Designing the Next Generation of Federal Tax Credits for Low-Carbon Technologies

Abstract

Achieving emissions reductions to reach economywide net-zero emissions by 2050 will require sustained technological innovations and widespread deployment of emerging low-carbon technologies that are not yet commercially deployed on a mass-market scale. Tax credits are an important policy tool for supporting the early-stage deployment of emerging technologies as well as more mature technologies that have not yet reached widespread deployment. While existing federal tax credits have played an important role in enabling the deployment of several low-carbon technologies, including wind, solar, and electric vehicles, they also suffer from critical design deficiencies that make them less effective. This paper proposes six considerations for designing the next generation of federal tax credits that can support deployment of clean energy and low-carbon technologies in the U.S. power, transportation, industrial, and buildings sectors. Within each consideration, the paper lays out different approaches and discusses the tradeoffs between each.