House Republicans, Democrats Spar Over Renewable Energy Incentives at Panel

Published in BNA Daily Tax Report

House Republicans during a panel April 19 questioned whether tax incentives for renewable energy have been effective at creating jobs and bringing energy costs down for taxpayers.
Democrats said the joint hearing with two Science, Space, and Technology subcommittees was a political ploy for the majority party to voice its agenda on the issue since the committee did not have jurisdictions over taxes. Republicans said the hearing was meant to draw attention to the issue and to ensure that government money was being spent effectively.
“At a fundamental level, we have to understand whether these subsidies have a positive net effect on not only energy production, but also jobs, and the economy as a whole,” Investigations and Oversight Subcommittee Chairman Paul Broun (R-Ga.) said. “More specifically, we also need to evaluate whether the mechanisms previously employed—tax credits and grants—are the most efficient ways to proceed.”
The Section 1603 program … helped small businesses during a time period when tax equity was scarce, said Rhone Resch, president and CEO of Solar Energy Industries Association.
The panel looked at the various tax credits and tax programs for renewable energy, including the Production Tax Credit, the Investment Tax Credit, and the Treasury grant program for Internal Revenue Code Section 1603, commonly called the Section 1603 program. The incentives have become a major issue for Congress as several of the provisions have expired or will expire at the end of 2012 and industries are calling for action to prevent extensive layoffs or drags in economic development.
Lawmakers Argue Over Numbers
The biggest contention for the panel and lawmakers came from disagreements over whether the government subsidies were effective at creating jobs in the sectors or had a significant impact on the cost of energy for consumers.
“As this debate continues, the free market in energy is providing a cost-saving alternative in the form of a technology-driven revolution in natural gas production that can deliver clean, reliable baseload electricity to consumers at lower prices,” said Energy and Environment Subcommittee Chairman Andy Harris (R-Md.). “The contrast between these two paths is stark—one is a centrally-planned, politically-driven path requiring taxpayers and ratepayers pick up the tab for more expensive energy; the other allows technology and the free market to determine the best and most affordable mix of electricity sources without burdening taxpayers and driving up federal deficits.”
One study found that the Section 1603 program, for example, resulted in up to 75,000 direct and indirect jobs and up to $44 billion in total economic output, said Michael Pacheco, vice president of deployment and market transformation for the National Renewable Energy Laboratory.
Harris and Broun questioned Pacheco’s numbers as compared to other reports that only about 300 jobs were still in place. Pacheco said the specific numbers of jobs still in place as a result of the 1603 program would be difficult to calculate.
Harris took issue with supporters’ claims that the incentives had led to significant decreases in energy costs for consumers, citing reports that solar energy would cost four times more than natural gas.
“Who is going to pay that difference for an inefficient delivery of an electric generation to my seniors and my veterans and my schools?” he said. “We have to borrow that 1603 money from China.”
Does the Policy Work?
Proponents, however, claim the incentives have helped level competition in the energy market and allowed companies to weather the economic downturn. The Section 1603 program, for example, that provided grants in lieu of a 30 percent tax credit for qualified renewable energy projects helped small businesses during a time period when tax equity was scarce, said Rhone Resch, president and CEO of Solar Energy Industries Association.
“If policymakers have the foresight to retain these highly effective tax policies, the short-term investment will yield significant long-term results,” he said.
“Despite very substantial support in the form of direct and indirect subsidies at the federal and state levels, renewable electricity has only a small share of the markets with poor prospects for growth.”
All the arguments cited by the renewable energy sector in support of the subsidies are flawed, said Benjamin Zycher, a visiting scholar with the American Enterprise Institute, echoing the similar testimony he gave at a Senate Finance panel in March (58 DTR G-2, 3/27/12).
“Despite very substantial support in the form of direct and indirect subsidies at the federal and state levels, renewable electricity has only a small share of the markets with poor prospects for growth,” Zycher said.
Margo Thorning, senior vice president and chief economist with the American Council for Capital Formation, said renewable energy does not meet requirements to support tax incentives as they are no longer an emerging industry, have no impact on greenhouse gases, and do not create jobs. The federal tax code should be neutral and rely on policies like depreciation, she said.
To be sure the policy is effective, lawmakers need to make policies that encourage changes in behavior rather than rewarding current practices, said Molly Sherlock, specialist in public finance with the Congressional Research Service. Effective policy would also support a broad array of technologies and provide certainty, she said.
“One challenge with current policy is that with policy uncertainty and expiring provisions, many of the projects that take place are taking place in face of that uncertainty and may have gone forward anyways without the tax incentives,” Sherlock said. “So when then tax incentives are enacted temporarily at the last minute, they may end up rewarding projects that would have gone forward anyways, diminishing the economic efficiency of the incentive.”
Democrats Call for End to Oil, Gas Subsidies Instead
Democrats pushed against the Republican suggestion that the incentives were a waste of government money. The incentives are estimated to cost $43.1 billion between 2011 and 2015, according to Broun.
“Renewable energy must move forward and become a larger share of our energy supply,” said Investigations and Oversight ranking member Paul Tonko (D-N.Y.). “I support these programs because they work. Some of them need to be expanded to promote wider applications of new energy technologies.”
Several members questioned the point of the hearing that tackled an issue the committee cannot follow through on because of jurisdiction.
“I don’t believe that this hearing is going to lead to any meaningful legislation,” Rep. Jerry McNerney (D-Calif.) said. “It’s more of a political sounding board for the majority party.”
Instead, the leading Democrats on the panel urged for a similar congressional hearing on the tax incentives for oil and gas industries. The fossil fuel industries have had government support for about 100 years, so the debate is not about “picking winners and losers,” Tonko said.
“The subsidies to the oil and gas companies are going to an energy sector that is immensely profitable and immensely rich,” he said.