A New Energy Yardstick

01/17/2007 | By Lew Tagliaferre

In looking for a new topic for this column, I did a search on Buildings.com for articles published by Buildings magazine using the phrase “energy management.” I was pleasantly surprised to find that no less than 162 articles were listed over the past 2 years covering energy matters. So, congratulations to the editors for giving this topic so much ink (as they say in the trade). You cannot say you have not been informed about energy management. Nevertheless, with a deadline looming, I had to select some development that would be timely and useful to kick off the new year. As is often the case, my clue came from the federal government. Federal actions that come with good intentions also usually come with unintended consequences. Such is the case with the Energy Policy Act of 2005 (EPAct 2005). Among their many laudable goals, lawmakers attempted to induce more efficient use of energy by offering tax incentives for energy retrofits in commercial and industrial buildings. Unfortunately, nowhere in any of the articles I surveyed did I find any mention of productivity impacts; yet the avalanche of global competition being faced by American business requires that CEOs continually find ways of increasing the ratio of output to input. There is the rub.

To review briefly, the Internal Revenue Service (IRS) released its advance Notice 2006-52 “Deduction for Energy-Efficient Commercial Buildings” in June 2006. The notice provided information about tax deductions available for owners or lessees of commercial buildings, excluding non-profit government buildings, that install energy-efficient property between Dec. 31, 2005, and Jan. 1, 2008. The IRS notice, which is required by EPAct 2005, offers tax deductions of up to $1.80 per square foot for taxpayers who own or lease buildings that achieve 50-percent energy savings or better. Building upgrades obtaining less than 50-percent (but at least 162/3-percent) energy savings qualify for deductions of up to 60 cents per square foot.

Building property that qualifies for the energy-efficient tax deduction includes the building envelope, interior lighting systems, and HVAC and hot-water systems. Taxpayers who qualify for the deduction are required to submit certification of the energy savings achieved in their buildings. Certification is required by independent professionals who have met qualifications specified in IRS Notice 2006-52 and who use U.S. Department of Energy-approved energy-efficiency calculation software. A qualified individual is:

  • Not related (does not have an employer/employee relationship) to the taxpayer claiming the deduction.
  • An engineer or contractor that is properly licensed as a professional engineer or contractor in the jurisdiction in which the building is located.
  • Has represented, in writing, to the taxpayer that he or she has the requisite qualifications to provide the certification required or/and to perform the inspection required.

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