The Carrot Or The Stick - Government Incentives (2024)

By Scott Kriner, Green Metal Consulting

The Federal government has a history of providing incentives to boost technologies or products. An example is the tax incentives for purchasing electric cars. The federal government has provided incentives to home owners and commercial building owners since President George W. Bush signed the Energy Policy Act of 2005, which changed U.S. energy policy by providing tax incentives and loan guarantees for energy production of various types and energy efficiency. That legislation paved the way for home owners to receive tax credits for installing cool metal roofing. Over time, Congress extended the incentives but in other years the incentives got caught up in fiscal issues.

As part of the extension of incentives for energy efficiency on buildings, tax incentives were also added to the mix for installation of photovoltaic systems.

Currently the tax credits for solar energy systems are available at 30% through December 31, 2019. The credit then decreases to 26% for tax year 2020; drops to 22% for tax year for 2021; then expires December 31 of that year.

The use of tax incentives is acting like a carrot to persuade buyers to invest in what might otherwise just remain an interesting technology.

The stick in the analogy is when the Federal Government punishes certain industries or clamps down on the environmental impact of a product for the good of the country. Or so they say. An example was when Congress passed legislation to increase the energy efficiency of incandescent light bulbs. On the surface it seemed like a valid suggestion. But as we all know, the CFL light bulbs met the requirements for energy, but they also introduced another item that contains mercury, creating a new environmental concern. Thankfully the lighting industry was also working hard to get the LED lights into the hands of home owners and building owners but at a higher price. Is it wise to tell the population what type of light bulbs they must use? Could the legislature have more important issues to debate?

In some areas, tax incentives did not work as well as in other areas. An example is the state of Iowa where over 10 years of federal and state renewable energy tax credits related to non- wind endeavors will no longer be available for large and mid-size generating capacity. A state incentive remains in place for small rooftop projects. Now that the state legislation chose not to renew the tax credit of 1.5 cents per kilowatt hour for large non-wind renewable energy, both sides of the issue are speaking out. According to the U.S. Energy Information, solar has not made much of a dent in Iowa’s electricity portfolio despite federal and state incentives. Wind power represents one-third of the state’s electricity. Coal remains the state’s largest source of electric power.

Some Iowa legislators spoke out by stating their action was more about preserving the state budget than the pros and cons of the energy incentives. Timothy Benson, a policy analyst with the Heartland Institute, notes that “the solar power being pushed by these tax credits is three times as expensive as conventional power, meaning Iowa ratepayers are facing higher electricity prices by them”.

Benson goes on to say “politicians should not be picking winners and losers…”

The August issue of Environment and Climate News states comments heard in Iowa stating “Iowa legislators should stop using subsidies and tax credits to direct peoples’ behavior.

These types of deliberations in state and federal chambers of legislators go on with most all suggestions to keep incentives in place, at least to prop up a given industry that can’t succeed on its own. Whether government should use the “carrot” or the “stick” will be debated for years.