As the entire world faces the challenging dilemma of environmental
deterioration, it is becoming evident that the traditional policy regulation
and regulatory agencies are missing the mark and the environment continues to
decline. The traditional approach of
passing control regulation to hinder destructive activities, although
necessary, is not achieving the intended goals in totality. Many governments, therefore, are bending
toward new directions in environmental policy and are utilizing economic
analysis and market-based approaches.
Often times the market-based intervention takes the form of incentives,
thus providing tax credits, deductions and direct producer payments to lower
the price of cleaner products and techniques (1). In keeping to the market-based approach the Clinton
administration is proposing several tax credits in the FY 2000 Budget. This paper will discuss just one of these
credits: Tax Credits for Energy-Efficient Building Equipment.
Under the current law, there is no tax credit for the investment in
energy-efficient building equipment.
Therefore, a credit for types of building equipment that are
substantially more energy efficient than conventional equipment is proposed
with the purpose of accelerating the
development and distribution of energy-efficient technologies (2). It is desired that the proposed tax credit
for investment in energy-efficient building equipment will reduce costs to consumers
and increase the demand for the equipment while reducing manufacturing costs
(3). Thus, the tax credit, will
ultimately promote technological innovation and development and reduce energy
consumption.
The Energy-Efficient Building Equipment tax credit proposal provides
for a credit of 10 percent of the purchase price, up to a maximum of $250 per
unit for the purchase after December 31, 1999 and before January 1, 2002
of specified building equipment:
·Electric heat pumps:equipment utilizing electrically powered
vapor compression cycles to extract heat from air in one space and deliver it
to air in another space. The pump must
have a heating efficiency of at least 9 Heating Seasonal Performance Factor
(HSPF) and a cooling efficiency of at least 13.5 Seasonal Energy Efficiency
Rating (SEER).
·Central air conditioners:with an efficiency of at least 13.5 SEER.
·Advanced natural gas water heaters: equipment utilizing a variety of
mechanisms to increase steady-state efficiency and reduce standby and vent
losses with a Energy Factor of at least 0.65 in the standard Department of
Energy (DOE) test procedure (4).
Inaddition to the preceding credits, the
proposal provides for a credit of 20 percent of purchase price after December 31, 1999 and before January 1,
2004 of certain building equipment:
·Fuel Cells: equipment utilizing an electrochemical process to generate
electricity and heat with an electricity-only generation efficiency of at least
35 percent and minimum generating capacity of 5 kilowatts. The maximum credit
allowed is $500 per kilowatt of capacity.
·Electric heat pump hot water
heaters: equipment utilizing
electrically powered vapor compression cycles to extract heat from air and
deliver it to a hot water storage tank with the Energy Factor of at least 1.7
in the standard DOE test procedure. The maximum credit is $500 per unit.
·Electric heat pumps: with a heating efficiency of at least 9
HSPF and a cooling efficiency of at least 15 SEER. The maximum credit of $500
per unit.
·Central air conditioners: with an efficiency of at least 15
SEER. The maximum credit is $500 per
unit.
·Advanced natural gas water heaters: with an Energy Factor of at least 0.80 in
the standard DOE test procedure. The maximum credit is $500 per unit.
·Natural gas heat pumps: equipment utilizing either a
gas-absorption cycle or a gas-driven
engine to power the vapor compression cycle to extract heat from one
source and deliver it to another with a coefficient of performance for heating
of at least 1.25 and for cooling of at least 0.70. The maximum credit is $1000
per unit (5).
The proposed tax credits are allowed only for final purchases from
unrelated third parties. The credits
are nonrefundable and the credits for equipment used for business would be
subject to the limitations on the general business credit and would reduce the
basis of the equipment.
Although the 1.533 billion proposed
credits for Energy Efficient Building Equipment are welcomed, I believe
the proposed credits are just a modest token of what the government can do to
promote a cleaner and healthier environment.
The tax code is a powerful tool at the hands of congress and needs to be
restructured to promote those activities that promote improved environmental
conditions and restrain destructive activities of apathetic businesses and individuals.
Endnotes
1.
Morris, David (1998, December 10). Mapping Environmental Taxes: Obstacles and
Opportunities [On-line].
Available: www.me3.org/projects/greentax/dmspeech1298.html
2.
Energy Efficiency Equipment & Homes
(1999, December 9). [On-line]. Available:
www.serve.com/commonpurpose/congress/efficiency
3.
Energy Efficiency Equipment & Homes
(1999, December 9). [On-line]. Available:
www.serve.com/commonpurpose/congress/efficiency
4.
Joint Committee on Taxation, Description
of Revenue Provisions Contained in the President’s Fiscal Year 2000 Budget
Proposal (JCS-1-99), February 22, 1999
5.
Joint Committee on Taxation, Description
of Revenue Provisions Contained in the President’s Fiscal Year 2000 Budget
Proposal (JCS-1-99), February 22, 1999
