Today is Earth Day, and the global climate crisis is on many people’s minds. Investors might wonder how they can invest in a way that will help alleviate global warming. Clean and renewable energy investments—such as wind and solar power—are among those that can make the biggest difference. And the Wind Energy Promotion Act would make a difference for investors.
At the moment, "there are two significant barriers to owning and investing in renewable energy projects. First, the federal renewable electricity incentive—the production tax credit (PTC)—limits the type and amount of income tax that can be applied. Second, the Securities and Exchange Commission (SEC) has complicated and expensive registration fees for sizable cooperative investments," according to a policy brief by the New Rules Project.
"The PTC restricts investment in renewable energy by its very nature as a tax credit," according to the brief. Those who invest in renewable energy must owe a lot of taxes in order to qualify for the PTC. "A single, two-megawatt wind turbine generates around $125,000 in tax credits each year, but only if the investor owes that much in taxes. Not many Americans owe $125,000 a year in taxes; that’s 2.5 times the median household income."
The PTC provides a two-cent tax credit per kilowatt hour (kWh) of electricity produced by renewable electricity generators for 10 years. The PTC can only be applied to passive income—that is, income from rental properties or investments. While many investors own rental properties or receive income from their investments, this stipulation leaves many people in a position of being unable to qualify for the PTC.
So where does that leave investors?
"If lawmakers want Americans to achieve energy independence, they need to revise the PTC and simplify SEC registration," according to the brief.
In that vein, Rep. Tim Walz (D-Minn.) and House Agriculture Committee Chairman Collin Peterson introduced (D-Minn.) introduced the Wind Energy Promotion Act in June 2007.
"Raising capital for wind energy projects is difficult, because many residents of rural America do not qualify for the Renewable Energy Production Tax Credit (PTC), which is one of the major incentives to promote wind energy production," Walz said, according to a press release. "This legislation will expand renewable energy production by leveling the playing field for individuals in rural America who are looking to enter the industry. Everyone wins if we pass this legislation.”
“I’m pleased to join Congressman Walz in introducing this legislation to make our tax code fairer and to bring the benefits of renewable energy investments to more of our rural citizens," Peterson said, according to the release.
The legislation would make it easier for people "to invest in wind energy projects by expanding the eligibility of who can receive benefits" from the PTC, according to the release. Further, the legislation is a win-win because it "would not limit the ability of the current beneficiaries of the PTCs to continue receiving them."
The legislation would allow taxpayers to apply the PTC to their ordinary income. One effect of that would be that an increased number of middle-class taxpayers would have to file for the Alternative Minimum Tax (AMT), but the bill would address that situation by changing "the tax law to eliminate the effect of the AMT on income derived from using the PTC," according to the release.
"The Wind Energy Promotion Act would amend the tax code to allow up to $40,000 of the PTC to be used against ordinary income. This ‘passive loss exemption’ is similar to a $25,000 passive loss exemption that currently exists to encourage investments in oil and gas development and real estate," according to the release.
If tax credits were expanded such that investors could see as much tax benefit from renewable energy investments as they can from real estate investments, perhaps the global climate crisis could be slowed.