Renewable Energy Tax Credits Enacted in the U. S.

Summary:  Various investment tax credits and tax grants directed to fostering growth of the alternative or renewable energy industry were slated to expire at this time.  Recognition of this impending expiration inhibited planning and investment needed for developing new alternative energy projects.  The Middle Class Tax Relief Act signed into law today extends these tax policies for one year.  This will foster additional creation of alternative energy projects, contributing to reducing greenhouse gas emissions and creating or preserving thousands of jobs in the U. S.

Introduction:  Various tax policy incentives have been in place in recent years to promote creation and development of commercial businesses devoted to alternative, renewable and/or sustainable sources of energy.  Important sections of enabling legislation for these policies expire at this time.

As an example, a Treasury Grant Program (TGP), also called the section 1603 program, granted direct payments to companies creating new renewable energy facilities.  According to a letter by 26 senators addressed to the U.S. Senate leadership on November 29, 2010, the TGP makes direct payments to such companies to substitute for failure of the companies to form “tax equity partnerships” with investors as a result of the Great Recession starting in 2008.  According to the letter, TGP payments resulted in about $18.2 billion invested in renewable energy projects, creating 8,600 megawatts of renewable energy generation up to October 2010.  The program is credited with saving 55,000 jobs in the wind energy industry.

During the recent Cancun conference sponsored by the United Nations Framework Convention on Climate Change, Peter Kelly from the American Wind Energy Association (AWEA) participated in a webcast news conference on Dec. 8, 2010.  As of that day, he indicated that the section 1603 tax grant had not been included in the tax bill being put together in the Congress.  He stated that in each of the two years, 2008 and 2009, that the program was in effect, wind energy installations increased 40% per year, but that, fearing the termination of the program, installations fell by 45% in the 2010 year to date.  He said the wind industry employed 85,000 workers during the recession.  The AWEA foresees that 20% of electricity generation in the U. S. will come from wind by 2020, reducing greenhouse gas emissions by 25%.

The Middle Class Tax Relief Act of 2010 was signed into law on Dec. 17, 2010.  Among its provisions are several related to alternative energy.  First, the section 1603 TGP was extended through 2011.  The Act also encourages production of ethanol as a biofuel by extending the per gallon tax credits and payments through 2011, as well as imposing a $0.54 per gallon tariff on imports.  A $1 per gallon tax credit for biodiesel and renewable diesel fuel derived from biomass sources is also extended.  There is also additional funding of $2.5 billion for a tax credit used in manufacturing advanced energy equipment, originally enacted as part of the American Recovery and Reinvestment Act (the stimulus act of 2009). 

Karl Gawell, Executive Director of the Geothermal Energy Association, welcomed the TGP provisions of the bill.  He said it would facilitate installation of several hundred megawatts of new geothermal electricity capacity.  The concern is that projects such as these have a multiyear completion schedule.  It is therefore difficult to operate in an environment of short term adjustments to tax policy.  Denise Bode, CEO of AWEA, also praised passage of the bill with its extension of TGP.  In her statement, she noted that in Iowa, wind energy already supplies 20% of the electricity, and as much as 25% in Texas.

Conclusion:  The President and the U. S. Congress have converged to an agreement on important tax policies promoting creation of alternative energy installations in the U. S.  These tax incentives lead to increased ability to generate electricity without emitting greenhouse gases into the atmosphere.  They also promote economic growth and creation and/or preservation of jobs.  These latter considerations are highly important in the fragile state of the economy in the U. S. at the present time.

© Henry Auer 2010