I recently posted similar versions of this on Environmental Leader and Fast Company and, in honor of our Utility Pulse release next week I thought I’d share it here as well…
For all the news coverage and talking-head opinions about the federal tax bill signed into law on December 17, 2010, there’s one aspect that hasn’t really received much attention: our new tax law effectively wipes out the bulk of the tax incentives available to reward Americans for making energy efficient upgrades to their homes.
The new law slashes incentives for home energy efficiency improvements from 30% to 10% of costs for many improvements, generally taking credits back to 2005-2008 levels and reducing the maximum cumulative credit from $1,500 to $500. In addition, there are now lower, project-specific caps like $200 for energy efficient windows, and $300 for central air conditioning systems, compared to $1,500 in credits that were available for these improvements in 2009 and 2010. Finally, if a taxpayer has claimed over $500 for energy efficient home improvements in previous years, he can’t claim any new credits this year.
So what’s the big deal?
In our soon-to-be-published Utility Pulse study, we clearly see that the evaporation of federal tax incentives will have a negative impact on energy efficient home improvement activity, particularly for the two higher-income consumer segments that have the discretionary income to make improvements and are the most likely to use this form of financial incentive: Cautious Conservatives and True Believers. In fact, the availability of more generous federal tax incentives has been a primary driver for the increase in energy efficient home improvement activity we’ve seen over the past year.
Here’s how the data breaks out: Almost one quarter (23%) of the respondents in our survey who had undertaken energy efficient retro-fit activities said they’d received a rebate or financial incentive for the activity. When asked to specify the type of rebate they’d received, most said they’d received either a utility rebate (41%) or a federal tax incentive (39%). Exactly one quarter said the incentive was absolutely necessary― they wouldn’t have acted without it, and 7% said the incentive encouraged them to pay a slightly higher price for a higher-efficiency model. Thus at a minimum, approximately one third of the population who made their home more energy efficient would likely not have acted or would not have purchased the more efficient unit if it weren’t for the incentives offered.
That means utilities, manufacturers, retailers and contractors will need to be more innovative and targeted with their marketing, and make utility rebates more prominent and convenient than ever before. Here’s our advice:
All consumer segments prefer instant rebates at the point of sale. Few utilities have structured their programs in this way (beyond CFL offers). There is a need to develop partnerships with utilities, retailers, manufacturers and contractors to create more of these kinds of programs. For instance, start offering at-check-out rebates (branded with the Utility’s energy efficiency program logo at-shelf and even on package, with stickers) for low cost home sealing items like weather-stripping and spray foam.
And while tax incentives were the second most popular form of incentives for both Cautious Conservatives and True Believers, mail-in rebates were preferred more by Cautious Conservatives than any other group. These older consumers are more patient and willing to “do the work” required for these kinds of rebates and they have the financial wherewithal to bear the up-front costs, without the discount. So get these out there to this segment of the population.
Here’s the bottom line: While the reduction in energy efficient tax credits will hamper home improvement activity in the coming year, energy efficient product and program marketers who strategically refine, position and message their programs can still be successful. It will be harder. A market segmentation approach that takes into account segment attitudes, needs, drivers and barriers is needed, along with a strong umbrella campaign to build awareness.
In short, it’s time to stop mass-marketing and start target-marketing energy efficiency programs. That’s the only way to overcome the tax credit set-back and say hello to continued energy efficiency sales.