GEO responds to energy tax reform proposals

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On Dec. 18, Sen. Max Baucus (D-MT), Chairman of the Senate Finance Committee, unveiled a proposal to overhaul America’s tax code. The staff discussion draft focuses on streamlining energy tax incentives so they are more predictable and technology-neutral.

Current law offers 42 different energy tax incentives, including more than a dozen preferences for fossil fuels, ten different incentives for renewable fuels and alternative vehicles, and six different credits for clean electricity. Of the 42 different energy incentives, 25 are temporary and expire every year or two. The Baucus proposal specifies that commercial and residential rebates for geothermal heat pumps (GHPs) will not be axed, but allowed to continue until their legislated expiration date of Dec. 31, 2016.

According to news reports, the Baucus proposal offers a smaller number of targeted and simple energy incentives that are flexible enough to accommodate advances among fuels and technologies of any type – whether renewable, fossil, or anything in between.  These proposals are intended to promote domestic energy production and reduce pollution. The package of reforms draws heavily from proposals offered by both Republican and Democratic members of the Senate Finance Committee.

Sen. Baucus also called for additional feedback from members of Congress, key stakeholders and the general public on the discussion draft. The Geothermal Exchange Organization (GEO) responded with comments that mirror its response to the House of Representatives Ways and Means Committee last April 15. After listing the many consumer, renewable energy, efficiency and environmental benefits that GHPs offer the nation, GEO President Doug Dougherty lauded the success of the federal tax credits:

“Even with all its potential benefits to the country, the nascent GHP industry claims less than 2% of the HVAC marketplace in the United States. Though approximately two million GHP systems have been installed—and Energy Star-endorsed GHP equipment efficiencies are better than ever—many competitive barriers remain for the industry. As already noted, foremost among these barriers is higher ‘first cost.’

“During the recession, the federal tax credits for GHP systems helped prevent a crash in GHP installations. Though more recent GHP sales have declined, the industry believes this can be attributed to still lagging home construction and sales, as well as continued lack of consumer awareness. As the housing economy improves, the tax credits will reduce first cost and allow GHPs to make significant contributions to efficient heating and cooling in new and retrofit projects of all sizes.

“With improving sales and installations will come greater recognition of GHPs, and an expanding HVAC market share. With that, the positive impact of the federal tax credit program will be assured. Indeed, the GHP tax credits are already helping the nation with consumer cost savings, good jobs, more efficient energy use, enhanced electric utility operations, improved air quality and a better environment for all Americans.”

“Even so,” Dougherty concludes, “It will take time for the geothermal heat pump industry to increase its market share from 2% to 20% or higher for the industry to move beyond its need for tax credit support. In the interim, Congress can help the GHP industry achieve greater market share by extending IRS Code sections 25D and 48(a) to the end of 2020.

For a complete copy of the GEO’s Geothermal Heat Pump Tax Credit Comments, click here. A detailed summary of the energy tax reform staff discussion draft can be found here, and a one-pager on the draft can be found here.

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