Senate Democrats

Democrats are Committed to Extending Renewable Energy Tax Credits as Energy Prices Continue to Rise

Rising energy costs are squeezing the budgets of middle-class Americans and putting a strain on the economy.  For years, as Bush Republicans took their cue from the big oil companies on energy policy–and the oil companies made hundreds of billions in windfall profits–American consumers have paid more at the pump.  In recent months, as the economy has shown signs of weakness, sharp increases in energy prices have taken on a new significance. 

Senate Democrats are committed to an energy policy that invests in renewable energy, lowers gas prices, makes America more energy independent, reverses global warming and strengthens our national security.  While we are proud that we raised fuel-efficiency standards for the first time in a generation, we will not be satisfied until Republicans fully join us to put consumers’ interests ahead of Big Oil’s greed.  By blocking tax incentives in renewable energy and standards to supply clean, renewable electricity, Republicans are missing a chance to grow new clean energy industries and create 21st century jobs.

This Fact Sheet will outline how energy costs are impacting the economy and middle-class families and highlight the importance of extending the energy tax credits which have been repeatedly blocked by the Bush Administration.

High Energy Costs are Straining the Economy

Increasing wholesale inflation.  The Labor Department reported that wholesale inflation was up 6.3 percent for all of 2007, reflecting a huge increase for the year in various types of energy costs ranging from gasoline to home heating oil.[1]

Stifling economic growth.  The increase in oil prices over the past five months could easily translate into half a percent reduction of GDP, which could be enough to throw the economy into recession.[2]

Increasing consumer prices.  The same increase in oil prices that may be a negative influence on growth is also lifting overall consumer prices and putting upward pressure on inflation as well.[3]

Acting as an artificial tax on the economy. The more-than-$30-a-barrel increase in oil prices over the past five months is similar to a $150 billion tax increase.[4]

Deflating consumer confidence.  The increase in the price of oil is sending up the price of gasoline, the most visible price in the U.S. economy, and that has a major impact on consumer psychology.  This is one of the reasons consumer confidence has been weakening recently.[5]

Increasing our trade deficit.  Record oil prices widened the U.S. trade deficit in November as the cost of imported petroleum outpaced a modest rise in exports.  The gap between what Americans import and export grew 9.3 percent, to $63.12 billion, the biggest deficit in 14 months.  Imported oil accounted for more than half of the total.[6]

Rising Energy Prices are Taking a Toll on the Middle Class

The ever-increasing rise in energy costs are squeezing the pocketbooks of middle-class families who face the prospect of “spending more than $2,500 to heat their homes this winter.”[7] The price that middle-class Americans are paying at the gas pump is also having a profound impact on middle- and lower-income families.  “Our (Pew Center) surveys are showing one of the lowest levels of satisfaction with national conditions in any recent presidential election year…You have to go back to 1992 to get a lower number of people saying the national economy is excellent or good.”[8]

Consumers are also getting squeezed by businesses that are passing on increased fuel costs to the customer.  A number of major airlines, for example, recently announced that they would double their domestic flight surcharge from $20 to $40.  This “marked the third time they have tried to pass on the cost of fuel to passengers.”[9]

Renewable Energy and Energy Efficiency Tax Credits Create Economic Growth and Save Consumers Money

Last year, the renewable electricity sector pumped more than $20 billion into the U.S. economy, generating tens of thousands of jobs in construction, transportation, manufacturing, finance, and operations and maintenance industries.[10]  The energy efficiency and renewable energy industries created 8.5 million jobs in 2006 and could create more than 40 million jobs by 2030.  (See Appendix A for a breakdown of jobs in renewable energy per megawatt of electricity).

The Production Tax Credit (PTC) for wind energy and the Investment Tax Credit (ITC) for solar energy are currently scheduled to expire at the end of 2008.  The extensions of these renewable energy tax credits are important because they will help stimulate the economy and create high-paying jobs.  The expiration of renewable tax credits could lead to the loss of 116,000 jobs in the wind and solar industries through the end of next year.

Solar.  An estimated 6,000 high-quality jobs were created in the solar sector in 2007 and another 12,000 are expected in 2008.  The market uncertainty surrounding a possible extension of the ITC has already dampened the solar energy market and it is estimated that additional market contraction will occur if the ITC is not extended.

Wind.  The potential expiration of the PTC would cause the loss of more than 1,000 jobs in Texas, Colorado, Illinois, Oregon, Minnesota, Washington, Iowa, North Dakota, Oklahoma, and Pennsylvania. Renewable energy investors today are holding back on funding for projects, like wind energy, that will not be completed until next year when the tax credits may not apply.  The decline in investment is expected to accelerate and grow with each month of additional delay in extending the PTC.

Geothermal.  New geothermal projects will result in the infusion of $11 billion in capital investment in the western states, and create 5,600 permanent jobs and over 21,000 person-years of construction and manufacturing employment.  Without an extended credit, the resulting tax hike will undercut one of the fastest growing segments of the U.S. economy.

Energy efficiency.  According to the Alliance to Save Energy, the economic stimulus package passed by the Senate Finance Committee would have helped “American consumers combat spiraling home energy costs that are expected to average roughly $2,200 this year and the Finance Committee package will have a downstream, positive impact on jobs and our economy.”[11]  The American Council on Energy Efficiency has estimated that the tax credits would save 97 million metric tons of carbon dioxide and $22 billion cumulatively through 2030.

Appendix A



Endnotes

[1]  Associated Press, “Wholesale Prices Soared Last Year,” (January 15, 2008).

[2]  Washington Post, “Stimulus Unlikely to Counter Rise in Oil Prices,” (January 11, 2008).

[3]  Washington Post, “Stimulus Unlikely to Counter Rise in Oil Prices,” (January 11, 2008).

[4]  Ibid.

[5]  Wall Street Journal, “Weakened U.S. Economy May Be Facing New Test,” (January 3, 2008).

[6]  New York Times, “Oil Is Blamed for Widening Trade Deficit,” (January 12, 2007).

[7]  San Francisco Chronicle, “Short-term fixes to high energy prices aren’t sustainable,”  (December 3, 2007).

[8]  New York Times, “Americans Cut Back Sharply on Spending,” (January 14, 2008).

[9]  Los Angeles Times, “Fuel fees pump up airfares,” (January 29, 2008).

[10]  American Wind Energy Association, “Support the Senate Finance Committee Economic Stimulus Package,” January 30, 2008.

[11]  Ibid.