Time to Let the Sun Set on Solar Energy Tax Credits
In a recent 14-page study,"The Sun Should Set on Solar Socialism," Citizens Against Government Waste (CAGW) argues that Congress should "lower the boom on an up-front subsidy like the" investment tax credit (ITC).
But let's start with an introduction to the solar tax credits, though. According to CAGW:
"To the extent that taxpayers pay attention to renewable energy policy, they are likely to be most familiar with the infamous solar panel manufacturer Solyndra, which received $535 million from the Department of Energy’s Loan Guarantee Program (LGP) before the company went bankrupt in 2011. This well-publicized boondoggle opened the door for greater scrutiny of all renewable energy programs and subsidies, which include loan guarantees, grants, tax incentives, and tax credits. Although various parts of these programs are available for biofuels, fuel cells, geothermal, hydrogen, hydropower, solar, and wind, solar is now drawing the most scrutiny because of the amount of federal and state government support it needs to maintain viability.
"Energy subsidies have been around since the 1970s, but really took off after Congress passed the Energy Policy Act of 2005. The legislation dramatically changed U.S. energy policy by creating commercial and residential tax incentives and loan guarantees for energy production of several types. The Act implemented or extended tax reductions for various forms of energy, including nuclear power, fossil fuels, biofuels, and “clean coal.” It also extended existing subsidies, such as the renewable electricity production credit. Funding for many of these programs was significantly expanded in the American Recovery and Reinvestment Act of 2009 (ARRA), better known as the stimulus bill.
"Despite the best efforts of experts to determine how much taxpayers are paying for renewable energy subsidies, there is no comprehensive estimate of their cost. A May 5, 2015 Massachusetts Institute of Technology (MIT) Energy Initiative report, “The Future of Solar Energy,” found that “there is no authoritative compilation of total spending to support the deployment of solar technologies – at the national level or for any particular state – let alone a breakdown of total spending across subsidy programs.” A July 2015 University of California at Berkeley Energy Institute at Haas Business School study stated that the total tax expenditures for the four largest federal “clean energy” tax credits, which include the weatherization of homes, the installation of solar panels, and the purchase of hybrid and electric vehicles, had cost more than $18 billion since 2006.
"Tax expenditures for alternative electricity generation cost $13.7 billion from 2004-2015, with the investment tax credit (ITC) and production tax credit (PTC) accounting for $11.5 billion of that total, according to the IRS. However, the agency is not required to collect project-level data for either tax credit, so the total generating capacity supported by these tax expenditures is unknown. The LGP has more than $40 billion available for loans, and the Section 1603 tax credits for renewable energy that were created in the ARRA cost taxpayers $24.5 billion for 101,364 projects, as of July 30, 2015."
CAGW notes that section 48 of the Internal Revenue Code (IRC) provides a 30% "credit for qualifying 'energy property'" while section 25D allows for a 30% residential energy efficient property credit.
According to the study, there are "problems with the policy itself." For example:
"Publications and public remarks by renewable energy industry proponents are replete with allusions to the ITC as essential for these energy sources to vie effectively with fossil fuels, create jobs, and provide a fantastic return on “investment.” In other words, the tax credits are all things to all people."
They also note, "One of the largest solar companies, SolarCity, "has been sending a mixed message on solar subsidies and especially the ITC . . . . On June 1, 2015, the company’s chairman of the board, Elon Musk, told CNBC that “none of the (solar) incentives are necessary, but they are all helpful.” In fairness to Musk, he also went on to split a hair in the same interview, arguing that the real value of tax breaks is to accelerate the adoption of solar power rather than to prop it up – a point somewhat in sync with the energy finance partnership study."
In addition, the study says, "the efforts to subsidize solar have not just failed to lower its cost, they have also led to waste, fraud, abuse and mismanagement. Perhaps these results were inevitable when the government created a new, lucrative program and provided little accountability." The study also says, "A 2012 GAO audit found program overlap among some 65 different federally-funded and- managed initiatives to support solar energy. More than half supported only solar projects while the remaining initiatives funded solar and other renewable technologies." (emphasis added)
The study is certainly well-researched with 62 footnotes.
The study concludes by saying:
"Although subsidies doled out by Congress can become as ensconced as Washington’s monuments, there is an encouraging precedent for ending the ITC. The other icon of tax support for renewable energy, the windmill, was set free from the federal dole and sent out to seek its fortune when Congress allowed the wind production tax credit to expire at the end of 2014. A bid to restart the credit in the spring of 2015 was shot down in the Senate after even wind-state senators agreed to let wind power sink or swim on its own.
"The least Congress can do is lower the boom on an up-front subsidy like the ITC. Like the wind PTC, it has yet to deliver on promises that it will help to foster a sustainable, reliable, credible component of the U.S. energy portfolio. Indeed, it will not be clear that the power of the sun is viable in helping to power America’s homes and businesses until its federal purse strings are severed, setting free the solar industry and taxpayers."
Take a few minutes to write your members of Congress to urge them to end these wasteful energy tax credits since they have failed to foster a sustainable and reliable renewable energy portfolio. Contact information is available at the Library of Congress' Thomas website (use left-hand column). Taxpayers living in Virginia's Arlington County can contact:
- Senator Mark Warner (D) -- write to him or call (202) 224-2023
- Senator Tim Kaine (D) -- write to him or call (202) 224-4024
- Representative Don Beyer (D) -- write to him or call (202) 225-4376
Ask for a written response. And tell them ACTA sent you.
Kudos to CAGW for this well-researched and well-written study on two renewable energy tax credits. For more information about Citizens Against Government Waste, visit their website.