Congress Should Renew Clean Energy Tax Incentives in 2014

This coming year, Congress should seek to replicate the bipartisan collaboration that resulted in the recent budget agreement by passing extensions of tax incentives that enhance U.S. economic, energy, and environmental security. These extensions should include important provisions for the renewable energy sector, such as the production tax credit and the investment tax credit.

Passage of these "extenders" would ensure continued progress in clean energy manufacturing, deployment, and jobs while maintaining momentum and cooperation among Democrats and Republicans on issues vital to the well-being of the American people.

The sustained growth of the clean energy sector serves a variety of American interests. As wind and solar power deployment increases, greenhouse gas emissions fall significantly. Energy sector carbon emissions were lower in 2012 than they have been in two decades, according to the U.S. Energy Information Administration. On the economic front, tax incentives help create jobs and encourage American innovators. And expanded use of renewable power contributes to U.S. energy security.

In short, our country is cleaner, more prosperous, and more secure as a result of increased use of clean energy resources.

But the recent progress is clouded by uncertainty surrounding long-term policy. Episodic renewal of clean energy tax incentives inhibits investment and job creation in the sector. Congress should extend these incentives and then work on comprehensive tax reform that results in greater fairness, certainty, and simplicity in the tax code. Pew's research finds that clean energy industry leaders support the need for multiyear but time-limited extensions of both the production and investment tax credits.

Any tax extenders package passed by Congress should include two important renewable energy provisions.

First, Congress should extend the production tax credit, or PTC, which is critical to the long-term health of the U.S. wind industry. In 2012, 42 percent of new electric generating capacity in the United States was powered by wind, according to the American Wind Energy Association. The industry encompasses more than 550 facilities in 44 states that manufacture equipment for wind power stations. Whenever extension of the PTC has been in doubt, investment and jobs in the sector have retreated. With a fragile economic recovery underway, our country cannot afford to let investment or jobs evaporate.

Second, Congress should modify the investment tax credit, or ITC, so that it more fully embraces industrial energy efficiency technologies.† Currently, the ITC provides only a 10 percent credit for these technologies, but it provides 30 percent for solar and other qualifying technologies. The limitations of the current provision impede industry's use of the incentive and slow what otherwise could be significant investment in U.S. energy efficiency. If modified, the ITC would allow projects access to the capital necessary to cover their often-substantial upfront costs.

Note: Industrial efficiency technologies are commonly known as combined heat and power and can be deployed by manufacturers, power plants, and institutional campuses to capture this excess heat from industrial processes and use it to heat buildings or generate more electricity cheaply and reliably.