Preface
& Task Force Recommendations

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Energy-Efficiency Policy Task Force

Act 163, passed in 1998, provided for the establishment of a Task Force, supported by DBEDT, to

“...explore the most cost-effective means for supporting increased energy efficiency and sustainability by:

1. Examining alternatives to encourage the efficient use of energy;
2. Considering the merits of active participation in the federal Million Solar Roofs Program…;
3. Making recommendations on the most cost-effective means of increased energy efficiency.”

Recommendations of the Task Force are due no later than January 1, 2002.

In 2000 DBEDT formed an Energy-Efficiency Policy Task Force (Task Force) with the following members:

• Warren Bollmeier, President, Hawaii Renewable Energy Alliance
• Mike Flores, Community Builder, U.S. Dept. of Housing and Urban Development
• Ruby Hargrave, Executive Director, Honolulu Community Action Program
• John Harrison, Executive Director, UH Environmental Center/Interim Special Assistant to the VP for Research & Graduate Education
• Cully Judd, Board Member, Hawaii Solar Energy Association
• Karen Nakamura, Executive Vice President, Building Industry Association of Hawaii  (Chair of the Task Force)
• Richard Rocheleau, Interim Director, Hawaii Natural Energy Institute
• Carilyn O. Shon, Energy Conservation Program Manager; Energy, Resources and Technology Division; Department of Business, Economic Development, and Tourism
• Dave Waller, Manager, Energy Services Department, Hawaiian Electric Company, Inc.
• Eileen Yoshinaka, Pacific Liaison, U.S. Department of Energy   

On November 9, 2001, the Task Force sponsored an Energy-Efficient Policy Symposium which included a number of distinguished speakers:  an American petroleum geologist from Scotland, a professor emeritus from the University of Colorado, representatives from other states with exemplary energy policies, as well as the energy specialist from National Conference of State Legislatures which is just completing its survey of state energy policies.  There were also a number of local speakers representing nonprofit organizations (Iolani School, Honolulu Community Action Program, The Consuelo Zobel Alger Foundation), private and business organizations (Off Peak, Hawaiian Electric Company, Hawaii Solar Energy Association), and economists Dr. Tom Loudat and Dr. Leroy Laney.

Although the Task Force’s recommendations are due to the Legislature no later than January 1, 2002, the Task Force unanimously agreed to present their interim recommendations to the 2001 Legislature, which is presently considering the energy tax credits.  The final findings and recommendations will be submitted to the Legislature no later than January 1, 2002.

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Interim Recommendations of the Energy-Efficiency Policy Task Force

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1. Continue the energy conservation income tax credits.

In the Energy-Efficiency Policy Symposium (www.state.hi.us/dbedt/ert/symposium) of November 9, 2001, the value of the existing energy income tax credits was a recurring theme of the speakers.  Emphasis was placed on the value of tax credits, especially those (private businesses and nonprofits) in Hawaii that have experience with the tax credits.  Consequently, the Energy-Efficiency Policy Task Force’s investigation of alternatives to encourage the efficient use of energy and cost-effective means of increased energy efficiency points to the need and value of continued state support of the energy conservation income tax credits.

Therefore, one of the initial recommendations of the Task Force is the continuation of the tax credits until 2010, to complement the Federal program, Million Solar Roofs (MSR).  MSR’s goal is to have one million rooftops with solar systems by 2010.  Hawaii is the acknowledged national leader in the MSR Program.

a. Present Tax Credits Make Economic Sense

With DBEDT funding, Dr. Tom Loudat updated his report on The Economic and Fiscal Impacts of the Hawaii Energy Conservation Income Tax Credit.  His conclusions about the tax credits find that “there is a positive fiscal impact to the State…”

• Labor income effect of the tax credits is $6.6 million per year for annual systems installation of 2,477 systems…for a total of $34 million over the life of solar systems.  This labor income effect is forgone if the tax credits are eliminated.
• Net total fiscal impact is…$5.6 million due to the tax credits for a given year’s purchase of 2,477 systems.

In addition, the money forgone for oil payments to heat water will be kept in Hawaii to generate economic activity that leads to more jobs, income, and taxes paid.

With DBEDT funding, Dr. Leroy Laney conducted A Peer Review of the Economic and Fiscal Impacts of the Hawaii Energy Conservation Income Tax Credit.  His critique of the paper found that, “this reviewer finds the assumptions and conclusions from them to be reasonable and sound.  Furthermore, the analysis appears to have been conducted carefully and in great detail.”  Dr. Laney concluded his paper with some “Thoughts on Hawaii’s Energy Policy Options” and noted that “research such as the Loudat paper, and the results presented above in the reviewer’s own paper, provide evidence that a tax credit contributes net economic and fiscal benefits, and that this tax credit has indeed been effective in stimulating investment in solar systems over and above more conventional private market forces.  It is the role of government to eliminate roadblocks, and to provide incentives for solutions, even if those solutions themselves come from the private sector.”

• Costs of imported items will be higher, and practically everything we consume comes from outside the state.
• Hawaii businesses will have to pay higher prices for running and lighting their facilities.
• Finally, the most critical impact may come from the income effects on a slowing U.S. economy that will also feel the impact of higher oil prices.  At the current juncture, Hawaii looks overwhelmingly to the U.S. Mainland for its externally driven growth….  Higher energy prices have been one of the main factors causing downward revisions of upcoming U.S. growth.  Hawaii will feel the effects of a slowing U.S. economy more acutely….

b. Sustain Public/Private Partnerships

At present the electric utilities offer incentives (rebates) to customers who install efficiency measures to reduce their demand for electricity.  These incentive programs will, in the long run, allow the utilities to delay building costly generating plants by using present facilities as efficiently as possible.  The delay will also allow for the development of improved renewable and electro-technologies. 

The incentive programs must meet strict regulatory requirements laid out by the Public Utilities Commission (PUC).  The utilities are in compliance with the requirements and have allocated millions of dollars to incentivize consumers to be more efficient.   It is very important, however, that the utility incentive programs have the complement of the energy tax credits.  Without the tax credits, the number of systems installed would be substantially reduced and the cost effectiveness of the consumer efficiency programs might be called into question.  Without an effective customer efficiency program, the public/private partnership will no longer be providing $14 million in funding support for residential energy efficiency programs.  (Hawaiian Electric Company’s projected program costs for its Residential Demand Side Management Program over a five-year period as filed in its application under the Public Utility Commission Docket 00-0209 allocates $14 million to support this program.)

c. Support Stability for Energy Businesses

Businesses need a longer lead-time on the tax credit termination date to plan and do business. With a longer sunset date, renewable and efficient technology businesses can do better business planning.  A short term for the tax credits hampers business development because local renewable and efficiency businesses need longer timeframes not only to secure good property and equipment leases, but also to attract qualified and dedicated employees.  The solar industry estimates that there are about 700 people employed in the solar industry and its ancillary businesses.  There are also an estimated 75,000 households with solar installations, making Hawaii the state with the highest per capita installations.

The credits help to level the playing field for renewable and efficient technologies against the heavily subsidized petroleum industry.

d. Taxpayers are Counting on the Credits

The Consuelo Zobel Alger Foundation, which provides for self-help homes to low-income households, works with American Security Bank to include solar water heating systems.  Without the tax credits, The Consuelo Foundation would not be able to install solar water heating systems.   The tax credits allow home owners to install solar systems.  The solar systems reduce home owners’ monthly utility bills, thereby increasing their monthly cash flow to meet mortgage payments.

Iolani School is very pleased with the two ice storage systems they installed through a leasing agreement with First Hawaiian Leasing and, based on this experience, has developed a master plan that includes the installation of ice storage for its entire campus.  They will commence construction in 2003, the expiration date of the tax credits.  If the termination date is not extended, they will probably cancel this part of their master plan.

2. Extend the credits to 2010.

Extend the credits to a new expiration date of 2010 to explore and develop renewable and alternate systems and to complement the federal Million Solar Roofs program.  

To shorten the term of the tax credits would be to burden business development for local solar and related businesses which must rely on longer timeframes not only to effect leases for facilities and equipment, but also to attract qualified and dedicated employees.

3. Petition the Department of Human Services to use federal funds to provide energy saving devices.

Petition the Department of Human Services to use up to 15 percent of the Low Income Home Energy Assistance Program allocation toward providing energy saving devices to low income families to reduce their energy costs. 

In the year 2000 the State was allocated over $1.2 million to assist low-income families.  The Department of Human Services presently uses these funds to credit utility bills of families in jeopardy of utility shut-off or about to be shut-off situations.  The federal government allows states to use up to 15 percent of their LIHEAP allocation towards providing energy saving devices to low-income families to reduce their energy costs.  By installing these devices, the states can provide a longer-term solution to these families.

4. Provide and support education programs.

Provide and support education programs for all levels of the community, including professional development, the general public, and formal education programs for school children. 

Education is essential to ensure an understanding and informed decision-making on the part of everyone as energy affects not only our daily lives, but also as it affects future generations and consequences for our future.

5. Conduct economic analyses of alternatives to the energy tax credits.

The diverse membership of the Task Force lends itself well to offering policy recommendations from members of the community.   The Task Force, however, has found that before recommendations and decisions can be made about specific alternatives to the tax credits, there is a need for data and systematic analyses of alternatives.  These alternatives could include loan programs, impact fees, emissions taxes, and mandates.

6. Support utility energy efficiency and renewable energy programs.

Support integrated resource planning and demand side management initiated by the utilities and the Public Utilities Commission.  The contributions of these programs are discussed in 1.b. above.

7. Direct the Public Utilities Commission (PUC) to support and implement policies for energy efficiency and renewable resources.

To bridge the transition to hydrogen technology, direct that the PUC examine and implement policies to encourage and support energy efficiency and renewable resource industries and resources to replace fossil fuels.  The PUC should review and evaluate energy efficiency and renewable resource programs in states such as Arizona, Calilfornia, Texas, Maine, Vermont, and Wisconsin.

8.   Mandate energy efficiency and renewable energy installations.

Mandate the installation of energy efficiency and renewable technologies in state and county buildings and facilities to build upon Presidential Executive Order 13123, “Greening the Government Through Energy Efficient Energy Management.”