The National Renewable Energy Laboratory (NREL) has issued a new analysis exploring the potential impact of recently extended federal tax credits concerning the deployment of renewable generation technologies and related CO2 emissions from the US electric sector.

The report, Impacts of Federal Tax Credit Extensions on Renewable Deployment and Power Sector Emissions, details the use of state-of-the-art scenario modeling to explore these two questions:

  • How might renewable energy deployment in the contiguous United States change with these recent federal tax credit extensions?
  • How might this change in renewable energy deployment impact CO2 emissions in the power sector?

Federal tax credits for renewable energy, particularly the wind production tax credit (PTC) and the solar investment tax credit (ITC), have provided financial incentives for renewable energy deployment over the last two decades. In December 2015, the wind and solar tax credits were extended another five years from their initial scheduled expiration dates.

According to NREL, the report examines the impacts of the tax credit extensions under “two distinct natural gas price futures, as the price of natural gas has been a key factor influencing the economic competitiveness of new renewable energy development.” In both natural gas price cases, the report concludes tax credit extensions can spur renewable capacity investments at least through the early 2020s. Additionally, such tax credits can help lower CO2 emissions from the US electricity system.

Of note, these tax credit extensions have been estimated to drive a net peak increase of 48-53 gigawatts in installed renewable generation capacity in the early 2020s. However, longer-term impacts are less certain and can depend on natural gas prices.

After the tax credits ramp down, greater renewable energy capacity is driven by a combination of assumed cost reductions in renewable generation, assumed rising fossil fuel prices, and existing clean energy policies.

Of particular relevance concerning climate change, the tax credit extension-driven acceleration in renewable energy capacity development “can reduce fossil fuel-based generation and lower electric sector CO2 emissions.”

Cumulative emissions reductions over a 15-year period (spanning 2016-2030) as a result of the tax credit extensions are estimated to range from 540 to 1,400 million metric tons CO2.