On July 21, the Senate Finance Committee passed a package of $95 billion tax credit extensions, a smorgasbord of over 50 expired provisions for items ranging from business research to the Puerto Rican rum industry. The package also contains tax incentives for renewable energy, including aspects of investment tax credits (ITC) and production tax credits (PTC) for wind, solar, as well as renewable and energy efficiency technologies, including combined heat and power (CHP), bioenergy, and geothermal. If passed, this tax extension will expire at the end of 2016. 

Tax incentives are the subject of intense scrutiny in Congress, and legislators have let tax credits expire multiple times. The wind PTC and biodiesel tax credit expired at the end of 2013, only to be retroactively reinstated for 2014 at the end of the year. The volatility of clean energy tax incentives hampers investor confidence in renewables and bioenergy, slowing industry growth.

At the same time, tax breaks for some of the world’s most profitable fossil fuel companies persist today, at a time when many advocate the urgent need for a global transition to low-carbon energy. In a tax adverse culture on Capitol Hill meaningful tax reform is difficult to ‘tee up’ even though it is very popular to say that tax reform is needed.  Most recently, GOP Presidential hopeful Jeb Bush said he would abolish all energy tax credits, both fossil and renewable.  But, until that day comes, tax credits like the PTC and the ITC provide a more level playing field for businesses in the renewable and bioenergy sectors, helping them break into a competitive, and entrenched, energy market dominated by fossil fuels.

Renewable energy tax credits include the ITC and the PTC.  The investment tax credit (ITC) supplies a tax rebate to businesses investing in qualifying clean energy, once the equipment is built and installed (e.g., a company gets a tax break for constructing a solar farm).  The production tax credit (PTC) allots a rebate to businesses based on the amount of clean energy they produce (e.g., a company gets a tax credit corresponding to the amount of kWh of wind energy its turbines generate).

The currently expired PTC provides 2.3 cents per kWh of wind, geothermal or close-looped biomass (purpose grown feedstocks) energy produced. It also offers a smaller credit (1.1 cents per kWh) for a handful of other energy technologies, such as open-loop biomass (waste feedstocks) and municipal solid waste. These incentives expired at the end of 2014. The ITC covers 30 percent of expenditures for the development of solar, fuel cell, and small wind projects, as well as 10 percent for geothermal and CHP facilities. The ITC faces a dramatic phase-down after 2016.While extension of the ITC was not considered, a provision was included allowing companies that would qualify for the PTC to elect the ITC in lieu of the PTC.  

In the Finance Committee, more than 100 amendments were added to the tax break package, many energy-related. Senator Pat Toomey (R-PA), a consistent opponent of tax increases and tax breaks, launched a full-blown campaign against clean energy incentives. He submitted amendments entitled the “Repeal the Crony Capitalist Production Tax Credit,” and “Protect bald eagles from wind turbines,” while also fighting to strike down amendments for electric motorcycles and fuel cell vehicle tax breaks, as well as the proposed tax benefits for solar. Senator Dan Coats (R-IN) expressed a similar sentiment towards such credits.

On the other hand, some Senators tried to increase renewable energy tax breaks being considered. An amendment introduced by Senator Tom Carper (D-DE), Senator Ben Cardin (D-MD) and Senator Bob Menendez (D-NJ) sought to extend the ITC to offshore wind installations. Additionally, Senator Menendez looked to extend the full 2.3 cents per kWh PTC to open-loop biomass and municipal solid waste, among other technologies.  Senator Maria Cantwell (D-WA), sought to end the provision that off-ramps the PTC over time.

In the end, the committee voted on just two of the 100 plus amendments. On July 22, a 23-3 vote in favor pushed the package through committee. One clean energy-related amendment did make it in the final package, the “Biodiesel Tax Incentive Reform Act.” Spearheaded by Senator Chuck Grassley (R-IA), it is meant to ensure that biodiesel tax credits benefit only domestic production, not imports of the fuel. Grassley stated the change would save taxpayers $90 million through 2016.

Furthermore, Grassley’s provisions secured extensions of the $1.01 per gallon credit for cellulosic biofuels and the $1.00 per gallon credit for biodiesel and diesel fuel created from biomass. The 10 cent per gallon small agri-biodiesel credit was also granted an extension. All of the expired incentives would now last through 2016, a significant victory for the industry.

The wind PTC —in place since 2008—has been the subject of increasing controversy in recent years. The committee’s renewal of the PTC in such uncertain times is noteworthy.  The wind industry argues that the solar industry has enjoyed a stable tax credit for much longer, and therefore, the wind industry should benefit from a comparable subsidy.

The solar industry has been advocating for a glide path beyond 2016, to slowly ramp down federal support, instead of an abrupt end to the ITC in 2016. Some Senators fought to secure a glide path for solar projects through 2019, but were unsuccessful.

Elsewhere on Capitol Hill, lawmakers are also weighing in on clean energy tax extenders. On July 14, Senators Brian Schatz (D-Hawaii) and Martin Heinrich (D-NM) introduced legislation to extend the Residential Energy Efficient Property Tax Credit (25D) by five years. The credit offers financial support for families to employ residential clean energy equipment, such as geothermal heat pumps or solar panels. “This tax credit is a proven way to expand the use of clean, affordable solar energy,” said Senator Cory Booker (D-NJ). “We are in a race against climate change and need to do everything possible to promote job creating energy alternatives to ‎fossil fuels. Extending this tax credit is a great place to start.”

For now, an air of insecurity continues to surround clean energy incentives. There is sure to be much more deliberation on the tax package, especially when the extenders surface in the House. Meanwhile, House Ways and Means Committee Chairman Paul Ryan (R-WI) continues to express his strong intent to rewrite the nation’s messy tax code.  But with funding for the Highway Trust Fund, and other big spending packages being potentially funded in unconventional ways, such as through the sale of Strategic Petroleum Reserves, real tax reform seems very unlikely this Congress.   


Author: Billy Lee


For more information see:

Business Energy Investment Tax Credit (ITC), U.S. DOE

Renewable Electricity Production Tax Credit (PTC), U.S. DOE

Senate committee passes 2-year biodiesel tax credit extension, Biodiesel Magazine

Floodgates open on extenders amendments, E&E

Senate panel advances $95B tax break package, The Hill

Senate Finance Committee to address tax extenders bill, Ethanol Producer Magazine

Solar industry steams as tax credits dry up, the Washington Examiner

Senators Schatz, Heinrich, and Colleagues Introduce Legislation to Make Transition to Clean Energy Easier for Families, Senator Schatz