Why Tax Talk in the Fiscal Cliff Debate Matters to Renewables

By Luke Geiver | December 14, 2012

The fiscal cliff and any talk about changes to the tax code or tax rates matters to renewable energy and it’s prospect for growth because almost 60 percent of federal energy investment is made through the Internal Revenue Code, including roughly three-fourths of investments made in the renewables sector (approximately $20 billion). Those statistics were highlighted during a presentation given by Derek Dorn, partner at Davis & Harman LLP, in a recent American Council On Renewable Energy-sponsored webinar.

Dorn’s presentation helped to show why those in the industry attempting to understand the financial landscape in renewable energy over the next year need to keep an eye on the cliff debate and how it might alter tax law. The tax code offers a procedural and political advantage to any industry looking for federal backing, he explained. Compared with a two-step process for allocating dollars that includes authorizing and then appropriating a funding amount that has a hard ceiling, tax-writing used to back an industry is a one-step process that can happen on a multi-year basis in a much quicker timeframe.

Most importantly, spending through the tax code doesn’t typically receive much sunlight, he says. Both republicans and democrats favor that aspect of funding through the tax code, he adds, and that is why “the tax code has taken a leading role in incentivizing renewable energy.”

Given the role the tax code plays in renewables, combined with the daily fiscal cliff-chatter regarding possible changes to taxes one might feel concerned. But, at least during the current fiscal cliff debate, Dorn doesn’t see a particular vulnerability for tax incentives.