The Energy Policy Act of 2005
The H.R. 6, Energy Policy Act of 2005 was signed into law on August 8, 2005. The Energy Policy Act of 2005 (EPAct 2005), estimated to cost approximately $14.5 Billion over the next ten years, has favorable language on product regulations, sets higher federal building performance standards and more aggressive state energy efficiency provisions.
More importantly, EPAct 2005 contains a significant new tax deduction to foster investment in energy-efficient commercial buildings as defined in ASHRAE/IESNA 90.1-2001. This can result in significantly lower total project costs of both new construction and retrofit application for the end user as well as incremental energy savings.
Highlights of EPAct 2005:
- Commercial Building Tax Deduction: Provides a tax deduction for exceeding ASHRAE/IES Standard 90.1-2001 to the property owner for which the energy efficient expenditures are made as part of new construction or renovations. For more detailed information on this tax deduction, click here.
- Federal Building Performance Standards: Greater emphasis on federal buildings to exceed energy standards with annual verification resulting in a 20% reduction by 2015. Federal agencies shall procure Energy Star or Federal Energy Management Program (FEMP) designated products.
- Federal Preemption: Strong federal preemption over legislated state efficiency product standards.
- State Provisions: Greater emphasis on states to implement more aggressive energy codes with financial appropriations for product rebates and states that verify compliance with code.
- Clarification of the Fluorescent Lamp Ballast Rulemaking: Closes the loophole in the Energy Policy Act that allows continued sales of magnetic energy saving T12 ballasts
- Mercury Vapor Lamp Ballasts: Bans the use of MV ballasts for luminaires manufactured or imported on or after January 1, 2008.
- Illuminated Exit Signs: All exit signs manufactured after January 1, 2006 must meet the Energy Star version 2.0 performance requirements (including life safety visibility requirements).
- Energy Savings Performance Contracts: Government funding for contracts extended from 2006 to 2016.
- Research & Development: Provides tax credits for research in advanced energy technologies. Provisions recognize solid state lighting initiatives, advanced building systems such as controls, and technology transfer centers.
EPAct 2005 provides a tax deduction, limited to an amount up to $1.80/sq.ft for exceeding ASHRAE/IESNA 90.1-2001 by up to 50%, to the property for which the energy efficient expenditures are made as part of new construction or renovations.
- Deduction is limited to the capitalized energy efficiency investment for the year in which the energy efficient investment is made
- The provision is effective for property placed in service after December 31, 2005 and prior to December 31, 2013.
- Deduction can be allocated to design firms for energy-efficient commercial building property expenditures made by a public entity, such as public schools, hospitals or government offices
- Alternate system-specific deductions are available for three building sub-systems - each up to $0.60/sq.ft: interior lighting; HVAC; building envelope
Commercial Building Tax Deduction
Interior Lighting Tax Deduction: Lighting energy consumption is estimated to represent approximately 1/3rd of commercial building energy use. As a result, lighting is recognized as a qualified energy savings system that is eligible for a partial tax deduction up to $0.60/sq.ft and not exceeding the costs incurred for the energy efficient interior lighting system.
Interim rules for a lighting specific deduction:
- Outperform the ASHRAE/IESNA Standard 90.1-2001 lighting requirements by 25-40% . Eligible tax deduction per sq.ft will be between $0.30-$0.60.
- Warehouses must outperform the ASHRAE/IESNA Standard 90.1-2001 lighting requirements by 50% to qualify for the full $0.60/sq.ft deduction.
- All control requirements in the Standard 90.1-2001 must be met, automatic shutoff for buildings greater than 5000 sq.ft and bi-level switching must be installed
- All existing building codes and product regulations must be met
- IESNA Lighting Handbook, 9th Edition minimum requirements for calculated lighting levels must be met.
- This tax deduction is generally given to the individual/organization that makes the investment (typically the owner). However, for government buildings, the tax deduction may be taken by the designer