Rating the Tax Code's Green Performance – Part 3

Our panel of Homer Simpson, Gordon Gekko (famed for his line “Greed is good.” in the movie Wall Street) and Henry David Thoreau completes its look at the tax code's performance from a green perspective, completing the discussion that began with Part 1 and Part 2.

Henry:  How does the tax code effect energy production?

Gordon:  Personally, I'm into coal for investment performance, but the tax credits are getting harder to find.  Apparently a bunch of geniuses from MIT concluded that no tax subsidies or direct government expenditures to support clean, refined or any other kind of coal plant make any sense unless the project includes carbon capture and storage.  The tax code isn't all the way there yet, but the carbon capture coal projects are the ones getting priority.

Homer:  What about nuclear, is Mr. Burn's getting any tax subsidies? 

Henry:  Since 2005 “advanced” nuclear facilities have been eligible for a production tax credit of 1.8 cents per kilowatt hour.  Advanced basically means new, Homer, so your employer is not collecting on this, but 21 planned plants have applied and the credit should make nuclear power costs competitive with coal and gas generated power.

Gordon:  Can I get a tax break next year if I invest in renewable energy, you know, wind, solar, geothermal, biomass, the really green stuff.  I think it might impress my yoga instructor.

Henry:  Investment Tax Credits and Production Tax Credits are out there waiting for you Gordon, wind and geothermal are the credit performance champs on a per kilowatt hour basis.

Homer:  How does Congress decide which types of energy get the most support from tax credits?

Gordon:  Politics makes the world go round baby, even the green world.  Ever hear of lobbying?  How about some nice, bundled campaign contributions if you want performance from your Congressperson?

Henry:  Another good point Homer, why should Congress be picking and choosing?   Just pass a carbon tax on green house gas emissions, then let the market figure out what works.  If you want to use credits at all, use them to promote conservation.

Gordon:  Homer, for the rest of this year you can get a tax credit equal to 10% of the amount you spend on qualified energy efficiency improvements and property at your principal residence.  Plus, if your power company has a discount or subsidy program to help you purchase energy efficient appliances or improve your home, you don't have to include the subsidy as income on your tax return.

Homer: Like I would have included it anyway.

Henry:  There are other conservation credits too, for builders who make energy efficient homes or manufacturers who produce energy efficient appliances.   If they really wanted conservation performance they would double heating fuel cost for every degree above 69 on your thermostat setting in winter and do the same thing for every degree below 74 in the summer.

Gordon:  That thermostat thing sounds a little scary Henry, did you read 1984?  What do you think of cap and trade?  I've got my trading room geared up to make a few bucks on that one.  It's so complicated, I think I can get rich while everyone else figures the thing out.

Henry:  I think that's part of the problem, not the solution, and a simple carbon tax would do more with less misallocation of resources.

Gordon: Ouch. Spoilsport.

Henry:  The truth hurts, Gordon.  Taxes on the consumption of goods and services that cause pollution would generally be the simplest way to create prices that reflected true costs and shape behavior.   Credits are less painful politically, but then Congress ends up picking winners and losers.  If you really believe “greed is good” then you ought to be willing to let the market do that.

Homer:  My hair hurts.  Professor Mann is one smart lady, but if we don't stop now, I think my head will explode.

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