“Building Green – Tax Breaks and New Ideas Encourage Energy Efficiency” by John E. Price
Many businesses and individuals shudder when new governmental initiatives for environmental protection are proposed. Past experience with red tape, overwhelming paperwork and penalty driven enforcement leaves many people apprehensive of new programs. “Green Building” initiatives are a welcome change. There are already a number of tax
incentives, in effect for 2007, that encourage building green. And, inventive programs from federal, state and local governments are developing around the country that make building green an increasingly attractive option.
Federal tax incentives already exist to “go green.” The Energy Policy Act of 2005 (EPACT 2005) created $14 billion of tax incentives for new commercial and residential construction, and to retrofit existing buildings and homes
with energy efficient components and appliances. Section 1331 of EPACT creates a tax deduction for new energy efficient commercial buildings. If the interior lighting systems, heating, cooling, ventilation and hot water
systems of the building use energy efficient components that achieve a 50% or more reduction in energy requirements, the owner can obtain tax deductions of up to $1.80 per square foot. Lesser per square foot deductions
are available for properties that meet lower percentage energy savings. The deductions are allowed in the tax year when the property is placed in service, and are available for buildings put in service prior to January 1, 2008. For energy efficient commercial buildings owned by a government entity, including schools, the deduction is allocated to the person primarily responsible for designing the building, such as the architect.
Section 1332 of EPACT creates a tax credit for constructing new energy efficient homes. To qualify, the home must be certified under standards of the 2003 International Energy Conservation Code to achieve a 50% reduction in energy usage compared with traditional residential construction methods. Homes meeting the 50% energy conservation standard qualify for a $2,000 tax credit, provided 1/5th of the energy savings comes from the building envelope
(including insulation, windows, doors and duct sealing.) This credit applies to homes completed or purchased after December 1, 2005, and prior to January 1, 2008.
Owners of existing homes can also benefit under Section 1333 of EPACT. Section 1333 creates a tax credit for purchasing energy efficiency improvements for existing homes. The credits are available for the installation of
building envelope components, electric or geothermal heat pumps, gas, propane or oil furnaces, or air circulating fans, which meet certain energy savings thresholds. The credit is equal to 10% of the purchase price of building envelope components, and full credit for the purchase price of heating system improvements, up to a maximum credit
of $500. This credit also applies to property placed in service after December 31, 2005 and prior to January 1, 2008. A credit is also provided under Section 1335 of EPACT for the purchase of qualified solar powered water heaters and solar cells that generate electricity for a residence. For both items, the credit is equal to 30% of the qualifying expenditures for the system, up to a maximum credit of $2,000. Again, the credit applies to property placed in service after December 31, 2005 and prior to January 1, 2008.
2007 therefore presents an opportunity for people building new homes, or retrofitting existing homes, to obtain tax savings while building green.
More expansive and innovative programs are developing around the country to encourage the true “green building” –
a structure designed using recycled materials, that eliminates sources of indoor air pollution and achieves the
highest level of energy efficiency. The industry standard for this new construction technique is the Leadership in
Energy and Environmental Design (LEED) Green Building Rating System. The LEED system measures not only energy efficiency, but building sustainability – it has been described as the best way to demonstrate that a building project is truly “green.” The LEED rating system was developed, and is administered by the US Green Building Council, a non-profit coalition of building industry leaders. The LEED system is intended to promote building design and construction practices that increase profitability, but reduce the environmental impacts and improve the health and well being of building occupants. The USGBC can award a certified, silver, gold, or platinum LEED certification depending on the overall rating the design and construction achieves.
LEED certified buildings have already demonstrated that they have lower operating costs, less occupant complaints of indoor air pollution, reduced construction waste sent to landfills, and conserve energy and water and reduce harmful greenhouse gas emissions. Government entities around the country are getting “on board” with LEED certification in a number of ways.
A number of federal agencies have adopted policies that required new buildings, or major renovations of government
buildings to achieve LEED silver certification. The US departments of Agriculture, Health and Human Services, the State Department, the EPA, the General Services Administration and the Military Services have all adopted programs requiring LEED certifications on new buildings. While Missouri has not yet acted, many states including Arkansas and Illinois, have adopted programs encouraging or requiring newly constructed state buildings to achieve LEED silver status.
On the municipal government level, a number of cities have adopted not only tax-based incentives, but other inventive zoning and permitting perks for green buildings. For example, LEED silver certification may allow development of sites at a higher density than conventional projects, or “front-of-theline” zoning, permitting and plan review. In September 2006, the City of Clayton, Missouri passed a resolution requiring new construction and renovations of city buildings over 5,000 square feet to meet LEED silver certification. Since 2004, Kansas City has required new city buildings to achieve LEED silver status. Other cities have allowed utility cost rebates, administrative fee waivers and municipal grants to encourage green buildings.
Green building initiatives around the country demonstrate a new, partnership approach to environmental regulation
by government, developers, and concerned citizens. As the economic, environmental and health benefits of green buildings become more apparent, we will see green building programs in our state and communities.