Tax credits for cars and labels galore

©New York Times

© St. Petersburg Times, published May 18, 2001

WASHINGTON -- People shopping for appliances could find that the canary-yellow energy-consumption stickers now on the front of every new refrigerator and air conditioner will also begin appearing on microwave ovens and clothes dryers.

Auto dealers could lure buyers with signs on some of the cars in their showrooms advising of thousands of dollars in tax credits. And people considering buying a house that uses solar energy, or adding it to their existing houses, might qualify for a tax credit, too.

Most of the White House report issued Thursday is trickle-down energy policy, proposing inducements for corporations and even foreign policy changes to try to lower prices, but there are a few proposals that would have a direct effect on consumers. None is completely new in character, but experts say one in particular might be more effective than previous efforts: tax help on cars that use less fuel.

Under the Energy Policy Act of 1992, signed by the president's father, the government offered tax inducements to buyers of vehicles that ran on natural gas, methanol and other "alternative fuels."

But the tax breaks did not help much because few of those vehicles were attractive to consumers, said Douglas I. Greenhaus, the director of environment, health and safety at the National Automobile Dealers Association. A tax credit on hybrid vehicles, as proposed in the report, might have more effect, he said.

"The public is going to be much quicker to adopt these vehicles than those that required a totally different fueling system," he said. "I don't know exactly what proposal will work out in the end, but I see these things flourishing in middle of this decade."

Hybrid vehicles now marketed by Toyota and Honda, and planned by many other manufacturers, are fueled only with gasoline. But they also carry electric motors and a small battery pack. The batteries are charged when the driver decelerates the car, and the wheels turn the motors, creating current that flows back into the batteries; when it is time to accelerate, the motors draw current from the batteries and help take the load off the gasoline engine.

The report recommends helping the industry get started by offering a credit from 2002 to 2007, but does not say how big the credit should be; bills already introduced in Congress would offer $2,000 to $4,000. The Clinton administration had proposed credits for cars that got high mileage, but Congress did not go along.

At the Alliance of Automobile Manufacturers, which represents both major domestic carmakers and foreign companies, Gloria J. Bergquist, a spokeswoman, said, "What we're looking for is folks who are predisposed to buy one of these vehicles, the early adopters, and this is the added inducement for someone on the cusp."

A complication for the hybrids is that while the Japanese models are both small sedans, some companies plan hybrid sport utility vehicles. The result could be to help buyers of large vehicles cut their gasoline bills to levels similar to sedans, using tax dollars, a subsidy that environmentalists would not favor.

The report also calls for tax credits for buyers of fuel cell cars, which convert hydrogen to electricity through a chemical process, although the prospects for these vehicles are less certain.

For home appliances, the report suggests expanding product labeling to more products, and increasing minimum efficiency standards "where technologically feasible and economically justified."

The Energy Department already has the authority to do that, under laws dating from the late 1980s, but the Bush administration has not thus far been aggressive in using the strategy. The new administration recently rolled back a last-minute standard from the Clinton administration to raise the efficiency of central air conditioners by 30 percent; the new administration picked 20 percent instead.

Existing rules cover clothes washers, window air conditioners, refrigerators, water heaters and a variety of others. Dan W. Reicher, an assistant secretary of energy under President Bill Clinton, said that they were chosen according to their potential for improvement, and that the ones listed in the White House report have an opportunity for improvement.

The report also recommends adding $300-million to help the poor pay their energy bills, and linking funding of the program to the price of oil and natural gas. It would also double money for improving insulation in the homes of poor people.

One of the ways the proposals could help with gas prices is by seeking to reduce the numerous types of cleaner-burning gasoline currently made in the United States. Fifty to 60 types of gasoline are used across the country, which makes it hard for one region to import from another when supplies run short. With supplies of many of these gasolines lagging, prices have risen steeply in many regions.

But even today's high gasoline prices, when adjusted for inflation, are 30 percent lower than their historic peak in 1980.

Consumers enjoyed a period of extremely low energy prices for most of the 1990s. Such depressed prices won't return any time soon. Instead, homeowners and drivers are likely to be saddled with higher prices for gasoline, heating oil and natural gas for months and maybe a few years.

While higher energy costs always pose a threat to the overall economy, it's a much more distant one today than in the 1970s. Then, oil prices soared 200 percent in a year, and the impact rippled through gasoline and electricity markets.

By comparison, energy costs rose 35 percent last year and are projected to rise 9 percent this year, according to DRI-WEFA, a Lexington, Mass., economic forecasting firm.

"We're better off today, because we have a much more diversified energy supply," said Jim Osten, chief energy economist at DRI-WEFA.

- Information from Knight Ridder Newspapers was used in this report.

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