Republican Rep. Tom Reed will unveil a bipartisan bill Wednesday to provide federal tax subsidies for “first-of-a-kind” clean energy technologies for combating climate change.
“We are putting our thumb on the scale to encourage energy innovation through the tax code,” Reed, a centrist from New York, told the Washington Examiner in an exclusive preview of his bill.
Many Republicans have supported providing tax subsidies for renewable energy, but the party has mostly focused on increasing research and development spending to address climate change. Reed’s legislation would go beyond what other Republicans have proposed.
“Hopefully, this shows there are Republicans who want to come to a compromise position on climate change and use the tax code in a way that can solve this problem,” Reed said of his bill.
Reed’s Energy Sector Innovation Credit is unique in that it is technology-neutral, providing new electricity sector tax credits to use applications rather than specific energy sources.
So, while existing clean energy tax policy provides subsidies for wind and solar, for example, Reed’s bill would direct credits to applications such as energy storage, carbon capture for natural gas plants, advanced nuclear reactors, and offshore wind.
The existing subsidies for wind and solar have helped drive their costs down and make renewables competitive with fossil fuels. Reed’s credits are similarly intended to boost advanced technologies that are new and not yet proven but would be critical to working with wind and solar to cut emissions.
“What I have seen through tax credits is, when you pick winners and losers, it can become heavily distortive,” Reed said. “This is about leveling the playing field by making it technology-neutral and open to reward innovation.”
Reed’s office has not yet scored the legislation for its effect on government revenue but is in the process of doing so.
Reed, a member of the tax-writing Ways and Means Committee, is introducing the bill with Democrats on the panel, Reps. Tom Suozzi of New York and Jimmy Panetta of California.
Democrat Josh Gottheimer of New Jersey and Republicans Darin LaHood of Illinois and David Schweikert of Arizona are also co-sponsors.
“We need an all-of-the-above approach, focusing on every option that can improve energy efficiency for our country,” Gottheimer told the Washington Examiner.
Kevin Brady of Texas, the top Republican on the Ways and Means Committee, expressed openness to Reed’s bill.
“The key to tackling climate change is American innovation, not through burdensome regulations and tax hikes,” Brady said. “We also know that any solution must be bipartisan, and I want to applaud Tom for leading the charge on this bill, reaching across the aisle to build consensus and support.”
The bill has earned widespread praise, with conservatives, environmental groups, utilities, and clean energy groups all issuing supportive statements.
That includes the American Council on Renewable Energy, a trade group that unsuccessfully pushed hard for Congress to extend expiring tax credits for wind and solar as part of December’s year-end spending bill.
Reed’s bill would prevent wind and solar projects that receive existing incentives such as the Investment Tax Credit or Production Tax Credit from using the new subsidy. But it would benefit technologies that complement renewables, such as energy storage, which can provide backup power when the sun isn’t shining and the wind isn’t blowing.
“We commend Rep. Reed’s commitment to energy innovation and look forward to working with him on the Energy Innovation Credit Act as the legislation moves forward,” said Gregory Wetstone, president and CEO of the American Council on Renewable Energy.
The bill includes a specific subsidy for energy storage, providing a 30% investment tax credit for the first 20 gigawatts of projects, a provision that Reed’s office projects would cause the deployment of storage to increase by tenfold.
Reed’s legislation also has a built-in slowdown, with the amount of the tax credit sunsetting for each energy technology as it grows.
This provision is intended to address the criticism that the federal government is too willing to extend existing subsidies no matter whether the goal of the policy, lowering the cost of a technology to make it more competitive, has been achieved.
“At the deployment phase, if you can avoid being technology specific that makes a lot of sense because you can avoid a situation where you are sinking money into losing technologies,” said Noah Kaufman, an economist at Columbia University’s Center on Global Energy Policy. “By limiting the credit to emerging technologies you are restraining costs to the government so it will never be a very costly policy.”
