What Taxpayers Need to Know About the GREEN Act

An electric car charges in front of a house.
The recently proposed Growing Renewable Energy and Efficiency Now (GREEN) Act was released as a discussion draft, which means that it’s unlikely to become law in this precise form anytime soon.
But it’s novel for a discussion draft proposal in that it’s essentially a menu of temporary extenders rather than a plan for an overhaul of energy tax policy.
The most notable characteristic of the GREEN Act is that it doesn’t stake out an approach to the existing and relatively disjointed energy tax provisions other than providing what amounts to more of the same. Most of the proposals are modifications to the existing patchwork of incentives.
The few new provisions don’t represent an attempt at framing a clear approach to energy tax policy.
There’s no revenue estimate for the GREEN Act yet, but there would be a sizable cost to these proposals. The final page of the draft legislation notes, “Revenue provisions to be provided.”
Individual tax incentives
The individual incentives are for homeowners, commercial building owners, and electric vehicle buyers. For homeowners upgrading their residences, installing energy-efficient items such as windows, specific furnaces or boilers, and exterior doors would continue to be eligible for the section 25C nonbusiness energy property credit through 2024.
The proposal generally expands the credit, but it disallows roofs and advanced main air circulating fans from qualifying.
The changes to section 25D’s credit for solar electric, solar water heating, fuel cell, small wind energy, and geothermal heat pump expenditures would include an extension of the full 30 percent credit through 2024, with a phaseout through 2026. Battery storage and biomass fuel property would be added.
Electric vehicles
Electric vehicles (EVs) get a boost, too. The threshold sales numbers for the qualified plug-in electric drive motor vehicle credit in section 30D would be raised from 200,000 to 600,000, but the credit would be reduced by $500 after the manufacturer hits the 200,000 mark.
Tesla hit the 200,000 vehicles mark almost exactly one year ago.
For the first time, buyers of used EVs would be allowed to claim a credit, which is capped at the lesser of $2,500 or 30% of the sale price. This change might end up working to the benefit of used car dealers because only sales from a dealership count.
There’s an income-based phaseout of the credit that starts at adjusted gross incomes of $30,000 and ends at $40,000 ($60,000 and $70,000, respectively, for married couples filing jointly).
That’s somewhat difficult to reconcile with the existing and expanded section 30D credit for new vehicles, in which there’s no income phaseout, and plenty of evidence suggests that it largely accrues to households with incomes much higher than the U.S. median.
The drafters of the GREEN Act evidently believe that taxpayers with incomes over $40,000 or combined household incomes of more than $70,000 are supposed to buy new vehicles. The income limitation is probably designed to address the criticism that the EV credit is used almost entirely by wealthier taxpayers, but it doesn’t fix that problem — as an income limit on the credit for new vehicles would’ve — and it could make buying a used EV a little more expensive.
$5 billion on the table for colleges
One of the new proposals targets colleges and universities that have or add an environmental justice program.
Those institutions could apply for a portion of up to $1 billion per year between 2020 and 2024 in refundable credits to be doled out by Treasury. This provision appears to be novel in that it’s similar to a grant for schools to establish or expand a particular type of educational program, but it’s set up as a refundable credit.
An environmental justice program is defined as a program that “is designed to address, or improve data about, qualified environmental stressors for the primary purpose of improving, or facilitating the improvement of, health and economic outcomes of individuals residing in low-income areas or areas populated disproportionately by racial or ethnic minorities.”
Environmental stressors are air, water, soil, or food contaminations, or altered weather conditions relative to historical norms in a particular area. The base credit is 20% of costs, and it must be spent within five years by the college or university. Historically black colleges and universities (HBCUs) and minority-serving institutions are eligible for a 30% credit.
Deciding which institutions get the credits might pose an administrative challenge because it requires interagency agreement.
The draft statute tells Treasury to work with the departments of Energy, Education, and Health and Human Services, and the Environmental Protection Agency to select credit recipients. The criteria for a successful application are 1) the extent of participation of faculty and students of an HBCU, 2) the extent of the expected effect on health or economic outcomes for residents of low-income areas or areas populated disproportionately by racial or ethnic minorities, and 3) the creation or significant expansion of qualified environmental justice programs.
There’s tension between the goal of helping alleviate the health and economic effects of environmental change on low-income or minority communities expressed in the proposed credit and some of the other provisions of the GREEN Act, in which the incentives accrue to homeowners and commercial property owners who make specific purchases to improve their properties, and electric vehicle buyers.
There’s no way to ensure that the college programs produce results for the communities, but the individual credits have an immediate benefit to the taxpayers who receive them.
Business tax changes
There are a number of extensions and modifications of credits for energy businesses.
The section 45 production tax credit for electricity produced from renewable resources and the section 48 investment tax credit would be extended and expanded to include energy storage technology, waste energy recovery property, biogas property, and linear generators.
The section 45Q credit for carbon oxide sequestration would get a one-year extension, and income from green and renewable energy would qualify as income for publicly traded partnerships under section 7704, which would mean that publicly traded partnerships with a sufficient amount of that type of income could be treated as corporations.
The credit for biodiesel would be extended, along with the excise tax credits for alternative fuels.
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