What Is a Production Tax Credit?
The renewable energy production tax credit is a tax credit that businesses creating electricity using renewable energy technology can apply to their income tax returns. The tax credit is referred to as a production tax credit because the credit is assessed based on the amount of energy that the company generates.
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History
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The first production tax credit for renewable energy was included in the Energy Policy Act of 1992, and offered credits to wind and bio-energy resources. The tax credit was renewed under several subsequent bills and was gradually expanded to include other forms of renewable energy, such as hydroelectric, geothermal, landfill gas, biomass, geothermal electric and wave energy. In 2009, it was included as part of the American Recovery and Reinvestment Act -- the "stimulus" bill.
Features
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Credits are issued according to the amount of energy produced. 2.2 cents of credit are given for each kilowatt hour of electricity produced using wind, geothermal and closed-loop biomass. 1.1 cents per kilowatt hour is applied to all other eligible technologies. The tax credit is only for corporations. Credits do not need to be used the year they are accrued, but can be held for up to 20 years from the day they were generated.
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Function
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Production tax credits are an attempt by the United States Government to support the nascent alternative energy industry. By providing tax credits to companies that produce renewable energy, the government is in effect subsidizing the production of electricity produced using renewable sources. In this way, the government may be able to encourage existing businesses to expand their operations or new businesses to enter the field.
Benefits
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Electricity produced from renewable sources has a number of advantages over electricity produced using traditional finite resources. For one, by being renewable, the energy sources hold no risk of being depleted, thereby driving up the price of the sources and, when the source is exhausted, leaving the energy-producing infrastructure obsolete. Secondly, much renewable energy technology produces less pollution than technology that draws energy from traditional fossil fuels. These include greenhouse gas emissions that contribute to climate change.
Grants
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As part of the stimulus bill, wind, biomass, geothermal and solar companies can choose to receive a grant issued by the U.S. Treasury Department valued at up to 30 percent of the value of their property, while other technologies can receive grants of up to 10 percent. According to the Union of Concerned Scientists, this grant was made available because many renewable energy companies were no yet profitable, meaning they had little or no income tax to pay, making the credits essentially worthless.
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