The GOP has had to find ways to pay for its promised tax cuts, which could cost over $1 trillion. And so Republicans have been scrambling to fill the void with ideas ranging from drilling in the Arctic National Wildlife Refuge to undoing tax breaks for renewable energy.
Both the House and Senate versions of the Republican tax bill now include provisions that would serioulsy threaten the wind and solar industries. The hemming and hawing over them is meanwhile also stalling more than $20 billion in investment in clean energy, according to Democratic lawmakers who oppose the cuts.
But here’s the catch: wind and solar are booming not just in deep blue states like California, but also in red states like Texas, Wyoming, Kansas, and Iowa.
Texas, Wyoming, Kansas, and Colorado have become leaders in renewable energy and also benefit from federal incentives for electric cars and home efficiency upgrades that could be cut under the bill.
And so as the Senate gets closer to a final vote, some Republicans are becoming squeamish about allowing those provisions through as they weigh their desire to cut taxes against wind and solar jobs for their constituents.
The tax bills raise taxes on renewable energy
The Senate version of the Republican tax bill undermines investment in wind and solar power, which now generate 7 percent of our electricity, while preserving billions in tax subsidies for fossil energy.
The main issue for renewables is a provision in the Senate bill called the Base Erosion Anti-Abuse Tax (BEAT). The measure is aimed at companies that move money offshore to lower their tax liability in the United States. The BEAT adds a 10 percent minimum tax on businesses that don’t include cross-border payments in their income calculations.
How does this affect renewables? In the United States, the main incentive for erecting wind turbines and mounting solar farms is a tax credit (wind developers use the production tax credit and solar uses the investment tax credit). By invoking these credits, renewable energy developers can drive their corporate tax rate below 10 percent.
For smaller companies that don’t have a large enough tax liability, they can market their excess credits to tax equity investors.
However, renewable energy projects often have multinational backers, so companies looking to bring in foreign financing may end up with a higher tax bill as they pay off creditors abroad, in some cases canceling out the tax subsidies altogether.
As the law firm McDermott Will & Emery put it, “Multinational tax equity investors reducing their US tax liability from cross-border affiliate payments may therefore find that investments in ITC and PTC eligible projects after enactment of the BEAT are much less attractive.”
Or as Sen. Ed Markey (D-MA) put it at a press conference on Wednesday, “it would kneecap clean energy.”
He added that the uncertainty of this provision has put investments in limbo, hampering an industry that would employ 500,000 Americans by 2020. The coal industry, by contrast, currently employs 50,000 people.
An analysis by the Rhodium Group noted that there are some places where the House and Senate versions of the tax bill differ. The House bill strips out the $7,500 tax credit for electric cars, while the Senate version leaves it in, for example. It also cuts the wind tax credit from 2.4 cents per kilowatt-hour to 1.5 cents.
But even the threat of these changes is already having an impact, according to some in the industry.
“We’re already seeing orders put on hold and projects not able to get refinancing,” Michael Goggin, the senior director of research at the American Wind Energy Association, told the New York Times. “Even the threat of this bill is having a chilling effect.”
Some Republicans may try to preserve the clean energy tax credits
Lawmakers are now desperately trying to strike deals to preserve incentives for renewables in the bill they’re aiming to send to the White House before Christmas.
"As the father of the wind energy production tax credit, I've fought for renewable energies like wind power that diversify our energy supply and create good-paying jobs," Sen. Chuck Grassley (R-IA) told E&E News last week. "I'm aware of the argument that the provision could negatively impact some renewable energy projects. I'm currently looking into the matter further."
Sen. Cory Gardner says the BEAT issue has not been resolved yet. Says “progress is being made.” (Caution: This could be congress speak for “I didn’t get what I wanted.”)— Ari Natter (@AriNatter) December 13, 2017
With a narrow vote margin and a looming end-of-year deadline, some Republicans have suggested excising the clean energy aspects of the bill altogether.
"We've got to be careful not to cost ourselves votes on the tax relief bill," Sen. John Hoeven (R-ND) told E&E News this week. "We'll see what comes out of conference, but the general sense, at least I got, was that's why we probably won't get into a number of those issues in this bill, we'll just focus on the tax relief."
The question now is whether the tax bill, which contains a buffet of other unpopular provisions, will win the support of enough Republicans to pass in a vote expected next week. There is also the possibility of a separate bill with tax extenders for energy.