Analysis of Tax Credits for Efficient Equipment

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http://enduse.lbl.gov/Projects/TaxCredits.htmi

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:

o Commercial-sized fuel cells

a Residential-sized

o Electric heat pump water heaters

o Natural gas heat pumps

o Natural gas water heaters

o Electric air-source heat pumps

o Electric central air conditioners

We analyzed four cases for each technology:

o 10% rebate that lasts for 5 years;

o 10% rebate that lasts for 10 years;

o 20% rebate that lasts for 5 years;

o 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

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Analysis of Tax Credits for Efficient Equipment http://enduse.lbl.gov/Projects/TaxCredits.html 

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EUF> Project Pages> 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; 

It 20% rebate that lasts for 5 years; 

It 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 

S/1112005 6:0S PM 
Analysis of Tax Credits for Efficient Equipment http://enduse.lbl.gov/Projects/TaxCredits.htmi

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)

Publications

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

Home About Projects Pubs Staff FTP site

Last Updated On: 8/19/04

2 of 2 8/11/2005 6:08 PM

 EE-RM/STD-00-550 COMMENT 86

Analysis of Tax Credits for Efficient Equipment http://enduse.lbl.gov/Projects/TaxCredits.html 

20f2 

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) 

Publications 

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 

About Projects Pubs Staff FTP site 

811112005 6:08 PM