Tag Archives: tax credits

Washington Gas loves its customers too much for their own good

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Shows a lit gas stove ring
Choose your fuel source carefully: you are likely to have to live with your decision for the next 10-20 years. Image: iamNigelMorris, CC BY 2.0 , via Wikimedia Commons

Washington Gas has been emailing its Virginia customers this month to offer them rebates if they buy new gas appliances, including home heating equipment (up to $700) and water heaters (up to $400). What the message doesn’t say is that this is a terrible deal. Customers will be able to get far bigger incentives if they wait until January and buy electric equipment instead.

Under the just-passed Inflation Reduction Act (IRA), Uncle Sam will provide tax credits of up to $2,000 per year for electric heat pumps that provide both heating and air conditioning as well as heat pump water heaters. Lower-income customers will be able to access upfront discounts of up to $8,000 for a heat pump, $1,750 for a water heater, $840 for an induction stove, and other amounts for additional upgrades. If you’re converting from gas and your electric panel isn’t sized to handle the extra electric load, the IRA will help with an upgrade. (For a full rundown of rebates and tax credits for homes, see this list from Rewiring America.)

It used to be that gas furnaces were more efficient and cheaper to operate than most electric heating options, but today the reverse is true: An EnergyStar heat pump uses energy more efficiently and costs less to operate than a fossil fuel furnace or boiler. A heat pump water heater, which I’d never even heard of until recently, is more efficient than either gas or a standard electric hot water heater and, again, saves money on operation.

Advances in heat pump technology and induction stoves, concerns about climate change and growing awareness of the dangers of burning fossil fuels indoors mean the switchover from gas to electricity would have happened without the IRA. But the IRA’s rebates are expected to goose the transition and transform the building sector.

Many consumers haven’t heard about the IRA’s rebates yet, and they may not have given much thought to home electrification. They need this information, but they sure won’t get it from their gas company.

Washington Gas is pushing its gas appliance rebates now for an even bigger reason, though, and one that makes it especially important that customers give them a pass: Installing an expensive new gas furnace locks you into the company’s fond embrace for the life of the furnace, no matter how high natural gas prices go.

It’s true that electric appliances will further tie you to your electric utility (unless you have solar panels), and electricity rates have been going up as well. But electricity rates are going up mainly because fossil fuel costs have skyrocketed. Dominion Energy Virginia, for example, cited a 100% increase in the price of natural gas when it asked for a rate hike this summer. As the electric grid gets greener year by year, lower-priced wind and solar energy will have a moderating effect on electricity prices. Your gas utility, on the other hand, will never have anything to sell you but gas.

It gets worse. Gas companies have to maintain their network of pipelines and other infrastructure regardless of how many customers they have. Those costs will be spread over a shrinking rate base as more and more customers switch over to electricity, raising rates for the remaining customers. If you buy a new gas furnace now, you will be trapped in that shrinking pool of customers, paying ever more to maintain pipelines.

Today, Washington Gas charges customers a flat “system charge” of $11.25 per month, plus supply and distribution costs based on how much gas is used that month. Customers who electrify their homes escape the monthly system charge and gain the convenience of dealing with just one utility. But the real savings come in not being part of a shrinking rate base paying an ever-larger share of the gas company’s fixed costs.

That makes Washington Gas’s rebate offer doubly dangerous for customers who don’t know about the IRA. Someone whose old gas furnace is on the fritz might see the email and decide to use that small rebate to buy a new gas furnace, when they would be far better off keeping the old one limping along for a few more months. Come 2023, they would then reap the benefit of an electric heat pump with a much larger rebate or tax credit.

Consumers are set to save a lot of money and energy under the IRA’s incentives for home electrification — but not if they get locked into fossil fuels first.

This post was originally published in the Virginia Mercury on October 28, 2022.

Of synagogues and subsidies

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A while back I was engaged in an online discussion with other solar advocates about renewable energy — specifically, how to get more of it built. Some of the participants I knew, others I did not. The conversation was lively, ranging from the need for better education to public policy and incentives.

But then one of the participants threw in an unexpected comment. His email read, “Aren’t we all tired of synagogues?”

The question stopped me cold. I had never heard anyone express weariness of synagogues, much less understood that to be a consensus sentiment. However, I’m not Jewish, so if it were something my Jewish friends grumbled about among themselves but did not share more widely, then I wouldn’t necessarily know about it.

But our discussion was about renewable energy, so surely the comment could not really be about a physical house of worship. “Synagogue” had to be shorthand for something else. If someone said “aren’t we all tired of church,” it might be understood to refer to doctrinal thinking, or more likely, to preaching. You could see how someone would be tired of renewable energy advocates preaching about the benefits of wind turbines and solar panels. Could “synagogue” be meant as a sort of metaphor for haranguing people?

It seemed like a stretch, even assuming the person who had made the comment was Jewish, which I didn’t know. I looked back at the email to see if the name might give me a clue. At that moment, another email came through from him: “Sorry about that autocorrect, it was supposed to be ‘subsidies.’”

Ah.

I was relieved that synagogue fatigue was off the table, but now I had a new question to ponder: Are we, in fact, all tired of subsidies?

Opposition to subsidies is one of the touchstones of free-market capitalism, and even within the wind and solar industries you will find believers in the proposition that if a technology can’t attract enough customers on its own merits, it deserves to remain niche, and the government ought not to put its fat thumb on the scale.

Republican attacks on the Virginia Clean Economy Act, passed last year by the Democrat-controlled General Assembly, are often framed as opposition to the government “picking winners and losers.” The law certainly does that, by directing utilities to close coal plants and incorporate an increasing percentage of electricity from wind and solar.

Some Republicans are raising the same objection in response to the Biden administration’s plans for addressing the climate crisis. Technological advances and market forces are already moving us inexorably towards a clean energy economy—but not fast enough. So Biden’s initiatives rely on the full range of government powers, subsidies among them, to drive down greenhouse gas emissions nationwide in an effort to avoid a worldwide climate catastrophe.

But here’s the thing: to the extent the U.S. has anything resembling an energy policy, subsidies have always been a tool of first resort. Indeed, this has been the case literally since the nation’s founding. Often the difference between Republicans and Democrats is not in whether they embrace subsidies, but which ones they favor.

Cash grants, tax credits, loan guarantees, low-cost access to public land, public purchasing requirements, protective tariffs and federal R&D funding all shape the way energy is produced, delivered and consumed, and they are responsible for the fossil-fuel heavy energy economy we have today. Even U.S. foreign policy and our military have been deployed for the benefit of extractive industries. A century ago, the National Guard came to the aid of the coal barons against striking miners. More recently, a think tank crunched numbers to estimate the U.S. spends $81 billion per year to  protect global oil supplies. That figure rises to over $3 trillion when you count the Iraq war.

Externalities matter, too. If an industry is allowed to inflict damage to a community’s air and water, that is a form of subsidy that can be partly measured in dollars spent on health care and clean-up. Regulations requiring expensive pollution controls can lessen the economic advantages of offloading costs onto the public, but any remaining costs shouldered by the public are a subsidy to the polluter.

Conversely, by displacing fossil fuels, a clean energy facility may confer a public benefit far exceeding the cost of any government subsidy it receives. When we’re dealing with climate change, the public benefit of carbon-free energy is immense.

None of this is an argument against the merits of free market competition, which remains the economy’s most important driver of innovation leading to better and cleaner energy technologies. Well-designed subsidies should work with the market, not against it, to speed the energy transition towards a net-zero future.

And to that we should all say, Amen.

This article originally appeared in the Virginia Mercury on September 14, 2021.

Fiscal and environmental sanity get a boost as McAuliffe proposes to roll back coal subsidies

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Your taxpayer dollars at work!

Your taxpayer dollars at work!

Thanks to the state’s budget deficit, Virginia may finally scale way back a notorious fossil fuel subsidy that currently transfers tens of millions of dollars annually from taxpayers to the pockets of corporations that mine Virginia coal. The Richmond Times Dispatch reports that if Governor McAuliffe has his way, the Virginia Coal Employment and Production Incentive Tax Credit and the Coalfield Employment Enhancement Tax Credit will be limited to $500,000 per year, saving the government $20 million per year.

The refundable tax credits were intended to make Virginia coal cheaper for utilities to buy, and thus more competitive with coal mined in other states. In theory, that was supposed to mean more coal mining jobs in southwest Virginia. In practice, the subsidies meant some coal companies paid no state taxes, and actually received significant cash handouts, even as coal jobs declined. And because the subsidies are based on tons of coal mined and not on the number of people employed, mining companies suffered no penalty from capital investments that maximized production while cutting jobs.

Critics of the subsidies thought they had won their point three years ago when the Joint Legislative Audit and Review Committee (JLARC) issued a critique of the various Virginia tax credits that was especially critical of the handouts to coal companies. As it describes beginning on page 67, the subsidies did not stop coal employment from falling 54% since 1990, or slow the steady decline in production:

“The precursor to one of the current coal credits was in place before the decline began, while the other was enacted shortly thereafter. It is important to note that with or without the credits, the decline in Virginia coal production was predicted by numerous analysts because over two-thirds of recoverable coal reserves in Virginia have already been mined.”

Indeed, the report continued, coal employment and production was actually worse with the credits in place:

“In the process of developing and refining the credit, analysts projected that coal employment and production would decline by 28 percent between 1996 and 2005 without the credit. However, actual mining employment was substantially lower than expected during this period, declining 36 percent.”

In spite of this damning analysis, in 2012 the General Assembly actually extended the expiration date of the coal subsidies until 2017. Insiders say Senate Democrats were persuaded to vote for the extension as a favor to coalfields senator Phil Puckett, who needed the backing of coal companies to hold his seat in 2013 and keep Democrats in control of the Senate. (Some might say he failed to return the favor.)

The coal subsidies have long infuriated environmentalists and community activists in the Coalfields region. In their view, Virginia taxpayers should not be forced to reward mining companies for blowing off the tops of our mountains, filling ancient stream valleys with rubble, poisoning wells and rivers, and destroying homes to get at the last, thin seams of Virginia coal.

So Coalfields activists welcomed the Governor’s proposal as a “good first step” in planning a future where coal is no longer the economic engine it once was. “We need to take our heads out of the sand and invest heavily in diversifying our economy in Southwest Virginia,” said Wise County resident Jane Branham, Vice President of Southern Appalachian Mountain Stewards. “Supporting outdoor recreation, tourism, sustainable agriculture, reforestation and a new generation of entrepreneurs is the path forward in the mountains, not subsidizing bad actor coal companies that continue to poison the natural resources our future depends on.”

Renewable energy advocates have also complained that by making coal cheaper, the subsidies make it harder for other forms of energy to compete. One would expect this argument to resonate with free market advocates, a category that supposedly includes all Virginia Republicans and a lot of the Democrats. Yet in spite of criticism from some Democrats, the subsidies have not faced serious opposition before now.

Acquiescence in such an expensive and counter-productive corporate welfare program mostly reflects the influence of the Virginia coal industry. (See last week’s post for a sampling of how coal companies work to buy votes with campaign cash.) But the drafters sweetened the deal with a provision that siphons off a portion of the excess cash to fund the Virginia Coalfield Economic Development Authority (VACEDA), which is supposed to help the region diversify beyond coal. (It might work better if coal executives didn’t sit on the board.)

Under McAuliffe’s proposal, VACEDA would get a direct appropriation of $1.2 million to replace the money it would lose by the scaling back of the tax credits. That should satisfy those legislators whose primary concern is helping residents of southwest Virginia.

Those whose primary concern is helping coal companies, however, aren’t likely to be happy. Congressman Morgan Griffith has already been quoted as suggesting Governor McAuliffe’s proposal to scale back the coal subsidies amounts to a “war on coal.”

He expressed no concern about coal’s war on the people of southwest Virginia. For those who care about that, Governor McAuliffe’s move feels like a breath of clean air.

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Addendum: Senator Bill Carrico (R-Alpha Natural Resources) has now filed a bill, S741, to extend the coal subsidies until 2022.