Lower-Income Households Shouldn’t Pay More for Solar. Congress Can Fix It.

Lower-Income Households Shouldn’t Pay More for Solar. Congress Can Fix It.

Originally published by Union of Concerned Scientists, The Equation.
By John Rogers

When I bought solar panels for my house not so long ago, I got a 30 percent discount thanks to the federal government. Too many people, but – people who earn less than my family does – can not get that discount. This means that solar energy costs them more – thousands of dollars more per. household. Why should someone who earns less than me pay more for something we need much more of?

The answer is that they should not. Energy burden – the portion of income that households spend on energy bills – is much higher for lower-income households, and solar energy is a clear tool to help many of them deal with it.

Congress has an opportunity to rectify the federal piece right now by amending Section 25D, the U.S. statute that regulates these tax deductions. And it should not let this possibility disappear.

Tax deductions work wonders for some, not at all for others

Here’s the deal: For years, U.S. tax policy has encouraged the use of solar energy, including by homeowners, through solar Investment Tax Credit (ITC). I bought a photovoltaic system, and when the next tax filing season came, I reported that purchase on my federal tax form and got a credit of 30 percent of the purchase price. Worked great for me.

But what if you do not earn enough to get that discount? If you do not owe enough in federal taxes, then you get shortchanged on the credit. Under the current system, you can not get reimbursed more than you owe. Plus, many households do not earn enough at all to owe federal taxes, which means they would get zero back for such a purchase.

Here’s how Ryan Shea and Russell Mendell of the Rocky Mountain Institute (RMI) recently explained the numbers:

“About 7 out of 10 U.S. tax applicants would not have sufficient annual tax liability to receive the full ITC 25D benefit, according to 2018 IRS data. And the more than 4 out of 10 Americans who have no federal income tax at all would see zero advantage.”

There are many households.

And there is a lot of money left on the table for households that cannot take advantage of it. According to Lawrence Berkeley National Laboratory, the median size of a residential system installed in 2020 was 6.5 kilowatts, and the median price per dwelling. watts was $ 3.8. Even with the tax deduction falling to 26 percent by 2020, a person purchasing such a system, with its price tag close to $ 24,700, would have been entitled to a $ 6,400 tax deduction for a net price of $ 18,300. Someone who was unable to take advantage of this credit – or even the amount equivalent to a more modest system – would have had a net price thousands of dollars higher.

Denying households with the highest energy burdens access to a tool that could help many of them alleviate these burdens just seems… wrong.

Stands in the way of fair solar energy

Tax policy is not the only speed bump on the road to solar energy for low- and moderate-income households, even though they have their own roofs (i.e. are not tenants and do not live in multi-family houses). Low- and moderate-income communities may have fewer photovoltaic providers serving them, for example, and providers working locally may not have the economies of scale that are another important factor for lower costs. Households may not have easy access to credit, which, even with the incredible drop in solar energy costs over the last decade, is still the key to making solar energy available. And many people do not live in states that have their own programs to encourage the adoption of solar energy, including tax deductions.

Federal tax policy should not be another obstacle.

Data suggest that all of these factors together make a big difference in terms of differences based on income and race, as RMI points out:

“While low- and moderate-income (LMI) residents make up 43 percent of the U.S. population, only 21 percent of photovoltaic facilities benefited these communities in 2019. On top of that, nearly half of the communities with a majority of black residents did not have a single photovoltaic system installed. “

How Congress can fix the federal piece right now

Correcting these inequalities will act on a number of fronts and at different levels. But the federal piece? That fix should be easy, and a version of it is almost in the bag.

The best option for lower-income households with regard to this type of support for solar energy is something called direct salary. Under direct pay, customers would get a discount right when they buy the system, instead of having to wait until the tax time. Customers still had to come up with the rest of the system price, but that part would at least be taken care of right away.

Next best would be to add refundability to politics. With refundability, households could get the full refund for that portion of their purchase at the time of taxation the following year, even if they do not owe enough in taxes.

As it happens, the latest version of the budget reconciliation proposal known as the Build Back Better Act proposes just such an amendment to § 25D: extension of entitlement by adding refundability. While direct pay would be a better option and have a lot of support on Capitol Hill, both would be really important in expanding access, especially when paired with efforts to remove other barriers to solar cell ownership.

Congress can make the federal amendment even more successful by not waiting until 2024 to implement refundability, as the latest bill proposes to do. There is no good reason not to make this change effective as soon as possible. That is why allies are pushing for the effective date to be 2022, which is exactly what the previous draft bill contained.

It means something to all of us

Extending the reach of solar energy is important for people who want to be able to enjoy the direct benefits of solar energy, but also for all of us who are concerned about tackling injustices in the electricity sector and who are concerned about maximizing the contribution of solar energy. to reduce pollution from the electricity sector.

My colleague Paula García put it this way for me:

“The proof is clear that making solar energy more accessible – especially to those with limited economic resources – will reduce emissions, make electricity more affordable and clean energy more equitable and improve the health of society. It’s about helping to encourage greater and more fair use of solar energy for housing and moving us closer to a sustainable future. “

Yesenia Rivera, executive director of advocacy group Solar United Neighbors, reiterated these sentiments: “If we continue to exclude people from the equation, we will never achieve … real justice and address climate change.”

Increasing the availability of household solar energy by increasing the availability of household solar tax deductions should be an easy solution for Congress. And it is one with strong implications for the proliferation of solar energy, increased equity and addressing the climate crisis. It’s high time to get this right.

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