Whenever America debates energy policies, there’s normally some heated rhetoric about one industry getting treated better than the other. Several fossil-fuel advocates are crying foul at the Obama administration, because they claim it’s using the oil and gas sector as a piggy bank to finance alternative energy. Conversely, those cheering for alternative energy are pleading that these energy sources should receive the same benefits that other energy sources received when they got started years ago.
Any way you shake it, the perception is that helping one industry irrevocably hurts the other, but that doesn’t necessarily have to be the case. There are options to give alternative energy more equal treatment without taking away from traditional fossil fuels. Let’s look at one idea: the Master Limited Partnership Parity Act.
MLPs for everybody
For investors who have followed the energy sector lately, master limited partnerships have more than likely come up in conversation. This MLP structure provides unique tax advantages for qualifying companies and provides investors with high-yielding investments ideally suited for those seeking income investments. The key phrase there is “qualifying companies,” and that’s where the Master Limited Partnership Parity Act comes into play.
Under current rules, the only companies that are eligible for MLP status are those where more than 90% of revenue comes from the following sources:
- Interest, dividends, and capital gains.
- Rental income and capital gains from real estate.
- Income from commodity investments.
- Income from qualifying natural resource activities.
- Any gains from assets used to generate these types of income.
Under these regulations, natural resources that qualify are depletable resources such as oil, gas, coal, timber, minerals, and biofuels such as ethanol. The MLP Parity Act, though, would expand the definition of qualifying industries to include wind, biomass, geothermal, solar, municipal solid waste, hydropower, marine and hydrokinetic, fuel cells and combined heat and power projects, certain renewable transportation fuels, carbon capture and storage, waste heat to power, renewable chemicals, and energy-efficient building projects..
If companies that participate in these kinds of activities were able to gain MLP status, they would be able to create an investment vehicle that could be more attractive to investors because of the higher yield. This could spur greater private investment in these types of companies. At the same time, by granting MLP status to companies that operate in these sectors, it doesn’t create an additional financial burden on the oil and gas industries that may occur from additional taxes to support alternative energy investments.