Background

However, as the environmental benefits of renewable resources have become more widely understood and the environmental costs associated with fossil fuel pollution are more accurately quantified, states have begun to see the value in addressing the market failures, which are limiting the growth of cleaner and more sustainable energy sources. To address this need, many states have turned to the tax code.

Tax incentives can be used in many ways to promote new and cleaner ways of doing business. They have been used successfully to help new technologies, such as solar energy and wind power, achieve economies of scale and move toward commercial viability, and also have been useful in helping to create markets for these products. These incentives benefit states in two ways. First, they encourage greater use of these clean energy technologies and thus reduce the hazardous environmental and human health impacts associated with traditional energy sources. Second, these incentives can encourage the development of renewable industries in the state as part of economic development efforts.

The challenge to a state legislator is to achieve these goals at the least cost and in the most lasting way. The most effective incentives will not only provide a significant environmental bang for the buck, but will help transform the market for renewable technologies into a self-sustaining market. By doing so, states can limit dangerous fossil fuels emissions and other harmful by-products and minimize the costs associated with pollution prevention, remediation, and the treatment of related human health effects.

A federal energy bill has been held up in the House and Senate for years, faced with partisan bickering and demands from influential energy companies. Most versions of the bill include tax incentive provisions for the development, manufacture, and/or use of renewable energy, but the bill is unlikely to pass in its current form. In the midst of the controversy surrounding the federal energy bill, state action can be an effective way of affecting change.