Clean energy tax credits have largely benefited higher-income tax filers, according to a new report by economists, illustrating a major pitfall for the Biden administration in its efforts to lower emissions through subsidies.
The top quintile of households by income received 60% of $47 billion in clean energy tax credits claimed from 2006 to 2021, according to the paper, which was done by researchers at the University of California, Berkeley, and circulated Monday by the National Bureau of Economic Research. The tax credits were awarded for buying heat pumps, solar panels, electric vehicles, and other clean energy technologies.
Many of the credits were subsequently expanded by the 2022 Inflation Reduction Act passed by Democrats and signed by President Joe Biden. The study did not directly address the effects of that law but underlined a common criticism that enacting incentives for the adoption of zero-carbon technologies, without also imposing penalties on carbon emissions, is insufficient to reach the goal of net-zero emissions by 2050.
“The cost effectiveness of tax credits hinges on their ability to increase adoption of clean energy technologies,” the paper noted. “Overall, we find little correlation between tax credits and technology adoption.”
The report added that the disproportion of the tax credits claimed by high-income earners is most dramatic with the electric vehicle tax credit, with the top quintile receiving 80% of all credits and the top 5% receiving about 50% of them. The authors also noted that for heat pumps in particular, it is difficult to find any “discernible impact” from past changes in the availability of the tax credit, although they cautioned that it is difficult to draw strong conclusions from year-to-year comparisons.
The pattern of concentration of high-income filers claiming the benefits has remained “relatively constant over time,” the report noted.
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The study did include a disclaimer, though, that the data miss households that do not file a tax return, which is roughly 18% of all U.S. households, and studying which households claim these monetary incentives does not address how much of the benefits are absorbed by sellers of the technologies through price increases.
Economists have argued that the most effective way to reduce emissions, while incentivizing the adoption of clean energy technologies, would be to price them directly through a carbon tax or a cap-and-trade program, according to the paper. Those policies are opposed by Republicans and many centrists.