What Biden's New Climate Act Means For Building Decarbonization & Investment Tax Credits (ITCs)
Key Takeaways:
Wind and solar got a huge boost, accelerating the clean energy transition
Investment Tax Credits (ITCs) for green projects and building retrofits have been extended and expanded
Federal action addressing climate action is finally in motion. President Biden signed the Inflation Reduction Act into law, putting over $430 billion towards clean energy and sustainability solutions. For the real estate sector, the move doubles down on the Biden-Harris Administration’s Climate Smart Buildings Initiative announced earlier this summer. Combined, the moves mark a monumental shift in federal action aimed at making the Federal Sustainability Plan to achieve #netzero emissions by 2045 a reality.
The new law is a game changer for real estate owners and operators decarbonizing their portfolios. It includes:
Decarbonization
Expansion of the 179D Energy-Efficient Commercial Building Deduction, allowing larger tax deductions for owners pursuing green projects, increasing from $1.88 per SF to $5 per SF.
Federal tax credits for any carbon capture project increased from $20 per metric ton of carbon dioxide to $60 per ton, dropping the minimum threshold for claiming the credit from 25,000 metric tons to 12,500.
Significant deductions for energy retrofits to an existing structure.
Investment Tax Credits (ITCs) for clean electricity sources and energy storage plus $30 billion for targeted loan programs for states and electric utilities to accelerate clean electricity initiatives.
New rules allowing REITs to use energy-related deductions for calculating earnings.
$27 billion towards clean energy to accelerate and support deployment.
Over $9 billion for the Federal procurement of clean technology.
Energy
$10 billion in ITCs to build clean energy manufacturing facilities like wind turbines and solar panels.
$30 billion in production tax credits to accelerate solar panel, wind turbine, battery, and critical mineral manufacturing.
$500 million in the Defense Production Act for heat pumps
Extends solar ITCs to 2034, offsetting 30% of the panels’ cost.
What is an Investment Tax Credit (ITC)?
An investment tax credit is a federal tax incentive aimed at inducing business investment in sectors that serve the national interest. They let businesses deduct a certain percentage of the total investment from their taxes in addition to normal allowances for depreciation, resulting in savings on federal taxes that help pencil out the upfront cost of green projects like solar, geothermal, and wind power.
Overall, the new law is a major win for clean energy, with significant legislation impacting solar and wind generation. New, extended, and expanded tax credits for energy-related projects and retrofits change the math of decarbonization for building owners and operators. While the biggest winners are wind, solar and renewable utilities, the bill has plenty to help the real estate sector, especially when it comes to financing green projects.
The Climate Smart Buildings Initiative is also on the radar of building owners and operators. The initiative aims to reduce emissions from Federal buildings by 50% by 2032 and achieve net-zero emissions by 2045. By leading the way toward building decarbonization, the Federal government hopes to set an example for owners in the private commercial real estate sector to follow.
Climate Smart Buildings Initiative Includes:
Establish The Department of Energy’s (DOE) Federal Energy Management Program, the General Services Administration’s (GSA) National Deep Energy Retrofit Program, and the U.S. Army Corps of Engineers’ Huntsville Center as hubs for energy and building performance best practices.
Promote decarbonization through performance contract via $250 million for the DOE Assisting Federal Facilities with Energy Conservation Technologies (AFFECT) program.
Use the White House Council on Environmental Quality, DOE, and GSA to coordinate whole-government scaling of decarbonization efforts.
Neither move is a panacea for the sustainability challenges facing our planet but their importance cannot be overstated. Inertia has long been considered one of the greatest challenges to fighting climate change, getting the Federal government in action finally overcomes that obstacle. For now, the new laws and tax codes are ‘more carrots than sticks,’ looking to incentivize energy transitions rather than punish those who refuse. As progress evolves and the dramatic impacts of climate change become more apparent additional legislation will likely be required. For now, we’ll celebrate the U.S. being firmly on the path toward decarbonization.
