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TESTIMONY OF HOWARD GELLER, FORMER EXECUTIVE DIRECTOR
THE AMERICAN COUNCIL FOR AN ENERGY-EFFICIENT ECONOMY
ON BEHALF OF THE SUSTAINABLE ENERGY COALITION

BEFORE THE WAYS AND MEANS COMMITTEE
SUBCOMMITTEE ON SELECT REVENUE MEASURES
U.S. HOUSE OF REPRESENTATIVES

HEARING ON THE EFFECT OF FEDERAL TAX LAWS ON
PRODUCTION, SUPPLY, AND CONSERVATION OF ENERGY

June 13, 2001

ACEEE is a non-profit organization dedicated to increasing energy efficiency as a means for both promoting economic prosperity and protecting the environment. I am testifying today on behalf of the Sustainable Energy Coalition, a coalition of over 30 national business, environmental, consumer, and energy policy organizations. I appreciate the opportunity to appear before the Subcommittee.

The Sustainable Energy Coalition supports a broad array of tax credits for innovative energy efficiency and renewable energy technologies. Adopting tax credits for these technologies will stimulate technological innovation and reduce future consumption of fossil fuels, thereby providing a number of benefits including:

saving consumers and businesses money;
reducing the costs and risks that U.S. manufacturers confront when considering introducing innovative new energy technologies;
reducing the risk of power shortages and improve the reliability of our overtaxed electric systems;
reducing future oil and natural gas imports;
reducing air pollution of all types since burning fossil fuels is the main source of most air pollution;
lowering U.S. greenhouse gas emissions and slowing the rate of global warming.

Many new energy efficiency and renewable energy technologies including photovoltaic power systems, bioenergy systems, advanced wind turbine technologies, fuel cell power systems, hybrid and fuel cell vehicles, super-efficient refrigerators and clothes washers, and super-efficient new buildings have been commercialized in recent years or are nearing commercialization. But these technologies may never get manufactured on a large scale or widely used due to their initial high cost, market uncertainty, lack of consumer awareness, and other barriers.

Tax incentives can help manufacturers justify mass production and marketing for innovative energy efficiency and renewable energy technologies. Tax credits also help buyers (or manufacturers) offset the relatively high first cost premium for the new technologies, thereby helping to build sales and market share. Once the new technologies become widely available and produced on a significant scale, costs should decline and the tax credits can be phased out.

The Sustainable Energy Coalition supports providing tax incentives for a limited time period (typically for five years) for the energy efficiency and renewable energy technologies listed below. With regard to the energy efficiency measures, a key element in designing the credits is for only highly efficient products to be eligible. If the eligibility level is set too low, there will be many so-called "free riders" (i.e., individuals who would purchase the measure without the tax credit), and the cost to the Treasury will be high and incremental energy savings low. The renewable energy credits, with a few exceptions, are based on the amount of electricity generated. This provides manufacturers with an incentive to improve the performance and reduce the cost of their renewable energy technologies.

Here is a summary of our "clean energy" tax incentives recommendations (items are listed in alphabetical order, not indicative of any priority for the Coalition as a whole):

Energy Efficiency Provisions

Appliances. We support a tax credit of $50-100 for manufacturers of highly efficient clothes washers and refrigerators (with a cap on the total credit per manufacturer). This will lead to a new generation of superefficient appliances, thereby saving energy and water. This proposal has been introduced by Sens. Allard, Lincoln, and Grassley in the Senate (S. 686) and Reps. Nussle and Tanner (H.R. 1316) in the House. It is strongly supported by the appliance industry.
Building Equipment. We support a 20% investment tax credit with caps for innovative building technologies including very efficient furnaces, stationary fuel cell power systems, gas-fired heat pumps, and electric heat pump water heaters. This proposal is included in the Bingaman-Daschle bill. Also, Rep. Nancy Johnson has introduced a version of the stationary fuel cell tax credit (H.R. 1275) which the Coalition supports.
Combined Heat and Power. We support either a 10% investment tax credit or seven-year depreciation period for combined heat and power (CHP) systems with an overall efficiency of at least 60-70% depending on system size. This proposal has strong industry support and is included in the Murkowski-Lott energy bill (S. 389), the Bingaman-Daschle energy bill (H.R. 596), as well as a bills targeted to CHP promotion introduced by Rep. Wilson (H.R. 1045) and Rep. Quinn (H.R. 1945) in the House.
Commercial Buildings. We support a tax deduction of $2.25 per square foot for investments in commercial buildings and multifamily residences that achieve a 50% or greater reduction in heating and cooling costs compared to buildings meeting current model energy codes. This proposal is included in legislation sponsored by Sen. Bob Smith (S. 207) and Reps. Cunningham and others (H.R. 778).
Hybrid Electric, Battery Electric, and Fuel Cell Vehicles. Tax credits of up to $5,000 for hybrid electric vehicles, up to $6,000 for battery electric vehicles, and $8,000 for fuel cell vehicles will help jump start introduction and purchase of these innovative, fuel-efficient technologies. The incentives should be based primarily on energy performance and provide both fuel savings and lower emissions. This proposal is included in the CLEAR Act, S. 760, introduced Sens. Hatch, Rockefeller, and Jeffords, and the companion bill (H.R. 1864) introduced by Rep. Camp.
New Homes. A tax credit of up to $2,000 for highly efficient new homes will stimulate efficiency and help lower housing costs for American families. Versions of this proposal have been introduced by Sen. Bob Smith (S. 207) and Rep. Bill Thomas and others in the last session of Congress. Variants are included in both the Murkowski-Lott (S. 389) and Bingaman-Daschle (S. 596) energy bills.

Renewable Energy Provisions

Renewable Energy Electricity Production (Section 45). We support extending the existing credits for electricity generated from windpower and closed loop biomass for five years. Also, this production credit should be expanded to include electricity produced by open loop biomass (i.e., agricultural and forestry residues but excluding municipal solid waste), geothermal energy, and incremental hydropower. The same credit should be provided to closed loop biomass co-fired with coal, and a smaller credit (one cent per kWh) should be provided for electricity from open loop biomass co-fired with coal. These provisions (in part or full) are included in the Murkowski bill, Bingaman-Daschle bill, Grassley bill (S. 530), Reid bill (S. 249), Dorgan bill (S. 94), Collins bill (S. 188), Filner bill (HR. 269), Foley bill (HR 876), Herger-Matsui bill (HR 1657), and Dunn bill (HR 1677).
Residential Solar Energy Systems. We support a 15% investment tax credit capped at $2,000 for residential solar electric and water heating systems. In this case, an investment credit is preferable to a production credit due to the relatively high cost of smaller scale solar technologies at this time. This proposal has been introduced by Sen. Allard (S. 465) and Rep. Hayworth (HR 2076). It also is included in the Murkowski-Lott bill.
Small-scale Wind Turbines. We support a 30% investment tax credit for small (75 kW and below) windpower systems. These are used in commercial and farm applications and are relatively costly compared to large wind turbines (500 kW and up). This proposal is included in the Bingaman-Daschle bill.

As noted above, virtually all of these tax credits have been introduced in the Congress with bipartisan support. Some have numerous co-sponsors already. And a number of the credits, specifically for hybrid and fuel cell vehicles, combined heat and power systems, and renewable energy technologies, are included in President Bush's energy plan. The Administration estimates that these provisions will cost the Treasury about $7 billion over 10 years. We estimate that our full set of recommendations would cost the Treasury around $10-14 billion over 10 years. This is relatively modest considering the scope and importance of our energy problems.

In summary, The Sustainable Energy Coalition urges the Ways and Means Committee and the Congress to make adoption of tax credits for innovative energy efficiency and renewable energy technologies a top priority. By enacting tax credits on a broad set of energy efficiency and renewable energy technologies, the Congress can pave the way to a cleaner, more secure, and more affordable energy future.

That concludes my testimony. Thank you again for the opportunity to testify today.