State and Local Policy Database

Financial Incentives

Financial incentives are an important instrument to spur the adoption of technologies and practices in homes and businesses. They can take many forms: rebates, loans, grants, or bonds for energy efficiency improvements; income tax credits and income tax deductions for individuals or businesses; and sales tax exemptions or reductions for eligible products. Financial incentives can lower the upfront cost and shorten the payback period of energy efficiency upgrades, two critical barriers to consumers’ and businesses’ making cost-effective efficiency investments. Incentives also raise consumer awareness of eligible products, encouraging manufacturers and retailers to market these products more actively and continue to innovate. As production scales up, prices of energy-efficient products fall allowing them to compete well within the market.