What Does the Energy Policy Act of 2005 Mean for Energy Efficiency?

By Susan Zinga

The Energy Policy Act of 2005, sometimes called EPACT, has generated much controversy. Some say it’s just a pork-filled bill that’s nothing but a set of “give-a-ways.” Others declare that it doesn’t go far enough to help incorporate more efficient products and renewable fuels into our energy-laden lifestyles. Yet, in a country of over 280 million people as geographically and culturally diverse as the United States, it might be nearly impossible to make everyone happy. But whether your perspective is that EPACT is too generous or too stingy, this article will help inform you about some of the public policies affecting energy efficiency. In many cases, these policies don’t receive national hype, yet they can have a significant impact on the actual energy usage in our nation.

Public Awareness and Opportunities for States

Many of us remember the No Smoking media campaigns of years ago. Like these campaigns, this legislation makes funding available to educate consumers on the benefits of overall energy efficiency as well as energy reduction during peak periods. The purpose of this program is not only to raise general public awareness of energy consumption in our society, but to also educate the public on practical, cost-saving measures such as weatherization, maintenance of heating and cooling equipment and the importance of purchasing energy efficient appliances. Ninety million dollars has been authorized for each year until 2010 in support of this initiative.

Education is fine and dandy, but is there any financial assistance to help consumers make more energy-conscious purchases? Yes, as a matter of fact. There are various programs that make funding available to states and communities which ultimately provide direct monetary assistance to individuals. One example of this is the Energy Efficient Appliance Rebate Program. Each state may become eligible for a portion of the fifty million dollars annually that has been authorized for the next five years to encourage residential consumers to purchase Energy Star appliances. These rebates are intended to make up the cost difference between Energy Star products and those that are less efficient, yet frequently less costly. This funding is only available to supplement a state rebate program, so it’s important to encourage your state regulators and legislators to initiate a rebate program if one has not already been established in your state. Otherwise, this funding will go elsewhere, when it could be spent in your community and make an impact on your energy bill.

EPACT 2005 also mandates that the Secretary of Energy establish a pilot program to provide financial assistance to no less than three and no more than seven states to help reduce energy consumption. Within a broad set of parameters, the Department of Energy will determine further details for state and program eligibility. While there is only $5 million allocated annually for this pilot program, it provides another reason for each individual to make his/her voice heard to state energy policymakers. Even a relatively small amount of funding can help create a viable program resulting in actual reductions in energy usage.

The standard of living for low-income individuals and families is more vulnerable to increases in energy prices. While they face the same need to heat and cool their homes as their well-to-do counterparts, they often do not have the means to invest in even the least costly of energy-efficient measures. By creating a pilot program focused on energy usage in our low-income communities, EPACT adds to the ongoing financial support first established by the Low-Income Home Energy Assistance Act of 1981. This new pilot program provides $20 million each year for the next three years for local governments, community development organizations, and Indian tribe entities to assist those facing the dilemma of low-income and rising energy costs. Offered in both rural and urban areas, this pilot program provides grants for: investments in alternative and renewable energy supplies; energy efficiency projects; and planning, technical, and development assistance all geared toward the needs of those with low-income. When combined with funding opportunities from state, local and even faith-based sources, this program can give a boost to those in our community in need of greater assistance.

Federal Tax Deductions and Credits

Another way to encourage residential property owners, contractors, and business owners to install energy efficient products is through the use of tax deductions and credits.

For much of the nation, space heating and cooling is by far the largest energy-consuming end-use in the residential sector, accounting for over one-third of household energy usage. Therefore, it’s reasonable that Federal energy legislation focus on tax incentives for space heating and cooling equipment. By encouraging homeowners to purchase a more efficient unit, Congress helps improve the overall energy efficiency within the existing housing stock. Fixed tax credit amounts have been established for energy efficient equipment meeting certain criteria. Water heaters are eligible for up to a $300 credit as are electric heat pumps and central air conditioners. Even taxpayers who install advanced main air circulating fans can receive a $50 maximum credit.

Other tax credits are also available to homeowners for residential energy efficiency improvements including a credit for 10percent of qualified building envelope improvements with a lifetime maximum of $500. There are also tax credits for residential property owners who install renewable energy sources including a 30percent credit for expenditures toward qualified photovoltaic and solar water heating equipment with an annual maximum of $2,000 for each. Tax credits of 30percent of expenditures are also available for residential fuel cell applications with an annual maximum of $500 per one-half kilowatt of capacity installed.

In addition, EPACT set its sights on new residential construction by offering contractors a $2,000 tax credit for construction of each new qualified energy-efficient home which demonstrates 50percent energy savings above a comparable dwelling. There is also a tax credit of $1,000 for manufactured homes that achieve a 30percent savings. These credits apply to homes purchased after December 31, 2005 and prior to January 1, 2008.

Congress has also included a tax deduction for energy efficient commercial buildings. A 50percent annual energy reduction is necessary for the building to qualify. The deduction is equal to the cost of the energy efficient property installed during construction, with a maximum of $1.80 per square foot of building space or a partial deduction of $0.60 per square foot for building subsystems.

Some building professionals have expressed concerns that achieving certification for a dwelling or commercial structure which meets the eligibility criteria for a tax credit or deduction will be quite difficult due to specific language used in the legislation itself. However, if the Department of Energy promulgates clear and reasonable rules for adherence to these provisions, more commercial and residential structures will be able to be constructed enabling an increase in the energy efficient building stock within our nation.

There is even a tax credit available to manufacturers to promote the production of energy-efficient dishwashers and clothes dryers prior to the 2007 effective date for the new energy usage standards. This credit is also available for the manufacture of refrigerators which achieve energy savings beyond the required minimum standard.

Appliance and Equipment Standards

EPACT also addresses usage standards for some residential and commercial appliances and equipment. By mandating the efficiency level, or standard of a given appliance or product, this legislation helps us passively reduce energy consumption. As an old appliance is retired, it is replaced by a new, more efficient model thereby slowly raising the overall efficiency of the total equipment stock across the nation.

Although seemingly mundane, such public policy changes can have an enormous impact on energy savings. Studies show that enacting appliance and equipment standards can reduce energy usage by 35-50percent. According to extensive modeling performed by the U.S. Department of Energy, the new standard for residential torchiere lamps enacted as part of this legislation will have a future energy savings of 5 billion kilowatt-hours, or 2 percent of residential lighting demand in 2010. Likewise in the commercial sector, the conservation standards established in EPACT for illuminated exit signs, traffic signals, and low voltage transformers are expected to produce energy savings of roughly 2 billion kilowatt-hours.

Focusing mainly on commercial products, the Energy Policy Act dedicates pages and pages to the details of standards for equipment used by this sector. These products include: many types and sizes of heating and cooling equipment, refrigerators, freezers, automatic ice makers, clothes washers, and even spray valves. In some cases, exact standards have not yet been established and the Secretary of Energy is directed to determine the appropriate value for many products including ceiling fans and beverage machines within 3 years of EPACT’s enactment.

Congress believes that energy standards are so important that they have actually added a section to this legislation requiring the Secretary of the Department of Energy to submit a report whenever a compliance deadline for a new or revised standard has not been met and another report every 6 months thereafter detailing the Department’s progress and implementation plan.

Research and Technology Transfer

EPACT also authorizes $2.6 billion over three years for energy efficiency research and development. While $780 million of this funding is allocated toward improved energy efficiency in vehicles, a substantial amount still remains for a variety of applications including advanced control devices on electric motors, and assistance with the technology transfer necessary to bring new, more energy efficient building products and practices to the marketplace. Fifty million annually of this total research budget has also been authorized for advanced solid-state lighting, known as the Next Generation Lighting Initiative.

The Congressional Budget Office (CBO), whose estimates have historically been much more accurate than those of the Executive Branch’s Office of Management & Budget (OMB), has tallied the direct costs and tax revenue losses resulting from the passage of EPACT. Through 2010, it estimates that the Federal government will directly spend $1.2 billion for energy efficiency alone, excluding research and development funding. During this period as well, it will incur over $6.9 billion in lost revenue as a result of tax credits and deductions, including those provided for renewable energy. Many of us can see that our nation is faced with a dire need to consume less energy in order to reduce our dependence on fossil fuels, strengthen our national security, and help maintain the standard of living we currently enjoy. This legislation is a step in the right direction. Now we must take full advantage of the opportunities it presents by encouraging our fellow citizens and state policymakers to play an active role in maximizing its potential capability. Keep informed as the details of EPACT’s programs unfold over the years. Make your voice heard to your federal and state representatives and make investments in energy efficient technologies to claim your part of the tax incentives soon to be available.

Susan Zinga is an energy expert with 25 years experience, currently involved in projects promoting energy efficient technologies and renewable energy applications. She can be contacted at szinga1@verizon.net with any questions or comments about this article.