The House Committee on Ways and Means amended the Student and Family Tax Simplification Act last Thursday and has issued a comprehensive report on the bill. The bill, or H.R. 3393, was developed by Representatives Diane...
- The Tax Policy Blog
- Green Tax Incentives Just Don't Work
Green Tax Incentives Just Don't Work
According to KPMG, the US tax code promotes environmental initiatives more than any other nation. With President Obama set to announce a new plan for environmental policy today, the effectiveness of “green” policy tools will again be a topic of public debate. Meanwhile, a recent report by the National Research Council sheds light on the effectiveness of green tax incentives. The NRC report focuses on the effect of these incentives on greenhouse gas output, analyzing whether the US tax code has succeeded in reducing greenhouse gas emissions.
Regardless of whether or not CO2 actually has a high social cost—the Economist reports a new “cooling” consensus—this report is interesting because it suggests that current green tax incentives do very little to reduce emissions. So either they are expensive and ineffective ways of limiting carbon, or they are expensive and ineffective ways of giving unnecessary corporate welfare through tax favoritism. Among the green taxes and incentives that the NRC assessed were various renewable energy production tax credits, like the recently-expired wind energy credit. The NRC also reviewed credits relating to capital depreciation and investment, and even healthcare and homeownership. Crucially, the study found that major policies like the gas tax had little effect on greenhouse gas emissions, while production tax credits subsidizing renewable energy sources, such as wind energy, only reduced greenhouse gas emissions by 0.3 percent, despite costs running into the billions.
This study should remind lawmakers and investors of a simple truth: the best decisions are based on long-term economic factors and market conditions. When businesses make decisions to leverage government favoritism, they fail. Tax incentives are an inefficient and distortionary way of achieving policy goals, and, in the case of green incentives, haven’t even made substantial progress to achieve their stated goals. With new tax proposals on the table intended to aid renewable energy firms, we should not forget the mistakes of the past.
For more on environmental tax policy, click here.
Follow Lyman on Twitter.
Subscribe to the Tax Foundation Newsletter
Join the Tax Foundation's fight for sound tax policy Go
About the Tax Policy Blog
The Tax Policy Blog is the official weblog of the Tax Foundation, a non-partisan, non-profit research organization that has monitored tax policy at the federal, state and local levels since 1937. Our economists welcome your feedback. If you would like to send an e-mail to the author of a blog post, please click on that person's name to locate his or her e-mail address or visit our staff page here.