US Initiates Response to its "Sputnik Moment"

As 2010 drew to a close, the US Government increased its rhetoric and action in support of its clean technology industry.  On November 29, the Obama Administration's Secretary of Energy, Dr. Steven Chu, led the charge with the following speech at a National Press Club luncheon:



Dr. Chu likened recent cleantech advances by China and other countries to a "Sputnik moment" for the United States and personalized his plea by pointing out that he had "benefited from the investments [the US] placed on science education and research in order to catch up with the Soviet Union in the the space race." He called on his country to apply the same amount of focus, ingenuity and resources to clean energy so they could lead in creating the clean energy technology and clean energy economies that will be central to the 21st century. However, he acknowledged that the US had to get moving or risk being left behind.  Perhaps a message that too few Canadian politicians are willing to make.

The Administration followed up this clarion call to action with an early mid-December Christmas present to its renewable energy industry. After a pitched battle of legislative priorities following the US mid-terms, Republican legislators were sufficiently satisfied with the Administration's compromise on tax legislation (i.e. extension of Bush era tax rates) that they worked with the President to pass the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the Bill). The Bill extends several expiring renewable energy and fuel tax incentives and includes some new incentives that could provide significant benefits to renewable energy projects. The highlights are as follows: 

Section 1603 Grant

The Bill extends the grant program created by Section 1603 of the American Recovery and Reinvestment Act for one year, now applying to projects that begin construction in 2011 and are placed in service before the applicable credit termination date:

• January 1, 2013 - large wind; 
• January 1, 2014 - biomass, waste, marine and other enumerated facilities; and 
• January 1, 2017 - solar, geothermal, fuel cells, microturbines, CHP and small wind.

Section 1603 provides for a cash grant of up to 30% of project costs for qualifying renewable energy projects. The grant has proven to be extremely popular, with $5.5 billion paid with respect to $l8.5 billion of renewable projects through November 8, 2010. According to the Solar Energy Industry Association, the grant program has contributed to the installation of approximately 1,000 MW of solar-electric capacity in 2010 which is enough power for about 200,000 homes.

Bonus Depreciation

The Bill extends and temporarily increases bonus depreciation for investment in "qualified property":

•  For property acquired and placed in service after September 8, 2010 and before January 1, 2010, the Bill provides for a 100% first-year deduction.
• For property placed in service in 2012, the Bill provides for a 50% first-year deduction. 

To qualify for bonus depreciation, property generally must have a recovery period of 20 years or less.

Fuels Credits

The Bill also provided a variety of incentives for alternative fuels including: 

• Ethanol: Extension of the Volumetric Ethanol Excise Tax Credit (VEETC) through 2011 at the current rate of $0.45/gallon US and the existing tariffs on imported ethanol. The Bill also extends through 2011 the $0.10/gallon producer tax credit for small ethanol producers producing no greater than 60 million gallons per year; applicable to the first 15 million gallons of production. 
• Biodiesel and Renewable Diesel. An extension through 2011 of the $1.00 per gallon tax credits for the sale or use of biodiesel, renewable diesel, and biodiesel mixtures. There is also an  extension through 2011 of the $0.10 per gallon small agri-biodiesel producer credit. 
• Alt Fuel and Alt Fuel Mixtures: Extension through 2011 of the $0.50/gallon production tax credit for alternative liquid fuels derived from biomass, compressed or liquefied biogas, national gas and propane but excluding "black liquor", which is liquid fuel derived from a pulp or paper manufacturing processes. 
• Alternative Fuel Vehicle Refueling Property: Extension of the 30% investment tax credit for alternative vehicle refueling property for one year, through 2011.

A comprehensive tax review of the Bill was completed by KPMG and can be viewed here.

The Sputnik Catalyst

Despite a continued commitment to promoting US leadership in clean technology development, the Administration was faced with a barrage of reports at year's end, led by this competitive analysis from Ernst & Young, that recognized China as "the clear global renewables leader."