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Compare America's federal rooftop solar subsidy scheme (the ITC) to Australia's (STCs): The ITC is a tax credit, which means only households with a large tax b

Compare America's federal rooftop solar subsidy scheme (the ITC) to Australia's (STCs): The ITC is a tax credit, which means only households with a large tax bill will be able to benefit. And they'll not benefit up-front, but only after their next tax year. STCs are cash rebates which actually reduce the up-front cost of purchasing solar. The ITC is based on the price of the system, which incentivises higher prices. STCs are based on the kW size of the system, according to a formula intended to estimate the system's energy production over its lifetime. It's a very rough approximation of course. (Not directly related, but the amount of STCs awarded also steps down annually until in 2031 no certificates will be awarded. This policy has remained remarkably stable over the last several governments.) The ITC looks to this foreigner like it was intended to ensure that solar must be purchased on finance. It's not "government subsidies" that are the problem, it's subsidies that may as well have been designed by banks. EDIT: Australia's market is by no means perfect, and we also have our share of financial shenanigans. But it's much better than what I've seen of the US market, and our prices are drastically lower.

theptip 3y ago
> The ITC is a tax credit, which means only households with a large tax bill will be able to benefit Can you explain your working here? Pretty much every home owning household is going to pay $10k of taxes, say.
- crabmusket 3y ago
  That's a fair point, I hadn't run the numbers on that. It being a significant problem was just based on having read articles on the US market over the last 5-8 years and not an in-depth analysis, so I can't cite any of them in particular.
- tsjackson 3y ago
  10k is a reasonable guess for how much tax liability is needed, and it's not a huge issue, but it is an issue. Retirees and lower-middle income folks often pay less than that each year, as do folks with even lower incomes who inherited their homes.
- tzs 3y ago
  > Pretty much every home owning household is going to pay $10k of taxes, say. I'm not so sure. According to this [1] the median income of homebuyers in mid 2023 was $107 000, up from $88 000 the year before. I assume the median income of homeowners is less than that of homebuyers, so I'll be conservative and take $107k as the median homeowner income. As a sanity check, this seems reasonably in line with older data [2]. Let's assume their income is all ordinary income as opposed to capital gains that might be taxed at a lower rate, and assume they are mostly families that file jointly, and assume they have no deductions other than the standard deduction. The 2023 standard deduction for married filing jointly is $27 700, leaving our median homeowner family with $79 300 taxable income. That puts them in the [$22 000, $89 450) bracket, where the tax is $2 200 + 12% of the amount over $22 000. That comes to $9 076. That would be median so there should be a lot of people below that. [1] https://www.investopedia.com/typical-income-to-buy-home-surged-to-usd107-000-last-year-8401169 https://www.investopedia.com/typical-income-to-buy-home-surg... [2] https://www.statista.com/statistics/974721/median-income-homeowners-usa/ https://www.statista.com/statistics/974721/median-income-hom...
  - deleted 3y ago
    [deleted]
  - theptip 3y ago
    Thanks for doing the calculations here, very helpful. I do agree that tax rebates are less preferable to at-purchase rebates, though I wonder if there is an “ease of implementation” accounting difference for the government that isn’t obvious. Eg securing funding to pay out a cash rebate has a budget effect different than reducing tax collection. More generally though, solar (and energy efficiency in general) has an interesting principal/agent problem - households in the bottom quartile or even half are not likely to have cash lying around to invest in 10-year ROI projects. So these efficiency gains often don’t get harvested. Solar financing is an option for these cases but it has its own implementation problems. The situation for renters is even worse; I’m sure that fixing the drafty windows in my apartment would pay off in 5 years, but it’s unlikely I’ll be here long enough to harvest that win, and there is no financial product that lets the landlord and me to coordinate on this.
- midasuni 3y ago
  In the U.K. there are massive grants for home owners who don’t have a reasonable income. It’s ageism - more money flowing from young workers (who pay the highest taxes) to old owners (who pay the lowest) The generation that can benefit are “Generation Me”, they’ve spent their entire lives having society warp around them and don’t even realise it.
- ianai 3y ago
  People make the best decisions when the benefits are up front, not delayed to a yearly tax filing with a probability of distribution dependent upon income.
oh_sigh 3y ago
If you have a low tax burden and get a large tax credit, don't you just receive that as a refund?
- jcrawfordor 3y ago
  The federal solar tax credit can't take your tax liability below zero, but any remaining portion can be rolled over to later tax years until it's exhausted. Given this, I think a situation where someone couldn't meaningfully benefit from the credit would be very unusual. You'd have to have an effective tax rate of zero for years at a time.
- zopa 3y ago
  That’s the difference between a plain old tax credit and a “refundable” tax credit.
mooreds 3y ago
I always say the mortgage interest deduction is a subsidy to banks, not homeowners, because it is not available if you buy your house for cash.
gumby 3y ago
> STCs are cash rebates which actually reduce the up-front cost of purchasing solar. This is key because renewables are a swap of op ex ( buying fuel) to cap ex (capital expenditure on the “power plant). Most people can’t afford that.

theptip 3y ago

> The ITC is a tax credit, which means only households with a large tax bill will be able to benefit Can you explain your working here? Pretty much every home owning household is going to pay $10k of taxes, say.

crabmusket 3y ago
That's a fair point, I hadn't run the numbers on that. It being a significant problem was just based on having read articles on the US market over the last 5-8 years and not an in-depth analysis, so I can't cite any of them in particular.
tsjackson 3y ago
10k is a reasonable guess for how much tax liability is needed, and it's not a huge issue, but it is an issue. Retirees and lower-middle income folks often pay less than that each year, as do folks with even lower incomes who inherited their homes.
tzs 3y ago
> Pretty much every home owning household is going to pay $10k of taxes, say. I'm not so sure. According to this [1] the median income of homebuyers in mid 2023 was $107 000, up from $88 000 the year before. I assume the median income of homeowners is less than that of homebuyers, so I'll be conservative and take $107k as the median homeowner income. As a sanity check, this seems reasonably in line with older data [2]. Let's assume their income is all ordinary income as opposed to capital gains that might be taxed at a lower rate, and assume they are mostly families that file jointly, and assume they have no deductions other than the standard deduction. The 2023 standard deduction for married filing jointly is $27 700, leaving our median homeowner family with $79 300 taxable income. That puts them in the [$22 000, $89 450) bracket, where the tax is $2 200 + 12% of the amount over $22 000. That comes to $9 076. That would be median so there should be a lot of people below that. [1] https://www.investopedia.com/typical-income-to-buy-home-surged-to-usd107-000-last-year-8401169 https://www.investopedia.com/typical-income-to-buy-home-surg... [2] https://www.statista.com/statistics/974721/median-income-homeowners-usa/ https://www.statista.com/statistics/974721/median-income-hom...
- deleted 3y ago
  [deleted]
- theptip 3y ago
  Thanks for doing the calculations here, very helpful. I do agree that tax rebates are less preferable to at-purchase rebates, though I wonder if there is an “ease of implementation” accounting difference for the government that isn’t obvious. Eg securing funding to pay out a cash rebate has a budget effect different than reducing tax collection. More generally though, solar (and energy efficiency in general) has an interesting principal/agent problem - households in the bottom quartile or even half are not likely to have cash lying around to invest in 10-year ROI projects. So these efficiency gains often don’t get harvested. Solar financing is an option for these cases but it has its own implementation problems. The situation for renters is even worse; I’m sure that fixing the drafty windows in my apartment would pay off in 5 years, but it’s unlikely I’ll be here long enough to harvest that win, and there is no financial product that lets the landlord and me to coordinate on this.
midasuni 3y ago
In the U.K. there are massive grants for home owners who don’t have a reasonable income. It’s ageism - more money flowing from young workers (who pay the highest taxes) to old owners (who pay the lowest) The generation that can benefit are “Generation Me”, they’ve spent their entire lives having society warp around them and don’t even realise it.
ianai 3y ago
People make the best decisions when the benefits are up front, not delayed to a yearly tax filing with a probability of distribution dependent upon income.

oh_sigh 3y ago

If you have a low tax burden and get a large tax credit, don't you just receive that as a refund?

jcrawfordor 3y ago
The federal solar tax credit can't take your tax liability below zero, but any remaining portion can be rolled over to later tax years until it's exhausted. Given this, I think a situation where someone couldn't meaningfully benefit from the credit would be very unusual. You'd have to have an effective tax rate of zero for years at a time.
zopa 3y ago
That’s the difference between a plain old tax credit and a “refundable” tax credit.

mooreds 3y ago

I always say the mortgage interest deduction is a subsidy to banks, not homeowners, because it is not available if you buy your house for cash.

gumby 3y ago

> STCs are cash rebates which actually reduce the up-front cost of purchasing solar. This is key because renewables are a swap of op ex ( buying fuel) to cap ex (capital expenditure on the “power plant). Most people can’t afford that.