Transforming Production Tax Credits

Deck: 

Three reasons to make them a permanent part of U.S. energy policy.

Fortnightly Magazine - July 2006
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For the past decade, the renewable energy industry and various branches of the federal government have engaged in an ungainly, enormously unproductive two-step on production tax credits (PTC) for renewable energy projects, and for wind projects in particular. The back-and-forth choreography is sustained by two unchallenged misperceptions about the PTC: That it has no fundamental justification, and that the value of the credit goes totally to developers.

The PTC can be transformed into a keystone of an effective energy environmental policy. However, to achieve this transformation, the misperceptions must be challenged.

Begin with the current PTC. In broad terms, it offers an inflation-adjusted credit against taxes on certain types of income for every kilowatt-hour generated for the initial years of the operating life of a qualified renewable technology. (The details of the PTC vary by technology, but the basic principles hold for all.) The PTC never was permanent. It initially was passed for a period of seven years, and since has been renewed for periods as short as one year.

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