An Energy Efficiency Needle in the Relief Bill Haystack
A critical tool for cutting greenhouse gas emissions is buried in the fine print of the massive “Consolidated Appropriations Act, 2021”, signed by President Trump. This tool is a provision that offers permanent tax incentives for highly energy-efficient commercial buildings. This incentive can accelerate efforts to transform the buildings sector from one that causes some 15 percent of all climate pollution to one that is essentially pollution free.
But this positive result will depend on new interpretive advice from the Department of Energy (DOE) and the Internal Revenue Service to correct the flawed advice that has been required in the past.
More than 20 years in the making
The incentive first appeared in a legislation coauthored by Senators Olympia Snowe (R-ME) and Dianne Feinstein (D-CA), which was first introduced in 1999 but took six years to pass. NRDC worked closely with the offices of these two Senators, and with House co-authors Ed Markey (D-MA) and “Duke” Cunningham (R-CA) in developing this provision. Earlier Clinton-era tax incentives for energy efficiency had not included commercial buildings, and when we asked “why not?” these authors agreed to work together to fill the gap. This was a great example of collaborative bipartisanship, which we hope will be a harbinger of more cooperation on clean energy in the future.
The 179D provision offered commercial building owners—or the architects the owners designated if they were local governments that don’t pay taxes–tax incentives for buildings designed to cut energy consumption—and climate emissions—by half compared to then-current energy standards. This reduction was so ambitious that less than one half of a percent of new California buildings (and even fewer existing buildings) were meeting it, despite the facts that: 1) the state’s energy codes were more demanding than elsewhere, and 2) California utilities were already offering financial incentives for going beyond the code.
The new provision not only extends the offer of the incentive into the indefinite future, but also raises the level of ambition for efficiency being incentivized to update it for the immense progress the industry has made (in part due to the now-extended provision itself) since 2005 when it was first enacted. It requires further regular increases in the level of efficiency needed to qualify. Both raising the bar in the legislation and then requiring further steps up are very rare for tax extenders. Other than raising the bar for efficiency and making the incentive permanent, the new law makes no substantive changes in the previous provision.
How does 179D work?
Beyond the technical challenge of meeting the legislation’s goal of 50 percent savings, just demonstrating (through energy modeling) that a building’s design would meet the legislation’s energy goal seemed technically challenging to design teams. But these challenges were being overcome every day by designers in California, who could rely on special energy code software that did all of the hard work to calculate whether the goal was met (think Turbo-Tax as opposed to doing your taxes by hand).
The Snowe-Feinstein law required the U.S. Department of Energy (DOE) to mimic the California…