ACEEE Recommends Increasing Energy Efficiency Tax Incentive for Commercial Buildings

by | Feb 7, 2013

According to the American Council for an Energy-Efficient Economy (ACEEE), policymakers should consider increasing the federal tax incentive for energy efficiency of commercial buildings.

The current commercial buildings tax deduction should be extended and improved, states ACEEE’s report – Tax Reforms to Advance Energy Efficiency. The current deduction is for $1.80 per square foot for buildings that reduce energy use by 50 percent relative to the requirements in the 2004 version of ASHRAE Standard 90.1.5. This incentive has not been heavily used as the 50 percent savings target is achievable only in new buildings, the criteria to qualify for the deduction are complex, and the $1.80 incentive is not enough to drive substantial participation, states the report.

A bill, the “Commercial Building Modernization Act,” has been introduced to address many of these problems. This bill increases the deduction for new buildings to $3 per square foot and adds a new deduction for existing buildings for achieving savings of 20 percent or more relative to the current consumption of the building, with the amount of the deduction increasing as the savings increase. The new construction portion of the program would familiarize architects and engineers with the techniques for designing high-performance buildings, laying the groundwork for future improvements to building codes.

In addition to refining the existing energy efficiency tax incentive for commercial buildings, ACEEE recommends providing federal incentives in these areas:

• Very high-efficiency appliances, heat and cooling equipment, and windows

• Very-efficient new homes

• Comprehensive retrofits to existing homes

From a broad perspective, ACEEE encourages policymakers to consider the following reforms in a revised tax code:

  1. Refine depreciation periods to more accurately reflect the average service lives of equipment, particularly in the commercial sector.
  2. Refine existing energy efficiency tax incentives to focus on using a market transformation approach to promote energy-saving technologies and practices with limited market share today, but where temporary federal incentives can advance these technologies and practices to the point where they can prosper without federal incentives.
  3. Promote capital investment in manufacturing by using low-cost approaches to spur increases in capital investment. Such approaches might include reduced tax rates for repatriated foreign profits, accelerated depreciation, and repayable tax incentives.
  4. Add a price on emissions.
  5. Consider ways to remove disincentives to energy efficiency investment from the business tax ?code.
  6. Eliminate or reduce subsidies that target the fossil fuel industry.


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