Over the past few months, President Obama has shown the country that energy conservation and energy independence are top goals of his administration. On March 30, Obama announced his plan for "America's Energy Security," and in February he unveiled the "Better Buildings Initiative" (BBI) to capture commercial buildings and to complement the housing plans he has been promoting since last year.
Obama's goal is to make commercial buildings 20% more energy efficient by 2020 through cost-effective upgrades. To accomplish this, he introduced a series of new initiatives:
- New tax incentives for building efficiency
- More financing opportunities for commercial retrofits
- "Race to Green" for state and municipal governments that streamline regulations and attract private investment for retrofit projects
- The Better Buildings Challenge to encourage CEOs and university presidents to make their organizations leaders in saving energy
- Training the next generation of commercial building technology workers
The Presidential Plan
Sounds pretty good, right? Of course, the devil is in the details, and that's especially true here in D.C. But so far, we like what we hear. So what's in it for us? Why should building managers care about these proposed policy changes that still have to be enacted by Congress, which is far from a sure thing, before buildings can see any benefit?
For years, BOMA International (along with other real estate associations, environmental organizations, and others in Washington) has been lobbying for meaningful tax incentives to help drive energy efficiency retrofits in existing buildings. Back in 2005, the Commercial Buildings Tax Deduction (Section 179D of the Internal Revenue Code) was enacted by Congress, and subsequently extended through 2013. This provides up to $1.80 per square foot for energy efficiency upgrades that achieve a 50% reduction in annual energy cost to the user, compared to a base building defined by ASHRAE/IESNA 90.1-2001. However, this has proven to be ineffective due to its complexity, overly ambitious energy efficiency hurdle, and other requirements that increase cost without necessarily improving energy performance.
Since 2005, we've been working to educate Congress on why this incentive has been a major disappointment to our industry and why very few have been able to take advantage of it (and that it's not because greedy landlords don't want to improve their buildings). Bottom line, now the White House is listening, and we have a real opportunity.
President Obama's plan would take a huge step forward to making Section 179D more useful. First, he would like it changed from a tax deduction to a credit (which would effectively triple its value, depending on your tax rate) and allow a partial credit for achieving less stringent efficiency standards ($0.60/sf for energy reductions of at least 20% but less than 30%; $0.90/sf for energy reductions of at least 30% but less than 50%; and $1.80/sf for achieving energy reductions of 50% or more). In addition, the credit would be based on prescriptive standards, and thereby reduce the complexity of the current standards, which require whole-building auditing, modeling, and simulation.
Opinions from Organizations
While we like where the President seems to be heading, we have some ideas of our own. Several real estate groups have been trying to come up with a proposal that would improve upon Obama's ideas without significantly increasing the cost to the government of such a proposal. Led by the Real Estate Roundtable (RER) and the Natural Resources Defense Council (NRDC), our groups are exploring several additional options. First, we would like to see a building's energy improvement measured against its existing baseline, not against ASHRAE 90.1. Measuring older buildings against the current energy code is arbitrary and it unfairly excludes many buildings that will never cost-effectively be able to exceed the standard by 50%. The RER often points out that the Empire State Building, which recently invested $13.2 million in efficiency upgrades, would not meet this target, despite the fact that the retrofit is guaranteed to reduce the building's energy consumption by about 38%.
We like that the President proposed that the incentive be phased in beginning at energy reductions of 20%. However, we would like to see this taken a step further. As proposed, the BBI recognizes improvements exceeding 20%, 30%, and 50%. However, we all know that there is a huge difference between 20 and 30%. So vast, in fact, that many buildings that can reach 20% may not even strive to reach 30%, and definitely not 50%. So why don't we divide up the pie a bit differently, and set targets at 20, 25, 30, 35, 40, 45, and 50%? A building that reaches 20% may want to try to get 25, and a building reaching 30 may want to reach further still. And isn't that the ultimate goal of the program – to incentivize private sector investment in energy efficiency improvements to our nation's existing building stock?
Makes sense to us. Now we just have to convince Congress!
Karen Penafiel is vice president of advocacy for BOMA International. She can be reached at [email protected]. For more information on this and other topics, call BOMA International at (202) 408-2662 or visit www.boma.org.