Federal tax policy has played an important role in the development of markets for renewable energy and electric vehicles over the last decade. Last week, the Senate advanced its major corporate and income tax package, the “Tax Cuts and Jobs Act” by a vote of 51-49. The House and Senate will now enter into a conference committee to negotiate differences between each version of the bill. We note that both the House and Senate passed tax bills that have provisions that could be harmful to the future of clean energy, by significantly alter tax credits for commercial wind projects and residential tax credits for electric vehicles, and creating uncertainty for investors in renewable energy projects.
We encourage you to call members of the Utah Congressional delegation this week to express your concern. Reports suggest that members of the conference committee are actively weighing a final decision on parts of the tax bill that will impact clean energy.
Below are a list of the most concerning provisions and how they will negatively impact clean energy:
- Reduces the Production Tax Credit for Section 45 Technologies (House bill only): The House bill would repeal the inflation adjustment for the production tax credit (PTC) for all new wind projects, reducing the value of the credit to 1.5 cents/kilowatt-hour (kWh) from 2.3 cents/kilowatt-hour (kWh) and alter the terms of when projects must be under construction to be eligible for the tax credit. The effect of this provision would make a number of planned utility-scale wind projects financially unviable.
- Undermines the Value of Renewable Energy Tax Credits for Tax Equity Investors (Senate bill): The Senate bill includes a provision called the “base erosion anti-abuse tax” (BEAT) that would effectively tax multinational companies for the value of any renewable energy tax credits that they claim for investments in wind and solar projects, including tax credits already claimed for projects operation or underway. If included as is, the provision would likely freeze investments by major financial institutions in U.S. renewable energy projects. Renewable energy groups are calling for the Senate to treat the renewable energy tax credit similarly to the R&D tax credit exemption in the BEAT provisions.
- Ends the Electric Vehicle Tax Credit (House bill): The House bill would end the residential income tax credit of $7,500 for the purchase of electric vehicles by the end of 2017. Preserving this tax credit would help sustain the growing market for electric vehicles.
- Changes the Investment Tax Credit for Section 48 Technologies (House bill): The House bill would also repeal the permanent 10 percent tax credit for solar and geothermal projects that begin construction after 2027. The bill would also reinstate and extend the 10 percent investment tax credit and the residential tax credit of 30% for combined heat and power systems, geothermal heating systems, and micro-turbines and gradually phase them out by 2021.
Together, these sweeping changes to the tax code could slow the adoption of electric vehicles and undermine new wind and solar projects currently underway and in the future. In our view, Congress would be better off leaving the compromise struck by the Congress and then-President Obama in 2015 in place that phased out of the tax credits by 2021 and not making these changes within the current tax reform bills.
We have provided phone numbers for members of the Utah Congressional delegation below:
- Senator Orrin Hatch: (801) 524-4380
- Senator Mike Lee: (801) 524-5933
- Representative Rob Bishop (Cong. District 1): (801) 625-0107
- Representative Chris Stewart (Cong. District 2): (801) 364-5550
- Representative John Curtis (Cong. District 3): (801) 851-2500
- Representative Mia Love (Cong. District 4): (801) 996-8729
For an explanation of the impacts of the “base erosion anti-abuse tax” (BEAT) in the Senate bill, see this letter from the American Council on Renewable Energy (ACORE), the American Wind Energy Association (AWEA), Citizens for Responsible Energy Solutions (CRES), and the Solar Energy Industries Association (SEIA) here: http://acore.org/images/publications/ACORE_AWEA_CRES_SEIA_LetterOnSenateTaxBill_Nov29.pdf?wpisrc=nl_energy202&wpmm=1
For more details on the House and Senate tax proposals and what they mean for renewable energy and electric vehicles, see the write up from the Clean Energy Business Network (CEBN).