Refundable tax credits for renewable energy are likely this year – Senate aide

U.S. lawmakers are weighing whether to make popular renewable energy tax credits directly refundable so they can be claimed by entities without any tax liability, a top adviser on the U.S. Senate Committee on Finance said March 10.

With a $1.9 trillion coronavirus relief bill headed to President Joe Biden's desk, Democrats are set to pivot to a broader economic infrastructure package expected to include a host of energy- and climate-related provisions. Directly refundable tax credits, also known as direct-pay credits, are rare in the U.S. business tax code but high on developers' wish lists, experts noted during a March 10 policy forum hosted by the American Council on Renewable Energy.

Direct-pay tax credits were last passed for renewable energy projects on a temporary basis in response to the financial collapse of 2008 and they could reappear in 2021, panelists said.

"I'd say pretty likely," Bobby Andres, a senior policy adviser to Democrats on the Senate Finance Committee, said when asked about the chances for refundable tax credits to be included in new legislation passed this year. "Certainly, over the last year with the economic conditions, there's been I think a lot of interest in examining whether or not there could be a similar type of direct pay mechanism provided as relief to help some of the projects go forward to make sure that financing doesn't dry up."

David Bridges, tax counsel to U.S. Rep. Tom Reed, R-N.Y., said Republicans in Congress are open to the idea "at least on a temporary basis." But Bridges cautioned that GOP lawmakers would likely be skeptical of making refundable renewable energy tax credits permanent.

"I think one of the questions a lot of offices would have is, 'Where do you stop?'" Bridges said.

Andres agreed on that point, noting that the length of time entities are able to directly claim the credits is "the core of the question."

However, Andres argued that a rationale for implementing refundable tax credits for clean energy over the next decade does exist. The latest United Nations special report on climate change, for example, estimated that the world needs to cut its planet-warming emissions roughly in half by 2030 to avoid catastrophic climate shocks.

"There is a rationale for the next 10 years or so in the climate space where we know we need to take drastic action to really build out renewables, so there's a case to be made for why we should be changing the rules in this particular context," Andres said.

Trade groups such as the American Public Power Association have also called for direct-pay credits to boost renewable energy deployment for entities without tax appetites such as municipal utilities and rural electric cooperatives.

"We're going to need a different model to scale up to the point where public power can have 50% or greater renewable facilities," said Renee Eastman, senior director of federal affairs for the Salt River Project, which is one of Arizona's largest utilities. "The current situation is these financial transactions are requiring tax engineering that kind of rivals what the actual project engineering is."

In February, lawmakers on the U.S. House Committee on Ways and Means reintroduced the Growing Renewable Energy and Efficiency Now Act, or GREEN Act, a bill that would extend existing tax credits for wind and solar energy. It also includes a direct payment option for the 45Q tax credit for carbon capture and storage, a technology seen as crucial in the fight against climate change.

Andres said Senate Finance Committee Chairman Ron Wyden, D-Ore., also plans to reintroduce a version of the Clean Energy for America Act, a bill that would consolidate 44 federal energy tax incentives into three provisions.

"What we would rather do is look beyond that and say look, 'We have an opportunity this year to say how are we going to reset this system to something that really gets at that core challenge of tackling climate change?'" Andres said.