HONOLULU - The state Department of Taxation on Friday issued new rules for the renewable energy tax credits that have spurred more residents to install solar panels.
The department said it is doing so to provide clarity to taxpayers, but environmentalists and renewable energy advocates said the new rules jeopardize the state's progress in moving away from imported fossil fuels.
The rules, which will take effect on Jan. 1, require renewable energy systems to meet set output capacity requirements. The Sierra Club and Earthjustice said the change would limit the solar tax credit for the average residential solar power system to $5,000. This would effectively cut the tax credit in half and put solar power out of the reach of many families, they said.
The department explained its decision by saying the previous rules, issued in 2010, created uncertainty and an unlevel playing field. The department has been receiving complaints about the rules for more than a year, it said.
The law grants residents and businesses a tax credit for installing a renewable energy system. Some people, however, have been advised by the companies putting in their solar panels to say their installation consists of multiple systems and then claimed the credit multiple times. This has made solar panels more affordable and encouraged many more people to buy them but it's also depleted tax revenues and made it harder for the state to balance its budget.
"After listening to taxpayers concerns, the department is issuing these new temporary rules in order to provide consistent, uniform and fair application of the tax credit law, while still supporting the State's public policy goal of reducing our reliance on fossil fuel," the department said in a statement.
Sierra Club Hawaii Director Robert Harris said such a "sudden, extreme" reduction in the tax credit is misguided.
"The governor should not slam the breaks on solar energy in Hawaii," Harris said.
The Blue Planet Foundation, a Honolulu-based nonprofit that promotes renewable energy, noted solar panel installations have been a bright spot for Hawaii's economy, accounting for 17 percent of all construction work in the state last year.
It warned the change could significantly disrupt a "reliable growth sector" for Hawaii.
Hawaii aims to get 40 percent of its energy from renewable sources by 2030.
Rep. Danny Coffman, chairman of the state House's energy and environmental protection committee, said he thinks the department came up with a fair and balanced solution.
"The way things are set up now, it's kind of a runaway tax credit. It is impacting the state's physically planning and budgetary process. We have no choice but to restore our fiscal management practices," he said. "The industry is going to be upset but can't let this continue and impact our budget. "
In Honolulu alone, credit claims jumped from $35 million in 2010 to $173 million this year, according to the state's business and economic development department.
State Sen. Mike Gabbard, who chairs the energy and environment committee in the state Senate, said he understands the department's motivation for the change but he's also concerned it might impede the industry's growth and interfere with the state's efforts to boost renewable energy.
The department will deliver a presentation on Tuesday to a working group he's organized to come up with solutions for the tax credit problem.
"It will add impetus to our discussions, and I'm looking forward to continuing the conversation with all of our stakeholders at the working group," he said.