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A Renewable Energy Tax Credit May Die At The End Of This Year

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"A Renewable Energy Tax Credit May Die At The End Of This Year"

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A tax credit promoting wind energy and other renewables is set to die at the end of the year, and for the moment there’s no obvious way to resurrect it.

That was the subject of today’s “Oversight of the Wind Energy Tax Credit” hearing by the House’s subcommittee on energy policy. Wind power tends to be the focus of discussion, and the way see-sawing government policy has led to a boom-and-bust cycle for the industry. The production tax credit (PTC) was first renewed by the 2009 stimulus bill and set to expire at the end of 2012, which created a big spike in U.S. wind installations in 2012 as firms rushed to qualify, and then a drop-off in activity in 2013. Congress extended the credit again until the end of 2013 with the fiscal cliff legislation, but the deal was too last-minute to hold off the collapse.

Rob Gramlich, a senior vice president with the industry group American Wind Energy Association, cited research at the hearing that an estimated 37,000 jobs would’ve been lost by full expiration — and many of those were still lost in the 2013 lull. The industry is rebounding thanks to the extension and a modification that allows projects to qualify by merely beginning physical construction in 2013 to qualify, rather than come online. Still, many of the lost jobs may never come back.

Gramlich recommended a six-year extension of the PTC to provide the industry with more policy certainty, pointing out that demand for renewables generated by state energy portfolios has mostly already been met or exceeded. Dan Reicher, the executive director of the Steyer-Taylor Center for Energy Policy and Finance at Stanford University, also recommended a multi-year extension, followed by a multi-year phase-out of the PTC.

Robert Michaels, a senior fellow at the conservative Institute for Energy Research, pushed back at the hearing in favor of simply letting the PTC die. In particular, he argued it biases capacity construction in favor of wind, which remains an intermittent power source. There was virtually no discussion, however, of the progress in both energy storage technology and smart grid systems that could solve wind’s intermittency issues. It’s also hard to get up in arms about the market distortion caused by the PTC, given the smorgasbord of tax carve outs available for nonrenewable fossil fuels as well.

The other major issue raised at the hearing was jobs. Rep. Tammy Duckworth (R-IL) noted that wind energy provides around 6,000 jobs in Illinois, and about 1,000 are in manufacturing. Studies of renewables in general suggest they’re more accessible to workers without a college education than the average American job, that they weathered the 2008 crash better, and that they generate more jobs per unit of energy produced than fossil fuels. The economic activity around renewables tends to be more localized as well — Gramlich noted, for example, that wind turbines are logistically difficult to export or import — meaning more demand for green energy in the U.S. is likely to be met by more green jobs in the U.S.

Longer term, Reicher recommended that as the PTC phases down, lawmakers should pass bipartisan legislation they’re already working on to make Master Limited Partnerships and Real Estate Investment Trusts — financing mechanisms authorized by Congress — available to renewable energy. The oil and natural gas industries have enjoyed access to these mechanisms since the 1980s.

Unfortunately, as a Bloomberg piece recently noted, no legislation to extend the PTC on its own is being written, and there’s no obvious legislation package to attach it to. Extensions were previously attached to the stimulus bill and the fiscal cliff deal, but this time the most likely path is a still-theoretical comprehensive tax code reform later this year. An analyst told Bloomberg there’s “a better than average probability” that the PTC will be allowed to die this time, though he also predicted they’d be retroactively reinstated later in 2014.

Richard Caperton, the Managing Director of Energy at the Center for American Progress, concurred, saying the “momentum will come from the wind industry, with a particular focus on the supply chain.” But even that’s hardly ideal. “The on-again, off-again PTC is holding back American businesses. Congress should extend it for multiple years right now, and not wait for tax reform that may not happen or wait until 2014 and do it retroactively. There are already upstream manufacturers — steel companies, for example — that have seen their orders dry up because of future uncertainty in the PTC.”

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