Tax law plays an important role in shaping decisions about energy investment and production in the United States. Energy tax credits further two large policy aims. First, they increase investment in renewables and diversify the nation’s renewable energy portfolio. Second, they encourage domestic production of conventional energy sources, which strengthens national energy
security. In the mid-2000s, nearly 40 percent of energy subsidies went to renewable energy producers. These subsidies led to substantial growth in both solar and wind energy in the United States: since 2009, solar installations grew from a little over one gigawatt to twenty-five gigawatts, and wind installations grew from thirty-one gigawatts to seventy-five gigawatts. Substantial and hasty changes to tax law in the 2017 Tax Cuts and Jobs Act (TCJA) and the 2018 Bipartisan Budget Act (BBA) reflect a discrepancy between decades-long policy goals and current energy policy goals. These changes resulted in the largest overhaul of the Internal Revenue Code in half a century. As I will explain, the TCJA amendments, in conjunction with the explicit changes to the energy credit system enacted by the BBA, are likely to shift the landscape of renewable energy technology investment. While the BBA alterations disincentivize investment in renewable energy, the simultaneous changes to the TCJA and lingering ambiguity in both Acts may allow large corporations to invest creatively in renewable energy resources.
This In Brief begins with a short discussion of two major legislative acts to change tax law: the 2017 TCJA and the 2018 BBA. It then discusses the production tax credit (PTC) and the investment tax credit (ITC), the two energy tax provisions that the BBA changed and eliminated, respectively. Finally, it discusses the creation of the base erosion anti-abuse tax (BEAT) and the elimination of the corporate alternative minimum tax (AMT): two sweeping changes in the TJCA that complicate the incentive structure for corporations to claim energy tax credits. Ultimately, it concludes that this new incentive structure undermines historic policy goals for energy tax legislation despite the loopholes available for creative investing.