Democrats in the US House of Representatives have reintroduced a sweeping green energy bill that would extend tax incentives for renewables among a raft of other measures in tune with the agenda of newly-elected President Joe Biden.

The House passed the Growing Renewable Energy and Efficiency Now (Green Act of 2020) last year, but it did not advance in the Senate, where Republicans had a majority and former President Donald Trump was opposed.

Democrats now control both chambers of Congress by thin majorities – 221-214 in the House and 50-50 in the Senate. As president of the Senate, vice president Kamala Harris can cast a vote, only if affirmative, to break a deadlock on legislation. Major bills require a 60 vote margin in the Senate.

To circumvent this for a proposed $1.9 trillion Covid relief and economic stimulus bill, Democratic leaders with the support of President Joe Biden want to use the so-called 'reconciliation process' that only needs a simple majority of votes to pass.

That process is allowed once in each federal government fiscal year, which ends 30 September, and only to change laws tied to taxing and spending. Democrats could use a Covid relief bill passed in December as the relevant vehicle, according to a Morgan Stanley research note.

Green Act sponsors want to include key measures of their legislation in the Covid bill, with the expectation these would have more chance this way of becoming law than trying to persuade 10 Republicans to back a stand-alone bill later this year in the Senate.

Core elements of the Green Act

Extension of the solar investment tax credit (ITC) at 30% through 2025 with a phase down to 26% in 2026, 22% in 2027, and then a permanent 10% for commercial-scale projects. The ITC is now 26% of a project’s value for those that begin construction through 2022. The credit will then step down to 22% if they begin construction in 2023 and enter commercial operation by the end of 2025. After that, a 10% ITC will apply only to commercial arrays.
Extension of the wind production tax credit (PTC) at 60% value through the end of 2026 ($15/MWh for electricity sent to the grid in a project’s first decade of operation) and enter full-service operation within four years. Projects now have until the end of 2021 to start construction.
Extension of the offshore wind ITC at 30% through 2026 with a phase-down to 26% in 2027 and 22% in 2028. The 30% credit is presently in effect through 2025 with projects eligible if they enter operation within 10 years.
Expansion of the ITC at 30% to include energy storage technology through 2026 then a phase down to 26% in 2027 and 22% in 2028.
Introduction of a so-called direct-pay option that would enable a qualified wind, solar or energy storage project to receive a cash payment equal to 85% of the ITC or PTC value in lieu of receiving either as a credit against income taxes. The Internal Revenue Service would manage this option using the annual tax return filing process.
Expansion of the plug-in electric vehicle tax credit for cars and creates new ones to encourage adoption and manufacture of zero-emissions buses, vans, and other vehicles. Also, renews the credit for fuel cell vehicles through 2026.
Provision of a one-year federal tax credit renewal for carbon capture and sequestration (CCS) projects that begin construction through 2026 with the 8%% direct pay option.
Expansion of the qualifying income definition for MLPs to include green and renewable energy and possibly CCS projects.

MLPs are a business venture that exists in the form of a publicly traded limited partnership. They combine the tax benefits of a private partnership – profits are taxed only when investors receive distributions – with the liquidity of a publicly traded company.

MLPs take advantage of cash flow, as they are required to distribute all available cash to investors. They can also help reduce the cost of capital for capital-intensive sectors such as energy. Congress decades ago limited their use to real estate and natural resources – fossil fuels but not renewables.

Mixed reaction

The Green Act also includes a controversial clause that directs the secretary of the Department of Treasury to assess data from the Environmental Protection Agency to tax entities based on their greenhouse gas emissions.

The bill drew favourable reaction from clean energy advocacy lobbies but a lukewarm response from a leading environmental group.

“Long-term tax policy drives deployment of solar energy, giving companies the certainty needed to make business investments at the scale we need to tackle the climate crisis.

“This is a moment of critical national momentum for climate action, clean energy and environmental justice,” said Abigail Ross Hopper, CEO of the Solar Energy Industries Association.

However, Matthew Bearzotti, deputy legislative director at Sierra Club, said while the Green Act would do a good deal to help the clean energy economy recover and boost sector employment, it falls short of the “bold and ambitious legislation” that is required and now possible.

“A new and improved Green Act needs to include a broader set of incentives, and a longer period of support for them,” he said, adding it is “insufficient to unleash a clean energy transition equal to the challenge of the climate crisis”.

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Democrats revive sweeping green bill as route to law opens in new-look Congress