Senate passes renewable tax credits alongside bail-out package

In a surprise move, the US renewable tax credits that are due to expire at the end of the year could be renewed by the end of the week after legislation extending the tax breaks was attached to the controversial $700bn (£397bn) economic rescue bill passed last night by the Senate.

In an attempt to sweeten the bill – which was rejected on Monday by the House of Representatives in a move that sent global stock markets into freefall – senate leaders added new measures to increase the government's guarantee on people's savings to $250,000 and a raft of new tax breaks, including those for renewable energy installations backed by the Senate in a separate vote last week.

Under the proposals, $18bn of tax breaks will be made available, with tax credits for residential and commercial solar systems being extended by eight years, while credits for wind energy have been extended by a year and those for marine renewables, such as wave and tidal power, have been extended by two years.

The package also includes tax credits for home owners making energy-efficiency improvements and purchasers of electric cars.

"I said from the beginning that the administration's original financial plan focused too much on Wall Street and not enough on Main Street, and I wanted to make it better," said Senate Finance Chairman Max Baucus. "Adding this tax relief will ensure that regular working Americans get the financial help they need in this time of crisis. As soon as this legislation passes, good-paying jobs will open up in the green energy sector as wind and solar projects get up and running."

The US renewable energy industry had become increasingly fearful that after months of political wrangling in the Senate and House of Representative on how best to structure the incentive package, the credits would be allowed to lapse. The American Wind Energy Association predicted that this scenario would put $19bn of investment and almost 120,000 jobs at risk.

However, the bill could yet be scuppered by a vote in the House of Representatives scheduled for tomorrow.

Senate leaders and the Bush administration expressed confidence that the modifications to the $700bn bail-out plan, which has seen the bill swell from three pages to 451 pages, will prove sufficient to win over enough of the House Representatives who defied their party leaders to vote down the original bill earlier this week.

But a number of House Representatives last night suggested that they would still vote against the revised bill in line with opposition from many of their constituents.

To further muddy the waters, the House has also passed its own plan for extending renewable tax credits, but its proposals are expected to face opposition from both the Senate and the White House.