Question

How can tax credits to promote solar power affect consumer surplus? Explain with example

Answer 1

Ans)

Solar energy

”I’d put my money on the sun and solar energy. What a source of power! I hope we don’t have to wait until oil and coal run out before we tackle that.” -Thomas Edison, 1931

declining cost of solar energy is creating opportunities for all Americans to save money on their energy bills. And no one benefits from energy savings more than low- income consumers, who pay a much higher portion of their income for energy than middle- and high-income consumers. But being poor creates barriers to accessing solar power and its economic benefits. Low- income consumers lack sufficient savings that can be used to buy solar systems, and they may have low credit scores or a lack of credit history that may impede their ability to finance a system. They are often renters, or live in multifamily housing, without ownership of their roof. Many programs and policies that encourage solar deployment rely on leveraging public dollars with private investment, where a small contribution of public funding can trigge.

*Incorporate solar into low-income energy efficiency programs to reduce implementation costs and provide deeper savings for households with very high energy burdens.

*Adapt existing housing and anti-poverty programs to include solar, such as LIHEAP and WAP, public housing, and economic development incentives.

* Set up a financial vehicle that can develop, test, and deploy innovative financial strategies and provide leadership and technical expertise to other agencies.

* Promote volunteerism to provide low-cost solar to low-income communities, such as new solar homes built by Habitat for Humanity—and reinforce it through supportive incentives and policies.

*Partner with trusted allies in reaching out to low-income communities to ensure greater buy-in and program enrollment.

* Ensure any low-income solar policies and programs will actually provide tangible benefits to low-income households and communities.

Relation between tax credit and Consumer surplus .The conventional wisdom concerning low-income customers is that they may have poor credit scores or a lack of credit history. Because most solar marketers rely on credit scores when they approve financing, solar companies may avoid marketing to low-income customers. The Minneapolis Federal Reserve Bank found a direct correlation between income levels and credit score, with the lowest quartile (less than half of area median family income) having a FICO credit score 100 points lower than the highest quartile.15 (See Figure 2.) The Fed’s Board of Governors has reported that “individuals in high-income census tracts have a mean TransRisk Score of 57.9; in low-income census tracts, the mean is 32.5.”16 Research by the U.S. Consumer Finance Protection Bureau has also found that 26 million low-income credit invisible”—that is, one in every ten adults does not have any credit history with one of the three nationwide credit reporting companies. “There is a strong relationship between income and having a scored credit record,” the U.S. Consumer Finance Protection Bureau writes. Almost 30 percent of consumers in low-income neighborhoods are credit invisible and an additional 15 percent have unscored records. These percentages are notably lower in higher-income neighbor- hoods. and another five percent have unscored credit records.”17 In 2007, the Center for American Progress, using data from the Fed’s Survey of Consumer Finance, found that lower-income consumers were more likely to be denied credit or to not apply for fear  

of being rejected.18 The housing crash of 2008–2009 has made lenders even less likely to extend credit to low-income consumershouseholds with solar in the four states of their study, representing over 532 MW of solar capacity.20 Low-income households are less likely to have solar compared to the overall population, but only.

We develop a general equilibrium cost–benefit rule to assess changes in “green” electricity certificates.

A perturbation of the certificate scheme causes both benefits and costs that can be uncovered and estimated using our framework.

A user-friendly approximation for empirical implementation is provided, hence data requirement is modest.

We find net gains from removing the scheme, through externalities, trickle-down and public finance repercussions.

While support schemes to renewable energy are ubiquitous around the world today, there are few systematic welfare evaluations of their social benefits and costs in an economy-wide setting. We develop a general equilibrium cost–benefit rule to assess changes in quantity based subsidy schemes, “green” certificates, that support renewable electricity generation. An advantage to large-scale numerical models of the same issue is that we can go “into the black box” and uncover key economic mechanisms. We study a second-best economy with distorting taxes and pollution, so that a perturbation of the certificate scheme causes both benefits and costs; these items can be uncovered and estimated using our framework. To this end, we provide a user-friendly approximation for empirical implementation, which means that data requirement is modest relative to a typical computable general equilibrium model. We apply the theory to a currently existing scheme in Sweden taking into account “trickle-down” effects, including e.g. a loss of value-added tax income in the rest of the economy and environmental costs (i.e. externalities from electricity generation not currently internalized). We first present an ex post estimate, i.e. the welfare consequences of having scrapped the existing system 2003–2017 and then an ex ante analysis of extending the system to 2045. The latter includes a systematic sensitivity analysis based on Monte-Carlo simulation. Overall, we find net present value gains from removing the subsidy scheme, taking into account externalities, “trickle-down” and public finance repercussions

Consumer surplus

consumer surplus occurs when the consumer is willing to pay more for a given product than the current market price. The there will be low price of the solar product then it will increase the demand of the product in the market so the consumer surplus arises at that stage it is only possible when the government put some subsidies and reduce the the text on the solar panels and the related items.