Potential Savings of Extending Residential Energy Efficiency Tax Credits for 10 years

The recent Bipartisan Budget Act of 2018 re-instated residential energy efficiency tax credits – but only retroactively for one year through 2017.  This ‘Section 25C’ credit provides a tax credit for the purchase of certain energy-efficient equipment up to $300, which incentivizes homeowners to choose energy-efficient products over less efficient alternatives. Over $1.6 billion of these ‘Section 25C’ tax credits were claimed by homeowners in 2015 for investments in energy efficiency improvements.

For the U.S. Department of Energy, OnLocation Inc performed and analyzed a set of scenarios that could reflect the potential effect of extending the ‘25C’ residential energy efficiency tax credits for a period of 10 years, instead of just the one year. The aim of this analysis was to provide insight into the potential national and regional impact of such an extension on consumer purchasing decisions, tax credit value, and household energy bills.

For the analysis, OnLocation used a customized version of the National Energy Modeling System (NEMS)[1], focusing on the residential energy demand module to analyze the potential impact of extending the ‘25C’ tax credit from 2017 to 2026 for energy-efficient central air conditioners, natural gas water heaters, electric water heaters, electric heat pumps, and natural gas furnaces.

As illustrated here, the results were significant. Household energy bills were reduced by approximately $13 billion compared to the reference case, with the largest bill reductions occurring in the Mid Atlantic, Mountain, New England and Pacific states. The tax credit extension was found to have the highest impact on sales of water heating and central AC equipment, and the total sales of energy efficient equipment increased by 54%. The total electricity savings from implementing these energy efficiency measures is projected to be approximately 90.5 TWh and 0.4 quads of natural gas from 2017-2050. Because the analysis focused on only five equipment categories, the full impact of the tax credit with other equipment types included would likely be higher.

OnLocation uses the #1 most trusted integrated energy modeling tool (NEMS) to understand the potential impacts of energy and environmental policy scenarios such as tax credit extensions, carbon cap & trade cases, lighting standards, vehicle CAFÉ standards, nuclear plant retirements and much more. View our services to see how OnLocation can assist with modeling your energy policy scenarios.

[1] All underlying model assumptions were adopted from the EIA Annual Energy Outlook 2017 reference case.