"I notice that in order for projects to afford adding solar energy, they rely on tax credits. Is this my taxes paying for these projects, and if so, why do I want the government to be using my taxes to promote winners or losers?"
- Don from South Holland, IL
Governments use financial policy to incentivize business investment. In the US, this practice affects many industries, and takes many forms. The federal government provides direct grants for research and development, provides security or management of operations that support industries, implements regulation to provide clarity to the marketplace, or uses tax policy to improve the economics of various desirable projects.
Specifically related to the energy generation industry, the tax credits do not directly come from any of our individual tax dollars. Tax credits reduce the tax obligation of the organization that pursues the incentive...in this case, the organization that implements solar energy generation within their company or institution. In general, these credits have the effect of reducing federal tax revenues, but if applied properly the company can use the additional profit to either pay bonuses to employees, pay dividends to investors, or invest in their business. Any of these can result in the federal government collecting tax revenue from other sources, which can limit the effect of the credit. Even if the credit does reduce overall government revenues, the total effect would only slightly increase the burden on the individual taxpayer. Specifically speaking, we do not fund tax credits.
The larger question might ask whether any level of government should get involved in incentivizing industry. Energy underpins every part of our economy, and affects every aspect of our lives. Although having a cohesive energy policy would help provide a level of transparency to any incentive program, the government has an obligation to make sure that we have national security related to energy source, and that process of generating energy sources does little or no harm to our way of life. This largely takes the form of regulation - making sure that the marketplace has consistent guides to promote private investment. Sometimes this takes the form of using federal money as grants to support research and development that industry would not do under market circumstances.
We should recognize, at this point, that the government provides various forms of subsidies to all sectors of the energy industry...even those that we would deem mature: coal, oil, and natural gas. Not counting military support of fossil fuel supply lines, government support of healthcare externalities from burning fossil fuels, or even underpricing of land royalties, the US government subsidizes the fossil fuel industry at a level three times that of the renewable energy sector. Should we remove subsidies for renewable energy, we would justify removing all sources of energy subsidy. Within the renewable energy subsidies, there is generally no prescribed preference for one type of technology over another, but rather a desire to see the most effective solution reach market viability.
Given recent publicity of the failure of companies like Solyndra, I should address that most subsidies take the form of production credits...meaning that the credit goes to the entity that receives the produced energy, and not as a direct grant to the company that produces the panel. As mentioned previously, the government does issue grants to companies directly. In the case of Solyndra, the grants were issued under one market condition (i.e. a price of solar panels) and the company failed when the price dropped below the point where it could make money. I cannot guarantee that favoritism in some form did not come into play, it is much more likely that this was a failure of prognostication, not one of a political nature.
We will always need government to provide a reasonable marketplace in which business can act to support our quality of life. At no point in our nation's past has business ever, on its own, developed a technology that underpins our quality of life. The question is not whether or not we should, but rather how.
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