The Energy Sector Innovation Credit Act is an industry game-changer

Now that the Senate has passed the bipartisan infrastructure bill — with critical programmatic direction and eagle-eyed investments in clean energy technologies research, development, and demonstrations (RD&D) — what’s next? Obviously House action, but policymakers should focus next on policies that bring these cutting-edge clean technologies to scale. Pulling these exciting demonstrations through to commercialization can create good-paying jobs, bolster American competitiveness and rapidly reduce emissions. 

The best way to do that is to embolden the private sector with a true market signal. And with the bipartisan, now bicameral Energy Sector Innovation Credit Act (ESIC), Congress is poised to establish a really big one. ESIC was recently introduced by Sens. Mike Crapo (R-Idaho) and Sheldon Whitehouse (D-R.I.) from the Senate Committee on Finance and Reps. Tom Reed (R-N.Y.) and Jimmy Panetta (D-Calif.) from the House Committee on Ways and Means, and it could be one of the most important climate policies ever.  

This novel proposal is different from the energy tax incentives of yesterday, specifically tailored to bring a range of novel clean energy technologies to their commercial scale-up and deployment. This is an essential piece of the climate action puzzle, particularly given that the International Energy Agency recently warned that nearly half of emissions reductions needed to hit net-zero by 2050 will likely come from technologies currently at the demonstration or prototype phase. 

In other words, achieving global emissions reduction targets will require scaling and deploying numerous clean energy technologies which are not yet available, or even built. Major U.S. companies are making net-zero commitments by 2050, yet most don’t know exactly how they’ll get there. Most analyses show they will have to rely on next-generation technologies to achieve their goals affordably. Through targeted incentives, ESIC creates an environment in which breakthrough technologies can break into the market. 

While the clean energy landscape is promising, it’s not without challenges. For instance, the early retirement of nuclear power plants will lead to less clean energy production on the grid. Wind and solar power help, but without advanced battery storage, it’s not enough. ESIC would begin to address these challenges by incentivizing development in key areas — including energy storage and firm clean technologies like advanced nuclear and geothermal.

Tax incentives in the United States have historically been key drivers for emissions reductions.  Concurrently, they have strong bipartisan support throughout the halls of Congress. For instance, the recently reformed 45Q carbon capture credit is driving unprecedented private sector investment into carbon capture and direct air capture technologies and has the potential to double or triple the amount of carbon captured annually as new projects are deployed. Existing renewable energy tax credits were successful in accelerating the deployment of wind and solar power. Solar power, for example, has seen an 82 percent decrease in cost in recent years in part due to their incentives. 

ESIC is so important because it creates a technologically inclusive system. Instead of one-off incentives that are becoming a stale way to incentivize the private sector — one incentive system that rewards technology able to prove success in the market is what we need. And unlike current tax credits, ESIC would not focus on an arbitrary date but instead, the competitiveness of the technology and its ability to generate and deliver power for the grid. In other words, the incentive is the most robust when a new technology needs it the most but automatically ramps down as the individual technology becomes market mature.

There are obvious challenges associated with financing new, more risky energy projects. The combination of tight power grid regulations, high market entry costs and low power prices in the United States work to discourage investment into even game-changing technologies. By providing a carrot, rather than yet another stick, ESIC is the game-changer we’ve been waiting for. 

We know that there is no silver bullet solution to climate change, nor one single technology that will meet America’s energy resiliency needs. Addressing these dual challenges requires a diverse set of tools. ESIC is a smart, technology-neutral solution that will help bring breakthrough, emissions-reducing technologies to market. And did we mention it’s bipartisan?

With influential backers including powerful ranking members and noteworthy committee members, ESIC is poised for passage. We have an incredible opportunity to establish the next generation of clean energy tax incentives and equip our energy industry with the tools needed to meet our ambitious climate goals. Congress must follow this legislation’s sponsors’ leads and send this bill to President Biden’s desk.

Jeremy Harrell is the managing director of policy at ClearPath Action. Quill Robinson is the vice president of government affairs at the American Conservation Coalition (ACC).