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Green Bailout

Congress pours tax benefits into efficiency and renewables.

Fortnightly Magazine - November 2008

When Congress enacted the Emergency Economic Stabilization Act—popularly known as the bailout bill—in early October, lawmakers included more than 300 pages of provisions that were completely unrelated to mortgages, banks or Wall Street. Many of these provisions represent classic pork-barrel politics— i.e., tax incentives for mine-rescue team training; tax exemptions for certain wooden arrows made for children; and a rebate of federal taxes collected on rum from Puerto Rico and the U.S. Virgin Islands.

Of course, the difference between good policy and bad pork depends on one’s perspective. Coal miners undoubtedly will appreciate having well-trained rescue crews. Wooden arrow makers everywhere are rejoicing over their reduced tax burden. And I personally raise my glass to Congress for keeping the Bacardi flowing.

Not surprisingly, the bailout bill also included many titles of interest to energy companies, and almost all of them create incentives to invest in green energy alternatives. While they might represent political pork for sellers of wind turbines, solar panels and conservation-related products and services, they also reflect America’s increasing focus on efficiency and sustainability in energy policies.

A Round on the House

Of the many provisions in the bailout bill, few of them actually establish new federal policy. Instead, most just continue existing provisions that already were set to expire, and probably would have been enacted in some form—if not this session, then next session. The rum tax provision is one example; it’s been around for decades, and Congress routinely extends it as part of the islands’ special status.

Another example is the federal renewable energy production tax credit. Congress extended, through the end of 2009, the wind energy production credit that was scheduled to expire at the end of this year. Also it extended tax credits through 2010 for other types of renewable power production—for the first time including wave-power projects in the definition of “renewable.” The law also extends investment tax credits for solar energy, fuel cell and microturbine equipment through 2016; and expands and extends credits for carbon-sequestering coal-gasification projects.

Such extensions and expansions didn’t change U.S. policy in any significant way. Rather they provided political cover for legislators who were campaigning for re-election. For example, in an October 14 debate with Democratic challenger Al Franken, Sen. Norm Coleman (R-Minn.) asserted that his vote for the bailout bill helped ensure renewable production tax credits wouldn’t expire. “That was the only shot to get it done,” Coleman said. “Mr. Franken said he would’ve voted against a bill that contained those credits.”

But in addition to such politically convenient, status-quo tax provisions, Congress did stake out some new policy territory in the energy titles of the bailout bill.

For example, it makes utility companies eligible for investment tax credits—eliminating a barrier to direct utility ownership of solar, fuel cell and microturbine projects. This could turn out to be a big deal for solar in particular, as utilities now will consider solar electric projects to

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