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21 November 2019

Democrat’s Green Act – Manifesto or Genuine Policy?

Democrats in the US Congress announced a proposal on Tuesday to extend tax credits to support renewable technologies into the 2020s. While this has been a long time coming, the proposed bill is unlikely to be passed amid Trump’s impeachment enquiry, and focus will soon be distracted to the Presidential election next year. Democrats will be aware of this harsh reality, so it’s more likely that this Green Act is a statement-of-intent to try and attract voters rather than a genuine attempt for an end-of-year deal.

Draft legislation was released out of the US House Ways and Means Committee, detailing The Growing Renewable Energy and Efficiency Now (Green) Act, as “a comprehensive approach to addressing the threat of climate change through our tax code” according to Californian Democrat Mike Thompson in a campaign-like statement.

The new act would see the existing Production Tax Credit (PTC), famous for supporting onshore wind, extended at its 60% level to 2024. This credit allows for onshore wind developers to claim a credit based on the amount of electricity produced in kWh. With this currently set to phase out in 2020, there has been a large surge in onshore wind orders in the US, which analyst expect to fall in the early 2020s, if the credit is not extended.

Similarly, the Investment Tax Credit (ITC), which allows a 30% credit to be claimed based on invested Capex spending, will be extended. A phase down, which was set to begin in 2020, has been proposed to be delayed until 2024, with the 30% level falling to 26% in 2025, 22% in 2026 and 10% thereafter. This would see the support increase for energy storage projects over 20kWh as well as solar power.

A further addition would be the inclusion of Offshore wind projects in the ITC, until the national capacity exceeds 3 GW. This is arguably the most exciting proposal, with the US’s massive theoretical potential of offshore wind. With longer project lead times, the ITC would be a preferable credit scheme to the PTC, allowing developers to benefit right from the start of projects, rather than when electricity production is up and running.

The bill also details schemes to boost the support of carbon oxide sequestration, electric vehicles as well as projects to increase energy efficiency.

Through the PTC, the US has enjoyed a massive surge in onshore wind, with 100 GW of capacity now installed nationwide. Initially the onshore wind industry seemed relaxed about the 2020 PTC cut-off, expecting carbon policy to make onshore wind competitive without the need for subsidy. Without this materializing, the industry has realized that they have taken the hard end of the bargain compared to solar, which will benefit from a constant 10% ITC level after its phasedown. With fears that this will see onshore orders plummet after the PTC deadline as solar orders take preference, onshore wind players have started to lobby much harder for an extension.

The solar industry, despite having a better deal than onshore wind, has been much more consistent in appealing for an ITC extension.

There is a chance that some parts of the bill may be cherry-picked as part of a larger tax package, but it appears more likely that little-to-no action will be seen on the current proposals. Organizations like the SEIA have promised to put up a fight, but with President Trump’s impeachment enquiry in full swing, an end-of-year deal would be a first of its kind and highly uncharacteristic. If and when the air clears around the Trump allegations, both sides of congress will turn their focus to ramping up for the presidential election in November next year, leaving little time to concentrate on reformed legislation.

The Green Act was drafted by 24 Democrats, who will almost certainly try to attract environmentally minded Americans in the coming election. If the bill doesn’t make it through in time will provide ammunition to throw at Trump in an attempt to stop him from taking a second term in office.