This is an excerpt from EERE Network News, a weekly electronic newsletter.

February 06, 2002

Budget Includes Tax Incentives for Renewables, CHP, Hybrids

The President's budget for fiscal year 2002 includes $9.1 billion in tax incentives over 10 years to encourage the use of renewable energy, combined heat and power (CHP) systems, and energy-efficient vehicles.

For power producers, the budget includes a new 10-percent investment tax credit for qualifying CHP systems, an extension of the tax credit for landfill methane power plants, an extension of the production tax credit (PTC) through 2005, and an expansion of the PTC to include more biomass energy facilities. The PTC provides renewable power producers with a tax break of 1.5 cents per kilowatt-hour (in 1992 dollars, adjusted for inflation) and was formerly applicable only to electricity produced from wind power, poultry waste, and biomass power produced from dedicated energy crops.

The PTC expired in December, leading to a slowdown in the wind energy business. For example, Vestas Wind Systems A/S shifted 1,200 employees to half-time work in January, with the expectation that the slowdown will continue for 12 weeks. See the Vestas press release.

The budget also includes a tax credit for the average American - people that install solar hot water or solar electric systems on their homes would earn a tax credit of 15 percent of the cost of the systems, including installation. The credit has a maximum of $2,000 per person for solar hot water systems and another $2,000 per person for solar photovoltaic systems.

People buying hybrid electric vehicles would also earn a tax credit of up to $4,000, with the amount determined by both the performance of the hybrid system and the vehicle's fuel economy. When fuel-cell vehicles become available, they'll earn an even higher tax credit - at least $4,000 and up to $8,000, depending on the vehicle's fuel economy.

And fuel producers don't get left out of the equation - the budget also proposes extending the tax credit and excise tax exemption for ethanol and methanol from renewable sources.

See pages 71-73, 80 and 99 (PDF pages 75-77, 84 and 103) of the "Analytical Perspectives" (PDF 3.2 MB) section of the President's budget. (Download Acrobat Reader)