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Senate Democrats haven’t given up on trying to ram some kind of climate policy through the reconciliation process. Senators Chuck Schumer and Joe Manchin are huddling together regularly, Politico recently reported, to figure out what policies, exactly, Manchin might be willing to support after he torpedoed the Build Back Better spending package last winter.

Is the West Virginia coal baron serious this time? Politico reporter Burgess Everett thinks he could be: “Manchin and Schumer are going line by line over what a possible deal would look like,” he wrote. “Manchin indicated he will not support a bill that sends direct payments to companies that produce clean energy for consumer use, also known as ‘direct-pay.’”

There’s just one problem here, TNR’s Kate Aronoff pointed out this morning. The wonky-sounding policy known as “direct pay” is actually really important. Without it, clean tax credits—basically the last big climate policy left standing in negotiations—will remain inaccessible to nonprofits and publicly owned utilities. In addition, without direct pay much of the public money being poured into the tax credits would actually go to banks, not the companies building renewable energy.

Here’s how it works, Kate explains:

Roughly 65 percent of the capital backing for a typical wind project and 35 percent for the typical solar project come from so-called tax-equity investors, mainly housed at big Wall Street Banks. JP Morgan Chase and Bank of America accounted for more than half the tax equity market in 2019 and 2020. The remainder is funded through either debt or equity financing. One of the reasons reformers favor direct pay is that right now, without it, only businesses with a sizable tax liability can take advantage of wind and solar tax credits; even large businesses often need to form special-purpose vehicles with other firms to seek out tax equity investors, and these “SPVs” then pay considerable fees—on the order of 15 to 20 percent of the value of the credit—to sell off their right to collect credits.

Nonprofits and publicly owned utilities don’t have the tax liability needed to take advantage of current clean energy tax credits. So that means that not having direct pay excludes a bunch of entities that might like to build renewable energy infrastructure, while also giving banks control over where and when renewable energy infrastructure gets built. That could be particularly damaging to renewables development at a time when the Fed is raising interest rates, which would tend to reduce the amount of funding available for large-scale capital projects like wind and solar.

Direct pay polls well, Kate adds. And Manchin’s reason for opposing it—which apparently has something to do with not giving profitable companies handouts—doesn’t really make sense: “Notably,” Kate writes, “Manchin has never opposed giving subsidies to extraordinarily profitable fossil fuel companies.”

Read the full piece. It’s a great explanation of a policy that often gets only a passing mention in regular news writeups.

—Heather Souvaine Horn, deputy editor