The importance of climate change and regulation of greenhouse gas emissions has increased in recent years according to a new study by Duke University’s Nicholas Institute and Sanford School of Public Policy. In this poll of 1,089 respondents, researchers concluded that the number of Americans who believe climate change is occurring is at its highest level since 2006. Interestingly, of those who believe in climate change, most do not support a level of a cap-and-trade or market system. Instead, most recommend that the government improve regulatory measures. The press release by Duke hints that this lack of support for a market-based system may be caused by a lack of knowledge in America about these systems. If you’re interested in learning more about it, LEYES law blog has reported on the attempted use of a cap-and-trade system in the United States in California.
Interestingly, as this has happened, congress has recently introduced a bill that if passed will have a major impact on the renewable energy industry in the United States. At the moment, oil and traditional energy companies have access to certain corporate structures that provide their companies (and its revenues) with advantages. This corporate structure, known as a Master Limited Partnership (MLP), is only limited to those investors in energy sectors such as natural case, oil, coal, and pipeline projects. This legislation, spearheaded by Senator Chris Coons (D- Del.), was introduced on April 24 and is formally known as Bill S.795, the Master Limited Partnerships Parity Act.
According to Dan Reicher and Felix Mormann of Stanford University, “MLPs 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” (NYTimes).
What exactly does this mean though? According to one source, “[MLPs] may be bought and sold on the New York, NASDAQ, and other public exchanges, and most of them pay a regular quarterly cash distribution,” which constitutes its publicly traded advantage (more access=more investors= more $ for the directors to invest= more operations). Importantly, these MLP’s do not get taxed on their revenues like traditional corporations do and therefore it leaves more earnings to be passed onto investors. What’s more, these MLP investors do not get taxed on their returns like they would with traditional corporations; instead, investors’ returns are considered tax-deferred. Lastly, the limited liability aspect of these corporate structures allows investors to deal with lower risk when they place assets into the company.
Overall, it is mind-blowing that such a structure has not been available to renewable sun and wind energy sources, especially since it is given the incredibly lucrative industries of oil and gas. Knowing the current limitations, the MLP Parity Act will extend such a corporate structure to all entities that receive 90% of their income from sources such as “wind, closed and open loop biomass, solar, municipal solid waste, hydropower, marine and hydrokinetic, fuel cells, and combined heat and power…transportation fuels… including cellulosic, biodiesel, and algae-based fuels” (see MLP Parity Act Summary on Senator Coons’ website).
If the bill passes, then kudos to Coons and team. Energy (especially renewable) has a ton of potential at the moment, but it depends too heavily on government subsidies. The MLP Parity Act provides a way to rectify this (if even a little).
Other energy articles on LEYES:
For an article on different corporate structures:
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