February 19, 2009

Bank bailout has incentives for green building

  • $700 billion package includes incentives to encourage renewable energy use.
    Zimmer Gunsul Frasca Architects


    By now, nearly everyone has heard of the Economic Stimulus Act of 2008 — aka “the bailout” — a massive $700 billion package designed to rescue the financial industry that was signed into law in October. What most people may not know about the bailout are the sustainability incentives it gained in between votes on the Senate floor, and what a big win this represents for the green building industry.

    Changes and extensions to sustainability incentives now give building owners and architects more opportunity to pursue high-performance buildings. Incentives for wind turbines, geothermal heat pumps, hybrid vehicles, photovoltaics (“PV” for short) and numerous high technology devices exist because the government recognizes a need to help sustainable technology become more mainstream.

    In many instances, new technology cannot yet compete with conventional machinery on a pure cost basis, so Uncle Sam gives citizens and businesses a discount, making them more competitive.

    Nearly all the incentives are temporary, phasing out once a product can stand on its own two feet. For example, tax credits for the Toyota Prius phased out last spring, but the car will most likely set new sales records this year despite challenging economic times.

    The government generates income primarily through taxes, so incentives usually come in the form of tax credits or tax deductions. A tax credit is a literal dollar-for-dollar payout. Install a PV array that costs $30,000, receive a 30 percent tax credit, and that credit is worth exactly 30 percent of the PV system cost, $9,000.

    Tax deductions are more complicated, reducing the amount of income that you pay taxes on, so actual savings is based on income tax rate. If your income tax rate is around 25 percent, then a $10,000 tax deduction puts around $2,500 in your pocket.

    Incentives for buildings

    Most of the incentives discussed here already existed before the bailout, but lawmakers extended them by far greater periods of time, which will have a significant impact on the green building industry.

    The Senate has always extended the Energy Efficient Commercial Buildings Tax Deduction in one-year increments since its inception in 2005, meaning its future beyond those increments has always been in question. Now, energy-efficient commercial buildings will enjoy tax deductions through 2013.

    Designers can now set more aggressive performance goals for their projects early in the design process because they know what incentives will be available to them.

    Tax deductions of up to $1.80 per square foot are available. Buildings must demonstrate 50 percent greater efficiency than ASHRAE 90.1-2001, an industry performance standard, to qualify for the full $1.80-per-square-foot incentive. If desired, building owners can split this incentive proportionally into three pieces — building envelope, lighting and mechanical systems — and earn up to 60 cents per square foot for each piece.

    Long-lived tax breaks

    Incentives for specific energy-saving and energy-generating technologies got even longer extensions.

    Photovoltaic installations, as described above, earn buyers a 30 percent tax credit. This year the existing $2,000 cap for PV goes away, a huge change since PV arrays can cost anywhere from $20,000 to $1 million or more for large-scale installations on commercial buildings.

    Buyers of wind turbines also enjoy a 30 percent tax credit, though this credit still maxes out at $4,000. Geothermal heat pumps carry a 10 percent tax credit, with no cost limit.

    Like the Energy Efficient Commercial Buildings Tax Deduction, all of these incentives have stayed alive one year at a time, with uncertain futures until now — the bailout extended them all through 2016.

    New incentives

    Some incentives appeared for the first time.

    Under the new Bicycle Commuter Act, businesses can deduct up to $20 per month for each bicycle commuter in the office if they provide riders with a shower, changing room and a secure place to store their bikes. The first 250,000 buyers of plug-in hybrids will enjoy tax credits of $2,500 to $7,500 per vehicle when they come to market in a year or so.

    Incentives with long lives are a big win for the green building industry.

    All the building-related incentives listed above do not pay out until the building is complete. Moving from design sketches to grand openings takes longer than 12 months, so until now designers and developers could not factor incentives into their plans.

    Public and private developers are now empowered to target more aggressive performance goals because defined rewards await energy-efficient projects. Meeting high-performance targets means involving consultants and sustainability experts at the very beginning of design, operating under the integrative design process championed by many leading sustainable architects.

    This increased integration, combined with more affordable renewable energy generation, brings high-performance buildings one step closer to standing on their own two feet.

    Brian Geller is a sustainability specialist at Zimmer Gunsul Frasca Architects.

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