Tax Credits for Energy Efficiency and Green Buildings: Opportunities for State Action

April 2, 2002

Media Contact(s):

Wendy Koch, 202-507-4753, Senior Director, Marketing & Communications

WASHINGTON, D.C. — While federal incentives for energy efficiency investment have been weak, a number of states have taken significant steps to encourage energy efficiency through such policies as sales tax waivers or income tax credits for purchases of energy-efficient equipment. The American Council for an Energy-Efficient Economy today released a new report, Opportunities for State Action: Tax Credits for Energy Efficiency in the Private Sector, which details these state programs.

The new report documents a state-by-state analysis of the energy efficiency tax incentives provided by the states for the private sector. Lead author Elizabeth Brown said, "Our goal is to help state policymakers draw on other states' experiences to design and evaluate their own programs. States play a fundamental role in addressing energy use and the deployment of energy efficiency measures at the regional and local level, and are well suited to provide tax incentives that foster technology options matched to the needs of their residents."

State-funded energy efficiency incentive programs encourage the private sector to provide products and services that address states' energy, economic, and environmental goals. In particular, these incentives help to overcome market failures that limit private investment in cost-effective efficiency measures. Examples of market failures are that projected returns may be lower than for other, non-energy investments, or technology deployment time frames may be too long. Tax credits can accelerate customer acceptance and increase market share for these high-efficiency products and services.

Stressing the diversity of state approaches, co-author Harvey Sachs commented, "States have shown remarkable savvy in tailoring programs to meet the needs of their citizens and businesses. These programs address everything from green buildings and alternative fuel vehicles to better appliances." The report analyzes vehicle efficiency programs in Arizona, Maryland, and Oregon, and building-related programs in Hawaii, Idaho, Maryland, Massachusetts, New Jersey, New York, and Oregon.

The report also notes common features of effective state tax incentive programs. They stimulate market acceptance of advanced technologies by establishing appropriate criteria and allow enough time for credits to affect the market. The programs are flexible with respect to who receives the credits and complement other policy initiatives (state public benefit charges, federal, and municipal programs).

Opportunities for State Action: Tax Credits for Energy Efficiency in the Private Sector is available online for free at aceee.org/pubs/e021.htm, excluding appendices. Hard copies (which include the two appendices) can be ordered for $17.00 (plus $5.00 shipping and handling) from ACEEE Publications, 529 14th St, N.W., Suite 600, Washington, D.C. 20045, phone: 202-507-4000, fax: 202-429-2248, e-mail: aceee_publications@aceee.org.

The Executive Summary of this report is also available in PDF.