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Senators Offer Bills to Expand Energy Efficiency Tax Incentives

Sen. Jeff Bingaman (D-NM) and Sen. Olympia Snowe (R-ME), both members of the Senate Finance Committee, have introduced four measures to expand and improve upon energy efficiency tax incentives for vehicles, homes and commercial buildings and industrial facilities, as well as tax breaks to help consumers and businesses convert to cheaper and cleaner fuels, such as natural gas. The two plan to incorporate the tax incentives in the energy tax package that the finance panel expects to consider this fall.

One measure (S. 1620) would provide rebates to consumers purchasing new vehicles with greater fuel efficiency than the applicable corporate average fuel economy (CAFE) standard. The rebate would be in an amount proportionate to a new vehicle's excess fuel efficiency above CAFE. Rebates on some vehicles (such as the Chevy Volt with a rated mileage of 100 miles per gallon) would run as high as nearly $8,000.

The purchaser would have the option to claim the rebate as a refundable income tax credit or can elect to transfer the credit to the auto dealer, who would apply the rebate to reduce the purchase price. On the flip side, the bill also would assess a fuel performance fee on a vehicle that is less efficient than CAFE, as an excise tax on the manufacturer.

A second bill (S. 1637) would extend tax incentives for the construction of energy-efficient new homes; energy-efficient manufactured homes, energy-efficient commercial buildings; and major incentives for the residential energy efficiency industry. It also adds a higher-tier credit for homes that satisfy the "Builders Challenge" standard and includes new incentives for homes in high-rise buildings, a 50% credit bonus for units in low-income developments, and incentives for home energy ratings and auditor training.

"With our crippled economy, continuing energy crisis and changing climate, Americans need timely and effective solutions to set a new course for how we use and think about energy," Snowe said. "I am pleased to work with Sens. [Dianne] Feinstein and Bingaman to build upon the success of past tax credits and provide critical energy efficiency tax incentives that will spark innovation in our housing and commercial building sector and pave the way for economical and environmentally conscious living."

The third measure (S. 1639) would create the first direct tax incentive ever for industrial energy efficiency, Bingaman and Snowe said. For the industrial sector, it would promote the use of advanced energy technologies and processes, enabling U.S. industry to reduce its fuel dependency, cut costs, reduce greenhouse gas emissions and add jobs, they said.

The bill creates incentives in three critical areas -- water reuse, advanced motors and chlorofluorocarbon chillers. It also expands incentives for combined heat and power systems. Energy-efficiency groups estimate that these incentives together would save the equivalent of four months worth of total U.S. energy consumption, according to Bingaman and Snowe.

While the industrial sector accounts for 32% of domestic energy consumption, there currently are no significant tax credits that directly promote industrial energy efficiency, the senators said. A recent study by McKinsey & Co. found that the industrial sector represents the largest potential for end-use energy efficiency in the U.S. and could save $47 billion a year on energy costs through efficiency improvements.

The fourth bill (S. 1643) would provide tax incentives so that consumers, businesses and tax-exempt entities, which currently rely on heating oil, can convert to the more efficient natural gas or biomass (wood pellet stoves) heating systems. While natural gas is markedly less expensive and more abundant from domestic sources, the significant up-front costs prevent many families and business from converting their heating systems to gas. This bill would make these conversions more affordable for families, business and tax-exempt entities, Bingaman and Snowe said.

Bingaman, who chairs the Senate Energy and Natural Resources Committee and the Senate Finance Committee's Infrastructure Subcommittee, said he will likely convene hearings to review the proposals when Congress returns from its recess after Labor Day.

In a related development last Thursday, the Treasury and Energy departments jointly announced a program to award $2.3 billion in tax credits to domestic manufacturers of advanced energy equipment. The program, which was authorized by Congress, is aimed at increasing economic development while setting the United States on a path to energy independence.

Treasury is authorized to provide developers with an investment tax credit of 30% for facilities that manufacture particular types of energy equipment. Qualifying manufacturers will produce solar, wind and geothermal equipment; fuel cells, microturbines and batteries; electric cars; electric grids to support the transmission of renewable energy; energy conservation technologies; and equipment that captures and sequesters carbon dioxide or reduces greenhouse gas emissions.

The tax credit is capped at $2.3 billion and credits are available for two years or until the cap is reached. Companies can file applications for the first round of credit awards through Oct. 16 and can expect to learn whether their applications are successful by Jan 15.

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