One of the most powerful parts of President Biden’s signature climate law was designed to attract support from such a wide array of industries that it would be hard for Congress to repeal.
Now, that theory is about to be tested.
This month, the federal government will begin offering lucrative tax credits to companies that build wind, solar, nuclear, geothermal or other new sources of electricity that don’t generate any of the greenhouse gases that are rapidly heating the planet.
While tax breaks for companies that build wind farms and solar panels have existed for years, these new credits can apply to a much wider set of technologies, including nuclear reactors, advanced geothermal plants, fusion plants, hydroelectric dams, novel types of batteries and much more. The so-called “technology neutral” clean electricity tax credits, which Congress passed as part of the 2022 Inflation Reduction Act, are projected to do more than any other policy in the coming years to reduce America’s greenhouse gas emissions.
“These policies are nothing short of an energy moon shot,” said Wally Adeyemo, deputy secretary of the Treasury Department, which on Tuesday issued guidance for how companies can qualify for the credits.
But for the tax incentives to have an effect, they would have to survive the new Congress. The credits could cost more than $250 billion over the next decade, making them a prime target of Republicans who hope to eliminate much of Mr. Biden’s climate law in order to pay for tax cuts that President-elect Donald J. Trump has promised.
On Tuesday Mr. Trump railed against subsidies for clean energy and said “no windmills” would be built during his next administration. The president-elect has expressed particular hostility toward wind turbines, falsely claiming they are “driving the whales crazy,” “kill all the birds” and cause cancer.
“They’re littered all over our country like dropping paper, like dropping garbage in a field,” Mr. Trump said at a news conference. “They only work if you get subsidy.”
Supporters of the clean electricity credits are hoping that the policy’s novel design will expand its political support. Nuclear power and geothermal energy, for instance, are popular among many Republicans who might otherwise seek to cut subsidies for wind and solar.
The way the law is written, no one technology can be cut off from the tax credits. They all sink or swim together.
“We’re all in the same boat here,” said David Turk, the deputy secretary of the Energy Department. “Some members may care more about one or another, nuclear or geothermal, but overall, there’s going to be an awful lot of support to keep this going forward.”
That was by design, said Senator Ron Wyden, Democrat of Oregon, who came up with the idea of a broad tax credit. “Developing the tech neutrality provisions is, in my view, one of the most important policies I’ve been part of in my time in public service,” he said.
Congress originally created specialized tax breaks for wind and solar power in 1992, paying companies for every kilowatt-hour of electricity that wind turbines produced and offsetting a portion of the cost of installing solar panels. Those subsidies helped fuel the rapid growth of both technologies while pushing down costs.
But those credits were usually extended for a year or two at a time.
“They had a shelf life about the same as a carton of eggs, and the fossil guys had the legacy tax breaks,” Mr. Wyden said, adding that the system encouraged coal, oil and gas production over renewable energy. As chairman of the Senate Finance Committee when the Inflation Reduction Act was being written, Mr. Wyden suggested a new approach to help any technology that did not produce greenhouse gas emissions for a 10-year period.
“The reality is, nobody knows what the big carbon reducers are going to be 30 years from now,” Mr. Wyden said. “This gives us a chance to develop a new lane based on science and innovation.”
Since the Inflation Reduction Act passed, businesses have invested roughly $500 billion in low-carbon energy and manufacturing, with the majority spent in Republican districts. According to the American Clean Power Association, 28 states have battery storage manufacturing under construction, 43 states are building large solar arrays and 18 states have wind projects in advanced stages of development. A next-generation nuclear reactor backed by Bill Gates broke ground in Wyoming, while an advanced geothermal plant is being built in Utah.
Mr. Wyden said Republicans face a choice. “Are they going to throw down with Trump, even if it’s going to cost their area jobs and economic opportunities?” he said.
According to an analysis by the Rhodium Group, a research firm, the clean electricity tax credits could help the nation cut emissions from the power sector by between 43 percent and 73 percent by 2035, compared with 2022 levels. The law’s biggest effect would be to accelerate deployment of wind, solar and battery installations nationwide, in part because those industries are already growing fast, but newer low-carbon technologies could start to play a bigger role in the 2030s.
While the credits would cost taxpayers, the analysis found that they could also help lower consumer electricity bills by 2 to 5 percent.
Under current law, the tax credits, which provide at least a $30 credit for every megawatt-hour that an emissions-free power plant produces or a 30 percent break on the total investment of a plant, will remain in place until U.S. emissions from the electricity sector fall 75 percent below 2022 levels.
Certain technologies that don’t emit greenhouse gases when generating power — such as wind, solar, geothermal and nuclear — can easily qualify for the tax breaks. Other potential ways of making low-carbon electricity, such as burning wood or using methane from farms, will need to undergo a fuller analysis by federal labs to make sure they actually reduce emissions, the Treasury Department said.
A different approach to reducing emissions, known as carbon capture, which involves trapping carbon dioxide from a coal or gas plant and burying it underground, would qualify for a separate tax credit under the climate law.
Opponents say the clean electricity tax credits, like the entire Inflation Reduction Act, are wasteful. They also argue that adding too much wind and solar power to the grid threatens to make the power system less reliable and more expensive to maintain.
“No form of electricity should have tax incentives, and we should just let the chips fall where they may” said Diana Furchtgott-Roth, director of the Center for Energy, Climate, and Environment at the Heritage Foundation, a conservative research organization. She added that Republicans in Congress are “going to be looking for revenue everywhere, and these tax credits are a prime place to look for it.”
But many of the nation’s most powerful energy lobbying groups — including the Nuclear Energy Institute, the American Clean Power Association, the Edison Electric Institute, which represents utilities, the National Hydropower Association and others — all are making cases to Republicans to save the law.
“When we work with them to demonstrate their importance and why they should be protected, and they see what’s going on in their districts, a majority respond to that positively,” said Pat Vincent-Collawn, the interim president of the Edison Electric Institute, a utility trade group.
“Those tax credits are helping companies deliver and they are critical to helping us meet our customers needs and really getting the power going to meet demand,” she said.
“We have spent a good deal of the last two years talking to Republican lawmakers, not just in Washington, D.C., but out in their states and districts, showing them the real data and analysis of what’s being done with these clean energy tax credits,” said Frank J. Macchiarola, the chief policy officer for the American Clean Power Association. The group represents more than 800 energy storage, wind, utility-scale solar, clean hydrogen and transmission companies.
“The message has resonated,” he said.
