Senate Bailout Plan Could be Boon for Alternative Energies, Home Solar

October 1, 2008

Lost in the economic and political circus of the recent weeks was the failure of congress to extend tax credits for alternative energy companies and homeowners who install solar-power systems. Both the Senate and the House wrote similar bills extending the tax credits and lifting the cap for residential solar-power installation. Until the end of this year, homeowners can receive a federal tax credit of 30% of the cost of a solar-power system, capped at $2,000. With that cap lifted, tax credits to homeowners installing solar-power systems increase dramatically, potentially saving homeowners over $10,000 on home solar systems. In addition, companies that produce electricity from wind will get a one year extension on tax credits, companies that produce electricity from solar will get an eight year extension on tax credits, and companies that produce electricity from other types of alternative energy will get a two year extension on tax credits.

Unfortunately, the Senate and House could not agree on how the continuation of tax credits would be paid for. In the past, such cuts were paid for by eliminating tax breaks for hedge fund managers and from tax increases on oil profits. With no progress made by the end of the session, these tax credits would disappear at the beginning of 2009. A coalition of renewable energy industry representatives warned that billions in research and hundreds of thousands of alternative energy jobs would be lost if the tax credits were not renewed. As of last week, this seemed the likely outcome. The Wall Street meltdown and the failure of the House to pass a bailout bill have given the tax credits new life.

The sequence of events that could see the return of alternative energy tax credits is convoluted. The House previously passed a bill that included only the alternative energy tax credits, but the Senate included in their bill other tax breaks for businesses, as well as a one year fix to the Alternative Minimum Tax, which would lower income taxes for millions of Americans. Since the Senate bill did not include ways to pay for the new tax breaks, members of the House refused to support it until a compromise was reached. As time ran out without an extension, the alternative energy tax credits effectively died.  Congress was to adjourn for the year.

The halls of Congress, which were supposed to be closed this week, were instead the center of the world economic crisis.  The House surprised many in Washington by voting down the first proposed bailout bill.  In an effort to appeal to a wider range of voters in the House and Senate, members of the Senate have attached to a new bailout proposal various additions, including the extension of alternative energy tax credits.  Though the process is far from over, it seems that the once dead alternative energy tax credits have been given new life with the Senate bailout plan.

Of course the alternative energy tax credits are a tiny part of the new bill, which has the support of the White House and the presidential candidates but faces tough opposition by many in the House and Senate.  In addition to their reluctance to bail out Wall Street, House members may not appreciate the Senate’s maneuver.  Even if the bill passes the Senate, it will face a tough fight in the House.

What the finished bill could contain:

  • Lifting of $2,000 cap for residential solar-power system.
  • One year extension of tax credits for companies producing electricity from wind.
  • Eight year extension of tax credits for companies producing electricity from solar.
  • Two year extension of tax credits for companies producing electricity from other renewable resources.
  • Extension of tax credits for purchasing plug-in electric vehicles
  • Incentives for the use of biodiesel

It is also worth noting that while previous bills from the House and Senate included versions of the above incentives, they also included provisions supporting oil shale and coal-to-liquid fuels, two carbon-heavy processes that environmentalists are very much against. 

Picture:  Michael Slonecker via stock.xchng



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