Green Building Law Blog : Green Building Lawyer & Attorney : Shari Shapiro: Obermayer Rebmann Maxwell & Hippel Law Firm : Environmental, LEED

Yesterday, I wrote about Senator Merkley's new set of incentives to encourage green commercial building retrofits, and left you with the question of whether these new incentives will actually change behavior. An interesting article came out today on CNN.com which highlights a barrier to incorporating green building technologies into building projects:

Appraisals for newly built green homes do not fully reflect the cost of green technology, and the lower appraisal values mean buyers often cannot get the full financing they need from banks.

In essence, according to this articel, the cost of incorporating the green features is not covered by a commensurate increase in the purchase price, causing homeowners to avoid incorporating costly green technologies, even if they represent savings in the long run. 

This is the perfect opportunity for designing a targeted grant or financing incentive.  The government agency could look at the difference in the appraisal of homes without green technologies, homes with green technologies, the cost of those technologies and the ultimate payback, and design an incentive to make up the difference.  A great example would be providing financing for green renovations at a lower rate than standard renovations.  Unfortunately, most incentives are not designed around barriers to entry and cost data, but are essentially throwing some non-targeted amount of money at the problem without analyzing would be the best amount and struture to really change behavior.

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Last week, Senator Jeff Merkley of Oregon introduced S.B. 3079, the Building Star Bill, to:

To assist in the creation of new jobs by providing financial incentives for owners of commercial buildings and multifamily residential buildings to retrofit their buildings with energy efficient building equipment and materials and for other purposes.

In essence, Building Star provides rebates for retrofitting commercial and multifamily buildings in existence as of December 31, 2009 with energy efficient components, like insulation, window, doors, HVAC equipment, etc.  the rebates are structured as follows:

• For energy audits and commussioning studies--$.05 per square foot of audited or commissioned space or 50% of the cost of the audit or commissioning study.
• For energy efficient building operations and maintenance training--$2000 per individual trained and certified
• For service on space heating equipment--$100 per unit serviced
• For service on cooling systems--$2 per ton of namepate cpacity of the serviced cooling system and 50% of the total service cost
• For installation of qualified energy monitoring and management systems--the lesser of $.45 per square foot of building space covered by the system or 50% of total installation and commissioning costs
• For upgrades of qualified energy monitoring and management systems--the lesser of $.15 per square foot of building space covered by the system or 50% of total installation and commissioning costs
• For HVAC testing, balancing and duct sealing--$.75 per square foot of duct surface tested, balanced and if necessary, sealed

The Building Star incentives can be combined with other incentives, like the existing deductions for energy efficient buildings. 

The Building Star program also provides for a loan program administered by the states to provide loans for energy efficiency upgrades.

So the question becomes, will this incentive program be significant enough to cause building owners to invest in these energy efficiency measures. 

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I will make an admission.  I took tax in law school, and, it was the academic equivalent of having my left arm sawed off without anaesthesia.  Why? Mostly because things which should have been clear seemed hopelessly obscure.  Now I deal with advising clients on incentives available for sustainable projects, and the tax code and I have had to battle to a stalemate.  At least, I battle, and the tax code just sits there impentarably.

One of the features which is particularly difficicult is the relationship between 26 USC 45, which deals with tax credits for producing renewable energy (the "production tax credit" or PTC), 26 USC 48 which deals with tax credits for investing in renewable energy equipement (the "investment tax credit" or ITC) and the Renewable Energy Grant created by the ARRA.  All three of these relate to businesses which have installed renewable energy technologies, like solar, wind and geothermal.  It should be clear and easy to understand which ones apply to your business and what the incentive will be.  As with all things related to the tax code, however, it is not.

I am going to attempt to clear up some of the obscurity, but, as with all information on this blog, it is for informational purposes only, not legal advice; and you should consult your legal and financial advisor to provide you with proper advice for your business.

The incentives are mutually exclusive--The PTC and the ITC cannot both be taken, and they can be swapped for the REG, but you cannot take the PTC/ITC and the REG.

In plain english, it appears that the PTC is designed for renewable energy sources where the power is designed to be sold to others as a Renewable Energy Credit, and the ITC is designed for renewable energy sources where the power is used on-site.  The Renewable Energy Grant allows companies which have invested in either type of renewable energy capacity to receive cash, as opposed to a tax credit, which is helpful particularly if the company has no tax liability or a tax loss. 

 There are some resources available to help you sort through this morass.  The DSIRE database has quick summaries of available state and federal incentives.  The Utah Clean Energy site has a nice summary of the renewable energy features of the ARRA.   The DOE site has a useful summary of renewable energy incentives for businesses as well.

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I have been watching with interest the voracious appetite for the $4500 "cash for clunkers" incentive program which rewards people for trading in less fuel efficient vehicles for new, more fuel efficient ones.  So many people have taken advantage of the program that it ran out of cash within a week of opening, though the $1 billion appropriation was expected to last until November.  Now the Senate is debating whether to pour an additional $2 billion into the program.

Very interesting, but what does this have to do with green buildings, you may ask.  I see it as a very interesting object lesson for structuring green building incentives.  Green building incentives have been very popular, and are often promoted in lieu of mandatory green building regulations.  What is hard, though, is getting the incentives right.  How much is enough to stimulate green building, while maintaining a responsible public fisc?

Las Vegas famously went very wrong with their original green building incentive program, so much so that it threatened to deplete the finances of the state of Nevada.  Essentially, the problem was the same in Las Vegas as it was for the clunkers--too much money was available from the outset with too few requirements, meaning that the program was oversubscribed.  Instead, a step-wise program would have been more reasonable for both LV and the clunkers. 

So, for Clunkers, if the program had started with a $1000 incentive, and been evaluated after 1-2 months, the incentive could have been enhanced.  Now, reducing the incentive will only garner public outrage instead of benefit. 

The lesson for government entities looking to implement incentive programs? Start out with the lowest reasonable incentive, then evaluate the program after a reasonable period to see if it has been successful.  If not, you can create higher incentives or relax the requirements.  

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