GEO Seeks Extension of Federal Tax Credits for Geothermal Heat Pumps

As lawmakers hotly debate budget cuts and tax reform in Washington, DC, the Geothermal Exchange Organization (GEO) has formally asked the U.S. House of Representatives Ways and Means Committee to recommend extending federal tax credits for residential and commercial geothermal heat pump (GHP) installations beyond their Dec. 31, 2016 expiration date through the year 2020.

In comments to the committee, GEO President and CEO Doug Dougherty makes the case for continued federal interest in the health of the GHP industry: “Buildings are the largest single sector of total U.S. energy consumption. GHPs can efficiently and significantly reduce the heating and cooling loads of buildings, with positive benefits for our environment and economy,” said Dougherty.

“Yet even though GHPs could achieve vast energy, economic and environmental benefits across America if installed for all suitable buildings, the technology is still relatively nascent and has been slow to catch a foothold in the broader HVAC market. At current rates of installation (<100,000 average 3-ton capacity residential units per year), GHPs represent less than 2% of the total HVAC marketplace. Reason? Higher ‘first cost’ incurred by drilling or excavation to place its ground-source heat exchange loop system near the building(s) which a GHP system serves.

“Recognizing the important and potentially far-reaching economic and environmental benefits of GHPs—and to assist broader and more rapid deployment by helping to overcome the first cost barrier— Congress amended the Internal Revenue Service (IRS) Code in 2008 with tax credits for residential and commercial GHP installations.

“Those credits were enhanced by Congress in 2009 under IRS Code section 25D, which currently allow individuals to claim a tax credit equal to 30% of qualified expenditures incurred for installation of an Energy Star-rated GHP at their residence. IRS Code section 48(a) allows a tax credit equal to 10% of qualified expenditures of GHP systems for commercial buildings, plus provisions for scheduled 5-year bonus depreciation of GHP installations. Both GHP tax credits are set to expire on Dec. 31, 2016.

“With their life-cycle energy cost savings, these tax provisions make GHP systems more attractive to both residential and commercial HVAC consumers. Since their inception, the federal tax credits and commercial bonus depreciation for GHP installations have effectively helped reduce the consumer shock of higher first cost for system installations.

“The federal tax credits helped the GHP industry maintain sales during the recent tough recession and its aftermath for the housing industry, and would go far in helping GHPs win greater market share as new development and construction ensue with a reviving economy. While the tax credits enhanced GHP sales, their benefits accrued to building(s) owners and the nation as a whole with the renewable energy they produce; energy cost savings; flattening of electric utility load patterns; and reduction of pollution from the burning of fossil fuels.”

After listing the many consumer, renewable energy, efficiency and environmental benefits that GHPs offer the nation, Dougherty spoke to the success of the federal tax credits:

“Even with all its potential benefits to the country, the nascent GHP industry claims less than 2% of the HVAC marketplace in the United States. Though approximately two million GHP systems have been installed—and Energy Star-endorsed GHP equipment efficiencies are better than ever—many competitive barriers remain for the industry. As already noted, foremost among these barriers is higher ‘first cost.’

 “During the recession, the federal tax credits for GHP systems helped prevent a crash in GHP installations. Though more recent GHP sales have declined, the industry believes this can be attributed to still lagging home construction and sales, as well as continued lack of consumer awareness. As the housing economy improves, the tax credits will reduce first cost and allow GHPs to make significant contributions to efficient heating and cooling in new and retrofit projects of all sizes.

“With improving sales and installations will come greater recognition of GHPs, and an expanding HVAC market share. With that, the positive impact of the federal tax credit program will be assured. Indeed, the GHP tax credits are already helping the nation with consumer cost savings, good jobs, more efficient energy use, enhanced electric utility operations, improved air quality and a better environment for all Americans.

“Even so, it will take time for the geothermal heat pump industry to increase its market share from 2% to 20% or higher for the industry to move beyond its need for tax credit support. In the interim, Congress can help the GHP industry achieve greater market share by extending IRS Code sections 25D and 48(a) to the end of 2020,” Dougherty concluded. For a complete copy of the GEO’s Geothermal Heat Pump Tax Credit Comments, click here.