. By lowering financial hurdles to CHP and WHP, this bill helps put these technologies on an equal footing with conventional fuels. The sponsors of this bill are right to recognize that U.S. investments in renewable and clean-energy technology can save substantial amounts of energy and money, make American manufacturing more competitive globally, and help create jobs in our country.”
Kurt Waltzer, Managing Director, Clean Air Task Force: “The Financing Our Energy Future Act will provide an important financial pathway for commercializing cleaner advanced technologies. Carbon capture, for example, is a critical-path technology for decarbonizing our energy production. Allowing these projects access to MLPs will help accelerate its deployment and cost reduction, and ultimately its wide-scale commercial use.”
Stephanie Batchelor, Acting Executive Vice President, Industrial & Environmental Section, BIO: “Countless companies are working to secure a sustainable American energy future and reduce our reliance on foreign oil, and it’s important they have the necessary tools to be successful. Unfortunately, today, an antiquated tax provision is preventing environmentally friendly technologies from accessing capital and slowing the transformation to a 21st-century, bio-based economy that will produce clean, affordable energy and create high-quality jobs. With the Financing Our Energy Future Act, we can better finance and foster innovative renewable chemicals and biofuels to combat climate change, provide Americans with low carbon energy, and revitalize domestic manufacturing. BIO thanks Senators Coons and Moran and Representatives Thompson and Estes for recognizing the need to level the playing field and embrace new energy opportunities.”
Jason Hartke, President, Alliance to Save Energy: “If we intend to meet our climate goals, we need to find ways to mobilize investments in energy efficiency and other technologies at a greater scale than ever before. The bipartisan, bicameral Financing Our Energy Future Act represents a new opportunity to deliver the benefits of energy efficiency—job creation, energy cost savings, and lower carbon emissions—by leveraging a tax structure currently reserved for fossil-fuel energy projects. I urge Congress to pass this bill and encourage the use of master limited partnerships for energy efficiency as quickly this session as possible.”
Gregory Wetstone, President and CEO, American Council on Renewable Energy (ACORE): “We welcome the introduction of the Financing Our Energy Future Act, which would help level the playing field in capital markets by making master limited partnerships available to renewable energy technologies. The ongoing transition to America’s renewable energy economy will require meaningfully greater levels of capital investment, and we thank Senator Coons, Senator Moran, Congressman Thompson and Congressman Estes for their leadership in bringing forward this common-sense, bipartisan legislation.”
Paula Soos, Vice President Government Affairs, Covanta Energy: “This important bipartisan legislation will help create a more robust domestic energy market, importantly allowing a broad range of renewable technologies equal access to important capital financing structures. Covanta applauds Senators Coons and Moran for their leadership on policy which positively impacts renewable energy generation like waste-to-energy, and helps state and local governments achieve resiliency and climate change goals.”
Shannon Kellogg, Vice President of AWS Public Policy, Amazon and ACORE Board Member: “Amazon is committed to renewable energy. To date, we've completed more than 55 wind and solar projects worldwide that will generate over 3 million megawatt hours annually. As Amazon continues to pursue renewable energy projects, we support expanding the use of Master Limited Partnerships to clean energy resources and applaud Senators Coons and Moran and Congressmen Estes and Thompson for their leadership on this important legislation.”
Dan Reicher, Founding Executive Director, Steyer-Taylor Center for Energy Policy and Finance and Lecturer, Stanford University: “Expanding access to MLP financing will do much to address U.S. economic, environmental and security imperatives by lowering the cost and accelerating the deployment of a range of clean energy technologies. The bill comes at an opportune moment as renewable energy tax credits begin to phase down. MLP-supported investment could provide a long-term source of cost-effective finance to renewables, just as it has for U.S. oil and gas pipelines for decades. The Financing Our Energy Future Act would also provide important financial support to carbon capture, utilization, and storage as that technology proves itself from an engineering perspective but still has challenges economically. Finally, MLPs could help advance various types of electricity storage technologies critical to large-scale deployment of a number of renewable energy sources.”
Emily Skor, CEO, Growth Energy: “Including renewable energy like biofuels in an expanded master limited partnership (MLP) tax structure will drive further investment into an industry that is supplying our nation with cleaner, more affordable fuel. This bill will level the playing field with conventional energy sources like petroleum that can currently access and utilize this type of tax structure.”
Mo Klefeker, President and CEO, Primary Energy Recycling Corporation, Member Heat is Power Association: “We own and operate one of the largest waste heat to power projects in the U.S. for the benefit of a large steel producer in the Midwest. The economic and environmental benefits of this project are undeniable and have helped position our customer as a low cost producer and manufacturer of steel in the U.S. while helping them produce their product with a smaller environmental impact. The Financing Our Energy Future Act would lower the cost of capital for waste heat to power projects like ours, making these projects easier to finance and more attractive to a broader range of customers, while supporting jobs and the local economy.”
Michele Stockwell, Executive Director, BPC Action: “BPC Action applauds Sen. Coons (D-DE), Sen. Moran (R-KS), Rep. Thompson (D-CA) and Rep. Estes (R-KS) for introducing the Financing Our Energy Future Act. This bill will help to level the playing field for clean energy projects—including CCUS, energy storage and waste-to-energy projects—to have the same tax-advantaged structures currently available to fossil fuels. This is an important step to incentivize the deployment of innovative clean energy technologies.”
Josh Freed, Senior Vice President for Clean Energy, Third Way: “We must reach net-zero emissions by 2050 if not sooner. This is going to require using every financing tool we have to build-out every clean energy technology that will help us eliminate climate pollution. The Financing our Energy Future Act will get more clean energy projects up and running by giving technologies like carbon capture, grid-scale storage, enhanced geothermal, and other carbon-cutting resources access to the same tax treatment that fossil fuels have successfully used for decades. This bill would reduce barriers to deploying a wider variety of clean energy solutions we’ll need to address climate change.”
Kelly Speakes-Backman, CEO, Energy Storage Association: “ESA supports the efforts of Senators Coons & Moran and Representatives Thompson & Estes to introduce the bipartisan Financing Our Energy Future Act. Including energy storage as an eligible asset for master limited partnerships would allow energy infrastructure providers to build and acquire energy storage technologies at lower cost, accelerating the transition to a more resilient, efficient, sustainable and affordable energy infrastructure. Coupled with the Energy Storage Tax Incentive and Deployment Act (S. 1142 / H.R. 2096), which ESA also endorses, the Financing our Energy Future Act will help establish a long-term tax framework to accelerate storage deployment.”
Bob Perciasepe, President, Center for Climate and Energy Solutions: “Natural resource developers have long benefited from a variety of tax incentives. The time is ripe to make carbon capture and renewable projects eligible for Master Limited Partnership (MLP) financing, which can provide favorable tax treatment for investors. Together with the 45Q carbon storage tax credit, the MLP tool will improve the private financing capacity of carbon capture projects with little cost to the taxpayers. Thanks to Sens. Coons and Moran, and Reps. Thompson and Estes, for their bipartisan, bicameral effort. It is time for Congress to pass the Financing Our Energy Future Act.”
Abigail Ross Hopper, President and CEO, Solar Energy Industries Association: “Today, solar is a bright spot in our nation’s economy, employing 242,000 workers at more than 10,000 U.S. companies. We need strong tax policies to support renewable energy. The MLP proposal has the potential to attract private sector investment for critically-important solar projects.”Brad Crabtree, Co-Director, Carbon Capture Coalition: “The Carbon Capture Coalition is pleased to support the bipartisan Financing Our Energy Future Act. We applaud the sponsors Senators Chris Coons (D-DE) and Jerry Moran (R-KS) and Representatives Mike Thompson (D-CA) and Ron Estes (R-KS) for recognizing the importance of carbon capture as a key element of our nation’s broader portfolio of energy technologies. This legislation will ensure the availability of tax-advantaged master limited partnerships (MLPs) as a tool for financing carbon capture and utilization projects, thereby reducing the cost of equity and providing project developers with access to capital on more favorable terms. Making carbon capture and utilization projects eligible for the MLP structure is recommended in the Coalition’s recently-released consensus federal policy blueprint as part of a suite of policies needed to build on the 45Q tax credit to foster economy-wide deployment of carbon capture, which will support American energy production and create highly-skilled, good-paying jobs, all while reducing carbon emissions.”