WASHINGTON—As policymakers work to steer the global energy system to a low-carbon future, a new report released today by the Information Technology and Innovation Foundation (ITIF), the top-ranked think tank for science and technology policy, calls on Congress to leverage targeted tax incentives to accelerate innovation in low-carbon energy technologies.
“Market-based competition drives innovation in many sectors, but it will not drive enough clean energy innovation—or drive it fast enough—to halt climate change,” said ITIF Senior Fellow David Hart, co-author of the report. “More effective tax incentives can and should become consistently valuable tools for accomplishing a specific and important set of tasks that will accelerate clean energy innovation.”
The report examines the impact federal tax incentives have had on innovation across three major sectors: power, building, and transportation. As the report shows, proper targeting of tax incentives strongly influences their effectiveness. The report finds that tax incentives too often have rewarded well-established incumbent technologies without driving improvement, or have focused on actors that are poorly positioned to innovate.
To reform energy-technology tax-incentive policy, the report recommends that Congress:
- Apply tax incentives when clean energy technologies are approaching readiness for large-scale adoption—not before—and remove them after the target technology has had a fair chance to establish a strong user base.
- Absent a carbon price or other overarching climate policy, apply a tiered incentive system that provides next-generation, emerging clean-energy technologies with a more generous incentive than it does for already widely deployed clean-energy technologies.
- Reward risk-taking by targeting tax incentives toward early adopters, benefiting the innovators that offer these early adopters the most compelling products.
- Set the broad framework for tax incentives through the legislative process, but delegate detailed decisions about eligibility and duration to the executive branch.
- Use the whole policy toolbox and the right policy tool for each task to ensure low-carbon energy innovations mature as quickly as possible.
“It is time for Congress to break the cycle that has led to an increasingly flawed incentive policy,” said Elizabeth Noll, co-author of the report. “Congress should target opportunities when they are ripe, drive the market forward, and then sunset federal support as technologies mature.”