Welcome To Josh's Blog O' Thoughts: Energy Efficiency

Generally speaking, I've always found the energy efficiency federal income tax credits a bit confusing. To my knowledge, there are at least the two different tax credits available to home owners: the Nonbusiness Energy Property Credit and the Residential Energy Efficient Property Credit.


Nonbusiness Energy Property Credit

This tax credit allows you to recoup some of the money you spent to perform energy efficient upgrades to your home. The catch is that it must be an upgrade that is performed and not a new installation. For example, if you have your old windows replaced with new Energy Star windows, you should be able to take a credit, but if you build a new house, you won't be able to take the credit even if the windows used are Energy Star. Other items that are available for credits include insulation, lighting, heating and cooling, water heaters, and windows and doors. Every item has a maximum credit that can be taken. View the Energy Star website for more information.

What makes this credit even more confusing is that the credit expired at the end of 2007, but was then reinstated in October 2008 not to take effect in 2009.

From the 2008 Federal 1040 Booklet:
The credit for nonbusiness energy property has expired and does not apply for 2008. Form 5695 is now used only to claim the residential energy efficient property credit.

This means that you will NOT be able to take this credit for any energy efficient upgrades you made in 2008. So it really won't be usable on this year's tax return, but if you make any upgrades in 2009, you should be able to claim a credit for them when you file next year.


Residential Energy Efficient Property

This tax credit is available for installations of various Energy Star qualified, high-efficiency products. Items covered under this credit include solar energy systems, wind energy systems, fuel cells, and (as of October 2008) geothermal systems. The Emergency Economic Stabilization Act of 2008 that was passed in October 2008 not only reinstated the Nonbusiness Energy Property Credit (see above), but also expanded the Residential Energy Efficient Property credit to include geothermal systems. Even better, this credit can be used for new construction, AND can be taken for products installed in 2008! This is great news for people who installed a geothermal system in 2008.

This credit generally allows you to get back up to 30% of the investment expense in these systems. This year, the credit for each is capped at $2,000, but from what I understand, the cap will be removed starting next year allowing you to take a full 30% credit. This is even better news for people planning on installing a geothermal system in the next 7 years (expires in 2016).

To take the credit on line 53 of your 1040, you also need to file form 5696 with your return. Your total credit from this form may also be limited by your income or by some of the other credits you may be taking. Please review the instructions for more information.


I Am Taking The Credit

If you followed my blog closely, you would have seen that my family built a new home in 2007/2008 with the completion being in Jan 2008. You also would have noticed that we had a geothermal system put in for our heating and cooling solution. Since the house was completed and put into use in 2008, the installation date of the geothermal system is considered to be 2008. Therefore, I can take this credit on my 2008 return. I can get a credit of up to 30% with a cap of $2,000. This means that the total qualified expenses of the product and installation only needed to clear $6,666 to get me the full $2,000 (it easily cleared this mark). And since a tax credit drops straight to the bottom line, I’m happily I’m getting an extra two grand back from Uncle Sam this year.


Reference


Federal Form 1040 Instructions
Federal Form 5696 and Instructions
Energy Star Website
GeoExchange Website
WaterFurnace Website
About.com Energy Tax Credits
Wikipedia Article - Emergency Economic Stabilization Act of 2008
The Emergency Economic Stabilization Act of 2008

Disclaimer

I am not a tax professional, so this information should not be taken as tax advice. I'm simply stating my understanding of the situation.

It has been quite an amazing decline from the record high prices we had in July 2008. In just the past 6-7 months we have seen oil come from upwards of $140 per barrel to as low as $33 per barrel. Likewise, gas has come from almost $4.00 per gallon (where I live) down to almost $1.50 per gallon. That's roughly a 75% decrease in oil prices and a 60% decrease in gas prices.

As I had said in the past, those high prices were well beyond the normal market changes for supply and demand. Likewise, this massive decline is probably more radical than supply and demand principles would dictate. While the massive rises in the past couple years have been fueled by fear of supply shortages and speculative buying, the recent declines, I believe, are also being exaggerated by fears of the global economy slow down.

It is my guess (granted, I'm not expert) that oil and gas prices will come back up until they find a point of stabilization. In my opinion, that will probably be around $75 per barrel for oil and $2.10 per gallon for gasoline.

That said, I'm definitely not complaining about the cheap gas. I'm just going based on what I've seen and read. I will be watching to see how these predictions turn out and I'm sure you'll see another post from me on the subject in the future. Until then, buy that gas while it's still cheap!


By the way, what's the lowest gas made it in your area? I think I saw about $1.55 here.

I'm sure everyone has noticed lately that gas prices have been coming down. In my part of the country, we are almost back below $2 per gallon. (I still can't believe we're happy to be paying $2 per gallon). Part of the reason for the decrease in gas prices is the decrease in oil prices. Oil topped out somewhere around $140 per barrel back in July. It is currently trading around $65 per barrel. That's about a 50% decrease in just a few months.

So what about all these people that a few months ago said oil would NEVER come back down below $100? They said that oil prices going up was purely a function of increased demand and stable supply. Well some of us (myself included) disagreed. Check out a few of my previous blog posts:
More Signs Of Oil As The Next Big Market Bubble - June 16, 2008
Are Crude Oil Prices A Bubble Waiting To Burst? - November 7, 2007

My take on the situation was that while there probably was some increase due to demand, the increase in oil prices was disproportionate to the demand increase. This led me to believe that investors were throwing their money into oil to try to make a quick buck. It's one of the things we do best in this country. We see someone else get rich and we copy them so we can also get rich. Eventually TONS of people are involved in the same investment plan. But when we find out that most of the people buying are just get-rich-wannabes, prices collapse. In recent history you could easily refer to the housing market bubble, or the tech industry bubble.

So, I hate to say it, but...

"I told you so"

It's pretty obvious now that a huge portion of this price increase was due to speculative buying by investors. Check out this interview with Scott Bleiler, president of CreateCapital.com. He claims the price increases were solely due to speculative buying. I won't go quite that far. While I do think that maybe 90% of the price increase & decrease was due to speculative buying, I also think prices were also moved a little by changes in demand and the strength of the US dollar. But again, spec buying was the largest part.

Now that I got that out of the way, I can comment on how annoying OPEC is. When prices where out of control this summer, we were practically begging OPEC to increase supply to help lower prices. Their evaluations showed that supply and demand were matched fairly well so they did not increase output. Now that prices have come back to reasonable levels, they decide that they liked it better when they were getting $100+ per barrel so they've decided to decrease output. That is a pretty obvious slap in the face to us. I'm so glad that the recent ncreases in the strength of the dollar helped nullify their supply reductions to meaningless. It literally had no effect on the price of oil. Yet another indication that the price of oil does not move based solely on supply-demand.

That pretty much sums up how I view the whole oil market situation over the past 2 years. Now when will prices of other goods (food, retail, air travel, etc) that went up "due to the increase in fuel costs" go back down? Not any time soon is my guess. Many retailers tried to wait as long as possible to raise prices. This means some may have taken significant losses during those periods. As a result, they will probably be hesitant to reduce prices so they can recover some of those losses. And good luck for airfare. The only way that will come back is if one of the airlines starts a fare war.

To conclude this post, I just want to say that it was a great marketing ploy run by Chrysler this summer. Buy a new car and they would guarantee you $3/gal gas for 3 years. They got a person to buy a car with this deal in mind and now they don't have to pay anything out for it. Great job marketing, Chrysler.


If you want to leave a comment, I'd be interested in hearing what gas prices are doing in your neck of the woods.

Are you curious about how your use of home energy is affecting the environment? Ever wonder how you stack up next to the average American household? Well, ask no more! The EPA's website has some really great tools to help you figure this all out.

Let's first start with electricity. It's something we all use every single day. Chances are that your home is using some amount of electricity every single second. Even when you have all the obvious users (light bulbs, air conditioning, computers, TVs) turned off, your house is still using electricity. Many electronics devices use a small amount of electricity to run a clock or retain settings in memory. Many things that use a transformer (that would be the big clunky box you plug into the outlet that you use for charging batteries, running speakers, etc) are constantly using electricity regardless of whether or not the device is on. That said, it's obvious that electricity is MAJOR part of our home's energy use.

Since your home is using so much electricity, wouldn't it be great to know what the source of that electricity was? Does it mostly come from dirty, coal-burning plants, cleaner, nuclear power, or maybe even a renewable source such as wind or hydroelectricity. Since electricity is distributed to users via a grid system, your electricity does not come for a single source or even a single generating company. All power sources in a region are connected to the grid and combine to provide power to all areas of that region. Luckily for us, the EPA offers a web page to determine your sources for electricity. Simply, enter your zip code, select your electric company, and you will be given a graph detailing the sources of your electricity and the emission rates generated by your mix of sources.

Here is the break down for my area:


As you can see in the graph, my region (east-central Iowa) gets roughly 75% of our electricity from coal plants, 16% from nuclear, 7% from renewable sources, and the rest from other. As you can see by comparing to the green bars, my area's use of coal is higher than the national average and we are lower than average in natural gas usage. The other source types are all pretty close. I have to say that it does disappoint me a bit to see that my region is higher than average in use of dirty coal. I was hoping for a higher than average nuclear use since there is a nuclear plant very close to my city.

Looking further down the page, you can see how your particular sources of electricity rank as far as emission rates. Compared to the national average, my area has higher emission rates. This is likely due to the higher than average coal use. Again, this is disappointing for me to see.

Now that you know the emission rates for your electrical sources, you can actually use the EPA's page to calculate your personal emissions based on your sources and your usage. Just click the My Emissions link below the sources graphs. On this page, you can either enter your usage for the last 12 months, or you can enter a monthly average. Entering the last 12 months will be more accurate if you have the data available. Since I moved into a brand new house a couple months ago, I don't have a year's worth of data to use, so I will use an average of the last few months' usage.

Taking my last three utility bills, my average usage is about 1500kWh per month (the lowest being 859kWh). The EPA page says that the default for residential usage is about 900kWh per month, so it looks like I'm higher than average. However, my numbers are skewed by not having enough data and having a VERY cold Winter and Spring. I also have to remember that due having a ground source heat pump (geothermal heating/cooling), our house is ALL electric. We have no gas service so any emissions related to electricity will be all our home uses. Additionally, a geothermal system will gain some efficiency over time, so the fact that it was a brand new system during one of the harshest winters our area has had. At any rate, 1500kWh per month is about the best number I have to use right now.

After plugging in your usage number(s), hit the submit button to see your personal emission rate:


You can see that my electricity usage generates about 35,591 pounds of CO2 (carbon dioxide) per year. So now you have the amount of carbon dioxide (and to a lesser extent nitrogen oxide and sulfur dioxide), but what does it all mean?

We can use a third EPA web page to calculate carbon dioxide equivalencies to see how our emissions compare to other things. At the top of this page, Option 1 allows you can enter your electricity usage for the year in kWh, but doing so will use the national average electricity source mix for your emissions. Since we already calculated our source mix and our personal emissions, we can go to Option 2 and put in our actual carbon emissions from the previous page (make sure you change the unit to POUNDS not TONS!). You don't need to enter the nitrogen oxide or sulfur dioxide in the converter because are no fields for them in the conversion calculator (nitrous oxide is NOT the same as nitrogen oxide). After clicking the Calculate Equivalencies button, you will see how your emissions relate to other things.

Here's my full list of equivalencies:


It shows that my emissions come to a total of 16.1 metric tons. My electricity emissions are equivalent to the electricity-related emissions of 2.1 average homes. The means that either my electricity is dirtier than average (which it is due the coal) and/or I use more electricity than average (which I did). However, if we compare TOTAL energy usage of a home (electricity, gas, oil), I am equivalent to only 1.4 average homes. This number is lower because electricity-related emissions are my only emissions whereas the average home will also have emissions from natural gas/heating oil. That makes me feel a little better. The part that really disturbs me, is that it would take 414 tree seedlings grown for 10 years, or 3.7 acres of pine forest to offset the amount of carbon that my home is generating.

To get your total carbon output, also run the conversion for your therms of natural gas usage (if applicable), and gallons of gasoline usage using Option 1 at the top of the form. Get the total Carbon Dioxide of each of those and add them to your electric total to know your total emissions for a year. My 400 gallons of gas per year (approximately) adds an additional 3.5 metric tons of carbon, so my total carbon emissions are 19.6 metric tons for a year.

This is very interesting information. Hopefully, as I get more accurate usage information, my emissions will go down. We've already taken many steps to be energy efficient while building our home. Efficient windows and doors, thick insulation, Energy Star appliances, CFL bulbs, geothermal heating and cooling, etc. I plan to check on this again after I have more data and will post updated numbers.

If you can't reduce your usage, you also can buy carbon offsets which help energy companies get more renewable energy into the grid. Or you can do some offsetting yourself by planting trees and other plants. I currently have about 8.5 acres of grasses and about 0.5 acres of trees. If anyone can find a website that will tell me how much carbon grasses will absorb, that'd be great!

Anyone else willing to post their numbers? Leave a comment! Let's see who has the lowest carbon emissions!

Last November, I wrote a post stating my opinion that crude oil prices are in a price bubble that would eventually pop similar to the tech stocks in the early 2000's and the housing market in 2007. To me, it just seems to make sense. The VERY rapid increases in oil prices that we have seen in the past year alone can not be simply related to supply and demand fundamentals. The increases have just been too huge.

Today, Yahoo! Finance has a video interview with David Herro who was named one of the "World's Greatest Investors" in 2007. In the interview, he reaffirms my position that oil, as well as other energy commodities, WILL see a price bubble burst. After that, he expects oil to retreat to the $60-80 per barrel range. Those numbers are still much higher than they were a few years ago, but that has been SOME increase in demand since then, primarily in developing countries.

So even though we are currently paying around $140 for a barrel of oil, and around $4 for a gallon of gas, we can expect better prices to follow.

I found it interesting today that Yahoo! had two articles posted with seemingly conflicting advice.

The first article was posted in their Yahoo! Green site which is focused primarily on the environment and energy efficiency. The article was entitled Rethinking the cost of hybrid cars and was focused on showing how the added up-front expense of purchasing a hybrid vehicle can pay for itself when compared with the cost of a similar, non-hybrid vehicle. The second article, posted on Yahoo! Finance was titled When Buying a Gas Guzzler Makes Sense and focused on convincing people that a gas-guzzling SUV could be the right choice for them.

Just by looking at titles of these articles one would assume that they would be giving advice in opposite directions. But while the one does point the user toward a hybrid, the most fuel efficient car available, and the other points the user toward a big SUV, the least fuel efficient vehicle available, there is a common link between the two articles. The link being that they are both trying to save the reader money, and that your particular driving scenario dictates which purchasing decision will be cheaper overall. The basis of this decision is that hybrid cars will get MUCH better gas mileage than an SUV, but are likely to be more expensive, especially now that SUV prices are plummeting in response to high gas prices.

So which is cheaper in the long run? To simplify it, you can base it simply on initial cost and gas cost over the time you own the vehicle, and ignore additional factors such as government rebates for efficient cars, differing insurance premiums, interest rates, registration fees, etc. If you do this, it mostly boils down to one thing: mileage. How much do you plan to drive? If you drive relatively few miles, or only plan to keep the car for a short amount of time, it will be hard for you to recoup the additional cost of the higher-priced hybrid vehicle. With SUV's hitting record lows, a low-MPG SUV may actually be a better bargain if you drive relatively few miles.

Once you start to take into account other long-range factors like insurance premiums, interest rates on the loan, and registration fees (to name a few), the hybrid becomes even more enticing. Plus, there's the added benefit of knowing that you are helping do the environment good, and helping reduce our reliance on fossil fuels.

My personal financial philosophy is that recurring costs are bad. If I can spend a little more up front to reduce recurring costs, it's usually worth it. Knowing this (and my predisposition to save the Earth), I would tend toward the hybrid vehicle if I was in the market for a new car. However, I don't expect that I'll ever purchase a new car, so hopefully hybrids will soon be prevalent in the used car market. When that happens, I'll be switching over.

With gas prices on a non-fundamental (supply/demand) rise, people are looking for any way they can to save on gas. Well, have you ever wondered if the gas you're buying really is the cheapest available? Even if it is the lowest priced, it may not be the cheapest.

At my local gas stations, we normally have 3 different grades to choose from, 87 octane (Regular), 89 octane (Silver), and 91 octane (Premium). Usually, the Silver is cheapest because it is an Ethanol blend, the Regular is 10 cents higher, and the Premium is another 10 cents higher.

In theory, the octane rating has to do with the flash point of the fuel and should not really affect fuel economy. However, some claim that there IS a difference in fuel economy between the Regular and the Silver Ethanol blend. Some people claim they get 1-4 MPG better on Regular than on the Ethanol blend, and others say they saw no difference. The only way to find out for yourself would be to try a couple tanks of each and calculate your MPG.

So if you get better fuel economy on the more expensive gas, at what point does the more expensive gas become cheaper in the long run? Well that depends on how much better your fuel economy is, how many miles you drive, and what the gas prices are. If gas prices were $1.00 and $1.10 respectively, there would be little savings, but at $3.75 and $3.85, the savings could end up being substantial. There will also be more savings if you drive more miles.

To calculate savings, you need the following data:

- Number of miles you drive in a year
- The MPG you get with each type of fuel you are comparing (you will actually have to test this by filling up a couple times with each type and calculating your MPG)
- The current price of each gas type

To calculate the overall cost per year, use the following formula:

(Miles Per Year / MPG) * Price Per Gallon = Cost Per Year

So for example, if I drive 10000 miles per year and get 31 MPG with the Ethanol blend which is currently priced at $3.74 per gallon, my yearly cost would be:

(10000 / 31) * 3.74 = $1206.45

If I can get 34 MPG with Regular which is currently priced at $3.84 per gallon, my yearly cost would be:

(10000 / 34) * 3.84 = $1129.41

That's a yearly savings of $77.04 by buying the more expensive gas!

I have created a spreadsheet which you can use to help do these calculations and more. It will easily help you decide which gas is cheaper. Just download the file and fill in the cells colored yellow.

I hereby donate these files to the public domain so feel free to use them in any way you wish.

GasTypeCostComparison.ods - OpenOffice.org Spread Sheet (11KB)
GasTypeCostComparison.xls - MS Excel Spreadsheet (69KB)

I also wanted to mention that just because one gas is a little cheaper it doesn't mean that it would always be the best choice. Some people, like myself, like the fact that Ethanol burns cleaner and is a little better for the environment. Others believe that Ethanol puts too much stress on the food market. But that argument a subject for a another post.

A company by the name of Hybrid Technologies is taking current production cars, such as the MINI Cooper and the Chrysler Crossfire, and replacing their combustion engines with hybrid or fully electric engines. I think this is an absolutely great idea because people will be able to see themselves in an electric car if the car is already a model that they are familiar with.

That said, the most interesting part of that article is when it mentions that the company will soon be selling some of these cars through Wal-Mart retail stores. What's more is that these cars may be available at Wal-Mart as early as 2008! What a way to bring electric car technology to the everyday American. If anyone can get something proliferating, it will be Wal-Mart.

Unfortunately, the price will be a little steep to begin with. We'll just have to hope for Wal-Mart to put a smiley face roll back sticker on them!

In relation to my last post about the current state of Compact Fluorescent (CFL) bulbs, I thought I'd share this article.

In the new energy conservation bill that has been passed by Congress, is a plan to completely phase out incandescent light bulbs from the market by 2014. The policy will really go into effect in 2012 and it's likely that some manufacturers may drop their incandescent lines sooner than that.

The whole reason is ENERGY. CFLs and other emerging technologies such as Light Emitting Diodes (LED) are much more efficient. CFLs use roughly 20-25% the electricity that an equivalent incandescent uses.

I cover all the other benefits and reasons to purchase CFLs since I just did that in a previous post, but I did want to make sure that my readers are aware that the light bulb as we know it is going the way of the dinosaur.

Recently, I had to purchase all the light bulbs for our new house. Let me start by saying that you never really realize just how many light bulbs a house uses until you have to go buy all of them at once.

Since I was buying a bunch of bulbs, I thought it would be wise to try to stay "green" and get Compact Fluorescent (CFL) bulbs wherever possible. CFLs use roughly 75% less electricity than an equivalent incandescent (standard) bulb. So if they use less electricity and make your electric bill lower, why doesn't everyone have all CFLs in their houses? Comparatively, the technology is still new. Here's some things I have noticed about CFL technology that some people may perceive as a reason not to switch to them. Most are issues from when the technology was brand new, and have been taken care of by the manufacturers already. Others are just perceived problems.

1. CFLs Are More Expensive

Generally speaking, CFL bulbs will be a higher initial investment cost. However, many electric companies will provide cash-back rebates for buying the Energy Star CFLs. When I bought my bulbs, they were on sale and there was the electric company rebate ($2/bulb). I got some standard mini-twist bulbs for about $1/bulb and some BR30 reflector bulbs for about $3/bulb. This is very close to incandescent prices.

Additionally, these bulbs will pay for themselves in electricity savings. Check out this post to see how to calculate your savings for a single bulb. Using this formula, you can calculate that a 15 watt CFL can save you about $7.21 per year per bulb compared to an equivalent 65 watt incandescent (based on 4hrs of usage per day and $0.10 per kilowatt-hour). You can see that the savings can start to add up.

Besides electricity savings, CFLs have a longer life span. At my current home, I had a light fixture that was burning out standard bulbs every couple months. I put a CFL in there and it's been 4 years without burning out.

It is important to point out, however, that not ALL CFLs will be reasonably priced. For example, dimmable CFLs are still a very new technology. I needed six BR30 reflectors for a set of dimmed, recessed lights. The dimmable CFLs were about $11/bulb compared with $2/for the incandescent. I opted not to spend $66 on those bulbs at this time, but will check again for lower prices as the technology progresses.

So, overall, most CFLs are going to be reasonably priced and nearly all will be cost effective in the long run.

2. CFLs Come In Ugly Shapes -or- CFLs Don't Come In The Shapes I Need

It's true that the first CFLs on the market were the mini-twist style bulbs, and these bulbs are not the most aesthetic choice. However, these bulbs are great for fixtures with covers.

For fixtures with exposed bulbs, you may not want to see the twist of a CFL. Luckily, CFL manufacturers have identified this and have begun creating bulbs with covers in many of the standard shapes: Type A, Reflector/Flood, Vanity Globe, and even Candelabra.

With these shapes, you can fit most of your lighting needs. However, some of them, the candelabra bulbs for example, are still bigger and/or give off less light than an incandescent, so they may not be right for all your fixtures.

3. CFLs Produce Ugly Light

Again, the earliest CFLs produced mostly white light similar to fluorescent tube lighting in office buildings. While this is great for task lighting, it doesn't really give you a warm feeling for your house. Again, it should be noted that manufacturers have taken this into account and have begun producing bulbs with different color temperatures. The higher the color temperature in Kelvins, the whiter/bluer/cooler the light. A regular incandescent bulb will have a color temperature of around 2700K and produces light with a "yellowish" hue. A "cool white" bulb will most likely be closer to 3000K and a "daylight" bulb will be upwards of 5000K. You should be able to find the color temperature listed on the bulbs so you can choose one with the light you prefer.

Another thing to note, however, is the Color Rendering Index (CRI) given to each bulb. The CRI is a number 0-100 that describes how accurately the bulb renders color off of other objects. A bulb with a CRI of 100 will cause objects lighted by the bulb to show their true colors while a CRI of 65 will not produce truly accurate colors. I have noticed that most CFLs seem to be in the 80-90 CRI range while incandescent can be in the high 90's. This will most likely get even better for CFLs as the technology comes along.

4. The Mercury In CFLs Is Dangerous

It's true that most CFLs contain some amount of mercury, a chemical which has been shown to cause problems when in contact with the human body. Despite the fact that manufacturers are working to reformulate their products to use less or no mercury, people still hear about this in the media and just to the conclusion that CFLs are bad. It is important to note that most of the mercury dumped into the environment is emitted in air pollution from coal burning power plants. Air emissions are likely more dangerous than a contained break of a CFL bulb. In addition, the amount of mercury in a CFL is so low that is actually lower than the amount of mercury that would be spewed by a coal power plant using an incandescent bulb (remember CFLs use less energy).


Summary

So most concerns about CFL technology have been taken care of by the manufacturers and others are in the process of being fixed. As the technology matures it will only get better, but I think we are currently at a point where the cost of entry vs the benefit makes sense to start using them.

Buy CFLs: