Congress to Allow Tax Credits to Expire?
Posted September 29, 2008 at 12:46 pm 
Filed in: Over the weekend, in addition to the negotiations over the financial bailout, the House and the Senate engaged in a game of brinksmanship over the fate of several important tax measures, including extensions of the production tax credit and investment tax credit for wind, solar and other forms of renewable energy. Each House has passed a bill extending the credits (among other measures), but the House bill apparently pays for the extensions with tax increases that the Senate and the White House oppose. Notwithstanding the merits of the arguments over the details of the bill, it is important to understand the potential consequences of failing to extend these tax provisions.
While wind power in particular, along with solar and other renewables, have become more cost competitive in recent years, they generally remain unable to compete with more traditional forms of energy production in the absence of these tax credits. Over the past several years, they have been allowed by Congress to expire several times. In each instance, development of new capacity collapsed, as indicated in the graph below.
These tax credits clearly play an important role in supporting the industry. While they may represent only one small part of the solution to our energy problems, it is an important part nevertheless.
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