Analysis of Tax Credits for Efficient Equipment

EUF > Project Pages > Tax Credits for Efficient Equipment 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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10f2 EUF> Project Pages> Tax Credits for Efficient Equipment 

## Analysis ofTax Creditsfor Efficient Equipment Project Description In Fall of 1997 (and again in Fall of 1998), LBNL was asked by EPA and DOE to conduct analysis ofproposed tax credits for efficient equipment in the building sector. The LBNL analyses served as inputto the Treasury Department as theywere designing the Clinton Administration's tax credit package. Preliminary analyseswere conducted forten technologies, and six ofthese were chosen for detailed analysis. These six were:
• Commercial-sized fuel cells • Residential-sized

., Electric heat pump water heaters • Natural gas heat pumps

., Natural gaswater 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 ofthe 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 splitthe effect ofthe rebate into two components: a price effect, which depends on the size ofthe rebate, and an announcement effect, which is independent ofthe size ofthe rebate. This lattereffect is the result ofthe credibility lentto a newtechnology bythe existence ofthe credit We also explicitly accounted for learning curve effects, so that as cumulative production experiencefor a given technology increased, the cost ofthe technology per unit came down as a function ofa "progress ratio". We estimated energy and carbon savings based on runs ofthe National Energy Modeling System forwater heaters, electric air-source heat pumps, and central air conditioners. Carbon savingsforfuel cells and natural gas heat pumpswere based on detailed energy balance calculations forthesetechnologies. 

### Project Staff Jonathan Koomey R. Cooper Richey 

### Key Data The Spring 1999Administration energy efficiency tax credit proposals differsomewhatfrom the analysis results summarized in the spreadsheets below, which were created in Fall 1997 as inputto the first round ofthe Administration's proposals. The Treasury Department analysts who created the final tax package used our analysis as input, but modified it in several ways. Consultwith these analysts directly ifyou have questions on the

S/1112005 6:0S PMAnalysis 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

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2 of 2 8/11/2005 6:08 PM Analysis ofTax Credits for EfficientEquipment http://enduse.lbl.gov/Projects/TaxCredits.html

20f2 Administration's exact analysis method. We include ouranalysis files here because they embody our latestthinking about analyzing the effects of rebates, and incorporate several methodological advances, including explicit characterization ofthe 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 ofthe effects of rebates on energy efficient residential (194k) and commercial (193k) sector equipment, based on the econometric work of Ken Train ofCambridge Systematics. We used the Cambridge Systematics work and otherdata sourcesto create the analysis spreadsheets below. Each worksheet contains tabsforthe 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 Methodologyfor rebate analysis, taxmethod.rtf (in MicrosoftWord interchange format). 

### Other Resources Customer Decision Study: Analysis of Residential Customer Equipment Purchase Decisions. July22, 1994. Prepared for Southern California Edison Company by Cambridge Systematics, Pacific Consulting Services, The TechnologyApplications Group, and California Survey Research Services. 1998Administration Tax Revenue Proposal (The "Green Book")
- PDF Format EnergyTax Credits in Oregon for businesses--summary and home page EnergyTax Credits in Oregon Energy Tax Credits in Hawaii Summary oftax credits affecting solar energy systems in the mid-Atlantic region

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