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Don’t hold your breath for a carbon tax

April 9, 2014, 1:00 PM UTC

<<enter caption here>> on January 6, 2014 in Washington, DC. Sen. Ron Wyden.

Senator Ron Wyden (D., Ore.) is the new head of the Senate finance committee and previously had chaired that body’s energy committee. Fortune talked to him in early April at the Bloomberg New Energy Future of Energy Summit in New York City to discuss tax breaks for renewables, ways to raise more capital for clean energy, and the prospects for a carbon tax.

What’s the chance of seeing some significant bipartisan movement on clean energy coming out of Washington?

From the finance committee we have an opportunity to make sure renewables gets a fair shot in the market place. What you have today is about 40 different tax provisions for energy. Fossil fuels have gotten generous subsidies for decades while renewables have been on a stop-and-go basis over the years. So as part of tax reform let’s at least start moving towards parity for different forms of energy.

What does that mean in practice?

Well, we’re not going to get to parity overnight. But Congress is going to have to make a choice here. Take Limited Master Partnerships. They’re hugely popular in the oil and gas industry. Now we have a lot of people in the renewables industry, which is currently locked out of these partnerships, say we’d like to have that same sort of opportunity.  If Congress wants to keep LMPs, how can you argue renewables shouldn’t have the same opportunities?

Do you think Congress will fix the uncertainty of renewable subsidies? It makes it hard for investors who need a clear, long-term horizon.

You’ve got to have a tax code that offers more parity and predictability.  Right now the mood in Congress and the White House is an “all of the above” energy policy. You can’t really give an energy speech in the Senate today unless you say you’re for “all of the above” three or four times.

It’s hard to have an “all of the above” policy that gives renewables, which are so important to our future, a fair shake without parity and predictability.

A lot of Republicans, however, don’t see renewables as a priority.

Just this past week, the finance committee had a vigorous debate on the wind production tax credit, and we extended it for two years.  There was bipartisan support for that. Next, I think we’ll see Congress extend the subsidy for two years.

Some Republicans say that if an alternative source of energy can’t compete on price it shouldn’t get subsidies.  Do you agree with that?

We have to anchor down some philosophical principles for the future, and to me it ought to focus, again, on parity and predictability. Let me give you another example. Consider the competition between liquefied natural gas (LNG) and diesel fuel for long haul trucking. Each fuel has its merit. Ideally the tax code would treat them comparably and let the market decide.

At first glance that’s what happens because both are taxed at 24 cents a gallon. LNG, however, doesn’t pack the same energy punch as a gallon of diesel (it takes more LNG to go the same distance as diesel). So taxing LNG based on volume rather than energy content means that LNG is effectively taxed at a much higher rate than diesel, which stacks the deck against LNG, which has a lower carbon footprint.

Speaking of taxes on carbon fuels, what about a broad carbon tax? Politicians have been saying for years that it’s political suicide to propose one in the U.S. Do think Congress could pass such a tax?

Let’s look at where we are. Until a few weeks ago I was chairman of the Senate energy committee so I have a sense of this intersection between energy policy and tax policy. What I’ve tried to do is to show up every day and put points on the board in the fight against climate change.  And then in the long run, it’s very clear that if you’re going to be serious about climate policy and I am, first you have to have the Congress in it and second, it’s a global issue.

But back to a carbon tax, does the U.S. have a prayer of passing one?

What I will tell you is that every day I’m in public life, I’m going to be looking at ways to put points on the board.