Last chance to continue clean energy incentives

First published on ClimateProgress.org, a project of the Center for American Progress Action Fund, which was recently named one of Time magazine’s Top 25 blogs of 2010.

The U.S. Senate failed miserably at putting a price on carbon this year.  But, that doesn’t mean that the Senate can’t take actions that will meaningfully improve the clean energy industry, putting us on a path to a low-carbon future.  CAP’s Richard Caperton has the story.

Last Thursday, Senator Max Baucus (D-MT) took a tremendous step forward by introducing legislation that would extend two incredibly important clean energy stimulus programs.  In his Middle Class Tax Cut Act of 2010, Baucus proposes extending both the Section 48c Advanced Energy Manufacturing Tax Credit and the Section 1603 Treasury Cash Grant in Lieu of Tax Credit programs.

Unfortunately, the Baucus bill did not muster the 60 votes necessary to end debate and pass it, failing 53-37.  Every Senate Republican who voted opposed it. There may be a deal later this week that extends all the tax cut for two years, and could include these provisions as well.

As Vice President Biden reported over the summer, both of these programs leverage valuable private investment, and have been responsible for the direct creation of thousands of jobs.  Unfortunately, because these programs were created by the American Recovery and Reinvestment Act (aka “the stimulus bill”), they’re set to expire at the end of this year.  Clean energy advocates have consistently called for them to be extended through at least 2011, which Senator Baucus’s bill does.

Treasury Cash Grants:

Last month, CAP’s Kate Gordon and I explained how the Section 1603 cash grants worked, and why they’re valuable.  In our piece, we wrote:

The U.S. Treasury’s new Section 1603 cash grant program provided an alternative to the renewable energy production tax credit program that suddenly was useless amid the turmoil of the 2008-2009 financial crisis. Under the new program, renewable energy project developers who were eligible for the production tax credit but could not use it due to the crisis could instead elect to receive a cash grant for a similar value. This cash grant was critical for renewable energy development companies, particularly wind energy, and their employees and new job-seekers in the industry.

The reason: Many renewable energy developers, especially small or start-up firms, do not make any profit. If they don’t owe any taxes they are not eligible for tax credits. Before the financial crisis, however, these companies would sell the tax credit to a “tax equity partner,” typically a bank or some other large financial institution, which could use the tax credit to offset some of its taxable earnings. The renewable energy company would then use these funds to build the project. The financial crisis put an end to this model, as the tax equity partners disappeared, leaving developers with tax credits they could not use.

The cash grant program rectified this situation by providing the option of a cash grant in lieu of the tax credit. The cash grant program resulted in real dollars going directly to alternative energy developers as the economy struggled out of the Great Recession, but the actual cost to the government remained the same because the net cost of giving out a grant to a developer is the same as the cost of providing a tax credit to that developer. Now that’s a pretty good way of using existing federal resources to boost economic recovery, but for renewable energy developers who do not otherwise owe taxes, the value of the grant is significantly higher.

This innovative program kept the renewable energy industry alive for 2009 and 2010.  The American Wind Energy Association credits the Treasury cash grants with saving or creating 40,000 jobs.  More important, the US Partnership for Renewable Energy Finance projects that at least 100,000 jobs are at risk if the program is not extended through 2011.

Advanced Energy Manufacturing Tax Credit:

By extending the Advanced Energy Manufacturing Tax Credit, Senator Baucus is taking important action to ensure that we don’t just install clean energy projects in the U.S., but that we also make them here.  This tax credit helps manufacturers build new factories or retrofit existing factories to build clean energy products, such as electric vehicle batteries, solar panels, or wind turbines.

In calling for an extension of this program earlier this year, we wrote:

Since its introduction in the American Recovery and Reinvestment Act of 2009, the Manufacturing Tax Credit has proven to be an effective tool to reinvigorate our manufacturing base, but demand for funding still exists. A greater than expected number of companies applied for the program, resulting in an oversubscription of this program by a ratio of 3 to 1. Increasing the amount of funding, and the time that such funding is available, will provide incentives for more companies to make the transition to clean energy production. This will help America build up a green manufacturing sector that can both create jobs at home and increase America’s competitive edge in the green energy economy.

While we wait for the Senate to take decisive action on climate change, we should support these efforts to maintain the clean energy industries that will ultimately help the U.S. achieve a low-carbon future.

– Richard Caperton is a Policy Analyst with the Energy Opportunity team at the Center for American Progress.

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