Anyone can decide at any time to install a solar power system or energy-efficient windows and appliances — or otherwise improve the energy efficiency of a home or business.
But the evidence is undeniable: Far more people go green if they get a tax break in return.
Back in 2006, when Congress passed a $2,000 credit for builders to construct homes that use 50 percent less energy than the prevailing standard, builders responded despite initial concerns that no one would be able to meet such strict standards. Three years later, one-tenth of all new homes met the much tougher standard required for the credit.
Then in 2009 and 2010, when homeowners could claim a $1,500 credit for buying and installing energy-efficient doors, windows and appliances, they rushed to take advantage of it. “We estimate that the sales impact on our overall business was 10 to 15 percent,” says Jay Lund, president and chief executive of window and door maker Andersen Corp.
Clearly, federal energy tax incentives play a big role in jump-starting a green energy movement. Yet now there is a good chance they will be scaled back significantly — or eliminated altogether.
Already, the residential tax credit was cut back by Congress from $1,500 to $500 for this year, triggering a 16 percent decline in sales of windows and doors for the industry in the first six months of the year, according to the Windows and Doors Manufacturers Association.
That credit — along with the builders’ $2,000 credit and various tax incentives for businesses — is set to expire at the end of this year unless extended by Congress.
But even if they are extended, energy incentives are still at risk, particularly if the Republicans win control of the White House in next year’s election, says Clint Stretch, director of legislative affairs at Deloitte & Touche.
“The classical conservative position is that credits and incentives for renewable energy or energy efficiency are not good policy,” Stretch says.
The mood has already been set by many of the Republican presidential candidates: Texas Gov. Rick Perry’s tax plan includes a repeal of energy incentives. Herman Cain, former Godfather’s Pizza chief executive, wants to decrease or eliminate tax credits for renewable energy. Rep. Michele Bachmann (Minn.) has voted against tax incentives for renewable energy.
Even if President Obama — a strong advocate of green energy initiatives — is reelected, “there is still going to be a push to take incentives out of the tax code in the context of tax reform,” Stretch said.
Critics of energy tax incentives have a few legitimate bones to pick with the way they are now designed. For example, it’s not that easy to measure the effectiveness of some of them.
Take one of the more generous federal programs: A 30 percent credit for solar energy installations for private homes and businesses. Since the credit was enacted in 2006, the solar energy industry has more than doubled in size and installations have shot up a staggering 800 percent, according to the Solar Energy Industries Association.
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