From: Sudeep Reddy, The Dallas Morning News
Published August 10, 2005 12:00 AM

New Federal Law Offers Tax Credits for Energy-Efficient Purchases

The energy bill won't lower the cost of your fill-up anytime soon. And it probably won't cut the nation's dependence on foreign oil.

But through tax breaks and other subsidies, the legislation that President Bush signed into law Monday encourages conservation and the development of emerging energy technologies.

Much of the debate about the bill has been focused on industry, which will receive tax benefits for producing ethanol; generating power from wind and the sun; and building new nuclear and coal plants.

The new law has benefits for consumers, too.

It offers tax credits for purchasing certain new appliances or vehicles with clean-diesel or hybrid technology, as well as for making home improvements that help energy efficiency.

The law also will extend daylight saving time by four weeks -- from the second Sunday in March to the first Sunday in November.

The Alliance to Save Energy estimated that, by the year 2020, the energy-efficiency measures across the bill could reduce growth in U.S. energy consumption by almost 10 percent.

"That's fairly significant for what are relatively low-cost measures for the government and aren't sacrifice requests of the public," said the nonprofit group's president, Kateri Callahan.

Manufacturers and the Internal Revenue Service still must hash out the size of tax breaks for specific models of cars and appliances. In most cases, retailers will likely promote the savings.

TXU Electric Delivery, which runs an energy-efficiency program through contractors, said it's analyzing the new legislation for how the federal measures could supplement the state-backed efforts it employs today.

The energy bill's tax credits "could work in concert with our weatherization programs to encourage more energy efficiency," said Carol Peters, a spokeswoman for the regulated company that delivers power across North Texas.

Some tax benefits could spur consumer demand for renewable technologies such as solar energy.

Solar-powered hot water systems have been adopted across the state for decades, enough that the cost has dropped to about $3,000 to $4,500 for some units, said Russel Smith, executive director of the Texas Renewable Energy Industries Association.

The energy bill offers credits of 30 percent of the cost, up to $2,000, for installing a solar water heater or pricier solar panels for generating electricity.

"It is definitely a positive," Mr. Smith said of the tax credit. "Everything I've seen indicates that the industry is gearing up to try to respond to that."

The goal of the consumer tax credits is to lower energy demand that has helped raise energy prices over the years. Promoting the efficiency measures can help most households cut their consumption and save money in the long run, Ms. Callahan said.

"New homes are going to last 50 or more years," she said. "So if you build the energy efficiency into that building, the energy savings go on and on and there's a tremendous return on your investment."

Among the benefits available to individual consumers:

--Home Improvement: Consumers can receive a 10 percent tax credit -- up to $500 -- for home improvements in 2006 and 2007. The measure covers products such as advanced thermostats, insulation, doors and windows. The credit for new windows is capped at $200.

--Efficient Appliances: Certain efficient air conditioners, heat pumps and water heaters can provide a tax credit of up to $300. Purchasing a furnace or boiler provides a credit of up to $150, and $50 for advanced fans.

Manufacturers also receive tax benefits for producing high-efficiency washers, refrigerators and dishwashers.

--Hybrid Vehicles: Tax credits for hybrid, fuel-cell or clean-diesel vehicles can offer some of the largest benefits to individual consumers. But they'll also be some of the hardest to decipher.

The credits, starting in January, replace a $2,000 tax deduction offered for hybrid vehicles.

One credit ranges from $400 to $2,400 based on the fuel-economy rating of the new vehicle. Another credit of $250 to $1,000 is based on how much gasoline the vehicle is expected to save over its lifetime.

Once a manufacturer sells 60,000 hybrid vehicles that are eligible for the tax break, the size of the credit starts diminishing.

--Solar Panels: In 2006 and 2007, consumers can receive a tax credit for 30 percent of the cost of installing solar panels or a solar-powered water heater, up to $2,000.

In Texas, the heaters can run a few thousand dollars. The price of solar panels depends on the size of the system, with a project often stretching into the five figures. Solar systems for pools are specifically excluded from the tax credit.

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Source: Knight Ridder/Tribune Business News

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