Clean Credits, Dirty Subsidies, Congress' Choice

Tax credits should be extended for renewable energy projects — but not for ethanol

By Michael Grunwald Friday, Dec. 10, 2010
    • Daniel Acker / Bloomberg News / Getty Images

    President Obama and Hill Republicans may have a deal on the expiring Bush tax cuts, but they haven't done anything about two expiring tax credits for renewable energy. It's time for them to act. And then not act.

    The short-term future of America's green economy depends on the extension of a popular tax credit of up to 30% for wind, solar, geothermal and other renewable-energy projects. Obama's stimulus package converted the credit into a cash grant that served the same purpose, supporting 1,179 solar installations and 211 wind projects with investments of over $16 billion since last February, reviving industries that stalled during the financial meltdown of 2008. It has bipartisan support, but unless Congress intervenes, it will vanish on Dec. 31.

    A tax credit of 45c per gal. for ethanol blenders is also set to disappear on Dec. 31 — and not a moment too soon. Ethanol brewed from corn is technically a renewable fuel, but it's even dirtier than gasoline; the carbon supposedly saved by using farmland to grow fuel (which boosts global food prices and worsens world hunger) is ultimately devoured by the conversion of wetlands and forests into farmland. In any case, the U.S. already has a mandate ensuring the production of billions of gallons of ethanol; the credit is just a way of shoveling additional tax dollars to big grain farmers and agribusinesses, which already enjoy lucrative subsidies.

    Environmentalists bitterly oppose the credit, which costs more than twice as much as the renewable grants; so do beef producers and other feed buyers, the grocery industry, antihunger groups and an array of taxpayer advocates. A bipartisan coalition of 18 Senators led by Democrat Dianne Feinstein and Republican Jon Kyl has called for its abolition.

    But farm-state politicians love the credit, which is why it has survived for three decades. They also love the tariff of 54c per gal. that protects U.S. corn ethanol from competition from eco-friendlier Brazilian sugar ethanol. That tariff is about to expire too, and the ethanol industry, accustomed to royal treatment on Capitol Hill, is so nervous that it supports a compromise extension that would reduce its tax credit 20%.

    The classic congressional approach would be to do everything: extend the ethanol goodies and the renewable grants. Doing nothing is also a perennial option. But Congress ought to be able to say yes and no at the same time. Clean energy serves the national interest, reducing our dependence on fossil fuels while building a 21st century economy. And ethanol isn't clean energy.