By Nick Hodge

The debate has once again been renewed about the extension of federal tax credits for energy produced from wind, solar, geothermal, cellulosic ethanol, biofuels and other renewable sources.

If you remember, the last time this discussion surfaced was in December, when the proposed tax credits were rolled into the Energy Bill. But, after a filibuster from the Republicans won by one vote, the credits were cut out and the bill went on to be signed with lackluster provisions--including a despicable rise in CAFÉ standards.

At the heart of the debate is where the money is coming from to fund the tax credits. As you probably know, the money would be shifted away from Big Oil--to the tune of $18 billion.

But before I get into why that is not a fine, penalty or even a bad thing--as many red-state representatives would have you believe--first let’s discuss the benefits of the renewable energy tax credits.

First of all, the bill extends the 30% investment tax credit for solar energy--eight years for commercial and six years for residential. That means if you put a $10,000 solar system on your roof, you’d get $3,000 back from the federal government plus any state incentives.

Also at stake is the extension of the production tax credit for wind and other renewable resources, including geothermal and closed-loop biomass. Originally passed as part of the Tax Relief and Health Care Act of 2006 the 1.9-cent per kilowatt-hour (1.5-cent adjusted for inflation) would serve to sustain expansion of renewable energy generation facilities, provide for continued investment and help the U.S. reduce costly greenhouse gas emissions.

It is vitally important to note that these provisions are nothing new. Congress is simply extending benefits that are already on the books and that have greatly benefited these nascent industries thus far.

In addition to renewable energy, the package also offers incentive for energy conservation and efficiency. Consumers would be given tax breaks of $4,000 or more buying plug-in hybrid electric vehicles (PHEVs), as well as tax credits for installing various energy-efficient appliances.

The bill also would give consumers $4,000 tax credits for buying plug-in hybrid vehicles, extend tax credits for installing certain energy-efficient appliances and increase tax credits for gas stations that install pumps for dispensing alternative fuels.

And finally, companies would get a new production tax credit of 50 cents per gallon of cellulosic ethanol through 2010 and increase tax credits for gas stations that install pumps for dispensing alternative fuels. I can’t reiterate enough how much it behooves us to do this, especially since over 22 billion gallons of the stuff needs to be in the nation’s fuel lines by 2022, per a Bush-imposes mandate.

Who Do You Want to Pay

Now for the hotpoint of the debate: taxing our beloved, lobbyist-soaked, profit-raking Big Oil.

Let me first point out that absolutely no money is being ‘taken away’ from Big Oil. Instead, those companies (which are reporting record profits) are being asked to pay a fairer share of their taxes.

Currently, oil companies are allowed to exclude certain portions of their income from their U.S. tax reportings. Under this bill, they would simply be expected to pay taxes on their income like everyone else. I don’t get why that seems unfair to anyone.

And not only that, but Big Oil would have to pay U.S. taxes on some parts of their income that was earned abroad. That too seems pretty fair, what with clamors from both side of the aisle to limit our dependence on foreign sources of oil.

Of course, now we come to the go-to opposition to the legislation: this would hinder Big Oil’s incentive to produce oil from domestic sources.

Listen, with oil now comfortable above $100 per barrel, there is plenty of incentive for Big Oil to harvest oil domestically. They’d be stupid not to. And, let’s be honest, they will whether this tax package is passed or not.

But it’s not like increased domestic oil production is a panacea anyway. We (the U.S.) consume 20% of the world’s oil but only have 3% of its reserves--a gap that obviously can’t be filled domestically.

And let us not forget that oil isn’t the only source of revenue for Big Oil, despite the name. They’re also making hefty margins on the gasoline and diesel they refine which, if you haven’t noticed, are also at record prices--and climbing.

Plus, the nearly $18 billion that would be diverted from Big Oil would be dispersed over ten years--for a whopping $1.8 billion per year. Folks, that’s just 1% of what the top five oil producers earned in 2007.

Think about it.

Who Do You Want to Profit

Listen folks, it seems to me that oil over $100 and record profit-taking from the countries that produce it isn’t helping you all that much. In fact, even if you’re one of the few that has made a few bucks on oil’s run, a weakened dollar and high heating and fuel costs probably have more people reeling than not.

We need to diversify our energy portfolio in the absolute worst way. And it’s going to happen. The tax credits will get passed sooner or later; if not now, then in a special congressional wrap-up session in December or--worst case--after a change in administration.

The best advice I can give is to put some money in cleantech as soon as possible. The massive market meltdown we’ve been witnessing for weeks has presented some very good buying opportunities, as long as you can handle some more volatility in the coming months.

It seems odd to me that anyone would support more tax breaks and loopholes for Big Oil. Especially when technologies are in front of us that present not only a clean future, but a future that is less dependent on oil--no matter the source--and can usher in a new generation of wealth for those not fortunate enough to be knee-deep in Big Oil.

I’d check out EMCORE Corp. (NASDAQ: EMKR) and Suntech Power Holdings (NYSE: STP), especially if the latter falls anywhere near $35. Both would benefit handsomely--as would most of the solar sector--if the Senate decides (as they should) to pass the tax legislation.

Until next time,

Nick

P.S. We’re about to debut new service called Alternative Energy Speculator, designed to provide high-yielding returns on higher-than-average risk cleantech-, water- and carbon-related stocks and funds. If that’s something you’re interested in, be sure to keep an eye out for it in the coming weeks.