Part of the driving force toward implementation of renewable energy is state and federal incentives. It may be these very incentives are actually adding costs and impairing the broader goal of reducing carbon emissions.
The cash grant program is set to sunset at the end of this year, but solar and wind energy advocates are hoping it will be extended, for good reason:
In fact, the tax credits were always an awkward tool, some argue. Rhone Resch, the head of the Solar Energy Industries Association, said that many of the companies doing the installations were not making a profit either, so these tax credits were sold as “tax equity,” a secondary market, at a loss of 30 to 50 cents on the dollar to the seller.
The tax credits were worth 30 percent of a project’s value, so the transaction costs of reselling the credits meant that renewable energy projects without sufficient internal tax liability were 13 to 21 percent more expensive than projects that could use the credits themselves.
This is dumb policy. Ratepayers pay a higher price for renewable energy because incentives filter through the tax code instead of the general fund.
Instead of going through the tax code and competing with federal budget items, it may be more practical to funnel the costs entirely through the electricity system as a feed-in-tariff.
In 2009, one Canadian province (Ontario) and one US municipal utility (Gainesville, FL) have enacted a feed-in tariff. As many as 11 U.S. state legislatures are seriously considering adopting the system as a complement to their renewable electricity mandates. State and federal policy makers should strongly consider turning to a feed-in tariff as the key mechanism for encouraging renewable energy development. It’s fairness, simplicity, and stability can help the United States maximize the benefits of the renewable energy revolution.