Targeted Energy Efficiency Tax Incentives Have History of Cost Savings Success

December 12, 2012

Washington, D.C.—Well-targeted energy efficiency tax incentives will result in significant energy savings and will get more energy-efficient products into the market faster, according to Steven Nadel, executive director of the American Council for an Energy-Efficient Economy, who testified before the U.S. Senate Finance Committee today. The Senate hearing focused on appropriate uses of the federal tax code for promoting investments in energy efficiency, particularly in the context of emerging discussions on tax reform.

Nadel provided the results of an ACEEE analysis which found that a five-year federal tax credit for several high-efficiency products and services cost the government less than one-tenth the cost of the energy resources saved over a 15-year period.  According to ACEEE, the options with the “most bang per buck” are tax incentives for commercial buildings (both energy-efficient new construction and energy-saving retrofits), energy-efficient new homes, heating and cooling equipment, and appliances, and combined heat and power systems. ACEEE also found that whole house energy-saving retrofits and replacing old chillers are very cost-effective. 

ACEEE’s analysis reviewed tax incentives passed by Congress in 1978 and 2005 and found that the 2005 tax incentives were more effective than the incentives of the 1980s, which were too small and promoted tried-and-true energy efficiency measures that many consumers and businesses were installing on their own. The 2005 tax incentives were more targeted, Nadel said, emphasizing advanced technologies and paying higher incentives.

In his testimony, Nadel suggested that Congress should continue to target advanced technologies and practices that currently have a low market share with federal support over a defined period of time, usually around five years so that the technologies’ market share can grow and prosper on their own after the tax incentives end.

“The most useful tax incentives target long-term structural changes in the market, using temporary federal assistance to build the market for energy-efficient products so that tax incentives can be phased out,” said Nadel. “Adoption of these recommendations will result in substantial energy savings, large energy bill reductions, and stronger U.S. manufacturers and businesses.” 

Download the transcript here.

The American Council for an Energy-Efficient Economy acts as a catalyst to advance energy efficiency policies, programs, technologies, investments, and behaviors.