Taxes and Sustainability

Abstract For several decades, we have periodically seen concern expressed about our environment and energy usage. The supply and cost of oil, the “hole” in the ozone layer, and various forms of pollution have at times also caught the attention of legislators and government officials who shape our laws. The U.S. Department of the Interior was created in 1949, and the first federal clean air act was enacted in 1955. In 1970, President Nixon formed the Environmental Protection Agency (EPA), and the first celebration of Earth Day was April 22, 1970. States have also enacted various laws over the years in efforts to reduce pollution. In considering ways to achieve a cleaner environment, it is not uncommon for policymakers to use tax laws to encourage environmentally-friendly behavior as well as to discourage activities that harm the environment. Increased attention to climate change in the past few years has heightened attention on the need to change our practices that lead to greenhouse gas emissions. The tax law is frequently suggested and used as a tool for helping to change behavior and reach certain environmental goals. For example, tax credits are available for certain hybrid cars, favorable tax rules exist for the production of some biofuels, and a few countries, as well as Boulder, Colorado, impose a carbon tax to help address climate change concerns. This article focuses on tax provisions for encouraging sustainable, environmentally-friendly building practices, both residential and commercial. While the federal government and several states have energy-saving tax incentives for individuals, such as tax credits for installing solar energy devices in their homes, tax provisions applicable to builders is the focus of this article. The rationale for using the tax law for influencing environmental behavior is covered along with examples of some current federal and state tax rules pertinent to builders. Given the inherent complexity of taxation, there are many cautions to be exercised in pursuing the use of favorable tax provisions and these cautions are covered as well. Finally, this article explores what we might expect from legislators going forward as more state and local governments impose greenhouse gas emission reduction targets and the federal government considers its role in addressing climate change and energy sources.