Tax incentives pass, now up to private sector

The 110th Congress passed legislation in its waning days that contained critical energy tax provisions to assist investment in energy-efficient technologies in commercial buildings.


The 110th Congress passed legislation in its waning days that contained critical energy tax provisions to assist investment in energy-efficient technologies in commercial buildings. Specifically, the Congressional Emergency Economic Stabilization Act of 2008, HR 1424, extended the tax deduction for energy-efficient technologies in commercial buildings, which was first enacted as part of the Energy Policy Act of 2005. Why is this important to readers of Consulting-Specifying Engineer?

Buildings annually consume nearly 900 billion kWh of electricity at a cost exceeding $115 billion each year. The electricity used by and in buildings account for nearly 70% of the electricity used in the United States annually, and the carbon dioxide emissions associated with this energy usage is approximately 39% of total U.S. emissions each year. These high energy use and emission rates result from the large percentage (more than 75%) of commercial, industrial, and institutional buildings that were constructed before the introduction of the many groundbreaking energy-efficient technologies now widely available.

For these key reasons, Congress included a provision in the Energy Policy Act of 2005 that provided a performance-based tax incentive for building owners to improve the energy efficiency in buildings. This incentive—the Commercial Building Tax Deduction—establishes a tax deduction for certain investments in energy-efficient interior lighting, HVAC and hot water, and building envelope. The maximum deduction is $1.80/sq ft for qualified improvements designed to reduce annual energy costs by 50% or more when compared to a reference building that meets the minimum requirements of ASHRAE 90.1-2001. Individual subsystems can receive the benefit, and partial deductions also are permitted.

Initially the provision was available for only two years. In 2007 Congress extended it for an additional year. It was set to expire on Dec. 31, 2008, but with the passage of the Emergency Economic Stabilization Act, the benefits of the provision are now extended through Dec. 31, 2013.

The National Electrical Manufacturers Assn. (NEMA) lobbied for this provision in 2005, and sought a minimum period of five years for the incentive, given the time needed to develop awareness of the tax provision and the time it takes to design and construct buildings, as well as planning and executing renovations on older buildings. Use of the provision is now gaining traction. It has taken several years for the industry to understand the opportunities afforded by the Commercial Building Tax Deduction and for the IRS to issue regulations to use the provision.

With the provision in place through 2013, the challenge is up to the contracting, design, distribution, building owner, manufacturing, and construction industries to fully take advantage of this important incentive to install energy-efficient lighting, heating, cooling and ventilation, and hot water technologies.

So, is the private sector up to the challenge to take advantage of this tax incentive as part of national effort to increase the efficiency of our buildings, both renovation and new construction, with positive results of lower operating costs, reduction of greenhouse gas emissions from building energy consumption, and improvement in the quality of our built environment? Time will tell.

Author Information

Pitsor is vice president, government relations at the National Electrical Manufacturers Assn. (NEMA). He directs the association’s government issue analysis, communication, and advocacy programs at the federal, state, and international levels. NEMA is the largest U.S. trade association representing manufacturers of products used in the generation, transmission, distribution, control, and end-use of electricity. NEMA’s members serve a domestic market of $100 billion and represent about 350,000 jobs.

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