The renewable energy sector is holding its breath as the proposed Republican tax bill works its way through Congress. Multiple provisions in the House version of the bill will take away tax breaks from the renewable energy market while offering tax incentives to traditional energy sources, such as oil and gas.
While the Senate’s version of the bill maintains these tax credits, it adds restrictions to investment incentives, which may halt construction in the renewable energy field. Here’s what you can expect to see if this bill is passed.
Electric Vehicle Industry
Under current legislation, electric vehicle owners are entitled to a $7,500 tax credit to offset the cost of electric vehicles. After a manufacturer sells 200,000 vehicles, the tax credit will be phased out quarterly over the course of a year. During this year, an unlimited number of buyers can take advantage of the tax credit.
Although the Senate version of the proposed tax bill says nothing regarding electric vehicles, the House version intends to eliminate the $7,500 tax credit, which may reduce the affordability and subsequent demand for electric vehicles. Manufacturers may also refrain from entering the market if the demand is down.
Over the past several years, solar energy usage steadily increased in the United States thanks, in part, to the decreasing cost of photovoltaic cells and installation fees. Tax credits have helped offset the cost of solar energy and made the price, in some areas, lower than traditional fossil fuel energy.
The Senate bill doesn’t mention solar energy specifically, which means the current investment tax credits would still be in place through 2019 when they begin to phase out. By 2022, the investment tax credit for solar will be 10 percent, where it was planned to stay.
While the House bill also maintains the current phaseout strategy, it eventually eliminates tax benefits. Starting in 2022, homeowners will receive no tax benefit for solar panel installation, while developers will receive a 10 percent tax credit until 2026. In 2027, developers won’t receive any assistance.
Interest in wind turbines is also on the rise, in part because of their efficiency. Wind turbines can generate up to 39 times more power than they use. Unfortunately, the wind energy industry is also at risk. The House bill intends to reduce the energy credit by removing inflation adjustments, which results in a 40 percent loss per kilowatt-hour.
The Senate bill doesn’t mention wind energy directly, which means the current incentives would remain in place as scheduled until they phase out beginning in 2017. It does, however, contain a provision called the Base Erosion Anti-Abuse Tax.
Under this policy, corporations with tax rates lower than 10 percent wouldn’t be allowed to take advantage of renewable energy tax credits, which will reduce their interest and incentives to invest in renewable energy projects.
Alternatively, the bill contains one provision that may benefit both the wind and solar sector. During the year a wind or solar farm is completed, the entire project may be considered deductible.
Oil and Gas Industry
The oil and gas industry stands to benefit from the new tax reform. Proposed tax incentives allow companies to take deductions for drilling costs and take advantage of lower tax rates on portions of their income. The House bill intends to remove tax incentives for oil companies that try to recover oil from older wells. These changes to the tax legislation will increase the incentive for oil companies to drill new wells.
For years, Republicans expressed interest in tapping into the Arctic National Wildlife Refuge’s oil reserves. The Senate bill includes a provision that opens nearly 8 percent of this area for drilling. The House bill contains similar language.
As it stands, the bill is now being forwarded to a tax committee for further discussion between the House and Senate. Not only is this bill bad news for the renewable energy industry, but it also does not bode well for the environment or the future health of our planet.