The Bipartisan Policy Center is out with a fascinating new study, “Reassessing Renewable Energy Subsidies.” According to the Center, although “renewable energy tax credits have been an enormously important mechanism for growing the industry,” there is “a large opportunity to make these mechanisms work better.” The entire report is well worth reading, but here are a few key points:
- "Two major challenges have hindered the effectiveness of federal renewable energy tax credits: (1) the stop-start cycle of investment attributable to repeated extensions and expirations of these programs and (2) the structural challenges of these tax-based incentives — namely a limited investor pool with limited liquidity, which in turn creates higher financing costs and ultimately requires more tax dollars per megawatt of clean energy installations.”
- "Given the shortcomings of tax-based incentives and a renewed impetus to cut federal expenditures, it is time to consider options for improving the efficiency of the current suite of renewable energy incentive programs. This is particularly important so long as the nation lacks a coherent overarching policy that would create sustained market demand for low-carbon energy sources.”
- "Cash grants have been significantly more efficient than other tax-based incentives, so much so that…the federal government would need to spend about half as much in cash grants to subsidize a comparable project receiving the [Production Tax Credit].”
- "Absent a coherent, long-term national climate and energy policy, targeted incentives for renewable energy will continue to be very important in maintaining strong industry growth in the United States. Although renewable energy tax credits have had a complex history, on the whole, they have been vitally important in deploying renewable energy capacity and driving down technology costs. However, as the industry continues to grow, a tax-based incentive system faces increasing costs and complexity and may be a suboptimal mechanism for achieving sustained, large-scale deployment goals.”
Also of interest, this report promises to be the start of a broader conversation in coming months on what the Bipartisan Policy Center sees as potentially “large opportunities to improve energy subsidies more broadly.” According to the authors, “As concern about the national debt puts increased pressure on all federal expenditures, it is clear that the time for a comprehensive review of all energy subsidies is now.” We couldn’t agree more.
