Monday, August 15, 2011

Encouraging Energy Efficiency: A Tax Fix Everyone Can Get Behind

Lane Burt
Technical Policy Director
U.S. Green Building Council

Pretend you are a small business owner. You happen to own the building where your business is housed, which has helped you weather the recession. Things seem to be getting better, and you have the opportunity to make some investments in your company that could really pay off in the long run.

You’d like to figure out how to cut your operating expenses, especially utilities, which have gone up and up and up over the last 10 years. You know your building is pretty old and leaky, and that much of that energy you buy is wasted. You’ve heard the President talk about efficiency retrofits and think that might be a smart investment that will cut your energy bills and pay for itself.

But there is a problem. If you invest in your own building energy efficiency, you will have to pay federal taxes on the value of the investment. If you were to keep wasting energy, all that wasted money would be completely deductible from your taxes.

That’s right; in effect our tax code unintentionally subsidizes wasted energy. Despite the economic benefits (not to mention the domestic job creation and the environmental benefits), investments to create energy efficient, better buildings do not receive the same treatment under the tax code as wasted energy.

That’s why USGBC is working with a diverse coalition of industry and environmental organizations, like the Natural Resources Defense Council and the Real Estate Roundtable, to change that. It’s our highest priority to convince Congress that energy efficiency is at least as valuable to the nation’s prosperity as wasted energy.

We’ve proposed changes to fix Section 179D of the tax code, and existing policy designed to encourage energy efficient new construction to make it usable for existing buildings. You can read more about those changes here.

The positive impact of this tax code tweak would be immense – 77,000 new jobs and immense savings on energy bills where we live and work. Those are benefits that will be felt not only by those who do the work, but also by everyone who works in an office, stays in a hotel, shops at a mall, or lives in an apartment.

But what will be the cost to the treasury? Not much if anything for one major reason – all those investments we want to encourage will drastically decrease the total amount of money spent on energy at businesses across the country, thereby lowering the total expenses deducted from their taxes for years to come. Instead of deducting wasted energy, they will reap energy savings and reinvest that money in much more productive ways.

This is one tax fix that nearly everyone can get behind. We plan to advocate tirelessly for these changes on behalf of our members, many of whom own the buildings, make the more efficient products, and will design and engineer the retrofits. Stay tuned for opportunities to get involved.


  1. This effort is very important. Incentives speak volumes. If the current incentive of wasted energy tax deductions outweighs savings through retrofitting - something's broken. The current "tweak" appears to be a win-win situation.

    I can help you meet that challenge!
    “It is Cheaper to Save Energy than Make Energy”

  3. To subsidize green building investment in a long term through a tax tool is a good idea. But how to quantify the actual amount of tax credit according to different situations would be a problem. Additionally, if the investment in green building is high, the additional investment might be regarded as finite-live assets, which could be depreciated in the operating period. This is also a kind of tax deductible item. So how to judge the double tax benefits in green building, if above proposal is approved. Therefore from my opinion, the idea is good and could become an incentive to the green building investment, however in practice, we still need to consider and balance some different issues. I also agree in the green building world, government should to take more responsibility than private sectors. The problem is that which way is the better way for government to intervene.

  4. An important distinction is pointed out by GBlearner, and this is an issue we have worked to address. There are two quantities to track under the structure we are proposing: the amount of energy saved and the total cost of the retrofit. We are suggesting you qualify for a deduction based on the amount of energy you save, limited by the amount of money you spend (most tax policies determine incentive amount solely on what is spent). Part of the total amount spent on the retrofit may itself be deductible as a business expense (just like wasted energy) and not depreciable, but the energy savings it leads too may help increase the total deduction qualified for under our proposed 179D. We target energy savings, not spending, as is the status quo for deductions. In practice, the full cost of a retrofit will not be fully deductible in our proposal, only a portion of it depending on the energy saved, so there will not be double counting of deductions and because we work this into the the structure we do not need to ask businesses to produce a tedious and complicated paper trail to confirm that this is so.

    - Lane

  5. People should be more conscious about energy efficiency. We've done enough damage to our environment that its time to start preserving it and acting smarter. We have the ability, resources, and understanding to use wind energy, build energy star houses , and recycle so why do we not. It would be a nice change for people to get aid being energy efficient rather than a break to waste it.


    - The green energy tax credits

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