U.S. Senators Ben Cardin (D-Md.), Dianne Feinstein (D-Calif.) and Brian Schatz (D-Hawaii), have introduced legislation (S. 2189, the Energy Efficiency Tax Incentives Act) to boost energy efficiency in government, in industry, and in commercial and residential buildings, which account for more than 40% of energy consumption in the United States. A recent McKinsey study concluded that maximizing energy efficiency for homes and commercial buildings could help reduce U.S. energy consumption by 23% by 2020. This is the equivalent of taking all passenger cars and light trucks off the road for a year.
“Energy efficiency improvements are a smart, cost-effective way to reduce pollution, increase the competitiveness of our manufacturers, and put Americans back to work. It’s simply good business and good policy,” said Senator Cardin, a member of the Senate Finance and Environment and Public Works Committees. “As a nation, we are becoming more energy efficient, but we have a long way to go. Encouraging the retrofitting of existing buildings needs to be a priority as up to 80% of the buildings standing today will still be here in 2050. Our Tax Code can be an effective tool in promoting energy efficiency building and retrofits in all sectors.”
The Energy Efficiency Tax Incentives Act provides important targeted tax incentives to improve energy efficiency outcomes for commercial buildings, homes, and the industrial sector.
Title 1: Commercial Building Modernization
- Restores the section 179D commercial building deduction, which expired at the end of 2013, to allow for the cost recovery for energy efficiency improvements to lighting, HVAC, and building envelope. This bill extends this performance-based incentive through 2016.
- Increases the maximum deduction from $1.80 to $3.00.
- Modernizes and enhances the deduction by updating energy efficiency standards and allowing a broader range of entities to fully utilize and allocation the deduction.
- Creates a new section under the Internal Revenue Code to encourage retrofitting existing buildings to be more energy efficient. Currently, many retrofits — even those that improve an existing building’s energy efficiency by a significant percentage — cannot qualify for the section 179D deduction.
Title 2: Home Energy Improvements
- Creates a performance-based homeowner tax credit for a home renovation that increases the efficiency of a home by at least 20%.
- The tax credit would be $2,000 per home renovation, but it would increase $500 for every 5% in additional energy efficiency improvement achieved, with a cap of $5,000 for a home renovation that increases efficiency 50% or more.
Title 3: Industrial Energy and Water Efficiency
- Combined Heat and Power (CHP) Systems: Expands the 10% investment tax credit for CHP systems, enacted by Congress in 2008, from the first 15MW to the first 25MW of system capacity. The bill would create two new tiers of tax credit, available through 2018: 20% credit for CHP units achieving 75% efficiency, and a 30% credit for CHP units achieving 85% efficiency level.
- Thermal Biomass Credit: Creates a tiered investment tax credit for highly efficient thermal biomass incentives: 15% for systems that achieve 65% or greater efficiency and 30% for systems that achieve 80% or greater efficiency. Currently no incentives exist to promote thermal-only biomass use for commercial and industrial applications.
- Waste Heat to Power Credit: Creates a new 30% investment credit for qualifying waste heat to power systems.
- Industrial Motor Efficiency Credit: Establishes a $120-per-horsepower tax credit for efficient advanced motor systems with adjustable speed capability.
- CFC Chiller Replacement Credit: Creates a credit of $150 per ton, plus an additional $100 incentive for each ton downsized during replacement of large water-cooled chillers. This incentive only applies to chillers that use environmentally harmful CFC-11 and CFC-12 refrigerants.
- Industrial Water Reuse Credit: Creates a technology-neutral, performance-based investment tax credit for efficiency measures deployed to reduce water use in the manufacturing sector.