In June, Brian Prest and Alan Krupnick found that companies collectively claiming nearly $1 billion annually from the credit do not achieve sufficient reductions in pollution from coal-fired power plants to merit receipt of the tax credit. Now, the authors have found that the credit is even more problematic than they thought.
Prest and Krupnick made use of RFF’s robust electricity sector modeling capability to examine the impacts of the tax credit on the electricity grid, coal-fired electricity generation, and carbon dioxide emissions. Here are some highlights of the new findings:
- The tax credit leads to slower retirement of some refined coal plants and, therefore, more CO2 emissions.
- As a result, increases in carbon dioxide emissions (valued at the social cost of carbon) from refined coal plants far exceeds the small health benefits from reduced NOx, SO2, and mercury from those plants.
- This is offset somewhat by reductions in CO2 emissions at unrefined coal plants, as increased generation at refined coal plants reduces generation at unrefined coal plants.
- On net, the tax credit leads to more CO2 emissions but less local air pollutant emissions (NOx, SO2, and mercury). The value of these environmental and health benefits is positive, but small.
- In summary, the net climate and health benefits of the tax credit are far exceeded by its cost (around $7 per ton of refined coal burned, which totals about $1 billion per year). (See figure below.)
When the paper was first published, Senators Whitehouse, Brown, and Warren sent a letter to the IRS requesting clarity and possibly changes to the rules. They later sent another letter to the Government Accountability Office, calling for the Office to investigate the program. The tax credit is set to expire in 2021 if it isn’t extended.
Learn more about Prest and Krupnick's study: read the paper and check out their Common Resources blog post.
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