Congress Proposes Incentives to Increase Energy Efficiency for Buildings

Summer 2010

In recent years, the development industry has seen Congress become increasingly involved with legislation related to energy efficiency for buildings. With climate change and carbon reduction bills becoming more prevalent, buildings have emerged as a prime target for scrutiny.

NAIOP believes that there is a balance between supporting the importance of energy reduction with the realities of the development industry. The association has advocated against strict mandates through national building codes as the best method of reaching the desired goal of using less energy, believing that an incentive-based approach toward efficiency is the best way forward.

If Congress believes that new levels of energy efficiency are needed for buildings and there is a distinct public benefit that the efficiencies will achieve, then increased incentives are needed to offset part of the initial costs that are accrued by the developer. Often times these costs are not paid back through electricity savings for decades.

Incentives Under Debate

Two incentives that have recently been discussed during Congressional hearings are the Building Star Energy Efficiency Act of 2010 and the Expanding Building Efficiency Incentives Act of 2009.

The Building Star Energy Efficiency Act of 2010, or "Building Star," was introduced by Senator Jeff Merkley (D-Ore.) and would provide direct rebates for building owners that install certain efficiency equipment, including windows, insulation, HVAC systems and lighting. Additional funds would also be available for energy audits, commissioning and energy management and monitoring systems.

The legislation, which is similar to a residential incentive widely known as "Cash for Caulkers," is supported by several real estate groups, including NAIOP. The bill was recently debated in the Senate Energy and Natural Resources Committee; the most contentious item was the cost. The bill plans to spend roughly $5 billion, with proponents claiming that it will create between 125,000 and 188,000 jobs.

The second bill, Expanding Building Efficiency Incentives Act of 2009, was introduced in the Senate by Senator Olympia Snowe (R-Maine) and Congressman David Reichert (R-Wash.) in the House. This bill would increase the deduction amounts of the Commercial Building Energy Efficiency Tax Deduction from $1.80 per square foot to $3 per square foot.

In 2008, the existing program was extended until December 31, 2013. While this did provide some assurance to developers, the efficiency targets and the deduction amount still proved a barrier to developers seeking to receive the incentive.

NAIOP has heard from several members that the existing $1.80 a square foot deduction was not enough to reach the energy efficiency targets that were required to receive the tax deduction. Increasing the incentive amount to $3 would likely result in more developers taking further steps to increase their building’s efficiency levels.

Both of the bills go a long way to promote advanced levels of energy efficiency for new and existing buildings, and NAIOP is encouraged that Congress is seriously looking at these and other incentive ideas.

NAIOP is supportive of these bills and is also looking at additional incentive approaches, with the understanding that different incentives attract various types of projects, with the end-result of promoting solutions that lead to better and more efficient buildings.