Use tax credits, loan guarantees, and other vehicles to encourage middle-class homeowners to improve the performance of their homes.
While public-works programs can tackle low-income homes, different programs are needed for middle-class homeowners. To reduce the total energy consumption of their homes by one-half to two-thirds (a challenging but realistic goal), a variety of tax credits, deductions, loan guarantees, and other inducements will be needed.
We need new incentives that are performance-based, unlike most of today’s tax credits. By basing subsidies directly on improvements in energy performance—not simply on how much money is spent—we can encourage energy-conservation retrofits and renewable energy systems that provide an attractive return on investment.
A performance-based focus could also apply to mortgage subsidies and loan guarantees—perhaps using the home-energy rating system (HERS). This is a 0-to-100 scale in which 100 equals the energy performance of a home meeting the 2004 Model Energy Code and 0 represents a net-zero-energy home. If the secondary-mortgage market required a HERS index of 25 for new homes and 50 for existing homes, we would see a dramatic ramping up of energy performance.
So that our homes can be powered—and even heated—using clean, renewable-energy sources, we should encourage rapid commercial investment in large wind-power and solar-power systems. We can do this by increasing the production tax credit to 2.5¢ per kilowatt hour (kwh) and enacting that tax credit for a full 10 years. This production tax credit, which has been renewed on a haphazard, year-to-year basis with occasional lapses, encourages investment in renewable-electricity production by providing the electricity producer with a tax credit tied to actual electricity production. These production tax credits should be extended to wave and tidal power, geothermal power, and other zero-carbon, low-impact, renewable-electricity technologies.