Like Joe Biden, North Carolina Governor Roy Cooper’s Administration Advances Policies That Contradict Stated Climate Goals

President Joe Biden’s administration announced in February that it would extend tariffs on solar panels that were instituted by former President Donald Trump. The energy and climate policy plan President Biden campaigned on features a goal to “achieve carbon-pollution free energy in electricity generation by 2035.” Yet this move by the President Biden to extend the Trump solar tariffs, like the Biden White House’s 2021 order holding up solar energy components at U.S. ports, will make it more costly and difficult to achieve President Biden’s renewable energy escalation and carbon emissions reduction goals.

While President Biden is instituting federal policies that contradicts his emissions reduction goals, North Carolina Governor Roy Cooper (D) is doing the same at the state level. Governor Cooper, like President Biden, has laid out aggressive emissions reduction objectives. In Governor Cooper’s case, he is calling for a 50% reduction in greenhouse gas (GHG) emissions relative to 2005 levels by 2030 and to achieve net zero GHG emissions by 2050.

Whereas President Biden is making his emissions reduction and renewable energy goals more costly to achieve with the extension of solar tariffs and the withholding of solar components at ports, Governor Cooper’s Department of Revenue (DOR) is making the Governor’s emissions reduction goals more difficult to meet by withholding and clawing back solar tax credits that were previously enacted by state lawmakers in 2009 in order to incentivize the development of solar energy in North Carolina. Regardless of whether one thinks solar tax credits are sound policy or not, revenue departments of states where lawmakers have enacted solar credits as part of their tax code should adhere to the letter of the law and not withhold credits that are due to solar investors, which is what is now happening and being challenged in court in North Carolina.

There are now multiple lawsuits challenging the North Carolina DOR decision, which began in 2018, to withhold tax credits owed to those who invested in North Carolina solar projects. Aside from violating state tax law, critics of the DOR’s move to withhold solar tax credits have pointed out that the DOR’s position appears to go against Governor Cooper’s stated GHG emissions reduction and renewable energy goals. This has not gone unnoticed by the North Carolina press corps. The Greensboro News & Record, for example, published an editorial praising Governor Cooper for “trying to make North Carolina a leader in sensible clean-energy policy,” but the newspaper then went on to lament that it’s “Too bad his Department of Revenue doesn’t seem to have gotten the memo.”

Even those who oppose solar tax credits on principle still think the DOR should adhere to state law by honoring them. “State tax credits for solar energy projects made for bad public policy,” writes Mitch Kokai, a senior political analyst at the John Locke Foundation. “That doesn’t excuse recent action from the N.C. Revenue Department that denies those credits to solar energy finance companies.”

North Carolina’s 35% income tax credit for solar investments was repealed by the North Carolina General Assembly in 2016. But that change in law included a provision to make it so the state would continue to honor tax credits for those who had already made long-term solar investments. Even though North Carolina no longer offers a solar income tax credit, some solar income tax credits are still due to investors who backed long-term projects that were already substantially completed by 2016. Yet, Department of Revenue Secretary Ronald Penny (D) is refusing to honor solar credits that were grandfathered into the 2016 repeal bill. Investors have filed four separate lawsuits against the DOR in response its denial of grandfathered solar tax credits.

“The rule of law suggests that the companies should win the dispute,” added Kokai, whose organization, as mentioned, thinks solar tax credits are bad policy. Given his opposition to solar tax credits, one might expect Kokai to applaud Secretary Penny’s refusal to honor the disputed credits. But, as Kokai notes, though he and his organization oppose solar tax credits, what matters here is that “State law requires those credits to be honored.”

Not only are some investors seeing DOR refuse to honor their solar tax credits, but the DOR has clawed back previously applied credits. “The Farm Bureau spent $26.8 million in solar projects before the tax credit program expired in 2016,” Business North Carolina reported in October 2021, noting that “the Department of Revenue demanded that it pay $25.6 million in back taxes, which it did last year after an administrative law judge upheld the agency’s interpretation of the law.”

The Farm Bureau is party to one of four lawsuits challenging the DOR’s decision to withhold solar tax credits. The Farm Bureau notes in its lawsuit that since Governor Roy Cooper took office, the DOR “has administratively overruled the state’s renewable energy policy, encroaching on the General Assembly’s constitutional authority. In support of this power-grab, the Department mistakenly invokes federal tax doctrines developed to pursue income tax abusers, imposing them against a North Carolina gross premiums taxpayer and mutual insurance company that invested in good faith responding to the General Assembly’s call.”

The North Carolina DOR suffered a defeat in court in September 2021, when North Carolina’s leading administrative judge, Judge Donald Van der Vaart, rejected the DOR’s attempt to deny solar tax credits to Integon National Insurance Company. That lawsuit came in response to the DOR’s decision to demand repayment of a $1.8 million solar tax credit claimed by Integon in 2016.

In his ruling, which is now cited by plaintiffs in the other lawsuits pending against the DOR, Judge Van der Vaart explains that, since the inception of the solar tax credit in 2009, DOR guidelines explaining which sorts of solar investments would qualify for tax credits never once mentioned that the DOR would use federal tax law provisions to disqualify investors from receiving solar credits even though they’re entitled to them in accordance with state law.

“All that changed in 2018 when DOR inexplicably and perhaps whimsically reversed its position for the first time,” Judge Van der Vaart wrote in his decision. “Now citing Federal anti-abuse tax provisions, DOR denied [Integon] tax credits obtained for doing precisely what the legislature meant for insurance companies to do — invest in renewable energy. To DOR, at least in 2018, investing in solar power was abusive and should be disallowed.”

Critics of the DOR’s decision to unilaterally disallow solar tax credits that are due to investors in accordance with state law point out that Governor Cooper could put an end to this dispute himself. The head of the DOR is a member of the Cooper administration and accountable to the Governor. If Governor Cooper wanted to put a stop to the DOR’s withholding of solar tax credits, he has the power to intervene and do so.

The Greensboro News & Record isn’t the only newspaper that has called out the way in which Governor Cooper’s own administration appears to be contradicting his policy objectives. “Last month, Cooper signed an executive order calling on North Carolina’s economy to be carbon-neutral by 2050,” the Winston-Salem Journal’s editorial board wrote in February. “He should get the DOR on board with his agenda.”

The four lawsuits challenging the DOR’s withholding of solar tax credit are expected to be ruled on sometime later in the spring, but appeals could push ultimate resolution of the matter off to an even later date. The business interests paying attention to this dispute extend far beyond the solar industry. The North Carolina Chamber of Commerce recently explained why these legal challenges are significant to companies outside of the solar industry. “This case, followed closely across the country, threatens North Carolina’s reputation as a welcoming place to do business, one where investors can rely on the word of the legislature,” explained the North Carolina Chamber of Commerce in a letter critical of the DOR decision to not honor the credits. “If the [department] were to prevail, the state’s business climate would be jeopardized and one of its tools — tax incentives — would be crippled.”

As with the Biden White House, in North Carolina we have an executive branch instituting policies that go against the climate goals laid out by the man who leads that executive branch. As with President Biden in Washington, Governor Cooper is not taking action in North Carolina to stop his administration from imposing policies and making decisions that will make renewable energy more expensive. Chevron Corporation chief ex­ecutive Mike Wirth told the Wall Street Journal in December that “The ad­min­is­tra­tion’s en­ergy pol­icy has not been very co­her­ent.” Wirth was referring to the Biden administration, but, as the dispute over solar tax credits demonstrates, his comment also applies to the Cooper administration.