By Anastasia Gordon, energy and transportation policy manager, WE ACT for Environmental Justice
Solar power continues to grow in popularity for communities nationwide, with the clean energy source now accounting for over half of all new electricity-generating capacity added in the U.S. in the first three quarters of 2021. However, solar power has remained inaccessible for far too many Americans, namely low- and moderate-income households and communities of color. The solution to this looming issue starts with refundability — a small albeit crucial provision that we can add to the tax code.
As you may already know, the solar Investment Tax Credit (ITC) remains the primary federal incentive for the deployment of renewable energy to residential and commercial customers. According to SEIA, the U.S. solar industry has grown by more than 10,000% since it was enacted back in 2006, driven in large part by the federal policy. The credit applies to solar systems on both residential (under Section 25D) and commercial (under Section 48) properties.
However, the substantial gains from this tax incentive have largely escaped the most historically disadvantaged of homeowners. Today, families that aim to install solar can claim a 26% ITC on installation costs, but this would only be payable as a tax credit. This means that households that are less likely to owe sufficient federal taxes will be unable to utilize the full value of the credit. In other words, white, wealthier families are able to reap the benefits of self-generated clean power, monthly bill savings and increased home values while communities of color are left out of the equation.
It’s a serious problem. According to RMI, as the tax law is currently written, seven out of 10 households cannot receive the entire ITC benefit because they do not have enough tax liability to fully benefit from it, while 4 out of 10 households cannot receive any of it. Although the current ITC 25D does have a “carryforward” provision — allowing taxpayers to harness the benefit for future years — it has mostly gone unrecognized. And, at the risk of stating the obvious, those most vulnerable cannot wait to receive the full benefit; they need the financial relief now.
Lawmakers have taken note. President Biden’s Build Back Better legislation would increase the ITC to 30% and make the 25D residential renewable energy tax credit refundable — a change that RMI estimates could benefit as many as 40 million households. This means that families investing in solar — for projects starting in 2023 — will be refunded regardless of their tax liability. Although the language change for a refundable tax credit may seem minor, it has the ability to spur a more equitable and more just energy revolution.
The economic benefits of a national switch to solar are critical to our nation’s economic recovery. The solar industry already employs more than 250,000 workers nationwide and adds jobs 20 times faster than the broader economy. And, most importantly, refundability has a critical role to play in addressing the environmental racism that has long plagued minority populations. Communities of color have faced the worst of the spiraling climate crisis, and refundability is a big step in the right direction.
It’s now up to lawmakers to pass Build Back Better and get it to President Biden’s desk as soon as possible. Refundability is not something that our leaders can afford to leave out.
Anastasia Gordon is the energy and transportation policy manager at WE ACT for Environmental Justice.