Democrats at Crossroads to Merge Clean Energy Plans (1)

The Biden administration’s clean energy plan shares common goals with a tax incentive overhaul championed by Senate Finance Committee Chairman Ron Wyden, with some important differences to resolve as infrastructure negotiations continue.

President Joe Biden’s plan would extend energy-based tax credits for five years or more, including extensions through the end of the decade for wind, solar, nuclear, and electric vehicle chargers. The Wyden legislation (S. 1298) is more goal-oriented, extending tax credits for wind, solar, and other energy sources until they essentially hit certain targets for reducing greenhouse gas emissions.

Clean energy advocates are encouraged that the competing proposals both aim to end the current uncertainty around temporary tax incentives as part of an effort to steer the U.S. away from fossil fuels.

“Both the Biden and Wyden plans would provide projects more assurances for financing” over the coming decade, said Sandra Purohit, director of federal advocacy for E2, a clean energy advocacy group.

Projects that take longer to launch wouldn’t be at risk of losing out on incentives, which would translate into better terms for getting the projects financed, Purohit said.

Tied to Infrastructure

The clean energy incentives are tied into Biden’s broad infrastructure proposal, which aims to raise taxes on corporations to pay for trillions in new spending on transportation infrastructure, the power grid, and other priorities.

The administration offered more details on the tax proposals in a Treasury Department document released alongside the fiscal 2022 budget proposal.

S. 1298, co-sponsored by 30 senators including Majority Leader Chuck Schumer (D-N.Y.), S. 1298, was marked-up by the Senate Finance Committee in late May, clearing the way for Senate Democrats to bring it to the floor.

Wyden (D-Ore.) has said his proposal should be “the linchpin of our efforts on clean energy” as Congress advances Biden’s economic agenda.

“For the first time, incentives are tied to results, not specific technologies,” he said. “The duration of incentives will also be tied to results, not arbitrary dates on the calendar.”

Democrats have begun focusing incentives on next-generation technologies—and linking continued tax extensions to the success of those technologies in reducing greenhouse gas emissions.

“I think we’re seeing an evolution in policy about what is considered clean energy technology,” said Sarah Hunt, who backs conservative energy and climate solutions as CEO of the Joseph Rainey Center for Public Policy.

Refocusing incentives toward next-generation technologies could mean more of an emphasis on “clean” hydrogen—producing the fuel from renewable sources—as well as advanced nuclear and efficiency improvements on the grid.

But it also could steer incentives toward emerging technologies that could improve low-carbon and climate-friendly approaches already in use, such as carbon capture and storage, or make what are now expensive technologies that directly capture carbon emissions from the air more affordable.

Some Common Ground

While Biden’s plan doesn’t take the same approach as Wyden’s proposal to make future incentives contingent on outcomes, clean-energy groups say that both initiatives show enormous progress has been made over the last year.

Advocates have pushed for wind, solar, and other projects to be able to claim the value of tax credits immediately, rather than wait to receive the credit upon filing year-end returns. A direct pay option, pushed in 2020 to get the flagging clean energy industry through the Covid-19 pandemic, would reduce the cost of the third-party funding that developers usually need.

Direct pay has been expanded to a broad array of renewable energy sources and would last a decade under Biden’s budget plan, and would remain in effect in Wyden’s bill possibly longer—until emissions reduction targets set in the bill are reached.

A direct pay option across multiple clean energy sources is also included in the leading clean energy tax incentive bill (H.R. 848) in the House, reintroduced in February by Rep. Mike Thompson (D-Calif).

“There’s a tremendous amount of alignment between the measures we see moving through Congress and the president’s agenda,” said Greg Wetstone, president and CEO of the American Council on Renewable Energy.

Republican Support?

Efforts are already under way to merge the competing plans so Democrats can present a united front for what will likely be intense negotiations over Biden’s economic plans.

Many Republicans have grown increasingly skeptical of the year-after-year extensions of clean energy sources that have become competitive with the cost of fossil fuels.

A senior Senate Democratic aide said the immediate goal is to ensure any plan can get passage in the House, where Democrats could move ahead without Republicans but have little wiggle room, and in the 50-50 Senate.

Democrats generally need at least 10 Republican votes to get bills through the Senate under regular order, though they could opt to pursue a fast-track budget process known as reconciliation to avoid a filibuster and pass it with a simple majority.

“Obviously we live in a time where it’s not easy to legislate and the margins are close,” Wetstone said.

But he argues that even some Republicans skeptical of Biden’s climate plans see the need to update the nation’s outdated grid to boost reliability and U.S. competitiveness.

Bipartisan Draft

Hunt, the Rainey Center CEO, pointed to bipartisan draft legislation recently unveiled by Sens. Sheldon Whitehouse (D-R.I.) and Mike Crapo (R-Idaho), the Senate Finance panel’s top Republican.

Their plan would rapidly scale up incentives for promising technologies such as hydrogen and energy storage, but also phase out credits as technologies mature or take a significant market share.

A Whitehouse aide said timing for introduction of the bill remains unclear.

Hunt said the Whitehouse-Crapo approach provides one possible roadmap for where both parties could come together for a multi-year expansion of clean energy incentives by focusing on “an all-of-the above, technology-neutral approach.”

For more on Democrats’ clean energy plans, listen to the latest episode of our podcast, Talking Tax: