It’s Tax Time: Renewable Tax Credit Discussion Heats up Again

Renewable energy credits, like the wind production tax credit (PTC) and the biodiesel tax credit expired at the end of 2013. Since 2009, the biodiesel tax credit has expired three times; this regulatory uncertainty has created a boom and bust development cycle in the renewable sector. Industry, producers, farmers and manufacturers need certainty going forward. Meaningful tax reform is necessary and lawmakers are promising to seek permanent solutions. House Ways and Means Committee Chairman Dave Camp (R-MI) has vowed to go through the tax code and either pass or abolish each of the 55 expired tax credits, a few of which are for renewable and energy efficiency technologies. Senate Finance Committee Chairman Ron Wyden (D-OR), has expressed interest in renewing all of the tax credits for another year until more sweeping tax reform can be passed. The Senate Finance Committee has scheduled a mark-up on “tax extenders” for Wednesday, April 2. Camp’s approach ensures that most business tax credits will be in limbo for the remainder of the Congressional session, while Wyden’s approach pushes meaningful tax reform further down the line. In its 2015 budget proposal, the White House once again advocated for abolishing all fossil fuel subsidies and making renewable tax credits permanent.

It is easy to paint all tax breaks with the same brush. In the wake of the government shutdown and painful sequester, even reasonable tax credits can be difficult to defend. Finding a solution that all sides appreciate can be difficult. If Camp’s idea works and some of the tax credits are made permanent while others are abolished, additional cost-offsets are still necessary, according to data from the Congressional Budget Office. House Minority Whip Steny Hoyer (D-MD) has commented that making the tax break package that expired in 2013 permanent “could add over $900 billion to deficits over the next decade ... That’s larger than the remaining sequester cuts."

Other solutions have been presented. In 2013, Rep. Mike Pompeo (R-KS), floated a bill (H.R. 259) that would abolish all energy tax credits and lower the corporate tax rate. Another alternative is a revenue neutral carbon tax applied to carbon-based fuels. In addition to lowering carbon dioxide and other greenhouse gas emissions, a carbon tax would reduce the competitive advantage that has been built into fossil fuels. For the time being, renewable tax credits are seen as necessary for the country to transition to a low-carbon future.

A familiar trope heard in support of abolishing renewable tax credits is “it is time to let this technology stand on its own." This sentiment was expressed by Senators Joe Manchin (D-WVA), Lamar Alexander (R-TN) and eight of their Republican colleagues in December to former Finance Chairman Max Baucus (D-MT). Yet, the oil and gas industry receives subsidies of approximately $4 billion per year in the United States alone, so the petroleum industry has never had to "stand alone". The retort of the oil and gas industry is that they provide good jobs to millions of Americans, with the American Petroleum Institute (API) reporting that in 2013, their industry supported 9.2 million jobs. Yet, an independent analysis of the jobs numbers by the Center for American Progress (CAP) found that the oil and gas industry supported just 2 million jobs in 2013. Nearly half of these jobs are low-paying jobs such as gas station attendants and convenience store employees. CAP also found that oil and gas employment figures are padded by including manufacturing jobs that rely on petroleum products. According to CAP, “the bottom line is that the $4 billion in annual Big Oil tax breaks supports less than 2 million direct jobs.” According to a recent report from Environmental Entrepreneurs (E2), 78,600 direct jobs were created by the clean energy and transportation sector in 46 states in 2013. This figure is down 30 percent as compared to 2012 clean energy job creation. E2 credits the loss in part to economic factors, including efforts to roll back policies that support renewable energy development.

On March 24, several biofuels industry groups sent a letter to Senate Finance Chairman Wyden and Ranking Member Orrin Hatch (R-UT) in support of extending several tax credits that benefit biofuels, including the biodiesel and renewable diesel fuel credits. In the letter, the Renewable Fuels Association (RFA), along with several trade groups expressed their support of the biofuels tax credits, stating, “as leaders in a critical innovation sector in the United States, we are well aware of the financial constraints facing this country. If Congress wants American companies to continue developing these homegrown technologies in the United States, it must extend these credits. Biofuel producers are also competing with incumbent fossil energy industries who continue to enjoy tax incentives on a permanent basis.”

In the coming months, biomass advocates may want to articulate more clearly the role of biomass (bioenergy/biofuels) as the only renewable energy resource that also provides ecosystem services. A broader argument needs to be made about all of the benefits of biomass. This would make an even stronger argument for reinstating tax credits to an industry that could provide sustainable, regionally appropriate biofuel crops across the country and in doing so, not only bolster rural economies but help clean the environment.