Efficiency First

Two new tax incentives were introduced by Senators Snowe and Bingaman earlier this month. The first, 25E, is a whole-home tax incentive that has been introduced in the Senate and which will use HERS ratings for qualifications. The second, the 25C tax incentive, will be an extension of the current tax code and it will provide incremental tax credits equivalent to the level of home energy improvement of the home.

Regarding the 25E tax credit, Efficiency First is concerned with the fact that the bill is not an extension of current efforts of home performance programs. The proposed approach for calculating savings deviates from the current national home performance program infrastructure. Using energy ratings to qualify tax credit recipients is problematic for a number of reasons. First, using HERS ratings creates an extra step and slows the process, resulting in a smaller closing rate. Second, communication between the raters and the contractors will be problematic and costly. Third, this procedure will diffuse responsibility for end results between the rater and the contractor.

Instead of using energy ratings, we suggest the alternative of using third party quality assurance, in line with the current process used by current national home performance programs. We support the performance approach, also known as Home Star, which uses delta simulation calibrated to actual bills. Efficiency First proposes five recommendations.

First, we suggest that the program requires the use of homeowner utility bills, and making before and after simulations of the home energy use. This will accurately reward energy savings.

Second, the primary beneficiary should be homes that have a more efficiency baseline, not homes that are most inefficient. This will assure maximum energy savings per tax credit dollar.

Third, those who do not pay taxes should not benefit from this tax incentive, but a different tax refund should be implemented specifically for this group.

Fourth, we encourage coordination with the DOE and the Vice President’s Recovery through Retrofit initiative in order to make this bill compatible with federal efforts for home energy efficiency.

Fifth, we recommend that a more simple system be implemented. The proposed legislation makes it so that the homeowner is not aware of whether he will receive the incentive until after the work was completed and paid for. Using the delta simulation approach will provide a measure of consumer protection.

The current 25C tax incentive will expire at the end of 2010, and the proposed extension of this legislation incorporates an inclusion of retrofit labor toward the credit. Efficiency First supports the inclusion of labor costs toward the tax credit. We further recommend to the EPA to allow weather-stripping and air sealing to qualify for the material costs and labor tax credits.