Federal Tax Credit Research Articles

National disparities in residential energy tax credits in the United States

The Inflation Reduction Act (IRA) promises to deliver $270 billion in tax incentives starting in 2023, expanding on the existing $18 billion in federal income tax credits for clean energy investments. Despite the continued investment in clean energy tax credits, not all communities have historically benefited equally from these programs. This work investigates the presence of disparities in the residential energy tax credit (RETC) program, which was recently expanded under the IRA. We use quantile regression models to explore disparities in the participation in and average value received from the RETCs across demographics. Because tax credit programs result in second-tier benefits such as job creation, we compare the relationship between RETC participation and the presence of clean jobs across demographics. We find that rural communities, renter-occupied communities, and communities of color are disproportionately participating less in the RETC. However, we observe that when renter-occupied or communities of color do participate, they see higher average value comparatively as well as more clean jobs associated per tax return with the RETC. While disparities across demographic groups persist in participation in the RETC, these findings suggest that renter-occupied or communities of color see more benefits when they do participate.

Who claims the federal adoption tax credit? Those who know about it

AbstractThis research investigates which individuals are aware of and claim the federal adoption tax credit. Using a probit model, I find that the probability that one claims the credit increases with one's income and is lower for Black adoptive parents compared to White ones. These discrepancies in usage stem from different probabilities of knowing about the credit. However, conditional on awareness, I find that the probability of claiming the credit is no different among members of differing income or racial groups, implying that a direct way to increase take‐up of the tax credit could simply be increasing awareness of it.

Pore Space as a Resource: A Discussion of the Policy and Regulatory Framework for Carbon Capture, Utilization, and Storage

Reinforced by the International Energy Agency (IEA), carbon capture, utilization, and storage (CCUS) is currently the only available group of technologies that reduce emissions in key hard to abate sectors and capture CO2 emissions that enable low carbon value chains such as hydrogen. Further, CCUS and carbon management play a critical role in achieving future global climate and energy goals. In fact, the Intergovernmental Panel on Climate Change and the IEA state that there is no viable path to net zero emissions without CCUS and other carbon management technologies. Due to concerns regarding energy security and an increase in energy demand, generation of energy from conventional hydrocarbon resources continues to be vital. In Alberta, CCUS is a necessary tool to align provincial climate change goals with the responsible and competitive market of energy production. Canada’s oil and gas sector has been an early innovator and adopter of CCUS. Given the petroleum and natural gas resources available in the Western Canadian Sedimentary Basin, and the decades-long energy industry expertise established in connection therewith, there is significant potential to further utilize CCUS to create a CCUS-based value chain. This article provides an overview of the current Canadian regulatory frameworks enabling CCUS, with a focus on the regulatory framework and development in Alberta. Specific topics include: (1) an overview of the regulatory frameworks governing CCUS in key jurisdictions in Canada, including Alberta; (2) an overview of the frameworks for the generation of offset credits from environmental attributes associated with a given project or activity, including both federal and provincial carbon credits and clean fuel credits; (3) a discussion of gaps in policy and legislation; (4) options for regulating “open access” CCUS hubs and CO2 pipelines; and (5) an overview of the various governmental incentives for CCUS projects, including federal and provincial tax credits.

Carbon Capture, Utilization and Storage tax credits and tax equity project financing in the USA: an assessment under bilateral tax treaties and BEPS actions

Abstract Carbon Capture, Utilization and Storage (CCUS) is a technology for capturing man-made CO2 emissions (carbon emissions) and either storing them, hopefully permanently, underground, generally in suitable saline formations or oil and gas fields, or utilizing them by, eg, converting them into commercially viable products. Because global energy demand and carbon emissions will continue to increase until 2050 by almost 50 per cent, CCUS projects (despite a current difficult business case per metric tonne stored or used), if deployed on a large scale, could help the world to limit global warming to 2.0°C, but preferably 1.5°C, as proposed by the Paris Agreement. For economic reasons, without government support, it will be difficult to have the required number and scale of CCUS projects to tackle global warming. The introduction section of this paper explains how, if we accept the urgency of the Paris Agreement’s thresholds, there is probably not sufficient time for introducing a global emissions trading scheme (ETS) or a global carbon tax, which are considered the two best approaches to reducing carbon emissions. The CCUS legal/regulatory/fiscal approach section analyses, first, the different legal/regulatory/fiscal approaches to CCUS taken by the US and the EU, secondly, the US federal tax credits available for CCUS projects as of May 2022, and thirdly, the powerful incentive mechanism created when the US CCUS tax credits work together with tax equity partnerships. The US CCUS tax credits and tax treaties section, after some initial literature review of tax incentives and how the US CCUS tax credits can be framed within the panoply of tax incentives, focuses on the first research question, ie, on understanding how the US CCUS tax credits interact in a tax treaty environment. The US CCUS tax credits and the BEPS project section plays a similar role in relation to whether the US CCUS tax credits align well with the requirements of the OECD/G20's Base Erosion and Profit Shifting (BEPS) Project, which is aimed at reducing tax avoidance and is more recent in its development. The last section concludes.

Carbon dioxide capture from the Kraft mill limekiln: process and techno-economic analysis

In this work, a techno-economic assessment of carbon dioxide capture from limekiln flue gas of a pulp and paper mill (Mill A) and a linerboard mill (Mill B) using a Monoethanolamine (MEA) absorption desorption process was carried out. We coupled the ASPEN Plus simulator with a derivative-free optimization (DFO) tool to identify the optimal configuration for minimizing the total capture cost. The capture costs were calculated using CAPCOST, a modular program for equipment cost estimation, and appropriate coefficients. Eight degrees of freedom, the direct contact cooler stages, the absorber stages, the stripper stages, the solvent lean loading, the solvent weight concentration, the stripper inlet temperature, the flue gas inlet temperature, and the amount of CO2 captured, were selected for process and flowsheet optimization. Additionally, we evaluated the effect of steam integration and Sect. 45Q of the existing federal tax credit for carbon capture and sequestration on CO2 capture costs. The total capture costs per tonne of CO2 were $64.9 for Mill A and $69.7 for Mill B. When steam integration and Sect. 45Q are considered, the costs dropped to − $2.5 and $2.6 for Mill A and Mill B, respectively. The sensitivity of CO2 capture cost to changes in the inlet flue gas flowrate, flue gas CO2 mol%, and the electricity and MEA prices were investigated. The sensitivity analysis results revealed that the capture costs vary from − $5.9 to $5.9 per tonne of CO2 captured.

Summaries of Articles

Summaries of Articles

The Oregon Earned Income Credit’s Impact on Child Poverty

ABSTRACT Building off the success of the federal earned income tax credit (EITC), states have developed earned income credits to supplement the incomes of the working poor. In 2016, a distinctive change to the Oregon Earned Income Credit (OEIC) targeted additional resources to families with young children. Using a unique data set and static estimates, we found that the OEIC yielded proportional decreases in child and young child poverty of 1.8 and 2.6%, respectively. By simulating alternative OEIC policies, we also found that significant increases to OEIC rates or takeup would be required to more aggressively reduce child poverty.

Parameter Study of Financial Analysis for Implementing Solar Photovoltaics Structural Snow Fences

Structural snow fences are known as a cost-effective way to enhance road safety on highways, which, however, are only used during winter, making them “useless” during summer. To increase their cost-effectiveness, Photovoltaics Snow Fences (PVSF) were developed by integrating PV panels with conventional structural snow fences. As part of the feasibility study supported by the Minnesota Department of Transportation (MnDOT), a financial analysis was performed involving many parameters, such as the capital and operating costs of the PVSF system, installation orientation of the panels, discount rates, energy selling prices, availability of incentives, ownership of the PV system, etc. The effects of these parameters on the analysis results were evaluated, where critical (most sensitive) parameters were first identified, and then their quantitative effects on the analysis results were evaluated in terms of Net Present Value (NPV) and Internal Rate of Return (IRR). The results indicate that the real discount rate is the most sensitive parameter in determining the cost-effectiveness of a PVSF project in Minnesota by looking at its NPV, when the benefits, such as Federal Tax Credits, Renewable Energy Certificates, and those associated with the use of snow fences, are considered in the financial analysis. The cost of the PVSF system is the most sensitive parameter for IRR, depending on the ownership of the PV system (by MnDOT or via a Power Purchase Agreement).

Storing the future of energy: Navigating energy storage policy to promote clean energy generation

AbstractThe United States has experienced heightened interest in clean energy sources, with many states implementing renewable technologies for energy generation. These efforts are critical for moving states and the nation toward decarbonization and decreased emissions within the transportation and power industries. A challenge with renewable sources (particularly solar and wind) is the inherent variability of energy generation due to climate and geographic influences. Consequently, there is increased interest in addressing energy storage technologies to better capitalize on excess power from high‐production periods for use in times of low generation. Energy storage comes in many different forms with varying duration. Several forms of energy storage are explored in this report to demonstrate the variety of technology options. Following research of the current state of energy storage policy, this work proposes three areas of potential policy improvements for industry: (1) implementation of a policy framework for states to produce ambitious energy storage procurement metrics; (2) amending of the federal investment tax credit for energy storage technologies to be duration‐based; and (3) incentivization of sustainable battery practices. It is imperative for state legislatures to create informed energy storage goals alongside current renewable energy metrics. Amending the modern federal investment tax credit system to include duration‐based incentivization will encourage the deployment of long‐duration technologies to combat variation in electricity generation over the course of seasons. Finally, for the continued deployment of batteries, sustainable practices must be implemented to mitigate material and environmental challenges posed by them, including recycling practices and alternative chemistry utilization.

Policy-Driven Potential for Deploying Carbon Capture and Sequestration in a Fossil-Rich Power Sector.

In 2020, the Wyoming Legislature enacted House Bill No. 0200 (HB0200), which requires utilities to generate a percentage of dispatchable and reliable low-carbon electricity by 2030. This state requirement must take into consideration "any potentially expiring federal tax credits", such as the federal Section 45Q tax credit. This study aims to examine the potential role of economic and policy incentives that facilitate carbon capture and sequestration (CCS) deployment. A unit-level retrofit analysis shows that deploying CCS at existing coal-fired power plants in Wyoming to meet the HB0200 emission limit would decrease the net efficiency by 29% and increase the levelized cost of electricity by 237% on the fleet average. The CO2 avoidance cost varies by unit from $65/t to 201/t, which reveals economic challenges for CCS retrofits. However, the current tax credit of $50 per metric ton of CO2 for saline-reservoir storage can lower the avoidance cost by 47% on the fleet average. The proposed enhancement of the tax credit to $85/t would offset the added cost for CCS deployment for a total capacity of 3.4 GW. Joint policy and economic incentives can encourage fossil fuel abatement to play a firm role in energy transition.

Tax Equality for Immigrants: The Indispensable Ingredient for Remedying Child Poverty in the United States

Both at the federal and state levels, tax credits have proved effective policy instruments to combat poverty, and they are at the heart of President Biden's massive initiative on childhood poverty. However, about one of every five children suffering poverty in the United States has an unauthorized immigrant parent and thus little or no access to tax credits. That is nearly two million children, and 85 percent of them are US citizens. Achieving historic reductions in childhood poverty thus will be impossible without remedying the eligibility exclusions and bureaucratic impediments that unauthorized immigrants face in the US tax system. All individuals who make money and reside in the United States are obliged to pay federal income taxes via a return filed with the Internal Revenue Service (IRS). For unauthorized immigrants and others who do not qualify for a Social Security Number (SSN) that requires an Individual Taxpayer Identification Number (ITIN). In this two-tier system, ITIN filers have the same income tax due as Social Security filers, but they do not receive the same credits. ITIN filers have never been eligible for the Earned Income Tax Credit (EITC) and some of their children were excluded from the Child Tax Credit (CTC) in the Trump administration's 2017 tax bill. Both credits are highly effective anti-poverty programs, providing immediate relief while also incentivizing work and earnings. The tax credits are the critical policy tool in Biden's American Plan for reducing child poverty, and they would be funded through the budget reconicilation legislation devised by Congressional Democrats in the summer of 2021. As summer drew to a close, ITIN inclusion was beginning to enter the discussion among advocates and legislators about the bill's detailed provisions. But eligibility is not the only barrier. Internal government monitors have repeatedly criticized the IRS for heavy-handed and inefficient practices that have placed undue burdens on ITIN taxpayers and that have hindered compliance with the law. The use of ITINs has plummeted in recent years from a high of 4.6 million returns in 2014 to 2.5 million in 2020. Prompted by the economic losses and the medical toll suffered by unauthorized immigrants during the pandemic and by their newly valued roles as “essential workers,” the federal government and several state governments have taken important steps to lessen the exclusion of ITIN taxpayers. The first federal stimulus package excluded not only ITIN holders but also their family members with SSNs. Congress extended eligibility to members of ITIN households with SSNs for the second and third stimulus checks. Meanwhile, California, Colorado, Maryland, New Mexico, Washington, Maine, and Oregon broke with the federal government and made ITIN filers fully eligible for their state EITCs, and as of July 2021 similar measures were under consideration in four other states. Early evidence from California and Colorado suggests that ITIN inclusion could prove a highly effective means of reaching poor children with the benefits of a state EITC. Child poverty can only be attacked successfully if ITIN households receive equal access to federal and state tax credit programs. This can be accomplished if: Congress and state legislatures permit full eligibility for all EITC and CTC programs. Congress mandates reforms to the procedures for getting and keeping an ITIN that have been proposed in multiple reports to Congress by the Taxpayer Advocate Service, an internal monitor at the IRS. Immigrants’ rights advocates and other civil society organizations, with government support, undertake a multi-year campaign to encourage ITIN application and use. The IRS receives funding to support a greatly expanded ITIN program.

The impact of state earned income tax credit increases on material and medical hardship

AbstractThe federal Earned Income Tax Credit (EITC) provides substantial financial assistance to low‐ and moderate‐income workers and has been shown to reduce poverty and encourage employment. Many US states have also implemented their own EITCs to supplement the federal tax credits. Leveraging unique administrative and survey data and employing a difference‐in‐differences approach, this study investigates how changes in state EITC benefits between 2012 and 2016 impacted the levels of material and medical hardships in states that expanded or enacted state credits. We find that small changes in state EITC levels can alleviate medical hardship, but not most other types of hardship, especially when states experience a greater benefit increase or implement new state EITCs. Our research points to the limitations of using relatively modest tax credits to offset many of the economic challenges faced by low‐ and moderate‐income households.

Renewable Feedstocks Present New and Complex Opportunities

Renewable Feedstocks Present New and Complex Opportunities

What is the optimal subsidy for residential solar?

How do we design clean energy subsidies to deliver greater benefits to society? Analytical answers to this question are scarce. Modeling should address both direct benefits from stimulating consumer adoption the year the subsidy is paid as well as indirect benefits from lowering future technology costs. We develop a benefit-cost analysis of residential solar subsidies in the US, disaggregated by state, accounting for technological progress, consumer adoption, and carbon and criteria emission reductions. We assess existing solar subsidies and also find the optimal subsidy schedule that maximizes net benefits starting in the year 2018. In the base case the national flexible optimal subsidy schedule begins at $585/kW and declines to zero in 14 years. The optimal subsidy starts higher and falls more quickly than the current federal tax credit, due to long-term benefits from early cost reductions and the need to reduce subsidies as a technology becomes cheaper. We also estimate state-by-state flexible subsidies which result in higher net benefits compared to a homogenous national subsidy ($2.8 billion versus $1.0 billion). Neglecting criteria pollution benefits, optimal subsidies accounting for technological progress and consumer behavior cost the government $45–49 per ton of carbon abated, much lower than the total abatement cost.

State Policy and Lobbying in a Federal System: Evidence from the Production Tax Credit for Renewable Energy, 1998–2012

AbstractState policies shape firms’ incentives to lobby in the United States, but the existing lobbying literature mostly ignores these incentives. Using lobbying records for all electric utilities in the United States from 1998 to 2012, we examine how state policies affect federal lobbying by both proponents and opponents of federal support for the renewable energy policy. Our theory predicts that supportive state policies reduce the returns to lobbying by both proponents and opponents. Empirically, we show that when the federal production tax credit for renewable energy is about to expire, electric utilities from states without renewable portfolio standards become more likely to lobby than those from states with these policies. Because the timing of the expiration of the production tax credit is quasi-random, these findings carry a causal interpretation. Using text analysis techniques, we also show that the lobbying efforts are focused on energy and environmental issues while lobbying on unrelated topics remains unaffected.

U.S. public support for biofuels tax credits: Cost frames, local fuel prices, and the moderating influence of partisanship

Researchers debate the viability of biofuels to address growing global energy demands and climate change. Understanding factors that maintain and build public support for government policies bolstering biofuels is critical. Using a nationally representative survey experiment, we examine the influence of competing cost arguments and spatial variation in ZIP-code level gasoline prices on Americans' support for federal tax credits to promote biofuels. We examine the influence of competing arguments about the cost implications of biofuels for consumers on support for federal tax credits, and whether such treatment effects are moderated by respondents’ political partisanship and by variation in local fuel prices. Consistent with research on loss aversion, arguments that biofuels could increase costs for consumers were more influential than arguments touting economic benefits. However, arguments that biofuels could eventually decrease fuel costs for consumers were more influential among subjects who experienced high local gasoline prices. Finally, we found evidence of a significant partisan divide in policy preferences, and evidence that partisanship moderates the influence both of competing cost frames and of local fuel prices on support for federal biofuels tax credits. Our results add important nuance to understanding of how economic calculations affect public support for policies to support biofuels.

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

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.

Policy incentives and social cost of emissions for promoting decentralized energy production: A life cycle cost analysis

Distributed energy systems (DES) are the focus of increasing attention as a means of improving the sustainability performance of power and heat production. However, many studies have shown that distributed energy systems have a higher cost than conventional centralized energy generation (CCEP). Previous studies on economic analysis of DES has generally overlooked the economic impacts of policy incentives, business depreciation, and emission taxes. This research aims to examine the reduction of the life cycle cost (LCC) for DES when the impact of U.S. policy incentives and emission taxes are considered. We first used a parametric model to find the optimal DES solution for three commercial building types under five climate zones in the U.S. Then, we calculated the LCC for each scenario and evaluated the cost-saving potential of feasible U.S. clean energy policy incentives, including federal tax credits, low-interest loans, and accelerated depreciation. Finally, we used the Air Pollution Emission Experiments and Policy model to quantify air pollutant emissions’ social cost for formulating emission tax on DES and CCEP. Results show that the social cost of centralized conventional energy production is significantly higher than the distributed energy systems. The bundle of feasible U.S. clean energy policies can reduce the cost of distributed energy systems by 67% on average. Suppose the social cost of energy-related emissions is also considered and charged as emission tax for energy generation. In that case, 50% of building energy supply scenarios for the distributed energy systems become cost-competitive as compared to CCEP.

Who responds to changes to the federal adoption tax credit? Evidence from Florida

AbstractThe federal adoption tax credit (ATC) can help offset the cost of adoption, yet it is unclear whether it has a positive impact on the number of adoptions or if it merely transfers resources to households who would have adopted anyway. The ATC has primarily been a nonrefundable tax credit, but in 2010 and 2011 the full amount (over $13,000) was available as a refundable tax credit, representing a substantial increase in the benefit to lower‐ and middle‐income families—those with typically low tax liability. Using county‐level data from Florida, we estimate an increase of 265 additional public adoptions over what would be expected at the end of 2011. Relative decreases in adoptions in the first months of 2012 suggest that much of this increase is due to retiming rather than new adoptions. The response appears to be concentrated in lower‐ and middle‐income households living in higher‐income, more populated areas.

Cost Analysis of Carbon Capture and Sequestration of Process Emissions from the U.S. Industrial Sector

The industrial sector represents roughly 22% of U.S. emissions. Unlike emissions from fossil-fueled power plants, the carbon footprint of the industrial sector represents a complex mixture of stationary combustion and process emissions produced as a reaction byproduct of cement, iron and steel, glass, and oil production. This study quantifies the potential opportunities for low-cost carbon capture and sequestration (CCS) scenarios with process emissions from the U.S. industrial sector by analyzing the variabilities in point-source capture and geographic proximity to relevant sinks, specifically enhanced oil recovery (EOR) and geologic sequestration opportunities. Using a technology-agnostic cost model developed from mature CO2 capture technologies, costs of CCS are calculated for each of the 656 facilities considered, with application of the U.S. federal tax credit 45Q to qualifying facilities. Capture of these targeted industrial process emission streams leads to the avoidance of 195 MtCO2/yr (188 MtCO2/yr qualifying for 45Q). Further, 123 facilities have the potential to avoid roughly 68.5 MtCO2/yr at costs below $40/tCO2 delivered. This could be competitive for using CO2 for EOR depending on the price of oil. At regional CO2 collection hubs, emissions of 40 MtCO2/yr can be avoided within 100 miles of the existing Louisiana-Mississippi and Texas-New Mexico pipelines.