White House proposes tax credits for clean energy

Pushing its clean-energy and jobs agenda, the White House today unveiled $5.4 billion in new tax credits intended to create tens of thousands of new manufacturing jobs while advancing the president's goal of doubling renewable energy generation over the next three years.

The step, which, it's hoped, will spur private investment for $15 billion in total spending for manufacturing, was announced today by Vice President Joe Biden, who was hosting chief executives as part of an unveiling of a new framework to aid US manufacturing. He characterized it as an investment in the nation's future.

Opinions on the value of the investment were mixed. Some economists said the step will be just "window dressing" as far as job creation goes, while others applauded the move as vital to accelerating US development in clean-energy manufacturing during a weak economy.

"Having tax credits for the production side is going to be very effective because it ends up lowering the price of production – and that will spur US demand," says Robert Atkinson, president of the Information Technology and Innovation Foundation, a Washington think tank focused on policies that spur technology innovation. "I definitely see value in this."

If credits went just to buyers who put solar panels on their roof, he explains, the results would simply accelerate imports of Chinese wind turbines or German-made solar cells, he says. Other nations – such as Japan, China, and Korea – are spending far more on manufacturing and innovation.

"We're in a critical five-year window where a lot of the future of who will lead this green-energy manufacturing revolution will be determined," he adds. "If we don't do it now, we will miss that window."

US manufacturing groups such as the Alliance for American Manufacturing applauded the step, citing a “flood of subsidized competition from Asia and Europe seeking to capitalize on new demand for clean energy products in the United States.”

“With a manufacturing strategy, aggressive enforcement of trade laws, and investments like the $5 billion announced today, we can successfully compete," the Alliance said in a statement.

The stimulus bill already includes a $2.3 billion tax break for "advanced energy manufacturing," a 30 percent tax credit for investments in factories that manufacture wind turbines, solar panels, electric vehicles, and lithium-ion batteries.

Other were less impressed with the announcement, citing the government's poor track record of picking winners and losers – and what they say is its relatively small impact on the economy and job creation.

The move is expected to create "tens of thousands" of jobs, senior administration officials told reporters.

"That's not a lot of jobs in the larger scheme of things," says Gus Faucher, director of macroeconomics at Moody's Economy.com in West Chester, Pa. "This will help around the margins. We'll probably get some useful technology development out of it. But related to employment it's just window dressing. ... The net effect will be pretty small."

But close observers of the clean-energy sector say that stimulus spending so far on green energy – and the new tax credits – are a spur to significant investment and technology development.

"Stimulus spending has helped green-energy development enormously so far – expediting project development and helping build local supply chains," says Alex Klein, research director at Emerging Energy Research, a Cambridge, Mass.-based market research firm.

In August the administration announced $2.4 billion in direct grants for battery manufacturing, mostly for development of advanced lithium-ion batteries to power a new generation of electric-drive automobiles. Today there are at least nine such advanced battery manufacturing plants in development, Mr. Klein notes.

"I don't know if there would be nothing happening without these sorts of clean-energy investment," he says. "But certainly, given the economic environment, this kind of government support is helping a lot."