The Oregon BETC – Business Energy Tax Credit – has been instrumental in driving development in renewable energy. Policy wonks from other states and at the Federal level are keenly tuned to the success of the program here (particularly the pass-through). A recent Oregonian article sheds light on some of the challenges in administrating this type of program in a challenging economy.

Clearly, there are some issues that need to be addressed. For example, there are cases where a single project has received multiple credits by entities falsely filing as independent projects. The Oregonian also correctly identifies the problem of energy facilities expiring before the life of the tax credit ends. Already on the docket is a special legislative session early in 2010 to revamp the program. A draft of potential changes is published on the Oregon Department of Energy website.  

Sustainable Northwest encourages the development of appropriately scaled renewable energy projects. The scale of these projects is defined through collaborative agreement on a range of issues including long-term sustainability of supply, ecological impact, and community engagement. The Enterprise School and the Harney County District Hospital are two prime examples. (Note: One-third of our national energy consumption is for heat yet no state or federal energy policy includes thermal energy.) In an incredibly difficult economy for community facilities or entrepreneurs to obtain capital or loans, these small scale projects simply will not be developed without BETC assistance.

The Oregonian article suggests using grants rather than tax credits for such incentive programs. This debate is not new to elected officials. The perspective in the article misrepresents the case somewhat, assuming that future tax revenue is already committed to the general fund. To use grants instead, lawmakers would have to carve out a new bucket of funds and it would have to be revisited every year in appropriations; this seems unlikely in an already challenging budget year. It seems a better aim to structure the program so that it ensures the state is paid back in terms of cost savings for government facilities or businesses that provide jobs (and thus tax revenue).

A closer look at the Enterprise School project shows the long-term benefit to the state for supporting similar projects. The total cost of the project to retro-fit an oil-fired boiler to burn wood chips and do a host of energy efficiency improvements to the school was around $1.8 million. The BETC allowed the school system (a non-tax paying entity) to pass through the tax credit and receive around $400,000 (2/3 of the full tax credit) for project buildout. This will “remove” $600,000 of tax revenue from the state general fund over a 5 year period. The energy savings for the school will be roughly $100,000 per year and continue beyond the 5 year period. It seems the state will come out just fine.

The BETC needs a revamp; it could more effective at promoting the state's interest. The pass-through should remain but ensure the state gets its share of the bargain (maybe by discounting or nullifying the credits if the facility goes out of production). It should only be used for capitalizing new projects, not subsidizing existing or currently out-of-use systems. It may not be easy, but if Oregon wants to be a leader in renewable energy development, BETC will play a critical role.