Financial Incentives for Energy Efficiency

Financial incentives are an important instrument for spurring investment in energy efficient technologies and services. The incorporation of a financial incentive can make energy efficiency investments more alluring for private and public entities, particularly by lowering inhibitive upfront costs. Financial incentives also complement other efficiency policies such as appliance standards and energy codes, overcoming market barriers for cost-effective technologies. 

Financial incentives can take many forms: rebates, grants or loans for energy-efficiency improvements, direct income tax deductions for individuals and businesses, and exemptions or reduced sales tax on eligible products. Incentives offered by the federal government are generally in the form of tax incentives, which target consumers purchasing home appliances, equipment, or home shell items such as windows or insulation. Tax incentives also target equipment manufacturers and businesses that sell efficient equipment.

Many financial incentives are offered at the state level through state government agencies and utilities. Utilities offer a wide array of incentives funded by ratepayers through a systems benefits charge, which in many cases accrues into a Public Benefits Fund (PBF) that supports energy efficiency investments. State governments also can access PBFs to offer financial incentives. In some cases, states charge a third-party to administer PBFs, as in Wisconsin, Vermont, and Oregon.

States also commonly provide financial incentives through State Energy Offices and Departments of Revenue, which partner with market actors to ensure consumers, retailers, and energy service providers understand the array of financing opportunities available. These incentives are funded through state appropriations, Recovery Act funds, and forgone tax revenue.

⇒ FInd out which states have financial incentives in place with ACEEE's State Energy Efficiency Policy Database.

⇒ For detailed information on federal and state financial incentives, visit the Database of State Incentives for Renewables and Efficiency (DSIRE).