Since the energy crisis of the late 1970s, the federal government has employed various policy mechanisms to support renewable energy development. Driving through the neighborhoods that were developed in the late 70s and early 80s, it’s not hard to notice all of the old rooftop solar water heating arrays that were installed because people were taking advantage of a tax credit made available by the Carter administration. But the tax credit expired after Reagan took office, which is why I don’t see rooftop solar hot water nearly as much anymore (at least not recently installed).
The same thing will happen if the renewable energy tax credits expire (referring broadly to the investment tax credit and production tax credit). The boom-and-bust cycle of clean energy development is a direct result of the waxing and waning of the federal production tax credit (PTC). Recently, the U.S. House of Representatives voted 236 to 182 in favor of extending the tax credit package which is set to expire at the end of this year. 17 Republicans joined the Democrats in supporting HR 5351, the Renewable Energy and Energy Conservation Tax Act of 2008 and all but 8 Democrats supported the bill.
Of course it is no surprise to see renewable energy trade associations like the American Wind Energy Association and the Solar Energy Industries Association are n favor of the PTC and the ITC respectively, but it is not only the cleantech companies that are pushing for the tax package. A broad coalition of 120 corporations, environmental groups, investors, labor groups, nongovernmental organizations, public health organizations, and utilities have urged Congress to pass H.R. 5351. The far-ranging group includes corporate giants Wal-Mart Stores, Best Buy Co., The Home Depot, and Dow Chemical, and utilities including Florida Power and Light and Pacific Gas & Electric. Civil society supporters include the Sierra Club, National Association of Home Builders, National Resources Defense Council, National Wildlife Federation, and the United Steelworkers (I guess no AFL-CIO on this one). The coalition sent a letter to the House last week that read,
“America is on the cusp of a new, clean energy economy. The clean energy tax incentives in H.R. 5351 would help our country make the transition to this economy — an economy powered by low-carbon technologies that help solve global warming, reduce energy prices for consumers and create new high-wage jobs.”
I have argued elsewhere that the bill has a good chance of passing, mostly because of the souring economy detectable in many indicators. But, I am about to do what Republicans call a ‘flip-flop’, and amend my position. It now appears that unless Congress takes away the ‘Robin Hood-esque’ mechanism for financing the credit, the bill does not stand a very good chance of passing. But, is this necessarily a bad thing? No, not necessarily.
Let me be clear, the production tax credit is not the perfect vehicle to grow our clean energy sources, it is just the one we have adopted because of its ‘market-friendly’ orientation. For those of you that don’t already know, I am a huge advocate of developing renewable energy in this country, but I think we should follow the lead of the Germans and others who have adopted feed-in tariffs (FIT). The FIT policy mechanism has largely been ignored in the US, although it is being experimented with in California, and it has been recently been introduced as proposed legislation in Michigan, Rhode Island, Minnesota, and Illinois.
Why won’t the PTC pass as it is currently written? First off, the bill still needs to get by a sticky Senate, and a President who recently reaffirmed his commitment to veto the bill unless congress changed the existing financing mechanism for the tax credits. You see, as opposed to the “fiscally conservative” Democrats (sounds weird, huh?), Republicans have shown that they prefer to borrow money from foreign investors and have it paid off by future generations of Americans. It strikes me that this strategy is a bit risky – almost like relying on those payday loans places that lure you in with the promise of instant money, but also lock you into a pattern of borrowing.
The current bill is not substantively different from the one that did not pass on three separate occasions last year, including once in December when the package of tax credits for renewable energy fell just one vote short of the 60 needed to prevent a filibuster and move on to the President’s desk. In a statement, the White House said that industries need a level playing field and this “targeted tax increase” would unfairly overburden American oil companies who need to be able to reinvest in new exploration (isn’t the whole idea, though, that we move away from fossil-fuels?).
So, as the future of clean energy development in the US hangs in the balance, individual states are not waiting around to take action. I propose that it is at the state level where cleantech investors should be looking for incentives and investment security. The feds are simply dropping the ball on energy policy. Fortunately, however, the states are picking it up and running with it.
Photo Credit: Morten Mitchell Larod
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