Goal: Improve Residential Energy Efficiency
Policy: Set Standards and Offer Incentives

Other Incentives for Encouraging Energy Efficiency and Green Building
In many communities, builders, developers, and apartment managers face a substantial learning curve when using green materials and design techniques and maintaining high efficiency systems. The added cost and time associated with moving from "business as usual" to a more sustainable approach can be a deterrent to implementing green technologies and other energy-efficiency measures. Moreover, while energy-efficient upgrades have been shown to reduce operating and maintenance costs, generating significant cost savings over the life-cycle of a home, the up-front costs associated with making some of these upgrades can put them out of reach for working families and others that may not have the cash on hand.

To promote broader adoption of energy-efficient upgrades, and to make their benefits more readily accessible to low- and moderate-income households, many local and state governments have developed incentives programs that reward developers, owners of multifamily properties, and homeowners that go green. Many utilities have also adopted incentives programs, often to help reach state-mandated energy savings or emissions reductions targets. (The tools discussed in this section are designed to provide limited or one-time assistance to catalyze

Midtown Exchange - Minneapolis, MN
investment in energy-efficient upgrades. Learn more about tools for financing energy-efficiency measures.)

Click on the links below to learn more about types of incentives offered for energy efficiency:

Land-use and planning incentives

Many energy-efficiency programs provide some sort of financial benefit to prompt developers and homeowners to take steps to enhance the performance of existing buildings and build in greater efficiency in new construction. However, several states and localities have adopted programs that offer non-monetary incentives which, while not providing upfront payments or financial assistance, may nevertheless result in a valuable pay-off for participants. These programs may apply specifically to measures that improve residential energy efficiency, or they may reward a more holistic approach that includes other green building measures. Specific programs vary from place to place, and common incentives include:
  • Priority permitting and plan review -- Fast-track or streamlined permitting and review can significantly reduce development time and associated "soft costs," such as property taxes, insurance payments, and other fees. Available to builders and developers of new homes that will be built to green specifications, or buildings undergoing substantial rehab to these standards, priority consideration may be particularly valuable in areas with high levels of development activity and slow response times. Learn more about expedited permitting.
  • Density bonuses -- For new construction or adaptive reuse projects, density bonuses allow developers to build more (or larger) units than ordinarily allowed by the underlying zoning code, resulting in greater profits as those additional homes are sold or rented.
While density bonuses are most commonly used as an incentive in inclusionary zoning programs, some localities also reward developers who are on track to achieve a specified green rating with the right to build at a higher density.

As an added environmental benefit, higher density development also helps to support public transit and mixed-use neighborhoods, reducing residents' need to rely on private vehicles. Click here to view examples compiled by the US Green Building Council of communities that award density bonuses for developers who achieve LEED certification or meet LEED standards.

Photo credit: Mark Ballogg, Ballogg Photography, Inc.; courtesy Landon Bone Baker
  • Marketing assistance -- Assistance in publicizing green homes for sale or rent can take many forms, including listings in local promotional materials and real estate guides, free signage advertising a project's "green" credentials, and recognition at public events. As consumer preference for sustainable housing grows, these extra steps can give developers and homeowners an edge and help to boost sales or rental rates, especially in a sluggish housing market.
  • Technical assistance -- To help developers achieve certification in a green rating system or otherwise improve the energy efficiency of a project, some communities, including Coconino County, Arizona, offer a variety of technical assistance services, including free consulting for developers interested in green building. [1]
Through its Green Permit Program, Chicago's Department of Buildings offers an expedited permitting process and, in some cases, fee waivers to encourage sustainable building design, construction, and renovation. To be considered for the program, projects must include elements from a menu of eligible strategies that improve efficiency, ensure affordability, or promote economic development. In addition, smaller residential projects must comply with local Green Homes criteria developed by the city's Department of Environment or LEED for Homes certification. Typically, developers of new construction projects make up about 60 percent of program participants, and 40 percent are undertaking renovations or retrofits. Participating developers benefit from a streamlined permitting process up to 30 business days to permit issuance, depending on the project's level of sustainability and energy efficiency. Exceptional applicants may receive partial permit fee waivers.

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According to the U.S. Department of Energy's Database of State Incentives for Renewables & Efficiency, as of February 2010, state and local energy-efficiency rebate programs could be found in all states except West Virginia. Most commonly, utility companies administer these programs, although some states and a few municipalities also sponsor their own rebate programs. In many cases, rebates target individual households to encourage and lower the cost of weatherization and energy-efficient upgrades. Alternatively, some rebate programs focus on the owners of multifamily properties, manufacturers, contractors, or developers to encourage broader-scale adoption of measures to
achieve energy-saving goals.

Rebates provide full or partial credit for the purchase and installation of eligible products, including high-efficiency appliances, such as air conditioners, washing machines, and furnaces, as well as lighting, insulation, windows, and doors. Home energy audits are another popular target of rebate programs. Generally required as a prerequisite for additional energy-efficiency upgrades, audits for single-family homes can range in cost from $150 to $600. Many programs provide a rebate for the cost of the audit upon implementation of the recommended energy-saving measures. (Households that fail to proceed with any upgrades do not receive a rebate.) Although beyond the scope of this toolkit, many rebates also cover the installation of renewable technologies such as photovoltaic solar panels.

Some states also issue reimbursement grants that cover a portion of energy-efficiency upgrades or payments associated with obtaining LEED or other green certification. For example, through the State Home Oil Weatherization program, Oregon will refund one-quarter of the cost of energy-related improvements, up to a total pay-out of $500 per household. Families of all income levels that heat their homes with oil, propane, kerosene, butane, or wood are eligible, and apply directly to
Solutions in Action
In 2008, Kansas City Power & Light began offering customer rebates of $600 through the Home Performance with Energy Star program to residential customers who underwent an energy audit, made a recommended improvement, and provided verification through a post-improvement assessment.

The following year, the utility teamed up with Missouri Gas Energy and the Metropolitan Energy Center to double the rebate, making available $1,200 in bill credits, and offer an improved audit that includes modeling software and projections of post-improvement cost savings. Between 2007 and 2009, more than 400 households received audits, and nearly half of those implemented improvements. Click here to learn more about the program.
the state's Department of Energy to receive a cash refund. Similarly, in
Louisiana, families participating in the Home Energy Rebate Option program can receive compensation for up to 20 percent of costs associated with measures that improve energy efficiency in existing homes by at least 30 percent, up to a total payment of $2,000.

Some utility programs specifically target existing multifamily homes, helping to encourage energy-efficient improvements in a sector of the housing stock that may be otherwise difficult to reach. For example, the Austin, Texas Energy Multifamily Power Saver Program provides rebates of up to $100,000 to owners, developers, and managers of multifamily properties with four or more units. Rebates may be used to help cover the cost of a range of upgrades that improve energy performance, including installation of new air conditioning systems, heating pumps, insulation, and lighting. Applicants must participate in a free walk-through energy survey to be eligible for the program; rebates are granted on a first-come, first-served basis depending on funding availability. As of June 2010, more than 48,000 apartments had received rebates for energy-efficient investments through the Power Saver Program.

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State and local tax incentives

Tax-incentive programs related to green building generally allow eligible participants to take a deduction or receive a credit on their income or property taxes. The incentive may apply to purchase of a specific product or set of products or costs associated with measures to improve energy efficiency. In Arizona and the District of Columbia, homebuyers also may receive a tax credit to offset the cost of purchasing a home that exceeds energy efficiency standards specified in the 1995 Model Energy Code. Other communities, such as Howard County, Maryland, offer a property tax credit on buildings that meet specified green standards. In January 2008, Cincinnati, Ohio began offering a 15-year residential property tax abatement valued up to $530,450 for new LEED-Certified, Silver, or Gold homes (there is no value limit on projects certified as LEED-platinum), and a 10-year abatement on residential remodeling improvements that meet LEED certification requirements.
Combining Sources of Funding for Energy Efficiency

The National Housing Trust and Enterprise provide four examples of using Neighborhood Stabilization (NSP) and/or Weatherization funds, sometimes in connection with the allocation of low income housing tax credit, to improve and preserve multifamily housing. Click here to view their examples.

Solutions in Action
Oregon's Business Energy Tax Credit provides an incentive for the owners of rental housing to weatherize their properties. Eligible activities include caulking and weather stripping, replacement of doors or windows, and insulating floors, walls, pipes and ducts. These improvements must increase energy efficiency by at least 10 percent, as calculated by the state's Department of Energy. Businesses may then receive an income tax credit worth 35 percent of eligible project costs, which can be taken in one year for smaller projects or over five years for projects costing more than $20,000. Non-profit organizations or public entities that do not pay state income tax may benefit from the program by using a pass-through alternative that transfers the credit to a party with state income tax liability in exchange for a cash payment.

Oregon rental property owners that purchase new, energy-efficient appliances for their properties can also apply to receive a tax credit. By investing in pre-certified refrigerators, dishwashers, furnaces, and other appliances, owners benefit from an income tax credit in the amount of 35 percent of the purchase price. Click here to learn more.

New Mexico's Sustainable Building Tax Credit program allows developers that build to specified green standards in new commercial or residential projects to claim a credit on their income taxes. The amount of the credit is based on the level of energy efficiency achieved, which is determined by a third-party audit. Residential developers in New Mexico may measure their efficiency against several benchmarks, including the Home Energy Rating System (HERS), the Build Green NM rating system, or LEED standards.

According to the program website, "a LEED Silver-certified 2,000 square-foot home that is at least 40 percent more energy efficient than a home built to the standard building code can receive a $10,000 tax credit." The credits are currently available through 2013, and annual residential allocations are capped at $5 million.

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Preferences for Low Income Housing Tax Credit awards

Despite challenges associated with the recent financial downturn, the Low Income Housing Tax Credit (LIHTC) remains one of the most important sources of federal financing for the development of new affordable rental homes. The LIHTC entitles recipients to a dollar-for-dollar reduction in federal income tax liability, up to the permissible credit amount, which developers typically "sell" to investors in exchange for the up-front equity needed to complete their projects. While the IRS issues the tax credits, the program is administered at the state level, with housing finance agencies responsible for processing applications and making decisions about how LIHTCs should be allocated.

The state agencies that administer the LIHTC program are required to prepare a Qualified Allocation Plan (QAP), usually on an annual basis, that details how applicants will be scored and describes the state's preferences and eligibility standards. Federal code required that states use certain selection criteria when designing their QAPs, including project location, income mix of tenants, and developer characteristics, among others; with passage of the Housing and Economic Recovery Act of 2008, two additional criteria have been added: historic character of the project and energy efficiency of the project. Even prior to the addition of this requirement for consideration of energy efficiency, however, many states had already been including preferences for energy efficiency in their QAPs. According to the Energy Programs Consortium, in 2007, some 39 states awarded extra points to applicants whose developments included energy-efficient investments.

Points can be earned in a variety of ways. For example, in its 2009 QAP, New Jersey offered up to three points for installation of Energy Star-labeled appliances within residential units, and an additional point for communal laundry areas that use Energy Star-labeled equipment. Developers are entitled to one additional point for each of the following: complying with New Jersey's Green Future guidelines (a voluntary set of "green building" measures that includes energy-efficiency measures); installing a solar photovoltaic system; or obtaining LEED certification.
In 2010, the National Housing Conference hosted the Partners in Innovation preservation forums, a series of three regional forums focused on strengthening and supporting affordable rental housing preservation efforts through innovative partnerships, policy development, and legislative reform. The regional forums took place in Boston, MA; Portland, OR; and Denver, CO in 2010.

View the following presentation on tax incentive programs from the Partners in Innovation: Preserving Affordable Rental Housing Through Energy Conservation in Boston on April 14, 2010.

The LIHTC program can be extremely competitive, with demand surpassing supply by a ratio of 2-to-1 or more in some states. As a result, rewarding green development with extra points can be an effective catalyst for incorporation of energy-efficiency measures. An alternative approach, taken by some jurisdictions in their QAPs, is to set aside a portion of credits for green buildings. Some states also use the QAP to encourage building design and placement that promotes reduced household energy use through smart development patterns, such as transit-oriented and multi-use development. Learn more about how states are using their QAPs to promote the preservation of affordable rental homes on location-efficient sites.

In addition to incentives linked to the Low Income Housing Tax Credit program, other financing programs play a major role in encouraging and making possible energy-efficient development and rehab in existing properties. These tools are covered in a different section of the toolkit. Click here to learn more about financing mechanisms that help to support residential energy efficiency.

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Other incentive-based programs, including density bonuses and rebates on the purchase and installation of energy-efficient products, reward developers and residents that take steps to reduce energy consumption.

Other pages in this section:

West Washington Street Homes
Energy codes and standards, similar to traditional building codes, establish minimum requirements and guidelines for the performance of new construction and existing homes undergoing substantial renovation

David and Joyce Dinkins Gardens
Energy rating systems and green building rating tools complement energy codes but encompass additional sustainability measures that may result in greater energy savings

Matthei Place
Point-of-sale efficiency upgrades
and audit requirements provide a mechanism for reducing energy use in existing homes when they are put up for sale

Broadway Crossing
Energy savings and emissions reduction laws create incentives for utility companies to implement energy-saving measures, including home retrofits

[1] Counties & Residential Green Building Standards. NACo Green Government Initiative. Washington, DC: National Association of Counties.