The Good, the Bad, and the Ugly: The Business Energy Tax Credit

The Business Energy Tax Credit (BETC) has come under fire from Oregonians as the costs of the program have ballooned beyond anyone’s expectations. The program, originally designed to jumpstart the renewable energy industry, hands out millions in tax breaks to renewable energy and energy efficiency projects. Although there is a push for reforming and limiting the program, some important lessons learned from the BETC can be applied to other sectors of the Oregon economy.

On one hand, the BETC program has been enormously successful. Due to the clear benefit of reducing state tax liabilities, the program has grown substantially over time, totaling more than $130 million in 2009 alone. This led to an expansion of renewable energy and energy efficiency projects across the state and even to modest job growth in this sector. This should be an example of how reducing taxes can increase economic growth and create jobs.

On the other hand, the BETC program is an example of poor government planning and picking winners and losers in the economy. Unfortunately, the tax credit only targets government-preferred technologies that lead to less efficient growth than would broad tax cuts. Also, in 2007, the Oregon legislature significantly increased the tax credit for certain renewable energy projects and manufacturers without establishing proper measures to prevent manipulation and provide stability to the cost of the program. This led to an ever-increasing amount of applications filed and a substantial hit to the state’s General Fund.

The BETC program teaches some valuable lessons. Reducing tax liabilities of businesses increases economic growth and job creation, but propping up certain industries over others leads to wasteful manipulation and unfair favoritism.

Todd Wynn is the climate change and energy policy analyst at Cascade Policy Institute, Oregon’s free market public policy research organization.