How will health bill affect RE?

Health Bill and Renewable Energy

You can be forgiven for thinking that renewable energy and the healthcare reform bill are not connected in any way, but the reality is that the huge healthcare bill could actually damage the progress of America's renewable energy vision.

Barack Obama wants to make the United States a world leader in the use and export of renewable energy, spurred by the opportunity to help the environment while at the same time reducing America's dependence on foreign fuel.

However, the very healthcare bill that Obama himself has tried so hard to get through Washington could hurt his own ambitions.

As explained by Jerome Breed, a partner at Bryan Cave LLP, and reported by John Carey of BusinessWeek, the link is an obscure tax provision in the House version of the healthcare bill, which actually has nothing to do with health care but instead to raise revenue.

The notion of "economic substance"

It revolves around the notion of "economic substance", putting into legislation the idea that a transaction - such as putting solar panels on a house or a buying health care policy - has to have "substance" in that it has a chance of generating economic return in order to be eligible for a tax credit.

You could still be forgiven for thinking how this exactly fits in with the green industry, but take the example of solar panels. The federal government offers a tax credit of 30 percent of the cost of systems consumers install.

But the problem is that, other than the tax credit, a consumer may not experience another form of economic benefit. So what happens then?

Discouraging people from getting involved in climate change

Breed explains: "It's not clear if, when you take away the effect of the credit, there has been a meaningful change in their economic position."

The aim is to prevent people from entering financial transactions from which they stand to gain no economic benefits, thus preventing tax money for being used for dubious purposes. But this makes the purchase of such things as solar panels confusing and could discourage people from proactively getting involved in climate change.

It appears a shameless attempt for Washington to make some extra revenue, as the House expects to about $5.4 billion from activity not falling in line with the "substance" test.

People need economic incentives, not economic deterrents

But if the provision is passed with nothing prohibiting dubious transactions, "there could be fraud," says Breed.

He added, "Someone could claim tax credit for building 1,000 solar panels in the desert that don't exist, or could claim that the panels cost $1 million when they only cost $100,000.

"So it's appropriate to protect against that type of transaction."

But universal legislation preventing transactions that don't have economic substance puts legitimate purchases in danger, which in turn puts renewable energy in the firing line. People need all the encouragement they can get if they are to get fully behind America's renewable energy future, and this includes economic incentives - not economic deterrents.

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