A group of five Washington insiders talked on November 14, the day after it became clear that Republicans will control both houses of Congress, about what the election results mean for renewable energy, carbon capture, clean hydrogen, RNG and other parts of the energy transition.

The group is Mike Catanzaro, CEO of the high-powered Republican lobbying shop CGCN Group and a special assistant for domestic energy and environmental policy to President Trump during the Trump first term and, before that, energy advisor to Republican House Speaker John Boehner, Richard Glick, a principal in consultancy GQS Energy Strategies and chairman of the Federal Energy Regulatory Commission for two of the last four years, a former general counsel to the Senate Energy Committee and the former long-time Washington office head for what is now utility holding company Avangrid, Hannah Hawkins, a principal at KPMG whom anyone working on energy transition tax issues knows from her six years as the energy tax counsel at the US Treasury, a role in which she served during the Trump first term, David Kautter, who was the top tax policy official during the Trump first term as assistant US Treasury secretary for tax policy and who is currently with RSM International, an accounting firm, and Joe Mikrut, who was tax legislative counsel for the US Treasury during the Clinton administration and a legislation counsel to the Joint Committee on Taxation in Congress and who is currently a partner with Capitol Tax Partners, a Washington lobbying shop that has a strong stable of former senior tax officials in both Democratic and Republican administrations. The moderator is Keith Martin with Norton Rose Fulbright in Washington.

IRA Repeal?

MR. MARTIN: It was clear from a panel discussion among Republican insiders that we organized at our annual conference in June that we live in two bubbles: a Trump bubble where the talk has been about ripping the Inflation Reduction Act out root and branch, and a Democratic bubble where the talk has been about how a wholesale repeal is unlikely because of the disproportionate number of new projects and factories in red states.

House Speaker Mike Johnson told CNBC the last week in September that Republicans will take a scalpel rather than a sledgehammer to the IRA, but that was before the sweep that put Republicans in charge of both houses of Congress and the White House. Mike Catanzaro, what do you think is likely to happen to the IRA?

MR. CATANZARO: Certainly President Trump and many Republicans over time made clear their disdain for the Inflation Reduction Act. Not a single Republican ended up voting for it. Nonetheless, some of the tax credits that were included in the IRA had bipartisan support before they were folded into the IRA. I am referring to section 45Q credits for carbon capture, and even the tax credits for generating electricity from wind and solar that are supported by Chuck Grassley from Iowa and members from Oklahoma and Texas where the wind is strong.

Things are getting more complicated as these projects are not only being announced in red states, but you are also starting to see shovels in the ground and to see new factories open that depend on these tax credits. I think Speaker Johnson got it exactly right that a scalpel not a sledgehammer will be used.

We all know about the letter that 18 House Republicans sent their leaders urging them not to get rid of these important credits. There is probably double that support among House Republicans. Others were just not willing at the time to sign.

Margins are extremely thin in the House, as they have been. Those who want to keep these credits will have a fair amount of leverage.

That said, with the need to extend the tax cuts in the 2017 Tax Cuts and Jobs Act that expire at year end 2025 costing anywhere from $4.5 to $5 trillion over 10 years, House leaders will need offsets, and they will be looking anywhere and everywhere for them.

While some of the tax credits may stay on the books, they may not look like they do today in terms of eligibility, scope and time frames.

There will be support from President Trump and the Trump administration for some of the credits. An example is the nuclear production tax credit. That is one that I think a Republican Congress, as well as the President as a strong supporter of nuclear, would get behind.

Again, "scalpel, not a sledgehammer" is the best way to describe what is likely to happen. Scrapping it entirely does not seem likely to happen.

MR. MARTIN: Dave Kautter, one would think Republicans will be reluctant early in the new Congress to deny Trump whatever he asks for. Do you agree with what Mike Catanzaro just said?

MR. KAUTTER: Yes. I think it will be a matter of selective repeal and amendment. However, the pressure for revenue raisers has increased as a result of the Republican sweep. What the Republicans would like to do is substantial and widespread, and they will need revenue raisers as part of that. The pressure to look around every corner for any potential revenue raiser has grown. I agree that the nuclear tax credits are safe.

The other tax credit that is fairly safe is the carbon sequestration credit. There is substantial support for carbon sequestration within the incoming administration.

MR. MARTIN: Joe Mikrut, do you agree scalpel rather than sledgehammer? Not even a hammer?

MR. MIKRUT: Yes, for all the reasons that Mike and Dave mentioned. I think everything is or will be under examination. Some things clearly will be safer than others, and there will be modifications to some provisions. The amount of revenue that could be picked up by an IRA repeal is just a drop in the bucket compared to the potential cost that the extension of the 2017 tax cuts would entail.

Lame Duck

MARTIN: We will come back to this subject in more detail and will also talk about what form any transition relief might take, but I want to focus briefly on the next two months.

Congress returned this week to Washington for a lame duck session. It has funded the federal government only through December 20. There has been talk of a short government shutdown to push the spending debate into next year when Republicans will be in control. House Speaker Mike Johnson could imperil his chances to remain the House speaker if he relies again on Democratic votes to keep the government open. Mike Catanzaro, what do you expect to happen on government funding?

MR. CATANZARO: This will be heavily influenced by what President Trump prefers. President Trump is no fan of doing a continuing resolution allowing federal agencies to continue spending at current levels, but I suspect he will end up in the camp of a continuing resolution to push the government funding debate into the first half of next year.

I don’t buy that that Speaker Johnson’s job is somehow in jeopardy if he pushes such a resolution. He has President Trump’s strong backing. The House Republicans look likely to raise the number of members required to make a motion to vacate the chair from one currently to nine or 10 members. He should be safe for the time being.

A big question is what happens to the Manchin-Barrasso permitting reform effort that came out of the Senate Energy Committee a few months ago. There is a concerted effort underway by Barrasso and Manchin to work with their House counterparts to include all or some of the permitting reforms in a rider attached to the continuing resolution.

It will be a tough climb because Republicans think they can get a better deal next year, possibly as part of a budget reconciliation bill, though that is a very complicated topic to unpack. Many Republicans are uncomfortable with the transmission reforms in Manchin-Barrasso. Many Democrats are uncomfortable with the provisions to expedite oil and gas leasing on federal lands. I am not saying it can’t happen, but it will be an uphill climb.

MR. MARTIN: Rich Glick, you were general counsel to the Senate Energy Committee where the permitting reform bill originated. Do you share Mike Catanzaro's view that it is unlikely to be enacted this year?

MR. GLICK: I do. The prospects have dimmed since the election. The House Republicans, in particular, would like a more aggressive set of siting reforms than is included in the Manchin-Barrasso bill. I suspect Republicans think they will be able to achieve a lot more in the next Congress when they will have control of both houses.

That said, Joe Manchin is like a dog with a bone when it comes to permitting reform. He and Senator Barrasso are working very hard to get this done this year. There is more than a 0% chance it gets done in the lame duck session, but it will be tough to get House Republicans to cut a deal with the Senate in the next several weeks.

MR. MARTIN: Does anyone expect a tax extenders bill in the lame duck session? Joe Mikrut?

MR. MIKRUT: I think parts of the extenders bill that passed the House earlier this year and stalled in the Senate will make it to the finish line, but extension of the business provisions in the Tax Cuts and Jobs Act, like interest deductibility, bonus depreciation and tax deductions for R&D, are next-year items. I think we will see things more in the nature of disaster relief, some of the pension provisions from the Secure 2.0 Act and perhaps the Taiwan tax provisions will be included, but the so-called trade between the Tax Cuts and Jobs Act pieces and the child tax credit may have to wait.

Day One

MR. MARTIN: Trump is expected to issue a doozy of a day one executive order. Mike Catanzaro, you helped work on such orders when you were in the Trump White House. What do you expect the day one order to say? There will probably be multiple orders.

MR. CATANZARO: We will probably see multiple executive orders on energy and environmental issues. We have government by pendulum.

We will probably see an effort by executive order to set in motion a comprehensive reversal of the Biden energy and environmental policies. If you want a sense of what might happen, look at Executive Order 13783 on promoting energy independence and economic growth that President Trump issued in March 2017. It had several sections to it that give a sense of the President’s overall approach to energy production and development. It is an all-of-the-above approach and counts on removing any kind of unnecessary regulatory and bureaucratic obstacles to production.

There was a long section listing all the executive orders on energy, climate and environment that the previous President signed. Those are pretty easy to do away with by a stroke of a pen. Then there are instructions to all the government agencies that are involved in energy development, distribution, transportation and so on to review and revise or rescind a list of specific regulations.

There is an instruction to the Department of Justice to ask the federal courts to pause any cases challenging regulations that were issued by the previous administration because the new administration is likely to withdraw or revise them.

I am not saying that is exactly what will be done this time, but it is a pretty good model.

Obviously, executive orders can be issued quickly, but implementation takes time.

MR. MARTIN: The day one order at the very least will instruct agencies to stop issuing additional regulations and stop spending on Biden priorities until the new administration puts its people in place.

Dave Kautter, in 2017, Trump ordered federal agencies to revisit all the regulations issued in the last year of the Obama administration. The Treasury ended up looking at 105 regulations. Do you expect a similar instruction this time, and will it only affect regulations or also extend to sub-regulatory guidance like notices?

MR. KAUTTER: I expect something very similar this time. It may not be limited to looking at regulations that were issued in the last year. It could well go beyond that. There has been talk about using the Congressional Review Act to roll back some regulations. I don’t think the Congressional Review Act is necessary in the Republican view. The Treasury can issue notices of proposed revocation, hold hearings and then revoke regulations.

With respect to sub-regulatory guidance, there has been less focus on that in the past, but such guidance is also fair game. It is something at which some of the transition teams are looking. The order of priority will be going after the regulations first and the sub-regulatory guidance second. I expect it will be a broad-based effort and not necessarily limited to the last year.

MR. MARTIN: Hannah Hawkins, I suspect the new Trump Treasury team will have its hands full working with the tax committees in Congress on the tax bill that Republicans hope to put through Congress quickly, and then on trying to issue guidance on what is in that bill, rather than spending time deep in the weeds revisiting past IRS notices. You heard Dave Kautter's view. I know you worked for him at Treasury. Do you have a different view?

MS. HAWKINS: No. I agree with Dave. There will be an effort over a period of time to take stock of the guidance from the last administration and also make a list of what is currently in the works.  The top-line efforts will be focused around regulations and then maybe, as a lower priority, sub-regulatory guidance, things like notices and revenue procedures and revenue rulings. It is much easier to reverse sub-regulatory guidance. Any changes in final regulations require a full rulemaking.

MR. MARTIN: A lot of companies have relied on that guidance. How does the Treasury deal with that problem?

MS. HAWKINS: Treasury tries to take a practical look at the economic realities of taxpayers who have relied on guidance and it has taken great care historically not to pull things back in a way that will compromise investments made. That will probably hold true with the new administration. Of course, we don’t know, but there is not a lot of precedent for making retroactive changes.

2025 Tax Debate

MR. MARTIN: The focus next year in Congress will be on extending the 2017 tax cuts that expire at the end of 2025. It must be done through a budget reconciliation process that normally takes the better part of a year, but House Republicans are now talking about enacting a bill during the first 100 days. Mike Catanzaro, what timetable do you expect?

MR. CATANZARO: One hundred days is ambitious but not unrealistic. The Republicans, the House Budget Committee, the tax-writing committees and the House and Senate leadership have been preparing for a Republican trifecta for the last six months, with a focus on drafting a budget resolution and pursuing reconciliation. The notion of doing this in the first 100 days is very ambitious, but not entirely unrealistic because they are ready to move the ball down the field quickly.

MR. MARTIN: Joe Mikrut, parts of the Inflation Reduction Act could be dismantled as "pay fors" to offset the cost of extending the 2017 tax cuts. The four IRA provisions that seem at greatest risk are the electric vehicle tax credit, the $80 billion in funding to modernize IRS computers and hire more staff that was already whittled back to $60 billion in debt ceiling talks, the US Department of Energy loan guarantee program and probably the distant phaseout date for renewable energy tax credits.

Is there anything else you would put on the most-endangered list?

MR. MIKRUT: Some things enjoy bipartisan support: the carbon capture credit in 45Q, the hydrogen credit in 45V, probably parts of the manufacturing credit in 45X and the fuels credits in 45Z. Put those on one end of the spectrum that is unlikely to be touched. Mike Catanzaro also mentioned the nuclear credit in 45U. I would put that there as well.

Then you mentioned credits that are going to be very closely scrutinized, including those relating to electric vehicles. Those are on the other end of the spectrum.

Everything else in the middle is going to get a case-by-case examination.

Credits that were new in the Inflation Reduction Act are probably more at risk of being modified than tax credits that have been in the tax code for a while. Republicans have voted in the past for credits for wind and solar, as Mike mentioned, so you would imagine they will continue to exist in some form. The new tech-neutral credits for wind and solar and other technologies last for quite a while, so there might be an examination of the expiration date.

MR. MARTIN: I am going to mention a series of things and direct the questions to Dave Kautter, but the rest of you should be feel free speak up if you have a view. Do you agree that the distant phaseout date for renewable energy tax credits is probably in danger and, if so, when do you expect any accelerated phaseout to start?

MR. KAUTTER: Yes. I do think it is in jeopardy, and I suspect the Republicans will move to start the phaseout as soon as they possibly can and to grandfather existing arrangements. If a project is at a certain point, it likely will be grandfathered. There is a strong desire to move quickly.

MR. MARTIN: What do you expect that point to be? Or put differently, how do you expect the transition rule to read?

MR. KAUTTER: The discussions up to this point, to my knowledge, have been pretty much as soon as we get the chance, we are going to pull the plug, and we will grandfather what is underway. They have not been more detailed than we are going to move fast and move definitively.

Transition Relief

MR. MARTIN: Joe Mikrut, do you have a view on how the transition rule would read?

MR. MIKRUT: The problem with transition rules is you have to know what the underlying provision looks like on a going-forward basis, and then you design your transition rule based on that. I expect Congress to use principles that we have seen before, either some sort of financial commitment such as start of construction or even a firmer commitment such as placed in service. It is really hard to predict what form of transition relief Congress will grant until you know the underlying statutory change.

MR. MARTIN: Congress historically has insulated projects that were under a binding contract to be built or that had incurred a certain level of costs, like 5%. Does anyone expect the current construction-start rules to be a basis for transition relief?

MS. HAWKINS: The beginning-of-construction rules are an easy place for the tax committees drafting transition rules to start. They are woven throughout many of the IRA provisions, even as effective dates. There is a guidance regime around beginning construction with which most participants in this industry are familiar. So from my perspective, that makes some sense, but of course we are operating in a universe where anything is on the table.

MR. KAUTTER: I agree with what Hannah just said. I also would advise not to underestimate the depth of emotion on the part of some Republicans with respect to some of these provisions. It is hard to anticipate what any transition rule will look like, but there is a lot of emotion around these issues, which moves the potential for what the transition rule would look like into a different category than what we have been used to seeing historically.

MR. MARTIN: Meaning stricter rules and less generous transition relief?

MR. KAUTTER: Yes. It is not business as usual.

MR. MARTIN: What do you expect to happen to the wage and apprentice requirements?

MR. KAUTTER: The Republicans I have talked to are split. There is general recognition that many aspects of those rules are good and should be retained, but there are aspects of the rules with which some Republicans have very serious problems.

MR. MARTIN: What do you expect about bonus tax credits for using enough domestic content or putting projects in energy communities?

MR. KAUTTER: I think there will be a lot of support in the new administration for that. Those two bonus credits are consistent with a lot of what President Trump talked about during the campaign. The domestic content bonus credit brings jobs home by focusing on domestic manufacturing, so I expect significant support going forward for those rules.

MR. MARTIN: Do you expect direct pay and transferability, or the ability to sell tax credits, to survive?

MR. KAUTTER: I do, but I am not as confident about that as I am about some other things that might happen. There is a general view within Republican circles that to the extent you have the private sector working out economic arrangements with each other, and keeping government out of the discussion, that is to be viewed favorably, but it is not something about which I have heard a lot of discussion.

MR. MARTIN: Let me ask one more, and then I will ask the others whether they disagree with anything you have said. Joe Mikrut said he thinks section 45X tax credits for manufacturers of wind, solar and storage components will survive. How likely is it Congress will deny those tax credits to companies with ties to China?

MR. KAUTTER: I think something along these lines is very likely.

MR. MARTIN: Does anyone disagree with anything Dave said? [Pause]   

Let me go back to Hannah Hawkins. What are you telling developers whose projects are not yet under construction they should try to do next year to qualify for transition relief?

MS. HAWKINS: The best current advice is to start construction based on the begin-construction regime that we already have.

MR. MARTIN: Joe Mikrut, projects that are under construction for tax purposes by the end of 2024 have the option to claim production tax credits or investment tax credits under the existing tax code sections before these tax credits move to new tax code sections next year. This generally works only for projects that are completed within four years. How safe do you think these projects are from anything the next Congress might do to scale back tax credits?

MR. MIKRUT: I would think projects that are under construction by the end of this year are pretty safe. As Hannah said, we have a regime that is well understood in the industry about starting construction. During President Trump's first term, there was a concern that the government would take a harder line on what must be done for a project to be considered under construction. It did not. In fact, the Treasury modified the rules in a manner that made them easier to satisfy. So I think the current regime will survive. To the extent any rollback of IRA provisions requires a transition rule, an obvious place to look is to the rules we currently have.

Regulatory Rollbacks

MR. MARTIN: Mike Catanzaro, the Congressional Review Act can be used to rescind any final rules issued by an outgoing administration in the last 60 days of the current Congress. Steve Scalise, who is the House majority leader, said in a letter last week to the Republican caucus that the CRA can be used to reach back into August 2024.

Trump used it 16 times in 2017 to rescind regulations. It has only been used 20 times since it was enacted in 1996 and never to roll back tax regulations. How heavily do you expect it to be used this time, and for what besides environmental rules?  Trump told Lee Zeldin, his nominee to head the Environmental Protection Agency, that there are 15 to 20 environmental regulations he wants to remove.

MR. CATANZARO: I expect the Congressional Review Act to be used to rescind any environmental regulations that were issued within the lookback period covered by the CRA. If you go through the notice and comment process under the Administrative Procedure Act to undo a rule, you will almost certainly end up in litigation.

We are in a post-Chevron world. It is not clear exactly how the Loper Bright decision will be applied by the lower courts. Agencies can no longer say an interpretation is a reasonable one. They must choose the best interpretation of the statute, and a federal judge is free to second guess.

The point is there will be a fair amount of uncertainty around any administrative actions. The CRA is a great tool because not only can you overturn a rule, the CRA also prohibits a future administration or even the existing administration from promulgating a new rule that is in substantially the same form as the old one.

I think the incoming administration has been assuming a June 1 lookback period for the CRA. A lot of major rules are probably on the chopping block for future administrative actions because they are not eligible for the expedited procedures under the CRA. At least in the energy and environment space, I don’t see many eligible for the CRA.   

One that we could see rolled back under the CRA is if EPA decides to finalize the waiver allowing California to impose stricter standards on tailpipe emissions, as that would create huge problems for the incoming administration. The problem is the General Accounting Office, which is an arm of Congress, does not think the California waiver is subject to the CRA. That’s not really a justiciable question. Congress could override the waiver if it chooses, but you have to get past the parliamentarian when you do something like that. That can get tricky. The long and short of it is I do not expect as many environmental regulatory CRAs as we did in 2017.

MR. MARTIN: What will happen to the DOE loan guarantee program? It still has $246.2 billion in remaining authority.

MR. CATANZARO: That is something they will look at in the context of budget reconciliation.

I was part of the effort to grant the loan guarantee for the Vogtle nuclear plant in Georgia during the first Trump term, so the Trump administration did use it to support nuclear development.

This time around, they may want to do something similar for advanced reactors. All these things are currently being reviewed by the transition teams for the Department of Energy and Office of Management and Budget.  We will have to work as well with Congress in the budget reconciliation bill as to what that program will look like in the future.

Electricity Grid

MR. MARTIN: Rich Glick, Trump issued a bulk power system order making it illegal to own equipment made by foreign adversary companies that might be used to harm the US power grid. Biden let it lapse. Do you expect it to be reimposed and, if so, in the same form?

MR. GLICK: I am not sure it will be reimposed. The Biden administration took a different tack than the first Trump administration, in large part because after the so-called SolarWinds cyber attack, people recognized that just putting restrictions on hardware, whether on power plants or on other bulk power system equipment that is manufactured in certain countries, does not necessarily address the problem.

We learned from SolarWinds that software attacks can also be used to infiltrate utility equipment. Such a software attack can come from anywhere.

The Biden administration decided to try to ensure utilities and other bulk power system entities guard more broadly against all possible infiltrations. For example, FERC ordered utilities recently to monitor their own facilities with greater awareness of any cyber intrusions.

I am not sure what the Trump team is planning for the next administration, but I don’t think restoration of the old order is the most likely outcome. It leaves out software attacks.

MR. MARTIN: How will the election affect the prospects for transmission reform?

MR. GLICK: Earlier this year, FERC adopted Order 1920, which essentially requires US utilities to improve the way they engage in regional planning for transmission. It also changes the way costs of regional grid improvements are allocated. Those are two of the major barriers to transmission development.

The vote was two to one. There were only three FERC commissioners at the time. Two Democrats voted for the order, and the one Republican, Commissioner Christie, voted against it. Since that time, one of the two Democrats left the commission and three new commissioners, two Democrats and one Republican, have joined. It is unclear how the new group of commissioners views the order. The order is also being appealed in the US court of appeals for the fourth circuit.

Much depends on whom the President designates as the next FERC chairperson and what that person wants to do. But even if a majority of commissioners decide to move in a different direction, it would take a while because FERC would have to go through a new notice and comment period and provide evidence on the record to support a change in position.  

I suspect if the FERC majority were inclined to eliminate Order 1920, it would wait to first to see how the litigation fares in the fourth circuit.

Offshore Wind   

MR. MARTIN: Mike Catanzaro, Trump has been an outspoken critic of offshore wind projects. During his first term, the Interior Department slowed work by freezing construction permits while it did a comprehensive review of the potential environmental effects of such projects along the Atlantic coast. What do you expect this time for offshore wind?

MR. CATANZARO: President Trump has been very clear about his opposition to offshore wind. He has been consistent in this view.

During the first Trump term, the Interior Department took its time and wanted to be extra cautious. I suspect Interior was cognizant of the fact that the President does not support offshore wind. That is the President’s prerogative, and I think Interior was respecting that.

The second time around, we will probably see more of the same. Obviously, the offshore wind leases in many cases have already been awarded. Projects are underway. It is difficult to get in the way of that. There could be a move to look at environmental impacts, particularly on whales, and at the concerns of commercial fishermen. I think President Trump is very sympathetic to their concerns.

The offshore wind companies should be concerned not just about Interior, but also about Congress where Republicans have already signaled their dislike of offshore wind. Some riders were added to the energy and water appropriations bill by Representatives Chris Smith and Jeff Van Drew from New Jersey to restrict development of offshore wind. With the trifecta, I suspect those riders have a better chance of being enacted. Congress could eliminate funding for any further permits for offshore wind projects.

MR. MARTIN: Dave Kautter, do you expect any action on the tax side affecting offshore wind, either at Treasury or by Congress?

MR. KAUTTER: I could see Congress using something on offshore wind as a revenue raiser. Conversations have not gotten that specific, but given the President’s position on offshore wind, I do not expect the Republicans are just going to ignore it. I think something will happen, and it could well show up as a revenue raiser.

MR. MARTIN: Prospective in effect presumably, correct?

MR. KAUTTER: Correct.

Deficits

MR. MARTIN: Trump promised a significant number of new tax cuts during the campaign. He wants to waive taxes on tips and Social Security benefits and exempt police, fire, active military, veterans and Americans living overseas from US income taxes. He wants deductions for 100% of the cost of electric generators and for interest on new car loans. That is not a full list.

Mike Catanzaro, what happens to these proposals?  They sum to about $7 or $8 trillion in additional cost, above the $4.6 trillion estimated cost to extend the 2017 tax cuts.

MR. CATANZARO: They will all be in the mix. President Trump and his team will negotiate with Republicans on Capitol Hill over which of the proposals are viable from a scoring standpoint. That said, I don't think the pledge not to tax Social Security benefits can be accommodated in reconciliation, but the other ones are in play and will be considered. Whether they get over the finish line as the President wants them to or get over the finish line at all remains to be seen.

MR. MARTIN: Joe Mikrut, Congress faces a huge math problem. We just laid it out. There has been talk of using tariffs as a "pay for" to cover the cost of extending the 2017 tax cuts. Trump has said he will impose a 10% or 20% tariff across the board on all imports and a 60% tariff on Chinese products. Some people think they will be more selectively applied in practice.

There is a view on Capitol Hill that Congress needs to impose the tariffs legislatively in order to allow the revenue to be counted as a "pay for" to offset the cost of extending the 2017 tax cuts. The rules for scoring tax bills would have to change to factor in presidential actions. What do you expect in this area on scoring?

MR. MIKRUT: Congress can change the rules on scoring.

We had a similar issue in the IRA where Congress assumed the $80 billion given to the IRS to modernize its computers and hire more staff would increase tax receipts. This was not in the official score, but the belief gave members a reason to vote for the bill. We could see the same thing with tariffs. Congress could direct the scorekeepers to take the tariffs into account or the members could simply rationalize that the tariffs will help. This form of unofficial scoring may be in play here.

MR. MARTIN: Mike Catanzaro, do you expect Trump to wait and let Congress enact a tariff bill so there can be overt scoring?

MR. CATANZARO:  I think given the timetable that House Majority Leader Scalise laid out in terms of trying to push this through reconciliation in the first 100 days, President Trump could wait for Congress to act. If the debate becomes protracted, then you may see President Trump act unilaterally.

Other Tax Changes

MR. MARTIN: Let’s move into a lightning round and then we will take some audience questions. Just short answers. Hannah Hawkins, what do you expect on hydrogen from the Treasury? Do you think the final regulations will be released before Inauguration Day?

MS. HAWKINS: That is a tough one to take in a lightning round. The Treasury received 30,000 comments about the hydrogen proposed regulations that came out at the end of last year. It has been difficult to finance projects under the proposed regulations. If the Biden administration tries to finalize anything that looks like the proposed regulations, it will run into a bunch of problems, like the Congressional Review Act, a Loper Bright analysis and a new administration taking a hard look at what to do with the regulations. Given all that, my guess is we will not see final regulations on hydrogen before the change in administrations.

MR. MARTIN: Dave Kautter, where do you think Republicans are on hydrogen? Do they support it or do they want to get rid of it as part of the "green energy scam"?

MR. KAUTTER: There is a mix within the Republican caucus, but overall, I think there is general support for it.

MR. MARTIN: Joe Mikrut, do you expect the 100% depreciation bonus to be restored?

MR. MIKRUT: Yes.

MR. MARTIN: Dave Kautter?

MR. KAUTTER: I think this is one of the highest priorities for Congressional Republicans. You very seldom find a consensus among tax economists around any single proposal, and yet if you look in the economic community, there seems to be consensus among most economists that one of the most effective things that you can do to encourage domestic investment is 100% expensing for businesses.

MR. MARTIN: Joe Mikrut, where will the corporate tax rate land? It is 21% currently.

MR. MIKRUT: President Trump wanted 15% in 2017. Congress did not quite get there. He has talked about doing something similar for manufacturing firms. That is hard to do with a split rate. We may see something in the nature of section 199 coming back for manufacturing corporations. It was a deduction to encourage certain types of activity. The deduction results in a lower effective rate. But keep in mind there may be a desire to keep a balance between taxes on partnerships and other pass-through business entities and taxes on corporations. If you lower the corporate statutory or effective rate, you may have to provide more relief on the pass-through side, and that further increases the cost.

MR. MARTIN: Hannah Hawkins, where do you think the corporate rate will land?

MS. HAWKINS: I am with Joe on this one, with the caveat that I am not sure what to make of the potential for a 15% rate for domestic manufacturers. The current 21% headline rate probably stays.

MR. MARTIN: Dave Kautter, do you think Congress will not only leave 45Z credits in place for making sustainable aviation fuel and other clean transportation fuels, but also give that tax credit more time? It is scheduled to be in place for only three years from 2025 through 2027.

MR. KAUTTER: I think there is some support for an extension.

MR. MARTIN: What about the ITC for renewable natural gas production at landfills and on dairy and hog farms? Will that tax credit be extended?  It expires at the end of this year for projects that are not under construction.

MR. KAUTTER: There is less talk about that as an extension than there is for 45Z, so I would not put that high on the list but it will be part of the discussion.

Audience Questions

MR. MARTIN: Let’s move to audience questions. Mike Catanzaro mentioned some of the credits might not look like they do today. Does anyone have a view on what is in play? How might they be restructured?

MS. HAWKINS: This is speculation, and who knows if there is any truth to it, but there has been chatter about trying to amend the way the adders work for things like domestic content and energy community. The chatter is around trying to change the way to qualify for the ITC or PTCs at full rates, for instance by making the prevailing wage rate the new base rate, and then the adders would be used to get to 30% in the ITC example.

MR. MARTIN: Another audience question. Mike Catanzaro, what are your thoughts about whether EPA will move quickly to approve the 200 pending Class VI well applications for carbon dioxide sequestration?

MR. CATANZARO: It is a tricky issue. Obviously you have some very important segments of the energy industry, the oil and gas industry among others, pushing to get these Class VI permits approved. There was disappointment with this administration. The process did not move as quickly as industry would have liked, so you might expect the Trump EPA to try to move more quickly to get these approved.

But from a political standpoint, CO2 sequestration is getting pushback on the ground from voters who supported President Trump. The Summit CO2 pipeline in the upper Midwest did not fare well in a referendum that was put to a vote during the election. The conservative base, property owners, are not exactly keen on this.

That makes it difficult to say how this will play out, but high level, you would expect a Trump EPA to move quickly, because there is support for 45Q tax credits in this administration and there is strong support for 45Q from leading Republicans in the Senate like Senator Barrasso, who will be the Republican whip, and Senator Capito, who will chair the Senate Environment Committee, as well as from a number of House Republicans.   

MR. MARTIN: Rich Glick, somebody asked about the potential for a carbon border adjustment. What do you think the odds are of that being enacted?

MR. GLICK: It makes sense as a way both to raise revenue and to address carbon in maybe more of a market-oriented manner, but there is still big disagreement within the Republican caucus about climate change, and the idea of addressing it legislatively seems challenging.

MR. MARTIN: Joe Mikrut, you historically have been a skeptic on the prospect of carbon taxes and tariffs. Are you still skeptical?

MR. MIKRUT: No, I think a border adjustment stands more of a chance this time. A lot of good work is being done on it, particularly in the Senate. I agree with Rich Glick that there is more skepticism in the House, but I think we will see another run at it for a variety of reasons, including the fact that it would raise revenue.

MR. MARTIN: Another question from the audience. Mike Catanzaro, the EPA has a greenhouse gas reduction fund with lots of money that it has been using it to fund green banks, among other things. What do you think will happen to it?

MR. CATANZARO: That has been a long-standing target of House Republicans and Republicans generally since the IRA was enacted and EPA began work to figure out where that money would go. EPA has already taken steps to send a lot of that money out the door, so a lot of it has already been spent. It would be difficult for EPA to claw back what has already been legally obligated.

MR. MARTIN: Another question from the audience. Dave Kautter, developers are generally given four years to finish projects once construction starts. Is there any risk that the incoming administration could reduce that period for projects that are considered already under construction for tax purposes?

MR. KAUTTER: Here in Washington, anything is possible, but I doubt very much that will happen.

MR. MARTIN: We have about 300 audience questions. Dave Kautter, any thoughts on what the new administration will do with the corporate minimum tax?

MR. KAUTTER: The original corporate alternative minimum tax was repealed in 2017. The Republican view was that it was a duplicative and unnecessary calculation. They would have repealed the individual alternative minimum tax as well, but the numbers just didn’t work out.

I do not see much support in the Republican caucus for the new corporate minimum tax that was reinstated as part of the IRA. It is based on financial statements instead of traditional income tax accounting concepts. However, it would cost money to repeal it. For that reason, I think it will remain on the books, even though there is not much support for it. 

MR. MARTIN: We have a comment -- rather than a question -- from the CEO of a renewable energy company that I am going to read.

He says, “I think the panel is taking far too much of a rational approach to the conversation. We are, after all, talking about a President who just nominated Matt Gaetz to serve as attorney general. Investors are going to be spooked about this, and the regulatory uncertainty is sure to cause tens of billions of dollars to sit on the sidelines until the path forward is understood.” 

We are at the end of the hour. Thank you panelists.