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Who did they think they were subsidising?
May 16, 2008 | 16 Comments | Joshua Gans
One of the little cuts in the budget was to means test the solar panel rebate. For households that earn over $100,000, the $8,000 rebate will no longer be available. Not surprisingly, this threatens that industry. Why? Because solar power systems, for example, cost between $13,000 and $22,000 and even with the rebate are out of the reach of households earning less than $100,000.
But unlike the baby bonus, this was targeting a clear externality arising from the fact that it is cheaper to continue using electric and gas systems than solar. So what this is saying is that if your household earns between $100,000 and $150,000 the government will not give you money to convert to zero emissions technologies but it will give you money for having another baby. This looks very screwy both symbolically and practically on the environmental front.
Look, environmental policy has got to be about getting the right outcomes. I am more than happy to get rid of middle class welfare — you know, payments to rich folks that are not tied to a beneficial action. But if you are trying to change behaviours, then if you want to means test, you are going to have to make adoption compulsory. Otherwise, income streaming makes no sense.
Of course, there are more insane reactions in today’s economy: like proposing to cut taxes on petrol!
Comments
16 Responses to “Who did they think they were subsidising?”
Joshua,
don’t you mean solar power systems? Solahart quotes all up installed costs (including rebates)
of $1500 to $5000 for a solar hot water system
Yes you are right. Changed.
Surely this one is a lay down misere. I’m surprised that any economist would genuinely think that subsidising domestic solar panels is a good use of tax money.
Having a couple of solar panels on a few houses is one of the most costly abatement mechanisms available. And if there is a price on CO2 emissions (which there will be soon enough), the case for these piece-meal approaches to emissions reduction is practically non-existent. Getting rid of these silly rebates was the highlight of the budget.
But they didn’t get rid of the rebates they just means tested them.
If it is a bad policy remove the policy. But if this is how environmental policy is going to be run in the future, it is a bad sign.
I agree that the means test is strange, but it’s probably equivalent to a defacto withdrawal of the rebate. As you observe, not many sub-$100,000 families are going to be taking up solar panels even with the rebate. It’s for that that I applaud it.
STT, you have a reasonable point that the use of the funds is inefficient. Now I’m no economist, but it seems pretty logical that an inefficient mechanism is better than ‘no’ mechanism. If they took the rebate and put it towards other measures to reduce carbon emissions then that would be justified (ie, subsidy to build solar, wind or geothermal plants, subsidise public transport costs, invest in solar panel research to assist in making them cost effective). I have not gone through the fine print of the budget, nor will I, but this switch appears to be lacking. I hope it’s not. Please let me know if I am wrong.
Also, think about this: My fiancée and I are in our mid 20s. We earn just under the 150k, so would get the baby bonus and don’t have to pay the Medicare surcharge on tax any longer. However, we earn over 100k so would not get the solar panel rebate. I think this will be a very common income band for couples of my age. Moreover, we’ll go over the 150 bracket in the next couple of years and lose eligibility for the baby bonus.
The government suggestion appears to be “have a baby now, increase the population, don’t worry about paying for the birth through private healthcare, we’ll cover it in the public system, one of you go part-time even though you both have productive professional jobs that require years of qualifications… but whatever you do don’t install some silly hippy solar panels on your roof”.
So STT, I do agree that there are better ways to spend money to reduce CO2 emissions. I just don’t see that this budget has them. I’d love to be proven wrong.
I’d like to withdraw some of the above having read some more about the 2.3 Billion dollar fund for climate change. However, the immediate money seems to be going towards developing clean coal technology.
I agree the means testing of this rebate makes no sense. However, a rebate is not the best way of addressing the issue.
The subsidy could be related to the emissions saved and could be available no matter how the money was spent as long as it saved emissions. See http://rewards.edentiti.com/reduce-greenhouse-gases.html for how to implement such a system for less cost than administering a rebate program.
[...] I argued that means testing solar panel rebates sounded like a bad idea while the previous day I was happy enough with means testing the baby [...]
Joshua, it’s almost certainly about killing the rebate on the quiet because it’s bad policy.
It doesn’t actually reduce greenhouse gas emissions. With the way the MRET and GreenPower work (and remember that Labor’s planning to keep the MRET, even after they put in their ETS), all putting solar panels on your roof does is mean that the power companies buy renewable energy certificates from you, rather than other renewable energy companies like wind power generators or biomass burners.
No net gain for the environment at all.
About the only justification that makes any sense at all is that it “helps to develop the solar industry” which is hoped that, some time, any time, in the future, will provide cost-effective energy.
Let’s just say I’m unconvinced that this will a) happen, and b) even if it does, whether this is the most sensible way to achieve it…
STT,
if you think that solar power rebates are a bad idea because solar power is expenive abatement, then you have missed the point.
What we know from the Stern review and other sources is that in order to avoid dangerous climate change we are going to need to minimise our carbon emissions, keeping CO2-e below 550ppm – Stern says that this in turn will require us to decarbonise our power supply by 60%, perhaps as much as 75%.
What this means is we will not be able to restrict ourself to a handful of sources of abatement technologies – we will need them ALL.
This includes solar power.In fact solar power will be a very important part of the equation. It is the most efficient means of converting the suns energy to a useable power source and it needs little extra land area as much of our generation capacity can be installed on our roofs.
While solar power is very expensive it is on a much steeper and earlier part of its learning curve than other technologies. In the EU it’s 60% cheaper today than it was in 1990, and the European Commission expects it to be a further 50% cheaper by 2020.
Investment that we spend now on increasing solar power deployment and driving learnings and economies of scale in our local markets now, is money well spent. We are driving prices down so that when we really need this tehnology rolled out on a massive scale, it will be a lot cheaper than it is today.
There is a time and a place for means testing, but treating the environment as a welfare issue doesn’t make any sense to me. I agree with Sarah. We should as a nation be investing in solar power to make it more affordable for the average household.
[...] than environmental policy. Joshua Gans also argues it wasn’t middle class welfare, it was a behaviour changing carrot.clarencegirl bags the Iemma party. Darryl Mason notes that trials of medicinal cannabis will start [...]
Now it is 2 August 2008, and the take up of solar panel installations has srisen to an average of 522 per week. The Clean Energy Council is happy, and presumably the the suppliers are too. Where does this leave the doomsayers? The increase
Looks like the means test will stay, eh?
Now it is 2 August 2008, and the take up of solar panel installations has risen to an average of 522 per week. The Clean Energy Council is happy, and presumably the the suppliers are too. Where does this leave the doomsayers? The increase MUST have come from those earning less than $100,000 per week, so those earning over $100,000 per week are just plain greedy.
Looks like the means test will stay, eh?
I belive the whole idea of having the solar power is to do good for the environment. I do NOT however believe this should be means tested at all! Solar Power costs around $16,000-$20000 to install. The rebate of $8000 would HELP all and be an incentive for people to get it. Tell me and I don’t care if you household earns 50,000 or 200,000 a year – we all have houses loans, car loans, School Fee’s, phone bills and electricity bills and general everyday needs like FOOD, Petrol etc. I don’t think there would be too many people who have a spare $20,000 just sitting in the bank! My husband and I earn approx $150,000 a year and we have 4 kids aged 12-17yrs. An I can tell you we don’t have a spare 20 grand laying around so yes we would look at installing Solar if the rebate was available to us so we can do our bit for the environment! The government needs to stop and think most people that do earn over $100,000 a year have more than likely gone to University to obtain a degree and even then years later are still paying off a hecs debt! It’s discrimination outright!