Although environmental concerns are now largely overshadowed by unprecedented volatility in the global economy, American legislators recently demonstrated recognition that the clean technology sector can be used to grow gross domestic product, while developing a secure and sustainable energy sector. Buried within that country’s new $700-billion Emergency Economic Stabilization Act of 2008 is about $18 billion worth of clean technology-related tax incentives.
The act creates many new tax incentives and extends numerous expiring tax benefits. The sheer diversity and scale of these new tax incentives represent substantial economic opportunities for the clean tech sector. Because these incentives are effective from the date of enactment, businesses should act quickly to determine how to best take advantage of the considerable tax breaks.
Over half of the $18-billion tax treatment relates to extensions and expansions of production and investment tax credits. The duration of tax credits for wind and other renewable sources were extended, and new biomass facilities and marine renewable facilities (e.g., energy from waves and tides) will now also be included.
But solar energy arguably received the best tax treatment. Solar projects received an eight-year extension of the investment tax credit, as well as the elimination of the tax credit cap on residential solar projects. To put this in perspective, Navigant Consulting, Inc. recently estimated that this credit alone is expected to create more than 440,000 jobs and to generate at least $325 billion in private investment.
Other renewable energy sources received similar tax incentives. Timelines were also extended for investment tax credits and enhanced tax credit caps for small wind power, fuel cells, microturbines, and geothermal and certain combined heat and power systems. Further, the new legislation gives incentives for utilities to initiate smart metering and smart grid systems by providing for accelerated depreciation.
Clean tech opportunities also received a boost in the area of financing — the act authorized $800 million in Clean Energy Renewable Bonds to help fund facilities that will generate electricity from a wide variety of renewable and alternative fuels.
Businesses involved in the efficiency of buildings will see a boost. Timelines were extended for tax deductions for improvements to commercial and residential buildings, and for tax credits for new energy-efficient homes. Tax credits relating to manufacturing energy efficient appliances will be both increased and extended. In addition, an $800-million fund of Qualified Energy Conservation Bonds was created to finance state and local government initiatives to reduce greenhouse gas emissions. The act also extends the authority to issue qualified green building and sustainable project bonds for another three years.
The clean tech transportation sector will also see a better tax treatment. Tax credits of up to $7,500 were enacted for forthcoming plug-in hybrid vehicles, and new tax exemptions have been created for anti-idle technologies and advanced insulation installed in heavy trucks. The act extended the timeline for the tax credit for alternative fuel refuelling facilities and expanded it to include charging stations for electric vehicles. Many biofuel producers will also now be able to benefit from the accelerated depreciation previously enjoyed exclusively by producers of ethanol plants. Plus, biodiesel production tax credits were extended to the end of next year.
Tax incentives that promote carbon mitigation and cleaner uses of coal were included. The act provides $1.5 billion in tax credits for approved demonstration projects that show the greatest potential beneficial use of carbon capture and sequestration technology. In addition, the act provides a limited tax credit based on the tonnage of CO2 captured and either stored permanently or used for enhanced oil recovery.
Clearly, the breadth and scale of these legislative amendments demonstrate that the American government is recognizing the clean technology sector can both help recover flagging domestic productivity and create a secure and sustainable energy sector in the United States.