When Will Congress Pass Tax Credits for Renewable Energy?

A:

Well, you might as well ask me for tonight’s winning lottery number — but since everyone seems to be asking this question let me try to respond as best as I can. 

Congress enacted a broad range of renewable energy tax credits in the Energy Policy Act of 2005, but most expire at the end of 2008. Geothermal projects are already feeling the impact of the approaching deadline, as companies must increasingly gamble on what Congress and the President will or will not do about these credits. Unfortunately, this means some projects could be downsized or put on hold.

Both the House and Senate have passed energy legislation this year. The House bill proposes a four-year extension of the production tax credit (PTC) for wind, geothermal, biomass and small hydropower as well as the investment tax credit (ITC) for solar, fuel cells and other distributed technologies.

The Senate Finance Committee approved a five-year extension of the PTC and ITC; however, because there were objections to how the credit is paid for, the provision needs 60 votes to pass on the Senate floor. As a result, the tax extensions have not yet been voted on. In addition, both the House and Senate legislation have included provisions that would expand the Clean Renewable Energy Bond (CREBs) program, which gives co-ops and public power groups incentives to invest in renewable energy.

But the fate of the energy bill is still unclear, as you probably have read in the news. Even with oil hitting $90 a barrel and a growing consensus about the urgent need to address global warming, it’s unclear if Congress will extend these credits before they expire.

There are still real hurdles to overcome. The Administration’s formal statements on the House and Senate energy bills indicate the President will likely veto the bills as currently written. Also, the official Office of Management and Budget (OMB) statement ambiguously expresses opposition to the House bill’s $8 billion in renewable energy and conservation “tax credit bonds” and voices generalized “concerns” about the bill’s renewable energy and energy efficiency tax credits.  

The history of the production tax credit, which was first written for new wind and closed-loop biomass plants in 1992, shows that the credit often expired before it was extended. It has been a rollercoaster ride for wind project developers, causing damage to the industry whenever the credit expired.

Everyone in the renewable energy industry hopes these credits will be extended before Congress adjourns this year. If the credits expire in 2008, renewable energy leaders are worried about declines in the positive momentum now evident in all of the renewable energy markets.

It’s a good sign that both the House and Senate have passed fairly significant extensions of these tax incentives, and the congressional leadership has publicly said passing an energy bill is a priority. But there’s a long way to go before any legislation can reach the finish line. It will take bipartisan support to achieve success. Let’s hope Congress and the White House can find a way to get the job done!