Energy: Will the Tax Bill Be Good for Renewable Energy?

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Credit: Acciona / PR NewsFoto

Amid all the political agony over the tax compromise taking shape in Congress right now there are side measures that could be incredibly important for renewable energy in the U.S. The final bill is obviously still evolving, but the compromise agreed to by Senators Harry Reid and Mitch McConnell contains a few provisions that will impact the alternative energy industry—potentially for good and ill. That includes:


  • An extension of the 50 cent per gallon tax credit for liquid coal transportation fuels, provided in Sections 6426 and 6427 of the federal tax code. This is one environmentalists are against, vociferously—liquid coal can be incredibly polluting for the climate, producing more than twice as much carbon pollution as convention fuels. Though the provisions require that any fuel qualifying for the credit has to come from facilities that capture and dispose of 75% of their carbon emissions, to Jim Presswood of the Natural Resources Defense Council (NRDC), that’s not enough. “This incentive is intended to commercialize a fundamentally flawed technology,” he writes in a blog post.
  • A one-year extension of the tax credit for corn ethanol of 45 cents per gallon, plus a tariff on imported ethanol of 54 cents per gallon. Most—though not all—environmental groups are against the extension of more tax credits for the corn ethanol industry, which has been given billion in subsidies over the year. It helps for your industry to be located in politically important Midwestern states, like Iowa—America’s Presidential starting line. The ethanol industry had pushed for a five-year extension of the credits, but that would have cost billions more. (For the story of why corn-based ethanol is a bad deal for the environment, Michael Grunwald’s cover story from TIME in 2008 still holds up.)
  • A one-year extension of the Convertible Renewable Tax incentive for renewable electricity projects, also known as Section 1603. The program was part of the 2009 stimulus package, and gave renewable electricity projects like wind and solar a cash grant in lieu of tax credits. Before the financial crisis, renewable projects were often funded by tax equity—a solar producer might strike a deal, for example, with a bank, which could write off some of its tax bill in exchange for contributing to renewable power. But with the crash, suddenly there was a lot less tax that needed to be paid, and the cash grant program helped save the industry, as another TIME piece shows. The economy hasn’t improved much, and many players in the wind and solar industries say that without the credit’s extension, new developments could implode next year. “It’s definitely something we need, considering all the credits and incentives that go to other industries,” says Tim Keating, the vice-president of marketing for Skyline Solar, a concentrated photovoltaic company based in Mountain View, Calif.
  • The bill also aims to extend a tax credit for energy efficiency in new homes that expired in 2009, making it apply retroactively to 2010 and through 2011. There’s also more credits for manufacturers of energy-efficient appliances.

As you can see, some positives and some negatives, which I guess is why they call it a compromise. On the whole, though, is it good for greens? Jim Presswood of NRDC says no:

While the bill contains several critically needed clean energy incentives, their environmental benefit is outweighed by the harm that would result from the ethanol and liquid coal incentives.  NRDC is therefore opposing the bill.

For most in the renewable energy industries, however, the need to keep investment credits and subsidies flowing is reason enough to support the bill. The solar and wind industries in particular have argued that losing the tax credits could result in the loss of tends of thousands of jobs, and prevent the growth of some 65,000 jobs. (See a PDF of a study from the U.S. Partnership for Renewable Energy Finance here.) From the Wall Street Journal:

Without the extension, the U.S. would likely see 800 new megawatts of solar energy and about 5,500 MW of wind installed in 2011, according to heads of solar and wind industry groups that responded to a reporter’s questions on a Wednesday press call. Those figures would be down from about 1,000 MW of solar installations this year, said Rhone Resch, head of the Solar Energy Industries Association, and flat with this year’s wind projection, said Denise Bode, president of American Wind Energy Association.

Should the grant be extended, Resch said that the solar industry could install up to 2,200 new megawatts of power next year.

But not everyone is so sure. Because both wind and solar can import parts from overseas, it’s not always clear how many American jobs can be attributed to renewable energy incentives, as Roger Bezedek, the president of Management Information Services Inc., told Greenwire:

You subsidize anything enough, you’re going to get jobs. That’s the wrong metric. The government should spend tax dollars on projects or technologies that make sense economically.

Of course, the government spends its money on all kinds of projects and incentives that don’t always make sense economically, and by one estimate the fossil fuel industry has received over $10 billion a year annually in subsidies over the past decade or so. But as David Roberts from Grist points out, this constant back-and-forth, with the renewable energy industry never knowing from year to year what it’s business climate will be like, is completely stupid. Actually Dave has a better term:

As policy, this is a sh*t show. It’s no way to run a country.In the proximate future, it just means the same battle will unspool again next year. At that point we’ll be in the bitter wake of a fight over the debt ceiling, everyone and their cousin will be mau-mauing the deficit and pushing for spending cuts, Republicans will be in full anti-EPA, anti-green frenzy, and clean energy industries will be back with their hats out again. That’ll be fun.

Longer term, this is just an insane way to drive a transition to clean energy. Everyone in Congress will tell you that they don’t want to “pick winners” (read: give money to someone else’s constituencies) on energy, but they have steadfastly refused to pass proactive, performance-based energy policies with long time horizons. Instead America limps along, as it has for some 30 years, with energy policy based on tax goodies renewed every year or two, a far shorter period than the investment horizon for big solar and wind installations.

Personally, I’d rather see a zeroing out of subsidies for both clean and dirty energy, a “technology-neutral” policy that lets different forms of energy compete on their own economic and environmental merits, rather than letting political deal-making decide what our energy policy looks like. But I also recognize that’s never going to happen in our current political system. Elon Musk, the Internet entrepreneur who owns SpaceX, co-owns the electric car company Tesla and is also chairman of the SolarCity, told me that he’d prefer a straight carbon tax (not a carbon cap-and-trade system) for sheer simplicity. “We should shift the tax to what’s actually causing the problem,” Musk says.

Politically, such a carbon tax is even less likely than a “technology-neutral” policy, though perhaps one day those politics will change. (Doubt it, though.) Our system will probably continue much the way it is now, jury-rigged and democratic—with plenty of pork to grease the wheels.