House Tax Bill Lays Strong Foundation for Climate Action
A foundation for aggressive climate action must be made in the form of long-term, accessible and comprehensive tax structures that incentivize the rapid adoption on clean energy.
The recent IPCC report is a ‘code red’ that cannot be ignored. If we are serious about addressing the climate crisis, the U.S. must take aggressive action and it must start now. The foundation for that aggressive action must be made in the form of long-term, accessible and comprehensive tax structures that incentivize the rapid adoption of clean energy.
Earlier in the year, NRDC and other organizations called on the House Ways and Means committee to dramatically increase the ambition of their approach to clean energy. Then in August, 180+ members of the House called for them to do the same. Thankfully, the members of the committee listened, and the energy tax provisions they just passed as part of the Build Back Better Act appear to meet the moment and are an essential part of the package to put our nation on the path to meeting our climate goals.
Their portion of the bill would pump more than $270 billion, the largest federal investment ever, into clean energy and vehicles, creating good jobs, cutting climate-changing emissions, and expanding clean sources of energy. That’s a tremendous achievement and should be the high-water mark for Congress in moving these important measures forward.
Strong Approach to Renewable Energy and Electric Vehicles
The updated bill includes several new provisions that improve on committee’s GREEN Act from last year. For clean energy sources like solar and wind there are now credits for 10 years, at full value and with a direct pay option needed to address the collapse of tax equity markets. This is a huge improvement from the earlier bill’s 5-year extensions at 85% value for direct pay. There are also new provisions that allow for solar projects to choose a production tax credit instead of the investment credit to give more flexibility to developers. In addition, there is a low-income solar credit that will help solar projects deploy in communities that have been struggling economically with an additional 10% bonus or a 20% bonus to those projects built on low-income housing.
The bill also includes new and updated credits for transmission, storage an energy efficiency—technologies that enhance and complement the deployment of renewables onto the grid. A new 30% investment tax credit for new or upgraded transmission lines will help bring renewable power to new markets. The 30% energy storage investment credit will increase utility scale storage for renewable power making it available at more hours of the day, and updates to energy efficiency credits mean lower overall energy usage allowing rapid retirement of dirty sources. Updates to the 25C, 45L and 179D credits that incentivize energy efficiency investments for homeowners, homebuilders, and commercial building owners will increase the usefulness of the credits and allow more projects to qualify.
Additionally, the bill makes major investments in cleaner vehicles, tackling head-on one of the largest sources of carbon pollution. It completely revamps the credit for plug-in electric vehicles, removing the per-manufacturer cap, making the credit refundable and adding a point-of-sale option. This will make the credit much more accessible to consumers who don’t have tax liability or need the discount immediately. To address concerns about subsidizing the rich, there are vehicle price and income caps for the first time. There is also a new previously owned EV credit that will provide a $2,500 credit or 30% of the sale price (whichever is greater) to consumers making less than $75,000 a year individually or $150,000 a year jointly and purchasing a vehicle costing less than $25,000. As most lower income buyers are purchasing previously owned vehicles, not new, this will increase access to EVs for those buyers. The bill also adds a new commercial vehicle credit to help purchase medium and heavy vehicles, often the most polluting vehicles on the road, with electric drivetrains. Additionally, the bill revamps the tax credit for installing electric charging stations which should accelerate the deployment of that infrastructure at the same time as more EVs are sold and demand for charging increases.
Helping Create High Quality Jobs and Domestic Manufacturing
NRDC has joined with union partners to clearly lay out that addressing climate change will only be successful if it also produces a fair and equitable economy. Simply put, all jobs in the clean economy should be high quality jobs and accessible to everyone. The committee bill takes on this challenge by adding a bonus credit structure to both the power and vehicle credits that will ensure jobs created with the help of these credits are paying prevailing wages, utilizing highly trained workers and being built with a majority of materials produced domestically. For the electric vehicle credit there is a $4,500 bonus specifically for vehicles assembled by union workers, and a $500 bonus for vehicles with domestically manufactured batteries. After 5 years, only vehicles assembled in the U.S. will be eligible for the credit. These labor requirements and domestic content incentives will require changes for employers and manufacturers but they are necessary for the successful transition to clean energy and one manufacturers and developers can achieve to support better jobs here at home.
Some Improvements Needed
No bill is perfect and while this bill does a lot of things right, there are still some areas for improvement. Specifically, we think the committee could have gone further in repealing fossil energy tax subsidies. These fossil giveaways have been around for over 100 years and just don’t fit with a clean energy future. Additionally, we were disappointed that the hydrogen tax credit didn’t set a higher threshold for the level of emission cuts that are credited. We fear too much of the dirtiest variety could be rewarded. Lastly, we were very pleased to see $25 billion go to the 48C Advanced Manufacturing tax credit, as this is an essential program to onshore clean energy supply chains, but we would like to see additional updates targeting investment in rural communities across America that have suffered from a decline in manufacturing and traditional energy sector jobs along the lines of the Stabenow-Manchin proposal. We’d also like to see new manufacturing credits targeted at solar, wind and battery supply chains, which we think would accelerate domestic jobs and help clean up the sector’s manufacturing footprint.
The Ways and Means portion of the Build Back Better Act will invest more than $270 billion into clean energy and vehicles over the next decade. This, the largest federal investment in clean energy ever, would help us change direction on carbon emissions and get on track to tackle the climate crisis. We look forward to working with lawmakers to further improve the bill and then see it passed into law.