Background on the EPACT Legislation

The act, described by proponents, is an attempt to combat growing energy problems.  It changed US energy policy by providing tax incentives and loan guarantees for energy production and savings of various types.

The Energy Policy Act of 2005 (Pub.L. 109-58) is a bill passed by the United States Congress on July 29, 2005, and signed into law by President George W. Bush on August 8, 2005, at Sandia National Laboratories in Albuquerque, New Mexico.

Commercial building deduction

Click to view the full EPACT bill.

The Act created the Energy Efficient Commercial Buildings Tax Deduction, a special financial incentive designed to reduce the initial cost of investing in energy-efficient building systems via an accelerated tax deduction. Under this provision, building owners (or tenants) can write off the complete cost of upgrading a building's indoor lighting, HVAC/hot water and building envelope in the year the new equipment is placed in service, capped at $1.80/square foot. Alternately, the owner (or tenant) can upgrade one of these three systems to earn the Deduction capped at $0.60/square foot. Interior lighting may also be improved using the Interim Lighting Rule, which provides a simplified process to earn the Deduction, capped at $0.30-$0.60/square foot. Improvements are compared to a baseline of ASHRAE 2001 standards.

Many buildings are eligible for tax deductions for improvements completed or planned within the normal course of business, and can thus "free ride" for the new incentives. Achievement of these benefits requires cooperation between the facilities/energy division of a business and its tax department. A tax advisor with engineers on staff may serve as a bridge between these two historically separate business divisions. For municipal buildings, benefits are passed through to the primary designers/architects in an attempt to encourage innovative municipal design.

The Commercial Buildings Tax Deduction expiration date has been extended twice, most recently by the Energy Independence Act of 2007 (EISA). With this extension, the CBTD can be claimed for qualifying projects completed before January 1, 2014

Energy management

The commercial building tax deductions can be used to improve the payback period of a prospective energy improvement investment.

Often the deductions are combined with participation in demand response programs where buildings agree to curtail usage at peak times for a premium.

The most common qualifying projects are in the lighting area. According to the Interim Rules for Lighting Projects, the lighting system energy savings target is a LPD (lighting power density), or watts per square foot, that is 25% to 40% lower than the minimum requirements of ASHRAE/IESNA Standard 90.1–2001. For warehouses, the lighting power density (W/sq. ft.) must be 50% lower than the minimum requirements of ASHRAE Standard 90.1–2001 to be eligible for $0.60 per square foot. Lighting power density (W/sq. ft.) reductions of >25% are ineligible for any tax deduction.

In addition to demonstrating a reduction in lighting power density lower than the requirements for the Standard 90.1–2001, control provisions (for example, automatic lighting shutoff) relating to lighting systems as set forth in the Standard must be met. Bi-level switching must be installed. The lighting system must also meet the minimum requirements for calculated light levels as set forth in the 9th Edition of the IESNA Lighting Handbook.