A broad coalition representing millions of Americans earlier this month urged Congress to modernize and extend expired energy efficiency tax incentives, touting the enormous, long-term benefits for both the industry and U.S. consumers.
The coalition is comprised of environmental and efficiency groups, including the Natural Resources Defense Council, alongside leading manufacturers of windows, air conditioners, insulation, and other efficiency components that generate a significant number of U.S. jobs. (In total, energy efficiency supports 2.3 million U.S. workers.)
Energy efficiency is generally considered the most effective solution for addressing climate change. But as the letter addressed to House and Senate leaders points out, three efficiency incentives expired on Dec. 31, 2017, leaving the tax code without any direct inducements to cut energy waste.
Meanwhile these incentives, as originally written, are outdated. They reference older building codes or efficiency thresholds, and offer dollar amounts that don’t reflect the current market prices for building technologies and high-efficiency equipment, the letter notes. For example, the incentive to buy a high-efficiency air conditioning system is capped at $300, which isn’t enough to meaningfully affect purchasing decisions on equipment and installation that often runs $10,000 or more.
However, the letter says, this “glaring and urgent omission” also represents a golden, bipartisan opportunity. Not only would implementing efficiency credits significantly lower carbon emissions, it would also reduce energy costs for consumers, stimulate job creation, and promote economic opportunity. Tax credits have a proven track record of driving clean energy investments at minimal cost to taxpayers, so lawmakers should be eager to get on board.
But because tax incentives have repeatedly expired and been reinstated, consumers, manufacturers, and contractors have found themselves uncertain about their availability, and unable to plan upgrades to the energy efficiency of their buildings accordingly.
Thus, the letter also urges Congress to pass a “forward-looking, multi-year extension” that would offer a sense of security to get the most of out of the incentives.
The letter calls for increased maximum credits for both new home construction under the Section 45L Energy Efficient Home Credit, as well as homeowner efficiency improvements under the Section 25C Nonbusiness Energy Property Credit for existing homes. It also supports a “modernized, forward-looking, multi-year extension” of the Section 179D incentive for commercial building efficiency improvements.
Acting now will cut energy waste for decades
Homes and buildings constructed or renovated today will still be in use 50 or 100 years from now; energy-intensive equipment like air conditioners and furnaces will be used for a decade or longer. Because the residential and commercial sector accounts for 40% of U.S. energy consumption, failing to update these incentives now guarantees unnecessary energy waste and carbon emissions for many decades to come. Improved efficiency, on the other hand, will save businesses and consumers hundreds of millions of dollars annually on energy bills, reduce the demand on the utility grid, and make the U.S. more economically competitive.
The letter makes note of evidence showing that incentives are utilized more when they are set at meaningful dollar amounts. Under the American Recovery and Reinvestment Act, efficiency incentives for home improvements were increased, and nearly 7 million taxpayers claimed them in 2010. In the following years, that number fell to just 2.2 million in 2015, after the incentives dropped to pre-stimulus levels.
Previously, the 45L Energy Efficient Home Credit provided builders up to $2,000 for homes that use 50% less energy than 2006 building codes for heating and cooling and a $1,000 tax credit for new manufactured homes that achieved 30% energy savings for heating and cooling or met Energy Star requirements. The proposed increase supported by the group would raise the maximum credit to $2,500 for new homes that meet requirements. Since 45L was enacted in 2005, the number of homes that qualified by using 30% to 50% less energy on heating and cooling rose from less than 1% to around 11%.
Similarly, the 25C incentive previously provided a 10% tax credit for the purchase of certain nonbusiness energy-efficient measures up to $500. In 2015, more than $1.6 billion in tax credits were claimed by homeowners who invested in clean energy improvements, with over two-thirds of the benefits going to households with gross incomes under $100,000. The new proposal would raise incentives to provide a 15% tax credit up to $1,200, and also see some individual product category caps eliminated or raised, which would allow homeowners to do multiple projects.
Efficiency tax incentives are especially crucial now, as the Trump administration continues its push for more climate-polluting fossil fuels while attempting to undermine the excellent and important progress on energy efficiency.
The International Energy Agency reports that efficiency alone can account for at least 40% of the emissions reductions needed to meet global targets. Restoring and improving these incentives offers a bipartisan opportunity that would accomplish goals across the board.