Could tax credits help slow climate change?

A new term could enter state statute: “climate action expenditures.”

Those would be the sums a resident pays to make their home more energy efficient, purchase an electric vehicle or charging system, or install a renewable energy system. Under HF3320, part of those purchases would be recouped via a refundable tax credit.

Rep. Patty Acomb (DFL-Minnetonka), the bill sponsor, told the House Taxes Committee Tuesday that she believes a tax incentive would inspire many Minnesotans to take actions that could potentially cut back on greenhouse gas emissions and slow the effects of climate change.

The bill, as amended, was laid over for possible inclusion in an omnibus taxes bill. Its companion is SF3397, sponsored by Sen. David Senjem (R-Rochester), which awaits action by the Senate Energy and Utilities Finance and Policy Committee.

The refundable tax credit would be limited to $2,000, with up to $1,000 in credits available in each of three categories: appliances, energy efficiency measures, and large improvements.

Rep. Patty Acomb

Among appliances, you could get up to $1,000 in credits for purchasing any combination of electric vehicle residential chargers, heat pump water heaters, induction ranges or smart thermostats.

As for energy efficiency measures, those could include insulation or any component designed to reduce a residence’s heat loss or gain, such as certain types of heat pumps or electrical service panel upgrades. “Large improvements” could include an electric vehicle, photovoltaic devices, a solar water heater, or an energy storage system.

The maximum credit would be phased downward for individuals earning $75,000 or more, or $150,000 for those married filing jointly.

The Department of Revenue estimates the changes would reduce General Fund dollars by $37.5 million in fiscal year 2023, and $93.9 million in the next biennium. It also estimates that about 110,900 tax returns would be affected in tax year 2022, with an average decrease in tax of $338. The credit would expire at the end of 2026.

Writing to the committee in opposition to the bill was John Reynolds, state director for the National Federation of Independent Business.

“Tax incentives for electric vehicles or electric vehicle infrastructure benefit the few at the expense of many,” Reynolds wrote. “And EV rebates often result in providing a subsidy to those who would have bought one without them.”

But Jamie Fitzke, director of legislative affairs for the Center for Energy and Environment, said tax incentives often inspire residents to make improvements they might otherwise forego, such as installing insulation.

While some committee members seized upon the opportunity to debate whether climate change is real – Rep. Greg Davids (R-Preston) called it “junk science” -- Rep. Jerry Hertaus (R-Greenfield) was more upset by the premise of the bill.

“I’m frustrated by this whole idea of handing out incentives to do business in Minnesota,” he said.