Energy Policy Act of 2005 Incentivizes Energy-Efficiency Initiatives

March 6, 2006
This 1,724-page law provides new tax incentives for a number of solar and energy-efficiency measures

The Energy Policy Act of 2005 (EPAct 2005) is the first effort of the United States government to address U.S. energy policy since the Energy Policy Act of 1992. Among many other things, the 1,724-page law provides new tax incentives for a number of solar and energy-efficiency measures.

For commercial building owners and managers, these provisions offer business taxpayers a deduction of $1.80 per square foot for commercial buildings that achieve a 50-percent reduction in annual energy costs to the user, compared to a base building defined by ASHRAE/IESNA 90.1-2001 Energy Standard for Buildings Except Low-Rise Residential Buildings. Energy costs refer only to heating, cooling, lighting, and water heating - since only these uses are within the scope of the ASHRAE standard and within the control of the building designer.

Eligible buildings include commercial buildings (offices, retail buildings, warehouses, etc.); rental housing of four stories or more; and publicly owned buildings. Existing buildings are also eligible for the tax deduction, with one-third of the deduction amount for new construction that affects the new energy-using system (such as lighting or heating, cooling, and water heating).

Compliance is determined by third-party inspectors who review the plans and the actual in-place construction. Energy savings are determined by software that must be certified by the Department of Energy (DOE) as meeting criteria of consistency and accuracy, following the successful experience of California’s performance-based energy code enforcement.

The incentives apply to buildings or systems placed in service during 2006-2007, although extenders increasing the eligibility through 2009 or 2010 are a distinct possibility.

To put EPAct in layman’s terms, we turned to Rosemont, IL-based Advance ( - the leading manufacturer of ballasts and drivers for fluorescent, HID, and LED lamps in North America, and an organization that has been at the forefront of the lighting industry for over 60 years - for further explanation:

Q: Explain the Energy Policy Act of 2005.

A: Officially signed into law in August 2005, this milestone act addresses matters ranging from the generation, transmission, and distribution of our nation’s energy to our country’s energy consumption and the efficiency of certain end-user products. A landmark step for the nation’s future progress and prosperity, EPAct 2005 is intended to reduce our national energy consumption, benefit the environment through the reduced emission of pollutants, reduce our dependence on foreign fuel sources, and improve our overall global competitiveness.

In addition to setting new product-efficiency standards and supporting enhancements to the nation’s electric grid and generational infrastructure, EPAct 2005 introduces attractive new financial incentives that reward the use of energy-efficient lighting, HVAC, and other high-efficiency building envelope technologies within qualifying new installations as well as retrofit applications.

Q: What impact will the act have on building owners and facilities professionals?

A: Policymakers and industry experts expect the EPAct 2005 to have a significant impact on building owners and facilities professionals. In addition to drawing positive national attention to the critical matter of our country’s energy efficiency as a whole, the new federal tax deduction opportunities offered through EPAct 2005 add an additional financial incentive to the already-attractive upgrade investment, which will likely result in increased upgrade activity at the facility level.

Q: The act contains tax incentives. What are the requirements, and how can facilities professionals take advantage of them?

A: The financial incentives available through EPAct 2005 are offered in the form of tax deductions of up to $1.80 per square foot on qualifying whole-building upgrades that involve a totality of technologies that improve a building’s energy efficiency by 50 percent or more over the ASHRAE 90.1-2001 Energy Standard for Buildings Except Low-Rise Residential Buildings (instituted by the Atlanta-based American Society of Heating, Refrigerating, and Air-Conditioning Engineers [ASHRAE] and adopted as the commercial building reference for state building energy codes). Tax deductions of up to $0.60 per square foot are also available on the installation of energy-efficient lighting products or another single qualifying technology that results in a building’s increase in energy efficiency by 25 to 40 percent or more over the ASHRAE 90.1-2001 standard. Interested parties are encouraged to consult ASHRAE guidelines and their tax professionals for more information on how to qualify. They can also visit dedicated online resources such as (, sponsored by the National Electrical Manufacturers Association (NEMA), Rosslyn, VA.

Effective Jan. 1, 2006, through Dec. 31, 2007, and offered on top of the extremely attractive returns that energy-efficient lighting, HVAC, and building envelope upgrades generate all on their own, these new tax-deduction opportunities provide an even more compelling reason for facilities professionals to pursue an upgrade today.

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