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82–738—PDF 2012

S. HRG. 112–814 

TAX REFORM AND FEDERAL ENERGY POLICY: 

INCENTIVES TO PROMOTE ENERGY EFFICIENCY 

HEARING 

BEFORE THE

SUBCOMMITTEE ON ENERGY, NATURAL RESOURCES, 

AND INFRASTRUCTURE 

OF THE

COMMITTEE ON FINANCE 

UNITED STATES SENATE 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

DECEMBER 12, 2012 

( 

Printed for the use of the Committee on Finance 

COMMITTEE ON FINANCE 

MAX BAUCUS, Montana, Chairman 

JOHN D. ROCKEFELLER IV, West Virginia 

KENT CONRAD, North Dakota 

JEFF BINGAMAN, New Mexico 

JOHN F. KERRY, Massachusetts 

RON WYDEN, Oregon 

CHARLES E. SCHUMER, New York 

DEBBIE STABENOW, Michigan 

MARIA CANTWELL, Washington 

BILL NELSON, Florida 

ROBERT MENENDEZ, New Jersey 

THOMAS R. CARPER, Delaware 

BENJAMIN L. CARDIN, Maryland 

ORRIN G. HATCH, Utah 

CHUCK GRASSLEY, Iowa 

OLYMPIA J. SNOWE, Maine 

JON KYL, Arizona 

MIKE CRAPO, Idaho 

PAT ROBERTS, Kansas 

MICHAEL B. ENZI, Wyoming 

JOHN CORNYN, Texas 

TOM COBURN, Oklahoma 

JOHN THUNE, South Dakota 

RICHARD BURR, North Carolina 

RUSSELL SULLIVAN, Staff Director 

CHRIS CAMPBELL, Republican Staff Director 

SUBCOMMITTEE ON ENERGY, NATURAL RESOURCES, AND INFRASTRUCTURE

JEFF BINGAMAN, New Mexico, Chairman 

JOHN D. ROCKEFELLER IV, West Virginia 

KENT CONRAD, North Dakota 

JOHN F. KERRY, Massachusetts 

MARIA CANTWELL, Washington 

BILL NELSON, Florida 

THOMAS R. CARPER, Delaware 

JOHN CORNYN, Texas 

CHUCK GRASSLEY, Iowa 

PAT ROBERTS, Kansas 

MICHAEL B. ENZI, Wyoming 

JOHN THUNE, South Dakota 

RICHARD BURR, North Carolina 

(II) 

(III) 

C O N T E N T S 

OPENING STATEMENTS 

Page 

Bingaman, Hon. Jeff, a U.S. Senator from New Mexico, chairman, Subcommittee on Energy, Natural Resources, and Infrastructure, Committee 

on Finance ............................................................................................................ 1 

Wyden, Hon. Ron, a U.S. Senator from Oregon .................................................... 2 

WITNESSES 

Arvizu, Dr. Dan, Director, National Renewable Energy Laboratory, Golden, 

CO .......................................................................................................................... 3 

Nadel, Steve, executive director, American Council for an Energy-Efficient 

Economy, Washington, DC .................................................................................. 5 

Wagner, Mark F., vice president, government relations, Johnson Controls, 

Inc., Washington, DC ........................................................................................... 8 

Golden, Matt, principal, Efficiency.org, and policy chair, Efficiency First, San 

Francisco, CA ........................................................................................................ 9 

ALPHABETICAL LISTING AND APPENDIX MATERIAL 

Arvizu, Dr. Dan: 

Testimony .......................................................................................................... 3 

Prepared statement .......................................................................................... 27 

Responses to questions from subcommittee members ................................... 35 

Bingaman, Hon. Jeff: 

Opening statement ........................................................................................... 1 

Prepared statement .......................................................................................... 38 

Golden, Matt: 

Testimony .......................................................................................................... 9 

Prepared statement .......................................................................................... 40 

Responses to questions from subcommittee members ................................... 50 

Nadel, Steve: 

Testimony .......................................................................................................... 5 

Prepared statement .......................................................................................... 61 

Responses to questions from subcommittee members, with attachment ..... 77 

Wagner, Mark F.: 

Testimony .......................................................................................................... 8 

Prepared statement .......................................................................................... 92 

Response to a question from Senator Bingaman ........................................... 97 

Wyden, Hon. Ron: 

Opening statement ........................................................................................... 2 

COMMUNICATIONS

Ace Electric, Inc. ...................................................................................................... 99 

alliantgroup .............................................................................................................. 102 

ASHRAE, et al. ........................................................................................................ 107 

Bedford Strategies and Solutions ........................................................................... 113 

Cambridge Engineering, Inc. .................................................................................. 118 

Center for Fiscal Equity .......................................................................................... 121 

Concord Engineering ............................................................................................... 126 

Council of the North American Insulation Manufacturers Association .............. 129 

Energy Concepts and Solutions, Inc. ..................................................................... 132 

Energy Tax Savers, Inc. .......................................................................................... 136 

Ernst and Morris Consulting Group, Inc. .............................................................. 140 

Page

IV 

Federal Business Centers ....................................................................................... 143 

Green Light National .............................................................................................. 146 

Grundfos Pumps Corporation ................................................................................. 151 

Hauppauge Industrial Association (HIA) .............................................................. 155 

International Association of Heat and Frost Insulators and Allied Workers ..... 157 

National Association of Home Builders ................................................................. 159 

National Multi Housing Council and National Apartment Association .............. 166 

National Propane Gas Association (NPGA) ........................................................... 170 

National Roofing Contractors Association (NRCA) ............................................... 174 

Polyisocyanurate Insulation Manufacturers Association (PIMA) ........................ 179 

Sheet Metal and Air Conditioning Contractors’ National Association ................ 187 

Solis Partners, Inc. .................................................................................................. 190 

Trio Electric and Trio Energy ................................................................................. 194 

Walker Parking Consultants .................................................................................. 198 

Worldwide Energy ................................................................................................... 202 

ZDS Design/Consulting Services ............................................................................ 205 

(1) 

TAX REFORM AND FEDERAL 

ENERGY POLICY: INCENTIVES 

TO PROMOTE ENERGY EFFICIENCY 

WEDNESDAY, DECEMBER 12, 2012 

U.S. SENATE,

SUBCOMMITTEE ON ENERGY, NATURAL

RESOURCES, AND INFRASTRUCTURE, 

COMMITTEE ON FINANCE, 

Washington, DC. 

The hearing was convened, pursuant to notice, at 10:03 a.m., in 

room SD–215, Dirksen Senate Office Building, Hon. Jeff Bingaman 

(chairman of the subcommittee) presiding. 

Present: Senators Wyden, Carper, Cardin, and Thune. 

Also present: Ryan Martel, Staff Director, Finance Subcommittee 

on Energy, Natural Resources, and Infrastructure. 

OPENING STATEMENT OF HON. JEFF BINGAMAN, A U.S. SENATOR FROM NEW MEXICO, CHAIRMAN, SUBCOMMITTEE ON 

ENERGY, NATURAL RESOURCES, AND INFRASTRUCTURE, 

COMMITTEE ON FINANCE 

Senator BINGAMAN. Why don’t we go ahead and get started, if everybody could find a chair. Good morning. Today’s hearing examines tax reform and Federal energy policy and considers some proposals to promote efficient use of energy resources. 

The tax code has long served as a way to promote energy policy 

goals. For most of this time, the code only offered incentives for the 

production of energy, first from mineral resources and then from oil 

and gas. Recent years have brought important incentives for renewable energy resources, though unfortunately many of those still 

remain temporary and uncertain. 

Even more recently, Congress has decided to reintroduce certain 

tax incentives that promote the efficient use of energy, recognizing 

the value in preserving our domestic resources by developing technologies that use less energy to accomplish the same task. 

However, with the possibility of comprehensive tax reform in the 

next Congress, and within the context of a contentious debate on 

how to close the Federal deficit, we need to assess the existing policies to determine if their goals are worth the cost to the taxpayer, 

and, if they are—and I believe that energy efficiency is a worthy 

policy goal—then we need to examine the best, least-cost ways of 

achieving that goal. 

At today’s hearing we have a panel of expert witnesses who will 

help us consider these three issues: first, to understand the opporVerDate Nov 24 2008 15:23 Sep 30, 2013 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 R:\DOCS\82738.000 TIMD
2 

tunities that are presented to our economy, our energy infrastructure, and to the environment that can result from the more efficient use of our resources; second, to consider if creating incentives 

through the tax code is a sensible and efficient way of promoting 

energy efficiency investments; and, if so, then the third question is 

to examine how we can improve our existing incentives and make 

them more effective, easier to use, and less expensive to the Federal Government. 

Over the past two Congresses, Senator Snowe and I, along with 

Senator Feinstein and others—Senator Cardin has been very involved—have worked to develop reforms to our existing efficiency 

incentives. Whenever possible, we have adhered to general principles that we believe to be consistent with the goals of tax reform. 

We have striven to provide technology-neutral structures that offer 

incentives based on performance and not just the cost of putting in 

the particular energy-saving technology. We have worked to ensure 

that the efficiency savings are able to be measured and verified and 

that fraud is minimized to the greatest extent possible. 

Finally, we have sought to ensure that innovative, new efficiency 

technologies can utilize existing policies. The results of this work 

is three bills that have been introduced in this Congress: one focusing on the commercial buildings deduction; one focusing on tax 

credits for homeowners; and one that promotes efficiency in the industrial sector. I hope we can examine how these bills fit into the 

discussion that I have outlined above. I welcome an honest assessment of the bills and encourage any thoughts on how they can be 

improved. 

[The prepared statement of Senator Bingaman appears in the appendix.] 

Senator BINGAMAN. This morning’s hearing will consist of one 

panel of very distinguished witnesses. Let me just introduce them 

briefly. Dr. Dan Arvizu is Director of the National Renewable Energy Laboratory, of course in Golden, CO. We claim him in New 

Mexico since he used to be at Sandia. Next is Steve Nadel, who is 

the executive director of the American Council for an EnergyEfficient Economy. Then we have Mark Wagner, who is the vice 

president for government relations with Johnson Controls. Finally, 

we welcome Mr. Matt Golden, who is a principle at Efficiency.org, 

and the policy chair at Efficiency First. 

Before I call on our witnesses, my colleague Ron Wyden, who is 

soon to be the chair of the Energy Committee as well as a distinguished member of this Finance Committee and who has been very 

interested in these issues, let me defer to him and thank him for 

being here. 

OPENING STATEMENT OF HON. RON WYDEN, 

A U.S. SENATOR FROM OREGON 

Senator WYDEN. Thank you very much, Mr. Chairman. Mr. 

Chairman, as you know, there is not a whole lot certain about what 

goes on here in the U.S. Senate, including when in fact the Senate 

session may wrap up for this year. But I just want to note that 

there is one certainty for everybody who works in the energy field, 

and that is these debates are going to be less thoughtful and they 

3 

are going to be less informed because you will not be part of these 

debates. 

I think people are going to understand, when voices get raised 

and the debate gets shrill, just how valuable those particular attributes were, the fact that you always brought us back to policy 

and sort of Planet Reality when the debates seemed to move in a 

different direction. 

I just want to note that, while this may be the last energy hearing for the year—and maybe that remains to be seen as well, given 

the schedule—there are a lot of us who are going to make sure that 

the cell phone connections between Washington, DC and New Mexico are operating so that we can continue to have your wise counsel 

and your thoughtful approach on these issues. Thank you for giving 

me a chance to say that. 

If the crowd wants to break into a big round of applause, I will 

not have any particular problem. [Laughter.] 

Senator BINGAMAN. Thank you. Well, thanks for your very kind 

words. I am sure, as soon as I get out of town, you can solve all 

these problems. [Laughter.] 

So I am trying to hasten that day. But thank you very much for 

your kind comments. 

Why don’t we start and just go across the table. We will have everybody take 5 or 6 minutes, or however long you think is necessary, to make the comments you think we ought to be aware of 

on these subjects, and we will try to shed some light on the issue 

of using the tax code to achieve some of these objectives. 

Dr. Arvizu, go right ahead. 

STATEMENT OF DR. DAN ARVIZU, DIRECTOR, NATIONAL 

RENEWABLE ENERGY LABORATORY, GOLDEN, CO 

Dr. ARVIZU. Thank you, Chairman Bingaman, Senator Wyden, 

and other members of the committee. Thank you for this opportunity to discuss how energy efficiency concepts and technologies 

can strengthen our energy security, our environment, and our economic growth. I will submit, with your approval, my written testimony for the record. 

Senator BINGAMAN. Yes. We will include everyone’s written testimony as if it were read. 

[The prepared statement of Dr. Arvizu appears in the appendix.] 

Dr. ARVIZU. So I am Dan Arvizu, the Director of the National Renewable Laboratory, the Department of Energy’s primary laboratory for research and development of energy efficiency and other 

clean energy technologies. Research into new, more efficient ways 

to construct, modernize, and operate our homes and commercial 

buildings and businesses is an important part of our mission. 

While we do not take positions on legislation and policy, I will 

speak this morning about the advancements that have been 

achieved from Federal investments in energy efficiency and the 

proven benefits that these bring to our Nation. 

I also serve on the Alliance to Save Energy’s Commission on National Energy Efficiency Policy, and, when released next year, the 

Commission’s recommendations will be comprehensive and a road 

map to meet our Nation’s energy future. 

4 

At NREL we have learned that energy efficiency is fundamental. 

The megawatts that are not used are just as important as the 

megawatts that are. That realization has been confirmed repeatedly on the national scale. Three years ago, McKinsey produced a 

landmark analysis that showed that, by 2020, the U.S. could reduce non-transport energy consumption by a quarter. That would cost $520 billion but would pay back $1.2 trillion in 

energy cost savings. In 2010, the National Academy of Engineering 

and Science’s report also found that the Nation could save money 

by cutting energy consumption by 30 percent and produce the same 

amount of goods and services. 

At our institution, NREL, we have calculated that hundreds of 

peer-reviewed energy-saving measures that are currently available 

could reduce energy consumption by one-half by 2030, and the cost 

savings would be twice the dollar amount invested. These reports 

all imply and suggest that, to realize this potential, public policy 

is still necessary. 

A leading example of the R&D successes achieved in recent years 

is the Commercial Building Partnership, sponsored by the Department of Energy. It partners with building owners and operators on 

a number of new buildings and retrofits, with compelling results. 

One project we participated in with Target stores in Colorado cut 

energy consumption by 35 percent, and they are now busy replicating that enterprise-wide. 

The Research Support Facility at NREL—where I currently have 

my office—is another example of how much can be accomplished 

when energy efficiency is a fundamental attribute in building design. At the RSF, which is the world’s largest net-zero-energy office 

building, energy consumption is one-half of a building built to code 

in our region, and it is cost-competitive, including the solar panels 

on the roof. I invite you to come out and take a look for yourself. 

Private residences, which comprise a little more than half of the 

energy used by buildings in the U.S., provide equally large opportunities for savings. The DOE’s Building America program has demonstrated that homes can have a 40-percent energy reduction at no 

additional cost in almost every U.S. climate zone. A Habitat for 

Humanity home built under this program likewise proved that ambitious energy efficiency targets and goals can be accomplished 

with very tight cost constraints. 

Simulation tools like DOE’s Energy Plus package and the building optimization program are continually being refined so that 

businesses, consumers, utilities, government agencies, and policymakers have the most accurate energy insights and can make the 

best efficiency decisions possible. 

Industrial energy efficiency is one area where our new technology 

can dramatically improve performance. An example is the fastgrowing data center industry. Set to open next year, NREL’s new 

peta-scale high-performance computing system is the leading edge, 

both in computing and also in energy efficiency. A comparable existing standard data center today would be 13 times more energyconsuming than the NREL system. 

So recently I have been reminded of just how susceptible our 

buildings and energy systems are to natural disasters. As a member of New York Governor Cuomo’s NYS2100 Infrastructure ComVerDate Nov 24 2008 15:23 Sep 30, 2013 Jkt 000000 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 R:\DOCS\82738.000 TIMD
5 

mission, we will consider the related advantages and energy initiatives and how these can strengthen residential commercial building 

resiliency against all types of peril. 

In conclusion, I commend the committee for considering initiatives for improving energy productivity in our Nation. My many 

years in energy research convince me that few solutions could be 

as fruitful. Putting these great strides that we have made in energy efficiency to productive use on a national scale is admirable. 

So, thank you very much for this opportunity to share our insights. 

I look forward to answering your questions. 

Senator BINGAMAN. Thank you very much. 

Mr. Nadel, go right ahead. 

STATEMENT OF STEVE NADEL, EXECUTIVE DIRECTOR, AMERICAN COUNCIL FOR AN ENERGY-EFFICIENT ECONOMY, 

WASHINGTON, DC 

Mr. NADEL. Thank you, Mr. Chairman, and other members of the 

committee. First, I wanted to second Senator Wyden’s comments. 

Thank you very much, Senator Bingaman, for your many years of 

service in the Senate. You have really been a real leader for the 

Energy and Finance Committees, and we very much appreciate all 

that you have done for energy efficiency over your many years 

here. 

I also wanted to briefly acknowledge Senator Snowe, who is also 

retiring. I see her aide here. She was not able to make it, but she 

has also worked tirelessly, often with you, Senator Bingaman, in 

introducing energy efficiency legislation. We appreciate both of 

your efforts. 

Now, in your opening remarks, Senator, you talked about three 

questions. Dr. Arvizu basically addressed your first question, and 

I will concentrate on the next two. You asked if the tax code is an 

appropriate vehicle for promoting energy efficiency investments. 

You also asked us to discuss the best structures for tax incentives 

that could generate the greatest efficiency gains. 

Regarding the first question, based on our research and analysis, 

we concluded that the tax code can be an appropriate vehicle for 

promoting energy efficiency investments. I say ‘‘can’’ because it depends on how the tax incentives are structured. 

In our research we have found that the tax incentives that were 

enacted in the 1980s were not very effective in spurring substantial 

energy savings, as these credits promoted tried-and-true energy efficiency measures that many consumers and businesses were installing on their own. Most of the participants were what we call 

‘‘free riders.’’ They took the money but would have taken the same 

actions even without the incentives. Furthermore, the amount of 

the tax credit in the 1980s was too small to spur many additional 

investments. 

On the other hand, tax incentives enacted in 2005 were more targeted. They emphasized advanced technologies and paid higher incentives. Our review of the experience with these has found that 

the tax incentives for new homes and appliances, in particular, 

were very effective in growing the market for qualifying homes and 

appliances and that the incentives for residential heating and cooling equipment, and also hybrid heavy-duty vehicles, were also very 

6 

successful in encouraging development of new products and purchases of the most efficient products. 

Based on these experiences—I am turning now to your second 

question—we concluded that the most useful tax incentives target 

long-term structural changes in the market using temporary Federal assistance to build the market for energy-efficient products so 

the tax incentives can be phased out. 

At this point, the market can continue to grow, supported by 

other energy efficiency programs and policies such as EnergyStar, 

utility energy efficiency programs, building codes, and equipment 

efficiency standards. 

We have labeled this process the ‘‘Market Transformation’’ approach. We use tax incentives to help establish a sustained longterm market. Using such an approach, we should target advanced 

technologies and practices that currently have a low market share, 

but with Federal support over a defined period of time, maybe 5 

years or so, that market share can grow and they can better prosper on their own after the tax incentives end. 

Advanced products and services should be specified in terms of 

performance, leaving it to manufacturers and service providers to 

decide which technologies to use to reach the specified performance 

levels. By focusing on products with efficiency levels that currently 

have a very small market share, we can keep costs down and minimize the number of free riders. 

A Federal role is particularly useful in the early stages of market 

development, because the Federal Government can provide a national market with uniform qualifying criteria and incentives, making it more likely that manufacturers and contractors will make 

the investments to develop market-qualifying energy-saving technologies and service. It will be much harder to transform markets 

without Federal involvement. 

I would note that the same market transformation approach can 

be used for other advanced energy technologies, not just energy efficiency. You could do market transformation for modular nuclear 

power plants, advanced renewable energy sources, and new oil and 

gas drilling and exploration techniques. But once these technologies become established in the market, Federal incentives can 

be phased out. 

Returning to energy efficiency, our organization has analyzed the 

cost and savings of 5-year Federal tax incentives for several highefficiency products and services. We found that all of the products 

that we analyzed were highly cost-effective. Our analysis is summarized in my written testimony. 

The average cost to the Treasury for all of these credits was only 

28 cents per million Btu saved. This is less than a tenth of what 

the average energy cost is, making them highly cost-effective. We 

found that the most cost-effective options include tax incentives for 

commercial buildings, energy-efficient new homes, heating and 

cooling equipment and appliances, and combined heat and power 

systems. We also found that whole-house energy-saving retrofits 

and replacing old chillers were also very cost-effective. 

The next two witnesses will be talking about commercial buildings and residential buildings, so I will not talk further about 

those. I will, therefore, concentrate on some of the other provisions. 

7 

First, incentives for energy-efficient new homes, heating and 

cooling equipment, and appliances were among the most costeffective in our analysis. These products are subject to recently expired Federal tax incentives. We recommend that the energy efficiency requirements in these provisions be updated. 

The market has moved. The levels need to be strengthened, but, 

with that strengthening, we believe it is appropriate to reinstate 

these provisions and continue to offer them for the next 5 years or 

so, based on these updated qualification levels. 

I would also note that combined heat and power (CHP) systems 

are poised to make substantial strides, as utilities and their customers look to replace old, dirty power plants that are now being 

retired. A tax incentive will spur more combined heat and power 

systems during this critical period. 

The provision in the bill that you have introduced, Senator, with 

others, modestly expands an existing CHP incentive now on the 

books to address some issues with the previous incentive that will 

help make it more workable. We did find this to be one of the most 

cost-effective provisions we examined. 

I also wanted to briefly note that the chiller provision in S. 3352 

is also very timely. It will provide a credit to encourage replacing 

old, inefficient chillers that contain CFC refrigerants. CFCs, as you 

probably all know, harm the ozone layer and have not been permitted in new chillers for many years. However, some of the old 

chillers remain, leaking CFCs and using excessive amounts of energy. 

Building owners are reluctant to replace these chillers due to the 

up-front costs. The proposed incentive will cover part of these costs 

but would be available for only 3 years. Therefore, building owners 

would have a limited window to take advantage of the incentive. 

That provision also contains some innovative provisions to reduce 

chiller loads and encourage smaller chillers, increasing the amount 

of energy saved. Those chiller down-sizing techniques will be very 

useful from a market transformation perspective. 

Finally, I wanted to note that in my written testimony—I will 

not go into it here—I discuss some problems with depreciation periods, particularly for commercial and CHP systems. We recommend 

that, as part of tax reform, Congress should revise these depreciation periods so they are based on the average service life of this 

equipment as opposed to the current, more political hodgepodge. 

So, in conclusion, we recognize that, with tax reform, the number 

of incentives and their costs need to be substantially reduced. 

Based on our analysis, as part of any tax reform legislation, we recommend that limited funding be set aside for provisions with the 

largest energy savings per Federal dollar invested. 

These are provisions that have a large multiplier effect and 

where incentives can be ended or revised after about 5 years. We 

would be happy to work with you and the committee going forward 

to help design incentives with the most bang per buck. Thank you. 

Senator BINGAMAN. Thank you very much. 

[The prepared statement of Mr. Nadel appears in the appendix.] 

Senator BINGAMAN. Mr. Wagner, go right ahead. 

8 

STATEMENT OF MARK F. WAGNER, VICE PRESIDENT, GOVERNMENT RELATIONS, JOHNSON CONTROLS, INC., WASHINGTON, DC 

Mr. WAGNER. Thank you, Mr. Chairman and members of the 

committee. My name is Mark Wagner, from Johnson Controls. We 

are an energy services company. For years, companies like ours 

have been in the business of saving energy for our customers by 

renovating and upgrading their buildings with energy-efficient 

equipment. This includes public sector buildings for the Federal, 

State, and local government, as well as private-sector commercial 

buildings. 

The 179D Federal tax deduction for commercial buildings has 

been a valuable tool to help finance these types of energy efficiency 

upgrades, particularly in the public sector where we have done a 

large number of projects. 

Let me give you two examples where projects have been certified 

for the tax deduction. In Maryland, seven Caroline County Public 

Schools and the Kent County Courthouse and Government Center 

are more efficient with the help of this tax credit. In San Antonio, 

TX, we made energy efficiency upgrades at the convention center, 

airport, and The Alamo Dome. 

But the use of 179D for private-sector buildings lags behind. Despite the large potential market opportunity for commercial buildings, shopping malls, and multi-family housing, the tax deduction 

is significantly under-utilized. 

There are a number of basic reasons why. Let me touch upon a 

couple. First, many private-sector buildings change ownerships frequently, unlike public-sector buildings, which limits the time in 

which an energy efficiency investment can pay back. Second, many 

private buildings have debt or are individually incorporated and 

have no credit rating, making it more difficult to finance projects. 

Thirdly, there is often misalignment between owner and tenant in 

commercial buildings between who has to make the investment and 

who gets the benefit. 

Let me mention that every year Johnson Controls conducts a survey of executives, executive decision-makers who are responsible 

for making investments in energy efficiency. In our 2012 survey of 

over 1,100 U.S. executives, we have had three findings that are significant to our discussion today. First, we found a 20-percent increase from the year before from those executives who saw energy 

management as ‘‘significant’’ or ‘‘very significant’’ to their operations. Second, they listed access to capital as the largest barrier 

to financing energy efficiency projects. Third, tax incentives were 

deemed by far the most important tool. Forty-two percent of the executives found them to be the highest priority for public policy action. 

S. 3591, which you sponsored, the Commercial Building Modernization Act, addresses many of the unique challenges facing financing energy-efficient projects for the commercial building sector. 

First, it is technology-neutral. It gives building owners and contractors the flexibility and freedom to install traditional, as well as 

state-of-the-art, technologies to meet a variety of operational and 

tenant needs. 

9 

Second, it is performance-based and rewards the building owner: 

the deeper the retrofit, the larger the deduction per square foot. 

Third, it provides verification of energy savings by giving 60 percent of the deduction for the design and 40 percent after calculation 

of actual savings. 

Fourth, it changes and improves the measuring stick. Current 

law requires a retrofit of 50-percent savings against American Society of Heating, Refrigerating, and Air-conditioning Engineeers, or 

ASHRAE, code. This would be changed to a sliding scale of options 

for energy savings benchmarked against the building’s actual energy consumption for the previous years. 

Now, let me explain why this one is important. Mr. Chairman, 

you are very familiar with the energy efficiency upgrades Johnson 

Controls recently completed at the Empire State Building. Well, 

under current law that project does not qualify for a 179D tax deduction, even though we are projecting a 38-percent energy savings 

as compared to the building’s previous performance. 

But under S. 3591, the Empire State Building project would 

qualify because savings are compared to the building’s own energy 

consumption. Finally, the legislation provides a better incentive for 

real estate investment trusts and certain limited liability partnerships to participate. 

In conclusion, 179D will expire at the end of 2013. We joined 

with 47 other organizations from the real estate, construction, lending, manufacturing, supply, and efficiency communities in supporting the extension of 179D and the modifications that you have 

proposed in S. 3591. 

As we look to the new Congress, we hope the Senate considers 

a combination of policies and programs that create market demand 

and provide commercial building owners with enhanced incentives, 

standardized processes, and financial models that attract privatesector funding. We can make a large impact with only a modest investment. 

Mr. Chairman, thank you for the opportunity to testify, and, 

more importantly, thank you for your years of leadership in the 

Senate, particularly with respect to energy efficiency. 

Senator BINGAMAN. Well, thank you very much. 

[The prepared statement of Mr. Wagner appears in the appendix.] 

Senator BINGAMAN. Mr. Golden, go right ahead. 

STATEMENT OF MATT GOLDEN, PRINCIPAL, EFFICIENCY.ORG, 

AND POLICY CHAIR, EFFICIENCY FIRST, SAN FRANCISCO, CA 

Mr. GOLDEN. Thank you, Chairman Bingaman and the distinguished members of the subcommittee, for this opportunity to offer 

my perspective on the role of tax incentives to promote energy efficiency. I come to this committee as both an advocate working to 

bring investors and the capital to the energy efficiency market, and 

as a licensed contractor and board member of Efficiency First, a 

trade association that represents over 1,000 small businesses in all 

50 States. 

Efficiency First is a strong supporter of Senate bill 1914, the Cut 

Energy Bills at Home Act, also known as 25E, which puts in place 

the first performance-based tax incentives for existing homes. We 

10 

thank Senators Bingaman, Snowe, and Feinstein for their leadership on this issue. 

Energy efficiency incentives remain smart tax policy that will 

stimulate private investment and job creation while driving savings 

directly to American homeowners. The average American family 

spends over $1,800 per year on energy for their homes, which 

equates to a $200-billion drain on household budgets every single 

year. This represents 22 percent of all U.S. energy consumption, 

which is a third more energy than used in passenger trucks and 

cars combined. 

Retrofitting these inefficient homes will create thousands of U.S. 

jobs in some of the hardest-hit industries, including construction 

and manufacturing. These are jobs on Main Street and small businesses that cannot be outsourced, using materials that are 90 percent made in the USA. We are putting energy savings back into the 

wallets of American families and into our communities. 

Energy efficiency is unique in that it creates its own cash flow. 

Simply put: it pays for itself. However, there are significant market 

barriers that prevent this vital resource from being harvested more 

effectively. One of the key steps towards a solution is to begin to 

account for energy savings as a resource. Reducing demand on the 

grid through energy efficiency is akin to building power plants, 

only cheaper, 100-percent domestic, and completely clean. We know 

how to finance power plants. 

Power plants supply predictable amounts of energy into established markets, and utilities can easily raise capital to make these 

investments in energy supply. However, we lack the same capital 

sources and markets for energy efficiency, even though it is widely 

understood to be the most cost-effective resource for meeting our 

energy needs. 

In fact, the energy we have saved through energy efficiency efforts in the last 40 years equates to a resource that is greater than 

any other single energy source in the country: greater than nuclear, natural gas, or coal. 

S. 1914 is a great example of tax policy that can help move the 

market towards valuing energy savings as a resource. This legislation provides a financial incentive to homeowners to increase the 

energy performance of their homes: the greater the savings, the 

higher the incentive. 

Transitioning to a performance-based incentive allows for technology and business model neutrality and creates a system that is 

flexible and rewards innovation. The good news is that the marketing systems we need to make this industry economically sustainable over the long haul are already here, just not yet to scale. 

The contracting industry is actively moving towards performance-based models, with dedicated home performance companies 

growing in markets across the country and leading HVAC contractors, national manufacturers, and trade associations beginning to 

invest heavily in training and resources to move from single measures to whole-house solutions. 

In addition, investments in energy efficiency have dramatically 

increased at the State level. This includes Recovery Act investments in workforce training, quality assurance, and program infraVerDate Nov 24 2008 15:23 Sep 30, 2013 Jkt 000000 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 R:\DOCS\82738.000 TIMD
11 

structure that have resulted in home performance projects increasing by 300 percent over the last 3 years. 

Utility investments have also increased dramatically, averaging 

nearly a 20-percent year-over-year growth since 2005, substantially 

faster than the economy at large. We are also seeing private investment beginning to ramp up. Private capital markets are on the 

verge of the first-ever securitization for residential energy efficiency 

lending. This step forward promises access to senior capital markets and eventually much lower cost to capital. 

Homeowners will soon be able to access loans designed specifically for residential energy efficiency at lower rates and better 

terms. Simply put, we now know that energy efficiency loans are 

more likely to get paid off. We believe that tax incentives play a 

critical role in helping scale this early-stage market. Tax credits directly benefit homeowners without adding layers of bureaucracy 

and will create consistent national markets that will make getting 

to scale vastly easier for all involved. 

We believe that, with a combination of smart national tax policy 

and local infrastructure, we can enable a transformation in residential energy efficiency that will engage markets and drive private capital. Senate bill 1914, combined with an improved 25C, is 

a first critical step in this direction. 

Creating markets is important, but let us all remember the small 

businesses, construction workers, and homeowners that we will be 

helping through these incentives. The energy efficiency industry 

puts people to work in ways that are both positive for their communities and the environment, and perhaps most importantly helps 

American homeowners make ends meet in homes that are more 

comfortable, healthier, and longer-lasting. 

This is truly a unique opportunity to support small businesses in 

America and homeowners, all while helping the country meet its 

climate and energy goals. We appreciate the ongoing efforts of this 

subcommittee and look forward to continuing to support your important work advancing energy efficiency through smart tax credits. 

Thank you for this opportunity to share our views, and I look forward to questions. 

[The prepared statement of Mr. Golden appears in the appendix.] 

Senator BINGAMAN. Thank you very much. Thanks to all of you 

for your statements. Let me start with a few questions and then 

defer to Senator Wyden and Senator Cardin. 

One obvious issue, Mr. Nadel: let me ask you about this market 

transformation approach. You are talking about a 5-year kind of 

putting in place of incentives that phase out at the end of 5 years. 

If in fact we have all of these benefits to be realized in the area 

of residential and commercial buildings, why does it not make 

sense to look at longer-term incentives in the tax code for construction and retrofit of commercial and residential buildings in an energy efficiency way? 

Mr. NADEL. Thank you. Yes. We advocate initial incentives for 5 

years, but then taking stock of the market and how it is doing. Has 

the market sufficiently transformed? Does the program need to be 

tuned or modified? Is it working well in certain areas and not 

working well in other areas as opposed to just something blanket? 

12 

We think too many of the tax incentives have been on the books 

and have never been really reviewed. 

But some of the incentives, we think, should continue afterwards, 

but you should make that judgment call afterwards, just like some 

of the existing incentives such as the appliance credit. We have revised the qualification levels twice as we have extended it, so there 

probably would be some refinements that would be needed. 

In my written testimony I also suggest the option of repayable 

tax incentives in order to support certain retrofits, for example. If 

the cost starts getting too high, repayable tax incentives provide a 

way to continue to support the market even without as much cost 

to the Federal Government. So I am not saying end it absolutely, 

but let us look carefully at it after 5 years. 

Senator BINGAMAN. Let me ask Mr. Wagner, and any of the rest 

of you who want to comment, about, in the last several years we 

have talked seriously about trying to adopt something like the 

HOME STAR proposal around here as another way to get more investment in energy efficiency. That is a different avenue. But how 

does it compare with the kinds of tax incentives that we are talking 

about here? Would it make more sense to be trying to do this 

through that kind of a program, through HOME STAR, or should 

we do both; should we do neither? 

Mr. WAGNER. Well, I think you have a couple of different approaches. One is certainly a HOME STAR and a Building STAR 

approach where that was more a rebate on a specific type of equipment out there, and a lot of that was being talked about to try to 

stimulate that type of approach. 

I think the benefit of the tax incentive is one in which it really 

helps—because of the level you have to reach in terms of the efficiency, it helps really drive larger projects that reach a deeper energy efficiency goal. That is the beauty of the tax incentive, I think. 

You are looking at that yardstick and saying, can I meet this 

goal on this project, so you are striving to make more efficient 

projects, if you will, that drive more energy savings. So that is, I 

think, the true benefit of doing it from the tax side. 

Senator BINGAMAN. Let me just ask about—I think what I understood you to say, Mr. Wagner, in your testimony, is that property 

owned by real estate investment trusts—which is a lot of property, 

obviously; a lot of the commercial property in the country—those 

properties are not eligible to qualify for the existing commercial 

building incentive. Could you elaborate on that, if I am understanding that correctly, and why that is the case? Obviously that 

is a major problem in the current law. 

Mr. WAGNER. Yes, and it is one that certainly is addressed by the 

proposed legislation. Currently, many of these commercial buildings belong to the large real estate owners with legal ownership 

structured as an LLC, as you pointed out. Many of them are noncredit rated, meaning there is no credit history that they have and 

no assets which can be held as security against the mortgage. So 

this fact kind of makes banks wary of making energy-efficiency 

loans in this area, so that is why I think it is an important provision that is in the proposed legislation to address this. 

Senator BINGAMAN. My time is up. 

Senator Wyden? 

13 

Senator WYDEN. Thank you. Thank you very much. 

This has been an excellent panel. Let me get your sense with respect to where I think we are at this point in the debate. We are, 

of course, debating the intersection between energy policy and tax 

policy. The Senate Finance Committee, earlier this year, I think 

made the correct call in terms of trying to start this debate. 

What we recognized is that you ought to extend the current tax 

provisions, at least for a relatively short period of time, a year or 

thereabouts, and that was what was done with respect to the production tax credit for renewable energy and for the 25C residential 

energy efficiency credit, so that we would not be pulling the rug out 

from under these important programs, and you all have touched on 

that. 

The question is then, what happens from this point on? There 

are a number of us who sit on both this committee and the Energy 

Committee, and I think it is going to be important to try to lay out 

some principles early on with respect to what we ought to be working for. 

I want to ask your reaction specifically to making a bedrock principle of fundamental tax reform a more level playing field between 

the various energy sources, because what we have seen over the 

years—and I have sat next to Senator Bingaman for more than a 

decade on both of these committees—is a lot of the programs that 

you all correctly identify as so important, the renewable programs, 

the energy efficiency programs, they are essentially on a temporary 

status. And a lot of the other programs, the more traditional programs, have been imbedded in the tax code for years, in effect have 

acquired a more permanent kind of status. 

I do not see how we improve, number one, the investment climate for the kinds of important programs you are talking about if 

we do not have a more permanent and level kind of playing field, 

nor do I think you really get at the all-of-the-above kind of approach that every Senator says they are for. I often kid and say it 

is not an energy speech unless you say you are for all of the above 

three or four times. I do not see how you really can be for that 

without a more level playing field. 

So I would just be interested in your reaction to that being a bedrock principle of tax reform as we start these more extensive discussions next year, and we can just go down the row. 

Dr. ARVIZU. Senator Wyden, that is a great question and one 

that I think deserves a considerable amount of attention. This is 

a complex area, clearly. The one thing I would say is that we 

should be making decisions based on the best information and the 

best analytics that are available, and some of those are woefully inadequate. 

So I would say that there is a lot of opportunity to do some analysis that allows there to be more thoughtful policy built on very 

quantifiable trends that we see in the marketplace. It is difficult 

to know what is going to happen 5 years from now. It is difficult 

to know even more so what is going to happen 10 years from now. 

We will miss some important market dynamics if we do not have 

good analytics. 

So the first thing I would offer is that the tools and the simulation and modeling types of programs are getting more sophistiVerDate Nov 24 2008 15:23 Sep 30, 2013 Jkt 000000 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 R:\DOCS\82738.000 TIMD
14 

cated. They are not the end-all. They depend on the assumptions 

that you make in order to understand what the outcomes are. But 

those tools should be transparent. 

One of the things that we should focus on is the true cost of energy and the true cost of all of the things that relate to the societal 

benefits that we expect out of our energy system. We are expecting 

a transformation to occur, and we are expecting it to occur over 

some period of time. As we make incremental improvements toward that end point, we need to measure, how well are we doing? 

One of the things that I would offer is that the portfolio will shift 

in terms of mix, so as a practical matter I think it is great that 

we have natural gas and an expectation that the costs will be low 

for some period of time. But it is part of a portfolio. It is part of 

a portfolio in the future. 

We will have a very different profile than the one we have today, 

and we need to be deliberate about what that end point needs to 

look like and move toward that end point again with strong understanding of what our policies are yielding in terms of change in 

that portfolio and at what pace. 

Senator WYDEN. Level playing field. I think I have time for one 

more, and maybe I will ask you to do it in writing. 

Go ahead, Mr. Nadel. 

Mr. NADEL. Yes. I agree that we do need a level playing field as 

a bedrock principle. I agree with you that it is a problem that efficiency and renewable energy have temporary breaks, while some 

other energy sources have permanent ones. I would advocate that 

everybody should be put on this 5-year schedule, sort of like the 

farm bill. 

I am not saying get rid of the incentives, but every 5 years we 

look at them and say, ‘‘What makes the most sense going forward?’’ 

But, if you have long-term permanent incentives, I think we get a 

lot more waste, where money is being spent on things where maybe 

it is not needed. 

Senator WYDEN. Let us do this. My time is up. Mr. Wagner, if 

you and Mr. Golden would furnish your answer in writing on this 

point with respect to the level playing field. I would also ask just 

if you would, Mr. Golden, in writing, also give us your views with 

respect to how the whole-home credit being combined with the 25C 

proposal could advance this idea of the more level playing field. 

Mr. GOLDEN. Absolutely. Thank you. 

Senator WYDEN. My colleagues are all waiting to ask questions, 

so, if we could have those comments, I want you to know I am 

going to read them personally. 

Mr. WAGNER. Thank you. 

Mr. GOLDEN. Thank you. 

Senator WYDEN. Mr. Chairman, thank you. 

Senator BINGAMAN. Thank you. 

The order here, based on arrival, would be: Senator Cardin, then 

Senator Thune, then Senator Carper. 

So go right ahead. Senator Cardin has been a co-sponsor of this 

legislation that Senator Snowe and I have developed, and we would 

appreciate his strong support. 

Senator CARDIN. Senator Bingaman, first of all, thank you for 

your leadership, not just on this committee but on the Energy ComVerDate Nov 24 2008 15:23 Sep 30, 2013 Jkt 000000 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 R:\DOCS\82738.000 TIMD
15 

mittee. You have really, I think, provided the directive for our 

country that a sound energy policy is critically important for our 

national security. It is important for our environment and, done 

right, will create more jobs in our communities. 

So, I thank you for your leadership. You are going to be sorely 

missed, not just on this committee but in the U.S. Senate. We are 

going to try to follow in your footsteps, but it is going to be difficult. 

So, thank you very much for everything that you have done. 

The reforms and extension of section 179D are very important. 

I particularly note the two provisions that would measure the performance based upon the existing building baseline. The example 

given by Mr. Wagner on the Empire State Building, I think, is well 

taken. The allocation to the tax-exempt entities to allow allocations 

to the designers of buildings, I think all that makes sense so that 

it becomes effectively used. 

I might point out, there are other bills that are pending in this 

committee. I am working with Senator Crapo on the Cool Roofs bill 

that gives us a more realistic depreciation schedule in buildings 

and developers who use cool roofs, and then the Historic Tax Credit 

with Senator Snowe that gives a reward for using historic retrofits 

for energy efficiencies. 

I think all of those are performance-based types of ways that we 

can improve our respect for energy consumption in our environment and our economy. I just want to follow up quickly on the 

chairman’s point about the 5 years or longer, et cetera. I fully appreciate the need to evaluate programs. 

There is no question that, as we have done that, we have been 

able to find ways to fine-tune or to reform or to eliminate those 

provisions that do not work, and we should always preserve that 

opportunity to do it. I am concerned, though, that we have gotten 

into a habit here on extenders that has very little to do with evaluating programs and has a lot to do with the uncertainty in the 

market on the use of these available tools, and we pay a price for 

that. 

So I want to get the time limit right here, but I also want to understand the impact of congressional short-term extensions of credits as to how it would impact on the usefulness of these tax provisions. We get criticized that they do not do very much, but, if they 

are so short-term, we understand why they may not. Does anyone 

wish to comment on that, the short-term dangers here? 

Mr. WAGNER. I will take a shot. I think it is critical. In our business, if you do a project on a commercial building, it may take 

quite some time to do. It may take a year or more to just design 

the effort even before the construction period. If you see the end 

of the tax period where it may have to be in place and working at 

that point, if you are not sure you can get there, there is that uncertainty to say, we do not know if we can factor this in to the economics of the project because we do not know if we can get there 

before this tax incentive, whichever it might be, expires out there, 

and then we are not sure whether it will be reinstated or not. 

So I think that uncertainty for the business community, as well 

as the design and the construction of these long-term projects, really puts a kind of chilling effect on it if you are not at the beginning 

of the program. 

16 

Senator CARDIN. Well, that is certainly true in production tax 

credits. We have seen that now on solar. Even though the expiration date is several years out, it is already affecting decisions being 

made. So, Mr. Chairman, I would just point out, if we were to extend the program for 5 years, everybody thinks you are safe for 5 

years. You are not. You might be safe for a few years, but then the 

uncertainty creeps in, and the planning process and all the hurdles 

you have to jump in order to get the project completed to meet the 

standards required by the code, may have a pretty chilling effect 

or a cost effect. 

Could we just talk one minute about the job implication here? 

We all know we have high unemployment in the construction industry. Does anyone here have some help for us as to what impact 

this could have on our economy and getting people back to work? 

Mr. NADEL. I can comment briefly on it, without getting into the 

exact analysis of these particular bills. But in general, energy efficiency is very labor-intensive and tends to create a lot more jobs 

than, say, investments in mining, drilling, new power plants, et 

cetera. 

So we have always found that, for each $1 million you invest in 

energy efficiency, you typically create about—I think it is about 

seven net jobs, meaning seven more jobs than if you invested it in 

other energy resources. So these bills will be, I think, powerful job 

creators. 

Senator CARDIN. Mr. Golden, very quickly? 

Mr. GOLDEN. Yes. I just wanted to add that we also find that this 

goes to the whole supply chain. There has been a study that the 

Home Performance Resource Center conducted in the last couple of 

years that showed that over 90 percent of the materials used in the 

residential sector are domestically produced. These are big materials, and so it is not just construction jobs, but we are also seeing 

it reflected in the manufacturing community. 

Senator CARDIN. I think that is very important. 

Mr. WAGNER. If I could add, Senator. The Political Economy Research Institute, along with the U.S. Green Buildings Council, Real 

Estate Roundtable, and NRDC, did a report last year in June, and 

the proposed revision, just for 179D, would create over 77,000 new 

jobs according to the report. 

Senator CARDIN. Thank you. 

Thank you, Mr. Chairman. 

Senator BINGAMAN. Thank you. 

Senator Thune? 

Senator THUNE. Thank you, Mr. Chairman. I want to congratulate you on your distinguished service in the U.S. Senate, and also 

for your great work over the years on energy issues. Your leadership is going to be missed around here. I am pleased that we have 

the opportunity to do one last energy-related hearing before you 

leave. 

I agree with the assumption that has been made that comprehensive tax reform is going to be the opportunity to seriously 

examine how the Federal Government conducts energy policy 

through the tax code, and I am hopeful that any deal to address 

the fiscal cliff will at least include a pathway for us to get to comprehensive tax reform sometime next year. 

17 

You have all, I think, commented already to some degree on 

whether or not that is the way in which we ought to be doing this 

through the tax code, having IRS administer these policies as opposed to having them done through other agencies that would be 

more appropriate and more fitting. 

But I also want to drill down a little bit on the question of the 

temporary nature of many of the tax incentives that we have, many 

of the energy tax incentives that we have in the code today. 

A lot of these things get under-utilized, as has already been 

noted, by the sector that they are supposed to benefit, simply because they have this on-again/off-again nature. I am wondering 

what your thoughts are with regard to whether we would be better 

off, instead of having numerous targeted incentives that expire periodically, moving toward instead a limited number of longer-term 

technology-neutral incentives. I know, Mr. Wagner, you mentioned 

in your testimony the 179D tax deduction and how that falls in this 

category of being under-utilized because of this temporary nature. 

But anyway, your thoughts about technology-neutral incentives 

applied over a longer period of time so you address the economic 

certainty issue that has been raised and gets raised so many times 

over and over again as opposed to these little niche, boutique-type 

approaches that we have in terms of policy today. 

Mr. GOLDEN. I thank you for that question. I think that the duration and creating certainty for small businesses and projects is 

really a critical aspect of the effectiveness of any tax policy. In an 

industry like the home performance industry, where companies are 

also making investments and ramping up their own businesses, 

these are longer pay-back periods, and so uncertainty really plays 

a role as the business community is evaluating and making these 

investments to actually transition their businesses. 

We also strongly support performance-based incentives that are 

technology- and business model-neutral so that we do not have to 

continually be revisiting the tax code and making adjustments to 

individual technologies. Quite frankly, none of us can really predict 

what technologies are going to emerge or what makes the most 

sense for any individual building, so it becomes the great equalizer. 

Fundamentally, whether it is residential, commercial, or renewables for that matter, we are talking about valuing either the production or the savings as a resource, and fundamentally that is 

about what emerges at the meter, not the individual technologies 

that get us there. 

Mr. NADEL. I would add that we need to be very careful. If we 

make the incentives too broad, they basically just tend to encourage free riders, people who are already going to do things anyway. 

If you were to try to make it very broad, you have to be very careful that you really are promoting the advanced technologies and 

not business as usual, and that can get very challenging. 

It is probably a little easier in the residential and commercial 

sectors. We have two bills here that are performance-based, based 

on the baseline for the current home. But for investments in industry and heating and cooling equipment, the baselines regularly 

change, and you need to allow for that or else you are just going 

to get high cost, high free riders, without a lot of impact. 

Senator THUNE. Anybody else? 

18 

Mr. WAGNER. The keys are to be technology-neutral, performance-based, and then having, particularly for commercial buildings, 

a process where you verify the savings. I think those are really key 

to show that the savings are real. 

Dr. ARVIZU. I agree with my colleagues. The only thing I would 

add is, I think there is some merit in this discussion, and I would 

very much encourage that we fully understand what objectives we 

are trying to accomplish. More importantly, I think there is an opportunity to aggregate lots of what I would call distributed and 

smaller types of improvements that, when aggregated, allow the 

private sector to make investments that can ensure some reasonable returns on investment. Those would be then the ingredients 

for success. So it really is about unleashing the market capital in 

a way that can move that marketplace. 

Senator THUNE. One more question, Mr. Chairman? 

Senator BINGAMAN. Go right ahead. 

Senator THUNE. If I could just, as sort of a follow-up to that, ask 

if you have any ideas about how Congress could better design incentives that could be phased out once they have helped to create 

a market. What we do right now is, we will do this. We will do an 

extension for 2 years, 3 years, maybe even 5 years. Although the 

analogy to writing a farm bill might make some sense, for somebody who serves on the Agriculture Committee and has to write a 

farm bill every 5 years, I am not sure you guys want to be in that 

kind of mess sometimes either. 

But is there a way that, when you create these things, you could 

phase them down at the inception or creation of them as opposed 

to kind of going through this annual exercise that we do of having 

to do extensions and then just creating, really in a lot of ways, 

more uncertainty because you have such a short window? Does 

anybody want to take a stab at that? 

Dr. ARVIZU. Well, I think we can take a lesson from maybe some 

of the things that other countries have done in a variety of things. 

Again, I think it comes back to, what does it take for the financial 

community to make those decisions in a positive manner? 

On the general side, one of the important market mechanisms is 

the power purchase agreement. The power purchase agreement 

typically runs for 20 years. That allows enough certainty that I can 

make a serious investment and, even though my margins are going 

to be thin for a while, I can recoup that investment over some period of time. That is enough certainty to allow me to make an investment. 

So I think whatever is designed needs to be fully cognizant of 

how the money flows and how the investors make decisions. To the 

degree that that instrument allows them to make a decision that 

they would not otherwise make because of uncertainty, then I 

think you have a successful mechanism. 

Senator THUNE. All right. 

Mr. NADEL. I would add 2 suggestions here. One, building on 

your first comment, when it comes to equipment, you could do a 

longer-term incentive but then delegate to the Department of Energy to periodically revise the qualification levels based on criteria 

that Congress has established so that it does not get out of date 

but it could continue long-term and still have a lot of impact. 

19 

The other thing you could do if you have 5-year incentives is, you 

have 5 years and then a 3-year phase-down. Yes, you can continue 

to modify and extend them further, but at least you know you have 

an orderly phase-out as opposed to a cliff if Congress does not act 

in a timely fashion. 

Senator THUNE. Yes. Which is the normal experience. 

My time has expired, Mr. Chairman. Thank you. Thank you all 

very much. 

Senator BINGAMAN. Thank you. 

Senator Carper? 

Senator CARPER. Thanks. Before Senator Thune leaves, I just 

want to come back, if I could, to the question you just asked of the 

panel: how do we structure these tax incentives to make sure that 

we do not just have them expire and extend them endlessly? 

One of the provisions that Senator Snowe and I have worked on 

is an investment tax credit for offshore wind. The production tax 

credit for offshore wind just does not help; we need an investment 

tax credit. If you only have a production tax credit, we will never 

build an offshore windmill farm. 

What we have crafted as legislation says that, for the first 3,000 

megawatts of generating capacity that is deployed off of our coasts, 

those would be eligible for a 30-percent tax credit, and, after that, 

it is gone. I actually think that is a pretty good approach. We will 

see if it passes muster in whatever we put together next year. 

I also want to applaud our colleague and our chairman here, 

Senator Bingaman, for not just holding this hearing, but really for 

being our leader in so many ways on energy, and energy efficiency 

in particular. So, thank you. You know we are going to miss you. 

I will say it every day until you are gone, and we will just talk 

about you when you are gone. 

I want to say to our panel, thanks. Thanks a whole lot for being 

with us today. I sometimes say that the cleanest, most affordable 

form of energy is the energy we never use. My first question is, 

who actually said that first? I think I did. [Laughter.] 

Mr. GOLDEN. We all agree, sir. 

Senator CARPER. As our Nation grapples with air quality concerns and higher energy product prices—although in some places 

energy prices are coming down. I bought some gas for about $3.30 

per gallon, and natural gas being abundant has helped us on some 

other fronts. But still, we need to save energy and try to figure out 

how we can incentivize energy efficiencies in this country. 

I often hear from a company back in Delaware that manufactures windows that the 25C energy efficiency tax credit has been, 

in this recession, a significant lifeline. I have heard that the credit 

has been easy for consumers to really get their heads around, too. 

Therefore, it has been pretty successful. 

As we all know, 25C expired at the beginning of this year and 

has been extended in this committee’s package of extenders that we 

passed back in August, but has languished since. 

I realize that a number of you here would like to make some 

changes to 25C, but how important is continuing this tax credit for 

energy efficiency, at least in the near term as we move into talks 

next year about broader reforms? Mr. Golden? 

20 

Mr. GOLDEN. I can speak to that. Efficiency First supports 25C, 

but we do recommend some improvements. Without getting into 

the absolute specifics, at the current levels, as we understand it 

from our members, it is not driving a lot of new action, so there 

is a concern that, at the level that we are currently at, it is a lot 

of additionality where people would have already maybe perhaps 

taken these actions. 

While that seems a little bit in juxtaposition with the fact that 

we need to control costs as well, we think that ties into some of 

the comments that Mr. Nadel brought to the table around standards, so making sure that we are in fact incentivizing higher efficiency equipment that is more likely to be an upgrade from what 

somebody might have done otherwise. 

So we also believe that 25C should be coupled, just like for example in the HOME STAR legislation where we had a more prescriptive path that addresses where industry is today and where most 

consumer transactions are occurring today, coupled with what ends 

up being a much less expensive performance track that helps enable this transformation and brings in more private capital into the 

industry. But obviously it is a balance of these standards to make 

sure that this package makes sense from a fiscal standpoint in the 

context of tax reform. 

Senator CARPER. All right. Would any of the other panelists 

agree with anything he said? 

Mr. NADEL. Yes, I agree. Just to add one point: the qualification 

levels really need to be revised. You mentioned windows. Something like 85 percent of the windows now being sold qualify. This 

no longer differentiates the best from run-of-the-mill. But, if you 

really identify the very most efficient products, yes, we would support 25C. In our analysis, it does perform quite well if you have 

a performance tier that really differentiates. 

Senator CARPER. Thank you. 

Gentlemen, does anyone else want to comment? 

Mr. WAGNER. I just want to agree with your statement earlier 

about efficiency. Taking another twist on it, I have often heard efficiency referred to as the fifth fuel. I always like to refer to it as 

the first option, because it is easier and more cost-effective to save 

a unit of energy than it is to produce a new one. 

Senator CARPER. All right. Good. Thank you. 

Dr. ARVIZU. And I just want to applaud your efforts on offshore 

wind. I think one of the things that is important is that it is an 

early-stage technology and it does need some help to get us back 

into a leadership position. 

Senator CARPER. Good. Thanks so much. 

Mr. Chairman, my time has expired. Would you like me to stop? 

Senator BINGAMAN. Go right ahead. 

Senator CARPER. All right. Thank you. You may regret that. 

[Laughter.] 

I am going to just stick with this for just a moment. In some of 

our tax hearings earlier, we heard about the need to make the tax 

code simpler. In fact, that is one of the themes that we always 

come back to. We do not do a very good job at it, but we certainly 

talk a good game. But is there a way to consolidate residential and 

21 

business energy efficiency tax credits into one credit that would be 

as successful as maybe the separate credits? Anybody? Yes? 

Mr. GOLDEN. I think personally that there is enough difference 

between the two sectors that they deserve separate tax credits. 

However, from a philosophical standpoint, from a design standpoint, I think there are a lot of parallels between the performance 

tax credit that occurs in the commercial sector and 25E-style performance tax credits for residential as well. I think the arbiter 

there, the common denominator, is performance rather than specifying specific materials and equipment that we continually have to 

update. 

Senator CARPER. All right. Does anyone have a different view? 

[No response]. 

Could I ask one more? Thanks very much. 

Mr. Nadel and Dr. Arvizu, let me focus, if I could for a minute, 

on industrial energy efficiency. Dr. Arvizu, I believe you mentioned 

in your testimony—I think it was you—that industry represents 

about 30 percent of energy consumption in this country. 

There is a huge potential for energy savings in this sector. As we 

know, manufacturing has picked up considerably over the last 2 or 

3 years in this country. Many companies are modernizing their 

plants and trying to keep up with demand, which is a good thing. 

However, I have been told by industry that energy efficiency 

projects have a huge up-front cost, despite the long-range energy 

savings, which usually or oftentimes prevents industry from making the investments that are needed in efficiency. 

At the same time, our utilities are modernizing our energy fleets 

to keep up with clean air regulations, to keep up with energy demand. However, utilities are much more focused on energy production rather than finding energy savings, for obvious reasons. 

My question is, why are utilities not partnering with industry 

more to implement large-scale industrial efficiency projects for energy savings, and does it make sense to incentivize these partnerships? 

Dr. ARVIZU. That is a very astute observation, and one I think 

that is one of the critical barriers. It really has to do more with 

what incentivizes utilities, and typically investor-owned utilities, 

have to focus more on the generation side than on the efficiency 

side. It typically is structural features of the business model. 

To the degree that States have taken on some of that responsibility to just begin to change that business model so that they are 

incentivized to save energy as opposed to just generate energy, 

then I think you will see those wholesale changes. 

Clearly that partnership between the consumer, the customer, in 

the case of the industry, as well as the generators, is an important 

aspect of helping change that business model. So these are what 

I call market structure barriers that do need, in fact, some serious 

attention. We have a whole host of regulatory dynamics that are 

driving that entire system. 

So we need to really take a step back, understand what it is that 

we are incenting and why, and then, I think, move more expeditiously to get to the transformation we need. I think there is really 

great opportunity in the fact that we have essentially some new 

generation sources that offer us great economic benefit, but only if 

22 

done properly, only if structured in a way that the government’s 

enabling of those market forces leads us to the ultimate objective 

of getting a much more sustainable energy system in the end-point. 

Senator CARPER. All right. 

Mr. Nadel, do you want to add or take away from that? 

Mr. NADEL. Yes. I agree there are enormous opportunities to 

save energy in industry, and we can, and should, do a lot more to 

promote these opportunities. In some of the bills that Senator 

Bingaman has introduced, we have some targeted incentives, such 

as for CHP and chiller systems. Perhaps more could be done. Industry is very diverse, so what you do in a paper plant is going to 

be very different from a steel plant, from an aluminum plant, et 

cetera. It is hard to have a one-size-fits-all approach in industry. 

That said, there may be some things that could be done. You 

mentioned utilities. Some utilities are doing a very good job of promoting industrial energy savings, primarily by getting involved 

with industrial processes. I would say most utility programs are 

not there yet. If they have an industrial program, they do a commercial program and then add ‘‘and I’’ at the end of it without 

making any other changes, and that does not work. 

Is there something the Federal Government can do to encourage 

better utility programs? Utility programs are an area covered primarily by State and not Federal regulation. Perhaps the Federal 

Government could add a little extra bonus or something, that 

would be possible. 

We are also investigating the idea of how to encourage increases 

in capital investment by industry. When industry invests capital, 

most of the time it is in more efficient processes, because they have 

to be competitive. 

So how do you reward not just any investment, because there are 

trillions of dollars of investment annually, but how do you reward 

increases in that investment? If we can get more of that investment, we can get more jobs here and we can also get more energy 

savings. So we are looking at that now, trying to figure out what 

the cost would be, because we recognize that money will be tight 

here in Washington, and we are trying to come up with something 

that looks cost-effective. 

Senator CARPER. All right. Thank you. Thank you all very much. 

Senator Bingaman, just let the record show you have always 

been so generous with giving me all the time I want. No one else 

ever does that. [Laughter.] 

Senator BINGAMAN. Well, if you would like to stay for another 

round of questions, we will be glad to oblige you with that, too. 

Senator CARPER. That is great. Thanks so much. 

Senator BINGAMAN. All right. Let me just ask a couple of questions that have occurred to me listening to other Senators asking 

questions here. 

It seems to me we have sort of three different issues, and maybe 

more than three. This idea of putting a 5-year limit on these credits and all, I think the mind-set that leads to that, at least with 

regard to some of these incentives, is that we are trying to support 

new technologies or emerging technologies or early-stage technologies—and we want to support them—but we want them to be 

able to progress to a point where they can stand on their own after 

23 

a certain period of time and compete in the marketplace. So that 

makes sense, to have a tax credit or a tax provision to encourage 

the use of that technology for a period and then phase it out, so 

I think that is one thing. 

It seems to me, though, that many of the other things we are 

talking about here really are not of that type. For example, Mr. 

Wagner, you talk about the idea of being sure that you have a tax 

incentive so that a person who owns a commercial building, like 

the Empire State Building, anytime they can do a retrofit of that 

building and save 38 percent of their energy from what they previously had been using, we ought to be encouraging that. 

That should not be something that we just do for 3 years or 5 

years. That could be a permanent part of the tax incentives, it 

seems to me. So I do not know that phasing that out makes a lot 

of sense. 

Then also, if we could properly design a regime for improved efficiency in appliances and equipment and that sort of thing along the 

lines I think Mr. Nadel was talking about, where you have an ability to upgrade the standards or the qualification criteria periodically, there is no reason to my mind why that needs to expire either. 

Now, one example is this Top Runner program that they have in 

Japan, which I became aware of a few years ago over there, where 

they basically, as I understand it—and maybe some of you know 

better than I do exactly how it works—basically, in a lot of the different appliances—heating equipment, cooling equipment, and all 

that they have in the market—they, every 3 years or so, will determine who is providing the most efficient equipment, and then they 

will set that as the standard and say, a few years down the road 

that is what we are going to be requiring of everyone, so everyone 

has to step up to that new achievable standard which this company, the front-runner, the top runner, has demonstrated is achievable. So it is another way of doing what Mr. Nadel is talking about. 

He was suggesting that the Department of Energy be able to upgrade the qualifications, and that might be a way. But it seems to 

me that some of these incentives, it does not make sense to terminate after a short period of time. There are others that maybe are 

appropriate to terminate or phase out after a reasonably short period of time. 

Do any of you have comments on that? Mr. Wagner? 

Mr. WAGNER. Well, Senator, I think you are exactly right. You 

almost have to ask yourself, what is the goal here? If the goal is 

to retrofit a certain number of buildings, and that will take X number of years, then that is what you want to do. But I think there 

are a vast amount, a tremendous amount of commercial buildings 

and residential buildings out there that can be renovated under 

these programs. I guess I do not want to be trite, but my answer 

might be, let us phase out the tax credit when we are done. 

Senator BINGAMAN. Once we got them all innovated? 

Mr. WAGNER. That is right. 

Senator BINGAMAN. Right. 

Yes, Mr. Nadel? 

Mr. NADEL. Right. As the proponent of a 5-year incentive, I 

would be fine to keep them going if the money is there, particularly 

24 

for both the residential and commercial building incentives. It will 

be a question of how much money is there available at one point 

in time. But if we can make them permanent, great, but we should 

continue to review them and revise them. 

In terms of the products, such as appliances, I would say, rather 

than the absolute top runner, there probably should either be some 

flexibility in criteria or maybe some slightly different criteria, like 

the top 5 percent. I say that because, for some products, manufacturers have what are called trophy products. 

Yes, they are out there, but they do it for bragging rights, not 

really to sell them. So, if you were to do it for air conditioners, I 

think the trophy products now have a SEER rating of 23. Virtually 

none of them are being sold. You would probably want to go a bit 

lower if you want to actually have an impact. 

Senator BINGAMAN. All right. 

Does anybody else have a comment? Dr. Arvizu? 

Dr. ARVIZU. You have hit on something that I think is very important. That is to categorize the various types of incentives based 

on the objectives that you are trying to achieve. 

If I think back to the Academy reports and the McKinsey studies, 

the things that I mentioned in my testimony, there is a tremendous 

amount of opportunity. The question is, how much of that do we 

want to capture and who will ultimately both provide the means 

for getting over the barriers, and also reap the benefits? 

So I think all of these things have merit, primarily based on the 

fact that this is a very complicated system and we need to think 

about it from a systems perspective. I do think the opportunity for 

having a transformation of our energy system depends, for a large 

part, on how efficient we get. I have frequently said it makes no 

sense to shove a bunch of green electrons into a very inefficient 

system. 

I think we really need to work on the inefficient system piece 

first, and then the portfolio will be optimized in a much better way. 

So we should have some additional priorities. I know it is not very 

glamorous to do some of the blocking and tackling that relates to 

efficiency, but it should not be underestimated how valuable it is 

to the ultimate goal of an energy system that has a lot of attributes 

that we all aspire to. 

So, as we think through that, I think the objectives, such as 

grabbing all of that inefficiency in the system and squeezing that 

out, that needs to be thought through. I think the private sector 

does have the wherewithal to do that with government support and 

government enabling, and to essentially make the necessary investments. But it is not simple, and it may be that it is better done 

with targeted approaches rather than as some sort of uniform approach. 

Senator BINGAMAN. Senator Carper, did you have additional 

questions? 

Senator CARPER. I do have one. 

Senator BINGAMAN. Go right ahead. 

Senator CARPER. This is sort of a broad, general question. I want 

to just ask your parting advice as we prepare to move from this 

Congress into the next one, especially as we move into tax reform 

in the next Congress. Aside from cloning Senator Bingaman, what 

25 

other advice would you have for us as we look to the future, the 

near future? This can be fairly broad. Yes? 

Mr. GOLDEN. I think, to be broad, and in the spirit of kind of the 

last conversation that we just had, we are asking consumers in the 

form of 25E, and also in the commercial sector as well, to make investments that obviously have benefits to themselves in terms of 

lower bills and healthier homes and the like, but they also have 

public benefits. They have benefits in terms of clean, green capacity 

that we are driving to the grid, and other environmental benefits 

and job creation, that are not currently being monetized in that 

equation. 

So I think that, as we think about these incentives and how they 

change and evolve over time, there is a role for public investment 

in this space to make up kind of the gap between the private benefits and the public benefits, but I do think it is really important to 

focus on how private capital markets, capacity markets, can start 

to fill that space. 

So, as we create data that makes energy efficiency a much more 

reliable resource that utilities can begin to count on to actually displace potentially new power plants, by creating tax credits that 

evolve over time and potentially on a consistent basis—and consistency is really the key from a private sector standpoint—tax incentives can begin to decrease as we start seeing these private investments increase over time to fill that gap. I think that is how we 

will create something that is economically sustainable and also 

drives the kind of transformation that we need to see in the industry. 

Senator CARPER. All right. Thanks. Thanks, Mr. Golden. 

Mr. WAGNER. I think one of the things that—we all know that 

efficiency projects can have a great return on the investment. I 

would hope that Congress would look at ways to stimulate, to unleash, a lot of private sector capital that is sitting on the sidelines 

right now. How do you do that? How can you prime that pump to 

really get the financing flowing in the private sector? What are the 

keys to doing that? Whether it is back-stopping, guaranteeing, 

doing things that may not cost a lot for the Federal Government, 

you do not have to pay for the whole project to say we have unlocked the door, we have primed the pump to really flow those private sector dollars that are, again, sitting out there on the sidelines. 

Senator CARPER. All right. Thanks. 

Mr. Nadel? 

Mr. NADEL. I guess I would suggest you do some analysis. Use 

analysis to help guide these decisions, what approaches will give 

the most bang, if you will, per Federal buck, and not just have decisions rely on politics. There are all sorts of tax incentive ideas out 

there, so I would recommend establishing a budget and then challenging people to say, within this budget, what would you do that 

would give us the most bang? 

Senator CARPER. Good. Thanks. 

Dr. ARVIZU. I agree with my colleagues. Very thoughtful. I will 

be a bit more philosophical perhaps. The thing that I would say is, 

I would be heartened if the tone of the dialogue for energy efficiency and the things that relate to that was less political and more 

26 

in terms of, how do we move forward? I think this is not really a 

political issue from the perspective of partisanship. 

I think it really is an opportunity to do something that is quite 

compelling for the country, so I know I speak for a lot of folks in 

the community who would think that some progress in this arena 

is long overdue, and we would welcome some sophisticated dialogue 

to move us in that direction. 

Senator CARPER. As my mother would say, from your lips to 

God’s ears. [Laughter.] 

I do not know if it is just a coincidence or not, but, Dr. Arvizu, 

do you live in Golden, CO? 

Dr. ARVIZU. I actually live in Littleton, but the laboratory is in 

Golden, yes. 

Senator CARPER. All right. And we have a Mr. Golden here. 

Mr. GOLDEN. It is not a coincidence. [Laughter.] 

Senator CARPER. All right. So great of you guys to come by and 

share your thoughts with us. You do good work, and we appreciate 

you trying to help us do better work. 

Mr. Chairman, thank you. 

Senator BINGAMAN. Well, thank you very much, Senator Carper, 

for your involvement in this issue. 

Thank you all very much. I think it has been useful testimony. 

We will adjourn the hearing. 

[Whereupon, at 11:23 a.m., the hearing was adjourned.] 

(27) 

A P P E N D I X 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD


82738001.eps
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Energy Efficiency Research Confirms Significant Savings 

Three years ago, McKinsey & Co. produced a landmark analysis of potential energy savings in 

economic sectors other than transportation. The magnitude of the energy efficiency potential 

found by the study was astounding. That report characterized energy efficiency as a "vast lowcost energy resource for the U.S. economy," and it showed the United States could reduce nontransportation energy consumption by nearly a quarter by the end of this decade. Although that 

would require an investment of$520 billion, it would yield $1.2 trillion in energy cost savings. 

Notably, the effort would also cut l.l gigatons of greenhouse gas emissions, an effect equal to 

eliminating the emissions from all passenger vehicles and light trucks in the United States. 

A year later, the National Academies of Science and Engineering released another 

comprehensive assessment of energy efficiency potential in the United States. It found the nation 

could save money while producing the same amount of goods and services and still cut energy 

consumption by 30 percent. 

And, in August of this year, my research institution, NREL, took the next step by assessing the 

impact that some 400 laboratory-tested and peer-reviewed energy efficiency measures could 

have if deployed in the United States ["A Tool to Prioritize Energy Efficiency Investments"; 

Philip Farese, Rachel Gelman, and Robert Hendron; NREL TP-6A20-54799]. This work showed 

there are multiple pathways for the nation to reduce energy use in buildings by one-half by 2030. 

And if we do so, the energy cost savings would equal twice the dollar amount invested. 

R&D Investments in Energy Efficiency Produce Economic Benefits 

Perhaps the most compelling evidence that energy efficiency measures can have dramatic effects 

in the future is the often overlooked fact that they already have produced so many benefits for 

our nation. The Alliance to Save Energy's National Energy Efficiency Policy Commission has 

shown that the nation would be using 50 percent more energy than we currently use today if we 

had not taken advantage of all the energy efficiency opportunities developed and deployed 

during the past three decades. 

Even so, experts who have examined this issue most often conclude that our nation has seriously 

underinvested in energy efficiency during those same decades. Although that lapse has cost us in 

many ways, it also represents a huge opportunity for the nation today. There is much that can be 

done to improve the efficiency of our built environment, with positive returns on investment and 

spurring broader economic benefits. 

The R&D achievements for high-performance buildings in recent years provide more evidence 

that energy efficiency initiatives can deliver significant results. Strategies that consider the 

performance of a building as a whole, rather than the performance of individual components, 

have proven to be most successful to maximize energy savings and encourage market adoption. 

We've found that this whole-building, integrated-systems approach minimizes the potential for 

unintended consequences when changes are made in one component that can influence 

performance in other areas. We've also learned that we can accelerate the market adoption and 

overall transformation of the building stock wherever we can clearly demonstrate that efficiency 
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upgrades are low risk, and deliver high perfonnance and fit within existing building codes and 

energy incentive programs. 

A leading example of R&D success is the Commercial Building Partnership (CBP), a publicprivate, cost-shared program. Sponsored by DOE, it partners building owners and operators, 

National Laboratories like NREL, and technical experts from the private sector. The CBP has 

examined scores of different energy efficiency measures spanning a full range of building 

components-from more efficient sales floor lighting to use of reflective roof coatings. 

Researchers used advanced modeling tools to find the right mix of concepts for whole-building 

design that maximizes energy efficiency gains at the lowest possible cost. Over time, the 

program has encompassed both new buildings and retrofits, and the real-world results have been 

impressive. For example, NREL worked with the retrofit of a SuperTarget store in Thornton, 

Colorado, resulting in savings of 35% compared to current energy codes. Based on NREL 

analyses ofretrofit impacts across the nation, Target now intends to replicate this success across 

its entire portfolio. 

CBP has developed purpose-specific models that capture the best strategies for five different 

commercial sectors: general merchandise, higher education, commercial lodging, offices, and 

restaurants. Each of the recommended strategies is paired with project-specific case studies that 

detail decision criteria and lessons learned from each of the field projects. Because each of the 

building pilot projects includes ongoing monitoring of perfonnance, the building sector models 

are based on verified results-not projections-which makes them all the more valuable and 

relevant to the industry. 

The partnership has included some of the biggest names in the retail business, including WalMart, Target, Best Buy, JCPenny, Home Depot, and Kohl's. And by virtue of these players 

alone, the program can have impact: Total floor space operated by these retailers is 1.7 billion 

sq uare feet. 

Grocery stores comprise another key category. Because of the need for both large refrigeration 

systems and oftentimes commercial-scale bakeries and kitchens, the grocery segment has some 

of the highest per-square-foot energy costs of any retail business. Grocery represents 2 percent of 

the nation's commercial floor space, but consumes 5 percent of total commercial building energy 

consumption. The slim margins of a modem-day groeery chain-about 2 percent on averageon one hand demand that energy improvements be cost-efficient. On the other hand, the 

substantial energy needs of these stores means big opportunities for savings, and equally large 

returns on investment. One assessment showed that $ J ,000 saved in utility bills can have the 

same bottom-line impact as $50,000 in new grocery sales. 

The CBP is providing important technical infonnation that supports the DOEs Better Buildings 

Initiative, which works with leading private-sector organizations and cities across the country to 

implement energy efficiency at scale in buildings and communities. 

Although the mix of specific design and operational concepts for each building category is what 

makes the program so effective, a number of broader, generic lessons have been gleaned. These 

lessons include making energy savings part of the corporate culture, setting quantifiable whole-
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building energy goals, investing in expert resources and analysis, verifying and maintaining 

energy savings, and committing to continuous improvement. Taken individually or collectively, 

such strategies can help meet the nation's energy savings goals, and at the same time reduce 

expenses and improve profit margins of individual businesses. 

One key lesson from the CBP is that energy efficiency and other retail priorities can go hand in 

hand. More efficient use of energy can work in tandem with other market drivers, including 

improved shopping experience for customers, greater employee productivity, lower equipment 

operations cost, as well as marketing and brand-building. By adopting energy efficiency as a 

corporate-wide value, companies can help solidifY their broader image as a low-cost and highvalue option for consumers. In short, our experience shows that for business, energy efficiency 

should be cast in an entirely new light-as a customer-friendly and profit-producing corporate 

strategy, free at last of the harsh and spartan image that has too often colored it in the past. 

Progress is also being made on revolutionary energy efficiency technologies not yet in the 

marketplace. An example is a novel air-conditioning system invented by NREL that recently 

won an R&D 100 award. The Desiccant-Enhanced Evaporative air conditioner, or DEY AP as 

it's known, is a new technology that can deliver superior occupant comfort for commercial 

building applications, while cutting electricity use by as much as 90 percent, compared to 

conventional air-conditioning systems. Developed by NREL and two private-sector partners, 

AIL Research and Synapse Development, the DEY AP technology in coming years holds 

promise to revolutionize how the nation cools its buildings-a not inconsequential feat, as air 

conditioning uses 15 percent ofthe electricity generated in the United States. 

NREL's Research Support Facility 

Building sustainability programs, like the Green Building Council's LEED program for 

Leadership in Energy and Environmental Design, put a spotlight on energy savings. But energy 

considerations many times get short shrift when pitted against conventional design criteria, 

aesthetic concerns, and first-cost construction issues. At my own institution, NREL, our 

Research Support Facility (RSF) provides an example of how much can be accomplished when 

energy efficiency becomes a primary and essential priority of a building's design, and every 

practical energy-saving concept is given full consideration. The RSF is a LEED Platinum, 

360,000-square-foot, 1,300-occupant, modern office building that also happens to be a showcase 

of and living laboratory for high-performance building technology. Coupled with adjacent solar 

photovoltaic systems and a renewable biofuels heating plant, the RSF is the world's largest netzero-energy office building, and it has won numerous awards for its sustainability, innovative 

design, and energy-saving features. 

Energy efficiency begins with how the building wings are oriented toward the sun, and also 

determined the 60-foot width of each wing, an interior breadth that enables thorough day-lighting 

and natural ventilation for all occupants. Windows are optimally sized, placed, and shaded to 

maximize daylight while minimizing unwanted heat losses and excessive gains. A belowbuilding labyrinth of massive concrete structures stores thermal energy. Precast concrete 

insulated panets provide significant thennal mass to moderate the building's internal 

temperature. 
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The RSF's rating of34.4 kBtulsquare foot/year is fully 50 percent better than the industry 

standard, ASHRAE 90. And the RSF manages to achieve this feat in cost-competitive ways. The 

RSF's cost of $254/square foot compares favorably to the average cost of $335/square foot for 

newly constructed commercial buildings designed to LEEDlevels. 

State-of-the-Art Efficiency for Residential Buildings 

Private residences, which comprise a little more than half of energy use by buildings in the 

United States, provide equally large opportunities for energy savings. NREL's residential 

buildings research focuses on developing reliable, comprehensive system-based approaches to 

cost-effective residential energy savings, then validating and field-testing the improvements that 

are developed. 

DOE's Building America program, www.buildingamerica.gov, works to develop market-ready 

solutions through partnerships with new building and remodeling industry leaders, building 

design professionals, and the National Laboratories, including NREL, while allowing for the 

considerable differences in regional climatic conditions and architectural vernacular seen across 

the nation. 

For new homes, the Building America program has demonstrated that cost-neutral energy 

savings of 40 percent more than existing codes is possible at a production scale for new home 

builders in every climate zone in the United States. Building America has worked with nearly 

three dozen builders, constructing thousands of new homes, using a whole-house and trade-off 

analysis process developed by NREL to find the most cost-effective solutions. Each concept 

home reduced energy costs to the point where utility bill savings would more than make up for 

any initial cost increase. In every field study, new homeowners made a net profit in the first year 

alone. 

Although energy improvements in new homes are critical, more than 70 percent of the U.S. 

housing stock was built before 1990, before the most energy-efficient building codes were put in 

place. For retrofits, NREL has worked with Building Performance Institute to develop four 

Home Energy Professional Certifications, including Quality Control Inspector. These 

certifications were developed in conjunction with industry, and we currently have a pilot 

program to certify individuals with a national rollout planned for the summer of2013. We've 

worked with Habitat for Humanity affiliates in several cities. And in areas with constrained 

energy generation capacity, we've helped utilities develop market-based incentives that 

encourage builders to adopt measures that limit real-time peak energy demand, as well as the 

total energy used. 

Simulation Models and Other Tools 

In that the energy efficiency legislation under consideration by the committee would use 

simulation-based methods to design and qualify energy savings for its incentive programs, it is 

worth noting that NREL developed a computerized calculator for DOE to facilitate easy access 

to the commercial buildings l79D tax deduction. This allows owners, architects, and engineers to 

almost instantaneously determine the appropriate efficiency strategies for their buildings to 
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qualify for the incentive. Simple tools like this depend on the development of sophisticated 

simulation models. NREL has been working to improve the completeness and accuracy of such 

models for both commercial and residential buildings. Businesses, consumers, utilities, 

government agencies, and policy makers are most interested in location-specific 

recommendations for optimal new building and retrofit packages, with accurate energy- and 

cost-savings data. Today, we continue to learn from real-world experience and are improving the 

methodology we use in our simulation tools, and thus improving the overall accuracy of our 

whole-building analysis. A comprehensive clearinghouse, the Building America Solutions 

Center, documents research results, hltP:llwwwl.eere.cncrgy.gov/library. Key results are also 

incorporated into public analysis tools and databases, widely available and widely used by the 

building community. These include the National Residential Efficiency Measures Database and 

the BEopt optimization tool: http://www I.eere.cnergy.gov/buildings/residentiallba retrofits.html 

and http://wwwl.eere.energy.govlbuildingslresidential/ba beopt.html, respectively. 

We've researched and published the most cost-effective Energy Savings Measure Packages for 

existing homes, optimized for the local climate and prevalent building characteristics (i.e., 

foundation types). Energy savings are typically between 30 percent and 50 percent more than a 

local reference home. 

Just as architecture and design software has progressed from seeing the world as flat to seeing it 

as a living, three-dimensional virtual space, energy software is becoming more complex, 

increasingly allowing design teams to assess dozens, even hundreds of different energy options 

for new buildings and retrofits. The advent of whole-building simulation and building 

information modeling (BIM) now allows for complete energy modeling of a structure, from 

computational fluid dynamics to daylight analysis-so everything from window glare to thermal 

comfort can be forecast and assessed, individually and collectively, with a bottom line estimate 

for a resulting building'S overall energy savings. NREL has developed the Open Studio interface 

with DOE's EnergyPlus building Energy simulation package, making it quick and easy for 

architects and engineers to facilitate optimized energy efficiency decisions throughout the design 

or retrofit process. Modeling capability like this enabled NREL to design and build the RSF (the 

largest zero-energy office building in the world) at no additional cost. 

DOE's EnergyPlus software additionally models a full range of building energy and 

sustainability issues, including water usage and carbon emissions, in an integrated evaluation of 

building energy flow. It allows architects and builders to research energy-smart design options 

before construction. The program includes many innovative simulation capabilities, such as 

multi-zone air flow, thermal comfort, natural ventilation, and photovoltaic systems, 

www.energyplus.gov . 

Even though energy increasingly is a consideration in building design, it too often is relegated to 

the back end of the process. Our challenge going forward is to create new and better tools to 

ensure energy efficiency is accurately represented and gets the attention it deserves in the 

broader building design process. 
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Industrial Energy Efficiency 

Industry represents 31 percent of U.S. energy consumption, and there exists huge potential for 

energy savings in the U.S. industrial and manufacturing sector. Industrial energy efficiency is an 

area where new equipment technology can dramatically improve performance. Let me cite two 

examples. 

The burgeoning number of energy-intensive computer data centers in the United States is another 

business sector where opportunities abound for efficiency improvements. Set to open next year, 

NREL's new peta-scale high-performance computer system will be the fastest computer 

anywhere dedicated to clean energy technology development, and will add major new 

capabilities for researchers across the Laboratory. In partnership with HP and NREL, we're 

designing it to be the world's most energy-efficient high-performance computing center. Heat 

generated by the computer center will become the primary source for heating NREL' s new 

Energy Systems Integration Facility (ESIF), the building in which the data center is housed. By 

comparison, an average data center today requires 13 times as much energy as the new NREL 

system will for the same computing power. 

ESIF itself will help create important new strategies for integrating various energy systems in the 

most efficient ways possible. ESIF's megawatt-scale test facilities will allow manufacturers and 

system operators to maximize the efficiencies of a range of energy equipment, operating both 

individually and within a real-world energy system, with greater certainty and confidence than 

previously was possible. With its high-performance computing capabilities, the ESIF 

additionally will be able to mine real-time operating data to produce empirically grounded grid 

energy system modeling, and validate system interfaces and control algorithms that can 

significantly increase efficiencies in both new and existing energy systems. Specifically for 

buildings, research tools available within ESIF will help to develop energy management systems 

that will monitor building functions, and adjust heating and ventilation systems to increase 

efficiencies. Then, as these local systems can be integrated into the broader, grid-linked energy 

systems, the same local controls can be used to balance various types of generation sources on 

the grid, further increasing efficiencies and maximizing use of renewable wind and solar energy 

resources as well. In fact, our researchers foresee a day when smart energy systems-using the 

back-and-forth flow of energy information-may be just as critical to increasing overall system 

efficiency as any production or end-use technology is today. 

One major ancillary benefit from energy efficiency initiatives by industry is the tendency of 

energy-inspired modernization investments to also yield improvements in equipment, processes, 

and operations, which in tum mean significant gains in overall plant productivity. The Alliance 

to Save Energy's Commission report concludes that "higher industrial energy productivity can 

lead to stronger businesses, with higher paying jobs in the U.S." 

Disaster Recovery and Energy Efficiency 

This year's devastating super-storm Sandy underscores the susceptibility of our residential and 

commercial buildings, and our energy delivery systems, like the electric transmission grid, to 

natural disasters. I was recently appointed to serve on New York Governor Cuomo's NYS21 00 
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Infrastructure Commission, which will explore methods to strengthen the state's infrastructure in 

the face of natural disasters and other emergencies. Along with Ms. Patricia Hoffman, DOE 

Assistant Secretary in the Office of Electricity Delivery and Energy Reliability, I intend to draw 

upon the work we are doing at NREL to demonstrate how energy efficiency measures-such as 

doors, windows, structural systems and insulation~an strengthen a residential or commercial 

building's resiliency against violent storms. Additionally, rebuilding efforts following a disaster 

offer great opportunity to reconstruct damaged buildings to meet the highest energy efficiency 

standards, frequently, at little or no additional cost. And in the event of future storms that disrupt 

power supplies, energy-efficient buildings will need fewer or smaller generators. This both 

reduces the cost of backup generation and frees up their supply. 

In conclusion, I commend the subcommittee for considering initiatives to promote and improve 

energy efficiency. NREL will continue to serve as a valuable asset to the nation and promises to 

build upon the thirty-five years of successful innovation from fundamental research through 

commercializing and deploying energy efficiency solutions. Our laboratory continues to pave the 

way toward a stronger clean energy economy, and I appreciate this opportunity to highlight the 

important work NREL and others are doing to advance these objectives. 
35 


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Senate Finance Committee Hearing 

"Tax Reform and Federal Energy Policy: Incentives to Promote Energy Efficiency" 

December 12,2012 

Questions for Dr. Dan Arvizu 

Questions from Senator Bingaman 

1. Dr. Arvizu, using your net-zero energy bUilding as an example, can you discuss and 

weigh the importance of design against behavior when attempting to build and maintain 

a highly efficient bUilding? Another way to put it is, couldn't even the best-designed 

buildingfail to achieve optimum efficiency ifit is not managed well? 

Many ofthe bedrock ways to increase building efficiency - such as day-lighting and 

reduced-energy heating, cooling and ventilation systems - are remarkably effective 

independent of occupant behavior. At the same time, poor operation of a building can be as 

detrimental to achieving a building's highest energy performance, as poor maintenance and 

driving habits can be to the actual gas mileage of car that has a high EPA mileage rating. Of 

course, an energy efficient building at least has the potential to be energy efficient, whereas 

an energy-hog building can never be energy efficient - no matter how well it is operated and 

maintained. 

At the NREL Research Support Facility we orient and educate occupants to the energy 

efficiency features of the building, and we provide convenient and regular communication 

between occupants and facilities staffto maximize efficiency and inform of operational 

issues. Integral to this is a computer dashboard that summarizes the building's energy 

performance with easy-to-understand format and metrics. 

This has resulted in corrections of several issues that were causing unnecessary energy use in 

the building. Two examples are: 

• When Dan Arvizu himself, upon checking the dashboard, noticed that the energy usage 

for a holiday wasn't achieving the expected energy savings compared with a normal 

workday that same week. Facilities staff discovered that the computerized control system 

failed to recognize that period's specific work schedule an issue subsequently 

corrected. 
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82738.010

• Another staff member noticed that the humidity seemed relatively higher in the NREL 

Library within the RSF. Upon notification, facilities engineers found that the control 

logic for an under-floor evaporative cooler had been incorrectly programmed - another 

issue easily corrected once detected. 

From an R&D perspective, we are now working on combining a model of how the 

building should perform with actual performance data, so that facilities staff will be 

automatically alerted when performance is less than optimal. 

2. Dr. Arvizu, in your testimony you discuss the work being done by NREL and the DOE 

Commercial Building Partnership. I believe it is important to examine our energy tax 

incentives in concert with the work of other branches of the federal government. Can 

you, or anyone else on the panel, discuss how or if the DOE work either overlaps with or 

complements the legislation we have before us today on commercial buildings? Is there 

a need for both programs? Do tax incentives address different areas than the DOE 

programs that you describe in your testimony? 

In practice, the two programs are strongly complementary. Research and development 

under the Commercial Building Partnership (CBP) effectively finds ways to reduce 

energy use in existing and new buildings, which thereby makes it as cost effective as 

possible to qualify for the corresponding tax incentives. The CBP also disseminates 

pertinent concepts and efficiency findings via its published case studies, Energy Design 

Guides, computer programs such as Open Studio/EnergyPlus, and simplified design 

tools, including the 1790 tax incentive tool. 

3. If Congress begins to design technology-neutral, performance-based incentives on a 

more regular basis, it will be important to accurately measure and verify energy savings 

achieved in commercial and residential bUildings, and in the industrial sector. I wonder 

if each of you could speak to the measurement and verification systems and precautions 
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present in the legislation befiJre us today, or the work that your organization does on 

these issues. 

NREL conducts R&D to improve and validate energy modeling tools. These 

improvements include increasing the number of technologies and combinations of 

technologies that can be modeled, increasing the accuracy of the models, and making the 

models quick and easy to use by practitioners. NREL is also conducting R&D to bring 

down the cost of sensors and controls, so that actual building performance is readily 

quantified, diagnosed, and corrected if necessary. 

Regarding the retrofit of commercial buildings, our experience suggests the approach 

taken in the legislation, requiring the use of the EPA Building Energy Performance 

Benchmarking tool to compare before and after aetualmeasured energy use, is a 

workable approach. Regarding new commercial buildings, we would concur with the 

approach taken in the legislation, that of requiring the rcconciliation of realized savings 

wilh predicted savings. Our work in this area further suggests that the legislation would 

benefit from a provision thal required building owners to disclose their utility bills, and 

predictive models, to an appropriate entity for verification of savings related to the tax 

incentives. Utility company privacy regulations currently can make it ditlicult for third 

parties to obtain such data. 
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Statement of Chairman Jeff Bingaman 

Senate Finance Subcommittee on Energy, Natural Resources & Infrastructure 

December 12, 2012 

"Tax Reform and Federal Energy Policy: Incentives to Promote Energy Efficiency" 

Good morning. Today's hearing examines tax reform and federal energy policy, and 

considers incentives to promote the efficient use of our energy resources. 

The tax code has long served to promote energy policy goals. For most of this time, the 

Code offered only incentives for the production of energy first from mineral resources and then 

from oil and gas. Recent years have brought important incentives for renewable energy 

resources, though they still remain temporary and uncertain. 

Even more recently, however, Congress has decided to reintroduce certain tax incentives 

that promote the efficient use of energy - recognizing the value in preserving our domestic 

resources by developing technologies that use less energy to accomplish the same task. 

However, with the possibility of comprehensive tax reform, and within the context of a 

contentious debate on how to close the federal deficit, we must assess existing policies to 

determine if their goals are worth the cost. If they are, and I believe energy efficiency is a 

worthy policy goal, then we must examine the best and least-cost ways to promote those policies. 

At today's hearing, we have a panel of expert witnesses who will help us consider the following 

three issues: 

First, to understand the opportunities presented to our economy, our energy 

infrastructure, and to the environment that result from the efficient use of our resources; 

• Second, to consider if creating incentives through the tax code is a sensible and efficient 

way of promoting energy efficiency investments, and if so, then; 

• Third, to examine how we can improve our existing incentives to make them more 

effective, easier to use, and less expensive to the federal government. 

Over the past two Congresses, Senator Snowe and I, along with Senator Feinstein and 

others, including Senator Cardin, have worked to develop reforms to our existing efficiency 
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incentives. Whenever possible, we have adhered to general principles that we believe to be 

consistent with the goals of tax reform. We have striven to provide technology-neutral structures 

that offer incentives based on performance, not cost. We have worked to ensure that the 

efficiency savings are able to be measured and verified, and that fraud, waste, and abuse are 

minimized to the greatest extent possible. Finally, we have sought to ensure that innovative new 

efficiency technologies can utilize existing policies. 

The result of our work is three bills introduced in this Congress: one focusing on the 

commercial buildings deduction, one focusing on tax credits for homeowners, and one that 

promotes efficiency in the industrial sector. 

I hope that we can examine how these bills fit into the discussion I outlined above. 

welcome an honest assessment of these bills and encourage any thoughts on how to improve 

them. 

This morning's hearing will consist of one panel. I would like to welcome the witnesses. 

• First is Dr. Dan Arvizu, Director of the National Renewable Energy Laboratory in 

Golden, Colorado. 

• Next is Mr. Steve Nadel, Executive Director of the American Council for an EnergyEfficient Economy. 

• Then we have Mr. Mark Wagner, Vice President Government Relations, Johnson 

Controls, Inc. 

• Finally, I would like to welcome Mr. Matt Golden, a principal at Efficiency Dot Org and 

the policy chair at Efficiency First. 

I would like to ask our witnesses to limit their testimony to five minutes; your entire written 

statement will be included in the record. 
40 


82738.014

Testimony to the 

United States Senate Committee on Finance 

Subcommittee on Energy, Natural Resources, and Infrastructure 

Hearing on 

"Tax Reform and Federal Energy Policy: 

Incentives to Promote Energy Efficiency" 

Di'rksen Senate Office Building 

Room 215 

Washington, DC 

Wednesday, December 12, 2012, 10:00 AM 

Statement of 

Matt Golden 

Principal, Efficiency.org 

Policy Chair, Efficiency First 
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Thank you, Mr. Chairman and distinguished members of this subcommittee, for this opportunity to 

offer my perspective on the role of tax incentives to promote energy efficiency. Residential energy 

efficiency incentives remain smart tax policy that will stimulate private investment and job creation, 

while driving savings directly to American households. 

I come to this subcommittee both as an advocate working to bring investors and capital to the energy 

efficiency market, and as a licensed contractor and board member of Efficiency First. Efficiency First is 

a national nonprofit trade association of over 1000 members, with membership in aliSO states, that 

unites the Home Performance workforce, building product manufacturers and related businesses and 

organizations to forward policies that will support a sustainable and scalable home retrofit market. 

Advancing energy efficiency is critical to the American economy. If we tried to run today's economy 

without the energy-efficiency improvements of the last 40 years, we would need nearly 50 percent 

more energy than we use now. This is more than the energy we get from oil, natural gas, coal, or 

nuclear poweri. 

The average American family spends over $1,800 per year on energy, which equates to over $200 

billion. This represents 22 percent of all US energy consumption ii

, 35 percent more energy than is used 

for passenger cars and trucks combinediil• 

Retrofitting inefficient homes will put energy savings back into the wallets of American families and 

communities. It will also create hundreds of thousands of US jobs in some of the hardest hit industries, 

including construction and manufacturing. These new jobs are primarily created by small businessesjobs that cannot be outsourced, and the materials used in improving homes are on average 90% made 

in the USAiv. 

Energy efficiency is unique in that it creates its own cash flow -less money spent on energy means 

more money to purchase groceries and save for college. Simply put, saving energy pays for itself. 

However, there are significant market barriers that prevent this vital resource from being harvested 

more effectively. Homeowners are being asked to make these investments not only because we want 

them to save money on their utility bills, but because this reduces costs across the energy system as a 

whole; helps to achieve broader goals such as energy independence; reduces pollution; and enables 

job creation. However, we are not properly valuing these very real public and resource benefits energy 

efficiency provides. Instead, we are asking homeowners to pay for the full burden and cost of these 

improvements, often upfront and out of pocket. 

One of the key shifts to begin accounting for the multiple benefits of energy efficiency, is to move 

towards accounting for energy efficiency as a resource -- the demand reduction equivalent of supplyside energy production. Reducing demand on the grid through energy efficiency is akin to building 

power plants, only cheaper - and it's 100 percent domestic, and completely clean. 

We know how to finance power plants. Due to the legislative, regulatory and market structures, 

protections, and oversight in place, power plants supply a stable and predictable amount of energy to 
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an established and reliable market. Utilities can raise capital to make investments in projects to 

increasing the nation's energy supply; however, we lack the same mature capital sources and markets 

for energy efficiency, even though it is widely understood to be the most cost effective resource for 

meeting our energy needs. 

We need to begin to treat residential energy savings as a distributed demand-side power plants that 

will ultimately, at least in part, be paid for based on their ability to deliver an energy saving resource to 

the grid. To accomplish this, we must more rigorously measure and account for the performance of 

energy efficiency improvements. 

Historically, energy efficiency incentives have largely been targeted at specific technologies and 

individual improvements. Enhancing existing incentives is needed to include a performance-based 

paradigm that links incentives to actual savings allows for technology and business model neutrality. 

Rather than attempting to maintain an exhaustive, up-to-date, and politicized list of equipment 

specifications, or picking winning technologies or special interests, offering incentives based on savings 

at the meter can free up the tax code from keeping pace with an ever-changing industry. Most 

importantly, it creates a system that is flexible and rewards innovation. 

Senate Bill 1914, The Cut Energy Bills at Home Act, also known as 2SE, is a great example of tax policy 

that can help move the market towards valuing energy savings as a resource. I would like to thank 

Chairman Bingaman and Senators Snowe and Feinstein for their leadership in introducing this 

groundbreaking legislation. Using models that are calibrated to actual bills, the tax incentive rewards 

results. This legislation provides a financial incentive for homeowners to maximize the energy 

performance of their home -- the greater the energy savings, the higher the incentive. 

In addition to accelerating investment and innovation, we believe that adding 2SE -- to an improved 

25C tax credit -- will help build the dataset necessary for markets to treat energy efficiency as a reliable 

resource, which will ultimately open the doors to private investment. We are in a chicken and egg 

game, where markets need data in order to manage risk and determine establish value, however, the 

only way to get the data is by measuring actual transactions. In essence, public policy can step in as a 

buyer of savings enabling market forces to gain comfort and ratchet up investment. As this transition 

occurs, the need for tax credits can give way to private sources of capital. 

This subcommittee is in a unique position to help fill this gap through performance-based tax 

incentives acting as a proxy for markets that are just now standing up. The major market players we 

need to make this industry economically sustainable over the long haul are already here, only not yet 

to scale. 

A growing segment of the contracting industry is actively moving toward performance-based 

approaches. Dedicated home performance companies have grown in markets across the country, and 

we are seeing leading contractors in more traditional markets finding success moving to home 

performance. Major manufactures and contractor organizations are investing in initiatives to provide 

home performance training and resources to HVAC, Insulation, and othertrade contractors. The 

concepts of home performance are beginning to take root beyond early adopters. 
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To support this transition, we have seen public investment in energy efficiency increasing dramatically 

in the States. This includes infrastructure for workforce training, quality assurance, and other 

necessary infrastructure to ensure quality service delivery. These systems, built in part through utility 

and Recovery Act investments, are in place across the country and provide a strong foundation for 

future growth. 

Similarly, we see investments in energy efficiency in the utility sector ramping up beyond even some of 

the most optimistic projections. From 2005 to 2011 utility energy efficiency programs have increased 

by an average growth rate of 19.3 percent per year to $4.74 billion'. According to research being 

conducted by Lawrence Berkeley National Laboratory, utility sector investment is expected to continue 

to rise faster than inflation. 

In addition, private capital markets are on the verge of engaging the residential energy efficiency 

market through the first ever aggregation and securitization of energy efficiency loans. This exciting 

step forward promises access to senior capital markets and eventually much lower cost capital. With 

the support and leadership of the Department of Energy, National Association of State Energy Officials, 

and in particular the State of Pennsylvania, homeowners will soon be able to access loans designed 

specifically for residential energy efficiency, based on an asset class that initial datasets show to be 

lower risk than traditional unsecured lending. Simply put, when energy efficiency loans are made, 

homeowners are more likely to pay them back and therefore deliver reduced interest rates and more 

inclusive underwriting. 

Tax incentives, combined with private investment and growing State policies, can playa critical role in 

helping to scale this early stage market, and ensure that the momentum gained to date is leveraged. 

There are a number of reasons why the tax code makes particular sense as a place for this type of 

market-engaging policy. 

First, tax credits directly benefit homeowners without adding layers of bureaucracy. This direct 

investment ensures that the benefits are accrued where they matter most, in the pockets of American 

families. 

Additionally, while we see investment in energy efficiency ramping up, there is tremendous variation 

across the country in terms of program design and levels of investment. Tax policy will enable a more 

uniform national market that will encourage investment, enable national players to engage, make it 

much easier to communicate the benefit to consumers, and ensure that no States are left behind. 

We believe that, while not a perfect analogy, the residential solar indu~try is a very encouraging 

example of how smart and coordinated public policy is leading to a growing and increasing sustainable 

market. The combination of the 25D tax credit and the California Solar Initiative has many parallels to 

the 25E home performance tax credit. Similar to the structure of The Cut Energy Bills at Home Act, the 

solar incentives in California are calculated based on a predictive model that accounts for factors such 

as shade and orientation to predict performance, which drives the amount of incentive. 

This performance-based system developed that initial data that drove the development of solar leases 

and power purchase agreements, which are now leveraging private capital to drive over 75 percent of 
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the market. The 25D Solar Investment Tax Credit has stood up an industry that is helping 

predominantly middle class homeowner, and is employing a workforce of nearly 120,000 US workers at 

over 5,600 businesses nationwide, creating over 14,000 new American jobs in 2012 alonev1, and is a 

demonstration of how smart tax policies can drive markets. 

We believe that a combination of smart national tax policy driving the market toward performance, 

coordinated with local infrastructure, will enable a similar transformation in the residential energy 

efficiency market. This subcommittee can help set this process in motion by supporting the inclusion 

of The Cut Energy Bills at Home Act (25E), which will lead to a sustainable energy efficiency industry 

driven by consumer demand, private capital, and the value of energy savings as a resource. 

I want to take to thank this subcommittee on behalf of the thousands of contractors who are working 

every day to help homeowners invest in and improve their homes -- all while growing their small 

business in these uncertain economic times. These small businesses were hit hard during the last 

recession, with unemployment levels that have hovered above 20 percent during the recession. 

Supporting jobs in this uniquely American industry drives investment directly into communities spread 

across all corners of the country, while supporting America small businesses. 

The energy efficiency industry puts people to work doing something that is both positive for their 

communities and the environment, and perhaps most importantly provides a service that is helping 

families who are often struggling to make ends meet. While incentive may be focused on the energy 

savings, retrofitting provides families the opportunity to live in comfortable, healthier, and longer 

lasting homes. 

The Cut Energy Bills at Home Act is truly a unique opportunity to give homeowners another option for 

making deep energy effiCiency improvements to their home, build wealth in American households, 

support small contracting businesses and its US-centric manufacturing and supply chain, all while 

helping the country meet its climate and energy goals. 

We appreciate the ongoing efforts of this subcommittee and look forward to continuing to support 

your important work advancing energy efficiency through sound tax incentive policy. 
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SUPPLEMENTAL TESTIMONY 

The following is additional comment of Efficiency First and is offered to give Subcommittee members 

some context of the environment in which many small business-contracting companies find 

themselves. While the below may be outside of the reach and scope of this subcommittee's focus, it 

should none-the-Iess be informative with respect to the role a performance tax credit could play in 

helping these small businesses grow and thrive. 

WHAT CONTRACTORS WANT 

While the focus of this subcommittee hearing is on tax credits for energy efficiency, it's critically 

important to understand the context in which a performance tax credit would be used and the 

marketplace in which contractors that deliver goods and services to homeowners often operate. With 

an understanding of the marketplace dynamics, this subcommittee will have a better understanding of 

how a federal tax credit such as 25E would genuinely help the industry. 

Though all well intended and very much appreciated, there is a great deal that is lacking in current 

local, State and federal energy efficiency retrofit programs for homes. Again, while Congress cannot 

affect many of these issues, it's important to have awareness of the current state of the marketplace. 

Here is what contractors want in energy efficiency home retrofit programs: 

1. A Seat at the Table as Programs are Being Conceived, Developed, Deployed and Refined 

2. Program Consistency & Stability 

3. Lean and Waste Free Program Attributes and Requirements 

4. Programs that are Free of Price Setting and other Anti-Free Market Barriers 

5. Programs that Serve the Consumer's Interest and Not Driven by Fuel Types, Flawed CostEffectiveness Math, or Artificial Barriers or Drivers 

6. Programs that Reward Performance and Actual Savings 

7. A Level Playing Field Related to Contractor Qualifications 

8. Programs that Allow Multiple Business Models to Compete 

9. Programs with Meaningful Quality Assurance to Protect the Consumer and Investor/Tax Payer 

A Seat at the Table 

Programs fail when contractors are not embedded in the process from design to implementation and 

refinement. As a party that is "directly and materially affected" by programs, designers and sponsors 

needs to embrace a policy that ensures contractors have a seat at the table at all phases of program 

deSign, roll-out, and refinement. 

One imperative that program champions and sponsors need to be anchored in, and acknowledge and 

understand, is that all federal, state, local and utility energy efficiency programs impacting existing 

homes generally flow down and end up in the lap of Efficiency First's core members - the contractors 
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82738.020

and energy auditors. These are the individuals and companies that are charged with selling these 

programs in the living rooms or across the kitchen table of homeowners. These are the companies 

that deal with the myriad of program requirements related to energy modeling, eligible measures, 

completion of related forms and paperwork, and report generation back to the program sponsor or 

administrator. And in some cases; it's the home performance contractor that acts as a bank waiting for 

consumer or other rebates or other incentives to be processed and approved. Additionally, these are 

the companies that invest their precious resources in their own capacity with respect to training, 

certification, and required continuing education of their personnel so as to be eligible to participate in 

such programs. In short, these are the companies that experience the pain that may exist in programs 

and processes that are not lean, efficient, and contractor and market friendly. 

Program Stability & Consistency and Free From Complexity & Waste 

Currently, there is a patchwork of energy efficiency programs across the country - each with different 

program requirements, funding cycles and levels, applicability to fuel types used in homes (gas, 

electric, fuel oil, propane, etc.). In part this is due to statutory and regulatory preconditions that 

establish the baseline for what a program looks like. Regardless of the root cause, at the State and 

local levels, contractors feel like they are trapped in a game of "musical chairs" as program ground 

rules change, often annually. Additionally, the reporting requirements in many programs creates a 

ripple affect where contractors are forced to collect and report layers of data that they feel never gets 

looked at or used. Finally, available energy modeling software is so varied and divergent with respect 

to how each treats individual and combination of energy efficiency improvements that the contractors 

lose faith in their outputs. Currently, there is no nationally applicable program for contractor to 

embrace - there is just fragmentation. 

This fragmentation, instability and lack of consistency, and complexity in programs results in a colossal 

economic waste in the market as contractors have to build and constantly refine internal processes to 

comply with these various programs. Equally important, the current situation is a motivation destroyer 

and forces some contractors to capitulate and leave these local programs. One of the benefits of a 

federal performance based tax credit would be the uniformity and consistency that it would offer 

contractors. Additionally, Efficiency First feels that new or existing local programs would embrace the 

architecture of a federal performance tax credit, thus helping to mainstreaming a single set of 

requirements across multiple programs or offerings. Standardization breeds efficiencies and the ability 

to scale efforts, thus a federal performance tax credit could positively affect the design of new and 

existing programs at the State and local levels. 

A Level Playing Field Related to Contractor Qualifications 

Nothing can do more damage to an industry than where there is a free for all with respect to who can 

enter and operate in a given space. If there is not a level playing field with respect to the qualifications 

and caliber of work done in homes by contractors, consumers and others could be harmed. 

A regrettable but profoundly important lesson for contractors and program champions in the US 

relates to what happened in the failed Australian program in 2009-2010 under a stimulus-driven 

energy efficiency home retrofit program. In summary the program was halted prematurely in large 
47 


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part due to the fact that there was little to no risk management practices applied to the work being 

done - which resulted in deaths of workers and claims of widespread fraud in the program. After the 

program was halted, the insulation industry had to be bailed out by the government as it had ramped 

up to meet the expected long-term demand for energy efficiency home improvements. The negative 

implications impacted the entire manufacturing and supply chain, not to mention insulation 

contractors large and small. As a result of a lack of focus on contractor qualifications and a minimum 

standard of care for the work done, and the unchecked rush to create "stimulus" jobs, the energy 

efficiency home retrofit industry in Australia may be set back a generation. Congress needs to bake 

into any performance based tax credit, credible contractor qualifications - to protect consu mers, 

workers, contractors, and tax payers. 

Generally, in the program in Australia, a minimum standard of care, built on a foundation of quality, 

was not prevalent and consistent at all levels. Our industry cannot afford to have a program go bad 

and set us back. As such, Efficiency First is supportive of programs that "do no harm" to occupants and 

workers and have consistency with respect to: 

1. Qualified Auditors & Contractors (the right people) 

2. Quality Standards & SpeCifications (doing the right work) 

3. Qualified Software and other Tools (using the right tools), and 

4. Oversight by a Credible and Robust Quality Assurance Infrastructure (verification) 

Allow Multiple Business Models to Compete 

Consumers vary in their preference with respect to using either contractors that are vertically 

integrated and can offer turn-key home performance services, or a group of professionals 

(auditor/HERS rater, insulation contractor, and HVAC contractor) that work collaboratively as a team to 

offer a similar solution. Other hybrid models exist in markets where a home performance contractor 

acts as a general contractor and works with trade allies to do a variety of work (air sealing, insulation, 

HVAC, windows). Additionally, each marketplace varies with respect to the level of contractor 

experience and know-how related to applied building science and health and safety issues that are 

inherent in home and building performance work. Efficiency First supports program architectures that 

do not choose winners with respect to business models, but instead rely on establishing a level playing 

field linked to credible standards. This will allow the consumer, and by default the marketplace, to 

choose which model or models are the best fit for them and their needs but get the same level of 

quality work done in the home. Additionally, this will allow individuals and companies following the 

BPI, RESNET, or other models to compete openly. 

Industry Standardization Needed 

"By not standardizing, we pick losers - it's the contractor's that lose" 

- Mike Rogers, ABM Energy (Green Homes America) 

Generally speaking, Efficiency First is supportive of standardization through all the layers of our 

industry because we know this reduces waste and blows away barriers to growth and profitability. Just 

as the Board for the Coordination of the Model Codes in the 90's facilitated the alignment of the 
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building codes promulgated by the four model code organizations (CABO, ICBO, SBCCI, and BOCA), 

resulting in a single set of model codes - which eventually lead to the formation of a single model code 

organization (International Code Council), our members seek the mainstreaming and standardization 

of key elements impacting our industry. While code adoption and enforcement still remains a State 

and local matter, moving to one model code allowed the elimination of much of the waste created by 

competing and often redundant code requirements. This then allowed home builders, various trades, 

product manufacturers, suppliers and distributors, design professionals and governments to shift to a 

generally mainstreamed set of requirements, which over time became more uniformly and 

consistently applied and enforced. We need the same evolution to happen in our industry and we 

need competing standards to be mainstreamed and harmonized into a single suite of standards that all 

can draw from. 

Efficiency First supports the development, adoption, and consistent application of credible standards 

for: 

1. Workers and Companies, 

2. Specifications for the Physical Improvements Done in Homes and Buildings, 

3. Energy Modeling, Data Collection and.Reporting (HP XML), and Related Protocols, and 

4. Quality Assurance Infrastructure 

When credible standards are in place and utilized; the by-product is the following: 

1. Avoided program costs (administrative, training, etc.), resulting from the need to re-create 

the wheel each time a new program needs to be designed and launched, can flow to 

consumer incentives or education and awareness, and possibly make programs more "costeffective" per certain utility cost tests. 

2. Contractors are better able to expand into new markets without having to learn a new 

language, a new set of written or unwritten rules, yet another energy modeling tool, and 

take on new paperwork and back-office pain. 

3. Individual workers may move freely between markets. 

4. Contractors have a pool of workers to choose from that generally have the same 

qualifications and skill sets, thus avoiding substantial hard and soft costs of re-training. 

s. Contractors can pick and choose which energy modeling software's to use, based on their 

needs and the interoperability of these tools with other operational tools, and have 

confidence that the required data transfer to the program will be pain-free and possibly 

instantaneous. 

6. Consumers are hopefully exposed to the same general messages and value proposition 

regardless of market or program sponsor. 

The good news is that the standardization effort has been underway in the industry and inside 

different groups at DOE, EPA, HUD and at the State level. Better coordination and alignment of those 

efforts would be productive and eliminate waste. 
49 


82738.023

TAX POLICY AS A CATALYST FOR CONSUMER ACTION ON ENERGY EFFICIENCY RETROFITS 

The members of Efficiency First believe that performance-based tax incentives do not need to be 

perpetual. Rather, they can run for a number of years to jump-start our industry and introduce a 

leveling element into the market. Over time, as our industry grows and other market actors begin to 

fill in critical gaps, these tax credits can eventually be allowed to sunset. Basically, as the market 

matures and consumers see and understand the value of making energy efficiency improvements to 

their homes, the need for a catalyst begins to diminish. In the meantime, the homeowners that our 

members work with everyday would see the 25E tax credit as a little tax relief for their much larger 

out-of-pocket investment in their most precious asset - their home. 

! AlUance to Save Energy: Energy EfficienCY: America's Greatest Energy Resource 

i! US Energy !nformatlon Administration: Annual Energy Review :Z011 

iii US Energy Information Administration: Annual Energy Outlook 2010 

tv Home Performance Resource Center: Manufacturing Shares of Common Energy Remodeling products 

\l Consortium for Energy Efficiency: State of the Efficiency Program Industry; Budgets Expenditures and Impacts 2006, 2011 

\Ii The Solar Foundation: National Solar Jobs Census 2012 
50 


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January 22, 2013 

To: 

The Honorable Max Baucus, Chainnan 

The Honorable Orrin G. Hatch, Ranking Member 

Committee on Finance 

United States Senate 

219 Dirksen Senate Office Building 

Washington, D.C. 20510 

Senate Finance Committee Hearing 

"Tax Refonn and Federal Energy Policy: Incentives to Promote Energy Efficiency" 

December 12,2012 

Questions for Mr. Matt Golden 

Questions from the Committee 

Mr. Golden, my home state of New Mexico has a significant amount of inefficient 

housing stock, as do other states with high poverty rates. You mentioned in your 

testimony improvements in residential energy efficiency can help improve a 

household's budget over the long-term, but can you also speak more specifically 

about how improved energy efficiency in low-income homes can contribute to 

poverty alleviation and possibly also to safety improvements? 

Energy Efficiency puts money back into the pockets of American families, putting billions of 

dollars spent currently being wasted through leaky ducts, old furnaces, and missing insulation, 

into energy efficiency projects that are installed by local contractors using materials that are 

primarily made in the USA. While the benefit of energy efficiency is clear across all sectors, 

low income homes represent some of the largest opportunity because so many homes are poorly 

insulated with ageing heating a cooling systems 1. 

www.efficiencyfirst.org I info@efficiencyfirst.org I 415·449·0551 
51 


82738.025

Energy costs are regressive by nature, with lower income homeowners paying a substantially 

higher portion of their income towards energy costs. Helping these families reduce their 

expenses puts money directly into needed services and into local economies. Americans should 

never be put into a situation of having to decide to pay their utility bill going to the doctor and 

paying for their critically needed medication. By improving the energy efficiency in homes, 

Americans are then free to spend those savings on other critical needs. 

According to the National Association for State Community Services Programs (NASCSP) Over 

51,000 New Mexican households fall below 50% of the poverty level, paying around 52% of 

their annual income towards their energy bills alone. Another 70,000 New Mexican households 

fall between 50-100% of the poverty line, paying on average 18% of their annual income 

towards their energy bills. By comparison, tbe average middle-income family pays 3% of their 

annual income towards their energy bills. Since 2009, New Mexico has weatherized over 3,700 

homes with Recovery Act funds alone, enabling these families to save between $250 to $400 

annually on the energy bills depending on the type of dwelling and fuel. 

Due to the inability of many lower income homeowners to maintain equipment such as HVAC 

and water heaters there is a resulting increase in dangerous indoor air quality issues that can lead 

to asthma and allergies. Simply stabilizing the temperature in a home or building may help 

reduce incidents of mold and reduce dust mites, which are both major triggers of respiratory 

health problems. Both home performance and weatherization apply building science principles 

that treat the house as a system, it is common to see significant improvements not just in energy, 

but also in air quality and comfort. 

Low income weatherization saves energy and helps low income members of our community 

make ends meet, all while putting dollars into local businesses, creating jobs. A performance 

based tax credit for energy efficiency home improvements would have the effect over time of 

creating a larger and more experienced pool of contractors serving middle and upper-income 

families. These very same contractors would then be free to assist grantees and sub-grantees of 

federal weatherization funds in the delivery of improvements to low-income households, 
52 


82738.026

reducing the administrative and operational burden on these grantees so that they can serve more 

of the constituency that Congress intended to help. 

2 Mr. Golden, can you outline the differences between the recently expired residential 

energy credit and the proposal contained in Senator Snowe's bill? I understand 

that it moves in the direction of a performance-based, technology neutral incentive 

structure, but I wonder if you see a place for retaining some prescriptive measures 

for certain highly-efficient items, such as boilers and furnaces. 

Efficiency First supports a combination of the 25C prescriptive tax credit with the 25E 

performance tax credit proposed by Senators Snowe, Bingman, and Feinstein in S. 1914. This 

combination will continue to encourage high efficiency equipment replacement, while 

simultaneously helping to support a burgeoning energy efficiency contracting industry. 

The 25C residential energy efficiency tax credit that is currently part of the tax code, differs 

fundamentally from S. 1914. The current 25C tax credit incentivizes specific equipment as a 

fixed level incentive, while the S. 1914 uses a whole house model, calibrated to actual energy 

bills, to predict and incentivize performance of an overall system. Under S. 1914, the more 

savings a project produces the larger the incentive, independent of the specific equipment or 

measures that were undertaken. 

Efficiency First's contractor and auditor members know that their customers, the homeowner and 

taxpayer, want flexibility and choice when it comes to paths to take when making improvements 

to their home. We find that prescriptive and performance based incentives generally apply to 

different types of projects and customers. Homeowners requiring emergency replacement of a 

heating system or water heater will likely utilize the 25C tax credit, and choose from a select set 

of specifications for such equipment. However, for homeowners who are making comprehensive 

improvements to major systems impacting energy consumption in their home, the 25C tax credit 

does not allow for enough flexibility. These consumers are making investments with the goal of 
53 


82738.027

saving energy, or proactively improving comfort, and in these cases a performance based 

incentive will allow the homeowner to work with a qualified contractor to design a project that 

maximizes results for their specific home and its characteristics. By combining the prescriptive 

25C tax credit, which is designed for equipment replacement, with the 25E performance tax 

credit that will help develop an industry focused on delivering energy savings, we can support 

increases in equipment efficiency and help scale the home performance industry. 

There are a number of benefits from adding a performance-based energy efficiency credit to the 

tax code. Importantly, a performance approach is technology neutral -- aligning incentives with 

energy savings, rather than attempting to specify an exhaustive and static list of particular 

technologies. Using public dollars to align incentives with a public good makes sound public 

policy. This approach provides incentives for industry and markets to innovate and develop new 

and more efficient approaches that most effectively deliver energy savings. The performance 

approach proposed in S. 1914 removes the need to constantly update the tax code legislatively to 

keep pace with changes in technology and market adoption. Instead, following a performance 

approach, contractors and homeowners are free to choose the best performing option for any 

given house, allowing those solutions that find the right balance of benefit, cost, and savings, to 

win in the marketplace. 

Efficiency First believes that the best solution for the market is a combined approach of offering 

both prescriptive 25C and performance 25E / S. 1914 incentives. This permits the homeowner, 

that already has a well-insulated and sealed home, to replace an existing furnace with a qualified 

highly energy efficient unit - utilizing the 25C incentive. Additionally, it permits the homeowner 

that needs a comprehensive set of improvements to hit deeper energy savings targets to use the 

25E incentive without being boxed in and forced to use a limiting set of products or technologies 

to hit their savings goal. Having both paths available will enable consumer choice, and will 

create an incentive that will help move the industry towards a more economically sustainable 

performance-based model overtime. 
54 


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3 Mr. Nadel and Mr. Golden, as Congress contemplates comprehensive tax reform, 

one of the goals will be to simplify the code and remove ineffective deductions and 

credits. Can you discuss why you feel the tax code is an appropriate, and perhaps 

superior, place for incentives for energy efficiency improvements - as opposed to 

other methods for delivering incentives? 

Integrating energy efficiency incentives into the tax code brings national uniformity and 

consistency which are essential for businesses to succeed. National incentives create a level 

playing field in a way that no other policy can achieve, establishing common standards and 

requirements industry can count on. 

Contractors, manufacturers, and consumers crave consistency across markets. The current 

patchwork of energy efficiency programs is highly fragmented and has created a barrier to 

growth of the industry, muffled the market signals to manufacturers, and remains a roadblock to 

scaling the home performance contracting industry. 

Well-designed energy efficiency tax policy can be a simpler means of achieving energy 

reduction than other kinds of energy programs. Tax is an equitable and streamlined approach to 

driving the market, with a benefit that accrues where it counts: at the point of the transaction and 

in the pockets of American families. Promoting energy efficiency through the tax code would 

begin to establish a national set of voluntary standards that consumers and contractors can 

choose to embrace and which would complement existing energy efficiency programs where 

they may exist. 

Efficiency First believes that tax code is uniquely positioned to influence the voluntary 

development of a national marketplace for energy efficiency. We also believe that performancebased tax credits are especially appropriate for the tax code, as they do not require constant 

updating and maintenance to stay current with innovation, and do not propose to specify what 

technologies are most appropriate given the vast array of climate zones and building types across 

the country (so less changes would be required in the tax code itself). Performance-based tax 

credits will align rewards with the public good, driving both economic development and the 
55 


82738.029

creation of an industry that can achieve the massive energy savings potential in America's aging 

housing stock. 

Energy efficiency retrofits create a near-permanent reduction in energy use by the building stock, 

reducing the risks of blackouts, preserving energy resources, improving air quality, and 

protecting national security. Achieving the public goods that are provided by energy efficiency 

makes for sound tax policy. 

4 If Congress begins to design technology-neutral, performance-based incentives on a 

more regular basis, it will be important to accurately measure and verify energy 

savings achieved in commercial and residential buildings, and in the industrial 

sector. I wonder if each of you could speak to the measurement and verification 

systems and precautions present in the legislation before us today, or the work that 

your organization does on these issues. 

Switching from paying for specific technologies to incentivizing savings at a whole building 

level, has the advantage of metered savings as the ultimate verification system. While it is hard 

to measure savings, which by definition is in fact the lack of something and cannot be directly 

metered, we do have established protocols for evaluating whole building savings that are both 

consistent and repeatable. 

One ofthe key innovations ofS.1914, is the use of energy bill data to calibrate all modeled 

savings. This connection between models and bill data helps contain estimated savings based on 

historical energy usage and dramatically improve predictive accuracy and prevents 

overprediction of results by constraining predictions to actual consumption. Additionally, 

similar to the 25C tax credit where homeowners keep as part of their personal records, evidence 

that a product or technology is eligible for the tax credit, 25E requires that evidence is 

maintained by each homeowner so that before conditions of the model can be verified based on 

the original conditions of their home. 

The fact that under 25E, all predictions are made on a whole-house basis makes measurement 

and verification of savings much easier than when dealing with specific measures such as a 
56 


82738.030

furnace or water heater whose as-installed performance may be negatively impacted by other 

systems and conditions in the home. Individual measures will have enormous variance in actual 

savings on an house by house basis. Replacing a furnace in a temperate climate zone on say a 

1200 square foot house may yield some savings, while an upgrade in say Maine on a 2500 square 

foot house would likely result in many times more savings - however both receive the same 

incentive. Whole house models will substantially improve accuracy levels and reduce variance, 

helping to ensure that every homeowner is achieving the savings they are are expecting. 

When conducting measurement and verification at a whole-house level, we benefit from our 

ability to leverage existing well established measurement protocols for comparing before and 

after bill data (after weather normalization). While there will always be a level of variance on 

any individual home, the performance of a pool of buildings can be very accurately accounted 

for. The International Performance Measurement and Verification Protocol (IPMVP), is used 

widely and provides a tested approach to comparing normalized predictions to actual results. 

Performance-based approaches such as 1790 and the proposed S.1914 will help us to vastly 

increase data on performance in the market which will be used to reduce variance levels, and 

enable private markets to step in to manage this risk. This approach can be seen in the 

commercial markets, in the form of Energy Service Companies that provide building owners 

with guaranteed results. In this sense, the tax code becomes a catalyst for free market initiatives 

to germinate and take root, spurring both new technologies and business and delivery models but 

also ways to educate and inform consumers about the savings opportunities and better, enabling 

the free market to find compelling reasons for consumers to take action and make the "buy 

decision." 

Performance-based incentives can also be observed in the solar industry, where leasing and 

power purchase agreements are dominating the market, by providing building owners with 

guaranteed production and no equipment risk. 

While not a perfect analogy, the residential solar industry is a very encouraging example of how 

smart and coordinated public policy is leading to a growing and increasing sustainable market. 
57 


82738.031

The combination of the 25D tax credit and the California Solar Initiative has many parallels to 

S.1914. Similar to the structure of the The Cut Energy Bills at Home Act (S.1914), the solar 

incentives in California are calculated based on a predictive model that accounts for factors such 

as shade and orientation to predict performance, which drives the amount of incentive. 

This performance-based system developed that initial data that drove the development of solar 

leases and power purchase agreements, which are now leveraging private capital to drive over 75 

percent of the California solar market - up from only 9% in 2009. The 25D Solar Investment 

Tax Credit has stood up an industry that is helping predominantly middle class homeowner, and 

is employing a workforce of nearly 120,000 US workers at over 5,600 businesses nationwide, 

creating over 14,000 new American jobs in 2012 alone, and is a demonstration of how smart tax 

policies can drive markets. 

The proposed S.1914 builds on efforts by DOE to collect a public dataset for both commercial 

and residential buildings that can be used widely by industry. This system, call the Building 

Performance Database is currently in deployment and is growing rapidly. 

Beyond specifically residential, the energy efficiency industry is working collaboratively to 

develop standardized project definitions and measurement approaches. The Environmental 

Defense Fund, through the Investor Confidence Project, is working with a wide range of industry 

stakeholders and has developed Energy Efficiency Project Performance Protocols that begin to 

standardize the wide range of elements that define a retrofit project, so as to enable better quality 

data, and reduce transaction costs to building owners who seek financing for their projects. This 

infrastructure to manage performance risk is a result of market demand for business models that 

deliver reliable results to investors and building owners. S.1914 and the revised 179D tax credits 

create a need to manage performance risk and the market is developing the solution. The critical 

contribution of smart policy is to take some of the first steps towards a market for real savings, 

and help spur industry and markets who are looking for a way to engage. Taking the lead and 

setting the stage for markets to engage is an ideal role for federal policy. 
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Residential energy efficiency is already moving toward performance-based models, however 

federal policies such as S.1914 will send strong signal and accelerate the necessary actuarial data 

to enable markets to move from uncertainty to manageable risk. The S.1914! 25E tax credit is a 

first major step in the right direction, and will help establish the foundation for a long term 

sustainable market for energy efficiency. 

SENATOR WYDEN QUESTION (from hearing transcript): 

Mr. Golden, in writing, also give us your views with respect to how the Whole-home 

credit being combined with the 2S(c) proposal could advance this idea of the more 

level playing field. 

Efficiency First strongly supports the need to extend the current tax provisions. We also believe 

that we have an opportunity for a thoughtful approach that both advances and improves the 

current credits, while laying a foundation for a more economically sustainable policy that is 

aligned with the public good. 

The combination of an improved 25C prescriptive tax credit, with the S.19l4 ! 2SE performance 

based tax credit can both serve the needs of the existing business model focused on equipment 

replacement, and an emerging market of performance contracting. As with any new market, the 

performance based industry that the 25E tax credit primarily supports is still in its early stages, 

and supporting this market will therefore cost only a small fraction as much as the wellestablished industries primarily supported by 2SC. It is our belief that a gradual transition will 

occur toward performance based contracting as markets and capital begin to enter the market en 

masse. Facilitating a transition to a performance-based market to achieving energy efficiency 

that can attract sources of private capital is an absolute requirement for us to pay for the large 

investment necessary to achieve our long tcrm goals. 

Lct's start by defining the attributes of a performance based approach. Rather than selecting 

specific technologies a performance approach sets up a system that incentivizes the result we are 
59 


82738033.eps

trying to reach, without prescribing how we get there. In the case of residential energy 

efficiency, this is energy saved, rather than technologies installed. 

This approach is a considerably easier than attempting to choose the perfect U-value for a 

window, especially when one tries to set one standard that works in Oregon and Maine. It also 

makes more sense for a tax code that will be applied nationwide on a huge array of building 

types and climate zones. Creating a one-size solution inevitably creates unintended 

consequences in the market. 

The 25C tax credit is often referred to as a prescriptive incentive, in that it picks specific 

technologies at an assigned incentive level. This approach is simple and quick to deploy, though 

it is less aligned with the public good associated with driving energy savings, and perhaps most 

importantly may not engage the capital resources required to enable the industry to continue to 

scale into the future. 

We believe the role of the tax credit is to act as a proxy for market forces in the energy industry 

that are still developing and often highly regulated and slow to adapt. In many ways this policy 

is a stand-in until we have the actuarial data necessary to manage their risk, at which time a 

performance-based credit can be replaced by functioning markets and private capital. 

Market actors, such as utilities, banks, insurance companies, and of course homeowners and 

service providers, are all, in essence, making an investment in a prediction of future performance 

that will deliver an expected return in the form of lower bills, less need for expensive generation 

resource, and less carbon. In the current prescriptive model, we have turned the product of our 

efforts, the unit of energy saved, into something that is largely theoretical and only loosely 

related to what is the real value of the savings. Through a performance based approach, we can 

transform energy efficiency into a resource that can be mined and traded into existing and 

emerging energy markets. 

Performance-based models create the reliability and certainty that is necessary for energy 

markets to begin valuing the unit of savings as a resource, which ultimately can replace the need 

for government incentives. 
60 


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As we transition to performance, the Federal Government will be freed from the impossible task 

of picking winning technologies, regulating markets into existence, and of course, picking up the 

enormous cost. There will remain an important, manageable and somewhat traditional role for 

the public sector to ensure that the markets are fair and transparent, and to protect the health and 

safety of American homeowners. 

Many of the core systems of the performance based approach have been established over the last 

three years based on investments made by the Recovery Act. This includes State infrastructure 

for training, quality assurance, and other necessary functions. 

While a simple cost-based prescriptive system may be simpler and cheaper to deploy in the 

short-term, only a performance-based system can provide a foundation for a long-term market 

that will attract private investment and transition from requiring public subsidies. Analyzed with 

this long-term market-based vision in mind, it is clear that the transition to performance is more 

than just a new way to encourage investment in energy efficiency through tax credits; it is, in 

fact, an essential foundational step to engage markets and attract private capital to create an 

economically scalable system to achieve our energy and economic goals. 

I appreciate the opportunity to testify in front ofthe Committee. Please contact me or Efficiency 

First with any questions. 

Sincerely, 

Matt Golden 

Principal, Efficiency.org 

Board Member, Efficiency First 

matt({i)cfficiencv.org 
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82738035.eps

ACEEE:: Testimony 

American Council for an Enemy-Efficient Economy 

Submission of Steven Nadel, 

Executive Director 

American Council for an Energy-Efficient Economy (ACEEE) 

To the Senate Finance Committee 

Subcommittee on Energy, Natural Resources and Infrastructure 

Hearing on: Tax Reform and Federal Energy Policy: 

Incentives to Promote Energy Efficiency 

Date: December 12,2012 
62 


82738.036

Summary 

Congress enacted energy efficiency tax incentives in 1978 and again in 2005. Some of these incentives have 

proven very effective, while others have not. In July of this year, the American Council for an Energy-Efficient 

Economy (ACEEE) published a paper on tax incentives that included a review of this experience. We found that 

the tax incentives of the 1980s were not very effective in spurring substantial energy savings as these credits 

promoted tried-and-true energy efficiency measures that many. consumers and businesses were already installing 

on their own. Furthermore, the amount of the tax credit was too small to spur many additional installations. 

Tax incentives enacted as part of the Energy Policy Act of 2005 were more targeted, emphasizing advanced 

technologies and paying higher incentives. Our review found that the tax incentives for new homes and 

appliances were particularly effective in growing the market share for qualifying homes and appliances and that 

the incentives for residential heating and cooling equipment and hybrid heavy-duty vehicles were also successful 

in encouraging purchases of the most energy-efficient products. On the other hand, we found that the tax credit 

for energy-efficient windows suffered from the same problems as the 1980s credits with too many products 

qualifying for the incentive, increasing its cost while moderating its impact. 

Based on these experiences, we have concluded that the most useful tax incentives target long-term structural 

changes in the market, using temporary federal assistance to build the market for energy-effiCient products so tax 

incentives can be phased out. The market will continue to grow on its own, supported by other energy efficiency 

programs and policies. In this way, federal tax incentives can have a large "multiplier effect," helping to leverage 

future market growih. Using such a "market transformation" approach, we should target advanced technologies 

and practices that currently have a low market share, but with federal support over a defined period of time (e.g., 

five years), their market share can grow and they can better prosper on their own after the tax incentives end. By 

focusing on products with efficiency levels that currently have a very small market share, we can keep costs down 

and minimize the number of "free riders" (customers who would have installed the same equipment, even if there 

were no incentives). 

Targeted federal tax incentives are needed because the federal government brings unique attributes that other 

market players (including states, utilities and product manufacturers) do not have. It will be much harder to 

transform markets without federal involvement. Specifically, the federal government can prOvide consistent 

incentives nationwide, rather than a patchwork where some states have incentives. others do not, and incentive 

levels vary from place to place. Furthermore, the federal government can set uniform national qualifying criteria, 

providing manufacturers a consistent target for their development efforts and increasing the likelihood that they 

will devote the necessary resources to develop qualifying products. Finally, the federal government has a longterm perspective and can therefore target advanced technologies that will take multiple years to develop. Other 

market actors, on the other hand, often tend to have a shorter-term perspective, e.g., "what can we do to meet next 

year's savings or profit goals?" 

ACEEE analyzed the costs and savings of a five-year federal tax credit for several high-efficiency products and 

services. We found that all of the targeted energy efficiency tax incentives we analyzed are highly cost-effective. 
63 


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The average cost to the Treasury of these credits over the 15 years analyzed is only $0.28 per million Btu saved1

-

more than an order of magnitude less than the cost of the energy resources they save, We found that the most 

cost-effective options include tax incentives for commercial buildings (both energy-efficient new construction and 

energy-saving retrofits), energy-efficient new homes, heating and cooling equipment, appliances, and combined 

heat and power systems. Whole-house energy-saving retrofits and replacing old chillers are also very costeffective. Many of these items are in the bills before us today or in provisions now on the books. We recommend 

some changes and updates to many of these provisions. 

Based on this analysis, as part of any tax reform legislation, we recommend that a limited amount of funding be 

set aside for the provisions with the largest energy savings per federal dollar invested. These are provisions that 

have a large multiplier effect and where incentives can be ended or revised after about five years. As a specific 

budget is established, we would be happy to work with you to develop a set of incentives that provides the most 

"bang per buck." 

In my testimony I also discuss some problems with how equipment in commercial buildings and combined heat 

and power systems are depreciated. We recommend that Congress revise these depreciation periods so they are 

based on the average service life of this equipment. 

Adoption of these recommendations will result in substantial energy savings, large energy bill reductions, and 

stronger U.S. manufacturers and businesses. 

1 A British Thermal Unit (BTU) is the standard unit of energy measurement in the United States. A 100 W light bulb burning 

for 2900 hours consumes about a million Btu's. 
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Introduction 

My name is Steven Nadel and I am the Executive Director of the American Council for an Energy-Efficient 

Economy (ACEEE). ACEEE is a nonprofit research organization founded in 1980 that focuses on technologies, 

programs, and policies to reduce energy waste and increase the energy efficiency of the U.S. economy. Further 

information on our organization can be found at www.aceee.org. 

We appreciate this Subcommittee's interest in exploring how energy efficiency tax incentives fit into tax reform. 

The United States has improved its energy efficiency enormously in recent decades, but there are large remaining 

energy efficiency opportunities. For example, in an ACEEE study published earlier this year, we estimated that 

energy efficiency could reduce overall U.S. energy use by 42% to 59% by 2050.' We estimate that under the highefficiency scenarios examined in this study, an additional 1.3 to 1.9 million jobs would be generated in 2050, 

relative to a business-as usual-scenario.3 

The majority of the investment needed to capture these efficiency opportunities will come from the private 

market, since the private market has the most capital and because it is the market, in the form of consumers and 

businesses, that benefits from energy efficiency savings. Additional investments will be driven by utility energy 

efficiency incentives and a variety of federal, state, and local policies. But as I will discuss in a few minutes, federal 

tax incentives have an important role to play that cannot be filled by private capital or other policies. Limited 

federal incentives can have a catalyzing effec~ spurring large energy and cost savings and thereby helping our 

economy to grow. 

A CEEE is a pragmatic organization and we recognize that serious tax reform will include efforts to broaden the 

base by reducing or eliminating many tax expenditures. In my testimony today I will discuss how Congress can 

continue to promote energy efficiency improvements in the United States within the confines of a constrained 

budget for tax expenditures. We believe some tax incentives should be preserved as part of tax reform, but that 

they should be modest, targeted, of proven effectiveness, and have scheduled sunset dates. The very limited funds 

available for tax incentives should maximize the "bang per buck" of federal expenditures. 

Lessons from Prior Energy Efficiency Tax Incentives 

Congress enacted energy efficiency tax incentives in 1978 and again in 2005. Some of these incentives have 

proven very effective, while others have not. In July of this year ACEEE published a paper on tax incentives that 

included a review of this experience' 

2 These savings are estimated relative to a business-as-usual scenario based bn an extrapolation of the Energy Information 

Administration's Annual Energy Outlook reference case. 

'John A. "Skip" Laitner, Steven Nadel, R. Neal Elliott, Harvey Sachs, and A. Siddiq Khan. 2012. The Long-Term Energy 

Efficiency Potential: What the Evidence Suggests. http://aceee.orglresearch-rcportlel21. Washington, DC: American Council 

for an Energy-Efficient Economy . 

• Nadel, Steven. 2012. Energy EffiCiency Tax Incentives in the Context of Tax Reform. https-!lwww.aceeeorgifileslpdflwhitepaper{energy-efficicncy~tax:-incentiyes,pdf. Washington, DC: American Council for an Energy-Efficient Economy. 
65 


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The 1978 legislation provided a credit of 10% of the cost of a moderately long list of eligible consumer and 

business equipment. Evaluations in the I980s found that these were not very effective in spurring substantial 

energy savings, as these credits promoted tried-and-true energy efficiency measures that many consumers and 

businesses were installing on their own. These credits primarily went to "free riders" -consumers and businesses 

who would have installed the efficiency measures even without a tax credit. Furthermore, these evaluations found 

that the value of the tax credit was too small to spur many additional installations. 

Tax incentives enacted as part of the Energy Policy Act of 2005 were more targeted, emphasizing advanced 

technologies and paying higher incentives. Our review found that the new homes and appliance tax incentives 

were particularly effective in growing the market share for qualifying homes and appliances. 

In the case of appliances, tax credits have permanently transformed the market, which is the ideal outcome. For 

example, for refrigerators, clothes washers, and dishwashers, the tax credits spurred manufacturers to develop, 

introduce, and broadly market new high-efficiency products. As these products gained in market share, the 

EP AIDOE ENERGY STAR· program adopted the same qualification levels, further growing the market for these 

products. Ultimately manufacturers agreed to make these levels the basis of new minimum-efficiency standards. 

At the same time, the energy efficiency levels needed to qualify for these tax incentives have been increased twice, 

so that the tax incentives only apply to the very highest energy-efficient products available in the market. 

In the case of the new homes tax credit, qualifying homes accounted for less than 1 % of new homes in 2006, but 

increased dramatically to about II % in 2011, spurred by the availability of the credits. 

Our review of the 2005 tax incentives also found that credits for furnaces, air conditioners, and heat pumps have 

been effective in spurring new product introductions and increased market share, as seen in the figure below. 

Likewise, the credit for heavy-duty hybrid vehicles had a Significant impact on the products manufacturers 

brought to market, helping to establish a market for these products. 
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Percentage of Air-Conditioner, Heat Pump, and Furnace Shipments Qualifying for Federal Tax 

Incentives by Year 

45% 

40% 

35% 

30% 

25% 

20% 

15% 

10"10 

5% 

0% 

Furnace AJr Conditioners Heat Pumps 

102008 

112009 

!lJ 2010 

~, 2011 

Note:Taxincentivewas10percentofcostin2008and2011and30percent of cost in 2009 and 2010. Thislikelyexplainslowerpenetratlonin2011. 

On the other hand, we found that the energy-efficient windows tax credit had too many free riders, making its 

cost high and its impact less significant. Some of the other energy efficiency tax credits had low participation rates, 

resulting in lower than hoped market impacts, but also low costs. 

From thIS analysis, we find that the most effective tax incentive strategy is one that effectively creates a market for 

more efficient products that can then be leveraged by other policies (such as utility efficiency programs, building 

codes, and product standards) to expand the savings. Based on these experiences, we recommend that future 

energy tax incentives: 

Target efficiency levels and new energy sources that currently have a very small market share, which keeps 

the cost of tax incentives down and minimizes the number of «free riders"; 

Provide a substantial incentive to motivate significant additional sales; 

Be in place for long enough so manufacturers and other market players find it worth making investments 

to develop and market eligible products (e.g., about five years); and 

Should either be phased out or eligibility levels increased after that period, starting the transformation 

cycle again. 
67 


82738.041

The Market Transformation Approach to Tax Incentives 

Building on the success of the appliance and new home tax incentives discussed above, we recommend that the 

most useful approach to tax incentives is to target long-term structural changes in the market, using temporary 

federal assistance to build the market so tax incentives can be phased out and the market will continue to grow on 

its own, supported by othet energy efficiency programs and policies, In this way, federal tax incentives can have a 

large "multiplier effect," helping to leverage future market growth, 

While we focus on the market transformation approach to energy efficiency, this approach may apply to other 

energy incentives as well. An example might be the wind energy production tax credit, which helped to establish a 

major U,S, wind energy industry, There is now general agreement that this credit can now be phased out, although 

disagreement exists on the period of the phase-out Similarly, the market transformation approach could be used 

to support the development of new modular nuclear power plants or the development of new advanced drilling 

techniques rather than using limited federal funds to support well-established technolOgies and practices, 

Not all technologies and practices lend themselves to a market transformation approach. A market 

transformation approach makes sense where increased production and market share can lead to economies of 

scale in product development and production, This approach also applies to markets where a shortage of 

experienced contractors exists. In this latter case, the tax incentives can encourage additional contractors to get 

the training and skills needed to enter the market, helping to increase the availability of these skills and inducing 

more competition in these markets. 

Since we assume that money for federal tax incentives will be very limited, we recommend only targeting 

measures where the market transformation approach can apply, in order to maximize the benefits achieved per 

federal dollar invested. For example, in the energy efficiency field, some useful targets for federal tax incentives 

include: 

I, Continuing the current appliance tax credit, but updating the qualifying levels so only the most efficient 

products qualify, The current efficiency tiers were deSigned to run through 2013, so these qualifying 

levels will need updating for 2014 and beyond. 

2. Continuing the current new home tax incentive, but introducing a new higher savings tier, phasing out 

the current savings tier in a few years. 

3. Improving the current commercial buildings tax deduction for new buildings (specifics discussed below) 

so that the market share of complying new buildings can grow to sustainable levels and ultimately these 

levels can be considered for inclusion in state and local building codes. 

4. Adding comprehensive retrofits for existing buildings to the commercial building tax deduction in order 

to increase the energy savings per building retrofit from today's modest levels, expand the number of 

experienced contractors who can serve this market, and provide more experience on the most C05tefficient methods for conducting comprehensive retrofits. By "comprehensive" we mean retrofits that 

combine lighting, space heating/cooling, and building shell measures, rather than just focusing on single 

components. 
68 


82738.042

5. Promoting higher efficiency levels and practices for residential furnaces, boilers, stoves, water heaters, air 

conditioners, and heat pumps, building on the success of the recently expired incentives. However, 

relative to the recently expired incentives for these products, qualification levels should be tightened, 

including requiring furnaces to also contain high-efficiency supply-air fans, specifying a test procedure 

and increasing the efficiency levels for biomass heating equipment, and requiring installation in 

accordance with the Air Conditioning Contractors of America ACCA -QI quality installation specification 

(or eqUivalent specifications). 

In summary, we suggest that ripe targets for market transformation be selected and incentives customized for 

those markets. Others might argue that incentives should be very broad, such as a specified payment per Btu 

saved, in order to encourage all potential technologies to compete, rather than "picking winners and losers." We 

do not think this alternative is a good idea, because the technologies that are likely to get most of the money will 

be tried and true technologies that are likely to be purchased without any tax incentives (e.g., "free riders"). 

Providing incentives in this way will primarily just pay some people and businesses for things they would do 

anyway, without contributing significantly to transforming markets. Instead, we should concentrate on market 

segments where a medium-term "nudge" can help long-term markets to prosper. We do, however, recommend 

that within specific tax incentives (e.g., commercial building retrofits), a technology-neutral approach be used that 

bases tax incentive eligibility on performance metrics. For example, for commercial building retrofits, we 

recommend a criterion of 20% energy savings relative to current consumption, leaving it to contractors to choose 

which measures to employ to reach 20% savings. Likewise, for appliances, efficiency levels should be chosen, as 

measured using standard test procedures, leaving it to manufacturers to decide which technologies to employ to 

reach these levels (e.g., insulation, controls, or better motors). 

The Unique Role Federal Tax Incentives Can Play 

Using a market transformation approach, federal tax incentives can playa unique role, helping to complement 

energy efficiency efforts by states, utilities, and the private marketplace. It will be much harder to transform 

markets without federal involvement. The federal government brings unique attributes that other players do not 

have: 

The federal government can provide consistent incentives nationwide, rather than a patchwork where 

some states have incentives, others do not, and incentive levels vary from place to place. 

The federal government can set uniform national qualifying criteria, providing manufacturers a consistent 

target for their development efforts and increasing the likelihood that they will devote the necessary 

resources to develop qualifying products. A variety of utilities and states have set their own criteria, 

creating a challenging market for manufacturers. 

The federal government has a long-term perspective and can therefore target advanced technologies that 

will take multiple years to develop. Other market actors (such as utilities and equipment manufacturers) 

often have a shorter-term perspective, e.g., I<what can we do to meet next year's savings or profit goals?" 

Furthermore, some firms prefer to be "followers" rather than "leaders," learning from the successes and 

failures of the leaders. But if incentives are proVided to the leaders for just a few years, then more firms 

will be encouraged to lead. 
69 


82738043.eps

Maximizing Benefits per Dollar of Federal Investment 

ACEEE's July 2012 white paper 5 analyzed the costs and savings of a five-year federal tax credit for severol highefficiency products and services to help guide targeting of energy efficiency tax incentives, We analyzed the costs 

and savings of a five-year federal tax credit for high-efficiency products and services, including estimated effects 

on the market for these products and services over the following decade, Results of this analysis are summarized 

in the table below: 

Fhe-Year 

~~t~~ ",._ .. ~.·E'eCtr"iC_iti_S~~rm~ ___ '_'.'" __ . __ f~fsaVings __ -~"~· :Treasury sthYear ,15thYear,Ufetime 5thYear 15th Year Lifetime 

Item ($millfonsj l6Wh) (GW~t -XGWh) (t8tufJiBtu) -@iUfir1CieaSiilg commercial bl.li!ding deduction to $:3/sf 

New hom-es - eXtend-cu-rrenf crectit ~. ~.- ~ 

CommerClafbuHding retrofits (20"%+ sa\otngsf 'Wa-tar'heaters -- heat pump and ad..ance(rgas' CHP ":" remo\e size cap but limit to 25 MV.Jfsystem 

:Aic & HP'SEER 1!finstalle<fper ACCA.Q! -. ~ .," 

,"Resrdentia(applia*nces-': exterld a'Ad i.ipaate" Fumac'es(95% AFUE"+ efflcfB"F tan) - -

AdVdr\cetl ~~d~J66E"4~.}2 ~P~) 

NeW hOmes '- 50% Whole home sa>Jngs ""JilOIe"hoose "ret'ronts'~(ioo/~+-sa\ingsj - -

Replace CFt industria! '& 'eommer'di! chJllerS--

_1~5_~~t.!~~ an_~ _~~_!.j':lJ~ ~r h.0~~~_ ~~~J~9 

_!ot~IS~ ... 

$52' 

;(~,O?(·. 

843: 

{308~ 

i701 

-2:426' 

--1,14Sr oof 

504, 

6461-

(875:-

23fi' 

~~~~l 

~i.~:30~;.~ 

552 

·2,$90' 

"f(:f.it9 

3,841. 

8,1i52 ° ~-2,624 

897 · .. ·5'38· 

1,203:" 

{:269 - iOO5· 

_1~~~~ 

~ ',3g:3§~ 

2,636 '·15'8:139. 2: 

"14,608 67S-,'5OS. ···'or . ~34:678 :~2_6}"~~i --40~'"' 

32:0'35'" 416,469 j 

.. 0, 0 "3~i" 35:2e2j~ 63('707 13; 

18,371 -275,562 

~ ~,.5~~~. -63,80ft 13; 

2,984: ~~!~?4l_ . "3,48tf "~~l~~,. t ~ '3,8D~8 68,544 13, 

"" 'O~' 16,646- -O~ 

"-!:~~.~ ,".~~l1r_ ,~,. 

22 

"'~ ~~~ ~OC[~-~~ j?~ .'"70~.~ " 

Nate; ~Ufetime" means cumu!atlve enfrqy saYings. GVerthe 15-year peliod analYZed. 

Two key paints emerge from this analysis: 

10 ~599' ... 

96 -6;765"--- ---" i06~ --1~596:" 

"951- ":(229 

64 955 94; 1,698~ . 

41 -- 61".2 

165~ -{-886~ 

16 328; 

21:-- 411 

40 "722' o· O· 

"2i 549." 

- 'I-~"" 

AU of the energy efficiency tax incentives analyzed are highly cost-effective, The average cost to the 

Treasury of these credits over the 15 years analyzed is only $0.28 per million Btu saved-more than an 

order of magnitude less than the cost of the energy resourceS they ,ave.' All of the options analyzed had 

lifetime costs under $250 pe, million Btu, 

The most cost-effective options analyzed include commercial buildings (both energy-efficient new 

construction and energy-saving retrofits), energy-efficient new homes, heating and cooling equipment, 

appliances, and combined heat and power systems. Whole-house energy-saving retrofits and replacing 

old chillers are also very cost-effective, Many of these items are in the bills before us today. 

5 See Footnote #4, 

6 For example, the Energy Information Administration~ in their just-released 2013 Annual Energy Outlook. estimates that 

natural gas will average $7,83 per Btu over the 2012-2040 period, See 

hup·llm"," eja gQylforecastsloeolerlpdfI0383er"A>282013%29I'df, 
70 


82738.044

The Bills Before Us Today 

Three bills are before us today: 

S. 3591, Commercial Building Modernization Act 

S. 1914, Cut Energy Bills at Home Act 

S. 3352, Expanding Industrial Energy and Water Efficiencyhcentives Act 

I discuss each in turn. 

COMMERCIAL BUILDING MODERNIZATION ACT 

This bill will make the Section 179D commercial building tax deduction now On the books more workable and 

adds a new Section 179F to specifically promote retrofits to existing commercial buildings. We support this bill. 

The current 179D provision has had limited participation because the incentives are low relative to the costs 

'involved, qualifying for envelope and heating/cooling incentives is very difficult, and some property owners are 

effectively not eligible. This bill corrects these problems. Another problem not addressed by this bill is that the 

energy modeling requirements to qualify for incentives can be difficult and hence expensive. We recommend that 

a prOvision be added to direct the Treasury and Energy Departments to research this issue and to develop 

simplified approaches within one year of enactment. 

The current 179D provision rarely addresses building retrofits since it is very difficult to meet the 50% savings 

threshold in an existing building. This bill addresses this issue by adding a new incentive for savings of 20% or 

more in existing buildings, with the incentive increasing as savings increase. 

This market is ripe for development but there are contractors qualified to do these retrofit.s in only a few regions at 

present. An incentive like this will help contractors become established to perform comprehensive building 

retrofits. Also, many retrofits today focus on Single systems (e.g., lighting) and as a result have only modest 

savings. By promoting retrofits that address multiple systems simultaneously and in synergistic ways, we can 

increase savings substantially. 

I would note that in our analysis of prospective tax incentives discussed previously, the 179D and 179F provisions 

were the first and third most cost-effective, making this bill a very high priority. 

CUT ENERGY BILLS A T HOME ACT 

This bill would prOvide a performance incentive for reducing energy use in existing homes by 20% or more. This 

bill will promote comprehensive retrofits to homes-retrofits that combine mUltiple measures such as insulation, 

improved heating and cooling systems, and sealing homes and ducts to reduce air leaks. This bill builds on the 

EPA/DOE Home Performance with Energy Star program that has helped to develop whole-home retrofit 

procedures and train and certify contractors in these procedures, working with the Building Performance Institute 

and others. 

Whole-home retrofits save more energy than individual weatherization measures. Furthermore, with a wholehome retrofit, measures can be designed as a complementary package, reducing costs relative to individual 
71 


82738.045

measures. For example, if insulation is installed and home and duct sealing performed, often a smaller heating 

and cooling system can be installed, reducing the cost of a new system. 

The intent of this bill is to help grow this nascent home performance industry. Since not many whole home 

retrofits are currently performed, costs should be modest and free rider levels low. This bill will be much lower 

cost than the window and insulation credits that it replaces. In our analysis we estimate an average cost of about 

$375 million per year (lower in the early years, higher in years four and five). By comparison, the prior home 

weatherization incentive, the 25C program, was found by GAO to cost the Treasury $5.3 billion in 2009, the last 

year for which data are available.' 

Many states started home performance programs under ARRA, but these were short-term efforts that have now 

generally ended. This bill would build on these prior efforts and help bring the home performance industry to the 

next level. Our analysis found that this bill would save energy at an average federal cost of $1.33 per million Btu 

saved. We support this bill due to this low cost, and to the fact that it will support development of the home 

performance industry so it can better prosper and serve homeowners in the future. 

EXPANDING INDUSTRIAL ENERGY AND WATER EFFICIENCY INCENTIVES ACT 

This bill includes four provisions addressing water reuse, advanced motors, replacement of old inefficient chillers, 

and expanding existing incentives for combined heat and power (CHP). In our analysis we eXamined both the 

CHP and chiller provisions. 

The CHP provision expands the incentive that Congress enacted in 2008 to include larger equipment, but in ways 

that keeps the cost to the Treasury modest. CHP systems generate both heat and electricity together, substantially 

reducing energy use relative to using a generating plant to produce electricity and a separate boiler to produce 

heat. CHP systems often make sense in facilities with Significant heat loads such as factories, universities, and 

hospitals. Under the current credit, incentives are available for systems up to 25 MW in size, but the incentive 

only covers the first 15 MW. S. 3352 eliminates the cap on overall system size, allowing large systems to qualify, 

but caps the incentive at 25 MW per system, helping to keep costs in check. CHP systems tend to become more 

cost-effective as their size increases, so the change prOVides the greatest incentive to smaller systems without 

eliminating some incentive for systems above 25 MW. By proViding some incentive for larger systems we 

eliminate the current distortion that a system of 25 MW qualifies for a credit while a 26 MW system receives none. 

With this new provision1 both of these systems, as well as a 100 MW system, would receive the same incentive. 

This incentive will spur greater use ofCHP systems, providing more examples of installations that others can 

learn from. In our analysis this provision was highly cost-effective, with a federal cost of only $0.28 per million 

Btu saved. 

The chiller provision would proVide a credit to encourage replacement of old inefficient chillers with CFC 

refrigerants. CFCs harm the ozone layer and have not been permitted in new chillers for many years. However, 

some of the old chillers remain, leaking CFCs and using excessive amounts of energy. Building owners are 

reluctant to replace these chillers due to the upfront costs. The proposed incentive would cover part of these costs, 

7 U.S. General Accounting Office. 2012. Factors to Consider in the Design of the Nonbusiness Energy Property Credit. GAO12-318. Washington, DC: U.S. General Accounting Office. 
72 


82738.046

but would be available for only three years. Building owners would have a limited window to take advantage of 

the incentive. The bill also includes innovative provisions to require an energy audit to look for opportunities to 

reduce cooling loads and provides further incentives if the chiller is downsized. These provisions will encourage 

engineers to develop expertise in system downsizing, which will be useful after the incentives expire. Qualifying 

chillers are required to meet chiller efficiency levels established by the American Society of Heating, Refrigerating 

and Air-conditioning Engineers (ASHRAE) in 2007. ASHRAE is now finalizing an update to its chiller efficiency 

standards and we recommend that this bill be updated to refer to the revised ASHRAE standard. We estimate this 

incentive will have a federal cost of$1.42 per million Btu saved. 

We did not examine the water reuse and advanced motor provisions in our analysis due to difficulties in obtaining 

data. We support both provisions, but as lower priorities than the CHP and chiller provisions. In the case of the 

advanced motor provision, the major barrier to including these motors in equipment is the cost to reengineer and 

retool the equipment to accommodate the advanced motor. The credit goes to the equipment manufacturer to 

offset this non-recurring cost of redesigning their product, so that once the redesigned product is introduced the 

manufacturer will be motivated to continue to offer the equipment without the need for incentives. 

Regarding water reuse, U.S. manufacturers are facing increasing challenges due to limited water resources in 

many locations. If these firms are to remain competitive, they will need to deploy new technologies that reduce the 

sourcing of water from public resources. Deploying technologies that require less water or are able to reuse water 

are critical. These technologies are not in common use today, so the tax credit is intended to build awareness and 

experience deplOying them, reducing the perceived risk to manufacturers. 

Additional Energy Efficiency Issues to Consider as Part of Tax Reform 

I want to raise two additional issues for the Committee's consideration relating to depreciation periods and the 

option of repayable tax incentives. 

Depreciation Periods 

Under current law, the depreciation period for many types of equipment is written into the law, and some of these 

depreciation periods bear little relationship to typical service lives in the field. Particularly egregious are the 

depreciation periods for equipment in commercial buildings, including heating and cooling systems, lighting 

fIXtures and controls, and roofing systems. Currently, this equipment is depreciated over 39 years, the same 

depreciation period as is used for a new commercial building. However, lighting, cooling and heating equipment, 

and roof systems typically have lives of 15-25 years, not 39 years. The 39-year depreciation period acts as a barrier 

to energy efficiency as many businesses will choose to repair equipment when it fails so as to avoid haVing to 

write-off the un-depreciated value. Since equipment has been steadily increasing in efficiency, encouraging 

equipment replacement will save energy and also create sales and jobs for equipment manufacturers. 

Our preferred choice is to delegate the choice of depreciation period to the IRS, with instructions to use 

depreciation periods that match the average service life of equipment. In this way Congress gets out of the weeds 

and also allows for the fact that technology changes much more quickly than the law can change. If this is not 

possible, we suggest resetting depreciation periods based on the best data on service lives currently available. For 

example, the table below provides average service lives from an ongoing study by ASHRAE. 
73 


82738.047

Service Life Estimates for Some Commercial HVAC Equipment 

Median Service 

Equipment Type Life, Years 

Chillers, air-cooled rotary & screw 23 

Cooling tower, metal 17.5 

Controls, electronic 18 

Boilers, hot-water, steel forced draft 25 

Packaged DX unit, air-cooled 22 

Split DX system 17 

Domestic hot water heater, electric 12 

Domestic hot water heater, gas 15 

Source: ASHRAE& 

Likewise, in the case of CHP systems, the depreciation period varies as a function of who owns the equipment and 

how it is used, even though often the same equipment is used by a variety of owners and for a variety of 

applications. This variation is illustrated in the table below. We recommend that a single service life be selected 

for all owners, perhaps 15 years . 

• ASHRAE. 2012. "Owning and Operating Cost Database." http://xp20ashrae,orgipublicdatabaseiservice life asp. Accessed 

March 1. Atlanta, Ga.: ASHRAE. 
74 


82738.048

Summary of Current Federal Depreciation Treatment for CHP Assets 

Asset Category 

Utility 

Steam production or distribution 

Steam turbine power plant 

Combined cycle power plant 

Combustion turbine power plant 

Industrial 

For power capacity> 500 kW or steam capacity 

> 12.5 Mlbs/hour: 

StE'am production or distribution 

Power generation 

For power capacity < 500 kW or steam capacity 

< 12.5 Mlbs/hour: 

Steam production or distribution 

Power generation 

Commercial 

Residential 

MACRS Tax Life (years) 

20 

20 

20 

15 

15 

15 

5-10 years depending on 

industry classification 

5-10 years depending on 

industry classification 

39 

27.S 

Note: Mlbs = thousand pounds. Source: Marc Spurr, Kattner FVB, 1001, personal communicatlott 

Repayable Tax Incentives 

For some energy efficiency measures that are expensive and for which quick market transformation is not 

possible, such as comprehensive home and commercial building energy efficiency retrofits, we recommend fiveyear tax incentives as discussed above. helping to grow these markets to levels that are more sustainable. Still, 

even after five years, we think additional support would be useful but recognize that the federal budget may not be 

able to support such an extension. In these cases Congress should consider transitioning to repayable incentives 

after the initial five-year incentive ends. 

Repayable tax incentives are a way to limit long-term costs to the Treasury by requiring recipients to repay the 

incentive over time as benefits are realized. The initial credit helps reduce the upfront cost of the investment, and 

the latter payments reduce the cost to the Treasury. For example, if a business receives an initial tax credit of 

$100,000 on a combined heat and power system the year the system was placed into service, they might repay the 

federal credit at the rate of $20,000 per year over the next five years. The initial credit encourages the investment, 

and the subsequent repayments channel the value of some of the energy bill savings back to the federal 

government'. The result is that the long-term cost to the federal government is very low-just defaults plus interest 

costs. Essentially this would be a zero-interest loan. 
75 


82738.049

This idea has already begun to circulate in Congress. In 2011, Senator Shaheen (New Hampshire) circulated a 

draft bill that would provide a repayable tax incentive for CHP systems and industrial energy efficiency 

improvements. Under the proposal, an incentive is given to electric utilities that finance CHP systems. The 

amount of the incentive is then repaid to the Treasury through an annual installment payment paid by the 

customer who owns the CHP system equal to the amount of the subsidy divided by an installment period, 

specified in years. In the draft Shaheen bill, the installment period is three years (e.g., the customer repays the 

subsidy over three years) but payments don't begin until the third year after the subsidy is paid (i.e., the customer 

repays nothing for the first two years, then repays one-third of the subsidy each year for the next three years). 

Such a repayable tax incentive would be easier to implement for businesses than for individuals, since businesses 

already depreciate capital investments over many years and thus need to track past investments and depreciation 

from year to year when compiling their annual taxes. Tracking repayments would be very similar. Likewise, this 

system could work well for individuals who use the federal long form as this form already includes such items as 

capital gains and losses relative to expenditures in previous years. Such a repayable incentive should probably be 

limited to fairly large investments, such as an individual credit of $1,000 or more. Having to go through the extra 

tracking and paperwork for small investments probably would not make sense. The incentives in S. 1914 are large 

enough to meet this threshold. 

Conclusion 

ACEEE strongly feels that well-targeted energy efficiency tax incentives can help to transform markets so that 

efficiency markets prosper, even after incentives end. Such transformations result in large and long-term energy 

savings, creating jobs and otherwise benefiting our economy. Federal tax incentives playa unique role in that they 

apply across the country and have uniform qualification levels, complementing the patchwork of state and utility 

incentives. When this Committee considers tax reform legislation, we recommend it include: 

1.. Limited funds for energy efficiency tax incentives targeted at long-term market transformation in ways 

that maximize the savings per federal dollar invested. Such incentives should continue for about five years 

before they are sunset or revised. Particular provisions should address: 

a. New commercial buildings and commercial building retrofits, along the lines ofS. 3591; 

b. Whole-home retrofits, along the lines of S. 1914; 

c. New homes, building on but updating the current section 45L; 

d. High-efficiency appliances, building on but updating the current section 4SM; 

e. High~efficiency residential furnaces, boilers, stoves, air conditioners. heat pumps. and water 

heaters, updating provisions from the recently expired section 2SC; and 

f. CHP, chillers, and other industrial opportunities, drawing from S. 3352. 

2. Reforming tax depreciation schedules so they are based on the average service lives of covered equipment. 

EqUipment installed in commercial buildings and CHP systems need particular attention. 
76 


82738.050

In addition we recommend that the Committee consider including repayable tax incentives among the energy 

efficiency tax credits. 

In recent years, targeted energy efficiency tax incentives have successfully helped to transform appliance, new 

home, heating/cooling equipment, and hybrid vehicle markets. We should continue such efforts at a modest level 

to spur development of advanced high-efficiency products and grow contractor expertise, providing a large 

multiplier effect on the federal investment. The end result will be substantial energy savings, large energy bill 

reductions, and stronger U.S, manufacturers and businesses. 
77 


82738.051

Senate Finance Committee Hearing 

"Tax Reform and Federal Energy Policy: Incentives to Promote Energy Efficiency" 

December 12,2012 

Questions for Mr. Steve Nadel 

Questions from Senator Bingaman 

1. Mr. Nadel, as I mentioned in my opening statement, one of the goals of these reforms for 

energy efficiency is to provide technology neutral, performance-based incentives 

whenever possible. And yet, the legislation I have introduced with Senators Snowe and 

Feinstein on industrial efficiency contains incentives that do not meet those criteria. Is 

there a strong policy reason why industrial efficiency incentives should be different from 

incentives designed to improve building performance? 

Response: Yes, there are substantial differences between industry and buildings, 

differences that warrant using different approaches for tax incentives. In industry, most 

ofthe energy use is for process energy use, and individual processes vary widely. 

Melting steel has little in common with using electrolysis to produce high-grade 

aluminum, both of which have little in common with processes to make paper or specific 

chemicals. In the residential and commercial sectors we have national model building 

codes which tax incentives can use as a baseline for measuring energy savings. There is 

no similar baseline for industry. Therefore, industrial tax provisions have generally been 

more targeted at specific opportunities, but can apply to energy saving opportunities that 

cut across multiple industries. S. 3352 for example targets opportunities to improve 

chiller systems and to promote use of advanced motors, CHP systems and water reuse. 

Theoretically, a tax incentive could be designed to reward achieving savings of 20% in 

existing industrial facilities (analogous to the 20% savings thresholds in the residential S. 

1914 and the commercial S. 3591), but given the diversity of industrial processes and the 

fact that industrial processes are constantly changing, coming up with appropriate 

procedures for determining savings through the tax code would be difficult, and would 

tend to provide an easy-to-meet threshold for some industries and a near-impossible 

target for other industries. Such an exercise would likely result in high costs to the 

Treasury and only modest energy-saving benefits since such a provision would benefit 
78 


82738.052

primarily "free riders" (companies that were making the energy-saving investments 

anyway). 

This said, a possible more generic option for industrial incentives is to provide rewards 

for increases in capital investment in industry, relative to a baseline period, such as 

average annual capital investments over the prior three years. Most capital investments 

in industry tend to result in higher efficiency since newer equipment and processes are 

generally more efficient than old equipment and processes. And by only rewarding 

increases in capital investment, we keep the number of "free riders" down. ACEEE 

released a working paper on this option on Dec. 19,2012. A copy ofthis paper is 

attached for the record. 

2. Mr. Nadel and Mr. Golden, as Congress contemplates comprehensive tax reform, one of 

the goals will be to simplify the code and remove ineffective deductions and 

credits. Can you discuss why you feel the tax code is an appropriate, and perhaps 

superior, place for incentives for energy efficiency improvements - as opposed to other 

methods for delivering incentives? 

Response: The tax code is a good vehicle for promoting energy efficiency investments 

for several reasons. Nearly all businesses and most individuals need to prepare tax 

returns, so such tax incentives are available to most businesses and individuals. 

Furthermore, by using the tax code we leverage existing activity, rather than require an 

entirely new process. Systems are already in place for handling credits, primarily by 

having the tax payer subtract the amount of any tax credit from the taxes due. There are 

also established procedures for processing tax returns and issuing refund checks, if 

refunds are earned. By contrast, setting up direct payments would require developing 

entirely new procedures, and hiring staffto implement them. Finally, I would note that 

politically it has generally been easier to enact tax incentives, rather than direct payment 

programs. For example, the Home Star residential retrofit incentive program failed to 

reach the Senate floor due to demands that any new spending be fully offset, and 

difficulties finding acceptable offsets. 
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82738.053

3. If Congress begins to design technology-neutral, performance-based incentives on a more 

regular basis, it will be important to accurately measure and verify energy savings 

achieved in commercial and residential buildings, and in the industrial sector. I wonder if 

each of you could speak to the measurement and verification systems and precautions 

present in the legislation before us today, or "the work that your organization does on 

these issues. 

Response: Measurement and verification systems should be an important part of any tax 

incentive. We need to regularly access the costs and benefits of particular incentives so 

that informed judgments can be made on which incentives to continue, which to modify 

(and how) and which to end. S. 3591 includes an important provision that holds back a 

portion of the tax incentive until energy savings have been demonstrated. This provides a 

strong incentive for investments that really save energy, and provides useful data for 

evaluating this incentive. Likewise, S. 1914 includes a specific provision [in subsection 

(g)] requiring the Secretaries of Treasury and Energy to conduct an evaluation of the 

credit and the energy usage reductions achieved, in order to help guide revisions to the 

program. It might be useful to add a similar provision to S. 3352. 

My organization, ACEEE, is also involved in evaluation of tax incentives, trying to locate 

the best data we can on program costs and impacts. For example, in 20 II, we published 

an evaluation of the energy provisions in the Energy Policy Act of2005, including the tax 

incentives. This evaluation can be found at: https:llwww.aceee.org/research-reportJel13. 

More generally, in our work we often find it difficult to locate data on how much specific 

incentive provisions are costing the Treasury. We recommend that the IRS be directed to 

provide annual estimates of the actual cost of each tax incentive provision, which in turn 

will likely require them to review their tax forms to determine if the necessary data is 

collected. For example, there is no data on the cost of the current commercial building 

tax deduction as this deduction is combined with many other deductions in a single line 

on tax forms, with no identification of the deductions that are used (e.g. energy efficiency 

vs. a totally unrelated provision) and the amount of the deduction claimed for each 

purpose. 
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Encouraging Modernization of the Industrial 

Sector and Other Energy-Saving Capital 

Investments through Tax Reform 

Steven Nadel and R. Neal Elliott 

December 2012 

An ACEEE White Paper 

© American Council for an Energy-Efficient Economy 

52914'0 Street NW, Suite 600, Washington, DC 20045 

Phone: (202) 507-4000 • Twitter: @ACEEEDC 

Facebook.com/myACEEE· www.aceee.org 
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Contents 

ACEEE Tax Reform Working Papers ........................................................................................................................ ii 

Acknowledgments ........................................................................................................................................................... ii 

Executive Summary ....................................................................................................................................................... iii 

Introduction ....................................................................................................................................................................... 1 

Keeping Costs Down ....................................................................................................................................................... 1 

Acceptable Capital Investments ................................................................................................................................ 2 

Repatriation of Profits for Increased Capital Investments in Manufacturing ........................................ 3 

Accelerated Depreciation for Increased Capital Investments in Manufacturing .................................. 3 

Repayable Tax Incentives ............................................................................................................................................. 4 

Comparison of the Options for Manufacturing .................................................................................................... 5 

Accelerated Depreciation for Purchases of Energy-Efficient Equipment, Primarily in the 

Commercial Sector .................................................................................................................................................. 6 

Next Steps ........................................................................................................................................................................... 7 

References .......................................................................................................................................................................... 8 
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This is the fifth in a series of working papers on tax reform issues related to energy efficiency 

that ACEEE is preparing in 2012. We welcome feedback on this working paper. Send 

comments to taxreform@aceee.org. A report summarizing and revising these working papers 

will be published as an ACEEE report in early 2013. 

Acknowledgments 

Funding for this work was provided by the Kresge Foundation, Energy Foundation, and a third 

foundation wishing to remain anonymous. 

Thanks to Renee Nida for editing this paper. 

ii 
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Executive Summary 

Much of the equipment and production processes in America's factories are decades old and not 

as efficient as modern equipment and processes in use by many of our international 

competitors. While some factories have been modernized, many have not. Modernizing these 

factories will allow them to better compete in world markets by improving product quality and 

reducing product costs, including through reduced energy use. Modernization of our factories 

will build on several competitive advantages the U.S. now has-low electric and natural gas 

prices (relative to the rest of the world) and lower labor costs due to higher productivity. 

As we emerge from the Great Recession, many industrial firms have capital to invest, but a 

nudge from the tax code could spur substantial additional investments here in the U.S. We 

suggest three possible tax policies that could spur investment. All are designed to be low cost in 

order not to add much to the federal budget deficit and to address a desire by many tax reform 

proponents to reduce tax rates by reducing tax expenditures. The three policies are: 

1. Provide a low tax rate for repatriation of company profits providedthese repatriated 

profits are used to increase a company's capital investments relative to their average 

capital investments in recent years. This prOVision would apply to multinational firms 

with substantial profits now parked abroad. 

2. Allow accelerated depreciation on increased capital investments in production capacity, 

allowing companies to reduce their near-term taxes. If depreciation periods were cut in 

half, the amount of the incentive would be similar to the incentive on repatriated profits 

discussed above. 

3. Provide repayable tax incentives for increased capital investments. The credit would be 

taken on taxes in the year the expenses were made, but then the credit would be paid 

back to the Treasury in subsequent years. A credit of 35% of the amount of the capital 

investment increase that is repaid over ten years would provide about the same 

incentive as the other two approaches. 

We recommend that at least two of these approaches be enacted. The first approach would 

benefit only large multinational firms, while second and/or third approach should be included 

in order to benefit firms that primarily serve the domestic market. A firm would only be able to 

use one of the approaches. 

For the commercial sector, a different approach is needed, since much of capital investment is 

for land and buildings and not for energy-consuming systems. We suggest an option to provide 

accelerated depreciation for purchases of high-efficiency equipment in the commercial sector, 

where "high efficiency" means equipment that meets energy efficiency specifications set by the 

Federal Energy Management Program (FEMP). 

For all of these incentives, the costs to the Treasury are low, but the advantages in terms of 

energy savings and more competitive U.S. manufacturers would be substantial for years to 

come. 

iii 
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Encouraging Modernization ofthe Industrial Sector 

Introduction 

The energy efficiency of a nation's manufacturing base has been shown to be directly correlated 

with the vintage of the process equipment. Thus one of the policy strategies to increase the 

efficiency of the manufacturing sector is to modernize the manufacturing base (Laitner et al. 

2012). The United States is poised to enter a period of major modernization that offers the 

promise of important improvements in the energy efficiency of our manufacturing base (Russell 

and Young 2012). 

This opportunity results from a conjunction of market events that are making the U.S. an 

attractive global market for manufacturing. Changes in U.S. energy markets, particularly the 

emergence of bountiful natural gas from non-conventional production, have made our country a 

low-cost energy manufacturing destination. This attractive energy outlook combines with high 

levels of labor productivity and a history of innovation to create an attractive environment for 

investments in manufacturing capacity, both for domestic and export markets (Russell and 

Young 2012; BCG 2012). As the economy recovers, the existing manufacturing base, which has 

shrunken as a result of the recent economic downturn, will be stretched to meet expanding 

demand. This will put greater pressure on manufacturers to invest in additional production 

capacity. Projections for manufacturing sector investments are in the hundreds of billion 

dollars, with the potential in the chemical industry alone approaching $100 billion in 91 major 

projects (Krauss 2012). 

Unfortunately there is no assurance that these investments will be made in the U.S. While 

market fundamentals appear strong, access to capital remains a challenge to many companies 

as a result of continuing weakness in the U.S. financial sector and uncertainty about the global 

economic outlook. While some point to the high level of cash holding by many companies, 

industrial leaders have indicated that they see these reserves as insurance against a return to 

economic difficulties. 

Thus, policies that promote investments in modernization of the industrial capacity would 

appear timely. Our country faces a once-in-a-generation opportunity to revitalize our 

manufacturing sector with the employment and economic benefits that would result. Now is the 

time to consider implementing these policies. 

While direct incentives for industrial modernization and other capital investment have been the 

policy response in the past (e.g .• bonus depreciation provisions enacted over the past decade), 

given the large federal budget deficit the cost to the federal Treasury has largely taken this 

option off the table. As a result we need to explore alternative polices that minimize the cost to 

the Treasury. 

This white paper will explore policies that could promote investment in modernization of the 

industrial sector and other energy-saving capital investments that do not involve direct 

investment incentives. 

Keeping Costs Down 

Among the policy options to consider for promoting investments in modernization are tapping 

into non-tax-based sources of capital or involving some form of repayment to the Treasury of 

the funding so that costs to the Treasury are low. In the following sections we discuss three 

such options: 

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Encouraging Modernization of the Industrial Sector © ACEEE 

1. Allowing foreign profits to be repatriated without tax, or with low taxes, if the money is 

applied to acceptable capital investments; 

2. Accelerated depreciation for such capital investments; and 

3. Repayable tax incentives. 

An example of the first option is to encourage multinational corporations with substantial 

overseas profits to repatriate these funds to invest in their domestic operations. The second 

and third options would benefit all companies. We recommend that companies be required to 

choose only one option-there should be no "double dipping" allowed. Before discussing these 

options, we first turn to a discussion of "acceptable" capital investments. 

Acceptable Capital Investments 

Capital investments by U.S. are substantial, with investments by non-farm businesses totaling 

about $1.1 trillion in 2010. Over the prior decade, annual capital investments ranged from just 

under $1 trillion to not quite $1.4 trillion (Census 2012). Ifall capital investments were eligible 

for special treatment, the first trillion dollars of special treatment would go to investments that 

would happen anyway-a large cost to the Treasury without any significant benefits. Instead, 

special treatment should be limited to increases in capital investment relative to some base 

period. As a starting point for discussions, we suggest a rolling base period based on a firm's 

average capital investments over the previous three years, adjusted for mergers, acquisitions, 

and divestitures. Multiple years are needed to reduce sudden changes in the baseline but the 

baseline period should be short enough to make it easy to calculate and to reduce the impact of 

the Great Recession as a consideration. New firms would be able to credit all investments in 

their first year, and increases above their one-year and two-year averages for the next two 

years. Rules would be needed to handle subsidiaries, in order to discourage formation of new 

companies just to take advantage of the tax break. For example, subsidiaries should be credited 

to the firms that own them. Where there are mUltiple owners, ownership shares can be used to 

credit the various owners. 

There are questions regarding whether all capital investments should receive encouragement, 

or just certain types of capital investments, or investments in certain sectors, such as industry. 

We recommend concentrating these incentives on manufacturing! because modernizing capital 

investments in industry have been shown to offer significant energy efficiency benefits, 

reducing the intensity of manufacturing while making these facilities more globally competitive 

(Laitner et al. 2012). However, later in this paper we do advance a specific, more targeted 

proposal for the commercial sector. We also recommend limiting special treatment to capital 

equipment and not real estate; buildings owned by industrial firms should be subject to the 

same treatment as buildings owned by commercial firms. 

Another question is whether, from an energy efficiency point of view, should all capital 

investments be included or just ones that meet a specific definition of "energy efficient"? In 

industry, most capital investments will be for process equipment. The energy efficiency in 

processes results from the overall configuration of the process, not in the efficiencies of the 

individual components alone. When new capital is invested in industry, most of these systems 

will be more efficient than the systems they replace (due to steady improvements in eqUipment 

and system design in recent decades) and thus, at least in industry, allOWing all capital 

1 While the primary focus of this provision is the manufacturing industry, we encourage looking at including other 

capital-intensive industries such as agriculture. mining and construction. 

2 
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Encouraging Modernization of the Industrial Sector 

investments in process equipment to qualify makes sense. In the commercial sector, while 

efficient systems design is important, there is also a lot that can be done with more efficient 

equipment, as we discuss below. 

Repatriation of Profits for Increased Capital Investments in 

Manufacturing 

According to a May 2011 JP Morgan Chase study, about $1.4 trillion in foreign profits are held 

overseas by U.S.-based firms (Hirsch 2011). A 2012 Bloomberg study estimates that about $1.2 

trillion is held overseas by about 70 of the very largest firms (Rubin 2012). If these profits are 

repatriated to the U.S., they are subject to corporate income taxes, taxes that average about 25% 

for all U.S. businesses (Markle and Shackelford 2011). The tax rate for large multinationals is 

probably less since they generally have very sophisticated accounting departments that have 

figured out many ways to legally reduce their taxes. 

These multinational firms and some economists have argued that we should eliminate or 

reduce taxes on repatriated profits in order to encourage U.S. firms to bring this money home 

and benefit the U.S. economy. In 2004. there was a one-year special program to allow overseas 

profits to be repatriated home and be subject to only a 5.25% tax rate. This experience was 

reviewed in a Congressional Research Service (CRS) report (Marples and Gravelle 2011). 

Citing a variety of sources, they found that some $312 billion was repatriated to the U.S. under 

the program. A total of 843 firms claimed the special treatment for repatriations, out of 

roughly 9,7000 eligible corporations. 32% of the repatriations were by the pharmaceutical 

industry. The top ten firms across all industries accounted for 42% of the repatriations. 

Independent studies found small and statistically insignificant impacts on both domestic capital 

investments and employment. Rather, some empirical evidence suggests thatthe repatriations 

were used primarily to return money to shareholders through stock repurchase programs. 

Under the 2004 program, the repatriated money could be used for nearly any purpose. Marple 

and Gravelle end their study by noting that an option for future application is to tie any special 

tax benefits for repatriation to increases in desired activity such as domestic employment, 

wages, or investment. 

Thus, repatriation could provide a source of capital needed for investments in the U.S., but 

building on the CRS suggestion, guidance should be provided on how the money must be used 

in order to earn a tax break. We suggest that one way to encourage increased domestic capital 

investment is to have a reduced tax rate (perhaps the same 5.25% used in 2004) for profits that 

are invested for increased capital investment in industry, relative to a base period. Such a 

proviSion would encourage U.S. firms to increase domestic investments. They will still invest 

overseas, but with lower tax rates for repatriated profits, they would be encouraged to invest 

more in the U.S. 

Accelerated Depreciation for Increased Capital Investments in 

Manufacturing 

A provision giving special treatment for multinational firms would not provide any benefit for 

firms that only do business in the U.S.-another provision would be needed to encourage 

capital investments by these firms. However, as noted above, for any provision to move 

forward given the current budget situation, the cost to the Treasury needs to be kept very low. 

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Encouraging Moderniz.ation of the Industria! Sector © ACEEE 

Based on this consideration, we recommend that accelerated depreciation be considered for 

increases in capital investment relative to a base period. Accelerated depreciation allows firms 

to increase their depreciation expenses in the initial years after an investment, reducing their 

taxes. However, if more of an asset is depreciated in the early years after an investment, 

depreciation will be lower in later years, increasing taxes. Under federal budget scoring rules, 

the short-term costs and long-term income are added together, allowing accelerated 

depreciation to have a long-term cost of essentially zero.' 

From 1981-1986, accelerated depreciation was part of the tax code, with assets assigned to 3-, 

5-,10-, and IS-year recovery periods. However, this system was ended in 1986 as part of the 

agreement for broading and simplifying the corporate tax code. 

More recently, as part of economic stimulus legislation enacted in 2002 and extended several 

times, a portion of capital investment can be accelerated into the first year, with the rest 

depreciated over the normal lifetime. Such bonus depreciation originally covered 30% of the 

investment cost. It was increased to 100% in 2010 and reduced to 50% for 2012. Under 

current law, bonus depreciation ends Dec. 31, 2012. We could not find any studies on the 

impacts of accelerated depreciation in the 1980s or any studies on the bonus depreciation 

provisions that have been in effect for the past eight years. However, the Congressional 

Research Service reviewed two studies on bonus depreciation from the 2002-2004 period and 

found that "[t]akeup rates for those allowances were lower than expected and only 10% of 

firms taking them said that the allowances played a decisive role in their investment decisions." 

This limited impact is likely due in part to the temporary nature of the incentive and to the fact 

that only some investments were incented (Guenther 2012). The Tax Policy Center (a joint 

project of the Urban Institute and the Brookings Institution) elaborate a little on the short-term 

nature of the incentives, stating: "Businesses may have expected that Congress would extend 

the provisions, thus blunting their incentive to speed up investment. It takes time for businesses 

to make major investments, making it hard to fit them into specified time periods. Finally, many 

businesses may have had too little income to offset with these additional tax benefits, a problem 

that is especially acute during economic downturns" (Tax Policy Center undated). 

Accelerated depreciation, including bonus depreciation, can be expensive. We are not 

proposing accelerated depreciation for all capital investments. Instead, to complement the 

repatriation provision discussed above, we are suggesting that accelerated depreciation cover 

increases in capital investment relative to the base period. To keep it simple, we suggest that 

normal depreciation periods be cut in half for such investments. Another option would be to 

use the 3-15 year depreciation periods that applied in the early 19805. 

Repayable Tax Incentives 

Repayable tax incentives represent another strategy to encourage investments while limiting 

the long-term costs to the Treasury by requiring recipients to repay the tax incentive over time 

as benefits are realized. The initial credit helps reduce the upfront cost of the investment, and 

the latter payments reduce the cost to the Treasury. For example, if a business receives an 

2 This statement applies to long-term analyses of federal spending. For some analyses, only spending and savings are 

considered for ten years and considerations beyond ten years ignored. Under such a short-term Window, accelerated 

depreciation will have costs since a portion of the repayment will be outside of the ten~year "scoring window," 

However, many of the devices that can be used to decrease long-term deficits have large impacts beyond ten yearsfor example, raising the retirement age. We expect the ten~year window to be used less in the future than it has in 

the past. 

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Encouraging Modernization of the Industrial Sector 

initial tax credit of $100,000 on a combined heat and power (CHP) system the year the system 

was placed into service, they might repay the federal credit at the rate of $20,000 per year over 

the next five years. The initial credit encourages the investment, and the subsequent 

repayments channel the value of some of the energy bill savings back to the federal 

government, so that the long-term cost to the federal government is very low-just defaults 

plus interest costs. Essentially this would be a zero-interest loan. 

In this context, we suggest that for increases in capital investment over the base period, a 

business receive an initial 35% investment tax credit. This percentage was chosen to have a 

value similar to the other provisions (our analysis is presented in the next section). Recipients 

of this credit would then repay the credit over the following ten years. Businesses already track 

past investments and depreCiation from year to year when compiling their annual taxes. 

Tracking repayments would be very similar. 

This idea has already begun to circulate in Congress. In 2011, Senator Shaheen from New 

Hampshire circulated a draft bill that would provide a repayable tax incentive for CHP systems. 

Under the proposal, an incentive would be given to electric utilities that finance CHP systems. 

The amount of the incentive would then be repaid to the Treasury through an annual 

installment payment paid by the customer who owns the CHP system equal to the amount of 

the subsidy divided by an installment period, specified in years. In the draft Shaheen bill, the 

installment period is 3 years (e.g., the customer repays the subsidy over 3 years) but payments 

don't begin until the third year after the su bsidy is paid (i.e., the customer repays nothing for 

the first two years, then repays one-third of the subsidy each year for the next three years). 

However, this particular proposal is complicated by the fact that the electric utility would 

receive the tax incentive, but the business that hosted the CHP system would make the 

repayment, reSUlting in some tricky legal issues. These issues would be much more limited if 

the same firm received the credit and then made the repayments. 

Under current federal procedures for "scoring" the cost of tax expenditures, costs and income 

are estimated for each year, as well as a simple total, without any discounting. Thus a $100,000 

expense followed by five years of$20,OOO repayments would be scored as zero over the life of 

the program. There would, however, be some small cost risk to the Treasury based on the 

potential for businesses or individuals to go bankrupt before they fully repaid their obligation. 

Comparison ofthe Options for Manufacturing 

Each of these approaches attempts to achieve the same goal of increasing investments, but 

through different mechanisms. Repatriation taps into funds that are a new source of 

investment. Accelerated depreciation and repayable incentives both provide reductions in 

taxes for businesses that do not have overseas profits they could repatriate. Accelerated 

depreciation and repayable incentives are different ways of achieving essentially the same goal 

and we recommend that only one of these options be enacted to complement repatriation. A 

business eligible for both repatriation and either accelerated depreciation or a repayable 

incentive would need to pick just one-"double dipping" should not be allowed. A rough quick 

comparison ofthe choices is provided in Table 1, based on simple assumptions. This 

comparison indicates that the repatriation may be a little more generous than accelerated 

depreciation or the 35% refundable tax incentive, but all three are similar. However, specific 

businesses may have reasons to prefer one over the other. 

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Encouraging Modernization of the Industria! Sector © ACEEE 

Table 1. Comparison of Repatriation, Accelerated Depreciation, and a Repayable Tax 

Incentive for an Illustrative Firm and Investment 

Investment (millions) 

Marginal tax rate 

Current depreeiation period (years) 

Annual discount rate (nominal) 

Avoided taxes (million $) 

PV current depree 

PV halving depree 

Value ofhalving depree. 

Credit 

PV of repayments 

Net value of credit 

Repatriation 

$ 10.00 

20"10 

10 

10"10 

Acoel. Depree. Repay.lncent. Notes 

$6.14 

$7.58 

$ 

Reduce rate from 20"10 to 5% 

PV current -PV halving 

3.50 35% 

$2.15 PV of repayments over 10 yrs 

lilla .. 

Accelerated Depreciation for Purchases of Energy-Efficient 

Equipment, Primarily in the Commercial Sector 

The discussion so far has focused on increasing capital investments in manufacturing. 

Promoting increased capital investments by industry is likely to improve energy efficiency as 

new industrial equipment and systems are generally more efficient than existing equipment 

For the commercial sector, a different approach is needed. 

The majority of capital investment is for "bricks and mortar," where energy efficiency is less of a 

consideration. As discussed previously, allowing accelerated depreciation or other special 

treatment for increased capital investments in the commercial sector would promote 

construction and perhaps real estate speculation, but have only a modest impact on energy 

efficiency. In order to better target accelerated depreciation for the commercial sector, we 

recommend that it apply only to energy-efficient equipment, where "energy efficient" is defined 

as meeting the energy-efficient specifications developed by the Federal Energy Management 

Program (FEMP) for federal facilities. Accelerated equipment should also be allowed for the 

same equipment in the industrial sector, even if total capital investment does not increase. 

FEMP has been identifying efficient equipment for federal purchasers for more than a decade. 

They use ENERGY STAR specifications for some equipment, and for other equipment have 

developed their own specifications. In general, the aim of both FEMP and ENERGY STAR have 

been to identify the roughly top quartile of equipment as energy efficient As of this writing 

FEMP has efficiency specifications for 67 types of equipment. These are listed in Figure 1. We 

recommend that the same accelerated depreciation periods be used for energy-efficient 

equipment-half of conventional depreciation periods. By offering more rapid depreciation for 

efficient equipment relative to standard efficiency equipment, more businesses will be 

encouraged to purchase efficient equipment when existing equipment needs to be replaced. 

6 
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Encouraging Modernization of the Industrial Sector 

Figure 1. FEMP Guidelines for Procuring Energy-Efficient Products 

Procuring Energy-Efficient Products Federei ma~ctai:e!I A1'qufre that Federal agaMiea pu.tt:hue enerlJY--

affiOant prodUICtl. To fl;eIp ~ buyM1 IN:tIt these requiremenh. tIM 

F.d.ral Energy M'.anol~nt ProEJIBm (F£MIP) maifttaiFUII "!II list of f-EMPduigNttad lind ENERGY STAR.·-qualiMod; product certegoriea found 

fr~ntIy In fed'enll facitJk:ias" Alefac tc the tegend to B88 WMt:h pfogTilm 

m.:era each pr-odLH:t category, For l'1li"'. mfDfmation -on tMn pf'Odl.Kh 

and ~irM1erlb. vi5it IW'WW.tiwnp.en&rgJWOV/C'OW!'f'edpm*tI. 

Legend of Energy-Efficient ""duct Pmgrams 

.. 

• 

Lighting 

~ Exterior lighting AI. 

~ RuoruOI1nt Balfasb A 

• l'EO Lighting (Commerc:fal)-lIt 

• Ught ..... 

Compmc.t FluoNsamt (eft.) • 

~ light Emiffin9 D10dllfl (lED) • 

• bmllnairM 

~ F"-.IOflI:!ICi!nt A 

. Do.'tWftfight (Comf'f'l9l'cial) .A 

- _trieI (I<; ..... ,y) .. 

, UgbtfixtJ.lres(~. 

• o.mn.:tiw- Ught stmglil • 

.. 

~ ~:~~~~~:"~j'~'~n"~ Commercial Food Service Equipment 

Heating & Cooling (Space & Water) 

Commordol SpoaIHNltng 

;and COOling 

• Soil.,,&. 

• C.rUraI Air Conditioners • 

• chiller! 

~ AiF-Coo1ed Electric A 

- WabH"·Coo!ed Electm,." 

• Air Source Heat Pumps. 

CorrrnGf'd;l w;.t., KNit"" 

• GasWllterHnttn A 

~ IT & Electronics ......, 

InfOm't2llon'TOthnoiOQy 

• eomput-8N 

- OHktop' and 

Woric&tationa .... 

- Hotebootsand-Ifttegrat.ct 

c .............. • D~lanctMonitClr .... 

.. c.nt..-priM SefY1tf'8. 

• hnagm!J Equipment 

- Copt", •• 

- Digital Oup1icatonl • 

Next Steps 

AGlldontaaJ!ipQCe H..-g 

and COoling 

• Room AM Conc6tionen • 

• C..mal Air CcnditiOnet!l • 

• Roilen. 

.. FlIftl 

- Cei:Ji!'lge - VsntifatiQlft. 

• GalfumlKle._ 

.. He.atPUmJS 

~ Air50Uf0l!. 

- Grourtd-&lun:e II 

.... Id ...... waIor!lUtlng 

• Electric Reaistanoe Storage .... 

• Hut-Pump. 

• Gas Condmsing • 

• S'UlP'89fl_ .. Who1e-Home Ti!lftkless 

(In,tarrtaneoull)_ 

.. sofM. 

~ fD/Prmter Joiad\ine.!!i •• 

- MaiingHac:hinlHl_ 

~ HWtitunction De¥i~ •• 

- Print&f'&. 

- SCanMfS. 

ElactronlCII 

• AlJdio/Vldft. 

• retfil&lon.& (T\II) • 

• aatt.ry Ctargatl • 

• CordiM5 Phones III. 

* S~Hop and C&bte Boxes • 

• OislMa&hers CC6trUnerci!l) .. 

.. Fry.rsa 

• Griddl'l!ll_ 

• Hoot Food Hotmng Cabfneb 111 

" IoaoMadH/lu 

~ Air-Cooted. 

- Water Cooled A 

l:j Appliances 

.. clotha. Walihers (Cgmmerc:ja(> • 

.. dothtr. wa.!'Htn (R8lidtintiel) IlII 

" RoOf'f! Dahumidifi.n • 

" Dishwll!llhenl (JWaiderltiatl .. 

& Other 

• OWMi(Commercial:) fI 

" Refrig«etDnl and Fnezem. 

(Commen:ial)-

• SlumCoobn-_ 

• Pr.-Rl"R SPrAY vaN • .t, 

• BlflV9riiilge V.nding M.<:hiM. 8: 

.. RefrigeMl)rs-(REililidentB) .. 

• Ff"MDfnj (RNidantial) • 

" RoomAirc:lolli!lM!f'lil 

ilnd PurifMrs & 

au.dlng en_. Addrllonal GlId:antO • Cool Roolme Product. _ • CerltrilUgatPumping SyWIms 

• Windows. Dooni.and ~ights.. • li-ghlirlg Gont-ra1a 

WMQfSenm Plumbing 

• f&Y0Bb. S'trowe,tueds. TOMb:. andUri~lI 

/'IU5CQlltaooovs 

• Water Cooler. a 

SUspondod c_, .. a.ctric Motor:s 

• Oist,Jbutlan Tl'i!lmtcrm.-s 

" Ftuonillanlt Tub8 Lilmpl 

This paper suggests several concepts to promote investment that would result in greater energy 

efficiency, but additional research and analysis are needed to determine how attractive these 

provisions would be for businesses. There is also the need to determine the distribution of costs 

and benefits to the federal Treasury. There will be near-term costs, with increased tax 

collections in later years after equipment is depreciated. But a focus on the role of investments 

as a strategy to improve the efficiency of the economy represents an important policy frontier. 

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References 

[BCG] Boston Consulting Group. 2012. "More Than a Third of Large Manufacturers Are 

Considering Reshoring from China to the U.S." Press release. 

http:{{www.bcg.com {media {PressReleaseDetails.aspx?id-tcm: 12 -1 04216. Boston 

ConSUlting Group. 

[Census] U.S. Census Bureau. 2012. Annual Capital Expenditures Survey 

http://www.census.gov/econ/acesj. Washington, DC: U.S. Census Bureau. 

Guenther, Gary. 2012. SecUon 179 and Bonus Depreciation Expensing Allowances: Current 

Law, Legislative Proposals in the 112th Congress and Economic Effects. 

http://www.nationalaglawcenter.org/assets/crs/RL31852.pdf. Washington, DC: 

Congressional Research Service. 

Hirsch, Michelle. 2011. "$1.4 Trillion Cash Stash Could Stoke Job Market." 

http://www.thefiscaltimes.com/Articles/20 11/10/14/1-Point-4-Trillion-Cash-StashCould-Stoke-Job-Market.aspx#page1. Fiscal Times. 

Krauss, C. 2012. "Bigger than Either of Them." The New York Times. Oct. 23. 

Laitner, John A. "Skip," Steven Nadel, R. Neal Elliott, Harvey Sachs, and A. Siddiq Khan. 2012. The 

Long- Term Energy Efficiency PotenUal: What the Evidence Suggests. 

http://www.aceee.org/research-report/e121. Washington, DC: American Council for an 

Energy-Efficient Economy. 

Markle, Kevin and Douglas Shackelford. 2011. "Cross-Country Comparisons for Corporate 

Income Taxes." Working Paper 16839. http://www.nber.org/papers/w16839. Cambridge, 

MA: National Bureau of Economic Research. 

Marples, Donald and Jane Gravelle. 2011. Tax Cuts on Repartriation Earnings as Economic 

Stimulus: An Economic Analysis. http://www.fas.org/sgp/crs/misc/R40178.pdf. 

Washington, DC: Congressional Research Service. 

Russell, Christopher and Rachel Young. 2012. Understanding Industrial Investment Decisions. 

http://www.aceee.org/research-report/ie124. Washington. DC: American Council for an 

Energy-Efficient Economy. 

Rubin, Richard. 2012. "Cash Hoard Grows by $187 Billion in Untaxed Overseas Profits." 

http://www.bloomberg.com/news /2012-03-02/ cash-harde-expands-by-1S 7 -billian-i nuntaxed-affshore-accaunts.html. Bloomberg. 

Tax Policy Center. Undated. "Quick Facts: Banus Depreciation and 100% Expensing." 

http://www. taxpoli cycenter.org/taxtopics/ Bon us-Deprecia tion-and -100-PercentExpensing.cfm. Washington, DC: Tax Policy Center. 

8 
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Testimony of Mark Wagner 

Vice President, Government Relations, Johnson Controls 

Before the United States Senate Committee on Finance 

Energy, Natural Resources, and Infrastructure Subcommittee 

Hearing on Tax Reform and Federal Energy Policy: Incentives to Promote 

Energy Efficiency 

December 12, 2012 

Chainnan Bingaman and Ranking Member Cornyn, I appreciate the opportunity to testify today 

on tax incentives for energy efficient investments in commercial and multifamily buildings. My 

name is Mark Wagner, and I am Vice President of Government Relations at Johnson Controls. 

Johnson Controls is a Fortune 100 company with 170,000 employees world-wide and $42 billion 

in sales. Our three business units focus on automotive interiors, automotive batteries, and 

building efficiency. Our building efficiency business has 1,300 branch offices in 148 countries. 

Our energy solutions have generated savings of over $7.5 billion since 2000 for our clients, and 

we are the largest energy services company in the world. We also manage over 1.8 billion sq feet 

of commercial real estate for some of the world's largest companies. 

For decades, energy services companies like Johnson Controls have been in the business of 

saving energy for our customers. We save taxpayer dollars when federal, state and local 

government buildings are renovated and upgraded using private-sector financed energy savings 

perfonnance contracts. 

The 179D federal tax deduction has been a valuable tool that allows a private commercial, and 

multi-family, or public sector building owner to receive a $\.80 per square foot deduction for an 

energy efficiency upgrade. It is set to expire at the end of 20\3. The current deduction also 

allows government buildings at the federal, state and local level to pass on this tax incentive to 

the designer of the efficiency project enabling lower overall project costs, since public entities 

themselves do not pay taxes. 
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Public Sector Examples 

Johnson Controls has designed and carried out 85 government-owned projects nationwide that 

have been completely certified by a 3rd party certifier under the 179D deduction. Another 80 

projects are waiting to be certified. 

In Maryland, for example, we performed a guaranteed energy savings project in seven Caroline 

County public schools to save the school district $4.1 million over the next 15 years. And we 

upgraded the Kent County Courthouse/Government Center, Public Works building, and the 

detention center. 

In Texas we performed efficiency upgrades in dozens of buildings in the City of EI Paso, with a 

total measured cost avoidance of over $4.7 million in the first two years. In San Antonio we 

performed lighting, HVAC, and building envelope upgrades for the city's three largest facilities, 

the Convention Center, the Alamodome and the San Antonio International Airport, totaling 5.4 

million square feet. This $9 million project is expected to generate savings of $15.6 million 

dollars within the first two years. 

That is great news for the public sector, where our federal, state and local governments, schools, 

and hospitals are investing to become more energy efficient. Even though efficiency 

investments have upfront costs, they result in lower operating costs over time, freeing up our 

schools and hospitals to use their limited operating budgets on teaching, on health care 

excellence and other mission critical operations. 

Private Sector Challenges 

However, 179D has a different story in the private commercial building sector where it is 

significantly underutilized. President's budget for FY 12 estimated expenditures of $200 million 

for the program, and yet only a fraction has been used. Despite the large potential market 

opportunity, private sector commercial buildings such as office spaces, shopping malls, historical 

buildings, and multi-housing units lag behind the public sector in energy efficiency upgrades. 

Upgrading commercial buildings needs to be a national priority as the majority of these buildings 

will still be standing, and wasting significant energy resources, for decades to come. 

In part, commercial sector retrofits lag behind due to structural challenges. Namely: 

1. Unlike the public sector, private sector building owners seldom commits to owning their 

facilities for decades, which limits the time scale in which an energy efficiency 

investment must "pay-back" to 2-3 years. 

2. Many commercial buildings belong to large real estate owners with the legal ownership 

structure as a Limited Liability Corporation (LLC). LLC's are non-credit rated, meaning 

that there is no credit history, and no assets which can be held as security against the 

mortgage. This fact makes banks wary of making energy efficiency loans. 
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3. Often there is no alignment between the owner and the tenant in a commercial building -

the owner makes the investment, but it is the tenant who would like to see lower 

electricity bills. 

Feedback from Building Owners 

Johnson Controls conducts an annual survey of executive decision-makers responsible for 

making investments in energy efficiency. In 2012, we surveyed over 1100 Energy Efficiency 

US executives and found that in one year there was a 20% increase in those who saw energy 

management as significant or very significant to their organization. Funding was cited as the 

most significant barrier to energy efficiency investment followed by an inability to meet return 

on investment requirements. 

Significantly, when asked to prioritize which government policies would drive greater 

investment in energy efficiency, tax incentives and rebates were deemed by far to be the most 

important, with 42 percent of the executives finding those to be the highest priority for public 

policy action. And yet, Section 179D is the only tax incentive for commercial building 

efficiency. 

The S. 3591 Solution 

In order to address the unique needs of the commercial building sector, financing structures and 

incentives need to be performance-based, technology-neutral and based on actual, verified 

performance. 

These elements are all present in S. 3591. the Commercial Building Modernization Act 

("CBMA") introduced by Senators Snowe, Bingaman, Feinstein and Cardin. Recently, Johnson 

Controls joined forty seven organizations from the real estate, construction, lending, manufacture 

and supply and efficiency communities in support of the extension of 179D and modifications 

proposed in S. 3591 (see attached). 

CBMA improves upon the existing 179D deduction in several key ways: 

I. It does not specify the technology, materials, or equipment to be used. Every building 

has a unique design and history of construction, operation and improvement. Building 

owners and contractors can determine which efficiency measures are most cost-effective 

for each individual building at each stage of its life. This gives building owners the 

freedom to install traditional as well as state-of-the-art technologies to meet a variety of 

operational and tenant needs. 

2. It rewards building owners for deeper energy savings and implementation of more 

improvement measures. Consistent with a performance-based approach, the allowable 

deductions proposed by CBMA allows for a $1 per square foot deduction for 20-24 
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percent of source energy savings at the low end scaling up to $4 per square foot for 50% 

or more source energy savings. 

3. It incentivizes verified energy savings, splitting the deduction into a "design deduction" 

of 60 percent, and a "realized deduction" of 40 percent after a professional engineer 

calculates actual energy consumption reductions against a baseline considering 

occupancy, climate, and other factors. 

4. It changes the current law from a retrofit of 50 percent savings against ASHRAE code to 

a sliding scale of options for energy savings benchmarked against the individual 

building's energy consumption for the previous year. Under current law, for example, 

upgrades to the iconic Empire State Building that Johnson Controls recently completed 

does NOT qualify for the incentive, even though we are projecting 38 percent energy 

savings as compared to the building's previous performance, and guaranteeing our 

portion ofthe projcct. Under CBMA, the Empire State Building project would qualify, 

because savings are compared to the building's baseline energy consumption. 

5. It restructures the deduction to give a better incentive to Real Estate Investment Trusts 

(REITs) and certain limited liability partnerships (LLPs) to participate. In current law, 

because REITs distribute all of their earnings, these earnings are taxed as a dividend and 

cannot be passed on to their shareholders as a benefit. 

l79D deduction will expire at the end 2013. We believe it is important to extend and improve 

the deduction. Extension and changes as outlined in CBMA are particularly important in light of 

the fact that there aren't many other financing mechanisms or incentives available that target 

commercial building efficiency. 

Other Policies and Programs 

I would also like to briefly mention a few other policies and programs which the 179D tax 

deduction can be packaged with to help create demand and stimulate further private sector 

investment in the commercial building sector. Several cities are making great progress in 

adopting policies to benchmark and disclose energy use in large commercial buildings. The 

Department of Energy has signed a Memorandum of Understanding with the real estate 

Appraisal Institute to create a "green appraisal" template which would provide credit in building 

valuations for energy efficiency improvements. Energy Star and the Energy Star Portfolio 

Manager are important government programs for assessing commercial building performance 

along with LEED® and other private-sector voluntary rating systems. The White House/DOE 

Better Buildings Initiative challenges building owners to retrofitting buildings across their 

portfolio or enterprise. Finally, the Green Button initiative defines standards for utilities to be 

able to easily provide energy use data to their customers securely over the Internet. 
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Also important are financial models and mechanisms that address the challenges of attracting 

third-party financing for commercial building upgrades. Standardization of the energy 

performance contracting procurement, measurement and verification methodology, as was done 

by the U.S. Federal Energy Management Program, had a very positive impact on scaling energy 

efficiency upgrades in government facilities. Similar standardization of energy services 

agreements, utility-bill based repayment approaches and Property Assessed Clean Energy 

(PACE) financing could have similar positive impacts in the commercial buildings sector. 

Johnson Controls and others in the industry are committed to working with government and the 

commercial building sector to increase energy efficiency investments in this underserved market. 

A combination of policies and programs that create market demand and provide commercial 

building owners with enhanced incentives, standardized processes, and financial models that 

attract private-sector funding can make a large impact with only a modest public investment. 

Performance-based, technology neutral tax incentives that reward the achievement of actual, 

verified energy savings are a key component of the solution. We are glad to support CBMA as a 

very important step forward in that process. 

Thank you for holding this important hearing and allowing me to testify before you today. 
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Senate Finance Committee Hearing 

"Tax Refonn and Federal Energy Policy: Incentives to Promote Energy Efficiency" 

December 12,2012 

Question for Mr. Mark Wagner 

Question from Senator Bingaman 

I. If Congress begins to design technology-neutral, perfonnance-based incentives on a more 

regular basis, it will be important to accurately measure and verifY energy savings 

achieved in commercial and residential buildings, and in the industrial sector. I wonder if 

each of you could speak to the measurement and verification systems and precautions 

present in the legislation before us today, or the work that your organization does on 

these issues. 

Answer from Mark Wagner: 

The use of standard methods for energy savings Measurement and Verification (M& V) is 

a common practice and should be used to support 1790 post-retrofit audit requirements. 

In 1995, an industry coalition, led by the U.S. Department of Energy developed a 

standard M&V methodology called the International Perfonnance Measurement and 

Verification Protocol (IPMVP). IPMVP is the basis for measuring and verifYing energy 

savings perfonnance in almost all ESCO perfonnance contracts with many industry 

practitioners knowledgeable and skilled in its use. 

The IPMVP protocol includes four options for verification including retrofit isolation, 

appropriate for simple, non-interacting improvement measurements such as lighting 

retrofits, to whole building verification options using models based on historical utility 

bill data or calibrated energy simulations. Whole building M&V is especially applicable 

for projects with multiple, interacting improvement measures and projects with 

significant retro-commissioning or operational improvement components. After the 

retrofit, utility bill data is analyzed against the modeled baseline energy perfonnance to 

detennine actual savings. Johnson Controls has recently introduced advanced metering 

and analytics software that reduces the cost, and improves the effectiveness of whole 

building measurement and verification. 
(99) 

COMMUNICATIONS


82738072.eps
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Established in 1975, Ace Electric, Inc. is an electrical and communications contracting 

company headquartered in Georgia. Beginning as a small family-owned business dealing with 

residential and commercial contracting, Ace has greatly expanded over the years, developing 

divisions and branch offices. 

Our success and expansion is due to competitive bid projects, negotiated projects, and 

teaming agreements with the help of modern electrical, utility, and instrumentation applications. 

Ace Electric offers pre-construction services, hard bid, design build, fee based work, and 

negotiated contracts. We employ hundreds of electricians and also offer quality contracting to 

correctional institutions, public schools, universities, government buildings, commercial 

warehouses, and office buildings. Ace has experience in a wide range of advanced electrical, 

instrumentation, and utility applications. 

Ace Electric has worked on major projects such as Paulding County Government 

Complex, Valdosta State University, Marriott City Center Hotel, Macon State College, 

Suwannee Correctional Institution, Embassy Suites, and Fort Bragg Anny Base. 

With regard to the current 179D Deduction for Energy Efficient Commercial Buildings, 

Ace Electric is extremely interested in; prospectively retrofitting many more facilities, the 

extension of 179D past 2013, increasing the maximum 179D deduction to $3.00 per square foot, 

expansion of the eligible building categories to include REITs and non-profits, and broadening 

the beneficiary base, particularly for capital providers. 

With regard to the new Section 179F Deduction for Retrofits of Existing Commercial and 

Multifamily Buildings, with a maximum $4.00 per square foot tax deduction, Ace Electric is 

very interested in working on larger projects where 50% energy cost reduction can be achieved 

as compared to the current building energy state and not modem building energy codes 

(ASHRAE). 

New Technology Can Accomplish Major Building Energy Cost Reduction 

Continuing technology developments have resulted in new, typically more expensive 

products that can meet the aggressive energy reduction targets embodied in the currently 

proposed 179D extension. 

For lighting, this includes greatly improved LED lighting products now available for 

virtually all building categories along with wireless controls and smart sensors. 

Building Retrofits Provide Large Employment Opportunities 

Ace Electric employs hundreds of electricians. Large numbers of existing building 

retrofits require enonnous skiIIed and semi-skilled work forces. 

Lighting retrofits require lighting designers, laborers to remove and dispose existing 

fixtures, distribution centers to store the new lighting material, laborers to stage the new material 

near the job site and electricians to install the new fixtures. 
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The 179D Tax Incentive Actually Results in Increased Tax Revenues 

By providing a tax incentive for energy cost reduction, the U.S. Treasury is actuaJly 

enabling larger future tax revenues. When a commercial property owner materialIy reduces their 

energy related operating tax costs, their taxable income increases by exactly the amount of the 

energy cost reduction. Although the 1790 tax incentive is only for the first (one) year of project 

completion, the company's taxable income will be increased annualIy every year (perpetually). 

Not-for-Profits 

Major not-for-profit building categories include hospitals and universities. The hospital 

industry is rapidly consolidating into very large health care providers and the need to manage all 

costs inclUding energy costs is a topic of national discussion. The hospital industry is recognized 

as a large, under-served building energy efficiency sector and emergence of these new, larger 

entities, coupled with good tax policy, can serve to achieve major energy cost reductions. Ever 

escalating costs of a university education is also a national discussion topic and energy cost 

reduction should help ameliorate the ever escalating costs. 

Conclusion 

Ace Electric greatly appreciates the opportunity to submit this statement for the record. 

During the recent difficult economic times, Ace Electric has placed importance on energy 

reduction and efficiency which has created and sustained business. The energy retrofit industry is 

an ever-growing market, which provides jobs and saves businesses of all sizes significant sums 

of money on energy consumption. 

EPAct 1790 has been very helpful in our business's growth and expansion and the new 

tax provisions would go even further and alIow us to reach out to markets which were previously 

un-incentivized. With the extension and expansion of 1790 and 179F businesses are now poised 

to bring our country to a much higher level of energy efficiency performance and the current 

proposals will greatly move us towards supporting that effort. 
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82738.075

Dean Zerbe 

National Managing Director 

alliantgroup 

5400 Westheimer Court, Suite 800 

Houston, TX 

713877 9600 

Statement of Dean Zerbe of alliantgroup 

"Tax Reform and Federal Energy Policy: Incentives to Promote Energy Efficiency" 

United States Senate Committee on Finance 

Subcommittee on Energy, Natural Resources/ and Infrastructure 

Wednesday, December 12, 2012, 10:00 AM 

215 Dirksen Senate Office Building 

Chairman Bingaman: 

Thank you for holding this hearing and for your long-time commitment to provisions in 

the tax code that encourage energy efficiency and independence, My submitted testimony 

focuses on two important provisions of the tax code as it relates to energy efficiency - Section 

179D "energy efficient commercial buildings deduction" and Section 41 (Research and 

Development (R&D) Tax Credit), 

A, Section 179D 

aUiantgroup has worked with hundreds of architects, engineers and contractors - as 

well as federal, state and local governments to assist them in qualifying for the benefits 

provided by 179D. alliantgroup has seen first-hand that 179D has been a real difference maker 

-¥ providing significant encouragement and reward for government agencies that seek to build 

energy efficient buildings. The tax savings transferred by the government entity to the 

architects, engineers and contractors has been a tremendous assist to these professionalsmany of whom are small and medium businesses - during these difficult economic times. 

There is no question that thousands of jobs have been created or maintained thanks to 179D. 

As the Finance Committee reviews 17901 we would encourage the Committee to 

consider the following changes: 

800,564.4540 I 
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1) Increase the deduction per square foot from $1.80 per square foot to at least $3.00 per 

square foot. This change will encourage more building owners to look to greater energy 

efficiency. This is particularly the case for privately-owned buildings. The current 

benefit of $1.80 does not provide enough incentive to encourage the vast majority of 

private building owners to take advantage ofthe benefit. In our work, we see the 

strong majority of building owners taking advantage of 179D are from the government. 

Increasing the 179D deduction would encourage more commercial/private sector 

building owners to focus on creating new structures that are energy efficient. Further, 

an expansion of the deduction would also encourage energy efficiency in smaller 

buildings across-the-board - both commercial and government. In practice we find that 

it is only on rare occasions that 1790 makes sense for a building smaller than 50,000 

square feet. Increasing the deduction from $1.80 to $3.00 will provide a real incentive 

for smaller buildings to also strive for greater energy efficiency - a particular benefit for 

smaller school districts and local governments in rural areas. 

We also commend to you the recommendations in the testimony you received from Mr. 

Mark Wagner of Johnson Controls of other reforms to 1790 that would encourage the 

commercial sector to benefit from 1790 as included in S. 3591-the Commercial 

Building Modernization Act. 

2) Make 1790 permanent. Section 1790 is set to expire at the end of 2013. This 

expiration coupled with a requirement that the deduction is available only at the time 

that the building is placed in service adds significant uncertainty to planning and 

undermines the Congressional policy of encouraging energy efficient buildings. 

3) Expand 179D to Indian Tribes and Tax-Exempt Organizations. In enacting 179D the 

Committee recognized the importance of encouraging energy efficiency for both 

commercial and government bUildings. However, 1790 does not do anything to 

encourage and incentive Indian tribes and tax-exempt organizations to create energy 

efficient buildings. Given the Congressional intent of encouraging energy efficiency 

buildings it is commonsense that this policy should be expanded to include buildings 

owned by Indian tribes and tax-exempt entities (and similar to buildings owned by the 

federal, state and local government - that the tax benefits may be transferred). 

Current law has created the anomaly from a tax policy viewpoint that a local 

government building benefits from 1790 but an Indian tribe government building does 

not. Further, a state university can benefit from 1790 but a tax-exempt private college 

cannot benefit from 1790. To better effectuate Congressional policy of energy 
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efficiency buildings and to have similar treatment of similar entities we encourage 

Congress to extend 179D benefits to Indian governments and tax-exempt organizations. 

4) Remove limitations on S-Corporations from benefitting from 179D. In our practice we 

are seeing more and more situations where an S Corporation is limited in benefitting 

from 179D. Many architect and engineering (A&E) firms are organized as an S 

Corporation. The issue is that the deduction for 179D reduces the shareholder's basis in 

his/her S-Corp shares. 

It is common for A&E owners to have a low basis or zero basis in S-Corp shares because 

they are pulling most of the profit out of the company each year. This reality means 

that when it comes to 179D there are a great deal of suspended 179D deductions and 

the ultimate benefit of the 179D deduction is only the difference (20%) between the 

ordinary income rate (currently the top rate is 35%) and the capital gains rate (currently 

15%) instead of the full ordinary income rate (35%) - given it is a distribution to the 

shareholder in excess of basis. To rectify this, we would encourage the Committee to 

consider changing the deduction to a credit (not subject to the limitations of Section 38 

- as is also the case with Section 48 currently) or alternatively state that for architects 

and engineers who receive an allocation from 179D, the allocation does not reduce 

basis. 

B. Research and Development Credit 

The Committee heard testimony from the Director of the National Renewable Energy 

Laboratory at the Department of Energy on the importance of research and development when 

it comes to improving energy efficiency of commercial buildings. We agree. 

Just as it is important to engage in basic research that will lead to energy efficiency in 

commercial buildings, it is vitally important that our nation support applied research and 

development that will bring to practice energy savings. The key means by which the federal 

government supports applied research and development of energy efficiency to commercial 

buildings is through the R&D tax credit. 

alliantgroup assists hundreds of architect and engineering firms every year in qualifying 

for the federal and state R&D tax credit. We are pleased to have helped these architect and 

engineering firms in realizing hundreds of millions of dollars in tax savings. We see first-hand 

that architects and engineers are applying scientific and engineering principles to help bring 

greater energy savings and greener buildings for their clients. 
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The R&D tax credit has meant that these architect and engineering firms are 

encouraged to continue to find the best solution for their client and the environment and at the 

same time creating and keeping jobs. The dollars realized from the R&D credit is particularly 

important for architect and engineering firms as they hire or retain new college graduates. 

1) Allow small and medium A&E firms to benefit from the R&D tax credit 

While the R&D tax credit is vital for encouraging the application of energy efficiency to 

commercial bUildings -too many small and medium architect and engineering firms are on the 

outside looking in - unable to take advantage of the R&D tax credit thanks to limitations in the 

statute. 

In 2010 the Senate initiated efforts to change the law and ensure that small and 

medium businesses could take the R&D tax credit against the alternative minimum tax AMT (in 

short, turning off the AMT limitation of Section 38(c). This change - included in the 2010 Small 

Business Jobs Act - was a tremendous benefit to hundreds of architect and engineering firms 

that often for the first-time were able to benefit from the R&D tax credit. Unfortunately, this 

commonsense change in the law was good for only 2010. We strongly encourage the 

Committee to keep the AMT turnoff for the R&D tax credit in place in the extension of the R&D 

tax credit and in any changes to the R&D tax credit going forward. 

2) IRS should work to support the Committee's policy of energy efficiency 

While we commend the Committee for recognizing the importance of the R&D tax 

credit when it comes to encouraging greener, cleaner buildings - that has sometimes not been 

the case of a few examiners at the Internal Revenue Service (IRS). We find it frustrating that 

while the administration has been an advocate for energy efficiency - a few IRS field examiners 

haven't gotten on the same page - applying yesterday's thinking and yesterday's laws to block 

today's solutions. 

We encourage the Committee to ensure that the IRS at all levels recognizes that the 

R&D tax credit is meant to encourage the application of green and clean technologies in the 

field of architecture and engineering. The IRS needs to be working with Congress' policy and 

priorities of energy efficient commercial buildings - not putting sand in the gears. We ask that 

the Committee consider report language - or a letter - to the IRS senior management on this 

matter to remind them of the intention of Congress that the R&D tax credit encompasses green 

and clean technology and ensuring that the IRS is working in a cooperative and reasonable 

manner with architecture and engineering firms on taking the R&D tax credits. 
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3) Expand the R&D tax credit for energy efficiency 

Finally, we encourage the Committee to consider a more generous R&D tax credit in 

those instances where the R&D is intended to result in significant energy savings beyond 

current standards. Such incentives will do much to improve the outlook for energy efficiency in 

our nation's future. 

Mr. Chairman, alliantgroup thanks you for your long-time efforts in this important area 

and the opportunity to submit remarks. We are happy to provide any further assistance as 

requested. 
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JOINT STATEMENT FOR THE RECORD 

OF 

ASHRAE 

ASSOCIATED BUILDERS AND CONTRACTORS 

THE ASSOCIATED GENERAL CONTRACTORS OF AMERICA 

THE AMERICAN COUNCIL OF ENGINEERING COMPANIES 

THE AMERICAN INSTITUTE OF ARCHITECTS 

FOR THE HEARING ON 

"TAX REFORM ANI) FEo.:RAL ENERGY POLICY; INCENTIVES TO PROMOTE 

ENERGY EFFICIENCY" 

BEFORE 

THE U.S. SENATE COMMITTEE ON FINANCE 

SUBCOMMITTEE ON ENERGY, NATURAL RESOURCES, ANI) INFRASTRUCTURE 

DECEMBER 12, 2012 

1735 New York Avenue., NW, Washington, DC 20006·5292 

202·626·7300 • www.aia.org 
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On behalf of the design and construction industry, we commend the Subcommittee's work on the 

critical issue of tax reform and federal energy-efficiency incentives and we appreciate the 

opportunity to submit this statement for the record. 

Although there are numerous policies that incentivize energy efficiency in the built environment, 

our statement focuses on the Energy Efficient Commercial Building Deduction, which is 

contained in section 1790 of the Internal Revenue Code (1790 deduction). The 1790 deduction, 

which is scheduled to expire in 2013, has had a significant effect on energy efficiency 

investment, domestic manufacturing, and design and construction industry jobs. 

ASHRAE, Associated Builders and Contractors (ABC), The Associated General Contractors of 

America (AGC), The American Council of Engineering Companies (ACEC), and The American 

Institute of Architects (AlA) represent millions of design and construction professionals 

nationwide and around the world. As leaders in the design and construction industry, we support 

incentivizing energy efficiency in a myriad of ways, but particularly through provisions like the 

1790 deduction, which has proven successful. 

The 1790 deduction has leveraged billions of dollars in private capital, resulted in the energyefficient construction and renovation of thousands of buildings, and created and preserved 

hundreds of thousands of jobs in the process. It is one of the best examples of the tremendous 

impact energy tax incentives can have on financing energy-efficient property. 

In recognition of the benefits of the J 790 deduction, there have been proposals offered in recent 

months aimed at further enhancing the important tax benefit. We applaud the work of Chairman 

Bingaman and Senators Snowe, Fcinstein, and Cardin, and look forward to continued work with 

Congress to make the incentive more compatible with retrofits and tied to performance. 

Most importantly, the industry supports the extension and reform of the 1790 deduction 

consistent with the principles of tax reform, making it simpler and easier to access. As tax 

reform progresses, we strongly urge Congress to make permanent and enhance the 1790 

deduction to effectively encourage investments in energy efficiency, stimulating construction 

activity and jobs during this fragile time in the nation's economy. 

Background on Section 179D, the Energy Efficient Commercial Building Deduction 

The Energy Efficient Commercial Building Deduction was created by the Energy Policy Act of 

2005,1 in recognition of the fact that a substantial portion of U.S. energy consumption is 

attributable to commercial buildings and to provide a tax incentive to help offset the costs 

associated with enhancing their energy efficiency. Scction 1790 of the Internal Revenue Code 

provides a deduction for certain energy-efficient commercial building property expenditures. 

Eligible expenditures are for property which is: (I) installed on or in any building that is within 

the scope of Standard 90.1-2001 of the American Society of Heating, Refrigerating, and Air 

Conditioning Engineers and the Illuminating Engineering Society of North America 

C"ASHRAE/fESNA"); (2) installed as part of the (i) interior lighting systems, (ii) heating, 

I The Energy Policy Act of2005, Pub. L. No. 109-58. 
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cooling, ventilation, and hot water systems, or (iii) building envelope; and (3) certified as being 

installed as part of a plan designed to reduce total annual energy and power costs by 50 percent 

or more. Critically, the deduction is effective only for property placed in service prior to January 

1,2014. 

The maximum deduction is $1.80 per square foot. In the case that a building does not meet the 

50 percent energy savings requirement, a partial deduction of $0.60 per square foot is allowed 

for each separate building system that comprises energy-efficient property and that is certified as 

meeting required savings targets. To encourage the public sector to utilize these same energy 

efficient enhancements, the 1790 deduction also provides a federal, state, or local government 

owner of a commercial building an election to allocate the tax deduction to the primary person 

responsible for designing the energy efficient enhancements installed in the building. 

In the short-term, the 1790 deduction enables building owners to offset the often costly expenses 

associated with energy-efficiency enhancements. In the longer-term, building owners who take 

advantage ofthe 1790 deduction realize significantly lower energy costs, the benefits of leading 

edge design and construction that enhances the building'S long term market value, and the 

benefits of a cleaner environment. Building owners utilize the deduction for both new 

construction projects and retrofits of existing buildings. 

Moreover, in the case of a public entity, the allocation of the 1790 deduction, in the short-term, 

results in savings by allowing the public entity to negotiate a better deal and, in the long-term, 

allows the public entity to realize ongoing energy savings. The average 1790 project (typically 

$0.601 sq. ft. for lighting upgrades) saves a public entity an average of20 percent on their energy 

expenses. Even in cases where there are minimal upgrades that qualify for 1790, public entities 

have saved relatively large amounts.2 

for example, a middle school initiated a project to retrofit its lighting system. An architect 

worked with the school to find 12 percent energy savings on a single lighting system. The project 

qualified for the 1790 partial lighting deduction. The school saved $15,000 on its energy bill in 

(he first year alone. Over ten years, that totals to over $150,000 for a single school. School 

districts utilizing the 1790 deduction to finance energy-efficient enhancements for five, ten, or 

20 schools can save millions of dollars over ten years. 3 

This example illustrates the impact of just 12 percent energy savings in a single school. There are 

hundreds of other examples of the deduction providing even greater benefits to school districts, 

army bases, civic structures, and other publicly-owned buildings across the nation. 

Proposals to Improve the 179D Deduction 

The design and construction industry supports commonsense efforts that make the 1790 

deduction more usable, effective, and simpler. As these discussions progress, we strongly urge 

Congress to consider three key improvements to 1790: (1) ensuring the ability of pass-through 

entities to capture the full value of an allocated deduction in the case of a public owner of a 

, Julio Gonzalez, CEO. Engineered Tax Services 

31d. 
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building; (2) increasing the value of the 179D deduction; and (3) allowing non-profit owners of 

buildings, similar to public owners of buildings, to allocate the deduction. 

Allocating the Section 179D Deduction to a Pass-Thru Entity 

As discussed previously, the l79D deduction provides a federal, state, or local government 

owner of a commercial building an election to allocate the tax deduction to the primary person 

responsible for designing the energy efficient enhancements. In December 2010, the IRS 

released a memo that effectively prevents firms organized as partnerships or S corporations from 

fully realizing the benefit of a 179D allocated deduction.4 

This is a critical problem, significantly undermining the intended effects of the 179D deduction. 

For example, the IRS reports that in 2007, nearly a third of architecture firms were organized as 

partnerships and S corporations and almost 80 percent of architectural firms have fewer than 10 

employecs.s It is often these small and mid-size firms that work on state and local government 

projects such as schools. 

By way of background, an allocated 1790 deduction is a tax deduction that does not reflect an 

economic cost to the recipient taxpayer, because, similar to a tax credit, the deduction provides 

an incentive. The technical tax rules nonetheless treat an allocated deduction as reflecting an 

economic cost to the taxpayer and accordingly reduce partnership and S corporation taxable 

income and the partners'/sharehoiders' basis in the partnership/S corporation (i.e., "outside 

basis") by the amount of the allocated deduction. The reduced outside basis may force partners 

and S corporation shareholders to recognize taxable gain on the distribution of economic 

earnings that were excluded from tax by the allocated 179D deduction at the partnership and S 

corporation level. The IRS memo states that, in the absencc of explicit statutory authority 

allowing for basis adjustments to preserve the benefit of the deduction at the partner or 

shareholder level, the technical tax rules govern. The result will be that, in the case of many 

partnerships and S corporations, the benefit of the 179D deduction will be lost or significantly 

diminished. This will harm not only these firms, but, more importantly, the school districts and 

other public entities who own the buildings. 

In order for partnerships and S corporations to obtain the intended benefits, it is necessary for 

partners and S corporation shareholders to obtain a basis in their partnerships and S corporations 

that is not reduced by an allocated 1790 deduction. This issue could be addressed by a simple 

statutory modification to expressly require Treasury to issue regulations that properly determine 

partnership or S corporation outside basis in the case where the 179D deduction is allocated. 

Such a clarification would provide certainty and address a widespread concern among many 

small businesses that design energy efficient buildings. 

Enhancing the Section 179D Deduction 

The maximum 179D deduction of $1.80 per square foot has not been increased since the 

deduction was put in place in 2005 and, as a result, has not kept pace with inflation. 

Consequently, the impact of the 1790 deduction has become muted over time. Moreover, as the 

'I.R.S. ChiefCouns. Mem. AM2010-007 (Dec. 23, 2010). 

, I.R.S. Audit Technique Guide. (August 20 II). http://www,irs.gov/publirs-utllarchitects_atg.pdf 
111 


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economy and financial markets continue their fragile recovery, the amount of capital available 

for building design, construction, and renovation continues to be limited. A recent AlA survey 

of architecture firms shows that nearly two-thirds report that a lack of financing has slowed or 

stopped construction projects that would create jobs.6 Owners are also less likely to invest the 

upfront capital costs associated with energy efficient systems, which often are somewhat more 

expensive to design, build, and install than their less efficient counterparts. 

In 20 I 0, a coalition of more than 80 organizations and companies called on Congress to increase 

the 1790 deduction from the current maximum allowable amount of $1.80 per square foot to 

$3.00 per square foo1. 7 In the case of individual subsystems, the maximum allowable deduction 

should be increased from $0.60 per square foot to $1.00 per square foot. Bipartisan legislation 

was introduced by Chairman Bingaman and Senators Snowe, Feinstein, and Cardin in the Senate 

in the 112'h Congress to enhance the deduction in this way (S. 3591). 

Enhancing the 1790 deduction would provide an important source of additional capital to 

stimulate building design, construction, and renovation, driving the creation of well-paying jobs. 

Studies have shown that every $1 million invested in design and construction yields 28.5 fulltime jobs.s An enhanced 1790 deduction would further incentivize energy efficiency, improve 

the nation's commercial building stock, and increase energy independence. 

Allocating the Section 179D Deduction in the Case of a Non-Profit Owner of a Building 

The 1790 deduction allocation provision, which allows a federal, state, or local government 

owner of a building to allocate the deduction to the designer, has been used to great effect to 

encourage their public sector clients to meet the energy targets ofthe deduction and then have 

the client assign them the tax deduction. The result has been more energy-efficient public 

buildings and lower energy costs for the building owners. 

In many cases, non-profit entities, such as hospitals, universities, private schools, charities, and 

foundations, conduct functions similar to state and local governments. Currently, non-profit 

entities own thousands of properties across the country. Although retrofits to these properties 

could result in significant energy savings, the non-profit entities do not pay taxes and, 

consequently, cannot benefit from the 1790 deduction. 

The 1790 allocation provision should be expanded to provide non-profit owners of buildings, 

similarly to public owners of buildings, with the ability to elect to allocate the deduction to the 

primary designer of the building. Such a provision would assist non-profits in financing energy 

efficiency upgrades and would reduce their energy costs in the longer-term. Chairman Bingaman 

and Senators Snowe, Feinstein, and Cardin recognized the importance ofthis expansion to 

nonprofits by including this provision in S. 3591. 

6 ALA Firm Survey 20 I 0 

'? http://www.efficientbuildings.orgiabout_theJlrovision.html. 

8 Center for Regional Analysis Study. George Mason University, (2007), 
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Conclusion 

The design and construction industry appreciates the opportunity to submit this statement for the 

record. As Congress considers tax reform, it is important to recognize the impact the 1790 

deduction has had in leveraging private capital and increasing energy-efficient construction and 

renovation. Making permanent and making modest improvements to the 1790 deduction would 

increase the effectiveness and efficiency of this important tax policy. ASHRAE, ABC, AGC, 

ACEC, and the AlA, and our members, are ready to serve as a resource to and lock forward to 

working with Congress and the Subcommittee on these and other issues. 
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STATEMENT FOR THE RECORD 

FOR THE HEARING ON 

"T AX REFORM AND FEDERAL ENERGY POLICY: INCENTIVES TO PROMOTE ENERGY 

EFFICIENCY" 

BEFORE 

THE U.S. SENATE COMMITTEE ON FINANCE 

SUBCOMMITTEE ON ENERGY, NATURAL RESOURCES, 

AND INFRASTRUCTURE 

JANUARY 22, 2013 

SUBMITTED By 

BRUCE A. JOHNSON, PARTNER 

BEDFORD STRATEGIES & SOLUTIONS 

101 WEST AVENllE,SUITE301 

JENKINTOWN, PENNSYLVANIA 19046 

(215) 885-7510 

BJOHNSON@BEDFORDTEAM.COM 
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Bedford Strategies & Solutions is a boutique consulting firm that specializes in providing 

innovative and tax, finance, and energy solutions that focus on maximizing cash flow while 

minimizing tax liability. These services typically include cost segregation and EP Act 179D 

disciplines. 

Our practice is designed to support commercial real estate developers, investors and operators 

and their CPA firms. Over the last 10 years, we have served clients from the Fortune 100 ranks 

to small business owners across the US. To date we have successfully supported over 7,500 

studies. 

In addition to providing the services to prepare EP Act 179D studies, Bedford has actively been 

presenting the merits and use of the EP Act 179D deduction benefit for the past five years. Most 

of our presentations are to the CPA profession and we provide CPE through our NASBA 

designation. 

With regard to the current 179D Dcduction for Energy efficient Commercial Buildings, our 

clients are extremely interested in; the extension of 179D past 2013, increasing the maximum 

179d deduction to $3.00, expansion of the eligible building categories to include REITs and nonprofits, and broadening of the beneficiary base, particularly for capital providers. 

With regard to the proposed Section 179F Deduction for Retrofits of Existing Commercial and 

Multifamily Buildings, with a maximum $4.00 per square foot tax deduction, our clients are very 

interested on working on larger projects where 50% energy cost reduction can be achieved from 

the current building energy state but not as compared to modern building energy codes. 

Enhanced U.S. Economic Performance 

By lowering its building energy costs, the U.S. can be a much more effective global competitor. 

The marked reduction in U.S. natural gas costs has gone a long way toward making the U.S. 

once again a center for manufacturing. These same manufacturers, and all U.S. business 

operators with buildings, can also become much more globally competitive with substantially 

reduced building energy related operating costs. It is important to realize that the maximum 

Section 179D tax incentive requires a 50% energy cost reduction as compared to an everincreasing building energy code standard. These are truly enormous building energy usage and 

cost reductions. 

New Technology Can Accomplish Major Building Energy Cost Reduction 

Continuing technology developments have resulted in new, typically more expensive products 

that can meet the aggressive energy reduction targets embodied in the currently proposed 179D 

extension. 
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For lighting, this includes greatly improved LED lighting products now available for virtua1ly all 

building categories along with wireless controls and smart sensors. 

For HVAC, this includes both extremely efficient technologies for commercial buildings such as 

frictionless bearing-less chillers and variable refrigerant volume (VRV) for apartment buildings. 

As the U.S. shifts to more apartment renters it is extremely important to offer tenants monthly 

cost reduction in this historically under-served energy efficiency market. 

For building envelope, recent advances include better materials, cool roofs, better insulation, and 

improved glass and window systems. 

Building Retrofits Provide Large Employment Opportunities 

Large numbers of existing building retrofits require enormous skilled and semi -skilled work 

forces. 

Lighting retrofits require lighting designers, laborers to remove and dispose existing fixtures, 

distribution centers to store the new lighting material, laborers to stage the new material near the 

job site and electricians to install the new fixtures. 

HVAC retrofits require engineers for project system design, substantial U.S. manufacturing 

activity (most HVAC equipment is heavy and made in the U.S.), U.S. steel procurement and 

HV AC mechanics to install. 

The building envelope involves a wide variety of manufactured and workshop materials 

including roofs, walls, windows, doors, foundations and insulation. In addition to the labor 

required to create these products, large numbers of roofers, carpenters, installers and laborers are 

needed to handle the material and incorporate it into a building. 

Stretching our current Utility Infrastructure 

The very nature of the EP Act l79D program is to incentivize investment in energy efficiency for 

commercial real estate. This translates into a reduced need for added utility infrastructure 

through the avoided increase in energy demands. The result frees up resources to focus on 

revitalizing existing networks, and investment into the next generation of technologies. 

Reduction in Carbon Emissions 

The increased efficiencies promoted and incentivized by EP Act l79D provide further benefit by 

supporting the national focus on environmental responsibility and natural resource management. 

The financial incentives in EPAct l79D assist tax payers in increasing the energy performance of 

their properties, and in tum work toward the goal of reducing target initiatives such as carbon 

emissions. 
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The 179D Tax Incentive Actually Results in Increased Tax Revenues 

By providing a tax incentive for energy cost reduction, the u.s. Treasury is actually enabling 

larger future tax revenues. When a commercial property owner materially reduces their energy 

related operating tax costs, their taxable income increases by exactly the amount of the energy 

cost reduction. Although the l79D tax incentive is only for the first (one) year of project 

completion, the company's taxable income will be increased annually every year (perpetually). 

When a government organization materially reduces its energy costs, it can reduce its budget 

deficit which may be used to reduce tax levies, including real property taxes at local level or 

meet other more vital community needs. 

REITs 

It is particularly important to provide an incentive for REIT energy reductions service 

providers. REITs are the largest holders of large institutional grade real estate in the country. 

Major REIT categories include; 1. office buildings, 2. apartment buildings, 3. shopping centers, 

4. Hotels,S. warehouse/industrial and 6. data centers. 

The REIT model is largely a tenant model and for the most part REIT's have not endeavored to 

materially reduce energy costs simply because they don't pay the energy bill. With REITs, the 

tenant bears the burden of the monthly energy bill. With America's large service-based 

economy, large service businesses operating from offices bear the burden of unnecessary energy 

bills. With apartment RElTs, it is renters who bear the burden of unnecessary energy bills. With 

shopping centers, it is retailers and shoppers that bear the burden of unnecessary energy costs. 

With hotel REITs, it is nightly guests who bear the burden of unnecessary costs in their room 

rates. In the REIT warehouse and industrial sector, it is America's engines of commerce that bear 

the burden of unnecessary energy costs. Data Centers are huge consumers of electricity and 

hence directly responsible for large amounts of emissions. Accordingly with Data Center REITs, 

all of American society bears the burden of unnecessary energy costs. 

Not-for-Profits 

Major not-for-profit building categories include hospitals and universities. The hospital industry 

is rapidly consolidating into very large health care providers and the need to manage all costs 

including energy costs is a topic of national discussion. The hospital industry is recognized as a 

large, under-served building energy efficiency sector and emergence of these new, larger entities, 

coupled with good tax policy, can serve to achieve major energy cost reductions. Ever escalating 

costs of a university education is also a national discussion topic and energy cost reduction 

should help ameliorate the ever escalating costs. 

Public Private Partnerships (PPA's) 

The provision in the proposed extension of 179D to include energy project financiers in the 

beneficiary category is crucial to America's energy policy future. 
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It is common knowledge that finances of many of our country's state and local government costs 

are in dire financial straits. These government entities find themselves in the untenable position 

of not having the capital to act on large energy cost reduction projects, often for steadily 

deteriorating essential service government buildings. The addition of the 179D financing tax 

incentive will encourage private sector capitalized lenders to take the added risk related to 

financing these important projects. There are many excellent contractors and ESCOs who have 

the capacity and desire to work in today's depressed construction market but who don't have the 

tax capacity to benefit from energy cost related tax incentives. There are many cash-strong 

lenders interested in entering this market who to date haven't found an economically viable 

pathway for doing so. 

Conclusion 

Bedford Strategies & Solutions greatly appreciates the opportunity to submit this statement for 

the record. In the last seven years during very difficult economic times the lighting, HV AC and 

building envelope industry has made a large investment in educating their staff and customers on 

the type of holistic building energy usage knowledge required to understand the technical 

underpinnings ofEPAct. The industry is now poised to bring our country to a much higher level 

of energy efficiency performance and the current 179D and 179F tax proposals will go a long 

way toward supporting that effort. 
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More hellt, lea enel'JlY 

STATEMENT FOR THE RECORD 

OF 

CAMBRIDGE ENGINEERING, INC. 

FOR THE HEARING OF 

"TAX REFORM AND FEDERAL ENERGY POLICY: INCENTIVES TO PROMOTE 

ENERGY EFFICIENCY" 

BEFORE 

THE U.S. SENATE COMMITTEE ON FINANCE 

SUBCOMMITTEE ON ENERGY, NATURAL RESOURCES, 

AND INFRASTRUCTURE 

DECEMBER 12, 2012 

SUBMITTED BY 

Cambridge Engineering, Inc. 

760 Long Road Crossing Dr. 

Chesterfield, MO 63005 

(636) 532-2233 • www.cambridge-eng.com 
119 


82738.092

Established in 1963, Cambridge Engineering is a manufacturing company with strong R&D, 

engineering and customer oriented problem solving capabilities. Located in Chesterfield, MO, 

Cambridge pioneered the development and application of direct gas-fired space heating 

technology. We are now recognized as the leading manufacturer of high performance, energy 

efficient industrial heating/ventilating systems. 

Being the best at saving energy, reducing operating costs and improving indoor air quality has 

made Cambridge technologies very popular with 30,000 installations and over one billion square 

feet heated. Typical applications include warehouses, distribution centers, manufacturing plants, 

spray paint booth areas, auto dealership service bays, car wash facilities, aircraft hangars, boat 

storage facilities, maintenance buildings, parking garages, retrofit/rehab projects, wastewater 

treatment plants, indoor sports facilities, and restaurants. 

As a member of the U.S Green Building Council (USGBC) and an ENERGY STAR Partner, 

Cambridge is committed to energy conservation and continued support of the green building 

market. Our heating and ventilating projects have qualified for EP Act tax deductions on several 

occasions. 

At Cambridge Engineering, we are committed to providing the energy efficient heating and 

ventilating solutions. Therefore, we are extremely interested in the extension of l79D Deduction 

for Energy Efficient Commercial Buildings past 2013. Also, we see great value in the proposals 

of increasing the maximum 179D deduction to $3.00 per square foot, expanding the eligible 

building categories to include REITs and non profits, and broadening the beneficiary base, 

particularly for capital providers. 

With regard to the new Section 179F Deduction for Retrofits of Existing Commercial and 

Multifamily Buildings, with a maximum $4.00 per square foot tax deduction, Cambridge 

Engineering is very interested in working on larger projects where 50% energy cost reduction 

can be achieved from the current building energy state but not as compared to modem building 

energy codes. 

Reducing Operating Expenses 

Cambridge Engineering understands energy efficiency as a major savings opportunity, 

particularly in difficult economic times. That is why we are committed to providing the most 

energy efficient technology to heat large insulated buildings that require some form of 

ventilation. Impacts on operating costs have been significant: comparison building studies, utility 

bills and customer testimonials document 40% to 70% energy savings versus all other types of 

indirect and direct gas-fired heating systems. 

Savings are bound to be even greater as the increase in natural gas supply in the U.S. will drive 

its costs down, making natural gas heaters an even more attractive investment opportunity. 

Large shale gas fields, such as Marcellus, Barnett and Utica, exemplify the recently uncovered 

natural gas abundance in national territory. In such a favorable context, we understand that 
120 


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property owners can profit enormously from converting to efficient natural gas heaters. EPAct 

tax savings can playa major role in opening the way to this transition. 

New Technology Can Accomplish Major Building Energy Cost Reduction 

Continuing technology developments have resulted in new products that can meet the aggressive 

energy reduction targets embodied in the currently proposed 1790 extension. 

At Cambridge Engineering we have mobilized efforts to develop state-of-the-art 

heating/ventilating systems that combine high performance and energy efficiency. Energy 

efficient Cambridge Blow-Thru® Space Heaters and make-up air units, for instance, reduce 

operating cost and improve indoor air quality for a wide variety of commercial and industrial 

applications. On the other hand, Cambridge infrared radiant technology provides energy efficient 

heat for small buildings and focused spot heating in large facilities. 

Building Retrofits Provide Large Employment Opportunities 

At Cambridge Engineering, it is our experience that heating/ventilating projects require skilled 

and semi-skilled work forces. In addition to the professionals directly involved in the 

manufacturing and installation of our products, we have service representatives throughout the 

United States and Canada, which are trained to assist clients in heating and ventilating system 

design, building load analysis, and operating cost analysis. 

The 179D Tax Incentive Actually Results in Increased Tax Revenues 

By providing a tax incentive for energy cost reduction, the U.S. Treasury is actually enabling 

larger future tax revenues. When a commercial property owner materially reduces their energy 

related operating tax costs, their taxable income increases by exactly the amount of the energy 

cost reduction. Although the 1790 tax incentive is only for the first (one) year of project 

completion, the company's taxable income will be increased annually every year (perpetually). 

When a government organization materially reduces its energy costs, it can reduce its budget 

deficit which may be used to reduce tax levies, including real property taxes at local level or 

meet other more vital community needs. 

Conclusion 

Cambridge Engineering greatly appreciates the opportunity to submit this statement for the 

record. The energy retrofit industry is an ever-growing market, which provides jobs and saves 

businesses of all sizes significant sums of money on energy consumption. EP Act 1790 has been 

very helpful in our business's growth and expansion and the new tax provisions would go even 

further and allow us to reach out to markets which were previously un-incentivized. With the 

extension and expansion of 1790 and 179F businesses are now poised to bring our country to a 

much higher level of energy efficiency performance and the current proposals will greatly move 

us towards supporting that effort. 
121 


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Comments for the Record 

United States Senate 

Committee on Finance 

Tax Reform: Impact on U.S. Energy Policy 

December 12,2012,10:00 AM 

By Michael G. Bindner 

Center for Fiscal Equity 

4 Canterbury Square, Suite 302 

Alexandria, Virginia 22304 

Chairmen Baucus and Ranking Member Hatch, thank you for the opportunity to submit 

comments for the record on these issues. 

There are three aspects to consider regarding whether energy policy should be conducted through 

the tax code: energy taxes as transportation user fees; energy taxes as environmental sin taxes 

and energy tax policies as a subsidy for business. How to design provisions for a sustainable 

energy policy and tax reform will be discussed for each of these areas and we will address 

certain oversight questions on whether current tax provisions have been implemented efficiently 

and effectiveLy. 

Energy Taxes as Transportation User Fees 

The most familiar energy tax is the excise tax on gasoline. It essentialLy functions as an 

automatic toll, but without the requirement for toll booths. As such, it has the advantage of 

charging greater tolls on less fuel efficient cars and lower tolls on more efficient cars, all without 

requiring purchase of a EZ Pass or counting axles. 

It is a highly efficient tax in this regard, although its effectiveness is Limited because it has not 

kept pace with inflation. This could be corrected by shifting it from a uniform excise to a 

uniform percentage tax - however because the price of fuel varies by location, there may be 

constitutional problems with doing so. The only other option to increase this tax in order to 

overcome the nation's infrastructure deficit - which is appropriateLy funded with this tax - is to 

have the courage to increase it. 

In this time of high unemployment, such an increase would be a balm to economic growth, as it 

would put peopLe back to work. Given the competitive nature of gas prices, there is some 

question as to whether such an increase would produce a penny for penny increase in gasoline 

prices. If the tax elasticity is more inelastic than elastic, the tax will be absorbed in the purchase 

price and be a Levy on producers. If it is more elastic, it will be a Levy on users and will impact 

congestion (and thus decrease air pollution and overalL conservation). For many citizens, either 

prospect is a win-win, given concerns over both climate change and energy industry profits. The 

only real question is one of the political courage to do what is necessary for American jobs and 

infrastructure -and that seems to be a very open question. 
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Energy taxes are currently levied through the private sector, rather than through toll booth 

employees, which from the taxpayer point of view is a savings as it externalizes the pension and 

benefit requirements associated with hiring such workers. 

In the event that gasoline cars were replaced with electric cars, given either improvements in 

battery charging technology or in providing continuous supply through overhead wires, much in 

the same way that electric trains and busses receive power, any excise per kilowatt for the 

maintenance of roads could be collected in the same way - or the road system could be made 

part of a consortium with energy providen;, car maken; and road construction and maintenance 

contracton; - effectively taking the government out of the loop except when eminent domain 

issues arise (assuming you believe such a tool should be used for private development, we at the 

Center believe that it should not be). 

The electric option provides an alternative means to using natural gas, besides creating a gas 

fuelling infrastructure, with natural gas power plants providing a more efficient conduit than 

millions of internal combustion engines. The electric option allows for the quick implementation 

of more futuristic fuels, like hydrogen, wind and even Helium3 fusion. Indeed, if private road 

companies become dominant under such a model, a very real demand for accelerated fusion 

research could arise, bypassing the current dependence on governmental funding. 

In the event of comprehensive tax reform, the excise for fuel would be either a component of or 

an addition to any broad based Value Added or VAT-like Net Business Receipts Tax. The 

excise should not disappear into such a general tax, as doing so would have the effect of forcing 

all businesses to fund transportation on an equal percentage, regardless of their use of such 

infrastructure. Of course, like a VAT, any gasoline excise would be accounted for using the 

credit receipt method, so that cascading taxes would not occur, as they do now with this excise 

functioning as hidden levy. 

Energy Taxes as Environmental Sin Taxes 

Carbon Taxes, Cap and Trade and even the Gasoline Excise are effectively taxes on pollution or 

perceived pollution and as such, carry the flavor of sin taxes. As such, they put the government 

in the position of discouraging vice while at the same time trying to benefit from it. Our 

comments above as to whether the tax elasticity of the gasoline excise has an impact on 

congestion and pollution is applicable to this issue, although tax inelasticity will mute the effect 

of discouraging "sinful" behavior and instead force producers to internalize what would 

otherwise be considered externalities - provided of course that the proceeds from these taxes are 

used to ameliorate problems of both pollution (chest congestion) by paying for health care and 

traffic congestion in building more roads and making more public transit available - while 

funding energy research to ease the carbon footprint of modem civilization. 

Oddly enough, this approach was once considered the conservative alternative to other more 

intrusive measures proposed by liberals, like imposing pollution controls on cars and factories or 

simply closing down source polluten;. When those options are taken off the table, however, or 

are considered impractical, then the concept of environmental sin taxes becomes liberal and no 

action at all becomes the conservative position. 
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These use of environmental sin taxes is by nature much more efficient economically than 

pollution controls and probably also more efficient than allowing producers and consumers to 

benefit from externa1ities like pollution, congestion and asthma As with transportation funding, 

such taxes are only effective if they actually provide adequate funding for amelioration or 

otherwise change consumer behavior. If the politics of the day prevent taxes from actually 

accomplishing these objectives, then their effectiveness is diminished. 

The short term political win of keeping taxes too low can only work for so long. Reality has a 

way of intruding, either because infrastructure crumbles, congestion becomes too high, children 

become ill with asthma (for full disclosure purposes, I suffered from this after moving downwind as a child from an Ohio Edison coal plant) and sea levels rise - destroying vacation homes 

and the homes of those who support them - and if Edgar Cayce is to be believed - the states that 

are the heart of the Republican base. 

The role of energy taxes as sin taxes are preserved in comprehensive tax reform only if they are 

preserved in addition to value added and net business receipts taxes. If there is no separate tax or 

higher rate for these activities, there is no sin tax effect and the "sin" is effectively forgiven with 

any amelioration programs funded by the whole of society rather than energy users. 

Oddly enough, because the Center does not mention carbon taxes or cap and trade in our 

standard proposal, liberal commentators on Daily Kos criticize its lack and assume we don't 

believe in them at all. lIDs is far from the case, as our proposals say nothing about replacing 

such taxes with our proposed V AT and NBRT. Our proposal is to replace low and mid rate 

income taxes, corporate income taxes and non-OASI payroll taxes with these revenues. We 

simply don't touch the question of any other excise. lIDs shows how much the fortunes of 

energy taxes have changed since Vice President Gore suggested their inclusion in President 

Clinton's tax proposals. 

Energy Tax Policies as a Subsidy for Business 

There are quite a few ways in which energy tax policy subsidizes business. The most basic way 

is the assessment of adequate energy taxes, or taxes generally, to pay for government 

procurement of infrastructure and research. If tax reform does not include adequate revenue, the 

businesses which fulfill these contracts will be forced to either reduce staff or go out of business. 

Government spending stimulates the economy when more money is spent because taxes are 

raised and dedicated (or even earmarked) for these uses. Eliminating specific energy taxes in tax 

reform forces this work into competition with other government needs. 

Let me be clear that the Center does not propose such a move. Our approach actually favors 

more, not less, identification of revenues with expenditures, reducing their fungibility, with the 

expectation that taxes increase when needs are greater and decrease when they are met, either 

through building in advance of need or fmding an alternative private means of providing 

government services. 
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The more relevant case to Committee's question is the existence of research and exploration 

subsidies as they exist inside of more general levies, such as the Corporate Income Tax. To the 

extent to which tax refonn eliminates this tax and replaces it with refonns such as the Net 

Business Receipts Tax (which taxes both labor and profit), such subsidies are problematic, but 

not impossible to preserve. 

This is one of the virtues of a separate Net Business Receipts Tax, rather than replacing the 

Corporate Income Tax with a V AT or a Fair Tax - which by their nature have no offsetting tax 

expenditures. The challenge arises, however, when the existence of such subsidies carry with 

them the very justified impression that less well connected industries must pay higher taxes in 

order to preserve these tax subsidies. Worse is the perception, which would arise with their use 

in a business receipts tax, that such subsidies effectively result in lower wages across the 

economy. Such a perception, which has some basis in reality, would be certain death for any 

subsidy. 

One must look deeper into the nature of these activities to detennine whether a subsidy is 

justified, or even possible. If subsidized activities are purchased from another finn, the nature of 

both a VAT and an NBRT alleviate the need for any subsidy at all, because the VAT paid 

implicit in the fees for research and exploration would simply be passed through to the next level 

on the supply chain and would be considered outside expenditures for NBRT calculation and 

therefore not taxable. If research and exploration is conducted in house, then the labor 

component of these activities would be taxed under both the VAT and the NBRT, as they are 

currently taxed under personal income and payroll taxes now. 

The only real issue is whether the profits or losses from these activities receive special tax 

treatment. Because profit and loss are not separately calculated under such taxes, which are 

essentially consumption taxes, the answer must be no. The ability to socialize losses and 

privatize profits through the NBRT would cease to exist with the tax it is replacing. 

If society continues to value such subsidies, they would have to come as an offset to a carbon tax 

or cap and trade regime, if at all, as the excise tax for energy is essentially a retail sales tax and 

the industrial model under which the energy industry operates insulates the gasoline excise from 

the application of any research and explomtion credits. If the energy companies were to change 

their model to end independent sales and distribution networks and treat all such franchisees as 

employees (with the attendant risk of unionization), then the subject subsidies could be preserved 

- provided that the related energy tax is increased so that the subsidy could actually operate 

favoring those who participate in research and development and penalizing those who do not. 

In other words, if big oil wants to keep this subsidy when there are no corporate income tax, it 

must buy up all its franchisees and allow the government to double the gasoline tax with a 

deduction at payment for research and exploration. 

Without taxes, there can be no subsidy. 
125 


82738.098

The last subsidy issue involves the use of a Value Added Tax as an oil import fee. If the VAT 

replaces some percentage of current employee and investor income taxes, domestically produced 

energy products become more competitive on the world market, provided that the V AT is border 

adjustable, which it would be. For example, if Alaska crude is shipped to Japan for refining and 

use or western low-sulfur coal is shipped to China, it would be cheaper than the same product 

shipped under today' s tax system. 

The NBRT would not be border adjustable because it is designed to pay for entitlement costs 

which benefit employees and their families directly, so that it is appropriate for the foreign 

beneficiaries of their labor to fund these costs. Additionally, the ultimate goal of enacting the 

NBRT is to include tax expenditures to encourage employers to fund activities now provided by 

the government - from subsidies for children to retiree health care to education to support for 

adult literacy. Allowing this tax to be zero-rated at the border removes the incentive to use these 

subsidies, keeping government services in business and requiring higher taxation to support the 

governmental infrastructure to arrange these services -like the Committee on Ways and Means. 

Thank you again for the opportunity to present our comments. We are always available to discuss them 

further with members, staff and the general public. If you wish an electronic version for distribution or 

incorporation into the record, you can find it on our web page at http://fiscalequity.blogspot.comorcan 

request one via electronic mail at fiscalequity@verizon.net. 
126 


82738.099

CONCORD 

ENGINEERING ~ 

STATEMENT FOR THE RECORD 

OF 

CONCORD ENGINEERING 

FOR THE HEARING OF 

"TAX REFORM AND FEDERAL ENERGY POLICY: INCENTIVES TO PROMOTE 

ENERGY EFFICIENCY" 

BEFORE 

THE U.S. SENATE COMMITTEE ON FINANCE 

SUBCOMMITTEE ON ENERGY, NATURAL RESOURCES, 

AND INFRASTRUCTURE 

DECEMBER 12, 2012 

SUBMITTED BY 

Concord Engineering 

520 South Burnt Mill Road - Voorhees, NJ 08043 

(856) 427-0200 • www.concord-engineering.com 
127 


82738.100

Concord Engineering is a full-service engineering, energy consulting, construction management 

and commissioning firm. Concord was established in 1989 by Michael Fischette and other 

investors. Headquartered in Voorhees, NJ with other offices in Atlantic City and New York City, 

Concord employs over 100 engineers and designers. They have established themselves as the 

leader in many regional and international markets. 

• Public and Private Hospitals 

Commercial, State, and Municipal Office Buildings 

• Public and Private Universities 

K-12 Schools 

• Industrial Facilities 

To date, Concord Engineering has utilized EPAct 179D on 15 buildings, and is intending on 

more utilization in the upcoming year. 

With regard to the current 179D Deduction for Energy Efficient Commercial Buildings, Concord 

Engineering is extremely interested in: prospectively retrofitting many more of our facilities, the 

extension of 179D past 2013, increasing the maximum 179D deduction to $3.00 per square foot, 

expansion of the eligible building categories to include REITs and non profits, and broadening 

the beneficiary base, particularly for capital providers. 

With regard to the new Section 179F Deduction for Retrofits of Existing Commercial and 

Multifamily Buildings, with a maximum $4.00 per square foot tax deduction, Concord 

Engineering is very interested in working on larger projects where 50% energy cost reduction 

can be achieved from the current building energy state but not as compared to modem building 

energy codes. 

Enhanced U.S. Economic Performance 

By lowering its building energy costs, the U.S. can be a much more effective global competitor. 

The marked reduction in U.S. natural gas costs has gone a long way toward making the U.S. 

once again a center for manufacturing. These same manufacturers, and all U.S. business 

operators with buildings, can also become much more globally competitive with substantially 

reduced energy related building operating costs. It is important to realize that the maximum 

Section 179D tax incentive requires a 50% energy cost reduction as compared to an everincreasing building energy code standard. These are truly enormous building energy usage and 

cost reductions. 

Building Retrofits Provide Large Employment Opportunities 

Large numbers of existing building retrofits require enormous skilled and semi-skilled work 

forces. 
128 


82738.101

Lighting retrofits require lighting designers, laborers to remove and dispose existing fixtures, 

distribution centers to store the new lighting material, laborers to stage the new material near the 

job site and electricians to install the new fixtures. 

HVAC retrofits require engineers for project system design, substantial U.S. manufacturing 

activity (most HVAC equipment is heavy and made in the U.S.), U.S. steel procurement and 

HV AC mechanics to install. 

The building envelope involves a wide variety of manufactured and workshop materials 

including roofs, walls, windows, doors, foundations and insulation. In addition to the labor 

required to create these products, large numbers of roofers, carpenters, installers and laborers are 

needed to handle the material and incorporate it into a building. 

The 179D Tax Incentive Actually Results in Increased Tax Revenues 

By providing a tax incentive for energy cost reduction, the U.S. Treasury is actually enabling 

larger future tax revenues. When a commercial property owner materially reduces their energy 

related operating tax costs, their taxable income increases by exactly the amount of the energy 

cost reduction. Although the 179D tax incentive is only for the first (one) year of project 

completion. the company's taxable income will be increased annually every year (perpetually). 

Conclusion 

Concord Engineering greatly appreciates the opportunity to submit this statement for the record. 

In recent years, during very difficult economic times, Concord Engineering has made a business 

out of and placed importance on energy reduction and efficiency. The energy design industry is a 

growing area, which provides jobs and saves businesses of all sizes significant sums of money on 

energy consumption. EPAct 179D has been very helpful in growing our business the new tax 

provisions would go even further and allow us to reach out to markets which previously unincentivized. This extension and expansion of J 79D and 179F are now poised to bring our 

country to a much higher level of energy efficiency perfomlance and the current proposals will 

go a long way towards supporting that effort. 

President 

Mkh.2f~ 
129 


82738.102

Statement of Kate Offringa 

President & CEO 

Council of the North American Insulation Manufacturers Association 

44 Canal Center Plaza, Suite 310 

Alexandria, VA 22314 

Before 

Subcommittee on Energy, Natural Resources, and Infrastructure; 

Senate Finance Committee 

On 

Incentives to Promote Energy Efficiency 

December 12, 2012 

Thank you, Chairman Bingaman and members of the Subcommittee. My name is Kate 

Offringa and I am the President and CEO of the Council of the North American Insulation 

Manufacturers Association (Council of NAIMA). I would like to spend a few minutes 

describing the important role that tax incentives play for the insulation industry and advancing 

energy conservation. 

The cleanest, least expensive, and most reliable energy comes from more efficiently 

using the energy we already produce. Nearly 50 million American homes are under insulated, 

and the level of insulation in many commercial buildings is woefully inadequate. Putting in 

proper levels of insulation would immediately lower energy bills, create jobs and decrease 

energy usage. If American homes were properly insulated, we could save 30 times the amount 

of energy lost in the 2010 Gulf oil spill. 

Most importantly, we don't need to locate new reserves or develop new technologies: 

High quality insulation is available today and can be installed tomorrow. The challenge is 

incentivizing people to install and retrofit that insulation into new and existing homes and 

buildings. 

One important way to achieve this goal is to expand and extend a tax credit that rewards 

homeowners for installing energy efficient products and equipment. First established in the 

2005 Energy Policy Act, the provision known as "25C' - or technically known as the 

"nonbusiness energy tax credit" - has helped tens of thousands of homeowners across the 

country save substantial amounts of money on monthly energy bills. In 2011, it provided a tax 

credit of 10 percent - up to $500 - for insulation, heating, ventilation, and air conditioning 

equipment, energy-smart windows and other products desi[,'1led to save energy. 

25C has enjoyed deep bipartisan support on Capitol Hill and has been extended several 

times. The credit was also expanded to triple its current size in 2009 and 2010. As a result, the 
130 


82738.103

number of homeowners taking advantage of 25C in these years increased substantially from 

previous years. 

The insulation industry sh·ongly supports extension of 25C at the highest levels the 

Congress can manage in light of budget constraints. In addition, 25C should be amended to 

allow homeowners to include the cost of labor necessary for the installation of insulation. 

Currently, labor costs, which can amount to half of the cost of installing insulation, are excluded 

without any sound public policy basis. Including labor will help put insulation on more equal 

footing with other products such as HV AC units, whose labor costs are already included in the 

credit. More importantly, it will put qualified conh·actors and installers - hard hit by tile 

current economy - back to work. 

In addition to 25C, there arc several other important tax incentives aimed at boosting 

energy efficiency. The Energy Efficient New Homes Tax Credit known as 45L - allows 

homebuilders to receive a $2,000 credit for every new home they build that is 50 percent more 

energy efficient than code in regard to heating and cooling. 

Likewise, the Energy Efficient Commercial Building Tax Deduction, or 1790, provides 

an incentive for retrofitting existing conunercial buildings through a tax deduction of $1.80 per 

square foot. Unfortunately, 1790 is unduly complex and, as a result, little used. The 

Administration has recently taken steps to improve 1790 through administrative actions, but 

legislation is required to completely address the shortcomings of this provision. 

The construction and contractor sectors of the job market have been hit especially hard 

by the current economy and the continued slowdown of the housing market. Despite 

improvement in the economy, unemployment in the construction sector remains more than 

double the national average at 17.2 percent in March, and the industry is considerably smaller 

than it was before the recent recession. Likewise, our manufacturers arc hiring fewer workers 

and producing fewer products. Energy efficiency incentives such as 25C, 45L, and 1790 can 

help us attain a number of goals including putting Americans back to work, saving money on 

our utility bills, and making America more energy independent. 

Unfortunately, both 25C and 45L expired at the end of 2011, which has caused 

uncertainty in the marketplace and undermined the cause of energy conservation. Particularly 

in a tight budgetary environment, competing priorities require difficult choices be made. But 

energy conservation and efficiency are still critical priorities. CNAIMA strongly urges the 

Congress to extend both 25C and 45L in 2012. 

There are other policy initiatives on the horizon that can help incentivize energy 

efficiency and insulation outside of the tax code. For example, CNAIMA is working with a 

broad coalition of companies and interests, from tlw Chamber of Commerce to the Natural 

Resources Defense Council, to advance the Sensible Accounting to Value Energy Act. The 

SAVE Act attempts to properly value energy efficiency in the home appraisal process to allow 

buyers to understand the true cost of home ownership and allow the market to drive energy 

dficiency inveshnents. 
131 


82738.104

Someday policies like SAVE may drive energy efficiency forward. Tax incentives, 

however, continue to playa critical role now and into the future. It is possible that larger 

chang<'s in our tax code may eventually move away from incentives, but until that time tax 

incentives playa critical role. 

Installing insulation may not be as visually dramatic as a massive wind farm or a new 

oilfield, but it is cheaper, cleaner and can contribute even morc significantly to creating jobs and 

creating a secure energy future for America. 

Chairman Bingaman, I would also like to add in closing t11at CNAIMA deeply 

appreciates the efforts that you have made to advance the cause of energy efficiency during 

your career in the Senate. The insulation industry and the country as a whole owes you a great 

debt for your efforts. 

Thank you again for the opportunity to testify today. 
132 


82738.105

STATEMENT FOR THE REcORD 

OF 

El\'ERGY CONCEPTS & SOLUTIONS, INC. 

FOR THE HEARING OF 

"TAX REFORM AND FEDERAL ENERGY POLICY: INCENTIVES TO PROMOTE 

ENERGY EFFICIENCY" 

BEFORE 

THE U.S. SENATE COMMITTEE ON FINANCE 

SUBCOMMITTEE ON ENERGY, NATURAL RESOURCES, 

AND INFRASTRUCTURE 

DECEMBER 12, 2012 

SUBMITTED BY 

Energy Concepts & Solutions, Inc. 

4400 S. Lindbergh Blvd. Ste 5 

St. Louis, Mo 63127 

314-729-0800 
133 


82738.106

Located in St. Louis, MO, Energy Concepts & Solutions is an accredited Energy Services 

Company (ESCO). With a wide variety of projects, we are committed to providing our clients 

with energy efficient solutions that are both environmentally friendly and economically 

responsible. 

Since 2006, we have utilized EP Aet 179D on numerous occasions. This legislation has greatly 

assisted us in our mission of designing and installing energy efficient systems. Our projects have 

included various school districts, colleges, medical centers, correctional centers, city halls, public 

garages, and state properties. 

With regard to the current 179D Deduction for Energy Effieient Commercial Buildings, Energy 

Concepts & Solutions is extremely interested in the extension of 179D past 2013. Also, we see 

great value in increasing the maximum 179D deduction to $3.00 per square foot, expanding the 

eligible building categories to include REITs and non profits, and broadening the beneficiary 

base, particularly for capital providers. 

With regard to the new Section 179F Deduction for Retrofits of Existing Commercial and 

Multifamily Buildings, with a maximum $4.00 per square foot tax deduction, Energy Concepts 

& Solutions is very interested in working on larger projects where 50% energy cost reduction 

can be achieved from the current building energy state but not as compared to modem building 

energy codes. 

Cost-Savings Opportunity 

In difficult economic times, cuts in energy costs represent a major savings opportunity. This is 

especially true for large buildings with long operating hours. Public institutions from municipal, 

state and federal levels can also benefit from low levels of electrical usage and consequent 

reduction of operating costs, as a strategy to ease budget pressures. 

At Energy Concepts & Solutions, we have worked with numerous municipalities, which have 

been able to significantly reduce operating costs due to more efficient facilities. We gladly 

acknowledge that an important share of our EPAct projects have been elementary and high 

schools, where resources are often scarce. Fortunately, through energy efficient technology, we 

have helped school districts reduce operating costs, freeing up money to spend on school 

resources and the learning environment. 

New Technology Can Accomplish Major Bnilding Energy Cost Reduction 

Continuing technology developments have resulted in new, typically more expensive products 

that can meet the aggressive energy reduction targets embodied in the currently proposed 179D 

extension. 

For lighting, this includes greatly improved LED lighting products now available for virtually all 

building categories along with wireless controls and smart sensors. 
134 


82738.107

For HV AC, this includes both extremely efficient technologies for commercial buildings such as 

frictionless bearing-less chillers and variable refrigerant volume (VRV) for apartment buildings. 

As the U.S. shifts to more apartment renters it is extremely important to offer tenants monthly 

cost rednction in this historically under-served energy efficiency market. 

For building envelope, recent advances include better materials, cool roofs, better insulation, and 

improved glass and window systems. 

Building Retrofits Provide Large Employment Opportunities 

Large numbers of existing building retrofits require significant amounts of skilled and semiskilled work forces. 

Lighting retrofits require lighting designers, laborers to remove and dispose existing fixtures, 

distribution centers to store the new lighting material, laborers to stage the new material near the 

job site and electricians to install the new fixtures. 

HV AC retrofits require engineers for project system design, substantial u.S. manufacturing 

activity (most HVAC equipment is heavy and made in the U.S.), U.S. steel procurement and 

HV AC mechanics to install. 

The building envelope involves a wide variety of manufactured and workshop materials 

including roofs, walls, windows, doors, foundations and insulation. In addition to the labor 

required to create these products, large numbers of roofers, carpenters, installers and laborers are 

needed to handle the material and incorporate it into a building. 

The 179D Tax Incentive Actually Results in Increased Tax Revenues 

By providing a tax incentive for energy cost reduction, the U.S. Treasury is actually enabling 

larger future tax revenues. When a commercial property owner materially reduces their energy 

related operating tax costs, their taxable income increases by exactly the amount of the energy 

cost reduction. Although the 179D tax incentive is only for the first (one) year of project 

completion, the company's taxable income will be increased annually every year (perpetually). 

When a government organization materially reduces its energy costs, it can reduce its budget 

deficit which may be used to reduce tax levies, including real property taxes at local level or 

meet other more vital community needs. 

N ot-for-Profits 

Major not-for-profit building categories include hospitals and univcrsities. The hospital industry 

is rapidly consolidating into very large health care providers and the need to manage all costs 

including energy costs is a topic of national discussion. The hospital industry is recognized as a 

large, under-served building energy efficiency sector and emergence of these new, larger entities, 

coupled with good tax policy, can serve to achieve major energy cost reductions. Ever escalating 

costs of a university education is also a national discussion topic and energy cost reduction 

should help ameliorate the ever escalating costs. 
135 


82738.108

Conclusion 

Energy Concepts & Solutions greatly appreciates the opportunity to submit this statement for the 

record. In recent years, EP Act 179D has been very helpful in our effort to provide our clients 

with energy efficient solutions. We look forward to the new tax provisions, which will hopefully 

go even further and allow us to reach out to markets previously un-incentivized. The proposed 

extension and expansion of 179D and 179F are a unique opportunity to bring our country to a 

much higher energy efficiency performance. 
136 


82738.109

STATE:vJENT FOR THE RECORD 

FOR THE HEARING ON 

"T AX REFORM AND FEDERAL ENERGY POLICY: INCENTIVES TO PROMOTE ENERGY 

EFFICIENCY" 

BEFORE 

THE U.S. SENATE COMMITTEE ON FINANCE 

SUBCOMMITTEE ON ENERGY, NATIJRAL RESOURCES, 

AND INFRASTRUCTURE 

DECE:vJBER 12,2012 

SIJBMITTED By 

CHARLES GOULDING, PRESIl>ENT 

ENERGY TAX SAVERS, INC. 

144A.JACKSON AVE. 

SYOSSET, NY 11791 

(516)364-2630 

CHARLES.GOULDING@ENERGYTAXSAVERS.COM 
137 


82738.110

Energy Tax Savers, Inc. is an interdisciplinary tax and engineering firm composed of multiple 

professional categories including legal, CP As, engineers, LEED AP's and enrolled agents. 

We represent numerous ESCO's, architects, engineering firms, lighting specifiers, HV AC 

specifiers, building envelope specifiers, numerous fortune 500 companies, office buildings, 

warehouse O\\-l1ers, national and regional retail chains, national restaurant chains, hotels and 

numerous other categories of building property owners. 

Our professionals have published over 100 Commercial Building Section 179D articles in 

leading tax and industry publications. 

With regard to the current 179D Deduction for Energy efficient Commercial Buildings, our 

clients are extremely interested in; the extension of 1790 past 2013, increasing the maximum 

179d deduction to $3.00, expansion of the eligible building categories to include RElTs and non 

profits, and broadening of the beneficiary base, particularly for capital providers. 

With regard to the proposed Section 179F Deduction for Retrofits of Existing Commercial and 

Multifamily Buildings, with a maximum $4.00 per square foot tax deduction, our clients are vcry 

interested on working on larger projects where 50% energy cost reduction can be achieved from 

the current building energy state but not as compared to modem building energy codes. 

Enhanced U.S. Economic Performance 

By lowering its building energy costs, the U.S. can be a mueh more effective global competitor. 

The marked reduction in U.S. natural gas costs has gone a long way toward making the U.S. 

once again a center for manufacturing. These same manufacturers, and all U.S. business 

operators with buildings, can also become much more globally competitive with substantially 

reduced building energy related operating costs. It is important to realize that the maximum 

Section 1790 tax incentive requires a 50% energy cost reduction as compared to an everincreasing building energy code standard. These are truly enormous building energy usage and 

cost reductions. 

New Technology Can Accomplish Major Building Energy Cost Reduction 

Continuing technology developments have resulted in new, typically more expensive products 

that can meet the aggressive energy reduction targets embodied in the currently proposed 1790 

extension. 

For lighting, this includes greatly improved LED lighting products now available for virtually all 

building categories along with wireless controls and smart sensors. 

For HVAC, this includes both extremely efficient technologies for commercial buildings such as 

frictionless bearing-less chillers and variable refrigerant volume (VRV) for apartment buildings. 

As the U.S. shifts to more apartment renters it is extremely important to otIer tenants monthly 

cost reduction in this historically under-served energy efficiency market. 
138 


82738.111

For building cnvelopc, rcccnt advances include better matcrials, cool roofs, better insulation, and 

improved glass and window systems. 

Building Retrofits Provide Large Employment Opportunities 

Large numbcrs of existing building rctrofits require enormous skilled and semi-skilled work 

forces. 

Lighting retrofits require lighting designers, laborers to remove and dispose existing fixtures, 

distribution centers to store tbe new lighting material, laborers to stage the new material near tbe 

job site and electricians to install tbc ncw fixtures. 

HVAC retrofits require engineers for project system design, substantial U.S. manufacturing 

activity (most HVAC equipment is hcavy and made in the U.S.), U.S. steel procurcment and 

IlV AC mechanics to install. 

The building envelope involves a wide varicty of manufactured and worksbop materials 

including roofs, walls, windows, doors, foundations and insulation. In addition to the labor 

required to crcate these products, large numbers of roofers. carpenters, installers and laborers are 

needed to handle the material and incorporate it into a building. 

The 179D Tax Incentive Actually Results in Increased Tax Revenues 

By providing a tax incentive for energy cost reduction, the U.S. Treasury is actually enabling 

larger future tax revenues. When a commercial property ovmer materially rcduces their energy 

rclated operating tax costs, their taxable income increases by exactly the amount of the energy 

cost reduction. Although the l79D tax incentive is only for the first (one) year of project 

completion, thc company's taxable income will bc incrcascd annually cvery year (perpetually). 

When a government organization materially reduces its energy costs, it can reduce its budget 

deficit which may be used to reducc tax levies, including rcal propcrty taxes at local level or 

meet other more vital community needs. 

REITs 

It is particularly important to provide an incentive for REIT energy reductions service 

providers. REITs are the largest holders of large institutional grade real estate in the country. 

Major REIT c:atcgorics include; I. office buildings, 2. apartment buildings, 3. shopping centers, 

4. Hotels, 5. warehouse/industrial and 6. data centers. 

The REIT model is largely a tenant model and for the most part REIT's have not endeavored to 

materially reduce energy costs simply because they don't pay the energy bill. With REITs, the 

tenant bcars the burden of the monthly energy bill. With America's large service-based 

economy, large service businesses opcrating from offices bear the burden of unnecessary energy 

bills. With apartment REITs, it is renters who bear the burden of unnecessary energy bills. With 

shopping centers, it is rctailers and shoppcrs that bcar the burden of unnecessary energy costs. 

With hotcl RElTs, it is nightly guests who bear the burden of unnecessary costs in their room 
139 


82738.112

rates. In the REIT warehousc and industrial scctor, it is America's engines of commcrce that bear 

the burden of unnccessary energy costs. Data Centers are huge consumers of electricity and 

hence directly responsible for large amounts of cmissions. Accordingly with Data Center RElTs, 

all of American society bears the burden of unnecessary energy costs. 

Not-for-Profits 

Major not-for-profit building categories include hospitals and univcrsities. The hospital industry 

is rapidly consolidating into very large hcalth care providers and the need to manage all costs 

including energy costs is a topic of national discussion. The hospital industry is recognized as a 

largc, under-served building energy efficiency scctor and emergence of these new, larger entities, 

coupled with good tax policy, can serve to achievc major energy cost reductions. Ever escalating 

costs of a university education is also a national discussion topic and energy cost reduction 

should help ameliorate the ever escalating costs. 

Public Private Partnerships (PPA's) 

The provision in the proposed cxtension of 179D to include energy project financicrs in the 

bcneficiary category is crucial to America's energy policy future. 

It is common knowledge that finances of many of our country's state and local government costs 

are in dire financial straits. These government entitics find themselves in the untcnable position 

of not having the capital to act on large energy cost reduction projects, often for steadily 

deteriorating cssential service government buildings. The addition of the 179D financing tax 

incentive will encourage private sector capitalized lenders to take the added risk related to 

financing these important projects. There arc many excellent contractors and ESCOs who have 

the capacity and desire to work in today's depressed construction market but who don't have the 

tax capacity to benefit from encrgy cost related tax incentives. There are many cash-strong 

lenders interested in entering this market who to date haven't found an economically viable 

pathway for doing so. 

Conclusion 

Energy Tax Savers, Inc. grcatly appreciates the opportunity to submit this statement for the 

record. In the last seven years during very difficult economic times the lighting, HV AC and 

building envelopc industry has made a large investment in educating their staff and customers on 

the type of holistic building energy usage knowledge required to understand the technical 

underpinnings of EPAcl. The industry is now poised to bring our country to a much higher level 

of encrgy efficiency performance and the current 179D and 179F tax proposals will go a long 

way toward supporting that effort. 
140 


82738.113

~ERNST& 

~MORRIS TOlL fRl;E---l.80Q,COSTSEG 

(HF!c[---710. 427. 4000 

THE LEADER IN COST SH;REGATION - --····--770. 4Z7. 4004 ~=-=-=-=-~---------- ---_._._----_. __ .. _---------- 2190 Dallas Highway' Marietta, Georgia 30064 

STATE:\1ENT FOR THE RECORD 

FOR TIlE HEARING 0:'1' 

"TAX REFOR~I AND FEDERAL ENERGY POLICY: INCENTIVES 

TO PROMOTE ENERGY EFFICIENCY" 

BEFORE 

THE U.S. SENATE COMMITTEE ON FINANCE 

SCBCOMMITTEE ON ENERGY, NATliRAL RESOliRCES, 

AND bFRASTRlICTliRE 

DECEMBER 12, 2012 

SlIBMITTED By 

MICIIAEL P. MORRIS - MANAGING DIRECTOR 

ER:'I'ST & MORRIS CONSlILTING GROlJP, INC. 

2190 DALLAS HIGHWAY 

MARIETTA, GEORGIA 30064 
141 


82738.114

Ernst & Morris Consulting Group, Inc., (Ernst & Morris) is an interdisciplinary firm of engineers 

and finance professionals. Ernst & Morris is the nation's oldest and largest firm dedicated to 

performing cost segregation studies in the United States. Located in Marietta, Georgia, Ernst & 

Morris has completed over 15,000 studies in all 50 states for both CPA firms and commercial 

property owners directly. Ernst & Morris currently works with hundreds of accounting firms 

nationwide and is the preferred provider of cost segregation services to CP America International, 

Inc., The Leading Edge Alliance, PKF International, and The National Society of Accountants. 

Ernst & Morris has spent the last seven years educating our client base about new buildings. In 

particular, we have educated our CPA firms - with clients who own and manage thousands of 

commercial buildings - on the advantages of constructing energy efficient buildings and the 

§ 179D incentives for doing so. It has taken a tremendous amount of time and effort but the 

message is finally being heeded. 

With regard to the current § 179D Deduction for Energy Efficient Commercial Buildings, our 

clients are extremely interested in: the extension of §1790 past 2013, increasing the maximum 

§1790 deduction to $3.00, expansion of the eligible building categories to include non - profits, 

and broadening of the beneficiary base, particularly for capital providers. 

With regard to the proposed § 179F Deduction for Retrofits of Existing Commercial and 

Multifamily Buildings, with a maximum $4.00 per square foot tax deduction, our clients are very 

interested in working on larger projects where 50% energy cost reduction can be achieved from 

the current building energy state, but not as compared to modern building energy codes. 

Enhanced U.S. Economic Performance 

By lowering its building energy costs, the U.S. can be a much more effective global competitor. 

The marked reduction in U.S. natural gas costs has gone a long way toward making the U.S. 

once again a center for manufacturing. These same manufacturers, and all U.S. business 

operators with buildings, can also become much more globally competitive with substantially 

reduced building energy related operating costs. It is important to realize that the maximum 

§ 1790 tax incentive requires a 50% energy cost reduction as compared to an ever-increasing 

building energy code standard. These are truly enormous building energy usage and cost 

reductions. 

New Technology Can Accomplish Major Building Energy Cost Reduction 

Continuing technology developments have resulted in new, typically more expensive products, 

that can meet the aggressive energy reduction targets embodied in the currently proposed § 1790 

extension. 

For lighting, this includes greatly improved LEO lighting products now available for virtually all 

building categories along with wireless controls and smart sensors. 
142 


82738.115

For BV AC, this includes both extremely efficient technologies for commercial buildings such as 

frictionless bearing-less chillers and variable refrigerant volume (VRV) for apartment buildings. 

As the u.s. shifts to more apartment renters it is extremely important to offer tenants monthly 

cost reduction in this historically under-served energy efficiency market. 

For the building envelope, recent advances include better materials, cool roofs, better insulation, 

and improved glass and window systems. 

Building Retrofits Provide Large Employment Opportunities 

Large numbers of existing building retrofits require enormous skilled and semi-skilled work 

forces. 

Lighting retrofits require lighting designers, laborers to remove and dispose existing fixtures, 

distribution centers to store the new lighting material, laborers to stage the new material near the 

job site and electricians to install thc new fixtures. 

BV AC retrofits require engineers for project system design, substantial U.S. manufacturing 

activity (most HVAC equipment is heavy and made in the U.S.), u.s. steel procurement and 

BV AC mechanics to install. 

The building envelope involves a wide variety of manufactured and workshop materials 

including roofs, walls, windows, doors, foundations and insulation. In addition to the labor 

required to create these products, large numbers of roofers, carpenters, installers and laborers arc 

needed to handle the material and incorporate it into a building. 

The §179D Tax Incentive Actually Results in Increased Tax Revenues 

By providing a tax incentive for energy cost reduction, the U.S. Treasury is actually enabling 

larger future tax revenues. When a commercial property owner materially reduces their energy 

related operating tax costs, their taxable income increases by exactly the amount of the energy 

cost reduction. Although the § l79D tax incentive is only for the tirst (one) year of project 

completion, the company's taxable income will be increased annually every year (perpetually). 

When a government organization materially reduces its energy costs, it can reduce its budget 

deficit which may be used to reduce tax levies, including real property taxes at local level or 

meet other more vital community needs. 

Conclusion 

Ernst & Morris greatly appreciates the opportunity to submit this statement for the record. In the 

last seven years, our firm has made a large investment in educating our staff and clients on the 

type of holistic building energy usage knowledge required to understand the technical 

underpinnings of EP Act. The energy industry is now poised to bring our country to a much 

higher level of energy efficiency performance and the current § 179D and § 179F tax proposals 

will contribute tremendously toward supporting that effort. 
143 


82738116.eps

Fede ral 

Business Cellters 

0 .... 70 Y .... of Qu.lity S • • ~ic , 

On. D.y .t. TIm •. 

W. C .... ud W. Doli n •. 

STATEMENT FOR TilE R ECORD 

0' 

FEDERAL BUSINESS CENTERS 

FOR THE H.EARING OF 

"TAX REFORM AND FEDERAl.. ENERGY POLICY; INCENTIVES TO PROMOTE 

ENERGY EFFICIENCY" 

BEFORE 

TilE U.S. SENATE COMMITTEE ON FINANCE 

SUBCOMM ITTEE ON ENERGY, NATURAl.. RESOURCES, 

ANU INfRASTIWCTURE 

O~:CEM BER 12, 2012 

SUBMITTED BY 

Federa l Business Centcrs 

300 Raritan Ccnter Parkway, Edison, NJ 08837 

(732) 225-2200 . www.federnlbusinessccnlers.com 
144 


82738.117

Since 1938, Federal Business Centers has been a leading New Jersey property developer that 

owns and manages millions of square feet of business space. 

Federal Business Centers' Raritan Center Business Park is one of New Jersey's most widely 

selected business parks, offering IS million square feet of office space, flex space, and 

warehouse/distribution space for lease. 

The business park is locally situated to serve major markets in the Northeast and is accessible by 

multiple major highways, by railway, and by sea. 

This mixed-use business park covers more than 2,350 acres of land and houses hundreds of 

companies from many business sectors, including Fortune 500 companies and Global 500 

companies such as FedEx, UPS, Chase Bank, BASF, Staples, Johnson Controls, Wells Fargo, 

Verizon, and Hilton Hotels. 

To date, Federal Business Ccnters has utilized EPAct 1790 as a way of easing the economic 

burden and reducing payback time on retrofits relating to 31 buildings. 

With regard to the current 1790 Deduction for Energy Efficient Commercial Buildings, Federal 

Business Centers is extremely interested in; prospectively retrofitting many more of our 

facilities, the extension of 1790 past 2013, increasing the maximum 1790 deduction to $3.00 

per square foot, expansion of the eligible building categories to include RElTs and non profits, 

and broadening the beneficiary base, particularly for capital providers. 

With regard to the new Section 179F Deduction for Retrofits of Existing Commercial and 

Multifamily Buildings, with a maximum $4.00 per square foot tax deduction, Federal Business 

Centers is very interested in working on larger projects where 50% energy cost reduction can be 

achieved from the current building energy state but not as compared to modern building energy 

codes. 

Enhanced U.S. Economic Performance 

By lowering its building energy costs, the U.S. can bc a much more effective global competitor. 

The markcd reduction in U.S. natural gas costs has gone a long way toward making the U.S. 

once again a center for manufacturing. These same manufacturers, and all U.S. business 

operators with buildings, can also become much more globally competitive with substantially 

reduced energy related building operating costs. It is important to realize that the maximum 

Section 1790 tax incentive requires a 50% energy cost reduction as compared to an evcrincreasing building energy code standard. These are truly enormous building energy usage and 

cost reductions. 
145 


82738.118

Building Retrofits Provide Large Employment Opportunities 

Large numbers of existing building retrofits require enormous skilled and semi-skilled work 

forces. 

Lighting retrofits require lighting designers, laborers to remove and dispose existing fixtures, 

distribution centers to store the new lighting material, laborers to stage the new material near the 

job site and electricians to install the new fixtures. 

HVAC rctrofits require engineers for project system design, substantial U.S. manufacturing 

activity (most HVAC equipment is heavy and madc in the U.S.), U.S. stecl procurement and 

HVAC mechanics to install. 

The building envelope involves a wide variety of manufactured and workshop materials 

including roofs, walls, windows, doors, foundations and insulation. In addition to the labor 

required to create these products, large numbers of roofers, carpenters, installers and laborers are 

needed to handle the material and incorporate it into a building. 

The 179D Tax Incentive Actually Results in Increased Tax Revenues 

By providing a tax incentive for energy cost reduction, the U.S. Treasury is actually enabling 

larger future tax revenues. When a commercia! property owner materially reduces their energy 

related operating tax costs, their taxable income increases by exactly the amount of the energy 

cost reduction. Although the 1790 tax inccntive is only for the first (one) year of project 

completion, the company's taxable income will be increased annually every year (perpetually). 

Conclusion 

Federal Business Centers greatly appreciates the opportunity to submit this statement for the 

record. In the last seven years, during very difficult economic times, Federal Business Centers 

has placed importance on energy reduction and efficicncy. Business and industrial parks, such as 

Raritan Center, are now poised to bring our country to a much higher level of energy efficiency 

performance and the current 179D and 179F tax proposals will go a long way towards supporting 

that effort. 
146 


82738.119

GREEN LIGHT 

NATIONAL 

STATEMENT FOR THE RECORD 

FOR THE HEARING ON 

"TAX REFORM AND FEDERAL ENERGY POLICY: INCENTIVES TO PROMOTE ENERGY 

EFFICIENCY" 

BEFORE 

THE U.S. SENATE COMMITTEE ON FINANCE 

SUBCOMMITTEE ON ENERGY, NA TURAL RESOURCES, 

AND INFRASTRUCTURE 

DECEMBER 18,2012 

SUBMITTED By 

MICHAEL McALINDEN, PRESIDENT 

GREEN LIGHT NATIONAL 

1720 S. MICHIGAN, #3312 

(312) 869-4161 

MICHAEL.MCALINDEN@GREENLIGHTMIDWEST.COM 
147 


82738.120

Green Light is a commercial Energy Services Company (ESCO) with offices in Chicago, Los 

Angeles, and New York. Green Light helps tcnants and property owners reduce the operating 

expenses associated with energy consumption by taking advantage of the technological advances 

in efficient lighting, environmental controls, and building envelope efficiency while capitalizing 

on the financial savings incentives. 

Green Light's investment team has created an option for our customers to have energy efficient 

lighting and equipment installed at no cost to users. By partnering with Green Light, companies 

can fund the upgrade to new equipment purely trom the monthly savings realized from the new 

equipment. Customers will not pay any out of pocket costs throughout the course of the project. 

With regard to the current 179D Deduction for Energy efficient Commercial Buildings, our 

clients are extremely interested in: the extension of 179D past 2013, increasing the maximum 

179d deduction to $3.00, expansion of the eligible building categories to include REITs and non 

profits, and broadening of the beneficiary base, particularly for capital providers. 

With regard to the proposed Section 179F Deduction for Retrofits of Existing Commercial and 

Multifamily Buildings, with a maximum $4.00 per square foot tax deduction, our clients are very 

interested on working on larger projects where 50% energy cost reduction can be achieved from 

the current building energy state but not as compared to modern building energy codes. 

The Chicago Market 

By lowering its building energy costs, the U.S. can be a much more effective global competitor. 

The marked reduction in U.S. natural gas costs has gone a long way toward making the U.S. 

once again a center for manufacturing. These same manufacturers, and aU U.S. business 

operators with buildings, can also become much more globally competitive 'With substantially 

reduced building energy related operating costs. In Chicago we have a particular focus on 

reducing energy costs for food processing and packaging companies. It is important to realize 

that the maximum Section 179D tax incentive requires a 50% energy cost reduction as compared 

to an ever-increasing building energy code standard. 'These are truly enormous building energy 

usage and cost reductions. 

New Technology Can Accomplish Major Building Energy Cost Reduction 

Continuing technology developments have resulted in new, typically more expensive products 

that can meet the aggressive energy reduction targets embodied in the currently proposed 179D 

extension, 

For lighting, this includes greatly improved LED lighting products now available for virtually all 

building categories along with wireless controls and smart sensors. Our firm has been a pioneer 

for large square footage LED industrial and warehouse installations, 
148 


82738.121

For HV AC, this includes both extremely efficient technologies for commercial buildings such as 

energy efficient chillers and natural gas heaters. As the U.S. shifts to more apartment renters it is 

extremely important to offer tenants monthly cost reduction in this historically under-served 

energy efficiency market. 

For building envelope, recent advances include better materials, cool roofs, better insulation, and 

improved glass and window systems. 

Building Retrofits Provide Large Employment Opportunities 

Large numbers of existing building retrofits require enormous skilled and semi-skilled work 

forces. 

Lighting retrofits require lighting designers, laborers to remove and dispose existing fixtures, 

distribution centers to store the new lighting material, laborers to stage the new material near the 

job site and electricians to install the new fixtures. 

HV AC retrofits require engineers for project system design, substantial U.S. manufacturing 

activity (most HV AC equipment is heavy and made in the U.S.), U.S. steel procurement and 

HV AC mechanics to install. 

The building envelope involves a wide variety of manufactured and workshop materials 

including roofs, walls, windows, doors, foundations and insulation. In addition to the labor 

required to create these products, large numbers of roofers, carpenters, installers and laborers are 

needed to handle the material and incorporate it into a building. 

The 179D Tax Incentive Actually Results in Increased Tax Revenues 

By providing a tax incentive for energy cost reduction, the U.S. Treasury is actually enabling 

larger future tax revenues. When a commercial property owner materially reduces their energy 

related operating tax costs, their taxable income increases by exactly the amount of the energy 

cost reduction. Although the 179D tax incentive is only for the first (one) year of project 

completion, the company's taxable income will be increased annually every year (perpetually). 

When a government organization materially reduces its energy costs, it can reduce its budget 

deficit which may be used to reduce tax levies, including real property taxes at local level or 

meet other more vital community needs. 

REITs 

It is particularly important to provide an incentive for REIT energy reductions service 

providers. REITs are the largest holders of large institutional grade real estate in the country. 

REITSs are large property holders in Chicago, Los Angeles, and New York - the three main 
149 


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markets we operate in. Major REIT categories include; I. office buildings, 2. apartment 

buildings, 3. shopping centers, 4. Hotels,S. warehouse/industrial and 6. data centers. 

The REIT model is largely a tenant model and for the most part REIT's have not endeavored to 

materially reduce energy costs simply because they don't pay the energy bill. With REITs, the 

tenant bears the burden of the monthly energy bill. With America's large service-based 

economy, large service businesses operating from offices bear the burden of unnecessary energy 

bills. With apartment REITs, it is renters who bear the burden of unnecessary energy bills. With 

shopping centers, it is retailers and shoppers that bear the burden of unnecessary energy costs. 

With hotel REITs, it is nightly guests who bear the burden of unnecessary costs in their room 

rates. In the REIT warehouse and industrial sector, it is America's engines of commerce that bear 

the burden of unnecessary energy costs. Data Centers are huge consumers of electricity and 

hence directly responsible for large amounts of emissions. Accordingly with Data Center REITs, 

all of American society bears the burden of unnecessary energy costs. 

Not-for-Profits 

Major not-for-profit building categories include hospitals and universities. The hospital industry 

is rapidly consolidating into very large health care providers and the need to manage all costs 

including energy costs is a topic of national discussion. The hospital industry is recognized as a 

large, under-served building energy efficiency sector and emergence ofthese new, larger entities, 

coupled with good tax policy, can serve to achieve major energy cost reductions. Ever escalating 

costs of a university education is also a national discussion topic and energy cost reduction 

should help ameliorate the ever escalating costs. 

Public Private Partnerships (pP A's) 

The provision in the proposed extension of l79D to include energy project financiers in the 

beneficiary category is crucial to America's energy policy future. 

It is common knowledge that finances of many of our country's state and local government costs 

are in dire financial straits. These government entities find themselves in the untenable position 

of not having the capital to act on large energy cost reduction projects, often for steadily 

deteriorating essential service government buildings. The addition of the 179D financing tax 

incentive will encourage private sector capitalized lenders to take the added risk related to 

financing these important projects. There are many excellent contractors and ESCOs who have 

the capacity and desire to work in today's depressed construction market but who don't have the 

tax capacity to benefit from energy cost related tax incentives. There are many cash-strong 

lenders interested in entering this market who to date haven't found an economically viable 

pathway for doing so. 
150 


82738.123

Conclusion 

Green Light National greatly appreciates the opportunity to submit this statement for the record. 

In the last seven years during very difficult economic times the lighting, HV AC and building 

envelope industry has made a large investment in educating their staff and customers on the type 

of holistic building energy usage knowledge required to understand the teclmical underpinnings 

of EP Act. The industry is now poised to bring our country to a much higher level of energy 

efficiency performance and the current 179D and 179F tax proposals will go a long way toward 

supporting that effort. 
151 


82738124.eps

December 21, 2012 

The Honorable Jeff Bingaman 

GRUNDFOS PUMPS CORPORATION 

17100 West 118th Terrace 

Olathe, KS 66061-6593 

Telephone, 913 227 3400 

Fa" 913 227 3500 

www.grundfos.com 

Chairman, Subcommittee on Energy, Natural Resources and Infrastructure 

U.s, Senate 

219 Dirksen Senate Office Building 

Washington, D,C, 20510 

The Honorable John Cornyn 

Ranking Member, Subcommittee on Energy, Natural Resources and Infrastructure 

u.s. Senate 

219 Dirksen Senate Office Building 

Washington, D.c' 20510 

Statement for the Record by Grundfos before the United States Senate Committee 

on Finance - Subcommittee on Energy, Natural Resources and Infrastructure 

Dear Chairman Bingaman and Ranking Member Cornyn: 

Grundfos is the world's leading pump manufacturer with annual revenues of $4 

billion. Our products include circulator pumps for heating and air-conditioning as 

well as centrifugal pumps for rural and municipal water supply, wastewater 

treatment and industrial production. We employ more than 18,000 people 

worldwide, including 1,400 in our U.S. facilities in California, Illinois, Indiana, 

Kansas, Pennsylvania, and Texas. 

As a global industry leader, Grundfos seeks growth through innovation. We invest 

6 percent of annual revenue in research and development, and we are currently 

developing several new technology centers in the United States, including a Water 

Technology Center in Fresno, California and a Global Competency Center for 

Commercial Buildings in Brookshire, Texas. 

Grundfos is pleased to submit the following statement for the record in 

connection with the subcommittee's hearing on "Tax Reform and Energy Policy: 

Incentives to Promote Energy Efficiency." 
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Key recommendations 

• Indude water efficiency as an integral part of policies to promote energy 

efficiency. 

• Incentivize the adoption of cutting-edge water pump technology as a way 

to promote energy efficiency in buildings, industrial applications, and 

municipal water and wastewater systems. 

• Set long-term energy efficiency targets for products and solutions and 

develop road maps with transparent milestones for improving energy 

efficiency. 

• Support the creation of a product labeling system that ensures a 

transparent way for users to make educated purchases on high-efficiency 

pumps and equipment. 

Energy, water and pumps 

Pumps account for 10 percent of global electricity demand. With the latest 

available technology, we can cut this figure in half, assuming universal adoption of 

high-efficiency pump systems. 

Upgrading pumps and pump systems in domestic and commercial buildings, 

industrial applications, and municipal water and wastewater systems can yield 

significant energy savings. 

For example, Grundfos' AUTOADAPTtechnology can save up to 60 percent ofthe 

energy consumed by pumps in commercial and residential buildings. Many of the 

pumps currently used in buildings were designed more than 50 years ago. These 

pumps are often highly inefficient, running continuously at top speed regardless of 

actual performance demand. AUTOADAPT is a unique intelligent feature which 

adjusts pump speed according to actual flow requirements at any given time. 

Another example of energy-saving technology is demand-driven distribution of 

water in municipal water systems. The existing water infrastructure is outdated in 

many parts ofthe United States, leading to leaking pipes and significant water 

loss. 
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82738126.eps

A recent survey by the Chicago-based Center for Neighborhood Technology of 55 

water utilities in the Great Lakes region showed annual leaks totaling 66.5 billion 

gallons of water. This number is equivalent to the annual water consumption of 

more than 500,000 households. Intelligent pump systems can reduce these kinds 

of leakages by up to 50 percent. Electricity consumption in the distribution system 

can also be reduced by up to 50 percent. 

The problems with outdated water infrastructure and high levels of water loss 

illustrate the importance of looking at water efficiency as an integral part of 

policies to promote energy efficiency. 

Efficiency standards and tax incentives 

A major challenge in the adoption of intelligent pump technology is lack of 

commonly accepted efficiency standards and lack of awareness among users. 

While energy efficient light bulbs, windows and many other appliances are highly 

visible, pumps tend to be hidden in mechanical rooms. In this sense, pumps are 

among the last unexplored frontiers of energy efficiency. 

Greater awareness about the energy efficiency of pumps and pump systems 

should be a part of any comprehensive strategy to boost energy efficiency in the 

US. 

In Europe, the pump industry developed a voluntary measuring and labeling 

system for energy efficiency in 2005. In 2009, this action was followed by official 

EU minimum standards for energy efficiency in pumps. These standards are 

expected to save the equivalent ofthe residential electricity consumption of 14 

million people in the EU. Here in the US, examples of success with labeling system~ 

include the Energy Star and LEED labels. Engineers, investors and consumers alike 

seek out and consider these labels when they construct new facilities and buy new 

equipment. 

There are currently no energy efficiency standards for pumps in the US, but 

important efforts are underway to establish such standards. The Department of 

Energy is exploring a rulemaking to establish a test procedure, an energy 

conservation standard, or a labeling requirement for pumps. In addition, the 

Environmental Protection Agency is developing a new product specification for 

pool pumps as part of the Energy Star program. 

Grundfos is broadly supportive of these efforts, and we believe that new energy 

efficiency requirements for pumps should be as ambitious as possible. 
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82738127.eps

Once commonly accepted energy efficiency standards for pumps are in place in 

the US, new tax incentives specifically tied to these standards would be an 

effective way to increase public awareness and encourage the adoption of new 

technology. 

We appreciate the opportunity to submit this statement for the record, and we 

applaud the subcommittee for its work on this important issue. 

J

inceelYV 

CE 

'MJJ~~ d President 

Grundfos North America 
155 


82738128.eps

Hiluppauge Imlustr/ill A55ocl.tlon 

."W'**iW"ii'f'iiW 

December 13,2012 

Senate Committee on Finance 

Attention: Editorial and Document Section 

Room SD-219 

Dirksen Senate Office Building 

Washington, DC 20510-6200 

To: THE U.S. SENATE COMMITTEE ON FINANCE SUBCOMMITTEE ON ENERGY, NATURAL 

RESOURCES, AND INFRASTRUCTURE 

The HIA-LI is one of the recognized voices for Long Island business and a powerful force and economic 

engine for regional development for more than 30 years. Our member companies represent tens of 

thousands of business professionals. Our activities include programs and events that promote strategic 

partnerships, targeted networking, infonnation - sharing and business advocacy. Members benefit from 

our committees, educational programs, career resources, research capabilities, mentoring opportunities, 

business advisory services and frequent networking events. Our objective is to drive business innovation 

on Long Island, facilitate collaboration and support professional development. 

The HIA-L1 supports the Hauppauge Industrial Park (HIP), located in Long Island, NY, one of the largest 

industrial parks in the U.S. The HlP currently hosts 650 buildings, 1,300 companies, and 55,000 

employees. 

With the objective of fostering energy efficiency as a means of ensuring future viability and enhanced 

competitiveness, we have recently launched an Energy Conservation Initiative. The program establishes 

the goal of a 15% reduction in energy consumption for Hauppauge Industrial Park buildings. To this end, 

we planned a set of procedures which include benchmarking, conducted in partnership with Energy Star, 

and education, particularly concerning a comprehensive approach to energy retrofit financing. 

Park members paid a combined $42 million to LIP A for electricity and National Grid for natural gas in 

2009. By reducing park consumption by 15%, members will save at least $6.3 annually, money which can 

be used to grow their businesses and enhance their competitiveness. EPAct tax deductions are of great 

assistance when considering investments in energy efficiency. Further, roughly half the buildings in the 

park ftmction as warehouses, manufacturing facilities or other building types favored by EPAct. 

With regard to the current 1790 Deduction for Energy Efficient Commercial Buildings, our member 

companies are extremely interested in the extension of 1790 past 2013, increasing the maximum 179d 

deduction to $3.00, expansion of the eligible building categories to include REITs and non profits, and 

broadening of the beneficiary base, particularly for capital providers. 

With regard to the proposed Section 179F Deduction for Retrofits of Existing Commercial and 

Multifamily Buildings, with a maximum $4.00 per square foot tax deduction, our member companies are 

very interested in working on larger projects where 50% energy cost reduction can be achieved. 

'----- 225 Wirck" Boule"",,!, Hauppauge, NY 117HB' (631) 543-5355' h" (6.11) 543-S.1RO 

E-mail: info@hia-li.org· \Vcb Site: \\w\\,.hi,1-1i.org 
156 


82738129.eps

Enhancing Economic Performance and Competitiveness 

Long Island has a mature commercial building inventory, which has been subject to some of the highest 

energy costs in the United States. Thus Long Island provides one of the best opportunities in the nation 

for demonstrating the efficacy of energy-cost reduction supported by tax savings. 

Building Retrofits Provide Large Employment Opportunities 

Large numbers of existing building retrofits require enormous skilled and semi-skilled work forces. 

Lighting retrofits require lighting designers, laborers to remove and dispose of existing fixtures, 

distribution centers to store the new lighting material, laborers to stage the new material near the job site 

and electricians to install the new fixtures. 

HV AC retrofits require engineers for project system design, substantial U.S. manufacturing activity (most 

HV AC equipment is heavy and made in the U.S.), U.S. steel procurement and HV AC mechanics to 

install. 

The building envelope involves a wide variety of manufactured and workshop materials including roofs, 

walls, windows, doors, foundations and insulation. In addition to the labor required to create these 

products, large numbers of roofers, carpenters, installers and laborers are needed to handle the material 

and incorporate it into a building. 

The 179D Tax Incentive Actually Results in Increased Tax Revenues 

By providing a tax incentive for energy cost reduction, the U.S. Treasury is actually enabling larger future 

tax revenues. When a commercial property owner materially reduces energy related operating tax costs, 

taxable income increases by exactly the amount of the energy cost reduction. Although the 1790 tax 

incentive is only for the first (one) year of project completion, the company's taxable income will be 

increased annually every year (perpetually). When a government organization materially reduces its 

energy costs, it can reduce its budget deficit which may be used to reduce tax levies, including real 

property taxes at local level or meet other more vital community needs. 

Conclusion 

The HIA-LJ greatly appreciates the opportunity to submit this statement for tbe record. HlA-LJ has 

actively engaged in the promotion of energy awareness and efficiency for some time, and we finnly 

believe that current 1790 and 179F tax proposals, if extended, will substantially furtber our efforts. 

ack Kulka 

HIA-LJ Board Member and Chairman HlA-LJ Energy Utilities and Infrastructure Committee 
157 


82738.130

Written Statement for the Record of James A. Grogan, Jr. 

General President, 

International Association of Heat and Frost Insulators and Allied Workers 

United States Senate Committee on Finance 

Subcommittee on Energy, Natural Resources, and Infrastructure 

Tax Reform and Federal Energy Policy: Incentives to Promote Energy Efficiency 

December 12,2012 

Thank you, Chairman Bingaman, Ranking Member Cornyn and members of the Subcommittee 

for your leadership to schedule this important hearing on tax incentives for energy efficiency, 

and I greatly appreciate this opportunity to share with you my statement for the hearing record. 

My name is James A. Grogan, Jr., and I am the General President of the International 

Association of Heat and Frost Insulators and Allied Workers. On behalf of the more than 

25,000 highly-trained craft professionals who install mechanical insulation in commercial, 

industrial and manufacturing facilities, I am delighted to see that the U.S. Senate is interested in 

receiving recommendations for tax incentives for energy efficiency. 

I am pleased to share with you that our union strongly supports an important bipartisan 

legislative initiative that will promote energy efficiency, reduce carbon emissions, improve 

facility safety, and create thousands of green jobs for our members. Specifically, the 

"Mechanical Insulation Installation Incentive Act (S. 1526), introduced by Senator Gillibrand 

and cosponsored by Senator Johanns, Senator Rockefeller, Senator Moran, and Senator Sherrod 

Brown provides crucial incentives for facility owners to utilize effective and existing mechanical 

insulation technologies to achieve immediate energy savings. 

Buildings are responsible for 40% of U.S. energy demand and 40% of all greenhouse gas 

emissions, making efficiency gains in this area crucial if we are to markedly reduce America's 

energy consumption and effectively combat climate change. The industrial sector is similar in 

energy efficiency opportunities. At the residential level, insulation is well publicized for its 

efficiency benefits. However, the same cannot be said in the commercial and industrial sectors, 

which together consume 2Y:, times more energy than homes, according to the Energy Information 

Administration. Commercial and industrial insulation--collectively known as mechanical 

insulation---can slash the energy demand for the building and industrial sector. 

The Mechanical Insulation Installation Incentive Act creates the appropriate incentives to 

encourage commercial and industrial entities to go beyond the current minimum insulation 

requirements as defined by the American Society of Heating, Refrigerating, and Air 

Conditioning Engineers (ASHRAE) in new construction, and existing retrofit and maintenance 

projects. By providing facility owners with an incentive to increase or accelerate the 

depreciation deduction for added insulation above the minimum ASHRAE standards, S. 1526 

would allow businesses to increase their maintenance deduction expense up to a maximum 30% 

of the energy saved. 
158 


82738.131

By promoting incentives for mechanical insulation installation, Congress will both create jobs 

now and reduce carbon emissions. While the Joint Committee on Taxation scored a previous 

version ofS. 1526 at $375 million over 5 years, this legislation is estimated to generate $35 

billion in energy savings, reduce 170 million metric tons of carbon dioxide and other greenhouse 

gas emissions, and create and sustain 89,000 jobs annually. 

Best of all, these jobs do not require additional research and development. Mechanical insulation 

opportunities can be easily identified, with potential energy savings and emissions reduction 

determined with proven DOE-utilized software technology, and in many applications, energy 

saving projects can be implemented in weeks, 

For facility owners and operators, the savings are swift and sustainable; the return on investment 

from mechanical insulation is typically less than two years (and sometimes as little as six 

months). Mechanical insulation also improves infrastructure in the public, educational, and 

health-care sectors. 

I know that the Finance Committee has a strong interest in ensuring that our energy tax policy 

creates a level-playing field. To that end, it should be noted that while there are current 

incentives for walls, roofing, windows, lighting and other energy efficiency options, there are no 

existing tax incentives for mechanical insulation. As the Senate Finance Committee works on 

comprehensive tax reform next year, our union is committed to working with you on this and 

other initiatives that will lead to greater energy efficiency that is critical to job creation, 

economic growth, energy savings, and emissions reductions. 

Thank you for your consideration. 
159 


82738.132

Statement on behalf of the National Association of Home Builders 

12011S'" St NW 

Washington, DC 20010 

Senate Committee on Finance Subcommittee on energy, Natural Resources, and Infrastructure 

Hearing on Tax Reform and Federal Energy Policy: Incentives to Promote Energy Efficiency 

December 12, 2012 

On behalf of the 140,000 members ofthe National Association of Home Builders (NAHB), we 

respectfully submit this statement discussing the significance and impact of several expired and expiring 

energy tax incentives. 

In 2005, Congress passed the Energy Policy Act (P.L 109-58) and established a number of important tax 

incentives to promote greater energy efficiency in the built environment - single family, multifamily and 

commercial homes and buildings. These incentives acted as the only federal-level programs to address 

energy efficiency in new and existing homes and buildings with the intent of moving the market towards 

greater efficiency and the delivery of innovation and technology transfer in building design and practice. 

The deduction for tax code 179D, included in the Act and the subject of recent legislation, is set to 

expire at the end of 2013. While this hearing is focused on specific legislation, it is important to also 

draw attention to two additional tax credits that expired at the end of 2011: the credits for tax code 

Section 4SL and Section 2St. While Congress has allowed the incentives to lapse before and has 

extended them retroactively, for consumers and businesses this uncertainty is extremely disruptive. 

Retroactive extensions are particularly problematic for the consumer and small business-oriented tax 

provisions. In general, these taxpayers are more sensitive to tax uncertainty. Middle-class taxpayers, 

who are the primary beneficiaries for energy tax incentives, are particularly unlikely to purchase a more 

expensive, energy efficient product on the expectation that Congress will extend a tax credit 

retroactively. Likewise, manufacturers are unable to market those products as tax-credit eligible. As a 

result, when these types of credits are extended retroactively, the "winners" are more likely to have 

purchased the qualifying product anyway, while middle-class consumers will miss out. 
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179D - Energy Efficient Commercial Buildings Tax Deduction 

The 179D tax incentive, which offers a $1,80 per square foot tax deduction to make commercial 

buildings, including multi-family residential, 50% more energy efficient (above code), has been 

somewhat successful in encouraging investment in green construction. Unfortunately the deduction is 

not being used to its full potential. Building industry professionals conclude that the market impact 

would be far greater with an increase in this benefit. 

The "Commercial Building Modernization Act (5.3591)", introduced by Senators Jeff Bingaman (D-NM), 

Olympia Snowe (R-ME), Dianne Feinstein (D-CA) and Ben Cardin (D-MD), seeks to provide a more 

meaningful benefit by increasing the benefit to $3. NAHB believes that this will have a positive effect 

on the slowly recovering real estate industry and would ease the sticker shock from high initial costs of 

energy efficient features. 

While new construction has benefited from this incentive, the market for renovations has been unable 

to take advantage of the deduction. Older buildings by default are less efficient than new properties 

and it is nearly impossible to bring these buildings up to the standards set forth by today's building 

codes, let alone make them 50% more efficient than the codes. Renovations, however, are incredibly 

important. 75-85% of existing buildings will still be in use in 2030. By ignoring them, we will never 

achieve significant energy reductions in the built environment. 5.3591 would expand the deduction to 

target these projects - setting realistic goals that use a performance based approach, comparing a 

building's performance to its past utility bills, and challenging building owners to push the envelope on 

energy savings. The bill establishes a sliding scale, which links the amount of the benefit to the amount 

of energy saved, thus providing motivation to surpass initial energy goals. 

The 179D incentive is a very smart way to encourage efficiency. First, it does not choose winners and 

losers. It offers a product neutral incentive that provides builders and owners the flexibility to select 

materials and products that are the most cost effective and that best suit their collective needs. 

Secondly, it corrects an unintended consequence of the existing tax code. Businesses currently deduct 

typical operating expenses from their taxes, including utility bills, so the higher the bill, the higher the 

deduction. In this way, businesses are offered a greater tax benefit for using more energy. The 179D 

deduction offsets these benefits. By qualifying for the deduction, not only would energy efficiency be 

incentivized, but these buildings would have lower utility bills, thus reducing the deduction taken for 

business expenses (energy use). 

This particular bill also offers a technical fix that NAHB has long sought; to encourage projects developed 

using the low-income housing tax credit program (UHTC) to incorporate energy efficiency measures. 

The 179D deduction requires a basis adjustment, which in turn reduces the amount of LlHTCs that can 

be used on the property. Because of this, developers have elected not to use the 179D deduction at 

all. This is unfortunate because those living in these buildings -low-income families - would benefit 

greatly from lower utility bills. 5.3591 provides that the basis of installed energy efficiency measures 

would not be reduced for homes financed with the low-income housing tax credits. 

5.3591 is direct, easy to understand and outcome based. NAHB believes that these changes will 

transform the incentive to ensure greater use and target the largest energy offenders in the built 

environment. As such, NAHB strongly encourages support for this legislation. 
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Section 25C - Qualified Energy Efficiency Improvements Tax Credit 

The 25C tax credit began as a modest incentive for the purchase of qualified energy efficiency 

improvements for existing homes, such as windows, doors, roofs, and HVAC equipment. Originally, the 

25C credit provided 10% of the cost of the product (not including installation and labor costs) not to 

exceed $500 but imposed various lower caps on specific energy efficient property, such as a maximum 

of $200 for window purchases. At the outset, the credit offered little appeal to existing homeowners 

because the specifications for the qualified improvements had price tags that far exceeded the tax 

credit. Further, the various caps caused confusion and added complexity. In 2009, the American 

Reinvestment and Recovery Act (ARRA) expanded the original 25C program and increased the credit to 

30% with a $1,500 cap and included some labor and installation costs. All qualifying products now had 

the same cap, providing much needed simplicity. As a result, the appeal and popularity ofthis incentive 

soared and many retailers, manufacturers, and contractors advertised the newly-enhanced credit which 

encouraged business and fostered job growth in remodeling activity at the end of 2009 and 2010. 

The success of the credit in those two years is unquestionable. IRS data for tax year 2009 also indicates 

that 25C was heavily used by middle-class homeowners. Of taxpayers claiming the credit, two-thirds 

had an adjusted gross income of $100,000 or less; 93% oftaxpayers claiming the credit earned less than 

$200,000. Taxpayers in these income classes tend to be very price sensitive, and 25C arguably tipped 

the scales in favor of energy efficient equipment. Consider a simple window replacement: most homes 

have an average of twelve windows. Just installing basic windows is a substantial investment. As a 

result, middle-class homeowners undergoing window replacement today are less likely to install energy 

efficient windows based on a hope and prayer that Congress will retroactively extend the 25C tax credit 

later this year. 

The lapse in the 25C tax credit will also impact overall economic activity in the remodeling sector. For 

example, for tax year 2009, over $5 billion of 25C tax credits were claimed. NAHB estimates that these 

tax credits were claimed in connection with over $25 billion in remodeling expenditures. Remodelers 

often leverage this tax credit when working with clients. These tax credits helped support the 

remodeling industry (see graph below) during a period in which new home sales experienced dramatic 

declines. NAHB estimates that the remodeling activity generated by this tax credit in 2009 was 

associated with over 278.000 full-time jobs. NAHB estimates that every $100,000 in remodeling 

expenditures creates enough work for 1.11 full-time equivalent jobs.' The programs supported 

approximately $13.2 billion in wages for these workers and $7.5 billion in net business income. 

1 THE DIRECT IMPACT OF HOME BUILDING AND REMODELING ON THE U.S. ECONOMY 

(HTIP:!lWWW.NAHB.ORG!GENERIC.ASPX?SECTIONID-734&GENERICCONTENTID-103543&CHANNELlD-311), NAHB 

ECONOMICS PAPER. 
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Remodeling Expenditures 

Compared to New Home Sales 

SIllO.OOO MlJG 

$160,000 ... ~o 

$14l1,000 1,l!llQ i $11Moo 1.000 $100.000 $00 I 380.000 '" $00,000 600 • 

.$<10,000 400 ~ 

$2Qpoo 200 

~ 0 

~. ! ~ ~ ~ I § § ~ ~ ~ ~ i ~ § ., 0 <> :::. ::: J:! 

~aG!~~ ~~.a€:$!~ Sia!it 

~ ~ ii ~ t = s ~ ~ a t ~ ~ ~ ~ g ~ ~ ::: 

--r..mo<loBng ·~··Ihwll""", 54 ... 

NAHB strongly supports an extension of the Section 2SC tax credit. To make it an effective incentive for 

2013, action needs to be taken in the very near term. Long-term, NAHB would also urge Congress to 

simplify and modernize the new credit by increasing the $500 cap to $1,000; allow homeowners to claim 

installation costs for all eligible products; and remove the confusing lower caps. Adopting this 10% tax 

credit with a $1,000 cap will greatly simplify the current tax credit and provide an incentive that middleclass homeowners will continue to utilize to improve the efficiency of their homes. Ideally, NAHB 

believes this credit would be most effective as a permanent provision of the tax code. 

Section 4SL - New Energy Efficient Home Tax Credit 

Also expired as of January 1,2012, the Section 4SL tax credit provided a $2,000 credit to builders of new 

homes that exceed a minimum energy code specification (2003 International Energy Conservation Code 

plus the 2004 supplement) by at least SO% in both heating and cooling efficiency. The efficiency 

performance must be independently verified by an authorized energy rater, and the credit is subject to 

both a basis adjustment and may not be claimed against alternative minimum tax (AMT) liability. 

Eligible homes include residences, single-family and multifamily, that are sold to owner-occupants or 

leased for rental purposes. 

Although this credit has suffered from start-and-stop issues of short-term and retroactive extensions 

over the last five years, and has again expired at the end of 2011, the 4SL program has managed to 

deliver the market transformation results that Congress intended to encourage. The chart below shows 

that from enactment the Section 4SL credit went from 0.7% of the market in 2006 to 11% of the market 

for new homes in 2011. 
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Data provided by Residential Energy Services Network (www.natresnet.orgi' 

In 2011, 11% of all the new homes sold met the energy thresholds of the Section 45L credit and were 

50% or more energy efficient, with a nearly five-fold increase in total certified homes. 

With the current lapse of this credit, builders who utilize this tax credit face the difficult decision of 

whether to continue to offer the benefits of this credit to their customers without knowing if the credit 

will be extended. This decision is made more difficult due to the ongoing housing depression and 

incredibly small margins most builders currently operate on. In fact, the impact of a retroactive 

extension can likely be linked in part to the drop in qualifying homes seen in 2010. In that tax year, all of 

the tax extenders, including 45L, lapsed for 11 Y, months before Congress extended them retroactively. 

Home building is an industry driven by small, often family-owned businesses. According to NAHB's 

membership survey, 79% of home builders have fewer than 10 employees. Small business owners 

cannot afford to gamble on whether a tax credit will be extended retroactively. If a builder assumes the 

credit will not be extended, they may well lose a sale to another builder who assumes it will be and 

therefore quotes a lower price. The uncertainty created by the recent history of extending these tax 

provisions retroactively unfairly places small business owners between a rock and hard place. NAHB 

believes that Congress should not be placing businesses and consumers in the position of guessing the 

direction of tax policy. Congress has an obligation to create a degree of tax certainty rather than the 

current situation that leaves bUSinesses to predict the future. 

2 This represents the actual number of homes certified by RESNET, which is the largest certifier. Some additional 

homes may have qualified through other eligible certifiers. 
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Role of the Tax Code in Energy Policy 

Although some of these incentives would benefit from updates, nearly ali of these tax incentives are 

performing exactly as Congress intended when establishing them back in 2005. Despite the 

unprecedented downturn in housing and the resultant recession, the increased amount of economic 

activity associated with the 179D tax deduction for energy efficient commercial buildings and retrofit 

incentives under 25C, combined with the stellar market penetration of new energy-efficient homes 

under 45L confirm that federal policies promoting building efficiency are effective, necessary, and 

accomplish broad conservation goals. 

Some have argued for elimination of all energy and efficiency tax incentives in an effort to let the 

market determine the direction of costs and savings for consumers. Unfortunately, families that do not 

have the economic resources to undertake a meaningful energy upgrade will be sidelined in this 

process-as the data shows for Section 25C, taxpayers who used the credit are overwhelmingly middleclass families. And with or without these incentives, the Department of Energy is on a mission to 

federalize and mandate aggressive energy code requirements for new homes and buildings that will 

further deteriorate housing affordability. Some of these new and proposed requirements will prove to 

be very eXPensive to the consumer and will take decades to recover the investment, a payoff few 

homeowners will see as the average homeowner remains in their home for about ten years while the 

average home remains in the housing stock for 60 years or more. Further exacerbating the situation, 

appraisals often inappropriately or inaccurately value energy efficiency and energy-efficient features in 

homes, creating a regulatory disincentive for optional energy efficiency upgrades. 

With an aging infrastructure and building stock, more American families are going to be relegated to 

living and working in less-efficient homes and buildings.3 New construction is just now increasing from 

historic lows, and as the housing market begins to return to normal levels, consumers will be facing 

dramatically different mortgage qualification requirements and financing issues than before the 

downturn. The reality is that the oldest, least-efficient homes are the most affordable to families with 

lower and moderate incomes. Unfortunately, these families also bear the largest burden in energy 

costs, as a percentage of income. 

Utilization of the tax code to promote energy effiCiency and consumer savings is the most effective 

opportunity to truly shape an efficiency policy that is not punitive to the housing market as a whole, and 

creates jobs as a result. Many legislators have conSidered other incentiVes to stimulate this marketrebate programs, financing assistance, bond programs, etc. - and While these programs can be helpful, 

tax incentives are the most direct way to encourage energy efficiency. Consumers easily understand tax 

credits and deductions and because of this are more likely to take advantage of them. The use of the 

tax code to incentivize energy efficiency in buildings has a long history of bipartisan support. Much like 

other environmental rules and regulations, efficiency requirements are expensive, and ultimately the 

3 The average age of an owner-occupied home in the U.S. is now 35 years and climbing. See the following NAHB 

analysis for more detail ("An Aging Housing Stock," Eye on Housing blog, 

http://eyeonhousing.wordpress.com!2012!Ol!31!an-aging-housing-stock!) 
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consumer bears the brunt of those costs. New home builders cannot absorb costly new mandates, and 

these costs will be passed onto new home buyers. But to really improve home energy efficiency, we 

must look at the over 95 million rental and owner-occupied homes that were built before modern 

energy codes in 1991. Without effective tax incentives, those homes will continue to waste energy and 

cost the consumer money. 
166 


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Testimony of 

National Multi Housing Council 

National Apartment Association 

Hearing on 

Tax Reform and Federal Energy Policy: Incentives to Promote Energy Efficiency 

Before the 

Subcommittee on Energy, Natural Resources, and Infrastructure 

Committee on Finance 

Submitted for the Record 

December 18, 2012 

1850 M Street, NW, Suite 540 • Woshington, DC 20036 • 202.974.2300 • FAX 202]75.0112 • www.nmhc<org - info@nmhc.org 
167 


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Representing the nation's leading firms participating in the multifamily rental housing industry, the National Multi Housing Council and the National Apartment Association appreciate the opportunity to 

provide comments for the hearing record on Tax Reform and Federal Energy Policy: Incentives to 

Promote Energy Efficiency. The combined memberships of these organizations are engaged in all 

aspects of the apartment industry, including ownership, development, management, and finance. The 

National Multi Housing Council represents the principal officers of the apartment industry's largest and 

most prominent firms. The National Apartment Association is a federation of 170 state and local affiliates comprised of more than 55,000 multifamily housing companies representing more than 6.2 million apartment homes. NMHC and NAA jointly operate a federal legislative program and provide a 

unified voice for the private apartment industry. 

In the 1121h Congress, the Finance Committee compiled an extensive record on the topic of building 

energy efficiency and how the public policy goals of energy independence, environmental sustainability and job creation would be served by expanding opportunities to improve building performance. In 

particular, incentives promoting the improvement of existing buildings are a critical component of the 

measures under consideration. Advances in residential construction methods have improved the energy use profile of new buildings; however the majority of the Nation's building stock pre-dates the use 

of highly energy efficient products and techniques. The U.S. Department of Energy (DOE) reports 

that housing built after 2000 used 14 percent less energy per square foot than the housing built in the 

1980's and 40 percent less than housing built before 1950.' As such, there is considerable room for 

improvement in energy performance even among well designed, constructed and maintained properties. 

According to the American Housing Survey (2009) almost 81% of the Nation's stock of apartment 

properties (with 5 or more units) was constructed prior to 1990, which marks the decade in which the 

first building energy codes were implemented. This older stock of housing, which is an important 

source of affordable housing, represents a significant opportunity for achieving energy savings while 

at the same time adding to the available spending capacity of individuals who live in these apartment 

homes. 

This is a significant consideration since in 2010, approximately 70 percent of renter households had 

incomes below the national median and more than 40 percent had incomes in the bottom quartile2 

Furthermore, "energy costs as a share of gross rents rose from 10.8 percent to 15.0 percent between 

2001 and 2009. Lowest income renters saw the largest increase in their utility share, a jump from 12.7 

percent to 17.4 percent.' Moreover, there is a direct relationship between the age of a residential 

building and energy expenditures. The per square foot energy costs of housing constructed between 

1980 to 1989 is 16 percent higher than a building constructed after 2000. Those expenditures soar to 

a 28 percent increase in residential buildings built between 1970 and 1979 over post-2000 properties. 3 

Energy efficiency in multifamily properties could be economically improved by 30 percent with a savings of $9 billion in averted energy costs not to mention the substantial savings in greenhouse gas 

emissions. 4 

NMHC/NAA believe that a sound national tax poliCY can be used to catalyze a market transformation 

marked by significant improvements in building energy performance. Various federal, state and local 

agencies have established programs with increasing levels of responsibility for property owners to 

measure and disclose their buildings' energy performance. DOE, for example, is piloting asset rating 

programs for both residential and commercial properties that are aimed at developing a numeric rating 

system for building design and performance. Several cities now require that property owners submit 

I U.S. Department of Energy, 2011 Buildings Energy Data Book. March 2012. Chapter 2. 

2 Joint Center for Housing Studies of Harvard University. Amertca's Rental Housing-Meeting Challenges, Building on Opportunities. 2011. p. 17 http://www.ichs.harvard.eduisitesiichs.harvard.edulfilesiamertcasrentalhousin9=2011.oof 

) U.S. Department of Energy, supra note 1, at p. 2-20 derived from Table 2.3.12. 

4 Joint Center for Housing Studies of Harvard University, supra note 2, at p.33. 
168 


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utility consumption data for their properties as a basis for establishing a rating program that would 

provide information to consumers regarding individual properties. 

As energy performance programs shift from voluntary to mandatory participation, many existing properties will require significant capital investments in building systems in order to be considered favorably alongside buildings with newer systems and technological features. Indeed, DOE has endorsed 

commercial financing programs where by local governments create funds to be loaned to multifamily, 

commercial and industrial property owners to finance energy efficiency and renewable energy improvements that are paid back through property tax bills. 

The current financial climate, while improving, still presents significant challenges for property owners 

who seek to layer additional debt on their properties. The combined forces of faltering job creation, 

loss of equity value across the real estate industry and the weak fundamentals in the commercial 

mortgage-backed securities market present real obstacles to re-financing efforts. If renovations on 

private property are seen as a public service that benefits society overall by reducing energy and water consumption, reducing pressures on infrastructure, lessening greenhouse gas emissions and contributing to national security, it will be necessary to develop additional financing tools to assist property 

owners in shouldering this responsibility. 

A recent study conducted by CNT Energy and the American Council for an Energy-Efficient Economy 

finds that "[eJnergy efficiency upgrades provide a solution by improving the bottom line for multifamily 

building owners, decreasing pressure on rents, decreasing financial risk and improving tenant comfort. ... Building owners often need financial incentives to adopt new technologies or equipment with 

higher up-front costs. Despite this, studies have documented that affordable housing, often multifamily, receives a disproportionately small share of available energy efficiency funding." 5 

We believe that S. 3591, the Commercial Building Modernization Act will assist property owners in 

making meaningful improvement in the energy performance of their properties. The abiltty of many 

older properties to utilize the full measure of the current credit available through the Commercial 

Building Tax Credit (Sec. 1790 of the Internal revenue Code of 1986) has been limited because these 

properties' have had difficulty in achieving the requisite 50% improvement in building energy performance over the level specified in the 2001 version of the in American Society of Heating, Refrigerating and Air-Conditioning Engineers (ASHRAE) 90.1 code. While S. 3591 includes updated energy 

code references against which whole building performance will be measured for many properties, it 

also includes a pathway for older properties to qualify for incentives that will assist property owners in 

making building system upgrades that will yield significant energy savings. 

Older buildings generally have encountered technical limitations that prevent the structure from 

achievin9 the energy performance metrics speCified by current code, let alone reaching the incremental "above-code" performance characteristics required to claim the tax credit. S. 3591 establishes a 

sliding scale of energy improvements, using the property's current energy performance as the baseline. This pathway of significant improvement in energy performance relative to the property's own 

baseline performance will provide a much needed financial tool for properties that want to make these 

types of investments but have not been able to do so. 

A particular challenge for apartment properties comes in the fact that 80% of apartment residents pay 

their own utilities so any financial savings due to lowered utility consumption is largely unavailable to 

the property owner to offset the cost of investment in more efficient systems." A predictable tax credit 

that would be available for at least 10 years would leverage private investment in qualified building 

retrofits and would have a positive effect on the economy as it would result in increased demand for 

5 CNT Energy and American Council for an Energy-Efficient Economy, Engaging as Partners in Energy Efficiency: Multifamily Housing and Utilities. January 2012. hltp:/Iwww.cntenergy.orgimedialEngaging-as-Partners-in-Energy-Effidency-MFHousing-and-Utilities-Final-012512.pdf. p.4. 

6 Joint Center for Housing Studies of Harvard University, supra note 2, at 4. 
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construction services, materials and equipment. In order to maximize the drive to building performance upgrade, S. 3591 importantly permits certain property owners such as real estate investment 

trusts to allocate the credit to a third-party involved in the project. 

NMHCINAA appreciate the opportunity to submit comments for this hearing and look forward to working with the Committee on this matter in the 113'" Congress. For additional information please contact Eileen Lee, Vice President of Energy and Environmental Policy, NMHCINAA Joint Legislative 

staff (elee@nmhc.org). 
170 


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NPGA 

NATIONAL PROPAN:;: GAS ASSOCIATION 

Statement for the Record 

u.s. Senate Committee on Finance 

Subcommittee on Energy, Natural 

Resources, and Infrastructure 

"Tax Reform and Federal Energy Policy: 

Incentives to Promote Energy Efficiency" 

December 12,2012 

1899 L Street, NW i Suite 350 ' Washington, DC 20036 TEL 202 466 7200 ~i.l; 202 466 7205 ,<"o~www,npga,org 
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NPG:\ 

NATIONAL PROPANE GAS ASSOCIATION 

December 20, 2012 

The Honorable Max BUlIeus 

Chairman 

Committee on Finance 

United States Senate 

219 Dirksen Senate Office Building 

Washington, D.C. 20510 

Chairman Bauclis and Ranking Member I·lateh: 

The Honorable Orrin G. Hatch 

Ranking Member 

Committee on Finance 

U ni ted States Senate 

219 Dirksen Senate Office Building 

Washington, D.C. 20510 

The National Propane Gas Association (NPGA) is the national voice for the odorized propane 

gas industry. NPGA's 3,000 member companies the majority of which are small hlmily-owncd 

businesses .- fuel homes, businesses and vehicles in all fifty states, and employ approximately 

-10.000 industry employees. We would like to submit this letter for the record of the hearing 

cntitlcd "Tax Rclc)flll and Federal Energy Policy: Incentives to Promote Energy Eniciency", held 

bet()]'e the committee on December 12,2012, 

Aside 11·0111 propane's most well-known use in 42 million American backyard grills, nearly 10 

million U.S. households rely on propane for space heating, cooking, hot water and many other 

needs. Thcse households arc predominantly non-urban and oJTthc natural gas main, and they 

depcnd on propane gas as a clean-burning. efficient, low-cost and reliable alternative to fuel oil 

and/or electricity. As Congress considers policies to incentivize encrgy cfticiency in American 

households and commerce, NPGA believes propane gas can playa significant role in achieving 

this common goal. 

c.iew innovation creates new and efficient uses for propane every day cOl11mcrciallawn 

mowcrs. furnaces. forklifts, water heaters, fleet vehicles and clothes dryers to name a few. 

Because propanc is derived fl'om natural gas liquids, the boom in American natural gas 

production has brought with it a boom in propane gas. In fact, 5 years ago propane was 

considered as a net import, with halfofthe supply produced from oil retlning and the remainder 

frolll natural gas. Today, propane gas has grown to he considered a net export. Nearly 100 

percent of propane is produced domestically with over 70 percent coming from natural gas 

sources. In 2011. the U.S. exported 12.7 percent of the total U.S. propane supply, and for 2012 
172 


82738.145

that number is expected to be higher. These arc supplies that could, and should, be used here at 

home. 

NPGA believes that any lax incentives for appliance or equipment efficiency contemplated by 

Congress should require the use of a Full Fuel Cycle analysis as part of the energy efficiency 

equation. A Full Fuel Cycle (FFC) analysis is the most accurate way to calculate energy use as 

"ell as environmental emissions. FFC accounts for: 

Energy consumed in the extraction, processing and transport of primary fuels; 

Energy losses in electric power-generation or gas processing plants; 

Energy losses associated with transmission and distribution of fuel to the end user; 

Greenhouse gas (GHG) emissions associated with each step within this process. 

An FFC analysis differs from a site energy, or point of usc, analysis because efficiency 

measurements based on site, or point of use, do not account for the efficiency of all the upstream 

energy use and emissions associated with delivering the fuel to its point of use. Therefore, it 

bils to provide a complete energy etIiciency, energy consumption and greenhouse gas profile. 

The U.S. Department of Energy (DOE) announced on August 18,2011 that it would adopt the 

recommendations of a study perlormed by the National Academy of Sciences, which concluded: 

«DOE should consider moving over time to lise o/a/idl~fi,el cycle measure ()f energy 

cOl1swnpliol1/or assessmel7l olnalionol and environmental impocts. especially levels of 

greenhouse gas emissions. and to providing more comprehensive in/ormation to the public 

Ihrough labels and other means. slieh as an enhanced website". 

NPGA supports the idea that FFC measurement enables a more comprehensive analysis of the 

total energy use and environmental impacts and should be included in any energy efliciency 

rating, building energy consumption, energy use, and energy savings test. It can be applied to 

everything ti'om appliances to motor vehicles to small or large buildings. 

An example of success whereby tax incentives were implemented to meet federal energy 

objectives is the alternative fuel vehicle credit and the alternative fuel vehicle refueling property 

credit. These credits were used for the propane powered, or 'autogas' as it is known in the 

propane industry, vehicle market. The autogas sector, particularly with fleet businesses, has 

burgeoned in recent years. Propane vehicles remain the most llsed alternative fuel vehicle on the 

road. The alternative fuel vehicle tax incentives stimulate the market, can increase buying-pm.ver 

with consumers, and create a clean, emcient, and economical alternative to gasoline and diesel. 
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82738.146

Like their use in the auto gas market, tax incentives for energy emcicnt appliances need this 

buying-power to compete, as well, But, tax incentives alone will not arm consumers with the 

tools they need to make informed purchases. Energy etTiciency measuremcnts must be changed 

to more accurately represent true energy etTicieney and consumption. 

Thank you for your time and consideration of this important economic issue. 

Sincerely, 

Richard Roldan 

President & Chief Executive OtTicer 

National Propanc Gas Association 

NPGA is the national trade association of the propane gas industry with a membcrship of approximately 

3.200 companies. including 39 affiliated state and regional associations representing members in all 50 

states. Although the single largest group of NPGA members is retail marketers of propane gas, the 

membership includes propane producers, transpOiters and wholesalers, as well as manufacturers and 

distributors of associated equipmcnt, containers and appliances. More than 55 million households use 

propane gas for space heating, water heating, cooking, outdoor recreation, and other lIses. Propane gas is 

also lIsed in millions of installations nationwide for commercial heating and cooking, in agriculture, in 

industrial processing, and as a clean alternative engine fuel for over-the-road vehicles and industrial litt 

trucks. 
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IilNRCA 

December 21, 2012 

The Honorable Jeff Bingaman 

National Roofing Contractors Association 

Washington, D.C Office 

324 rourth Street. N.I:. 

Washington. D.C'. 20002 

202/546· 75H4 

Fax:: 202/546-9289 

httr://www.nrca.nct 

Chairman, Subcommittee on Energy, Natural Resources and Infrastructure 

Senate Committee on Finance 

U.S. Senate 

Washington, DC 20510 

Dear Mr. Chairman: 

The National Roofing Contractors Association (NRCA) commends you for holding a hearing of 

the Senate Finance Committee's Subcommittee on Energy, Natural Resources and Infrastructure 

entitled "Tax Reform and Federal Energy Policy: Incentives to Promote Energy Efficiency" on 

Dec. 12,2012. NRCA requests that this letter and enclosure be included in the hearing record. 

Established in 1886, NRCA is one of the nation's oldest trade associations and the voice of 

professional roofing contractors worldwide. NRCA's approximately 4,000 members arc located 

in all 50 states and typically are small, privately hcld companies, with the average member 

employing 45 people in peak season and attaining sales of about $4.5 million per year. 

The roofing industry has an important role to play in advancing energy efficiency within our 

nation's commercial and residential buildings. Our members also bclieve that advancing greater 

levels of energy efficiency in buildings goes hand-in-hand with facilitating .,'fcater levcls of 

economic .,'fowth and job creation. 

NRCA believes that any tax reform legislation considered by Congress must provide pro-growth 

policies that enable entrepreneurs to .,'fOW their businesses and create jobs within our industry. 

Unemployment in the construction industry remains high and construction has been one of the 

hardest hit sectors of the economy over the past several years. Looking ahead, NRCA's 

members continue to struggle in difficult and uncertain economic conditions. As such, tax 

reform that facilitates robust economic growth is needed now more than ever, and NRCA urges 

Con.,'fess to pursue tax reforms that enhance economic growth as well as greater levels of energy 

efficiency. 
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82738148.eps

Depreciation Reform for Commercial Roofs 

Small and mid-sized businesses within the roofing industry are uniquely positioned to play an 

important role in creating high quality jobs for American workers. Congrcss should facilitate the 

creation of an estimated 40,000 private-sector jobs annually by passing legislation which reforms 

thc dcpreciation schedule for commercial roofs. In addition to crcatingjobs among contractors 

and manufacturers, this legislation, the Energy-Efficient Cool Roof Jobs Act (S. 1575), will also 

enhance the cnergy cfficiency of our nation's commercial buildings and simplify taxes for small 

businesses of all typcs. NRCA wishes to commcnd Senators Ben Cardin (D-MD) and Mike 

Crapo (R-lD) for their leadership on this bipartisan reform legislation. 

Passage of depreciation reform legislation is necessary becausc bctwccn 198 I and 1993 thc 

depreciation schcdule for nonresidential property was incrcascd from 15 years to 39 ycars. 

However, the currcnt 39-ycar depreciation schedule is not a realistic measure of the avcrage life 

span of a commercial roof. A study by Ducker Worldwide, a leading industrial research firm, 

determined the average life expectancy of a commercial roof to be 17 years. 

Thc largc disparity bctween the 39-year depreciation schedule and thc average life span of a 

commercial roof is an incentive for building owncrs to delay the replacemcnt of failing roofs. 

This slows economic activity and the adoption of more advanced cnergy-cfficient roofs, because 

an owner who replaces a roof before 39 years have elapsed must continue to dcpreciate that roof 

for tax purposes evcn though it no longcr exists. A Treasury Department Report to Congress on 

Depreciation Recovery Periods and Methods corroboratcd this problem by finding " ... a 

'cascading' effect, whcre sevcral roofs are being depreciated at the same time, evcn though only 

one is physically present." Given this situation, many building owncrs choose to do only 

piecemeal repairs, most often with older technology, rather than replacc a failing roof in its 

cntircty with new, more energy-efficient materials. 

S. 1575 would rcctify this problem by reducing the depreciation schedule from 39 to 20 years for 

commcrcial roofs that meet a benchmark cnergy efficiency standard. This will facilitatc job 

creation in the roofing industry by eliminating the disinccntivc in the tax eode for building 

owners to delay full roof retrofits in favor of pieccmeal rcpairs. Enactmcnt of S. 1575 will also 

benefit small businesses of all typcs, not just roofing industry cmployers, by mitigating the 

"cascading effect" of having to depreciate more than one roof when a roof must be replaccd 

before the 39-year depreciation schcdule has been completcd. 

According to the Ducker Worldwide study, reforming the deprcciation schcdule for commercial 

roof~ will produce the following benefits by accelerating demand for energy-efficient 

commercial roofs: 

Creatc an cstimated 40,000 new jobs within the roofing industry; 

Add $1 billion of taxable annual revenuc to the cconomy; 

Provide savings to small busincsses of all types through a simplcr and more cquitable 

system of taxation and lower energy costs; and, 

Reduce U.S. energy consumption by 13.3 million kilowatt hours annually and cut carbon 

emissions by 20 million Ibs. pcr ycar. 
176 


82738149.eps

Conclusion 

Given this unique combination of both job creation and energy-efficiency benefits, S. 1575 

enjoys the support of a broad array of constituencies, including business, manufacturer, labor 

union and energy efficiency organizations. The bill will facilitate greater job creation not 

through implementation of a special tax incentive, but by the removal of an obstacle in the (ax 

code which restricts economic growth and impedes the movement towards greater levels of 

energy efficiency within commercial buildings. As evidence of the broad support for this 

legislation, enclosed is a letter to the Chairman and Ranking Member of the Senate Finance 

Committee from twenty organizations in support of S. 1575. 

Again, NRCA wishes to commend you for reviewing the issue of how tax reform can generate 

greater economic growth and improve our nation's energy efficiency policy, and also wishes to 

again commend Senators Cardin and Crapo for their leadership on S. 1575. NRCA looks 

forward to working with Congress towards the enaetment of this or similar legislation which will 

achieve these vital goals. Please let me know if you have questions or need more information 

regarding this matter. 

Thank you for your consideration of NRC A's views. 

Sincerely, 

Duane L. Musser 

Vice President of Government Relations 

Enclosure 
177 


82738150.eps

October 4,2011 

The Honorable Max Baucus 

Chairman, Committee on Finance 

219 Dirksen Senate Office Building 

Washington, DC 20510 

The Honorable Orrin Hatch 

Ranking Member, Committee on Finance 

219 Dirksen Senate Office Building 

Washington, DC 20510 

Dear Chairman Baucus and Ranking Member Hatch: 

We are a broad coalition of construction, manufacturing, energy efficiency and labor groups 

writing to express our strong support for S. 1575, the Energy-Efficient Cool Roof Jobs Act, 

bipartisan legislation introduced by Senators Ben Cardin (D-MD) and Mike Crapo (R-ID) 

that would remove an obstacle in the tax code that is hindering job creation as well as the 

advancement of energy-efficiency within the commercial building sector. We urge its quick 

consideration by the Finance Committee andlor its inclusion in any tax reform, energy or jobsrelated tax legislation. 

Unemployment in the construction industry remains an alarming 13.5 percent and any recovery 

in commercial construction is uncertain at best in the foreseeable future. By accelerating 

demand for energy-efficient commercial roofs, S. 1575 would: 

Create nearly 40,000 new jobs among roofing contractors and manufacturers; 

• Add $1 billion of taxable annual revenue in the construction sector; 

• Save $86 million in energy costs in the first year; I and 

Eliminate and 20ffset carbon emissions by 1.2 million metric tons (equal to emissions of 

229,000 cars). 

S. 1575 would remove an obstacle in the tax code to job creation and achieving greater levels of 

energy-efficiency in the commercial building sector, which accounts for 18% of U.S. energy use. 

Between 1981 and· 1993, the depreciation schedule for nonresidential property was increased 

from 15 to 39 years. Howcver, the average life of a commercial roof is only 17 years. This is an 

incentive for building owners to delay the replacement of older, failing roofs with new energyefficient technology that reduccs energy consumption. 

We urge the Committee to rectify this problem by advancing S. 157.5, which provides a 20-year 

depreciation recovery period for commercial roofs that meet a benchmark energy efficiency 

standard. Providing more rational "economic" depreciation that is consistent with the life of the 

asset will accelerate demand for such roofs by removing the disincentive for building owners to 

delay complete retrofits of failing roofs. An independent study by Ducker Worldwide, a global 

research tirm, estimated that reforming the 39-year depreciation schedule will create nearly 

40,000 manufacturing and construction jobs per year and add $1 billion of taxable annual 

I J. Phelan. 2009. Energv and gnvironmental Impact Reduction Opportunities for Existing Huildings with Low' 

Slope Roofs. Bayer MaterialScience. 

2,J. Phelan. 20DB, and H. Akbari, S. Menon and A. Rosenfeld. 2009 . .Global cooling: increasing world-wide urban 

albedos to off!?et C02. Clim:ltic Clwflg(!, 94, pp. 275-28fL 
178 


82738151.eps

revenue in the construction sector. This study also documented the l7-year average life ofa 

commercial roof. 

Due to the unique job creation and energy efficiency benefits of depreciation reform for 

commercial roofs, S. 1575 has the support of a diverse coalition of business, conservation, and 

labor groups. We urge Congress to quickly move forward with this legislation to help spur 

economic growth and job creation in the hard-hit construction industry. 

Best regards, 

Alliance to Save Energy (ASE) 

American Council for an Energy-Efficient Economy (ACEEE) 

American Institute of Architects (AIA) 

American Society of Heating, Refrigeration, and Air Conditioning Engineers (ASHRAE) 

Associated Builders & Contractors (ABC) 

Associated General Contractors (AGC) 

Building Owners and Managers Association International (BOMA) 

Business Council for Sustainable Energy (BCSE) 

Center for Environmental Innovation in Roofing (CEIR) 

Environmental and Energy Study Institute (EESI) 

Institute for Market Transformation (IMT) 

International Council of Shopping Centers (ICSC) 

Joint Roofing Industry Labor and Management Committee 

National Roofing Contractors Association (NRCA) 

Polyisocyanurate Insulation Manufacturers Association (PIMA) 

Sheet Metal and Air Conditioning Contractors' National Association (SMACNA) 

Spray Polyurethane Foam Alliance (SPFA) 

Sustainable Buildings Industry Council (SBIC) 

United Union of Roofers, Waterproofers and Allied Workers 

U.S. Green Building Council (USGBC) 

cc: Senator Ben Cardin 

Senator Mike Crapo 
179 


82738.152

Statement of the Polyisocyanurate Insulation 

Manufacturers Association 

Senate Finance Subcommittee on Energy, Natural Resources & 

Infrastructure Hearing from December 12, 2012 

Tax Reform and Federal Energy Policy: Incentives to 

Promote Energy Efficiency 

SlIhmitted h:r: Jared Bl11111, President 

Palyisocyallllrafe Insulation Manufacturers As:mciatioll 

7315 Wisconsin Avenue, Suite 400E 

Bethesda, Man/and 20814 

30 / ~654~0000 

www.po(viso.org 

The Polyisocyanurate Insulation Manufacturers Association (PIMA) would like to thank 

Chairman Bingaman and membcrs of the Subcommittee for the opportunity to comment on 

proposals for overcoming obstacles and disincentives that currently exist in thc market place and 

in the tax code to improved building energy efficiency, Spccifically, we would like to comment 

on S, 3591, the Commercial Building Modernization Act, introduced by Senators Snowe, 

Bingaman, Cardin, and Feinstein, and S, 1575, the Energy-Efficiency Cool Roof Jobs Act, 

introduced by Senators Cardin and Crapo, In addition to removing obstacles and disincentives to 

energy efficiency, passage of both bills would increase employment within the construction 

sector (close to 40,000 new jobs among roofers and rootlng product manufacturers, in the casc of 

S. 1575), 

Accounting for 19% of the nation's total energy usage, policies directed at commercial buildings 

are essential to improving the energy-efficiency of our economy, In terms of what is possible, 

the Energy Information Administration (EIA) estimates that the energy use intensity (EUI) of 

commercial buildings, as a whole, could be reduced 20% between now and 2035 with policies 

encouraging best practices. Also, the Advanced Energy Retrofit Guides (AERGs) prepared by 

the Department of Energy this year estimate that office and retail buildings (representing 30% of 

commcrcial building energy use) are capable of reducing energy use between 45%-59% in a cost 

effective manner. Clearly, there is great potential here for more efficient use of energy, but this 

potential is likely to go unrealized without the proper federal support and tax policy, 

There are several important barriers to energy efficient building practices, including split 

incentives (i,e., the person expected to pay extra for the supcrior construction or product is often 

different from the person who pays the energy bills) and the emphasis on first-cost 

considerations over long-term energy savings, This last barrier is highlighted in recent surveys 

indicating that most building owners arc only interested in energy efficiency investments that 
180 


82738.153

have a return on investment of four years or less, which leaves all but the lowest hanging fruit 

unutilized. J; 

Another important barrier to improved energy efficiency is the current 39-year depreciation 

schedule that applies to major building components. This relatively long depreciation schedule 

is an incentive for building owners to postpone the replacement of building components that 

normally wear out far sooner than 39 years, components such as roof coverings (17 yrs.) and 

HVAC equipment (17-23 yrs.). The American Council for an Energy-Efficient Economy 

(ACEEE) recently released a paper explaining that depreciation periods are too long for many 

building components and discourages building improvements and upgrades that would likely 

result in improved energy efficiency. 2; 

We believe at least two pending legislative proposals would be effective in addressing these 

barriers: 

• S. 1575, the Energy-Efficiency Cool Roof Jobs Act, introduced by Senators Cardin, 

Crapo; and 

• S. 3591, the Commercial Building Modernization Act, introduced by Senators Snowe, 

Bingaman, Cardin, and Feinstein. 

The Energy-Efficiency Cool Roof Jobs Act 

S. 1575, the Energv-Efficient Cool RoofJobs Act, would provide a 20-year depreciation period 

(instead of the current 39 years) for commercial roofs that meet minimum R-values that are 

significantly highcr (i.e., requiring more insulation) than those required under state and local 

building codes and that have a white or other highly reflective surface. This change would 

correct an inequity in the current depreciation system (i. e., the average life span of a low-slope 

roof is only 17 years) and would improve the energy-efficiency of buildings. The required Rvalues under the proposed legislation are identical to the prescriptive requirements found under 

the ASHRAE standard 189.1-2011, "Standard for the Design of High-Performance, Grecn 

'I The Institute for Building Efficiency (Johnson Controls) has, since 2007, surveyed facility managers and 

others involved in building operation decisions for information relevant to their decisions to implement building 

efficiency upgrades. Over the life of this survey, between 75% and 80% of the respondents report that a return on 

investment of 6 years or less is required and between 54% and 63% require a ROI of less than 4 years. Energy 

Efficiency Indicator, Institute for Building Efficiency, reports from 2007-2011. http://www.institutebe.com/EnergyEfficiency-lndicator.aspx?lang=en-US. In a similar survey conducted by the Economist this year, 423 executives 

worldwide in the real estate and building construction sectors (a forth of which are from the U.S.) indicated even 

shorter payback requirements. 90% of the U.S. respondents said their companies require a payback period of 5 years 

or less on energy efficiency investments, and 56% require a 1-3 year payback period. 

http://www.managementthinking.eju.com/energy-efficiency-and-energy-savings.htmt and 

http://www.managementthinking.eiu.com/sites/defaultlfiles/downloadslEIU GBPN EnergyEfficiency 120921 r3.pdf 

'/ Depreciation: Impacts of Tax Policy, Harvey Sachs, Christopher Russell, Ethan Rogers, and Steven Nadel. 

April 2012, http://www .aceee.orglfiles/pdfjwhite-paper/depreciatjon~tax-paper.pd f 
181 


82738.154

Buildings." This legislation would be limited to retrofits of existing low-slope roofs, and would 

not be available to new buildings. 

S. 1575 complements the approach taken in S. 3591 (discussed below) by focusing on the roof, 

which is the only building envelop component that is regularly replaced, but rarely upgraded to 

address energy and other environmental impacts. Most existing buildings were constructed 

before building energy codes were first developcd in the mid-1970s or constructed under 

relatively weak codes, so these older, under-insulated roofs offer an important opportunity for 

increased energy savings. Over the next 17 years, the weather proof membranes on all 

commercial roofs will be replaced or recovered, which is the most cost effective time to add 

needed insulation because the insulation is placed directly under the membrane. This is also the 

best time for building owners to switch to a "cool," reflective roof surface. 

The insulation R-values required under S. 1575 are based on prior analysis and modeling 

demonstrating that compliance will result in significant long-term energy efficiency 

improvements, so modeling for IRS compliance will not have to be repeated every time a roof is 

upgraded. This will result in lower compliance costs and a greater adoption rate. The insulation 

R-value requirements are also technology neutral in that any type of insulation can be used, 

including spray foam, polyiso, polyurethane, and other products. As you can see from the 

attached letter that was sent to the Committee last year, S. 1575 enjoys broad support from 

construction, manufacturing, energy efficiency and labor groups. 

S. 1575 Energy, Environmental & Employment Benefits 

By combining increased insulation with cool roofs, this policy would result in several 

different energy & environmental benefits. 

• Increase in Building Energy-Efficiency: temperatures on a traditional dark 

colored roof can be 50 to 90°F warmer than the air. Cool roofs reduce the 

temperature ofthe roof surface and the amount of heat that is transmitted into the 

building, which results in reduced building air conditioning loads and, in most 

arcas of the country, lower annual energy bills for building owners. Widespread 

adoption of cool roofs and increased insulation levels when roofs are replaced or 

re-coved would reduce whole-building energy use by an average of 7 percent and 

save over $12 billion in the first ten years. These savings estimates are supported 

by several energy modeling studies performed by Bayer MaterialSeienee, ~I 

3/ J. Phelan. 2009. Energy and Environmenta1 Impact Reduction Opportunities for Existing Buildings 

with Low'Slope Roofs. Bayer MaterialScience. 
182 


82738.155

Lawrence Berkley National Laboratory, ,,1/ and the National Renewable Energy 

Laboratory. ~ 

• Reduction in Global Warming: cool roofs reflect solar radiation away from the 

earth where it would otherwise be absorbed and then released as infrared radiation 

(heat). A recent study measured this cooling effect and calculated the CO2 

emissions reduction, or the CO2 offset, that would be equal to the cooling effect of 

highly ret1ective surfaces. §/ This significant offset is reported in the table below. 

• Reduction in the Urban Heat Island Effect: urban areas tend to have warmer 

air temperatures than the surrounding rural landscape because ofthe low solar 

reflectance, or albedo, of buildings, streets, and pavements. The annual mean air 

temperature of a city with I million people or more can be 2 to 5°F warmer. 

Reducing temperatures in these areas will result in reduced building air 

conditioning loads for all buildings, not just those with cool roofs. 

""Potential benefiiS after 10 yearsj(j(j·!.ofeach year's reguiarlow:ifope roof replacementS (1.53 billion 

" ~2/yea.r) ~~~. inc~~~s~d in~l;l.!~~.ion ,a':l.d .. ~.h.ite~refl~.c.ti~~ ~~rfa~.~s_, 

~ '" ~ c '" 

$12,2 billion in energy cost savings, 

1,460lrillion Btu in source energy savings (1.46 Quads). 

105 milliontonnes ofCO~ emissions avoided through energy-efficiency and 42 miilion tonnes offset through 

the white roof albedo affect for a total of 147 million tannes. This is equal to the annual emissions from 28 

million passenger vehicles, a number that is greater than the passenger vehicles registered in Pennsylvania, 

New York, and New Jersey combined. 147 million tonnes of CO2 is also equal to the annual emissions of 38 

coal fired power plants. 

$i4 billion in energy cost sa'vings 

266 trillion Btu in source energy savings (0:26 Qu,idS) 

~; 19,1 million tonnes of C02 emi'ssions avoided through~-eneigy-efficiency and ~7.7 rrirllion tonnes offset th'rough 

~ ~ the white roof albedo affect for a total of 26.8 million tonnes. This represents 2.5% of the current C02 

c - : emissions from the entire commercial buildings sector, a sector that is responsible for 19% of U.S. energy 

q: S use and carbon emissions. 

:-BenefiiS of S.1575after()nly one year .......... . ....... ' .. . .. .. . ... . . . .... . 

'" c 

o 

Create nearly 40,000 new jobs among roofers and roofing product manufacturers and add $1 billion of 

t,<:I,~ab!~ an,n,~a,1 ~~v~nue .f~om the r~Q~ng jnd_u~~ry; II _ Reduce U,S. energy consumption by 11. 4 trillion Btu and save small businesses and consumers $86 million 

in energy costs; §I .. _. .. . . ..... . 

Reduce CO, emissions by approximately 800,000 tonnes (through energy efficiency improvements) and 

offset an additional 400,000 tonnes (through white roof albedo effect) for a total benefit of 1.2 million tonnes 

. reduced or offset(equal to "missions from 229,000 cars);l1/ 

.1/ R. Levinson and H. Akbari. 2010. Potential benefils oCcoo} roofs on commercial b~ildings: conserying 

energy, saving money, and reducing emission of greenhouse gases and air pollutants. Energy Efficiency, 3 (1), 

53·109. 

5/ Technical Support Document: Development of the Advanced Energy Design Guide for K -12 Shools30% Energy Savings, (September 2007), S, Pless, P. Torcellini, and N. Long, the National Renewable gnergy 

Laboratory (pages 111-145), http://1Y.1Yw.nreLgov/docs/fy07osti/42114.pdf. 

6/ H. Akbari. S. Menon and A. Rosenfeld. 2009. Global cooling: increasing world' wide l,lrban albedos to 

offset C;02. Climatic Change, 94, pp. 275'286. 

71 Ducker Worldwide. (2003) Comprehensive Nonresidential Building Analysis to Estimate the Current Reality 

of Roofing Longevity. 

81 J. Phelan. 2009. 

91 J. Phelan. 2009. and H. Akbari et aJ. 2009. 
183 


82738.156

The Commercial Building Modernization Act 

S. 3591 would improve the existing deduction for energy efficient commercial buildings under 

section 179D of the Internal Revenue Code and create a new, section 179F, deduction for 

comprehensive, multi-system energy-efficient building retrofits. It is generally recognized that, 

except for lighting retrofits, the existing scction 179D deduction has not lived up to expectations. 

The reforms proposed under S. 3591 would address two central problems with the current 

program: (I) the deduction levels are set too low; and (2) the energy savings targets are very 

difficult or impossible to reach for most building retrofits. S. 3591 is intended as an incentive 

for comprehensive "deep" retrofits of multiple building systems together, not simply one system 

upgrades. 

Proposed Reforms to Section 179D under S. 3591 

• The deduction amounts would be raised to $3.00 for the whole building incentive and 

$1.00 for a one-system partial deduction (or $2.20 for a partial deduction that 

combines IIV AC and envelope measures). 

• Real Estate Investment Trusts, Limited Liability Partnerships and other real estate 

holding structures would be allowed to use the tax benefit. 

• The baseline for measuring energy savings would be updated to ASHRAE Standard 

90.1-2004 for years 2012 to 2014 and ASHRAE Standard 90.1-2007 for years 2015 

and 2016. 

Proposed New Section 179F Deduction under S. 3591 

• A "sliding scale" deduction would be available to buildings that implement a 

"certified retrofit plan" that is designed to achieve a reduction in source energy use of 

20% or more. The deduction amount would range from $1.00 to $4.00 per square 

foot of 1100r space, depcnding on the level energy savings. 

• 60% of the deduction would be claimed by the taxpayer in the year the retrofit plan is 

implemented and the remaining 40% would be claimed (2 years laler) after the energy 

savings is "verified." 

• The energy use baseline (i.e., the energy used over one year prior to implementation 

of the retrofit plan) and the verified energy savings would be determined using the 

building's actual energy bills and a benchmarking tool, such as EPA's Portfolio 

Manager. 
184 


82738.157

PIMA is the trade association for manufacturers of rigid polyiso foam insulation, a product that is used in 

most low-slope commercial roofs as well as in commercial and residential wall construction. Polyiso 

production have a nationwide presence with manufacturing facilities located across the United States, 

including: 30 polyiso plants in 17 different states and several chemical plants and research centers 

responsible for the supply of raW materials used in the manufacture of polyiso. Nearly 100% of polyiso 

and the polyiso rmv materials used in the US. are produced in the Us. 
185 


82738.158

Attachment 

October 4, 2011 

The Honorable Max Baucus 

Chairman, Committee on Finance 

219 Dirksen Senatc Office Building 

Washington, DC 20510 

The Honorable Orrin Hatch 

Ranking Member, Committee on Finance 

219 Dirksen Senate Office Building 

Washington, DC 20510 

Dear Chairman Baucus and Ranking Member Hatch: 

We are a broad coalition of construction, manufacturing, energy efficiency and labor groups 

writing to express our strong support for S. 1575, the Energy-Efficient Cool Roof Jobs Act, 

bipartisan legislation introduced by Senators Ben Cardin (D-MD) and Mike Crapo (R-ID) 

that would remove an obstacle in the tax code that is hindering job creation as well as the 

advancement of energy-efficiency within the commercial building sector. We urge its quick 

consideration by the Finance Committee and/or its inclusion in any tax reform, energy or jobsrelated tax legislation. 

Unemployment in the construction industry remains an alarming 13.5 percent and any recovery 

in commercial construction is uncertain at best in the foreseeable future. By accelerating 

demand for energy-efficient commercial roofs, S. 1575 would: 

• Create nearly 40,000 new jobs among roofing contractors and manufacturers; 

• Add $1 billion of taxable annual revenue in the construction sector; 

• Save $86 million in energy costs in the first year; I and 

• Eliminate and offset carbon emissions by 1.2 million metric tons (equal to emissions of 

229,000 cars)2 

S. 1575 would remove an obstacle in the tax code to job creation and achieving greater levels of 

energy-efficiency in the commercial building sector, which accounts for 18% of U.S. energy use. 

Between 1981 and 1993, the depreciation schedule for nonresidential property was increascd 

from 15 to 39 ycars. However, the average life of a commercial roofis only 17 years. This is an 

incentive for building owners to dclay the replacement of older, failing roofs with new energyefficient technology that reduces energy consumption. 

We urge the Committee to rectify this problem by advancing S. 1575, which provides a 20-year 

depreciation recovery period for commercial roofs that meet a benchmark energy efficiency 

standard. Providing more rational "economic" depreciation that is consistent with the life of the 

asset will accelerate demand for such roofs by removing the disincentive for building owners to 

delay complete retrofits of failing roofs. An independent study by Ducker Worldwide, a global 

research firm, estimated that reforming the 39-year depreciation schedule will create nearly 

40,000 manufacturing and construction jobs per year and add $1 billion of taxable annual 

I J. Phelan. 2009. Energy and Environmental Impact Reduction Opportunities for Existing Buildings with LowSlo...lliLRoof~. Bayer MaterialScience. 

2 J. Phelan. 2009, and H. Akbari, S. Menon and A. Rosenfeld. 2009. Global cooling: increasing world'wide urban 

lllJ;,edos to offset. C02. Climatic Change, 94, pp. 275'286. 
186 


82738.159

Attachment 

revenue in the construction sector. This study also documented the 17-year average life of a 

commercial roof. 

Due to the unique job creation and energy efficiency benefits of depreciation reform for 

commercial roofs, S. 1575 has the support ofa diverse coalition of business, conservation, and 

labor groups. We urge Congress to quickly move forward with this legislation to help spur 

economic growth and job creation in the hard-hit construction industry. 

Best regards, 

Alliance to Save Energy (ASE) 

American Council for an Energy-Efficient Economy (ACEEE) 

American Institute of Architects (AlA) 

American Society ofI-Ieating, Refrigeration, and Air Conditioning Engineers (ASI-IRAE) 

Associated Builders & Contractors (ABC) 

Associated General Contractors (AGC) 

Building Owners and Managers Association International (BOMA) 

Business Council for Sustainable Energy (BCSE) 

Center for Environmental Innovation in Roofing (CEIR) 

Environmental and Energy Study Institute (EESI) 

Institute for Market Transformation (IMT) 

International Council of Shopping Centers (ICSC) 

Joint Roofing Industry Labor and Management Committee 

National Roofing Contractors Association (NRC A) 

Polyisocyanurate Insulation Manufacturers Assoeiation (PIMA) 

Sheet Metal and Air Conditioning Contractors' National Association (SMACNA) 

Spray Polyurethane Foam Alliance (SPFA) 

Sustainable Buildings Industry Council (SBIC) 

United Union of Roofers, Waterproofers and Allied Workers 

U.S. Green Building Council (USGBC) 

cc: Senator Ben Cardin 

Senator Mike Crapo 
187 


82738.160

SHEET METAL AND AIR CONDITIONING CONTRACTORS' NATIONAL ASSOCIATION 

Submission of 

The Sheet Metal and Air Conditioning Contractors' National Association, Inc. 

(SMACNA) 

To the Senate Committee on Finance 

Subcommittee on Energy, Natural Resources and Infrastructure 

Hearing on Tax Reform and Federal Energy Policy: 

Incentives to Promote Energy Efficiency 

December 12, 2012 

Stanley E. Kolbe, Jr., Director 

Legislative Affairs 

s LEGISLATIVE AFFAIRS OFFICE: 305 4TH STREET NE • WASHINGTON DC 20002 

PHONE: 202 547 8202 • FAX: 2025478810 

HEADQUARTERS: 4201 LAFAYETTE CENTER DRIVE. CHANTILLY VA20151-1209 

MAIL ADDRESS: PO. BOX 221230 • CHANTILLY VA 20153-1230 

PHONE 703 803 2980 • FAX: 703 803 3732 

INE:B: w»w<smacna.o~ 
188 


82738.161

Dear Chaiman and Ranking Members: 

The Sheet Metal and Air Conditioning Contractors' National Association (SMACNA) is supported by more 

than 4500 construction tims engaged in industrial, commercial, residential, architectural and specialty sheet 

metal and air conditioning construction in public and private markets throughout the United States. 

SMACNA members can be t(mnd on a wide variety of commercial, industrial and residential projects across 

the nation in urban and suburban areas, most advancing energy efficiency outcomes. We specialize in 

heating, ventilation and air conditioning; architectural sheet metal; industrial sheet metal; kitchen equipment; 

specialty stainless steel work; manufacturing; siding and decking; testing and balancing; service; and energy 

management and maintenance. 

On behalf ofSMACNA, I want to submit our statement for the December 12, 2012 hearing record to the 

Senate Finance Committee Energy, Natural Resources and Infrastructure Subcommittee concerning the 

hearing on Tax Refom and Federal Energy Policy: Incentives to Promote Energy Efficiency. 

SMACNA and its thousands of contracting corporate members would like to express our enthusiastic support 

t(lr S. 3591, The Commercial Building Modernization Act, bipartisan legislation introduced by Senators 

Snowe and Bingaman with the co-sponsorship of Senators Cardin and Feinstein. S. 3591 would expand upon 

an efficiency based energy initiative represented by the Better Buildings Initiative (BBl). The BBI is a 

balanced policy featuring tax and program investment incentives producing greater efficicncy in residential, 

commercial and public facilities. All of these initiatives have created construction activity, skilled jobs, 

economic growth and energy savings with improvement to environmental quality. S. 3591, especially its 

refomed IRS Section 1790 provision, would increase energy efficiency retrofits as well as offer deep and 

lasting cuts to the energy bills for business and public facilities. 

While there has been a far greater interest in new and existing building energy efficiency retrofits in recent 

years, SMACNAjoined with the Energy Future Coalition, Rebuilding America and a coalition of 

construction allies including real estate developers and commercial property owners supporting greater tax 

initiatives similar to thc rcfomed Section 1790 in S, 3591. By expanding incentives for whole ($3.00/sf) and 

partial ($2.20/sl) building renovations, S. 3591 would encourage a far wider variety of energy efficiency 

retrofit projects. In addition, by including Real Estate Investment Trust properties (REIT's) in the pool of 

projects eligible for allocation of the 1790 incentive, the reform of 1790 as featured in S, 3591 would also 

jump start many projects long sidclined while industry eeonomic activity and employment sutTered. 
189 


82738.162

Enhancing facility energy efficiency is a key factor in driving down the operating expenses of public spaces 

while boosting the productivity and commercial competitiveness of rental properties. We speak from vast 

experience as thousands of our contractor members have retrofitted commercial office buildings, 

warehouses, schools and multi-unit residential facilities for high efficiency impact. Our experience convinces 

us that the reforms to IRS Section 1790 would enhance commercial efficiency retrofits and spur building 

quality in new construction projects as well. 

Senator Snowe and Senator Bingaman have produced a balanced and bipartisan refi:lrm in S. 3591 that will 

invigorate energy efficiency construction activity across the United States to benefit building owners with 

lower operating costs. When coupled with existing energy efficiency tax and program initiatives driving the 

private sector toward greater energy efficiency, S. 3591 would quickly benefit skilled jobs, energy efficiency 

equipment suppliers and the construction economy in general. 

SMACNA urges the quick passage ofS. 3591, The Commercial Building Modernization Act, and energy 

efficiency incentives contained in the tax extender package during the post-election session of Congress. 
190 


82738163.eps

n 

SOLIS 

STATEMENT FOR THE RECORD 

OF 

SOLIS PARTNERS, INC. 

FOR THE HEARING OF 

"T AX REFORM AND FEDERAL ENERGY POLICY: INCENTIVES TO PROMOTE 

ENERGY EFFICIENCY" 

BEFORE 

THE U.S. SENATE COMMITTEE ON FINANCE 

SUBCOMMITTEE ON ENERGY, NATURAL RESOURCES, 

AND INFRASTRUCTURE 

DECEMBER 12,2012 

SUBMITTED BY 

Jamie Hahn, Managing Director 

Solis Partners, Inc. 

2520 Hwy. 35, Suite 301, 

Manasquan, NJ 08736 

732.800.0052 • http://www.solispartners.com/ 
191 


82738.164

Located in Manasquan, NJ, Solis Partners, Inc. is a leading energy services provider committed 

to helping customers increase the value of their companies by optimizing energy generation and 

resource efficiency. Our solutions utilize intelligent lighting systems, distributed energy 

generation, and project/development services to deliver high quality, low cost and 

enviromnentally responsible building solutions that perform better. Our customers have reduced 

energy consumption, lowered operating costs, reduced emissions, and improved system 

efficiencies while creating a more comfortable enviromnent for building occupants. 

As specialists in finance and design, wc work closely with our clients to help them understand 

their energy options, the federal and state requirements, as well as the financial benefits they can 

realize. In this sense, we recognize the key role EPAct 179D has played a significant role in 

opening the way to the transition toward energy efficient technology. 

With regard to the current 179D Deduction for Energy efficient Commercial Buildings, Solis 

Partners, Inc. is extremely interested in: extending 179D past 2013, increasing the maximum 

179D deduction to $3.00, expanding the eligible building categories to include REITs and non 

profits, and broadening of the beneficiary base, particularly for capital providers. 

Concerning the proposed Section 179F Deduction for Retrofits of Existing Commercial and 

Multifamily Buildings, ",;jth a maximum $4.00 per square foot tax deduction, we are very 

interested in working on larger projects where 50% energy cost reduction can be achieved from 

the current building energy state but not as compared to modem building energy codes. 

Energy Efficiency and Renewable Energy 

Since its creation, Solis Partners, Inc. provides turnkey solar energy solutions from system 

design, financial structuring and material procurement to installation, project management, 

commissioning and production monitoring. It is our utmost objective that our renewable energy 

systems deliver optimal returns to our customers. To this end, we understand that the use of 

alternative energy must go hand in hand with energy efficiency improvements. 

It is our experience that buildings that prepare for solar photovoltaic systems by installing energy 

efficient technology can enjoy increased overall economic payback, due to lower levels of 

energy consumption. Lighting upgrades, for instance, can significantly reduce energy costs. 

Replacing outdated and inefficient HV AC systems can not only cut energy expenses but also 

maximize the useful roof space. Furthermore, replacing roofs at or near the end of their useful 

life cycle is highly recommended in order to improve insulation. EPAct 179D has played a major 

role in assisting building owners to undertake this sort of project. 

The use of alternative energy in efficient facilities is bound to generate major savings 111 

operating costs as well as guaranteeing a reduced economic payback time for investments. 
192 


82738.165

New Technology Can Accomplish Major Building Energy Cost Reduction 

Continuing technology developments have resulted in new, typically more expensive products 

that can meet the aggressive energy reduction targets embodied in the currently proposed 1790 

extension. 

For lighting, this includes greatly improved LEO lighting products now available for virtually all 

building categories along with wireless controls and smart sensors. For HV AC, this includes 

extremely efficient technologies for commercial buildings, such as high efficiency chillers and 

natural gas heaters. For building envelope, recent advances includc better materials, cool roofs, 

better insulation, and improved glass and window systems. 

Building Retrofits Provide Large Employment Opportunities 

Large numbers of existing building retrofits require a considerable amount of skilled and semiskilled work forces. 

Lighting retrofits require lighting designers, laborers to remove and dispose existing fixtures, 

distribution centers to store the new lighting material, laborers to stage the new material near the 

job site and electricians to install the new fixtures. 

HV AC retrofits require engineers for project system design, substantial U.S. manufacturing 

activity (most HVAC equipment is heavy and made in the U.S.), U.S. steel procurement and 

HV AC mechanics to install. 

The building envelope involves a wide variety of manufactured and workshop materials 

including roofs, walls, windows, doors, foundations and insulation. In addition to the labor 

required to create these products, large numbers of roofers, carpenters, installers and laborers are 

needed to handle the material and incorporate it into a building. 

The 179D Tax Incentive Actually Results in Inereased Tax Revenues 

By providing a tax incentive for energy cost reduction, the U.S. Treasury is actually enabling 

larger future tax revenues. When a commercial property o'Wller materially reduces their energy 

related operating tax costs, their taxable income increases by exactly the amount of the energy 

cost reduction. Although the 1790 tax incentive is only for the first (one) year of project 

completion, the company's taxable income will be increased annually every year (perpetually). 

When a government organization materially reduces its energy costs, it can reduce its budget 

deficit that may be used to reduce tax levies, including real property taxes at the local level or 

meeting other more vital community needs. 
193 


82738.166

REITs 

It is particularly important to provide an incentive for REIT energy reductions service 

providers. REITs are the largest holders of large institutional grade real estate in the country. 

Major REIT categories include; 1. Office buildings, 2. Apartment buildings, 3. Shopping 

centers, 4. Hotels, 5. Warehouse/industrial and 6. Data centers. 

The REIT model is largely a tenant model and for the most part REIT's have not endeavored to 

materially reduce energy costs simply because they don't pay the energy bill. With REITs, the 

tenant bears the burden of the monthly energy bill. With America's large service-based 

economy, large service businesses operating from offices bear the burden of unnecessary energy 

bills. With apartment REITs, it is renters who bear the burden of unnecessary energy bills. With 

shopping centers, it is retailers and shoppers that bear the burden of unnecessary energy costs. 

With hotel REITs, it is nightly guests who bear the burden of unnecessary costs in their room 

rates. In the REIT warehouse and industrial sector, it is America's engines of commerce that bear 

the burden of unnecessary energy costs. Data Centers are huge consumers of electricity and 

hence directly responsible for large amounts of emissions. Accordingly with Data Center REITs, 

all of American society bears the burden of unnecessary energy costs. 

Conclusion 

Solis Partners, Inc. greatly appreciates the opportunity to submit this statement for the record. 

We firmly believe that the proposed extension and expansion of 179D and 179F are a unique 

opportunity of bringing our country to a much higher level of energy efficiency therefore 

preparing buildings to an optimum use of renewable energy sources. 
194 


82738.167

STATEMENT FOR THE RECORD 

OF 

TRIO ELECTRIC & TRIo ENERGY 

FOR THE HEARING OF 

"TAX REFORM AND FEDERAL ENERGY POLICY: I'IICENTIVES TO PROMOTE 

ENERGY EFFICIENCY" 

BEFORE 

THE U.S. SENATE COMMITTEE ON FINANCE 

SUBCOMMITTEE ON ENERGY, NATURAL RESOURCES, 

AND INFRASTRUCTURE 

DECEMBER 12,2012 

SUBMITTED BY 

Trio Electric & Trio Energy 

11413 Todd Street 

Houston, TX 77055 

(713) 957·3336 • http://www.tricltd.coml 
195 


82738.168

Headquartered in Houston, TX, Trio Electric is a privately held, full-service electrical 

contracting finn. Through its wholly-owned subsidiary, Trio Energy, the company provides tumkey energy solutions to clients from different sectors, such as commercial, industry, and 

education. Our location in Texas, one of the country's fastest growing population centers, gives 

us an increased sense of responsibility for incorporating energy efficiency into a rapidly 

expanding building inventory. 

Our highly qualified team of professionals identifies, designs, and installs projects that lower 

operating expenses while benefiting the environment. Our services and solutions cover a broad 

range of projects both ahead of and behind the utility meter, such as lighting retrofit, window 

film installation, LEED feasibility and Energy Star Audits, power quality analysis, infrared 

scanning, and various other energy-savings projects. 

Since 2008, EPAct 179D has been of great assistance to our ultimate goal of designing projects 

that benefit the environment while lowering our clients' operating costs. We have utilized EPAct 

179D on several projects, which comprise a wide variety of energy-efficient buildings, from 

manufacturing and commercial facilities to schools and government buildings. 

At Trio Electric & Trio Energy, we aim at continuously providing our clients with energyefficient solutions. Therefore, we are extremely interested in the extension of 179D Deduction 

for Energy Efficient Commercial Buildings past 2013. Also, we see great value in the proposals 

of increasing the maximum 179D deduction to $3.00 per square foot, expanding the eligible 

building categories to include REITs and non profits, and broadening the beneficiary base, 

particularly for capital providers. 

With regard to the new Section 179F Deduction for Retrofits of Existing Commercial and 

Multifamily Buildings, with a maximum $4.00 per square foot tax deduction, Trio Electric & 

Trio Energy are very interested in working on larger projects where 50% energy cost reduction 

can be achieved from the current building energy state but not as compared to modern building 

energy codes. 

Reducing Operating Expenses 

Trio Electric & Trio Energy understand energy efficiency as a major savings opportunity, 

particularly in difficult economic times. While low levels of electrical usage mean increased 

profits for private companies it is also a means of easing public institutions' budgetary 

constraints. 

To date, the majority of our EP Act 179D projects have involved school districts. These 

institutions often face strict budgetary constraints. It is our experience that low levels of 

electrical usage and consequent energy costs savings constitute an important way of easing 

budget pressures, particularly in educational facilities. Furthennore, energy efficient buildings 

tend to favor the creation of an optimum learning environment for students. 
196 


82738.169

New Technology Can Accomplish Major Building Energy Cost Reduction 

Continuing technology developments have resulted in new, typically more expensive products 

that can meet the aggressive energy reduction targets embodied in the currently proposed 179D 

extension. 

Bearing in mind our sustainability efforts, Trio Electric & Trio Energy have used new efficient 

technology on various projects. For lighting, this includes greatly improved LED lighting 

products now available for virtually all building categories along with wireless controls and 

smart sensors. 

Building Retrofits Provide Large Employment Opportunities 

At Trio Electric & Trio Energy, it is our experience that large numbers of existing building 

retrofits require enormous skilled and semi-skilled work forces. Lighting retrofits, for instance, 

require lighting designers, laborers to remove and dispose existing fixtures, distribution centers 

to store the new lighting material, laborers to stage the new material near the job site and 

electricians to install the new fixtures. 

The 179D Tax Incentive Actually Results in Increased Tax Revenues 

By providing a tax incentive fOT energy cost reduction, the U.S. Treasury is actually enabling 

larger future tax revenues. When a commercial property owner materially reduces their energy 

related operating tax costs, their taxable income increases by exactly the amount of the energy 

cost reduction. Although the 179D tax incentive is only for the first (one) year of project 

completion, the company's taxable income will be increased annually every year (perpetually). 

When a govemment organization materially reduces its energy costs, it can reduce its budget 

deficit which may be used to reduce tax levies, including real property taxes at local level or 

meet other more vilal community needs. 

Not-for-Profits 

Major not-for-profit building categories include hospitals and universities. The hospital industry 

is rapidly consolidating into very large health care providers and the need to manage all costs 

including energy costs is a topic of national discussion. The hospital industry is recognized as a 

large, under-served building energy efficiency sector and emergence of these new, larger entities, 

coupled with good tax policy, can serve to achieve major energy cost reductions. Ever escalating 

costs of a university education is also a national discussion topic and energy cost reduction 

should help ameliorate the ever escalating costs. 

Conclusion 

Trio Electric & Trio Energy greatly appreciate the opportunity to submit this statement for the 

record. The energy retrofit industry is an ever-growing market, which provides jobs and saves 

businesses of all sizes significant SumS of money on energy consumption. EP Act l79D has been 

very helpful in our business's growth and expansion and the new tax provisions would go even 
197 


82738.170

further and allow us to reach out to markets which were previously un-incentivized. With the 

extension and expansion of 179D and 179F businesses are now poised to bring our country to a 

much higher level of energy efficiency performance and the current proposals will greatly move 

us towards supporting that effort. 

President 

Trio Electric, Ltd. 
198 


82738.171

STATEMENT FOR THE RECORD 

FOR THE HEARING ON 

"TAX REFORM AND FEDERAL ENERGY POLICY: INCENTIVES TO PROMOTE ENERGY EFFICIENCY" 

BEFORE 

THE U.S. SENATE COMMITTEE ON FINANCE 

SUBCOMMITTEE ON ENERGY, NATURAL RESOURCES, 

AND INFRASTRUCTURE 

DECEMBER 20, 2012 

SUBMITTED By 

JOHN K BUSHMAN, PE 

PRESIDENT AND CEO 

WALKER PARKING CONSULTANTS 

4904 EISENHOWER BLVD., SUITE 150 

TAMPA, FL 33634 

(813) 888·5800 
199 


82738.172

Walker Parking Consultants (Walker) is the largest parking design firm in the 

United States with over 200 employees, and more than 10,000 completed 

parking projects. Walker maintains offices in the following fourteen cities: San 

Francisco, CA; Los Angeles, CA; Houston, TX; Tampa, FL; Denver, CO; 

Minneapolis, MN; Chicago, IL; Indianapolis, IN; Kalamazoo, MI; Ann Arbor, MI; 

Charlotte, NC; Philadelphia, PA; New York, NY; Boston, MA. 

We design garages for many leading companies and institutions, including 

numerous major universities and airports. As such, Walker is interested in the 

extension of section 1790 and the expansion of the lighting benefit to $1.00 per 

square foot. 

Major cost-Savings Opportunity 

Parking garages typically operate 24/7 and are typically located in and near 

major cities where electricity rates are high and there are substantial energy 

cost reduction opportunities. Parking garages installing today's longer-life 

lighting, particularly LEOs and induction lighting, have the ability to greatly 

reduce operating costs. "is important to realize that the maximum Section 1790 

tax incentive requires a 40% to 50% energy cost reduction as compared to an 

ever-increasing building energy code standard. These are truly enormous 

building energy usage and cost reductions. 

New Technology Can Accomplish Major Building Energy Cost Reduction 

Continuing technology developments have resulted in new, typically more 

expensive products that can meet the aggressive energy reduction targets 

embodied in the currently proposed 1790 extension. 

For lighting, this includes greatly improved LED lighting products now availabie 

for virtually all building categories including garages along with wireless controls 

and smart sensors. 

Building Retrofits Provide Large Employment Opportunities 

Large numbers of existing building retrofits require enormous skilled and semiskilled work forces. 

Lighting retrofits require lighting designers, laborers to remove and dispose 

existing fixtures, distribution centers to store the new lighting material, laborers to 

stage the new material near the job site and electricians to install the new 

fixtures. 
200 


82738.173

The building envelope involves a wide variety of manufactured and workshop 

materials including roofs, walls, windows, doors, foundations and insulation. In 

addition to the labor required to create these products, large numbers of 

roofers, carpenters, installers and laborers are needed to handle the material 

and incorporate it into a building. 

The 1790 Tax Incentive Actually Results in Increased Tax Revenues 

By providing a tax incentive for energy cost reduction, the U.S. Treasury is 

actually enabling larger future tax revenues. When a commercial property 

owner materially reduces their energy related operating tax costs, their taxable 

income increases by exactly the amount of the energy cost 

reduction. Although the 179D tax incentive is only for the first (one) year of 

project completion, the company's taxable income will be increased annually 

every year (perpetually). When a government organization materially reduces 

its energy costs, it can reduce its budget deficit which may be used to reduce 

tax levies, including real property taxes at local level or meet other more vital 

community needs. 

REITs 

It is particularly important to provide an incentive for REIT energy reductions 

service providers. REITs are the largest holders of large institutional grade real 

estate in the country, Major REIT categories include office buildings, apartment 

buildings, shopping centers and hotels, many of which have parking garages. 

The REIT model is largely a tenant model and for the most part REIT's have not 

endeavored to materially reduce energy costs simply because they don't pay 

the energy bill. With RElTs, the tenant bears the burden of the monthly energy 

bill. With America's large service-based economy, large service businesses 

operating from offices bear the burden of unnecessary energy bills. With 

apartment REITs, it is renters who bear the burden of unnecessary energy bills. 

With shopping centers, it is retailers and shoppers that bear the burden of 

unnecessary energy costs. With hotel RElTs, it is nightly guests who bear the 

burden of unnecessary costs in their room rates. In the REIT warehouse and 

industrial sector, it is America's engines of commerce that bear the burden of 

unnecessary energy costs. Data Centers are huge consumers of electricity and 

hence directly responsible for large amounts of emissions. Accordingly with Data 

Center RElTs, all of American society bears the burden of unnecessary energy 

costs, 
201 


82738.174

----,---~---------------------

Not-for-Profits 

Major not-for-profit building categories include hospitals and universities, many 

of which have parking garages. The hospital industry is rapidly consolidating into 

very large health care providers and the need to manage all costs including 

energy costs is a topic of national discussion. The hospital industry is recognized 

as a large, under-served building energy efficiency sector and emergence of 

these new, larger entities, coupled with good tax policy, can serve to achieve 

major energy cost reductions. Ever escalating costs of a university education is 

also a national discussion topic and energy cost reduction should help 

ameliorate the ever escalating costs. 

Public Private Partnerships (P3s) 

The provision in the proposed extension of 1790 to include energy project 

financiers in the beneficiary category is crucial to America's energy policy 

future. 

It is common knowledge that finances of many of our country's state and local 

government costs are in dire financial straits. These government entities find 

themselves in the untenable position of not having the capital to act on large 

energy cost reduction projects, often for steadily deteriorating essential service 

government buildings. The addition of the 1790 financing tax incentive will 

encourage private sector capitalized lenders to take the added risk related to 

financing these important projects. There are many excellent contractors and 

ESCOs who have the capacity and desire to work in today's depressed 

construction market but who don't have the tax capacity to benefit from 

energy cost related tax incentives. There are many cash-strong lenders 

interested in entering this market who to date haven't found an economically 

viable pathway for doing so. 

Conclusion 

Walker Parking Consultants greatly appreciates the opportunity to submit this 

statement for the record. In the last five years, during very difficult economic 

times, Walker has made a large investment in educating our staff and customers 

on the technical underpinnings of EPAct. We are now poised to bring our 

country's stock of parking garages to a much higher level of energy efficiency 

performance and the current 1790 tax proposal will go a long way toward 

supporting that effort. 
202 


82738.175

WORLDWIDE • 

& £ energy energy efficient solutions ... 

STATEMENT FOR THE RECORD 

OF 

WORLDWIDE ENERGY 

FOR THE HEARING OF 

"TAX REFORM AND FEDERAL ENERGY POLICY: INCENTIVES TO PROMOTE 

ENERGY EFFICIENCY" 

BEFORE 

THE U.S. SENATE COMMITTEE ON FINANCE 

SUBCOMMITTEE ON ENERGY, NATURAL RESOURCES, 

AND INFRASTRUCTURE 

DECEMBER 12, 2012 

SUBMITTED BY 

Worldwide Energy 

10413 W. 84th Terrace, Lenexa, KS 66214 

(913) 310-0705. www.WorldwideEncrgy.com 
203 


82738.176

Worldwide Energy, Inc. was established in 2006 as a Woman-Owned Business Enterprise. Over 

the past six years we have serviced businesses across the country ranging from small 'Ma and 

Pa' shops to Toyota Distribution Centers. 

We pride ourselves on preparing custom-built projects to fit the scope and size of our clients' 

energy reduction needs. Worldwide Energy is one of the only energy services companies in the 

Midwest that was started with the sole intent of improving businesses' energy-efficiency. We 

partner with only the best equipment and technology vendors across America to ensure that our 

clients are completely satisfied with their project's outcome. 

With regard to the current 1790 Deduction for Energy Efficient Commercial Buildings, 

Worldwide Energy is extremely interested in; prospectively retrofitting many more facilities, the 

extension of 1790 past 2013, increasing the maximum 1790 deduction to $3.00 per square foot, 

expansion of the eligible building categories to include REITs and non profits, and broadening 

the beneficiary base, particularly for capital providers. 

With regard to the new Section 179F Deduction for Retrofits of Existing Commercial and 

Multifamily Buildings, with a maximum $4.00 per square foot tax deduction, Worldwide Energy 

is very interested in working on larger projects where 50% energy cost reduction can be achieved 

as compared to the current building energy state and not modern building energy codes 

(ASHRAE). 

Enhanced U.S. Economic Performance 

By lowering its building energy costs, the U.S. can be a much more effective global competitor. 

The marked reduction in U.S. natural gas costs has gone a long way toward making the U.S. 

once again a center for manufacturing. These same manufacturers, and all U.S. business 

operators with buildings, can also become much more globally competitive with substantially 

reduced energy related building operating costs. It is important to realize that the maximum 

Section 1790 tax incentive requires a 50% energy cost reduction as compared to an everincreasing building energy code standard. These are truly enormous building energy usage and 

cost reductions. 

Building Retrotits Provide Large Employment Opportunities 

Large numbers of existing building retrofits require enormous skilled and semi-skilled work 

forces. 

Lighting retrofits require lighting designers, laborers to remove and dispose eXlstmg fixtures, 

distribution centers to store the new lighting material, laborers to stage the new material near the 

job site and electricians to install the new fixtures. 
204 


82738.177

HVAC retrofits require engineers for project system design, substantial U.S. manufacturing 

activity (most HVAC equipment is heavy and made in the U.S.), U.S. steel procurement and 

HV AC mechanics to install. 

The building envelope involves a wide variety of manufactured and workshop materials 

including roofs, walls, windows, doors, foundations and insulation. In addition to the labor 

required to create these products, large numbers of roofers, carpenters, installers and laborers are 

needed to handle the material and incorporate it into a building. 

The 179D Tax Incentive Actually Results in Increased Tax Revenues 

By providing a tax incentive for energy cost reduction, the U.S. Treasury is actually enabling 

larger future tax revenues. When a commercial property owner materially reduces their energy 

related operating tax costs, their taxable income increases by exactly the amount of the energy 

cost reduction. Although the 179D tax incentive is only for the first (one) year of project 

completion, the company's taxable income will be increased annually every year (perpetually). 

Conclusion 

Worldwide Energy greatly appreciates the opportunity to submit this statement for the record. In 

the last six years, during very difficult economic times, Worldwide Energy has made a business 

out of and placed importance on energy reduction and efficiency. The energy retrofit industry is 

a growing area, which provides jobs and saves businesses of all sizes significant sums of money 

on energy consumption. EPAet 179D has been very helpful in growing our business the new tax 

provisions would go even further and allow us to reach out to markets which previously unincentivized. This extension and expansion of 179D and 179F are now poised to bring our 

country to a much higher level of energy efficiency performance and the current proposals will 

go a long way towards suppOlting that effort. 
205 


82738.178

,~IIW~ZDS Design/Consulting Services 

MEClIAl\I(",\1. • ELECTRICAL. IAQ 

r,NEI{GY • COMr-HSSIONING 

STATEMENT FOR THE RECORD 

OF 

ZDS DESIGN/CONSULTING SERVICES 

FOR THE HEARING OF 

"TAX REFORM AND FEDERAL ENERGY POLICY: INCENTIVES TO PROMOTE 

ENERGY EFFICIENCY" 

BEFORE 

THE U.S. SENATE COMMITTEE ON FINANCE 

SUBCOMMITTEE ON ENERGY, NATURAL RESOURCES, 

AND INFRASTRUCTlJRE 

DECEMBER 12, 2012 

SUBMITTED BY 

ZDS Design/Consulting Services 

91 Smiley Drive, St. Albans, WV25177 

(304) 755-0075 • www.zdsdesign.com 
206 


82738.179

ZOS Design/Consulting Services is a nationally recognized engineering finn based in Sl. 

Albans, WV. For over 18 years, the WV family-owned firm has provided HVAC/plumbing, 

electrical, energy management, indoor air quality, and commissioning engineering services to a 

diverse client base in and around West Virginia, which includes but is not limited to: 

• Public and Private Hospitals 

• State and Municipal Office Buildings 

• Military bases 

• Public and Private Universities 

• K-12 Schools 

• Auto-manufacturers 

• Commercial retail companies 

To date, ZOS Design/Consulting Sen-ices has utilized EPAct 179D on 20 buildings, and is 

intending on more utilization in the upcoming year. 

With regard to the current 179D Deduction for Energy EtTicicnt Commercial Buildings, ZOS 

Design/Consulting Services is extremcIy interested in: prospectively retrofitting many more of 

our facilities, the extension of 179D past 2013, increasing the maximum 179D deduction to 

$3.00 per square foot, expansion of the eligible building categories to include REITs and non 

profits, and broadening the beneficiary base, particularly for capital providers. 

With regard to the new Section 179F Deduction for Retrofits of Existing Commercial and 

Multifamily Buildings, with a maximwn $4.00 per square foot tax deduction. ZOS 

Design/Consulting Services is very interested in working on larger projects where 50% energy 

cost reduction can be achieved from the current building energy state but not as compared to 

modern bui Iding energy codes. 

Enhanced U.S. Economic Performance 

By lowering its building energy costs, the U.S. can be a much more effective global competitor. 

The marked reduction in U.S. natural gas costs has gone a long way toward making the U.S. 

once again a center for manufacturing. These same manufacturers, and all U.S. business 

operators with buildings, can also become much more globally competitive with substantially 

reduced energy related building operating costs. It is important to realize that the maximum 

Section 179D tax incentive requires a 50% energy cost reduction as compared to an everincreasing building energy code standard. These are truly enormous building energy usage and 

cost reductions. 

Building Retrofits Provide Large Employmcnt Opportunities 

Large numbers of existing building retrofits require enormous skilled and semi-skilled work 

forces. 
207 

Æ 


82738180.eps