On December 18, 2015, the current divided United States Congress, which has not been known for many grand compromises, passed an omnibus spending bill featuring key measures related to renewable energy tax credits and to the export of crude oil produced in the United States. President Obama signed the legislation, known as the Protecting Americans from Tax Hikes (“PATH”) Act of 2015, into law later that same day.
The vote totals in favor of passage in the U.S. House of Representatives (316-113) and the U.S. Senate (65-33), as well as President Obama’s speedy signing of it, revealed PATH’s strong bipartisan support, which had been the result of lengthy negotiations over the preceding months.
PATH addresses numerous tax and revenue issues, including the significant repeal of the 40-year ban on exports of domestically produced crude oil, which many leaders within the oil industry have considered not only vital but also long overdue. For example, the Independent Petroleum Association of America (“IPAA”) “has made lifting the decades-old restrictions on crude oil exports a top priority for 2015.”
As the IPAA put it, “[b]y passing this legislation and lifting the outdated exports ban, American producers will be able to compete on a level playing field with countries like Iran and Russia, delivering energy security to our friends and allies, advancing the energy revolution that has revitalized our economy, and providing meaningful benefits to families and consumers across the United States.” Id.
On the other side of the coin, the renewable energy industry was monitoring this legislation just as closely, in the hopes Congress would finally resolve to extend the expiring renewable energy tax credits, most notably the Investment Tax Credit (“ITC”) for solar energy and the Production Tax Credit (“PTC”) in support of wind energy projects.
In exchange for the lifting of the crude oil export ban, PATH also grants a five-year extension of renewable energy tax credits to encourage and support the production of wind and solar energy. Under PATH, the wind energy PTC and alternative ITC will now be extended for 2015 and 2016 and continue at 80 percent of present value in 2017, 60 percent in 2018, and 40 percent in 2019. Consistent with the prior incarnations of these tax credits, the rules will allow wind projects to qualify so long as they start construction before the end of the period.
According to the American Wind Energy Association’s (“AWEA”) press release in response to passage of PATH, “[t]he performance-based PTC has helped to more than quadruple wind power in the U.S. since 2008 – up from 16,702 megawatts (MW) installed at the start of 2008 to 69,470 MW by the third quarter of 2015.”
The ability for developers of renewables – particularly wind – and their customers to plan effectively for the next five years of their operations is very valuable. Certainty about the amount and continuity of tax credits helps developers more accurately price and schedule their projects for construction, which in turn should aid their customers – whether they be utilities or commercial or industrial entities – in their own long-term planning for adding renewable power to their energy portfolios. The existence of reliable energy tax credits has also proven to provide long-term support for thousands of U.S. jobs in construction, manufacturing, and the ancillary services such as construction, operations, and research and development that support energy development. See id.
AWEA also credits the prior brief 2013 expiration of the credits with “installations of new wind farms [falling by] 92 percent, causing a loss of 30,000 jobs across the industry that year. After Congress renewed the PTC, the U.S. wind energy industry added 23,000 jobs the following year, bringing the total to 73,000 at the end of 2014. According to the U.S. Department of Energy wind energy can support 380,000 jobs in just 15 years.” Id.
Now that Congress has renewed these tax credits over a defined period, “the multi-year predictability will help continue that trend [of growth in the wind energy industry] and break the repeated boom-bust cycles [it] has weathered through two decades of uncertain tax policies.” Id.
Thus PATH could represent the chance for multiple facets of America’s energy industry to reimagine how they may pursue their 2016 New Year’s resolutions for growth and opportunity in the coming year.