Throughout Cascadia—at the city, state, and provincial level—governments are figuring out ways to promote energy efficiency through financial incentives. Most of this has focused on financial tools that would use public dollars for low-interest loans to motivate home and business owners to make capital improvements to save energy.
One such program in Oregon, the Business Energy Tax Credit (BETC or ‘Betsy’), has by most measures been a great success. A recently completed study conducted by ECONorthwest showed huge benefits from the program in 2007 and 2008—1700 jobs and $41.8 million in wages. The study further showed that for those two years the program resulted in a net annual reduction of 2,404,121 tons of carbon emissions and a net annual energy savings of over $290 million dollars.
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Sounds like the perfect program: saves energy, creates jobs and reduces climate-warming pollution. But some Oregonians are skeptical about whether the program is fair.
Critics have two problems with BETC. First, BETC is a tax credit program which allows businesses that invest money in renewable energy or conservation projects to pay less corporate income tax. Each dollar that goes into reducing energy use is a dollar that a business doesn’t have to pay to the state.
Critics argue those dollars should have been collected and spent helping the state’s neediest people. Oregon has been one of the hardest hit states in the recent economic downturn with a 12 percent unemployment rate. Why give tax breaks to private businesses, critics ask, when these kinds of capital improvements are ones they would make anyway to save money. They believe those savings should be incentive enough.
It is true that because BETC tax credits are calculated on an eligible project’s cost not the net efficiency created it’s hard to know whether companies might have made the improvements as part of routine maintenance, like changing light bulbs.
The second problem critics have with BETC is its “pass through” provision. The pass-through provision allows local non-profit, government agencies or businesses with no tax liability—they aren’t profitable—to participate in the program by selling their BETC tax credits to businesses that want to pay less tax.
For example, in 2007, a German company, Solar World, moved to Oregon. Solar World didn’t make any money that year and sold its $11 million in tax credits to Wal-Mart for $7.3 million dollars. Wal-Mart in turn got to reduce their taxes by the full $11 million dollars.
Advocates for low income families and labor were angry about this use of the pass through provision, outraged that the cash-strapped state would exempt Wal-Mart from $11 million dollars in taxes.
This transaction in particular has heightened tension between social service advocates and labor on the one hand and environmentalists and clean energy advocates on the other.
But BETC is a good program and based on the ECONorthwest study it appears to be doing what it set out to do by encouraging businesses to locate in Oregon, create jobs while improving energy efficiency and reducing greenhouse gas emissions.
The program isn’t perfect and some improvements to BETC could make it fairer and keep the program doing what it does best: incentivizing investment in renewable energy and conservation.
First, in order to get the tax credit the state could require an audit of performance in order to get the credit. An energy efficiency audit would also help ensure that improvements create the maximum benefits in energy savings and reducing greenhouse gas emissions. The credit could be based on the efficiency rather than just the money spent on the improvement. This could ensure that companies weren’t getting credit for routine improvements.
Second, attaching strings to the credits—like requiring the purchaser to pay decent wages and provide health benefits for their workers—is a legitimate way of creating more public benefits from the program.
And third, continue to push for Governor Kulongoski’s idea of allowing individual Oregonians to claim a tax exemption for donations to a BETC fund. Individuals and businesses could give to the fund, get a tax credit for themselves and the money they donate could be used to buy the tax credits earned by non-profits that make energy efficiencies. This is the way the Oregon Cultural Trust has operated successfully for years.