The Distributional Effects of US Clean Energy Tax Credits

Since 2006, US households have received more than 18 billion in federal income tax credits for weatherizing their homes, installing solar panels, buying hybrid and electric vehicles, and other “clean energy” investments. We use tax return data to examine the socioeconomic characteristics of program recipients. We find that these tax expenditures have gone predominantly to higher-income Americans. The bottom three income quintiles have received about 10% of all credits, while the top quintile has received about 60%. The most extreme is the program aimed at electric vehicles, where we find that the top income quintile has received about 90% of all credits. By comparing to previous work on the distributional consequences of pricing greenhouse gas emissions, we conclude that tax credits are likely to be much less attractive on distributional grounds than market mechanisms to reduce greenhouse gases (GHGs).