House Democrats Float Sweeping Tax Breaks For Clean Power, EVs

Source: By Lee Logan, Inside EPA • Posted: Sunday, September 19, 2021

House Democrats are floating a sweeping, $273 billion clean energy tax package for consideration in the party’s budget “reconciliation” bill, with lawmakers seeking to extend credits for a wide range of low-carbon power and electric vehicle (EV) technologies while also including a controversial preference for projects linked to unions.

The House Ways & Means Committee released the clean energy tax proposal late Sept. 10, ahead of a planned Sept. 14 markup.

The tax-writing panel has already been marking up various other aspects of the sprawling reconciliation bill, given its jurisdiction on multiple other issues including social spending programs and tax increases to fund the legislation.

The clean energy proposal, dubbed Subtitle G of the committee’s reconciliation measure, would set up a two-tiered structure for clean energy tax credits, including extended credits for wind and solar power, new credits for transmission projects, carbon capture projects and others.

Specifically, a section-by-section summary says the plan would offer a “base” tax credit for such projects, while also offering a “bonus rate” for projects that pay so-called “prevailing wages” and use a minimum amount of apprentices. The plan also requires contractors to use iron, steel and other products deemed “manufactured in the United States.”

Similarly, the plan would offer up to $12,500 in consumer tax breaks for an EV purchase, up from a current limit of $7,500. Nearly all of the difference is tied to vehicles made at unionized manufacturing plants, a provision that is already drawing opposition from foreign automakers such as Toyota and Honda.

The low-carbon tax breaks are considered a major cornerstone of the climate-related elements of the reconciliation package, with top Democrats suggesting they would complement a proposed $150 billion incentive program to encourage utilities to deploy more clean electricity.

While lawmakers are scrambling to craft legislative text for the budget measure, some closely watched moderate Democrats are pressing party leaders to slow consideration of the package and scale down its price tag — advocacy that might ultimately influence the fate of the climate proposals.

A Sept. 13 analysis from the research firm ClearView Energy Partners explains that the Ways & Means proposal extends the eligibility timeframe for a host of credits, though its “base” credit rate is often much lower than the full rate of current credits.

Project developers “would need to pay prevailing wages and hire apprentices to receive the original 30% as a bonus credit,” the analysis says, citing the solar tax credits as an example.

The plan also would convert many of the credits to “direct pay” options, allowing projects to forego the use of tax equity financing that critics argue is overly complex and deflates the value of the credits.

Renewable Energy, EV Credits

Overall, the plan would extend wind and solar power credits through 2033, while allowing stand-alone energy storage projects to qualify, replacing current requirements that storage be paired with renewable generation.

The plan also would create a new tax credit for transmission projects considered key to integrating high levels of renewables; extend the eligibility window by five years, until 2031, for carbon capture and storage projects to claim existing tax breaks, while also easing qualifying thresholds; create a new, zero emission credit program for existing nuclear plants; and extend or create new credits for low-carbon fuels including biodiesel, sustainable aviation fuel (SAF) and “clean” hydrogen.

Further, the plan would revamp an Obama-era tax credit, known as 48C, for advanced manufacturing including facilities that retool operations for a low-carbon energy shift. This proposal — jettisoned at the 11th hour from the Senate-passed bipartisan infrastructure deal — has been a priority of Senate energy committee Chairman Joe Manchin (D-WV).

Regarding EVs, the Ways & Means proposal aligns with EV supporters’ call to remove existing per-manufacturer caps on tax credits that are currently restricting credit availability to EVs made by General Motors and Tesla.

Under the committee plan, the per-vehicle credit has a “base” of $4,000, along with a $3,500 boost for vehicles with a battery size meeting certain thresholds.

An additional $4,500 would be available for vehicles produced at U.S. plants operating under union agreements, while $500 would be added to the credit if at least half of the vehicle is made from domestic content.

The ClearView analysis says the plan “appears to nod, if perhaps only slightly,” to a GOP-sponsored amendment that the Senate added to Democrats’ fiscal year 2022 budget resolution calling for Congress to means-test the EV credits.

That proposal, floated by Sen. Deb Fischer (R-NE) and joined by three moderate Democrats, called for restricting the credit to taxpayers with incomes below $100,000, while also limiting the credit to vehicles that cost less than $40,000.

The Ways & Means proposal would begin to phase down credits for individual taxpayers with incomes above $400,000, while also capping the retail prices of vehicles that can receive the credit. Specifically, prices cannot exceed $74,000 for a pickup, $69,000 for an SUV, $64,000 for a van, and $55,000 for a sedan.

Auto groups recently pressed top Democrats to craft tax language that would make EV credits apply as broadly as possible to vehicles and consumers.

Also, in line with recent advocacy from environmentalists and other EV backers, the House Democrats are floating a newly created credit for used EVs, capped at $2,500 or 30 percent of the cost of the vehicle.

However, the proposed credit increase for union-made autos is already sparking heartburn from foreign automakers, which typically do not have union agreements at their U.S. plants.

For example, Honda said in a statement to Reuters that the House plan is “unfair” because it “discriminates among EVs made by hard-working American auto workers based simply on whether they belong to a union.”

The news outlet says the EV-related credits are estimated to cost roughly $34 billion over 10 years. — Lee Logan(