Fiscal "Deal" Energy Investments Form Foundation for Clean Energy Future

Millions of Americans breathed a sigh of relief this week following successful votes in the U.S. Congress to avoid the “fiscal cliff”.    Within the energy sector, one of the fundamental issues at stake during the last months of budget wrangling was the fate of a suite of clean energy tax incentives that have proven vital to the growth of home-grown, clean energy.  Fortunately, in a victory for both the economy and the environment President Obama and Democratic leaders fought for including this package, which also had Republican sponsors, and the final legislation included a host of clean energy incentives.   While these provisions represent a very small portion of the overall bill, they will pay major dividends to U.S. workers, companies and residents. 

Below is a breakdown of some of the energy provisions, their impacts, and places where further improvements should be made.  

• EXTENSION AND MODIFICATION OF CREDITS WITH RESPECT TO FACILITIES PRODUCING ENERGY FROM CERTAIN RENEWABLE RESOURCES (SEC. 407)

Likely the most important for the renewable industry (and certainly the one receiving the most public attention) is the extension and modification of the production tax credit (PTC) and investment tax credit (ITC) for renewable energy.  As NRDC has demonstrated in recent reports, a single wind energy project can create over one thousand jobs, and provide millions of dollars to local communities.  With hundreds of wind projects around the country, the wind energy industry is responsible for employing 75,000 Americans, with a supply chain of hundreds of manufacturers located in 44 states.  The PTC expired December 31, 2012, which would have caused 37,000 of those jobs to be lost.  By extending the PTC and adding a modification that makes the PTC accessible to more wind developers for a longer period, wind power can continue utilize the PTC to build environmentally friendly, renewable power for the next two years.   Additionally, some wind projects have had more difficulty using the PTC.  Smaller, community-owned wind, or offshore wind projects have a hard time securing the special tax investment that flows from the PTC.  Under this new legislation, non-traditional wind projects qualify for the ITC, which they will find easier to use.            

• EXTENSION OF CREDIT FOR ENERGY-EFFICIENT NEW HOMES (SEC. 408)  

Another provision extends a tax credit of $2,000 for builders who construct homes that use much less energy for heating and cooling.  The early results from this tax code have been impressive – essentially no homes met this efficiency standard when the credit was created.  Now, 32,000 homes in 2011 (or 11% of all new homes sold) qualified for this credit.  In the extension of the credit, Congress updated the baseline from the 2003 code to the 2006 code, which represents a minor efficiency improvement. While NRDC supports the intention of updating the baseline, we had hoped that Congress would update the credit by adjusting the percentage efficiency gain and including whole-home energy use (as opposed to just heating and cooling). In the future, NRDC would also like to see a higher tier added to this credit to encourage even more efficient homes.

• EXTENSION OF CREDIT FOR ENERGY-EFFICIENT APPLIANCES.  (SEC. 409)

Congress extended the highest efficiency tiers of Section 45M which provides credits to the manufacturers of highly efficient refrigerators, clothes washers and dishwashers. This credit helps encourage the manufacture of these highly efficient appliances, and benefits both consumers, who see lower electricity bills and the companies which make these appliances.

• EXTENSION OF CREDIT FOR ENERGY-EFFICIENT EXISTING HOMES (SEC. 401).

This incentive provides homeowners with a tax credit for various types of residential energy efficiency improvements.  Its extension is a step in the right direction, but NRDC has concerns with this credit because some of the criteria have become too weak and the current credit structure is flawed.  However, extension of this credit provides a platform for modifying it in the next Congress and NRDC will continue working to amend the existing homes credit to include a performance-based path, such as was included in Senator Snowe, Bingaman, and Feinstein’s S.1914, along with more limited and stringent prescriptive measures.

• EXTENSION AND MODIFICATION OF CELLULOSIC BIOFUEL PRODUCER CREDIT and EXTENSION AND MODIFICATION OF SPECIAL ALLOWANCE FOR CELLULOSIC BIOFUEL PLANT PROPERTY. (SEC. 404 and SEC. 410)

While Congress did not include the performance-based environmental standards that minimize the risk of poorly sourced biofuels (more at my colleague Brian Siu's blog here), the extension of the producer tax credit and bonus depreciation for cellulosic biofuels is still a positive outcome, given the need for sustainable alternatives to oil. 

• EXTENSION OF ALTERNATIVE FUELS EXCISE TAX CREDITS (SEC. 412)

While inclusion of the above provisions is to be applauded, one concerning provision is the extension of the alternative fuels excise tax in this legislation.   This subsidy is deeply harmful to the extent that it that supports the use of liquid coal.  There are numerous reasons why Congress should not extend this provision for liquid coal. First, liquid coal is among the dirtiest and most destructive energy technologies.  It emits twice the carbon pollution as petroleum based fuels, accelerating the increasingly obvious impacts of global warming. Moreover, it requires nearly half a ton of coal to produce one barrel of liquid coal fuel. The associated coal mining would further decimate our natural heritage through increased mountaintop removal, water contamination, air pollution, and biodiversity loss.

Ultimately, what is most important is that many of these provisions lay a strong foundation for more clean energy advances in 2013 and show once again the important, positive role the tax code must play in developing the renewable markets of the future.

These technologies create jobs for Americans, clean our air and water, and help us compete in a challenging global environment.  They help us get off dirty, foreign oil and allow us to do what America does best – Innovate and then bring those new technologies to market.   As the budget debate continues, it is vital that Congress continue to support the clean energy economy of today and tomorrow.