Extension of Clean Energy Tax Incentives is a Major Bright Spot In Congress's New Spending Bill

The White House and congressional negotiators agreed last night on a sweeping package of energy policies that will be attached to the "must-pass" omnibus spending bill. A major bright spot in this package--as bright as the sun, one could argue--is the proposed extension of the incentives for wind and solar power.

Here comes the sun, and the wind, too: Among the brightest spots in the new omnibus spending bill are provisions that can help power as many as 29 million American homes with pollution-free solar and wind power. (photo by Minoru Karamatsu, via flickr.)

For a statement on the pluses and minuses of the full agreement issued by NRDC's president, Rhea Suh, look here.

For the first time in the U.S. renewables industry's history, it will have roughly seven years of predictable support, which will cement the tremendous gains wind and solar have made over the last decade. This will also bridge the industry to the early incentives offered as part of the Environmental Protection Agency's Clean Power Plan to limit power plant emissions, providing even greater stability.

The direct impacts of these renewable tax incentives in terms of the amount of additional wind and solar installed and global warming pollution avoided are huge, and the indirect impacts, both domestically and globally, are likely to be even bigger.

Here are some of the details on the extended renewable tax credits:

  • Solar power tax credit - the Investment Tax Credit is extended at current levels (30 percent) all the way through 2019 and then phased down to 26 percent in 2020 and 22 percent in 2021. After that, the incentive for residential solar projects ends and the incentive for commercial and utility-scale solar projects drops to 10 percent permanently. Importantly, solar projects are allowed to qualify when they begin construction, meaning that this extension will be driving commercial-scale projects through 2023. In what we hope is a mistake, all eligible technologies beyond solar were not included, like small wind and fuel cells. NRDC supports extension of ITC for all renewable technologies and hopes legislators can rectify this before it hits the president's desk.
  • Wind power tax credit - the Production Tax Credit, which is currently 2.3 cents per kilowatt hour of wind power produced, is extended retroactively back through 2015 and forward through the end of 2019. The tax credit phases down to 80 percent in 2017, 60 percent in 2018, and 40 percent in 2019. As with solar, to qualify, wind projects must break ground/begin construction before the end of those years, which means this extension will drive development through mid-2021.
  • Offshore wind - Under this agreement, PTC-eligible facilities are allowed to claim the Investment Tax Credit in lieu of the Production Tax Credit, which is important to offshore wind development. This eligibility will phase down over the same timeline as the wind power tax credit. Unfortunately, because offshore wind power is just getting started here in the U.S., this extension is unlikely to help many offshore projects. Some support for offshore wind will need to be adopted as soon as possible and certainly before the close of the five-year extension to address this problem - it doesn't make sense to phase out a tax credit for offshore wind before offshore wind is phased in here in the United States.

The Department of Energy (DOE) has done a preliminary analysis of a four-year extension for wind and solar--so, a similar but different scenario--and estimated that it would lead to more than 90 gigawatts of additional wind and solar, generating 320 additional terawatt hours per year. That's enough to power the equivalent of 29 million homes. DOE estimates that, cumulatively, its scenario will avoid more than 1000 million metric tonnes of global-warming pollution through 2022 and 250 million metric tonnes in that year alone. That's more than 10 percent of the power sector's 2005 emissions.

Simultaneously and in addition to the spending bill, the U.S. House of Representatives issued an additional tax package that extends a variety of expired tax credits. Included in this package are incentives for investments in energy efficient technologies, like the expired credit for the construction of energy efficient new homes (45L). It provides a $2,000 tax credit to builders who build new houses that optimize energy use. Included as well is the now-expired tax deduction for energy efficient components and systems for commercial and larger multifamily buildings (179d).

The extension of all these important clean energy incentives is a big deal in and of itself, but it's also huge for what it means in terms of our long-term climate goals. The action on tax credits will ensure that clean energy is prioritized as a part of the Clean Power Plan, and will dramatically accelerate the power sector's progress toward making the deeper long-term pollution cuts we need.

As NRDC's president points out, the Republican leaders have extracted a price for these extensions but they would have cost a lot more without the leadership of the White House and House and Senate Democratic Leadership. The GOP leadership's desired permanent lifting of the oil export ban is a giveaway to oil companies at the expense of American consumers and refinery workers. We need to be ending fossil fuel incentives, not giving them more.

Nevertheless, the Obama administration's support of clean energy and carbon standards for power plants and vehicles, as well as energy efficiency standards for appliances and equipment, allowed the United States to lead in the Paris climate negotiations over the last several weeks. With this tax credit extension, the U.S. will be going back to Paris with a major down payment on its commitments. We'll be positioned to lead the world again and, at home, to start implementing the Clean Power Plan by sprinting instead of crawling. That's very bright news, indeed.

About the Authors

Nathanael Greene

Director, Renewable Energy Policy, Energy & Transportation program

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