Tax Reforms to Advance Energy Efficiency

Research Report E132


Steven Nadel and Kate Farley


At the beginning of President Obama’s second term, tax reform has become a frequently-cited concern.  Both Democrats and Republicans are supporting tax reform and actual work on legislation is likely to begin in 2013.  Key elements of reform are likely to include simplifying the tax code in some respects and reducing marginal tax rates by eliminating many credits and deductions. 

Tax reform provides us with an opportunity to remove barriers to efficiency investments imbedded in the current tax code and to use the tax code as a tool to support energy efficiency in the future more than current provisions do.  In this report, we suggest policies in six areas that could be used to encourage energy efficiency: existing energy efficiency tax incentives; depreciation; low-cost strategies for promoting investment in manufacturing; fees on emissions; treatment of expenses in business taxes; and ending or reducing subsidies for fossil fuels.  We propose several policy options designed to encourage investment in energy efficiency that may be used as a starting point for future tax policy discussion.

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