This morning Kate Sheppard posted a great succinct analysis on what the U.S. Congress may do on energy legislation before recess:
The “biggest opportunity” to pass energy legislation, Bingaman said, is the tax-credit extensions for renewable energy that have stalled repeatedly in the Senate, despite passing in the House on multiple occasions. GOP senators haven’t liked the Democrats’ proposals to pay for the tax credits by closing what Democrats consider to be tax loopholes for business, but moderate Democrats have insisted that so-called “pay-fors” are necessary to prevent the bill from adding to the budget deficit.
A new compromise version of the bill, proposed by Senate Finance Committee Chair Max Baucus (D-Mont.), would pay for the extension of tax credits by setting limits on the ability of hedge-fund managers to defer taxes on their income held offshore and by putting off until 2019 a tax credit for multinational corporations. Baucus also added a number of unrelated provisions meant to make the bill more attractive to Republicans. It’s unclear how many Republicans might be willing to back Baucus’ proposal.
Renewable-energy companies have been howling that failure to extend the tax credits is crippling them.
Kate’s got it right, particularly the last line. Boom/bust cycles in the tax code have been truly damaging to the renewables sector and are one of the reasons why the U.S. lags behind its European counterparts and why most of these companies are headquartered abroad. In general, uncertain and erratic policies increase the cost of capital, meaning that one must pay a higher rate to equity providers or lenders if one cannot count on supportive policies in cash flow projections. In a burgeoning and nascent industry, like the renewable energy industry, which works on tight margins, it can be devastating. For example, in 2001 and 2002, a two-month gap between the expiration and renewal of these vital credits resulted in a four-fold decline in new wind capacity.
The consequences of a failure to act now by the Congress could be even worse, possibly sparking the loss of more than than 116,000 jobs and $19 billion in investment in 2009 in the solar and wind energy industries alone. Conversely, passing all of these tax provisions soon will help to prevent the cancellation of 42,000 MW of planned renewable energy projects in development today in 45 states — an amount equivalent to 75 baseload electric power stations.