Hill Heat

The Senate’s deadlock over tax breaks for renewable energy may be ending.

Sen. John Ensign, R-Nev., said negotiators have made progress, and he expects a “big announcement” Thursday.

Ensign and Sen. Maria Cantwell, D-Wash., have been working on a package of tax incentives, including extensions of credits for producing electricity from wind and sunlight.

Senate Finance Chairman Max Baucus, D-Mont., also sounded upbeat.

“There is a very good chance, compared to before we broke for the break, that we are going to get a significant extenders package paid for,” Baucus said. “We’re working with both sides to get that done.”

Energy tax packages have failed repeatedly on the Senate floor, including a $22 billion version that fell one vote short of winning approval as an amendment to a broader energy bill (PL 110-140) in December.

Republicans have complained about the revenue-raising offsets in the Democratic proposals, which would hit the oil and gas industry. It’s unclear how any Cantwell-Ensign proposal would overcome that hurdle.

Industry sources were encouraged but cautious Tuesday, and they continue to worry about losing tax benefits that are scheduled to expire Dec. 31.

“It’s all about urgency,” said Greg Wetstone of the American Wind Energy Association. “We’re looking at an industry that’s been on a phenomenal growth path that is threatened now with tremendous policy uncertainty.”

Purpose: To provide for the limited continuation of clean energy production incentives and incentives to improve energy efficiency in order to prevent a downturn in these sectors that would result from a lapse in the tax law.

Title I – Extension of Clean Energy Production Incentives

Section 101. Extension and modification of the renewable energy production tax credit (IRC Section 45). Under current law, an income tax credit is allowed for the production of electricity using renewable energy resources, like wind, biomass, geothermal, small irrigation power, landfill gas, trash combustion, and hydropower facilities. A taxpayer may generally claim a credit for 10 years, beginning on the date the qualified facility is placed in service. In order to qualify, however, facilities must be placed in service by December 31, 2008.

The bill extends the placed in service date for one year (through December 31, 2009). It also redefines small irrigation power to include marine and hydrokinetic energy, and enables the credit to help reduce the cost of renewable electricity that is ultimately sold to utility customers when the utility itself is also a part owner of the renewable facility.

Section 102. Extension and modification of the solar energy and fuel cell investment tax credit (“ITC”) (IRC Section 48). Under current law, taxpayers can claim a 30 percent business energy credit for purchases of qualified solar energy property and qualified fuel cell power plants. In addition, a 10 percent credit for purchase of qualifying stationary microturbine power plants is available. The credit for qualified fuel cell power plant property is capped at $500 per 0.5 kilowatt of capacity. Credits apply to periods after December 31, 2005 and before January 1, 2008.

The bill enables taxpayers to claim the 30 percent business credit for the purchase of fuel cell power plants and solar energy property and the 10 percent credit for stationary microturbines, through December 31, 2016. In addition, the bill repeals the $500 per .5 kilowatt of capacity cap for qualified fuel cell power plant property, and allows electric utilities to claim the ITC.

Section 103. Extension and modification of the residential energy-efficient property credit (IRC Section 25D). Under current law, taxpayers can claim a personal tax credit for the purchase of property that uses solar energy to generate electricity for use in a dwelling unit and qualified solar water heating property that is used exclusively for purposes other than heating swimming pools and hot tubs. The credit is equal to 30 percent of qualifying expenditures, with a maximum $2,000 credit for each of these systems of property. Section 25D also provides a 30 percent credit for the purchase of qualified fuel cell power plants. The credit for any fuel cell may not exceed $500 for each 0.5 kilowatt of capacity. The credit applies to property placed in service prior to January 1, 2009.

The bill extends the credit for residential solar property for one year (through December 31, 2009) and repeals the $2,000 credit cap for qualified solar electric property. The bill also allows the tax credit to offset Alternative Minimum Tax (“AMT”) liability.

Section 104. Clean Renewable Energy Bonds (“CREBs”) (IRC Section 54). Under current law, public power and consumer-owned utilities that cannot benefit from tax credits can issue Clean Renewable Energy Bonds (CREBs) to help them reduce the cost of renewable energy investments. Under current law, there is a national CREB limitation of $1.2 billion in bonding authority and CREBs must be issued before December 31, 2008.

This bill authorizes an additional $400 million of CREBs that may be issued and extends the authority to issue such bonds through December 31, 2009. In addition, the bill allocates 1/3 of the additional bonds for qualifying projects of State/local/tribal governments; 1/3 for qualifying projects of public power providers; and 1/3 for qualifying projects of electric cooperatives.

Section 105. Extension of the special rule to implement FERC restructuring policy (IRC section 451(i)).

The bill extends through December 31, 2009, the present-law deferral provision that enables qualified electric utilities to recognize gain from certain transmission transactions over an 8-year period.

Title II – Extension of Incentives to Improve Energy Efficiency

Section 201. Extension and modification of the credit for energy-efficiency improvements to existing homes (IRC section 25C). Current law provides a 10 percent investment tax credit for purchases of advanced main air circulating fans, natural gas, propane, or oil furnaces or hot water boilers, windows and other qualified energy-efficient property. The credit applies to property placed in service prior to January 1, 2008.

The bill extends the credit for one year (through December 31, 2009), and specifies that certain pellet stoves are included as qualified energy-efficient building property.

Section 202. Extension of the tax credit for energy-efficient new homes (IRC section 45L). Current law provides a tax credit to an eligible contractor equal to the aggregate adjusted bases of all energy-efficiency property installed in a qualified new energy-efficient home during construction.

The bill extends the energy-efficient new homes credit for two years (through December 31, 2010), and permits the eligible contractor to claim the credit on a home built for personal use as a residence.

Section 203. Extension of the energy-efficient commercial buildings deduction (IRC section 179D). Current law allows taxpayers to deduct the cost of installing energy-efficient improvements in a commercial building. The deduction equals the cost of energy-efficient property installed during construction, with a maximum deduction of $1.80 per square foot of the building. In addition, a partial deduction of 60 cents per square foot applies to certain subsystems. The deduction applies to property placed in service prior to January 1, 2009.

The bill extends the deduction to property placed in service through December 31, 2009, increases the maximum deduction to $2.25 per square foot, and allows a partial deduction of 75 cents per square foot for building subsystems.

Section 204. Modification and extension of the energy-efficient appliance credit (IRC section 45M). Current law provides a credit for the eligible production of certain energy-efficient dishwashers, clothes washers, and refrigerators. The credit for dishwashers applies to dishwashers produced in 2006 and 2007 that meet the Energy Star standards for 2007.

The bill extends the credit to appliances produced in 2008, 2009, and 2010 and updates the qualifying efficiency standards in accordance with the Energy Independence and Security Act of 2007.

The decision by Senate leaders not to pursue a filibuster-proof budget reconciliation plan removes one option for moving billions of dollars of renewable energy and efficiency tax breaks funded by repealing incentives for oil and gas companies.

While a Senate budget resolution is going to set aside $13.4 billion over five years for these renewable and efficiency credits – some of which expire this year – it merely signals that the issue is one of the priorities for Senate Democrats and does not forward debate over how to pay for those credits.

A reconciliation bill would have sent detailed instructions to committees on how to pay for that spending and would have been immune to a filibuster.

The budget resolution also includes $3.5 billion in discretionary funding for energy above President Bush’s FY09 request, which Senate Budget Chairman Conrad touted as “a very big increase; I think the biggest increase in more than 30 years.”

Senate Democrats are trying to overcome Republican opposition to scaling back billions in incentives for oil and gas companies to pay for the popular renewable and efficiency credits. Democrats in December fell one vote short of the 60 needed to overcome a filibuster of a $21.8 billion proposal that reduced oil and gas incentives by about $13 billion.

A politically problematic $18 billion House-passed renewable energy tax proposal is pending, but few are optimistic that it could become law given a White House veto threat. This is leading to some brainstorming on other means of getting these credits extended quickly.

Majority Leader Reid has tasked Sen. Maria Cantwell, D-Wash., with helping find another Republican vote or two. Cantwell, who pushed for a one-year $5.5 billion renewable and efficiency tax package as part of a failed Finance Committee economic stimulus plan, said a similar smaller package should be considered. “There’s nothing preventing us from looking at the bigger package – see what the president does – but still work toward a smaller package too,” she said.

Cantwell said “the challenge is to still try to save investment in ‘08,” and extend the tax incentives within the next month or so.

This is the basic message of a broad coalition of businesses, renewable energy groups, environmentalists, labor unions and others who are taking advantage of an international renewable energy conference in Washington this week to do some cohesive lobbying to extend these credits by the end of the month.

But a spokesman for Reid said he will not resurrect an energy tax debate until after lawmakers come back from the upcoming two-week Easter recess.

Several industry officials say they are not requesting that Congress follow a particular strategy for quickly extending the renewable and efficiency incentives.

“We basically said Congress should figure this out,” said Dan Reicher, former assistant Energy secretary for energy efficiency and renewable energy under President Clinton and now director of climate change and energy initiatives at Google.org.

“We have tried to stick to a pretty simple approach – extend the credits quickly and extend them for a long period of time.”

But the political problems associated with repealing the billions in oil and gas incentives means the solution to getting an extension through fast is potentially undefined.

“The answer is, you need some new and original thinking here,” said Marchant Wentworth, legislative representative for the Clean Energy Program at the Union of Concerned Scientists.

While Cantwell has talked about doing a smaller package to gain support and possibly avoid a veto threat, Wentworth cautioned that there does not appear to be a magic number to achieve that.

“The question we all face is, are there new votes that you would get? These are leadership-driven; it’s unclear to me that lowering the incentives gets you anything,” he said.

In the meantime, a wide variety of groups and companies – including retail giant Wal-Mart, the Real Estate Roundtable, Dow Chemical and DuPont – are targeting congressional leaders and several Senate Republicans to vote for extending the credits regardless of whether it affects oil and gas company incentives.

Among Republicans being targeted are Sens. John Ensign of Nevada, John Sununu of New Hampshire, Ted Stevens and Lisa Murkowski of Alaska, Arlen Specter of Pennsylvania and Richard Lugar of Indiana.

Lugar and Murkowski voted against the filibuster in December. Renewable energy groups might also get a rare chance to lobby Bush personally when he speaks today at the 2008 Washington International Renewable Energy Conference.

QUESTION: Mr. President, back to the oil price tax breaks that you were talking about a minute ago.

Back when oil was $55 a barrel you said those tax breaks were not needed, people had plenty of incentive to drill for oil. Now the price of oil is $100 a barrel and you’re planning to threaten a plan that would shift those tax breaks to renewables. Why, sir?

BUSH: I talk about some — some — of the breaks. This generally is a tax increase. And it doesn’t make any sense to do it right now. We need to be exploring for more oil and gas.

And taking money out of the coffers of the oil companies will make it harder for them to reinvest.

I know — they say, “Well, look at all the profits.” Well, we’re raising the price of gasoline in a time when the price of gasoline is high.

Secondly, we’ve invested a lot of money in renewables. This administration has done more for renewables than any president.

Now, we’ve got a problem with renewables, and that is the price of corn is beginning to affect food — cost of food and, you know, it’s hurting hog farmers and a lot of folks.

And the best way to deal with renewables is to focus on research and development that will enable us to — to use other raw material to produce ethanol.

I’m a strong believer in ethanol. This administration’s got a great record on it.

But it is — I believe research and development’s what’s going to make renewable fuels more effective.

Again, I repeat: If you look at what’s happened in corn out there, you’re beginning to see the food — the food issue and the energy issue collide. And so to me the best dollar spent is to continue to deal with cellulosic ethanol in order to deal with this bottleneck right now.

And secondly, the — yes, I said that a while ago — on certain aspects.

But the way I analyze this bill is it’s going to cost the consumers more money and we need more oil and gas being explored for, we need more drilling, we need less dependence on foreign oil.

And as I say, we’re in a period of transition here in America, from a time where we were — where we are oil and gas dependent to hopefully a time where we got electric automobiles, and we’re spending money to do that; a time when we’re using more biofuels and we take huge investments in that; a time where we’ve got nuclear power plants and we’re able to deal with the disposal in a way that brings confidence to the American people so we’re not dependent on natural gas to fire up our — you know, a lot of our utilities; and a time when we can sequester coal.

That’s where we’re headed for but we’ve got to do something in the interim. Otherwise we’re going to be dealing, as the man said, with $4 gasoline.

And so, that’s why I’m against that bill.

The President’s FY 2009 budget request for the Department of Energy’s (DOE) EE/RE programs is $1.26 billion—essentially flat with the Administration’s FY 2008 budget request and 27 percent below FY 2008 appropriations. Given the volume of voices and concerns about energy security, the huge bills residential and business consumers face, loss of economic competitiveness, environmental degradation, and rising greenhouse gas emissions, the funding priorities reflected in the President’s FY 09 budget appear in conflict with his goals of expanding renewable energy development and making the economy more energy efficient. With dramatically rising energy prices for homes, businesses and drivers, states are concerned by the proposed zeroing out of the Weatherization Assistance Program Grants.

In signing the Energy Independence and Security Act of 2007 (EISA, P.L. 110-140) on December 19, 2007, President Bush said EISA makes “a major step toward reducing our dependence on oil, confronting global climate change, expanding the production of renewable fuels and giving future generations of our country a nation that is stronger, cleaner and more secure.” However, not included in EISA were a Renewable Energy Portfolio Standard (RPS) and an extension of renewable energy and energy efficiency tax incentives. A new economic study by Navigant Consulting finds that over 116,000 US jobs and nearly $19 billion in U.S. investment could be lost in just one year if renewable energy tax credits are not renewed by Congress. See EESI’s FY 2009 DOE Budget Analysis regarding requested funding for energy efficiency and renewable energy.

This briefing is free and open to the public. No RSVP required. For more information, contact Fred Beck at [email protected] or 202-662-1892.