House Passes New Energy Tax Credits

Senate Passage Uncertain

By Gary M. Kaye - March 16, 2008
Democratic leaders in the Senate, including Senate Energy Committee Chairman Jeff Bingaman (D-NM) are vowing to pick up where the 2007 Energy Independence and Security Act failed, namely in the extension of tax credits for renewable energy resources including solar and wind.

On February 27th, the House voted 236 to 182 in favor of an $18 billion tax package that would rescind a tax break for the five biggest oil companies and use the revenue to boost incentives for wind and solar energy and energy efficiency. President Bush has threatened to veto the measure.

It now heads to the Senate, where Democrats face a challenge in getting enough support to bring the bill to a vote. This is the fourth time in the past year that Democrats have tried to get the package adopted.

The Bush administration, Republican lawmakers and big oil companies condemned the bill, which they said would raise fuel prices for consumers, discourage oil and gas exploration in the United States and unfairly discriminate against a single industry while other manufacturers continue to enjoy tax breaks.

But as crude oil hit a series of new highs, trading aboe $110 a barrel, most lawmakers said they saw no reason why the oil industry couldn't pay an additional $1.8 billion a year in taxes over the next 10 years.

Supporters of the measure noted that rescinded tax breaks would amount to less than 2 percent of the profits of the five biggest oil companies. Even if the companies were to pass along that entire cost to gasoline consumers, it would amount to about a penny a gallon.

Supporters of the measure also said that by extending tax breaks for wind and solar energy, the bill would prevent the loss of jobs linked to those fast-growing industries. Solar and wind energy companies have been arguing that investment would slow sharply without an extension of investment and production tax breaks for their industries, which are set to expire at the end of the year. House Speaker Nancy Pelosi (D-Calif.) issued a statement saying that 116,000 jobs were at risk.

Republicans mostly supported the bill's renewable energy provisions, worth about $8 billion.

To spur renewable energy, the bill would extend the production tax credit, now 2 cents a kilowatt hour, for wind for three years; after 2009, tax credits would not be able to exceed 35 percent of the value of a wind project.

The 30 percent investment tax credit for solar projects would be extended eight years for commercial customers and six years for residential customers. The current maximum credit for homeowners would be doubled to $4,000.

Recent History

Tax credits for renewables died in the so-called “Energy Independence and Security Act of 2007”, after members of the House and Senate agreed in last minute closed door meetings to sacrifice tax credits for things like energy efficient design in favor of tax breaks for oil companies. The federal tax credit for solar panels stays in effect until the end of this year, but gone are tax credits for energy efficient design and small scale wind, among others. The bill does call for a wide range of improvements in energy efficient standards when it comes to appliances, furnaces, and heating and cooling systems. The measure all provides for different standards that are region and climate determined. But the standards, where they exist, are ill-defined. There are no specifics for residential wind, ground source heat exchange, solar, or small scale hydro-electric.

Bingaman's Challenge

Senator Jeff Bingaman (D-New Mexico) who chairs the Senate Energy Committee tells ZEN that he is committed to restoring and enhancing
the energy credits that did not make it into the 2007 Act. Among Bingaman’s proposals:

Extension of Renewable Energy and Energy Efficiency Provisions

Electricity Production from Alternative Sources: These provisions provides for an additional three years of the current tax credits (1.9 or .9 cents per kilowatt hour) for the creation of electricity from alternative sources by extending through 2010. As under current law, the tax credits are available for the generation of electricity from the following: wind facilities; closed-loop biomass facilities (including a facility co-firing the closed-loop biomass with coal, other biomass, or coal and other biomass); open-loop biomass facilities; geothermal facilities; small irrigation power facilities; landfill gas facilities; trash combustion facilities and hydropower facilities.

Energy Efficient New Homes Credit: This provision extends the Senate-passed version of this credit, which was $1,000 (attainment of 30% standard) and $2,000 (attainment of 50% standard) tax credits for energy efficient new homes through 2010. Current law restricts the $1,000 credit to manufactured homes.

Residential Energy Efficient Property: This provision extends the current 30% tax credit (up to $2,000) for the purchase of qualified residential photovoltaic and solar heating property and the 30% tax credit for the purchase of qualified residential fuel cell power plants (up to $500 for each .5 kilowatt) through 2010.

Fuel Cells and Microturbines: This provision extends the current 30% business tax credit for qualified fuel cell power plants and the 10% tax credit for qualifying stationary microturbine power plants through 2010.

Solar Tax Credit: This provision extends the current 30% tax credit for the purchase of qualified solar property through 2010.


Energy Efficiency Provisions

Combined Heat and Power Units: This provision creates a 10% tax credit for the purchase of qualified energy efficient combined heat and power units. This provision was included in last year’s Senate-passed energy tax bill but was dropped in conference. This tax credit would expire at the end of 2010.

Advanced Meters: These provisions allow the purchasers of advanced energy management and water submetering devices to depreciate the products over three years. This provision was included in the Senate-passed energy bill but was dropped in conference.

In a speech in mid January, Bingaman again supported the need for electricity generated by renewables, saying, “We all have had three broad objectives in the electricity industry in the modern era. First, that we provide for a reliable and ample supply of electricity. Second, that the supply be at least cost to consumers. Third, that this be accomplished with the least possible adverse effects on the environment."