Clean energy and mass transit — casualties of the payroll tax fight

at 01:38 PM ET, 12/20/2011

Right now, the fracas in Congress is largely focused on extending the payroll tax cut and unemployment benefits. Both are set to lapse at the end of this year, and the House has just voted down a Senate deal to stretch them out for another two months. One point that’s been obscured by all the bickering, however, is that a few other key tax breaks — for wind power, for solar, for mass transit — are also set to expire at the end of 2011. And, unlike with the payroll tax cut, their fates look considerably bleaker. Here’s a list of the casualties that aren’t in the spotlight:


Wind turbines in Spanish Fork, Utah. (George Frey/Bloomberg)
The production tax credit for wind power. This credit pays wind-turbine owners 2.2 cents for every kilowatt-hour of electricity that they produce in their first 10 years of operation. It’s a boost that the wind industry says it badly needs to compete with coal, which gets to fob off its pollution costs on a breathing public. Thanks in part to the credit, wind power has grown 37 percent per year since 2009. (Technically, the wind credit doesn’t wind down until the end of 2012, but given that siting, permitting and construction for the projects take about a year, companies have effectively run out of time to qualify.)

How bad will this hurt the wind industry? One clue: Congress has let this credit lapse three times since 1999, and every time it does, new wind generation tends to plunge roughly 70 percent. A study released this week by Navigant Consulting found that, without the credit, investment in wind power would sink from $15.6 billion in 2012 to $5.5 billion in 2013 — though, fair warning, this study was commissioned by the wind industry itself.

The solar grant program. The solar industry faces a slightly different quandary. Unlike with wind, solar’s production tax credit doesn’t expire until 2016. But there’s a hitch. As the recession has battered companies’ bottom lines, few investors have had a tax liability big enough to take advantage of the credit. To remedy this, Congress passed the 1603 Treasury grant program as part of the 2009 stimulus, which converted the tax credit into a flat grant, so that anyone could qualify. The solar industry has boomed as a result, with record installations in 2011, but the program has cost some $9.6 billion over three years, more than lawmakers expected. (Remember, this credit is different from the federal loan guarantees that Solyndra got — the solar projects actually have to be generating electricity to get cash.)

If the 1603 program isn’t renewed, solar producers expect output to fall dramatically in the coming years, by as much as two gigawatts in 2013. Some renewable energy experts, however, think the industry might be better off without the grant.

A transit benefit for commuters. Meanwhile, public transportation could take a modest hit. Right now, employers can offer commuters the same pre-tax benefit for commuting whether they drive to work or take mass transit. But, at the end of the year, the transit credit sinks back down to $125 per month, while the parking benefit rises to $240. Currently, some 3 million commuters receive the transit credit. As noted in this earlier post, there’s evidence that the benefit has, when offered, nudged more employees into riding the bus or subway. But we’re about to reenter a society where parking your car at work is subsidized twice as heavily as taking transit.

In the end, none of these provisions made its way into the Senate’s two-month tax extension. That doesn’t mean they’re completely moribund — solar, wind and transit lobbying groups are all hoping to make a renewed push for the items in January, assuming that in the end Congress passes the two-month extension. (If Congress doesn’t do that, which seems increasingly likely, the situation becomes murkier and more complicated for everybody.) But for the time being, clean energy and public transportation have been lost in the squabbling.

 
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