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Energy Tax Credits and the Fiscal Cliff

Developers of utility-scale wind projects breathe a sigh of relief — as do manufacturers of water heaters, furnaces, and air conditioners

Posted on Jan 7 2013 by Martin Holladay, GBA Advisor

As the fiscal cliff loomed last month, Washington lobbyists fretted over the future of three energy tax credit programs: the renewable energy production tax credit, the energy-efficiency tax credit for homeowners, and the tax credit for builders of new energy-efficient homes.

The renewable energy production tax credit — the program that makes the development of utility-scale wind projects profitable — was set to expire at the end of 2012.

While the energy-efficiency tax credit for homeowners and the tax credit for builders of new energy-efficient homes have both been dead for a year — the tax credits expired at the end of 2011 — lobbyists never gave up hope that they might use the fiscal cliff negotiations as an opportunity to revive the two tax credits.

At the last minute, lobbyists for all three of these tax credits got their wishes granted.

The energy-efficiency tax credit for homeowners

This tax credit applies to certain types of residential HVAC(Heating, ventilation, and air conditioning). Collectively, the mechanical systems that heat, ventilate, and cool a building. equipment, water heaters, windows, doors, roofing, insulation, and air sealing equipment. Originally enacted in February 17, 2009 as part of President Obama’s stimulus bill, the energy-efficiency tax credit expired at the end of 2011. The credits apply to improvements made to an existing home; new homes are not eligible.

As part of the deal to avert our national plunge over the fiscal cliff, the Congress agreed to extend the calendar for the energy-efficiency tax credit (also known as the 25C tax credit) in two directions: retroactively back to January 1, 2012, and forward to the end of 2013. Because of this new legislation, the tax credit can be applied to qualified equipment installed at any time after December 31, 2011.

The tax credit is limited to $500; a taxpayer is ineligible for the credit if the credit has already been claimed by the taxpayer in an amount of $500 in any previous year.

The following equipment is eligible for this tax credit:

  • heat pump water heaters with a minimum EF of 2.0;
  • gas-fired or oil-fired water heaters with a minimum EF of 0.82;
  • gas-fired or oil-fired furnaces or boilers with a minimum AFUEAnnual Fuel Utilization Efficiency. Widely-used measure of the fuel efficiency of a heating system that accounts for start-up, cool-down, and other operating losses that occur during real-life operation. AFUE is always lower than combustion efficiency. Furnaces sold in the United States must have a minimum AFUE of 78%. High ratings indicate more efficient equipment. of 95;
  • certain energy-efficient air conditioners and energy-efficient air-source heat pumps;
  • some types of windows and doors;
  • certain air-sealing materials and insulation materials; and
  • Energy StarLabeling system sponsored by the Environmental Protection Agency and the US Department of Energy for labeling the most energy-efficient products on the market; applies to a wide range of products, from computers and office equipment to refrigerators and air conditioners. roofing materials.

For more information on the residential energy efficiency tax credit, see complete details on the DSIRE website.

The tax credit for builders of new energy-efficient homes

Like the energy-efficiency tax credit for homeowners, the tax credit for builders of new energy-efficient homes expired at the end of 2011.

The fiscal cliff legislation extends the calendar for the tax credit for builders of new energy-efficient homes (also known as the Business Tax Credit for New and Renovated Energy Efficient Residences) in two directions: retroactively back to January 1, 2012, and forward to the end of 2013. Because of this new legislation, the tax credit can be applied to homes built in 2012 as well as homes built in 2013.

For more information on this tax credit, see a report on the Mondaq website or the relevant page on the DSIRE website.

Renewable energy production tax credit

During the past few months, developers of utility-scale wind projects have been operating in a climate of uncertainly. Most utility-scale wind projects in the U.S. only make economic sense if developers can claim the renewable energy production tax credit. This tax credit — equal to 2.2 cents per kilowatt-hour generated by utility-scale wind, biomassOrganic waste that can be converted to usable forms of energy such as heat or electricity, or crops grown specifically for that purpose., and geothermal projects — was set to expire at the end of December 2012.

Wind industry lobbyists were relieved to hear that the renewable energy production tax credit has been extended. Under the original enabling legislation for the tax credit, wind projects had to be placed in service by the end of 2012. The “placed in service” language has been replaced in the new legislation by language that makes a project eligible for the tax credit as long as construction was begun by January 1, 2014.

The tax credit applies to wind projects, geothermal projects, landfill gas projects, waste-to-energy projects, and tidal energy projects. According to a blog by Peter Lehner, who works for the Natural Resources Defense Council, “The wind energy industry has expanded rapidly in the past decade, and employs about 75,000 Americans, many of them in manufacturing. But at the end of 2012, new job announcements in the wind industry fell off the jobs cliff, largely because of uncertainty in the marketplace about the tax credit.”

An article published on the Clean Energy Authority website notes, “With doubts that the credit would be extended for 2013, the wind industry in the U.S. had already started to shutter manufacturing and developers and utilities stopped pursuing wind projects.”

With this legislation, the wind industry has received a reprieve.

What about homeowner tax credits for residential solar equipment?

A fourth tax credit program — one that provides homeowners with a tax credit of 30% of the cost of residential wind turbines, photovoltaic(PV) Generation of electricity directly from sunlight. A photovoltaic cell has no moving parts; electrons are energized by sunlight and result in current flow. (PVPhotovoltaics. Generation of electricity directly from sunlight. A photovoltaic (PV) cell has no moving parts; electrons are energized by sunlight and result in current flow.) systems, solar hot water systems, and ground-source heat pumps (GSHPs) — was at no risk of expiring last month. Established in 2006, that tax credit program isn’t set to expire until the last day of 2016.


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  1. Martin Holladay
1.
Tue, 01/08/2013 - 08:59

Energy Efficiency Improvements for Existing Homes
by Daniel Ernst

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This fact is clearly noted in the original article, but I thought I would highlight it here. The energy efficiency tax credits only apply to existing homes---not new construction.


2.
Tue, 01/08/2013 - 09:20

Reply to Daniel Ernst
by Martin Holladay, GBA Advisor

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Daniel,
Thanks for your comment. I have edited the news story to clarify the issue.


3.
Tue, 01/08/2013 - 11:35

New Homes also addressed
by Michael Burke

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Martin - I think it would be important to highlight to all readers that the "Fiscal Cliff" legisation also addressed the extension of the energy efficiency tax credit for new homes (2,000/unit). This will be applicable retroactively to homes that met the requirements in 2012 and for homes going forward through 2013. The baseline has been increased to the 2006 IECC from the 2003 w/ 2004 supplements. The 50% reduction in heating and cooling costs is still the basic requirment (as compared to the code). Hopefully, this extension will help some builders re-engage in energy efficient practices, possibly helping some continue with Program's like ENERGY STAR v3.0 and offsetting some of the premiums some builders may be experiencing. Maybe a seperate article would be appropriate? Just a thought...thanks for all the great information!!


4.
Tue, 01/08/2013 - 12:03

Response to Michael Burke
by Martin Holladay, GBA Advisor

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Michael,
Good point! I have edited the article to include information on the tax credit for builders of new energy-efficient homes. Thanks.


5.
Tue, 01/08/2013 - 12:21

A tangent
by JoeW N GA Zone 3A

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Not sure it's a synergy, but investors in PV and other "alternative" energy devices were thrilled over the past few months when Warren Buffet made major investments in solar technologies. A couple of weeks ago it was widely reported that he stoked PV manufacturers @ 2.5 billion new dollars.

Tax credits, investments by financial gurus, and so on all bode well for the industries (and contractors) effected and may go toward creating the critical mass of public appeal that posters here often mention as non-existent. A couple of weeks ago a local talk show host (who continually debunks the entire notion of global warming) bragged on air about taking "steps" to "save money" ... "saving energy" is anathema to him.


6.
Tue, 01/08/2013 - 17:24

erratta in the text
by Dana Dorsett

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"air-source heat pumps with a minimum EF of 2.0"

Air source heat pumps are rated with an HSPF number.

Hot water heaters are rated by EF.

I'm assuming this refers to a heat pump water heater, not an air source heat pump. (An HSPF of 2 would be less efficient than resistance electric heating. :-) )

BTW: EPA-rated woodstoves & pellet stoves/boiler that test at >75% efficiency also qualify for a 10% tax credit (up to $300 max) as part of the $500 under this retroactive deal.


7.
Tue, 01/08/2013 - 18:03

Response to Dana Dorsett
by Martin Holladay, GBA Advisor

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Dana,
Thanks for catching my typo. Much appreciated.


8.
Wed, 01/09/2013 - 15:17

Response to Michael Burke
by Daniel Ernst

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Thanks for the update / correction!


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