Federal Energy Efficiency Tax Incentives

Issue Brief
December 09, 2013

Four important federal tax incentives driving critical energy-saving gains unfortunately expired at the end of 2013. It is essential that Congress extend the energy efficiency incentives created under the Energy Policy Act of 2005 in order to ensure continued growth of America’s cheapest fuel source, energy efficiency, creating tens of thousands of new jobs throughout the country. Failure to act would increase dangerous pollution, sacrifice employment growth, and stifle U.S. innovation and competiveness.

With appropriate extensions and updates, however, the four tax incentives created to improve the energy efficiency of U.S. homes, commercial buildings, and appliances could add $8.3 billion to the nation’s gross domestic product over the next 16 years and create hundreds of thousands of jobs, while averting an astonishing 16.4 quadrillion Btu of fuel use, 3.2 million gigawatt-hours of electricity, and the dangerous emissions associated with power generation.

Tax incentives are a cost-effective way to encourage U.S. consumers and industry to overcome the market barriers to investing in approaches designed to cut energy waste. To create stability and inspire further innovation, Congress should extend these expiring incentives for multiple years while making improvements to ensure they are performance-based, technology-neutral incentives with maximum impact but minimum cost:

  • Tax deduction for the construction of efficient commercial buildings (Section 179D)
  • Tax credit for the construction of efficient homes (45L)
  • Tax credit for investment in residential efficiency improvements (25C)
  • Credit for manufacturers of efficient appliances (45M)