Carbon Shelters: Carbon Accounting as Tax Law

This Article provides the first comprehensive account of the reconstruction of energy tax law that has occurred in the 2020s. In the past, federal energy policy offered carrots and sticks aimed selectively at specific sources of emissions (e.g., power plants) and specific green alternatives (e.g., solar and wind), even as academics urged the use of universal sticks like a carbon tax. But Congress has now charted a new path: performance-based carrots, or tax credits for any zero-emission energy technology (subject to certain politically driven exclusions). The only way to implement universal, performance-based carrots is to estimate the carbon intensity of every subsidy applicant. This is the task of carbon accounting. The Article makes two main arguments about the emergence of carbon accounting inside tax law. First, carbon accounting is surprisingly well suited to tax law because it will be informed by tax law’s experience with parallel normative and analytical principles, including a comprehensive tax base, additionality, liability shifting, and rate blending. But second, just as the income tax is susceptible to “tax shelters,” so too will firms develop “carbon shelters” that qualify for green subsidies while covertly making use of high-emission energy. Because of the difficulty of anticipating every carbon shelter in advance, an antishelter strategy needs deliberately over-broad anti-abuse rules, including some modeled on similar rules from tax law. If policymakers are to avoid inadvertently subsidizing unlimited emissions, they must be prepared to compromise on the principle of technology neutrality that motivates performance-based carrots in the first place.