Note to Congress: This is How to Encourage Better Buildings

A few weeks ago USGBC, along with the Natural Resources Defense Council and the Real Estate Roundtable, spearheaded the development of a letter sent to several key Senators on proposed changes to the tax deduction for energy-efficient commercial facilities, as put forth by President Obama as a component of the Better Buildings Initiative. The letter outlines a few key principles uniting an extremely broad stakeholder community around commercial and multifamily energy efficiency, and you can take a look here.

As background, the tax policy, known as Section 179D, was designed to encourage the construction of energy-efficient commercial buildings. The section allows a building owner to take a deduction of up to $1.80 per square foot of space for buildings that are constructed to be 50 percent better than the 2001 energy code. Enacted in 2005, back before the recession decimated new construction, the policy has been dogged by a lack of clarity on how to document compliance and take the deduction. Multiple requests have been made to DOE and IRS to fix these problems, and it appears that the agencies are finally working to provide some more usable guidance.

Helpful as that will be, 179D was not designed to encourage the large-scale retrofits of existing buildings. Changing times have made encouraging retrofits not only a component of the President's plan to "Win the Future,' but also the focus of stakeholders in the commercial real estate industry.

To illustrate, consider the internationally recognized retrofit of the Empire State Building. Owner Tony Malkin decided to not just renovate and update the iconic building, but also to make it as energy efficient as possible. He assembled a team of members from the Clinton Climate Initiative, Jones Lang LaSalle, Johnson Controls, and the Rocky Mountain Institute to create a showcase project for efficiency innovation.

The retrofit team managed to slash energy consumption by 38 percent, saving more than $4 million each year. The entire process considered more than 60 different energy efficiency measures and was optimized with eight simple measures executed under a performance guarantee contract. The measures (such as renovating the windows in a pop-up factory on the fifth floor of the building) have maintained the historic character of the facility. The project has been submitted for LEED EB:O&M certification, and according to the project team, targeting the LEED-Gold level. This success story has raised awareness of what is possible in a quantitatively driven energy efficiency retrofit in even the world's most iconic buildings, but this project would not qualify for the existing tax deduction.

Next page: Three principles for proper retrofit incentives