Extend the Federal Energy-Efficiency Tax Incentives!

The multi-year extension of energy efficiency tax incentives is a high legislative priority for the Alliance to Save Energy in 2008. The incentives, which encourage investment in high-efficiency technologies and put money back in consumers’ pockets by lowering their energy bills, either have expired or will expire at the end of 2008. The incentives should be extended on a multi-year basis and updated to reflect the latest standards for energy efficiency.

Energy Efficiency Tax Incentives Benefit Consumers and the Environment

Tax incentives designed to speed the introduction of energy-efficient technologies into the marketplace were enacted in the Energy Policy Act of 2005. They included incentives for highly efficient commercial buildings, new homes, home improvements, heating and cooling equipment, and appliances, and were intended to help niche products with new, efficient technologies to overcome steep market barriers and move into the mainstream, enabling them to better flourish in the market when the tax incentives end.

The American Council for an Energy Efficient Economy (ACEEE) estimates that over the 2006-2020 period, these tax incentives could reduce consumer energy bills by $27 billion, prevent more than 51 million metric tons of carbon emissions, and reduce peak electric demand by more than 6,000 MW (equivalent to the capacity of 20 medium power plants). Alliance analysis, based on scoring by the Joint Committee on Taxation, these provisions will have a ten-year cost to the Treasury of about $2.1 billion.

Short Availability Will Limit Impact

Most of these important incentives were limited to two years and expired on December 31, 2007. Although in 2006 the incentives for commercial buildings and new homes were extended for an extra year, an extension of multiple years is imperative to allow enough time for the planning and construction of these buildings. The short window of opportunity causes a number of problems that may limit the impact of the incentives:

• This period may be too short to cause lasting change in some markets. To achieve widespread use of these highly efficient products will require changes in public awareness, the development of distribution channels, and a ramp-up in production, all of which are processes that take more than two years.
• For some buildings, the time constraints are even worse. Even with a firm commitment today, it would be virtually impossible to design and build a large new commercial building before the end of 2008. New homes builders also face difficulties in learning new technologies and techniques, changing their designs, and building and selling homes in new developments in two years. Thus, the one-year extension has not helped as much as was intended.
• The effective period was shortened by the failure of the Treasury Department to issue needed rules in a timely fashion. Some of the Treasury guidance for the efficiency tax incentives took close to a year, and some has never been issued, further cutting into the short timeframe of the incentives.

Congress Should Extend Tax Incentives Now

Both houses of Congress have attempted to extend the energy-efficiency tax incentives. Extensions were included in the Energy Independence Act of 2007 until the last minute, when a cloture vote on a broader version of the bill was defeated by one vote in the Senate. In January 2008 the extenders were attached to an economic stimulus package but, again, a cloture vote in the Senate failed by one vote. In February the House passed a tax package that included the extensions along with controversial “pay fors” that sank the bill in the Senate.
On April 10, 2008, the Senate passed a housing bill that included Senate Amendment 4419. This amendment renews and extends several of the important tax incentives that have begun to bring energy-efficient technologies into the mainstream. The amendment has now been sent to the House, where it may face resistance due to its lack of “pay fors.” We urge the House to support the amendment (see box for details on the extensions). The amendment was offered by Senators Cantwell (D. WA) and Ensign (R.NV).
By making new energy-efficient technologies more affordable, these tax incentives not only can lower energy prices by reducing demand, but also can generate innovative new industries with new jobs, improve the reliability of the electricity system, and reduce air pollution and greenhouse gas emissions. But they can produce these benefits only if given enough time.

For more information please contact Alliance policy staff at (202)857-0666 or policyinfo@ase.org or visit www.ase.org.

The Alliance to Save Energy is a coalition of prominent business, government, environmental and consumer leaders who promote the efficient use of energy worldwide to benefit consumers, the environment, the economy, and national security.

Updated April 2008