‘Cliff’ deal extends energy tax incentives

Source: Nick Juliano, E&E reporter • Posted: Thursday, January 3, 2013

As part of an eleventh-hour deal to avert the “fiscal cliff,” Congress yesterday extended and modified a key tax break for wind and other renewable energy sources, resetting the clock for a debate over how the government incentivizes those resources in the new Congress that convenes tomorrow.

The one-year extension to the wind production tax credit delivers a big win for the industry that had made winning a PTC lifeline its top priority. The broad fiscal cliff deal included language extending the PTC deadline through the end of this year and modifying its requirements to allow projects to be eligible for the credit as long as construction begins by the deadline — a change that also benefits geothermal, hydropower, biomass and waste-to-energy developers that can claim the credit.

The new language means, in effect, that wind developers have more certainty as they plan projects that would go into service over the next two years, because of the planning horizon inherent in such projects. Before the change, projects had to be “in service” and sending electricity to the grid before developers could claim the credit.

“On behalf of all the people working in wind energy manufacturing facilities, their families and all the communities that benefit, we thank President Obama and all the members of the House and Senate who had the foresight to extend this successful policy, so wind projects can continue to be developed in 2013 and 2014,” said Denise Bode, who today is leaving her post as CEO of the American Wind Energy Association after four years with the group.

The Geothermal Energy Association, which also lobbied for the eligibility change, estimates that projects in as many as a dozen states will move forward this year under the revised PTC.

“Congress’ action will spur significant new employment and sustain geothermal industry growth,” Karl Gawell, the group’s executive director, said in a statement. “Consumers and utilities will benefit, as well, because developers will have greater certainty about whether the credit will be available for their project.”

The House last night passed the cliff deal on a 257-167 vote that required Democratic support to push it over the finish line; 151 Republicans voted against the legislation while 85 supported it. The Senate the day before passed the same bill 89-9. Obama has signaled he will sign the bill into law.

The votes demonstrated the relatively small role the PTC played in getting a deal. Sen. Chuck Grassley (R-Iowa), one of the tax credit’s most vocal champions, said in a statement that he voted against the deal because it did not contain adequate spending cuts. Sen. Michael Bennet (D-Colo.), another PTC supporter, also voted against the deal, saying it would not do enough to reduce the debt. In the House, Republicans who have supported a PTC extension were split on the broader deal; of 16 GOP freshmen who signed a letter earlier this summer calling for an extension, six supported the deal while nine voted against it and one did not vote.

The bill extended the PTC and 11 other energy-related tax incentives — for home weatherization, efficient appliances, electric motorcycles, biofuel infrastructure, alternative fuels and other activities. But those were a relatively minuscule piece of the overall legislation, which was primarily aimed at preventing higher tax bills that individuals would have faced over the expiration of tax cuts first enacted under President George W. Bush.

The agreement to avert the cliff caps months of drama among renewable energy supporters and lobbyists over whether their vital tax support would continue into this year. Although the energy incentives were not central to the deal, they still faced stiff resistance from some Republicans and conservative groups. But there was a sense that the deal would not rise or fall based on whether the energy breaks were included.

“We were concerned. At same time, we realized several weeks ago at this point there wasn’t much more to do,” one wind industry lobbyist said. “It was really out of our hands.”

The final deal included legislation that came out of the Senate Finance Committee in August, extending a dozen energy tax breaks, including the 2.2-cents-per-kilowatt-hour wind PTC. Extending and modifying the PTC was the largest break extended, with a price tag of about $12 billion over the next decade, out of about $18 billion total for the energy incentives.

Other credits that won extension include the so-called 25C credit that covers 10 percent of the cost of efficiency upgrades to homes; a credit to cover 30 percent of the costs of alternative-fuel vehicle refueling stations, which advocates say will encourage the adoption of 15 percent ethanol blends; a $1.01-per-gallon cellulosic biofuel producer credit; a $1-per-gallon biodiesel credit; a $1,000-to-$2,000 credit to build efficient new homes; and credits providing $25 to $250 to cover production of efficient appliances.

“The extension of these important provisions demonstrates the Obama administration’s stalwart support of biofuels and Congress’ belief in the promise of energy independence and job creation through domestic renewable energy resources,” said Bob Dinneen, president and CEO of the Renewable Fuels Association, referring to the cellulosic biofuel and infrastructure credits.

While clean energy advocates and environmentalists are celebrating today, their victory is still a temporary one. AWEA has said the wind industry will need the PTC through at least 2018, although it has suggested allowing the level of support to phase down over that time, and other industries also have said support beyond this year will be needed.

Meanwhile, conservative opponents of the PTC are vowing to keep up their fight to kill it over the course of this year. Thomas Pyle, head of the anti-PTC American Energy Alliance, said the wind industry’s decision last month to float a plan to phase out the credit over six years was an admission that the industry could live without taxpayer subsidies.

“That is no small victory for free market advocates who have opposed this and other wasteful government handouts,” Pyle said in an emailed statement. “We now have a year in front of us to continue educating the American people and their representatives about the problems with wind energy and the negative impact on our economy from this and other expensive, inefficient and unreliable energy sources.”

AWEA’s phaseout proposal was framed as an option for Congress to consider in the context of comprehensive tax reform, and industry sources have stressed that they view the six-year time line as the bare minimum necessary to maintain a “minimally viable” wind sector. But there is a sense among some lawmakers and congressional aides that the proposal was more of an opening bid in coming negotiations and that the industry ultimately could accept a phaseout over five or fewer years.

“We’ll see how well they’re able to hold to that,” said Richard Caperton, a clean energy expert with the liberal Center for American Progress, regarding the industry’s position.

Given the difficulty Congress had averting the worst of the fiscal cliff — with a deadline for the largest tax increase in history hanging over its head along with huge budget cuts — it remains to be seen whether lawmakers have the will to embark on a more difficult overhaul of the tax code, although leaders in both parties say it remains a priority.