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President's Science Advisors Call for Parity in Clean Energy Financing

Press Release

Location: Washington, DC

The President's Council of Advisors on Science and Technology (PCAST) has recommended to President Obama that the country should "level the playing field for clean energy and energy efficiency technologies" by, among other things, bringing parity to the master limited partnership (MLP) business structure. The recommendation mirrors the bipartisan Master Limited Partnerships Parity Act, which U.S. Senators Chris Coons (D-Del.) and Jerry Moran (R-Kan.) introduced in 2012.

"The all-of-the-above energy strategy so many in Washington support will require a tax code that gives clean energy technologies the same advantages the oil and gas industries have gained over many decades," Senator Coons said. "Bringing parity to master limited partnerships has found real support in Congress, in the Administration, and in the energy, environmental, and financial sectors. PCAST's recommendation is consistent with statements from former Secretary of Energy Steven Chu and others in the Administration who believe that leveling the playing field for innovative new energy technologies is the only way to achieve the all-of-the-above energy strategy our country needs."

A master limited partnership is a business structure that is taxed as a partnership, but whose ownership interests are traded like corporate stock on a market. 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 capital-intensive 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.

"When you met with your Council of Advisors on Science and Technology at the end of November," the 16 scientists wrote, "you noted that your Administration was in the process of developing a strategy for addressing climate change during your second term and you asked for our input. In this letter, we suggest six key components for consideration that we deem central to your climate change strategy and policy."

Recommendation Three urges the President to "level the playing field" for clean-energy and energy-efficiency technologies. Specifically:

Level the playing field on access to capital through special tax benefits. Conventional energy projects have better access to low-cost capital than renewable energy projects. As with many energy projects, the cost of financing for renewable energy projects makes up a significant portion of their overall cost, and lower financing costs in the marketplace could help encourage the development of renewables. Preferred tax status through investment vehicles such as Master Limited Partnerships (MLPs) and Real Estate Investment Trusts (REITs) have benefitted conventional energy projects but are not currently available to renewable projects. Rulings by the Department of the Treasury may suffice to confer such status in some cases, but Congressional action will be required in others. We suggest that the Administration reexamine the options to make it easier to finance renewable energy projects.

In December, a bipartisan group of 31 senators and representatives urged President Obama to make MLPs and Real Estate Investment Trusts a priority.

"Opening MLPs and REITs to renewable energy would level the playing field by giving renewables the same access to low-cost capital enjoyed by oil, gas, coal and transmission infrastructure projects," the lawmakers wrote. "Small tweaks to the tax code could attract billions of dollars in private sector investment to renewable energy deployment, reduce the cost of renewable electricity by up to one third, and dramatically broaden the base of eligible investors. In fact, bipartisan legislation has already been introduced in both the House and the Senate (H.R. 6437 and S. 3275 respectively) to allow renewable energy projects to raise low-cost capital through the MLP structure. In the case of REITs, a straightforward ruling by the Treasury Department would allow access to this investment vehicle for renewable energy projects."

Senators Coons and Moran will reintroduce the Master Limited Partnerships Parity Act in the Senate later this month. U.S. Representatives Ted Poe (R-TX-02), Mike Thompson (D-CA-01) and Peter Welch (D-VT-AL) will reintroduce it in the House of Representatives.

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