Losing Energy Tax Credit Hurts Cleaner Technologies

Geothermal, other sources deserve same consideration from Congress as wind and solar

Dougherty_LO_RES_Crop_2Editor’s Note: The following editorial was posted Oct. 26 to the Roll Call website here.

By Doug Dougherty – President and CEO
GEO – The Geothermal Exchange Organization

Congress’ most consequential responsibility involves making decisions about our tax code. Everything flows from tax policy: innovation, consumer choices, where and how businesses decide to form and prosper. Seemingly trivial tax provisions — often referred to with opaque numbers from the tax code — escape the attention of the general public altogether. Yet each provision packs sweeping and long-term consequences for our country. And none more so than those involving energy, which determine how we power our economy and handle climate change.

Under last year’s so-called omnibus legislative package, Congress negotiated, in exchange for lifting the oil export ban, an extension of existing energy tax credits — but only for wind and solar technologies. A whole host of other technologies that currently qualify for energy tax credits under Sections 45, 48, and 25D of the tax code were inadvertently left out.

This group, often referred to as “orphan” technologies due to their lower profiles compared to solar and wind, collectively constitute the backbone of an all-of-the-above approach to energy production. Yet after 2016, hydropower, geothermal steam power, combined heat and power, closed- and open-loop biomass, municipal solid waste power, geothermal heat pumps, fuel cells, microturbines and so-called small wind will all cease to benefit from tax credits that are viewed as essential to their continued rollout and evolution on a commercially viable scale. Unless, that is, Congress decides to provide the same benefits that were afforded to wind and solar.

As bad as the hit is to these fledgling technologies overall, the loss for geothermal heat pumps is even worse. One tax provision extended until the end of 2019 was bonus depreciation, which allows businesses to expense half the cost of a purchase, with the remaining half depreciated according to prescribed schedules in the tax code. For most forms of renewable energy, the prescribed depreciation schedule is five years. In this case, most businesses can elect to expense half the cost of renewable property and depreciate the remaining half over a five-year period.

In order to take advantage of bonus depreciation, the renewable technology must be listed among those that qualify for renewable tax credits. Geothermal heat pumps are listed, but Congress added language unique to them saying, in effect, that would be the case only through the end of 2016. Since the renewable tax credit for geothermal heat pumps expires at the end of the year, they also become ineligible to elect bonus depreciation.

Energy-efficient homeowners will lose out if Congress does not act to address this classic Catch-22 situation. Section 25D of the tax code, a tax credit that goes directly to the taxpaying homeowner who installs a geothermal heat pump, expires at the end of this year. According to the Energy Department, “Although the purchase and installation cost of a residential GHP system is often higher than that of other heating and cooling systems, properly sized and installed GHPs deliver more energy per unit consumed than conventional systems.” It does not make sense to provide a tax credit to businesses that invest in geothermal heat pumps without incentivizing homeowners when practicable, especially when it was provided for solar panels. The heat pump industry presence in the residential sector is just as important as it is for the commercial sector.

It is certain that Congress inadvertently deprived these renewable technologies of the tax status provided to almost all other renewable technologies. Making things worse, energy-efficient homeowners are going to see a tax increase. All of these benefits could be reinstated if Congress extends the renewable tax credits afforded to wind and solar. Until then, all these advanced energy technologies that will help consumers and the environment, like geothermal heat pumps — which are more energy efficient and environmentally friendly technologies — face an unnecessarily challenging future. (GEO/Roll Call)