Since the beginning of the 20th century, the federal government has been supporting energy development in the United States. From the oil and gas production expensing policies of 1916 to the grant programs created as part of the American Recovery and Reinvestment Act of 2009, America has provided financial assistance for the promotion and growth of the energy industry. The objectives of this support have been dynamic over the years, which have included policies to make certain the nation maintains a secure supply of energy, ensuring energy is available at a low cost for domestic consumers and to meet long-term environmental goals.
Today, government incentives to promote and produce domestic energy still exist for investors. However, instead of solely being an initiative driven at the federal level, state and local governments are developing programs to induce the investment in certain energy sources, as well as encourage the implementation and utilization of energy-efficient technologies. In addition to the energy goals previously stated, many political leaders are developing energy incentives for another critical reason: economic development and job creation.
Through corporate and personal tax incentives, loan financing, bonding, rebates and tariffs, among many other program types, state governments have induced businesses and investors in energy production and energy efficiencies within their jurisdictions. Additionally, a number of counties and municipalities have also established policies to encourage the development and use of certain types of energy. Since the renewable energy industry has already created over 600,000 American jobs, it is no surprise economic developers are clamoring for renewable energy investments. Furthermore, regional authorities, like the Tennessee Valley Authority, have developed unique programs to promote energy development and boost energy-efficiency.
One of the most common incentives for energy production and development is through the exemption of property taxes. According to the Solar Energy Industries Association (SEIA), a national trade association promoting the U.S. solar industry, 38 states now offer property tax exemptions for the development of renewable energy. Since property taxes are levied by different jurisdictions depending upon state law, the exemptions for renewable energy are developed in a various ways, including municipal opt-in and opt-out policies.
An example of a state program developed specifically for energy production is Kentucky’s Incentives for Energy Independence Act (IEIA) program. Beginning in 2008, the IEIA program aims to promote the investment in renewable energy, alternative fuels and energy efficiency through tax incentives worth up to 50 percent of the capital expenditures. For up to 25 years, an eligible company may capture up to 100 percent of state income tax liability, an exemption of all sales and use taxes on project materials, and a wage assessment equal to four percent of the jobs created from the project. Additionally, a company may be eligible to receive an advanced disbursement, which can be beneficial to getting a project off of the ground.
Alongside incentives developed specifically for energy purposes, companies may also be eligible to utilize traditional programs to discover critical financial assistance. Energy projects often bring along a significant capital investment and can lead to job creation – the key tenets to a successful economic development policy. Therefore, traditional incentive programs geared to incentivize attractive businesses such as corporate headquarters and automotive assembly facilities, may also be utilized for energy projects. Energy projects may also find more complex incentives to assist in meeting critical financing needs. These programs often include Tax Increment Financing (TIF), New Markets Tax Credits (NMTC) and bonding.
Moving forward, more state and local governments are expected to utilize public incentives to entice energy investors to their communities. These incentives will not only be in support of certain policies, such as renewable portfolio standards and environmental initiatives, but will drive economic development for the future.
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