There’s encouraging news for those thinking about implementing energy-efficiency improvements: Congress is considering giving facility executives an additional three years to take advantage of tax breaks for making energy improvements.
But there’s also bad news: To date, Congress has taken little action.
A Senate amendment to extend the tax breaks for energy-efficiency improvements
completed by December 2010 comes on the heels of the president signing the Energy Policy Act of 2005 (EPAct 2005) into law. A section of the law — titled the Commercial Buildings Deduction — accelerates tax-deductible depreciation expenses for improving the efficiency of lighting, HVAC and building envelope systems. It also grants tax credits for the installation of certain on-site generation technologies.
“Our view is that in order to allow businesses to plan, the incentives should be extended,” says Kyle Pitsor of the National Electrical Manufacturers Association (NEMA). “We lobbied initially that the law should extend through 2010.”
While it’s still unclear what provisions would survive any law that emerges from Congress, the fact that the amendment — the Alternative Energy Extender Act — was introduced just months after the original law took effect should be encouraging to facility executives.
In addition, a second bill to extend certain provisions within EPAct was introduced in early April. The bill, called Breaking Our Long-term Dependence (BOLD) Energy Act, would extend certain tax credits in EPAct for the purchase of solar and wind power technologies and increase the deduction that can be taken for efficiency improvements.
Both bills come after what some consider a slow start to EPAct 2005. The portion of the bill that allows facility executives to deduct up to $1.80 per square foot for efficiency improvements required the Treasury Department to write rules indicating how efficiency improvements would be verified.
The rules are necessary because the law allows only projects that reduce total building energy use by 50 percent over ASHRAE 90.1-2001 to qualify for the tax deduction.
The IRS issued its a notice of rulemaking on the subject in early June. A notice precedes the issuing of formal rules.
Facility executives contemplating upgrades would be best served by following the rules set forth in the June notice, says Karen Penafiel of the Building Owners and Managers Association (BOMA) International. While the IRS’ formal rules aren’t expected to be significantly different from the notice of rulemaking, it could be some time before the formal rules are issued.
Improvements in individual systems that don’t reduce total building energy use by 50 percent but still use less energy than the amount set out in ASHRAE 90.1 qualify for a maximum 60-cent deduction per square foot. Systems that qualify for the partial deduction are interior lighting, HVAC, hot water and building envelope systems.
To qualify, facility executives must have their buildings certified by a licensed engineer or contractor.
Calculations for the certification must use software approved by the Department of Energy, according to the new IRS notice. When finalized, a list of the approved software will be posted online.
Other requirements include a field inspection to confirm that the prescribed energy-saving targets have been reached, and a description of the energy efficiency features of the building with projected annual energy costs.
The complete IRS notice.
The amount of the deduction could change, however. Under the BOLD amendment, allowable deductions would be increased to $2.25 per square foot for expenses that reduce total building energy use and to 75 cents per square foot for improvements to individual systems. A third amendment from Senators Barbara Feinstein, Olympia Snowe and John Kerry would also increase the deductible amounts as well as extend the time to complete projects through 2011, with some extra time for projects with long lead times.
Penafiel says extending the act would allow organizations to move forward with projects that simply won’t be complete within the window of the existing law.
“Depending on the complexity of the building system, it could take two years for a project to get done,” she says.
Partly because of the lobbying efforts of industry associations like NEMA and BOMA International, facility executives haven’t been paralyzed while waiting for Treasury to issue final regulations. EPAct 2005 contained interim rules laying out the requirements for lighting systems that qualify for the deduction.
As a result, facility executives could proceed with some energy efficiency upgrades knowing that the work being done would qualify for tax benefits, Pitsor says.
Before rushing into lighting efficiency upgrades, however, facility executives should familiarize themselves and their financial counterparts with how the deduction works. Otherwise, improvements might not qualify or a project could cost too much to deduct in one year.
The allowable deduction begins at 30 cents per square foot for systems that reduce lighting power density by 25 percent below ASHRAE 90.1. It rises in 2-cent increments for each percentage point above 25. The deduction is capped at 60 cents for a 40 percent reduction.
That means a 100,000-square-foot facility that spends $100,000 on a lighting upgrade can deduct $30,000 the year the upgrade is placed in service if the system reduces lighting power density by 25 percent. The remaining $70,000 would be deducted in the usual manner — capitalized and depreciated over time.
What’s more, facility executives should be aware that the law requires lighting systems to have a bi-level switching control scheme as a prerequisite to earning the accelerated tax deduction. There is no such requirement under ASHRAE 90.1. A bi-level switching scheme uses ballasts, dimmers, photosensors and other technologies to allow half of the lamps in a system to be turned off while the remaining half stays lit.
The American Council for an Energy-Efficient Economy estimated that the tax incentives in EPAct 2005 would result in energy savings of .5 quads, less than a half percent of national consumption.
EPAct also contains a provision to promote efficiency upgrades in government buildings. Although governments don’t pay taxes, the law allows federal, state and local governments to pass on any tax benefits to the designer of the energy upgrades. Nonprofit, private entities, such as medical centers and colleges, for example, are not allowed to pass along the deduction.
EPAct is gray on the matter of who gets the deduction if a second party, such as an ESCO, owns the lighting system. EPAct allocates the deduction to the owner of the system. There could be a question, however, over who owns the system for tax purposes.
Although in many, if not most instances, a tenant improvement will revert to the landlord at the end of a lease, the property is not necessarily owned by the landlord for tax purposes, according to some analyses. It is a question of fact, and the determination depends on the arrangements between the parties. If the tenant pays for the investment, and constructs it according to its owns specs, and there are no concessions in the lease or from the landlord, it is likely that the tenant will be the owner of the improvements for tax purposes and eligible to claim the deduction.
Tenant improvements might serve as precedent. The tenant and landlord determine who is the tax owner for purposes of claiming depreciation deductions. EPAct does not change that determination. The law simply provides a more beneficial deduction than normally provided by depreciation.
U.S. Green Building Council |
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| Chair Kevin Hydes Stantec Vice Chair Sandy Wiggins Consilience LLC Secretary Gail Vittori Center for Maximum Potential Building Systems |
Treasurer Joe Van Belleghem Buildgreen Developments Inc. Immediate Past Chair James E. Hartzfeld Interface Americas Founder David A. Gottfried WorldBuild Technology Inc. Founder Michael L. Italiano Sustainable Products Corp. |
President, CEO and Founding Chairman S. Richard Fedrizzi U.S. Green Building Council 1015 18th St., NW Ste. 805 Washington, DC 20036 202/828-7422 |
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| Reducing Natural Gas A report written by the Georgia-based GDS Associates, commissioned by the Natural Resources Defense Council, concludes that if aggressive policies and programs using off-the-shelf energy efficiency technologies were implemented today, commercial and residential consumers would save nearly 2.8 trillion cubic feet (TCF) of natural gas annually over the next 10 years. That amounts to 12.7 percent of the 22 TCF Americans consumed in 2005. GDS estimated that savings due to greater efficiency could amount to more than 234 TCF over a 50-year period based on today's rate of consumption — nearly three times the Interior Department's mean estimate of 86 TCF of natural gas located in currently protected areas off the nation's coasts. Greenest City Rankings Portland, Ore., is the most sustainable city in the country, according to the 2006 annual rankings by SustainLane.com, a nonpartisan online community site for healthy, sustainable living. The rankings of the top 50 largest cities in the U.S. were based on their ability to maintain air quality and healthy drinking water, their use of renewable energy and alternative fuels, access to public transit, number of parks, green building and local food production. The study also looked for strong local economies that could handle sudden, unpredictable events, such as surging energy prices and natural disasters, as well as the presence of easily walkable neighborhoods and downtowns, farmers' markets and affordable housing. Following Portland in the rankings were San Francisco, Seattle, Philadelphia and Chicago. Testing 1,2... Air Quality Sciences, in conjunction with the Greenguard Environmental Institute (GEI), has created a new test method that measures the ability of newly manufactured building materials to resist mold growth. Products are rated 1 to 4, with 4 indicating a product highly resistant to mold growth. GEI will use the rating system to develop product certification criteria for mold resistance. Evaluating Emissions The Carbon Value Analysis Tool (CVAT), released by the World Resources Institute’s Climate Northeast project, is a Microsoft Excel-based program that will help corporate facility executives integrate the value of carbon-dioxide emission reductions into decisions regarding financing new energy-efficiency and renewable energy projects. CVAT is designed to be especially useful to multinational corporations with greenhouse gas reduction targets as well as facilities that operate under carbon-limiting government mandates, such as those throughout Europe. The tool was released in conjunction with a series of case studies providing examples of how corporations such as Staples, Johnson & Johnson, GE, Eastman Kodak and Citigroup have reduced greenhouse gas emissions, implemented energy-efficiency upgrades and used renewable-energy technologies. For case studies and a free download of CVAT. |
Green the Government The non-profit Center for a New American Dream’s Responsible Purchasing Network can help state and local governments find ways to use clean, renewable energy. State and local governments that apply can receive a detailed evaluation of clean energy products available, including a review of costs and benefits, a look at case studies from other jurisdictions, and a practical timeline for concluding a purchase. Participating jurisdictions will also engage in direct consultations with the Responsible Purchasing Network and Think Energy. Jurisdictions can apply here.
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With an assist from the base building, Philadelphia’s Cira Centre, SCA Americas headquarters became one of the largest LEED-CI certified spaces.
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Philadelphia Paper company SCA Americas’ headquarters has been certified Gold with the LEED for Commercial Interiors rating system. SCA occupies three floors encompassing 81,200 square feet in Philadelphia’s newest high-rise, the 28-story Cira Centre.
The company, which makes absorbent hygiene products, packaging and publication papers, owns several sustainably managed forests and has committed itself to sustainable manufacturing practices. So when it came time to fit out its newly leased space, LEED certification was a must, says Peter Levasseur, director of sustainable development for EwingCole, the architecture and engineering firm that designed the space.
While not LEED-certified itself, the core and shell design of the Cira Centre helped SCA achieve several LEED points. The building was built on a brownfield site and is located directly adjacent to Philadelphia’s 30th Street Station, a major transportation hub. SCA, which moved into its space in January 2006, took a poll and discovered that 118 of its 129 employees used public transportation to get to work. This also saved the company money because it was able to reduce the amount of leased parking spaces.
Sustainable water and energy efficiency strategies have also helped SCA save money. Using aerators on all faucets helped SCA earn a point by reducing water use by 20 percent. In fact, the Cira Centre’s developers did an analysis based on SCA’s product selection, and concluded that the return on investment was good enough to use similar systems throughout the entire building.
Even though designers working on SCA’s space didn’t have control over the building’s HVAC system, they were able to use systems over SCA’s three floors to minimize air stratification. Also, SCA required that 90 percent of its equipment — including computers, copiers and other office technologies — be Energy Star-rated. Two submeters are installed on each floor to identify energy inefficiencies and fix them immediately. SCA also purchases wind power certificates, so essentially 100 percent of its energy use comes from renewable sources.
The most challenging LEED point was the one SCA earned for daylights and view, says Levasseur. That is because the Cira Centre’s massive floor plates made it difficult to ensure significant daylight for a majority of workers. “We were still able to achieve one credit for providing daylighting to 75 percent of the occupants,” he says. “We pushed all the work stations to the exterior and used interior glazing systems, and all interior offices have glass.” Levasseur says they worked hard to solve the daylighting riddle because that strategy provided two benefits — reduced lighting loads, saving energy, and improved overall work environment for SCA employees.
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Aggressive energy-conservation and stormwater-management measures helped the Harborside Office Center earn a LEED-CS silver certification.
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Port Huron, Mich. When the four-story, 110,000-square-foot Harborside Office Center was built on a brownfield site, and then certified with LEED Core and Shell at the silver level, an entire town took notice.
“It’s one of the newest structures in the Port Huron area,” says Kimberly Nelson Montague, project principal, vice president and director of marketing and business development at Albert Kahn Associates, the project’s lead architect. “It’s helping to revitalize the whole area and has spurred a lot of other developments.”
The building site, efficient HVAC systems that recapture and reuse heat, a building management system, low-e glass, solar shading devices, and light shelves all contribute to the building’s energy efficiency.
An attached 375-space parking garage is topped with a garden roof. A bioswale — a stormwater management system and a landscape amenity in the parking structure — naturally filters stormwater before it enters the city’s sewage system.
Low-emitting materials were used throughout the building, and 80 percent of construction debris was diverted from landfills.
