The U.S. government recently announced that it would award up to $2.3 billion in tax credits under the American Recovery and Reinvestment Act in accordance with Section 48C of the Internal Revenue Code to 183 clean energy manufacturing projects across the United States.  Following a competitive application process that opened in August of 2009, and the submission and review of over 500 applications for clean energy manufacturing projects, these tax credits were awarded to manufacturing projects in order to promote economic growth and encourage a robust domestic manufacturing capacity for renewable and clean energy projects.  The application process considered specific criteria for these projects, including, among others, domestic job creation; the net impact in avoiding or reducing air pollutants or greenhouse gas emissions; the greatest potential for technological innovation and commercial deployment; and the shortest project time from certification to completion.  The Internal Revenue Service has already notified the projects that have been awarded the tax credit, as well as the amount of the tax credit, which will be allocated to these projects until the program funding is exhausted.  Importantly, this investment in the manufacturing tax credit will be matched by up to $5.4 billion in private sector funding. 

Because the clean energy manufacturing tax credit program was substantially oversubscribed by “technically acceptable applications” during the application period, the White House “has called on Congress to provide an additional $5 billion to expand the program” in order to provide further tax incentives to “worthy applicants who are willing to invest private resources to build and equip factories that manufacture clean energy products in America.” The Administration’s statement that recommends expansion of the program includes the observation that “there is already an existing pipeline of worthy projects and substantial interest in this area, [and] these funds will be deployed quickly to create jobs and support economic activity.” 

The pie chart below reflects the individual sectors that received the energy manufacturing tax credit, according to an Excel spreadsheet linked in the Department of Energy press release announcing the tax credits.  The Solar Photovoltaic, Solar Components and Materials, Industrial, and Buildings sectors are the largest recipients, by dollar amount, of the clean energy manufacturing tax credits, and more than a dozen additional clean energy manufacturing sectors also received tax credits under the program. 

(1)  Approximately 137 of the 183 projects were identified by technology sector.  The remaining projects were not identified by a technology sector.  Given the lack of data relating to these projects and their respective sectors, these projects were not included in the chart.

(2) The “Other” category on the pie chart includes the following sectors that represent 2% or less of the total dollar amount awarded: Batteries ($29,360,400, 5 projects); Biomass ($29,304,480, 2 projects); Carbon Capture & Storage ($4,842,438, 2 projects); Fuel Cells ($5,510,100, 2 projects); Geo/Buildings ($8,941,626, 1 project); Smart Grid ($35,652,663, 9 projects); and Solar-Hot Water ($806,501, 3 projects).

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The Department of Treasury last week released guidance and application information on the Qualifying Advanced Energy Project Credit (”Advanced Energy Tax Credits”) available to manufacturers of certain clean technologies.  The American Recovery and Reinvestment Act of 2009 (”Recovery Act”) allocated $2.3 billion in Advanced Energy Tax Credits.  The purpose of the program is to encourage taxpayers to re-equip, expand, or establish manufacturing facilities for the production of certain advanced energy related property.Applicants seeking to receive the Advanced Energy Tax Credits are required to submit (1) a preliminary application and final application for recommendation to the Department of Energy (”DOE”); and (2) an application for certification of the project by the Internal Revenue Service (”Service”).  The pre-application deadline to the DOE for the 2009-2010 solicitation is September 16, 2009 and final applications must be received by October 16, 2009.  Application to the Service must be received by December 17, 2009.  The Service will allocate available funds to projects in based upon DOE project rankings.  If funds are not exhausted in the initial solicitation round, an additional solicitation round will be conducted for the 2010-2011 period.The Advanced Energy Tax Credits would function similar to the Investment Tax Credit utilized in renewable energy projects, equal to a tax credit of 30 percent of the basis of qualified investment once the project is placed into service.  The credit allocation is limited, however, to $2.3 billion and whether an applicant will receive credits will depend upon the results of the competitive solicitation process and Service certification.  Following certification, the taxpayer will have three years to place the qualifying project into service, or the certification is no longer valid.

Projects Must Re-Equip, Expand, or Establish a Manufacturing Facility for Eligible Advanced Energy Property

The Advanced Energy Tax Credits are available for facilities that will manufacture, re-equip, or expand production of specified advanced energy property.  Property that, after further manufacture, will become specified energy property (for example, wind turbine blades) is also eligible. Under the Treasury Guidance, advanced energy property is defined to include: (1) property designed for use in the production of energy from renewable resources; (2) fuel cells, microturbines, or an energy storage system of use with electric or hybrid-electric motor vehicles; (3) electric grids to support the transmission of intermittent sources of renewable energy, including property for the storage of such energy; (4) property designed to capture and sequester carbon dioxide and sequester carbon dioxide of emissions; (5) property designed to refine or blend renewable fuels, but not fossil fuels, or to produce energy conservation technologies; (6) new plug-in electric drive motor vehicles, qualified plug-in electric vehicles, or components designed for use with such vehicles; and (7) other property designed to reduce greenhouse gas emissions.  The project must not produce any property that is used in the blending or refining of transportation fuels other than renewable fuels.

Advanced Energy Tax Credits will not be allocated to a project with respect to any qualified investment for which a credit is allowed under certain existing tax incentives, including the Section 48 (the renewable energy Investment Tax Credit), 48A (Advanced Coal Project Credit), or 48B (Qualifying Gasification) credits.  Additionally, projects that receive payment under the Department of Treasury Grant Program established by Section 1603 of the Recovery Act will not qualify for the Advanced Energy Tax Credit.

Application Process Has Opened; the Initial Deadline to DOE is September 16, 2009

DOE will provide to the Service a recommendation and a ranking for projects if it determines the advanced energy manufacturing project has a reasonable expectation of commercial viability and merits a recommendation based on evaluation criteria.  In reviewing applications, DOE will equally weigh the following four criteria: (1) domestic job creation during the credit period (February 17, 2009 through February 17, 2014); (2) net impact in avoiding or reducing air pollutants or anthropogenic emissions of greenhouse gases; (3) greatest potential for technological innovation and commercial deployment; and (4) shortest project time from certification to completion.  The applicant must also calculate the incremental energy produced, saved, or stored due to the project.  DOE anticipates the completion of merit reviews by December 16, 2009.

Applicants must also apply to the Service for project certification before December 17, 2009.  The Service will allocate the amount of qualifying advanced energy project credit at the time the Service accepts the application for certification.  The DOE will rank projects in descending order, and the Service will allocate the full amount of Advanced Energy Tax Credit to the project receiving the highest ranking before lower-ranked projects are allocated any credits.  The same process will apply to the second and lower-ranked projects until the amount available for allocation is exhausted.  For the 2009-2010 application round, the Service will accept or reject the taxpayer’s application by January 15, 2010, and will notify the taxpayer by letter of its decision.  The acceptance letter will state the amount of the credit allocated to the project and the taxpayer will have three years to place the certified project into service or the certification will become void.

Projects that are accepted by the Service will be required to enter into an agreement and agree to provide additional information to the Service, including milestones to project completion.  Accepted projects have one year to submit supplemental information to establish that the project will be completed within three years from the receipt of the certification letter.  Within one year, accepted projects must receive all federal, state, and local permits, including environmental reviews.  In addition, the taxpayer must demonstrate has completed steps necessary in that period to place the project in service before the three-year anniversary of the certification.  Recapture rules apply to the Qualified Energy Tax Credit.

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As the Senate continues its work on a comprehensive climate and energy bill, it is drawing ideas from a broad range of sources, from the American Clean Energy and Security Act (H.R. 2454) which passed the House in late June and the various alternatives to that Bill, introduced during the 110^th  and 111^th Congress, to the work done by Senator Jeff Bingaman’s Energy and Natural Resources Committee.  To the extent that the bill will address smart grid and cleantech policy, one source which should not be overlooked is the Storage Technology of Renewable and Green Energy Act of 2009, (S.1091).That 9-page bill, introduced by Senator Ron Wyden (D-OR) on May 20, 2009, would extend the IRS energy investment credit and clean renewable energy bond programs to include investments in grid-level and residential energy storage equipment.  In doing so, the bill would fill a gap in current federal energy tax policy, which provides tax incentives for investments in a wide range of renewable (e.g., solar, wind, thermal, etc.) and low-carbon energy generation (example, carbon capture and sequestration) technologies, but not the grid level-storage necessary for these technologies to meet their full potential.

S.1091 helps to bring current tax policy in line with Congressional and Administrative energy policy, which has recognized the importance of grid-level energy storage technology to any long-term effort to reduce the carbon intensity of the domestic electric industry.  In, 2005, Congress included energy storage in its list of critical research areas for electric transmission and distribution programs under Energy Policy Act of 2005.  In 2007 the Energy Independence and Security Act provided dedicated funding for research into thermal energy storage and directed DOE to “carry out a research, development, and demonstration program to support the ability of the United States to remain globally competitive in energy storage systems.”

Most recently, Congress highlighted energy storage in the stimulus package (the American Reinvestment and Recovery Act of 2009 (ARRA)), providing the Department of Energy with funding to promote research into energy storage systems, funding demonstration projects for smart-grid energy storage technologies, and establishing a Qualified Advanced Energy Project Tax Credit for businesses that invest in manufacturing facilities to build grid-level storage equipment.  The Department of Treasury has also interpreted section 1603 of ARRA, which authorizes Treasury to issue grants in lieu of the investment tax credit for renewable energy investments, to include energy storage systems integral to the project’s operation.

These programs are important, but, with the exception of the grants-in-lieu-of tax credit guidance, they tend to focus incentives on a limited number of marquis smart-grid storage projects - important work, but not enough to move energy storage technology from the demonstration level to wider penetration in homes and on the grid.  The Wyden bill takes the next step, putting energy storage investment on an equal footing with other cleantech projects, promoting widespread commercial and residential (and in the case of renewable energy bonds provisions, public) adoption of energy storage technologies.  These investments will advance the penetration of renewable generation and storage technologies without picking winners in the storage marketplace. Increased residential and grid-level storage, in turn, provides multiple benefits to the national power system by:

• Increasing the capacity for renewable generation assets on the grid;
• Increase the reliability and stability of the electric grid;
• Reducing reliance on old, inefficient, and dirty peak-generation facilities; and
• Encouraging residential storage investment that builds distributed storage capacity.

Congress, DOE, and even the Treasury Department have acknowledged that developing the nation’s energy storage capacity is a core requirement for maximizing the nation’s clean, renewable energy capacity.  The Storage Technology of Renewable and Green Energy Act of 2009 provides Congress with a simple vehicle for incentivizing the private deployment of this much needed storage capacity.

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Notwithstanding the financial tumult that has characterized early 2009, industries and investors with an interest in carbon capture and sequestration (CCS) technology have received positive news from Washington.  CCS investment played a prominent role in last month’s American Recovery and Reinvestment Act (ARRA) and could be expanded further in the Omnibus spending bill, which passed in the House and is expected to reach the Senate floor for a vote tomorrow.  These bills provide a range of CCS investment incentives, covering both coal and non-coal industrial CCS applications. 

ARRA:  The economic stimulus bill signed by the President last month appropriated $3.4 billion for various fossil-fuel programs, most with either express or potential application to the CCS industry, including:

• $1,000,000,000 for unspecified fossil energy research and development programs (While the final bill is silent as to what programs would qualify for these funds, members of the Illinois Congressional delegation have already argued that the $1 billion appropriation for unspecified “fossil energy research program” activities should be directed to rejuvenating the Futuregen project in Mattoon, IL);
• $800,000,000 for the Department of Energy’s Clean Coal Power Initiative (CPPI) Round III Funding Opportunity Announcement (FOA);
• $1,520,000,000 for industrial carbon capture and energy efficiency improvement projects, including a small allocation for innovative concepts for beneficial CO2 reuse;
• $50,000,000 for a competitive solicitation for site characterization activities in geologic formations; and
• $20,000,000 for geologic sequestration training and research grants. 

The tax provisions of ARRA provide billions more in tax incentives for CCS and other clean energy investments, including:

• $2.4 billion to expand the qualified energy conservation bond program (tax credit bonds allocated to states and large local governments to finance clean energy projects, including projects incorporating CCS technology); and
• $2.3 billion for an advanced energy property investment credit, providing a 30 percent credit for investment in property designed to capture and sequester carbon dioxide as part of qualified advanced energy manufacturing projects.”

The Department of Energy, on March 4, 2008, issued “Notices of Intent” to issue funding announcements in four areas, including:

• Geologic Sequestration Training and Research            
• CCS from Industrial Sources           
• Site Characterization of Promising Geologic Formations for CO2 Storage            
• An Amended FOA for Round 3 of the Clean Coal Power Initiative.

Omnibus Bill:  The proposed Omnibus spending bill that passed in the House and is now under consideration in the Senate would make hundreds of millions more available for CCS projects.  Specifically, the “statement accompanying the Bill” describes proposed appropriations to include:

• $288,174,000 in additional funding for CPPI;
• $73,000,000 in funding for Futuregen;
• $404,235,850 to support research and development into “Fuels and Power Systems,” including funding for a pre-feasibility analysis of the technical, economic and environmental aspects of a clean coal biomass polygeneration plant equipped with carbon capture using a range of coals to produce chemicals, fuels and power at diverse locations; and
• $43,864,150 for Congressionally-directed projects, many of which are related either directly or indirectly to the development of CCS technology for power generation and industrial systems.

Between the stimulus bill and the proposed Omnibus bill, power producers, manufacturers, investors and related industries should have a variety of opportunities to obtain federal support for CCS research, development and commercialization efforts.

For further information about this topic, please contact Akin Gump.

Today we continue with the third part of our “A Change in Climate” series, examining potential Obama administration goals and policy solutions to address American greenhouse gas emissions. Today we examine one of the broad pathways that a policy would likely take: green investment and economic stimulus.

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As we have outlined in this series, the current conditions in the credit markets and the global economy necessitate a massive stimulus package; with priorities directed towards the economy, a emissions reduction program will likely be delayed. Any economic stimulus, however, can have a definite effect on the nation’s climate change policy, by investing in the development of clean technologies, energy efficiency and renewable energy. During his campaign, Barack Obama consistently supported a series of programs centered around clean energy investment, which he said would allow American workers to “build the high-demand technologies of the future.”

President-elect Obama has continued to advocate for this program after his election; in one of his weekly post-election radio addresses, the President-elect stated that he had “directed [his] economic team to come up with an Economic Recovery Plan that will mean 2.5 million more jobs by January of 2011,” a plan involving, “building wind farms and solar panels; fuel-efficient cars and the alternative energy technologies that can free us from our dependence on foreign oil and keep our economy competitive in the years ahead.”

Investment in clean technology can potentially be an avenue for significant job growth. According to a report from the Center for American Progress, an investment of $1 million in clean tech creates 17 new jobs, as compared to only 4.5 new for jobs for a similar investment in oil. Even that investment is made budget neutral—by cutting spending in the oil industry—the economy still gains 12.5 jobs. In that same report, researchers predict that $100 billion in new spending could spawn as many as 2 million new jobs. That investment would be significantly smaller than the likely size of the new stimulus, which the President-elect has signaled could reach $775 billion.

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Over the 21 months of his presidential campaign Barack Obama repeatedly stressed themes of change: finding new solutions to the problems of today’s world.  This philosophy certainly extends to the President-elect’s bold and comprehensive plan to overhaul the country’s energy policy and actively engage in the global fight against climate change.  Below, we outline some of the most significant items on the Obama administration’s climate and energy “to-do” list:

Diversify Energy Sources and Reward Energy Efficiency

A major plank of the President-elect’s energy proposals is to focus American ingenuity on renewable energy and other “green” technologies. As he sees it, this focus will have both environmental and energy security benefits, but most importantly in these troubled economic times, help stimulate the economy through the creation of new “green collar” jobs. President-elect Obama indicates that by ensuring that America is a leader in clean energy technology, such as deploying carbon capture and storage, his plan will create at least five million new jobs, and create demand for American expertise around the world. The President-elect’s plan has several strategies for accomplishing this:

1) Accelerating investment in green technology, both by providing incentives for the private sector and by investing $150 billion of federal money over the next 10 years;

2) Extending the Production Tax Credit for five years; and

3) Creating a national Renewable Portfolio Standard beginning at 10% by 2012 and increasing to 25% by 2025.

To support this massive expansion of alternative energy, President-elect Obama’s plan also advocates the creation of a unified national “smart grid,” which has been strongly encouraged by Al Gore’s group Alliance for Climate Protection. 

Design and Implement Comprehensive Cap and Trade Legislation

Throughout his campaign, President-elect Obama advocated for an economy-wide cap and trade program to significantly reduce greenhouse gas emissions. In fact, his proposal, which would slash GHGs to 80% below 1990 levels by 2050, is more aggressive than either GHG control effort undertaken by the House or Senate (the Dingell-Boucher bill proposes reductions of 80% below 2005 levels by 2050 and the Lieberman-Warner bill proposed reductions of 70% below 2005 levels by 2050). Then candidate Obama’s platform advocated a 100% auction of carbon credits, with a portion of the proceeds would go towards supporting clean energy and energy efficiency technology. Read the rest of this entry »

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Update:  The House passed the bailout bill with a 263-171 vote.

The economic rescue bill passed by the Senate earlier this week contains a wide array of tax incentives with the potential to influence investment in a variety of renewable energy and energy efficiency technologies. The House is currently debating the bill, with a vote expected in the next hour or so. The debate is proceeding under closed rules, meaning that no amendments may be offered, so the version that passed the Senate will get an up-or-down vote in the House. The original version of the bill was defeated in the House on Monday, but the new version - including the energy provisions - is expected to gain enough support to pass today’s House vote.

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Late last night, the Senate passed the ‘‘Emergency Economic Stabilization Act of 2008,” a 450-page Bill designed to stabilize the highly-publicized crisis within domestic financial markets. Largely lost in the mass of financial stabilization provisions, the Bill also breathed new life into several clean energy provisions that had appeared moribund after public concern about a potential financial meltdown tabled movement on a comprehensive energy bill.

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For clean coal advocates, the energy bill passed in the House Wednesday reflects the tough reality of getting a comprehensive bill passed by the end of the current session.  Speaker Pelosi indicated last week that the House Bill would incorporate the $10 billion funding mechanism for accelerating investment in carbon capture and sequestration (CCS).  On Tuesday when Democrats introduced the bill, the CCS funding provision was gone.  Instead it included modest changes to existing tax credits targeting integrated gasification combined cycle (IGCC) systems, carbon sequestration and other clean coal technologies.  Such changes include:

• Providing an additional $950 million in additional tax credits (based on a credit of 30 percent of the investment) for certain qualified advanced coal projects, and requiring that companies seeking such tax credits provide for capture and storage of at least 65 percent of its carbon emissions (Sec. 811);
• Providing an additional $150 million in additional tax credits (based on a credit of 30 percent of the investment) for qualifying coal gasification projects that include equipment to separate and sequester at least 75 percent of the project’s total carbon emissions (Sec. 812);

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We are hearing that the energy bill, while close to agreement, still has a few hurdles to cross.

The biggest outstanding issue is what to do with the auto fuel efficiency numbers passed by the Senate, but not included in the House legislation. It seems that negotiators have split the proverbial baby. Rather than take a lower overall number (which had substantial backing in the House), the negotiations have centered on an overall number of 35 miles per gallon, originally proposed by the Senate. The automakers did win a huge concession with an agreement to keep cars and light trucks separate. Also, automakers will be granted credits for flex fuel vehicles; vehicles that get less miles per gallon than conventional autos.

Secondly, it appears likely that there will be no provision for federal-level “renewable portfolio standards” (RPS). Passed by the House, the RPS would have meant difficulties for utilities, especially in southern states where available wind and hydro power is scarce.

Finally, it looks like the chances of including small tax package have increased since initial reports to the contrary. Of course, with pay-as-you-go rules in effect, the Democratic majority might have to be creative to have the tax benefits included in a final package. Still no clarity on what, if anything, will be included, but there is still hope for a Production Tax Credit for 2008.

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