Federal Subsidies for Bioenergy Extended
– by Bob Cleaves, January 27, 2016, Biomass Magazine
During the year-end budget negotiations, which have become an annual Congressional ritual Congress presented the biomass industry with what could be an opportunity for tax parity.
For the past few years, the end of the year has marked a scramble by all involved in renewable energy to persuade Congress to preserve or extend, for the next year, the production tax credit (PTC) and investment tax credit (ITC). At times, this tax package involves issuing a retroactive credit to cover the current or previous year during the times when the credits were not renewed the previous year.
For the biomass industry, these credits have been useful at times, but they are difficult for potential facilities to use. A one-year or two-year extension is plenty of time to develop a wind farm, but not nearly enough time to plan and site a new biomass facility, source its fuel and obtain proper permits. Add to that the value of the credit—half of what wind projects receive—and the tax extender ritual has become a tradition that our industry doesn’t benefit much from, but also can’t afford to be cut out of.
This year, tradition went out the window.
After a decade of awarding billions of dollars to the wind and solar industries, sparking considerable growth for each, Congress set an end date for these industries to qualify for the PTC and ITC. After a five-year extension under the current terms, the credits will reduce incrementally over the next few years, before ending completely. This is not terribly surprising since, by most metrics, these industries are healthy and expanding independent of the tax credits, and the Clean Power Plan will only create more opportunities for growth.
What was surprising and encouraging to biomass this time around was that the tax credits that our industry qualifies for were left intact, with no phase-out on the horizon. In past years, our credits were extended definitively for only two years—one year retroactive, plus the entirety of the current year.
While two years—with one of them being retroactive—is not a long enough time period for most biomass developers to conceive and construct a project, this is a significant win for our industry for a couple of reasons. First, the fact that our credit was not phased out means that Congress recognizes the lopsidedness of the PTC in favor of wind and chooses to continue its support of biomass. Second, a continued biomass credit in the face of a reduced and eventually nonexistent wind credit does go some distance toward creating a more even playing field among renewables, something we’ve sought for a long time and which could help encourage expanded use of biomass as states look for compliance options under the Clean Power Plan.
Most significant is that by extending tax credits for biomass, Congress is implicitly acknowledging the additional benefits that biomass provides beyond power generation. Biomass creates a much-needed market for forestry residues, and adds or enhances thousands of jobs in rural America. It’s also a critical element in forest health and maintenance, and in the disposal of agricultural byproducts.
Rather than shutting the door on tax credits for biomass, Congress has left us an opening. The lack of a phase-out for biomass could very well present an opportunity for a tax credit for the industry that better addresses our needs, provides support for existing facilities and spurs growth where it is feasible.
This year will be a very condensed and busy year for Congress, with a presidential election as a major focus, but exploring a tax benefit for the biomass industry will be a major focus for Biomass Power Association.