Can you be fiscally conservative and support tax credits for renewable energy projects and other types of business investment?
As the state director of The Western Way, a non-profit focused on conservative and market-competitive solutions to environmental and conservation challenges, I get that question a lot.
And I can answer without hesitation: Yes.
I know this might clash with political and media stereotypes about energy and the environment. Big-government progressives are the champions of renewable energy and small-government conservatives only believe in fossil fuels — or so the narrative goes.
But the reality is much different. Case in point: The debate over a measure to reform clean energy tax credits in the Utah Legislature this year.
In early February, state Rep. Kay Christofferson, R-Lehi, introduced a bill – HB407 Incentives Amendments – that sought to reform the way a whole host of tax credits — from clean energy to historic preservation to motion picture production — are awarded by state officials.
While the initial draft of the bill would have immediately ended many of these tax credits, Christofferson listened to concerns and made some thoughtful changes.
The bill, as amended, would have brought new accountability and transparency measures to the way tax credits are awarded. Instead of just awarding credits to companies based on the paperwork they submit, HB407 would have required state officials to take additional steps of formally certifying their eligibility.
HB407 would also have required that state officials publish the details of each tax credit awarded on the internet, allowing the general public to decide for themselves if the incentives are worthwhile.
“Some of the credits are probably doing great things, and some we don’t know because we don’t have enough information on them,” Christofferson told the Salt Lake Tribune.
If HB407 had become law, state lawmakers and taxpayers would have had much greater visibility into Utah’s existing tax credits for wind, solar, geothermal and other forms of clean energy – along with other incentives for investments in other industries, too.
Then, armed with that information, the people of Utah and their elected representatives could decide what’s working, what isn’t and how it could be fixed. This would have been much more sensible than amending or repealing certain tax credits based on a political philosophy or a hunch.
In any debate about the tax breaks the state of Utah offers businesses, it’s also critically important to remember that our state economy doesn’t exist in a vacuum.
Utah is competing with other states for business investment – and those states offer tax incentives, too. While our biggest selling point will always be our commitment to free enterprise and a pro-business climate, we will also need to continue to offer modest tax incentives, some $200 million per year across all sectors, in order to stay competitive.
For perspective, $200 million is roughly 0.75% of Utah’s total state budget of approximately $29 billion per year.
And in the case of renewable energy, there’s a good reason for wanting those investments to be made here instead of another state.
In 2021, The Western Way commissioned an economic analysis of utility-scale renewable energy projects across 11 counties in Utah. By “utility scale,” the economists who prepared the report meant large wind farms, solar arrays and geothermal plants built by power companies, as opposed to rooftop solar projects and other renewable energy investments from individual homeowners and small businesses.
Over a roughly 15-year period, these large renewable energy projects generated $5.3 billion in construction and investment activity and more than 9,000 jobs.
These projects are mostly located in rural areas of the state and make a valuable contribution to the local tax base in these communities. The report from $24.6 million in annual property tax payments to local governments, in fact – money that supports public schools and other essential local services.
It’s clear that wind, solar and geothermal energy makes a major contribution to our successful state economy. Because of our wide-open spaces and high altitude, southern Utah in particular is attractive to utility scale solar.
The economics work, but offering targeted tax breaks to businesses in this sector may also be necessary to prevent other states from luring these projects away. As long as Utah taxpayers see a return on that investment, I’d argue it’s worth it.
Should those tax breaks remain permanent, or should they be phased out over time? I don’t pretend to know the answer to that question. But as a fiscal conservative, I do know that any answer should be based on the facts – and bills like HB407 can make those facts easier for the general public to access.
Steve Handy
Steve Handy is a former Utah legislator and the Utah director for The Western Way, an organization focused on market-competitive solutions to environmental and conservation challenges.