Renewable Energy Tax Credits: Keeping America at Work

Recent stories and campaign ads have challenged renewable energy tax credits. Representing 85,000 people working in the American wind energy industry, we can say unequivocally that this tax credit has been one of the most effective public policies in existence for saving American jobs.

At a time when the recession threatened at least 40,000 American wind farm construction, manufacturing and other jobs, the 1603 tax credit program restarted stalled projects and saved all 40,000 jobs at risk. This year, a study by Lawrence Berkley National Laboratory (LBNL) found that the 1603 tax credit supported shovel-ready projects and over 50,000 American jobs. The 1603 program actually led to a record-breaking year of 10,000 megawatts (MW) of new wind power in 2009, compared to the 4,000 MW feared prior to the Recovery Act.

Tax credits for renewable energy begin to level the playing field with oil, gas, coal, and nuclear energy. As a matter of fact fossil fuels have received permanent taxpayer money since 1920s, costing taxpayers well over $500 billion. Even in recent years, after maturing for a century, fossil energy still receives 5 times the subsidies as renewables, according to the Government Accountability Office.

Even more, Americans pay for fossil fuel in the form of an additional $60 billion in healthcare costs according to the Bush Administration report on hidden costs of energy. We have a choice between a balanced energy plan that includes wind and renewable American energy or plan that continues our increasing dependence on fossil fuels for our electricity which is now over 60 percent.

In the recession, project development and financing was difficult to obtain and costly. Many wind projects in mid-development could not complete financing. As a result, wind investment stalled with some projects stopping mid-construction; laying off construction workers and leaving wind towers and blades on the ground.

Every job saved was an American job. 100% of projects that receive investment tax credits through 1603 are built in the U.S. as required by the Recovery Act. The program also supports America’s growing manufacturing and supply chain industries. U.S. wind turbines domestic manufacturing has grown 12-fold, with an increase in domestic content from 25% only a few years ago to over 50% now, and nearly 400 American manufacturing facilities making wind components.

Contrary to recent campaign ads, data from the International Trade Commission (ITC) shows that less than 5% of the value of wind turbine parts used in the U.S. is imported from China.

The 1603 program continues and modifies the Production Tax Credit, which was first passed in 1992. In most respects the program operates exactly like all other tax credits in the tax code: all eligible projects receive the credit and it applies to all projects completed in a given year.

However Congress tweaked the program in one respect to make the tax credit useable during a recession. While the oil and gas industries are allowed to use “Master-Limited Partnerships” (MLPs) enabling companies to use tax credits, MLPs are not available to renewable energy industries. Instead, Congress provided for a reimbursement of the eligible tax credit which made the program successful even in the deep recession. The program is a more efficient use of taxpayer money because 100% of the incentive goes to the company making the investment and creating the jobs. Taxpayers get more jobs and clean energy per dollar spent.

Many people have confused this program with discretionary government grants and recent news stories have suggested, for example, that the only projects that should receive the incentive are those begun after the Recovery Act was passed. In this case a key part of the program’s success was to complete many projects that had begun but were completely stalled, keeping Americans at work.

The 1603 tax credit program has been extremely effective at keeping Americans at work. Unfortunately the program is set to expire at the end of 2010. Unlike the oil, gas, coal, and nuclear industries that have permanent incentives, renewable energy industries will be stalled again unless Congress acts soon to extend the program into 2011 and 2012.

Timeline of the renewable energy tax credit:

1. 1992: Congress passes first renewable energy tax credit.

2. 1999, 2001, 2003: Congress allows tax credit to expire.

3. October 2008: President Bush Extends Renewable Energy Production Tax Credit for the year 2009.

4. Late 2008: Credit Crisis Hits the Economy and the Wind Industry:

* Renewable energy project financing was difficult to obtain and costly, many wind projects in mid-development could not complete their financing due inaccessibility.
* Wind investment slowed; projects were halted mid-construction; construction workers were laid off; wind tower and blades lying on the ground at construction sites.

5. Late 2008: Wind Industry fears 50% Drop in Investment and Loss of 40,000 Jobs:

* With lack of financing and new projects held in the balance, the wind industry feared that up to a 50% drop would occur in new wind projects in 2009, dropping the industry to 4,000 MW of new projects, compared to 2008 at 8,500 MW.
* This drop put at least 40,000 of existing wind industry jobs at risk.

6. 2009: Recovery Act Puts Tax Credits Back to Work with the 1603 Program:

* The American Reinvestment & Recovery Act included a simple but critical reform to the Production Tax Credit converting the tax credit into a usable form.
* 1603 Program meant companies could take the tax credit in the form of a reimbursement, with the law stating the program would “reimburse such person for a portion of the expense of such property” as long as the property is “placed in service during 2009 or 2010”.[1]

7. 2009: Confidence is improved in the marketplace and financing is re-activated:

* The 1603 program led to a record-breaking year of 10,000 MW of new wind in 2009, compared to the 4,000 MW feared prior to the Recovery Act.
* Lawrence Berkley National Laboratory (LBNL) found that ARRA’s 1603 program supported more shovel-ready projects and over 50,000 American jobs.[2]

8. 2009-10: 100% of projects that receive investment tax credits through Section 1603 of the Recovery Act (ARRA) are built in the U.S.:

* Over 150 small and large wind projects have moved forward by taking the tax credit through 1603 program, creating local construction, engineering, transportation, operations and other jobs to build their wind projects.
* These wind projects have led to millions in local tax payments to towns & cities, as well as lease payments to local landowners hosting the projects.

9. The U.S. Wind Industry is able to Continue to Grow Domestic Manufacturing: The U.S. wind industry currently employs 85,000 people. Beginning with major growth in 2005, the U.S. now has nearly 400 wind manufacturing facilities.

* According to data from the International Trade Commission (ITC) China currently represents less than 5% of the imported value of turbine components for the U.S. market.

* Today, only 3 out of 33,000 (0.009%) wind turbines installed across the U.S. were sourced from China while there are American wind turbine manufacturing facilities coming online including brand new facilities in Jonesboro, Arkansas and Hutchinson, Kansas. Beginning with major growth in 2005, the U.S. now has nearly 400 wind manufacturing facilities.

* “The growth in wind turbine installations and a period of stability in government policy led to significant investment in U.S. manufacturing by both U.S. and foreign companies from 2005 to 2008, along with a rapid increase in domestic production.” – U.S. ITC [3]

* “the overall import fraction is found to have declined significantly from more than 80% in 2006 to roughly 40% in 2009.” – U.S. DOE [4]

* U.S. International Trade Commission states: “Overall, imports peaked as a share of the market in 2006 and U.S. production in 2008 and 2009 was significantly higher than in 2005, indicating a growing role for domestic producers. If planned U.S. manufacturing plants come online in the next few years, U.S. production capacity will continue to expand.” [5]

* The United Steelworkers, BlueGreen Alliance and AWEA found that “the wind industry has increased its domestic content since 2005, the first year in which a strong market for turbines existed, to approximately 50 percent in 2009. From 2005 to 2009 annual installations quadrupled, representing even greater growth in domestic manufacturing for wind.” [6]