Energy Infrastructure
Senate Democrats Unveil Package of New Clean-Energy Tax Breaks
Package would revamp vast system of tax incentives dealing with clean energy
The Holland Energy Park in Holland, Mich., would likely lose tax credits for its energy production under the Biden administration's new energy plan as it produces its power mainly by burning natural gas, a fossil fuel.
PHOTO COURTESY OF HDR
Senate Democrats have introduced legislation that would revamp the system of tax breaks dealing with clean energy, providing new or sweetened incentives for using solar, wind and other non-carbon sources to generate and transmit electricity, as well as expanding incentives to promote energy-efficiency, in areas such as commercial buildings.
On the other hand, the bill, which Senate Finance Committee Chairman Ron Wyden (D-Ore.) introduced on April 21, would repeal several existing tax incentives for fossil fuel. It also is in synch with priorities that President Joe Biden has proposed.
[View section-by-section summary of bill here.]
A key element of the proposal, the Clean Energy for America Act, is what Wyden terms “emissions-based, technology-neutral” tax credits, which he says would “turbocharge investment in clean electricity, clean transportation and energy conservation.”
Those credits would replace what Wyden says are “a hodgepodge of more than 40 temporary credits.” He added in a statement, “Simply extending the status quo will not get the job done.”
Greg Wetstone, American Council on Renewable Energy president and chief executive officer, said that the bill “offers a comprehensive and scientifically driven framework for accelerating the clean energy transition.”
A central provision of the bill is a break for energy facilities that have zero or net-negative carbon emissions. The owner of a powerplant, for example, would have the option of either a production tax credit of as much as 2.5¢ per kilowatt-hour or an investment tax credit of as much as 30% of the owner's financial stake in the project.
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Spending on improvements to the electric grid, such as high-capacity transmission lines, would qualify for the full 30% investment credit.
Tom Kuhn, president of the Edison Electric Institute, noted that “tax policy can be a real driver to bringing carbon-free technologies like wind and solar to market.” Kuhn said EEI, which represents electric utilities, appreciated that the bill “is technology-neutral and does not pick winners or losers.”
He added, “It allows for the development and deployment of clean technologies that electric companies will need to meet their carbon reduction goals.”
Labor-related requirements
The proposal also has a major union-friendly provision. It would require commercial projects seeking the envisioned energy credits to comply with Davis-Bacon Act prevailing-wage mandates. It also would require apprentices on a project to have gone through training programs registered with the US Dept. of Labor or state labor agencies.
Sean McGarvey, president of North America’s Building Trades Unions, welcomed the proposed legislation. He said, “This bill is a crucial first step towards strengthening labor standards for workers on clean energy job sites across the nation and we are grateful to see it come to fruition.”
But the Associated General Contractors of America objects to the bill's apprenticeship provision. Brian Turmail, an AGC spokesman, said via email, "We are troubled by the discriminatory language in the bill that would make the funding in this measure available only to firms that hire apprentices from registered apprenticeship programs."
Turmail said, "While those programs provide an excellent pathway into construction careers, they are by no means the only, or even the largest, pathway into the industry. Should the provision stand, most contractors in most parts of the country would not benefit."
Another construction-related provision is the one dealing with the energy-efficiency deduction for commercial buildings,
The current incentive is the so-called Section 179D deduction. It allows a building owner to take a per-square-foot deduction for particular energy-efficient building components. The deduction recently was made permanent.
The Wyden bill replaces the current deduction with a sliding scale that takes effect when a taxpayer makes an efficiency improvement of at least 25% over a baseline set in ASHRAE standard 90.1. The deduction would rise as efficiency rises.
More specifically, the maximum deduction under the bill ranges from $2.50 per sq ft to $5 per sq ft, for efficiency improvements of 25% to 50% over the ASHRAE 90.1 levels. The present deduction for "fully qualifying property" is $1.80 per sq ft. For partially qualifying property, it is 60¢ per sq ft.
In addition, the legislation would establish a tax-credit bond to finance facilities that generate clean electricity or clean transportation fuels.
The measure also would repeal many current tax incentives for fossil fuels, including the expensing of intangible drilling costs and percentage depletion as well as credits for enhanced oil recovery, coal gasification and advanced coal projects.
Sen. Mike Crapo (Idaho), the Finance Committee's top Republican, did not have an immediate comment or statement regarding the Wyden bill.
