Increasing Energy Efficiency with New Federal Incentives

By Alyson Kenward

Last week during the State of the Union address, President Obama announced new plans to promote the development of clean energy technology and increase the use of clean energy sources in America. Today he unveiled a detailed strategy to improve the energy efficiency of commercial buildings across the country. The new proposal, known as the “Better Business Initiative,” aims to introduce financial incentives for business owners to upgrade offices, stores, schools, hospitals, shopping malls, and other types of commercial buildings, with the goal of increasing the total energy efficiency in America’s buildings by 20 percent by the end of this decade.

Switching to compact fluorescent light bulbs is one recommended way businesses can increase energy efficiency. Credit: Anton Fomkin/flickr

Aspiring to save business owners an estimated $40 billion dollars by 2020, the Better Business Initiative proposes tax incentives for businesses to upgrade their facilities and to adopt new energy-saving practices in the workplace. The proposal also promotes increased financing opportunities for the commercial sector and offers incentives at the state and municipal level for governments to streamline the standards that will encourage owners to install upgrades in older buildings. Businesses accounted for about 20 percent of all the energy consumed in the America in 2009.

In a press release describing the new initiative, the White House says the plans will not only help reduce greenhouse gas emissions but will also, like other clean energy proposals, create jobs, save money, and reduce the country’s dependence on foreign oil. But compared to other government plans directed towards clean energy, the focus of this initiative is targeted primarily at reducing carbon dioxide (CO2) emissions.

Improving the efficiency of America’s buildings, including homes and industrial complexes, is a low-hanging fruit when it comes to lowering emissions. It makes use of technology that already exists, such as insulation that can retain more heat, more energy efficient appliances, and LEDs or compact fluorescent bulbs that are more efficient than incandescents. Moreover, improving efficiency is expected to save the business-owner — or homeowner and factory owner, whatever the case may be — money on their energy bill.

Most importantly, however, the new program targets one of the largest contributions to global carbon emissions, which is energy that goes into buildings. All told, about 15 percent of global CO2 emissions come from energy consumed in lighting, heating and cooling buildings. In cities, buildings are responsible for up to 80 percent of CO2 emissions. After all, most of the energy going into buildings is in the form of electricity, and a large proportion of global electricity production comes from coal-burning power plants that churn out greenhouse gases. In the U.S., about half of the electrical supply comes from coal power. Though renewable energy sources, like hydro, biomass and wind, also generate electricity, it's in small proportions compared to that coming from coal.

According to a recent report from the National Academy of Sciences:

  • Between 1975 and 2005, the energy used by the commercial sector in America increased by approximately 50 percent.
  • Space heating accounts for 24 percent of commercial energy use, lighting counts for 18 percent, and space cooling accounts for 13 percent.
  • Compact fluorescent light bulbs consume about 75 percent less energy and last about 5 times longer than incandescent bulbs.

What’s hard to understand is why improving building efficiency, if it profits business owners and lowers carbon emissions, hasn’t already become a big priority for businesses.

Research shows that there are actually a number of “market barriers” that deter companies from investing in upgrades. One of the hold-ups has been the discrepancy between who pays the money for the upgrade, and who sees the profits of lower energy bills. In many cases, buildings are owned by landlords that then lease the property to business owners. The landlords are typically the ones responsible for repairs and upgrades, but because the individual businesses pay the energy bills, there actually isn’t much financial incentive for the landlord to increase energy efficiency, and lower the costs for the tenants.

Another common reason that businesses don’t install more efficiency upgrades is that they simply aren’t aware of how much savings they could achieve. For example, it probably isn’t clear to most people that lighting accounts for a whopping 18 percent of the average building’s energy consumption, and that just by switching to LEDs, businesses can save on their monthly electricity bills.

The fact that these market barriers exist is one of the reasons why the government is now getting involved. Some of the incentives proposed by the White House are designed to overcome such barriers, and may help kickstart a higher pace of upgrades in American businesses. 

The federal government isn't the only key player in helping businesses to reduce their energy consumption by upgrading their infrastructure. For example, the nonprofit Clinton Global Initiative has already established a building retrofit program that has begun upgrading more than 200 buildings in cities like Houston, Chicago, and New York. 

The emissions reduction gains that could be realized by improving the energy efficiency of commercial buildings won’t be enough to lower CO2 emissions to the levels that climate scientists say is necessary in order to stabilize global carbon emissions. But if, by 2020, the energy efficiency of American businesses has improved by 20 percent, it will help take a sizable chunk out of the country’s contribution to global emissions.