Certain renewable-energy industries will suffer and their growth will slow unless Congress extends tax credits set to expire soon, officials in the industries told senators Wednesday.
Representatives of wind-power and biodiesel companies said temporary expiration of the credits in the past caused their production to drop significantly, adding that history would repeat itself without swift action to extend the credits now.
The biodiesel sector has relied heavily on a $1-per-gallon tax credit, set to expire at the end of the year, said Paul Soanes, president and CEO of Houston-based Renewable Biofuels, whose Port Neches plant is the nation’s largest biodiesel-producing facility. When the credit lapsed for most of 2010, U.S. biodiesel production fell roughly 40 percent that year, Soanes said.
“If Congress does not act to extend the blenders’ tax credit in a timely manner, it would have a significant negative impact on American production capability, which would result in a loss of jobs as production is curtailed and or mothballed,” Soanes told the Senate Finance Committee’s Subcommittee on Energy, Natural Resources and Infrastructure.
This year, with the credit restored, his company’s production rose from 9 million to 62 million gallons — also aided by a new renewable-fuel mandate operating with the credit for the first time, Soanes said. “We have increased our workforce threefold and we are investing additional capital,” he said.
A number of tax credits for renewable-energy production are set to expire in the coming years, raising concerns among alternative-energy advocates about U.S. competitiveness in the quest to shift away from fossil fuels.
A per-kilowatt-hour tax credit for new wind farms expires in late 2012, but Congress should extend it now because planning decisions are already being made for 2013 projects, said Martha Wyrsch, president of the American arm of Vestas, a wind-turbine manufacturer headquartered in Denmark.
Legislation to extend the two credits has been introduced in Congress. But time is running out before Congress is scheduled to goes on winter break.
Molly Sherlock, economic analyst for the nonpartisan Congressional Research Service, said the threat of expiration or temporary lapses of the credits “can have negative consequences for the industries these incentives are designed to support.”
But she added that multiple factors can influence markets for renewables, including electricity mandates and prices of other energy sources.
Ongoing uncertainty over the credits’ future is “a major challenge for developers, manufacturers and investors,” because it takes three or more years to bring renewable-energy projects online, said Will Coleman, partner with Mohr Davidow Ventures, a venture capital firm based in Menlo Park, Calif.
“Current provisions need longer horizons,” he said.
But he added the tax code needs to be more efficient and suggested changing it to support industries only until they are competitive instead of propping them up indefinitely.
Wyrsch and Soanes said biodiesel and wind are still maturing but could become competitive enough to go without tax support within five years.
Sen. Ron Wyden, D-Ore., said “you can’t make the case for tax credits going on forever” but lamented that certain industries have permanent incentives while others’ are temporary. Disparities exist even among renewable industries, he said.
“There’s a policy-crazy quilt in terms of how we make some of these judgments,” Wyden said in suggesting a “level playing field.”
The discussion also comes as the U.S. grapples with its mounting government debt. A bipartisan fiscal commission appointed by President Barack Obama suggested simplifying the tax code by rolling back some credits and loopholes as part of tax reform to help reduce the deficit.
“It’s in dire need of reform, and nothing should be off the table,” Sen. John Cornyn, R-Texas, said of the tax code, pointing to the commission’s recommendations. “When examining renewable incentives, it’s important to consider to what extent other policies already exist to assist alternative-energy industries, such as renewable electricity mandates and fuel quotas.”
Asked by Cornyn how Congress should consider renewable-energy incentives in the context of tax reform, Margo Thorning, senior vice president and chief economist for the American Council for Capital Formation, a free-market think tank, pointed to cost-benefit analyses.
Environmental benefits of renewable-energy tax credits don’t outweigh costs to taxpayers, she said.
“I think we ought to look whether spending money in terms of R&D to try to develop lower-cost renewable energy is a better use of taxpayer dollars,” Thorning said.