Offer to offset carbon tax credited in deals

The Associated Press
Published: March 2, 2009

CLEVELAND, Tennessee: An unusual commitment by the state of Tennessee to cover the cost of any future carbon tax for green companies that make major investments is being credited for luring two big solar energy developments worth more than $2 billion.
The tax break, which Democratic Gov. Phil Bredesen's administration passed in the Legislature last year with little fanfare, promises that the state will offset increased costs from any future tax on carbon emissions for a select group of companies that make significant investments in the state.
The credit would apply to any green energy supply chain company spending at least $250 million in the state. That includes the $1 billion Wacker Chemie AG plant announced in Bradley County last week, and the $1.2 billion Hemlock Semiconductor Corp. plant to be built in Montgomery County.
Both plants will make polysilicon, a material used to make solar cells.
Rudolph Staudigl, president and CEO of Munich, Germany-based Wacker, said the credit showed that officials are serious about developing the green energy sector in Tennessee.

"It's just another demonstration of the fact that the state of Tennessee is really trying to attract the right businesses," Staudigl said.
Hemlock, based in Michigan, is a joint venture between the U.S. Dow Corning Corp., the majority owner, and two Japanese firms, Shin-Etsu Handotai Co. Ltd. and Mitsubishi Materials Corp.l
Not all new investments in the state will benefit, though. Traditional industrial investments, like the $1 billion Volkswagen AG plant under construction in Chattanooga, do not qualify.
State Revenue Commissioner Reagan Farr said the credit was enacted to help eliminate uncertainty among investors.
"They were worried that Congress or the state would enact a carbon tax that would have to be borne by the company," he said. "So what we did was create a green energy tax credit, which actually says the state will take that out of the equation."
President Barack Obama's budget presented to Congress this week moves to address climate change and shift the U.S. from reliance on foreign oil to green energy. The proposal would begin auctioning off carbon pollution permits in 2012, but Congress has yet to write a bill that would regulate heat-trapping gases and define how the money would be collected.
The Tennessee Valley Authority produces about 60 percent of its power from coal, so investors in the state worry that increased costs from a cap-and-trade system could be passed on to them.
Monique Hanis, spokeswoman for the Solar Energy Industries Association in Washington, said Tennessee is taking a unique approach to the carbon tax question.
"It's definitely a new twist, and an interesting hedge for states that are trying to attract manufacturing," she said.
Making polysilicon is an energy-intensive process, but solar panels soon offset the carbon emitted to create them, said Steve Smith, director of the Knoxville-based Southern Alliance for Clean Energy.
"This is a very innovative and thoughtful way to lure and set a green foundation for the state of Tennessee" he said of the tax credit. "We certainly applaud that and think it's appropriate."
Farr said he and Economic and Community Development Commissioner Matt Kisber came up with the tax credit after being charged by the state's governor with developing a strategy to spur alternative energy projects in the state.
"He did not want us to pursue the strategy that a lot of other states have been pursuing, like sales tax holidays for fluorescent light bulbs to encourage consumption," Farr said. "He looked at it as an economic development opportunity, and he told us to look for anchors in the clean energy field."