Emergency Economic Stabilization Act of 2008 and coal
In September, 2008, the US Congress passed a $700 billion financial bailout package, H.R. 1424, entitled the Emergency Economic Stabilization Act of 2008. Folded into the final version of the bill was a previously separate piece of legislation known as the Energy Improvement and Extension Act of 2008, which included $10.8 billion in energy incentives, of which $2.8 billion represented tax breaks for the coal industry.
Sen. Jay Rockefeller, D-W.Va. was one of the leading advocates of the tax breaks for coal. The provisions include incentives for carbon capture and storage technology and for coal-to-liquids technology.
The bill also extends tax breaks for renewable energy and energy efficiency:
- Extends the Renewable Energy Production Tax Credit through 2009 for wind and 2010 for other renewables.
- Extends the Investment Tax Credit for solar and fuel cell technologies through 2016, removes the $2,000 cap, and expands it to include small wind, geothermal and combined heat and power.
- Extends the Biodiesel Production Tax Credit through 2009 and closes the “splash and dash” loophole, under which biodiesel that is imported then exported is eligible for the tax credit.
- Authorizes $800 million in new Clean Renewable Energy Bonds for state, local and tribal governments’ public power providers and electric cooperatives.
- Extends the Tax Credits for Energy Efficient Homes through 2009.
- Extends the Tax Deduction for Energy Efficient Commercial Buildings through 2013.
- Extends the Manufacturer Tax Incentives for Efficient Appliances through 2010.
- Creates a new tax credit of up to $7,500 for Plug-In Electric Vehicles.
Coal provisions include:
- $1.4 billion in tax breaks over 10 years to power projects that will capture and store at least 65 percent of their total carbon dioxide emissions;
- $1.1 billion for a $20 per ton tax credit for carbon capture and storage.
The coal investment credit will cost $389 million in the first year of implementation, according to the Congressional Budget Office.
Coal industry reaction
The bailout package is so favorable to the coal industry that Hal Quinn, President and CEO of the National Mining Association, released this statement praising the legislation:
"The U.S. Congress this week took important steps to continue progress on the development and deployment of technologies that will result in cleaner electricity generated from coal—America’s most abundant energy resource—and coal-to-liquid (CTL) fuels, which can help secure our energy future. These provisions also will create more family-wage jobs in U.S. mining and assist in our efforts to make mining even safer—our number one priority.
"NMA thanks all members of the House and Senate who championed these measures, particularly Sens. Max Baucus (D-Mont.), Mitch McConnell (R-Ky.), and Jay Rockefeller (D-W.Va.) and Reps. Roy Blunt (R-Mo.) and Artur Davis (D-Ala.) for their leadership and assistance."
Bill Raney, President of the West Virginia Coal Association, also lauded the bill:
"It's very positive to have these kinds of things in a Congressional act. It shows confidence in the coal industry and demonstrates it is a big part of the energy picture of this country. You've got some looking-forward tax incentives and you've got recognition that companies are coming into compliance with safety regulations. When you have Congress look at it this way, it says coal is a very big part of the energy future of this country."
Credit crisis and coal
Even before the credit markets froze, the power industry had delayed or cancelled scores of coal plants over climate change pressures and rapidly rising construction costs. Those costs have effectively doubled in recent years, reinforcing the industry as one of the most capital-intensive in the economy. Before the crisis, investor-owned utilities planned to spend over $1 trillion in the next twenty years on new plants, transmission lines and maintenance. The Department of Energy's forecast earlier this decade was for 36,000 megawatts of new coal-fueled power to come online by 2008. Instead only 5,000 MW of supply were built.
Widespread credit difficulties in the United States have greatly diminished the ability of new coal plants to secure financing, making it even more difficult to push forward with new coal projects. Credit is much more expensive and difficult to secure, and because of the financial crisis, there are fewer independent banks able to loan money to utilities. Facing a regulatory deadline in Montana, developers of the Highwood Generating Station were forced to start construction of the plant with only enough money to lay the foundation. Florida Power and Light cut its 2009 capital expenditures plan by almost 25 percent. In West Virginia, Synthesis Energy Systems and Consol Energy cited "the current state of the U.S. credit markets" as their reason for shelving an $800 million coal-to-liquid fuels plant.
Suspension of Rural Utilities Service Financing
In February, 2008, the Rural Utilities Service suspended financing to coal plants.
In the letter to Representative Henry Waxman announcing the suspension, RUS Administrator James Andrew wrote that the suspension would continue "until the Agency and OMB develop a subsidy rate sufficient to cover the risks associated with the construction of new generating plants."
At the time of the suspension, the RUS was considering applications for loans totalling $1.2 billion, of which three were for RECs involved in minority shares of the privately-funded plants:
- Kansas Electric Power Cooperative, 30 MW (3.5%) of a 850 MW plant, $55 million.
- East Texas Electric Cooperative, 50 MW (7.7%) of a 650MW Plant, $102 million.
- East Kentucky Power Cooperative, 278 MW, $685 million.
- Prairie Power (Illinois), 130 MW (8.2%) in two plants totaling 790 MW, $385 million.
These projects are seeking alternate sources of financing, including loans from the National Rural Utilities Cooperative Finance Corporation (CFC). CFC loans are typically at higher interest rates than RUS loans. East Texas Electric Cooperative has also filed a federal lawsuit against the RUS over the financing moratorium.
Details on Bill Provisions
The energy-related contents are as follows:
- TITLE I—ENERGY PRODUCTION INCENTIVES
- Subtitle A—Renewable Energy Incentives
- Sec. 101. Renewable energy credit.
- Sec. 102. Production credit for electricity produced from marine renewables.
- Sec. 103. Energy credit.
- Sec. 104. Energy credit for small wind property.
- Sec. 105. Energy credit for geothermal heat pump systems.
- Sec. 106. Credit for residential energy efficient property.
- Sec. 107. New clean renewable energy bonds.
- Sec. 108. Credit for steel industry fuel.
- Sec. 109. Special rule to implement FERC and State electric restructuring policy.
- Subtitle B—Carbon Mitigation and Coal Provisions
- Sec. 111. Expansion and modification of advanced coal project investment credit.
- Sec. 112. Expansion and modification of coal gasification investment credit.
- Sec. 113. Temporary increase in coal excise tax; funding of Black Lung Disability Trust Fund.
- Sec. 114. Special rules for refund of the coal excise tax to certain coal producers and exporters.
- Sec. 115. Tax credit for carbon dioxide sequestration.
- Sec. 116. Certain income and gains relating to industrial source carbon dioxide treated as qualifying income for publicly traded partnerships.
- Sec. 117. Carbon audit of the tax code.
- TITLE II—TRANSPORTATION AND DOMESTIC FUEL SECURITY PROVISIONS
- Sec. 201. Inclusion of cellulosic biofuel in bonus depreciation for biomass ethanol plant property.
- Sec. 202. Credits for biodiesel and renewable diesel.
- Sec. 203. Clarification that credits for fuel are designed to provide an incentive for United States production.
- Sec. 204. Extension and modification of alternative fuel credit.
- Sec. 205. Credit for new qualified plug-in electric drive motor vehicles.
- Sec. 206. Exclusion from heavy truck tax for idling reduction units and advanced insulation.
- Sec. 207. Alternative fuel vehicle refueling property credit.
- Sec. 208. Certain income and gains relating to alcohol fuels and mixtures, biodiesel fuels and mixtures, and alternative fuels and mixtures treated as qualifying income for publicly traded partnerships.
- Sec. 209. Extension and modification of election to expense certain refineries.
- Sec. 210. Extension of suspension of taxable income limit on percentage depletion for oil and natural gas produced from marginal properties.
- Sec. 211. Transportation fringe benefit to bicycle commuters.
- TITLE III—ENERGY CONSERVATION AND EFFICIENCY PROVISIONS
- Sec. 301. Qualified energy conservation bonds.
- Sec. 302. Credit for nonbusiness energy property.
- Sec. 303. Energy efficient commercial buildings deduction.
- Sec. 304. New energy efficient home credit.
- Sec. 305. Modifications of energy efficient appliance credit for appliances produced after 2007.
- Sec. 306. Accelerated recovery period for depreciation of smart meters and smart grid systems.
- Sec. 307. Qualified green building and sustainable design projects.
- Sec. 308. Special depreciation allowance for certain reuse and recycling property.
- TITLE IV—REVENUE PROVISIONS
- Sec. 401. Limitation of deduction for income attributable to domestic production of oil, gas, or primary products thereof.
- Sec. 402. Elimination of the different treatment of foreign oil and gas extraction income and foreign oil related income for purposes of the foreign tax credit.
- Sec. 403. Broker reporting of customer’s basis in securities transactions.
- Sec. 404. 0.2 percent FUTA surtax.
- Sec. 405. Increase and extension of Oil Spill Liability Trust Fund tax.
Articles and Resources
- Ken Ward, Jr., "Coal gets help in financial bailout" Charleston Gazette, October 7, 2008.
- Ken Ward, Jr., "Coal gets help in financial bailout" Charleston Gazette, October 7, 2008.
- Julie Cart, "'Dirty fuels' profit by bailout bill's tax breaks for renewable energy", Los Angeles Times, 10/4/08
- "NMA Supports Congressional Action on Important Energy Matters," National Mining Association, October 3, 2008.
- "Bailout legislation contains millions for coal," Charleston Daily Mail, October 7, 2008.
- Matthew Brown, "Credit crisis dims the lights for power industry," Associated Press, November 17, 2008.
- "Utilities hunker down for tough year ahead," Anchorage Daily News, November 10, 2008.
- Steven Mufson, "Government Suspends Lending for Coal Plants," Washington Post, March 13, 2008
- Letter from James M. Andrew to Representative Henry Waxman, received March 11, 2008.
- "Loss of federal loan fails to derail four other coal-fired power plants," Great Falls Tribune, October 19, 2008.
- Text of H. R. 1424
Related GEM.wiki articles
- U.S. coal politics
- Carbon Capture and Storage (CCS)
- Clean Coal
- The economic crisis and coal
- Text of H. R. 1424
- "U.S. govt. bailout benefits coal, miners as well as bankers," Mineweb, October 6, 2008.
- "Big Oil's Porky Bailout," Greenpeace, October 3, 2008.
- "'Dirty fuels' profit by bailout bill's tax breaks for renewable energy: Incentives mean billions for coal and oil projects that increase emissions," L.A. Times, October 4, 2008.
- "Green Energy Boom In Bailout Bill," Forbes.com, October 2, 2008.