Dive Brief:

  • The House Ways and Means Committee will meet Tuesday to vote on tax incentives for clean energy and electric vehicles as part of the committee’s portion of the $3.5 trillion budget reconciliation spending plan. 
  • The committee’s proposed section of the budget bill, released Friday, would extend the investment tax credit (ITC) and production tax credit for solar and wind energy for 10 years, with phase-outs for both beginning in 2032. The legislative language also adds new domestic production requirements and additional credits for clean energy projects that pay prevailing wages. 
  • The text released by Rep. Richard Neal, D-Mass., chairman of the committee, also increases tax credits for electric vehicles from $7,500 to a maximum of $12,500 per vehicle for cars made in the U.S. with union employees, a feature that has received criticism from Toyota, Honda and Tesla.

Dive Insight:

Democrats are using the budget reconciliation bill to advance their major climate change provisions, including a goal to produce 80% of the nation’s electricity from clean energy sources by 2030. The tax provisions would represent a major boost for renewable energy, with an emphasis on bringing clean power to environmental justice and low-income communities and encouraging projects to use domestic materials. 

Under the Ways and Means proposal, the ITC and PTC would be extended at their full rate through 2031, then drop to 80% in 2032 and 60% in 2033. The proposal would also make available additional credits of up to 10% for facilities that use domestic materials. The ITC would also be expanded to energy storage projects, microgrid controllers and biogas projects. Additionally, solar projects would be eligible for additional tax incentives for serving low-income communities, with credits determined based on community characteristics. 

“AEE is pleased to see a wide variety of policies proposed that would strengthen the advanced energy industry and its domestic manufacturing capacity,” Leah Rubin Shen, director of federal policy at Advanced Energy Economy, said in a statement. “We urge Congress to approve this suite of policies that would create thousands of new U.S. manufacturing jobs and deliver an excellent return on investment for the U.S. economy.”

Also on Tuesday, the House Energy and Commerce Committee is continuing work on its $486.5 billion portion of the reconciliation plan, including the Clean Electricity Performance Program (CEPP). That $150 billion program would require electricity providers to increase their clean energy offerings by 4% year over year, with rewards for those that meet the goal and penalties for those that don’t. Progressives have touted the program as an effective tool to boost clean energy, but the chairman of the Senate Energy and Natural Resources Committee, Sen. Joe Manchin, D-W.Va., said on CNN’s State of the Union Sunday that the program “makes no sense.”

America’s Power, which represents coal producers, utilities and railroads, sent a letter to Congressional leaders saying the CEPP would not give providers enough time and would create “an excessive and risky dependence on wind and solar power.”

The tax language would also extend a credit for zero-emission nuclear power production through the end of 2026 and creates a new credit for the production of clean hydrogen. Energy efficiency improvements would see expanded tax credit opportunities, with qualified energy efficiency improvements being eligible for a credit of 30% of the cost (up from 10%) with no lifetime cap on credits. Residential properties would be eligible for a 30% credit for efficiency expenditures through the end of 2031, with a slight decline the following two years, and commercial buildings would be eligible for credits depending on the size of efficiency projects.

The expansion of electric vehicle credits has been touted as a key step to meeting President Biden’s goal of electrifying 50% of the U.S. fleet by 2030. Under the expanded credit, automakers using prevailing wage jobs would have an additional $4,000 per vehicle credit, while those who use domestically-sourced batteries would receive an additional $500 per vehicle credit. The bill would also create a new refundable credit of up to $2,500 for used electric vehicles and new credits for commercial electric vehicles. 

The bill also removes a cap on the number of vehicles eligible for the incentive, which would make Tesla and General Motors eligible to continue receiving the credit.

However, the EV tax provisions have proven controversial. Reuters reports that Toyota and Hyundai have both come out against the bill because of its incentives for union labor, with Toyota saying it discriminates “against American autoworkers based on their choice not to unionize.”