Senate Tax Bill a Major Step Backwards for the Environment
Posted December 13, 2010
The tax bill agreed to last Thursday by Senators Harry Reid and Mitch McConnell contains an energy package that would cause substantial environmental harm. The offending provisions are the tax credits for corn ethanol and liquid coal. While the bill contains several critically needed clean energy incentives, their environmental benefit is outweighed by the harm that would result from the ethanol and liquid coal incentives. NRDC is therefore opposing the bill. Our analysis of the bill and information on what you can do to help are below.
The bill extends a 50 cent per gallon tax credit for liquid coal transportation fuels – fuels produced by liquefying coal. This provision must be stripped from the bill. Congress should not be doing anything to help a liquid coal industry get off the ground. The production and use of liquid coal fuels releases more than twice the carbon pollution as conventional fuels. Even if some of the carbon pollution from the production process is captured and disposed, the fuel might still result in more pollution than conventional fuels. There are also the severe environmental impacts from coal mining, which include habitat loss, groundwater contamination and mountaintop removal.
The bill extends the tax credit provided by Sections 6426 and 6427 of the federal tax code. While fuels qualifying for the credit have to come from production facilities that capture and dispose of 75% of their carbon pollution, that’s not enough to bring emissions down to parity with conventional fuels. Moreover, this incentive is intended to commercialize a fundamentally flawed technology. Once commercialized, there is little evidence that the next generation of plants will perform any carbon and capture at all. My colleague Brian Siu's recent blog post and our liquid coal fact sheet provide more information about the problems of liquid coal and the bill's tax credit for this dirty fuel.
The bill includes a one-year extension of the Section 40 corn ethanol tax credit. The corn ethanol lobby went into this year demanding a 5 year extension of this credit (officially called the volumetric ethanol excise tax credit or VEETC). The Senate and President Obama have seen fit to say no and only offer a one-year extension. This will save tax payers $25 billion. But this is still a huge waste of tax payer dollars. Ending the tax credit now would save an additional $6 billion. Reducing the tax credit by 20% would save $1.25 billion. Saying no to 5 years is a start, but Congress should go further and end this wasteful, environmentally harmful handout. Sending 70cents of every renewable energy dollar to oil companies to use ethanol defies common sense. It is time to invest in new fuels and clean energy sources that provide long-term energy security and clean up the air and water that we all need..
The bill contains a critically needed extension of the Convertible Renewable Tax Incentive for renewable electricity projects. As discussed in this NRDC blog post, Congress enacted the program to provide renewable projects that qualified for federal tax credits to take a grant in lieu of the tax credits, which became essentially worthless because of the recession. There has been little change in these economic conditions , so extending the program is essential to the continued growth of the renewable energy industry. According to this study by the U.S. Partnership for Renewable Energy Finance, an extension would help to create or preserve 100,000 jobs.
The bill makes minimal progress to promote energy efficiency. On the positive side, it extends the credit for energy efficient new homes (Section 45L), which has been caught in limbo since it expired in 2009. We are pleased to see this extension apply retroactively to 2010 and through 2011. The bill also extends the credit for manufacturers of energy efficient refrigerators, dishwashers and clothes washers, but cuts the amount of the credit by two-thirds for any individual taxpayer. While the bill also extends the credit for energy efficiency in existing homes (Section 25C), it does so in a way that cuts out the legs from under it. Unfortunately, the current extension of Section 25C is too measly to encourage most homeowners to invest in energy efficiency (in particularly energy efficient equipment like furnaces and water heaters) and many homeowners won’t even be eligible.
The bill does not include an expansion of the Section 48C advanced energy manufacturing tax credit. This credit is an essential federal investment needed to help retool America’s factories to make clean energy technologies possible. The limit on the total amount of tax credits available under the provision was quickly reached after Congress enacted it, leaving more than $5.8 billion in applications that could not secure tax credits. Congress should increase the limit on the total amount of tax credits by $5 billion to help create green jobs right here in America.
What can you do to help?
Both the Senate and House are considering the bill, and could be voting any day now on whether to pass the legislation. Contact your Senator and Representative as soon as possible. Call the House at 202-225-3121 and then call the Senate at 202-224-3121. Urge them to make sure the final bill promotes clean energy and good jobs, and not more harmful, wasteful spending. More specifically, they should 1) strip out the liquid coal tax credit, 2) remove (or at least reduce) the corn ethanol tax credit, and 3) use the money saved from cutting the dirty fuel credits to offset the cost of adding the Section 48C advanced energy manufacturing tax credit.
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