January 14, 2015 | AD & Biogas, Policies + Regulations

BioEnergy Outlook: Life After The PTC

Ted Niblock

Ted Niblock
BioCycle January 2015

In early 2007, shortly after the Democratic Party regained a majority in the U.S. House of Representatives, I met with a senior member of the staff serving the committee responsible for tax policy. Since both the new Chairman of the Committee and Speaker of the House were very progressive, I expected enthusiastic support for renewable energy policy. Near the top of my list was to have a meaningful extension of the Production Tax Credit (PTC), or better yet an opening of the easier to use Investment Tax Credit (ITC), which already reached well into the future.
The PTC is a tax credit awarded to certain renewable energy projects. It applies to each kWh produced for the first 10 years of a facility’s operation. In 2009, biogas projects were eventually permitted to convert their PTC eligibility to the ITC (an immediate credit equal to 30% of eligible construction costs) but never got direct access to the ITC’s more generous expiration dates. For simplicity’s sake I refer to the PTC, which has always been the relevant expiration date.
At the time of the meeting the PTC had been stuck in a Kafkaesque cycle of one to two year renewal periods, making any long term planning by the renewable energy industry nearly impossible, a problem that was not fixed then and is even worse now. Despite these flaws the PTC at least had a fair measure of bipartisan support at that time, so I expected an easy conversation. Instead the staffer blasted the PTC as a very poor policy tool, pointed out that the tax code’s task was to effectively fund the government, not make other policy, and the PTC should be replaced with more coherent renewable energy legislation, such as a national renewable portfolio standard.
These are all valid criticisms, but it was surprising to hear them in that context. The meeting was my first exposure to the reality that a complicated web of interests holds up the PTC, and there are no guarantees of support by party or general ideology. As a result, the PTC has continued to be renewed only for very short periods, and sometimes only after technically expiring. Congress reached a new low at the end of 2014, renewing it only for projects begun in 2014 with only weeks left in the year. This foolishly parsimonious move will create no new projects, but will needlessly reward those that could have been built anyway. This perverts, of course, the whole point of incentive programs.

Goodbye PTC?

So does the death bell toll for the PTC? Probably. (Even the powerful wind industry is trying to negotiate a “phase out.”) The spin being put on the latest dismal result is that, despite the recent renewal being inadequate to the point of asininity, there is still “support for the concept of the PTC.” Oh good. As if we would feel reassured if our spouses suggested they were still supportive of the concept of our marriages.
Hope for further renewal or extension is now placed on larger scale tax reform in the next Congress. This in turn is dependent on getting bipartisan support for an overhaul of the tax code, which the President would then sign. How a Congress with the attention span of a gypsy moth, that has failed to do anything but barely keep the lights on for years now, is going to suddenly reform the massive and complicated tax code is not immediately obvious to me.
There is an argument that the next Congress, completely controlled by the Republican Party, might actually work better with the President than a divided one. With more control over the Congress, and over its own party, the theory is GOP leadership may want to compromise to get things done, and the President in the last years of office might be willing to stray from the demands of his more liberal supporters. Unfortunately this is too optimistic. The current Congress retains too much of the acrimony (even intra-party) from the last, and will unlikely do anything except fund the government and send legislation to the President designed to be vetoed and thus create a rhetorical framework for the 2016 election.
I would, of course, have welcomed a real extension of the PTC; table scraps are better than nothing. However, since it is on the ropes much worse than ever before, it might be worth evaluating the allocation of resources spent to keep it alive. One very positive development in recent years is that a significant constituency pushed very hard for its extension. That coalition is impressive, and has many talented people in its ranks. Perhaps there can be a moment of enlightenment where this powerful group looks for a better fight on behalf of the renewables sector.
The PTC was not bad policy; it just wasn’t good policy. The biogas industry will obviously lose some projects from its absence, and a new energy policy is at least two years away. However, if historical patterns continue, public support for green policies will grow with the economy, and bipartisan support for some new (perhaps as yet unarticulated) renewable policy might emerge. There are moderate voices in the Republican Party driven by environmental stewardship or the interests of their own state’s economic growth who will support reform. Perhaps it is better not to squander that potential alliance on a mediocre policy that has become a hot button trigger word for conservatives.
Ted Niblock develops biogas projects for NewAg Development. His column for BioCycle, BioEnergy Outlook, first appeared in 2013.

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