Energy Act Provides Tax Incentives for Energy Efficiency

August 10, 2005

Closeup photo of the President's hand signing the energy bill, with his suit and tie visible in the background.

President Bush signed the energy bill on August 8th.
Credit: Eric Draper, White House

President Bush signed the Energy Policy Act of 2005 into law on August 8th, setting in motion a process that will yield new tax incentives for consumers and businesses that pursue energy efficiency. "Energy conservation is more than a private virtue; it's a public virtue," said President Bush. "And with this bill I sign today, America is taking the side of consumers who make the choice to conserve." See the White House press release, President Bush's comments, and the White House's related "Energy for America's Future" Web page.

The energy act creates a total tax credit of up to $500 for energy efficiency improvements to your home, including credits of up to $200 for installing new exterior windows; up to $300 for installing a highly efficient central air conditioner, heat pump, or water heater; up to $150 for installing a highly efficient furnace or boiler; and credits for 10 percent of the cost of insulation, energy-efficient doors, and cool reflective roofs. The credits will be available in 2006 and 2007. DOE also anticipates possible consumer savings as a result of new tax credits for contractors who build energy-efficient homes and for manufacturers who make energy-efficient appliances. New energy-efficient commercial buildings will also earn a tax deduction.

Buying hybrid electric vehicles and vehicles with cleaner burning diesel engines, known as advanced lean-burn engines, can earn you a tax credit of up to $3,400. The credit is largest for the vehicles that save the most fuel, but the credit will phase out shortly after an automaker sells 60,000 eligible cars. Tax credits of up to $4,000 are also available for alternative fuel cars. Businesses can earn the same tax credits, as well as credits of up to $12,000 for buying large hybrid vehicles, such as buses, and up to $32,000 for the purchase of large alternative fuel vehicles. And although fuel cell vehicles are not on the market yet, the act also establishes tax credits for these vehicles. See "Energy Bill Signed" on the DOE Web site and the Alliance to Save Energy press release.

For more information, see pages 1332 to 1433 of the full 1,724-page energy act (also referred to as the "conference report"), which is available as a "Featured Item" on the Web site of the Senate Committee on Energy and Natural Resources as a 2.6-MB PDF file. The Web site also features an 8-page summary by fuel and a 17-page summary by title. See the Senate Committee Web site.