Statement of Edward R. Osann, President Potomac Resources Inc. Regarding Tax Policy Recommendations in "Sensible Energy Policies for Our Growing Economy," by the Sustainable Energy Coalition

April 24, 2001

The report being released today contains a number of recommendations for adjustments to federal tax policy. These are primarily laid out on pages 46 through 56 of the report. Taken together, these initiatives would:

  • Encourage rapid development of clean renewable sources of energy;

  • Spur investment in new energy efficient technology; and

  • Reduce the environmental impacts of natural resource extraction and energy consumption.

The proposals for tax policy offered here are a combination of additions to the tax code to advance innovations in energy efficiency and renewable energy, and a culling out of obsolete and counterproductive tax subsidies for fossil and nuclear fuels and nuclear plant decommissioning. Many of the new initiatives are proposed to automatically expire at a date certain, to concentrate their benefit toward the early stages of the entry of new technology into the marketplace. In contrast, many of the tax subsidies for fossil and nuclear fuels have outlived their usefulness and serve to perpetuate an unfair market advantage for mature technologies and polluting fuels.

I would like to briefly summarize four of the proposals recommended for stimulating investments in energy efficiency.

Efficient Vehicles

Transportation accounts for more than one-quarter of all US energy use, and two-thirds of all US oil consumption. For too long, the nation has ignored the deterioration of the energy efficiency of our new motor vehicle fleet. Many exciting technical breakthroughs of the last decade have been slow in reaching the marketplace. The incentives contained in the CLEAR ACT, introduced today by Senator Hatch and others, are directed toward the purchase of new vehicles based on innovative technology, fuel economy, and advanced emissions reductions. Hybrid electric, fuel cell, and dedicated alternative fuel vehicles will qualify, whether they are passenger cars, light trucks, or medium- and heavy-duty vehicles. Certain infrastructure investment and alternative fuels also qualify for incentives. The CLEAR ACT effectively aligns the interests of taxpayers, energy consumers, motor vehicle manufacturers, national security, and public health in a single piece of legislation.


Efficient Buildings

The energy needed to operate buildings in the US accounts for roughly one-third of our total energy use and more than 35% of our air pollution. Summer air conditioning loads contribute to electricity shortages in many parts of the country. The Sustainable Energy Coalition supports tax credits for new single family homes. Proposals include credits of $750 to $1,000 for homes that achieve a 30% reduction in heating and cooling costs compared with homes meeting current model code requirements, and $2,000 for homes that achieve a 50% reduction. In addition, a tax deduction of $2.25 per square foot should be authorized for investments in new multifamily residential and other commercial buildings that achieve a 50% reduction in heating and cooling costs compared with buildings meeting the current model commercial code requirements. Tax incentives for commercial buildings will increase the profitability of firms that own buildings, thereby raising corporate tax collection and providing offsetting revenues to the Treasury.


Efficient Appliances, Heating, and Air Conditioning Equipment

The Sustainable Energy Coalition supports an investment tax credit of 20% for purchases of fuel cells, electric heat pump hot water heaters, and natural gas heat pumps. Each of these technologies constitutes a major breakthrough for its respective application. The fuel cell tax credit, capped at $1000 per kilowatt, should be applicable for purchasers of all types and sizes of permanently installed stationary fuel cell systems through 2006, at which point fuel cell manufacturers should be able to produce a product at market entry cost. Additionally, we support a credit for manufacturers of extra-high efficiency refrigerators and clothes washers, set at $50 to $100 per unit depending on efficiency level. US manufacturers agreed to substantial upward revisions in the qualifications for the voluntary ENERGY STAR labeling program for these appliances, and this credit will speed the production and market penetration of the leading edge technologies needed to achieve these extra-high levels of efficiency. Over the period 2001 through 2006, a manufacturer cannot receive more than a cumulative total of $60 million in tax credits, and a company's tax credits in any one year cannot exceed 2 % of gross corporate revenues.


Combined Heat and Power Systems

Combined heat and power systems offer dramatic improvements in energy efficiency by capturing and making beneficial use of heat that is currently wasted in the typical forms of electric power production today. However, CHP systems are capital intensive, and the components of these systems are subject to a variety of depreciation schedules that are not well attuned to the economic life of these assets. We recommend that CHP and district energy systems that are at least 65% energy efficient should have a depreciation schedule of 7 years. An estimated 50,000 megawatts of CHP capacity could be brought on line by 2010 if depreciation is revised and regulatory obstacles reduced.