Investment in Energy Infrastructure and the Tax Code
Name
2009-020.pdf
Size
502.01 KB
Format
Adobe PDF
Checksum (MD5)
c136d79c7dd123b9500a6c3d8cd87b26
Author(s)
Metcalf, Gilbert E.
Date Issued
October 2009
Publisher
MIT Center for Energy and Environmental Research Policy
Series/Report no.
MIT CEEPR (Series);09-020WP
Abstract
Federal tax policy provides a broad array of incentives for energy investment. I review those policies and construct estimates of marginal effective tax rates for different energy capital investments as of 2007. Effective tax rates vary widely across investment classes. I then consider investment in wind generation capital and regress investment against a user cost of capital measure along with other controls. I find that wind investment is strongly responsive to changes in tax policy. Based on the coefficient estimates the elasticity of investment with respect to the user cost of capital is in the range of -1 to -2. I also demonstrate that the federal production tax credit plays a key role in driving wind investment over the past eighteen years.
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