APPENDIX 17

- A. REGULATORY IMPACT AN ALYSIS: SUPPORTING
MATERIALS

TABLE OF CO NTENTS

17

- A.1 INTRODUCTION

................................ ................................ ............................... 17

- A

- 2

17

- A.2 MARKET SHARE ANNUAL INCREASES BY POLICY

................................ 17

- A

- 3

17

- A.3 NIA

- RIA INTEGRATED MODEL

................................ ................................ ..... 17

- A

- 5

17

- A.4 CONSUMER REBATE POLI CY MARKET PENETRATIO N CURVES

........ 17

- A

- 5

17

- A.4.1 Introduction

................................ ................................ ................................ .......... 17

- A

- 5

17

- A.4.2 Adjustment of XENERGY Penetration Curves

................................ ................... 17

- A

- 7

17

- A.4.3 Interpolation of Penetration Curves

................................ ................................ ..... 17

- A

- 8

17

- A.5 CONSUMER REBATE PROG RAMS

................................ ................................ 17

- A

- 9

17

- A.6 FEDERAL AND STATE TA X CREDITS

................................ ........................ 17

- A

- 13

17

- A.6.1 Federal Tax Credits for Consumers of Residential Appliances

......................... 17

- A

- 13

17

- A.6.2 Federal Tax Credits for Manufacturers

................................ .............................. 17

- A

- 14

17

- A.6.3 State Tax Credits

................................ ................................ ................................ 17

- A

- 14

LIST OF TABLES

Table 17

- A.2.1 Annual Increases in Market Shares Attributable to Alternative Policy

Measures for Front

- Loading Commercial Clothes Washers

................... 17

- A

- 3

Table 17

- A.2.2 Annual Increases in Market Shares Attributable to Alternative Policy Measures for Top

- Loading Commercial Clothes Washers

...................... 17

- A

- 4

Table 17

- A.5.1 Rebates for Commercial Clothes Washers

................................ ............ 17

- A

- 10

LIST OF FIGURE S

Figure 17

- A.4.1 S

- Curves Showing Effects of External and Internal Sources on Adoption of New Technologies

................................ ............................... 17

- A

- 7

17

- A

- iAPPENDIX 17

- A. REGULATORY IMPACT AN ALYSIS: SUPPORTING M ATERIALS

17

- A.1 INTRODUCTION

This appendix contains sections discussing the following topics:

• Projections of annual market share increases for the alternative policies;

• NIA

- RIA Integrated Model;

• XENERGY penetration curves used to analyze consumer rebates, including:

o Background material,

o DOE’s adjustment of these curves for this analysis, and

o The me thod DOE used for interpolating the curves;

• Detailed tables of rebates offered for the considered products; and

• Background material on Federal and state tax credits for appliances

.

17

- A

- 217

- A.2 MARKET SHARE ANNUAL INCREASES BY POLICY

Table 17

- A.2.1 and Table 17

- A.2.2 show the annual increases in market s h ares for

commercial clothes washers meeting the target efficiency levels of the selected TSL (TSL 2)

. DOE used these market share increases as inputs to the NIA

- RIA spreadsheet model.

Table 17

- A.2.1 Annual Increases i n Market Shares Attributable to Alternative Polic y Measures for Front

- Loading Commercial Clothes Washers

Year Consumer

Rebates Consumer
Tax Credits Manufacturer
Tax Credits Voluntary Energy Efficiency

Targets Early Replacement Bulk
Government

Purchases

2018 0.9% 3.2% 1.6% 0.5% 6.5% 1.3%

2019 0.9% 4.8% 2.4% 5.6% 6.7% 1.3%

2020 0.9% 6.5% 3.3% 8.9% 7.0% 1.3%

2021 0.9% 7.6% 3.8% 11.2% 7.2% 1.4%

2022 0.9% 8.3% 4.2% 13.0% 7.4% 1.4%

2023 0.9% 9.0% 4.5% 14.5% 7.4% 1.4%

2024 0.9% 9.5% 4.8% 15.8% 7.3% 1.4%

2025 0.9% 8.9% 4.5% 17.0% 7.2% 1.4%

2026 0.9% 8.3% 4.2% 18.0% 6.8% 1.5%

2027 0.9% 7.7% 3.9% 18.8% 6.4% 1.5%

2028 0.9% 7.1% 3.6% 19.7% 5.9% 1.5%

2029 0.9% 6.3% 3.2% 20.4% 5.1% 1.5%

2030 0.9% 5.5% 2.8% 21.1% 4.2% 1.5%

2031 0.9% 4.7% 2.3% 21.7% 3.0% 1.5%

2032 0.9% 3.9% 1.9% 22.3% 1.7% 1.5%

2033 0.9% 3.1% 1.5% 22.9% 0.1% 1.5%

2034 0.9% 2.3% 1.1% 23.4% 0.0% 1.5%

2035 0.9% 1.4% 0.7% 23.9% 0.0% 1.5%

2036 0.9% 0.6% 0.3% 24.3% 0.0% 1.5%

2037 0.9% 0.0% 0.0% 24.8% 0.0% 1.5%

2038 0.9% 0.0% 0.0% 25.2% 0.0% 1.5%

2039 0.9% 0.0% 0.0% 25.6% 0.0% 1.5%

2040 0.9% 0.0% 0.0% 26.0% 0.0% 1.5%

2041 0.9% 0.0% 0.0% 26.3% 0.0% 1.5%

2042 0.9% 0.0% 0.0% 26.7% 0.0% 1.5%

2043 0.9% 0.0% 0.0% 27.0% 0.0% 1.5%

2044 0.9% 0.0% 0.0% 27.3% 0.0% 1.5%

2045 0.9% 0.0% 0.0% 27.7% 0.0% 1.5%

2046 0.9% 0.0% 0.0% 28.0% 0.0% 1.5%

2047 0.9% 0.0% 0.0% 28.2% 0.0% 1.5%

17

- A

- 3Table 17

- A.2.2 Annual Increases in Market Shares Attributable to Alternative Policy

Measures for Top

- Loading Commercial Clothes Washers

Year Consumer

Rebates Consumer
Tax Credits Manufacturer
Tax Credits Voluntary Energy Efficiency

Targets Early Replacement Bulk
Government

Purchases

2018 23.3% 5.2% 2.6% 0.5% 8.6% 0.6%

2019 23.3% 8.0% 4.0% 5.6% 8.2% 0.7%

2020 23.3% 10.9% 5.4% 8.9% 7.8% 0.8%

2021 23.3% 12.7% 6.3% 11.2% 7.6% 0.9%

2022 23.3% 13.8% 6.9% 13.0% 7.3% 1.0%

2023 23.3% 14.9% 7.5% 14.5% 7.0% 1.1%

2024 23.3% 15.8% 7.9% 15.8% 6.7% 1.2%

2025 23.3% 14.8% 7.4% 17.0% 6.5% 1.3%

2026 23.3% 13.8% 6.9% 18.0% 6.3% 1.4%

2027 23.3% 12.8% 6.4% 18.8% 6.1% 1.5%

2028 23.3% 11.8% 5.9% 19.7% 5.7% 1.5%

2029 23.3% 10.5% 5.2% 20.4% 5.1% 1.5%

2030 23.3% 9.1% 4.6% 21.1% 4.1% 1.5%

2031 23.3% 7.8% 3.9% 21.7% 2.6% 1.5%

2032 23.3% 6.4% 3.2% 22.3% 0.8% 1.5%

2033 23.3% 5.1% 2.5% 22.9% 0.0% 1.5%

2034 23.3% 3.7% 1.9% 23.4% 0.0% 1.5%

2035 23.3% 2.4% 1.2% 23.9% 0.0% 1.5%

2036 23.3% 1.1% 0.5% 24.3% 0.0% 1.5%

2037 23.3% 0.0% 0.0% 24.8% 0.0% 1.5%

2038 23.3% 0.0% 0.0% 25.2% 0.0% 1.5%

2039 23.3% 0.0% 0.0% 25.6% 0.0% 1.5%

2040 23.3% 0.0% 0.0% 26.0% 0.0% 1.5%

2041 23.3% 0.0% 0.0% 26.3% 0.0% 1.5%

2042 23.3% 0.0% 0.0% 26.7% 0.0% 1.5%

2043 23.3% 0.0% 0.0% 27.0% 0.0% 1.5%

2044 23.3% 0.0% 0.0% 27.3% 0.0% 1.5%

2045 23.3% 0.0% 0.0% 27.7% 0.0% 1.5%

2046 23.3% 0.0% 0.0% 28.0% 0.0% 1.5%

2047 23.3% 0.0% 0.0% 28.2% 0.0% 1.5%

17

- A

- 417

- A.3 NIA

- RIA INTEGRATED MODEL

For this analysis, DOE used its integrated NIA

- RIA a model appro ach that built on the

NIA model discussed in Chapter 1 1 and documented in Appendix 1 1

- A. The resulting integrated

NIA

- RIA model featured both the NIA analysis inputs and results and the RIA inputs and had

the capability to generate results for each of the RIA polic ies. A separate module produced results summaries for the tables and figures in the RIA document. For the RIA methodology

documentation in C hapter 17 t he module created summaries of parameters calculated by the

model for the consumer rebates policy, generated the corresponding customized penetration curves (discussed in S ection 17

- A.4.3 below)

, and reported market s hare impacts for the rebate

and tax cred it policies by product class. For the RIA results reported in C hapter 17 the module produced graphs of the market sh are increases resulting from each of the policies analyzed and

created summary tables for the nati onal energy savings (NES) and net present value (NPV)

results

. This module also generated tables of market share increases for each policy reported in

S ection 17

- A.2 of this Appendix

.

17

- A.4 CONSUMER REBATE POLI CY MARKET PENETRATIO N CURVES

This section first discusses the theoretical basis for the market penetration curves that DOE used to analyze the Consumer Rebates policy. Next it discusses the adjustments it made to the maximum penetration rates. It then refers to the method it used to d evelop interpolated penetration curves for each specific equipment class and efficiency level in the analysis. The resulting customized curve s for front

- loading and top

- loading commercial clothes washer are in chapter 17

.

17

- A.4.1 Introduction

XENERGY, Inc. b , deve loped a re

- parameterized, mixed

- source information diffusion model to estimate market impacts induced by financial incentives for purchasing energy efficient appliance s. 1 The basic premise of the mixed

- source model is that information diffusion drives the adoption of technology.

Extensive economic literature describes the diffusion of new pro ducts as technologies evolve. Some research focuses primarily on developing analytical models of diffusion patterns applicable to individual consumers or to technologies from competing firms

. 2

, 3

, 4 One study records researchers’ attempts to investigate the factors that drive diffusion processes

. 5 Because a new product generally has its own distinct characteristics, few stud ies have been able to conclusively develop a universally applicable model. Some key findings, however, generally are accepted in academia and industry.

a NIA = national impact analysis; RIA = regulatory impact analysis

b XENERGY is now owned by KEMA, Inc. ( www.kema.com ) 17

- A

- 5One accepted finding is that, regardless of their economic benefits and technological merits, new technologies are unlikely to be adopted by all potential users. For many products, a

ce iling must be placed on the adoption rate. A second conclusion is that not all adopters purchase new products at the same time: some act quickly after a new product is introduced; others wait for the product to mature. Third, diffusion processes can be cha racterized approximately by asymmetric S

- curves that depict three stages of diffusion: starting, accelerating, and decreasing (as the adoption ceiling is approached).

A so

- called epidemic model of diffusion is used widely in marketing and social studies. The epidemic model assumes that (1) all consumers place identical value on the benefits of a new product, and (2) the cost of a new product is constant or declines monotonically over time. What induces a consumer to purchase a new product is information a bout the availability and benefits of the product. In other words, information diffusion drives consumers’ adoption of a

new product

. 3 The model incorporates information diffusion from both internal sources (spread by word of mouth from early adopters to prospective adopters) and external sources (the “announcement effect” produced by government agencies, institutions, or commercial advertising). The model incorporates both internal and exte rnal sources by combining a logistic function with an exponential function. 4

, 5

The relative degree of influence from the internal and external sources determines the general shape of the diffusion curve for a specific product. 4

, 5 If adoption of a product is influenced primarily by external sources of information (the announcement effect), for ins tance, a high rate of diffusion occurs at the beginning of the process. In this scenario, external sources provide immediate information exposure to a significant number of prospective adopters. In contrast, internal sources (such as a network of prospecti ve adopters) are relatively small in size and reach, producing a more gradual exposure to prospective adopters. Graphically speaking, information diffusion dominated by external sources is represented by a concave curve (the exponential curve in Figure 17

- A.4.1 ). If adoption of a new product is influenced most strongly by internal sources of information, the number of adopters increases gradually, forming a convex

c urve (the logistic curve in Figure 17

- A.4.1 ).

17

- A

- 6Figure 17

- A.4.1 S

- Curves Showing Effects of External and Internal Sources on Adoption of New Technologies

17

- A.4.2 Adjustment of XENERGY Pen etration Curves

In consultation with the primary authors of the 2002 XENERGY study who later conducted similar California studies, DOE made some adjustments to XENERGY’s original implementation (penetration) curves. 6 The experiences with utility progra ms since the XENERGY study indicate that incentive programs have difficulty achieving penetration rates as high as 80 percent. Consumer response is limited by barriers created by consumer utility issues

and other non

- economic factors. DOE therefore adjuste d the maximum penetration parameters for some of the curves from 80 percent to the following levels:

Moderate Barriers: 70% High Barriers: 60% Extremely High Barriers: 50%

The low barriers and no barriers curves (the latter used only when a pro duct has a very high base

- case

- market share) remained, respectively, with 80 percent and 100 percent as their maximum penetration rates. For the interpolated penetration curves (discussed below), DOE set

the no barriers and extremely high barriers curves a s the upper and lower bounds, respectively,

17

- A

- 7for any benefit/cost ratio points higher or lower than the curves. It set another constraint such that the policy case market share cannot be great than 100 percent, as might occur for products with high base cas e market shares of the target

- level technology.

17

- A.4.3 Interpolation of Penetration Curves

As discussed above, the XENERGY penetration (implementation) curves followed a functional form to estimate the market implementation rate caused by energy efficiency

measures such as consumer rebates. c The XENERGY report presents five reference market implementation curves that vary according to the level of market barriers to technology penetration. 1 Such curves have been used by DOE in the Regulatory Impact Analyses for rulemakings for appliance energy efficiency standards to estimate market share incr eases in response to rebate programs. d They provide a framework for evaluating technology penetration, yet require matching the studied market to the curve that best represents it. This approximate matching can introduce some inaccuracy to the analysis.

Blum et al (2011, Appendix A) 7 presents an alternative approach to such eva luation: a method to estimate market implementation rates more accurately by performing interpolations of

the reference curves. The referred report describes the market implementation rate function and the reference curves, the method to calibrate the func tion to a given market, and the limitations

of the method.

c The RIA chapter refers to these curves as penetration curves . This section, in references to the original source, uses

the term implementation curve

. d DOE has also used this method to estimate market share increase s resulting from consumer tax credit and manufacturer tax credit programs, since the effects of tax credits on market s can be considered proportional to the

rebate impacts

. 17

- A

- 817

- A.5 CONSUMER REBATE PROGRAMS

DOE performed a search for rebate programs that offered incentive s for commercial

clothes washers . Some organizations nationwide, comprising elect ric utilities and reg ional agencies, offer rebat e programs for commercial clothes washers

. Table 17

- A.5.1 provides the organizations’ names, states, rebate amounts and program websites. If there is more than one

e ntry for an organization, it offers different rebates in different states

. When an organization offers rebates through several utilities, it is represented only once in each table.

DOE calculated the reb ate amount it used in its analysis of the R ebate s policy case from a sample of 38 rebates from 26 organizations. The rebate amount DOE calculated for commercial

clothes washers is $ 160.47 in 201 3 $ (formerly $158.16 in 2012$ )

. Th is amount refers to the simp le average of the individual amounts offered by the programs reported in Table 17

- A.5.1

.

17

- A

- 9Table 17

- A.5.1 Rebates for Commercial Clothes Washers Utility or Agency State Rebate $ Website

City of Palo Alto CA $400 http://www.cityofpaloalto.org/gov/depts/utl/business/rebates/water.asp?Bl

obID=14758

Pacific Power

- FinAnswer Express CA $150 http://www.pacificpower.net/content/dam/pacific_power/doc/Business/Sa ve_Energy_Money/CA_FinAnswer_Express_Appliance_Incentives.pdf

Pacific Power

- FinAnswer Express CA $200 http://www.pacificpower.net/content/dam/pacific_power/doc/Business/Sa ve_Energy_Money/CA_FinAnswer_Express_Appliance_Incentives.pdf

PG&E CA $50 http://www.pge.com/includes/docs/pdfs/mybusiness/energysavingsrebates /incentivesbyindustry/appliances_generalimprovements_catalog_final.pdf

Riverside Public Utilities CA $75 http://www.greenriverside.com/Green

- Rebate

- Programs

7/Commercial/Energy_Efficiency

- 112/Rebate

325/Energy_Star_Rated_Product_Incentives Silicon Valley Power CA $400 https://siliconvalleypower.com/index.aspx?page=1932

Questar Gas ID $75 http://www.thermwise.com/business/BusinessRebates.html

Avista Utilities (Electric) ID $200 https://www.avistautilities.com/business/rebates/washington/washer/Page s/default.aspx Avista Utilities (Electric) WA $200 https://www.avistautilities.com/business/rebates/washington/washer/Page s/default.aspx

Cedar Falls Utilities IA $50 http://www.cfu.net/webres/File/2013%20Commerical%20Rebates%20

- %204%20page_web.pdf

Hutchinson Utilities Commission MN $50 http://www.hutchinsonutilities.com/pdf/prescriptiverebate.pdf

New Mexico Gas Company NM $100 http://eeprograms.net/newmexicogas/comsolprescriptive/upgrades.php

NYSERDA: Existing Facilities Program NY $200 http://www.nyserda.ny.gov/BusinessAreas/Energy

- Efficiency

- and

Renewable

- Programs/Commercial

- and

- Industrial/CI

- Programs/Existing

Facilities

- Program/Pre

- Qualified

- Incentives.aspx Dayton Power and Light OH $50 http://www.dpandl.com/save

- money/business

- government/rapid

rebates/motors

- drives

- and

- compressed

- air

- rebates/ State Rebate Program: Business Energy Efficiency Rebate for Existing Buildings OR $200 http://energytrust.org/library/forms/BE_PI0194F.pdf

17

- A

- 10State Rebate Program: Business Energy Efficiency Rebate for Existing Buildings OR $300 http://energytrust.org/library/forms/BE_PI0194F.pdf

Idaho Power OR $200 http://www.idahopower.com/pdfs/EnergyEfficiency/EasyUpgrades/works heet_Plug2011.pdf

SCE&G (Electric) SC $50 http://www.sceg.com/NR/rdonlyres/A464F2E3

- 43EF

- 43B9

- A72B

93013D6E678D/0/Food_Services_High_Efficiency_v9.pdf

Texas Gas Service TX $100 http://www.texasgasservice.com/en/SaveEnergyAndMoney/Conservation Programs/AustinConservation/CommercialPrograms/CommAppliancePro grams/WashWise.aspx Questar Gas UT $75 http://www.thermwise.com/business/BusinessRebates.html

Cascade Natural Gas WA $180 http://www.cngc.com/docs/conservation

- materials/ci

- incentives

- list

- q2

- 2012.pdf NW Natural (Gas) WA $200 http://energytrust.org/library/forms/BE_PI0194F.pdf

NW Natural (Gas) WA $300 http://energytrust.org/library/forms/BE_PI0194F.pdf

NW Natural (Gas) OR $200 http://energytrust.org/library/forms/BE_PI0194F.pdf

NW Natural (Gas) OR $300 http://energytrust.org/library/forms/BE_PI0194F.pdf

Pacific Power

- FinAnswer Express WA $150 http://www.pacificpower.net/content/dam/pacific_power/doc/Business/Sa ve_Energy_Money/WA_FinAnswer_Express_Appliances_Incentives.pdf

Pacific Power

- FinAnswer Express WA $200 http://www.pacificpower.net/content/dam/pacific_power/doc/Business/Sa ve_Energy_Money/WA_FinAnswer_Express_Appliances_Incentives.pdf Port Angeles Public Works & Utilities WA $180 https://www.cityofpa.us/PDFs/Conservation/Forms/COMMERCIALAPP LIANCEREBATES.pdf Port Angeles Public Works & Utilities WA $75 https://www.cityofpa.us/PDFs/Conservation/Forms/COMMERCIALAPP LIANCEREBATES.pdf Puget Sound Energy WA $200 http://pse.com/savingsandenergycenter/ForBusinesses/Pages/High

efficiency

- Commercial

- Clothes

- Washers.aspx Questar Gas WY $150 http://www.thermwise.com/wy/business/BusinessRebateApplicationsWY. php Rocky Mountain Power WY $150 http://www.rockymountainpower.net/content/dam/rocky_mountain_powe r/doc/Business/Save_Energy_Money/WY_FinAnswer_Express_Applianc es_Incentives.pdf Rocky Mountain Power WY $200 http://www.rockymountainpower.net/content/dam/rocky_mountain_powe

17

- A

- 11r/doc/Business/Save_Energy_Money/WY_FinAnswer_Express_Applianc es_Incentives.pdf The United Illuminating Company CT $200 http://www.uinet.com/wps/portal/uinet/business/!ut/p/c5/vY_LkpswEEW _xR8QS

IltGTMY2TzCBJjgTYuwIkHM2BctgHr68fJalKpJJup9F12nzp9gQSP9O XYHMprc

rLN5ADae3ChAbRClOHblMTUoNqacJWCAYYCJBDY8eP94GqVrGjS

iF3X2au6BR57T1

- seaL97qJXU_jmdC5W2hxFkdRO6xhTdDWTz0n2ckjLBYPV_HRxS3j 4f IcnNEYBkj75yfy14vf

- R97

- IdxICiAxB_4hLgPPktpamMEsQ6yT

z6V1cM_6NL

1TXGsim6pZT3S3hkiBMLJNYtmlaOtINIGQBsXuKJs_j4

- WVVU_dl31rMDif54bvjANW50Cb4vWtZ2PfFkoeN9kW6SP3GkLUc1 Tm6RsVcJCtX5aoS_3zVRBTsDzqN6LWlWPeyidEw45tb5f1XhTCvLM

h

- M7Gs6oDqA1TuCIM1j2u7tVXsbLVdd7XflCHwUka _m3OE7

- ycw8pp0YxDrTDYgHi51P3DQzdGFrMRj

jHxbvE29dpA!!/dl3/d3/L2dBISEvZ0FBIS9nQSEh/ Bright Energy Solutions (offered through 5 utilities in ND) ND $50 http://www.brightenergysolutions.org/municipalities/?category=business &state=sd&municipality=37 Bright Energy Solutions (offered through 10 utilities in SD) SD $50 http://www.brightenergysolutions.org/municipalities/?category=business &state=sd&municipality=37 Bright Energy Solutions (offered through 21 utilities in MN) MN $50 http://www.brightenergysolutions.org/municipalities/?category=business &state=mn&municipality=14 Bright Energy Solutions (offered through 16 utilities in IA) IA $50 http://www.brightenergysolutions.org/municipalities/?category=business

&state=ia& municipality=67

17

- A

- 1217

- A.6 FEDERAL AND STATE TA X CREDITS

This section summarizes the Federal and State tax credits available to consumers who purchase energy efficient appliances. This section also describes tax credits available to manufacturers who produce certain energy efficient appliances.

17

- A.6.1 Federal Tax Credits for Consumers of Residential Appliances

EPACT 2005 included Federal tax credits for consumers who installed efficient air conditioners or heat pumps; gas, oil and propane furnaces and boilers ; furnace fans; and/or gas, oil, or electric heat pump water heaters in new or existing homes. 8

, 9 These tax credits were in effect in 2006 and 2007, expired in 2008, and were reinstated for 2009

– 2 010 by the American Recovery and Reinvestment Act (ARRA). 10 There was a $1,500 cap on the credit per home, including the amount received for insulation, windows, and air and duct sealing. Congress extended this provision for 2011, with some modifications to eligibility requirements, and reductions in the cap to $500 per home

. The American Taxpayer Relief Act of 2012 extended, with some modifications, residential tax credits f or air conditioners, heat pumps, furnaces, and

water heaters placed in service between January 1, 2012 and December 31, 2013. 8

, 11

The tax credit for furnace fans was $50 in 20 1 1, after which it expired.

The importance of the Fed era l tax credits has been emphasized in research in the residential heating industry on the impacts of the relatively large credits that were available for HVAC (heating, ventilating, and air conditioning) equipment

. I n a survey of HVAC distributors conducted by Vermont Energy Inve stment Corporation, respondents indicated that the ample

credit had had a notable impact on sal es of higher

- efficiency heating and cooling equipment

. Some distributors combined the Federal tax credits with manu facturer re bates and ut ility

program rebates for a greater consumer incentive. However, when the amount of the Federal tax

credit was reduced , smaller utility rebate incentives had not ind uced the same levels of equipment sales increases

. T h e decrease in i ncentive size from a $1,500 cap in 2009

- 20 10 to a $500 cap in 2011 , during a period when the economy continued to be sluggish, resulted in a decline in total sales of residential HVAC products

. Distributors stated that an incentive needed

to cover 25 to 75 percent of the incremental cost of the efficient equipment to influence

consumer choice. The industry publication “ 2011 HVAC Review and Outlook ” noted a decline

in sales of air conditioning units with >14 SEER in 2011 and a return in sales of units with > 16 SEER to 2009 levels (after an increase in 2010). The l arge majority of distributor observed no impacts from the utility p rograms with their lower rebate amounts available in 2011. Distributors also commented on the advantages of the Federal tax credit b eing nationwide in contrast to utility rebate programs that target regional markets. 12

, 13

In an effort to evaluate the potential impact of a Federal appliance tax credit program, DOE reviewed Internal Revenue Service (IRS) data on the numbers of taxpayers who claimed the tax credits during tax years 2006 and 2007. It estimated the percentage of taxpayers who filed
Form 5695, Residential Energy Credits

. 14 It also estimated the percentage of taxpayers with

entries under Form 5695’s section 3, Residential energy property costs , line 3b, qualified natural gas, propane, or oil furnace or hot water boiler . DOE reasoned that the percentage of taxpayers

17

- A

- 13with an entry on Line 3b could serve as a rough indication of the potential of t axpayer participation in a Federal tax credit program for furnaces during the initial program years. DOE found that of all residential taxpayers filing tax returns, 0.8 percent in 2006 and 0.6 percent in 2007, claimed a credit for a furnace or boiler. DOE further found that the percentages of those filing Form 5695 for any qualifying energy property expenditure (which also included installation of efficient windows, doors and roofs) were 3.1 and 3.2 percent in 2006 and 2007 respectively.

DOE also review ed data from an earlier Federal energy conservation tax credit program in place in the 1980s. While this tax credit was available from 1979 through 1985, DOE located data for only the first three years of the program

. 15

, 16

, 17 For those three years

- 1979, 1980, and

1981

- the percentages of taxpayers filing Form 5695 were 6.4 percent, 5.2 percent, and 4.9 percent. Given that the data from this earlier tax credit program were not disaggr egated by type of energy property, this data series served only to indicate a possible trend of greater participation in the initial program year, followed by slightly smaller participation in subsequent years. However, DOE did not find detailed analysis o f this program to indicate the possible reasons for such a trend. Also, this trend varies from the more stable trend shown in the EPAct 2005 energy tax credit program data for its first two program years.

17

- A.6.2 Federal Tax Credits for Manufacturers

EPACT 2005 provided Federal Energy Efficient Appliance Credits to manufacturers that produced high

- efficiency refrigerators, clothes washers, and dishwashers in 2006 and 2007. 18

The Emergen cy Economic Stabilization Act of 2008 19 amended the credits and extended them through 2010. The credits were extended again to 2011 with modifications in the eligibility requirements. Manufacturer t ax credits were extended again, by the American Taxpayer Relief

Act of 2012 , for clothes washers, refrigerators, and dishwashers manufactured between January
1, 2012 a nd December 31, 2013. 20

Manufacturers who produce these appliances receive the credits for increasing their production of qualifying appliances. These credits had sev eral efficiency tiers in 2011. F or 2012

- 2013, credits for the higher tiers remain but were eliminated for the lowest (least efficient) tiers

for cloth es washers and dishwashers

. 11 The credit amounts applied to each unit manufactured.

The credit to manu facturers of qualifying clothes washers, refrigerators and dishwashers wa s capped at $75 million for the period of 2008

- 2010. However, the most efficient refrigerator (30%) and clothes washer (2.2 MEF /4.5 WCF ) models was not subject to the ca p. The credit to
manufacturers wa s capped at $25 million for 2011, with t he most efficient refrigerators (35%)

and clothe s washers (2.8 MEF /3.5 WCF) exempted from this cap. 21

17

- A.6.3 State Tax Credits

The States of Oregon and Montana have offered consumer tax credits f or efficient appliances for several years, and the States of Kentucky, Michigan and Indiana began offering

17

- A

- 14such credits in 2009. The Oregon Department of Energy (ODOE) has disaggregated data on taxpayer participation in credits for eligible products. ( See the discussion in chapter 17 , section

1 7 .3.3, on tax credit data for clothes washers.) Montana’s Department of Revenue does not disaggregate participation data by appliance, although DOE reviewed Montana's overall participation trends and found them congru ent with its analysis of Oregon's clothes washer tax

credits.

Oregon’s Residential Energy Tax Credit (RE TC) was created in 1977. T he Oregon legislature expanded the RETC program in 1997 to include residential refrigerators, clothes washers, and dishwash ers, which significantly increased participation in the program . The program subsequently added credits for high

- efficiency heat pump systems, air conditioners, and water heaters (2001); furnaces and boilers (2002); and duct/air sealing, fuel cells, heat r ecovery, and renewable energy equipment. Beginning in 2012

, a Tax Credit Extension Bill (HB3672) eliminated refrigerators, clothes washers, dishwashers, air conditioners, and boilers from the RETC program, leaving credits for water heaters, furnaces, heat pumps, tankless water heaters

, and heat pump water heaters. 22

, 23 Those technologies recognized by the Oregon Department of Energy as “premium efficiency” are eligible for tax credit of $0.60 per kWh saved in the first year (up to $1,500). 22

, 24

Oregon’s business energy tax credi t (BETC) includes commercial clothes washers. Oregon’s BETC is 35

– 50 percent of the incremental cost of the efficient equipment. e The majority of these credits were claimed for laundries and rental dwellings, and included

commercial clothes washers as we ll as other appliances. However, ODOE did not track the types of appliances involved nor the number of machines per project; the annual counts are the total number of projects, with each project involving one or more appliances. DOE was

therefore unable to use the data to estimate market percentages for specific appliances, i.e. commercial clothes washers. However, DOE did note the trend of increasing numbers of credits claimed from 1998 through 2006, which contributed to its assumptions regarding the tr end line for this policy scenario.

Montana has had an Energy Conservation Tax Credit for residential measures since

1998. 25 The tax credit covers various residential energy and water efficient products, including split system central air conditioning; package system central air conditioning; split system air source heat pumps; package system heat pumps; natural gas, propane, or oil furnaces; hot water boilers; advanced main air circulating fans; heat recovery ventilators; gas, oil, or propane water heaters; electric heat pump water heaters; low

- flow showerheads and faucets ; light fixtures ; and

controls. In 2002 the amount of the credit was increased from 5 percent of product cost s (up to $150) to 25 percent (up to $500) per taxpayer. The credit can be used for products installed in new construction or remodeling projects. The tax credit covers only that part of the cost and

materials that exceed established standards of constructi on.

e The business tax credit is taken over five years: 10 percent in the first and second years and 5 percent each year

thereafter; the taxpayer may carry the unused credit forward up to eight years. Those with eligible project costs of $20,000 or less may take the tax credit in one year.

17

- A

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