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Public policy wonks talk about incentives and disincentives as ways to alter people's behavior. There are the sticks, like the proposal to fine drivers who have one hand on the wheel and the other on a cell phone. (You may have heard our show about it.) And then there are the carrots: like tax rebates and credits and grants of all kinds that reward the kind of action the state wants to see more of. If there's one broad sector this state — and the rest of the union — is invested in investing in, it's green energy. But are the various state (and federal) incentives necessary? And are they working?
The Business Energy Tax Credit, or BETC, started out primarily as a way for the state to encourage companies to invest in renewable or efficient energy systems (say, putting solar panels on a roof). In 2007, Governor Kulongoski successfully pushed to increase the credits and expand them to companies that make these technologies (say, a solar panel manufacturer). The latest BETC expansion, in front of the Legislature right now, would apply to manufacturers of electric vehicles — something the Norwegian EV company Think is paying a lot of attention to as they consider building a plant here.
How effective are these credits? BETC fans point readily to a recent study (pdf) by ECONorthwest exploring the larger effects on the state economy of credit dollars. Detractors look at the same study, and argue that the numbers don't speak too well for the credit.
And then there are complaints about the pass-through system, which attracted some attention recently after the German solar manufacturer SolarWorld sold $11 million worth of credits to Wal-Mart for $7.3 million. If SolarWorld only needed an incentive of $7 million, argues Chuck Sheketoff, why did the state have to give up $11 million in revenue? And if there is an impressive return on investment to be made in the pass-through, why shouldn't individuals be given the chance to take advantage of it? (One new business is asking the same question.)
How have tax incentives affected your business? Have you installed wind turbines or solar panels on your building. Did tax credits put you over the edge or sweeten an already done deal? Have you been hired by a company that moved here to take advantage of tax credits? Would you take part in the pass-through program as an individual, paying $3500 today for a $5000 tax break over the next few years?
GUESTS:
- Richard Canny: CEO of Think, a Norwegian electric car company
- Chuck Sheketoff: Executive Director of the Oregon Center for Public Policy
- Dave Van't Hof: Senior Policy Advisor for Energy and Sustainability to Governor Ted Kulongoski
Tagged as: alternative energy · the switch
Photo credit: Mike Weston / Flickr / Creative Commons
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I'm not sure if a business of one is what you have in mind, but unquestionably, without the tax credit the solar panels that are now powering my studio would not be there. In the real world of interaction between the public & private sectors these incentives are vital, after all if true costs were factored in then all forms of energy are subsidized. Public Policy is a critical component influencing industrial choice and financial participation. One tangential area where regulations should change is in the rules controlling solar connection to the grid. When the grid goes down the solar energy generated is wasted because (unless there is a battery storage system) the DC-AC inverters automatically switch off. The stated reason for this is to prevent a line worker being shocked by excess energy coming from an independent system... this is true but only because of the implementation requirements which could be reconfigured to provide safety AND use of the resource when the grid is down.
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While I applaud your investment into renewable energy, does the incentive give the public a proportionate bang for their buck compared to a larger, possibly commercial, solar array that would benefit from economies of scale?
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Replying to OregonSean:
"Large, commercial" is a very single-use, control-issue, kind of "guy" way of thinking.
There is wasted solar real estate onsite in all human communities that would not take other land out of whatever production it is in, and which solves the transmission problem by being virtually on site. If we had solar on every rooftop that could support it, our need for power from external sources would be massively reduced. It just wouldn't be power that is easy to control or hike rates on.
And from a different perspective, why shouldn't the power we each use be something we are aware of and/or responsible for? We take power for granted because it is an invisible commodity, and it's production is completely unconnected from what we do in our daily lives. Maybe it that is a mistake.
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Wow Katie,
Kind of a "guy" way of thinking. That sounds pretty sexist.
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Katied,
Thanks for the comment.
I think the idea of people being able to take responsibility for their own power needs is a wonderful idea. My concern is that the technology is not super cheap right now and not everyone can afford to have an array installed that would take care of most of their (at least daytime) energy needs.
By going commercial everyone can put in a share through the rates they pay or through their tax dollars and we can get the most bang for our buck through economies of scale.
Also, it sounds like we agree with each other that it doesn't make sense for the local power company to be making profits off our rates. There are no market forces in place to increase competition and drive prices down, so the public might as well own and run it themself.
Finally, for what it's worth, I like to believe that I don't subscribe the typical cliche' of guy thinking.
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Forgive me, but I find the need for this conversation to be repugnant. Our government should be REQUIRED to conduct a thorough study before committing any significant amount of tax resources.
In this case, surveying prospective businesses, getting as much detailed information about how they believe the incentives will help them benefit US, and possibly even attaching reasonable conditions to the incentives to account for situations like the one mentioned about Wal-Mart. These calculations and projections should be conducted by experts in their field and then made available to the public and the elected officials for them to base their decisions on and for us to have the information to hold them accountable to.
Additionally, the incentives shouldn't just be used to bring business here, but to create competition in the marketplace to bring innovation. Incentives should be scaled to work with small businesses as well as corporations. Many good ideas start small.
Finally, although it can be beneficial to use incentives to draw businesses that seem to have a bright and long future, such as the renewables, we should also be using them to attract businesses that will diversify our state's economic portfolio. It seems that a disproportionate investment into the tech industry may be the reason why we are currently have the 2nd highest unemployment in the nation behind Michigan, which also disproportionately invested in a single industry.
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"Forgive me, but I find the need for this conversation to be repugnant. Our government should be REQUIRED to conduct a thorough study before committing any significant amount of tax resources."
That was once a given... Responsible government.
Sadly it has been slipping away and the current mono party has not a clue. They are printing and spending like crack fueled maniacs and hiding it from sight with things like TARP.
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This is all well and good, but why should Oregonians dump money into a company that is in bankruptcy.
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With all these tax credits being doled out and expanded, where does the state plan on getting their money? Maybe this is why there a holes in our budget, cuts to social services, or why they are talking about beginning a sales tax?
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Mr Canney indicated that when Think comes to the USA they will occupy an existing manufacturing facility. Would that be more or less likely to be an exisiting auto manufacturing and do we have one in Oregon
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They're on the record as having looked at the (former) Freightliner plant in Portland.
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Stop calling this state spending. They are tax credits, state revenue not taken. You can not compare this to state spending because of the likely possibility that if the credits were not available, then the companies would not have spent the money. Therefore, remove the credit, the business doesn't spend the money the same way, and the state does not receive any more revenue either way!
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Hi,
I see your point, but I think it would be reasonable to study this issue further to determine if the tax credits were warranted and if so, what was the least needed amount.
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Thats funny, these companies are yelling about hey we are all about saving the world green energy this and that...However once you say yeah but you will not get any free money if you come here, they freak out and say ok cya. Its all about the money nothing else. MONEY MONEY MONEY. Its all about greed.
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That is both silly and simplistic. If you have ever tried to put together a large project of any kind, you'd understand how difficult and costly it is to do so. Every resource that can be brought to bear counts in the overall investment picture.
The idea that a car manufacturer would move their operation, lock, stock and barrel, halfway across the world in order to save what are a few dollars, relatively speaking, in their overall operation is ridiculous.
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Unfortunately, the solar industry is still developing. Until it becomes sustainably profitable, the private investors who are making this new industry possible will want to look for the sweetest deals they can find. We just need to make sure we don't make it any sweeter than it needs to be and that the long term benefits to us are significant.
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I am completely in favor of this idea. We badly need to develop these kinds of technologies and the companies that are making it happen need all the help they can get. The sooner we move to cleaner forms of energy, in particular, the better off we, our children and our entire planet will be.
If incentives such as these can encourage this kind of growth while providing jobs and long-term development in this state, I consider this as wise a use of public money as any and better than most.
I might add that the minute electric vehicles and adequate infrastructure are in place, I will buy and use an electic vehicle; curtailing the use of fossil fuels is absolutely essential to having a livable environment in the future. And the sooner we move toward this model, the better off we all will be.
I'd like to point out a basic tenet of government and finance that has been an underlying economic principle since the days of the Babylonians; that is the realization that public investment brings a host of benefits to the public, at all socio-economic levels. One of the basic purposes of government is to collect revenue and invest it in public works, infrastructure and directed growth for the good of the citizenry.
Encouraging the manufacture of non-fossil, alternative energy vehicles that could be made in Oregon by Oregonians, sold to Oregonians and driven by Oregonians strikes me as being an extraordinarily good idea.
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Everything you've said is true and I agree that investment is needed, however, it's very important to make sure we get the most bang for our buck.
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The focus seems to be on luring big companies particularly in manufacturing. Is there also a push on smaller companies and companies that work not on manufacturing but research and technology development? Is the pay back in terms of job creation and other benefits to the local economy not as great for companies other than manufacturing? Or is this based on the timeframe of the benefits?
Amit
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A number of comments on the BETC and related tax credits:
1. Why would anyone invest in the pass through program? Easy, and the last sentence above is a bit misleading. The returns to investors can be significant, in excess of 18%, for a very safe investment. Further, the tax credit actually can be applied immediately to taxes due, depending on the timing of the purchase of the tax credits, so the effective return can be even greater becauseof the time value of money.
2. The biggest criticism of the pass through program is the limitation on the subsequent transfer of the tax credits. The problem is the prohibition on the subsequent transfer of the tax credits is what happens if a purchaser, for example, leaves the state after year 3 and no longer has any Oregon taxes to apply the remaining tax credits to. I don't understand the policy considerations underlying this prohibition. I also understand there is a dispute over this issue between the Oregon Department of Revenue and the Oregon Department of Energy. Perhaps you should get these two departments to speak to this issue.
3. The biggest problem I see with the tax credits is that it doesn't address how you come up with the money in the first place. We were involved in a possible installation of solar panels on commercial buildings in Hillsboro. Total projected costs for several of the commercial buildings was in the range of $550,000.00. However, after taking into account all of the available tax credits, Energy Trust and Department of Energy programs, etc., the effective cost was going to be in the range of $40,000.00 (very round numbers). All of this sounds very nice, but the question: how do you come up with the initial costs of $550,000? That's the biggest stumbling block to the use of the credits and the pass through program only covers a small portion of the upfront costs.
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Wouldn't it be wonderful if the government backed loans for people to make an investment that had confirmed tax credits waiting in the wings?
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A Norwegian company could also bring along information about Norways other socially responsible public policies. That would be a definite positive.
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New and diverse ideas are very cool.
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It is absolutely outrageous that Wal-Mart would end up with any tax break, they are a job and small business killing giant predatory corporation and any public policy should be used to lessen and minimize their devastating hurtful effects on Oregon people and small businesses!
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I don't think Wal-Mart got any credits, it sounds like they bought clean energy credit or certificates, probably so they can say they are "green".
On a side note: I agree with your sentiment and believe that Wal-Mart's behavior has some pretty scary long-term consequences, even for a large corporation, and that is saying something. A possible significant step in countering this might be the Employee Free Choice Act.
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"... Employee Free Choice Act."
Yep!
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In the 1990s Conservative Republicans in Congress pushed through big tax credits to incentivize people to buy huge gas guzzling SUVs weighing over some five thousand pounds.
In other words, they used the government to shape and influence businesses to the disadvantage of The People and the profitable advantage of Big Oil and the automakers.
Ironic isn't it, that Conservative Republicans are now complaining that what they did when they were in power, when done under Democratic government gets called "socialism". Methinks they are hoist on their own petard! Conservative Republicans fit their own definition of Socialists!
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Unfortunately, both parties are corrupt in their own way. The best solutions I can see are publicly funded elections to remove the money trail, and more transparency, so that the public can hold elected officials accountable.
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I think that car charging receptacles at home, at businesses, or wherever those cars get parked, ought to have some kind of connection to the grid through Wi-Fi, cellphone, direct internet, or some such so that the electric companies can instruct them to charge the car when the wind turbines and/or solar panels are generating electricity but are not charging when the electricity is needed elsewhere.
And there is the possibility of instructing the car to supply electricity back into the grid if that is needed.
Both of these ideas make possible the long sought "timeshifting", the storage, of electricity from when it is generated to when it is actually needed. And that makes it unnecessary to build more baseload coal or nuclear plants. The more batteries and other storage systems involved in the system and interconnected by computers, the more solar and wind can be used instead of expensive and polluting baseload plants.
Hmm. QED.
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I was disappointed today on what seemed to be a somewhat one sided discussion on Think Out Loud. I depend on OPB for balanced view points from all sides on an issue. I would like to hear more about how we can work together to improve the Betsy tax credits; how private parties can participate; and how we can put together a unified front to bring, jobs, money, other resources, and more renewable energy projects to Oregon. Lets work on solutions.
Catherine Johnson
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Why are tax credits the answer? Wouldn't it make more sense for direct rebates to consumers at the time of purchase. It seems that tax rebates gives incentives to people who already have the upfront cash to make these upgrades, where as the people who could use the cost savings of energy efficency the most can afford it the least. In terms of solar power, maybe the power company should own the actual products and the homeowner can pay for the installation costs. They could lease the products from the power company and pay for it using the power they generate. We looked into a solar system and it is way too expensive for the average homeowner at this time.
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The power companies DO NOT want to be in business with their customers. That would require compromise and give us some independence that would threaten their business model.
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Windance windsurfing shop was one of the first shops in Hood River to install a pair of sun-tracking photovoltaic solar panels. The former shop owner installed most of the system himself after hiring a solar energy consultant to design the system.
The panels produce about 1/3 of the shop's electricity and excess electricity is returned to the grid for a credit against the shop's electric bill. With all the credits included, the system was scheduled to pay for itself within 7-10 years.
I have admiration for the former owner who was in front of the curve and motivated to be greener. He didn't wait for credits to subsidize the system up front. He's been in the process of changing his personal habits to be more conscientious about his footprint on the planet for several decades.
The system wasn't installed because it was immediately going to take the business off the grid; it serves as a visible statement to the community saying, "You can do this too so get on with it."
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