When Mark Strama spoke during lecture this past Thursday, the issue about incentivizing renewable energy versus taxing carbon came up. Mark Strama said he believed that taxing carbon would result in a faster transition to renewable fuels, but that having tax incentives would be a better way to go about doing it.
First off, tax incentives make renewable energy or other energy efficient devices cheaper to the consumer by providing tax credits to the companies that produce the products. Without the tax incentives, the clean products would be far more expensive than other carbon intensive products. Many of the tax incentives are actually tax credits, which differ from tax deductions because tax credits reduce the amount of income tax you have to pay, while tax deductions reduce the amount of income subject to tax. According to The Emergency Economic Stabilization Act of 2008, there are currently many tax incentives in place for energy including renewable energy, transportation and domestic fuel security, and energy conservation and efficiency. The renewable energy tax incentives include facilities that generate electricity from wind, solar, biomass, geothermal, hydropower, landfill gas, and trash combustion facilities. For the transportation sector, there are tax incentives for hybrids, diesels, alternative fuel vehicles (compressed natural gas, liquefied natural gas, hydrogen, etc.), and there are incentives for electrical vehicles and plug-in hybrids coming soon. The Renewable Fuel Standard is another way the federal government can provide incentives for renewable energy companies, which is a program that will increase the volume of required renewable fuel to 36 billion gallons by 2022.
Similar to tax incentives above, the carbon tax is a way for the government to try and make renewable energy more cost competitive against cheaper fossil fuels. According to an article on carbon tax, the carbon tax places a fee on the production, distribution or use of fossil fuels. The government would determine the price per ton on carbon, which would result in a higher cost for fossil fuels and make renewable energy a more feasible option. Although the carbon tax could work faster to make renewable energy more cost competitive, it is not necessarily good for the United States energy companies and economy in general. An article regarding France’s recent abandonment of the carbon tax discusses that a carbon tax would put French companies at a disadvantage to other countries that do not have a similar tax.
In conclusion, I feel that the government providing tax incentives is a better way for renewable energy companies to enter the marketplace because it is fairer to all the companies involved. While the fossil fuel companies are being hurt either way, having a carbon tax would penalize the companies much more severely, and possibly lead to economic difficulties in the US if other countries did not implement a tax. Also, tax incentives give renewable energy companies more time to improve technology and lower costs so that in the future the companies can compete on their own.