The Distributional Effects of U.S. Clean Energy Tax Credits

Transcription

1 The Distributional Effects of U.S. Clean Energy Tax Credits Severin Borenstein and Lucas Davis UC Berkeley September 2015 Borenstein and Davis (UC Berkeley) Clean Energy Tax Credits September / 33

2 Introduction Background Distributional Analysis Conclusion Research Questions Since 2006 U.S. households have received more than $18 billion in federal tax credits for weatherizing their homes, installing solar panels, buying hybrids and electric vehicles, and other clean energy investments. Who claims clean energy tax credits? How do credit receipts vary across income groups? Does this distributional pattern provide any broader insights about program design? Borenstein and Davis (UC Berkeley) Clean Energy Tax Credits September / 33

3 Borenstein and Davis (UC Berkeley) Clean Energy Tax Credits September / 33

4 Motivation Economists have long pointed out that subsidizing green is less efficient than taxing brown. Subsidies don t get usage right. Subsidies are a coarse instrument. Many subsidy recipients are inframarginal. Borenstein and Davis (UC Berkeley) Clean Energy Tax Credits September / 33

5 Motivation Economists have long pointed out that subsidizing green is less efficient than taxing brown. Subsidies don t get usage right. Subsidies are a coarse instrument. Many subsidy recipients are inframarginal. Borenstein and Davis (UC Berkeley) Clean Energy Tax Credits September / 33

6 Motivation Economists have long pointed out that subsidizing green is less efficient than taxing brown. Subsidies don t get usage right. Subsidies are a coarse instrument. Many subsidy recipients are inframarginal. Borenstein and Davis (UC Berkeley) Clean Energy Tax Credits September / 33

7 Motivation Economists have long pointed out that subsidizing green is less efficient than taxing brown. Subsidies don t get usage right. Subsidies are a coarse instrument. Many subsidy recipients are inframarginal. Borenstein and Davis (UC Berkeley) Clean Energy Tax Credits September / 33

8 Motivation The distributional effects of subsidies have received less attention. And there seems to be a presumption that subsidies are equitable.... many alternatives to Pigouvian taxes involve smaller or negligible redistributions... If distributional concerns matter and cannot be adequately addressed, the welfare advantage of Pigouvian policies is far from obvious. Billy Pizer, Equity versus Efficiency in Energy Regulation (2015) Borenstein and Davis (UC Berkeley) Clean Energy Tax Credits September / 33

9 Motivation The distributional effects of subsidies have received less attention. And there seems to be a presumption that subsidies are equitable.... many alternatives to Pigouvian taxes involve smaller or negligible redistributions... If distributional concerns matter and cannot be adequately addressed, the welfare advantage of Pigouvian policies is far from obvious. Billy Pizer, Equity versus Efficiency in Energy Regulation (2015) Borenstein and Davis (UC Berkeley) Clean Energy Tax Credits September / 33

10 Introduction Background Distributional Analysis Conclusion Paper Overview We review the clean energy income tax credits available since 2006 Technologies covered, eligibility requirements, important changes Look for evidence of impacts using shipment and sales data Use tax return data to see who has claimed these credits Compare distributional impact to other tax credits and carbon tax Perform ancillary analysis aimed at understanding non-refundability Borenstein and Davis (UC Berkeley) Clean Energy Tax Credits September / 33

11 Related Literature Efficiency and Cost-Effectiveness of Clean Energy Subsidies (Hassett and Metcalf 1995; Sallee, 2011; Allcott and Greenstone 2012; Mian and Sufi 2012; Boomhower and Davis 2014; Davis, Fuchs, and Gertler 2014; Fowlie, Greenstone, and Wolfram 2015; Borenstein 2015; Houde and Aldy 2015; Hughes and Podolefsky 2015) Distributional Effects of Gasoline and Carbon Taxes (Poterba 1989; Poterba 1991, West 2004; Bento, Goulder, Jacobsen and Von Haefen 2009; Burtraw, Sweeney, and Walls 2009; Hassett, Mathur, and Metcalf 2009; Rausch, Metcalf, and Reilly 2011; Williams, Gordon, Burtraw, Carbone, and Morgenstern 2015) Distributional Effects of Clean Energy Subsidies (Dubin and Henson 1988; Crandall-Hollick and Sherlock 2014; Neveu and Sherlock, forthcoming) Borenstein and Davis (UC Berkeley) Clean Energy Tax Credits September / 33

12 Tax Expenditures By Category, Category Total Expenditure, in Millions Percentage of Total Credit Average Credit Claimed (1) (2) (3) Panel A. Nonbusiness Energy Property Credit (NEPC) Energy-Efficient Windows $ % $415 Qualified Furnaces and Boilers $ % $411 ACs, Water Heaters, etc. $ % $512 Ceiling and Wall Insulation $ % $239 Energy-Efficient Doors $ % $170 Qualified Reflective Metal Roofs $ % $710 Qualified Circulation Fans $ % $339 Borenstein and Davis (UC Berkeley) Clean Energy Tax Credits September / 33

13 Annual Expenditures on U.S. Clean Energy Tax Credits, in Millions Year Windows and Other Energy- Efficiency Investments (NEPC) Solar Panels and Other Residential Renewables (REEPC) Hybrids and Other Alternative Fuel Vehicles (AMVC) Electric and Plug-In Hybrid Vehicles (PEDVC) 2005 $0 $0 $0 $ $957 $43 $50 $ $938 $69 $185 $ $0 $217 $49 $ $5177 $645 $137 $ $5420 $754 $93 $ $755 $921 $14 $ $449 $818 $20 $139 Total $13696 $3467 $549 $346 Borenstein and Davis (UC Berkeley) Clean Energy Tax Credits September / 33

14 Residential Energy-Efficiency Investments Units, in 1000s % Tax Credit Introduced in 2009 Energy Efficient Natural Gas Furnaces Energy Efficient Central Air Conditioners Air Source Heat Pumps Tax Credit Decreased to 10% in Source: U.S. Department of Energy, Energy Star Unit Shipment and Market Penetration Report, Various Years. Borenstein and Davis (UC Berkeley) Clean Energy Tax Credits September / 33

15 Residential Energy-Efficiency Investments Units, in 1000s Energy Efficient Natural Gas Boilers Energy Efficient Heating Oil Furnaces 30% Tax Credit Introduced in 2009 Tax Credit Decreased to 10% in Source: U.S. Department of Energy, Energy Star Unit Shipment and Market Penetration Report, Various Years. Borenstein and Davis (UC Berkeley) Clean Energy Tax Credits September / 33

16 Tax Expenditures By Category, Category Total Expenditure, in Millions Percentage of Total Credit Average Credit Claimed (1) (2) (3) Panel B. Residential Energy Efficiency Property Credit (REEPC) Photovoltaic Systems $ % $5323 Geothermal Heat Pumps $ % $3784 Solar Water Heating Systems $ % $1155 Wind Turbines $52 1.5% $1073 Fuel Cell Systems $12 0.3% $378 Borenstein and Davis (UC Berkeley) Clean Energy Tax Credits September / 33

17 Annual Expenditures on U.S. Clean Energy Tax Credits, in Millions Year Windows and Other Energy- Efficiency Investments (NEPC) Solar Panels and Other Residential Renewables (REEPC) Hybrids and Other Alternative Fuel Vehicles (AMVC) Electric and Plug-In Hybrid Vehicles (PEDVC) 2005 $0 $0 $0 $ $957 $43 $50 $ $938 $69 $185 $ $0 $217 $49 $ $5177 $645 $137 $ $5420 $754 $93 $ $755 $921 $14 $ $449 $818 $20 $139 Total $13696 $3467 $549 $346 Borenstein and Davis (UC Berkeley) Clean Energy Tax Credits September / 33

18 U.S. Residential Installations of Solar Panels Installations, MW Tax Credit First Introduced in 2006 Tax Credit Increased in Source: Solar Energy Industries Association, Solar Market Insight Report, Various Years. Borenstein and Davis (UC Berkeley) Clean Energy Tax Credits September / 33

19 Annual Expenditures on U.S. Clean Energy Tax Credits, in Millions Year Windows and Other Energy- Efficiency Investments (NEPC) Solar Panels and Other Residential Renewables (REEPC) Hybrids and Other Alternative Fuel Vehicles (AMVC) Electric and Plug-In Hybrid Vehicles (PEDVC) 2005 $0 $0 $0 $ $957 $43 $50 $ $938 $69 $185 $ $0 $217 $49 $ $5177 $645 $137 $ $5420 $754 $93 $ $755 $921 $14 $ $449 $818 $20 $139 Total $13696 $3467 $549 $346 Borenstein and Davis (UC Berkeley) Clean Energy Tax Credits September / 33

20 U.S. Hybrid Vehicle Sales Toyota (Prius, Camry, and Highlander) Units, in 1000s All Other Manufacturers Combined Hybrid Tax Credit Introduced in 2006 Tax Credit Phased Out for Toyota During 2007 Hybrid Tax Credit Ends for All Manufacturers Source: U.S. Department of Energy, Alternative Fuels Data Center, U.S. Hybrid Electric Vehicle Sales By Model, Borenstein and Davis (UC Berkeley) Clean Energy Tax Credits September / 33

21 Annual Expenditures on U.S. Clean Energy Tax Credits, in Millions Year Windows and Other Energy- Efficiency Investments (NEPC) Solar Panels and Other Residential Renewables (REEPC) Hybrids and Other Alternative Fuel Vehicles (AMVC) Electric and Plug-In Hybrid Vehicles (PEDVC) 2005 $0 $0 $0 $ $957 $43 $50 $ $938 $69 $185 $ $0 $217 $49 $ $5177 $645 $137 $ $5420 $754 $93 $ $755 $921 $14 $ $449 $818 $20 $139 Total $13696 $3467 $549 $346 Borenstein and Davis (UC Berkeley) Clean Energy Tax Credits September / 33

22 U.S. Sales of Electric and Plug-In Hybrid Vehicles Units, in 1000s Nissan Leaf Chevrolet Volt Tesla Model S All Other Models Combined Electric Vehicle Credit Introduced in Source: U.S. Department of Energy, Alternative Fuels Data Center, U.S. Plug in Electric Vehicle Sales By Model, Borenstein and Davis (UC Berkeley) Clean Energy Tax Credits September / 33

23 Distributional Analysis Now turn to tax return data to see who has claimed these credits. IRS Statistics of Income, Publication 1304, Table 3.3 Public Use Microdata Accessed through Dan Feenberg at NBER Some inherent limitations of working with tax return data Excludes households that do not file tax returns Annual income may be a poor proxy for lifetime income Do not allow us to address the question of subsidy incidence Borenstein and Davis (UC Berkeley) Clean Energy Tax Credits September / 33

24 Average Credit Per Return, by Adjusted Gross Income A: Residential Energy Credits, dollars < >200 Nominal AGI, thousands of dollars Borenstein and Davis (UC Berkeley) Clean Energy Tax Credits September / 33

25 Average Credit Per Return, by Adjusted Gross Income B: Alternative Motor Vehicle Credit, dollars < >200 Nominal AGI, thousands of dollars Borenstein and Davis (UC Berkeley) Clean Energy Tax Credits September / 33

26 Average Credit Per Return, by Adjusted Gross Income C: Qualified Plug-in Electric Drive Motor Vehicle Credit, dollars < >200 Nominal AGI, thousands of dollars Borenstein and Davis (UC Berkeley) Clean Energy Tax Credits September / 33

27 Extensive Versus Intensive Margin A: RECs, Share Claiming Credit , by Adjusted Gross Income fraction < >200 Nominal AGI, thousands of dollars Borenstein and Davis (UC Berkeley) Clean Energy Tax Credits September / 33

28 Extensive Versus Intensive Margin B: RECs, Average Credit Amount Claimed , by Adjusted Gross Income dollars < >200 Nominal AGI, thousands of dollars Borenstein and Davis (UC Berkeley) Clean Energy Tax Credits September / 33

29 Concentration Curves A: Residential Energy Credits, Cumulative fraction of credits and AGI AGI 45 degree line credit Cumulative fraction of taxpayers, ranked by AGI Borenstein and Davis (UC Berkeley) Clean Energy Tax Credits September / 33

30 Concentration Curves B: Alternative Motor Vehicle Credit, Cumulative fraction of credits and AGI Cumulative fraction of taxpayers, ranked by AGI Borenstein and Davis (UC Berkeley) Clean Energy Tax Credits September / 33

31 Concentration Curves C: Qualified Plug-in Electric Drive Motor Vehicle Credit, Cumulative fraction of credits and AGI Cumulative fraction of taxpayers, ranked by AGI Borenstein and Davis (UC Berkeley) Clean Energy Tax Credits September / 33

32 Are They More Regressive Than Other Tax Expenditures? Borenstein and Davis (UC Berkeley) Clean Energy Tax Credits September / 33

33 Are They More Regressive Than Other Credits? Concentration Coefficients for Selected Tax Credits Panel A. Clean Energy Tax Credits Residential Energy Credits Alternative Motor Vehicle Credit Plug-in Electric Drive Vehicle Credit Panel B. Other Major Tax Credits Earned Income Tax Credit Making Work Pay Credit Child Tax Credit First-time Home Buyer Credit Foreign Tax Credit Borenstein and Davis (UC Berkeley) Clean Energy Tax Credits September / 33

34 Does Non-Refundability Matter? Average residential energy credit amount Tax liability before Residential Energy Credit Borenstein and Davis (UC Berkeley) Clean Energy Tax Credits September / 33

35 Why are these credits non-refundable? Upon reflection, the whole idea of a non-refundable credit is odd. It is extremely unlikely that externalities and elasticities change in an abrupt and discontinuous fashion exactly at the point of zero income tax liability... Yet such discontinuities are inherent in the application of all basic forms for tax incentives... Batchelder, Goldberg, and Orszag, Efficiency and Tax Incentives: The Case for Refundable Tax Credits Stanford Law Review (2006) Borenstein and Davis (UC Berkeley) Clean Energy Tax Credits September / 33

36 Why are these credits non-refundable? Upon reflection, the whole idea of a non-refundable credit is odd. It is extremely unlikely that externalities and elasticities change in an abrupt and discontinuous fashion exactly at the point of zero income tax liability... Yet such discontinuities are inherent in the application of all basic forms for tax incentives... Batchelder, Goldberg, and Orszag, Efficiency and Tax Incentives: The Case for Refundable Tax Credits Stanford Law Review (2006) Borenstein and Davis (UC Berkeley) Clean Energy Tax Credits September / 33

37 How About Compared to a Carbon Tax? Source: Williams, Gordon, Burtraw, Carbone, Morgenstern, National Tax Journal, Borenstein and Davis (UC Berkeley) Clean Energy Tax Credits September / 33

38 Conclusion Clean energy tax credits go predominantly to higher-income Americans. Bottom three quintiles have received 10%, while top quintile has received 60%. The most extreme are the tax credits aimed at electric vehicles, top quintile 90%. Driven by both participation rates and size of credit claimed by recipients. More regressive than most other tax credits and carbon tax. We are also struck by the horizontal inequity of these programs. 40+ million U.S. households ineligible because they don t have tax liability. Our results suggest these households would claim credits were they eligible. Moreover, renters/landlords ineligible, missing large part of market. Borenstein and Davis (UC Berkeley) Clean Energy Tax Credits September / 33