02.02.16

Senator Lankford Introduces Legislation to Completely Phase Out Federal Energy Tax Credit

WASHINGTON, DC – Senator James Lankford (R-OK) today introduced an amendment to a Senate energy bill to completely end federal renewable energy production tax credits by the end of 2031, making 2019 the last year a project could qualify for a credit. The recently passed Consolidated Appropriations Act of 2016 enacted a gradual phase down of the Production Tax Credit by 2031, but failed to give the industry statutory certainty after the drawdown. Lankford’s amendment would eliminate the credit at the end of the drawdown by completely removing the policy from United States tax code.

The provision is submitted as an amendment (#3209) to the Energy Policy Modernization Act of 2016 (S.2012), which is currently being debated in the Senate. 

“As I have said before, I fully support an all-of-the-above energy strategy, including wind and renewable energy,” said Lankford. “But, the taxpayer should not be forced to prop up an industry for decades when the tax credit was originally meant as a short-term jump start. The wind industry is established and prosperous; they no longer need taxpayer subsidized help. Any state or local government can issue tax credits, but it is time for the federal government to stop these credits.”

Once a company qualifies for the production tax credit (PTC) for a specific renewable energy construction project, that credit can be claimed for up to ten years once the project starts producing power. The PTC is primarily claimed by the wind industry, but is also used by other renewable energy sources. Specifically for wind, the Consolidated Appropriations Act of 2016, which was signed into law in December, retroactively extended the PTC for projects beginning construction in 2015 and 2016. The law also extends eligibility for the credit through 2019, but reduces the credit value for projects beginning construction to 80 percent in 2017, 60 percent in 2018, and 40 percent in 2019. Before this amendment, the ten-year PTC was routinely retroactively extended at the end of every year, seemingly with no end in sight. 

Lankford introduced similar legislation as a standalone bill in October, before the Consolidated Appropriations Act of 2016 became law. That bill, the PTC Elimination Act, would have started the phase-out immediately.

The Production Tax Credit was established 23 years ago as part of the Energy Policy Act of 1992 and since its adoption, wind power has grown tremendously into a self-sustainable, multibillion dollar industry. Wind generation has grown more than 3,000 percent and capacity has spiked from 1,500 million megawatts in 1992 to over 50,000 megawatts in 2012. Meanwhile, the cost to taxpayers for the PTC for all qualified renewables has increased substantially since it was put in place.

Wind power is an economically sustainable industry, and 37 states, including Oklahoma, have production incentives in place through either renewable portfolio standards or renewable portfolio goals. Ultimately, the federal PTC is a redundancy that subsidizes policies which states are already pursuing and doing so in ways that are targeted toward local resources and utility markets.

The PTC also creates distortions in electricity markets. Wind producers’ negative bids are subsidy-driven and distort the market by sending incorrect price signals, which can harm the long-term reliability and cost effective operation of the utility.

The Energy Policy Modernization Act of 2016 and its amendments are expected to be debated on the Senate floor throughout this week. 

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