One Way to Win the Future: Improve Commercial Building Efficiency

Today in his speech at Penn State, President Obama announced his Better Building Initiative, which sets the goal of improving efficiency in commercial buildings 20 percent by 2020.

Commercial buildings represent a large opportunity to help rebuild the economy while benefiting the environment. Commercial buildings account for 20 percent of US energy use, while unemployment in the construction sector is at a staggering 20 percent. Promoting efficiency in commercial buildings will increase employment in the construction sector, while cutting businesses’ energy bills, allowing them to hire more workers. Lower energy bills also mean less air pollution that harms human health and the environment.

Last year, USGBC, NRDC and a collection of other organizations put together a report on the things the Obama administration could do to enhance energy efficiency in commercial buildings under existing authorities. NRDC also recently sent a memo along with other groups outlining three key priorities from this report. Two of these three priorities – loan guarantees for efficiency and improvements to the tax incentives for commercial buildings – were included in the Better Buildings Initiative announcement. For more on loan guarantees, see my colleague Philip Henderson's blog.

The existing tax incentive for commercial building efficiency is the Commercial Building Tax Deduction (the CBTD for short, Section 179D of the tax code), and it’s something we’ve been thinking about a lot lately as one way to help bridge the barriers to efficiency in commercial buildings. Effective tax incentives can help promote investment in energy efficiency that wouldn't happen otherwise due to upfront costs or lack of capital, creating jobs, while saving money and energy.

There are a couple of things that could be done to improve uptake of the CBTD. The first can be done using existing authorities to make the deduction more useable for new buildings, as outlined in our memo. The second is to modify the deduction legislatively so that it is more useable for retrofits of existing buildings. The President mentioned the Empire State Building Retrofit in his speech today, which will reduce the iconic building's energy use by 38% when completed. This is exactly the type of project we want to encourage the large-scale uptake of through enhancements to the CBTD. This could be done through a performance based tax incentive that would reward existing buildings for improving energy use relative to the building’s current usage, where the amount of the incentive would depend on how much energy was saved.