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SAN FRANCISCO, California, US, September 28, 2005
(Refocus Weekly)
An analysis of tax incentives in 29 countries
shows that renewable energies benefit from at least ten different
forms of incentives.
“Tax incentives for renewable energy are powerful policy tools
that can help to drive the market for renewable energy, when
combined with other policies,” concludes ‘International Tax
Incentives for Renewable Energy: Lessons for Public Policy’ prepared
by the Center for Resource Solutions. “In many countries, renewable
energy production is at a tax disadvantage because it is
capital-intensive compared to conventional energy production, and
many taxes are based on capital investment. Tax incentives can help
to offset this disadvantage.”
The draft report was prepared for the Energy Foundation China
Sustainable Energy Program, to identify the types of tax incentives
currently in use around the world in 29 countries and 35 states of
the U.S. It discusses the advantages of tax incentive policies, and
offers lessons based on international experience with these
incentives.
“Tax incentives should be part of a coordinated package of policy
measures that support the development of the renewable energy
industry,” it explains. “The mix of renewable energy tax incentives
should be gradually adjusted over time according to the stage of
industry development, with some incentives being phased out on a
predictable schedule as the domestic market grows and the industry
matures.”
“Some countries could benefit by adjusting their mix of tax
incentives to better match their stage of renewable industry
development,” say authors Jan Hamrin and Ryan Wiser. “Tax incentives
are often complementary to other types of renewable energy incentive
programs.”
The most common international tax incentives for renewables include
investment tax incentives for large-scale applications which provide
income tax deductions or credits for the capital investment made in
renewable energy projects, and investment tax incentives for
customer-sited applications where tax deductions or credits are
offered for costs of renewable energy systems or equipment installed
on homes and businesses. There are also production tax incentives
(income tax deductions or credits at a set rate per kWh produced by
green power facilities), property tax reductions (owners have their
property taxes reduced), VAT reductions (producers are exempted from
taxes for the value added between purchase of inputs and sale of
outputs), excise tax reductions (exempts equipment purchasers from
sales tax for the purchase of renewable energy equipment), import
duty reductions (reduces duties on imported equipment), accelerated
depreciation (allows investors to depreciate equipment at a faster
rate to reduce income taxes), research or manufacturing tax credits
(for the investment in renewable energy technology development), tax
holidays (reduces income, VAT or property taxes for a temporary
period), and taxes on conventional fuels (some countries tax
consumption of energy from fossil fuel sources, to provide an
incentive for consumers to buy renewable energy).
“The design of tax incentives deserves considerable attention,” the
report explains. “The flexibility of tax incentives allows them to
be targeted to specific technologies and investor groups. They can
be made strong in the early stages of renewable industry development
and gradually phased out as the domestic renewable industry matures
and becomes self-sustaining.”
Global experience shows tax incentives for renewables are successful
if they are of “sufficient size, scope and length to be effective in
influencing renewable energy investment and consumption decisions,”
and if they are tailored to the stage of industry development and
designed to account for interactions with other government
policies and energy market conditions. They may also require “other
supportive policy initiatives to create and sustain a healthy
renewable energy sector.”
“Countries that have developed successful renewable energy
industries have promoted stable markets, designed flexible long-term
tax incentives, and (most importantly for attracting investment)
have remained steadfast in their commitment to renewable energy
through the years,” it concludes.
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