Fact Pack

Tax Incentives: An Effective Way of Affecting Change

Budgets cover every aspect of government spending and, therefore, every aspect of government policy. As a result, using the budget process can be one of the most effective ways to bring about positive environmental change.

The goal of tax incentives for renewable energy programs should be to create positive incentives to avoid taxation, and to create disincentives for pollution and other forms of environmental degradation. In this way, tax laws are an important, yet often overlooked, tool for conservation activists. Tax-based incentives provide legislators with another tool to compliment traditional enforcement.

David B. Goldstein and Patricio Silva of the Natural Resources Defense Council, in a presentation to the Environmental and Energy Study Institute in 2002, discussed the use of incentives to encourage investment in the infrastructure and technology needed to make clean energy more available and affordable:

“The basic problem the economy is confronting at present is a reduction in business investment. Tax incentives encourage prompt investments by the private sector in energy efficiency production facilities investments that would be good for the economy in any event. But they are particularly opportune at a time when business investment is lagging.”(1)

Tax incentives work. Using state tax incentives to promote investment in clean energy technology on a commercial and residential level will help reduce the initial investment cost of newer technologies. With many states already taking action to encourage renewable energy investment, look at what could be accomplished:

(2)

Tax incentives for newer technologies, such as photovoltaic modules, make it easier for more people to invest in such systems, which may initially cost more than their traditional counterparts. Incentives can boost initial sales which, in turn, helps to reduce the price of the product and encourages future sales. This graph shows how an increase in the sale of new technologies reduces the price; tax incentives are a great way to encourage their purchase.

Here’s an example of cost vs. savings for the purchase of a photovoltaic system in New York, which offers a tax incentive for such systems:

California uses a diverse mix of incentives to help businesses and consumers make short-term and long-term investments in renewable energy. Here is an example from the California Energy Commission, with lifetime costs based on the average energy use in Concord, California:

“A married couple in Concord with an annual electricity bill of $1,200 is considering the purchase of a 2-kilowatt (kW) AC photovoltaic (PV) system with an installed cost of $19,000. After receiving the Energy Commission rebate, the net cost of the system would be $11,000. Savings in year one from PV electricity production is projected to be $650. The California Solar Energy Tax Credit of 15% for the system would be $1,650. If they finance the $11,000 net cost of the system with a 30-year mortgage loan at 7% interest, it would result in an annual payment of $878. This couple could also save $5,180 in mortgage interest deductions over the 30-year life of the loan. If tax credit savings were applied to monthly payments, the combined savings would cover all of the loan payments. On a cash basis, the simple payback term for this system would be 14.4 years. If electricity rates continue to rise the payback time would be shorter.”(4)

Investment in Renewable Energy Creates Jobs and Protects the Environment

• Increasing our use of renewable energy sources can help us begin dealing with some of the biggest problems facing the U.S. today – creating jobs and protecting the environment.
• Since the late 1990s, the market for solar energy has grown at an annual rate of 20 percent. Today, the U.S. solar industry is worth about $2 billion, and currently employs about 20,000 Americans in upper-level, high-tech positions. By 2020, the number of persons employed by the solar industry in this country is expected to reach 150,000.(5)When in use, solar equipment, such as photovoltaics, are very easy on the environment: they produce no air pollution, no greenhouse gases, no hazardous waste, no noise, and require no resource extraction or transportable fuels.(6) In fact, the transportation of PV panels to their final destination is more environmentally harmful than their use!
• The U.S. has been leading the way in the solar electric industry, but must be careful not to begin lagging behind. As more and more good jobs are being exported overseas, the U.S. must act now to attract renewable energy industries to ensure promotion and domestic manufacture of such technologies.
• The U.S. Department of Energy estimates that about 6% of the land area in the U.S. qualifies as “good wind areas,” and that just that amount of land could conceivably supply more than 1.5 times the current electricity use of the U.S.(7) Wind energy is the world’s fastest growing technology and, like solar, it is a clean technology that produces no emissions. It is also one of the cheapest sources of energy available. More investment in, and use of, this incredible technology will help create high-tech jobs and low-cost, clean energy.(8)
• With today's technology, wind energy alone could economically provide 20% of America's electricity.(9)
• Solar energy is so abundant that the sunlight the earth receives in 30 minutes is equivalent to all the power used by humankind in one year.(10) We need to invest in harnessing that free and clean power!
• Twenty-four 100-watt solar panels installed on a house will meet 50% of an average family's electricity needs over a year, thus avoiding the emission of approximately 40 tons of carbon dioxide during the lifetime of the system.(11)
• A typical (750 kW) wind turbine provides enough power for 328 typical (non-electric heating) homes.(12)
• A small home-sized wind machine (approximately 15 kW), 30-feet tall with rotors between 8 and 25 feet in diameter, can supply the power needs of an all-electric home or small business.(13)
• North Dakota, alone, has enough energy from Class 4 and higher winds to supply 36% of the electricity needs of the lower 48 states.(14)
• In 1990, California's wind power plants offset the emission of more than 2.5 billion pounds of carbon dioxide, and 15 million pounds of other pollutants that would have otherwise been produced. It would take a forest of 90 million to 175 million trees to provide the same air quality.(15)