The Renewable Electricity Production Tax
Credit: In Brief
Molly F. Sherlock
Specialist in Public Finance
October 2, 2014
Congressional Research Service
7-5700
www.crs.gov
R43453
The Renewable Electricity Production Tax Credit: In Brief
Summary
The renewable electricity production tax credit (PTC) expired on January 1, 2014. The renewable
electricity PTC is a per-kilowatt-hour tax (kWh) credit for electricity generated using qualified
energy resources. Whether the PTC should be extended, modified, or remain expired is an issue
being considered in the second session of the 113th Congress. The PTC was initially enacted to
promote the development of renewable energy resources, and it has been extended multiple times
in an effort to continue advancing this policy goal. While some Members of Congress support
extension or modification of the PTC, others say that the PTC should be allowed to expire.
Extension of the PTC may be considered as part of “tax extenders” legislation.
The PTC for wind and closed-loop biomass was first enacted in 1992. When first enacted, the
PTC was scheduled to expire on July 1, 1999. Since 1999, the PTC has been extended eight
times. On three occasions, the PTC was allowed to lapse before being retroactively extended.
Including the present expiration, the PTC has been allowed to lapse four times.
In addition to being extended, the PTC has also been expanded over time to include additional
qualifying resources. In 2013, wind, closed-loop biomass, and geothermal technologies qualified
for the full credit amount of 2.3-cents per kWh. Other technologies (open-loop biomass, small
irrigation power, landfill gas, trash, qualified hydropower, marine and hydrokinetic) qualify for a
half-credit amount, or 1.1-cents per kWh in 2013. Credit amounts are adjusted annually for
inflation.
The Joint Committee on Taxation (JCT) estimates that in 2014, foregone revenues (or “tax
expenditures”) for the PTC were $1.5 billion. Between 2014 and 2018, the JCT estimates that
foregone revenues associated with the PTC for renewable electricity will total $16.4 billion, with
another $0.1 billion each for Indian coal and refined coal over that same time period. Because
these estimates are based on current law, any policy that extends or expands the PTC will increase
the amount of foregone revenue.
The PTC has been important to the growth and development of renewable electricity resources,
particularly wind. Tax incentives for renewables, however, may not be the most economically
efficient way to correct for distortions in energy markets or to deliver federal financial support to
the renewable energy sector. Tax subsidies reduce the average cost of electricity, increasing
demand for electricity overall, countering energy efficiency and emissions reduction objectives.
Subsidies delivered as non-refundable tax incentives often require those wishing to use the credit
find “tax-equity” partners to provide equity investments in exchange for tax credits. The use of
tax-equity reduced the amount of the incentive that flows directly to the renewable energy sector.
Several policy options for the PTC have been proposed in the 113th Congress. These include
(1) allowing the PTC to remain expired (current law); (2) temporarily extending the PTC (as
proposed in the Expiring Provisions Improvement, Reform, and Efficiency (EXPIRE) Act of
2014 (S. 2260) and the Tax Extenders Act of 2013 (S. 1859)); (3) temporarily extending the PTC
but providing some form of phase-out (the PTC Certainty and Phaseout Act of 2013 (H.R. 2987));
(4) eliminating the inflation adjustment factor to phase-out the PTC then repealing (the Tax
Reform Act of 2014); (5) permanently extending the PTC and making refundable (the President’s
FY2015 Budget); or (6) fundamentally reforming the PTC to provide a “technology neutral”
incentive (the Baucus Energy Tax Reform discussion draft).
Congressional Research Service
The Renewable Electricity Production Tax Credit: In Brief
Contents
Description ....................................................................................................................................... 1
Legislative History ........................................................................................................................... 3
PTC Claims and Revenue Cost Estimates ....................................................................................... 5
Cost of Extending the PTC ........................................................................................................ 8
Economic and Policy Considerations .............................................................................................. 8
Policy Options and Proposals ........................................................................................................ 10
Tables
Table 1. PTC Credit Rate and Eligible Renewable Technologies .................................................... 2
Table 2. Renewable Electricity PTC Expirations and Extensions ................................................... 4
Table 3. Internal Revenue Service Statistics on PTC Claims .......................................................... 6
Table 4. PTC Tax Expenditures ....................................................................................................... 7
Table 5. PTC Policy Options and Proposals .................................................................................. 11
Contacts
Author Contact Information........................................................................................................... 12
Acknowledgments ......................................................................................................................... 12
Congressional Research Service
The Renewable Electricity Production Tax Credit: In Brief
he renewable electricity production tax credit (PTC) expired on January 1, 2014. Thus,
under current law, the credit will not be available for projects that begin construction
Tafter December 31, 2013. Whether the PTC should be extended, modified, or remain
expired is an issue being considered in the second session of the 113th Congress. While
some Members of Congress support extension or modification of the PTC,1 others say
that the PTC should be allowed to expire.2 Extension of the PTC is being considered as part of
“tax extenders” legislation.3 The Expiring Provisions Improvement, Reform, and Efficiency
(EXPIRE) Act of 2014 (S. 2260) would extend the PTC construction start date for two years,
through the end of 2015.
This report provides a brief overview of the renewable electricity PTC. The first section of the
report describes the credit. The second section provides a legislative history. The third section
presents data on PTC claims and discusses the revenue consequences of the credit. The fourth
section briefly considers some of the economic and policy considerations related to the credit.
The report concludes by briefly noting policy options related to the PTC.
Description
The renewable electricity PTC is a per-kilowatt-hour tax (kWh) credit for electricity generated
using qualified energy resources.4 To qualify for the credit, the electricity must be sold by the
taxpayer to an unrelated person. The credit can be claimed for a 10-year period once a qualifying
facility is placed in service. The maximum credit amount for 2013 and 2014 is 2.3 cents per kWh.
The maximum credit rate, set at 1.5 cents per kWh in statute, is adjusted annually for inflation.5
Wind, closed-loop biomass, and geothermal energy technologies qualify for the maximum credit
amount (see Table 1). Other technologies, including open-loop biomass, small irrigation power,
landfill gas, trash, qualified hydropower, and marine and hydrokinetic energy facilities qualify for
a reduced credit amount, where the amount of the credit is reduced by one-half (see Table 1).
1 On March 21, 2014, 26 Senators sent a letter to Senate Committee on Finance Chairman Ron Wyden and Ranking
Member Orrin Hatch in support of extending the PTC. A copy of this letter can be found at
http://www.nationaljournal.com/library/128736. A similar letter, signed by 118 members of the House of
Representatives, was sent to House Speaker John Boehner. A copy of this letter can be found at
http://loebsack.house.gov/uploadedfiles/wind_ptc-itc_extension_letter_final_3.21.2014.pdf. Earlier, on December 16,
2013, seven Members of the House Sustainable Energy and Environment Coalition sent a letter to House Ways and
Means Committee leadership supporting the extension of the PTC, along with other select expired and expiring energy-
related provisions. A similar letter was sent by twenty-four Senators to Senate Committee on Finance leadership.
Copies of these letters are available at http://www.nationaljournal.com/energy/dems-push-to-extend-clean-energy-tax-
credits-20131216.
2 On November 14, 2013, 52 House Members sent a letter to House Ways and Means Committee Chairman Dave
Camp stating that the PTC should not be extended. A copy of the letter can be found at http://pompeo.house.gov/
uploadedfiles/windptc2013letter.pdf. A December 13, 2013, letter to the Chairman and Ranking Member of the Senate
Committee on Finance, signed by ten Senators, also supported allowing the PTC to expire. A copy of the letter can be
found at http://www.nationaljournal.com/energy/manchin-alexander-call-for-expiration-of-wind-tax-credit-20131218.
3 For background, see CRS Report R43124, Expired and Expiring Temporary Tax Provisions (“Tax Extenders”), by
Molly F. Sherlock.
4 The renewable electricity production credit can be found in § 45 of the Internal Revenue Code (IRC).
5 The inflation adjustment is based on the gross domestic product (GDP) implicit price deflator, where the 1992 GDP
implicit price deflator is the base year.
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The Renewable Electricity Production Tax Credit: In Brief
Under current law, only facilities for which construction began before January 1, 2014, can
qualify for the PTC.6 Before 2013, the PTC expiration date was a placed-in-service deadline,
meaning that the electricity producing property had to be ready and available for use before the
credit’s expiration date.
Table 1. PTC Credit Rate and Eligible Renewable Technologies
2013 and 2014
Full Credit
Half Credit
Credit Rate (per kWh)
2.3¢
Credit Rate (per kWh)
1.1¢
Qualifying Technologies
Wind, Closed-Loop Biomass,
Qualifying Technologies Open-Loop Biomass, Small
Geothermal
Irrigation Power, Landfill Gas,
Trash, Qualified Hydropower,
Marine and Hydrokinetic
Source: IRC Section 45.
The amount that may be claimed for the PTC is set to phase-out once the market price of
electricity exceeds threshold levels. Since being enacted, market prices of electricity have never
exceeded the threshold level and the PTC has not been phased out, nor is the PTC likely to be
phased out under current law.7
The ability to claim the PTC may also be limited by the corporate alternative minimum tax
(AMT). Currently, the PTC is available for taxpayers subject to the AMT for the first four years
of the credit. While the PTC cannot be claimed against the corporate AMT, unused credits may be
carried forward to offset future regular tax liability. While few firms are subject to the corporate
AMT, this limitation may be significant for those affected.8
From 2009 through 2013, PTC-eligible taxpayers had the option of claiming the 30% energy
investment tax credit (ITC) in lieu of the PTC. Property that was placed in service during 2009,
2010, or 2011 or which was placed under construction in one of these years also had the option of
claiming an American Recovery and Reinvestment Act (ARRA) Section 1603 grant in lieu of tax
benefits.9
There are also production tax credits for Indian coal and refined coal. The base rate for Indian
coal is $2.00 per ton, but with the inflation adjustment was $2.308 in 2013 ($2.317 for 2014). For
6 A taxpayer may establish the beginning of construction by starting physical work of a significant nature or by meeting
the safe harbor provided in the IRS Notice 2013-60, available at http://www.irs.gov/pub/irs-drop/n-13-60.pdf. IRS
guidance advises that facilities placed in service before January 1, 2016 will be considered to have satisfied the
continuous construction or continuous efforts requirements for meeting the December 31, 2013, construction start date
deadline.
7 The threshold amount above which the PTC begins to phase-out is 8 cents in statute, adjusted for inflation. Thus, the
adjusted threshold amount for phase-out in 2013 was 12.05 cents per kWh. The reference price for the purposes of the
PTC phase-out is the annual average contract price per kWh of electricity generated from the same qualified energy
resource and sold in the prior year. The reference price for wind in 2013 was 4.53 cents. Because the reference price
(4.53 cents) did not exceed the threshold amount (12.05 cents), there was no PTC phase-out.
8 For more, see Curtis Carlson and Gilbert E. Metcalf, “Energy Tax Incentives and the Alternative Minimum Tax,”
National Tax Journal, vol. 61, no. 3 (September 2008), pp. 477-491.
9 See CRS Report R41635, ARRA Section 1603 Grants in Lieu of Tax Credits for Renewable Energy: Overview,
Analysis, and Policy Options, by Phillip Brown and Molly F. Sherlock.
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The Renewable Electricity Production Tax Credit: In Brief
refined coal, the base credit amount is $4.375 per ton, and the 2013 credit with the inflation
adjustment is $6.59 per ton ($6.601 for 2014). Indian coal production facilities must have been
placed in service before January 1, 2009, to receive credits. Under current law, credits are not
available for coal produced after 2013. Refined coal facilities must have been placed in service
before January 1, 2012, to qualify for credits. Refined coal facilities that were placed in service
before this deadline may still be receiving credits, as the credit was allowed for production over a
10-year period.
Legislative History
The PTC was first enacted in 1992 as part of the Energy Policy Act of 1992 (EPACT92; P.L. 102-
486). Since 1999, the PTC has been extended eight times (see Table 2). In June 1999, at the end
of 2001, and at the end of 2003, the PTC was allowed to lapse before being retroactively
extended. Including the present expiration, the PTC has been allowed to lapse four times.
When first enacted as part of the EPACT92, the PTC was available for electricity generated using
wind or closed-loop biomass systems. The credit was initially set to expire on June 30, 1999. In
addition to extending the PTC through December 31, 2001, the Ticket to Work and Work
Incentives Improvement Act of 1999 (P.L. 106-170) added poultry waste as a qualifying
technology. The PTC was again extended, through December 31, 2003, as part of the Job
Creation and Worker Assistance Act (P.L. 107-147). The Working Families Tax Relief Act of
2004 (P.L. 108-311) included provisions extending the PTC through December 31, 2005.
Legislation enacted later in the 108th Congress substantially modified the PTC. The American
Jobs Creation Act of 2004 (AJCA; P.L. 108-357) added new qualifying resources, including open-
loop biomass (including agricultural livestock waste), geothermal energy, solar energy, small
irrigation power, and municipal solid waste (landfill gas and trash combustion facilities). Instead
of being able to claim the PTC for the first 10 years of production, these new qualifying resources
were limited to a 5-year PTC period. Further, open-loop biomass, small irrigation power, and
municipal solid waste facilities had their credit amount reduced by one half. The AJCA also
introduced a PTC for refined coal, with a rate of $4.375 per ton (indexed for inflation after 1992),
available for qualifying facilities placed in service before January 1, 2009.10
The PTC was extended twice during the 109th Congress. The Energy Policy Act of 2005
(EPACT05; P.L. 109-58) extended the PTC for all facilities except solar energy and refined coal
for two years, through 2007. EPACT05 also added two new qualifying resources: hydropower
and Indian coal. Hydropower was added as a half-credit qualifying resource. Indian coal could
qualify for a credit over a seven year period, with the credit amount set at $1.50 per ton for the
first four years, and $2.00 per ton for the last three years, adjusted for inflation. EPACT05 also
extended the credit period from five years to 10 years for all qualifying facilities (other than
Indian coal) placed in service after August 8, 2005. The Tax Relief and Health Care Act of 2006
10 The AJCA also limited the reduction in credit for grants, tax-exempt bonds, or other subsidized financing to 50% for
facilities other than closed-loop biomass. For certain closed-loop biomass facilities, the ACJA made it so there was no
reduction in credit for taxpayers receiving other forms of subsidized financing. The AJCA also made changes to the
corporate AMT, allowing taxpayers to claim the PTC against the AMT and stipulating that a taxpayer’s tentative
minimum tax be treated as zero for the purposes of determining the tax liability limitation with respect to the PTC for
the first four years of production.
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The Renewable Electricity Production Tax Credit: In Brief
(P.L. 109-432) extended the PTC for one year, through 2008, for all qualifying facilities other
than solar, refined coal, and Indian coal.
Table 2. Renewable Electricity PTC Expirations and Extensions
Date
Lapse Before
Legislation
Enacted
PTC Eligibility Window
Extension?
Energy Policy Act of 1992 (P.L. 102-486)
10/24/1992
1/1/1993 - 6/30/1999
—
(closed-loop biomass)
1/1/1994 – 6/30/1999 (wind)
Ticket to Work and Work Incentives
12/17/1999 7/1/1999
–
12/31/2001
Yes
Improvement Act of 1999 (P.L. 106-170)
7/1/1999 – 12/19/1999
Job Creation and Worker Assistance Act
3/9/2002 1/1/2002
–
12/31/2003
Yes
(P.L. 107-147)
1/1/2002 – 3/9/2002
Working Families and Tax Relief Act
10/4/2004 1/1/2004
–
12/31/2005
Yes
(P.L. 108-311)
1/1/2004 – 10/4/2004
The Energy Policy Act of 2005 (P.L. 109-
8/8/2005 1/1/2006
–
12/31/2007
No
58)
The Tax Relief and Health Care Act of
12/20/2006 1/1/2008
–
12/31/2008
No
2006 (P.L. 109-432)
The Emergency Economic Stabilization
10/3/2008 1/1/2009
–
12/31/2010
No
Act of 2008 (P.L. 110-343)
10/3/2008 – 12/31/2011
(marine and hydrokinetic)
1/1/2009 – 12/31/2009 (wind)
The American Recovery and
2/17/2009 1/1/2011
–
12/31/2013
No
Reinvestment Act of 2009 (P.L. 111-5)
1/1/2010 – 12/31/2012 (wind)
The American Taxpayer Relief Act of
1/2/2013
1/1/2013 – 12/31/2013 (wind)
No
2012 (P.L. 112-240)
Source: Information compiled by CRS using the Legislative Information System (LIS).
Notes: For all lapse periods, the PTC was retroactively extended. See text for full details on qualifying
technologies during different time periods.
The PTC was again extended and modified as part of the Emergency Economic Stabilization Act
of 2008 (EESA; P.L. 110-343). The PTC for wind and refined coal was extended for one year,
through 2009, while the PTC for closed-loop biomass, open-loop biomass, geothermal energy,
small irrigation power, municipal solid waste, and qualified hydropower was extended for two
years, through 2010. Marine and hydrokinetic renewable energy were also added as qualifying
resources. A new credit for steel industry fuel was also introduced. This credit was set at $2.00
per barrel-of-oil equivalent (adjusted for inflation with 1992 as the base year). For facilities that
were producing steel industry fuel on or before October 1, 2008, the credit was available for fuel
produced and sold between October 1, 2008, and January 1, 2010. For facilities placed in service
after October 1, 2008, the credit was available for one year after the placed-in-service date or
through December 31, 2009, whichever was later.
The American Recovery and Reinvestment Act of 2009 (ARRA; P.L. 111-5) provided a longer-
term extension of the PTC, extending the PTC for wind through 2012 and the PTC for other
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The Renewable Electricity Production Tax Credit: In Brief
renewable energy technologies through 2013. Provisions enacted in ARRA also allowed PTC-
eligible taxpayers to elect to receive a 30% investment tax credit (ITC) in lieu of the PTC. ARRA
also introduced the Section 1603 grant program, which allowed PTC- and ITC-eligible taxpayers
to receive a one-time payment from the Treasury in lieu of tax credits.11 Under ARRA, the
Section 1603 grant program was available for property placed-in-service or for which
construction started in 2009 or 2010. The Tax Relief, Unemployment Insurance Reauthorization,
and Job Creation Act of 2010 (P.L. 111-312) extended the Section 1603 grant program for one
year, through 2011.
The PTC for wind, which was scheduled to expire at the end of 2012, was extended for one year,
through 2013, as part of the American Taxpayer Relief Act (ATRA; P.L. 112-240). In addition to
extending the PTC for wind, provisions in ATRA changed the credit expiration date from a
placed-in-service deadline to a construction start date for all qualifying electricity-producing
technologies.
PTC Claims and Revenue Cost Estimates
In 2010, 246 taxpayers claimed the PTC (see Table 3). Most of the credits claimed were for
production of renewable electricity, with only a few claims being made for refined coal, Indian
coal, or steel industry fuel.12 In total, in 2010, taxpayers claimed PTCs of $1.7 billion. Because
the PTC is paid out for 10 years, most PTCs awarded in any given year are the result of previous
year investments. Some taxpayers may not be able to use all of their tax credits to offset taxable
income in a given tax year. In this case, taxpayers may carry forward unused credits to offset tax
liability in a future tax year. In 2010, nearly $1.2 billion in PTCs were carried forward from
previous tax years.13
The IRS data on PTC claims highlight the effect that policy actions taken in response to the
economic downturn had on renewable energy tax credit claims. While the number of taxpayers
claiming the PTC increased between 2008 and 2009, this number decreased between 2009 and
2010. With the Section 1603 grant option available, fewer taxpayers claimed the PTC. From 2009
through 2013, $14.3 billion was awarded in Section 1603 grants to recipients that might have
otherwise claimed the PTC had the grant option not been available.14 This figure is not directly
comparable to the costs of the PTC over four years, because Section 1603 grants are a one-time
payment, while projects can claim the PTC for 10 years of production.
The amount of PTCs being carried forward more than doubled between 2008 and 2009, then
doubled again between 2009 and 2010. During the economic downturn, taxpayers had less net
11 For more on the Section 1603 grant program, see CRS Report R41635, ARRA Section 1603 Grants in Lieu of Tax
Credits for Renewable Energy: Overview, Analysis, and Policy Options, by Phillip Brown and Molly F. Sherlock.
12 The IRS data do not identify the number of taxpayers claiming the PTC for individual energy resources. The tax
expenditure figures presented below, in Table 4, provide estimates of the amount of PTCs being paid out to coal as
opposed to renewable resources.
13 Taxpayers with limited tax liability may not have the ability to claim tax credits in a given tax year. Under the
general business credit, unused tax credits can be carried back one year (used to offset positive tax liability in the
previous tax year), or carried forward for up to 20 years (used to offset positive tax liability in future tax years).
14 This includes grants paid for wind, open- and closed-loop biomass, geothermal electricity, hydropower, landfill gas,
and marine technologies through the end of 2013. A full list of awards can be found at http://www.treasury.gov/
initiatives/recovery/Pages/1603.aspx.
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The Renewable Electricity Production Tax Credit: In Brief
income to offset with tax credits. Further, weakness in tax equity markets made it harder for
renewable energy project developers to establish partnerships to monetize tax credits.15
Table 3. Internal Revenue Service Statistics on PTC Claims
billions of dollars
2008
2009
2010
Number of Claimantsa 253
260
246
Total Amount Claimed
$1.2
$1.5
$1.7
Credits Carried Forward
$0.2
$0.6
$1.2
Source: CRS analysis of Internal Revenue Service (IRS) Statistics of Income (SOI) line counts data, various years.
Available at http://www.irs.gov/uac/SOI-Tax-Stats-Estimated-Corporation-Data-Line-Counts.
a. This is the number of taxpayers filing IRS Form 8835 to claim the Renewable Electricity, Refined Coal, and
Indian Coal Production Credit.
Estimates of the cost, or foregone revenue, associated with tax expenditure provisions can be
found in the Joint Committee on Taxation (JCT) annual tax expenditure tables. Because JCT’s
figures are estimates, they may differ from the IRS claims data provided above. Between 2014
and 2018, estimated revenue losses associated with the PTC are $16.6 billion (see Table 4). Most
of these revenue losses, $13.8 billion, are due to the PTC for wind energy. An estimated $1.9
billion is for PTCs for electricity produced using open-loop biomass. An estimated $0.7 billion is
attributable to other renewable resources, including closed-loop biomass, geothermal, qualified
hydropower, small irrigation power, and municipal solid waste. Over the same 5-year period, the
estimated revenue losses associated with the production credits for refined coal and Indian coal
are $0.1 billion each. JCT’s tax expenditure estimates are based on current law. Thus, any policy
that extends the PTC would increase these tax expenditure estimates.
15 For a discussion of tax equity markets for renewable energy tax credits during the economic downturn, see CRS
Report R41635, ARRA Section 1603 Grants in Lieu of Tax Credits for Renewable Energy: Overview, Analysis, and
Policy Options, by Phillip Brown and Molly F. Sherlock.
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Table 4. PTC Tax Expenditures
billions of dollars
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2014 2014
-
2018
Renewable
0.2 0.3 2.1 1.1 0.9 1.3 1.4 1.4 1.6 1.7 1.5 2.8 3.5 3.9 4.0
16.4
Resources
Wind
Only
0.6 0.7 1.0 1.1 1.3 1.4 1.2 2.4 3.1 3.5 3.6
13.8
Open-Loop
Biomass Only
0.3
0.3
0.3
0.3
0.4
0.4
0.4
0.4 1.9
Indian
Coal
-i-
-i-
-i-
-i- -i- -i- -i- -i- -i- -i- -i-
0.1
Refined
Coal
-i- -i- -i- -i- -i- -i- -i- -i- -i- -i- -i-
0.1
Total
0.2 0.3 2.1 1.1 0.9 1.3 1.4 1.4 1.6 1.7 1.5 2.8 3.5 3.9 4.0
16.6
Source: Joint Committee on Taxation, annual tax expenditure tables, available at https://www.jct.gov/publications.html?func=select&id=5.
Notes: All figures are forward looking estimates and do not reflect actual revenue losses. An “-i-“ indicates a positive revenue loss of less than $50 million. Before 2008,
the JCT did not disaggregate the cost of the PTC for different energy resources.
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The Renewable Electricity Production Tax Credit: In Brief
Cost of Extending the PTC
Several estimates are available regarding the cost of extending the PTC. Extending the PTC
through 2015, as proposed in the EXPIRE Act, would cost an estimated $13.3 billion over the
2014 to 2024 budget window.16 In September 2013, the JCT estimated the cost of extending the
PTC for wind only.17A one-year extension of the PTC for wind only, not extending the PTC for
other technologies, had an estimated revenue cost of $6.2 billion over the 2014 to 2023 budget
window, while a 5-year extension had an estimated revenue cost of $18.5 billion over the same
time frame.18
Other available estimates look at the cost of a long-term PTC extension. The President’s FY2015
budget proposes to permanently extend the PTC, add solar to the list of qualifying technologies,
and make the credit refundable. The Treasury estimates that the permanent PTC extension
proposed by the president would reduce revenues by $19.3 billion between 2015 and 2024.19 In
analysis of the President’s FY2014 budget, the JCT estimated enacting this policy would cost
$24.7 billion between 2014 and 2023.20 The Congressional Budget Office (CBO) estimates that a
permanent PTC (or a PTC extended through the budget horizon) would cost $28.4 billion
between 2014 and 2024.21
Economic and Policy Considerations
The PTC was enacted in 1992 to promote the “development and utilization of certain renewable
energy sources.”22 The 1999 sunset was included to provide an “opportunity to assess the
effectiveness of the credit.”23 When the PTC was extended as part of a “tax extenders” package in
1999, the Congress noted that the PTC had been important to the development of environmentally
16 See U.S. Congress, Joint Committee on Taxation, Estimated Revenue Effects of an Amendment in the Nature of a
Substitute to H.R. 3474, the “Expiring Provisions Improvement, Reform, and Efficiency (EXPIRE) Act of 2014,”
Scheduled for Consideration by the Senate, 113th Cong., May 15, 2014, JCX-51-14, available at https://www.jct.gov/
publications.html?func=startdown&id=4601.
17 This estimate was provided as background for a Congressional hearing, U.S. Congress, House Committee on
Oversight and Government Reform, Subcommittee on Energy Policy, Health Care and Entitlements, Oversight of the
Wind Energy Production Tax Credit, 113th Cong., 1st sess., October 2, 2013, Serial No. 113-62. The revenue estimate
was published in the hearing transcript, available at http://oversight.house.gov/wp-content/uploads/2014/02/2013-10-
02-Ser.-No.-113-62-SC-EP-Oversight-of-the-Wind-Energy-Prod.-Tax-Credit.pdf.
18 The 5-year cost estimate is less than five times the cost of the one-year estimate because a portion of the revenue cost
of a 5-year extension falls outside of the budget window. Recall that the PTC is available for the first 10 years a
qualifying facility produces electricity. Thus, with a 5-year extension of the PTC, which would allow a facility coming
online in 2016 to qualify and receive tax credits through 2025. The budget window ends in 2023, meaning that revenue
costs incurred after 2023 from the PTC extension are not included in JCT’s revenue estimate.
19 Department of the Treasury, General Explanations of the Administration’s Fiscal Year 2015 Revenue Proposals,
Washington, DC, March 2014, http://www.treasury.gov/resource-center/tax-policy/Pages/general_explanation.aspx.
20 Of this total, $2.6 billion would be outlays for the refundable portion of the tax credit.
21 This estimate is provided as part of the CBO’s alternative fiscal scenario, where current policies are assumed to be
continued. Estimates are generally provided to CBO by JCT. Additional information and detailed estimates are
available at http://www.cbo.gov/publication/45010.
22 U.S. Congress, House Committee on Ways and Means, Comprehensive National Energy Policy Act, committee print,
102nd Cong., 2nd sess., May 5, 1992, H. Rept. 102-474, pp. 41-42.
23 Ibid.
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The Renewable Electricity Production Tax Credit: In Brief
friendly renewable power, and extended the credit to promote further development of wind (and
other) resources.24 Recent extensions of the PTC reflect a belief that the tax incentives contribute
to the development of renewable energy infrastructure, which advances environmental and energy
policy goals.25
Research suggests that the PTC has driven investment and contributed to growth in the wind
industry.26 While further extension of the PTC may lead to further investment and growth in wind
infrastructure, this potential is limited in the case of short-term extensions. Further, retroactive
extensions provide what are often characterized as windfall benefits, rewarding taxpayers that
made investments absent tax incentives.
While the PTC has contributed to increased use of renewable electricity resources, research
suggests that its contribution to reducing greenhouse gas emissions is small. In a 2013 report, the
National Academy of Sciences estimated that removing tax credits for renewable electricity
would result in a 0.3% increase in power-sector emissions.27
A common rationale for government intervention in energy markets is the presence of
“externalities,” which result in “market failures.”28 Pollution resulting from the production and
consumption of energy creates a negative externality, as the costs of pollution are borne by
society as a whole, not just energy producers and consumers. Because producers and consumers
of polluting energy resources do not bear the full cost of their production (or consumption)
choices, too much energy is produced (or consumed), resulting in a market outcome that is
economically inefficient.
Tax subsidies for clean energy resources are one policy option for addressing the inefficiencies
and market failures in the energy sector.29 Here, the subsidies approach is not the most efficient
way to achieve the policy objective.30 Subsidies reduce the average cost of energy, encouraging
energy consumption, countering energy conservation initiatives and offsetting emissions
24 U.S. Congress, Joint Committee on Taxation, General Explanation of Tax Legislation Enacted in the 106th Congress,
committee print, April 19, 2001, JCS-2-01, p. 25.
25 U.S. Congress, Joint Committee on Taxation, General Explanation of Tax Legislation Enacted in the 112th Congress,
committee print, February 2013, JCS-2-13, pp. 212-213.
26 Several empirical studies estimate the effects of the PTC on wind investment and development. See Claudia Hitaj,
“Wind Power Development in the United States,” Journal of Environmental Economics and Management, vol. 65
(2013), pp. 394-410; Xi Lu, Jeremy Tchou, Michael B. McElroy, and Chris P. Nielsen, “The Impact of Production Tax
Credits on the Profitable Production of Electricity from Wind in the U.S.,” Energy Policy, vol. 39 (2011), pp. 4207-
4214; Gilbert E. Metcalf, “Investment in Energy Infrastructure and the Tax Code,” in Tax Policy and the Economy, ed.
Jeffery R. Brown, vol. 24 (National Bureau of Economic Research, 2010), pp. 1-33. For a discussion of other policy
factors affecting wind markets, see CRS Report R42576, U.S. Renewable Electricity: How Does the Production Tax
Credit (PTC) Impact Wind Markets?, by Phillip Brown.
27 William D. Nordhaus, editor, Stephen A. Merrill, editor, and Paul T. Beaton, editor, Effects of U.S. Tax Policy on
Greenhouse Gas Emissions, National Academy of Sciences, Washington, DC, 2013, p. 68.
28 For a more detailed discussion of the economic rationale for intervention in energy markets, see U.S. Congress, Joint
Committee on Taxation, Present Law and Analysis of Energy-Related Tax Expenditures, committee print, 112th Cong.,
March 23, 2012, JCX-28-12.
29 There are also non-tax options, such as regulations and mandates, which are beyond the scope of this report.
30 Metcalf, Gilbert E. 2008. “Using Tax Expenditures to Achieve Energy Policy Goals.” American Economic Review,
98(2): 90-94.
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The Renewable Electricity Production Tax Credit: In Brief
reductions.31 Tax subsidies also reduce tax revenues. To the extent that these subsidies are
financed by distortionary taxes on other economic activities, they reduce economic efficiency.32
A more direct and economically efficient approach to addressing pollution and environmental
concerns in the energy sector would be a direct tax on pollution or emissions, such as a carbon
tax.33 This option would generate revenues that could be used to offset other distortionary taxes,
achieve distributional goals, or reduce the deficit. A carbon tax approach would also be
“technology neutral,” not requiring Congress to select which technologies to subsidize.34
Tax incentives are also not the most efficient mechanism for delivering federal financial support
directly to renewable energy developers and investors. Stand-alone projects often have limited tax
liability. Thus, project developers often seek outside investors to “monetize” tax benefits using
“tax-equity” financing arrangements.35 The use of tax equity investors, often major financial
institutions, reduces the amount of federal financial support for renewable energy that is delivered
directly to the renewable energy sector.36
Another consideration is the interaction of the PTC with other policies designed to support the
development of renewable electricity resources.37 More than half of U.S. states currently have
renewable portfolio standards (RPS) policies in place.38 Subsidies for renewable energy at the
federal level, including the PTC, reduce the cost of complying with state-level RPS mandates.
Policy Options and Proposals
Several policy options are related to the PTC (see Table 5). Without legislative action, the PTC
will not be available to projects that began construction after December 31, 2013. One option is to
31 The 2013 National Academy of Sciences report notes how tax credits for renewable electricity increase overall
electricity demand.
32 Gilbert E. Metcalf, “Federal Tax Policy towards Energy,” Tax Policy and the Economy, vol. 21 (2007), pp. 145-184.
33 For general background on the carbon tax option, see CRS Report R42731, Carbon Tax: Deficit Reduction and Other
Considerations, by Jonathan L. Ramseur, Jane A. Leggett, and Molly F. Sherlock.
34 The Baucus Energy Tax Reform discussion draft (discussed below) proposes “technology neutral” incentives for
clean energy resources. For a discussion of the challenges associated with achieving technology neutrality using the
subsidies approach, see testimony of Gilbert E. Metcalf before the Senate Committee on Finance, Technology
Neutrality in Energy Tax: Issues and Options, April 23, 2009, available at http://www.finance.senate.gov/imo/media/
doc/042309gmtest.pdf. For a discussion of how the Baucus draft fails to achieve technology neutrality, see Martin
Sullivan, “Economic Analysis: Why the Baucus Draft Falls Short,” Tax Notes, January 6, 2013, pp. 59-64.
35 For more on the use of tax-equity financing in the renewable energy sector, see Bloomberg New Energy Finance,
The Return - and Returns - of Tax Equtiy for US Renewable Projects, November 21, 2011, http://about.bnef.com/white-
papers/the-return-and-returns-of-tax-equity-for-us-renewable-projects/.
36 Low-income housing tax credit (LIHTC) recipients have relied on “syndicators” to facilitate tax-equity partnerships
since the credit was enacted in 1986. Carlson and Metcalf (2008) found that firms taking the PTC also tended to claim
substantial amounts of LIHTCs, providing early evidence of the use of tax-equity in the renewable energy sector as
well. Equity provided for LIHTCs tends to fluctuate between the mid-$0.80s to low-$0.90s per $1.00 tax credit. See
CRS Report RS22389, An Introduction to the Low-Income Housing Tax Credit, by Mark P. Keightley.
37 In addition to other policies, market factors, such as natural gas prices affect wind development. See CRS Report
R42576, U.S. Renewable Electricity: How Does the Production Tax Credit (PTC) Impact Wind Markets?, by Phillip
Brown.
38 For a map summarizing recent standards across states, see http://www.dsireusa.org/documents/summarymaps/
RPS_map.pdf.
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The Renewable Electricity Production Tax Credit: In Brief
allow the PTC to remain expired, not allowing any additional projects to qualify for the PTC.
Under this option, projects that were placed in service before January 1, 2014, or qualifying
projects for which construction began in 2013, may still receive the PTC for their first 10 years of
qualified production.
Another option would be to provide a temporary extension of the PTC, similar to what has been
enacted in the past. With this option, the construction start date deadline could be extended by a
set number of years (the Tax Extenders Act of 2013 (S. 1859) proposes a one-year extension,
while the Expiring Provisions Improvement, Reform, and Efficiency (EXPIRE) Act of 2014 (S.
2260) proposes a two-year extension). Should Congress choose to enact a short-term “tax
extenders” package, the PTC construction start date may be extended for the same number of
years as other expired tax provisions (typically one or two years).
Table 5. PTC Policy Options and Proposals
billions of dollars
Estimated Revenue
Policy Option
Recent Proposals
Consequences (10-year)a
Allow the PTC to Remain Expired
Current Law
$0.0
Temporary Extension
Tax Extenders Act of 2013 (S. 1859)
-$6.2
(1-year extension for wind only)
The Expiring Provisions
Improvement, Reform, and Efficiency
-$13.3
(EXPIRE) Act of 2014 (S. 2260)
Temporary Extension with Phase-
PTC Certainty and Phaseout Act of
n.a.
Out
2013 (H.R. 2987) and the No More
Excuses Energy Act of 2013 (H.R.
2081)
Eliminate Inflation Adjustment Factor The Tax Reform Act of 2014
$9.6
and Repeal
(discussion draft)
Permanent Extension with
The President’s FY2015 Budget
-$19.3
Refundability
Proposal
Fundamental Reform (“Technology-
Baucus Energy Tax Reform
n.a.
Neutral” PTC Option)
Discussion Draft
Source: CRS. See text for additional information and source details.
a. A negative (positive) figure indicates that the option would reduce (increase) federal revenues, relative to
current law.
Some have proposed that the PTC be extended, but that some form of phase-out accompany the
extension.39 The PTC Certainty and Phaseout Act of 2013 (H.R. 2987), for example, would
extend the PTC through 2019, but decrease the value of the PTC for projects that begin
construction after 2014.40
39 While current law includes a phase-out should electricity prices exceed a certain threshold, this phase-out is very
unlikely to occur in practice. For a discussion of various phase-out options, see CRS Report R43340, Production Tax
Credit Incentives for Renewable Electricity: Financial Comparison of Selected Policy Options, by Phillip Brown.
40 Similar provisions are included in the No More Excuses Energy Act of 2013 (H.R. 2081).
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The Renewable Electricity Production Tax Credit: In Brief
House Ways and Means Committee Chairman Dave Camp proposed a different form of PTC
phase-out as part his tax reform discussion draft, the Tax Reform Act of 2014.41 Under this
proposal, the construction start date would not be extended, meaning that no new facilities would
be eligible for the PTC. The PTC inflation adjustment factor would also be eliminated. This
would reduce the value of the PTC for renewable electricity to 1.5 cents per kWh, for all PTC-
eligible properties still within the 10-year eligibility window. Thus, facilities that had received a
2.3 cent per kWh PTC in 2014, and were still within their 10-year PTC window in 2015, would
see the value of the PTC fall to 1.5 cents per kWh for 2015 and beyond. Under Chairman Camp’s
proposal, the PTC would be fully repealed after 2024. Because the value of the PTC would be
reduced for existing facilities, the JCT estimates that this proposal would raise $9.6 billion in
additional federal revenues between 2014 and 2023, relative to current law.
The President’s FY2015 Budget proposes a permanent extension of the PTC.42 Additionally, the
PTC would be made refundable, solar facilities would be added as qualifying property, and the
credit would be modified such that renewable electricity consumed by the producer could qualify
for tax credits. The proposal would repeal the permanent 10% investment tax credit (ITC) for
solar and geothermal property, as well as the temporary 30% credit for other types of energy
property.
A more fundamental or sweeping reform of energy tax incentives has also been proposed. In
December 2013, then Senate Finance Committee Chairman Max Baucus released an Energy Tax
Reform discussion draft.43 The draft proposed a PTC at current levels (2.3 cents per kWh for
2013, adjusted for inflation) for zero emissions generation, with the option to elect a 20% ITC in
lieu of the PTC. The credit amounts would be reduced for low emissions facilities, and facilities
with emissions in excess of 372 grams of CO2e per kWh would not be eligible for credits. The
credit would remain available until the average annual greenhouse gas emissions rate for
electrical production facilities in the United States reaches 372 grams of CO2e per kWh (a 25%
reduction from current levels), at which point the credit would phase-out.
Author Contact Information
Molly F. Sherlock
Specialist in Public Finance
msherlock@crs.loc.gov, 7-7797
Acknowledgments
The author would like to thank Jeffrey Stupak, Research Assistant in the Government Finance and Taxation
Section at the Congressional Research Service, for assistance in updating this report.
41 For more information, see http://tax.house.gov/.
42 For more information, see Department of the Treasury, General Explanations of the Administration’s Fiscal Year
2015 Revenue Proposals, Washington, DC, March 2014, available at http://www.treasury.gov/resource-center/tax-
policy/Pages/general_explanation.aspx.
43 For more information, see U.S. Congress, Joint Committee on Taxation, Technical Explanation of the Senate
Committee on Finance’s Staff Discussion Draft to Reform Certain Energy Tax Provisions, committee print, 113th
Cong., December 18, 2013, JCX-21-13, available at https://www.jct.gov/publications.html?func=startdown&id=4537.
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