While bipartisanship remains but a pipedream on Capitol Hill, a group of Democrat and Republican energy experts, policy analysts and former lawmakers are coming together to help establish a comprehensive energy strategy.
Among their recommendations is a phase-out of all energy-specific tax expenditures, including the wind energy production tax credit (PTC).
"[W]e believe the long-term goal should be to phase out all energy-specific tax expenditure subsidies," the document states. “Where tax expenditures or similar mechanisms are the best or only available option to address market failures, they should be enacted for only so long as necessary to meet their intended goals, with a clear sunset date. Finally, once enacted, these policies should be reviewed periodically and ended if not effective.”
Instead, the BPC says, Congress should review all energy-related expenditures as part of comprehensive tax reform and phase out tax subsidies for “mature fuels and technologies.” As part of this plan, the renewable energy PTC - including for wind power - should be phased out by 2016, the group says.
“Phasing out the production tax credit for renewable energy by the end of 2016 would align the incentive program with actual and expected reductions in wind project costs and increases in energy revenues,” the BPC says. “In order to increase exposure to market forces at a pace that permits industry adaptation, the value of the credit should decline over time on a pre-determined schedule or other basis informed by relevant market conditions.
The BPC dismisses the ubiquitous talk of “picking winners and losers” in favor of more constructive discussions on broader tax reform.
“In addition, we wish to avoid an unproductive debate about which technologies are more deserving of support compared with other technologies,” the group says. “Broad-based, comprehensive tax reform and/or energy subsidy reform offers a better framework for changing current incentive policies than piecemeal efforts to target a particular industry or technology.”
Instead, federal policymakers should invest in energy research and development (R&D), the BPC recommends.
“We agree that the R&D tax credit should be made permanent, increased and expanded,” the BPC says. “The administration and Congress should consider and propose reforms to existing tax incentive programs in the context of broader tax reform efforts.” Cash grants Although most of the discussion about wind energy incentives has focused on the PTC, the Section 1603 program - which allowed renewable energy project developers to claim a one-time cash grant of 30% of a project's total costs in lieu of the PTC or investment tax credit - was also successful in spurring development.
According to the BPC report, the cash-grant program is a more cost-effective way to encourage development and, if reinstated, would cut installation costs.
“An investment cash grant - such as the Section 1603 Treasury Program authorized under the 2009 [American Recovery and Reinvestment Act] - could also provide the same benefits as the production tax credit at 25 to 30 percent less cost, as project developers could leverage less-expensive debt financing rather than depend on more expensive tax-equity financing,” the report says. “An investment-based grant incentivizes renewable energy production by reducing installation costs, rather than by increasing the value of generation.
However, in offering a cash grant instead of a production-based incentive, the government runs the risk of rewarding projects that do not necessarily perform well, the group notes.
Other incentive mechanisms Although the BPC report discourages the long-term use of energy-specific tax credits, it does recommend alternatives for spurring investment in renewables. One such idea - which has been proposed before, including by Sen. Lisa Murkowski, R-Alaska, ranking member of the Senate Energy and Natural Resources Committee - is the use of reverse auctions, which are already being utilized in power purchase agreements in California.
“The federal government could conduct reverse auctions for such incentives to ensure promotion of only the lowest-cost renewable energy resources,” the report recommends.
Under this mechanism, a renewable energy developer would compete with potential suppliers to draw out the lowest price or best value.
Another way to spur renewable energy development, of course, is to mandate it. State renewable portfolio standards already impose renewable energy requirements, but efforts to implement a federal clean energy standard (CES), such as those introduced by now-retired Sen. Jeff Bingaman, have stalled in Congress.
The CES is one area in which the bipartisan group seems to lack full consensus.
“Though the concept of a CES or [renewable energy standard] is simple, we have diverse views regarding the merits of a CES and agree there are numerous controversial details regarding program design that must be examined should Congress consider a national standard,” the BPC report states.
These “controversial details” include an unclear definition of what constitutes “clean” energy, the penalties for noncompliance and the cost to consumers, among other concerns.
It is unclear whether this bipartisan analysis will have any influence on federal energy policy. However, the BPC includes a wide swathe of esteemed energy experts, policy analysts and former lawmakers, and at a time when bipartisanship is rare, it may merit attention from policymakers. A list of BPC members and staff, as well as the full analysis, is available here.