Balancing social and ecological justice

The rich keep getting richer. This is a global phenomenon. This is true in both rich and poor nations. It’s not a coincidence that the wealthiest 1% of humanity is responsible for twice the greenhouse gas emissions as the poorest 50%. The largest global carbon dioxide emitters, China and the United States are also featuring high and increasing levels of inequality.

There is clearly virtue in understanding that there is a connection between broadly shared ownership and social and ecological justice. We will consider here how we can help make all renewable energy users, energy users, and its potential global influence and mitigation of global inequality.

Greater equality can be approached by means other than simply taxing the rich, but by implementing market-based means and market rules that transform the global ownership structure resulting from an anticipated 60 trillion dollars in global renewable energy investments by 2050.

A countervailing and healing reality is simply that a much broader distribution of ownership will make sure that the majority of people collectively have skin in the game and the political and economic power that attends ownership.

This is a call for radical reform, not revolution. It means a systematic increase in distributed ownership within democratic market societies.

Rich getting richer

The concentration of wealth means that a small number of the ultra-rich, the billionaire class, pursue greater wealth with impunity. They behave as if the consequences of ecological and social pillage never affect them or despoil their gated mansions or private islands, or mega yachts.

Historically the concentration of wealth in the hands of the rich from the start of the industrial revolution to the Gilded Age age to today's Information Age of high profits has made property and money to be regarded as the root of all evil. Depredations ameliorated periodically by social democratic reform that forestalled revolution and collapse have become overwhelmed by the power of the rich and global structural changes that weaken the power of working people.

“Property is theft,” wrote Pierre-Joseph Proudhon in 1840 in, What is Property or, an Inquiry into the Principle of Rights and of Government. “There is only one law for the poor, to wit: Obey the rich,” said Albert Parsons in his 1886 speech, The Accused, the Accusers, before sentencing.

But Catholic Priest Jose Maria Arizmendiarrieta, who helped guide the Mondragon cooperatives in the Basque region of Spain under Francisco Franco’s tyranny, made clear that careful rules and law democratically chosen, on the basis of one person, one vote, could protect both the rights and the dignity of the poor in the worker/members owned Mondragon system. Mondragon developed not only worker-owned high-tech factories, by a coop bank, the Caja Laboral Popular, an entrepreneurial group to plan and guide the businesses, cooperative education from kindergarten to University education, coop housing, retail business, and social services.

Mondragon demonstrates that shared rights for housing, health care, education, employment, and social services, when present, make inequality almost irrelevant and demonstrates that a more equal distribution of property makes sense. Mondragon, the world’s largest coop, keeps the differential between the highest and lowest-paid cooperators at six to one. In the U.S., CEO income in 2021 is 398 times greater than the firm’s average non-supervisory workers.

Global inequality thrives

Globally, 71% of the global population lives in countries with increasing inequality. This includes most developed nations and some middle-income countries like China and India, 30% of the world’s population.

The GINI index, tracking inequality by nation comparing 1990 to 2015, is interesting. The higher the number, the greater inequality. At the bottom, in 2015, below 25, are Denmark and Croatia. India is about 35. The United States is above 40. China and Brazil are around 50. The highest inequality is in South Africa, at 63. The share of income going to the top 1% increased in 46 out of 47 countries with data.

Globally, Oxfam reports that in 2023 the richest 1 percent captured almost two-thirds of all new wealth, $42 trillion, created since 2020. That’s about twice as much as the bottom 99 percent of the world’s population. Globally, only four cents in every tax dollar comes from taxes on wealth. Elon Musk, until recently the global numero one, according to Pro Publica, paid an effective tax rate of 3.7% from 2014-2018. Half the world’s billionaires live in countries without inheritance taxes on direct descendants.

What must be done, what can be done

There are many well-understood tools for reducing inequality that can combine, in various ways, progressive taxes on income, taxes on inheritance, taxes on wealth, taxes on property and land, taxes on consumption, taxes on pollution, depletion, ecological damage, taxes on damaging sources and sinks, child tax credits, negative income taxes, guaranteed BASIC income grants, tax credits for poor and middle income for renewable energy purchases, tax credits for energy efficiency improvement, low or zero interest loans for a renewable energy and efficiency improvements and for education and training, taxes supporting national health care for all, taxes supporting free or low-cost education and training, regulatory assets that support carbon dioxide displacement by efficiency and renewables, tax credits for renewable development paid out to all without a tax appetite, and more.

The problem of increasing and seemingly intractable increase in inequality is not for lack of just means but a lack of political and social will and the apparently ever-increasing power of the rich to prevent changes that stop the rich from getting even richer. More and more of us live paycheck to paycheck and have little to no personal assets to be turned into cash. In the United States, the world's largest economy, a common situation is of the homeless poor working multiple jobs but unable to afford the rent to housing.

Let’s assume that the approach of raising taxes on the rich has limited political efficacy to more than marginally reverse the continuing global growing concentration of wealth.

One conservative-based reform is worthy of consideration. Economist Milton Friedman, in 1962 suggested a $10,000 basic income grant for all above 21 that would replace the plethora of complex and means tests welfare and social programs. It is a social response to structural employment driven by computer-based automation and the ability to eliminate more and more skilled jobs by ever more clever “intelligent” programs that replace human participation. The latest and just one of many more to come is, of course, ChatGPT, which can handle many writing tasks, producing essays, poetry, and plans, as well as both writing and debugging code as part of ordinary search engines.

In a global economy where factories and warehouses are increasingly run by robots with smaller and smaller numbers of people to repair and program, and perform the tasks that computers and robots cannot yet handle.

Solar industry as part of inequality engine

It’s expected that $60 trillion or more will be invested by 2050 in global efforts to install a global renewable energy system to replace fossil fuels. About 90% of annual investment to replace carbon is mostly solar and wind, with around 10% on nukes. This sounds accurate for the future.

I develop and build solar farms. The solar industry organization is typical for the modern economy. Currently, the way solar companies are structured is part of the inequality engine. This need not be so. And I will describe how solar and other renewables could become part of making all energy users energy owners, providing a broad equity stake in the renewable energy that will power global civilization.

This can be accomplished. We will see, largely through existing solar tax equity rules, long-term contracts to buy solar by energy users in large groups and purchase options after-tax equity is exhausted in year six. Solar Companies sell the asset at fair value. The purchases are financed in part by the stream of income the energy users already paying for the solar power and supported, as necessary, by low-interest revenue bonds and future MACRS deprecation of the solar system.

This represents the potential for making the average person richer with greater equity, lower cost of living, and having a seat at the table making the decisions and market rules that will govern the global renewable energy economy. This includes giving energy users a discount for energy purchases in year one to five as part of the Investment Tax Credit boosting Solar Company revenues.

Solar companies are finance companies

Solar companies are essentially finance companies whose work is basically to deploy investment capital for the highest long-term returns. The company leadership knows a great deal about the intricacies of financial instruments, maximizing the investment tax credits and accelerated MACRS depreciation and types of tax equity structures and investments, and about the financial waterfall from tax benefits, depreciation, energy sales, and the value of SRECS (Solar Renewable Energy Certificates). The typical social company is based in large cities close to banks and financial markets. The management team may or may include one person experienced in serious solar construction work to keep people honest.

Some Solar companies have their own capital. Others rely on outside investors, including Family Offices, to manage the money of the ultra-rich to make them richer and often provide copious allowances for the lucky heirs. Solar has now become a low-risk, high-reward for Family Offices once projects are approved to be built.

My role is as Developer who actually finds solar sites negotiates leases, and licenses the system. This sometimes takes many months or years of hearings and required documentation from everything from electrical interconnection, land use and endangered special issues, to historic site analysis, wetlands, stormwater runoff, and plant screens to hide solar from neighbors. I can spend time with the Planning Board (PB), Zoning Board of Adjustment (ZBA), Conservation Commission, Agricultural Regulators, State and Solar regulators, Public Utility Commission, distribution utility, the regional Independent system operator (ISO), and more. When approaching NTP (Notice to Proceed) approval, a further series of financial steps take one to three months to establish an SPE (Special Purpose Entity), typically an LLC company that will own this project as a subsidiary of the Solar Company.

When we reach NTP, money begins to flow, and in some months, construction shall begin. Safe to say that the Solar Company that owns the system generally has little involvement in the work of preparing the site, building access roads and stormwater runoff basins, or the challenge of drilling solar racking posts sometimes through the ledge and through rock or making sure that solar panels are secured to the racking just so that they stay in place when the wind is blowing over 110 miles per hour.

I can make good money if I manage to complete these tasks. But my development money is just a cost for the Solar Company that now owns a commercial scale array that’s worth, for example, a million dollars and provides half a million in tax equity benefits (or more) and about $100,000 a year in income for 20 years or more (minus finance charges, operation, and small maintenance costs, insurance, etc.).

Steps to energy user renewable ownership using tax equity

A series of rather generally similar steps used for less conventional ends can unlock the potential for making energy users energy owners.

First, a Muni or cooperative or association contracts with a renewable developer, for example, Solar Developer (SD), to buy solar power for 20 years at defined prices. The price will cover SD’s capital cost to build, pay loan interest, operation and maintenance, and insurance. SD will work with banks or credit unions, or Community Development Financial Institutions (CDFIs). The agreement with Muni/coop/Association will permit finance at a reasonable rate for SD.

Second, SD’s construction funding is transformed into a long-term mortgage following the commercial operation date (COD).

Third, at COD, renewable power flows to the Town. Income flows to SD to pay its mortgage and maintain the solar and storage system.

Fourth, The contract with the Muni/Coop/Association gives energy users the right to buy a full or partial interest in the solar system beginning in year six when tax equity is exhausted.

Fifth, opting to buy the system in year six takes advantage of the stream of income from existing energy purchase contracts paid monthly to SD. The value of the system in year six is substantially reduced after-tax equity is exhausted. A negotiated fair price is agreed to.

Sixth, The muni/coop/association will have its finance plan implemented for the year six purchase. Although there is no ITC for the energy user purchase, there is new MACRS depreciation based on the value of the purchase price. Built into the purchase analysis will be provided for an unexpectedly potentially high number of people unable to pay their electric bills, which is generally small. Unless people are destitute in the midst of economic calamity, people strive to keep the lights on.

Seven, each coop/association member will have their own capital account and ownership share based on annual distributions based on their share of energy purchases and their share of profits based on energy sales and income from storage sales and participation in Virtual Power Plant (VPP) income. Payment for power by credit card or bank account payments. Members can use their equity interest for finance. Coop and associations operate on the basis of one member, one vote.

Conclusion

We have a clear and present opportunity to use well-understood functional tools to make potentially billions of energy users energy owners of the global renewable energy transformation. This will be a major step to help reverse the continued concentration of wealth in the hands of the rich and, at the same time, embrace social and ecological justice.