ENERGY TAX CREDITS – COMPROMISE OR R.I.P. UNTIL AFTER THE ELECTION?
Refusal by Congress and the President to extend vital New Energy industries tax credits is looming.
One place the story being followed closely is wind-rich West Texas, home to such disparate characters as President Lyndon B. Johnson and President George W. Bush.
The House-amended version (H.R. 7060) of the Senate-approved bill (H.R. 6049) hit what one House leader called “the wall” in the Senate over the weekend. Though both bills extend the New Energy tax credits, differences about how to fund them make the bills irreconcilable.
Max Baucus (D-Mont), Chairman, Senate Finance Committee: “This move in the House endangers tax relief that American businesses and families need right now…While I commend the House’s effort to fully offset the cost of this needed tax legislation, it is clear to me from discussions in the Senate that even this new package of bills will not pass in this body.”
Though leaders are struggling to draft compromise legislation (H.R. 7201, H.R. 7202), differences do not yet appear near resolution.
The cutoff of New Energy’s vital tax credits will hit hard in the President’s West Texas stomping grounds. Some around there are not feeling patient with the political leadership. Greg Wortham, executive director, West Texas Wind Consortium/Mayor, Sweetwater: "Support America or don't…Do their job or get out of office."
The local Congressman is more optimistic than most. U.S. Congressman Mike Conaway (R-Midland): "But I think it will get done this year…"
The fight for New Energy’s vital tax credits, chronicled in detail by NewEnergyNews since the summer of 2007 and especially during the last 2 weeks, is hanging in the balance.
The traditional power-generating energy industries have long benefited from subsidies and incentives provided by the taxpayer through acts of Congress (as calculated in a study done at the U.S. Department of Energy’s Energy Information Administration, Federal Financial Interventions and Subsidies in Energy Markets 2007). In recent years, New Energy has begun to get a share of support. There could easily be a debate over whether it deserves more. But to refuse to allow it even what it has been getting is just plain nonsensical.
A GE Financial Services study shows investment in New Energy already pays for itself. Numerous other studies show New Energy will, in a carbon-constrained future, be the key to energy independence and world energy dominance.
If Congress does not extend the credits, they will expire December 31. With them will go the boom in the New Energy industries, one of the few sectors in U.S. financial markets that has continued to expand through the sadness of the current financial failure.
In West Texas, this is not a matter of stock market prices. Mayor Wortham: "There are plenty of projects that are being planned for 2009 that will step back...[People] want to have a good Christmas this year and buy toys for their kids...people that want to have a job in February..."
Ironically, both the House and Senate have approved extension of the New Energy tax credits by large majorities. Extension is expected to fail in Congress, for the 9th time in 18 months, because the House and the Senate cannot agree on how to fund it in a way that will not force President Bush, who claims to want to approve extension, to veto.
No, this is not the NPR Sunday Puzzle, this is political reality in an election year or, as it is known in Washington, “the silly season.”
The Senate passed the extensions 93-2, along with a general package of revenue “pay-fors” on September 23. The House Democratic majority altered the Senate bill, taking very specific tax breaks away from the oil industry and very specific tax-havens away from the financial sector to create additional pay-fors, passed the new version 226-166, and sent it back for Senate approval September 27.
Fiscal conservatives in the House and Senate, members who coincidentally represent many in the oil industry and financial sector, call the House pay-fors “raising taxes.” Their opposition cannot stop a bill containing such pay-fors in the House. They have, though, used – and probably again this week will use – the threat of a filibuster in the Senate to block such a bill from being voted on.
The irony: Everybody who wants to can now say they voted for extending the new Energy tax credits.
Example: Charles Rangel (D-NY0 Chairman, House Ways and Means Committee, on the version of the bill he knows will produce rejection in the Senate: "With this bill, we can tell our kids and our grandkids that we encouraged energy production from wind and solar to make sure that future generations aren't hooked on foreign oil like we have been…"
The cynicism: Handling the legislation like this gives both parties something substantive to run on. Democrats will tell their base to actively support their candidates if they want New Energy. Republicans will tell their base to actively support their candidates if they want New Energy but not new taxes.
click to enlarge
It’s a sorry state of affairs. Keith Johnson, energy blogger extraordinaire, Wall Street Journal: “The legislative stalemate will just prolong the agony for America’s clean-energy sector…The breakdown will also affect people who aren’t building massive wind farms, but just wanted to get solar power or a mini-wind turbine for their house…”
The market had no doubt about the meaning of the situation. From MarketWatch: “Solar stocks fell Friday after the U.S. House of Representatives OK'd a measure to extend billions in tax credits for renewable energy, but the measure faces an uncertain future because it differs from the Senate version…”
The NY Times’ Tom Friedman was his usual eloquent self on the situation and, as always, pointed in exactly the right direction: “Many things make me weep about the current economic crisis… I fear all it will leave behind are a bunch of empty Florida condos that never should have been built, used private jets that the wealthy can no longer afford and dead derivative contracts that no one can understand…
“…[W]e don’t just need a bailout. We need a buildup. We need to get back to making stuff, based on real engineering not just financial engineering…The exciting thing about the energy technology revolution is that it spans the whole economy — from green-collar construction jobs to high-tech solar panel designing jobs. It could lift so many boats…”
There are 3 possibilities left, 2 rather feathery (“Hope is the thing with feathers…”) and 1 that depends on the wisdom of the voters:
(1) The House and Senate could get caught up in the emotion spilling over from bipartisan cooperation in developing the financial crisis legislation and work out a compromise this week. (A smart bettor wouldn’t even check the odds on this one.)
(2) A lame duck session of Congress could be called after the election in which a compromise is forged. (So many things are up in the air right now, from the presidency to the economy to the war, that smart bookies probably wouldn’t give odds on this one.)
(3) Next year’s Congress could retroactively extend the tax credits. (The smart bet.)
In his despair, The Times’ Friedman turned to Van Jones, a longtime inspiration to NewEnergyNews (see A GREEN NEW DEAL): “It’s time to stop borrowing and start building. America’s No. 1 resource is not oil or mortgages. Our No. 1 resource is our people. Let’s put people back to work — retrofitting and repowering America...You can’t base a national economy on credit cards. But you can base it on solar panels, wind turbines, smart biofuels and a massive program to weatherize every building and home in America.”
Have a visit with Van Jones below. No feathers there. It’s the kind of substance they like in West Texas.
Play it loud. From LCVheatison via YouTube.
Wind energy tax credit facing vote; Conaway says he expects House to continue working through weekend on bill
Trish Choate, September 26, 2008 (Abilene Reporter)
House OKs extending renewable enrgy tax credits
Russell Blinch (w/Matthew Lewis), September 26, 2008 (Reuters)
Dept. of Futile Gestures: House Passes Energy Tax Credits, To No Avail
Keith Johnson, September 26, 2008 (Wall Street Journal)
Solar stocks fall on uncertain outlook for tax credits
September 26, 2008 (MarketWatch)
Green the Bailout
Thomas L. Friedman, September 28, 2008 (NY Times)
House to Try Again Monday on Tax Extenders
Richard Rubin, September 28, 2008 (CQ Politics)
The U.S. House of Representatives; The U.S. Senate
H.R. 7060, The Renewable Energy and Job creation Tax Act of 2008 is unlikely to see the President's desk. H.R. 7201, The Energy Improvement and Extension Act of 2008 and H.R. 7202, Temporary Tax relief Act of 2008 are compromise versions.
This GE study proved the wind tax credits, like other New Energy incentives, create revenues in the long run. (click to enlarge)
- One version passed in the Senate September 23.
- Another version passed in the House September 27.
- 7201 or 7202 to be debated, passed by the House?
- Taken up again by the Senate?
- December 31: Both houses of Congress must approve the measure or the existing tax credits expire on the last day of the year.
- Any day now: Congress expected to adjourn for the election.
In limbo in the House.
- Research from Navigant Consulting shows the 8-year tax credit extension means 440,000 new solar industry jobs and a doubling of new solar capacity to ~630 megawatts in 2009.
- H.R. 7060:
(1) extends the production tax credit (PTC) for wind 1 year,
(2) extends the PTC for biomass, hydrokinetic and geothermal energies 2 years,
(3) extends the investment tax credit (ITC) for solar systems and small wind turbines 8 years,
(4) has an 8-year extension on energy efficiency building improvement tax credits,
(5) has tax benefits for buying electric vehicles (EVs), has tax benefits for producing cellulosic ethanol and advanced biodiesel,
(6) includes many of the same benefits (to veterans, teachers, Native Americans, hurricane victims, etc.) that were in the package passed by the Senate September 23,
(7) includes tax credits for “clean” coal development,
(8) extends major R&D tax credits,
(9) excludes tax credits to oil shale producers and coal-to-liquid producers,
(10) removes the controversial tax credit to New York City to help redevelop the World Trade Center zone.
- H.R. 7060 pay-fors:
(1) freezes an oil industry deduction on earnings (raising $4.9 billion over 10 years),
(2) changes the way stock sales are accounted for (raising $6.7 billion/10 years),
(3) extends existing taxes on unemployment income and the oil spill liability fund ($3.2 billion/10 years),
(4) redefines foreign oil earnings and expenses ($2.2 billion/10 years),
(5) postpones a cut in taxes on foreign interest earnings ($18.6 billion/10 years),
(6) closes a loophole on deferred compensation from tax haven corporations ($24.8 billion/10 years).
- H.R. 7201 and 7202 are reported to have (1) restored tax credits for coal-to-liquid. tar sands and oil shale development, (2) changed the credits to wind energy and plug-in vehicles and (3) reduced the pay-fors from oil tax breaks and financial tax havens.
Money invested in New Energy pays itself back in jobs and revenues. (click to enlarge)
- Rhone Resch, President, Solar Energy Industries Association (SEIA), on what passage means: "You're going to see national markets open up for residential solar…"
- Lyndon Rive, CEO, SolarCity: "Without [the ITC], we're not going to have scale that brings solar to grid parity, and investors aren't going to be interested…"
- Rep. Dave Camp (R-Mich): "It's about what is going to be enacted into law, and the shelf life on this bill is very, very short…"
- Rep. Mac Thornberry (R-Tx): "We've got a bill that has passed the Senate ... that is there for us to vote on and then get to the president…"
- Keith Johnson, energy blogger extraordinaire, Wall Street Journal: “Both presidential campaigns are heavy on clean-energy rhetoric, and “green collar” jobs has become a mantra this election year. Will a lame-duck Congress be able to make that rhetoric a reality, after so many failures?”
- K.R. Sridhar, the founder, Bloom Energy (quoted by Friedman): “Infants and the elderly who are disabled obsess about survival,” said Sridhar. “As a nation, if we just focus on survival, the demise of our leadership is imminent. We are thrivers. Thrivers are constantly looking for new opportunities to seize and lead and be No. 1.”
- Bonus video: The Voice of Van Jones
”There’s nothing wrong with America that can’t be fixed by what’s right with America.” Bill Clinton. From VanJonesDotNet via YouTube.