Congress could be close to phasing out the tax credits that have, for years, supported the booming wind and solar energy industries.
Tax writing committees in the House and Senate are working to introduce and pass a package of tax breaks before the end of the year to extend or renew a number of incentives like those for low-income housing, scientific research and small businesses.
While the wind and solar industry and their allies among environmentalists and Democrats want to protect the tax incentives for the long term, many conservatives want to phase them out.
As the committees negotiate the tax packages, lawmakers and observers say the most likely outcome is that both credits will be phased out over a five-year period.
The wind incentive is a production tax credit, meaning it gives utilities money back for each unit of electricity produced. The solar industry has an investment tax credit, based on the money spent to install the solar panels.
A phase-out would provide a certain amount of stability for the industries. But environmentalists lament the end of the incentives shortly after President Obama unveiled a sweeping climate change regulation for the power sector that’s expected to increase demand for renewable power like never before.
Obama frequently cheers the growth of renewable energy like wind and solar, and the low costs of the power – due in part to federal help – helps make the case for his climate regulations.
“These tax incentives are crucial for these clean energy technologies like wind and solar to continue to compete,” said Melinda Pierce, legislative director at the Sierra Club.
“The mature industries like oil and gas continue to enjoy subsidies, and as wind and solar continue to grow, they absolutely need the certainty of these types of tax incentives to ensure that they can fill that market space that’s being created as we move away from coal,” she said.
The wind credit expired at the end of 2013. Congress renewed it in late 2014, but only for that year, and it has not been in place for 2015.
The solar incentive is due to expire at the end of 2016. But the industry is hoping that Congress will extend the credit now as it takes up a larger tax package.
The Solar Energy Industries Association said it does not need the tax credit permanently, but it would prefer a five-year extension without the phase-out.
Rhone Resch, the group’s president, said the solar industry thought it wouldn’t need the credit past 2016, but economic factors like the Great Recession changed the calculus.
“Our costs are down by 80 percent, we’re scaling up, we’re becoming more cost-competitive. But we do need a little bit longer,” he said. “We do, in the long run, have the intention to not be part of the tax code.”
The American Wind Energy Alliance is advocating for a “long-term” renewal of its credit, but the group does not get more specific than that.
The Senate Finance Committee passed a bill extending both the wind and solar credits. The House Ways and Means Committee’s September bill included neither.
Curt Beaulieu, a tax attorney at Bracewell & Giuliani, said the House Ways and Means Committee recently showed its members a draft negotiation bill that included the five-year phase-outs, but then ran into objections that the entire package was too expensive, and considered changing those credits.
“As recently as Friday morning, it looks like there has been life reborn in negotiating the package,” Beaulieu said. “My guess is that it would be similar to what the negotiated package was, but they would cut back on some of the costs by taking away some of the permanent provisions.”
Some lawmakers are discussing the possibility of inserting a provision into the tax bill to lift the ban on exporting crude oil, reasoning that Democrats could get a better deal on the renewable energy incentives in return. Sen. Orrin Hatch (R-Utah) and Rep. Kevin Brady (R-Texas), the top tax writers in each chamber, said oil exports are among the possibilities for the deal.
Conservatives object to the credits, saying they’re expensive and federal government ought not pick winners and losers in energy.
Rep. Kenny Marchant (R-Texas), one of Congress’ most vocal opponents of the wind credit, said he’d prefer that it not be renewed at all, but he’ll take a phase-out as a win.
“It needs to be phased out, and I’d prefer a quicker phase-out. But I’ll take anything that looks like a victory.”
Nick Loris, an economist at the conservative Heritage Foundation, said the wind and solar industries should be allowed to compete on their own without the federal government’s help.
“We want to get rid of targeted tax credits and subsidies for all sources of energy and technologies, and these are two that are generous handouts to an industry that claims that they don’t need support, and that they’re robust and economically healthy,” Loris said. “If that’s the case, they should survive and be competitive without these tax credits.”
But Rep. Earl Blumenauer (D-Ore.) warned that ending the incentives could threaten the success of renewable power, which is important in the fight against climate change.
“There are other things we have to be doing in this space,” Blumenauer said of the climate fight. “But for now, we’re fighting to get as much as we can to not upset what’s happening with renewables. They need stability and continued progress.”