Jun 3, 2019

Updating clean energy tax credits could help commercialize new tech

Electrolyte tanks of a redox flow battery, which can store electricty generated by renewables. Photo: Uli Deck/picture alliance via Getty Images

From December 2019 into the next several years, a slate of federal tax credits for solar and wind power are set to expire, allowing Congress a chance to revisit this valuable plank of clean energy policy.

The big picture: Under current incentives, wind and solar power have come to produce over 8% of U.S. electricity, up from less than 1% a decade agoBut the credits have ballooned in cost — from under $1 billion in 2008 to $5.5 billion in 2018 — while doing little to promote other new energy technologies that will play a vital role in decarbonizing the economy.

Context: Clean energy tax credits are one of the rare policy tools that have a meaningful climate impact and also enjoy broad support.

  • Congress has passed them with bipartisan majorities several times, and recent proposals for new incentives have come from Democrats and Republicans alike.

What’s needed: Cost-effective decarbonization requires bringing new technologies to commercial scale. Three principles could help maximize the benefits of a new generation of tax credits:

  1. Tailor incentives to the most critical applications, such as long-duration storage for renewable energy, rather than to specific technologies. That approach would prepare the U.S. electricity system for deeper decarbonization without locking in payments for underperforming technologies.
  2. Coordinate government support for research, development and demonstration (RD&D) to ensure that novel clean energy technologies — such as advanced nuclear reactors and carbon capture and storage — are ready for commercial scale-up with the help of tax credits.
  3. Ramp down support for new technologies as they're adopted in the marketplace, to avoid spikes in incentive costs that don't deliver commensurate returns. If laid out clearly ahead of time, these phase-out conditions could avoid chilling the climate for private investment.

The bottom line: Tax incentives are just one element of a comprehensive climate plan, which could extend to increased RD&D funding and a price on carbonBut they are a bipartisan policy tool well positioned to scale up new technology options and squeeze emissions out of the electricity system, which accounts for more than a quarter of U.S. emissions.

Go deeper: Read more analysis from the Columbia Center on Global Energy Policy.

Varun Sivaram is CTO of ReNew Power and an adjunct senior research scholar and fellow at Columbia University’s Center for Global Energy Policy (CGEP). Noah Kaufman is a research scholar and directs the Carbon Tax Research Initiative at CGEP.

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