New Senate Bill Would Provide Important Incentives for Energy Efficiency

The Energy Efficiency Tax Incentives Act, S. 2189, introduced late yesterday by three Democratic senators, would improve the efficiency of our homes, workplaces, and industry by reinstating and improving important efficiency tax incentives.

Energy efficiency – achieving the same or better service with less energy -- is the cleanest, cheapest energy resource we have. It cuts our nation’s energy bills, while creating jobs throughout the economy and reducing emissions for years to come. Despite these significant benefits, people don’t always invest in more energy efficient technologies due to upfront costs, a disconnect between who buys the equipment and the person paying energy bills, and other barriers.

But tax incentives – credits and deductions – help overcome these barriers by accelerating the availability of energy-saving products and practices because they encourage homeowners and businesses to invest in high-performing buildings, equipment, lighting, and appliances.

S. 2189 comes in the midst of the Senate Finance Committee’s consideration of a suite of expired tax incentives. This bill from Senators Ben Cardin (D-MD), Dianne Feinstein (D-CA), and Brian Shatz (D-Hawaii) is an opportunity to modify, expand,  and enhance the energy efficiency incentives to achieve greater savings – upping stringency levels, making sure they all pay for good energy performance, and restructuring them to increase utilization. Here’s how S. 2189 would incentivize efficiency in the commercial, residential and industrial sectors:

Promoting Highly Efficient New Commercial Buildings and Retrofits

S. 2189 would restore and enhance Section 179D which expired at the end of 2013 and offers a tax deduction to the owners of highly efficient commercial and multifamily buildings. The bill aims to increase the deduction’s success at promoting very efficient new buildings, while increasing its effectiveness at encouraging retrofits of existing buildings. The bill would raise the maximum amount of deduction from $1.80 to $3.00 per square foot and would allow it to be claimed by other parties related to the project in place of the owner, such as the building designer or a commercial tenant, making the deduction more attractive to more people as many commercial building ownership structures don’t have tax liability.

For new construction, energy efficiency would continue to be measured relative to an updated code baseline and would require buildings to use 50 percent less energy than the ASHRAE-90.1 2004 or 2007 commercial building code baseline, depending on the year of construction. For existing buildings, the baseline for improvement would be the building’s prior energy use, with incentives given on a sliding scale based on energy saved.  These changes, supported by NRDC and many other stakeholders, could save U.S. business owners $1.4 billion in energy costs and create at least 77,000 jobs.

Making our Existing Homes Waste Less Energy

Up until this past December, the tax code rewarded homeowners who invested in more efficient air conditioners, furnaces, insulation, and windows through section 25C.  The new bill would add a section to the tax code, Section 25E, to encourage homeowners to invest in whole home energy retrofits. Similar to the commercial building retrofit provision in 179D, a homeowner would receive an incentive on a sliding scale for hiring a qualified contractor to improve their home’s efficiency by 20 to 50 percent compared to its existing condition. The amount of the incentive would increase with energy savings, up to a maximum of $5,000 for 50 percent energy savings (a significant reduction in home energy use!). This performance-based structure ensures that we are getting the greatest energy savings per tax dollar spent while encouraging deep energy savings. This new 25E provision would complement an updated an extended 25C. Whereas 25E rewards based on performance, 25C offers an incentive for specific measures and the amount is based on the cost of the equipment. 25C should be extended with updated criteria reflecting the advancements in energy efficiency.

Improving Industrial Efficiency

In addition to improving the efficiency of our homes and workplaces, S. 2189 would enhance and add several incentives aimed at improving energy savings in the commercial and industrial sector. These include incentives for combined heat and power systems, energy efficient motors, and for the replacement of chillers that use ozone-depleting refrigerants.

What’s Next

Congress needs to reinstate energy efficiency tax incentives to help homeowners and businesses cut energy waste. The government has a role to play to encourage investment in saving energy for multiple reasons, including:

  • Energy efficiency creates jobs. For example, manufacturers hire workers to make the more efficient products, which lead to energy savings that consumers and businesses can spend on other goods and services that generally provide more jobs per dollar spent than electricity production.
  • Efficiency reduces our nation’s electricity use, which means less coal is burned and less pollution emitted that exacerbates asthma and other health problems. Dirty power generation also contributes to global warming, increasing the risks of extreme storms, drought, food shortages, and other problems.
  • Reduced electricity use also means less strain on our transmission grid, leading to fewer power outages, which can be deadly for the sick and elderly.

We applaud the leadership of Senators Cardin, Feinstein and Shatz for introducing this important bill to advance energy efficiency. Congress should reinstate, expand, and improve upon the tax incentives that can help foster energy savings in our homes and communities, create jobs, and reduce pollution rather than only supporting dirty energy through permanent subsidies. Every home, building, and appliance we make more efficient cuts carbon pollution and moves the nation closer to a more stable and prosperous future.

Co-authored by Kate McCormick, NRDC MAP Sustainability Fellow