The House of Representatives is expected to pass its comprehensive tax reform bill this week. In terms of energy policy, this bill includes several provisions that would reduce the tax benefits for the renewable energy industry. However, when the final bill is negotiated, these House provisions will likely fall by the wayside, allowing the status quo to stand.
Here’s what’s included in the current version of the House bill:
The production tax credit that helps wind energy would lose its inflation adjustment eroding the value of the credit substantially – by at least 40 percent. In addition, this version also includes stricter rules about which projects will qualify for the credit and it eliminates the credit entirely for projects that have any disruption in construction.
The House bill would also impact solar energy. Most significantly, the investment tax credit for commercial scale solar energy is changed. Under current law, this credit is slated to ramp down to 10 percent and then stay there. However, in the House bill, this credit will be eliminated entirely after 2027.
Now let’s move to the Senate:
The Senate is also working on a tax reform bill. However, its version presently does not include any changes to current law on wind and solar tax provisions. Renewable power has more support in the Senate than in the House. For example, Senator Charles Grassley (R-IA), a senior and influential member of the Senate Finance Committee, is a strong advocate for wind energy. Senator Dean Heller (R-NV), a member of the Senate Finance Committee who is up for re-election in 2018, is a big supporter of solar.
Since Senate Democrats are expected to vote en bloc against the bill and Republican leadership can afford to lose only two Republicans and still pass the measure, it is unlikely that the Senate would be able to pass any bill that reduces the current tax provisions for these industries.
So, what will the final bill look like? Let’s look back at the 2015 Energy Compromise:
At the end of 2015, Congress developed a compromise energy package that did two major things. First, it allowed for the export of crude oil for the first time since the 1970s. Second, it also provided tax certainty for wind and solar energy. The plan included a phase out for the wind Production Tax Credit and a reduction in the solar Investment Tax Credit. This agreement ended the annual uncertainty around these tax provisions and allowed for an orderly elimination of the wind tax provision.
The House has upended that agreement in its current bill. Unwinding the 2015 compromise is controversial; the goal of the 2015 plan was to provide certainty so that businesses could make investments and so utilities could make long-term plans. Many members of Congress are uncomfortable with reneging on that deal – even if they are not big advocates of renewable power. Congress undermines its credibility for future deals if it doesn’t stick to them. Therefore, industry watchers expect a push to eliminate these provisions before the final bill goes to the President’s desk for signature.
Tax reform is already a complicated process. Taking on the additional controversy of scaling back renewable tax provisions makes the process even more difficult. Ultimately, given the support in the Senate for the existing renewable energy provisions and the challenges of reversing a previous compromise on wind and solar provisions, the final bill will not include the House-proposed changes. If and when a bill is completed, current law on wind and solar power will remain untouched.