The defeat of the Democrats’ Build Back Better (BBB) legislation raises serious concerns about the direction of federal climate policy during a pivotal decade. However, amid renewed negotiations for a new, scaled-down reconciliation package, one major policy from Build Back Better continues to have widespread support: a 10-year, $300 billion extension and expansion of clean energy tax credits. Should the proposal become law it would be among the most significant climate policies of the Biden administration. 

While modeling indicates substantial positive impacts for reducing greenhouse gas emissions, heavy reliance on tax credits for addressing climate change raises deep concerns for another major Biden administration goal: achieving equity and justice for disadvantaged communities—the communities most harmed by the fossil fuel economy and most at risk from climate change.

In “Clean Energy Neoliberalism: Climate, Tax Policy, and Racial Justice,” co-authors Lew Daly and Sylvia Chi explain how energy tax credits embody a neoliberal approach to climate policy that continues to rely heavily on private incentives and market choices to drive the energy transition. They discuss how this could not only privatize the clean energy future but also squander a once-in-a-generation opportunity for remedying historic harms and chronic underinvestment in communities of color.

Specifically, the authors explain and assess:

  • The historic role of tax credits in creating a “hidden welfare state,” designed primarily for the benefit of affluent white households, and how the BBB energy tax credit proposal reproduces and expands this trend to further lock in distributional inequities through the tax code. 
  • How energy tax credits contribute to race and income disparities in who has access to clean energy and who is burdened by costs of the transition away from fossil fuels. 
  • Policy reforms in the current proposal that could have some positive effects on equity, as well as the significant problems that remain in the overall program. 

The authors conclude with a suite of recommendations focused on oversight of the proposed energy tax credit program based in the Department of Treasury, including:

  • Public reporting requirements to track equity impacts of commercial clean energy development; 
  • Distributional assessment of residential energy credits by race and income and development of programmatic reforms to close equity gaps in energy tax credit programs; and 
  • Community review of credits allocated to energy sources considered harmful by environmental justice advocates.

Read the rest of the “All Economic Policy Is Climate Policy” series.