Ok, not my most compelling title. But this refers to a 30% tax credit to help boost the domestic manufacturing of clean energy equipment. I saw it in action as part of the Recovery Act and it helped a lot. Now it’s back on the President’s “to-do list” for Congress and I’m here to shed the “nothing’s-going-anywhere-so-why-bother” mantra and cheerlead for this good idea.
For years, we’ve incentivized the production of clean energy—e.g., through the Production Tax Credit for renewable energy—but without regard for where the equipment that produces such energy—the windmills, solar panels, etc.—is made. The 48C credit corrects that, by providing producers of such equipment with a 30% credit against their tax liability.
To be clear, my kneejerk reaction to tweaks in the tax code like this is to be skeptical, but like my Uncle Willie used to say, “Skeptical, Jared…not cynical.” So I’m not a purist and see a clear role for boosting a segment of an industry where a) we’re in global competition for market share, and b) the production of clean energy—including the equipment that generates it—should be an important part of our future manufacturing base.
During the Recovery Act, the 48C program was oversubscribed 3-to-1, so there’s a pipeline of demand in the industry to ramp up. I vividly recall a visit with the VP to Cree, Inc. in Durham, NC, a 48C recipient and one of America’s premier LED lighting manufacturers (compared to conventional lighting, LEDs can reduce energy use by more than 60%). One thing the CEO told us that day was how the credit helped to pull in other venture capital that was sitting on the sidelines, waiting to see whether the US gov’t is serious about seeding investment in clean energy. And there’s even more capital on the sidelines today than there was back then.
I haven’t heard the magnitude of the White House proposal this time around. In the Recovery Act, it was about $2.5 billion, which led to around $6 billion in private sector investment and the jobs that go with that. I would argue for at least that amount this time around, though since then China’s made an increasing play for market share in clean-energy manufacturing. So I’d consider stepping up the credit amount to $5 billion.
What’s that? Where’s my payfor? Well, that’s about a year of oil and gas subsidies, so there it is. Nice tradeoff, no?