OLR Research Report

July 7, 2008




By: Kevin E. McCarthy, Principal Analyst

You asked for information on state and federal initiatives that provide incentives for consumers to buy energy efficient appliances and vehicles. Much of the information in this report about federal incentives is taken from a Department of Energy website,, which also describes incentives in Connecticut and other states.


Pursuant to state law, Connecticut's two electric companies offer a number of residential conservation programs that, among other things, offer discounts on energy efficient appliances. Both companies also offer rebates for customers who replace inefficient air conditioners or install new, efficient ones. In addition, (1) the state exempts energy efficient furnaces and certain other products from the sales tax, and (2) the Connecticut Housing Investment Fund offers low interest loans for energy efficiency investments. Legislation adopted in 2007 will provide funding for natural gas and heating oil conservation programs. In addition, the state has authorized, but not yet funded, a replacement furnace rebate program.

The federal Energy Efficient Mortgages Program helps homeowners save money on utility bills by enabling them to finance the cost of adding energy-efficiency features to new or existing housing as part of their federally-insured home purchase or refinancing mortgage. However, the program's caps limit its applicability to Connecticut.

Under state law, passenger motor vehicles that get at least 40 miles per gallon are exempt from the sales tax until July 1, 2010. Municipalities may exempt from the property tax vehicles that qualify for the sales tax exemption. Federal law provides a tax credit for the purchase of hybrids, although the credit has been phased out for certain widely sold models. It also provides a tax credit for fuel cell vehicles.


State Initiatives

Utility Conservation Programs. By law, the electric companies must develop a comprehensive plan to promote cost-effective conservation programs and programs to develop more energy-efficient products. The companies must implement the plan as approved by the Department of Public Utility Control. Currently, the primary residential energy conservation subsidy program is the Smart Living Catalog, which offers energy-efficient products at a substantial discount over retail. The catalog offers a wide variety of products, including lighting; heating, ventilation, and air conditioning; and thermostats. It also offers water efficient products. The companies also offer a wide range of conservation programs for commercial, industrial, and municipal customers.

In addition, both companies offer a program that encourages customers to remove old, inefficient window air conditioners and replace them with models that meet the federal Energy Star standard. Participating customers receive a rebate on the new air conditioner that ranges from $25 to $100, depending on its price. Customers must present an existing window air conditioner unit to a participating retailer for proper, environmentally-friendly disposal in accordance with state and local regulations. The old unit must be in working order; the participating retailer reserves the right to check the unit to verify it is operable. There is a limit of three turned-in units per customer and rebates for multiple turned-in units cannot be combined. This program ends September 1, 2008. Both companies also offer incentives of up to $500 for customers who install new air conditioners with a Seasonal Energy Efficiency Ratio rating of 14 or higher. The websites for Connecticut Light & Power's residential and business programs are and, respectively. For United Illuminating, they are and, respectively.

By law, natural gas companies had to develop annual conservation plans, but prior law did not provide a funding mechanism. PA 07-242 requires that the plans be funded by the growth in the utilities gross receipts tax in each fiscal year over the amount contained in the revenue estimate in the adopted state budget for that year, subject to a $10 million per year cap.

The act also establishes a fuel oil conservation program. Under the act, funding for this program comes from the excess in revenue from the petroleum products gross receipts tax sales above the 2006 revenue, subject to a $10 million annual cap. (PA 07-1, June Special Session, reduced the limit to $5 million per year starting in FY 09.) PA 08-2 Special Session allows $2.5 million of the funding for FY 08 to be used immediately.

Tax Exemptions. The state exempts the following products from the sales tax: compact fluorescent lights, programmable thermostats, gas furnaces that meet Energy Star standards, oil furnaces and boilers that are 84% or more efficient, and insulation.

Low Interest Loans. The Connecticut Housing Investment Fund administers the Energy Conservation Loan program. Through this program, households can borrow up to $25,000 and pay it back over a 10-year period. The loans can be used for thermal windows and doors, energy efficient furnaces and boilers, insulation, storm windows and doors, caulking and weather stripping, and efficient hot water heaters. The loans can also be used to convert all-electric homes to non-electric heating systems. Households with an income at or below 50% of the median family income (MFI) are not charged interest on these loans. Households with incomes between 50% and 150% of the MFI pay interest. Further information about this program is available at

Replacement Furnace Program. The law requires the Office of Policy and Management secretary to provide a rebate of up to $500 for the purchase and installation of certain replacement home heating equipment during the period between July 1, 2007 and July 1, 2017. The rebate decreases with income in the same way as the property tax credit against the income tax. The rebate is available for equipment installed in residential structures containing up to four dwelling units. Replacement gas furnaces must be Energy Star-rated and oil and propane equipment must be at least 84% efficient. The law authorizes bonding for this program. However, the bonds have not been issued and this program is not yet operating.

Federal Initiatives

The Energy Efficient Mortgages Program, administered by the Federal Housing Administration (FHA) helps homeowners save money on utility bills by enabling them to finance the cost of adding energy-efficiency features to new or existing housing as part of their FHA-insured home purchase or refinancing mortgage. The mortgages can be used to make energy-efficient improvements in one to four unit existing and new homes. The improvements can be included in a borrower's mortgage only if their total cost is less than the total dollar value of the energy that will be saved during their useful life. The cost of the improvements that may be eligible for financing as part of the mortgage is either 5% of the property's value (not to exceed $8,000) or $4,000—whichever is greater. The maximum mortgage limit for a single-family home is $160,950, plus the cost of the eligible energy-efficient improvements.

Although the federal government does not subsidize energy efficiency improvements, under federal tax law energy conservation subsidies provided by public utilities, either directly or indirectly, are nontaxable.


State Initiatives

The state exempts from the sales tax, until July 1, 2010, passenger motor vehicles that get at least 40 miles per gallon (city or highway) as determined by the Environmental Protection Agency. It allows municipalities to exempt from the property tax vehicles that qualify for the sales tax exemption.

Federal Initiatives

The Energy Policy Act of 2005 provides a credit for taxpayers who purchase certain energy efficient vehicles, notably hybrid vehicles. The credit begins to phase out following the calendar quarter in which at least 60,000 of a manufacturer's qualifying vehicles have been sold; the credit has already been phased out for the Prius, Camry Hybrid, and certain other models. Detailed information about these credits is available at,,id=157557,00.html.

In addition, a federal tax credit of up to $8,000 is available for the purchase of qualified light-duty (up to 8,500 pounds) fuel cell vehicles. After December 31, 2009, the credit is reduced to $4,000. Tax credits are also available for medium- and heavy-duty fuel cell vehicles; credit amounts are based on vehicle weight.