More Carrot, Less Stick

One of our members recently called and asked the staff to do some research regarding whether Congress would likely renew the energy tax credits related to energy efficient construction. Most of the residential tax credits (windows, doors, roofs, insulation, HVAC and non-solar water heaters) expired at the end of 2007 and could be reported on the April 2008 tax return. The tax credit for solar water heaters and solar panels remains in effect through the end of 2008.

As potential clients are considering building, knowing that energy efficient tax credits for newly constructed homes would likely be available could certainly serve as an incentive to build a new home and to do so in way that makes the home perform more efficiently. Tax credits for home improvements could certainly help the existing housing stock improve as well.
We hear so many public policy makers talking about the high cost of energy and how we have to change our habits and reduce the carbon footprint, etc. It would seem like these tax credits would be a win-win. Guess that’s not how they perceive it in Washington. In fact, the NAHB staff has been working diligently to follow the issue and attempt to make certain that renewal of the tax credits, including those applicable to new homes (Section 45L), was included in any energy bill that might seem to have a chance of passage this year. The last version of the extenders legislation did not include the new homes tax credit.

Apparently there is a political fight over whether the extension of these tax credits should be “paid for” (i.e., offset from somewhere else in the economy). House Democrats say the legislation must be revenue neutral. Senate Republicans have said there is no reason to “pay for” extending existing law so they will not agree to any extension under those conditions.

Also set to expire at the end of this year are the renewable energy tax breaks. See the following excerpt from an article in Sept. 1 issue of the Springfield News-Leader (Renewable Energy Tax Breaks To Expire Dec. 31, Jim Abrams, The Associated Press):
“Congress is putting the short-term future of renewable energy companies in jeopardy even as the presidential candidates and most lawmakers hail windmills, solar panels and biofuels as long-term solutions to high gasoline prices and global warming.”

Without the $500 million in investment and production tax credits, solar and wind power companies say the will not only cancel expansion plans but probably downsize. The market demand at this point is still not enough to make them cost-competitive.

The one thing I know is that what we’ve been saying all along – let the market dictate and when possible, use more carrot (and less stick) to encourage green building – is the only viable way to proceed in terms of public policy decision-making. A prescriptive approach to green building, using mandates in our current economy, would be disastrous. Looks like that is also probably true for renewables/alternative sources of energy production. Consider this final excerpt from the News-Leader article cited above:
“Schott Solar has visions of quadrupling its operation in Albuquerque, N.M., to reach 1,500 jobs and $500 million in investment. But the investment tax credit, company spokesman Brian Lynch said, is what makes solar power cost-competitive. Without it, expansion plans must be reconsidered. “We don’t want to build a giant factory that the market doesn’t need or want,” he said.”

Kevin Clingan
HBA President