The laws of energy

President Bush signed into law the Energy Policy Act of 2005 on Aug. 8. The law incorporates key provisions for energy-efficient commercial and residential buildings. Specifically, the new legislation provides tax deductions for owners of commercial buildings that exceed ASHRAE 90.1, "Energy Standard for Buildings Except Low-Rise Residential Buildings," as well as tax credits for highly energy-efficient residential construction.

The legislation has the potential to dramatically affect the commercial roofing and home-building industries, particularly given current concerns about rising energy costs. In addition, it offers you an opportunity to bring a positive economic message to your customers about upgrading their building envelopes.

In the past, payback times for energy-efficient upgrades were the primary economic incentive for building owners and homeowners; however, now this deduction serves as a "first-cost" incentive—in other words, a large percentage of the money is returned immediately. With NRCA's EnergyWise Roof Calculator or another energy calculator and this new legislation, you now can educate customers about the new financial benefits of an upgraded, highly energy-efficient roof system.

As with any new law, there still are some implementation measures to work out, and the U.S. Department of Treasury is in the process of finalizing guidelines and criteria. As soon as this information is available, Professional Roofing will provide an update.

Tax deduction

The Energy Policy Act provides a new tax deduction for building owners who make building improvements that reduce energy and power costs 50 percent more than what ASHRAE 90.1-2001 requires. More specifically, the tax deduction is equal to the cost of energy-efficient improvements installed in a building up to a maximum limit of $1.80 per square foot. To qualify, the energy-efficient commercial building improvements must be installed as part of one or more of the following building systems: interior lighting; heating, cooling, ventilation and hot water; and the building envelope.

In addition, the property must be certified as part of a plan designed to reduce the energy and power costs of a building by 50 percent or more than what is required by ASHRAE 90.1-2001. Although this level of performance is a significant improvement, current insulation; heating, ventilating and air-conditioning (HVAC); and lighting technologies readily can meet this criterion.

In a case where energy-efficiency improvements do not meet the overall 50 percent threshold, a partial tax deduction (of up to 60 cents per square foot) will be allowed with respect to each of the three building systems previously mentioned. It is not clear what the targets will be; however, to qualify, the improvements must be equal to or exceed system-specific savings targets that are to be established by the secretary of the treasury. Clearly, roof systems on low-rise buildings with enhanced insulation levels can be instrumental in achieving a partial tax deduction.

Another issue involving partial tax deduction relates to improvements to two systems. In this case, it will be possible for building owners to obtain a $1.20 deduction per square foot for upgrading two building systems, such as the HVAC system and roof system. As with individual building system upgrades, to qualify, the improvements must equal or exceed system-specific savings targets to be established by the secretary of the treasury.

Although there still are some uncertainties about the savings targets, the law specifies a need and guidelines for calculating energy savings and obtaining certification of energy savings. Software used to calculate energy savings is to be based on the 2005 California Nonresidential Alternative Calculation Method Approval Manual (see www.energy.ca.gov/title24/2005standards/nonresidential_acm/). This manual outlines the requirements for individuals or companies that want to design a calculation computer program to use with the energy standards. In addition, the new law notes procedures for inspection and testing by qualified individuals to ensure compliance of buildings with energy-savings plans and targets will be defined.

Public entities also are seeking to set an example and benefit from more energy-efficient buildings, which offers you an opportunity to educate your public-sector clients.

With respect to this new legislation, public buildings may be eligible for a deduction. In this case, the deduction may be allocated or transferred to the person primarily responsible for designing the property instead of the owner. In addition to this federal legislation, many states, including California, North Carolina, Maine, Oregon and Washington, are enacting laws requiring Leadership in Energy and Environmental Design certification for state-owned buildings.

The deduction is effective for property placed in service from Jan. 1, 2006, through Dec. 31, 2007. PIMA, along with many other industry and energy-efficiency advocates, is working to extend the new law beyond 2007.

Tax credit

In addition to the tax deduction for commercial buildings, a new tax credit also is available to home builders and manufacturers of manufactured homes. This tax credit applies to the energy-efficient improvements installed in qualified new energy-efficient homes during construction. With regard to site-built homes, the credit is $2,000 for homes that are certified to have a level of annual heating and cooling energy consumption that is a least 50 percent below that of a comparable home constructed in accordance with the 2003 International Energy Conservation Code.

Manufactured homes are eligible for the $2,000 credit in the case of a 50 percent efficiency improvement and $1,000 credit for either a 30 percent improvement or compliance with the ENERGY STAR® criteria for manufactured homes.

Of interest to the roofing industry are specifics pertaining to the building envelope. With regard to manufactured homes that meet the 30 percent standard, one-third of the 30 percent savings must come from the building envelope, and with regard to homes and manufactured homes that meet the 50 percent standard, one-fifth of the 50 percent savings must come from the building envelope.

The credit is effective for new homes acquired from Jan. 1, 2006, through Dec. 31, 2007.

Opportunity

It is evident the new energy law still has a few implementation issues to be resolved. The issues I have discussed will be addressed when the U.S. Department of Treasury issues its final rules, and there is not yet a set timetable.

However, being an informed roofing contractor will give you a rare opportunity to help lead U.S. energy-efficiency efforts and profit from these efforts. Understanding the importance of energy efficiency and educating customers is the first step toward doing so.

Jared O. Blum is president and chief executive officer of the Polyisocyanurate Insulation Manufacturers Association.