Eighty groups and companies related to the commercial real estate industry have signed off an a letter that asks congress to support the Obama administration’s Better Buildings Initiative and modify the Energy Efficient Commercial Buildings Deduction, also known as Section 179D of the Internal Revenue Code, to increase its effectiveness at encouraging retrofits of existing buildings.
The letter specifically recommends adding an additional tax incentive provision that is targeted toward existing building retrofits, which should include the following key elements:
Measure energy savings compared to the existing building baseline. Currently Section 179D rewards buildings that reduce the energy consumption of the whole building to 50 percent of the amount the building would use if it were built to a particular code. Energy usage pre- and post-retrofit is a more appropriate comparison metric for existing buildings. As an example, the letter mentions the now LEED certified Empire State Building, which made an $106 million investment in efficiency upgrades. It would not meet the current standard in 179D despite reducing the building’s energy consumption by about 38 percent.
Link the amount of the incentive to energy savings achieved. The letter says the minimum amount of the incentive should correspond to 20 percent total energy savings compared to the building’s baseline energy consumption, and the maximum incentive should correspond to 50 percent savings. The amount of the incentive would increase for every 5 percent increase in energy savings within this range.
Tie a portion of the tax incentive to implementation of efficiency measures and a portion to demonstrated energy savings. There are good reasons to reward a building owner for implementing energy savings measures, and good reasons to reward energy savings actually realized at the meter level. The letter recommends doing both.
Allow owners or tenants to claim some incentive for improving a substantial space within a building. There is significant opportunity and appetite for building owners and tenants to improve energy efficiency during tenant build-out of office space, but current landlord-tenant arrangements seldom seize that opportunity.
Make the tax incentive useable for a broad range of building efficiency stakeholders and building types, including REITS and multifamily buildings. Commercial buildings are owned by a variety of organizations, some of which do not have appetite for conventional tax incentives. To gear a tax incentive for optimal benefit by Real Estate Investment Trusts (REITS), the full amount of the incentive that considers such entities’ special tax requirements should be available for REITS. Additionally, multifamily buildings should remain eligible for any commercial building incentive given their similarity to commercial buildings with respect to ownership, structure, and application of energy codes.
Supplemental incentives should be considered for retrofits that multiply energy efficiency benefits. Congress should consider additional incentives for certain improvements that multiply energy efficiency benefits — such as renovating historic buildings, installing energy-efficient -cool roofs to mitigate urban heat island effects, and replacing chillers that use ozone-depleting refrigerants.
View the original letter which is available which is available as a SCRIBD document here.