Recent federal legislation on greenhouse gas emissions gives the commercial real estate industry an opportunity to advocate for incentive-based policies.
The need to reduce greenhouse gas emissions resulting from carbon-based sources of energy (oil, coal and natural gas) has been a major public policy issue for many years, with policymakers focusing on different aspects of the problem. These range from reducing energy usage in different industries, including the real estate sector, either through government mandates or economic incentives, to proposals that would ensure a total transformation of the nation’s energy sector to renewable sources of energy, such as wind and solar power.
Like so many other issues in the political arena, agreement on the scope of the problem and the measures needed to address it are far from universal. Despite that, Congress did make what is essentially a down payment on addressing climate change last November when it passed the bipartisan Infrastructure Investment and Jobs Act.
Build Back Better Falls Apart
Ironically, the enactment into law of climate and energy provisions in the Infrastructure Investment and Jobs Act was overshadowed by the subsequent debate over President Biden’s “Build Back Better” social spending and climate change legislation, which stalled in the Senate in December. That bill provided approximately $550 billion in federal spending and tax incentives for clean energy initiatives. These range from expansion of investment tax credits for clean energy projects, to increasing the number of chargers for electric vehicles, to renewable energy standards that would eventually reduce the use of carbon-based fuel sources. The legislation failed to advance primarily because of opposition from Democratic Senator Joe Manchin of West Virginia, a coal-producing state. While Manchin opposed some of the energy proposals in the House-passed version of the Build Back Better legislation, his concern with the overall size and likely true cost of the total package of social spending and climate change provisions led to his refusal to support the bill.
Understandably, after the bipartisan infrastructure bill was passed in November 2021, the news media and advocates for climate change initiatives immediately turned their attention to the legislative drama surrounding the Build Back Better legislation. While the increased spending for roads, bridges and railways that constituted the largest segment of the infrastructure bill did garner significant coverage, there was not a corresponding acknowledgment that the bill also devoted billions to promoting clean energy infrastructure and increasing the climate resiliency of our communities.
For example, the Infrastructure Investment and Jobs Act provided $65 billion for research, development and deployment of new clean-energy technologies and new transmission infrastructure that would, among other things, connect new renewable and clean power sources to the nation’s power grid. The nearly $90 billion provided for public transit included funding to replace current high-emission fleets with clean-energy-powered vehicles. The bill provided funding for electric and low-emission school buses, and for the development of electric vehicle charging networks to speed up the adoption of electric vehicles. It also included $47 billion for climate resilience measures, to assist localities in upgrades for critical infrastructure to better withstand damage from extreme weather events.
It is unlikely that this will be the only legislation Congress passes where substantive energy and climate change provisions are considered and debated, even if Republicans regain the majority in the House of Representatives in the upcoming November midterm congressional elections as many political analysts expect. There are many provisions and initiatives to reduce greenhouse gases and promote more renewable energy usage that enjoy bipartisan support, and Republicans as well as Democrats support funding to help their constituents and communities deal with increased flooding and fires that have been linked in some measure to increased temperatures.
The focus on the built environment’s contributions to greenhouse gases, as a result of energy usage primarily derived from carbon-based sources, is expected to continue at the federal level. More importantly, it will also continue at the local level, through ordinances and efforts mandating increased energy-efficiency goals for buildings, banning natural gas use and other measures targeting the real estate industry.
A Role for Real Estate
Regardless of which political party holds power in the nation’s capital, the broad issues of reducing greenhouse gases and increasing the use of renewable energy, and specific policies targeting the built environment, will remain a public policy concern. Without a doubt, Congress will have to provide additional incentives to enable real estate businesses to make the needed investments in low- and zero-carbon building systems needed to achieve these goals.
To that end, while the Infrastructure Investment and Jobs Act may be a down payment on the broad effort aimed at reducing greenhouse gases, a wide swath of the real estate industry will continue to advocate for specific measures to help reduce its carbon output. These include changes to investment tax credits so that thermal energy storage systems are eligible for the incentives, ensuring that efforts to expand electric vehicle chargers in parking lots include private lots serving residential and business tenants, and providing accelerated depreciation for heat pumps and other components to electrify commercial buildings.
Provisions affecting energy usage in commercial and residential buildings are likely to be debated in any upcoming tax legislation, appropriations bills or other legislative vehicles before the next presidential election. While some of these provisions will be unwise policy, these debates will also present opportunities for the industry to advance meaningful, incentive-based and realistic policies that enable the real estate sector to reduce the level of greenhouse gases and their corresponding impact on the climate.