Sun Is Setting On Critical Renewable Energy Tax Credits

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A thriving renewable energy industry is a critical solution to problems such as high energy prices and climate change. But unless Congress extends the renewable tax credits soon, the industry’s steady growth could stall.

For the past year, lawmakers have vigorously debated three inter-connected issues: energy costs, the economy, and climate change.

Green power is part of the solution for all three. First, a sustained clean energy boom will make our economy less dependent on fossil fuels such as natural gas that are subject to significant price volatility. Second, better policy support for green power will allow U.S. companies to lead in a fast growing market, and create the jobs and technologies that will supply the world with the next generation of energy.  Finally, the displacement of fossil fuels in favor of renewable energy will decrease greenhouse gas emissions and help tackle the climate change threat.

Renewable energy tax credits—the Production Tax Credit (PTC) and the Investment Tax Credit (ITC)—have been a key driver of in the development of green power in the United States. These credits improve the cost-competitiveness of low-carbon technologies for energy production.

The incentives have wide, bipartisan support, but a Congressional fight over how to pay for them has left the future of these tax incentives in limbo. (Read more here.) In late July, the Senate again failed to extend them. They are set to expire on December 31st. With the political world focused squarely on the November election, lawmakers have little time to pass tax credit extensions before Congress adjourns at the end of the year.

The tax savings companies receive from the credits can make the difference between a profitable renewable energy project and a failed one. The PTC and the ITC also increase R&D funding to these industries and speed the rate at which these technologies are adopted in the market. (Learn more about renewable tax credits from WRI’s Bottom Line publication.)

Year-to-year extensions do not provide the certainty companies need to make large, long-term capital investments that are necessary to complete renewable power projects.

As the chart below illustrates, the wind industry is especially dependent on the Production Tax Credit (PTC). Congress failed to renew the PTC in 1999, 2001, and 2003. Consequently, wind project development stalled. Congress passed a three-year extension in 2004, and the certainty provided to the industry has led to sizable growth. In 2007, the U.S. wind power industry grew by 45 percent, and AWEA predicts the U.S. will become the world’s top wind power producer by year’s end. (Chart courtesty of AWEA.)

AWEA executive director Randall Swisher recently told ClimateWire, “Over the next month, if Congress doesn’t act, [the companies] may have to abandon projects for 2009.” “We’re talking about them walking away,” Swisher added. “It’s a disastrous scenario that’s just unbelievable in light of all the progress the industry has made.”

A recent Navigant Consulting report predicted that without the tax credits, the wind and solar PV industries would mean a loss of over $19 billion in investment and 116,000 jobs. The solar industry has benefited from the ITC especially. The Solar Energy Industry Association (SEIA) said failure to extend the tax credits would be a “severe blow,” warning that “‘tens of thousands of jobs and billions of dollars will be lost in new solar investment.”

Other green power sectors have seen expansive growth the last few years, in no small part due to the tax credits. Allowing the tax credits to sunset will significantly reduce that growth, which no matter where you stand in the energy debate, is a bad idea. The following chart shows how many emerging types of renewable power—including geothermal and biomass—benefit from the credits:

The Green Power Market Development Group (GPMDG), a 15-member consortium of companies organized by WRI, has called for both the House and Senate to pass renewable tax credit extensions, calling them “vital for supporting near-term development and utilization of cost competitive renewable energy.” GPMDG is made up of a diverse set of fortune 100 companies, including Dupont, Google, and Starbucks.

The experience of WRI’s Green Power Market Development Group in pursuing a range of renewable energy projects has shown that in order to be most effective, Congress should:

• Extend renewable energy tax credits for 5-10 Years. The potential expiration of renewable energy tax credits casts uncertainty on the value of renewable energy investments currently in the pipeline. Just as problematic, past extensions have just been for 1 or 2 years, and advocates have had to fight hard to get even those.
• Cover all renewables equally. The 1.9 cent/kWh production tax credit applies only to wind, geothermal, solar, and closed-loop biomass projects. Less-known types like Open-loop biomass landfill gas, anaerobic digestion, and certain hydro projects, which also have potential, receive only 0.9 cents/kWh. The 1.9 cent level should apply to all renewable resources.
• Make renewable energy tax credits transferable. Some green power facilities–for instance, those owned by public utilities–don’t qualify for the tax credits, The simple fix is to allow these credits to be transferred to a third party that can sufficiently use them.

Learn more at the Green Power Market Development Group’s website.