Tax Reform Will Be a Tipping Point for Clean Energy

By Charles Hernick, as originally published in the the Morning Consult on December 12, 2017.

In terms of investment, growth and jobs, the current stakes for tax reform couldn’t be higher for American energy producers. Clean energy generation and storage is now a $200 billion industry that supports more than three million jobs and hundreds of millions of consumers across the United States. With conferees now named and set to meet on the greatest tax reform package of a generation, it’s clear that our nation stands on the cusp of a major tipping point for clean energy policy.

How the House and Senate members of the conference committee come together on a few key areas will determine if clean energy continues to surge, or if the rug is pulled out from this dynamic sector and U.S. falls further behind China. At issue is tax parity among energy generation technologies and whether tax reform will actually simplify the code for investors and businesses.

There is much to celebrate already. Businesses large and small are eagerly awaiting a dramatic reduction in the corporate tax rate and the allowance for 100 percent expensing. These provisions will ensure that U.S.-based firms are more competitive internationally and will fast-track domestic investment. Businesses in every sector of the economy will have more flexibility and agility in competitive global markets. And by immediately writing off the full cost of new equipment businesses can make additional investments sooner, improve operations, and invest in employees and workplace training.

These benefits hold true for the clean energy sector, but are undermined by the Senate’s new tax on businesses working in multiple countries and the retention of the corporate Alternative Minimum Tax (AMT). As currently drafted, the Base Erosion Anti-Abuse Tax (BEAT) provisions in the Senate bill would add more complexity to the existing tax system and potentially subject many planned renewable energy projects to a new 100 percent tax. Further, it weakens the current tax equity financing framework and shuffle the principal mechanism for monetizing credits. Its retroactive application undercuts commitments made in good faith by investors and developers, and will dramatically reduce American clean energy investment and job creation in the wake. While these provisions were put in the bill to prevent companies from paying fewer US taxes, as written, the BEAT provisions will stunt job growth in a sector that is otherwise growing 12 times faster than the rest of the U.S. economy.

And instead of having businesses do their taxes twice and pay the higher of the two, the corporate AMT should be repealed as proposed in the House bill. Without a fix, the AMT provisions in the Senate bill will nullify the value in other parts of tax reform that are critical to spurring innovation and economic growth.

Mature markets don’t need help from Uncle Sam, but Congress shouldn’t unravel deals based on a bipartisan agreement in 2015 that scheduled the phase-out of tax credits for the solar and wind industry. Unfortunately, the House bill would dissolve this agreement by cutting the value of the remaining tax credits going forward, and applying these changes retroactively. Maintaining the 2015 agreement in these areas will ensure near-term certainty for businesses, communities, and investors that back these energy projects. In just a few years, these credits will sunset as planned.

The House took a significant step forward in leveling the tax credit playing field for “orphaned” solar energy, qualified fuel cell, small wind energy property, microturbine, combined heat and power, and thermal energy property. Tax credits were also extended for residential energy efficiency property and modified for advanced nuclear power facilities. These additional clean energy tax credits—and their planned sunset schedules—create parity among energy generation technologies in the short- and long-run and should be included in the final tax bill.

Congress has a once-in-a-generation chance to use tax reform as a tool for long-term growth and better competition in the energy sector. As tax reform legislation moves forward, CRES Forum encourages the conferees to assure that the workers and businesses which comprise America’s clean energy sector can continue to lift to the U.S. economy as well as an American-made energy future.

Charles Hernick is the director of Policy and Advocacy at Citizens for Responsible Energy Solutions (CRES) Forum, a nonpartisan, nonprofit organization committed to educating the public and influencing the national conversation about clean energy.

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