Congress Likely to Extend, But Modify, Energy Efficiency Tax Incentives for Appliances, New Homes, and Retrofits to Existing Homes

December 16, 2010

Media Contact(s):

Steven Nadel , 202-507-4011, Executive Director

Washington, D.C.The tax package that passed the Senate yesterday and is likely to pass the House of Representatives soon includes extensions and revisions to three existing federal energy efficiency tax incentives: for appliances, a one-year extension; for new homes, coverage for  2010 and 2011; and for home retrofits, one year with modifications.

“These incentives have substantially raised the market share of efficient products and new homes, saving consumers money, creating jobs, and helping to make efficient products the long-term norm,” stated Steven Nadel, Executive Director of the American Council for an Energy-Efficient Economy (ACEEE).  

Under the pending bill, the appliance credit is extended for one year, and efficiency criteria and incentives have been updated to provide incentives only for products that are significantly more efficient than today’s average new product.  For example, for refrigerators, the incentive applies to products that exceed federal minimum efficiency standards by 30% and 35%. These are products that exceed ENERGY STAR® requirements (which are now 20% above federal minimums).  The incentives go to manufacturers, but should reduce the price consumers see in stores for these highly-efficient products.  The appliance credit began in 2005, increasing the availability and market share of what were then very efficient products.  As availability and market share increased, ENERGY STAR and federal minimum levels have also increased with the result that all of the 2005 tax credit levels either are now federal minimums or are expected to soon become federal minimums based on an agreement struck in the summer of 2010 between appliance manufacturers and energy efficiency organizations, including ACEEE. “We would expect the new tax credit levels to become ENERGY STAR levels in the next few years and minimum efficiency standards a few years later,” noted Nadel.

The new homes credit is for homes that use no more than half the energy of homes that just met the 2003 national model energy code.  The credit is $2,000 and goes to the home builder.  Since this credit was enacted in 2005, the market share of homes that qualify has gone from less than 1% of new construction in 2005 to 12% of new construction in 2009.  The credit expired at the end of 2009 but the new bill extends this to cover new homes that are built in 2010 and 2011.

The home retrofits provision covers the installation of insulation, sealing leaky building shells and ducts, and installation of efficient windows, furnaces, air-conditioners, heat pumps, water heaters, and wood stoves.  The original 2005 incentive was 10% of measure cost, up to $500 per homeowner.  In 2008, as part of passed economic legislation in the closing days of the Bush Administration, this was increased to 30% of measure cost, up to $1,500 per homeowner for installations through Dec. 31, 2010.  The new bill extends eligibility to the end of 2011, but reduces the incentive to the original 10% up to $500.  Included are provisions limiting window incentives to $200, oil and gas furnace and boiler incentives to $150–200, and water heater and wood heating system incentives to $300.  As part of these amendments, Congress is loosening the qualification for window incentives (ENERGY STAR windows now qualify) and tightening the specifications for oil furnaces and boilers and gas boilers to 95% efficiency, up from the 90% efficiency in current law.

Congress is likely to consider further extensions of these incentives into 2012 and beyond next year.  Key Congressional offices have already indicated that the existing homes incentives are likely to receive a major overhaul at that time.  In 2011 there are also likely to be discussions about improving incentives for energy efficiency investments in commercial buildings, incentives which under current law continue until the end of 2013.

While Congress is expected to extend most of the expiring federal energy efficiency tax incentives, it is not extending the incentive for hybrid trucks and buses.  This extension had been included in previous House and Senate bills, but was dropped from the final bill.  “While we are happy to see most of the energy efficiency incentives extended, we are disappointed that the hybrid truck incentive is not being extended; we hope Congress will rectify this omission in 2011,” stated Nadel.

Information on the current federal tax incentives and the new tax incentives is posted at www.energytaxincentives.org.

The American Council for an Energy-Efficient Economy is an independent, nonprofit organization dedicated to advancing energy efficiency as a means of promoting economic prosperity, energy security, and environmental protection. 2010 marks ACEEE’s 30th anniversary as an organization.