- The Commercial Building Tax Deduction has been extended through the end of 2016.
- Tax credits for solar and wind energy were extended, with gradual reductions put in place.
- Stricter energy efficiency standards were adopted for lights, motors and refrigeration equipment.
Federal legislation is a primary driver for increasing energy efficiency. Landmark laws, such as the Energy Policy Act of 2005, have helped reduce or eliminate the use of older, inefficient products and spurred innovations in high-performance technologies. A number of recently passed laws and regulations are designed to help continue this trend. They extend some existing tax incentives and up the ante with new programs and stricter efficiency standards. Here's what's happening.
Tax deductions extended
The Energy-Efficient Commercial Building Tax Deduction, first established in 2006, expired at the end of 2014. The Consolidated Appropriations Act, signed in December 2015, retroactively reinstated the tax credit for projects completed in 2015 and 2016. The deduction is now set to expire at the end of 2016.
Tax deductions of $0.60 to $1.80 per square foot are available to owners of new or existing buildings who install interior lighting, building envelope or HVAC systems that reduce the building’s total energy use by 50 percent or more in comparison to a building meeting minimum levels set by ASHRAE Standard 90.1. The law also updated the efficiency standards to the more stringent requirements of 90.1-2007.
See the Commercial Building Tax Deduction Coalition for more information.
A new lease on energy efficiency
The Energy Efficiency Improvement Act, passed in 2015, focuses on building energy savings by improving tenant energy efficiency and usage benchmarking. The law includes three main provisions:
- Creates a Tenant Star Program—a government-backed, voluntary energy-efficiency certification program for leased spaces.
- Requires federally leased buildings to benchmark and disclose their energy use data and calls for a study on best practices for benchmarking and data disclosure.
- Exempts grid-enabled water heaters used as part of an electric thermal storage or demand response program from federal energy conservation regulations.
The Consolidated Appropriations Act also extends tax credits on solar and wind energy systems.
Solar. The Solar Investment Tax Credit is extended. Through 2019, building owners can claim a tax credit of 30 percent of the cost of a solar installation. After that, the credit will gradually phase down to 10 percent in 2022 and beyond.
Wind. The Wind Energy Investment and Production Tax Credits—which expired at the end of 2014—will be retroactively applied to 2015 and extended through 2016, after which they will gradually decline each year until they fully expire in 2020.
Equipment efficiency standards upgraded
The U.S. Department of Energy has recently issued a number rules under the Energy Conservation Program updating standards to equipment commonly used in commercial and industrial facilities.
- Fluorescent lamps. New energy-efficiency requirements will effectively eliminate full-wattage T8 lamps from the market. The compliance date for these new standards is January 26, 2018. See the final rule.
- Refrigeration. Certain types of commercial refrigeration equipment must meet stricter energy conservation standards. The U.S. Department of Energy estimates energy savings of 10 to 38 percent. The standards become effective on February 10, 2017. See the final rule.
- Motors. Polyphase 1 to 500 HP motors must now meet premium efficiency levels defined under NEMA MG-1-2011. The expanded standards take effect on June 1, 2016. See the final rule.
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