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Carbon Credits vs. Tax Credits: Financial Incentives for Renewable Energy

Updated: Oct 24, 2023

Are you interested in investing in geothermal, carbon credits, wind or solar energy? If yes, you might also be wondering about what kind of monetary incentives are available. Read more below to learn about what kind of credits can be available for each type of renewable energy investment.

Carbon credits and tax credits are both financial incentives that are offered for geothermal, wind and solar energy development. Carbon credits are tradable permits that represent the right to emit a certain amount of greenhouse gasses, while tax credits are financial incentives offered by the government to encourage specific behaviors or investments.

In the case of residential properties, investing in geothermal, wind or solar panels may make the property eligible for certain tax credits offered by the federal government. For example, the federal government currently offers a tax credit for residential solar energy systems that covers up to 30% of the cost of the system. There are also tax credits available for geothermal systems and other renewable energy technologies.

Residential Clean Energy Credits

According to the IRS, the Residential Clean Energy Credits equal 30% of the cost of new, qualified clean energy devices for your home installed anytime from 2022 through 2023. With the increase in popularity of energy efficiency the previous $500 credit has been updated to the 30% of the sum of the amounts paid by the taxpayer for certain qualified expenditures. These credits vary in size and availability depending on the state and local governments.

  • For example, some states offer tax credits for installing renewable energy technologies such as solar and geothermal systems, while other states have tax credits for energy conservation projects such as efficient lighting or insulation.

Wind farms can be eligible for tax credits for renewable energy production, such as the Production Tax Credit (PTC) or the Investment Tax Credit (ITC). These tax credits are offered by the federal government to incentivize the development of renewable energy sources like wind power. Some states also offer energy tax credits or incentives for using alternative transportation such as electric vehicles or public transit. In addition, some states offer credits for purchasing energy-efficient appliances or for making energy-efficient improvements to a home. Types of energy-efficient improvements include:

  • Rooftop solar panels

  • LED lighting

  • Adding insulation

  • Installing an electric heat pump

Landowners With Large Acreage

Carbon Credits Potential

Carbon credits are typically earned by companies or organizations that are actively reducing their greenhouse gas emissions. There are different types of carbon credits for landowners to take advantage of. While individuals can participate in certain voluntary carbon offset programs, it is unlikely that a residential property owner investing in geothermal energy or solar panels would be eligible to receive carbon credits. This is where it becomes beneficial to landowners with large acreage. Landowners that have a lot of land can benefit from the opportunities their land provides them with. For example, if a landowner has forests, timber farms, or other agriculture on their acreage, they can easily lease those carbon credits. Even if you just have grass or open fields, you can lease those carbon credits because land stores carbon!

Wind Farm Potential

If a landowner owns land that is suitable for a wind farm, they may be able to lease the land for wind turbines to a developer and receive a share of the tax credits associated with the project. Alternatively, the landowner may be able to develop their own wind farm on their land and receive the tax credits directly. Wind farms can also potentially generate carbon credits through the reduction of greenhouse gas emissions. Landowners who host wind farms on their land may be able to lease out the carbon credits generated by the project to companies or organizations that are looking to offset their carbon footprint.

  • To receive carbon credits, the wind farm project must be verified and registered with a carbon credit certification organization, such as the Verified Carbon Standard or the Climate, Community and Biodiversity Standards.

  • Once registered, the carbon credits can be sold on the voluntary carbon market or used to meet compliance obligations under certain carbon pricing schemes.

Interested in Valuing Your Carbon Credits

Carbon credits are growing into a popular renewable energy resource that landowners should take advantage of since it is easy to get into! Landowners are eligible to receive carbon credits at the rate of one per every ton of CO2 their land sequesters. LandGate has the data needed to inform landowners on their potential carbon credit values.


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