EUF > Policy Analysis > Tax Credits for Efficient Equipment

Analysis of Tax Credits for Efficient Equipment

Project Description

In Fall of 1997 (and again in Fall of 1998), LBNL was asked by EPA and DOE to conduct analysis of proposed tax credits for efficient equipment in the building sector. The LBNL analyses served as input to the Treasury Department as they were designing the Clinton Administration's tax credit package. Preliminary analyses were conducted for ten technologies, and six of these were chosen for detailed analysis. These six were:

  • Commercial-sized fuel cells
  • Residential-sized
  • Electric heat pump water heaters
  • Natural gas heat pumps
  • Natural gas water heaters
  • Electric air-source heat pumps
  • Electric central air conditioners

We analyzed four cases for each technology:

  • 10% rebate that lasts for 5 years;
  • 10% rebate that lasts for 10 years;
  • 20% rebate that lasts for 5 years;
  • 20% rebate that lasts for 10 years.

We estimated baseline sales of the efficient equipment, and then assessed the potential effect of rebates on those sales, using Kenneth Train's empirical data on utility rebate programs in Southern California. These data allowed us to split the effect of the rebate into two components: a price effect, which depends on the size of the rebate, and an announcement effect, which is independent of the size of the rebate. This latter effect is the result of the credibility lent to a new technology by the existence of the credit

We also explicitly accounted for learning curve effects, so that as cumulative production experience for a given technology increased, the cost of the technology per unit came down as a function of a "progress ratio".

We estimated energy and carbon savings based on runs of the National Energy Modeling System for water heaters, electric air-source heat pumps, and central air conditioners. Carbon savings for fuel cells and natural gas heat pumps were based on detailed energy balance calculations for these technologies.

Project Staff

Jonathan Koomey
R. Cooper Richey

Key Data

The Spring 1999 Administration energy efficiency tax credit proposals differ somewhat from the analysis results summarized in the spreadsheets below, which were created in Fall 1997 as input to the first round of the Administration's proposals. The Treasury Department analysts who created the final tax package used our analysis as input, but modified it in several ways. Consult with these analysts directly if you have questions on the Administration's exact analysis method. We include our analysis files here because they embody our latest thinking about analyzing the effects of rebates, and incorporate several methodological advances, including explicit characterization of the rebate price effect, the rebate announcement effect, and learning effects from increased production experience. All files are in Microsoft Excel 97/98 format.

The following two files contain summaries of the effects of rebates on energy efficient residential (194k) and commercial (193k) sector equipment, based on the econometric work of Ken Train of Cambridge Systematics. We used the Cambridge Systematics work and other data sources to create the analysis spreadsheets below. Each worksheet contains tabs for the four scenarios described above as well as relevant input assumptions.

Summary Results(45k)

Central Air Conditioners (146k)

Electric Heat Pumps (127k)

Electric Heat Pump Water Heaters (110k)

Gas Water Heaters (128k)

Natural Gas Heat Pumps (162k)

Fuel Cells (151k)


Methodology for rebate analysis, taxmethod.rtf (in Microsoft Word interchange format).

Other Resources

Customer Decision Study: Analysis of Residential Customer Equipment Purchase Decisions. July 22, 1994. Prepared for Southern California Edison Company by Cambridge Systematics, Pacific Consulting Services, The Technology Applications Group, and California Survey Research Services.

1998 Administration Tax Revenue Proposal (The "Green Book") - PDF Format

Energy Tax Credits in Oregon for businesses--summary and home page

Energy Tax Credits in Oregon

Energy Tax Credits in Hawaii

Summary of tax credits affecting solar energy systems in the mid-Atlantic region