Want a clean energy future? Look at the tax code
America is undoubtedly at a key inflection point as we work to transition to a clean energy future. There is alignment between lawmakers, industry and the public in favor of the transition to cleaner fuels and new technologies designed to reduce carbon emissions. As Congress contemplates new energy and environmental policy goals, tax policy becomes essential to provide the necessary support and maintain accessibility for consumers.
Public authorities have adopted this transition to a cleaner energy mix in recent years, in line with the interests of their communities and consumers. This effort accelerated as the cost of clean alternatives fell and performance improved. Two of the nation’s largest utility grids, the Sacramento Municipal Utility District and the Los Angeles Department of Water and Power, have set targets to eliminate greenhouse gas emissions from their supply portfolios by 2030 and 2035, respectively. Almost all utilities have set targets to reduce emissions and increase the integration of low and non-emitting resources into their offering.
That’s because public power systems, which collectively serve about 50 million Americans, are focused solely on meeting the needs of the communities they inhabit. As not-for-profit public services, their “dividend” comes in the form of lower prices, reliability and environmental stewardship. The benefits accrue to the clients, and they are directly accountable to the municipalities that govern them. As mission-driven organizations, public energy is at the forefront of the clean energy transition, working to provide Americans with the clean, reliable and affordable energy they need.
But there is one thing holding back public power as the industry strives to meet ambitious clean energy goals – the federal tax code. As it stands, federal tax policy disadvantages public authorities by making them pay more for the same clean energy results as customers in other markets. And those communities we’re talking about include some of the biggest cities in our country, including Seattle, Phoenix, San Antonio, Omaha, and Orlando, among others.
As our federal lawmakers understand, the tax code is a powerful tool that stimulates investment. One of the best ways federal policymakers can accelerate our clean energy future is to remove undue restrictions on the ability of governments to access tax incentives for infrastructure investments.
In particular, the inability to use tax credits for renewable and clean energy is a huge hurdle preventing both public energy and electric co-ops, which together serve more than 90 million Americans, from freeing up their full potential. If the goal is to move towards a cleaner energy grid by providing tax incentives for the development of infrastructure for the production, storage, transmission and charging of clean energy electric vehicles, federal incentives must be fully comparable to those received by developers and private utilities.
Without a policy change, public energy communities will be unduly overburdened as their local utility invests in clean energy technologies to decarbonize their production portfolios, improve air quality and protect the environment. The denial of access to tax credits obliges the public authorities to conclude electricity purchase agreements with third-party developers who can directly access the tax credits. Much of the value of the tax credit then goes to the project proponent and its investors rather than to the nonprofit utility and communities it serves.
Fortunately, this policy change is not without supporters. Chairman of the Senate Finance Committee Sen. Ron WydenRonald (Ron) Lee WydenCongress must step up crypto, or Biden could crush it (D-Ore.), Included 100% access to direct payment tax credits for public energy in its Clean Energy for America Act. Chairman of the House Ways and Means Committee Richard nealRichard Edmund NealDemocrats Face Growing Storm Over IRS Reporting Provision Biden’s IRS Proposal Could Mark End to Privacy in Banking Overnight Health Care (D-Mass.), Also provides 100% direct payment tax credits for public energy as part of the Build Back Better Act. President BidenJoe BidenManchin Lays Child Tax Credit: Abrams Report Targets Black Worshipers During Campaign Stops for McAuliffe in Virginia Pentagon, State Department Oppose Responsibility in Afghanistan MOREThe own Justice40 initiative, which was created to ensure that 40% of the benefits of certain federal climate investments go to underprivileged communities, calls for support for the review of the federal investment tax credit to ensure the eligibility of municipal entities such as public authorities.
Now is the time for lawmakers to act. As legislation progresses through Congress, language that provides public power with 100% access to direct payment tax credits must be included in any final legislation. Without it, Congress leaves behind nearly 30 percent of the nation’s electricity utility customers without access to incentives and support. With tax code reform, ambitious clean energy goals can be advanced and achieved fairly across the country.
John Di Stasio is the Chairman of the Large Public Power Council, an advocacy organization that represents 27 of the largest public power systems in America and is the former CEO of the Sacramento Municipal Utility District.