Fiscal Cliff Deal and its Impact on the Energy Sector

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The US just about managed to avoid the full effect of the fiscal cliff earlier this month, but crafting a solution took Congress, the Senate and the President right down to the wire. In the end a deal was struck, which should help the US avoid drifting into the recession.

Before breaking for the holidays, I wrote about the potential impact the fiscal cliff could have had on the energy industry if no decision was made. With a Senate bill now approved we know that some of the potential impacts I discussed have been resolved, such as the wind production tax credit.

The deal extends the wind production tax credit expiry date to January 1, 2014 and changes the eligibility so that any project that started construction by the expiry date will be eligible for the 2.2 cents per kilowatt-hour. Short term this could help spur construction of new wind farms, which is good news for green energy.

However despite the fact this new legislation has averted much of the fiscal cliff’s negative near-term economy impact, many believe the government is just kicking a can of tough decisions further up the road.

The fiscal cliff deal included tax increases on the wealthy and extended tax relief for lower income earners; however massive spending cuts were largely avoided. Many point to government spending as the most serious problem facing the US economy and it is likely to be a major point of contention when negotiations begin about raising the debt ceiling in the coming months.

There is much at stake in the debt ceiling negotiations and the impacts on the oil and gas industry could be similar if a deal is not reached.

For more details on how an unsolved fiscal cliff could have impacted the energy industry, read our In-Depth article “Falling from a Height – the Impact of the Fiscal Cliff on the Energy Sector.” in the December issue of Datawatch.

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