Will Incentives Ever Reward a Whole-System Approach?

What do you think the chances are that the energy tax credits and rebates will be extended, enlarged and set up in a way that rewards a whole house approach rather than individual items? – Frank P, Douglas, MA

Frank, The Energy Policy Act of 2005 included some provisions that were extended for another year by the last Congress in December 2006. They passed the Tax Relief and Health Care Act of 2006, H.R. 6408 (the Act), which, among other things, extended the sunset dates for:

• Energy Efficient Commercial Building Deductions—within the part of the Energy Policy Act of 2005 that allowed a new deduction for the cost of certain energy efficient property. The lifetime amount of the deduction with respect to a building is limited to $1.80 per square foot. The Act extended this deduction, which previously was set to expire at the end of 2007, to property placed in service on or before December 31, 2008.

• Energy Efficient Home Credit, which also was a part of the Energy Policy Act of 2005, allowed a new business tax credit for contractors that construct, reconstruct, rehabilitate or manufacture energy-efficient homes. The amount of the credit is $1,000 for a newly constructed or reconstructed home that meets certain certification requirements, but can be increased to $2,000. The 2006 Act extended this credit, which previously was set to expire at the end of 2007, to qualified energy-efficient homes acquired on or before December 31, 2008.

Then there was the usual set of efficiency and renewable energy appliances and applications including efficient heat pumps (including ground-coupled heat pumps), and solar thermal and photovoltaics systems. Congress, this year, will pass an energy tax bill and the question is: will they extend these again for two years, five years or longer?

So far, I have been underwhelmed with some of the recent legislation—both in terms of years, applications, adding technologies they forgot in the last bill (such as small wind and water energy) and the overall building efficiency approach.

Important residential tax credit add-on amendments are being readied to enhance incentives for ground-coupled heat pumps, small wind, and possibly photovoltaics both in the respective Committees and possibly on the House and Senate floors. This will be the real test of Congress’ commitment to renewables for residential homeowners other than the issue of the overall length of the tax credits for eight years (but I am hearing less resolve in many quarters).

Frank, it is hard to craft incentives for maximum blending of applications so that you optimize the “whole building.” The above incentives are a first step in that direction, as are the other technology incentives as well.

But many of us believe that federal and state incentives skewed to maximize the combination of energy efficiency, renewables, resource efficiency (minimal water use and maximum use of recycled materials) is a giant step in addressing resource depletion, Clean Air Act attainment, maximizing climate change emissions reductions as well as energy imports reductions. So your heart’s in the right place even though the legislative tools are still formative.