Comparing Carbon Fees with Existing Financial Incentives for Solar Electricity
Abstract
This paper compares a policy of pricing carbon dioxide emissions with existing incentives for renewable energy, in effect juxtaposing disincentives for dirty electricity with existing, but varied, incentives for clean electricity. Among existing policies, the recently renewed investment tax credit (ITC) and accelerated depreciation are most important. The analysis here examines how high a carbon fee would be required to maintain profitability in the absence of the ITC. The comparison is based on pro-forma financial projections of investors’ returns for solar power generation in a typical setting, calculating the carbon fees needed to match existing incentives. Results offer perspective on how best to encourage clean energy with the application of carbon fees.
Keywords
Financial incentives, Solar electricity, Carbon fees, Tax credits, Climate change, External costs