Pay Up, Michigan: Using Tax Credits to Subsidize the Sunbelt

Late last year, Vice President Gore initialed a treaty in Kyoto, Japan, which commits the United States to reduce emissions of man-made greenhouse gases (alleged to be a significant cause of "global warming") by 7 percent below 1990 levels in 10-14 years. The current treaty, if ratified by the Senate, would result in devastating economic consequences for Michigan.

A recent study for the U. S. Department of Energy estimated that over 400,000 American jobs would be lost if emissions are reduced just to 1990 levels in 12 years. Over half the jobs lost would be in manufacturing and transportation, both vital to Michigan’s economy. The current treaty also exempts developing countries including China and India, which would have no restrictions on their greenhouse gas emissions even as their industries expand to replace American production. Since developing countries use energy less efficiently than we do, the net effect might be no decrease or even an increase in greenhouse gas emissions as American jobs shift overseas.

Apologists for the Kyoto treaty usually respond to this prospect by claiming that the treaty will never be offered to the U.S. Senate in its current form or forced upon the public without thorough debate and public disclosure. But what the people of Michigan may not know is that the president is trying to use the federal budget process to implement the ideology of the Kyoto treaty, regardless of whether the Senate ratifies the treaty or not.

This can’t be done overtly, of course. The administration has to hide its intent under the guise of "energy efficiency" or "green purchasing." For example, the president has already proposed $6 billion in new tax credits and subsidies to reduce greenhouse gases. One of those schemes is a tax credit for solar energy panels.

The Clinton plan calls for one million solar panels to be in place by 2010. The plan offers every homeowner a 15 percent tax credit on the purchase of solar panels, up to $2,000 for photovoltaic panels and $1,000 for thermal panels. Photovoltaic panels are used to produce electricity and thermal panels are used to heat water or other heating fluids for home heating or for hot water production.

Who will use these solar panels? They certainly aren’t cheap. A typical system can cost several thousand dollars, excluding maintenance costs. Solar systems are out of the price range of most homeowners.

Moreover, using solar panels to produce electricity for a typical home costs about $7 per watt. Given the current cost of utility-generated electricity, the payback period is about 40 years. The expected system life span is less than 20 years and some parts need replacement long before that. As a result, many systems will wear out well before they even begin turning a profit. Photovoltaic systems do make sense in applications where the cost of utility hookup is prohibitive, such as in isolated locations needing small amounts of power. But for the average homeowner, they don’t make economic sense.

Let’s look at a few weather facts. Michigan gets comparatively less sunlight than other parts of the country. For example, the average monthly sunlight in Phoenix, Arizona, is about 67 percent higher than in Lansing. Even smoggy Los Angeles enjoys 48 percent more sunlight than Lansing. But what happens when you really need heat and power, such as in the depths of winter? In January, Phoenix gets 148 percent more sunlight than Lansing. Even proponents of the solar credits understand that solar panels work better with sunlight.

As a result, it will make better economic sense for people who live in Arizona to apply for the tax credit than those who live in Michigan. In essence, wealthy Sunbelt residents who want "environmentally correct" power would get a break while Michigan residents struggle to pay utility bills during the winter.

Nevertheless, would the tax credits be helping a good cause—the fight against "global warming"? Satellite and balloon data show no net temperature rise in the last 18 years. Global air temperature, as measured by land-based weather stations, show a net temperature increase of 0.45 degrees centigrade over the past century, likely within natural fluctuations. Most of this increase occurred prior to 1940, before the contribution of most industrial sources of greenhouse gases. This is insufficient evidence to sacrifice the welfare of millions of Michigan citizens or to justify special breaks for wealthy Sunbelt residents.

Such are the consequences of trying to use centralized government control and bad science to decide economic policy.