America is undoubtedly at a key inflection point as we work to transition to a clean energy future. There is alignment between legislators, industry and the public in favor of the transition to cleaner fuels and new technologies designed to reduce carbon emissions. As Congress considers new energy and environmental policy goals, tax policy becomes critical to providing needed support and maintaining affordability for consumers.
Governments have embraced this transition by shifting to a cleaner energy mix in recent years, in line with the interests of their communities and consumers. This effort has accelerated as the cost of clean alternatives has fallen and performance has improved. Two of the nation’s largest utility grids, the Sacramento Municipal Utility District and the Los Angeles Department of Water and Power, have set goals to eliminate greenhouse gas emissions from their supply portfolios by 2030. and 2035, respectively. Almost all utilities have set targets to reduce emissions and increase the integration of low- or no-emitting resources into their supply mix.
Indeed, public power grids, which collectively serve approximately 50 million Americans, are focused solely on meeting the needs of the communities they inhabit. As not-for-profit utilities, their “dividend” comes in the form of lower rates, reliability, and environmental stewardship. The benefits accrue to customers, who are directly accountable to the municipalities that govern them. As mission-driven organizations, Public Energy is at the forefront of the clean energy transition, striving to provide Americans with the clean, reliable, and affordable energy they demand.
But there’s one thing holding back public power as industry strives to meet ambitious clean energy goals — the federal tax code. As it stands, federal tax policy disadvantages public energy communities by making them pay more for the same clean energy results as customers in other markets. And these communities we’re talking about include some of the biggest cities in our country, including Seattle, Phoenix, San Antonio, Omaha, and Orlando, among many others.
As our federal legislators know, the tax code is a powerful tool that stimulates investment. One of the best ways for federal policymakers to accelerate our clean energy future is to remove undue restrictions on public energy’s ability to access tax incentives for infrastructure investments.
In particular, the inability to use renewable and clean energy tax credits is a huge barrier that prevents both public energy and electric cooperatives, which together serve more than 90 million Americans. , to unleash their full potential. If the goal is to move toward a cleaner energy grid by providing tax incentives for the development of clean energy generation, storage, transmission, and charging infrastructure for electric vehicles, federal incentives must be fully comparable to those received by developers and private utilities.
Without policy change, public power communities will be unduly burdened as their local utility invests in clean energy technologies to decarbonize their generation portfolios, improve air quality and protect the environment. The denial of access to tax credits obliges public authorities to enter into power purchase agreements with third-party developers who can directly access tax credits. Much of the value of the tax credit then accrues to the project developer and its investors rather than to the non-profit utility and the communities it serves.
Fortunately, this change in policy is not without supporters. Senate Finance Committee Chairman Sen. Ron Wyden (D-Ore.) included 100% access to direct-pay tax credits for public energy in his Clean Energy for America Act. House Ways and Means Committee Chairman Rep. Richard Neal (D-Mass.) also provides 100% direct-pay tax credits for public energy in the Build Back Better Act. President Biden’s own Justice40 initiative, which was created to ensure that 40% of the benefits of certain federal climate investments benefit disadvantaged communities, is calling for his support for revising the federal investment tax credit to ensure that municipal entities such as public energy are eligible.
Now is the time for lawmakers to act. As legislation moves through Congress, language that provides the public with 100% access to direct-pay tax credits must be included in any final legislation. Without it, Congress leaves behind nearly 30% of the nation’s electric utility customers without access to incentives and support. With tax code reform, ambitious clean energy goals can be advanced and achieved equitably across the country.
John Di Stasio is the chairman of the Large Public Power Council, an advocacy organization that represents 27 of America’s largest public power systems and is the former CEO of the Sacramento Municipal Utility District.