Tax Policy for Financing Alternative Energy Equipment

European countries have taken the lead in investigating in renewable energy electricity generating capital. While the EU-15 countries had less than half the installed capacity of the United States in 1990, they currently have more than double the capacity. This study investigates differences in the policy environment between Europe and the United States and identifies key policy differences that impact renewable electricity investment. The review of the European and US experience provides a number of lessons to guide future renewables policy in the United States. First, the European experiment with feed-in tariffs and renewable portfolio standards suggests that feed-in tariffs may dominate RPS systems as effective policy tools to encourage investment. Second, the US preference for tax incentives has clearly not had the same simulative investment impact as have feed-in tariffs. Third, a modest feed-in tariff for wind and biomass would make these technologies cost competitive with natural gas. Fourth, it is clear that considerable research and technological development will be required before solar electricity can compete in the market place regardless of the pricing support policy in place.