The Clean Tech Hole in the Tax Deal
President Barack Obama and congressional Republicans have an agreement that would extend tax cuts for the middle class as well as provide billions of dollars for bonus tax cuts and estate tax relief for the richest Americans. A new Center for American Progress analysis found that the overall agreement would “create or save 2.2 million jobs despite wasteful tax policies.” But it appears that an important piece was left out of the framework tax deal: two relatively small clean energy tax provisions that have created tens of thousands of jobs and will improve U.S. economic competitiveness while reducing pollution.
As of this writing, the deal does not include extension of two American Recovery and Reinvestment Act programs that expire at the end of 2010 and have helped build a bigger domestic clean tech industry: the “Treasury Grant Program” (Sec. 1603 of the American Recovery and Reinvestment Act) and the Advanced Energy Manufacturing tax credit (section 48C of the tax code). They have created construction and manufacturing jobs in nearly every state.
President Obama acknowledged that the tax agreement was a compromise forged as a result of the Republican refusal to extend middle-class tax cuts without $133 billion in bonus tax breaks for the richest 2 percent of Americans. The president noted that the agreement includes provisions to create jobs at his December 7 press conference: “[Some people] suggest that we may see faster growth and more job growth as a consequence of this package.”
This compromise package ought to include the two expiring renewable energy tax programs that have a proven job-creation record if more jobs is a major goal.
Treasury Grant Program (Sec. 1603)
The Treasury Grant Program (1603) provides grants for wind, solar, and other renewable energy projects in lieu of tax credits available under existing law. This program benefits small- and medium-size companies that do not have enough tax liability to use tax credits.
This program has been a stunning success at boosting investment in renewable electricity and creating jobs. The Lawrence Berkeley National Lab estimates that in its first eight months the 1603 program funded “4,250 GW of renewable power projects.” It also supported nearly 55,000 jobs in the wind energy industry alone.
The solar industry received a similar employment boost from the 1603 program. The Solar Energy Industries Association determined that:
The 1603 Treasury Grant Program has supported the deployment of 1,179 solar energy systems as of November 22nd, 2010. Since guidance for the program was released in July of 2009, the manufacture and construction of these solar energy projects has supported roughly 20,000 U.S. jobs.
These jobs were created in part because the relatively small public investment leveraged significant private investment. Private entities invested $9 for every $2 spent by the 1603 program. Pat Eilers, managing director of Madison Dearborn Partners, which finances clean energy projects, noted that:
Nearly $2 billion of 1603 grants were disbursed in 2009 which helped stimulate nearly $9 billion of new investments by the private sector in renewable energy projects and created an estimated 72,000 jobs in the wind and solar industries.
According to the U.S. Partnership for Renewable Energy Finance, or PREF, “the extension of the 1603 program can help to create or preserve over 100,000 ‘green’ jobs.” The American Wind Energy Association warned that layoffs are imminent without an extension.
"We have people being laid off right now, and we expect to see more without fast action on the tax extenders now being negotiated," said Denise Bode, CEO of AWEA. According to the trade group's research, there are over 15,000 jobs in the manufacturing pipeline alone. "We are risking those jobs by not sending a clear signal that America remains open for business in wind energy," Bode said.
The budget cost of this program is negligible since it converts an existing tax credit into a cash grant. USPREF noted that:
Some observers have voiced concerns regarding a perceived higher cost to the Treasury of the use of a cash grant versus a tax credit. Actually, the program simply provides for a cash payment instead of a reduction in future tax revenue and thus has a limited net impact on cost… Any extension of the program would simply extend the variation on the subsidy, but not add significant new cost to the Treasury.
Advanced Energy Manufacturing Tax Credit (48C)
The Advanced Energy Manufacturing Tax Credit helps manufacturers build new factories or retrofit existing factories to build clean energy products, such as electric vehicle batteries, solar panels, or wind turbines. It helps create domestic clean tech manufacturing facilities so that the wind and solar energy projects funded by 1603 employ components produced in the United States by American workers.
This program funded investments in 183 projects in 43 states before reaching its cap of $2.3 billion. The White House reported that the program was very popular and created thousands of jobs.
The program…was oversubscribed by a ratio of more than 3 to 1, reflecting a deep pipeline of high quality clean energy manufacturing opportunities in the U.S.
Recovery Act investments of up to $2.3 billion for advanced energy manufacturing facilities will generate more than 17,000 jobs. This investment will be matched by as much as $5.4 billion in private sector funding likely supporting up to 41,000 additional jobs.
Last January the administration requested another $5 billion for 48C, which could leverage more than $11 billion in private financing and create an additional 80,000 jobs or more.
These programs put people to work, reduce pollution, and have limited cost
The United States is suffering from the worst economy in 80 years. The Troubled Asset Relief Program and ARRA prevented the Great Recession from becoming another Great Depression. Nonetheless, unemployment remains unacceptably high, which causes real pain for American families. The tax deal would fight unemployment with several quick-acting measures, such as the extension of unemployment insurance and the payroll tax cut.
The deal, however, includes $120 billion in bonus tax cuts for the wealthiest Americans. The 1603 and 48C programs are proven job creators that cost a tiny fraction of the tax cuts to the richest taxpayers. What’s more, these public investments would have an outsized economic impact with greater job-creating investments because they leverage significant amounts of private capital. Such an extension could support nearly 200,000 additional jobs modernizing America’s energy infrastructure by building, operating, or manufacturing wind turbines, solar panels, and other clean energy equipment.
The deployment of these resources would also improve public health by reducing air and greenhouse gas pollution from coal and other fossil-fuel-generated electricity. In fact, CAP used PREF data on electricity generation from pending renewable projects that get built only if 1603 is extended to estimate that continuing 1603 could reduce annual carbon pollution by 8 million tons. It would be unfortunate if Congress were to end programs that reduce GHG pollution while administration officials are in Cancun arguing that the United States will achieve its global warming pollution reduction commitments.
Many progressives have raised legitimate concerns about the tax deal. On balance, its provisions would create badly needed jobs. John Podesta, President and CEO of the Center for American Progress, noted that the compromise has:
…a steep price, but this deal will mean about 2 million jobs saved or created over the next two years. On balance, I think the president was right to choose helping working Americans over a December conflagration.
Congress should support additional jobs with a relatively small investment by extending the Treasury Grant Program and Advanced Energy Manufacturing tax credit. Inaction would increase unemployment when we can least afford it. Renewing these measures, on the other hand, will grow the economy while cutting pollution.
Daniel J. Weiss is a Senior Fellow and the Director of Climate Strategy at American Progress, where he leads the Center's clean energy and climate advocacy campaign.
Thanks to Richard Caperton.
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