Economic Stabilization Bill Includes Clean Energy Tax Incentives

President Bush signed into law on October 3 the $700 billion Emergency Economic Stabilization Act of 2008 (H.R. 1424), which also extended and enhanced critical tax credits and financing relating to renewable energy and energy efficiency. The Energy Improvement and Extension Act of 2008, which was attached to H.R. 1424, provides a one-year extension of the production tax credit (PTC) for wind energy, keeping the credit in effect through 2009. The bill also provides a two-year PTC extension, through 2010, for electricity produced from geothermal, biomass, and solar energy facilities, as well as trash-to-energy facilities, small hydropower facilities using irrigation water, capacity additions to existing hydropower plants, and hydropower facilities added to existing dams. In addition, the bill creates a new PTC for electricity produced by marine and hydrokinetic renewable energy systems (also called advanced water power systems) with a rated capacity of at least 150 kilowatts and placed in service by 2011. To help on the financing end, the bill authorizes $800 million in new Clean Renewable Energy Bonds for all of the above technologies. See the White House press release.

While the PTC extensions and enhancements are good news for all major renewable energy sources, arguably the biggest winner in the tax bill is solar energy, which gained an 8-year extension (through 2016) of the 30% tax credit for residential and commercial solar installations, as well as the elimination of the $2,000 tax credit cap for residential solar electric installations. The Solar Energy Industries Association (SEIA) expects the creation of more than 440,000 jobs and the generation of at least $325 billion in private investment due to those changes, which should yield more than 28 gigawatts of solar power. The Solar Electric Power Association (SEPA) also sees huge potential growth in a measure that allows electric utilities to take advantage of these tax credits. In addition, small wind power gained a 30% tax credit, up to $4,000 for wind turbines with capacities of 100 kilowatts or less, which is also good through 2016. The tax credits for fuel cells and microturbines are also extended by 8 years, and the fuel cell tax credit limit is tripled, to $1,500 for each 0.5 kilowatts of capacity. The act also creates a new 10% tax credit for certain combined heat and power systems and for geothermal heat pumps (up to $2,000). In addition, the bill also provides accelerated depreciation for utilities installing smart meters and smart grid systems. See the press releases from SEIA and SEPA (PDF 33 KB). Download Adobe Reader.

In terms of energy efficiency and alternative fuels, the act extends and revives a number of energy efficiency tax incentives for buildings, creates new tax credits for efficient vehicles, and extends and modifies tax credits for biofuels. Specifically, it extends energy efficiency tax deductions for commercial buildings through 2013 and revives similar deductions for home improvements installed in 2009, adding a new $300 tax credit for energy-efficient biomass fuel stoves. It also extends tax credits for builders of new energy-efficient homes through 2009 and increases tax credits for manufacturers of energy-efficient appliances, while extending that credit through 2010. The act creates a new tax credit of up to $7,500 for plug-in hybrid vehicles, which are expected to go on sale in 2010, while providing tax exemptions for idle reduction technologies and advanced insulation installed in trucks. The act also extends a 30% tax credit for alternative fuel refueling facilities through 2010 and expands the credit to include electric charging stations. For biofuel producers, the act extends a 50% first-year depreciation for cellulosic biomass ethanol plants to include any plant producing biofuels from cellulosic (non-food) biomass sources. The act also extends through 2009 a PTC of $1 per gallon for biodiesel and other biomass-based diesel fuels and a credit of 10 cents per gallon for small biodiesel producers, but it cuts the PTC for renewable diesel blended with petroleum to 50 cents per gallon, while closing a loophole that allowed foreign producers to earn a U.S. tax credit. See the press releases from the ACEEE and the National Biodiesel Board.

To help individuals take advantage of all the tax credits, Division C of H.R. 1424 increases the income limits for the Alternative Minimum Tax, while the energy tax provision allows unused tax credits to be carried over to the next tax year. And to help finance energy efficiency improvements, the bill authorizes $800 million in Qualified Energy Conservation Bonds, which will be issued by state and local governments. The bonds can be applied to a wide range of energy efficiency projects, research and demonstration projects, and even renewable energy projects. The bill also extends the authority to issue bonds for qualified green building and sustainable design projects through 2012. See the Division B and C of H.R. 1424, and for comparison, see Subparts A, D, and E of Part IV of Subchapter A of Chapter 1 of the existing Internal Revenue Code (posted by the Cornell University Law School), as well as Section 168 of Part VI of Subchapter B.

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