"Congress is about to pull the plug on some of our most promising sources for a cleaner and more efficient energy future," says Natural Resources Defense Council (NRDC).
They are referring to the wind Production Tax Credit, which we wrote about yesterday, but that’s not the only incentive that’s expiring.
Four key energy efficiency tax credits that encourage energy-saving appliances, homes and commercial buildings, and an offshore wind tax credit, and one for hybrid medium- and heavy-duty trucks also expire on December 31.
Renewable Energy Production Tax Credit (PTC): one of the single biggest drivers of wind development, utility-scale wind farms get tax credits for the clean energy they produce during the first decade of operation – 2.2 cents per kilowatt-hour.
Investment Tax Credit (ITC): this tax credit supports the development of an US offshore wind industry. For the first time, several offshore wind farms are poised to begin construction next year. The unique challenges of offshore wind – the infancy of the industry, long investment time, and high initial project costs-require a different form of financial incentive than on-land wind, says Kit Kennedy, Counsel of NRDC’s Air and Energy Program.
Residential Energy Efficiency Improvements: homeowners can get a tax credit for 10% of the cost of windows, furnaces, and other equipment that make their homes more energy efficient. Not only does it benefit homeowners by lowering energy bills, it supports manufacturers, installers and their employees.
Even though homeowners save money through efficiency upgrades, they often don’t invest in them even though the upfront costs are quickly paid back in utility savings. These incentives help people get over the hump in deciding to buy more efficient products.
Manufacture of Energy Efficient Appliances: encourages manufacturing to produce high-efficiency appliances, such as refrigerators, dishwashers, and clothes washers. It affects 40,000 jobs, according to the Association of Home Appliance Manufacturers.
Recent energy efficiency measures taken across six New England states have been so effective that there’s no longer a need to spend $260 million in planned upgrades to transmission towers and power lines.
New standards for motors, for example, will save 1 trillion kilowatt hours of electricity – enough to power almost every US home for a year, along with savings to businesses of $23.3 billion. In terms of carbon emissions, the savings equal taking 82 million cars off the road.
Construction of Energy-Efficient Homes: owners or developers can get a $2,000 tax credit when they build homes that use 50% less energy from heating and cooling than those built to the 2006 code.
Commercial Buildings: tax deductions up to $1.80 per square foot are available for building renovations that result in 50% less energy use compared to the 2001 building code.
As an example of how these incentives can transform a market, let’s look at the tax credit for new home construction.
"When the tax credit for new energy efficient homes was enacted in 2005, almost no houses on the market met the criteria of a roughly 30% improvement. After a few years of a $2,000 incentive for each home that met the efficiency target, the market share climbed to 10%. This is impressive on its own, but the reach of the incentive has actually been much further. To comply with the credit, builders must rate homes using the Home Energy Rating System (HERS). This helped familiarize builders with the HERS system, which combined with other factors, has resulted in its use for a whopping 40% of the new homes market," says Meg Waltner, Manager of Building Energy Policy for NRDC.
Last year, the US used less energy than in 1999 and that’s with an economy that’s grown more than 25% since then. Efficiency has contributed more to meeting US energy demand than all other resources combined over the past 40 years – more than coal, oil, or nuclear, concludes a report from the Natural Resources Defense Council (NRDC).
"It’s important to put energy tax credits in perspective," says NRDC.
"For more than 100 years, taxpayers have given billions of dollars in subsidies to fossil fuel companies. We continue to do so, even though oil and gas companies are now the most profitable businesses on Earth and our use of fossil fuels is driving climate change and myriad other environmental disasters. By comparison, tax credits for renewable energy and energy efficiency drive American innovation, encourage emerging industries – and help reduce pollution and address climate change and health problems," notes Franz Matzner, Associate Director of Government Affairs for NRDC.
While the debate around tax policy often revolves around the need for "market certainty," there’s more at stake, he says. "Our tax code reflects our social priorities and values."
The reality is that the renewable energy industry has been stuck in a boom-bust cycle by Congress’ lack of permanent, predictable support. "A simple fairness argument makes clear that just to level the playing field, the industry needs quite a few years of policy support just to catch-up with the fossil fuel industry. The real reason to continue to invest in solar, wind, and energy efficiency is that they are key to cutting carbon pollution by the amount science dictates is necessary to escape the rising tide of climate change," says Matzner.
At the same time, these credits contribute mightily to a strong US economy. Efficiency alone can cut projected US energy consumption 23%, save citizens $1.2 trillion, while creating up to 900,000 jobs, according to a McKinsey & Company analysis. By continuing to invest in wind and solar, we’ll add 200,000 jobs while doubling production of clean energy sources. A credit for offshore wind is urgently needed to get this new industry off the ground, one that the US has the potential to lead on and which can supply enormous amounts of clean energy to our grid.