Congress May Miss a Huge Clean Energy Boost in Tax Extenders

**This blog was updated on Feb. 9 upon passage of H.R. 1892--the Bipartisan Budget Act of 2018

Congress is poised to extend and expand energy tax credits that benefit both industry and consumers, but the Republican-sponsored bill unfortunately wastes taxpayer money to back faltering technologies and outdated federal benchmarks—at a time when lawmakers should be prioritizing innovative clean energy technologies that create American jobs, lower electricity bills, and cut emissions.

The tax bill passed in late December left energy tax credits largely untouched, but lawmakers promised to take up these so-called tax extenders—modifying or extending some existing or expired tax credits—early this year. Congress could lump them in with a federal government spending bill in the next couple weeks. Tax credits for clean energy and energy efficiency have a tremendous track record of driving clean energy investments at a very low cost to taxpayers; and lawmakers should be clamoring at the opportunity to extend and expand these incentives, as well as explore new areas for innovative technology and clean energy resources.

These incentives are needed now, more than ever, to balance out the Trump administration’s reckless efforts to tip the scales in favor of climate-polluting fossil fuels and smother the growing clean energy revolution—the only true “war” on American energy.

Unfortunately, the proposed legislation (S. 2256) over-rewards the wrong technologies, weakens the storage requirements for carbon capture, and does little to drive more efficient technology in homes and businesses. More efficient technology is an area where tax incentives could provide more money for deficit reduction. If Congress follows through with its promise to pass tax extenders—it should do so only after modifying the current proposal.

Tax incentives level the playing field and boost the economy

Despite President Trump’s State of the Union rhetoric, the U.S. has a long history of propping up fossil fuels over other energy technologies. The oil and gas industries receive an astonishing $15 billion in direct subsidies each year, many of which are permanently baked into the tax code and are now perceived as status quo. Over the last 70 or so years, fossil fuels have received almost six times as much federal money as renewable energy—a whopping $619 billion, compared to $115 billion for renewables. This imbalance occurs despite the fact that federal investments in clean energy lead to benefits that far exceed their costs—through hundreds of thousands of new jobs, billions of dollars added to the economy, and a slew of health and environmental improvements.

Some renewable energy tax credits have already expired, and several others will expire in the next few years. And when credits expire—or are threatened—growth in renewable technologies drops. By letting these incentives go, Congress will be missing out on a terrific opportunity to fuel the economy while making progress on our climate goals.  

The proposed package severely misses the mark

While tax extenders offer enormous potential for a bipartisan win, the proposed bill sponsored by Senator Hatch would fail to realize many of the benefits—because it rewards the wrong technologies and removes requirements that strengthen the tax credits or improve effectiveness.

The proposal fails to reward smarter energy use in homes and buildings

While the efficiency incentives have been a remarkable success (marked by increased uptake in energy-saving technologies and corresponding energy and cost savings to homeowners and businesses), this very success means that they have achieved their objective—to help innovative technologies overcome market-entry barriers. The current proposal fails to update the credits to reward the latest advances in energy- and cost-saving technologies. So it pays taxpayers for doing almost nothing.

Updating the tax credits—to reward leading technologies with the greatest benefits for consumers—can make the tax incentive package even more effective moving forward. This is what the tax incentives supporters were asking for when we first advocated for these incentives. Only the energy efficient commercial building tax credit (179D) was updated (in 2015). So in addition to extending them, we would encourage Congress to implement commonsense updates to the other credits—for new homes and certain equipment and components (25c). For new homes, there are already solidly supported, technically sound, and low-cost proposals for doing so. Further, Congress should include incentives for energy efficient retrofits for homes and businesses and add performance-based elements. Bipartisan models for these provisions already exist. These important improvements would ensure that the incentives are keeping pace with the latest technology advances.

The proposal doubles down on faltering nuclear technologies

Unfortunately, the bill further extends and expands the credits for nuclear power, despite a wealth of news stories replete with costly failures of new nuclear power plant construction—including partially built projects being abandoned in South Carolina. Even existing nuclear power is struggling to compete with rapid advances in energy efficiency and renewable energy, and, beyond the cost disparity, nuclear brings many other challenges, including security, safety, grid stability (just look at Japan’s problems in the wake of its nuclear accident), proliferation, and a massive waste problem. The tax extenders package would prolong wasteful and unnecessary subsidies for facilities that are years late and billions of dollars over budget—at a time when we should be incentivizing the very best energy technologies that are clean, cost-effective, and growing.

The proposal weakens important requirements for carbon storage

The bill lowers the standards for carbon capture projects to qualify for incentives. The existing tax code rewards power plants and other large point sources for capturing and storing carbon dioxide (CO2). To receive the existing credit, facilities must demonstrate that they are securely storing CO2. This prevents them from receiving incentives for storing carbon that later escapes back into the atmosphere. Unfortunately, the current proposal would dramatically weaken the monitoring and reporting requirements—essentially removing any accountability from those receiving the credit. The bill would ask taxpayers to give money for carbon storage without a guarantee that the process is working. Carbon capture can be a useful tool to reduce emissions of dirty power plants and industrial sources, but we need to strengthen accountability, not weaken it, to ensure taxpayer investments are benefiting them. UPDATE: the provisions of concern on CCS were removed in the Bipartisan Budget Act of 2018 (H.R. 1892) which was enacted into law. 

Congress can spur growth for transformative technologies

Lawmakers should use this opportunity to incentivize technologies with the most potential to transform our energy sector and benefit all of us, as they did in 2005 with the bipartisan Energy Policy Act. The proposal includes a handful of tax credits for renewable technology, including extending already expired credits for residential solar and geothermal heat pumps and commercial fuel cells and combined heat and power. But Congress should not stop there. Including a tax credit for offshore wind—like those proposed by Senators Carper and Collins or by Senators Markey and Whitehouse—would target a critical area for growth and help bring this clean energy resource to scale.

Tax credits for onshore wind and solar have been enormously successful. Offshore wind, however, has not been able to take advantage of these credits. Offshore wind offers enormous potential to increase the nation’s renewable capacity and create jobs, but requires a longer investment time and higher initial costs than its onshore equivalent.

Offshore wind developers need assurance that they will be able to take advantage of investment credits, but the current investment credits expire in 2019, which will remove the necessary certainty to catalyze the industry. Congress should establish credits specifically for offshore wind facilities to give the industry the confidence and stability it needs.

The goal of energy tax incentives should be to push transformative technologies, challenged by market-entry barriers, that provide great benefits to taxpayers by creating jobs, spurring innovation, and driving down carbon emissions. Congress can make great strides by utilizing the tax code to achieve these objectives.

About the Authors

Elizabeth Noll

Deputy Director, Congressional & External Affairs, Climate & Clean Energy Program

Arjun Krishnaswami

Policy Analyst, Climate & Clean Energy Program

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