Pirate's Cove

Tax credits? Like letting you keep more of your own money? On your tax returns?

How tax credits can help fight soaring fossil fuel prices — and climate change

As Americans prepare to celebrate the Fourth of July, people in highway rest stops and grocery stores across the country this weekend will be feeling the pain of near record-high gas prices and soaring inflation.

President Biden has proposed a tax holiday that would suspend the federal gas tax for three months. But a far better solution — for people and the planet — would be for Congress to provide direct support to families and enact key tax credits that will help Americans save money in the near term, while also providing greater economic and energy security in the future.

High prices may be taking a toll on consumers, but this is just a preview of the damage that unmitigated climate change will take on the economy — and our wallets. Without further emissions reductions, the annual economic damages from climate change could reach 1 to 3 percent of U.S. GDP — or up to 10 percent in the worst-case scenario — by the end of the century. To put that in perspective, in 2020 the entire food and agriculture sector made up about 5 percent of U.S. GDP.

Could. But, won’t, not in Reality Land.

A successful clean energy tax credit package should include several key components.

First, it should use direct pay to help drive down project costs and widen the pool of entities eligible for tax credits. Direct pay is a critical reform that reduces the need for private tax equity investors in projects and allows groups without a sufficient tax liability, including nonprofit and tax-exempt entities such as rural electric cooperatives (co-ops) and public power utilities, to access these tax credits. These entities serve almost 30 percent of retail utility customers in the U.S.; in a joint letter to Congress last year, the associations representing rural electric co-ops and public power utilities stated how direct pay is a needed reform to ensure federal tax credits work for all electricity providers.

Ah. Buying voters  at companies with taxpayer money

Second, it should include measures that reduce energy costs for households. For example, to make EVs more affordable and accessible to lower-income households — and to make those households less reliant on fluctuating gasoline prices — Congress should provide incentives to make sure EV charging is available to residents in multi-family housing, at workplaces and at homes, and for people purchasing used EVs. They should provide tax credits for energy efficiency, which can reduce home energy bills year-round (including during dangerous heat waves and snowstorms, when failing to pay the bill could be deadly). And they should use measures such as direct pay to ensure that low- and moderate-income communities get better access to rooftop solar.

I’m missing where this brings down gas prices. Is it about giving small credits to offset that high cost of purchasing an EV, along with the auto insurance that is 10-25% higher, which means lower use of fossil fuels, so the price comes down for the lower and middle class folks who cannot actually afford an EV?

Third, it should incorporate tax credits that boost manufacturing. This includes providing bonus credit amounts within the primary renewable energy credits (the investment tax credit and production tax credit) for projects that use certain domestically produced materials. Relevant tax credit provisions also include incentives for advanced manufacturing in the U.S. including within the clean energy, clean transportation and industrial sectors. Past drafts of legislation have also included support for domestic transportation and zero-emission vehicle manufacturing.

Basically this is all using the tax code to pick winners and losers.