Perspective: Green Building Tax Credits? No, Thanks!

Perspective: Green Building Tax Credits? No, Thanks!

Tax credit legislation supporting green buildings was recently signed into law in New York (see EBN

Vol. 9, No. 5), and the push for similar legislation seems to be growing in other states and on the federal level. I believe that tax credits did more harm than good to the solar water heating industry in the 1970s and ’80s, and I don’t want to see the same mistakes repeated with the broader green building industry. I’ve outlined below four reasons why I feel that tax credits are an inappropriate mechanism for advancing green building technologies. At the end, I suggest a few alternative forms of subsidy.

First, tax credits, particularly those aimed at consumers, create an artificial market driver that may foster growth beyond what is economically sustainable. If those tax credits are eliminated by the next administration or the next Congress, shrinking markets could be very damaging to fledgling industries. The solar water heating industry is still trying to recover from the loss of tax credits (along with other problems) in the 1980s.

Second, tax credits may not be needed. The photovoltaics industry, which is a significant focus of many current tax credit initiatives, has done just fine without tax credits—maintaining steady,

healthy market growth as dropping prices make PV cost-effective for more and more applications. The industry doesn’t need an artificial market driver—though it certainly needs ongoing support in other ways, such as funding for R&D.

Third, tax credits for new technologies send a subtle message to users of those subsidies (and to taxpayers who are footing the bill) that these technologies aren’t yet cost-effective. I believe that such a message was all too loud and clear with the first round of solar tax credits in the 1970s, and I’d rather not have to fight to justify these technologies all over again.

Fourth, as we saw in the ’70s and ’80s, tax credits leave the door wide-open to fraud. Even previously reputable solar companies back then introduced scams like jacking up the purchase price of a solar system (so that the buyer could get the maximum tax refund) then giving back some of the inflated purchase price in the form of a free vacation or “finder’s fee” for bringing in the next customer. If there’s a $10,000 limit on a residential PV system, for example, and the buyer can get a 50% tax credit for that purchase, it doesn’t take a rocket scientist to come up with the idea of jacking up the “price” of that 1-kW PV system (which might be worth about $5,000) to $10,000 and somehow rebating a few thousand dollars back to the buyer. The buyer spends $10,000 and gets back $3,000 (as a Bahamas vacation or some other bonus) and another $5,000 back as the tax credit—so has spent $2,000 for a system worth $5,000 (pretty good deal). The seller earns $7,000—$2,000 of which is over and above the profit margins written into what should have been a $5,000 system. And taxpayers are left picking up much of the tab to line the pockets of the PV marketing company. Along with being a bad deal for taxpayers, this scam can do tremendous harm to the public image of an industry once the media gets hold of it—believe me, it makes a great story.

The bottom line is that I’d much rather see the renewable energy and green building industry make it on its own without the “support” of tax credits. If we as a society want to support the implementation of green technologies (a goal I am certainly in support of), there are much better ways to provide that subsidy—for example, supporting research and development, providing low-interest loans to manufacturers, and purchasing green technologies for government buildings. Better yet, we could levelize the playing field—remove the (well-hidden) subsidies we all pay for our

polluting energy technologies: coal, oil, natural gas, and nuclear power. Or even go one step further and implement taxes on pollution and resource extraction. But let’s not make the mistake of offering tax credits all over again.

–Alex Wilson