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New Energy Efficiency Tax Credit Bills Introduced in U.S. Senate

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Date: Aug 26, 2009

Three Senate bills would expand and extend incentives for energy efficiency improvements and new efficient buildings in residential and industrial sectors

This August, Senators Snowe (R-ME) and Bingaman (D-NM) released a package of bills to extend certain tax credits for energy efficiency in homes and industries while also creating several new credits. Tax credits for efficiency upgrades have proven to be an effective means to help consumers overcome the upfront costs associated with otherwise cost-effective efficiency improvements. Existing credits have proved popular and these three bills would expand and extend these types of credits while raising the bar for some to drive technological innovation by focusing incentives toward cutting edge projects and improvements.

The Expanding Building Efficiency Incentives Act of 2009 (S. 1637) would expand and establish several incentives related to whole-building energy efficiency.

  • The popular New Energy Efficient Homes credit, which offers $2,000 off taxes for homes that are built to consume 50% less energy than the 2004 supplement to the 2003 International Energy Conservation Code (IECC) building energy code, would be extended to 2012 (it is scheduled to expire at the end of this year). It would also offer a higher-tier credit, worth $5,000, available through 2013, for homes that also met additional standards for heating, ventilation, cooling, lighting, and appliance energy use.
  • The existing Energy Efficient Manufactured Homes credit, for those purchasing high-efficiency ENERGY STAR manufactured homes, would be increased from $1,000 to $1,500. A higher-tier credit, worth $2,500, would be created for those manufactured homes that meet new, more stringent ENERGY STAR criteria effective in 2010.
  • As an incentive to incorporate efficiency into low-income housing projects, developers of housing that qualifies for the Low-Income House Tax Credit could claim up to 150% of the value of the Energy Efficient Homes credit to which it would otherwise be eligible.
  • The existing Energy Efficient Commercial Building tax deduction would be increased. The deduction, available for commercial buildings that are 50% better than the ASHRAE 90.1-2001 energy code in terms of lighting, building envelope, and heating, ventilating and air-conditioning (HVAC) systems, would increase from $1.80 per square foot to $3 per square foot. A partial deduction for buildings meeting any one of these three efficiency areas is currently eligible for a 60¢ per square foot credit; this bill would increase the partial deduction to $1 per square foot or an intermediate $2.20 per square foot.
  • Of particular note, this bill would create a $200 credit for certified home energy ratings – making the rating or auditing of one’s home even more attractive as a step towards improving its efficiency. Correspondingly, there would be a credit of up to $500 for an individual to become a certified energy rater.

The Expanding Industrial Energy Efficiency Incentives Act of 2009 (S. 1639) would expand the existing combined-heat-and-power systems incentive, establish a credit for efficient motors, incentivize the replacement of CFC-based chillers, and create an investment tax credit for equipment that facilitates the reuse of water and greater water efficiency in industrial processes.

  • The combined heat and power tax credit, currently applicable to the first 15 megawatts or 20,000 horsepower of a system’s capacity, would be expanded to apply to the first 25 megawatts or 34,000 horsepower. Whereas currently the credit can only be claimed for systems of up to 50 MW or 67,000 hp, that cap would be eliminated under this bill. The credit would remain available through 2016.
  • For efficient motors utilizing variable speed operation and certain other advanced technologies, and installed through 2013, a credit of $120 per horsepower would be available (a different formula is used for motors smaller than 10 hp), up to a maximum of $2 million per taxpayer. It would be available through 2013.
  • In order to speed the retirement of older CFC-based chiller units manufactured between 1980 and 1993, which could contribute to ozone depletion, the bill would create a credit of $150 per ton of the chiller system being replaced. An additional $100 credit would be available to the taxpayer for each ton by which the new unit was downsized relative to the one being replaced, if the new unit also uses variable frequency drives, and the new unit would have to meet certain efficiency standards. The building would have to receive an energy audit to identify ways in which energy consumption generally and cooling load specifically could be reduced. In the case of a non-profit entity, this credit could be claimed by the seller of the new unit if the seller reduced the price of such a chiller unit by the amount of the credit. The credit would be available through 2012.
  • A credit to encourage greater efficiency in water use would be worth up to $10 million per site. Eligible projects require the reduction of process water withdrawals by not less than 20% and discharge by not less than 10%—or water withdrawals by no less than 10% and water discharge by no less than 20%. The credit value is determined using a sliding percentage, from 10% for projects consuming less than 3,000 kWh per million gallons of water to 30% for projects consuming 1,000 kWh per million gallons. The credit would be available through 2014.

Finally, the Cleaner, Secure, Affordable Thermal Energy Act (S. 1643) would create a tax credit to encourage the conversion of fuel oil heating systems to natural gas or biomass. The credit would be worth 30% of the costs of converting, up to a maximum of $3,500 for natural gas and $4,000 for biomass systems. The replacement equipment would be required to meet certain efficiency standards – a natural gas boiler would need an AFUE rating of at least 85% while a biomass one would need an AFUE rating of at least 92%. Biomass boilers would also need to meet a thermal efficiency rating requirement of greater than 75%. Businesses could write off half of the costs before depreciating the remaining value for equipment installed before 2012. Non-taxable entities could utilize Qualified Energy Conservation Bonds to finance these improvements by transferring the credit values to investors.