Energy implications of fiscal cliff deal

Congress enacted the American Taxpayer Relief Act of 2012 on January 1, 2013.  The bill's primary purpose was to stave off the so-called fiscal cliff by extending tax cuts and unemployment benefits.  The bill also included a variety of energy-related provisions, including extensions of tax credits for producers of biofuels and renewable electricity.  These policies will shape business activity in 2013.

The most prominent energy provisions in the act extend and modify incentives for producing renewable electricity.  One extended the production tax credit for wind.  The production tax credit is worth 2.2 cents per kilowatt hour of electricity produced for a 10-year period from a wind facility.  While the production tax credit had previously been available only to wind facilities placed-in-service by the end of 2012, the new legislation extends the credit to any facility that begins construction before the end of 2013 to claim the 10-year credit.  This provision is estimated to have a net of cost $12.109 billion over ten years but was seen by some as essential to continued investment in renewable energy facilities.  A parallel provision extended the investment tax credit in lieu of production tax credit, which gives a tax credit equal to 30 percent of eligible investment in renewable facilities in the year that the facility is placed-in-service. Facilities must begin construction by the end of 2013.  This provision is estimated to cost $135 million over ten years, suggesting Congress thinks the investment tax credit will be applied to about $450,000,000 in qualified investments.

Other provisions extended credits for energy-efficient improvements to existing homes, plug-in electric vehicles and alternative vehicle refueling property, producing cellulosic bifuel, biodiesel and renewable diesel.

The extension of the renewable electricity credits will stimulate growth in an industry that has suffered from uncertainty over their renewal.  Their previously-scheduled 2012 end led to a rush of construction to enable projects to qualify for the tax credits, but fewer new projects were announced in 2012 as they appeared unable to be placed in service before the deadline.  The credits' renewal will likely lead to a similar scramble to complete at least some construction financing and begin construction in 2013.  This in turn may mean busy caseloads for state environmental and energy permitting authorities, as developers pursue permits to enable construction to begin this year.  Projects able to start construction in 2013 will be eligible for either the production tax credit or the investment tax credit, even if construction takes several years.  This feature may help offshore wind and other projects with long construction times, if they can get the permits to start work this year.