Energy Retrofits Not so Stimulated by Stimulus Bill

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greenbuilding3The American Recovery and Reinvestment Act — that $787 billion behemoth of a bill that was signed into law in February and was meant to stimulate the U.S. economy — so far seems to have had a beneficial but lackluster impact on the home energy retrofit market. The $4.3 billion in stimulus tax credits for better insulation, double-paned windows, and other energy-saving measures are having a “small but positive” effect on the home remodeling market, research firm Canaccord Adams concludes in a report published today. Any uptick is welcome in this struggling economy, but such modest results after six months raise the question of whether or not the credits will be able to generate $6 billion in remodeling activity through next year, which was the fed’s original estimate.

The report doesn’t dig into how much remodeling activity the credits have delivered to date, but it took a look at other indicators like a building index and various media reports. One reason for less-than-stellar growth is the structure of the tax credits, says Matt Golden, president of home energy retrofitter Sustainable Spaces. If you purchase energy-saving windows, roofs and heating systems, you are eligible for tax credits that are worth 30 percent of the cost of the purchase, up to a maximum of $1,500. But the bulk of the cost of a home energy retrofit is for labor, for which the tax credits don’t apply.

The stimulus bill favors solar PV and other more expensive renewable-energy technologies over energy efficiency home retrofits, Golden says. For example, residential rooftop solar systems are eligible for 30 percent tax credits with no upper limit.

Still, spending on home remodels appears to be on a slight upward trend, and some home owners who are putting in new kitchens or breaking down interior walls are adding in energy-saving features, according to Canaccord. The National Association of Home Builders earlier this month released its “remodeling index” for the second quarter of this year. The index, which measures the sentiment of remodelers and doesn’t include expenditure data, indicated “modest gains” over the first quarter of 2009.

Clearly, tax credits alone won’t be able to spur the market for home retrofits. As long as people are pessimistic about the economy, many will forgo spending $10,000, or even $5,000, on retrofitting their home, even if it saves them money in the long run. As the economy regains steam, so should energy retrofits, with or without the tax credits.

Image courtesy of NREL.

2 Comments

Peter Troast

Thanks for this post, Justin. As much as those of us in the efficiency retrofit community support ARRA fully, this needed to be said. It is symptomatic of a long standing problem with incentivizing efficiency through tax policy. When tied to the mortgage, particularly in this climate, these programs have not moved the market. Efficiency is becoming more understood, and increasingly in vogue, but the long term asset value of a less energy intensive home isn’t yet as well understood as, say, a kitchen renovation. There is some progress on this front, which I wrote about in my “Lenders Catch On…” post last week: http://energycircle.com/blog/2009/08/25/lenders-catch-on-to-the-value-of-energy-efficiency/

The real breakthrough opportunities for residential efficiency, IMHO, are the off-mortgage financing solutions, such as the Berkeley, CA solar program.

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