Both tax credits, higher standards needed to cut US energy use: EIA

Washington (Platts)--30Apr2013/328 pm EDT/1928 GMT

Simply continuing federal tax incentives for renewable-energy and fuel-efficiency standards past their expiration dates will do little to lower overall US energy consumption through 2040, the Energy Information Administration said in an analysis Tuesday.

Also increasing federal energy- and fuel-efficiency standards, however, could mean a drop of 3.8% in energy consumption over that same period, the EIA said.

Production and investment tax credits now on the books for solar, wind, geothermal and other renewable sources of power are set to expire between 2014 and 2016. Those have been extended in the past. If Congress chooses to do so again, as well as increase the energy efficiency standards implemented by the Department of Energy for appliances and buildings, it could lead to reductions in energy use, EIA said.

"[The extensions] generally lead to lower estimates for overall energy consumption, increased use of renewable fuels particularly for electricity generation and reduced energy-related carbon dioxide emissions," EIA said in an analysis associated with its 2013 Annual Energy Outlook.

Cuts to US energy use at that level would also require an increase in federal Corporate Average Fuel Efficiency, or CAFE, standards for light-duty vehicles after 2025, EIA said. Current standards call for 54.5 mpg by 2025, an average annual increase of 4.1%. The EIA analysis reflected continued increase of 1.4% per year between 2025 and 2040.

Effects on the electricity sector would come through not only indefinite extensions of production and investment tax credits, but also from personal tax credits for purchasing renewable equipment, such as solar photovoltaic panels. In addition, the level of lowered overall energy use would also require continually increasing federal energy efficiency standards for appliances and heat and air-conditioning equipment, as well as an overall 10% increase in efficiency stemming from more stringent building codes.

Efficiency improvements in the EIA analysis would also stem from an expanded investment tax credit for combined heat and power projects in the industrial sector.

Increasing overall efficiency and continuing tax incentives could have other effects on the economy, EIA warned.

"Although these cases show lower energy prices, because the tax credits and end-use efficiency standards lead to lower energy demand and reduce the costs of renewable technologies, appliance purchase costs are also affected," the EIA analysis showed. "In addition, the government receives lower tax revenues as consumers and businesses take advantage of the tax credits."

--Derek Sands, derek_sands@platts.com

 --Edited by Carla Bass, carla_bass@platts.com

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