Energy Efficiency Tax Incentives in the Senate "FSC/ETI" bill

Jumpstart Our Business Strength (JOBS) bill, S. 1637

Senate Action: S. 1637 passed the Senate on 5/11/04 by a vote of 92 to 5. The energy tax package had been included in this corporate tax bill in a substitute amendment, S. Amdt. 3011, adopted by unanimous consent on the floor. An attempt to strike the energy tax package failed by a vote of 13 to 85.

House Action: The House bill, H.R. 4520, does not contain the energy tax package. It passed the House on 6/17/04.

Summary: The energy provisions are based on the energy tax package passed by the Senate Finance Committee, S. 1149, and are similar to the tax portion of Senator Domenici’s “slimmed down” comprehensive energy legislation, S. 2095, but all effective dates are delayed to January 1, 2005. It includes (in addition to energy production incentives) a suite of tax incentives for highly energy-efficient new homes, home upgrades, commercial buildings, hybrid and fuel cell vehicles, appliances, residential heating and cooling equipment, combined heat and power systems, stationary fuel cells and microturbines, and advanced meters.

• Efficient New Homes (Sec. 821): Provides the builder a credit of up to $1,000 for the construction of a new home that reduces energy use by at least 30 percent compared to the most recent International Energy Conservation Code (IECC) approved by the Department of Energy, and $2,000 for a home that saves 50 percent relative to the code. Gives manufactured housing the $1000 credit for reaching Energy Star designation. Requires certification provided by a third party through 1) the component-based method, using specifications of the building envelope components and heating and cooling equipment, 2) the performance-based method, using software to project the total energy usage of the home, or 3) the guarantee-based method, which guarantees the homeowner the energy savings for a minimum of 2 years, with reimbursement if the savings are not realized. Requires buyer notification of energy efficiency ratings and a permanent label affixed in the house. Homes purchased 1/1/05 – 12/31/05 (30 percent) or 12/31/07 (50 percent).
• Energy Efficiency Improvements to Existing Homes (Sec. 829): Provides the homeowner a credit up to $300 for 10% of the cost of installing building envelope components consistent with the most recent IECC approved by DOE, or of a combination of measures that achieve a 30 percent reduction in energy usage. Requires certification using the component-based or performance-based method, as above. Improvements installed 1/1/05 – 12/31/06.
• Efficient Commercial Buildings (Sec. 825): Provides a deduction up to $2.25 per square foot of building space for the cost of energy efficient building property that reduces total building
  energy use 50 percent below the ASHRAE 90.1 standard. Requires certification. Buildings completed 1/1/05 – 12/31/09.
• Hybrid Vehicles (Sec. 811): Provides the purchaser of a hybrid vehicle a credit that is the sum of a base credit amount that varies with the percentage of the vehicle’s power that is from the rechargeable storage system, and a fuel efficiency credit amount that varies with the rated fuel economy of the vehicle compared to a 2002 vehicle of similar weight. For passenger cars and light trucks, the base credit ranges from $250 up to $1,000, and the fuel economy credit from $500 up to $3,000. Vehicles purchased 1/1/05 – 12/31/06.
• Fuel Cell Vehicles (Sec. 811): Provides the purchaser of a fuel cell vehicle a credit that is the sum of a base credit of $4,000 to $40,000 based on vehicle weight, and an additional credit of $1,000 to $4,000 based on the fuel economy increase compared to a 2002 vehicle of similar weight. Vehicles purchased 1/1/05 – 12/31/11.
• Energy Efficient Appliances (Sec. 822): Provides manufacturers $50, $100, and $150 credits for increased production (compared to 2001-2003) of refrigerators and clothes washers that significantly exceed recently adopted standards. Appliances produced 1/1/05 – 12/31/07, except the $50 refrigerator credit (by 2005) and the $150 credit (by 2006). Also capped for each manufacturer.
• Efficient Residential Heating and Cooling Equipment (Sec. 823): Provides the purchaser of “Tier 2” energy efficient property a credit up to: $150 for electric heat pump water heater; $50 or $150 for natural gas, oil, or propane water heater, or combination space and water heating system; $125 for natural gas, oil, or propane furnace, or hot water boiler; $50 for main air circulating fan; and $250 for geothermal heat pump; also provides a 30% credit up to $500/ 0.5 kW for fuel cells. Expenditures made 1/1/05 – 12/31/07.
• Combined Heat and Power Systems (Sec. 828): Provides a 10% investment tax credit for combined heat and power systems up to 15 MW or 2,000 hp (or an equivalent combination) with energy efficiency over 60 percent. Systems placed in service 1/1/05 – 1/1/07.
• Stationary Fuel Cells and Microturbines (Sec. 824): Provides a 30% business tax credit up to $500 per 0.5 kW for purchase of fuel cells with an electricity generation-only efficiency greater than 30 percent. Also provides a 10% credit up to $200/kW for stationary microturbines smaller than 2 MW with efficiency greater than 26 percent. Sec. 823 provides a similar credit to individuals purchasing such fuel cells. Systems placed in service 1/1/05 – 12/31/07 (fuel cells) or 12/31/06 (microturbines).
• Advanced Meters (Sec. 826): Provides electricity suppliers or service providers accelerated 3-year depreciation for installing time-of-use electricity meters. Meters placed in service 1/1/05 – 12/31/07.

For more information please contact Alliance policy staff at (202)857-0666 or info@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 June 2004