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Murphy's Law: Tax Credits Tough to Use

May 25, 2009
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Mike Murphy

After murking around the muck, mostly in a quandary, a few of us have come to the conclusion that the tax credits provided for in the American Recovery and Reinvestment Act of 2009 (ARRA) are very confusing.

Unless you are promoting geothermal or other renewable energy products, as is contractor Alan Givens (“Contractor Rep Meets with President,” The NEWS, May 11, 2009, page 1), you may be having a hard time finding tidy little system matches for your customers. The geothermal tax credits are even larger and longer-lasting than the $1,500 offered for traditional HVAC systems during 2009 and 2010, and they easily meet the Consortium for Energy Efficiency (CEE) requirements of 16 SEER and 13 EER.

However, geo installations, though a niche that is growing tremendously fast, have something in common with the other high-efficiency systems that qualify for the ARRA tax credit program - there are not that many of them being sold to consumers; ergo, the objective of the tax credits programs may not be completely realized.

One would think that the government’s objective is to incent owners to purchase equipment that will help reduce energy consumption in the country, and make our world a bit greener. Sounds cool, so why shouldn’t it be working?

A tip of the hat to Paul Wadsworth of P.K. Wadsworth-fame - a friendly Cleveland-area contractor who is renowned for his attention to detail and fondness for Bob Evans restaurants. Wadsworth noted that many of the matches available (28,005) to meet the tax credit requirements are for blower coils with ECM motors or other relatively expensive condenser/evaporator combinations. More about that later.

A representative from the Air-Conditioning, Heating, and Refrigerating Institute (AHRI) put it a different way; that the new program incents people to buy a Cadillac when a Chevy Cavalier would do the job. Several HVACR associations are now lobbying on Capitol Hill quite vigorously for a change to the ARRA tax credits before they have run their two-year course.

CHECKING THE NUMBERS

A bit more digging uncovered an interesting factoid: Active system matches on the AHRI online directory total more than 355,000 possible indoor/outdoor system matches. 28,005 systems that meet the tax credit 16 SEER/13 EER requirements may sound like a lot of options, but that is only about 8 percent of the total. History tells us that the majority of consumer purchases of residential HVAC split systems always hover somewhere near the baseline efficiency.

Since Jan. 23, 2006, that has been 13 SEER. Two and half years later, more than 90 percent of everything sold today is still 13 SEER, which happens to be a very good energy-efficiency solution for a huge number of customers in the United States.

Hearkening back to the automobile analogy, more people can afford to own Chevy Cavaliers than Cadillacs, and by the way, the Cavalier gets pretty good gas mileage.

THE BOTTOM LINE

The tax credit requirements of 16 SEER and 13 EER for air conditioning systems effectively puts the incentive out of reach for too many Americans. NOTE: The 13 EER is the primary problem point.

Unfortunately, the forest sometimes gets in the way of the trees. Our country would fare much better if the millions of 10 SEER and under systems still operating were to be replaced by 13 SEER units.

Yes, think about it. Only a little more than two years has passed since the last hike in HVAC energy efficiency ratings hit the industry. A relative few consumers have actually replaced their aging systems since then, and the tough economy certainly has had people pinching pennies for more than a year. How many average consumers are going to spring for one of the top 8 percent of air conditioning systems that are available in the current tax credit formula?

MORE ABOUT THAT LATER

Back to Mr. Wadsworth. If, as the fine gentleman from Cleveland says, many of the matches seem to include blower coils with ECM motors or other specialty motors, then the tax credit matches are indeed quite limited in scope.

The higher-efficiency motors are certainly gaining momentum and are often sold as optional add-ons by aggressive contractors such as Wadsworth. However, another hurdle could be thrown onto the track as the change-out of an old evap coil or blower coil with a newer and often times larger indoor unit with an enhanced motor, such as an ECM, might be a bit too large to fit into the old space.

MURPHY’S LAW: The government. Always there to help.

Publication date: 05/25/2009
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