On November 2, House leaders announced their Tax Cuts and Jobs Act (H.R. 1). Among the major proposed changes to the U.S. tax code, there are significant changes to the tax incentives offered to the renewables sector which would chill investments in solar and wind technologies. However, most notably for biomass supporters, the plan does not address the “orphaned” technologies, so-called because they were left out of the last production tax credit (PTC) extension in 2015. Additionally, the package does not include an extension of the biodiesel tax credit, which expired at the end of 2016.
While House leadership claims that the changes to energy credits will “deliver a responsible glide-path to move closer to a free-market energy agenda,” the plan only repeals two smaller tax benefits to the oil and gas industry, leaving in place billions of tax subsidies to fossil fuels, thus continuing the uneven playing field between renewable energy and fossil energy.
The Production Tax Credit (PTC)
The big news for the renewables sector is changes to the PTC – most notably removal of the inflation adjustment provided in the statute, dropping the PTC back down to 1.5 cents per kilowatt hour, versus the current 2.3 cents for 2016. The Joint Committee on Taxation estimates this cut will net $12.3 billion in savings between 2018 and 2027.
While this would be devastating to the wind and solar industries, several technologies are still excluded from the PTC. These “orphaned” renewable technologies include electricity generated from biomass, geothermal, municipal solid waste, qualified hydropower facilities, as well as marine and hydrokinetic facilities. These technologies were supposedly inadvertently left out of the deal to reinstate and phase-down the 48C Investment Tax Credits by 2022, that was part of the December 2015 omnibus spending package.
The Investment Tax Credit (ITC)
The ITC provides a 30 percent tax credit for construction of qualifying facilities, which includes solar, geothermal, fuel cells, microturbines, combined heat and power, and thermal energy facilities. Currently, the applicable dates for construction are different for each technology. The House GOP tax plan would harmonize the expiration dates and phase-out schedule for the various qualifying technologies. This would cost taxpayers $1.2 billion between 2018 and 2027, according to the Joint Committee on Taxation.
Biodiesel Left Out
Biodiesel supporters were dismayed to see that an extension of the $1 per gallon biodiesel blender’s tax credit was not included, which expired at the end of 2016. The loss of the tax credit has created havoc in the biodiesel industry as it has further pitted the domestic industry against imported fuels. In July, Representatives Black (R-TN) and Kind (D-WI) introduced legislation to extend the biodiesel blenders tax credit and phase it out by 2022. Domestic producers would like to see the blender’s credit switched to a production tax credit, while biodiesel importers would like to see a blender’s credit re-instated.
The Senate could be releasing their own tax plan as early as next week.
For more information see:
- Tax Cuts and Jobs Act Section-by-Section Summary, House Committee on Ways and Means