The United States' federal tax code contains two tax credits designed to encourage
the use of energy from renewable sources, and President Clinton has proposed additional
incentives as part of the his Climate Change Budget for fiscal year 2000.
These incentives are designed to encourage taxpayers to invest in equipment that uses
solar and geothermal energy and to help subsidize the production of electricity from wind
and biomass.
Tax Incentives for Using Solar and Geothermal Energy
The federal Internal Revenue Code currently allows businesses to offset their federal income tax liability with a tax credit equal to 10 percent of the amount of certain investments in equipment that uses solar or geothermal sources of energy. The credit applies to investments in equipment that uses solar energy to produce electricity, to heat or cool buildings, to heat water or to produce solar process heat. It also applies to investments in equipment that produces, uses or distributes energy from geothermal deposits. According to government estimates, this provision gives taxpayers about $100 million in tax relief each year.
President Clinton's Climate Change Budget for fiscal year 2000 proposes a new tax incentive for rooftop solar systems installed by individuals and businesses. Under the proposal, taxpayers would be able to claim a tax credit against their federal income taxes equal to 15 percent of the cost of rooftop photovoltaic systems and solar water heating systems. This tax credit would be available only for a limited number of years, and the dollar amount of the credit would be capped at $2,000 for the photovoltaic systems and $1,000 for the water heating systems. The Clinton administration has estimated that this credit would result in $100 million in tax relief between 2000 and 2004.
Tax Incentives for the Production of Electricity from Wind or Biomass
The federal tax code also encourages the commercial production of electricity from wind and closed-loop biomass by giving producers an income tax credit. The credit is equal to 1.5 cents (adjusted for inflation since 1992) for each kilowatt hour of electricity produced during the first 10 years that the wind or biomass facility is in service. The credit is phased out as the price of the electricity rises above 8 cents per kilowatt hour.
President Clinton has proposed expanding this credit in two ways. The credit currently applies only to electricity produced from facilities placed in service before July 1, 1999, so President Clinton has proposed extending this credit to cover facilities placed in service during the next five years. In addition, the administration would like to cover more types of biomass. The credit for electricity produced from biomass is currently limited to "closed-loop" biomass, which is defined as organic material produced from plants grown exclusively for the production of electricity, and President Clinton's proposal would extend the biomass credit to include electricity produced from certain forest and agricultural resources and from the co-firing of biomass and coal. The administration's proposal to expand the credit by extending the expiration date and broadening the definition of biomass is estimated to provide $300 million in tax incentives between 2000 and 2004.
REFERENCE - Internal Revenue Code, Section 48 (tax credit for solar and geothermal investments); Internal Revenue Code Section 45 (tax credit for the production of electricity from wind or biomass); President Clinton's FY 2000 Climate Change Budget, February 1, 1999.
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