Plastics And The 2005 Energy Policy Act

Plastics And The 2005 Energy Policy Act – Possible Tax Credits For Foam Insulation

With the price of oil hovering between $60 and $70 a barrel, energy costs could remain quite high for the foreseeable future. For architects, contractors, and building owners, there is some relief in the form of comprehensive energy legislation that offers tax incentives and deductions for the creation of more energy-responsible homes and buildings.

When it comes to specifying building materials that save owners money, it is important to know not only the thermal properties, but also the current legislation. Energy-efficient in both manufacture and performance, many types of plastics insulation products—from polyurethane to spray polyurethane foam (SPF) to polyisocyanurate (polyiso) to polystyrene—can help a project achieve tax incentives.

Commercial buildings
Signed into law in August 2005, the Energy Policy Act of 2005 (EPAct) includes precedent-setting tax incentives for energy efficient commercial buildings, public buildings, and homes to help combat the nation’s growing energy problems.

The act provides tax deductions for owners of commercial buildings who make improvements that reduce energy and power costs by 50 percent over American Society of Heating, Refrigerating, and Air-conditioning Engineers (ASHRAE) 90.1, Energy Standard for Buildings Except Low-rise Residential Buildings. Since it was developed in response to the energy crisis of the 1970s, ASHRAE 90.1 has been the basis for building codes and standard for building design and construction throughout the United States. The U.S. Department of Energy (DoE) established ASHRAE 90.1-2001 as the commercial building reference standard for state building energy codes under the federal Energy Conservation and Production Act.

Insulation, HVAC systems, and lighting technologies can meet EPAct criterion. The tax deduction (not credit) is equal to the cost of energy-efficient improvements installed in a building, up to $1.80 per square foot. To qualify, improvements must be installed as part of one or more of the following three building systems:

• interior lighting;
• heating, cooling, ventilation, and hot water; and
• the building envelope (including insulation).

In cases where the energy-efficiency improvements do not meet the overall 50 percent threshold, a partial tax deduction (of up to 60 cents per square foot) is allowed with respect to each of the three building systems. To qualify, the improvements must equal or exceed system-specific savings targets to be established by the secretary of the treasury. (As this article was written, targets had not yet been announced.¹)

Another issue involving partial tax deduction relates to improvements to HVAC and the building envelope. In this case, it will be possible for building owners to obtain a $1.20 deduction per square foot for upgrading these systems. To qualify, the improvements must also equal or exceed system-specific savings targets to be established by the secretary of the treasury (which, again, have yet to be announced). Roof systems on low-rise buildings with enhanced insulation levels (such as those using plastic foam roof panels) may be instrumental in achieving a partial tax deduction. These plastic panel roof systems can include the use of sealed extruded or expanded polystyrene (XPS or EPS; insulated concrete forms [ICFs] and structural insulated panels [SIPs]), spray polyurethane foam (SPF), and polyiso, among other plastic materials.

EPAct specifies guidelines for calculating, and obtaining certification of, energy savings. A list of software for this purpose is available in the 2005 California Nonresidential Alternative Calculation Method Approval Manual.² It outlines the requirements for individuals or companies wishing to design a calculation computer program to use with the energy standards. The new act also notes procedures will be defined for inspection and testing by qualified individuals to ensure compliance of buildings with energy savings plans and targets.

Public buildings
Public buildings, such as schools and other government-owned properties, can also be eligible for a tax deduction. In this case, the deduction can be allocated or transferred to the person primarily responsible for designing the property instead of the owner (i.e. the architect firm responsible for the public school). In addition to this federal legislation, many states—including California, Maine, North Carolina, Oregon, and Washington—are enacting laws requiring ‘green’ certification for state-owned buildings.

Residences
In addition to commercial and public buildings, EPAct provides incentives to homebuilders and home manufacturers. An eligible contractor who constructs a qualified energy-efficient home can qualify for a credit of up to $2000. The credit is available for all new homes, including manufactured units constructed in accordance with the Department of Housing and Urban Development’s (HUD’s) Federal Manufactured Homes Construction and Safety Standards.

With regard to site-built homes, the credit of $2000 is available to those certified to have a level of annual heating and cooling energy consumption at least 50 percent below a comparable home constructed in accordance with the standards of the 2004 supplement to the 2003 International Energy Conservation Code (IECC). This benchmark can potentially be reached through the proper use of plastic foam insulation.

Manufactured homes are eligible to qualify for the $2000 credit in the case of a 50 percent efficiency improvement and $1000 credit for a 30 percent improvement or compliance with Energy Star® criteria. For manufactured homes meeting the 30 percent standard, one-third the savings must come from the building envelope. For site-built and manufactured homes meeting the 50 percent standard, one fifth the savings must come from the building envelope.

According to the Internal Revenue Service (IRS), tax deductions are effective for property placed in service from January 1, 2006 through December 31, 2007. Under the new provision, the home qualifies for the credit when:

• it is located in the United States;
• its construction is substantially completed after August 8, 2005;
• it meets the statutory energy-saving requirements; and
• it is acquired from the eligible contractor after December 31, 2005, and before January 1, 2008, for use as a residence.

Beyond 2007
Although the Energy Policy Act of 2005 will only be effective until December 31 of next year, the Polyisocyanurate Insulation Manufacturers Association (PIMA) and many other plastic building products industry and energy-efficiency advocates are working to extend the new law beyond 2007. Due to the lead time it takes to design, contract, and build commercial buildings, the two-year length of the bill is inadequate to accommodate the typically 12- to 24-month design cycle.

Those interested in further pushing the boundaries of the bill’s duration should visit the PIMA Web site, www.pima.org, for more on the organization’s grassroots efforts to maximize the benefits to the design and construction industries. In the meantime, for more information about the act, visit:

• Tax Incentives Assistance Project Web site (www.energytaxincentives.org); and
• Commercial Building Tax Deduction Coalition Web site (www.efficientbuildings.org).