The Federal Government Is Making Energy-Efficient Roofing Attractive

Small businesses are now able to deduct the full cost of replacing a roof on an existing non-residential building in the year the project was completed instead of depreciating that cost over a 39-year period, as was previously required. Photo: SOPREMA

It is fair to say that Washington, D.C., is far from dull. From the recent Tax Cut and Jobs Act to rolling debates on passing a federal budget, there is a great deal going on at the federal level that impacts the building and roofing industries. In particular, new reforms allow qualifying building owners to expense, or deduct, up to $1 million for the cost of certain building improvements in the year the work is performed, including adding insulation during roof replacement projects to meet or go beyond modern building energy code requirements. The impact can be significant for capital improvement projects. For example, a building owner that expenses the cost of a full roof replacement can reduce the net cost of the entire project by 25 percent to 30 percent.

Commercial Building Roof Replacements

The Tax Cut and Jobs Act, signed into law by President Trump on December 22, 2017, includes a provision that reduces the overall cost associated with re-roofing and significantly improves the cost-effectiveness of commercial roof replacements that comply with building energy codes. The vast majority of state and local governments require minimum insulation levels for both new roofs and roof replacements (but not for roof repairs or recovers). These requirements apply to existing buildings because the most economical time to improve a roof’s thermal performance is when the roof membrane is pulled off and replaced. Also, roof replacements are one of the best opportunities for improving energy efficiency in existing buildings, which account for 40 percent of U.S. energy use.

Starting in 2018, the new federal tax law expands the definition of “qualified real property” under the small business expensing provisions of Internal Revenue Code section 179 to include improvements to existing nonresidential roofs. Section 179 allows businesses to fully expense (deduct) up to $1 million (indexed for inflation after 2018) in one year for qualified business expenses, such as equipment purchases and specific building improvements. With this change, small businesses are now able to deduct — in the year completed — the full cost of replacing a roof on an existing non-residential building instead of depreciating that cost over a 39-year period, as was required under prior law. As a mechanism intended to limit the deduction to small businesses, the benefit is phased out for businesses that spend more than $2.5 million (also indexed for inflation) on qualified equipment and real property. This change takes effect in 2018 and, unlike some provisions of the new law, is permanent.

A typical scenario under which a commercial building roof replacement is required to comply with a building energy code is one where an older building with a low-slope roof has R-11 or R-12 insulation in the roof prior to the roof replacement. The R-12 assumption is based on a U.S. Department of Energy (DOE) study that evaluated the level of existing insulation in commercial building roofs. For most of the country, current building energy codes require roof replacements to have a minimum level of R-25 or R-30, depending on the climate zone.

The average simple payback period for meeting the energy code is 11.6 years, according to a comprehensive energy modeling study completed in 2009 (“Energy and Environmental Impact Reduction Opportunities for Existing Buildings with Low-Slope Roofs,” produced by Covestro).

The payback period is the amount of time it takes for the energy savings to equal the cost of installing the additional insulation. By allowing a building owner to deduct the full cost of the roof replacement, including the cost for installing additional insulation, the net cost of the entire project is reduced by 25 percent to 30 percent, depending on a tax payer’s tax rate. (The Tax Cuts & Jobs Act reduced the corporate tax rate to 21 percent, but the pass-through rates, which are more relevant to small businesses, are closer to 30 percent, which increases the impact of this new deduction.) More importantly, the deduction shortens the average payback period on the cost of installing additional insulation to 8.1 years, making the investment in energy efficiency even more cost effective for the building owner.

Disaster Relief Reforms and Resilient Buildings

Recent maneuvers by Congressional budget writers provided several positive reforms that will impact the resiliency of buildings in some of the most vulnerable parts of the country.

First, Congress passed improvements to the Federal Cost Share Reform Incentive that increases post-disaster federal cost-share with states from 75 percent to as high as 85 percent on a sliding scale based on whether a state has taken proactive steps to improve disaster preparedness. These steps can include the adoption and enforcement of the most recent building codes. This further incentivizes states to maintain robust and current building codes, including the energy code.

Second, under reforms to the Stafford Act, federal disaster relief funds administered by the Federal Emergency Management Agency may be used to replace or restore the function of a facility to industry standards without regard to pre-disaster condition and replace or restore components of the facility not damaged by the disaster where replacement or restoration is required to fully restore the function of a facility. This allows post-disaster funds to be more effectively used to improve the resiliency of damaged buildings and should create opportunities for higher performing roof systems to replace those damaged in disasters.

While the built environment is likely to benefit under recent Congressional action, other policy priorities for the construction and energy efficient industries have been left unresolved. For example, Congress “extended” several clean energy and energy-efficiency related tax provisions, including the Section 179D deduction for commercial building energy efficiency. However, in head-scratching fashion, this and other tax provisions were only extended through December 31, 2017. This means more work is ahead to preserve the policies for the long term and add much needed certainty to the marketplace.

Unpredictable is a polite (and likely understated) description of the policy environment in our nation’s capital. You need not look beyond the recent FY2018 budget deal for an example. Building energy efficiency advocates spent countless hours educating lawmakers on the importance of funding federal research led by the Department of Energy (DOE). Fearing a federal budget that would cripple these vital programs by slashing budgets, advocates saw an 11 percent increase to the DOE’s Office Energy Efficiency and Renewable Energy budget, which leads research on building energy performance. And while history is a poor predictor of future success, recent action impacting buildings demonstrates that policymakers understand the need for strong policies that encourage and lead to more efficient and resilient construction.

XPSA Supports Montreal Protocol Amendment Accelerating HFC Phase-Out

The Extruded Polystyrene Foam Association (XPSA) , whose members include the major extruded polystyrene foam (XPS) insulation manufacturers in North America, has announced its support for the Montreal Protocol amendment hastening the global phase-down of hydrofluorocarbons (HFCs) to protect the stratospheric ozone and mitigate the effects of climate change.
 
XPSA has expressed support for both the Montreal Protocol and the Environmental Protection Agency’s (EPA’s) Significant New Alternatives Policy (SNAP) Program, under which XPS manufacturers are transitioning out of using HFC-134a. XPS manufacturers have met or exceeded the timelines set forth and will continue to do so based on science and environmental stewardship. XPSA’s members are committed to eliminating HFCs from their products by the EPA SNAP deadline of January 1, 2021.
 
“The phase-out of HFCs will be a milestone within the XPS industry’s stewardship and sustainability objectives and a progression of our ongoing search for technology improvements to better serve our customers and protect our environment,” said John Ferraro, executive director of XPSA.
 
Replacing HFC-134a requires a reconsideration of the entire chemical makeup of XPS insulation products. The EPA understands that XPS manufacturers need time to identify alternatives to HFC-134a; assess and address risks of alternative components; analyze capabilities and make modifications to equipment, facilities, manufacturing processes, and worker safety and training programs; work with suppliers on equipment and component needs; build and engage in pilot- and plant-scale trials; obtain permits, approvals, and financing; and address commercialization issues such as ensuring production capacity to meet global market demand.
 
XPS’s properties heighten a structure’s energy efficiency, which both the U.S. Department of Energy (DOE) and EPA acknowledge to be one of the greenhouse gas (GHG) emissions reduction strategies. In fact, ASHREA and XPS industry estimates indicate that homes using XPS insulation sheathing save enough energy in the first year to heat over 500,000 homes in the U.S. XPS reduces GHG emissions by lowering the energy consumption of a structure, which diminishes the amount of energy spent in the distribution of energy, the delivery of which requires 3.34 units of energy to send 1 unit to a building for user consumption. Environmental Product Declaration (EPD) data shows that the reduced energy consumption due to XPS foam pays back the embedded CO2 multiple times over the life of a building.

DOE Recognizes West Palm Beach for Improving Energy Efficiency

As part of the Obama Administration’s efforts to cut energy waste in the nation’s buildings, the U.S. Department of Energy (DOE) recognized the city of West Palm Beach for their leadership in improving energy efficiency across 1.4 million square feet of building space by 20 percent within 10 years. The city of West Palm Beach has met their Better Buildings Challenge goal of 20 percent energy reduction and yesterday Mayor Jeri Muoio announced a new 15 percent energy reduction goal for 2025.

“West Palm Beach’s constant drive toward energy efficiency demonstrates to other cities across the U.S. what is possible with energy efficiency,” says Maria T. Vargas, director of the Department of Energy’s Better Buildings Challenge. “When cities lead the way with essential and innovative energy efficiency upgrade projects, they are demonstrating the leadership that we need to carry this nation’s buildings into the 21st century.”

The city of West Palm Beach is planning on committing a number of new buildings to receive a variety of energy efficiency upgrades, adding on approximately 130,000 square feet of building space to the Better Buildings Challenge.

The department toured the city’s Evernia Garage, LED street light retrofits and the East Central Water Reclamation Facility. The East Central Regional Water Reclamation Facility receives wastewater from the cities of West Palm Beach, Lake Worth and Riviera Beach, as well as the town of Palm Beach and Palm Beach County. The new Biosolids Improvement Project is currently under construction, and city of West Palm Beach announced that the site will be added to its portfolio of Better Buildings Challenge projects, along with Fire Stations No. 4 and No. 8, which will be rebuilt to meet LEED Silver standards and the Banyan Garage, which will be transformed into an iconic, multipurpose building, targeting LEED Gold or Platinum.

“Energy efficiency projects accomplish so many of our goals. We can improve public safety, reduce maintenance costs, reduce our carbon footprint and save money on our energy bills, which provides more resources for other programs that serve the citizens of West Palm Beach,” says Jeri Muoio, mayor of West Palm Beach. “We are proud to set an even higher efficiency goal with the Better Buildings Challenge, which demonstrates our commitment to these types of collaborative initiatives into the future.”

In 2011 the city initiated a comprehensive upgrade of street lights to new LED technology, which represented 25 percent of the city’s energy expenditure in 2010. The resulting fixture replacements are credited for enhancing public safety, reducing energy consumption and a 54 percent energy savings on streetlights. Through a collaboration with the utility, Florida Power and Light, West Palm Beach is reporting $160,000 per year in energy savings, and is dedicated to funding $2.5 million over five years to retrofit more than 3,000 more streetlights.

As a cornerstone of the President’s Climate Action Plan, the Better Buildings Challenge is aimed at achieving the goal of doubling American energy productivity by 2030 while motivating corporate and public-sector leaders across the country to save energy through commitments and investments. More than 250 organizations are partnering with the Energy Department to achieve 20 percent portfolio-wide energy savings and share successful strategies that maximize efficiency over the next decade. Across the country, partners have shared energy data for more than 32,000 properties and are reporting energy savings of 20 percent or more at 4,500 properties, and 10 percent or more at 12,000 properties. Learn more about Better Buildings Challenge partner results, showcase projects and innovative solutions being shared with others on the DOE’s Better Buildings page.