Democrats’ plan to spend hundreds of billions of dollars providing incentives for clean energy production and usage in their budget reconciliation package could draw on both House and Senate proposals — starting with more traditional tax breaks for renewables and transitioning to a bigger overhaul over the next decade.
Lawmakers say they’re considering a five-year expansion of incentives currently in the tax code and then shifting to a plan that would consolidate tax breaks and tether them to performance in reducing emissions, an attempt to maximize climate benefits.
Both plans have been estimated separately to cost more than $250 billion, representing a significant chunk of the reconciliation bill and a piece that’s gaining emphasis as Sen. Joe Manchin III, D-W.Va., nixes other proposals to address climate change. Democrats are squeezing the package’s price tag to appease Senate centrists, leading to debates around whether to drop pieces of President Joe Biden’s domestic agenda or scale programs back.
Congress’ top tax writers, Senate Finance Chair Ron Wyden and House Ways and Means Chairman Richard E. Neal, have for weeks publicly dug in on using their own clean energy tax proposals, so doing both for less time could resolve the impasse.
“I think that could be a compromise,” Neal said, adding that his and Wyden’s staffs have discussed the idea of a five-year transition period.
It also found backing at a White House meeting with moderate Democrats on Tuesday, said Rep. Mike Thompson, D-Calif., who leads Ways and Means’ tax subcommittee and sponsored the House proposal for clean energy credits.
Thompson said he raised the idea of implementing the House bill for five years before transitioning to Wyden’s plan during the meeting, and that Biden and Treasury Secretary Janet L. Yellen acknowledged that expanding current tax breaks is the best way to start.
A Treasury Department spokesperson didn’t immediately respond to a request for comment.
“It’s got to be a good amount of time,” Thompson said of the transition. “It’s got to be about five years.”
Wyden’s bill to move the U.S. to a new system of incentivizing wind and solar power, electric cars and other green energy efforts would account for a phase-in to the overhaul, but it would implement his new credits more quickly.
Senate Finance marked up the $259 billion package in May. It would scrap clean energy tax credits currently in the tax code and consolidate them into three bins of tax breaks: clean electricity; electric vehicles and clean fuel; and efficient homes and buildings. Incentives would be technology-neutral and kick in or sweeten based on emissions and efficiency thresholds.
The Joint Committee on Taxation estimated the gross cost of the Finance package at about $284 billion, but it would also scrap existing fossil fuel incentives, saving an estimated $24.5 billion and bringing down the net cost. Fossil fuels could still qualify for new clean energy credits if they manage to clear the measure’s performance hurdles, but it seems unlikely those savings would pass muster with Manchin or certain House Democrats from oil-producing states.
Under Wyden’s bill, some expiring tax breaks would be extended through 2022 to allow time for key provisions to be implemented, like the new clean electricity and transportation fuels credits, which would start in 2023.
Meanwhile, every member of Ways and Means has backed the House plan, which would expand existing clean energy incentives and create some new ones. The gross cost was estimated at about $273 billion, but that was lowered to $235 billion after Superfund taxes on oil and chemicals were factored in.
The proposal would expand and extend specific benefits for wind, solar, geothermal and nuclear power and establish or broaden particular programs for sustainable airplane fuel, electric vehicles, buildings, bicycles and more.
The potential compromise would mean enacting the House proposal through 2026 before moving to the Senate’s consolidated format. Wyden’s proposal would begin phasing out tax breaks when business sectors meet certain emissions reduction goals, so it would remain open how long they’d stay in place.
While Neal, D-Mass., acknowledged that Democrats have a potential deal, he said he’s still pressing for the full House plan. Talks on the clean energy plans are ongoing. A Wyden spokesperson said he has not agreed to a five-year timeline.
A deal to move to Wyden’s energy plan over time could offer one way for the Oregon Democrat to make his mark on the final package as centrists complicate some other options, according to a former Senate Democratic aide. Wyden has touted a study by Rhodium Group, an independent research firm, suggesting his approach would reduce power sector carbon dioxide emissions by up to 73 percent below 2005 levels over the next decade.
Ways and Means member Bill Pascrell Jr., D-N.J., said he would support a plan to phase in Wyden’s proposals.
“I know I’ve got to compromise, but I’m not going to compromise principles,” Pascrell said. “I’ll compromise on numbers, I’ll compromise on time in order to get into the end zone.”
As spending comes down from the current proposed $3.5 trillion topline to a lower figure, likely around $2 trillion, and other climate proposals face roadblocks, the clean energy tax credits could become more central.
Manchin opposes a $150 billion “clean electricity performance program” that would reward or penalize utilities based on whether they generate an increasing share of power from renewable energy sources. He’s also against a tax on carbon, another option other Democrats have looked to as a climate policy for the package.
Rep. Jared Huffman, D-Calif., on Tuesday night named clean energy tax credits as a “real” policy that would reduce emissions and help meet climate goals.
“The main point I will keep making is it’s got to be real,” he said. “It can’t just be throwing money at carbon capture and advanced nuclear and calling that a climate solution. It’s not.”