Congress Needs to Restore Tax Breaks for ‘Orphan’ Renewables

As Congress ratchets up its ongoing budget battles – the continuing resolution that is currently funding the government expires Jan. 19 – clean energy advocates of all stripes must hold lawmakers to their longstanding promises to renew tax credits for a long list of “orphaned” renewable energy technologies that were not included in major legislation adopted two years ago.

In December 2015, when Congress reauthorized and extended the Production Tax Credits (PTC) and Investment Tax Credits (ITC) for major wind and solar projects, lawmakers said tax credits for smaller renewable energy projects – geothermal facilities, for example – were inadvertently omitted, and they made promises to return to them the following year.

Two years have passed with no forward movement on those technologies.

But with a major tax reform measure passed and signed into law, a serious effort to renew and extend tax credits for those smaller renewable energy sources appears to be afoot. Senate Finance Committee Chairman Orrin Hatch (R-UT) introduced late last month the Tax Extenders Act of 2017 (S. 2256), a measure that would restore the tax credits intended to sustain the development of these lesser-known but vital clean energy technologies.

The legislation from Hatch indicates some real movement can be expected on tax credit extenders from the House and Senate tax writing committees.

Among the dozens of tax credits that congressional leaders said had been inadvertently omitted from the vast package of benefits passed in December 2015, and which ultimately died at the end of 2016, is a Biodiesel Blender Credit of $1 per gallon for biodiesel mixed with diesel fuel, and the Alternative Fuel Excise Tax Credit of 50 cents per gallon that can be taken against the taxpayer’s fuel tax liability.

The biodiesel credits are included in Hatch’s bill, as is a Small Agri-Biodiesel Producer Credit, which runs 10 cents per gallon for up to 15 million gallons when agro-biodiesel production capacity does not exceed 60 million gallons per year. Other provisions in S. 2256 are a Second-Generation Biofuel PTC of $1.01 per gallon for cellulosic biomass from agricultural residue, wood or waste; an Alternative Fuel Vehicle Property provision, a 30-percent credit for up to $30,000 for installing blender pumps that would sell fuels up to E85 and 20-percent biodiesel; and a 30-percent ITC for installing alternative vehicle refueling property.

While long-term extensions were granted in late 2015 only for big wind and solar projects, advocates are hopeful for provisions in the Hatch bill that will renew and extend a Distributed Wind ITC for installing electrical power generation, including distributed wind projects and community-owned wind farms that have local financial participation and control. The ITC currently stands at 24 percent for 2017, 18 percent for 2018 and 12 percent for 2019, before expiring in 2020.

Under the Hatch bill, the same phase-out rates would apply to a Small Wind ITC program that provides credits toward the installation cost of a system for small generators to produce power for individual homes, farms and small businesses.

Also included in the Hatch bill is a 2.3-cents-per-kilowatt-hour (kWh) credit for electricity produced from closed-loop biomass, and a 1.2-cent-per-kWh credit for open-loop biomass. The credits are generally available for 10 years after a facility begins production.

Lawmakers are being urged by groups like the American Farm Bureau Federation, along with other rural and clean energy advocacy groups, to retroactively renew and extend the tax credits. In a letter to lawmakers, these proponents point out that the expired provisions impact sectors vital to the U.S. economy, and that the credits also support tens of thousands of jobs nationwide. Any failure to renew them, the advocates say, “creates confusion in the marketplace and effectively increases taxes on entities that create jobs and economic growth.”

It is critical for stakeholders and clean energy advocates to maintain the pressure on lawmakers to adopt these tax credits. Remind policy makers that it’s a matter of fairness, given that fossil fuels have garnered the benefit of tax breaks for a century. The production and investment tax credits represent a step forward in the effort required over the next several decades to sustain the renewable energy development that can boost this nation’s economy, ensure energy security and enhance the environment.

 

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