Tax Credits for Energy Efficiency and Green Buildings: Opportunities for State Action

Elizabeth Brown, Harvey Sachs, Patrick Quinlan, and Daniel Williams, American Council for an Energy-Efficient Economy

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Abstract

With volatile energy prices and continuing electric system reliability problems, states are increasingly looking for legislative actions they can take to encourage energy efficiency and thus address these problems. Tax incentives have proven to be an important strategy. Existing programs range from residential efficient appliance incentives to large-scale commercial "green" building incentives. Tax incentives of this nature are important tools for states to use to spur adoption of advanced building codes and appliance/equipment efficiency standards by decreasing the high first cost of new technologies and practices while increasing the market share of both. State programs have many advantages, compared to federal initiatives, including the ability to tailor the program to a particular state's market needs and budget situation.

This paper comprehensively reviews state-based tax incentives for the private sector. It also evaluates the ability of these programs to encourage the adoption of energy-efficient technologies and practices and identifies several options that appear the most promising.