Lawmakers Need to Make Renewable Energy Tax Credits Long Term

Once again, word is circulating on Capitol Hill that lawmakers are putting together a legislative package that would renew and/or extend a wide range of business tax credits, including renewable energy production tax credits (PTC) and investment tax credits (ITC), that have either expired or are set to lapse.

We say “again” because, as it has in other years, Congress is waiting until the late days of the legislative year to take action. One only has to look back at Dec. 16 of last year when the previous Congress passed an extension of the PTC for wind projects and other forms of renewable power. Unfortunately, the credit was extended only for those projects that begun in 2014, making the extension, for all intents and purposes, good for only about two weeks.

That means the developers of a wide range of renewable energy projects – wind facilities, biomass power plants, biodiesel plants – were hampered in their planning throughout most of 2014, not knowing if the tax breaks would be available or not. That’s not exactly a welcome environment for investment in new energy technologies. It’s safe to assume that with no assurances that the tax breaks might be in the offering, a number of projects sat on the planning shelf.

Given the value of these clean energy developments in the nation’s efforts to stem climate change, failure by Congress to adopt longer-term tax incentives in a timely manner and get more clean energy online as soon as possible is simply shortsighted.

There was some reason for optimism back in July, when the Senate Finance Committee cleared a package of more than 50 tax credit extensions for individuals, families and businesses, including a number for the renewable energy sector like the PTC for wind energy. The 23-3 bipartisan vote approving the legislation and the insistence by Committee Chairman Orrin Hatch (R-UT) that the incentives package must be adopted by Congress and sent to the White House “as soon as possible” gave rise to the belief that serious effort was being made on Capitol Hill to get the benefits back on the books.

But as has happened with a number of forward-thinking measures, the Senate panel’s package met overwhelming ambivalence in the House. Sure, House leaders talked about undertaking major tax reform and making many of the extenders permanent. But given the political posturing on display, especially with the White House in play next year, House leaders were in no hurry to embrace legislation that would further President Obama’s push for cleaner energy.

The fact that a tax credit package may be coming together in both the House and Senate even at this late date is a sign of some encouragement. At stake is a 2.3-cent-per-kilowatt hour – or an alternative 30 percent investment tax credit ‑ for new projects that generate renewable electricity from wind, geothermal, biomass, landfill gas and ocean energy projects. Also in play are a $1.01-per-gallon production tax credit for cellulosic biofuels; a $1-per-gallon credit for renewable diesel and diesel created from biomass (which, under an amendment from Sen. Chuck Grassley (R-IA) would change from a blenders credit to a producers credit); a 10-cent-per-gallon small agri-biodiesel producers credit; and a two-year extension of the special depreciation allowance for second generation biofuel plant property and the alternative fuel mixture excise tax credit.

What was not included in the Senate Finance Committee package, but is reportedly under consideration now, is an extension of the full 30-percent ITC currently available to solar projects. The solar ITC is set to expire for residential systems and drop to 10 percent for utility-scale facilities at the end of next year.

If Congress does approve a package of extenders this year, it is critical lawmakers do not repeat the shortsightedness displayed last year and, instead, make these benefits as long-term as possible. That is the only way to bring about the stability they offer to the renewable energy sectors. The on-again, off-again treatment of these incentives by Congress over the years has resulted in a boom-and-bust cycle, creating uncertainty among investors that are key to the development of these critical, clean-energy projects. (When Congress did not renew the PTC in 2013, the installation of new wind facilities dropped a steep 92 percent and private investment fell by $23 billion from the previous year.)

There has been talk that some lawmakers would be willing to make the tax credits significantly longer-term, if those in the renewable energy sector agree that they be phased out. While agreeing to the ultimate demise of these growth accelerating mechanisms might be a politically viable way to get what’s needed now, we would only point out that ultimately losing the tax credits would do little to level a playing field that is – even with the benefits for renewables – incredibly out of whack, given the tens of billions of dollars in credits and other tax benefits the U.S. oil, gas and coal industries have feasted on over the years.

Given the continued lack of a national, comprehensive energy policy, the 25x’25 Alliance urges lawmakers to sustain and strengthen these tax mechanisms that help keep billions of dollars of assets in play – especially in rural America – and generate significant savings and benefits compared to costly and polluting conventional power. The tax credits are good business.

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