The Senate bailout bill contains a surprising 100-page section authorizing billions in tax credits for small wind turbines, geothermal heat pumps, coal gasification, carbon sequestration, plug-in hybrid vehicles, biofuels, etc.
Why bury tax credits for renewables and the like in a financial-industry bailout bill? Because that’s the only way to get Blue Dog Democrats in the House to support such alt-fuel efforts, according to Greenwire (subscription required).
Surprisingly, one energy-related provision could lead to less government meddling in the market. As my colleague Chris Horner has noted below, Sec. 117 requires the Secretary of the Treasury, working with the National Academy of Sciences, to conduct a “carbon audit” of the tax code “to identify the types of and specific tax provisions that have the largest effects on carbon and other greenhouse gas emissions and to estimate the magnitude of those effects.” The audit report is due two years after enactment and is authorized at $1.5 million.
If properly conducted, a carbon audit should reveal that the tax code operates as a barrier to capital turnover, hence to improvements in energy efficiency and emissions intensity.
A 2007 study commissioned by the American Council on Capital Formation found that “The United States generally has less favorable tax depreciation rules for electric generation, electric transmission and distribution, and petroleum refining than many other countries, including a number of the U.S.’s major trading partners.” For example, after five years, U.S. firms can recover only 29.5 percent of their investment in combined heat and power systems, compared to 57.7 percent for firms in the Republic of Korea, 63.1 percent for firms in Canada, and 100 percent for firms in Malaysia.
Reducing the tax penalty on capital investment would accelerate deployment and diffusion of new technologies, which are more energy efficient and less carbon intensive than older capital stock. Gorethodoxy defines “doing something” about global warming as taxing and regulating. However, getting government out of the way of investment in new technology is also doing something. The Secretary and the NAS would be well advised to read the ACCF study.